ML15133A218
| ML15133A218 | |
| Person / Time | |
|---|---|
| Site: | Wolf Creek  |
| Issue date: | 05/05/2015 |
| From: | Westar Energy |
| To: | Document Control Desk, Office of Nuclear Reactor Regulation |
| Shared Package | |
| ML15133A210 | List: |
| References | |
| RA 15-0047 | |
| Download: ML15133A218 (84) | |
Text
WESTAR ENERGY 2014 Annual Report Westar Energy.
Taking energy to heart.
WESTAR ENERGY 2014 ANNUAL REPORT Table of Contents Letter to Shareholders 1 2014 Financial Measures 6 Form 10-K 7 Shareholder Information and Assistance 80 Corporate Information 80 Directors and Officers 81 Westar Energy is a power company. We're also Kansans who work every day to create a strongerfuture for our state.
We provide electricity to more than halfour state's population.
That electricitypowers their lives, charges the technology that drives innovation, and empowers them to build a better place
,br everyone. That's how we push Kansasjorward.
Our role in pushing Kansas forward starts with generating electricity, but grows with action in our communities.
We're proud of our commitment to our communities,from supporting science, technology, engineering and math education to the 70 community projects our Westar Energy Green 7eiam tackles each year. This is what it means to take energy to heart and it all starts with our employees. They are the faces of Westar Energy in our communities and play a vital role in making Kansas better.
We all take for granted the reliability and convenience of electricity. Lights come on at the flip of a switch.
Cell phones, tablets and laptops are charged and ready to keep us connected. Our milk stays cold and our coffee is hot, all thanks to the convenience of electricity. The electricity we generate, distribute and serve has real, tangible value for our shareholders and customers. But we're not in business just to provide electricity, we have a greater purpose. Electricity is what we make but it's not our "why."
Why are we in business? To help push Kansas forward while being good stewards of your investment.
How do we do that? By providing safe, clean, affordable and reliable energy that supports the health and well-being of Kansas communities. We are proud of where we work, where we live and the role we play in Kansas' future, and this translates into a good investment for our shareholders.
Our mission is simple: We power lives - one home, one business, one community at a time - with safe, clean, reliable electricity and the highest dedication to our customers.
We take it to heart every day because we know being a good neighbor isn't just about providing power, it's about the lives we touch and the decisions we make to move our company and your investment forward.
I'm pleased to share our accomplishments in 2014 and plans for 2015.
TAKING CUSTOMERS TO HEART We're honored to be our customers' energy partner.Our goal always is to treat customers with respect, genuinely caring for them. If given a choice, we want them to choose us.
We must continually improve our customers' satisfaction. To get there, our employees have mapped every point where we interact with our customers, from our meter readers to our linemen to our call center representatives. Every month, we bring employees together from across the company to review those interactions, identify pain points for our customers and make immediate improvements as we look at our service through our customers' eyes.
We also leverage technology to make our customer experience better. Everyone is living busier on-the-go lives, so we launched a mobile app this year. The ability to pay bills and change service is at our customers' fingertips with the device of their choice. Our efforts will focus on providing options through which our customers choose how they want to do business with us.
On those occasions where a storm knocks out the power, nothing is more frustrating than being in the dark, not knowing when the lights will come on. Our customers now have access to a new interactive outage map on their phones or tablets, allowing them to hone in on outage areas, right down to their street. Those who
WESTAR ENERGY 2014 ANNUAL REPORT choose can sign up to have us text them to let them know when their power is out, when we expect it will be restored, and then confirming for them that their lights are back on, in case they're not home at the time.
We're installing digital meters to provide customers with more choice and control. Digital meters let customers track and manage their energy purchases and even alerts them when they meet their defined energy budget criteria. These digital meters also alert us to power outages, helping restore service more quickly and efficiently. They also save money and resources by allowing us to perform tens of thousands of service calls without having to send out a crew or service truck.
These changes make our business easier for our customers. If given a choice, we want our customers to choose us because we listen and adapt to changing needs Meet Javier Garcia, a chemical engineer at our that power their lives - one home, one business and one community at a time.
Jeffrey Energy Center (JEC).Javierhas traveled the globe to develop water treatment systems in countries with no clean water.His experience TAKING COMMUNITIES TO HEART helps us protect the water we borrowand return We will be good neighbors and serve as civic leadersand environmentalstewards.
to nature at our power plants. Together, we make Kansas a betterplace to live.
At our Jeffrey Energy Center, we recently rebuilt systems to remove almost all the sulfur dioxide emissions. Recognizing the need to release clean water from our power plants, we sought a natural and cost-effective way to ensure our water releases met our high environmental standards. Our engineers determined a wetlands project could likely fit the bill, so they built a small, pilot wetland to test their analysis. When they were proved right, they expanded the idea with a full-scale wetlands - and earned Westar the Edison Electric Institute's Edison Award, the electric power industry's honor for innovation. We're incredibly proud of our employees' creativity and ingenuity to develop a natural solution that will save our customers tens of millions of dollars, and help conserve the environment.
Last summer, we worked closely with landowners, communities, government leaders and environmental organizations as we constructed a high-capacity transmission line in southcentral Kansas. We built the line as part of a joint venture: Prairie Wind Transmission. The line will serve as an electric energy super highway between eastern and western Kansas, promoting renewable energy in Kansas, providing greater access to lower-cost electricity and improved reliability throughout the region. We completed the project several months ahead of schedule and $60 million under budget.
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While more energy companies seemingly double down on just one or two ways to make electricity, we continue to believe in the merits of a diversified energy portfolio. In December, we announced we will add another 200 megawatts (MW) of wind energy to our renewable energy portfolio, bringing the total to nearly 1100 MW. Diversification contributes to increased reliability and more stable prices for our customers.
It's been four years since we last filed a general rate application. This year we filed a request with the Kansas Corporation Commission to increase our prices to reflect the costs of meeting tough new environmental mandates and to provide more reliable service.
Upgrades and ongoing maintenance are much less expensive than building new plants and are among the many ways we keep our costs under control.
Making these upgrades maintains the diversity of our power plant portfolio, and preserves hundreds of jobs - jobs vital to our Kansas communities and that infuse the local tax bases with nearly $125 million a year, much of which funds our schools. Meet Naomi Peterson,a Westar Energy retiree from Emporia.She has been a Westar Green Our customers depend on their electricity being reliable. While our ReliabiliTree* Team volunteer since the Green Team began tree trimming program has cut tree-related outages by two-thirds - even more in 1989. In 2014, the Green Team celebrated in some communities - we also must maintain our equipment. We want to be 25 years of giving back to the communities we proactive and replace outdated equipment that causes power outages, particularly serve. Completing about 70 projectsper year in storms. For some of our business customers, even a blink in their electricity on weekends and evenings, the Green Team can cost them thousands of dollars in lost inventory and productivity. In addition collaborates with conservationgroups, non-profit to the inconvenience, power outages also create health and safety risks to our agencies and schools to enhance and foster an communities. Taking a proactive approach helps keep those to a minimum. understandingof Kansas' natural resources.
Our customers also tell us they would like choices in how they use and pay for their electricity. Today our customers have only one rate plan, so we are asking our regulators for permission to offer new pricing plans that give customers choice in how they budget for and use electricity. One of the plans is designed specifically to reduce the volatility associated with higher summer bills. Another rewards customers who can spread out the power they use instead of using a lot of it at once, which reduces demand on equipment.
Even with a necessary increase in prices, our electricity provides tremendous value: not only economic - most of our customers can power their entire home for a full day for about the cost of a gallon and a half of gas - but also because of what it provides us and our communities in terms of safety, security, comfort, productivity and convenience.
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WESTAR ENERGY 2014 ANNUAL REPORT TAKING EMPLOYEES TO HEART We're proud of our people and our positive culture. We applaudtheir dedicationto safety, diversity, leadership,innovation and doing what is right.
Safety continues to be at the forefront of everything we do. In 2014, Westar Energy was selected by EHS Today as one of America's Safest Companies. EHS Today highlighted our commitment to protecting our employees, the environment and the communities we serve.
Focusing on the future is another theme that runs deep at Westar Energy. In the
_____ ,_,_....._ coming decade, nearly half our employees will be eligible to retire. We want to attract the best and brightest to fill those jobs, so we want to do our part to help Cody Taylor, equipment operator, works safely kids prepare, by graduating with the aptitude, curiosity and work ethic they'll at our Jeffrey Energy Center. Westar Energy need to fill hundreds of science, technology and engineering-related jobs.
was selected by EHS Today as one of America's Last year, we expanded our partnerships with area schools, all while upgrading the Safest Companies. electricity grid. In Topeka, we had five substations that had reached obsolescence and could be replaced by a single modern substation. Replacing infrastructure in an urban area is always a challenge, but our employees, working with education leaders, developed a plan to hide the new state-of-the-art substation right in plain sight by designing it as Westar's Education Station, an outdoor classroom where students learn the science behind electricity. It provides customers with more reliable electric service and supports economic growth in our community as demand for electricity continues to grow.
We also completed our first full year supporting the Westar Energy Power Lab at Wichita State University, an expanded and updated laboratory where WSU College of Engineering students learn about power systems.
Ultimately, ours is a business that can only be as successful as the communities we have the privilege of serving. Providing time and resources for our employees to demonstrate leadership through volunteer service not only builds greater job satisfaction and fulfilling careers for our dedicated staff, but also helps push Kansas forward.
Kelly Harrison,vp transmission,and Farrisfibril, director,distributionengineering, review plans at the Education Station, an electricsubstation which includes color-coded equipment to help teach students about the science behind electricity.
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TAKING INVESTORS TO HEART COMPOUND EARNINGS PER SHARE GROWTH We balanceshort-term gains with long-term plans to deliver consistentcompetitive value for our investors who have entrustedus with theirsavings.
We recognize the trust you put in us. I'm pleased to report that we ended 2014 with a total shareholder return of 33% - from both higher dividends and increased stock price. On a relative basis too, we outperformed our peers. $2M0
$1.75--
Our earnings per share continue to improve with compound annual growth $1.23 - -
of 7.3% the past four years. Last year we raised our common dividend, and I'm pleased to report that just last month your board of directors expressed confidence in our business by again increasing the dividend for 2015. Our 2010 2011 2012 2013 2014 4
market capitalization passed the $5 billion mark last year, too, and our secured credit ratings improved to A2/A.
We reduced costs to our customers through gains made in wholesale energy COMPOUND DIVIDEND GROWTH markets. We adjusted our prices with regulators to match costs. Continually SI*50 5 1 1 1 1 1..............
looking at our business processes is imperative. It takes commitment, persistent follow-through and resolve to develop new expertise. In 2015, we'll continue $ 1 .4 0 .. . ... . . . .. .. . .. ... ..... .... . .. . .. . .
using smart tools to improve efficiency.
We continue to make progress and grow your investment by sticking to what we know best; powering lives, with dedication to our core values. Mark Twain ýI.20 - -
said, "Even if you're on the right track, you'll get run over if you just sit there."
So this year, we've added "Adaptability" to our core values of safety, integrity and accountability.
2010 2011 20!2 2013 2014 20153 nTAdkoted MARKET CAPT Thank you for your continued investment and confidence.
Sincerely, WESTAR'S MARKET CAPITALIZATION Mark A. Ruelle PresidentandChief Executive Officer 2010 2011 2012 2013 2014 5
WESTAR ENERGY 2014 ANNUAL REPORT 2014 Financial Measures 2014 2013 FINANCIAL DATA (Dollarsin Millions)
INCOME HIGHLIGHTS Revenues .......................................................................... $2,602 $2,371 Net income ........................................................................ 322 301 Net income attributable to Westar Energy, Inc ....................................... 313 293 BALANCE SHEET HIGHLIGHTS Total assets ....................................................................... $10,347 $9,597 Com mon stock equity .............................................................. 3,295 3,063 Capital structure:
Com m on equity .............................................................. 49% 47%
Noncontrolling interests ...................................................... <1% <1%
Long-term debt, including VIEs ................................................ 51% 53%
OPERATING DATA Sales (Thousands of MWh)
Retail ......................................................................... 19,788 19,496 W holesale .................................................................... 9,544 8,593 Custom ers ......................................................................... 698,000 693,000 COMMON STOCK DATA PER SHARE HIGHLIGHTS Basic earnings per common share .................................................. $2.40 $2.29 Dividends declared per common share ............................................. $1.40 $1.36 Book value per share ............................................................... $25.02 $23.88 STOCK PRICE PERFORMANCE Common stock price range:
High .......................................................................... $43.15 $34.96 Low .......................................................................... $31.67 $28.59 Stock price at year end ............................................................. $41.24 $32.17 Average equivalent common shares outstanding (in thousands) ..................... 130,015 127,463 Dividend yield (based on year end annualized dividend) ............................. 3.4% 4.2%
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 1O-K
[X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2014 OR FD TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-3523 WESTAR ENERGY, INC.
(Exact name of registrant as specified in its charter)
Kansas 48-0290150 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number) 818 South Kansas Avenue, Topeka, Kansas 66612 (785) 575-6300 (Address, including Zip code and telephone number, including area code, of registrant's principal executive offices)
Securities registered pursuant to section 12(b) of the Act:
Common Stock, par value $5.00 per share New York Stock Exchange (Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to section 12(g) of the Act: None Indicate by check mark whether the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Act). Yes [K No D]
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [] No 7X Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [] No D Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes E] No D Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. I]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Act). Check one:
Large accelerated filer FX Accelerated filer F] Non-accelerated filer El Smaller reporting company D Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [] No X]
The aggregate market value of the voting common equity held by non-affiliates of the registrant was approximately $4,936,929,569 at June 30, 2014.
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
Common Stock, par value $5.00 per share 132,137,563 shares (Class) (Outstanding at February 17, 2015)
DOCUMENTS INCORPORATED BY
REFERENCE:
Description of the document Part of the Form 10-K Portions of the Westar Energy, Inc. definitive proxy statement Part III (Item 10 through Item 14) to be used in connection with the registrant's 2015 Annual (Portions of Item 10 are not incorporated Meeting of Shareholders by reference and are provided herein) 7
WESTAR ENERGY 2014 ANNUAL REPORT TABLE OF CONTENTS Page PART I Item 1. B u sin ess ..................................................................................................... 11 Item lA . R isk Factors .................................................................................................. 16 Item LB. Unresolved Staff Com m ents .................................................................................... 19 Item 2. P roperties .................................................................................................... 20 Item 3. Legal Proceedings ............................................................................................. 21 Item 4. M ine Safety Disclosures ....................................................................................... 21 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ........................................... 21 Item 6. Selected Financial D ata ........................................................................................ 22 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................. 22 Item 7A. Quantitative and Qualitative Disclosures About M arket Risk ....................................................... 35 Item 8. Financial Statem ents and Supplem entary Data ................................................................... 37 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ............................ 73 Item 9A . Controls and Procedures ....................................................................................... 73 Item 9B . O ther Inform ation ............................................................................................ 73 PART III Item 10. Directors and Executive Officers of the Registrant ................................................................ 73 Item 11. Executive C om pensation ...................................................................................... 73 Item 12. Security Ownership of Certain Beneficial Owners and Management ................................................ 73 Item 13. Certain Relationships and Related Transactions .................................................................. 73 Item 14. Principal Accountant Fees and Services .......................................................................... 73 PART IV Item 15. Exhibits and Financial Statem ent Schedules ...................................................................... 74 Sig n atures ............................................................................................................. 79 8
GLOSSARY OF TERMS The following is a glossary of frequently used abbreviations or acronyms that are found throughout this report.
Abbreviation Abbreviation or Acronym Definition or Acronym Definition AFUDC Allowance for funds used during LTISA Plan Long-Term Incentive and Share construction Award Plan ARO Asset retirement obligation MATS Mercury and Air Toxics Standards BACT Best Available Control Technology MMBtu Millions of British thermal units BNSF BNSF Railway Company Moody's Moody's Investors Service Btu British thermal units MW Megawatt(s)
CCB Coal combustion byproducts MWh Megawatt hour(s)
CO Carbon monoxide NAAQS National Ambient Air Quality Standards CO2 Carbon dioxide NDT Nuclear Decommissioning Trust COLI Corporate-owned life insurance NEIL Nuclear Electric Insurance Limited CSAPR Cross-State Air Pollution Rule NOx Nitrogen oxides CWA Clean Water Act NRC Nuclear Regulatory Commission DOE Department of Energy PCB Polychlorinated biphenyl DSPP Direct Stock Purchase Plan PM Particulate matter ECRR Environmental Cost Recovery Rider PRB Powder River Basin EPA Environmental Protection Agency Prairie Wind Prairie Wind Transmission, LLC EPS Earnings per share PSD Prevention of Significant Deterioration FERC Federal Energy Regulatory Commission RECA Retail energy cost adjustment Fitch Fitch Ratings RSU Restricted share unit GAAP Generally Accepted Accounting RTO Regional Transmission Organization Principles S&P Standard & Poor's Ratings Services GHG Greenhouse gas S&P 500 Standard & Poors 500 Index IM Integrated Marketplace S&P Electric Utilities Standard & Poor's Electric Utility Index IRS Internal Revenue Service SEC Securities and Exchange Commission JEC Jeffrey Energy Center So, Sulfur dioxide KCC Kansas Corporation Commission SPP Southwest Power Pool, Inc.
KCPL Kansas City Power & Light Company SSCGP Southern Star Central Gas Pipeline KDHE Kansas Department of Health VaR Value-at-Risk and Environment KGE Kansas Gas and Electric Company VIE Variable interest entity La Cygne La Cygne Generating Station Wolf Creek Wolf Creek Generating Station 9
WESTAR ENERGY 2014 ANNUAL REPORT FORWARD-LOOKING STATEMENTS " the impact of changing laws and regulations relating to air and greenhouse gas (GHG) emissions, water emissions, waste Certain matters discussed in this Annual Report on Form 10-K are management and other environmental matters, "forward-looking statements." The Private Securities Litigation
" risks associated with execution of our planned capital expenditure Reform Act of 1995 has established that these statements qualify for program, including timing and receipt of regulatory approvals safe harbors from liability. Forward-looking statements may include necessary for planned construction and expansion projects as well words like we "believe," "anticipate:' "target, "expect, "estimate,'
as the ability to complete planned construction projects within the "intend" and words of similar meaning. Forward-looking statements terms and time frames anticipated, describe our future plans, objectives, expectations or goals. Such
" cost, availability and timely provision of equipment, supplies, statements address future events and conditions concerning matters labor and fuel we need to operate our business, such as, but not limited to:
" availability of generating capacity and the performance of our
" amount, type and timing of capital expenditures, generating plants,
" earnings, " changes in regulation of nuclear generating facilities and nuclear
" cash flow, materials and fuel, including possible shutdown or required
" liquidity and capital resources, modification of nuclear generating facilities,
" litigation, " additional regulation due to Nuclear Regulatory Commission
" accounting matters, (NRC) oversight to ensure the safe operation of Wolf Creek, either
" possible corporate restructurings, acquisitions and dispositions, related to Wolf Creek's performance, or potentially relating to
" compliance with debt and other restrictive covenants, events or performance at a nuclear plant anywhere in the world,
" interest rates and dividends, " uncertainty regarding the establishment of interim or permanent
" environmental matters, sites for spent nuclear fuel storage and disposal,
" regulatory matters,
" homeland and information and operating systems security
- nuclear operations, and considerations,
- the overall economy of our service area and its impact on our " changes in accounting requirements and other accounting matters, customers' demand for electricity and their ability to pay for service.
" changes in the energy markets in which we participate resulting What happens in each case could vary materially from what we from the development and implementation of real time and next expect because of such things as: day trading markets, and the effect of the retroactive repricing of transactions in such markets following execution because
" risks related to operating in a heavily regulated industry that is of changes or adjustments in market pricing mechanisms by subject to unpredictable political, legislative, judicial and regulatory regional transmission organizations (RTOs) and independent developments, which can impact our operations, results of system operators, operations, and financial condition, " reduced demand for coal-based energy because of actual
" the difficulty of predicting the magnitude and timing of changes or potential climate impacts and development of alternate in demand for electricity, including with respect to emerging energy sources, competing services and technologies and conservation and energy " current and future litigation, regulatory investigations, proceedings efficiency measures, or inquiries,
" the impact of weather conditions, including as it relates to sales of " cost of fuel used in generation and wholesale electricity prices, and electricity and prices of energy commodities, " other factors discussed elsewhere in this report, including in "Item
" equipment damage from storms and extreme weather, IA. Risk Factors" and "Item 7. Management's Discussion and
" economic and capital market conditions, including the impact Analysis of Financial Condition and Results of Operations," and of inflation or deflation, changes in interest rates, the cost and in other reports we file from time to time with the Securities and availability of capital and the market for trading wholesale energy, Exchange Commission (SEC).
" the impact of changes in market conditions on employee benefit liability calculations and funding obligations, as well as actual and These lists are not all-inclusive because it is not possible to predict assumed investment returns on invested plan assets, all factors. This report should be read in its entirety. No one section
" the impact of changes in estimates regarding our Wolf Creek of this report deals with all aspects of the subject matter. The reader Generating Station (Wolf Creek) decommissioning obligation, should not place undue reliance on any forward-looking statement,
" the existence or introduction of competition into markets in as forward-looking statements speak only as of the date such which we operate, statements were made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement was made.
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ITEM 1. BUSINESS The percentage of our retail electricity sales by customer class was as follows.
GENERAL YearEnded December 31, 2014 2013 2012 Overview Residential .................................. 34% 34% 34%
Commercial .................................. 38% 38% 38%
We are the largest electric utility in Kansas. Unless the context Industrial .................................... 28% 28% 28%
otherwise indicates, all references in this Annual Report on Form 10-K to "the company," "we, "us,' "our" and similar words are to Total ...................................... 100% 100% 100%
Westar Energy, Inc. and its consolidated subsidiaries. The term "Westar Energy" refers to Westar Energy, Inc., a Kansas corporation Generating Capability and Firm Capacity Purchases incorporated in 1924, alone and not together with its consolidated We have 6,645 megawatts (MW) of generating capability in service.
subsidiaries. See "Item 2. Properties" for additional information about our We provide electric generation, transmission and distribution generating units. Further, we purchase electricity pursuant to long-term contracts from renewable generation facilities with an installed services to approximately 698,000 customers in Kansas. Westar design capacity of 521 MW Our generating capability and net Energy provides these services in central and northeastern Kansas, generation by fuel type are summarized below.
including the cities of Topeka, Lawrence, Manhattan, Salina and Hutchinson. Kansas Gas and Electric Company (KGE), Westar Percent Capability Percent of Net Generation ofTotal Energy's wholly-owned subsidiary, provides these services in south- FuelType (MW) Total Capability (MWh) Net Generation central and southeastern Kansas, including the city of Wichita. Both Coal ........................ 3,415 48% 19,495,473 7196 Westar Energy and KGE conduct business using the name Westar Nuclear ..................... 549 8% 4,022,443 15%
Energy. Our corporate headquarters is located at 818 South Kansas Natural gas/diesel ............ 2,532 35% 1,379,927 5%
Avenue, Topeka, Kansas 66612. Renewable .................. 670 9% 2,393,744 9%
Total ...................... 7,166 100% 27,291,587 100%
Strategy We expect to continue operating as a vertically integrated, regulated, electric utility. Significant elements of our strategy include main- We have entered into two unrelated renewable energy purchase taining a flexible and diverse energy supply portfolio. In doing so, agreements. Under each agreement, we plan to purchase an additional 200 MW of installed designed capacity, for a total of 400 we continue to make environmental upgrades to our coal-fired MW. One agreement is to provide this generating capability by the power plants, develop renewable generation, build and upgrade our electrical infrastructure and develop systems and programs with end of 2015 while the other is to provide additional generating regard to how our customers use energy and interact with us. capability by the end of 2016.
Our aggregate 2014 peak system net load of 5,226 MW occurred in OPERATIONS August 2014. Because of the intermittent nature of wind generation, only 58 MW of net accredited generating capacity is associated with General our wind generation facilities. Our net accredited generating As noted above, we supply electric energy at retail to customers in capacity, combined with firm capacity purchases and sales and Kansas. We also supply electric energy at wholesale to municipalities potentially interruptible load, provided a capacity margin of 19%
and electric cooperatives in Kansas, and have contracts for the sale above system peak responsibility at the time of our 2014 peak system or purchase of wholesale electricity with other utilities. net load, which satisfied Southwest Power Pool, Inc. (SPP) planning Following is the percentage of our revenues by customer requirements.
classification. Classification of customers as residential, commercial Under wholesale agreements, we provide firm generating capacity and industrial requires judgment and our classifications may be to other entities as set forth below.
different from other companies. Assignment of tariffs is not Utility-' Capacity (MW) Expiration dependent on classification.
Midwest Energy, Inc ................................ 75 December 2015 YearEnded December31, 2014 2013 2012 Midwest Energy, Inc ................................ 120 May 2017 Residential .................................. 31% 31% 32% Midwest Energy, Inc ................................ 35 May 2017 Com mercial .................................. 28% 28% 28% Mid-Kansas Electric Company, LLC .................... 174 January 2019 Industrial .................................... 16% 16% 16% Kansas Power Pool ................................. 59 December 2022 Wholesale ................................... 15% 15% 14% Midwest Energy, Inc ................................ 150 May 2025 Transm ission ................................. 9% 9% 9% Other ............................................ 3 May2015 Other ....................................... 1% 1% 1%
Total ........................................... 6 16 Total ...................................... 100% 100% 100%
- " Under a wholesale agreement that expires inrMay 2039, we provide base load capacity to the city of McPlherson, Kansas, and in return the cityv provides peaking capacity to us. During 2014, we provided approximnately 89 MW to, and received approximately 148 MWlfron, the citsY iccainount of base load capacity provided to the city is based on a fixed percentage of its annualpeak s)ystem load. Vie city is a fidl requiremnents customer of Westar Energjy. Vie agreencent for the city to provide capacity to us is treated as a capitallease.
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WESTAR ENERGY 2014 ANNUAL REPORT Fossil Fuel Generation During 2014, the average delivered cost of coal consumed in the The effectiveness of a fuel to produce heat is measured in British Lawrence units was approximately $1.68 per MMBtu, or $29.81 per thermal units (Btu). The higher the Btu content of a fuel, the smaller ton. The average delivered cost of coal consumed in the Tecumseh volume of fuel required to produce a given amount of electricity. We units was approximately $1.67 per MMBtu, or $29.75 per ton.
measure the quantity of heat consumed during the generation of Natural Gas electricity in millions of British thermal units (MMBtu).
We use natural gas as a primary fuel at our Gordon Evans, Murray Coal Gill, Hutchinson, Spring Creek and Emporia Energy Centers, at the Jeffrey Energy Center (JEC): The three coal-fired units at JEC have State Line facility and in the gas turbine units at Tecumseh Energy an aggregate capacity of 2,155 MW, of which we own or consolidate Center. We can also use natural gas as a supplemental fuel in the through a variable interest entity (VIE) a combined 92% share, or coal-fired units at Lawrence and Tecumseh Energy Centers. During 1,983 MW We have a long-term coal supply contract with Alpha 2014, we consumed 15.3 million MMBtu of natural gas for a total Natural Resources, Inc. to supply coal to JEC from surface mines cost of $87.1 million, or approximately $5.71 per MMBtu. Natural located in the Powder River Basin (PRB) in Wyoming. The contract gas accounted for approximately 6% of the total MMBtu of fuel we contains a schedule of minimum annual MMBtu quantities. All of consumed and approximately 17% of our total fuel expense in 2014.
the coal used at JEC is purchased under this contract, which expires From time to time, we may enter into contracts, including the use of December 31, 2020. The contract provides for price escalation based derivatives, in an effort to manage the cost of natural gas. For on certain costs of production. The price for quantities purchased in additional information about our exposure to commodity price excess of the scheduled annual minimum is subject to renegotiation risks, see "Item 7A. Quantitative and Qualitative Disclosures About every five years to provide an adjusted price for the ensuing five Market Risk' years that reflects the market prices at the time of renegotiation. The We maintain a natural gas transportation arrangement for most recent price adjustment was effective January 1,2013. Hutchinson Energy Center with Kansas Gas Service. The agreement The BNSF Railway Company (BNSF) and Union Pacific Railroad has historically expired on April 30 of each year and is renegotiated Company transport coal to JEC under a long-term rail transportation for an additional one year term. We meet a portion of our natural contract. The contract term continues through December 31, 2020, gas transportation requirements for Gordon Evans, Murray Gill, at which time we plan to enter into a new contract. The contract Lawrence, Tecumseh and Emporia Energy Centers through firm natural gas transportation capacity agreements with Southern Star price is subject to price escalation based on certain costs incurred by the railroads. Central Gas Pipeline (SSCGP). We meet all of the natural gas transportation requirements for the State Line facility through a The average delivered cost ofcoal consumed at JEC during 2014 was firm transportation agreement with SSCGP. The firm transportation approximately $1.77 per MMBtu, or $29.16 per ton. agreement that serves Gordon Evans and Murray Gill Energy Centers expires in April 2020, and the agreement for Lawrence and La Cygne Generating Station (La Cygne): The two coal-fired units at Tecumseh Energy Centers expires in April 2030. The agreement for La Cygne have an aggregate generating capacity of 1,416 MW Our the State Line facility extends through August 2017, while the share of the units is 50%, or 708 MW,of which we either own directly agreement for Emporia Energy Center is in place until December or consolidate through a VIE. La Cygne uses primarily PRB coal but 2028, and is renewable for five-year terms thereafter. We meet all of one of the two units also uses a small portion of locally-mined coal.
the natural gas transportation requirements for Spring Creek Energy The operator of La Cygne, Kansas City Power & Light Company Center through an interruptible month-to-month transportation (KCPL), arranges coal purchases and transportation services for La agreement with ONEOK Gas Transportation, LLC.
Cygne. Approximately 90%, 50% and 15% of La Cygne's PRB coal requirements are under contract for 2015, 2016 and 2017, Diesel respectively. About 95%, 85% and 45% of those commitments under We use diesel to start some of our coal generating stations, as a contract are fixed price for 2015, 2016 and 2017, respectively. As the primary fuel in the Hutchinson No. 4 combustion turbine and in PRB coal contracts expire, we anticipate that KCPL will negotiate our diesel generators. We purchase No. 2 diesel in the spot market.
new supply contracts or purchase coal on the spot market. We maintain quantities in inventory that we believe will allow us to All of the La Cygne PRB coal is transported under KCPI~s rail facilitate economic dispatch of power and satisfy emergency requirements. We do not use significant amounts of diesel in transportation agreements with BNSF through 2018 and Kansas our operations.
City Southern Railroad through 2020. During 2014, our share of average delivered cost of coal consumed at La Cygne was Nuclear Generation approximately $2.06 per MMBtu, or $35.76 per ton. General Lawrence and Tecumseh Energy Centers: Lawrence and Tecumseh Wolf Creek is a 1,168 MW nuclear power plant located near Energy Centers have an aggregate generating capacity of 724 MW Burlington, Kansas. KGE owns a 47% interest in Wolf Creek, or We purchase PRB coal for these energy centers under a contract 549 MW Wolf Creeks operating license, issued by the NRC, is with Arch Coal, Inc. that provides for 100% of the coal requirements effective until 2045. Wolf Creek Nuclear Operating Corporation, an for these facilities through 2017. BNSF transports coal for these operating company owned by each of the plant's owners in energy centers under a contract that expires in December 2020. proportion to their ownership share of the plant, operates the plant. The plant's owners pay operating costs proportionate to their respective ownership share.
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Fuel Supply Other Fuel Matters Wolf Creek has on hand or under contract all of the uranium and The table below provides our weighted average cost of fuel, including conversion services needed to operate through September 2016 and transportation costs.
approximately 70% of the uranium and conversion services needed 2014 2013 2012 after that date through March 2021. The owners also have under Per MMBtu:
contract all of the uranium enrichment and fabrication services Nuclear ................................... $ 0.66 $ 0.75 $ 0.70 required to operate Wolf Creek through March 2027 and September Coal...................................... 1.80 1.82 1.86 2025, respectively. All such agreements have been entered into in Natural gas ................................ 5.71 4.41 3.20 the ordinary course of business. Diesel ..................................... 21.31 22.89 23.12 Allgenerating stations ...................... 1.90 1.91 1.84 Operations and Regulation Per MWh Generation:
Plant performance, including extended or unscheduled shutdowns Nuclear ................................... $ 6.79 $ 7.86 $ 7.28 of Wolf Creek, could cause us to purchase replacement power, rely Coal...................................... 20.04 20.26 20.59 Natural gas/diesel .......................... 62.84 46.38 33.29 more heavily on our other generating units and/or reduce amounts Allgenerating stations ...................... 20.27 20.45 19.65 of power available for us to sell in the wholesale market. Plant performance also affects the degree of regulatory oversight and Our wind production has no associated fuel costs and is, therefore, related costs. In early 2014, Wolf Creek underwent a planned not included in the table above.
maintenance outage. Because the outage was not part of a refueling outage, the related costs were expensed as incurred. Our share of the Purchased Power outage costs were approximately $8.7 million. The next refueling In addition to generating electricity, we also purchase power. Factors and maintenance outage is planned for the first quarter of 2015. that cause us to purchase power include contractual arrangements, Wolf Creek normally operates on an 18-month planned refueling planned and unscheduled outages at our generating plants, favorable and maintenance outage schedule. As authorized by our regulators, wholesale energy prices compared to our costs of production, incremental maintenance costs of planned refueling and main- weather conditions and other factors. In 2014, purchased power tenance outages are deferred and amortized ratably over the period comprised approximately 27% of our total fuel and purchased between planned refueling and maintenance outages. power expense. Our weighted average cost of purchased power per Megawatt hour (MWh) was $37.26 in 2014, $33.63 in 2013 and The NRC evaluates, monitors and rates various inspection $26.41 in 2012.
findings and performance indicators for Wolf Creek based on safety significance. Although not expected, the NRC could Transmission impose an unscheduled plant shutdown due to security or safety Regional Transmission Organization concerns. Those concerns need not be related to Wolf Creek The Federal Energy Regulatory Commission (FERC) requires specifically, but could be due to concerns about nuclear power owners of regulated transmission assets to allow third parties generally or circumstances at other nuclear plants in which we nondiscriminatory access to their transmission systems. We are a have no ownership. member of the SPP RTO and transferred the functional control of See Note 13 of the Notes to Consolidated Financial Statements, our transmission system, including the approval of transmission "Commitments and Contingencies," for additional information service, to the SPP. The SPP coordinates the operation of our regarding our nuclear operations. transmission system within an interconnected transmission system that covers all or portions of nine states. The SPP collects revenues Wind Generation for the use of each transmission owner's transmission system.
As discussed in Note 13 to the Consolidated Financial Statements, Transmission customers transmit power purchased and generated "Commitments and Contingencies:' Kansas law specifies that a for sale or bought for resale in the wholesale market throughout the portion of our energy supply resources be from renewable sources. entire SPP system. Transmission capacity is sold on a first come/first For us, wind has been the primary source of renewable energy. As of served non-discriminatory basis. All transmission customers are December 31, 2014, we owned approximately 149 MW of designed charged rates applicable to the transmission system in the zone installed wind capacity and had under contract the purchase of where energy is delivered, including transmission customers that wind energy produced from approximately 915 MW of designed may sell power inside our certificated service territory. The SPP installed wind capability. Of the 915 MW under contract, 515 MW then distributes as revenue to transmission owners the amounts it are currently in operation and 400 MW are associated with collects from transmission users less an amount it retains to cover agreements that are scheduled to deliver power beginning in late administrative expenses.
2015 and 2016.
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WESTAR ENERGY 2014 ANNUAL REPORT Southwest Power Pool Integrated Market Regulation and Our Prices The SPP launched their new Integrated Marketplace (IM) in March Kansas law gives the Kansas Corporation Commission (KCC) 2014. The IM is similar to organized power markets currently general regulatory authority over our retail prices, extensions and operating in other RTOs. The IM impacts how we commit and sell abandonments of service and facilities, the classification of accounts, the output from our generation facilities and buy power to meet the the issuance of some securities and various other matters. We are needs of our customers. The SPP has the authority to start and stop also subject to the jurisdiction of FERC, which has authority over generating units participating in the market and selects the lowest wholesale electricity sales, including prices, the transmission of cost resource mix to meet the needs of the various SPP customers electric power and the issuance of some securities. We are subject to while ensuring reliable operations of the transmission system. the jurisdiction of the NRC for nuclear plant operations and safety.
Regulatory authorities have established various methods permitting Transmission Investments adjustments to our prices for the recovery of costs. For portions of We own a 50% interest in Prairie Wind Transmission, LLC (Prairie our cost of service, regulators allow us to adjust our prices Wind), which is a joint venture between us and Electric Transmission periodically through the application of formulae that track changes America, LLC, which itself is a joint venture between affiliates of in our costs, which reduce the time between making expenditures American Electric Power Company, Inc. and Berkshire Hathaway or investments and reflecting them in the prices we charge customers.
Energy Company. In 2014, Prairie Wind completed construction However, for the remaining portions of our cost of service, we must on, and energized, a 108 mile 345 kV double-circuit transmission file a general rate review, which lengthens the period of time line that is now being used to provide transmission service in between when we make and recover expenditures and a return on the SPP. our investments. See Note 3 of the Notes to Consolidated Financial Statements, "Rate Matters and Regulation;' for information regarding In 2011, the FERC issued Order No. 1000, which revised the our rate proceedings with the KCC and FERC.
FERC's existing regulations governing the process for planning enhancements and expansions of the electric transmission grid, Environmental Matters along with the corresponding process for allocating the costs of such We are subject to various federal, state and local environmental laws expansions. Among other things, Order No. 1000 sets forth a and regulations. Environmental laws and regulations affecting our framework pursuant to which certain transmission projects that are operations are overlapping, complex, subject to changes, have approved by the RTOs, including the SPP, become subject to a become more stringent over time and are expensive to implement.
competitive bidding process whereby qualified entities can build Such laws and regulations relate primarily to air quality, water and own the transmission facilities, even if the entities are not quality, the use of water and the handling, disposal and clean-up of located in the service territory covered by the transmission facilities. hazardous and non-hazardous substances and wastes, including This process is complicated, and is governed by Order No. 1000 and coal combustion byproducts (CCBs). These laws and regulations the tariff each RTO has with the FERC. In addition, notwithstanding oftentimes require a lengthy and complex process for obtaining the competitive processes created by Order No. 1000, incumbent licenses, permits and approvals from governmental agencies for utilities maintain a right of first refusal for certain transmission new, existing or modified facilities. If we fail to comply with such projects, depending on, among other things, the date by which the laws, regulations and permits, or fail to obtain and maintain projects must be completed, the size of the projects and whether the necessary permits, we could be fined or otherwise sanctioned by incumbent utilities have pre-existing facilities that are being regulators, and such fines or the cost of sanctions may not be impacted by the projects. recoverable in our prices. We have incurred and will continue to incur significant capital and other expenditures to comply with We are actively participating in the SPP's transmission planning environmental laws and regulations.
activities and implementation of Order No. 1000. We believe we have opportunities to develop transmission infrastructure, including We are currently permitted to recover certain of these costs through projects pursuant to which we as the incumbent have a right of first the environmental cost recovery rider (ECRR), which, in comparison refusal and those projects that are subject to the Order No. 1000 to a general rate review, reduces the amount of time it takes to competitive processes. However, due in part to the long term nature begin collecting in retail prices the costs associated with capital of transmission planning activities, coupled with the fact that Order expenditures for qualifying environmental improvements. We are No. 1000 is in its very early stages, we are unable to predict the not allowed to use the ECRR to collect approximately $610.0 million impact of Order No. 1000. Accordingly, in our forecasted capital of the projected capital investment associated with environmental expenditure table, there are no dollars of investment associated with upgrades at La Cygne. In November 2013, the KCC issued an order Order No. 1000 projects. allowing us to increase our prices to include the additional investment in the La Cygne environmental upgrades through June 30, 2013, and to reflect cost reductions elsewhere. The new prices were expected to increase our annual retail revenues by approximately
$30.7 million.
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Our estimated capital expenditures associated with environmental Safety and Health Regulation improvements for 2015-2017 appear in the following table. We The safety and health of our employees is vital to our business. We prepare these estimates for planning purposes and revise them from are subject to a number of federal and state laws and regulations, time to time. including the Occupational Safety and Health Act of 1970. We have Year Total measures in place to promote the safety and health of our employees (InThousands) and to monitor our compliance with such laws and regulations.
20 15...................................................................... $ 85,400 Information Technology 20 16 ...................................................................... 26 ,800 We rely upon information technology networks and systems to 2017 ...................................................................... 14,500 process, transmit and store electronic information, and to manage Total .................................................................... $ 126,700 or support a variety of business processes and activities, including the generation, transmission and distribution of electricity, supply To change our prices to collect increased operating and maintenance chain functions and the invoicing and collection of payments from costs, we must file a general rate review with the KCC. We intend to our customers. Cybersecurity breaches, criminal activity, terrorist file our next general rate review in March 2015. Costs to comply attacks and other disruptions to our information technology with existing or future environmental laws and regulations could infrastructure could interfere with our operations, could expose us have a material adverse effect on our operations or consolidated or our customers or employees to a risk of loss and could expose us financial results. In addition, the installation of new equipment may to liability or regulatory penalties or cause us reputational damage cause us to reduce the net production, reliability and availability of or other harm to our business. We have taken measures to secure our plants. Furthermore, enhancements to our power plants, even if our network and systems, but such measures may not be sufficient, they result in greater efficiency, can trigger a regulatory review, which especially due to the increasing sophistication of cyberattacks. See could result in increased costs or other operational requirements. "Item IA. Risk Factors" for additional information.
See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Environmental Regula- SEASONALITY tion," "Item IA. Risk Factors" and Notes 3 and 13 to Consolidated Our electricity sales and revenues are seasonal, with the third Financial Statements, "Rate Matters and Regulation - KCC quarter typically accounting for the greatest of each. Our electricity Proceedings - Environmental Costs" and "Commitments and sales are impacted by weather conditions, the economy of our Contingencies - Environmental Matters," respectively, for more service territory and other factors affecting customers' demand information regarding environmental trends, risks and laws and for electricity.
regulations.
Renewable Energy Standard EMPLOYEES Kansas law mandates that we maintain a minimum amount of As of February 17, 2015, we had 2,411 employees, 1,283 of which renewable energy sources. Through 2015, net renewable generation were covered by a contract with Locals 304 and 1523 of the capability must be 10% of the average peak retail demand for the International Brotherhood of Electrical Workers that extends three prior years, subject to limited exceptions. This requirement through June 30, 2017.
increases to 15% for years 2016 through 2019 and 20% for 2020 and thereafter. With our existing wind generation facilities, supply ACCESS TO COMPANY INFORMATION contracts and renewable energy credits, we are able to satisfy the net renewable generation requirement through 2015. With our agree- Our Annual Reports on Form 10-K, Quarterly Reports on Form ments to purchase an additional 400 MW of installed design 10-Q and Current Reports on Form 8-K are available free of charge capacity from wind generation facilities beginning in 2015 through either on our Internet website at www.westarenergy.com or through 2016, we expect to meet the increased requirements for 2020 and requests addressed to our investor relations department. These thereafter. Ifwe are unable to meet future requirements, our operations reports are available as soon as reasonably practicable after such and consolidated financial results could be adversely impacted. material is electronically filed with, or furnished to, the SEC.
The information contained on our Internet website is not part of this document.
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WESTAR ENERGY 2014 ANNUAL REPORT EXECUTIVE OFFICERS OF THE COMPANY Name Age Present Office Other Offices or Positions Held During the Past Five Years Mark A.Ruelle 53 Director, President and Chief Executive Officer Westar Energy, Inc.
(since August 2011) Director, President and Chief Financial Officer (May 2011 to July 2011)
Executive Vice President and Chief Financial Officer (January 2003 to April 2011)
Bruce A.Akin 50 Senior Vice President, Power Delivery Westar Energy, Inc.
(since January 2015) Vice President, Power Delivery (February 2012 to December 2014)
Vice President, Operations Strategy and Support (July 2007 to February 2012)
Jerl L.Banning 54 Senior Vice President, Operations Support and Westar Energy, Inc.
Administration (since January 2015) Vice President, Human Resources and IT(January 2014 to December 2014)
Vice President, Human Resources (February 2010 to December 2013)
John T.Bridson 45 Senior Vice President, Generation and Marketing Westar Energy, Inc.
(since January 2015) Vice President, Generation (February 2011 to December 2014)
Executive Director, Generation (May 2010 to February 2011)
Executive Director, Lawrence Energy Center (January 2007 to May 2010)
Gregory A.Greenwood 49 Senior Vice President, Strategy Westar Energy, Inc.
(since August 2011) Vice President, Major Construction Projects (December 2009 to July 2011)
Anthony D.Somma 51 Senior Vice President, Chief Financial Officer and Treasurer Westar Energy, Inc.
(since August 2011) Vice President, Treasurer (February 2009 to July 2011)
Larry D.frick 58 Vice President, General Counsel and Corporate Secretary (since February 2003)
Kevin L.Kongs 52 Vice President, Controller Westar Energy, Inc.
(since November 2013) Assistant Controller (October 2006 to November 2013)
Executive officers serve at the pleasure of the board of directors. There are no family relationships among any of the executive officers, nor any arrangements or understandings between any executive officer and other persons pursuant to which he was appointed as an executive officer.
ITEM 1A. RISK FACTORS In addition, severe weather conditions can produce storms that can inflict extensive damage to our equipment and facilities, which can We operate in market and regulatory environments that involve require us to incur additional operating and maintenance expense significant risks, many of which are beyond our control. In addition and additional capital expenditures. Our prices may not always to other information in this Form 10-K, including "Item 1.Business" be adjusted timely or adequately to reflect these higher costs.
and "Item 7. Management's Discussion and Analysis of Financial Additionally, because many of our power plants use water for Condition and Results of Operations,' and in other documents we file with the SEC from time to time, the following factors may affect cooling, persistent or severe drought conditions could result in our results of operations, our cash flows and the value of our equity limited power production. High water conditions can also impair and debt securities. These factors may cause results to differ planned deliveries of fuel to our plants.
materially from those expressed in any forward-looking statements Our prices are subject to regulatory review and may not prove made by us or on our behalf. The factors listed below are not adequate to recover our costs and provide a fair return.
intended to be an exhaustive discussion of all such risks, and the We must obtain from state and federal regulators the authority to statements below must be read together with factors discussed establish terms and prices for our services. The KCC and, for most elsewhere in this document and in our other filings with the SEC.
of our wholesale customers, FERC, use a cost-of-service approach Weather conditions, including mild and severe weather, may that takes into account operating expenses, fixed obligations and adversely impact our consolidated financial results. recovery of and return on capital investments. Using this approach, Weather conditions directly influence the demand for electricity. the KCC and FERC set prices at levels calculated to recover such Our customers use electricity for heating in winter months and costs and a permitted return on investment. Except for wholesale cooling in summer months. Because of air conditioning demand, transactions for which the price is not so regulated, and except to typically we produce our highest revenues in the third quarter. the extent the KCC and FERC permit us to modify our prices Milder temperatures reduce demand for electricity and have a through the application of formulae that track changes in certain of corresponding impact on our revenues. Unusually mild weather in our costs, our prices generally remain fixed until changed following the future could adversely affect our consolidated financial results. a rate review. Further, the adjustments may be modified, limited or eliminated by regulatory or legislative actions. We may apply to change our prices or intervening parties may request that our prices be reviewed for possible adjustment.
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Rate proceedings through which our prices and terms of service are Notes 3 and 13 to the Consolidated Financial Statements, "Rate determined typically involve numerous parties including electricity Matters and Regulation - KCC Proceedings - Environmental consumers, consumer advocates and governmental entities, some of Costs" and "Commitments and Contingencies - Environmental whom take positions adverse to us. In addition, regulators' decisions Matters," respectively, for additional information.
may be appealed to the courts by us or other parties to the In addition, we combust large amounts of fossil fuels as we produce proceedings. These factors may lead to uncertainty and delays in electricity. This results in significant emissions of carbon dioxide implementing changes to our prices or terms of service. There can (CO,) and other greenhouse gases (GHGs) through the operation of be no assurance that our regulators will find all of our costs to have our power plants. Federal legislation has been in the past, and may been prudently incurred. A finding that costs have been imprudently in the future be, introduced in Congress to regulate the emission of incurred can lead to disallowance of recovery for those costs.
GHGs and numerous states and regions have adopted programs to Further, the prices approved by the applicable regulatory body may stabilize or reduce GHG emissions. The EPA regulates, and intends not be sufficient for us to recover our costs and to provide for an to regulate further, GHGs under the Clean Air Act. In particular, in adequate return on and of capital investments.
January 2014, the EPA re-proposed New Source Performance We cannot predict the outcome of any rate review or the actions of Standard that would limit CO, emissions for new coal and natural our regulators. The outcome of rate proceedings, or delays in gas fueled electric generating units. In June 2014, the EPA issued implementing price changes to reflect changes in our costs, could proposed CO, emissions rules, called the Clean Power Plan, have a material affect on our consolidated financial results. for existing, modified and reconstructed power plants. The EPA expects to finalize the Clean Power Plan by summer of 2015; Our costs of compliance with environmental laws and states would be expected to propose by summer 2016 their plans regulations, including those relating to greenhouse gas emissions, are significant, and the future costs of compliance to implement it, which could require us to make efficiency with environmental laws and regulations could adversely improvements to our existing facilities, among other things. See impact our operations and consolidated financial results. Note 13 to the Consolidated Financial Statements, "Commitments We are subject to extensive federal, state and local environmental and Contingencies-Environmental Matters" for additional infor-laws and regulations relating to air quality, water qualit); the use of mation. We are currently evaluating the proposed rules, and believe water, the handling, disposal and clean-up of hazardous and non- these rules, if finalized in their current form, would likely have a hazardous substances and wastes, natural resources and health and material impact on our operations, future generation plants and/or safety. Compliance with these legal requirements, which change results of operations.
frequently and have tended to become more restrictive, requires us Further, in the course of operating our coal generation plants, we to commit significant capital and operating resources toward produce CCBs, including fly ash, gypsum and bottom ash, which we permitting, emission fees, environmental monitoring, installation must handle, recycle, process or dispose of. We historically have and operation of air and water quality control equipment and recycled some of our ash production, principally by selling to the purchases of air emission allowances and/or offsets. These laws and aggregate industry. In December 2014, the EPA issued a final rule regulations oftentimes require a lengthy and complex process for that regulates CCBs as non-hazardous solid waste under Resource obtaining licenses, permits and approvals from governmental Conservation and Recovery Act. The final rule will impact the agencies for new, existing or modified facilities. If we fail to comply manner in which we dispose of CCBs, and it may adversely impact with such laws, regulations and permits, or fail to obtain and our ability to recycle ash or require additional CCB handling, maintain necessary permits, we could be fined or otherwise processing and storage equipment, or both. See Note 13 to the sanctioned by regulators, and such fines or the cost of sanctions may Consolidated Financial Statements, "Commitments and Contin-not be recoverable in our prices. gencies-Environmental Matters" for additional information. The impact of this rule on our operations and consolidated financial Costs of compliance with environmental laws and regulations or results could be material.
fines or penalties resulting from non-compliance, if not recovered in our prices, could adversely impact our operations and/or We could be subject to penalties as a result of mandatory consolidated financial results, especially if emission and/or reliability standards, which could adversely affect our discharge limits are tightened, more extensive permitting consolidated financial results.
requirements are imposed, additional substances become regu- As a result of the Energy Policy Act of 2005, owners and operators of lated or the number and types of assets we operate increases. We the bulk power transmission system, including Westar Energy and cannot estimate our compliance costs or any possible fines or KGE, are subject to mandatory reliability standards promulgated by penalties with certainty, or the degree to which such costs might the North American Electric Reliability Corporation and enforced be recovered in our prices, due to our inability to predict the by FERC. If we were found to be out of compliance with the requirements and timing of implementation of environmental mandatory reliability standards, we could be subject to sanctions, rules or regulations. See "Item 1. Business - Environmental including substantial monetary penalties, which we might not be Matters," "Item 7. Management's Discussion and Analysis of able to recover in the prices we charge our customers. This could Financial Condition and Results of Operations-Executive have a material adverse effect on our consolidated financial results.
Summary-Current Trends-Environmental Regulation" and 17
WESTAR ENERGY 2014 ANNUAL REPORT Adverse economic conditions could adversely impact our concerning uncertain factors including weather, technological operations and consolidated financial results. change, environmental and other regulatory requirements, Our operations are impacted by economic conditions. Adverse economic conditions, social pressures and the responsiveness of economic conditions including a prolonged recession or capital customers' electricity demand to conservation measures and market disruptions may: prices. Both actual future demand and our ability to satisfy such
" reduce demand for our service; demand depend on these and other factors and may vary materially
" increase delinquencies or non-payment by customers; from our forecasts. If our actual experience varies significantly
" adversely impact the financial condition of suppliers, which may from our forecasts, our consolidated financial results may be in turn limit our access to inventory or capital equipment or adversely impacted.
increase our costs; and Our planned capital investment for the next few years is large
" increase deductibles and premiums and result in more restrictive in relation to our size, subjecting us to significant risks.
policy terms under insurance policies regarding risks we typically Our anticipated capital expenditures for 2015 through 2017 are insure against, or make insurance claims more difficult to collect. approximately $2.0 billion. In addition to risks discussed above associated with recovering capital investments through our prices, In addition, unexpectedly strong economic conditions can result in and risks associated with our reliance on the capital markets and increased costs and shortages. Any of the aforementioned events, short-term credit to fund those investments, our capital expenditure and others we may not be able to identify, could have an adverse program poses risks, including, but not necessarily limited to:
impact on our consolidated financial results.
" shortages, disruption in the delivery and inconsistent quality of We are exposed to various risks associated with the ownership equipment, materials and labor; and operation of Wolf Creek, any of which could adversely impact our consolidated financial results. " contractor or supplier non-performance;
" delays in or failure to receive necessary permits, approvals and Through KGE's ownership interest in Wolf Creek, we are subject to other regulatory authorizations; the risks of nuclear generation, which include:
" impacts of new and existing laws and regulations, including
" the risks associated with storing, handling and disposing of environmental and health and safety laws, regulations and permit radioactive materials and the current lack of a long-term off-site requirements; disposal solution for radioactive materials; " adverse weather;
" limitations on the amounts and types of insurance commercially " unforeseen engineering problems or changes in project design available to cover losses that might arise in connection with or scope; nuclear operations; " environmental and geological conditions; and
" uncertainties with respect to the technological and financial " unanticipated cost increases with respect to labor or materials, aspects of decommissioning Wolf Creek at the end of its life; and including basic commodities needed for our infrastructure such
" costs of measures associated with public safety. as steel, copper and aluminum.
The NRC has authority to impose licensing and safety-related These and other factors, or any combination of them, could cause us requirements for the operation of nuclear generation facilities. In to defer or limit our capital expenditure program and could adversely the event of non-compliance, the NRC has authority to impose fines impact our consolidated financial results.
or shut down a unit, or both, depending upon its assessment of the severity of the situation, until compliance is achieved. Revised safety Our ability to fund our capital expenditures and meet our working capital and liquidity needs may be limited by requirements enacted by the NRC could necessitate substantial conditions in the bank and capital markets, by our credit capital expenditures at Wolf Creek. ratings or the market price of Westar Energy's common stock.
An incident at Wolf Creek could have a material impact on our Further, capital market conditions can cause fluctuations in the values of assets set aside for employee benefit obligations consolidated financial results. Furthermore, the non-compliance of and the Wolf Creek nuclear decommissioning trust (NDT) other nuclear facilities operators with applicable regulations or the and may increase our funding requirements related to occurrence of a serious nuclear incident at other facilities anywhere these obligations.
in the world could result in increased regulation of the industry as a To fund our capital expenditures and for working capital and whole, which could in turn increase Wolf Creeks compliance costs liquidity, we rely on access to capital markets and to short-term and impact our consolidated financial results. Such events could credit. Disruption in capital markets, deterioration in the financial also result in a shutdown of Wolf Creek. condition of the financial institutions on which we rely, any credit Significant decisions about capital investments are based rating downgrade or any decrease in the market price of Westar on forecasts of long-term demand for energy incorporating Energy's common stock may make capital more difficult and costly assumptions about multiple, uncertain factors. Our actual for us to obtain, may restrict liquidity available to us, may require us experience may differ significantly from our assumptions, to defer or limit capital investments or impact operations or may which may adversely impact our consolidated financial results. reduce the value of our financial assets. These could adversely impact We attempt to forecast demand to determine the timing and our business and consolidated financial results, including our ability adequacy of our energy and energy delivery resources. Long-term to pay dividends and to make investments or undertake programs forecasts involve risks because they rely on assumptions we make necessary to meet regulatory mandates and customer demand.
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Further, we have significant future financial obligations with Additionally, we cannot predict the impact that any future infor-respect to employee benefit obligations and the Wolf Creek NDT. mation technology or terrorist attack may have on the energy The value of the assets needed to meet those obligations are industry in general. Our facilities could be direct targets or indirect subject to market fluctuations and will yield uncertain returns, casualties of such attacks. The effects of such attacks could include which may fall below our expectations for meeting our obliga- disruption to our generation, transmission and distribution systems tions. Additionally, inflation and changes in interest rates impact or to the electrical grid in general, and could increase the cost of the value of future liabilities. In general, when interest rates decline, insurance coverage or result in a decline in the U.S. economy.
the value of future liabilities increase. While the KCC allows us to Equipment failures and other events beyond our control may implement a regulatory accounting mechanism to track certain of cause extended or unplanned plant outages, which may our employee benefit plan expenses, this mechanism does not adversely impact our consolidated financial results.
allow us to make automatic price adjustments. Only in future rate The generation, distribution and transmission of electricity require proceedings may we be allowed to adjust our prices to reflect the use of expensive and complicated equipment, much of which is changes in our funding requirements. Further, the tracking aged, and all of which requires significant ongoing maintenance.
mechanism for these benefit plan expenses is part of our overall Our power plants and equipment are subject to extended or un-rate structure, and as such, it is subject to KCC review and may be planned outages because of equipment failure, weather, transmis-modified, limited or eliminated in the future. If these assets are not sion system disruption, operator error, contractor or subcontractor managed successfully, our consolidated financial results and cash failure and other factors beyond our control. In such events, we flows could be adversely impacted.
must either produce replacement power from our other plants, Physical and cyber security breaches, criminal activity, which may be less efficient or more expensive to operate, purchase terrorist attacks and other disruptions to our facilities or our power from others at unpredictable and potentially higher costs in information technology infrastructure could directly or order to meet our sales obligations, or suffer outages. Such events indirectly interfere with our operations, could expose us or could also limit our ability to make sales to customers. Therefore, our customers or employees to a risk of loss and could expose the occurrence of extended or unplanned outages could adversely us to liability or regulatory penalties or cause reputational damage and other harm to our business. affect our consolidated financial results.
We rely upon information technology networks and systems to Our regulated business model may be threatened by process, transmit and store electronic information, and to manage technological advancements that could adversely affect or support a variety of business processes and activities, including our financial condition and results of operations.
the generation, transmission and distribution of electricity, supply Significant technological advancements are taking place in chain functions, and the invoicing and collection of payments from the electric industry, including advancements related to self-our customers. We also use information technology systems to generation and distributed energy technologies such as fuel record, process and summarize financial information and results of cells, micro turbines, wind turbines and solar cells. Adoption of operations for internal reporting purposes and to comply with these technologies may increase because of advancements or financial reporting, legal and tax requirements. Our technology government subsidies reducing the cost of generating electricity networks and systems collect and store sensitive data including through these technologies to a level that is competitive with our system operating information, proprietary business information be- current methods of generating electricity. There is also a percep-longing to us and third parties and personal information belonging tion that generating electricity through these technologies is to our customers and employees. more environmentally friendly than generating electricity with fossil fuels. Increased adoption of these technologies could Our information technology networks and infrastructure may be reduce electricity demand and the pool of customers from whom vulnerable to damage, disruptions or shutdowns due to attacks by fixed costs are recovered, resulting in under recovery of our fixed hackers or breaches due to employee error or malfeasance or other costs. Increased self-generation and the related use of net energy disruptions during software or hardware upgrades, telecommu-metering, which allows self-generating customers to receive bill nication failures or natural disasters or other catastrophic events.
credits for surplus power, could put upward price pressure on our These attacks or breaches could, among other things, result in the remaining customers. If we were unable to adjust our prices to erasure of data or render our equipment unusable. The occurrence reflect reduced electricity demand and increased self-generation of any of these events could impact the reliability of our generation, and net energy metering, our financial condition and results of transmission and distribution systems; could impact our ability to operations could be adversely affected.
conduct business in the ordinary course; could expose us, our customers or our employees to a risk of loss or misuse of information; ITEM 1B. UNRESOLVED STAFF COMMENTS and could result in legal claims or proceedings, liability or regulatory penalties against us, damage our reputation or otherwise harm our None.
business. We cannot accurately assess the probability that a security breach may occur, despite the measures that we take to prevent such a breach, and we are unable to quantify the potential impact of such an event. We can provide no assurance that we will identify and remedy all security or system vulnerabilities or that unauthorized access or error will be identified and remedied.
19
WESTAR ENERGY 2014 ANNUAL REPORT ITEM 2. PROPERTIES Unit Capability (MW)ByOwnerl
Unit Capability (MW) ByOwner(al Unit Year Principal Westar Total Name/Location No. Installed Fuel Energy KGE Company Unit Year Principal Westar Total Name/Location No. Installed Fuel Energy KGE Company Tecumseh Energy Center:
Tecumseh, Kansas Central Plains Wind Farm Wichita County, Kansas 2009 Wind 99 - 99 Steam Turbines 7 1957 Coal 72 - 72 8 1962 Coal 130 - 130 Emporia Energy Center:
Emporia, Kansas Wolf Creek Generating Station (47%):
Burlington, Kansas Combustion Turbines 1 2008 Gas 45 - 45 Nuclear 1Cl) 1985 Uranium - 549 549 2 2008 Gas 45 - 45 3 2008 Gas 44 - 44 Total 4,241 2,404 6,645 4 2008 Gas 46 - 46 1 5 2008 Gas 157 - 157 ')Capabilit,' (except *for wind generating facilities) represents accredited net 6 2009 Gas 155 - 155 gesieratinkq capacit, approved 1y the SPP. CapabilityJbr our wind generating 7 2009 Gas 156 - 156 -facilities represents the installed design capacit'y Due to the intermittent nature of witd generation. thesefacilities are only associated with a total of 22 MW of Flat Ridge Wind Farm accreditedgenerating capacity Barber County, Kansas 2009 Wind 50 - 50 11'estar Energyjointly owns State Line (40o%) while KGE jointly owns La Cy'ine uznit 1 (50%) and Wolf Creek (47%). V4e.joiitl), owin and consolidateas a VIE 92q6 Gordon Evans Energy Center:
qf JEC. Usnit capacitY aniouzsnts reflect our owniershiipand lcasedpercentages onlzy Colwich, Kansas 'In 1987, KGE entered isito a sale-leaseback transactiosi involvisig its 50% inrterest Steam Turbines 1 1961 Gas - 152 152 in the La Cygne unoit 2. We consolidate the leasing erstit), as a VIE as discussed 2 1967 Gas - 370 370 in Note 17 of the Notes to Corisolidated Financial Statements, "Variable Combustion Turbines 1 2000 Gas 73 - 73 Interest Entities.'"
2 2000 Gas 71 - 71 W)le acquired Spring Creek Energy Center in 2006.
3 2001 Gas 148 - 148 Hutchinson Energy Center: We own and have in service approximately 6,300 miles of Hutchinson, Kansas transmission lines, approximately 24,000 miles of overhead dis-Steam Turbine 4 1965 Gas 176 - 176 Combustion Turbines 1 1974 Gas 56 - 56 tribution lines and approximately 4,800 miles of underground 2 1974 Gas 52 - 52 distribution lines.
3 1974 Gas 57 - 57 Substantially all of our utility properties are encutmbered by first 4 1975 Diesel 71 - 71 priority mortgages pursuant to which bonds have been issued and Jeffrey Energy Center (92%):
are outstanding.
St. Marys, Kansas Steam Turbines ICl 1978 Coal 517 144 661 2 bI 1980 Coal 515 143 658 3N 1983 Coal 520 144 664 LaCygne Station (50%):
LaCygne, Kansas Steam Turbines 1 IN 1973 Coal - 367 367 20 1977 Coal - 341 341 Lawrence Energy Center:
Lawrence, Kansas Steam Turbines 3 1954 Coal 48 - 48 4 1960 Coal 104 - 104 5 1971 Coal 370 - 370 Murray GillEnergy Center:
Wichita, Kansas Steam Turbines 3 1956 Gas - 104 104 4 1959 Gas - 90 90 Spring Creek Energy Center:
Edmond, Oklahoma Combustion Turbines 1011 2001 Gas 68 - 68 2 "1 2001 Gas 68 - 68 3(1) 2001 Gas 67 - 67 4(*) 2001 Gas 68 - 68 State Line (40%):
Joplin, Missouri Combined Cycle 2-111 2001 Gas 61 - 61 2-211) 2001 Gas 62 - 62 2-30) 2001 Gas 70 - 70 20
ITEM 3. LEGAL PROCEEDINGS STOCK PERFORMANCE GRAPH Information on legal proceedings is set forth in Notes 3, 13 and The following graph compares the performance of Westar Energy's 15 of the Notes to Consolidated Financial Statements, "Rate common stock during the period that began on December 31, 2009, Matters and Regulation," "Commitments and Contingencies" and ended on December 31, 2014, to the performance of the and "Legal Proceedings," respectively, which are incorporated Standard & Poor's 500 Index (S&P 500) and the Standard & Poor's herein by reference. Electric Utility Index (S&P Electric Utilities). The graph assumes a
$100 investment in Westar Energy's common stock and in each of ITEM 4. MINE SAFETY DISCLOSURES the indices at the beginning of the period and a reinvestment of dividends paid on such investments throughout the period.
Not Applicable.
CUMULATIVE TOTAL RETURN PART II Based on an initial investment of $100 on December 31, 2009 with dividends reinvested ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS STOCK TRADING Westar Energy's common stock is listed on the New York Stock Exchange and traded under the ticker symbol WR. As of February 17, 2015, Westar Energy had 18,557 common shareholders of record.
For information regarding quarterly common stock price ranges for 2014 and 2013, see Note 19 of the Notes to Consolidated Financial Statements, "Quarterly Results (Unaudited)'
$10o Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014 Westar Energy Inc.
S&P' 500 S&P' Electric Utilities -......
Dec-2009 Dec-2010 Dec-2011 Dec-2012 Dec-2013 Dec-2014 Westar Energy, Inc........ $100 $122 $147 $153 $179 $239 S&P`500 ................ $100 $115 $117 $136 $180 $205 S&P' Electric Utilities ..... $100 $103 $125 $124 $134 $173 DIVIDENDS Holders of Westar Energy's common stock are entitled to dividends when and as declared by Westar Energy's board of directors.
Quarterly dividends on common stock have historically been paid on or about the first business day of January, April, July and October to shareholders of record as of or about the ninth day of the preceding month. Westar Energy's board of directors reviews the common stock dividend policy from time to time. Among the factors the board of directors considers in determining Westar Energy's dividend policy are earnings, cash flows, capitalization ratios, regulation, competition and financial loan covenants. In 2014, Westar Energy's board of directors declared four quarterly dividends of $0.35 per share, reflecting an annual dividend of $1.40 per share, compared to four quarterly dividends of $0.34 per share in 2013, reflecting an annual dividend of $1.36 per share. On February 25, 2015, Westar Energy's board of directors declared a quarterly dividend of $0.36 per share payable to shareholders on April 1, 2015. The indicated annual dividend rate is $1.44 per share.
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WESTAR ENERGY 2014 ANNUAL REPORT ITEM 6. SELECTED FINANCIAL DATA Year Ended December 31, 2014 2013 2012 2011 2010 (In Thousands)
Income Statement Data:
Total revenues ............................................................. $ 2,601,703 $ 2,370,654 $ 2,261,470 $2,170,991 $ 2,056,171 Net income ............................................................... 322,325 300,863 282,462 236,180 208,624 Net income attributable to common stock ..................................... 313,259 292,520 273,530 229,269 202,926 As of December 31, 2014 2013 2012 2011 2010 (In Thousands)
Balance Sheet Data:
Total assets ............................................................... $10,347,001 $9,597,138 $9,265,231 $8,682,851 $ 8,079,638 Long-term obligations(' .................. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,461,779 3,495,292 3,124,831 2,818,030 2,808,560 Year Ended December 31, 2014 2013 2012 2011 2010 Common Stock Data:
Basic earnings per share available for common stock ............................ $ 2.40 $ 2.29 $ 2.15 $ 1.95 $ 1.81 Diluted earnings per share available for common stock .......................... 2.35 2.27 2.15 1.93 1.80 Dividends declared per share ................................................ 1.40 1.36 1.32 1.28 1.24 Book value per share ....................................................... 25.02 23.88 22.89 22.03 21.25 Average equivalent common shares outstanding (inthousandsyb)(c)(d) .............. 130,015 127,463 126,712 116,891 111,629 5
"'Icludes long-term debt, net, current maturities of long-term debt, capital leases, long-term debt of VIEs, net and current maturities of long-term debt of VIEs. See Note 17 of the Notes to ConsolidaredFinancialStatements, "Variable Interest Entities,"for additionalinformation regardingVIEs.
"'in 2010, Westar Energy issued and sold approximately 3.1 million shares of common stock realizingproceeds of $54.7 million.
(c'In 2011, Westar Energy issued and sold approximately 13.6 million shares of common stock realizingproceeds of $294.9 million.
""In 2014, Westar Energy issued and sold approximately 3.4 million shares of common stock realizingproceeds of $87.7 million.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF Net income attributed to common stock and basic EPS for the year FINANCIAL CONDITION AND RESULTS OF OPERATIONS ended December 31, 2014 increased due primarily to higher prices Certain matters discussed in Management's Discussion and Analysis and increased demand from our industrial customers. See the are "forward-looking statements'" The Private Securities Litigation discussion under "- Operating Results" below for additional Reform Act of 1995 has established that these statements qualify for information.
safe harbors from liability. Forward-looking statements may include Key Factors Affecting Our Performance words like we "believe:' "anticipate:' "target'" expect:' "estimate,'
The principal business, economic and other factors that affect our "intend" and words of similar meaning. Forward-looking statements operations and financial performance include:
describe our future plans, objectives, expectations or goals. See "Forward-Looking Statements" above for additional information. " weather conditions;
" the economy;
" customer conservation efforts; EXECUTIVE
SUMMARY
" the performance, operation and maintenance of our electric Description of Business generating facilities and network; We are the largest electric utility in Kansas. We produce, transmit " conditions in the fuel, wholesale electricity and energy markets; and sell electricity at retail to approximately 698,000 customers in " rate and other regulations and costs of addressing public policy Kansas under the regulation of the KCC. We also supply electric initiatives including environmental laws and regulations; energy at wholesale to municipalities and electric cooperatives in " the availability of and our access to liquidity and capital resources; Kansas under the regulation of FERC. We have contracts for the sale and or purchase of wholesale electricity with other utilities. " capital market conditions.
Earnings Per Share Strategy Following is a summary of our net income and basic earnings per We expect to continue operating as a vertically integrated, regulated, share (EPS) for the years ended December 31, 2014 and 2013. electric utility. Significant elements ofour strategy include maintaining a flexible and diverse energy supply portfolio. In doing so, we YearEnded December 31, 2014 2013 Change continue to make environmental upgrades to our coal-fired power (Dollars InThousands, ExceptPerShareAmounts) plants, develop renewable generation, build and upgrade our Net income attributable to common stock .......... $ 313,259 $ 292,520 5 20,739 electrical infrastructure and develop systems and programs with Earnings per common share, basic ................ 2.40 2.29 0.11 regard to how our customers use energy and interact with us.
22
Current Trends Allowance for Funds Used During Construction Environmental Regulation Allowance for funds used during construction (AFUDC) represents We are subject to various federal, state and local environmental laws the allowed cost of capital used to finance utility construction and regulations. Environmental laws and regulations affecting our activity. We compute AFUDC by applying a composite rate to operations are overlapping, complex, subject to changes, have qualified construction work in progress. We credit other income become more stringent over time and are expensive to implement. (for equity funds) and interest expense (for borrowed funds) for There are variety of final and proposed laws and regulations that the amount of AFUDC capitalized as construction cost on the could have a material adverse effect on our operations and accompanying consolidated statements of income as follows:
consolidated financial results, including those relating to: YearEnded December31, 2014 2013 2012
" further regulation of GHGs by the EPA, including pursuant to the (InThousands)
Clean Power Plan, and future legislation that could be proposed Borrowed funds ............................... $ 12,044 $ 11,706 $ 10,399 by the U.S. Congress; Equity funds .................................. 17,029 14,143 11,706
" various proposed and expected regulations governing air Total ....................................... $ 29,073 $ 25,849 $ 22,105 emissions including, those relating to National Ambient Air Average AFUDC Rates .......................... 6.7% 4.89% 5.0%
Quality Standards (particularly those relating to particulate matter, nitrogen oxides, ozone, carbon monoxide and sulfur dioxide) and We expect AFUDC for both borrowed funds and equity funds to be the Cross-State Air Pollution Rule; lower over the next several years as major projects within our capital
" our water discharges, including under Section 316(b) of the federal expenditure program have been completed.
Clean Water Act (CWA) and the definition of Waters of the United States for purposes of the CWA; Interest Expense
" the regulation of CCB; and We expect interest expense to increase over the next several years as
" applicable renewable energy standards. we issue new debt securities to fund our capital expenditure program. We continue to believe this increase will be reflected in the See and Notes 3 and 13 to the Consolidated Financial Statements, prices we are permitted to charge customers, as cost ofcapital will be "Rate Matters and Regulation - KCC Proceeding - Environmental a component of future rate proceedings and is also recognized in Costs" and "Commitments and Contingencies - Environmental some of the other rate adjustments we are permitted to make. In Matters:' respectively, for a discussion of environmental costs, laws, addition, short-term interest rates are extremely low by historical regulations and other contingencies. standards. We cannot predict to what extent these conditions will Renewable Energy Standard continue. See Note 9 of the Notes to Consolidated Financial Statements, "Long-Term Debt" for additional information regarding Kansas law mandates that we maintain a minimum amount of the issuance of long-term debt.
renewable energy sources. Through 2015, net renewable generation capacity must be 10% of the average peak retail demand for the Outstanding Shares of Common Stock three prior years, subject to limited exceptions. This requirement We expect the number of outstanding shares of Westar Energy increases to 15% for years 2016 through 2019 and 20% for 2020 common stock to increase through 2015 as we issue additional and thereafter. With our existing wind generation facilities, supply shares previously priced through forward sales agreements to fund contracts and renewable energy credits, we are able to satisfy the net our capital expenditure program. See Note 16 of the Notes to renewable generation requirement through 2015. With our Consolidated Financial Statements, "Common and Preferred Stock:'
agreements to purchase an additional 400 MW of installed design for additional information regarding our share issuances.
capacity from wind generation facilities beginning in 2015 through 2016, we expect to meet the increased requirements for 2020 and Customer Growth and Usage thereafter. If we are unable to meet future requirements, our opera- Residential customer additions have moderated since the 2008 tions and consolidated financial results could be adversely impacted. recession and residential electricity demand has stabilized and is growing modestly. Overall retail sales have grown as well, and are Regulation of Nuclear Generating Station approaching pre-recession levels. We believe that, in the near-term, Additional regulation of Wolf Creek resulting from NRC oversight our overall retail sales growth will be between 1%and 2% driven by of the plant's performance or from changing regulations generally, industrial demand and stable residential and commercial growth.
including those that could potentially result from natural disasters Absent an economic recovery to conditions similar to those or any event that might occur at any nuclear power plant anywhere preceding the 2008 recession, we believe long-term retail sales in the world, may result in increased net operating expenses and growth will be about 0.50% to 0.75% per year. In addition, with the capital expenditures. We expect future increases in operating costs numerous energy efficiency policy initiatives promulgated through due to increased NRC oversight and efforts to comply with new federal, state and local governments, as well as industry initiatives, industry-wide regulations adopted by the NRC in 2012. We cannot environmental regulations and the need to strengthen and estimate the cost associated with such increases, but they could be modernize the grid, which will increase price pressure, we believe material to our operations and consolidated financial results. customers will continue to adopt more energy efficiency and conservation measures, which will slow or possibly suppress the growth of demand for electricity.
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WESTAR ENERGY 2014 ANNUAL REPORT 2015 Outlook Pension and Post-retirement Benefit Plans In 2015, we expect to maintain our current business strategy and Actuarial Assumptions regulatory approach. Assuming normal weather we expect 2015 We and Wolf Creek calculate our pension benefit and post-retail electricity sales to be about 1.5% higher than weather retirement medical benefit obligations and related costs using normalized 2014 sales. actuarial concepts within the guidance provided by applicable GAAP.
In addition to updating prices through various cost recovery mechanisms, we will be filing a general rate case in early March In accounting for our retirement plans and post-retirement benefits, 2015 with the KCC, with new prices expected to be effective in we make assumptions regarding the valuation of benefit obligations the fourth quarter. and the performance of plan assets. The reported costs of our pension plans are impacted by estimates regarding earnings on plan Absent increases in SPP transmission expense and property tax assets, contributions to the plan, discount rates used to determine expense, which are increasing at a much higher rate than inflation our projected benefit obligation and pension costs and employee and are offset with higher revenues pursuant to our regulatory demographics including age, life expectancy and compensation mechanisms, we anticipate operating and maintenance and selling, levels and employment periods. Changes in these assumptions general and administrative expenses to be lower in 2015 as compared result primarily in changes to regulatory assets, regulatory liabilities to 2014. To help fund our capital spending as provided under "- or the amount of related pension and post-retirement benefit Future Cash Requirements" below, in 2015 we plan to settle forward liabilities reflected on our consolidated balance sheets. Such changes transactions covering approximately 9.2 million shares of our may also require cash contributions.
common stock sales that were priced in prior periods, and The following table shows the impact of a 0.5% change in our pension utilize short-term borrowings by issuing commercial paper until plan discount rate, salary scale and rate of return on plan assets.
permanent financing is in place.
Annual Change in Change in CRITICAL ACCOUNTING ESTIMATES Projected Projected Change in Benefit Pension Our discussion and analysis of financial condition and results of Actuarial Assumption Assumption Obligation"' Costs",
operations are based on our consolidated financial statements, (DollarsInThousands) which have been prepared in conformity with Generally Accepted Discount rate ............................. 0.5% decrease S100,210 $ 9,530 Accounting Principles (GAAP). Note 2 of the Notes to Consolidated 0.5% increase (88,880) (8,559)
Financial Statements, "Summary of Significant Accounting Policies,' Salary scale .............................. 0.5% decrease (17,433) (3,552) contains a summary of our significant accounting policies, many of 0.5% increase 18,405 3,778 which require the use of estimates and assumptions by management. Rate of return on plan assets ................ 0.5% decrease - 3,698 The policies highlighted below have an impact on our reported 0.5% increase - (3,698) results that may be material due to the levels of judgment and "'lncreases or decreases due to changes in actuarialassunmptions result primarilY subjectivity necessary to account for uncertain matters or their in changes to regulatory,assets and liabilities.
susceptibility to change.
The following table shows the impact of a 0.5% change in the Regulatory Accounting discount rate and rate of return on plan assets and a 1%change in We apply accounting standards that recognize the economic effects the annual medical trend on our post-retirement benefit plans.
of rate regulation. Accordingly, we have recorded regulatory assets Annual and liabilities when required by a regulatory order or based on Change in regulatory precedent. Regulatory assets represent incurred costs Change in Projected Projected Post-that have been deferred because they are probable of future recovery Change in Benefit retirement Actuarial Assumption Assumption Obligationual Costs",
in our prices. Regulatory liabilities represent probable future reductions in revenue or refunds to customers. (Dollars InThousands)
Discount rate ............................. 0.5% decrease $ 9,294 S 496 The deferral of costs as regulatory assets is appropriate only when 0.5% increase (8,388) (457) the future recovery of such costs is probable. In assessing probability, Rate of return on plan assets ................ 0.5% decrease - 552 we consider such factors as specific regulatory orders, regulatory 0.5% increase - (552) precedent and the current regulatory environment. If we deem it Annual medical trend ...................... 1.0% decrease 97 16 no longer probable that we would recover such costs, we would 1.0% increase (108) (16) record a charge against income in the amount of the related
"'Increases or decreases due to changes in actuarialassusptions result pritnarilY, regulatory assets. in changes to regulatorY assets and liabilities.
As of December 31, 2014, we had recorded regulatory assets currently subject to recovery in future prices of approximately Revenue Recognition
$859.8 million and regulatory liabilities of $343.5 million, as We record revenue at the time we deliver electricity to customers.
discussed in greater detail in Note 3 of the Notes to Consolidated We determine the amounts delivered to individual customers Financial Statements, "Rate Matters and Regulation." through systematic monthly readings of customer meters. At the end of each month, we estimate how much electricity we have delivered since the prior meter reading and record the corresponding unbilled revenue.
24
Our unbilled revenue estimate is affected by factors including Non-Legal Liability - Cost of Removal fluctuations in energy demand, weather, line losses and changes in We collect in our prices the costs to dispose of plant assets that do the composition of customer classes. We recorded estimated not represent legal retirement obligations. As of December 31, 2014 unbilled revenue of $61.0 million as of December 31, 2014 and and 2013, we had $88.2 million and $114.1 million, respectively, in
$60.1 million as of December 31, 2013. amounts collected, but not yet spent, for removal costs classified as Income Taxes a regulatory liability.
We use the asset and liability method of accounting for income Contingencies and Litigation taxes. Under this method, we recognize deferred tax assets and We are currently involved in certain legal proceedings and have liabilities for the future tax consequences attributable to temporary estimated the probable cost for the resolution of these claims. These differences between the financial statement carrying amounts and estimates are based on an analysis of potential results, assuming a the tax basis of existing assets and liabilities. We recognize the future combination of litigation and settlement strategies. It is possible that tax benefits to the extent that realization of such benefits is more our future consolidated financial results could be materially affected likely than not. We amortize deferred investment tax credits over by changes in our assumptions. See Notes 13 and 15 of the Notes the lives of the related properties as required by tax laws and to Consolidated Financial Statements, "Commitments and regulatory practices. We recognize production tax credits in the year Contingencies" and "Legal Proceedings.' for additional information.
that electricity is generated to the extent that realization of such benefits is more likely than not. OPERATING RESULTS We record deferred tax assets to the extent capital losses, operating We evaluate operating results based on EPS. We have various losses, or tax credits will be carried forward to future periods. classifications of revenues, defined as follows:
However, when we believe based on available evidence that we do not, or will not, have sufficient future capital gains or taxable income Retail: Sales of electricity to residential, commercial and in the appropriate taxing jurisdiction to realize the entire benefit industrial customers. Classification of customers as residential, during the applicable carryforward period, we record a valuation commercial or industrial requires judgment and our classifications allowance against the deferred tax asset. may be different from other companies. Assignment of tariffs is not dependent on classification. Other retail sales of electricity The application of income tax law is complex. Laws and regulations include lighting for public streets and highways, net of revenue in this area are voluminous and often ambiguous. Accordingly, subject to refund.
we must make judgments regarding income tax exposure. Inter-pretations of and guidance surrounding income tax laws and Wholesale: Sales of electricity to electric cooperatives, regulations change over time. As a result, changes in our judgments municipalities, other electric utilities and RTOs, the prices for can materially affect amounts we recognize in our consolidated which are either based on cost or prevailing market prices as financial statements. See Note 10, "Taxes:' for additional detail on prescribed by FERC authority. Revenues from these sales are our accounting for income taxes. either included in the retail energy cost adjustment or used in the determinations of base rates at the time of our next general Asset Retirement Obligations rate case.
Legal Liability Transmission: Reflects transmission revenues, including those We have recognized legal obligations associated with the disposal of based on tariffs with the SPP.
long-lived assets that result from the acquisition, construction, development or normal operation of such assets. Concurrent with Other: Miscellaneous electric revenues including ancillary the recognition of the liability, the estimated cost of the asset service revenues and rent from electric property leased to others.
retirement obligation (ARO) is capitalized and depreciated over the This category also includes transactions unrelated to the remaining life of the asset. We estimate our AROs based on the fair production of our generating assets and fees we earn for services value of the AROs we incurred at the time the related long-lived that we provide for third parties.
assets were either acquired, placed in service or when regulations Electric utility revenues are impacted by things such as rate establishing the obligation became effective. regulation, fuel costs, technology, customer behavior, the economy and competitive forces. Changing weather also affects the amount of We initially recorded AROs at fair value for the estimated cost to electricity our customers use as electricity sales are seasonal. As a decommission Wolf Creek (our 4 7 % share), retire our wind summer peaking utility, the third quarter typically accounts for our generating facilities, dispose of asbestos insulating material at our greatest electricity sales. Hot summer temperatures and cold winter power plants, remediate ash disposal ponds and dispose of temperatures prompt more demand, especially among residential polychlorinated biphenyl contaminated oil. In determining our and commercial customers, and to a lesser extent, industrial AROs, we make assumptions regarding probable future disposal customers. Mild weather reduces customer demand. Our wholesale costs. A change in these assumptions could have a significant impact revenues are impacted by, among other factors, demand, cost and on the AROs reflected on our consolidated balance sheets.
availability of fuel and purchased power, price volatility, available As of December 31, 2014 and 2013, we have recorded AROs of generation capacity, transmission availability and weather.
$230.7 million and $160.7 million, respectively. For additional information on our legal AROs, see Note 14 of the Notes to Consolidated Financial Statements, "Asset Retirement Obligations" 25
WESTAR ENERGY 2014 ANNUAL REPORT 2014 Compared to 2013 Rate Case Agreement Below we discuss our operating results for the year ended In November 2013, the KCC issued an order allowing us to adjust December 31, 2014, compared to the results for the year ended our prices to include the additional investment in the La Cygne December 31, 2013. Significant changes in results of operations environmental upgrades, as discussed below, and to reflect cost shown in the table immediately below are further explained in reductions elsewhere. The new prices were expected to increase our the descriptions that follow. annual retail revenues by approximately $30.7 million.
YearEnded December31, 2014 2013 Change %Change Gross Margin (Dollars InThousands, Except PerShare Amounts)
Fuel and purchased power costs fluctuate with electricity sales and REVENUES:
Residential .....................
unit costs. As permitted by regulators, we adjust our retail prices to
$ 793,586 S 728,852 $ 64,734 8.9 Com mercial ..................... 727,964 667,106 60,858 9.1 reflect changes in the costs of fuel and purchased power. Fuel and Industrial ...................... 414,997 374,825 40,172 10.7 purchased power costs for wholesale customers are recovered at Other retail ..................... (24,180) 8,939 (33,119) (370.5) prevailing market prices or based on a predetermined formula with a price adjustment approved by FERC. As a result, changes in fuel TotalRetail Revenues .......... 1,912,367 1,779,722 132,645 7.5 and purchased power costs are offset in revenues with minimal Wholesale ...................... 392,730 348,239 44,491 12.8
.. . . .. . . . .. impact on net income. In addition, SPP network transmission costs Transm ission") ....... 256,838 210,281 46,557 22.1 fluctuate due primarily to investments by us and other members of Other .......................... 39,768 32,412 7,356 22.7 the SPP for upgrades to the transmission grid within the SPP RTO.
Total Revenues ................ 2,601,703 2,370,654 231,049 9.7 As with fuel and purchased power costs, changes in SPP network OPERATING EXPENSES: transmission costs are mostly reflected in the prices we charge Fuel and purchased power ........ 705,450 634,797 70,653 11.1 customers with minimal impact on net income. For these reasons, SPP network transmission costs ... 218,924 178,604 40,320 22.6 we believe gross margin is useful for understanding and analyzing Operating and maintenance ...... 367,188 359,060 8,128 2.3 changes in our operating performance from one period to the next.
Depreciation and amortization .... 286,442 272,593 13,849 5.1 We calculate gross margin as total revenues, including transmission Selling, general and administrative 250,439 224,133 26,306 11.7 revenues, less the sum of fuel and purchased power costs and Taxes other than income tax ...... 140,302 122,282 18,020 14.7 amounts billed by the SPP for network transmission costs. Accord-Total Operating Expenses ....... 1,968,745 1,791,469 177,276 9.9 ingly, gross margin reflects transmission revenues and costs on INCOME FROM OPERATIONS ......... 632,958 579,185 53,773 9.3 a net basis. The following table summarizes our gross margin for the years ended December 31, 2014 and 2013.
OTHER INCOME (EXPENSE):
Investment earnings ............ 10,622 10,056 566 5.6 YearEnded December 31, 2014 2013 Change %Change Other income .................. 31,522 35,609 (4,087) (11.5) (Dollars InThousands)
Other expense ................. (18,389) (18,099) (290) (1.6) Revenues ........................ $ 2,601,703 S 2,370,654 $ 231,049 9.7 Less: Fuel and purchased Total Other Income ........... 23,755 27,566 (3,811) (13.8) power expense ........... 705,450 634,797 70,653 11.1 Interest expense .................. 183,118 182,167 951 0.5 SPP network transmission costs .................... 218,924 178,604 40,320 22.6 INCOME BEFORE INCOME TAXES ...... 473,595 424,584 49,011 11.5 Income tax expense ................ 151,270 123,721 27,549 22.3 Gross Margin ...................... $1,677,329 $1,557,253 $ 120,076 7.7 NET INCOM E ...................... 322,325 300,863 21,462 7.1 Less: Net income attributable to The following table reflects changes in electricity sales for the years noncontrolling interests .......... 9,066 8,343 723 8.7 ended December 31, 2014 and 2013. No electricity sales are shown NET INCOME ATTRIBUTABLE for transmission or other as they are not directly related to the TOWESTAR ENERGY, INC ........... $ 313,259 $ 292,520 S 20,739 7.1 amount of electricity we sell.
BASIC EARNINGS PER YearEnded December31, 2014 2013 Change %Change AVERAGE COMMON SHARE (Thousands ofMWh)
OUTSTANDING ATTRIBUTABLE ELECTRICITY SALES:
TOWESTAR ENERGY .............. $ 2.40 S 2.29 $ 0.11 4.8 Residential ..................... 6,580 6,523 57 0.9 DILUTED EARNINGS PER Commercial ..................... 7,521 7,480 41 0.5 AVERAGE COMMON SHARE Industrial ...................... 5,601 5,407 194 3.6 OUTSTANDING ATTRIBUTABLE Other retail ..................... 86 86 - -
TOWESTAR ENERGY .............. 5 2.35 S 2.27 $ 0.08 3.5 Total Retail ................... 19,788 19,496 292 1.5 uslxsclmdes revenue front ass SPP network trartssissiors tarif'correspondingto our Wholesale ...................... 9,544 8,593 951 11.1 SPPnetwork transirsissioncosts. These costs, less adrsinistrntionfees of $51.0 Pisillion and $39.1 itsillion, were returned to iis as revenzse in 2014 arnd 2013, respectively. Total ........................ 29,332 28,089 1,243 4.4 26
Gross margin increased due primarily to higher retail revenues, YearEnded December 31, 2014 2013 Change %Change principally the result of higher retail prices. Average retail prices (Dollars InThousands) were about 6% higher than 2013, resulting from recovery of Depreciation and amortization investments we made in our transmission infrastructure and expense ........................ $ 286,442 $ 272,593 $ 13,849 5.1 air quality controls at our power plants. Retail revenues were also Depreciation and amortization expense increased due to plant impacted by more electricity sales resulting principally from additions, including air quality controls, and transmission facilities increased sales to industrial customers.
as well as increased amortization related primarily to implementing Income from operations is the most directly comparable measure to new software systems.
our presentation of gross margin that is calculated and presented in YearEnded December 31, 2014 2013 Change %Change accordance with GAAP in our consolidated statements of income.
(DollarsInThousands)
Our presentation of gross margin should not be considered in Selling, general and administrative isolation or as a substitute for income from operations. Additionally, expense ........................ $ 250,439 $ 224,133 S 26,306 11.7 our presentation of gross margin may not be comparable to similarly titled measures reported by other companies. The following table Selling, general and administrative expense increased due primarily to:
reconciles income from operations with gross margin for the years " higher labor and employee benefit costs of $10.6 million; ended December 31, 2014 and 2013. " a $6.1 million increase in fees related primarily to implementing YearEnded December 31, 2014 2013 Change %Change new software systems; and, (DollarsInThousands)
" an increase in the allowance for uncollectible accounts of Gross margin ...................... $1,677,329
$2.7 million.
S 1,557,253 $ 120,076 7.7 tess: Operating and maintenance YearEnded December 31, 2014 2013 Change %Change expense ................. 367,188 359,060 8,128 2.3 (DollarsInThousands)
Depreciation and amortization expense ................. 286,442 272,593 13,849 5.1 Taxesotherthanincometax ......... $ 140,302 $ 122,282 $ 18,020 14.7 Selling, general and administrative Taxes other than income tax increased due primarily to a $16.2 mil-expense ................. 250,439 224,133 26,306 11.7 lion increase in property taxes, which are offset in retail revenues.
Taxes other than income tax.. 140,302 122,282 18,020 14.7 Incomefrom operations ............ $ 632,958 $ 579,185 S 53,773 9.3 YearEnded December 31, 2014 2013 Change %Change (DollarsInThousands)
Operating Expenses and Other Income and Expense Items Other income ..................... S 31,522 $ 35,609 S (4,087) (11.5)
YearEnded December 31, 2014 2013 Change %Change Other income decreased due primarily to our having recorded (DollarsInThousands) about $6.9 million less in COLI benefits. The decrease was partially Operating and maintenance offset by our having recorded $2.9 million more in equity AFUDC.
expense ........................ $ 367,188 $ 359,060 $ 8,128 2.3 YearEnded December 31, 2014 2013 Change %Change Operating and maintenance expense increased due principally to: (DollarsInThousands)
" a $6.4 million increase in operating and maintenance costs at our Income tax expense ................ $ 151,270 $ 123,721 $ 27,549 22.3 plants primarily for planned outages at our coal fired plants; Income tax expense increased due primarily to higher income
" a $4.3 million increase in operating and maintenance costs to before income taxes.
enhance reliability of our transmission systems; and,
" an approximately $3.9 million increase in costs at Wolf Creek attributable primarily to a planned outage in the first and second quarters of 2014; however,
" partially offsetting these increases was a $7.8 million decrease in amounts expensed for previously deferred storm costs.
27
WESTAR ENERGY 2014 ANNUAL REPORT 2013 Compared to 2012 Rate Case Agreement Below we discuss our operating results for the year ended In April 2012, the KCC issued an order authorizing higher revenues December 31, 2013, compared to the results for the year ended to recover higher expenses primarily for increased tree trimming to December 31, 2012, Significant changes in results of operations enhance reliability and increased pension costs resulting from the shown in the table immediately below are further explained in the consequences of the 2008 financial crisis and subsequent low descriptions that follow. interest rate environment in accordance with the regulatory YearEnded December 31, 2013 2012 Change %Change mechanism in place to account for such pension costs. As a result of ExceptPerShareAmounts)
(DollarsInThousands, this order, we expected selling, general and administrative expense REVENUES: to increase $32.1 million and the cost of operating and maintaining Residential ..................... 728,852 $ 714,562 $ 14,290 2.0 our distribution system to increase $10.9 million on an annualized Com mercial ..................... 667,106 640,654 26,452 4.1 basis. In addition, we revised our depreciation rates to reflect Industrial ...................... 374,825 368,909 5,916 1.6 changes in the estimated useful lives of some of our assets. The Other retail ..................... 8,939 (5,845) 14,784 252.9 change in estimate decreased annual depreciation expense by Total Retail Revenues .......... 1,779,722 1,718,280 61,442 3.6 $43.6 million. However, decreased depreciation expense as a result Wholesale ...................... 348,239 316,353 31,886 10.1 of lower depreciation rates were offset by additional depreciation Transm ission"' .................. 210,281 193,797 16,484 8.5 related to additions to property, plant and equipment. Because the Other .......................... 32,412 33,040 (628) (1.9) aforementioned changes were implemented shortly after the KCC Total Revenues ................ 2,370,654 2,261,470 109,184 4.8 issued its order, our 2012 consolidated financial results do not reflect OPERATING EXPENSES:
the full annual impact of the changes.
Fuel and purchased power ........ 634,797 589,990 44,807 7.6 Gross Margin SPP network transmission costs ... 178,604 166,547 12,057 7.2 The following table summarizes our gross margin for the years Operating and maintenance ...... 359,060 342,055 17,005 5.0 ended December 31, 2013 and 2012.
Depreciation and amortization .... 272,593 270,464 2,129 0.8 Selling, general and administrative 224,133 226,012 (1,879) (0.8) YearEnded December31, 2013 2012 Change %Change Taxes other than income tax ...... 122,282 104,269 18,013 17.3 (DollarsInThousands)
Total Operating Expenses ....... 1,791,469 1,699,337 92,132 5.4 Revenues ........................ $ 2,370,654 $ 2,261,470 $ 109,184 4.8 Less: Fuel and purchased power INCOME FROM OPERATIONS ......... 579,185 562,133 17,052 3.0 634,797 589,990 44,807 7.6 expense .................
OTHER INCOME (EXPENSE): SPP network transmission Investment earnings ............. 10,056 7,411 2,645 35.7 costs .................... 178,604 166,547 12,057 7.2 Other incom e ................... 35,609 35,378 231 0.7 Gross Margin ...................... $1,557,253 S 1,504,933 $ 52,320 3.5 Other expense .................. (18,099) (19,987) 1,888 9.4 Total Other Income (Expense)... 27,566 22,802 4,764 20.9 The following table reflects changes in electricity sales for the years Interest expense ................... 182,167 176,337 5,830 3.3 ended December 31, 2013 and 2012. No electricity sales are shown for transmission or other as they are not directly related to the INCOME BEFORE INCOME TAXES ...... 424,584 408,598 15,986 3.9 amount of electricity we sell.
Income tax expense ................ 123,721 126,136 (2,415) (1.9)
YearEnded December 31, 2013 2012 Change %Change NETINCOM E ...................... 300,863 282,462 18,401 6.5 (Thousands ofVM)h Less: Net income attributable to ELECTRICITY SALES:
noncontrolling interests .......... 8,343 7,316 1,027 14.0 Residential ..................... 6,523 6,684 (161) (2.4)
NETINCOME ATTRIBUTABLE Commercial ..................... 7,480 7,581 (101) (1.3)
TOWESTAR ENERGY. INC........... 292,520 275,146 17,374 6.3 Industrial ...................... 5,407 5,588 (181) (3.2)
Preferred dividends ................ - 1,616 (1,616) (100.0) Other retail ..................... 86 85 1 1.2 NETINCOME ATTRIBUTABLE Total Retail ................... 19,496 19,938 (442) (2.2)
TOCOMMON STOCK .............. $ 292,520 $ 273,530 $ 18,990 6.9 Wholesale ...................... 8,593 7,719 874 11.3 BASIC EARNINGS PER Total ........................ 28,089 27,657 432 1.6 AVERAGE COMMON SHARE OUTSTANDING ATTRIBUTABLE Gross margin increased due primarily to higher retail revenues that TOWESTAR ENERGY .............. $ 2.29 $ 2.15 $ 0.14 were the result of higher prices offset partially by lower retail DILUTED EARNINGS PER electricity sales. The lower retail electricity sales were attributable AVERAGE COMMON SHARE OUTSTANDING ATTRIBUTABLE principally to cooler summer weather, which particularly impacted TOWESTAR ENERGY .............. $ 2.27 S 2.15 $ 0.12 residential and commercial electricity sales. As measured by cooling degree days, 2013 was 23% cooler than the prior year. Contributing
")Intcludes r'eveiuefi'rot anr SPP network transinissiontariff correspondingto our SPP rletwvork transmission costs. 77iese costs, less aidrinistraationfees of $39.1 also to the decrease in retail sales was the reduced demand, primarily
,nillion and $272 million, rcspectively, were returnred to us as revenue in 2013 from several large industrial customers.
and 2012, respectively 28
The following table reconciles income from operations with gross YearEnded December31, 2013 2012 Change %Change margin for the years ended December 31, 2013 and 2012. (DollarsInThousands)
YearEnded December 31, 2013 2012 Change %Change Investment earnings ............... $ 10,056 $ 7,411 $ 2,645 35.7 (Dollars InThousands)
Investment earnings increased due principally to:
Gross margin ...................... $ 1,557,253 $1,504,933 $ 52,320 3.5
- $1.2 million increase in earnings from our investment in Prairie Less: Operating and maintenance expense ................. 359,060 342,055 17,005 5.0 Wind; and, Depreciation and amortization * $1.4 million of additional gains on investments in a trust to fund expense ................. 272,593 270,464 2,129 0.8 retirement benefits.
Selling, general and administrative expense ................. 224,133 226,012 (1,879) (0.8) YearEnded December 31, 2013 2012 Change %Change Taxes other than income tax .. 122,282 104,269 18,013 17.3 (Dollars InThousands)
Incomefrom operations ............ $ 579,185 S 562,133 $ 17,052 3.0 Interest expense ................... $ 182,167 $ 176,337 $ 5,830 3.3 Interest expense increased due to our recording $10.5 million in Operating Expenses and Other Income and Expense Items interest principally related to additional debt issued to fund capital YearEnded December 31, 2013 2012 Change %Change investment. Partially offsetting this increase was a $2.2 million (DollarsInThousands) decrease of interest expense on long-term debt of VIEs and a Operating and maintenance $1.3 million decrease for capitalized interest.
expense ........................ $ 359,060 $ 342,055 $ 17,005 5.0 Financial Condition Operating and maintenance expense increased due principally to: A number of factors affected amounts recorded on our balance
" higher costs for tree trimming, pursuant to authorized rate recovery, sheet as of December 31, 2014, compared to December 31, 2013.
and other distribution reliability activities of $11.8 million; and
" higher costs at Wolf Creek of $5.0 million, due principally to Asof December31, 2014 2013 Change %Change higher amortization of refueling outage costs and recognition (Dollars InThousands) of costs incurred during an unscheduled maintenance outage Property, plant and equipment, net .. $ 8,162,908 $ 7,551,916 S 610,992 8.1 in 2013.
Property, plant and equipment, net of accumulated depreciation, YearEnded December 31, 2013 2012 Change %Change increased due primarily to plant additions for air quality controls, (DollarsInThousands) additional transmission facilities and a revision to our ARO to Depreciation and amortization decommission Wolf Creek.
expense ........................ S 272,593 $ 270,464 $ 2,129 0.8 Depreciation and amortization expense increased due to additional Asof December 31, 2014 2013 Change %Change depreciation expense resulting primarily from increased plant (Dollars InThousands) additions at our power plants, including air quality controls, and the Property, plant and equipment addition of transmission facilities. Partially offsetting this increase of variable interest entities, net... S 278,573 $ 296,626 $ (18,053) (6.1) was a result of our having reduced depreciation rates in mid 2012 to Property, plant and equipment of VIEs, net of accumulated reflect changes in the estimated useful lives of some of our assets. depreciation, decreased due to deconsolidating a rail car lease as discussed in Note 17 of the Notes to Consolidated Financial YearEnded December 31, 2013 2012 Change %Change Statements, "Variable Interest Entities,' and normal depreciation of (DollarsInThousands)
Selling, general and administrative these assets.
expense ........................ $ 224,133 $ 226,012 S (1,879) (0.8)
Asof December 31, 2014 2013 Change %Change Selling, general and administrative expense decreased due primarily to: (DollarsInThousands)
" lower post-retirement and other employee benefit costs of $8.6 Regulatoryassets .................. $ 859,778 S 755,414 $ 104,364 13.8 million due principally to restructuring insurance contracts; and, Regulatory liabilities ............... 343,485 329,556 13,929 4.2
" lower labor cost of $2.3 million, which in part reflects expenses Netregulatoryassets ............. $ 516,293 $ 425,858 $ 90,435 21.2 recorded in 2012 related to sustainable cost reduction activities; however, Total regulatory assets increased due primarily to a $158.5 million
" partially offsetting these decreases were higher pension costs of increase in deferred employee benefit costs, due principally to a
$12.3 million, most of which were offset with higher revenues. decrease in the discount rates used to calculate our and Wolf These increased pension cost were principally a consequence Creek's pension benefit obligations and the adoption of updated of the 2008 financial market downturn and the subsequent low mortality tables. However, this increase was partially offset by the interest rate environment. following items:
" a $22.1 million decrease in amounts deferred for fuel expense; YearEnded December 31, 2013 2012 Change %Change
" a $17.9 million decrease in amounts deferred for Wolf Creek InThousands)
(Dollars refueling and maintenance outages; and Taxes other than income tax ......... $ 122,282 S 104,269 $ 18,013 17.3
" a $9.8 million decrease in amounts due from customers for future Taxes other than income tax increased due primarily to an $18.2 income taxes.
million increase in property taxes, which are offset in retail revenues. 29
WESTAR ENERGY 2014 ANNUAL REPORT Total regulatory liabilities increased due primarily to the following AsofDecember3l, 2014 2013 Change %Change reasons: (Dollars InThousands)
" a $25.2 million increase in jurisdictional AFUDC, which is Accrued employee benefits .......... $ 532,622 $ 331,558 $ 201,064 60.6 AFUDC that is accrued subsequent to the time costs are included Accrued employee benefits increased due primarily to higher in our prices and prior to the time associated costs are placed into pension and post-retirement benefit obligations as a result of service; and, decreases in the discount rates used to calculate our and Wolf
" a $17.9 million increase in refund obligations related to amounts Creek's pension benefit obligations and the adoption of updated we have collected from our customers in excess of our actual cost mortality tables.
of fuel and purchased power; however,
" partially offsetting these increases was a $25.9 million decrease in Asof December31, 2014 2013 Change %CChange amounts collected but not yet spent to dispose of plant assets. (DollarsInThousands)
Asset retirement obligations ........ S 230,668 $ 160,682 $ 69,986 43.6 Asof December31, 2014 2013 Change %Change (Dollars InThousands) Asset retirement obligations increased due primarily to a $50.7 mil-Short-term debt ................... $ 257,600 $ 134,600 $ 123,000 91.4 lion revision in our ARO to decommission Wolf Creek. For additional information, see Note 14 of the Notes to Consolidated Short-term debt increased due to increases in issuances of Financial Statements, "Asset Retirement Obligations.'
commercial paper to temporarily fund capital expenditures, to repay borrowings under Westar Energy's revolving credit facilities, LIQUIDITY AND CAPITAL RESOURCES to redeem debt on an interim basis, for working capital and/or for other general corporate purposes. Overview Available sources of funds to operate our business include internally Asof December 31, 2014 2013 Change %Change generated cash, short-term borrowings under Westar Energy's (Dollars InThousands) commercial paper program and revolving credit facilities and access Current maturities of long-term debt - 5
$ 250,000 $(250,000) (100.0) to capital markets. We expect to meet our day-to-day cash Long-term debt, net ............... 3,215,539 2,968,958 246,581 8.3 requirements including, among other items, fuel and purchased Total long-term debt ............. $ 3,215,539 $ 3,218,958 S (3,419) (0.1) power, dividends, interest payments, income taxes and pension contributions, using primarily internally generated cash and short-In 2014, Westar Energy and KGE issued $180.0 million and $250.0 term borrowings. To meet the cash requirements for our capital million, respectively, in principal amount of first mortgage bonds.
investments, we expect to use internally generated cash, short-term Proceeds of these issuances were used to retire $250.0 millon of borrowings and proceeds from the issuance of debt and equity Westar Energy first mortgage bonds and redeem three KGE securities in the capital markets. When such balances are of sufficient pollution control bond series with principal amount of $177.5 size and it makes economic sense to do so, we also use proceeds million. For more information on our long-term debt, see Note 9 of from the issuance of long-term debt and equity securities to repay the Notes to Consolidated Financial Statements, "Long-term Debt."
short-term borrowings, which are principally related to investments Asof December 31, 2014 in capital equipment and the redemption of bonds and for working 2013 Change %Change (Dollars InThousands) capital and general corporate purposes. In 2015, we expect to Current maturities of long-term debt continue our significant capital spending program and plan to of variable interest entities ........ 27,933 $ 27,479 $ 454 1.7 contribute to our pension trust. We continue to believe that we will Long-term debt of variable have the ability to pay dividends. Uncertainties affecting our ability interest entities ................. 166,565 194,802 (28,237) (14.5) to meet cash requirements include, among others, factors affecting Total long-term debt of variable revenues described in "Item IA. Risk Factors" and "- Operating interest entities ............... S 194,498 S 222,281 $ (27,783) (12.5) Results" above, economic conditions, regulatory actions, compliance with environmental regulations and conditions in the capital Total long-term debt of VIEs decreased due principally to the VIEs markets. For additional information on our future cash requirements, that hold the JEC and La Cygne leasehold interests having made see "- Future Cash Requirements" below.
principal payments totaling $27.2 million.
Capital Structure Asof December31, 2014 2013 Change %Change As of December 31, 2014 and 2013, our capital structure, excluding (Dollars InThousands) short-term debt, was as follows:
Deferred income tax liabilities ....... $1,475,487 $1,363,148 $ 112,339 8.2 Asof December 31, 2014 2013 Long-term deferred income tax liabilities increased due primarily to Common equity ................................................. 49% 47%
the use of bonus and accelerated depreciation methods during Noncontrolling interests .......................................... <1% <1%
the year. Long-term debt, including VIEs .................................... 51% 53%
30
Short-Term Borrowings series of bonds initially issued in March 2013 in a principal amount Westar Energy maintains a commercial paper program pursuant to of $250.0 million. Proceeds from the May 2014 issuance were used which it may issue commercial paper up to a maximum aggregate in June 2014 to redeem three KGE pollution control bond series amount outstanding at any one time of $1.0 billion. This program is totaling $177.5 million principal amount at stated interest rates supported by Westar Energy's revolving credit facilities. Maturities between 5.00% and 5.30%.
of commercial paper issuances may not exceed 365 days from the As of December 31, 2014, we had $121.9 million of variable rate, date of issuance and proceeds from such issuances will be used to tax-exempt bonds. While the interest rates for these bonds have temporarily fund capital expenditures, to redeem debt on an interim been extremely low, we continue to monitor the credit markets and basis, for working capital and/or for other general corporate evaluate our options with respect to these bonds.
purposes. As of February 17,2015, Westar Energy had $402.3 million of commercial paper issued and outstanding. The Westar Energy and KGE mortgages each contain provisions restricting the amount of first mortgage bonds that can be issued by Westar Energy has two revolving credit facilities in the amounts of each entity. We must comply with such restrictions prior to the
$730.0 million and $270.0 million. In September 2014, Westar issuance of additional first mortgage bonds or other secured Energy extended the term of the $730.0 million facility by one year indebtedness.
to terminate in September 2018, $81.4 million of which will expire in September 2017. In February 2014, Westar Energy extended the Under the Westar Energy mortgage, the issuance of bonds is subject term of its $270.0 million credit facility to February 2017, to limitations based on the amount of bondable property additions.
$20.0 million of which will terminate in February 2016. As long as In addition, so long as any bonds issued prior to January 1, 1997 there is no default under the facilities, the $730.0 million facility remain outstanding, the mortgage prohibits additional first mort-may be extended an additional two years and the aggregate amount gage bonds from being issued, except in connection with certain of borrowings under the $730.0 million and $270.0 million facilities refundings, unless Westar Energy's unconsolidated net earnings may be increased to $1.0 billion and $400.0 million, respectively, available for interest, depreciation and property retirement (which subject to lender participation. All borrowings under the facilities as defined, does not include earnings or losses attributable to the are secured by KGE first mortgage bonds. Total combined ownership of securities of subsidiaries), for a period of 12 consecutive borrowings under the revolving credit facilities and the commercial months within 15 months preceding the issuance, are not less than paper program may not exceed $1.0 billion at any given time. As of the greater of twice the annual interest charges on or 10% of February 17, 2015, no amounts were borrowed and $15.4 million of the principal amount of all first mortgage bonds outstanding letters of credit had been issued under the $730.0 minion facility. No after giving effect to the proposed issuance. As of December 31, amounts were borrowed and no letters of credit were issued under 2014, approximately $743.2 million principal amount of additional the $270.0 million facility as of the same date. first mortgage bonds could be issued under the most restrictive provis-A default by Westar Energy or KGE under other indebtedness ions in the mortgage, except in connection with certain refundings.
totaling more than $25.0 million would be a default under both Under the KGE mortgage, the issuance of bonds is subject to revolving credit facilities. Westar Energy is required to maintain a limitations based on the amount of bondable property additions. In consolidated indebtedness to consolidated capitalization ratio of addition, the mortgage prohibits additional first mortgage bonds 65% or less at all times. At December 31, 2014, our ratio was 52%. from being issued, except in connection with certain refundings, See Note 8 of the Notes to Consolidated Financial Statements, unless KGE's net earnings before income taxes and before provision "Short-Term Debt:' for additional information regarding our short- for retirement and depreciation of property for a period of 12 term borrowings. consecutive months within 15 months preceding the issuance are Long-Term Debt Financing not less than either two and one-half times the annual interest charges on or 10% of the principal amount of all KGE first mortgage In January 2015, Westar Energy redeemed $125.0 million in principal amount of first mortgage bonds bearing stated interest at bonds outstanding after giving effect to the proposed issuance. As of December 31, 2014, approximately $1.3 billion principal amount of 5.95% and maturing January 2035.
additional KGE first mortgage bonds could be issued under the In July 2014, KGE issued $250.0 million in principal amount of first most restrictive provisions in the mortgage.
mortgage bonds bearing stated interest at 4.30% and maturing July 2044. The proceeds were used to retire Westar Energy first mortgage Some of our debt instruments contain restrictions that require us to maintain leverage ratios as defined in the credit agreements.
bonds in a principal amount of $250.0 million with a stated interest We calculate these ratios in accordance with the agreements and of 6.00% maturing in July 2014.
they are used to determine compliance with our various debt In May 2014, Westar Energy issued $180.0 million in principal covenants. We were in compliance with these covenants as of amount of first mortgage bonds bearing stated interest at 4.10% and December 31, 2014.
maturing April 2043. These bonds constitute a further issuance of a 31
WESTAR ENERGY 2014 ANNUAL REPORT Impact of Credit Ratings on Debt Financing In March 2013, Westar Energy entered into a three-year sales agency Moody's Investors Service (Moody's), Standard & Poor's Ratings financing agreement and master forward sale agreement with a Services (S&P) and Fitch Ratings (Fitch) are independent credit- bank. The maximum amount that Westar Energy may offer and sell rating agencies that rate our debt securities. These ratings indicate under the March 2013 agreements is the lesser of an aggregate of each agency's assessment of our ability to pay interest and principal $500.0 million or approximately 25.0 million shares, subject to when due on our securities. adjustment for share splits, share combinations and share dividends.
Under the terms of the sales agency financing agreement, Westar In general, more favorable credit ratings increase borrowing Energy may offer and sell shares of its common stock from time to opportunities and reduce the cost of borrowing. Under Westar time. In addition, under the terms of the sales agency financing Energy's revolving credit facilities and commercial paper program, agreement and master forward sale confirmation, Westar Energy our cost of borrowings is determined in part by credit ratings. may from time to time enter into one or more forward sale However, Westar Energy's ability to borrow under the credit facilities transactions with the bank, as forward purchaser, and the bank will and commercial paper program are not conditioned on maintaining borrow shares of Westar Energy's common stock from third parties a particular credit rating. We may enter into new credit agreements and sell them through its agent. The agent receives a commission that contain credit rating conditions, which could affect our liquidity equal to 1%of the sales price of all shares sold under the agreements.
and/or our borrowing costs. Westar Energy must settle the forward sale transactions within 18 Factors that impact our credit ratings include a combination of months of the date each transaction is entered.
objective and subjective criteria. Objective criteria include typical In April 2010, Westar Energy entered into a three-year sales agency financial ratios, such as total debt to total capitalization and funds financing agreement and master forward sale agreement with a from operations to total debt, among others, future capital bank that was terminated in March 2013. The maximum amount expenditures and our access to liquidity including committed lines that Westar Energy could offer and sell under the agreements was of credit. Subjective criteria include such items as the quality and the lesser of an aggregate of $500.0 million or approximately credibility of management, the political and regulatory environment 22.0 million shares, subject to adjustment for share splits, share we operate in and an assessment of our governance and risk combinations and share dividends. Terms under these agreements management practices. are generally similar to the March 2013 agreements described above.
In January 2014, Moody's upgraded its ratings for Westar Energy The following table summarizes our common stock activity and KGE first mortgage bonds to A2 from A3. In April 2014, S&P pursuant to the three forward sale agreements.
upgraded its ratings for Westar Energy and KGE first mortgage YearEnded December31, 2014 2013 2012 bonds to A from A-. In June 2014, Fitch revised its rating for Westar (InThousands)
Energy's and KGE's outlook to positive from stable. 12,052,976 1,753,415 -
Shares that could be settled at beginning of year .....
As of February 17, 2015, our ratings with the agencies are as shown Transactions entered ............................. - 11,367,673 1,753,415 Transactions settled(" ............................ 2,892,476 1,068,112 -
in the table below.
Shares that could be settled at end of yearlb)
....... 9,160,500 12,052,976 1,753,415 Westar Energy KGE Westar Energy First Mortgage First Mortgage Commercial Rating Bond Rating Bond Rating Paper Outlook c 77ie shares settled during the Years ended December 31, 2014 and 2013, were settled with a physical settlement amount of approximnatel), $82.9 mnillion and Moody's .................... A2 A2 P-2 Stable
$27.0 million, respectively.
S&P....................... A A A-2 Stable "'Assumning plhysical sharesettlenment of the 9.2 mnillion shares associated with the Fitch ....................... A- A- F2 Positive folruard sale transactionsthlat couldd be settled as of Decenmber 31, 2014, Westrar Energy would have received aggregateproceeds of approxiunately$258.3 mnillion Common Stock based on a neigh ted a'eragefoiruiardpriceof$28.20 pershare.In February2015, Westar Energy settled 0.2 million shares with a phsical settlement amount of Westar Energy's Restated Articles of Incorporation, as amended, approxinatel),$75 million.
provide for 275.0 million authorized shares of common stock. As of December 31, 2014, Westar Energy had 131.7 million shares issued The forward sale transactions are entered into at market prices; and outstanding.
therefore, the forward sale agreements have no initial fair value.
In September 2013, Westar Energy entered into two forward sale Westar Energy does not receive any proceeds from the sale of agreements with two banks. Under the terms of the agreements, the common stock under the forward sale agreements until transactions banks, as forward sellers, borrowed 8.0 million shares of Westar are settled. Upon settlement, Westar Energy will record the forward Energy's common stock from third parties and sold them to a group sale agreements within equity. Except in specified circumstances or of underwriters for $31.15 per share. Pursuant to over-allotment events that would require physical share settlement, Westar Energy options granted to the underwriters, the underwriters purchased in is able to elect to settle any forward sale transactions by means of October 2013 an additional 0.9 million shares from the banks as physical share, cash or net share settlement, and is also able to elect forward sellers, increasing the total number of shares under to settle the forward sale transactions in whole, or in part, earlier the forward sale agreements to approximately 8.9 million. The than the stated maturity dates. Currently, Westar Energy anticipates underwriters received a commission equal to 3.5% of the sales price settling the forward sale transactions through physical share of all shares sold under each agreement. Westar Energy must settle settlement. The shares under the forward sale agreements are such transactions within 24 months of the applicable agreement. initially priced when the transactions are entered into and are 32
subject to certain fixed pricing adjustments during the term of the Cash flows from financing activities decreased $262.8 million in agreements. Accordingly, assuming physical share settlement, 2013 compared to 2012. The decrease was due primarily to our Westar Energy's net proceeds from the forward sale transactions having borrowed $258.1 million less in short term debt and our will represent the prices established by the forward sale agreements having repaid $110.6 million more for borrowings against the cash applicable to the time periods in which physical settlement occurs. surrender value of COLI. This decrease was partially offset by our having paid $120.6 million less to retire long-term debt.
Westar Energy used the proceeds from the transactions described above to repay short-term borrowings, with such borrowed amounts Future Cash Requirements principally used for investments in capital equipment, as well as for Our business requires significant capital investments. Through working capital and general corporate purposes. 2017, we expect to need cash primarily for utility construction Summary of Cash Flows programs designed to improve and expand facilities related to YearEnded December 31, 2014 2013 2012 providing electric service, which include, but are not limited to, (InThousands) expenditures for environmental projects at our coal-fired power Cash flows from (used in): plants, new transmission lines and other improvements to our Operatingactivities ............................ S 824,355 $ 702,803 S 599,106 power plants, transmission and distribution lines and equipment.
Investing activities ............................. (838,748) (641,901) (797,337) We expect to meet these cash needs with internally generated cash, Financing activities ............................ 14,462 (62,244) 200,521 short-term borrowings and the issuance of securities in the capital Net (decrease) increase in cash and markets.
cash equivalents .......................... $ 69 $ (1,342) $ 2,290 We have incurred and expect to continue to incur significant costs to comply with existing and future environmental laws and Cash Flows from Operating Activities regulations, which are subject to changing interpretations and Cash flows from operating activities increased $121.6 million in amendments. Changes to environmental regulations could result in 2014 compared to 2013 due principally to our having received significantly more stringent laws and regulations or interpretations
$384.2 million more from retail and wholesale customers. This thereof that could affect us and our industry in particular. These increase was offset partially by our having paid $227.4 million more laws, regulations and interpretations could result in more stringent for fuel and purchased power. terms in our existing operating permits or a failure to obtain new Cash flows from operating activities increased $103.7 million in permits could cause a material increase in our capital or operational 2013 compared to 2012 due principally to our having received about costs and could otherwise have a material effect on our operations
$74.3 million more from retail and wholesale customers, our having and consolidated financial results.
paid approximately $40.9 million less for pension and post Capital expenditures for 2014 and anticipated capital expenditures, retirement contributions, our having paid $29.7 million in 2012 including costs of removal, for 2015 through 2017 are shown in the to settle treasury yield hedge transactions, and our receiving following table.
$9.6 million more in corporate owned life insurance (COLI) death Actual Projected proceeds. Increases were offset partially by our having paid 2014 2015 2016 2017 approximately $65.6 million more for the planned Wolf Creek (InThousands) refueling and maintenance outage. Generation:
Replacements and other ........ $ 206,674 $175,200 $181,100 $ 140,900 Cash Flows used in Investing Activities Environmental ............... 237,959 85,400 26,800 14,500 Cash flows used in investing activities increased $196.8 million Nuclear fuel .................... 41,873 15,700 28,800 46,500 from 2013 to 2014 due primarily to decreased proceeds from Transmission(a" ................. 187,957 198,600 205,300 216,100 investment in COLI of $104.4 million and increased investment in Distribution .................... 135,654 165,500 171,700 189,200 property, plant and equipment of $72.0 million. Other .................... ...... 41,936 51,600 47,300 63,800 Total capital expenditures ..... $ 852,053 $ 692,000 $ 661,000 $ 671,000 Cash flows used in investing activities decreased $155.4 million from 2012 to 2013 due primarily to increased proceeds from (')In addition to amnounrts listed, we rnade sass$8.0 rsillion, in'estfnscst ill Prsairie investment in COLI of $114.1 million and decreased investment in Wind ius 2014. We do not anticipate anty fsrthcr iv'estncent related to Prairie Wind irs 2015 through 2017 property, plant and equipment of $30.1 million.
Cash Flows from (used in) Financing Activities We prepare these estimates for planning purposes and revise Cash flows from financing activities increased $76.7 million in 2014 them from time to time. Actual expenditures will differ, perhaps compared to 2013. The increase was due primarily to our having materially, from our estimates due to changing regulatory borrowed $327.6 million more in short-term debt, our having repaid requirements, changing costs, delays or advances in engineering,
$104.2 million less for borrowings against the cash surrender value construction or permitting, changes in the availability and cost of of COLI, and also an increase in issuances of common stock of capital and other factors discussed in "Item IA. Risk Factors:' We
$54.8 million. This was partially offset by our having paid and our generating plant co-owners periodically evaluate these
$3275 million more to retire, and our having received $74.4 million estimates and this may result in possibly material changes in less from issuances of, long-term debt. actual costs.
33
WESTAR ENERGY 2014 ANNUAL REPORT We will also need significant amounts of cash in the future to meet Contractual Cash Obligations our long-term debt obligations. The principal amounts of our long- The following table summarizes the projected future cash payments term debt maturities as of December 31, 2014, are as follows. for our contractual obligations existing as of December 31, 2014.
Long-term Long-term Total 2015 2016-2017 2018-2019 Thereafter Year Debt Debtof VIEs (in Thousands)
(InThousands) . . . .. . .
Long-term debt(' $ 3,226,940 $ - $ 125,000 $ 600,000 $ 2,501,940 2015 ..................................................... $ - S 27,933 Long-term debt of VIEs"'ý . 194,204 27,933 55,151 60,023 51,097 2016 ..................................................... - 28,309 Interest on long-term 2017 ..................................................... 125,000 26,842 debtb" ............... 2,898,604 167,699 332,178 286,597 2,112,130 2018 ..................................................... 300,000 28,538 Interest on long-term 2019 ..................................................... 300,000 31,485 debt of VIEs ........... 38,025 10,430 15,776 9,312 2,507 Thereafter ................................................ 2,501,940 51,097 Long-term debt, Total maturities ........................................... $3,226,940 $ 194,204 including interest ... 6,357,773 206,062 528,105 955,932 4,667,674 Pension and Pension Obligation post-retirement benefit expected The amount we contribute to our pension plan for future periods is 47,300 47,300 - - -
contributions(, ........
not yet known, however, we expect to fund our pension plan each Capital leases(d .......... 86,664 6,379 11,001 9,624 59,660 year at least to a level equal to current year pension expense. We Operating leases(') ....... 53,583 12,396 18,994 13,078 9,115 must also meet minimum funding requirements under the Other obligations Employee Retirement Income Security Act, as amended by the of VIEs"' .............. 13,942 1,076 8,310 4,556 -
Pension Protection Act. We may contribute additional amounts Fossil fuel(5 ............. 1,189,900 203,033 409,771 354,417 222,679 Nuclear fuel"' ........... 157,931 13,621 54,099 19,375 70,836 from time to time as deemed appropriate.
Transmission service"l .... 33,949 9,491 9,590 6,861 8,007 We contributed $26.4 million to our pension trust in 2014 and $27.5 Unconditional purchase obligations ........... 482,880 406,859 48,774 27,247 -
million in 2013. We expect to contribute approximately $42.0 million in 2015. In 2014 and 2013, we also funded $7.1 million and Total contractual
$7.6 million, respectivel)y ofWolfCreek's pension plan contributions. obligations"') .......... $ 8,423,922 $ 906,217 $1,088,644 $1,391,090 $ 5,037,971 In 2015, we plan to contribute $4.7 million to fund Wolf Creek's "See Note 9 of the Notes to ConsolidatedFinancialStatenrents, "Long-Termn Debt,"
pension plan contributions. See Notes 11 and 12 of the Notes to for individual maturities.
Consolidated Financial Statements, "Employee Benefit Plans" and *b We' calculateinterest on our variable rate debt based on the effective interest rates "Wolf Creek Employee Benefit Plans,' for additional discussion of as of December 31, 2014.
Our contribution atnountsfor future periods are not yet known. See Notes 11 Westar Energy and Wolf Creek benefit plans, respectively.
and 12 of the Notes to Consolidated FinancialStatements, "Employee Benefit Plans" and "Wolf Creek Emnployee Benefit Plans,"for additional informnation OFF-BALANCE SHEET ARRANGEMENTS regardingpension and post- retirenrentberefits.
"Includes principaland interest on capital leases.
As discussed under "-Common Stock" above and in Note 16 of the Irnclrdes leases for operatingfacilities, operating equipnrent, office space, office Notes to Consolidated Financial Statements, "Common and equipmnent, vehicles and rail cars as well as other mniscellaneous conrnitnrents.
Preferred Stock,' Westar Energy entered into several forward sale 'n See Note 17 of the Notes to ConsolidatedFinancialStatenrents, "VariableInterest Entities,"Joradditionalinformnation on VIEs.
agreements with banks in 2013. The forward sale agreements are
') Coal and naturalgas conunmoditY and transportationcontracts.
off-balance sheet arrangements. We also have off-balance sheet Uranirur concentrates,conversion, enrichmnent andfabrication.
arrangements in the form of operating leases and letters of credit Inclhudes obligations to SPPfor transmnissionservicepaynents.See Note 13 of the entered into in the ordinary course of business. We did not have any Notes to ConsolidatedFinancialStatenrents, "Connuitnrentsand Contingencies,"
additional off-balance sheet arrangements as of December 31, 2014. for additionalinformmation.
W We have $1.5 s fillion of unrecognized incomre tax benefits, including interest, that are not included in this table becaurse rye cannot reasonabl),estimnate the CONTRACTUAL OBLIGATIONS AND tinsing of the cash paymrents to taxing autihoritiesassumringthose runrecognized COMMERCIAL COMMITMENTS inconre tax benefits urre settled at the amnounts accrrued as of Deceinber31, 2014.
In the course of our business activities, we enter into a variety of contracts and commercial commitments. Some of these result in Commercial Commitments direct obligations reflected on our consolidated balance sheets Our commercial commitments as of December 31, 2014, consist of while others are commitments, some firm and some based on outstanding letters of credit that expire in 2015, some of which uncertainties, not reflected in our underlying consolidated financial automatically renew annually. The letters of credit are comprised of statements. $9.2 million related to new transmission projects, $3.9 million related to energy marketing and trading activities, $0.8 million related to workers' compensation and $2.4 million related to other operating activities, for a total outstanding balance of $16.3 million.
34
OTHER INFORMATION Wolf Creek Outage Wolf Creek normally operates on an 18-month planned refueling Changes in Prices and maintenance outage schedule. However, as a result of an KCC Proceedings unscheduled maintenance outage at Wolf Creek in 2012 coupled We plan to file an application with the KCC in early March 2015 to with the longer than planned refueling and maintenance outage in adjust our prices to include the additional investment in the La 2011, Wolf Creek has since operated on a longer refueling and Cygne environmental upgrades, investment to extend the life of maintenance outage schedule. After the next planned refueling and Wolf Creek and programs to improve reliability. We expect the KCC maintenance outage, occurring in the first quarter of 2015, Wolf to issue an order on our request by late October 2015. Creek will revert back to the normal 18-month refueling and In December 2014, the KCC approved an order allowing us to adjust maintenance outage schedule. In order to revert to the normal our prices to include costs incurred for property taxes. The new schedule, Wolf Creek underwent a planned maintenance outage in prices were effective in January 2015 and are expected to increase the first quarter of 2014. The outage was not part of a refueling our annual retail revenues by approximately $4.9 million. outage and therefore was expensed as incurred. Our share of the 2014 outage costs was approximately $8.7 million.
In October 2014, the KCC approved an order to adjust our prices to include previously deferred amounts associated with various energy Stock-Based Compensation efficiency programs. The new prices were effective in November We use two types of restricted share units (RSUs) for our stock-2014 and we estimate this will decrease our annual retail revenues based compensation awards; those with service requirements and by a total of approximately $5.0 million. those with performance measures. See Note 11 of the Notes to Consolidated Financial Statements, "Employee Benefit Plans,' for We, KCC staff and a consumer advocate joined in a request filed additional information. Total unrecognized compensation cost with the KCC to defer depreciation expense and carrying costs related to RSU awards with only service requirements was $4.4 mil-related to our capital investment associated with environmental lion as of December 31, 2014, and we expect to recognize these upgrades at La Cygne until new retail prices become effective costs over a remaining weighted-average period of 1.9 years. Total following a general rate case expected to be filed in March 2015. We unrecognized compensation cost related to RSU awards with estimate our share of these deferred costs will be approximately performance measures was $3.8 million as of December 31, 2014,
$20.0 million and we expect to begin deferring these costs in March and we expect to recognize these costs over a remaining weighted-2015. In September 2014, the KCC issued an order approving the average period of 1.7 years.
joint application that will allow us to include these deferred costs in our next general rate case, which is expected to increase our annual ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES revenues by approximately $4.0 million. ABOUT MARKET RISK In June 2014, the KCC issued an order to adjust our prices to include Our fuel procurement and energy marketing activities involve updated transmission costs as reflected in the TFR discussed below. primary market risk exposures, including commodity price risk, The new prices were effective in April 2014 and we estimate this wll credit risk and interest rate risk. Commodity price risk is the increase our annual retail revenues by approximately $41.0 million. potential adverse price impact related to the purchase or sale of In May 2014, the KCC issued an order to adjust our prices to include electricity and energy-related products. Credit risk is the potential costs associated with investments to comply with environmental adverse financial impact resulting from non-performance by a counterparty of its contractual obligations. Interest rate risk is the requirements during 2013. New prices were effective in June 2014 and we estimate this will increase our annual retail revenues by potential adverse financial impact related to changes in interest rates. In addition, our investments in trusts to fund nuclear plant approximately $11.0 million.
decommissioning and to fund non-qualified retirement benefits FERC Proceedings give rise to security price risk. Many of the securities in these trusts In August 2014, the KCC filed a challenge with the FERC regarding are exposed to price fluctuations in the capital markets.
rate making as it pertains to the cost of interstate electrical Commodity Price Risk transmission service we operate. The KCC is requesting that we We engage in both financial and physical trading with the goal of lower our transmission return on equity by nearly two percentage managing our commodity price risk, enhancing system reliability points, which would result in reductions of the TFR revenue and increasing profits. We procure and trade electricity, coal, natural requirement if granted. If we are unable to reach a settlement, the gas and other energy-related products by utilizing energy commodity FERC will schedule a hearing.
contracts and a variety of financial instruments, including futures Our TFR that includes projected 2014 transmission capital contracts, options and swaps.
expenditures and operating costs became effective January 2014 and We use various types of fuel, including coal, natural gas, uranium were expected to increase annual transmission revenues by and diesel to operate our plants and also purchase power to meet approximately $44.3 million. This updated rate provided the basis customer demand. Our prices and consolidated financial results are for our request to the KCC to adjust our retail prices to include exposed to market risks from commodity price changes for updated transmission costs discussed above.
electricity and other energy-related products as well as from interest Our TFR that includes projected 2015 transmission capital rates. Volatility in these markets impacts our costs of purchased expenditures and operating costs became effective in January 2015 power, costs of fuel for our generating plants and our participation and is expected to decrease our annual transmission revenues by in energy markets. We strive to manage our customers' and our approximately $4.6 million. 35
WESTAR ENERGY 2014 ANNUAL REPORT exposure to these market risks through regulatory, operating and We had approximately $407.5 million of variable rate debt and financing activities and, when we deem appropriate, we economically current maturities of fixed rate debt as of December 31, 2014. A 100 hedge a portion of these risks through the use of derivative financial basis point change in interest rates applicable to this debt would instruments for non-tradingpurposes. impact income before income taxes on an annualized basis by approximately $4.0 million. As of December 31, 2014, we had Factors that affect our commodity price exposure are the quantity
$121.9 million of variable rate bonds insured by bond insurers.
and availability of fuel used for generation, the availability of our Interest rates payable under these bonds are normally set through power plants and the quantity of electricity customers consume.
periodic auctions. However, conditions in the credit markets over Quantities of fossil fuel we use to generate electricity fluctuate from the past few years caused a dramatic reduction in the demand for period to period based on availability, price and deliverability of a auction bonds, which led to failed auctions. The contractual given fuel type, as well as planned and unscheduled outages at our provisions of these securities set forth an indexing formula method generating plants that use fossil fuels. Our commodity price by which interest will be paid in the event of an auction failure.
exposure is also affected by our nuclear plant refueling and Depending on the level of these reference indices, our interest costs maintenance schedule. Our customers' electricity usage also varies may be higher or lower than what they would have been had the based on weather, the economy and other factors.
securities been auctioned successfully. Additionally, should insurers We trade various types of fuel primarily to reduce exposure related of those bonds experience a decrease in their credit ratings, such to the volatility of commodity prices. A significant portion of our event could increase our borrowing costs. Furthermore, a decline in coal requirements is purchased under long-term contracts to hedge interest rates generally can serve to increase our pension and post-much of the fuel exposure for customers. If we were unable to retirement benefit obligations.
generate an adequate supply of electricity for our customers, we would purchase power in the wholesale market to the extent it is Security Price Risk available, subject to possible transmission constraints, and/or We maintain the NDT, as required by the NRC and Kansas statute, implement curtailment or interruption procedures as permitted in to fund certain costs of nuclear plant decommissioning. As of our tariffs and terms and conditions of service. December 31, 2014, investments in the NDT were allocated 50%
to equity securities, 26% to debt securities, 10% to combination One way by which we manage and measure the commodity price debt/equity/other securities, 9% to alternative investments, 5 % to risk of our trading portfolio is by using a variance/covariance value- real estate securities and less than 1% to cash equivalents. As at-risk (VaR) model. In addition to VaR, we employ additional risk of December 31, 2014 and 2013, the fair value of the NDT control processes such as stress testing, daily loss limits, credit limits investments was $185.0 million and $175.6 million, respectively.
and position limits. We expect to use similar control processes in the Changes in interest rates and/or other market changes resulting in future. The use of VaR requires assumptions, including the selection a 10% decrease in the value of the securities would have resulted of a confidence level and a measure of volatility associated with in an $18.5 million decrease in the value of the NDT as of potential losses and the estimated holding period. We express VaR December 31, 2014.
as a potential dollar loss based on a 95% confidence level using a one-day holding period and a 20-day historical observation period. We also maintain a trust to fund non-qualified retirement benefits.
It is possible that actual results may differ significantly from As of December 31, 2014, investments in the trust were comprised assumptions. Accordingly, VaR may not accurately reflect our levels of 65% equity securities, 35% debt securities and less than 1% cash of exposure. The energy trading and market-based wholesale equivalents. The fair value of the investments in this trust was portfolio VaR amounts for 2014 and 2013 were as follows: $35.5 million as of December 31, 2014, and $34.9 million as of December 31, 2013. Changes in interest rates and/or other market 2014 2013 changes resulting in a 10% decrease in the value of the securities (InThousands) would have resulted in a $3.5 million decrease in the value of the High ............................................ .......... S 614 $ 205 trust as of December 31, 2014.
Low ....................................................... 14 9 Average .................................... ............... 76 83 By maintaining diversified portfolios of securities, we seek to optimize the returns to fund the aforementioned obligations within Interest Rate Risk acceptable risk tolerances, including interest rate risk. However, We have entered into numerous fixed and variable rate debt many of the securities in the portfolios are exposed to price obligations. For details, see Note 9 of the Notes to Consolidated fluctuations in the capital markets. If the value of the securities Financial Statements, "Long-Term Debt." We manage our interest diminishes, the cost of funding the obligations rises. We actively rate risk related to these debt obligations by limiting our exposure to monitor the portfolios by benchmarking the performance of the variable interest rate debt, diversifying maturity dates and entering investments against relevant indices and by maintaining and into treasury yield hedge transactions. We may also use other periodically reviewing the asset allocations in relation to established financial derivative instruments such as interest rate swaps. We policy targets. Our exposure to security price risk related to the compute and present information about the sensitivity to changes in NDT is in part mitigated because we are currently allowed to recover interest rates for variable rate debt and current maturities of fixed decommissioning costs in the prices we charge our customers.
rate debt by assuming a 100 basis point change in the current interest rates applicable to such debt over the remaining time the debt is outstanding.
36
ITEM 8. FINANCIAL STATEMENTS AND MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER SUPPLEMENTARY DATA FINANCIAL REPORTING We are responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) promulgated under TABLE OF CONTENTS the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company's principal executive and PAGE Management's Report on Internal Control principal financial officers and effected by the company's board of Over Financial Reporting ........................ directors, management and other personnel, to provide reasonable 37 assurance regarding the reliability of financial reporting and the Reports of Independent Registered Public preparation of financial statements for external purposes in Accounting Firm ................................ 38 accordance with generally accepted accounting principles (GAAP)
Financial Statements: and includes those policies and procedures that:
Westar Energy, Inc. and Subsidiaries: " Pertain to the maintenance of records that in reasonable detail Consolidated Balance Sheets as of accurately and fairly reflect the transactions and dispositions of December 31, 2014 and 2013 .................. 40 the assets of the company; Consolidated Statements of Income " Provide reasonable assurance that transactions are recorded for the years ended December 31, 2014, as necessary to permit preparation of financial statements in 2013 and 2012 ............................... 41 accordance with GAAP, and that receipts and expenditures of the company are being made only in accordance with authorizations Consolidated Statements of Cash Flows of management and directors of the company; and for the years ended December 31, 2014,
" Provide reasonable assurance regarding prevention or timely 2013 and 2012 ............................... 42 detection of unauthorized acquisition, use or disposition of the Consolidated Statements of Changes company's assets that could have a material effect on the financial in Equity for the years ended statements.
December 31, 2014, 2013 and 2012 ............. 43 Because of its inherent limitations, internal control over financial Notes to Consolidated Financial Statements ............ 44 reporting may not prevent or detect misstatements. Projections of Financial Schedules: any evaluation of effectiveness to future periods are subject to the Schedule II - Valuation and Qualifying Accounts ...... 78 risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or SCHEDULES OMITTED procedures may deteriorate.
The following schedules are omitted because of the absence of the We assessed the effectiveness of our internal control over financial conditions under which they are required or the information is reporting as of December 31, 2014. In making this assessment, we included in our consolidated financial statements and schedules used the criteria set forth in Internal Control - Integrated Framework presented: (2013) issued by the Committee of Sponsoring Organizations of the I, III, IV and V. Treadway Commission. Based on the assessment, we concluded that, as of December 31, 2014, our internal control over financial reporting is effective based on those criteria. Our independent registered public accounting firm has issued an audit report on the company's internal control over financial reporting.
37
WESTAR ENERGY 2014 ANNUAL REPORT REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Westar Energy, Inc.
Topeka, Kansas We have audited the internal control over financial reporting of reasonable detail, accurately and fairly reflect the transactions and Westar Energy, Inc. and subsidiaries (the "Company") as of dispositions of the assets of the company; (2) provide reasonable December 31, 2014, based on criteria established in Internal assurance that transactions are recorded as necessary to permit Control-Integrated Framework (2013) issued by the Committee preparation of financial statements in accordance with generally of Sponsoring Organizations of the Treadway Commission. The accepted accounting principles, and that receipts and expenditures Company's management is responsible for maintaining effective of the company are being made only in accordance with internal control over financial reporting and for its assessment of authorizations of management and directors of the company; and the effectiveness of internal control over financial reporting, (3) provide reasonable assurance regarding prevention or timely included in the accompanying management's report on internal detection of unauthorized acquisition, use, or disposition of the control over financial reporting. Our responsibility is to express an company's assets that could have a material effect on the financial opinion on the Company's internal control over financial reporting statements.
based on our audit.
Because of the inherent limitations of internal control over We conducted our audit in accordance with the standards of the financial reporting, including the possibility of collusion Public Company Accounting Oversight Board (United States). or improper management override of controls, material Those standards require that we plan and perform the audit to misstatements due to error or fraud may not be prevented or obtain reasonable assurance about whether effective internal control detected on a timely basis. Also, projections of any evaluation of the over financial reporting was maintained in all material respects. effectiveness of the internal control over financial reporting to Our audit included obtaining an understanding of internal control future periods are subject to the risk that the controls may become over financial reporting, assessing the risk that a material weakness inadequate because of changes in conditions, or that the degree of exists, testing and evaluating the design and operating effectiveness compliance with the policies or procedures may deteriorate.
of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. In our opinion, the Company maintained, in all material respects, We believe that our audit provides a reasonable basis for our opinion. effective internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal A company's internal control over financial reporting is a process Control-Integrated Framework (2013) issued by the Committee of designed by, or under the supervision of, the company's principal Sponsoring Organizations of the Treadway Commission.
executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, We have also audited, in accordance with the standards of the Public management, and other personnel to provide reasonable assurance Company Accounting Oversight Board (United States), the regarding the reliability of financial reporting and the preparation of consolidated financial statements and financial statement schedule financial statements for external purposes in accordance with of the Company as of and for the year ended December 31, 2014 of generally accepted accounting principles. A company's internal the Company and our report dated February 25, 2015 expressed an control over financial reporting includes those policies and unqualified opinion on those financial statements and financial procedures that (1) pertain to the maintenance of records that, in statement schedule.
/s/ Deloitte & Touche LLP Kansas City, Missouri February 25, 2015 38
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Westar Energy, Inc.
Topeka, Kansas We have audited the accompanying consolidated balance sheets of In our opinion, such consolidated financial statements present Westar Energy, Inc. and subsidiaries (the "Company") as of fairly, in all material respects, the financial position of Westar December 31, 2014 and 2013, and the related consolidated Energy, Inc. and subsidiaries as of December 31, 2014 and 2013, and statements of income, changes in equity, and cash flows for each of the results of their operations and their cash flows for each of the the three years in the period ended December 31, 2014. Our audits three years in the period ended December 31, 2014, in conformity also included the financial statement schedule listed in the Index with accounting principles generally accepted in the United States at Item 15. These financial statements and financial statement of America. Also, in our opinion, such financial statement schedule, schedule are the responsibility of the Company's management. Our when considered in relation to the basic consolidated financial responsibility is to express an opinion on the financial statements statements taken as a whole, presents fairly, in all material respects, and financial statement schedule based on our audits. the information set forth therein.
We conducted our audits in accordance with the standards of the We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Public Company Accounting Oversight Board (United States),
Those standards require that we plan and perform the audit to the Company's internal control over financial reporting as of obtain reasonable assurance about whether the financial statements December 31, 2014, based on the criteria established in Internal are free of material misstatement. An audit includes examining, on Control-Integrated Framework (2013) issued by the Committee of a test basis, evidence supporting the amounts and disclosures in the Sponsoring Organizations of the Treadway Commission and our financial statements. An audit also includes assessing the accounting report dated February 25, 2015 expressed an unqualified opinion on principles used and significant estimates made by management, as the Company's internal control over financial reporting.
well as evaluating the overall financial statement presentation. We
/s/ Deloitte & Touche LLP believe that our audits provide a reasonable basis for our opinion.
Kansas City, Missouri February 25, 2015 39
WESTAR ENERGY 2014 ANNUAL REPORT WESTAR ENERGY, INC. CONSOLIDATED BALANCE SHEETS As of December 31, 2014 2013 (Dollars in Thousands, Except Par Values)
ASSETS CURRENT ASSETS:
C ash and cash equivalents .................................................................... $ 4,556 $ 4,487 Accounts receivable, net of allowance for doubtful accounts of $5,309 and $4,596, respectively .......... 267,327 250,036 Fuel inventory and supplies ................................................................... 247,406 239,511 D eferred tax assets ........................................................................... 29,636 37,954 P rep aid expen ses ............................................................................ 15,793 15,821 R egu latory assets ............................................................................ 105,549 135,408 O th e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,655 23,608 Total C urrent A ssets ...................................................................... 700,922 706,825 PROPERTY, PLANT AND EQUIPMENT, NET ............................................................ 8,162,908 7,551,916 PROPERTY, PLANT AND EQUIPMENT OF VARIABLE INTEREST ENTITIES, NET ............................... 278,573 296,626 OTHER ASSETS:
R egu latory assets ............................................................................ 754,229 620,006 N uclear decom m issioning trust ................................................................ 185,016 175,625 O th er . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265,353 246,140 Total O ther A ssets ........................................................................ 1,204,598 1,041,771 TO TA L ASSETS .................................................................................. $10,347,001 $9,597,138 LIABILITIES AND EQUITY CURRENT LIABILITIES:
Current m aturities of long-term debt ........................................................... $ - $ 250,000 Current maturities of long-term debt of variable interest entities .................................... 27,933 27,479 Sh o rt-term d ebt ............................................................................. 257,600 134,600 A cco unts p ayable .................................................... ....................... 219,351 233,351 A ccrued dividends ........................................................................... 44,971 43,604 A ccru ed tax es .. ............................................................ ................. 74,356 69,769 A ccru ed in terest ............................................................................. 79,707 80,457 R egu lato ry liabilities ......................................................................... 55,142 35,982 O th e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,571 80,184 Total C urrent Liabilities ................................................................... 849,631 955,426 LONG-TERM LIABILITIES:
Long-term debt, net .......................................................................... 3,215,539 2,968,958 Long-term debt of variable interest entities, net .................................................. 166,565 194,802 D eferred incom e taxes ........................................................................ 1,475,487 1,363,148 U nam ortized investm ent tax credits ............................................................ 211,040 192,265 R egu latory liabilities ......................................................................... 288,343 293,574 A ccrued em ployee benefits .................................................................... 532,622 331,558 A sset retirem ent obligations ................................................................... 230,668 160,682 O th e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,799 68,194 Total Long-Term Liabilities ................................................................ 6,196,063 5,573,181 COMMITMENTS AND CONTINGENCIES (SEE NOTES 13 AND 15)
EQUITY:
Westar Energy, Inc. Shareholders' Equity:
Common stock, par value $5 per share; authorized 275,000,000 shares; issued and outstanding 131,687,454 shares and 128,254,229 shares, respective to each date ................. 658,437 641,271 P aid -in cap ital ............................................................................ 1,781,120 1,696,727 R etain ed earn ings ........................................................................ 855,299 724,776 Total Westar Energy, Inc. Shareholders' Equity ............................................. 3,294,856 3,062,774 N oncontrolling Interests ...................................................................... 6,451 5,757 T o tal E q u ity ..................................... ...................................... 3,301,307 3,068,531 TOTAL LIABILITIES AND EQUITY ................................................................ $10,347,001 $9,597,138 40 The accompanying notes are an integralpart of these consolidatedfinancialstatements.
WESTAR ENERGY, INC. CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 2014 2013 2012 (Dollars in Thousands, Except Per Share Amounts)
REV EN UES ........................................................... $ 2,601,703 $ 2,370,654 $ 2,261,470 OPERATING EXPENSES:
Fuel and purchased pow er .......................................... 705,450 634,797 589,990 SPP network transm ission costs ...................................... 218,924 178,604 166,547 O perating and m aintenance ......................................... 367,188 359,060 342,055 Depreciation and am ortization ...................................... 286,442 272,593 270,464 Selling, general and adm inistrative ................................... 250,439 224,133 226,012 Taxes other than incom e tax ......................................... 140,302 122,282 104,269 Total O perating Expenses ........................................ 1,968,745 1,791,469 1,699,337 INCOME FROM OPERATIONS ............................................ 632,958 579,185 562,133 OTHER INCOME (EXPENSE):
Investm ent earnings ................................................ 10,622 10,056 7,411 O ther incom e ..................................................... 31,522 35,609 35,378 O ther expense ..................................................... (18,389) (18,099) (19,987)
Total O ther Incom e (Expense) .................................... 23,755 27,566 22,802 Interest expense ...................................................... 183,118 182,167 176,337 INCOME BEFORE INCOME TAXES ......................................... 473,595 424,584 408,598 Incom e tax expense ................................................... 151,270 123,721 126,136 NET IN COM E .......................................................... 322,325 300,863 282,462 Less: Net income attributable to noncontrolling interests ................... 9,066 8,343 7,316 NET INCOME ATTRIBUTABLE TO WESTAR ENERGY, INC ........................ 313,259 292,520 275,146 Preferred dividends ...................................................
NET INCOME ATTRIBUTABLE TO COMMON STOCK ........................... $ 313,259 $ 292,520 $ 273,530 BASIC AND DILUTED EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING ATTRIBUTABLE TO WESTAR ENERGY (SEE NOTE 2):
Basic earnings per com m on share ................................. $ 2.40 $ 2.29 $ 2.15 Diluted earnings per common share ............................... $ 2.35 $ 2.27 $ 2.15 AVERAGE EQUIVALENT COMMON SHARES OUTSTANDING ................... 130,014,941 127,462,994 126,711,869 DIVIDENDS DECLARED PER COMMON SHARE .............................. $ 1.40 $ 1.36 $ 1.32 41 The accompanying notes are an integralpart of these consolidated financial statements.
WESTAR ENERGY 2014 ANNUAL REPORT WESTAR ENERGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2014 2013 2012 (Dollars in Thousands)
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
N et in com e ................................................................ $ 322,325 $ 300,863 $ 282,462 Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and am ortization ............................................ 286,442 272,593 270,464 Am ortization of nuclear fuel .............................................. 26,051 22,690 24,369 Amortization of deferred regulatory gain from sale leaseback .................. (5,495) (5,495) (5,495)
Amortization of corporate-owned life insurance ............................. 20,202 15,149 28,792 N on-cash com pensation ................................................. 7,280 8,188 7,255 Net deferred incom e taxes and credits ...................................... 151,451 123,307 126,248 Stock-based compensation excess tax benefits ............................... (875) (576) (1,698)
Allowance for equity funds used during construction ........................ (17,029) (14,143) (11,706)
Changes in working capital items:
Accounts receivable ..................................................... (17,291) (24,649) 2,408 Fuel inventory and supplies ............................................... (8,773) 10,124 (19,227)
Prepaid expenses and other ............................................... 36,717 (12,316) (3,630)
A ccounts payable ....................................................... 6,189 7,856 (19,161)
Accrued taxes .......................................................... 6,596 14,218 11,937 O ther current liabilities .................................................. (31,624) (52,829) (105,169)
Changes in other assets .............. ...... 6,378 (4,167) 13,015 Changes in other liabilities .................................................. 35,811 41,990 (1,758)
Cash Flows from Operating Activities ...................................... 824,355 702,803 599,106 CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Additions to property, plant and equipment .................................... (852,052) (780,098) (810,209)
Purchase of securities - trusts ................................................ (9,075) (66,668) (20,473)
Sale of securities - trusts..................................................... 11,125 81,994 21,604 Investment in corporate-owned life insurance .................................. (16,250) (17,724) (18,404)
Proceeds from investment in corporate-owned life insurance ..................... 43,234 147,658 33,542 Proceeds from federal grant ................................................. - 876 4,775 Investm ent in affiliated com pany ............................................. (8,000) (4,947) (8,669)
O ther investing activities .................................................... (7,730) (2,992) 497 Cash Flows used in Investing Activities ..................................... (838,748) (641,901) (797,337)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Short-term debt, net ........................................................ 122,406 (205,241) 52,900 Proceeds from long-term debt ............................................... 417,943 492,347 541,374 Retirem ents oflong-term debt ............................................... (427,500) (100,000) (220,563)
Retirements of long-term debt of variable interest entities ........................ (27,479) (25,942) (28,114)
Repaym ent of capital leases .................................................. (3,340) (2,995) (2,679)
Borrowings against cash surrender value of corporate-owned life insurance ........ 59,766 59,565 67,791 Repayment of borrowings against cash surrender value of corporate-owned life insurance ......................................... (41,249) (145,418) (34,838)
Stock-based compensation excess tax benefits .................................. 875 576 1,698 Preferred stock redem ption .................................................. - - (22,567)
Issuance of com m on stock ................................................... 87,669 32,906 6,996 Distributions to shareholders of noncontrolling interests ......................... (1,030) (2,419) (3,295)
C ash dividends paid ........................................................ (171,507) (162,904) (158,182)
O ther financing activities .................................................... (2,092) (2,719) -
Cash Flows from (used in) Financing Activities ............................. 14,462 (62,244) 200,521 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................ 69 (1,342) 2,290 CASH AND CASH EQUIVALENTS:
Beginning of period ........................................................ 4,487 5,829 3,539 E nd o f period .............................................................. $ 4,556 $ 4,487$ 5,829 42 The accompanying notes are an integral part of these consolidated financialstatements.
WESTAR ENERGY, INC. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Westar Energy, Inc. Shareholders Cumulative Cumulative Non-preferred preferred Common Common Paid-in Retained controlling Total stock shares stock stock shares stock capital earnings interests equity (Dollars in Thousands)
Balance as of December 31,2011 ........ 214,363 $ 21,436 125,698,396 $ 628,492 $ 1,639,503 $ 501,216 $ 10,094 $ 2,800,741 Net incom e .................. 275,146 7,316 282,462 Issuance of stock ............. 242,463 1,212 5,784 - 6,996 Issuance of stock for compensation and reinvested dividends ....... 562,889 2,815 6,274 9,089 Tax withholding related to stock compensation ..... -- (3,490) (3,490)
Stock redemption ............ (214,363) (21,436) (21,436)
Preferred dividends ........... (1,616) (1,616)
Dividends on common stock
($1.32 per share) .......... (168,097) -- (168,097)
Stock compensation expense... 7,203 -- 7,203 Tax benefit on stock compensation ............. -- 1,698 1,698 Distributions to shareholders of noncontrolling interests.. - - - - (3,295) (3,295)
Balance as of December 31, 2012 ........ - - 126,503,748 632,519 1,656,972 606,649 14,115 2,910,255 Net incom e .................. - - - 292,520 8,343 300,863 Issuance of stock ............. - - 1,256,391 6,282 26,624 - - 32,906 Issuance of stock for compensation and reinvested dividends ....... - - 494,090 2,470 7,171 - - 9,641 Tax withholding related to stock compensation ..... .- - (2,719) - - (2,719)
Dividends on common stock
($1.36 per share) .......... .- (174,393) - (174,393)
Stock compensation expense... .... 8,103 - - 8,103 Tax benefit on stock compensation ............. .... 576 - - 576 Deconsolidation of noncontrolling interests .... ..- (14,282) (14,282)
Distributions to shareholders of noncontrolling interests.. - - - - (2,419) (2,419)
Balance as of December 31, 2013 ........ - - 128,254,229 641,271 1,696,727 724,776 5,757 3,068,531 Net incom e .................. - - - 313,259 9,066 322,325 Issuance of stock ............. - - 3,026,239 15,131 72,538 - - 87,669 Issuance of stock for compensation and reinvested dividends ....... - - 406,986 2,035 7,120 - - 9,155 Tax withholding related to stock compensation ..... .- - (2,092) - - (2,092)
Dividends on common stock
($1.40 per share) .......... .- (182,736) - (182,736)
Stock compensation expense... .... 7 ,19 3 - - 7 ,19 3 Tax benefit on stock compensation ............. .... 875 - - 8 75 Deconsolidation of noncontrolling interests .... - - (7,342) (7,342)
Distributions to shareholders of noncontrolling interests.. .....- (1,030) (1,030)
O ther ...................... .- - (1,241) - - (1,241)
Balance as of December 31, 2014 ........ $- - 131,687,454 $ 658,437 $1,781,120 $ 855,299 $ 6,451 $ 3,301,307 43 The accompanying notes are an integralpart of these consolidatedfinancialstatements.
WESTAR ENERGY 2014 ANNUAL REPORT
- 1. DESCRIPTION OF BUSINESS Cash and Cash Equivalents We are the largest electric utility in Kansas. Unless the context We consider investments that are highly liquid and have maturities otherwise indicates, all references in this Annual Report on Form of three months or less when purchased to be cash equivalents.
10-K to "the company," "we,' "us,' "our" and similar words are to Fuel Inventory and Supplies Westar Energy, Inc. and its consolidated subsidiaries. The term We state fuel inventory and supplies at average cost. Following are "Westar Energy" refers to Westar Energy, Inc., a Kansas corporation the balances for fuel inventory and supplies stated separately.
incorporated in 1924, alone and not together with its consolidated subsidiaries. Asof December31, 2014 2013 (InThousands)
We provide electric generation, transmission and distribution Fuel inventory .............................................. $ 70,416 $ 78,368 services to approximately 698,000 customers in Kansas. Westar Supplies ................................................... 176,990 161,143 Energy provides these services in central and northeastern Kansas, including the cities of Topeka, Lawrence, Manhattan, Salina and Fuel inventory and supplies ................................ $ 247,406 S 239,511 Hutchinson. Kansas Gas and Electric Company (KGE), Westar Energy's wholly-owned subsidiary, provides these services in south- Property, Plant and Equipment central and southeastern Kansas, including the city of Wichita. Both We record the value of property, plant and equipment, including Westar Energy and KGE conduct business using the name Westar that of VIEs, at cost. For plant, cost includes contracted services, Energy. Our corporate headquarters is located at 818 South Kansas direct labor and materials, indirect charges for engineering and Avenue, Topeka, Kansas 66612. supervision and an allowance for funds used during construction (AFUDC). AFUDC represents the allowed cost of capital used
- 2.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES to finance utility construction activity. We compute AFUDC by applying a composite rate to qualified construction work in Principles of Consolidation progress. We credit other income (for equity funds) and interest We prepare our consolidated financial statements in accordance expense (for borrowed funds) for the amount of AFUDC capitalized with generally accepted accounting principles (GAAP) for the as construction cost on the accompanying consolidated statements United States of America. Our consolidated financial statements of income as follows:
include all operating divisions, majority owned subsidiaries and YearEnded December31, 2014 2013 2012 variable interest entities (VIEs) of which we maintain a controlling (Dollars InThousands) interest or are the primary beneficiary reported as a single reportable segment. Undivided interests in jointly-owned generation facilities Borrowed funds ................................... $ 12,044 $ 11,706 $10,399 Equity funds ...................................... 17,029 14,143 11,706 are included on a proportionate basis. Intercompany accounts and transactions have been eliminated in consolidation. Total ........................................... $ 29,073 $ 25,849 $22,105 Use of Management's Estimates Average AFUDC Rates .............................. 6.7% 4.8% 5.0%
When we prepare our consolidated financial statements, we are We charge maintenance costs and replacements of minor items required to make estimates and assumptions that affect the reported of property to expense as incurred, except for maintenance costs amounts of assets, liabilities, revenues and expenses, and related incurred for our planned refueling and maintenance outages at disclosure of contingent assets and liabilities, at the date of our Wolf Creek. As authorized by regulators, we defer and amortize consolidated financial statements and the reported amounts of to expense ratably over the period between planned outages revenues and expenses during the reporting period. We evaluate incremental maintenance costs incurred for such outages. When a our estimates on an ongoing basis, including those related to unit of depreciable property is retired, we charge to accumulated depreciation, unbilled revenue, valuation of investments, forecasted depreciation the original cost less salvage value.
fuel costs included in our retail energy cost adjustment (RECA) billed to customers, income taxes, pension and post-retirement Depreciation benefits, our asset retirement obligations (AROs) including the We depreciate utility plant using a straight-line method. The decommissioning of Wolf Creek Generating Station (Wolf Creek), depreciation rates are based on an average annual composite basis environmental issues, VIEs, contingencies and litigation. Actual using group rates that approximated 2.4% in 2014, 2.5% in 2013 and results may differ from those estimates under different assumptions 2.6% in 2012.
or conditions.
Depreciable lives of property, plant and equipment are as follows.
Regulatory Accounting Years We apply accounting standards that recognize the economic effects Fossil fuel generating facilities ................................................. 6 to 78 of rate regulation. Accordingly, we have recorded regulatory assets Nuclear fuel generating facility ................................................ 55 to 71 and liabilities when required by a regulatory order or based on regu- Wind generating facilities ..................................................... 19 to 20 latory precedent. See Note 3, "Rate Matters and Regulation:' for addi- Transm ission facilities ........................................................ 15to 75 tional information regarding our regulatory assets and liabilities. Distribution facilities ......................................................... 22 to 68 Other .............................................................. . ....... 5 to 30 44
Nuclear Fuel We record deferred tax assets to the extent capital losses, operating We record as property, plant and equipment our share of the cost losses, or tax credits will be carried forward to future periods.
of nuclear fuel used in the process of refinement, conversion, However, when we believe based on available evidence that we do enrichment and fabrication. We reflect this at original cost and not, or will not, have sufficient future capital gains or taxable income amortize such amounts to fuel expense based on the quantity of in the appropriate taxing jurisdiction to realize the entire benefit heat consumed during the generation of electricity as measured during the applicable carryforward period, we record a valuation in millions of British thermal units (MMBtu). The accumulated allowance against the deferred tax asset.
amortization of nuclear fuel in the reactor was $72.3 million as of The application of income tax law is complex. Laws and regulations December 31,2014, and $46.2 million as of December 31,2013. The in this area are voluminous and often ambiguous. Accordingly, cost of nuclear fuel charged to fuel and purchased power expense we must make judgments regarding income tax exposure.
was $27.3 million in 2014, $26.5 million in 2013 and $28.3 million Interpretations of and guidance surrounding income tax laws and in 2012.
regulations change over time. As a result, changes in our judgments Cash Surrender Value of Life Insurance can materially affect amounts we recognize in our consolidated We recorded on our consolidated balance sheets in other long- financial statements. See Note 10, "Taxes," for additional detail on term assets the following amounts related to corporate-owned life our accounting for income taxes.
insurance (COLI) policies. Sales Tax Asof December 31, 2014 2013 We account for the collection and remittance of sales tax on a net (InThousands) basis. As a result, we do not reflect sales tax in our consolidated Cashsurrendervalueofpolicies ............................. $ 1,306,777 S 1,289,457 statements of income.
Borrowings against policies ................................ (1,173,956) (1,156,341)
Earnings Per Share Corporate-owned life insurance, net ....................... $ 132,821 $ 133,116 We have participating securities in the form of unvested restricted share units (RSUs) with nonforfeitable rights to dividend equivalents We record as income increases in cash surrender value and death that receive dividends on an equal basis with dividends declared benefits. We offset against policy income the interest expense that on common shares. As a result, we apply the two-class method of we incur on policy loans. Income from death benefits is highly computing basic and diluted earnings per share (EPS).
variable from period to period.
To compute basic EPS, we divide the earnings allocated to Revenue Recognition common stock by the weighted average number of common shares We record revenue at the time we deliver electricity to customers. We outstanding. Diluted EPS includes the effect of potential issuances determine the amounts delivered to individual customers through of common shares resulting from our forward sale agreements and systematic monthly readings of customer meters. At the end of RSUs with forfeitable rights to dividend equivalents. We compute each month, we estimate how much electricity we have delivered the dilutive effect of potential issuances of common shares using the since the prior meter reading and record the corresponding treasury stock method.
unbilled revenue.
The following table reconciles our basic and diluted EPS from Our unbilled revenue estimate is affected by factors including net income.
fluctuations in energy demand, weather, line losses and changes YearEndedDecember 31, 2014 2013 2012 in the composition of customer classes. We recorded estimated (Dollars InThousands, ExceptPerShareAmounts) unbilled revenue of $61.0 million as of December 31, 2014, and
$60.1 million as of December 31, 2013. Net income ........................... $ 322,325 $ 300,863 $ 282,462 Less: Net income attributable to Allowance for Doubtful Accounts noncontrolling interests .............. 9,066 8,343 7,316 We determine our allowance for doubtful accounts based on the age Net income attributable to of our receivables. We charge receivables off when they are deemed Westar Energy, Inc ................... 313,259 292,520 275,146 uncollectible, which is based on a number of factors including Less: Preferred dividends .............. - - 1,616 specific facts surrounding an account and management's judgment. Net income allocated to RSUs ...... 790 810 778 Income Taxes Net income allocated to common stock ...................... $ 312,469 S 291,710 $ 272,752 We use the asset and liability method of accounting for income taxes. Under this method, we recognize deferred tax assets and Weighted average equivalent common liabilities for the future tax consequences attributable to temporary shares outstanding - basic ............ 130,014,941 127,462,994 126,711,869 Effect of dilutive securities:
differences between the financial statement carrying amounts and RSIs ............................ 181,397 17,195 97,757 the tax basis of existing assets and liabilities. We recognize the Forward sale agreements ........... 2,628,187 818,505 89,160 future tax benefits to the extent that realization of such benefits is more likely than not. We amortize deferred investment tax credits Weighted average equivalent common shares outstanding - diluted' 132,824,525 128,298,694 126,898,786 over the lives of the related properties as required by tax laws and regulatory practices. We recognize production tax credits in the Earnings per common share, basic ....... $ 2.40 S 2.29 S 2.15 year that electricity is generated to the extent that realization of such Earnings per common share, diluted ...... $ 2.35 S 2.27 S 2.15 benefits is more likely than not. '"For tire yeaws ended December 31, 2014, 2013 and 2012, we tsodno antidilutive securities.
45
WESTAR ENERGY 2014 ANNUAL REPORT Supplemental Cash Flow Information 3. RATE MATTERS AND REGULATION Year Ended December 31, 2014 2013 2012 Regulatory Assets and Regulatory Liabilities (InThousands)
CASH PAID FOR (RECEIVED FROM): Regulatory assets represent incurred costs that have been deferred Interest on financing activities, because they are probable of future recovery in customer prices.
net of amount capitalized ..................... $160,292 $ 148,691 $143,564 Regulatory liabilities represent probable future reductions in Interest on financing activities of VIEs............. 12,183 13,892 16,214 revenue or refunds to customers through the price setting process.
Income taxes, net of refunds ..................... 458 (11) (4,378) Regulatory assets and liabilities reflected on our consolidated NON-CASH INVESTING TRANSACTIONS: balance sheets are as follows.
Property, plant and equipment additions .......... 143,192 127,544 89,354 Property, plant and equipment of VIEs ............. (7,342) (14,282) - Asof December31, 2014 2013 NON-CASH FINANCING TRANSACTIONS: (InThousands)
Issuance of common stock for reinvested Regulatory Assets:
dividends and compensation plans .............. 9,155 9,641 9,089 Deferred employee benefit costs ............................ $ 435,590 S 277,122 Deconsolidation of VIEs .......................... (7,342) (14,282) - Amounts due from customers for future income taxes, net ...... 153,984 163,742 Assets acquired through capital leases ............. 8,717 334 10,683 Depreciation ............................................. 68,422 71,047 Debt reacquisition costs ................................... 61,079 63,882 New Accounting Pronouncements Advalorem tax ........................................... 39,428 34,492 Treasury yield hedges ................................. 26,614 27,594 We prepare our consolidated financial statements in accordance Asset retirement obligations ........................... 26,106 23,555 with GAAP for the United States of America. To address current Disallowed plant costs ................................ 15,809 15,964 issues in accounting, regulatory bodies have issued the following Wolf Creek outage .................................... 11,165 29,026 new accounting pronouncements that may affect our accounting Energy efficiency program costs ........................ 8,933 14,477 and/or disclosure. Retail energy cost adjustment .......................... - 22,138 Extraordinary and Unusual Items Other regulatory assets ................................ 12,648 12,375 In January 2015, the Financial Accounting Standards Board Total regulatory assets .................................. $ 859,778 $ 755,414 (FASB) issued guidance that eliminates the accounting concept Regulatory Liabilities:
of extraordinary items. The objective of the new guidance is to Removal costs ............................................ $ 88,242 $ 114,148 reduce complexity in accounting standards while maintaining or Deferred regulatory gain from sale leaseback ................. 81,055 86,551 improving the usefulness of information provided. The guidance is Nuclear decommissioning ................................. 43,641 43,272 effective for fiscal years beginning after December 15,2015, with early Retail energy cost adjustment .............................. 33,274 15,414 adoption permitted. We have elected to adopt effective January 1, Jurisdictional allowance forfunds used during construction ..... 33,103 7,893 LaCygne leasehold dismantling costs ........................ 22,918 20,505 2015, without a material impact to our financial statements.
Other post-retirement benefits costs ........................ 15,473 19,000 Revenue Recognition Kansas tax credits ........................................ 12,725 11,076 In May 2014, the FASB issued guidance that addresses revenue from Gain on sale ofoil ......................................... 2,337 4,278 Fuel supply and electricity contracts ......................... 1,738 2,635 contracts with customers. The objective of the new guidance is to Other regulatory liabilities ................................. 8,979 4,784 establish principles to report useful information to users of financial statements about the nature, amount, timing and uncertainty of Total regulatory liabilities ................................ 343,485 $ 329,556 revenue from contracts with customers. This guidance is effective for fiscal years beginning after December 15,2016. Early application Below we summarize the nature and period of recovery for each of of the standard is not permitted. The standard permits the use of the regulatory assets listed in the table above.
either the retrospective application or cumulative effect transition method. We have not yet selected a transition method or determined " Deferred employee benefit costs: Includes $399.8 million for the impact on our consolidated financial statements but we do not pension and post-retirement benefit obligations and $35.8 million expect it to be material. for actual pension expense in excess of the amount of such expense recognized in setting our prices. The increase from 2013 to 2014 is attributable primarily to a decrease in the discount rates used to calculate our and Wolf Creek's pension benefit obligations and the adoption of updated mortality tables. During 2015, we will amortize to expense approximately $39.5 million of the benefit obligations and approximately $9.8 million of the excess pension expense. We are amortizing the excess pension expense over a five-year period. We do not earn a return on this asset.
" Amounts due from customers for future income taxes, net: In accordance with various orders, we have reduced our prices to reflect the income tax benefits associated with certain income tax deductions, thereby passing on these benefits to customers at the time we receive them. We believe it is probable that the net future increases in income taxes payable will be recovered from customers when these temporary income tax benefits reverse in future periods. We have recorded a regulatory asset, net of the 46
regulatory liability, for these amounts. We also have recorded Below we summarize the nature and period of amortization for each a regulatory liability for our obligation to customers for income of the regulatory liabilities listed in the table above.
taxes recovered in earlier periods when corporate income tax
" Removal costs: Represents amounts collected, but not yet spent, to rates were higher than current income tax rates. This benefit will dispose of plant assets that do not represent legal retirement obligations.
be returned to customers as these temporary differences reverse This liability will be discharged as removal costs are incurred.
in future periods. The income tax-related regulatory assets and liabilities as well as unamortized investment tax credits are also " Deferred regulatory gain from sale leaseback: Represents the gain temporary differences for which deferred income taxes have been KGE recorded on the 1987 sale and leaseback of its 50% interest in provided. These items are measured by the expected cash flows to La Cygne Generating Station (La Cygne) unit 2. We amortize the be received or settled in future prices. We do not earn a return on gain over the lease term.
this net asset. " Nuclear decommissioning: We have a legal obligation to
" Depreciation: Represents the difference between regulatory decommission Wolf Creek at the end of its useful life. This amount depreciation expense and depreciation expense we record for represents the difference between the fair value of the assets financial reporting purposes. We earn a return on this asset and held in a decommissioning trust and the amount recorded for amortize the difference over the life of the related plant. the accumulated accretion and depreciation expense associated
" Debt reacquisition costs: Includes costs incurred to reacquire and with our ARO. See Note 4, 5 and 14, "Financial Instruments and refinance debt. These costs are amortized over the term of the new Trading Securities," "Financial Investments" and "Asset Retirement debt. We do not earn a return on this asset. Obligations,' respectively, for information regarding our nuclear
" Ad valorem tax: Represents actual costs incurred for property decommissioning trust (NDT) and our ARO.
taxes in excess of amounts collected in our prices. We expect to " Retail energy cost adjustment: We are allowed to adjust our retail recover these amounts in our prices over a one-year period. We do prices to reflect changes in the cost of fuel and purchased power not earn a return on this asset. needed to serve our customers. We bill customers based on our
" Treasury yield hedges: Represents the effective portion oflosses on estimated costs. This item represents the amount we collected treasury yield hedge transactions. This amount will be amortized from customers that was in excess of our actual cost of fuel and to interest expense over the term of the related debt. See Note 4, purchased power. We will refund to customers this excess recovery "Financial Instruments and Trading Securities-Cash Flow over a one-year period.
Hedges:' for additional information regarding our treasury yield " Jurisdictional allowance for funds used during construction: This hedge transactions. We do not earn a return on this asset. item represents AFUDC that is accrued subsequent to the time
" Asset retirement obligations: Represents amounts associated with the associated construction charges are included in our rates and our AROs as discussed in Note 14, "Asset Retirement Obligations." prior to the time the charges are placed in service. The AFUDC is We recover these amounts over the life of the related plant. We do amortized to depreciation expense over the useful life of the asset not earn a return on this asset. that is placed in service.
" Disallowed plant costs: Originally there was a decision to disallow " La Cygne leasehold dismantling costs: We are contractually certain costs related to the Wolf Creek plant. Subsequently, in obligated to dismantle a portion of La Cygne unit 2. This item 1987, the KCC revised its original conclusion and provided for represents amounts collected but not yet spent to dismantle this recovery of an indirect disallowance with no return on investment. unit and the obligation will be discharged as we dismantle the unit.
This regulatory asset represents the present value of the future " Other post-retirement benefits costs: Represents amount of other expected revenues to be provided to recover these costs, net of the post-retirement benefits expense recognized in setting our prices amounts amortized. in excess of actual other post-retirement benefits expense. We
" Wolf Creek outage: We defer the expenses associated with Wolf amortize the amount over a five-year period.
Creek's scheduled refueling and maintenance outages and amortize " Kansas tax credits: This item represents Kansas tax credits on these expenses during the period between planned outages. We do investments in utility plant. Amounts will be credited to customers not earn a return on this asset. subsequent to their realization over the remaining lives of the
" Energy efficiency program costs: We accumulate and defer for utility plant giving rise to the tax credits.
future recovery costs related to our various energy efficiency " Gain on sale of oil: We discontinued the use of a certain type of programs. We will amortize such costs over a one-year period. We oil in our plants. As a result, we sold this oil inventory for a gain.
do not earn a return on this asset. This item represents the remaining portion of the gain that will be
" Retail energy cost adjustment: We are allowed to adjust our retail refunded to customers over a three-year period.
prices to reflect changes in the cost of fuel and purchased power " Fuel supply and electricity contracts: We use fair value accounting needed to serve our customers. This item represents the actual for some of our fuel supply and electricity contracts. This cost of fuel consumed in producing electricity and the cost of represents the non-cash net gain position on fuel supply and purchased power in excess of the amounts we have collected from electricity contracts that are recorded at fair value. Under the customers. We expect to recover in our prices this shortfall over a RECA, fuel supply contract market gains accrue to the benefit of one-year period. We do not earn a return on this asset. our customers.
" Other regulatory assets: Includes various regulatory assets that " Other regulatory liabilities: Includes various regulatory liabilities individually are small in relation to the total regulatory asset that individually are relatively small in relation to the total balance. Other regulatory assets have various recovery periods. regulatory liability balance. Other regulatory liabilities will be We do not earn a return on any of these assets. credited over various periods.
47
WESTAR ENERGY 2014 ANNUAL REPORT KCC Proceedings Transmission Costs General and Abbreviated Rate Reviews We make annual filings with the KCC to adjust our prices to include We, staff of the Kansas Corporation Commission (KCC) and a updated transmission costs as reflected in our transmission formula consumer advocate joined in a request filed with the KCC to defer rate discussed below. In the most recent three years, the KCC issued depreciation expense and carrying costs related to our capital orders related to such filings allowing us to increase our annual investment associated with environmental upgrades at La Cygne retail revenues by approximately:
until new retail prices become effective following a general rate case * $41.0 million effective in April 2014; expected to be filed in March 2015. We estimate our share of these * $11.8 million effective in March 2013; and deferred costs will be approximately $20.0 million and we expect * $36.7 million effective in April 2012.
to begin deferring these costs in March 2015. In September 2014, Energy Efficiency the KCC issued an order approving the joint application that will allow us to include these deferred costs in our next general rate case, We make annual filings with the KCC to adjust our prices to which is expected to increase our annual revenues by approximately include previously deferred amounts associated with various energy
$4.0 million. efficiency programs. In the most recent three years, the KCC issued orders related to such filings authorizing us to adjust our annual In November 2013, the KCC issued an order allowing us to adjust retail revenues by approximately:
our prices to include the additional investment in the La Cygne
- $5.0 million decrease effective in November 2014; environmental upgrades, as discussed below, and to reflect cost
- $1.3 million decrease effective in November 2013; and reductions elsewhere. The new prices were expected to increase our
- $1.1 million increase effective in October 2012.
annual retail revenues by approximately $30.7 million.
Property Tax Surcharge In April 2012, the KCC issued an order expected to increase our We make annual filings with the KCC to adjust our prices to include annual retail revenues by approximately $50.0 million. In addition, the cost incurred for property taxes. In the most recent three years, we revised our depreciation rates to reflect changes in the estimated the KCC issued orders related to such filings allowing us to increase useful lives of some of our depreciable assets. The change in estimate our annual retail revenues by approximately:
decreased annual depreciation expense by $43.6 million. The new prices were effective shortly after having received the order. * $12.7 million effective in January 2014;
- $15.2 million effective in January 2013; and Environmental Costs * $5.9 million effective in January 2012.
In August 2011, the KCC issued an order ruling that Kansas City Power & Light Company's (KCPL) decision to make environmental FERC Proceedings upgrades at La Cygne to comply with environmental regulations is In October of each year, we post an updated transmission formula prudent and the $1.2 billion project cost estimate is reasonable. We rate that includes projected transmission capital expenditures and have a 50% interest in La Cygne and intervened in the proceeding. operating costs for the following year. This rate provides the basis The KCC denied our request to collect our approximately $610.0 for our annual request with the KCC to adjust our retail prices to million share of the capital investment for the environmental include updated transmission costs as noted above. In the most upgrades through our environmental cost recovery rider (ECRR). recent three years, we posted our transmission formula rate which However, as noted above, we received an order regarding an was expected to increase our annual transmission revenues by abbreviated rate review to update our prices to include a portion of approximately:
the capital costs associated with the project. We will request to collect * $44.3 million effective in January 2014; our remaining investment in La Cygne environmental upgrades as * $12.2 million effective in January 2013; and part of a general rate case expected to be filed in March 2015. * $38.2 million effective in January 2012.
We also make annual filings with the KCC to adjust our prices to In August 2014, the KCC filed a challenge with the Federal Energy include costs associated with investments in air quality equipment Regulatory Commission (FERC) regarding rate making as it made during the prior year. In the most recent three years, the KCC pertains to the cost of interstate electrical transmission service we issued orders related to such filings allowing us to increase our operate. The KCC is requesting that we lower our transmission annual retail revenues by approximately: return on equity by nearly two percentage points, which would
- $11.0 million effective in June 2014; result in reductions of the TFR revenue requirement if granted. We
- $27.3 million effective in June 2013; and are currently in settlement discussions. If we are unable to reach a
- $19.5 million effective in June 2012. settlement, FERC may schedule a hearing.
48
- 4. FINANCIAL INSTRUMENTS AND TRADING SECURITIES We measure fair value based on information available as of the measurement date. The following table provides the carrying values Values of Financial and Derivative Instruments and measured fair values of our fixed-rate debt.
GAAP establishes a hierarchical framework for disclosing the As of December 31,2014 Asof December 31, 2013 transparency of the inputs utilized in measuring assets and liabilities Carrying Value FairValue Carrying Value FairValue at fair value. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the (InThousands) classification of assets and liabilities within the fair value hierarchy Fixed-rate debt ............... $ 3,105,000 $ 3,488,410 $ 3,102,500 $ 3,294,209 levels. The three levels of the hierarchy and examples are as follows: Fixed-rate debt of VIEs ......... 194,204 213,579 221,682 241,241
" Level 1 - Quoted prices are available in active markets for identical assets or liabilities. The types of assets and liabilities included Recurring Fair Value Measurements in level 1 are highly liquid and actively traded instruments with The following table provides the amounts and their corresponding quoted prices, such as equities listed on public exchanges. level of hierarchy for our assets that are measured at fair value.
" Level 2 - Pricing inputs are not quoted prices in active markets, Asof December 31, 2014 Level1 Level2 Level3 Total but are either directly or indirectly observable. The types of assets (InThousands) and liabilities included in level 2 are typically measured at net Assets:
asset value, comparable to actively traded securities or contracts, Nuclear Decommissioning Trust:
such as treasury securities with pricing interpolated from recent Domestic equityfunds ............ $ - $ 54,925 $ 6,047 $ 60,972 trades of similar securities, or priced with models using highly International equity funds ......... - 30,791 - 30,791 observable inputs. Core bond fund .................. - 19,289 - 19,289 High-yield bond fund ............. - 13,198 - 13,198
" Level 3 -Significant inputs to pricing have little or no transparency.
Emerging market bond fund ....... - 10,988 - 10,988 The types of assets and liabilities included in level 3 are those with Other fixed income fund ........... - 4,779 - 4,779 inputs requiring significant management judgment or estimation.
Combination debt/equity/
Level 3 includes investments in private equity, real estate securities otherfunds .................... - 18,141 - 18,141 and other alternative investments, which are measured at net Alternative investment fund ....... - - 16,970 16,970 asset value. Real estate securities fund ......... - - 9,548 9,548 Cash equivalents ................. 340 - - 340 We record cash and cash equivalents, short-term borrowings and variable rate debt on our consolidated balance sheets at cost, which Total Nuclear Decommissioning approximates fair value. We measure the fair value of fixed rate debt, Trust ....................... 340 152,111 32,565 185,016 a level 2 measurement, based on quoted market prices for the same Trading Securities:
or similar issues or on the current rates offered for instruments of Domestic equity funds ............ - 18,698 - 18,698 the same remaining maturities and redemption provisions. The International equity fund .......... - 4,252 - 4,252 recorded amount of accounts receivable and other current financial Core bond fund .................. - 12,379 - 12,379 instruments approximates fair value. Cash equivalents ................. 168 - - 168 Total Trading Securities .......... 168 35,329 - 35,497 All of our level 2 investments are held in investment funds that are measured at fair value using daily net asset values. In addition, we TotalAssetsMeasuredatFairValue ...... $ 508 $ 187,440 S 32,565 $ 220,513 maintain certain level 3 investments in private equity, alternative Asof December 31, 2013 investments and real estate securities that are also measured at fair Assets:
value using net asset value, but require significant unobservable Nuclear Decommissioning Trust:
market information to measure the fair value of the underlying Domestic equityfunds ............ $ - $ 49,957 $ 5,817 $ 55,774 investments. The underlying investments in private equity are International equity funds ......... - 31,816 - 31,816 measured at fair value utilizing both market- and income-based Core bond fund .................. - 18,107 - 18,107 models, public company comparables, investment cost or the value High-yield bond fund ............. - 12,902 - 12,902 derived from subsequent financings. Adjustments are made when Emerging market bond fund ....... - 11,055 - 11,055 actual performance differs from expected performance; when Other fixed income fund ........... - 4,690 - 4,690 market, economic or company-specific conditions change; and Combination debt/equity/
when other news or events have a material impact on the security. other funds .................... - 17,093 - 17,093 Alternative investment fund ....... - - 15,675 15,675 The underlying alternative investments include collateralized debt Real estate securities fund ......... - - 8,511 8,511 obligations, mezzanine debt and a variety of other investments.
Cash equivalents ................. 2 - - 2 The fair value of these investments is measured using a variety of primarily market-based models utilizing inputs such as security Total Nuclear Decommissioning prices, maturity, call features, ratings and other developments Trust ....................... 2 145,620 30,003 175,625 related to specific securities. The underlying real estate investments Trading Securities:
are measured at fair value using a combination of market- and Domestic equity funds ............ - 18,075 - 18,075 income-based models utilizing market discount rates, projected International equity fund .......... - 4,519 - 4,519 cash flows and the estimated value into perpetuity. Core bond fund .................. - 12,166 - 12,166 Cash equivalents ................. 166 - - 166 Total Trading Securities .......... 166 34,760 - 34,926 Total Assets Measured at FairValue ...... $ 168 $ 180,380 $ 30,003 $ 210,551 49
WESTAR ENERGY 2014 ANNUAL REPORT I
The following table provides reconciliations of assets held in the Portions of the gains and losses contributing to changes in net NDT measured at fair value using significant level 3 inputs for assets in the above table are unrealized. The following table the years ended December 31, 2014 and 2013. summarizes the unrealized gains and losses we recorded to regulatory liabilities on our consolidated financial statements Domestic Alternative RealEstate Equity Investment Securities Net during the years ended December 31, 2014 and 2013, attributed Funds Fund Fund Balance to level 3 assets and liabilities.
(InThousands)
Domestic Alternative RealEstate Balance as of December31, 2013 ........ S 5,817 $ 15,675 $ 8,511 $ 30,003 Equity Investment Securities Net Total realized and unrealized gains Funds Fund Fund Balance included in: (InThousands)
Regulatory liabilities ............... 391 1,295 1,037 2,723 YearendedDecember31,2014 .......... $ (105) $ 1,296 $ 685 S 1,876 Purchases ............................ 335 - 351 686 Year ended December 31,2013 .......... 577 675 359 1,611 Sales ................................ (496) - (351) (847)
Balance as of December31,2014 ........ $ 6,047 $ 16,970 S 9,548 $ 32,565 Balance as of December31,2012 ........ $ 4,899 $ - S 7,865 $ 12,764 Total realized and unrealized gains included in:
Regulatory liabilities ............... 940 675 646 2,261 Purchases ............................ 341 15,000 287 15,628 Sales ................................ (363) - (287) (650)
Balanceas ofDecember 31,2013 ........ $ 5,817 $ 15,675 S 8,511 $ 30,003 Some of our investments in the NDT and our trading securities portfolio are measured at net asset value, do not have readily determinable fair values and are either with investment companies or companies that follow accounting guidance consistent with investment companies.
In certain situations these investments may have redemption restrictions. The following table provides additional information on these investments.
Asof December 31,2014 Asof December 31,2013 Asof December 31,2014 Unfunded Unfunded Redemption Length of FairValue Commitments FairValue Commitments Frequency Settlement (InThousands)
Nuclear Decommissioning Trust:
Domestic equity funds ............................................................ $ 6,047 $ 2,348 $ 5,817 $ 2,683 W Alternative investment fund ....................................................... 16,970 - 15,675 - W b Real estate securities fund ......................................................... 9,548 - 8,511 - Quarterly 80 days Total Nuclear Decommissioning Trust .............................................. $ 32,565 $ 2,348 $ 30,003 $ 2,683 Trading Securities:
Domestic equity funds ............................................................ $ 18,698 $ - $ 18,075 $ - Upon Notice I day International equity funds ......................................................... 4,252 - 4,519 - Upon Notice I day Core bond fund ................................................................... 12,379 - 12,166 - Upon Notice I day Total Trading Securities .......................................................... 35,329 - 34,760 -
Total .............................................................................. $ 67,894 $ 2,348 $ 64,763 $ 2,683 O 7lis investmnent is in three long-terss private equityfsfsds that do not permnit early)withdrawal. Our investmnents in thesefunds cannot be distribstedsuntil the underlying investmnents have been liquidatedwhich tsayv take years frott the date of initialliluidation. Twofiinds have begun to make distributions.Otir initial investmsent in tise third fund ocsirred in the third qsuarter of 2013. 7his funids term will be 15 years, suibject to the general partnersright to extend the terns for supto three additional one-year periods.
" 77sis find has an insitial lock-iop periodolf24,sonths, which began in April 2013. Redemptions are allowed, on a qsuarterly basis, after24 msonths at the sole discretion of the.iund's board of directors. A 65-daY notice of redeosption is required.7here is a holdback on final redemiptions.
50
Derivative Instruments Available-for-Sale Securities Cash Flow Hedges We hold investments in a trust for the purpose of funding the In 2011, we entered into treasury yield hedge transactions to hedge deconmmissioning of Wolf Creek. We have classified these investments our interest rate risk associated with a $125.0 million portion of as available-for-sale and have recorded all such investments at their a forecasted issuance of fixed rate debt. These transactions were fair market value as of December 31, 2014 and 2013.
designated and qualified as cash flow hedges and measured at fair Using the specific identification method to determine cost, we value by estimating the net present value ofa series ofpayments using realized gains on our available-for-sale securities of $0.1 million in market-based models with observable inputs such as the spread 2014, $5.3 million in 2013 and $0.6 million in 2012. We record net between the 30-year U.S Treasury bill yield and the contracted, realized and unrealized gains and losses in regulatory liabilities on fixed yield. As a result of regulatory accounting treatment, we our consolidated balance sheets. This reporting is consistent with report the effective portion of the gains or losses on these derivative the method we use to account for the decommissioning costs we instruments as a regulatory liability or regulatory asset and amortize recover in our prices. Gains or losses on assets in the trust fund such amounts to interest expense over the term of the related debt.
are recorded as increases or decreases, respectively, to regulatory In 2012, we settled the treasury yield hedge transactions for a cost of liabilities and could result in lower or higher funding requirements
$29.7 million, which will be amortized to interest expense over the for decommissioning costs, which we believe would be reflected in 30-year term of the debt issued in March 2012. See Note 9, "Long-the prices paid by our customers.
Term Debt" for additional information regarding the debt issuance.
As of December 31, 2014 and 2013, we had recorded $26.6 million The following table presents the cost, gross unrealized gains and and $276 million, respectively, as a regulatory asset. losses, fair value and allocation of investments in the NDT fund as of December 31, 2014 and 2013.
Price Risk We use various types of fuel, including coal, natural gas, uranium GrossUnrealized and diesel to operate our plants and also purchase power to meet Security Type Cost Gain Loss FairValue Allocation customer demand. Our prices and consolidated financial results (Dollars inThousands) are exposed to market risks from commodity price changes for Asof December 31, 2014 electricity and other energy-related products as well as from interest Domesticequityfunds .. $ 46,126 $ 14,853 $ (7) $ 60,972 33%
rates. Volatility in these markets impacts our costs of purchased International equity funds ............... 27,521 3,683 (413) 30,791 17%
power, costs of fuel for our generating plants and our participation Core bond fund ......... 18,811 478 - 19,289 10%
in energy markets. We strive to manage our customers' and our High-yield bond fund ... 13,342 - (144) 13,198 7%
exposure to these market risks through regulatory, operating and Emerging market bond financing activities and, when we deem appropriate, we economically fund ................ 12,556 - (1,568) 10,988 6%
hedge a portion of these risks through the use of derivative financial Other fixed income fund 4,798 - (19) 4,779 3%
instruments for non-trading purposes. Combination debt/equity/
other funds .......... 14,975 3,786 (620) 18,141 10%
Interest Rate Risk Alternative investment We have entered into numerous fixed and variable rate debt fund ................ 15,000 1,970 - 16,970 9%
obligations. For details, see Note 9, "Long-Term Debt.' We manage Real estate securities our interest rate risk related to these debt obligations by limiting our fund ................ 10,619 - (1,071) 9,548 5%
exposure to variable interest rate debt, diversifying maturity dates Cash equivalents ....... 340 - - 340 <1%
and entering into treasury yield hedge transactions. We may also use Total ............... $164,088 $ 24,770 $ (3,842) $185,016 100%
other financial derivative instruments such as interest rate swaps.
Asof December 31, 2013 Domestic equity funds . . $ 40,976 $ 14,799 $ (1) $ 55,774 32%
- 5. FINANCIAL INVESTMENTS International equity funds ............... 26,581 5,266 (31) 31,816 18%
We report our investments in equity and debt securities at fair Core bond fund ......... 18,287 - (180) 18,107 10%
value and use the specific identification method to determine their High-yield bond fund ... 12,275 627 - 12,902 7%
realized gains and losses. We classify these investments as either Emerging market bond trading securities or available-for-sale securities as described below. fund ................ 12,207 - (1,152) 11,055 6%
Other fixed income Trading Securities fund ................ 4,684 6 - 4,690 3%
We hold equity and debt investments which we classify as trading Combination debt/equity/
securities in a trust used to fund certain retirement benefit other funds .......... 14,964 2,380 (251) 17,093 10%
obligations. These obligations totaled $29.8 million and $27.0 Alternative investment fund ................ 15,000 675 - 15,675 9%
million as of December 31, 2014 and 2013, respectively. For Real estate securities additional information on our benefit obligations, see Note 11, fund ................ 10,268 - (1,757) 8,511 5%
"Employee Benefit Plans." Cash equivalents ....... 2 - - 2 <1%
As of December 31, 2014 and 2013, we measured the fair value Total ............... $ 155,244 $ 23,753 $ (3,372) $175,625 100%
of trust assets at $35.5 million and $34.9 million, respectively. We include unrealized gains or losses on these securities in investment earnings on our consolidated statements of income. For the years ended December 31, 2014, 2013 and 2012, we recorded unrealized gains of $2.6 million, $6.7 million and $4.1 million, respectively.
51
WESTAR ENERGY 2014 ANNUAL REPORT The following table presents the fair value and the gross unrealized 6. PROPERTY, PLANT AND EQUIPMENT losses of the available-for-sale securities held in the NDT fund The following is a summary of our property, plant and equipment aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss balance.
position as of December 31, 2014 and 2013. Asof December 31, 2014 2013 Lessthan 12Months (InThousands) 12 Months or Greater Total Electric plant in service ............................... $10,620,292 $ 9,753,787 Gross Gross Gross Electric plant acquisition adjustment ................... 802,318 802,318 Fair Unrealized Fair Unrealized Fair Unrealized Accumulated depreciation ............................ (4,112,483) (3,971,735)
Value Losses Value Losses Value Losses (inThousands) ............................................... 7,310,127 6,584,370 Asof December 31, 2014 Construction work in progress ......................... 773,144 904,586 Domestic equity Nuclear fuel, net ..................................... 79,637 62,960 funds ........... $ - $ - $ 263 $ (7) $ 263 $ (7) Net property, plant and equipment .................. $ 8,162,908 $ 7,551,916 International equity funds ........... 5,905 (413) - 5,905 (413)
High-yield bond The following is a summary of property, plant and equipment of VIEs.
fund ............ 13,198 (144) - 13,198 (144) Asof December31, 2014 2013 Emerging market (InThousands) bond fund ....... - - 10,988 (1,568) 10,988 (1,568)
Other fixed income Electric plant of VIEs ................................. $ 497,999 $ 513,793 fund ............ 4,779 (19) - - 4779 (19) Accumulated depreciation ofVlEs ...................... (219,426) (217,167)
Combination debt/ Net property, plant and equipment of VIEs............ $ 278,573 $ 296,626 equity/other funds ........... - 5,892 (620) 5,892 (620)
Real estate securities We revised our depreciation rates to reflect changes in the estimated fund ............ - - 9,548 (1,071) 9,548 (1,071) useful lives of some of our assets in 2012. We recorded depreciation expense on property, plant and equipment of $263.8 million in 2014, Total ........... $ 23,882 $ (576) $26,691 $ (3,266) $ 50,573 $ (3,842)
$249.9 million in 2013 and $2478 million in 2012. Approximately Asof December 31, 2013 $9.7 million, $9.7 million and $9.8 million of depreciation expense Domestic equity in 2014, 2013 and 2012, respectively, was attributable to property, funds ........... $ 59 $ (1) $ - $ - $ 59 $ (1) plant and equipment of VIEs.
International equity funds ........... 6,244 (31) - - 6,244 (31)
Core bond fund ..... 18,107 (180) - - 18,107 (180)
Emerging market bond fund ....... 11,055 (1,152) - - 11,055 (1,152)
Combination debt/
equity/other funds ........... 6,283 (251) - - 6,283 (251)
Real estate securities fund ............ - - 8,511 (1,757) 8,511 (1,757)
Total ........... $ 41,748 $ (1,615) $ 8,511 $ (1,757) $ 50,259 $ (3,372)
- 7. JOINT OWNERSHIP OF UTILITY PLANTS 8. SHORT-TERM DEBT Under joint ownership agreements with other utilities, we have In September 2014, Westar Energy extended the term of its $730.0 undivided ownership interests in four electric generating stations. million revolving credit facility to terminate in September 2018, Energy generated and operating expenses are divided on the same $81.4 million of which will expire in September 2017. As long as basis as ownership with each owner reflecting its respective costs there is no default under the facility, Westar Energy may extend the in its statements of income and each owner responsible for its own facility up to an additional two years and may increase the aggregate financing. Information relative to our ownership interests in these amount of borrowings under the facility to $1.0 billion, both subject facilities as of December 31, 2014, is shown in the table below. to lender participation. All borrowings under the facility are secured by KGE first mortgage bonds. As of December 31, 2014, no amounts Owner-Construction ship had been borrowed and $15.6 million of letters of credit had been In-Service Accumulated Workin Net Percent- issued under this revolving credit facility. As of December 31, 2013, Plant Dates Investment Depreciation Progress MW age no amounts had been borrowed and $18.4 million of letters of credit (Dollars inThousands) had been issued under this revolving credit facility.
LaCygne unitlI"' ..... June 1973 $ 345,866 $ 157,550 $ 368,445 367 50 JECunit 1'l .......... July 1978 789,142 189,973 11,150 661 92 In 2011, Westar Energy entered into a revolving credit facility with JECunit 2ý') .......... May 1980 540,871 190,769 3,189 658 92 a syndicate of banks for $270.0 million. In February 2014, Westar JECunit3(11 .......... May 1983 709,497 309,540 3,246 664 92 Energy extended the term of the $270.0 million revolving credit 51 Wolf Creek ......... Sept. 1985 1,818,005 788,602 73,333 549 47 facility to February 2017, of which $20.0 million of this facility will State Line(` ... June 2001 100,671 53,347 22 193 40 terminate in February 2016. So long as there is no default under Total .............. $4,304,052 $ 1,689,781 $ 459,385 3,092 the facility, Westar Energy may increase the aggregate amount of 1 borrowings under the facility to $400.0 million, subject to lender
'" Jointlv owned with KCPL. Our 8% leasehold interest in Jeffrey Energ), Center participation. All borrowings under the facility are secured by KGE (JEC) that is consolidated as a VIE is reflected in ti/e net mnegawatts (A VV)rind first mortgage bonds. As of December 31, 2014 and 2013, Westar oswners/sip percentaqgeprovided ablove, but not in tire other asnounts instire taib/le.
""'Jointly,owvned with KCPL and Kansas Electric Power Cooperative,Ihc. Energy had no borrowed amounts or letters of credit outstanding T under this revolving credit facility.
( Jointly owsned with Enmpire District Electric Conmpansy.
Westar Energy maintains a commercial paper program pursuant to We include in operating expenses on our consolidated statements which it may issue commercial paper up to a maximum aggregate of income our share of operating expenses of the above plants. Our amount outstanding at any one time of $1.0 billion. This program is share of fuel expense for the above plants is generally based on the supported by Westar Energy's revolving credit facilities. Maturities amount of power we take from the respective plants. Our share of commercial paper issuances may not exceed 365 days from the of other transactions associated with the plants is included in the date of issuance and proceeds from such issuances will be used appropriate classification on our consolidated financial statements. to temporarily fund capital expenditures, to redeem debt on an In addition, we also consolidate a VIE that holds our 500,o leasehold interim basis, for working capital and/or for other general corporate interest in La Cygne unit 2, which represents 341 MW of net capacity. purposes. Westar Energy had $257.6 million and $134.6 million of The VIE's investment in the 50% interest was $392.1 million and commercial paper issued and outstanding as of December 31, 2014 and 2013, respectively.
accumulated depreciation was $194.5 million as of December 31, 2014. We include these amounts in property, plant and equipment of In addition, total combined borrowings under Westar Energy's VIEs, net on our consolidated balance sheets. See Note 17, "Variable commercial paper program and revolving credit facilities may not Interest Entities:' for additional information about VIEs. exceed $1.0 billion at any given time. The weighted average inter-est rate on short-term borrowings outstanding as of December 31, 2014 and 2013, was 0.52% and 0.28%, respectively. Additional information regarding our short-term debt is as follows.
AsofDecember3l, 2014 2013 (Dollars InThousands)
Weighted average short-term debt outstanding during the year .............................. $ 232,336 $228,352 Weighted daily average interest rates during the year, excluding fees ............................ 0.30% 0.39%
Our interest expense on short-term debt was $2.0 million in 2014,
$2.4 million in 2013 and $3.2 million in 2012.
53
WESTAR ENERGY 2014 ANNUAL REPORT
- 9. LONG-TERM DEBT The Westar Energy and KGE mortgages each contain provisions restricting the amount of first mortgage bonds that could be issued Outstanding Debt by each entity. We must comply with such restrictions prior to The following table summarizes our long-term debt outstanding. the issuance of additional first mortgage bonds or other secured Asof December 31, 2014 2013 indebtedness.
(inThousands) The amount of Westar Energy first mortgage bonds authorized by Westar Energy its Mortgage and Deed of Trust, dated July 1, 1939, as supplemented, First mortgage bond series:
is subject to certain limitations as described below. The amount of 6.00% due 2014....................................... 2-0 250,000 KGE first mortgage bonds authorized by the KGE Mortgage and 5.15% due 2017 .......................................
8.625% due 2018 ..................................... 300,000 300,000 Deed of Trust, dated April 1, 1940, as supplemented and amended, is 5.10% due 2020 ....................................... 250,000 250,000 limited to a maximum of $3.5 billion, unless amended further. First 5.95% due 2035 ....................................... 125,000 125,000 mortgage bonds are secured by utility assets. Amounts of additional 5.875% due 2036 ..................................... 150,000 150,000 bonds that may be issued are subject to property, earnings and certain 4.125% due 2042 ..................................... 550,000 550,000 restrictive provisions, except in connection with certain refundings, 4.10% due 2043 ....................................... 430,000 250,000 of each mortgage. As of December 31, 2014, approximately 4.625% due 2043 ..................................... 250,000 250,000 $743.2 million principal amount of additional first mortgage bonds 2,180,000 2,250,000 could be issued under the most restrictive provisions in Westar Energy's mortgage. As of December 31, 2014, approximately Pollution control bond series:
Variable due 2032,0.06% as of December 31, 2014;
$1.3 billion principal amount of additional KGE first mortgage 0.12% as of December 31, 2013 ....................... 45,000 45,000 bonds could be issued under the most restrictive provisions in Variable due 2032, 0.08% as of December 31, 2014; KGE's mortgage.
0.12% as of December 31, 2013 ....................... 30,500 30,500 As of December 31, 2014, we had $121.9 million of variable rate, 75,500 75,500 tax-exempt bonds. While the interest rates for these bonds have KGE been extremely low, we continue to monitor the credit markets and First mortgage bond series: evaluate our options with respect to these bonds.
6.70% due 2019 ....................................... 300,000 300,000 6.15% due 2023 ....................................... 50,000 50,000 In January 2015, Westar Energy redeemed $125.0 million in principal 6.53% due 2037 ....................................... 175,000 175,000 amount of first mortgage bonds bearing stated interest at 5.95%
6.64% due 2038 ....................................... 100,000 100,000 and maturing January 2035.
4.30% due 2044 ....................................... 250,000 In July 2014, KGE issued $250.0 million in principal amount of 875,000 625,000 first mortgage bonds bearing stated interest at 4.30% and maturing Pollution control bond series: July 2044, the proceeds of which were used to retire Westar Energy Variable due 2027, 0.08% as of December 31, 2014; first mortgage bonds in a principal amount of $250.0 million with a 0.10% as of December 31,2013 ....................... 21,940 21,940 stated interest of 6.00% maturing in July 2014.
5.30% due 2031 ....................................... - 108,600 5.30% due 2031 ....................................... - 18,900 In May 2014, Westar Energy issued $180.0 million in principal 4.850,6 due 2031 ....................................... 50,000 50,000 amount of first mortgage bonds bearing stated interest at 4.10% and 5.00% due 2031 ....................................... - 50,000 maturing April 2043. These bonds constitute a further issuance of a Variable due 2032, 0.08% as of December 31, 2014; series of bonds initially issued in March 2013 in a principal amount 0.10% as of December 31, 2013 ....................... 14,500 14,500 of $250.0 million. Proceeds from the May 2014 issuance were used Variable due 2032, 0.08% as of December 31, 2014; 0.10% as of December 31, 2013 ....................... 10,000 10,000 in June 2014 to redeem three KGE pollution control bond series totaling $177.5 million principal amount at stated interest rates 96,440 273,940 between 5.00% and 5.30%.
Total long-term debt ..................................... 3,226,940 3,224,440 Unamortized debt discount"' .............................. (11,401) (5,482) In August 2013, Westar Energy issued $250.0 million principal Long-term debt due within one year ....................... - (250,000) amount of first mortgage bonds bearing stated interest at 4.625%
and maturing September 2043.
Long-term debt, net $ 3,215,539 $ 2,968,958 Variable Interest Entities In June 2013, KGE redeemed two pollution control bond series with 6.990b due 20 14(b)..................................... - 316 a principal amount of $100.0 million and stated interest rates at 5.92% due 20 1 9(b)..................................... 8,413 13,243 5.60% and 6.00%.
5.647% due 2 021 1b).................................... 185,791 208,123 In March 2013, Westar Energy issued $250.0 million principal Total long-term debt of variable interest entities ............. 194,204 221,682 amount of first mortgage bonds bearing stated interest at 4.10% and Unamortized debt premium' ........ 294 599 maturing April 2043.
Long-term debt of variable interest entities due within one year ................................... (27,933) (27,479) Proceeds from issuances were used to repay short-term debt, which Long-term debt of variable interest entities, net ........... $ 166,565 S 194,802 was used to purchase capital equipment, to redeem bonds and for working capital and general corporate purposes.
We anhortize debt discounts and premiums to interest expense over the term of the respcctive issues.
"'Portions of our payments relatedto this debt reduce the principalbalances each year until maturitY 54
Maturities The tax effect of the temporary differences and carryforwards that The principal amounts of our long-term debt maturities as of comprise our deferred tax assets and deferred tax liabilities are December 31, 2014, are as follows. summarized in the following table.
Long-term Long-term Asof December31, 2014 2013 Year Debt Debt of VIEs (InThousands)
(InThousands) Deferred tax assets:
2015 .................................................... $ - $ 27,933 Taxcredit carryforward(' ............................... $ 257,827 $ 212,635 2016 .................................................... - 28,309 Net operating loss carryforward IN........................ 179,285 108,885 2017 .................................................... 125,000 26,842 Deferred employee benefit costs ......................... 158,102 85,720 2018 .................................................... 300,000 28,538 Deferred state income taxes ............................. 66,557 57,243 2019 .................................................... 300,000 31,485 Deferred regulatory gain on sale-leaseback ................ 35,706 38,124 Thereafter ............................................... 2,501,940 51,097 Deferred compensation ................................ 29,315 30,022 Alternative minimum tax carryforward 1 . . .. . . .. . . . .. . . . . . 24,114 35,666 Total maturities ........................................ $ 3,226,940 $ 194,204 Accrued liabilities ...................................... 23,048 17,396 Disallowed costs ....................................... 10,829 11,453 Interest expense on long-term debt was $158.8 million in 2014, LaCygne dismantling cost ............................... 9,064 8,110 1 . . . . . .. . . . . . .. . . . .. . . . . . .
$154.9 million in 2013 and $145.6 million in 2012. Interest expense Capital loss carryforward d)..... 1,981 3,447 on long-term debt of VIEs was $11.4 million in 2014, $13.0 million Other ................................................ 27,689 20,058 in 2013 and $15.1 million in 2012. Total gross deferred tax assets ......................... 823,517 628,759 Less: Valuation allowance ) .... 1,981 3,504
- 10. TAXES Deferred tax assets .................................. $ 821,536 $ 625,255 Income tax expense is comprised of the following components. Deferred tax liabilities:
YearEnded December 31, 2014 2013 2012 Accelerated depreciation ............................... $ 1,664,367 $ 1,390,669 Acquisition prem ium ................................... 163,894 171,907 (InThousands)
Deferred employee benefit costs ......................... 158,102 85,720 Income TaxExpense (Benefit):
Amounts due from customers for future income taxes, net... 153,984 163,742 Current income taxes:
Deferred state income taxes ............................. 59,170 51,504 Federal ................................. $ 416 S 135 $ (691)
Debt reacquisition costs ................................ 20,102 19,985 State ................................... (597) 279 579 Storm costs ........................................... 15,713 21,165 Deferred income taxes:
Pension expense tracker ................................ 14,187 21,230 Federal ................................. 124,923 102,030 102,960 Other ................................................ 17,868 24,527 State ................................... 29,657 24,443 26,300 Investment tax credit amortization ............ (3,129) (3,166) (3,012) Total deferred tax liabilities ........................... $ 2,267,387 $ 1,950,449 Income tax expense .................... $ 151,270 $123,721 S 126,136 Net deferred tax liabilities ................................. $ 1,445,851 $ 1,325,194
'"Based onrfiled taix returrnsand amrouints expected to be reportedin currentcyear Deferred tax assets and liabilities are reflected on our consolidated tax returns (Decerober31, 2014), we had availablefederalgeneral bsasiness tax balance sheets as follows. credits of $73.5 million and state investment tax credits of $184.3 million. 7he federal general business tax credits were primarilygenerated fromn production Asof December 31, 2014 2013 tax credits. TIhese tax credits expire beginning in 2020 and ending in 2034. 7h1e (InThousands) state investmnent tax credits expire beginningin 2017 and ending in 2030.
Current deferred tax assets ................................. $ 29,636 $ 37,954 ")As of Decensber 31, 2014, we had a federal net operating loss carryforward Non-current deferred tax liabilities .......................... 1,475,487 1,363,148 qf $452.8 million, which is available to offset federal taxable income. The net operatinglosses will expire beginningin 2031 arid ending in 2034.
Net deferred tax liabilities .................................. $ 1,445,851 $ 1,325,194 ("As of Decetrber 31, 2014, we had availableair alternative ni,inituni tax credit 53 carryJbrsiardof $24.1 inillion, which has an unlinsited carryforwardperiod.
'As of Deceniber 31, 2014, we had an irnised capital loss carryforward of
$5.0 million that is availableto offset fsture capitalgains. The capitallosses will expire in 2016.
("As we do not expect to realize any significantcapitalgainsin thefutuare, we have establisheda valiation allowance of $2.0 million. The total valuiation allowance related to the deferred tax assets was $2.0 rrillion as ofDeceniber31, 2014, and
$3.5 million as of Decernber31, 2013.
55
WESTAR ENERGY 2014 ANNUAL REPORT In accordance with various orders, we have reduced our prices to repair or must be capitalized, and regulations regarding dispositions reflect the income tax benefits associated with certain accelerated of property under the Modified Accelerated Cost Recovery System.
income tax deductions. We believe it is probable that the net The adoption of these regulations did not have a material impact on future increases in income taxes payable will be recovered from our consolidated financial results.
customers when these temporary income tax benefits reverse. We Additionally, also effective January 1, 2014, we implemented have recorded a regulatory asset for these amounts. We also have new FASB accounting guidance regarding the presentation of an recorded a regulatory liability for our obligation to reduce the unrecognized tax benefit. An unrecognized tax benefit should be prices charged to customers for deferred income taxes recovered presented in the financial statements as a reduction to a deferred from customers at corporate income tax rates higher than current tax asset for a net operating loss carryforward, similar tax loss, income tax rates. The price reduction will occur as the temporary or a tax credit carryforward. To the extent such tax assets are not differences resulting in the excess deferred income tax liabilities available to settle any additional income taxes that would result reverse. The income tax-related regulatory assets and liabilities from the disallowance of a tax position at the reporting date, the as well as unamortized investment tax credits are also temporary unrecognized tax benefit should be presented in the financial differences for which deferred income taxes have been provided. statements as a liability and should not be combined with deferred The net deferred income tax liability related to these temporary tax assets. We adopted this guidance with retrospective application differences is classified above as amounts due from customers for to prior periods and it did not have a material impact on our future income taxes, net. consolidated financial statements.
Our effective income tax rates are computed by dividing total federal The unrecognized income tax benefits increased from $1.7 million and state income taxes by the sum of such taxes and net income. The at December 31, 2013, to $3.2 million at December 31, 2014.
difference between the effective income tax rates and the federal The increase for unrecognized income tax benefits was largely statutory income tax rates are as follows. attributable to tax positions taken with respect to research and YearEnded December 31, 2014 2013 2012 experimental tax credits. We do not expect significant changes in Statutory federal income tax rate .................... 35.0% 35.0% 35.0% the unrecognized income tax benefits in the next 12 months. A Effect of: reconciliation ofthe beginning and ending amounts of unrecognized State income taxes .............................. 4.0 3.8 4.3 income tax benefits is as follows:
Corporate-owned life insurance policies ............ (4.0) (5.4) (4.9) 2014 2013 2012 Production tax credits ............................ (2.1) (2.3) (2.4)
(InThousands)
Flow through depreciation for plant-related differences ....................... 2.0 2.2 1.4 Unrecognized income tax benefits AFUDC equity ................................... (1.3 ) (1.2) (1.0) asofJanuaryl .............................. $ 1,703 $ 1,219 $ 2,483 Amortization of federal investment tax credits ....... (0.7) (0.7) (0.7) Additions based on tax positions related Capital loss utilization carryforward ................ (0.3) (1.1) (0.3) to the current year ........................... 872 224 373 Additions for tax positions of prior years .......... 813 325 -
Liability for unrecognized income tax benefits ....... (0.2) 0.1 0.2 Other .......................................... (0.5 ) (1.3 ) (0.7 ) Reductions for tax positions of prior years ......... (200) (65) (1,637)
Settlements .................................. -- -
Effective income tax rate ............................ 31.9% 29.1% 30.9%
Unrecognized income tax benefits as of December 31........................... $ 3,188 $ 1,703 $ 1,219 We file income tax returns in the U.S. federal jurisdiction as well as various state and foreign jurisdictions. The income tax returns we The amounts of unrecognized income tax benefits that, if file will likely be audited by the Internal Revenue Service (IRS) or recognized, would favorably impact our effective income tax rate, other tax authorities. With few exceptions, the statute of limitations were $3.2 million, $2.4 million and $2.0 million (net of tax) as of with respect to U.S. federal, state and local, or non-U.S. income tax December 31, 2014, 2013 and 2012, respectively.
examinations by tax authorities remains open for tax year 2011 and forward. Interest related to income tax uncertainties is classified as interest expense and accrued interest liability. As of December 31, 2014, Effective January 1, 2014, we adopted new regulations released we had no amounts accrued for interest related to Unrecognized by the IRS and United States Treasury Department regarding income tax benefits, compared to $0.2 million as of December 31, the deduction and capitalization of expenditures related to 2013. We accrued no penalties at either December 31, 2014 or 2013.
tangible property, including the tax treatment of, among other things, materials and supplies and the determination of whether As of December 31, 2014 and 2013, we had recorded $1.5 million expenditures with respect to tangible property are a deductible for probable assessments of taxes other than income taxes.
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- 11. EMPLOYEE BENEFIT PLANS Pension Benefits Post-retirement Benefits As of December 31, 2014 2013 2014 2013 Pension and Post-Retirement Benefit Plans (inThousands)
We maintain a qualified non-contributory defined benefit pension Amounts Recognized in the plan covering substantially all of our employees. For the majority of Balance Sheets Consist of:
our employees, pension benefits are based on years of service and Currentliability ................... $ (2,716) $ (2,740) $ (246) $ (242) an employee's compensation during the 60 highest paid consecutive Noncurrent liability ............... (366,788) (211,223) (19,921) (11,053) months out of 120 before retirement. Non-union employees Netamount recognized ......... $ (369,504) $ (213,963) $ (20,167) $ (11,295) hired after December 31, 2001, and union employees hired after December 31, 2011, are covered by the same defined benefit pension Amounts Recognized in plan; however, their benefits are derived from a cash balance Regulatory Assets Consist of:
Net actuarial loss (gain) ............ $ 329,572 $186,365 $ (2,253) $(18,890) account formula. We also maintain a non-qualified Executive Prior service cost .................. 2,867 3,393 3,585 13,942 Salary Continuation Plan for the benefit of certain retired executive Transition obligation .............. - - - -
officers. We have discontinued accruing any future benefits under Net amount recognized ......... $ 332,439 $ 189,758 $ 1,332 $ (4,948) this non-qualified plan.
")As of Decensber 31, 2014 andl 2013, pension beinefits include non-qualified The amount we contribute to our pension plan for future periods benefit obligations of $29.8 nsillionz and $27.0 11illion, respectively, swhzichi is not yet known, however, we expect to fund our pension plan are funded b)sa trust containing assets of $35.5 nmillion and $34.9 mnillioni, each year at least to a level equal to current year pension expense. respectively, classified as trading,securities. Thc assets in the afisresnentioncd truast We must also meet minimum funding requirements under the are not inscluded in tHie table above. See Notes 4 and 5, "FinancialInstrumients Employee Retirement Income Security Act, as amended by the and TradingSecurities" and "Financialhlivestnients," respectively,.for additional Pension Protection Act. We may contribute additional amounts infornsationi regardingthese amnounts.
from time to time as deemed appropriate.
Pension Benefits Post-retirement Benefits In addition to providing pension benefits, we provide certain post-Asof December 31, 2014 2013 2014 2013 retirement health care and life insurance benefits for substantially (InThousands) all retired employees. We accrue and recover in our prices the costs Pension Plans With a Projected of post-retirement benefits during an employee's years of service. Benefit Obligation InExcess In 2014 and prior years, our retirees were covered under a health of Plan Assets:
insurance policy. In January 2015, we began giving our retirees a Projected benefit obligation ...... $1,030,645 $ 823,780 $ - $ -
fixed annual allowance, which provides them the flexibility to obtain Fair value of plan assets .......... 661,141 609,817 - -
health coverage in the marketplace that is tailored to their needs. Pension Plans With an Accumulated Benefit Obligation InExcess of As a co-owner of Wolf Creek, KGE is indirectly responsible for Plan Assets:
47% of the liabilities and expenses associated with the Wolf Creek Accumulated benefit obligation ... $ 914,800 $ 732,150 - -
pension and post-retirement benefit plans. See Note 12, "Wolf Fair value of plan assets .......... 661,141 609,817 - -
Creek Employee Benefit Plans:' for information about Wolf Creek's Post-retirement Plans With an Accumulated Post-retirement Benefit Obligation In benefit plans.
Excess of Plan Assets:
The following tables summarize the status of our pension and post- Accumulated post-retirement retirement benefit plans. benefit obligation ............. - - $ 141,516 $133,061 Fairvalue of plan assets .......... - - 121,349 121,766 Pension Benefits Post-retirement Benefits Weighted-Average Actuarial Assumptions Asof December31, 2014 2013 2014 2013 used to Determine Net Periodic Benefit Obligation:
(InThousands)
Discount rate ................... 4.17% 5.07% 4.10% 4.88%
Change inBenefit Obligation:
Compensation rate increase ....... 4.00% 4.00% - -
Benefit obligation, beginning of year ............... $ 823,780 $ 928,708 $ 133,061 $152,564 Service cost ....................... 16,218 21,420 1,381 2,028 We use a measurement date of December 31 for our pension and Interest cost ...................... 41,600 38,520 6,351 6,007 post-retirement benefit plans. The discount rate used to determine Plan participants'contributions ...... 4,232 2,961 the current year pension obligation and the following year's Benefits paid ..................... (39,225) (36,529) (12,184) (10,968) pension expense is based on a bond selection-settlement portfolio Actuarial (gains) losses ............. 188,272 (128,339) 16,509 (19,531)
Amendm ents ....................
approach. This approach develops a discount rate by selecting (7,834) a portfolio of high quality, non-callable corporate bonds that Benefit obligation, generate sufficient cash flow to provide for the projected benefit end of year'dl ................ $ 1,030,645 S 823,780 $ 141,516 $ 133,061 payments of the plan. After the bond portfolio is selected, a single Change in Plan Assets: interest rate is determined that equates the present value of the Fair value of plan assets, plan's projected benefit payments discounted at this rate with the beginning of year ............... $ 609,817 $ 547,931 $ 121,766 $106,793 Actual return on plan assets ......... 61,291 68,151 7,189 17,361 market value of the bonds selected. The decrease in the discount Employer contributions ............. 26,400 27,500 - 5,318 rates used as of December 31, 2014, increased the pension and post-Plan participants'contributions ...... - - 4,074 2,830 retirement benefit obligations by approximately $123.5 million and Benefits paid .................... (36,367) (33,765) (11,680) (10,536) $11.2 million, respectively.
Fair value of plan assets, endofyear .................. S 661,141 $ 609,817 $ 121,349 $ 121,766 Funded status, end of year ......... $ (369,504) $ (213,963) $ (20,167) $ (11,295) 57
WESTAR ENERGY 2014 ANNUAL REPORT We utilize actuarial assumptions about mortality to calculate the Post-retirement Benefits pension and post-retirement benefit obligations. In 2014, revised YearEnded December 31, 2014 2013 2012 mortality tables were published which reflect improved life expectancies (Dollars inThousands) based on past experience and future projections. We adopted the Components of Net Periodic Cost (Benefit):
revised mortality tables as of December 31, 2014, resulting in an Service cost ............................... $ 1,381 $ 2,028 $ 2,057 increase to the pension and post-retirement benefit obligations by Interest cost ............................... 6,351 6,007 6,298 approximately $58.6 million and $5.9 million, respectively. Expected return on plan assets ............... (6,576) (6,691) (5,491)
Amortization of unrecognized:
We amortize prior service cost on a straight-line basis over the Transition obligation, net ................. - 325 3,912 average future service of the active employees (plan participants) Prior service costs ........................ 2,524 2,524 2,524 benefiting under the plan at the time ofthe amendment. We amortize Actuarial loss, net ........................ (742) 1,125 1,503 the net actuarial gain or loss on a straight-line basis over the average Net periodic cost before regulatory future service of active plan participants benefiting under the plan adjustment ............................. 2,938 5,318 10,803 without application of an amortization corridor. The KCC allows Regulatory adjustment'al ...
4,499 2,922 23 us to record a regulatory asset or liability to track the cumulative Net periodic cost ........................... $ 7,437 $ 8,240 $ 10,826 difference between current year pension and post-retirement benefits expense and the amount of such expense recognized in Other Changes in Plan Assets and Benefit setting our prices. We accumulate such regulatory asset or liability Obligations Recognized in Regulatory Assets:
between general rate reviews and amortize the accumulated Current year actuarial (gain)/loss ........... S 15,896 $ (30,2011 $ (4,239) amount as part of resetting our base prices. Following is additional Amortization of actuarial (loss) ............ 742 (1,125) (1,503) information regarding our pension and post-retirement benefit plans. Current year prior service cost .............. (7,834) - -
Amortization of prior service costs .......... (2,524) (2,525) (2,524)
Pension Benefits Amortization of transition obligation ....... - (325) (3,912)
YearEnded December 31, 2014 2013 2012 Total recognized in regulatory assets ........ $ 6,280 $ (34,176) $ (12,178)
(Dollars inThousands)
Total recognized in net periodic cost and Components of Net Periodic Cost (Benefit):
regulatoryassets ...................... $ 13,717 $ (25,936) S (1,352)
Service cost ................................ $ 16,218 S 21,420 $ 19,556 Interest cost ............................... 41,600 38,520 39,576 Weighted-Average Actuarial Assumptions Expected return on plan assets ............... (36,438) (33,405) (32,283) used to Determine Net Periodic Cost (Benefit):
Amortization of unrecognized: Discount rate ............................ 4.88% 3.99% 4.25%
Transition obligation, net .................. Expected long-term return on plan assets ... 6.00% 6.00% 6.00%
Prior service costs ........................ 526 601 612 Compensation rate increase ............... 4.00% 4.00% -%
Actuarial loss, net ........................ 19,362 33,914 32,778 r("The regulatory uadjustmient represents trse difference between current period Net periodic cost before regulatory pemrsion or post-retireanent benefit e.xpense and tire uarount of such/ ex.pense adjustm ent .............................. 41,268 61,050 60,239 recogisized in setting our prices.
Regulatory adjustment" ........ . . .. . . . .. . . . 15,479 3,693 (6,523)
Net periodic cost ........................... S 56,747 $ 64,743 $ 53,716 We estimate that we will amortize the following amounts from regulatory assets into net periodic cost in 2015.
Other Changes inPlan Assets and Benefit Pension Post-retirement Obligations Recognized inRegulatory Assets:
Benefits Benefits Current year actuarial (gain)/loss ........... $ 162,569 5 (163,086) $ 18,451 Amortization of actuarial (loss) ............. (19,362) (33,914) (32,778) (InThousands)
Current year prior service cost .............. Actuarial loss ............................................. $ 32,131 $ 379 Amortization of prior service costs .......... (526) (601) (612) Prior service cost .......................................... 520 455 Amortization of transition obligation ........
Total ................................................... $ 32,651 $ 834 Total recognized inregulatory assets ........ S 142,681 S (197,601) $ (14,939)
Total recognized innet periodic cost We base the expected long-term rate of return on plan assets on and regulatory assets ................... $ 199,428 $ (132,858) $ 38,777 historical and projected rates of return for current and planned Weighted-Average Actuarial Assumptions asset classes in the plans' investment portfolios. We select assumed used to Determine Net Periodic Cost (Benefit): projected rates of return for each asset class after analyzing long-Discount rate ............................ 5.07% 4.13% 4.50% term historical experience and future expectations of the volatility Expected long-term return on plan assets .... 6.50% 6.50% 6.50% of the various asset classes. Based on target asset allocations for each Compensation rate increase ................ 4.00% 4.00% 4.00% asset class, we develop an overall expected rate of return for the portfolios, adjusted for historical and expected experience of active portfolio management results compared to benchmark returns and for the effect of expenses paid from plan assets.
58
For measurement purposes, the assumed annual health care cost equity investments, and the remaining 10% to a fund which growth rates were as follows. provides tactical portfolio overlay by investing in debt and equity Asof December31, securities. Our investments in equity include investment funds with 2014"' 2013 underlying investments in domestic and foreign large-, mid- and Health care cost trend rate assumed for next year ...................... - 7.5%
small-cap companies, derivatives related to such holdings, private Rate to which the cost trend rate isassumed to decline (the ultimate trend rate) ......................................... - 5.0%
equity investments including late-stage venture investments and Year that the rate reaches the ultimate trend rate ...................... - 2019 other investments. Our investments in debt include core and high-yield bonds. Core bonds are comprised of investment funds with
(')Amounts are zero due to a change in our post retirement medical plan, effective underlying investments in investment grade debt securities of Januar)y2015, whereby we began to offer retirees afixed cost allowance to obtain health coverage. corporate entities, obligations of U.S. and foreign governments and their agencies and other debt securities. High-yield bonds include The health care cost trend rate affects the projected benefit investment funds with underlying investments in non-investment obligation. A 1% change in assumed health care cost growth rates grade debt securities of corporate entities, obligations of foreign would have effects shown in the following table. governments and their agencies, private debt securities and other debt securities. Real estate securities consist primarily of funds One-Percentage- One-Percentage- invested in core real estate throughout the U.S. while alternative Point Increase Point Decrease funds invest in wide ranging investments including equity and debt (InThousands) securities of domestic and foreign corporations, debt securities Effectontotalofserviceandinterestcost ................... $ 134 $ (120)
. . . .. . . . .. . . . issued by U.S. and foreign governments and their agencies, Effect on post-retirement benefit obligation) . - -
structured debt, warrants, exchange-traded funds, derivative
" Amnounts are zero due to a change in our post retirement medical plan, effective instruments, private investment funds and other investments.
January2015, whereby we began to offer retirees afixed cost allowance to obtain health coverage. Target allocations for our post-retirement benefit plan assets are 65% to equity securities and 35% to debt securities. Our investments Plan Assets in equity securities include investment funds with underlying We believe we manage pension and post-retirement benefit plan investments primarily in domestic and foreign large-, mid- and assets in a prudent manner with regard to preserving principal small-cap companies. Our investments in debt securities include while providing reasonable returns. We have adopted a long- a core bond fund with underlying investments in investment term investment horizon such that the chances and duration of grade debt securities of domestic and foreign corporate entities, investment losses are weighed against the long-term potential for obligations of U.S. and foreign governments and their agencies, appreciation of assets. Part of our strategy includes managing interest private placement securities and other investments.
rate sensitivity of plan assets relative to the associated liabilities. Similar to other assets measured at fair value, GAAP establishes The primary objective of the pension plan is to provide a source a hierarchal framework for disclosing the transparency of the of retirement income for its participants and beneficiaries, and the inputs utilized in measuring pension and post-retirement benefit primary financial objective of the plan is to improve its funded plan assets at fair value. From time to time, the pension and post-status. The primary objective of the post-retirement benefit plan is retirement benefits trusts may buy and sell investments resulting in growth in assets and preservation of principal, while minimizing changes within the hierarchy. See Note 4, "Financial Instruments and interim volatility, to meet anticipated claims of plan participants. Trading Securities,' for a description of the hierarchal framework.
We delegate the management of our pension and post-retirement benefit plan assets to independent investment advisors who hire All level 2 pension investments are held in investment funds that and dismiss investment managers based upon various factors. The are measured at fair value using daily net asset values as reported investment advisors are instructed to diversify investments across by the trustee, except for $59.0 million as of December 31, 2014, asset classes, sectors and manager styles to minimize the risk of invested directly in long-term U.S. Treasury securities. We also large losses, based upon objectives and risk tolerance specified by maintain certain level 3 investments in private equity, alternative management, which include allowable and/or prohibited investment investments and real estate securities that are also measured at fair types. We measure and monitor investment risk on an ongoing basis value using net asset value, but require significant unobservable through quarterly investment portfolio reviews and annual liability market information to measure the fair value of the underlying measurements. investments. The underlying investments in private equity are measured at fair value utilizing both market- and income-based We have established certain prohibited investments for our pension models, public company comparables, investment cost or the value and post-retirement benefit plans. Such prohibited investments derived from subsequent financings. Adjustments are made when include loans to the company or its officers and directors as well as actual performance differs from expected performance; when investments in the company's debt or equity securities, except as may market, economic or company-specific conditions change; and occur indirectly through investments in diversified mutual funds.
when other news or events have a material impact on the security.
In addition, to reduce concentration of risk, the pension plan will The underlying alternative investments include collateralized debt not invest in any fund that holds more than 25% of its total assets to obligations, mezzanine debt and a variety of other investments.
be invested in the securities of one or more issuers conducting their The fair value of these investments is measured using a variety of principal business activities in the same industry. This restriction primarily market-based models utilizing inputs such as security does not apply to investments in securities issued or guaranteed by prices, maturity, call features, ratings and other developments the U.S. government or its agencies.
related to specific securities. The underlying real estate investments Target allocations for our pension plan assets are approximately are measured at fair value using a combination of market- and 39% to debt securities, 39% to equity securities, 12% to alternative income-based models utilizing market discount rates, projected investments such as real estate securities, hedge funds and private cash flows and the estimated value into perpetuity. 59
WESTAR ENERGY 2014 ANNUAL REPORT The following table provides the fair value ofour pension plan assets The following table provides the fair value of our post-retirement and the corresponding level of hierarchy as of December 31, 2014 benefit plan assets and the corresponding level of hierarchy as of and 2013. December 31, 2014 and 2013.
Asof December 31,2014 Level1 Level2 Level3 Total Asof December 31,2014 LevelI Level2 Level3 Total (InThousands) (InThousands)
Assets: Assets:
Domestic equity funds .............. $ - $ 160,574 $ 23,996 S 184,570 Domestic equity funds .............. $ - $ 63,600 $ - S 63,600 International equity fund ............ - 82,604 - 82,604 International equity fund ............ - 14,783 - 14,783 Core bond funds .................... - 224,740 - 224,740 Core bond funds .................... - 42,390 - 42,390 High-yield bond fund ............... - 20,412 - 20,412 Cash equivalents ................... - 576 - 576 Emerging market bond fund ......... - 14,685 - 14,685 iotalAssetsMeasuredatFairValue ...... $ - $ 121,349 $ - $ 121,349 Combination debt/equity/other fund.. - 61,632 - 61,632 Alternative investment funds ........ - - 41,141 41,141 Asof December31, 2013 Real estate securities fund .......... - - 26,439 26,439 Assets:
Cash equivalents .................. - 4,918 - 4,918 Domestic equity funds .............. $ - $ 64,080 $ - $ 64,080 TotalAssetsMeasuredatFairValue ..... $ - $569,565 $ 91,576 $ 661,141 International equity fund ............ - 16,018 - 16,018 Core bond funds .................... - 41,092 - 41,092 Asof December31, 2013 Cash equivalents ................... - 576 - 576 Assets: TotalAssetsMeasuredatFairValue ...... $ - $ 121,766 $ - $ 121,766 Domesticequityfunds .............. $ - $ 161,272 $ 22,488 $ 183,760 International equity fund ............ - 75,872 - 75,872 Core bond funds .................... - 191,506 - 191,506 Cash Flows High-yield bond fund ............... - 20,796 - 20,796 The following table shows the expected cash flows for our pension Emerging market bond fund ......... - 13,113 - 13,113 and post-retirement benefit plans for future years.
Combination debt/equity/other fund.. - 58,336 - 58,336 Pension Benefits Post-retirement Benefits Alternative investment funds ......... - - 39,171 39,171 Real estate securities fund ........... - - 24,022 24,022 (From) (From)
- 3,241 - 3,241 To/(From) Company To/(From) Company Cash equivalents ...................
Expected CashFlows Trust Assets Trust Assets Total Assets Measured at Fair Value ...... $ - $ 524,136 $ 85,681 $ 609,817 (InMillions)
Expected contributions:
2015 ........................... $ 42.0 $ -
The following table provides a reconciliation of pension plan assets Expected benefit payments:
measured at fair value using significant level 3 inputs for the years 2015 ........................... $ (35.1) $(2.8) $ (8.2) 5(0.2) ended December 31, 2014 and 2013. 2016 ........................... (37.3) (2.8) (8.3) (0.2)
Domestic Alternative RealEstate 2017 ........................... (39.5) (2.8) (8.4) (0.2)
Equity Investment Securities 2018 ........................... (41.9) (2.7) (8.6) (0.2)
Funds Funds Fund Total 2019 ........................... (44.2) (2.7) (8.7) (0.2)
(inThousands) 2020-2024 ..................... (257.8) (13.0) (43.5) (1.0)
BalanceasofDecember31,2013 ........ $ 22,488 $ 39,171 $ 24,022 $ 85,681 Actual gain (loss) on plan assets: Savings Plans Relating to assets still held at the We maintain a qualified 401(k) savings plan in which most of our reporting date .................... (154) 1,970 2,630 4,446 employees participate. We match employees' contributions in cash Relating to assets sold during the period ........................ 1,365 - 29 1,394 up to specified maximum limits. Our contributions to the plan Purchases, issuances and are deposited with a trustee and invested at the direction of plan settlements, net ..................... 297 - (242) 55 participants into one or more of the investment alternatives we provide under the plan. Our contributions totaled $7.0 million in BalanceasofDecember31,2014 ........ $ 23,996 $ 41,141 $ 26,439 S 91,576 2014, $6.9 million in 2013 and $71 million in 2012.
Balance as of December31, 2012 ........ $ 18,493 S 45,535 $ 20,927 $ 84,955 Actual gain (loss) on plan assets: Stock-Based Compensation Plans Relating to assets still held at the We have a long-term incentive and share award plan (LTISA Plan),
reporting date .................... 3,845 1,936 3,307 9,088 which is a stock-based compensation plan in which employees and Relating to assets sold during directors are eligible for awards. The LTISA Plan was implemented the period ........................ - 826 - 826 as a means to attract, retain and motivate employees and directors.
Purchases, issuances and settlements, net ..................... 150 (9,126) (212) (9,188) Under the LTISA Plan, we may grant awards in the formn of stock options, dividend equivalents, share appreciation rights, BalanceasofDecember31,2013 ........ $ 22,488 $ 39,171 $ 24,022 $ 85,681 RSUs, performance shares and performance share units to plan participants. Up to 8.25 million shares of common stock may be granted under the LTISA Plan. As of December 31, 2014, awards of approximately 5.0 million shares of common stock had been made under the plan.
All stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as an expense in the consolidated statement of income over the requisite service period.
60
The requisite service periods range from one to ten years. The table Total unrecognized compensation cost related to RSU awards with below shows compensation expense and income tax benefits related only service requirements was $4.4 million and $4.4 million as of to stock-based compensation arrangements that are included in our December 31, 2014 and 2013, respectively. We expect to recognize net income. these costs over a remaining weighted-average period of 1.9 years.
Year Ended December 31, 2014 2013 The total fair value of RSUs with only service requirements that 2012 vested during the years ended December 31, 2014, 2013 and 2012, (InThousands) was $3.9 million, $3.7 million and $3.7 million, respectively.
Compensation expense ............................ $ 7,193 S 8,121 $ 7,203 Income tax benefits related to stock-based During the years ended December 31, 2014, 2013 and 2012, our compensation arrangements ..................... 2,845 3,212 2,849 RSU activity for awards with performance measures was as follows.
As of December31, 2014 2013 2012 We use RSU awards for our stock-based compensation awards.
RSU awards are grants that entitle the holder to receive shares of Weighted- Weighted- Weighted-Average Average Average common stock as the awards vest. These RSU awards are defined Grant Date Grant Date Grant Date as nonvested shares and do not include restrictions once the awards Shares FairValue Shares FairValue Shares FairValue have vested. (Sharesin Thousands)
Nonvested balance, RSU awards with only service requirements vest solely upon the beginning of year...... 350.1 $ 30.35 340.1 $ 29.20 324.2 $ 28.31 passage of time. We measure the fair value of these RSU awards Granted ................ 126.1 35.97 134.4 31.54 122.3 28.84 based on the market price of the underlying common stock as Vested ................. (108.2) 30.56 (112.5) 28.29 (88.2) 25.46 of the grant date. RSU awards with only service conditions that Forfeited ............... (22.9) 30.70 (11.9) 30.45 (18.2) 29.00 have a graded vesting schedule are recognized as an expense in Nonvested balance, the consolidated statement of income on a straight-line basis over end of year ........... 345.1 32.31 350.1 30.35 340.1 29.20 the requisite service period for the entire award. Nonforfeitable dividend equivalents, or the rights to receive cash equal to the value As of December 31,2014 and 2013, total unrecognized compensation of dividends paid on Westar Energy's common stock, are paid on cost related to RSU awards with performance measures was these RSUs during the vesting period. $3.8 million and $4.0 million, respectively. We expect to recognize RSU awards with performance measures vest upon expiration of these costs over a remaining weighted-average period of 1.7 years.
the award term. The number of shares of common stock awarded The total fair value of RSUs with performance measures that vested upon vesting will vary from 0% to 200% of the RSU award, with during the years ended December 31, 2014, 2013 and 2012, was performance tied to our total shareholder return relative to the total $0.5 million, $2.3 million and $3.6 million, respectively.
shareholder return of our peer group. We measure the fair value of Another component of the LTISA Plan is the Executive Stock these RSU awards using a Monte Carlo simulation technique that for Compensation program under which, in the past, eligible uses the closing stock price at the valuation date and incorporates employees were entitled to receive deferred common stock in lieu assumptions for inputs ofthe expected volatility and risk-free interest of current cash compensation. Although this plan was discontinued rates. Expected volatility is based on historical volatility over three in 2001, dividends will continue to be paid to plan participants on years using daily stock price observations. The risk-free interest their outstanding plan balance until distribution. Plan participants rate is based on treasury constant maturity yields as reported by the were awarded 403 shares of common stock for dividends in 2014, Federal Reserve and the length of the performance period. For the 551 shares in 2013 and 666 shares in 2012. Participants received 2014 valuation, inputs for expected volatility ranged from 15.2% to common stock distributions of 1,944 shares in 2014, 3,456 shares in 23.3% and the risk-free interest rate was approximately 0.3%. For 2013 and 1,461 shares in 2012.
the 2013 valuation, inputs for expected volatility ranged from 15.0%
to 23.5% and the risk-free interest rate was approximately 0. 3 %. Income tax benefits resulting from income tax deductions in For these RSU awards, dividend equivalents accumulate over the excess of the related compensation cost recognized in the financial vesting period and are paid in cash based on the number of shares statements is classified as cash flows from financing activities in the of common stock awarded upon vesting. consolidated statements of cash flows.
During the years ended December 31,2014,2013 and 2012, our RSU activity for awards with only service requirements was as follows.
AsofDecember3l, 2014 2013 2012 Weighted- Weighted- Weighted-Average Average Average Grant Date Grant Date Grant Date Shares FairValue Shares fair Value Shares FairValue (Sharesin Thousands)
Nonvested balance, beginning of year ...... 352.5 $ 28.38 351.1 $ 25.47 368.5 $ 23.83 Granted ................ 131.5 34.53 139.6 31.06 131.0 27.82 Vested ................. (118.2) 26.19 (125.5) 23.22 (127.8) 23.34 Forfeited ............... (23.6) 30.00 (12.7) 28.35 (20.6) 24.40 Nonvested balance, end ofyear ........... 342.2 31.38 352.5 28.38 351.1 25.47 61
WESTAR ENERGY 2014 ANNUAL REPORT
- 12. WOLF CREEK EMPLOYEE BENEFIT PLANS Pension Benefits Post-retirement Benefits Asof December31, 2014 2013 2014 2013 Pension and Post-retirement Benefit Plans (InThousands)
As a co-owner of Wolf Creek, KGE is indirectly responsible for Pension Plans With a Projected 47% of the liabilities and expenses associated with the Wolf Creek Benefit Obligation In Excess pension and post-retirement benefit plans. KGE accrues its 47% of Plan Assets:
share of Wolf Creek's cost of pension and post-retirement benefits Projected benefit obligation ..... $ 210,320 $162,820 $ - $ -
during the years an employee provides service. The following tables Fair value of plan assets ......... 124,660 114,734 - -
summarize the status of KGE's 47% share of the Wolf Creek pension Pension Plans With an Accumulated and post-retirement benefit plans. Benefit Obligation InExcess of Plan Assets:
Pension Benefits Post-retirement Benefits Accumulated benefit obligation .. $ 179,228 $137,459 $ - S -
Asof December 31, 2014 2013 2014 2013 Fair value of plan assets .......... 124,660 114,734 - -
(InThousands) Post-retirement Plans With an Accumulated Change inBenefit Obligation: Post-retirement Benefit Obligation In Benefit obligation, Excess of Plan Assets:
beginning of year ............... $ 162,820 $ 176,891 $ 10,010 $ 11,020 Accumulated post-retirement Service cost ....................... 5,695 6,835 173 206 benefit obligation ............. S - $ $- 8,240 $ 10,010 Interest cost ...................... 8,469 7,562 464 413 Fairvalue of plan assets .......... - 6 16 Plan participants'contributions ...... 766 696 Weighted-Average Actuarial Assumptions Benefits paid .................... (5,039) (4,349) (1,292) (1,022) used to Determine Net Periodic Actuarial (gains) losses ............. 38,375 (24,119) (1,881) (1,303) Benefit Obligation:
Discount rate ................... 4.20% 5.11% 3.89% 4.70%
Benefit obligation, Compensation rate increase ....... 4.00% 4.00% - -
end of year ................... $ 210,320 $162,820 $ 8,240 5 10,010 Change inPlan Assets: Wolf Creek uses a measurement date of December 31 for its Fair value of plan assets, pension and post-retirement benefit plans. The discount rate used beginning of year ............... $114,734 $ 98,051 $ 17 $ 13 to determine the current year pension obligation and the following Actual return on plan assets ......... 7,626 13,166 - - year's pension expense is based on a bond selection-settlement Employer contributions ............. 7,089 7,624 515 330 portfolio approach. This approach develops a discount rate by Plan participants'contributions ...... - - 766 696 selecting a portfolio of high quality, non-callable corporate bonds Benefits paid ..................... (4,789) (4,107) (1,292) (1,022) that generate sufficient cash flow to provide for the projected benefit Fair value of plan assets, payments of the plan. After the bond portfolio is selected, a single end of year ................... $ 124,660 $114,734 $ 6 S 17 interest rate is determined that equates the present value of the plan's Funded status, end of year ............ $ (85,660) $ (48,086) $ (8,234) $ (9,993) projected benefit payments discounted at this rate with the market value of the bonds selected. The decrease in the discount rates used Amounts Recognized inthe as of December 31, 2014, increased Wolf Creek's pension and post-Balance Sheets Consist of:
Current liability ................... retirement benefit obligations by approximately $26.9 million and
$ (247) $ (237) $ (575) $ (614)
Noncurrent liability ................ (85,413) (47,849) (7,659) (9,379) $0.6 million, respectively.
Net amount recognized .......... S (85,660) $ (48,086) $ (8,234) $ (9,993) Wolf Creek utilizes actuarial assumptions about mortality to calculate the pension and post-retirement benefit obligations. In Amounts Recognized in Regulatory Assets Consist of: 2014, revised mortality tables were published which reflect improved Net actuarial loss .................. $ 65,049 $ 29,203 S 29 S 2,076 life expectancies based on past experience and future projections.
Prior service cost .................. 559 617 - - Wolf Creek adopted the revised mortality tables as of December 31, 2014, resulting in an increase to the pension and post-retirement Net amount recognized .......... $ 65,608 $ 29,820 5 29 $ 2,076 benefit obligations by approximately $11.3 million and $0.2 million, respectively.
The prior service cost (benefit) is amortized on a straight-line basis over the average future service of the active employees (plan participants) benefiting under the plan at the time ofthe amendment.
The net actuarial gain or loss is amortized on a straight-line basis over the average future service of active plan participants benefiting under the plan without application of an amortization corridor.
Following is additional information regarding KGE's 47% share of the Wolf Creek pension and other post-retirement benefit plans.
62
Pension Benefits We estimate that we will amortize the following amounts from YearEnded December 31, 2014 2013 2012 regulatory assets into net periodic cost in 2015.
(DollarsinThousands) Pension Post-retirement Benefits Benefits Components of Net Periodic Cost (Benefit): ........
Service cost ................................ $ 5,695 $ 6,835 $ 6,062 (InThousands)
Interest cost ................................ 8,469 7,562 7,537 Actuarial loss ............................................. $ 5,930 $ 2 Expected return on plan assets ................ (8,084) (7,373) (6,577) Prior service cost .......................................... .57 -
Amortization of unrecognized:
Transition obligation, net .................. - - - Total ................................................... $ 5,987 $ 2 Prior service costs ......................... 58 58 6 Actuarial loss, net ......................... 2,987 5,421 5,366 The expected long-term rate of return on plan assets is based on Net periodic cost before regulatory adjustment . . 9,125 12,503 12,394 historical and projected rates of return for current and planned asset Regulatory adjustment' ..................... 2,328 (641) (1,776) classes in the plans' investment portfolios. Assumed projected rates of return for each asset class were selected after analyzing long-term Net periodic cost ............................ $ 11,453 $ 11,862 $ 10,618 historical experience and future expectations of the volatility of Other Changes in Plan Assets and Benefit the various asset classes. Based on target asset allocations for each Obligations Recognized in Regulatory Assets: asset class, the overall expected rate of return for the portfolios was Current year actuarial (gain) loss ............ $ 38,833 $(29,911) $ 4,629 developed, adjusted for historical and expected experience of active Amortization of actuarial loss (gain) ......... (2,987) (5,421) (5,366) portfolio management results compared to benchmark returns and Current year prior service cost ............... - - 650 Amortization of prior service cost ............ (58) (58) (6) for the effect of expenses paid ft-om plan assets.
Amortization of transition obligation ........ - - -
For measurement purposes, the assumed annual health care cost Total recognized in regulatory assets ......... $ 35,788 $(35,390) S (93) growth rates were as follows.
Total recognized in net periodic cost and Asof December31, 2014 2013 regulatory assets ....................... $ 47,241 $(23,528) $ 10,525 Health care cost trend rate assumed for next year....................... 7.0% 7.5%
Weighted-Average Actuarial Assumptions used Rate to which the cost trend rate is assumed to decline to Determine Net Periodic Cost: (the ultimate trend rate) ........................................ . 5.0% 5.0%
Discount rate ............................. 5.11% 4.16% 4.55%6 Expected long-term return on plan assets .... 7.50% 7.50% 7.50% Year that the rate reaches the ultimate trend rate ....................... 2019 2019 Compensation rate increase ................ 4.00% 4.00% 4.00%
The health care cost trend rate affects the projected benefit Post-retirement Benefits obligation. A 1% change in assumed health care cost growth rates YearEnded December 31, 2014 2013 2012 would have effects shown in the following table.
(Dollars inThousands) One-Percentage- One-Percentage-Components of Net Periodic Cost (Benefit): Point Increase Point Decrease Service cost ................................ $ 173 $ 206 $ 191 (InThousands)
Interest cost ................................ 464 413 411
- - - Effect on total of service and interest cost .................. $ (8) $ 8 Expected return on plan assets ................
Amortization of unrecognized: Effect on post-retirement benefit obligation ................ (1111) 113 Transition obligation, net .................. - - 57 Prior service costs ......................... - - - Plan Assets Actuarial loss, net ......................... 165 265 234 Wolf Creek's pension and post-retirement plan investment strategy Net periodic cost before regulatory adjustment .. 802 884 893 is to manage assets in a prudent manner with regard to preserving Regulatory adjustment"' .. - - - principal while providing reasonable returns. It has adopted a long-term investment horizon such that the chances and duration of Net periodic cost ............................ $ 802 $ 884 $ 893 investment losses are weighed against the long-term potential for Other Changes in Plan Assets and Benefit appreciation of assets. Part of its strategy includes managing interest Obligations Recognized in Regulatory Assets:
rate sensitivity of plan assets relative to the associated liabilities.
Current year actuarial (gain) loss ............ $ (1,881) $ (1,303) $ 669 The primary objective of the pension plan is to provide a source Amortization of actuarial loss (gain) ......... (165) (265) (234)
Current year prior service cost ............... - - - of retirement income for its participants and beneficiaries, and the Amortization of prior service cost ............ - - primary financial objective ofthe plan is to improve its funded status.
Amortization of transition obligation ........ - (57) The primary objective of the post-retirement benefit plan is growth in assets and preservation of principal, while minimizing interim Total recognized inregulatory assets ......... $ (2,046) $ (1,568) $ 378 volatility, to meet anticipated claims of plan participants. Wolf Total recognized in net periodic cost Creek delegates the management of its pension and post-retirement andregulatoryassets .................... $ (1,244) $ (684) $ 1,271 benefit plan assets to independent investment advisors who hire Weighted-Average Actuarial Assumptions used and dismiss investment managers based upon various factors. The to Determine Net Periodic Cost: ................ investment advisors are instructed to diversify investments across Discount rate ............................. 4.70% 3.7896 4.10% asset classes, sectors and manager styles to minimize the risk of Expected long-term return on plan assets .... - - -
large losses, based upon objectives and risk tolerance specified by Compensation rate increase ................ - - -
Wolf Creek, which include allowable and/or prohibited investment
"'Vse regdastors, v asisstrnent represents the differsence between current period pension or" post-retireinent benefit exvpense musd the amount of sssclh expensse recognized in settinsg ourprices. 63
WESTAR ENERGY 2014 ANNUAL REPORT types. It measures and monitors investment risk on an ongoing Asof December 31, 2013 Level1 Level2 Level3 Total basis through quarterly investment portfolio reviews and annual (InThousands) liability measurements. Assets:
Domestic equity funds .............. $ - $ 30,599 $ - $ 30,599 The target allocations for Wolf Creek's pension plan assets are International equity funds ........... - 36,868 - 36,868 31% to international equity securities, 25% to domestic equity Core bond funds .................... - 26,926 - 26,926 securities, 25% to debt securities, 10% to real estate securities, Real estate securities fund ........... - 5,440 5,094 10,534 5% to commodity investments and 4% to other investments. The Commodities fund .................. - 5,245 - 5,245 investments in both international and domestic equity include Alternative investment fund ......... - - 4,147 4,147 investments in large-, mid- and small-cap companies, private equity Cash equivalents ................... - 415 - 415 funds and investment funds with underlying investments similar Total Assets Measured at FairValue ...... $ $-105,493 $ 9,241 $114,734 to those previously mentioned. The investments in debt include core and high-yield bonds. Core bonds include funds invested in The following table provides a reconciliation of KGE's 47% share investment grade debt securities of corporate entities, obligations of Wolf Creeks pension plan assets measured at fair value using of U.S. and foreign governments and their agencies and private debt securities. High-yield bonds include a fund with underlying significant level 3 inputs for the years ended December 31, 2014 investments in non-investment grade debt securities of corporate and 2013.
entities, private placements and bank debt. Real estate securities RealEstate Alternative Securities Investment include funds invested in commercial and residential real estate Fund Fund Total properties while commodity investments include funds invested in (InThousands) commodity-related instruments.
BalanceasofDecember31,2013 ..................... $ 5,094 $ 4,147 $ 9,241 All of Wolf Creek's pension plan assets are recorded at fair value Actual gain on plan assets:
using daily net asset values as reported by the trustee. However, Relating to assets still held at the reporting date ...... 555 162 717 level 3 investments in real estate funds and alternative funds are BalanceasofDecember31,2014 ..................... $ 5,649 $ 4,309 $ 9,958 invested in underlying investments that are illiquid and require Balance as of December 31,2012 ..................... $ 4,541 $ 3,900 S 8,441 significant judgment when measuring them at fair value using Actual gain on plan assets:
market- and income-based models. Significant unobservable inputs Relating to assets still held at the reporting date ...... 553 247 800 for underlying real estate investments include estimated market discount rates, projected cash flows and estimated value into Balance as of December31,2013 ..................... $ 5,094 $ 4,147 $ 9,241 perpetuity. Alternative funds invest in a wide range of investments typically with low correlations to traditional investments. Cash Flows Similar to other assets measured at fair value, GAAP establishes a The following table shows our expected cash flows for KGE's 47%
hierarchal framework for disclosing the transparency of the inputs share of Wolf Creeks pension and post-retirement benefit plans for utilized in measuring pension and post-retirement benefit plan future years.
assets at fair value. From time to time, the Wolf Creek pension Pension Benefits Post-retirement Benefits trust may buy and sell investments resulting in changes within (From) (From) the hierarchy. See Note 4, "Financial Instruments and Trading Tu/IFrom) Company To/(From) Company Expected (ash Flows Trust Assets Trust Assets Securities," for a description of the hierarchal framework.
(InMillions)
The following table provides the fair value of KGE's 47% share of Expected contributions:
Wolf Creeks pension plan assets and the corresponding level of 2015 ........................... $ 4.7 $ 0.6 hierarchy as of December 31, 2014 and 2013. Expected benefit payments:
2015 ........................... $(5.4) $(0.2) $(0.6) $-
Asof December 31,2014 Level1 Level2 Level3 Total 2016 ........................... (6.1) (0.2) (0.6) -
(InThousands) 2017 ........................... (6.8) (0.2) (0.6) -
Assets: 2018 ........................... (7.5) (0.2) (0.6) -
Domestic equity funds .............. $ - $ 31,580 $ - $ 31,580 2019 ........................... (8.2) (0.2) (0.7) -
International equity funds ........... - 38,624 - 38,624 2020-2024 ..................... (51.0) (1.1) (3.2) -
Core bond funds .................... - 31,854 - 31,854 Real estate securities fund ........... - 6,313 5,649 11,962 Savings Plan Commodities fund .................. - 5,887 - 5,887 Wolf Creek maintains a qualified 401(k) savings plan in which Alternative investment fund ......... 4,309 4,309
- most of its employees participate. Wolf Creek matches employees' Cash equivalents ................... -- 444 444 contributions in cash tIp to specified maximum limits. Wolf Creeks Total Assets Measured at FairValue ...... $ - $114,702 $ 9,958 $124,660 contributions to the plan are deposited with a trustee and invested at the direction of plan participants into one or more of the invest-ment alternatives provided under the plan. KGE's portion of the expense associated with Wolf Creeks matching contributions was
$1.4 million in 2014, $1.4 million in 2013 and $1.3 million in 2012.
64
- 13. COMMITMENTS AND CONTINGENCIES Cross-State Air Pollution Rule In 2011, the EPA finalized the Cross-State Air Pollution Rule Purchase Orders and Contracts (CSAPR) requiring 28 states, including Kansas, Missouri and As part of our ongoing operations and capital expenditure program, Oklahoma, to further reduce emissions of SO,, NOx and fine PM.
we have purchase orders and contracts, excluding fuel and In April 2014, the U.S. Supreme Court reversed a 2012 decision transmission, which are discussed below under "- Fuel, Purchased by the U.S. Court of Appeals for the District of Columbia Circuit Power and Transmission Commitments." These commitments that had vacated CSAPR and remanded CSAPR back to the U.S.
relate to purchase obligations issued and outstanding at year-end. Court of Appeals for further proceedings consistent with the U.S.
The yearly detail of the aggregate amount of required payments as of Supreme Court decision. In June 2014, the U.S. Department of December 31, 2014, was as follows. Justice, on behalf of the EPA, filed a motion to lift the CSAPR stay.
In October 2014, the U.S. Court of Appeals granted the motion to Committed Amount lift the CSAPR stay and established a schedule to hear arguments (In Thousands) on the remaining outstanding issues beginning in March 2015.
20 15...................................................................... $ 406,859 During the CSAPR stay, we installed various emission controls at 20 16 ...................................................................... 39,55 1 our generation facilities and have projects for additional controls in 20 17 ...................................................................... 9,223 progress or planned that will reduce the impact of CSAPR. We are Thereafter ................................................................. 27,247 unable to determine the full impact of reinstatement of CSAPR until Total amount comm itted .................................................. $ 482,880 the U.S. Court of Appeals and the EPA take further action, however, we are prepared to comply with CSAPR in its current form.
Environmental Matters National Ambient Air Quality Standards Air Emissions Under the federal Clean Air Act, the EPA sets National Ambient We must comply with the federal Clean Air Act, state laws and Air Quality Standards (NAAQS) for certain emissions considered implementing federal and state regulations that impose, among harmful to public health and the environment, including two classes other things, limitations on emissions generated from our of PM, NOx (a precursor to ozone), CO and SO,, which result from operations, including sulfur dioxide (SO,), particulate matter fossil fuel combustion. Areas meeting the NAAQS are designated (PM), nitrogen oxides (NOx), carbon monoxide (CO), mercury and attainment areas while those that do not meet the NAAQS are acid gases. considered nonattainment areas. Each state must develop a plan Emissions from our generating facilities, including PM, SO, and to bring nonattainment areas into compliance with the NAAQS.
NOx, have been determined by regulation to reduce visibility by NAAQS must be reviewed by the EPA at five-year intervals. KDHE, causing or contributing to regional haze. Under federal laws, such as our state environmental regulatory agency, proposed to designate the Clean Air Visibility Rule, and pursuant to an agreement with the portions of the Kansas City area nonattainment for the eight-hour Kansas Department of Health and Environment (KDHE) and the ozone standard. The EPA has not acted on KDHE's proposed Environmental Protection Agency (EPA), we are required to install, designation of the Kansas City area and it is uncertain when, or if, operate and maintain controls to reduce emissions found to cause or such a designation might occur. The Wichita area also exceeded the contribute to regional haze. eight-hour ozone standard and could be designated nonattainment in the future potentially impacting our operations. Nonattainment Sulfur Dioxide and Nitrogen Oxide designations on areas that impact our operations could have a Through the combustion of fossil fuels at our generating facilities, material impact on our consolidated financial results.
we emit SO, and NOx. Federal and state laws and regulations, including those noted above, and permits issued to us limit the In 2010, the EPA strengthened the NAAQS for both NOx and SO,.
amount of these substances we can emit. If we exceed these limits, We continue to communicate with our regulators regarding these we could be subject to fines and penalties. In order to meet SO, standards and are currently evaluating what impact this could and NOx regulations applicable to our generating facilities, we use have on our operations and consolidated financial results. If we are low-sulfur coal and natural gas and have equipped the majority required to install additional equipment to control emissions at our of our fossil fuel generating facilities with equipment to control facilities, the revised NAAQS could have a material impact on our such emissions. operations and consolidated financial results.
We are subject to the SO, allowance and trading program under the In December 2014, the EPA published a proposed rule revising federal Clean Air Act Acid Rain Program. Under this program, each NAAQS for ozone and to make certain other changes, including unit must have enough allowances to cover its SO, emissions for extending the ozone monitoring season by at least one month. The that year. In 2014, we had adequate SO, allowances to meet planned EPA intends to issue a final rule regarding the ozone NAAQS by generation and we expect-to have enough to cover emissions under October 2015 and make attainment/nonattainment designations for this program in 2015. any revised standards by October 2017. We are currently reviewing this proposed new standard and cannot at this time predict the impact it may have on our operations, but it could be material.
65
WESTAR ENERGY 2014 ANNUAL REPORT In December 2012, the EPA strengthened an existing NAAQS for Under regulations formerly known as the Tailoring Rule, the EPA one class of PM. In December 2014, the EPA designated the entire regulates GHG emissions from certain stationary sources. The state of Kansas as unclassifiable/in attainment with the standard. We regulations are implemented pursuant to two federal Clean Air Act cannot at this time predict the impact this designation may have programs, the Prevention of Significant Deterioration (PSD) and on our operations or consolidated financial results, but it could Title V Operating Permit Programs, that impose recordkeeping and be material. monitoring requirements and also mandate the implementation of best available control technology (BACT) for projects that cause Mercury and Air Toxics Standards a significant increase in GHG emissions (currently defined to be The operation of power plants results in emissions of mercury, more than 75,000 tons or more per year or 100,000 tons or more per acid gases and other air toxics. In 2012, the EPqs Mercury and year, depending on various factors). In June 2014, the U.S. Supreme Air Toxics Standards (MATS) for power plants became effective, Court ruled that the EPA had exceeded its statutory authority in replacing the prior federal Clean Air Mercury Rule and requiring issuing the Tailoring Rule by regulating under the PSD program significant reductions in mercury, acid gases and other emissions.
sources based solely on their GHG emissions. However, the U.S.
Several lawsuits challenging MATS have been filed by other parties Supreme Court also held that the EPA could impose GHG BACT and consolidated into a single proceeding before the U.S. Court of requirements for sources already required to implement PSD for Appeals for the District of Columbia Circuit. In April 2014, the U.S.
other pollutants. Therefore, if future modifications to our sources Court of Appeals issued an opinion upholding MATS. In July 2014, require PSD review for other pollutants, it may also trigger GHG numerous states and two trade groups petitioned the U.S. Supreme BACT requirements. The EPA has issued guidance on what BACT Court to review this opinion, and in November 2014, the U.S.
entails for the control of GHGs and individual states are now Supreme Court agreed to such review. The U.S. Supreme Court is required to determine what controls are required for facilities within expected to rule by June 2015; however, we currently cannot predict their jurisdiction on a case-by-case basis. We cannot at this time the outcome of this litigation, or its impact, if any, on our MATS determine the impact of these regulations on our future operations compliance planning. Nonetheless, we expect to be compliant with or consolidated financial results as the rule has not been finalized, the MATS in its current form by April 2016 as currently approved but we believe the cost of compliance with the regulations could by KDHE. We currently believe that our related investment, based be material.
on MATS in its current form, will not be significant.
Water Greenhouse Gases We discharge some of the water used in our operations. This water Byproducts of burning coal and other fossil fuels include carbon may contain substances deemed to be pollutants. Revised rules dioxide (CO,) and other gases referred to as greenhouse gases governing such discharges from coal-fired power plants are expected (GHGs), which are believed by many to contribute to climate to be issued by the EPA by the end of September 2015. Although we change. The EPA is currently, and has further proposed, using the cannot at this time determine the timing or impact of compliance federal Clean Air Act to limit CO, and other GHG emissions, and with any new regulations, more stringent regulations could have a other measures are being imposed or offered by individual states, material impact on our operations or consolidated financial results.
municipalities and regional agreements with the goal of reducing GHG emissions. In October 2014, the EPAs final standards for cooling intake structures at power plants to protect aquatic life took effect. The In January 2014, the EPA re-proposed a New Source Performance standards, based on Section 316(b) of the federal Clean Water Standard that would limit CO, emissions for new coal and natural Act (CWA), require subject facilities to choose among seven Best gas fueled electric generating units. The re-proposal would limit Technology Available options to reduce fish impingement. In CO, emissions to 1,000 lbs per Megawatt hour (MWh) generated addition, some facilities must conduct studies to assist permitting for larger natural gas units and 1,100 lbs per MWh generated for authorities to determine whether and what site-specific controls, if smaller natural gas units and coal units. The EPA issued proposed an), would be required to reduce entrainment of aquatic organisms.
standards addressing CO, emissions for modified, reconstructed and existing power plants in June 2014. The standards for existing Our current analysis indicates this rule will not have a significant impact on our coal plants that employ cooling towers. Biological plants is known as the Clean Power Plan. The EPA anticipates monitoring may be required for LaCygne and Wolf Creek. We are issuing final rules for new, modified, reconstructed and existing currently evaluating the rule's impact on those two plants and cannot power plants by summer 2015 and requiring states to submit their predict the resulting impact on our operations or consolidated implementation state plans to the EPA by no later than summer financial results, but we do not expect it to be material.
2016. The EPA is expected to propose in summer 2015 a federal plan that will implement the Clean Power Plan to be used for states that In April 2014, the EPA along with the U.S. Army Corps of Engineers fail to submit adequate state plans, with such federal plan expected issued a proposed rule defining the Waters of the United States for to be finalized by summer 2016. While the Clean Power Plan is not purposes of the CWA. This rulemaking has the potential to impact yet final, various legal and judicial challenges to it have been filed. all programs under the CWA. Expansion of regulated waterways is We cannot at this time determine the impact of such proposals on possible under the proposal, which could impact several permitting our operations or consolidated financial results, but we believe the programs. Although we cannot at this time determine the timing costs to comply could be material. or impact of compliance with any new regulations, more stringent regulations could have a material impact on our operations or consolidated financial results.
66
Regulation of Coal Combustion Byproducts on the other two units to satisfy other terms of the settlement.
In the course of operating our coal generation plants, we produce We plan to recover the costs of installing these systems through coal combustion byproducts (CCBs), including fly ash, gypsum and our ECRR, but such recovery remains subject to the approval of bottom ash. We recycle some of our ash production, principally by our regulators.
selling to the aggregate industry. In 2010, the EPA proposed a rule Renewable Energy Standard to regulate CCB by the federal government. The EPA released a pre-publication version of the rule in December 2014, which we believe Kansas law mandates that we maintain a minimum amount of will require additional CCB handling, processing and storage renewable energy sources. Through 2015, net renewable generation equipment and potential closure of certain ash disposal areas, but capacity must be 10% of the average peak retail demand for the it has not yet published the final rule. While we cannot at this time three prior years, subject to limited exceptions. This requirement estimate the impact and costs associated with future regulations increases to 15% for years 2016 through 2019 and 20% for 2020 of CCB, we believe the impact on our operations or consolidated and thereafter. With our existing wind generation facilities, supply financial results could be material. contracts and renewable energy credits, we are able to satisfy the net renewable generation requirement through 2015. With our Environmental Projects agreements to purchase an additional 400 MW of installed design We will continue to make significant capital and operating capacity from wind generation facilities beginning in 2015 through expenditures at our power plants to reduce regulated emissions. The 2016, we expect to meet the increased requirements for 2020 and amount of these expenditures could change materially depending on thereafter. If we are unable to meet future requirements, our operations the timing and nature of required investments, the specific outcomes and consolidated financial results could be adversely impacted.
resulting from existing regulations, new regulations, legislation and the manner in which we operate the plants. In addition to the capital Nuclear Decommissioning investment, in the event we install new equipment, such equipment Nuclear decommissioning is a nuclear industry term for the may cause us to incur significant increases in annual operating permanent shutdown of a nuclear power plant and the removal of and maintenance expense and may reduce the net production, radioactive components in accordance with Nuclear Regulatory reliability and availability of the plants. The degree to which we will Commission (NRC) requirements. The NRC will terminate a need to reduce emissions and the timing of when such emissions plant's license and release the property for unrestricted use when controls may be required is uncertain. Additionally, our ability to a company has reduced the residual radioactivity of a nuclear plant access capital markets and the availability of materials, equipment to a level mandated by the NRC. The NRC requires companies with and contractors may affect the timing and ultimate amount of such nuclear plants to prepare formal financial plans to fund nuclear capital investments. decommissioning. These plans are designed so that sufficient funds required for nuclear decommissioning will be accumulated prior We are currently permitted to recover certain of these costs to the expiration of the license of the related nuclear power plant.
through the ECRR, which, in comparison to a general rate review, Wolf Creek files a nuclear decommissioning site study with the KCC reduces the amount of time it takes to begin collecting in retail every three years.
prices the costs associated with capital expenditures for qualifying environmental improvements. We are not allowed to use the The KCC reviews nuclear decommissioning plans in two phases.
ECRR to collect approximately $610.0 million of the projected Phase one is the approval of the updated nuclear decommissioning capital investment associated with the environmental upgrades at study including the estimated costs to decommission the plant.
La Cygne. In November 2013, the KCC issued an order allowing Phase two involves the review and approval of a funding schedule us to adjust our prices to include the additional investment in the prepared by the owner of the plant detailing how it plans to La Cygne environmental upgrades and to reflect cost reductions fund the future-year dollar amount of its pro rata share of the elsewhere. The new prices are expected to increase our annual retail decommissioning costs.
revenues by approximately $30.7 million. To change our prices to In 2014, Wolf Creek updated the nuclear decommissioning cost collect increased operating and maintenance costs, we must file a study. Based on the study, our share of decommissioning costs, general rate review with the KCC. We intend to file our next general including decontamination, dismantling and site restoration, rate review in March 2015. In addition, the installation of new is estimated to be approximately $360.0 million. This amount equipment may cause us to reduce the net production, reliability compares to the prior site study estimate of $296.2 million. The site and availability of our plants. Furthermore, enhancements to our study cost estimate represents the estimate to decommission Wolf power plants, even if they result in greater efficiency, can trigger Creek as of the site study year. The actual nuclear decommissioning a regulatory review, which could result in increased costs or other costs may vary from the estimates because of changes in regulations operational requirements. For additional information regarding our and technologies as well as changes in costs for labor, materials abbreviated rate review, see Note 3, "Rate Matters and Regulation:" and equipment.
EPA Consent Decree We are allowed to recover nuclear decommissioning costs in our As part of a 2010 settlement of a lawsuit filed by the U.S. Department prices over a period equal to the operating license of Wolf Creek, of Justice on behalf of the EPA, we completed installation of selective which is through 2045. The NRC requires that funds sufficient to catalytic reduction equipment on one of our three JEC coal units in meet nuclear decommissioning obligations be held in a trust. We December 2014, at a cost of approximately $225.0 million. We also believe that the KCC approved funding level will also be sufficient completed installation of less expensive NOx reduction equipment to meet the NRC requirement. Our consolidated financial results 67
WESTAR ENERGY 2014 ANNUAL REPORT would be materially affected if we were not allowed to recover in our limit of $3.2 billion plus any reinsurance, indemnity or any other prices the full amount of the funding requirement. source recoverable by Nuclear Electric Insurance Limited (NEIL),
our property and business interruption insurance provider, exists We recovered in our prices and deposited in an external trust for acts of terrorism affecting Wolf Creek or any other NEIL insured fund for nuclear decommissioning approximately $2.8 million in plant within 12 months from the date of the first act. In addition, 2014, $2.9 million in 2013 and $3.2 million in 2012. We record we may be required to participate in industry-wide retrospective our investment in the NDT fund at fair value, which approximated assessment programs as discussed below.
$185.0 million and $175.6 million as of December 31, 2014 and 2013, respectively. Nuclear Liability Insurance Pursuant to the Price-Anderson Act, which has been reauthorized Storage of Spent Nuclear Fuel through December 2025 by the Energy Policy Act of 2005, we are Under the Nuclear Waste Policy Act of 1982, the Department of required to insure against public liability claims resulting from Energy (DOE) is responsible for the permanent disposal of spent nuclear incidents to the current limit of public liability, which nuclear fuel. Wolf Creek paid into a federal Nuclear Waste Fund is approximately $13.6 billion. This limit of liability consists of administered by the DOE a quarterly fee for the future disposal of the maximum available commercial insurance of $375.0 million spent nuclear fuel. In November 2013, a federal court of appeals and the remaining $13.2 billion is provided through mandatory ruled that the DOE must stop collecting this fee effective May participation in an industry-wide retrospective assessment 2014. Our share of the fee, calculated as one tenth of a cent for each program. In addition, Congress could impose additional revenue-kilowatt-hour of net nuclear generation delivered to customers, was raising measures to pay claims. Under this retrospective assessment
$0.8 million in 2014, $3.0 million in 2013 and $3.6 million in 2012. program, the owners of Wolf Creek are jointly and severally subject We include these costs in fuel and purchased power expense on our to an assessment of up to $127.3 million (our share is $59.8 million),
consolidated statements of income. payable at no more than $19.0 million (our share is $8.9 million) per In 2010, the DOE filed a motion with the NRC to withdraw its incident per year per reactor. Both the total and yearly assessment is subject to an inflationary adjustment every five years with the next then pending application to construct a national repository for the adjustment in 2018.
disposal of spent nuclear fuel and high-level radioactive waste at Yucca Mountain, Nevada. An NRC board denied the DOE's motion Nuclear Property and Business Interruption Insurance to withdraw its application and the DOE appealed that decision The owners of Wolf Creek carry decontamination liability, to the full NRC. In 2011, the NRC issued an evenly split decision premature nuclear decommissioning liability and property damage on the appeal and also ordered the licensing board to close out its insurance for Wolf Creek totaling approximately $2.8 billion. In work on the DOE's application by the end of 2011 due to a lack of the event of an accident, insurance proceeds must first be used for funding. These agency actions prompted the States of Washington reactor stabilization and site decontamination in accordance with a and South Carolina, and a county in South Carolina, to file a lawsuit plan mandated by the NRC. Our share of any remaining proceeds in a federal Court of Appeals asking the court to compel the NRC can be used to pay for property damage or, if certain requirements to resume its license review and to issue a decision on the license are met, including decommissioning the plant, toward a shortfall application. In August 2013, the court ordered the NRC to resume in the NDT fund. The owners also carry additional insurance with its review of the DOE's application. Wolf Creek has an on-site NEIL to cover costs of replacement power and other extra expenses storage facility designed to hold all spent fuel generated at the plant incurred during a prolonged outage resulting from accidental through 2025 and believes it will be able to expand on-site storage property damage at Wolf Creek. If significant losses were incurred as needed past 2025. We cannot predict when, or if, an alternative at any of the nuclear plants insured under the NEIL policies, we may disposal site will be available to receive Wolf Creek's spent nuclear be subject to retrospective assessments under the current policies of fuel and will continue to monitor this activity. approximately $39.5 million (our share is $18.6 million).
Wolf Creek disposes of most of its low-level radioactive waste at Accidental Nuclear Outage Insurance an existing third-party repository in Utah, which we expect will Although we maintain various insurance policies to provide remain available to Wolf Creek. Wolf Creek also contracts with a coverage for potential losses and liabilities resulting from an accident waste processor to process, take title and dispose in another state or an extended outage, our insurance coverage may not be adequate most of the remainder of Wolf Creeks low-level radioactive waste. to cover the costs that could result from a catastrophic accident or Should on-site waste storage be needed in the future, Wolf Creek extended outage at Wolf Creek. Any substantial losses not covered has storage capacity on site adequate for approximately four years of by insurance, to the extent not recoverable in our prices, would have plant operations and believes it would be able to expand that storage a material effect on our consolidated financial results.
capacity if needed.
Fuel, Purchased Power and Transmission Commitments Nuclear Insurance To supply a portion of the fuel requirements for our power plants, We maintain nuclear liability, property and business interruption the owners of Wolf Creek have entered into various contracts to insurance for Wolf Creek. These policies contain certain industry obtain nuclear fuel and we have entered into various contracts standard terms, conditions and exclusions, including, but not to obtain coal and natural gas. Some of these contracts contain limited to, ordinary wear and tear and war. An industry aggregate provisions for price escalation and minimum purchase commit-ments. As of December 31, 2014, our share of Wolf Creek's nuclear 68
fuel commitments was approximately $27.1 million for uranium Wolf Creek filed a nuclear decommissioning cost study with the concentrates expiring in 2017, $4.1 million for conversion expiring KCC in 2014. As a result of the study, we recorded a $50.7 million in 2017, $93.3 million for enrichment expiring in 2025 and increase in our ARO to reflect revisions to the estimated costs to
$33.3 million for fabrication expiring in 2023. decommission Wolf Creek.
As of December 31, 2014, our coal and coal transportation contract Conditional ARO refers to a legal obligation to perform an asset commitments under the remaining terms of the contracts were retirement activity in which the timing and/or method of settlement approximately $1.1 billion. The contracts are for plants that we are conditional on a future event that may or may not be within operate and expire at various times through 2020. the control of the entity. We determined that our conditional AROs include the retirement of our wind generation facilities, disposal of As of December 31, 2014, our natural gas transportation contract asbestos insulating material at our power plants, the remediation of commitments under the remaining terms of the contracts were ash disposal ponds and the disposal of PCB-contaminated oil.
approximately $118.5 million. The natural gas transportation contracts provide firm service to several of our natural gas burning We have an obligation to retire our wind generation facilities and facilities and expire at various times through 2030. remove the foundations. The ARO related to our wind generation facilities was determined based upon the date each wind generation We have power purchase agreements with the owners of six facility was placed into service.
separate wind generation facilities with installed design capacities of 915 MW expiring in 2028 through 2036. Of the 915 MW under The amount of the retirement obligation related to asbestos contract, 400 MW are associated with agreements pursuant to which disposal was recorded as of 1990, the date when the EPA published generation providers are scheduled to deliver power beginning in the "National Emission Standards for Hazardous Air Pollutants:
2015 and 2016, Each of the agreements provide for our receipt and Asbestos NESHAP Revision; Final Rule" purchase of energy produced at a fixed price per unit of output. We We operate, as permitted by the state of Kansas, ash landfills at estimate that our annual cost of energy purchased from these wind several of our power plants. The retirement obligation for the ash generation facilities will be approximately $68.2 million in 2015 and landfills was determined based upon the date each landfill was approximately $110.0 million for the next several years thereafter.
originally placed in service.
We have acquired rights to transmit a total of 306 MW Agreements PCB-contaminated oil is contained within company electrical providing transmission capacity for approximately 200 MW expire in 2016 while the remaining 106 MW expire in 2022. As equipment, primarily transformers. The PCB retirement obligation was determined based upon the PCB regulations that originally of December 31, 2014, we are committed to spend approximately became effective in 1978.
$34.0 million over the remaining terms of these agreements.
Non-Legal Liability - Cost of Removal
- 14. ASSET RETIREMENT OBLIGATIONS We collect in our prices the costs to dispose of plant assets that do not represent legal retirement obligations. As of December 31, 2014 Legal Liability and 2013, we had $88.2 million and $114.1 million, respectively, in We have recognized legal obligations associated with the disposal amounts collected, but not yet spent, for removal costs classified as of long-lived assets that result from the acquisition, construction, a regulatory liability.
development or normal operation of such assets. The recording of AROs for regulated operations has no income statement impact due
- 15. LEGAL PROCEEDINGS to the deferral of the adjustments through the establishment of a regulatory asset or an offset to a regulatory liability. We and our subsidiaries are involved in various legal, environmental and regulatory proceedings. We believe that adequate provisions We initially recorded AROs at fair value for the estimated cost to have been made and accordingly believe that the ultimate decommission Wolf Creek (KGE's 47% share), dispose of asbestos disposition of such matters will not have a material effect on insulating material at our power plants, remediate ash disposal ponds our consolidated financial results. See Note 3, "Rate Matters and and dispose of polychlorinated biphenyl (PCB)-contaminated oil.
Regulation," and Note 13, "Commitments and Contingencies,"
The following table summarizes our legal AROs included on our for additional information.
consolidated balance sheets in long-term liabilities.
Asof December31, 2014 2013 (InThousands)
Beginning ARO .......................................... 5 160,682 $ 152,648 Increase innuclear decommissioning ARO liability ............ 50,683 -
Increase inother ARO liabilities ............................ 9,580 -
Liabilities settled ........................................ (593 ) (973)
Accretion expense ....................................... 10,316 9,007 Ending ARO ........................................... $ 230,668 $ 160,682 69
WESTAR ENERGY 2014 ANNUAL REPORT
- 16. COMMON AND PREFERRED STOCK The following table summarizes our common stock activity pursuant to the three forward sale agreements.
Common Stock YearEnded December31, 2014 2013 2012 General Shares that could be settled at beginning of year.. 12,052,976 1,753,415 -
In 2011, Westar Energy shareholders approved an amendment to its Transactions entered .......................... - 11,367,673 1,753,415 Restated Articles of Incorporation to increase the number of shares -
Transactions settledW ......................... 2,892,476 1,068,112 of common stock authorized to be issued from 150.0 million to 275.0 million. As of December 31, 2014 and 2013, Westar Energy had Shares that could be settled at end of yearIbN .... 9,160,500 12,052,976 1,753,415 issued 131.7 million shares and 128.3 million shares, respectively.
"'The shares settled during the years ended December 31, 2014 and 2013, were Westar Energy has a direct stock purchase plan (DSPP). Shares of settled with a physical settlement amount of approximately $82.9 million and
$27.0 million, respectively common stock sold pursuant to the DSPP may be either original b)Assuning physical share settlement ofthe 9.2 million shares associated with the issue shares or shares purchased in the open market. During 2014 forward sale transactionsthat could be settled as of December 31, 2014, Westar and 2013, Westar Energy issued 0.5 million shares and 0.7 million Energy, would have received aggregateproceeds of approximately$258.3 million shares, respectively, through the DSPP and other stock-based plans basedon a weighted averageforward priccof $28.20pershare. In Februar' 2015, operated under the LTISA Plan. As of December 31, 2014 and 2013, Westar Energy settled 0.2 million shares with a physical settlement amiount of a total of 1.6 million shares and 2.0 million shares, respectively, were approximately $7.5 million.
available under the DSPP registration statement.
The forward sale transactions are entered into at market prices; Issuances therefore, the forward sale agreements have no initial fair value.
In September 2013, Westar Energy entered into two forward sale Westar Energy does not receive any proceeds from the sale of agreements with two banks. Under the terms of the agreements, common stock under the forward sale agreements until transactions the banks, as forward sellers, borrowed 8.0 million shares of Westar are settled. Upon settlement, Westar Energy will record the forward Energy's common stock from third parties and sold them to a group sale agreements within equity. Except in specified circumstances or of underwriters for $31.15 per share. Pursuant to over-allotment events that would require physical share settlement, Westar Energy options granted to the underwriters, the underwriters purchased is able to elect to settle any forward sale transactions by means in October 2013 an additional 0.9 million shares from the banks of physical share, cash or net share settlement, and is also able to as forward sellers, increasing the total number of shares under elect to settle the forward sale transactions in whole, or in part, the forward sale agreements to approximately 8.9 million. The earlier than the stated maturity dates. Currently, Westar Energy underwriters received a commission equal to 3.5% of the sales price anticipates settling the forward sale transactions through physical of all shares sold under each agreement. Westar Energy must settle share settlement. The shares under the forward sale agreements such transactions within 24 months of the applicable agreement. are initially priced when the transactions are entered into and are In March 2013, Westar Energy entered into a three-year sales subject to certain fixed pricing adjustments during the term of agency financing agreement and master forward sale agreement the agreements. Accordingly, assuming physical share settlement, Westar Energy's net proceeds from the forward sale transactions with a bank. The maximum amount that Westar Energy may offer will represent the prices established by the forward sale agreements and sell under the March 2013 master agreements is the lesser of an applicable to the time periods in which physical settlement occurs.
aggregate of $500.0 million or approximately 25.0 million shares, subject to adjustment for share splits, share combinations and share Westar Energy used the proceeds from the transactions described dividends. Under the terms of the sales agency financing agreement, above to repay short-term borrowings, with such borrowed amounts Westar Energy may offer and sell shares of its common stock from principally used for investments in capital equipment, as well as for time to time. In addition, under the terms of the sales agency working capital and general corporate purposes.
financing agreement and master forward sale confirmation, Westar Energy may from time to time enter into one or more forward sale Preferred Stock Redemption transactions with the bank, as forward purchaser and the bank will In May 2012, Westar Energy provided an irrevocable notice of borrow shares of Westar Energy's common stock from third parties redemption to holders of all of Westar Energy's preferred shares.
and sell them through its agent. The agent receives a commission Accordingly, we reduced preferred equity to zero, recognized equal to 1%of the sales price of all shares sold under the agreements. the obligation to redeem the preferred shares as a liability and Westar Energy must settle the forward sale transactions within 18 recognized the redemption premium as a preferred stock dividend.
months of the date each transaction is entered. Payment was due to holders of the preferred shares effective July 1, 2012. The table below shows the redemption amounts for all series In April 2010, Westar Energy entered into a three-year sales agency of preferred stock.
financing agreement and master forward sale agreement with a bank that was terminated in March 2013. The maximum amount Total Principal Call Cost that Westar Energy could offer and sell under the agreements Rate Shares Outstanding Price Premium to Redeem was the lesser of an aggregate of $500.0 million or approximately (Dollars in Thousands) 22.0 million shares, subject to adjustment for share splits, share 4.50% 121,613 $ 12,161 108.0% S 973 $ 13,134 combinations and share dividends. Terms under these agreements 4.25% 54,970 5,497 101.5% 82 5,579 were generally similar to the March 2013 agreements described above. 5.00% 37,780 3,778 102.0% 76 3,854 214,363 $ 21,436 $ 1,131 $ 22,567 70
- 17. VARIABLE INTEREST ENTITIES potentially be significant if the fair value of the 50% interest in La Cygne unit 2 at the end of the agreement is greater than the fixed In determining the primary beneficiary of a VIE, we assess the amount. The possibility of lower interest rates upon refinancing the entity's purpose and design, including the nature of the entity's debt also creates the potential for us to receive significant benefits.
activities and the risks that the entity was designed to create and pass through to its variable interest holders. A reporting enterprise Railcars is deemed to be the primary beneficiary of a VIE if it has (a) the Under two separate agreements, we leased railcars from unrelated power to direct the activities of the VIE that most significantly trusts to transport coal to some of our power plants. We consolidated impact the VIE's economic performance and (b) the obligation to the trusts as a VIEs until the agreements expired in May 2013 and absorb losses or right to receive benefits from the VIE that could November 2014. As a result of deconsolidating the trusts, property, potentially be significant to the VIE. Accounting guidance effective plant and equipment of VIEs, net and noncontrolling interests in 2010 requires the primary beneficiary of a VIE to consolidate the decreased $14.3 million in 2013 and $7.3 million in 2014.
VIE. The trusts holding our 8% interest in JEC and our 50% interest in La Cygne unit 2 are VIEs of which we are the primary beneficiary. Financial Statement Impact We have recorded the following assets and liabilities on our We assess all entities with which we become involved to determine whether such entities are VIEs and, if so, whether or not we are the consolidated balance sheets related to the VIEs described above.
primary beneficiary of the entities. We also continuously assess Asof December 31, 2014 2013 whether we are the primary beneficiary of the VIEs with which (InThousands) we are involved. Prospective changes in facts and circumstances Assets:
may cause us to reconsider our determination as it relates to the Property, plant and equipment of variable interest identification of the primary beneficiary. entities, net ............................................ $278,573 $296,626 Regulatory assets") .......... 7,882 6,792 8% Interest in Jeffrey Energy Center Liabilities:
Under an agreement that expires in January 2019, we lease an 8% Current maturities of long-term debt of variable interest in JEC from a trust. The trust was financed with an equity interest entities ......................................... $ 27,933 $ 27,479 contribution from an owner participant and debt issued by the trust. Accrued interest(b) ......................................... 2,961 3,472 The trust was created specifically to purchase the 8% interest in JEC Long-term debt of variable interest entities, net ............... 166,565 194,802 and lease it to a third party, and does not hold any other assets. We Ilncluded its long-ternt regulator),assets on our consolidatedbalancesheets.
meet the requirements to be considered the primary beneficiary of )h liclsuded in saccrued interest ots our conssolidatcd balance sheets.
the trust. In determining the primary beneficiary of the trust, we concluded that the activities of the trust that most significantly All of the liabilities noted in the table above relate to the purchase impact its economic performance and that we have the power to of the property, plant and equipment. The assets of the VIEs can direct include (1) the operation and maintenance of the 8% interest be used only to settle obligations of the VIEs and the VIEs' debt in JEC, (2) our ability to exercise a purchase option at the end of holders have no recourse to our general credit. We have not the agreement at the lesser of fair value or a fixed amount and (3) provided financial or other support to the VIEs and are not required our option to require refinancing of the trust's debt. We have the to provide such support. We did not record any gain or loss upon potential to receive benefits from the trust that could potentially be initial consolidation of the VIEs.
significant if the fair value of the 8% interest in JEC at the end of the agreement is greater than the fixed amount. The possibility of lower interest rates upon refinancing the debt also creates the potential for us to receive significant benefits.
50% Interest in La Cygne Unit 2 Under an agreement that expires in September 2029, KGE entered into a sale-leaseback transaction with a trust under which the trust purchased KGE's 50% interest in La Cygne unit 2 and subsequently leased it back to KGE. The trust was financed with an equity contribution from an owner participant and debt issued by the trust.
The trust was created specifically to purchase the 50% interest in La Cygne unit 2 and lease it back to KGE, and does not hold any other assets. We meet the requirements to be considered the primary beneficiary of the trust. In determining the primary beneficiary of the trust, we concluded that the activities of the trust that most significantly impact its economic performance and that we have the power to direct include (i) the operation and maintenance of the 50% interest in La Cygne unit 2, (2) our ability to exercise a purchase option at the end of the agreement at the lesser of fair value or a fixed amount and (3) our option to require refinancing of the trust's debt.
We have the potential to receive benefits from the trust that could 71
WESTAR ENERGY 2014 ANNUAL REPORT
- 18. LEASES 19. QUARTERLY RESULTS (UNAUDITED)
Operating Leases Our business is seasonal in nature and, in our opinion, comparisons We lease office buildings, computer equipment, vehicles, railcars between the quarters of a year do not give a true indication of overall and other property and equipment. These leases have various terms trends and changes in operations.
and expiration dates ranging from one to 20 years. 2014 First Second Third Fourth In determining lease expense, we recognize the effects of scheduled (InThousands,Except PerShare Amounts) rent increases on a straight-line basis over the minimum lease term. Revenues(,) ...... . . . . . .. . . . .. . . . $ 628,556 $ 612,668 $ 764,040 $ 596,439 Rental expense and estimated future commitments under operating Net income"(' ................... 70,970 55,822 149,760 45,773 leases are as follows. Net income attributable to Westar Energy, Inc?' ......... 68,955 53,473 147,382 43,449 Total Per Share Data"':
Operating YearEndedDecember 31, Leases Basic:
(in Thousands)
Earnings available ........... $ 0.53 $ 0.41 $ 1.13 $ 0.33 Rental expense: Diluted:
20 12 ................................................................... $ 17,080 Earnings available ........... $ 0.52 S 0.40 S 1.10 $ 0.32 2013 .................................................... .............. 16,484 Cash dividend declared per 20 14 .................................................... .............. 14,143 common share ................ $ 0.35 S 0.35 $ 0.35 $ 0.35 Future commitments: Market price per common share:
20 15 ................................................................... $ 12,396 High ......................... $ 35.33 $ 38.24 $ 38.23 $ 43.15 20 16 ................................................................... 10,434 Low ......................... $ 31.67 $ 34.51 $ 33.76 $ 33.73 20 17 ................................................................... 8,560 2018 ................................................................... 7,148 2013 First Second Third Fourth 20 19 ................................................................... 5,930 (InThousands,Except PerShareAmounts)
Thereafter ............................................................... 9,115 Revenues(" .................... S 546,212 $ 569,589 $ 694,974 $559,878 Total future comm itments ............................................... $ 53,583 Net income(') .................. 53,256 69,451 135,095 43,061 Net income attributable to Westar Energy, Inc.' ......... 51,144 67,188 133,125 41,062 Capital Leases Per Share Data,':
We identify capital leases based on defined criteria. For both Basic:
vehicles and computer equipment, new leases are signed each Earnings available .......... $ 0.40 $ 0.53 $ 1.04 $ 0.32 month based on the terms of master lease agreements. The lease Diluted:
term for vehicles is from two to eight years depending on the type of Earnings available .......... $ 0.40 $ 0.52 $ 1.04 $ 0.32 vehicle. Computer equipment has a lease term of three to five years. Cash dividend declared per common share ............ $ 0.34 $ 0.34 $ 0.34 $ 0.34 Assets recorded under capital leases are listed below. Market price per common share:
High ........................ $ 33.35 $ 34.96 S 34.31 $ 32.56 Asof December 31, 2014 2013 Low ......................... $ 28.59 $ 30.13 $ 29.79 $ 29.95 (InThousands)
"'Itemrs sire cormpsted irtdepenrdenrtlyfor each ofrthe periods presented arid the sumtr Vehicles .................................................. $ 18,819 $ 12,141 of the quarterly attrountsmay erot equal the total for ite year.
Com puter equipment ...................................... 1,504 1,758 Generation plant .......................................... 40,049 48,346 Accumulated amortization .................................. (11,741) (10,493)
Total capital leases ....................................... $ 48,631 $ 51,752 Capital leases are treated as operating leases for rate making purposes.
Minimum annual rental payments, excluding administrative costs such as property taxes, insurance and maintenance, under capital leases are listed below.
Total YearEnded December 31, Capital Leases (InThousands) 20 15 ...................................................................... $ 6,379 20 16 ... .................. ................................................ 5,717 20 17 ... .................. ................................................ 5,284 20 18 ... .................. ................................................ 5,13 1 20 19 ...................................................................... 4,493 Thereafter ................................................................. 59,660 86,664 Amounts representing imputed interest ........................................ (34,922)
Present value of net minimum lease payments under capital leases ................ 51,742 Less: Current portion ........................................................ 3,833 Total long-term obligation under capital leases ................................. $ 47,909 72
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH PART III ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT None.
The information concerning directors required by Item 401 of ITEM 9A. CONTROLS AND PROCEDURES Regulation S-K will be included under the caption Election of Directors in our definitive Proxy Statement for our 2015 Annual We maintain a set of disclosure controls and procedures designed Meeting of Shareholders to be filed pursuant to Regulation 14A to ensure that information required to be disclosed in reports (2015 Proxy Statement), and that information is incorporated by that we file or submit under the Securities Exchange Act of 1934, reference in this Form 10-K. Information concerning executive as amended (Exchange Act), is recorded, processed, summarized officers required by Item 401 of Regulation S-K is located under and reported within the time periods specified in SEC rules and Part I, Item 1 of this Form 10-K. The information required by Item forms. In addition, the disclosure controls and procedures include, 405 of Regulation S-K concerning compliance with Section 16(a) without limitation, controls and procedures designed to ensure that of the Exchange Act will be included under the caption Additional information required to be disclosed by us in reports under the Information - Section 16(a) Beneficial Ownership Reporting Com-Exchange Act is accumulated and communicated to management, pliance in our 2015 Proxy Statement, and that information is including the chief executive officer and the chief financial officer, incorporated by reference in this Form 10-K. The information allowing timely decisions regarding required disclosure. As of the required by Item 406, 407(c)(3), (d)(4) and (d)(5) of Regulation end of the period covered by this report, based on an evaluation S-K will be included under the captions Election of Directors -
carried out under the supervision and with the participation of CorporateGovernance Matters and - BoardMeetings and Committee management, including the chief executive officer and the chief Assignments in our 2015 Proxy Statement, and that information is financial officer, of the effectiveness of our disclosure controls incorporated by reference in this Form 10-K.
and procedures, the chief executive officer and the chief financial officer have concluded that our disclosure controls and procedures ITEM 11. EXECUTIVE COMPENSATION were effective.
The information required by Item 11 will be set forth in our 2015 There were no changes in our internal control over financial Proxy Statement under the captions Compensation Discussion reporting during the three months ended December 31, 2014, that and Analysis, Compensation Committee Report, Compensation have materially affected, or are reasonably likely to materially affect, of Executive Officers, Director Compensation and Compensation our internal control over financial reporting. Committee Interlocks and InsiderParticipation,and that information See "Item 8. Financial Statements and Supplementary Data" for is incorporated by reference in this Form 10-K.
Management's Annual Report On Internal Control Over Financial Reporting and the Independent Registered Public Accounting ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL Firm's report with respect to the effectiveness of internal control OWNERS AND MANAGEMENT over financial reporting.
The information required by Item 12 will be set forth in our 2015 Proxy Statement under the captions Beneficial Ownership of Voting ITEM 9B. OTHER INFORMATION Securities and Equity Compensation Plan Injbrmation, and that information is incorporated by reference in this Form 10-K.
Investors should note that we announce material financial information in SEC filings, press releases and public conference calls. In accordance with SEC guidance, we may also use the Investor ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Relations section of our website (http://www.WestarEnergy.com, under "Investors") to communicate with investors about our The information required by Item 13 will be set forth in our 2015 company. It is possible that the financial and other information Proxy Statement under the caption Election of Directors- Corporate we post there could be deemed to be material information. The Governance Matters, and that information is incorporated by information on our website is not part of this document. reference in this Form 10-K.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by Item 14 will be set forth in our 2015 Proxy Statement under the caption of Ratification and Confirmation of Deloitte and Touche LLP as Our Independent Registered Public Accounting Firmnfor2015 and its subsections captioned Independent RegisteredAccounting Firm Fees and Audit Committee Pre-Approval Policies and Procedures, and that information is incorporated by reference in this Form 10-K.
73
WESTAR ENERGY 2014 ANNUAL REPORT PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES FINANCIAL STATEMENTS INCLUDED HEREIN Westar Energy, Inc.
Management's Report on Internal Control Over Financial Reporting Reports of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2014 and 2013 Consolidated Statements of Income for the years ended December 31, 2014, 2013 and 2012 Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012 Consolidated Statements of Changes in Equity for the years ended December 31, 2014, 2013 and 2012 Notes to Consolidated Financial Statements SCHEDULES Schedule II - Valuation and Qualifying Accounts Schedules omitted as not applicable or not required under the Rules of Regulation S-X: I, III, IV and V.
EXHIBIT INDEX All exhibits marked "I"are incorporated herein by reference. All exhibits marked with "'" are management contracts or compensatory plans or arrangements required to be identified by Item 15(a)(3) of Form 10-K. All exhibits marked "#" are filed with this Form 10-K.
Description 1(a) Sales Agency Financing Agreement, dated March 21, 2013, with BNY Mellon Capital Markets, LLC and The Bank of I New York Mellon (filed as Exhibit 1.1 to the Form 8-K filed on March 22, 2013) 3(a) By-laws of Westar Energy, Inc., as amended April 28, 2004 (filed as Exhibit 3(a) to the Form 10-Q for the period ended I June 30, 2004 filed on August 4, 2004) 3(b) Restated Articles of Incorporation of Westar Energy, Inc., as amended through May 25, 1988 (filed as Exhibit 4 to the I Form S-8 Registration Statement, SEC File No. 33-23022 filed on July 15, 1988) 3(c) Certificate of Amendment to Restated Articles of Incorporation of Westar Energy, Inc. (filed as Exhibit 3 to the I Form 10-K405 for the period ended December 31, 1998 filed on April 14, 1999) 3(d) Certificate of Correction to Restated Articles of Incorporation of Westar Energy, Inc. (filed as Exhibit 3(b) to the I Form 10-K for the period ended December 31, 1991 filed on March 30, 1992) 3(e) Certificate of Amendment to Restated Articles of Incorporation of Westar Energy, Inc. (filed as Exhibit 3(c) to the I Form 10-K for the period ended December 31, 1994 filed on March 30, 1995) 3(f) Certificate of Amendment to Restated Articles of Incorporation of Westar Energy, Inc. (filed as Exhibit 3 to the I Form I0-Q for the period ended June 30, 1994 filed on August 11, 1994) 3(g) Certificate of Amendment to Restated Articles of Incorporation of Westar Energy, Inc. (filed as Exhibit 3(a) to the I Form 10-Q for the period ended June 30, 1996 filed on August 14, 1996) 3(h) Certificate of Amendment to Restated Articles of Incorporation of Westar Energy, Inc. (filed as Exhibit 3 to the I Form 10-Q for the period ended March 31, 1998 filed on May 12, 1998) 3(i) Form of Certificate of Designations for 7.5% Convertible Preference Stock (filed as Exhibit 99.4 to the Form 8-K filed I on November 17, 2000) 3(j) Certificate of Amendment to Restated Articles of Incorporation of Westar Energy, Inc. (filed as Exhibit 3(1) to the I Form 10-K for the period ended December 31, 2002 filed on April 11, 2003) 3(k) Certificate of Amendment to Restated Articles of Incorporation of Westar Energy, Inc. (filed as Exhibit 3(m) to the I Form 10-K for the period ended December 31, 2002 filed on April 11, 2003) 3(1) Certificate of Amendment to Restated Articles of Incorporation of Westar Energy, Inc. (filed as Exhibit 3(m) to the I Form S-3 Registration Statement No. 333-125828 filed on June 15, 2005) 74
3(m) Certificate of Amendment to Restated Articles of Incorporation of Westar Energy, Inc. (filed as Exhibit 3(m) to the I Form 10-K for the period ended December 31, 2011 filed on February 23, 2012) 3(n) Form of Certificate of Decertification of Preference Shares (filed as Exhibit 3(n) to the Form 10-K for the period ended I December 31, 2011 filed on February 23, 2012 4(a) Mortgage and Deed of Trust dated July 1, 1939 between Westar Energy, Inc. and Harris Trust and Savings Bank, I Trustee (filed as Exhibit 4(a) to Registration Statement No. 33-21739) 4(b) First and Second Supplemental Indentures dated July 1, 1939 and April 1, 1949, respectively (filed as Exhibit 4(b) to I Registration Statement No. 33-21739) 4(c) SLxth Supplemental Indenture dated October 4, 1951 (filed as Exhibit 4(b) to Registration Statement No. 33-21739) I 4(d) Fourteenth Supplemental Indenture dated May 1, 1976 (filed as Exhibit 4(b) to Registration Statement No. 33-21739) I 4(e) Twenty-Eighth Supplemental Indenture dated July 1, 1992 (filed as Exhibit 4(o) to the Form 10-K for the period ended I December 31, 1992 filed on March 30, 1993) 4(f) Twenty-Ninth Supplemental Indenture dated August 20, 1992 (filed as Exhibit 4(p) to the Form 10-K for the period I ended December 31, 1992 filed on March 30, 1993) 4(g) Thirtieth Supplemental Indenture dated February 1, 1993 (filed as Exhibit 4(q) to the Form 10-K for the period ended I December 31, 1992 filed on March 30, 1993) 4(h) Thirty-First Supplemental Indenture dated April 15, 1993 (filed as Exhibit 4(r) to the Form S-3 Registration Statement I No. 33-50069 filed on August 24, 1993) 4(i) Thirty-Second Supplemental Indenture dated April 15, 1994 (filed as Exhibit 4(s) to the Form 10-K for the period I ended December 31, 1994 filed on March 30, 1995) 4(j) Senior Indenture dated August 1, 1998 (filed as Exhibit 4.1 to the Form 10-Q for the period ended June 30, 1998 filed I on August 12, 1998) 4(k) Form of Senior Note (included in Exhibit 4(j)) I 4(1) Thirty-Fourth Supplemental Indenture dated June 28, 2000 (filed as Exhibit 4(v) to the Form 10-K for the period I ended December 31, 2000 filed on April 2, 2001) 4(m) Thirty-Fifth Supplemental Indenture dated May 10, 2002 between Westar Energy, Inc. and BNY Midwest Trust I Company, as Trustee (filed as Exhibit 4.1 to the Form 10-Q for the period ended March 31, 2002 filed on May 15, 2002) 4(n) Thirty-SLxth Supplemental Indenture dated as of June 1, 2004, between Westar Energy, Inc. and BNY Midwest Trust I Company (as successor to Harris Trust and Savings Bank), to its Mortgage and Deed of Trust dated July 1, 1939 (filed as Exhibit 4.1 to the Form 8-K filed on January 18, 2005) 4(o) Thirty-Seventh Supplemental Indenture, dated as of June 17, 2004, between Westar Energy, Inc. and BNY Midwest I Trust Company (as successor to Harris Trust and Savings Bank), to its Mortgage and Deed of Trust dated July 1, 1939 (filed as Exhibit 4.2 to the Form 8-K filed on January 18, 2005) 4(p) Thirty-Eighth Supplemental Indenture, dated as of January 18, 2005, between Westar Energy, Inc. and BNY Midwest I Trust Company (as successor to Harris Trust and Savings Bank), to its Mortgage and Deed of Trust dated July 1, 1939 (filed as Exhibit 4.3 to the Form 8-K filed on January 18, 2005) 4(q) Thirty-Ninth Supplemental Indenture dated June 30, 2005 between Westar Energy, Inc. and BNY Midwest Trust Company (as successor to Harris Trust and Savings Bank) to its Mortgage and Deed of Trust dated July 1, 1939 (filed as Exhibit 4.1 to the Form 8-K filed on July 1, 2005) 4(r) Fortieth Supplemental Indenture dated May 15, 2007 between Westar Energy, Inc. and The Bank of New York Trust I Company, N.A. (as successor to Harris Trust and Savings Bank) to its Mortgage and Deed of Trust dated July 1, 1939 (filed as Exhibit 4.16 to the Form 8-K filed on May 16, 2007) 4(s) Form of First Mortgage Bonds, 6.10% Series Due 2047 (contained in Exhibit 4(r)) I 4(t) Forty-First Supplemental Indenture, dated as of November 25, 2008 by and among Westar Energy, Inc., The Bank I of New York Mellon Trust Company, N.A. and Judith L. Bartolini (filed as Exhibit 4.1 to the Form 8-K filed on November 24, 2008) 4(u) Form of Forty-Second Supplemental Indenture, dated as of March 1, 2012 by and among Westar Energy, Inc., The Bank of New York Mellon Trust Company, N.A. and Judith L. Bartolini (filed as Exhibit 4.1 to the Form 8-K filed on February 29, 2012) 75
WESTAR ENERGY 2014 ANNUAL REPORT 4(v) Form of Forty-Second Supplemental (Reopening) Indenture, dated as of May 17, 2012 by and among Westar Energy, Inc., The Bank of New York Mellon Trust Company, N.A. and Judith L. Bartolini (filed as Exhibit 4.1 to the Form 8-K filed on May 16, 2012) 4(w) Form of Forty-Third Supplemental Indenture, dated as of March 28, 2013, by and between Westar Energy, Inc. and The Bank of New York Mellon Trust Company, N.A., as successor trustee to Harris Trust and Savings Bank (filed as Exhibit 4.1 to the Form 8-K filed on March 22, 2013) 4(x) Form of Forty-Fourth Supplemental Indenture, dated as of August 19, 2013, by and between Westar Energy, Inc. and The Bank of New York Mellon Trust Company, N.A., as successor trustee to Harris Trust and Savings Bank (filed as Exhibit 4.1 to the Form 8-K filed on August 14, 2013)
Instruments defining the rights of holders of other long-term debt not required to be filed as Exhibits will be furnished to the Commission upon request.
10(a) Executive Salary Continuation Plan of Western Resources, Inc., as revised, effective September 22, 1995 (filed as Exhibit 10(j) to the Form 10-K for the period ended December 31, 1995 filed on March 27, 1996)*
10(b) Long-Term Incentive and Share Award Plan (filed as Exhibit 10(a) to the Form 10-Q for the period ended June 30, 1996 filed on August 14, 1996)*
10(c) Amendment to Long-Term Incentive and Share Award Plan (filed as Exhibit 10 to the Form 8-K filed on May 6, 2011)* I 10(d) Westar Energy, Inc. Form of Restricted Share Units Award (Grant Dates Prior to February 26, 2014) (filed as I Exhibit 10(aq) to the Form 10-K for the period ended December 31, 2009, filed on February 25, 2010)*
10(e) Westar Energy, Inc. Form of Performance Based Restricted Share Units Award (Grant Dates Prior to February 26, 2014) (filed as Exhibit 10(ar) to the Form 10-K for the period ended December 31, 2009 filed on February 25, 2010)Y 10(f) Westar Energy, Inc. Form of Restricted Share Units Award (Grant Dates February 26, 2014 Forward)* #
10(g) Westar Energy, Inc. Form of Performance Based Restricted Share Units Award (Grant Dates February 26, 2014 #
Forward)*
10(h) Westar Energy, Inc. Non-Employee Director Deferred Compensation Plan, as amended and restated, dated as of I October 20, 2004 (filed as Exhibit 10.1 to the Form 8-K filed on October 21, 2004)*
10(i) Resolutions of the Westar Energy, Inc. Board of Directors regarding Non-Employee Director Compensation, approved I on September 2, 2004 (filed as Exhibit 10.1 to the Form 8-K filed on December 17, 2004)*
10(j) Form of Amended and Restated Change in Control Agreement with Officers of Westar Energy, Inc. (filed as I Exhibit 10(au) to the Form 10-K for the period ended December 31, 2009 filed on February 25, 2010)Y 10(k) Westar Energy, Inc. Retirement Benefit Restoration Plan (filed as Exhibit 10.1 to the Form 8-K filed on April 2, 2010)' I 10(1) Westar Energy, Inc. 401(k) Benefit Restoration Plan* #
10(m) Credit Agreement dated as of February 18, 2011, among Westar Energy, Inc. and several banks and other financial I institutions or entities from time to time parties to the Agreement (filed as Exhibit 10.1 to the Form 8-K filed on February 22, 2011) 10(n) First Extension Agreement dated as of February 12, 2013, among Westar Energy, Inc. and several banks and other I financial institutions party thereto (filed as Exhibit 10.1 to the Form 8-K filed on February 15, 2013) 10(o) Second Extension Agreement dated as of February 14, 2014, among Westar Energy, Inc. and several banks and other I financial institutions or entities from time to time parties to the Agreement (filed as Exhibit 10(v) to the Form 10-K for the period ended December 31, 2013 filed on February 26, 2014) 10(p) Fourth Amended and Restated Credit Agreement dated as of September 29,2011, among Westar Energy, Inc. and I several banks and other financial institutions or entities from time to time parties to the Agreement (filed as Exhibit 10.1 to the Form 8-K filed on September 29, 2011) 10(q) First Extension Agreement dated as of July 19, 2013, among Westar Energy, Inc. and several banks and other financial I institutions or entities from time to time parties to the Agreement (filed as Exhibit 10(a) to the Form 10-Q for the period ended September 30, 2014 filed on November 5, 2014) 10(r) Second Extension Agreement dated as of September 18, 2014, among Westar Energy, Inc. and several banks and other I financial institutions or entities from time to time parties to the Agreement (filed as Exhibit 10(b) to the Form 10-Q for the period ended September 30, 2014 filed on November 5, 2014) 76
10(s) Master Confirmation for Forward Stock Sale Transactions, dated March 21, 2013, between Westar Energy, Inc. and The Bank of New York Mellon (filed as Exhibit 10.1 to the Form 8-K filed on March 22, 2013) 10(t) Confirmation of Forward Sale Transaction, dated September 24, 2013, between JPMorgan Chase Bank, National Association, London Branch and Westar Energy, Inc. (filed as Exhibit 10.1 to the Form 8-K filed on September 27, 2013) 10(u) Confirmation of Forward Sale Transaction, dated September 24, 2013, between Wells Fargo Bank, National Association and Westar Energy, Inc. (filed as Exhibit 10.2 to the Form 8-K filed on September 27, 2013) 10(v) Confirmation of Additional Forward Stock Sale Transaction, dated October 16, 2013, between JPMorgan Chase Bank, National Association, London Branch and Westar Energy, Inc. (filed as Exhibit 10.1 to the Form 8-K filed on October 17, 2013) 10(w) Confirmation of Additional Forward Stock Sale Transaction, dated October 16, 2013, between Wells Fargo Bank, National Association and Westar Energy, Inc. (filed as Exhibit 10.2 to the Form 8-K filed on October 17, 2013) 12 Computations of Ratio of Consolidated Earnings to Fixed Charges #
21 Subsidiaries of the Registrant #
23 Consent of Independent Registered Public Accounting Firm, Deloitte & Touche LLP #
31(a) Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 #
31(b) Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 #
32 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished and not to be considered filed as #
part of the Form 10-K) 101.INS XBRL Instance Document #
IO1L.SCH XBRL Taxonomy Extension Schema Document #
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document #
101.DEF XBRL Taxonomy Extension Definition Linkbase Document #
1OLLAB XBRL Taxonomy Extension Label Linkbase Document #
1O0PRE XBRL Taxonomy Extension Presentation Linkbase Document #
77
WESTAR ENERGY 2014 ANNUAL REPORT WESTAR ENERGY, INC.
SCHEDULE Il - VALUATION AND QUALIFYING ACCOUNTS Balance at Charged to Balance Beginning Costs and at End Description of Period Expenses Deductions"' of Period (InThousands)
Year ended December 31, 2012 Allowances deducted from assets for doubtful accounts ......................................................... $7,384 $6,617 $(9,085) $4,916 Year ended December 31, 2013 Allowances deducted from assets for doubtful accounts ......................................................... $4,916 $7,039 $(7,359) $4,596 Year ended December 31, 2014 Allowances deducted from assets for doubtful accounts ......................................................... $4,596 $9,752 $(9,039) $5,309
("'Resultfrom write-offs of accounts receivable.
78
SIGNATURE Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WESTAR ENERGY, INC.
Date: February 25, 2015 By: Is/ ANTHONY D. SOMMA Anthony D. Somma Senior Vice President, Chief Financial Officer and Treasurer SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ MARK A. RUELLE Director, President and Chief Executive Officer February 25, 2015 (Mark A. Ruelle) (Principal Executive Officer)
/s/ ANTHONY D. SOMMA Senior Vice President, Chief Financial Officer and Treasurer February 25, 2015 (Anthony D. Somma) (Principal Financial and Accounting Officer)
/s/ CHARLES Q. CHANDLER IV Chairman of the Board February 25, 2015 (Charles Q. Chandler IV)
/s/ MOLLIE H. CARTER Director February 25, 2015 (Mollie H. Carter)
/s/ R. A. EDWARDS III Director February 25, 2015 (R. A. Edwards III)
/s/ JERRY B. FARLEY Director February 25, 2015 (Jerry B. Farley)
/s/ RICHARD L. HAWLEY Director February 25, 2015 (Richard L. Hawley)
/s/ B. ANTHONY ISAAC Director February 25, 2015 (B. Anthony Isaac)
/s/ SANDRA A. J.LAWRENCE Director February 25, 2015 (Sandra A. J. Lawrence)
/s/ MICHAEL F. MORRISSEY Director February 25, 2015 (Michael F. Morrissey)
/s/ S. CARL SODERSTROM JR. Director February 25, 2015 (S. Carl Soderstrom Jr.)
79
WESTAR ENERGY 2014 ANNUAL REPORT SHAREHOLDER INFORMATION AND ASSISTANCE:
Westar Energy's transfer agent, CONTACTING CONTINENTAL STOCK TRUSTEE FOR FIRST Continental Stock Transfer and Trust TRANSFER AND TRUST COMPANY MORTGAGE BONDS Company, provides our registered TELEPHONE PRINCIPAL TRUSTEE, PAYING shareholders information and Toll-free: 800-527-2495 AGENT AND REGISTRAR assistance regarding:
Fax: 212-616-7612 The Bank of New York Mellon Trust Co.
" Dividend payments 2 North LaSalle Street, Suite 1020 Service Representatives are available
- Historically paid on the first business Chicago, IL 60602-3802 from 8:30 am to 5:30 pm Eastern Time day of January, April, July and October 800-254-2826 Monday through Friday.
" Direct deposit of dividends ADDRESS CORPORATE INFORMATION
" Transfer of shares Westar Energy, Inc. CORPORATE ADDRESS
" Lost stock certificate assistance c/o Continental Stock Transfer Westar Energy, Inc.
" Direct Registration (DRS) eligible and Trust Company 818 South Kansas Avenue 17 Battery P1, 8th Floor
- Direct Stock Purchase Plan assistance Topeka, KS 66612-1203 New York, NY 10004
- Dividend reinvestment 785-575-6300
- Purchase additional shares by E-MAIL ADDRESS WestarEnergy.com making optional cash payments cstmail@continentalstock.com COMMON STOCK LISTING by check or monthly electronic Please include a daytime telephone Ticker Symbol (NYSE): WR withdrawal from your bank account number in all correspondence.
- Deposit your stock certificates Daily Stock Table Listing:
into the plan for safekeeping WestarEngy CONTACTING INVESTOR RELATIONS
- Sell shares TELEPHONE 785-575-8227 CHIEF EXECUTIVE OFFICER Please contact Continental Stock AND CHIEF FINANCIAL OFFICER Transfer and Trust Company in writing ADDRESS CERTIFICATIONS to request elimination of duplicate Westar Energy, Inc. In 2015, our chief executive officer submitted mailings because of stock registered in Investor Relations more than one way. Mailing of annual a certificate to the New York Stock Exchange P.O. Box 889 (NYSE) affirming that he is not aware of reports can be eliminated by marking Topeka, KS 66601-0889 your proxy card to consent to accessing any violation by the company of the NYSE's reports electronically on the Internet. E-MAIL ADDRESS corporate governance listing standards. Our chief executive officer's and chief financial Registered shareholders can easily access ir@WestarEnergy.com officer's certifications pursuant to Section their shareholder account information 302 of the Sarbanes-Oxley Act of 2002 for the Copies of our Annual Report on online at http://www.continentalstock.com, Form 10-K filed with the Securities year ended December 31, 2014, were included then click Shareholder Log In located in the and Exchange Commission and other as exhibits to Westar Energy, Inc.'s Annual upper area of the screen. published reports can be obtained Report on Form 10-K for the year ended without charge by contacting Investor December 31, 2014, that was filed with the Relations at the above address, by accessing Securities and Exchange Commission.
the company's home page on the Internet at WestarEnergy.com or by accessing the Securities and Exchange Commission's Internet website at sec.gov.
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DIRECTORS:
CHARLES Q. CHANDLER IV (61) R.A. EDWARDS 111(69) B. ANTHONY ISAAC (62) MICHAEL F. MORRISSEY (72)
Chairman of the Board Directorsince 2001 Directorsince 2003 Directorsince 2003 Directorsince 1999 Chairman of the Board Senior Vice President and Managing Partner (Retired)
Chairman since 2002 First National Bank Head Select Service Strategy Ernst & Young LLP Chairman of the Board of Hutchinson and Development Naples, Florida and Chief Executive Officer Hutchinson, Kansas Hyatt Hotels Corporation Committees: Audit, Compensation INTRUST Bank, N.A. Committees: Audit, Nominating Wichita, Kansas Wichita, Kansas and CorporateGovernance Committees: Compensation, MARK A. RUELLE (53)
Comnmnittees: Nominating Finance Directorsince 2011 and CorporateGovernance JERRY B. FARLEY (68) President and Chief Executive Officer Directorsince 2004 SANDRA A.J. LAWRENCE (57) Westar Energy, Inc.
MOLLIE HALE CARTER (52) President Directorsince 2004 Topeka, Kansas Directorsince 2003 Washburn University Executive Vice President and Chairman of the Board, President Topeka, Kansas Chief Financial Officer S. CARL SODERSTROM, JR. (61) and Chief Executive Officer Committees: Audit, Nominating Children's Mercy Hospital Directorsince 2010 Sunflower Financial, Inc. and CorporateGovernance Kansas City, Missouri Senior Vice President and Salina, Kansas Committees: Compensation, Chief Financial Officer (Retired)
Committees: Compensation, RICHARD L. HAWLEY (65) Nominating and Corporate ArvinMeritor Finance Directorsince 2011 Governance Longwood, Florida Executive Vice President and Committees: Audit, Finance Chief Financial Officer (Retired)
Nicor, Inc.
Bellevue, Washington Committees: Audit, Compensation OFFICERS:
MARK A. RUELLE (53) BRUCE A. AKIN (50) JOHN T. BRIDSON (45) JEFFREY L. MARTIN (44) 22 years qf service 27yvears of service 21 years of service 21 Years of service Director, President and Chief Senior Vice President, Senior Vice President, Vice President, Regulatory Affairs Executive Officer Power Delivery Generation and Marketing KEVIN L. KONGS (53)
ANTHONY D. SOMMA (51) JERL L. BANNING (54) KELLY B. HARRISON (56) 25 years of service 20 years of service 6 years of service 33 years of service Vice President, Controller Senior Vice President, Chief Senior Vice President, Operations Vice President, Transmission Financial Officer and Treasurer Support and Administration MICHEL' PHILIPP COLE (52)
LARRY D. IRICK (58) 11 years qf service GREGORY A. GREENWOOD (49) JEFFREY L. BEASLEY (57) 15 years qf service Vice President, Corporate 21 years of service 37years of service Vice President, General Counsel Communications and Public Affairs Senior Vice President, Strategy Vice President, Customer Care and Corporate Secretary 81 Akgesand years of service are as oJ',March 31, 2015.
Westar Energy Taking energy to heart.
P.O. Box 889, Topeka, Kansas 66601-0889 - WestarEnergy.com 4 MIX Paper from F Cresponsible sources FSCFC014805