ML20035B384

Western Resources,Inc Annual Rept for 1992

ML20035B384
Person / Time
Site:	Wolf Creek
Issue date:	12/31/1992
From:	Hayes J WESTERN RESOURCES, INC. (FORMERLY KANSAS POWER &
To:
Shared Package
ML20035B374	List: ML20035B373 ML20035B377 ML20035B384
References
NUDOCS 9304010264
Download: ML20035B384 (76)

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s The legal name of the Company is Westem Rescneces, Inc., and it is under tha name stock is traded and dividends distributed. The Company has ihrec operatmggwups-KPL, KGeE, and Gas l Setticc-uhich provide natural gas and E l electric scrtice in Kansas and naturalgas k~ senice in Missemri and Oklahoma. ' ^ W: stem Resources' Anmal Report for 1992 u as preparedfor the generalinfinma-3 tion of the sharehoders and emphryces ofihe Company and is not intended to be used in cormection uith any sale, or offer to buy, any security of the Compans. = = _ - _ =. T l TABLE OF CONTENTS Hdhgks. 1 Clairm.m's later. 2 1992 wd Deymd - 4 C<nrqany Profile .16 Sdened Funanaal Data. .17 htmagement's Discussutm and Analysis. .I8 Sutenumts wd Notes. .22 ThnNcar Cmrqurance Dau .38 Direaars ard 0;frers. .40 investar Inf wnutum .insde luck cmtr e

i 1942 in 1991 COMMONSIDCKDATA Earnings Per Share.................. $ 2.20 $ 2.41 (2) Dividends Per Share................. 1.90 2.04 (3) Book Value Per Share............. 21.51 18.59 Average Shares Outstanding.......... 52.271,932 34,566,170 9 9 f,It FINANCIAL DATA (Millions of Dollars).. 1,317 1,033 l l [I Operating Revenues. $1,556 $1,162 Operating Expenses. Net income.. 128 90 (2) Gross Plant in Service.. 6,024 2,535 l l. j OPERATING DATA l Natural Gas: l Sales (Thousands of MCF) Gas Service.. 136,643 161.987 (2) Transportation........ 6SA25 78,055 Total............. 205,06S 240,042 (2). -i Customers (Average).............. 1,083,467 1,067,840 Electric: Sales (Thousands of MWH) l Electric Service 12,825 7,869 (2) Wholesale....... 3,028 1,669 Total.. 15.853 9,538 (2) Customers (Average).............. 577.918 306,203 1 1; C0fAln0N STOCK, VALUES EARNINGS AND DIVIDENDS - wwn no n> d (1)Informa:km for 1992 is na ~' ~, 30 t S co,npa,ahle to 1991 y as a result of the m. A - ' ",g e 'i ~ N. C i$1k "W mth Kansas Gas - b$ E!ccenc Com;uny on 25 g March 31,1992. w 1 (2) includes cumulatwe effect i >- 20 \\ m toJanuary 1,1991. '8> ' l ofclunge in rewnue It 4,;g i i recognirkm. a $17,360.000 < i 4 >- 1.5 or 50.50 per share 33 increase. The cumulatin effect of rius change mereased natural gas I I' sales by 14.838,000 MCF and electric sob by 256.000 MW'H. [' jg #$ l8R 88 89 90 91 02 89 90 91 92 paid February 28,1991. n um a por l m :auss a omornos o Page-I WESTERN RE SOURCES. L*;C

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Dear Shareholder:

These savings were particularly j We took another significant stepin-significant because ihey helped offset j. to the future on March 31, 1992, the negative effect on earnings of j when we closed our merger with reduced energy sales due to an abnor-Kansas Gas and Electric Company mally warm winter and cool summer in 1992. ) Q dIManS /y Earnings per share of common stock were $2.20 for 1992, compared to $2 A1 for 1991,which included the (KG&E) following just over 17 50 cent cumulative effect ofa change sliFN monthsofregulatory in resenue recognition. Our 1992 g l review and devel-earnings include KG&E opera-j g - opment of integra-tions for the last three quarters of ~ I' tion plans by the year. employees of both What do we see for the future? 1 companies. In May, Change-transmission access, s after shareholder competition, integrated resource 'l 7 approval at the phmning-has come to our industry, l 4 m annual meeting, the and more is on the way. To thrive in j corporate name was this environment,we must be masters .m i changed to Western of change. We must be quick to take l Resourc es, Inc., advantage of the cyportunities which t' from The Kansas Power and Light change presents. i Company.The new name reflects the More and more wefind these oppor-l l changing scope of our business. tunities in unregulated sectors of the l Pre-merger planning created a energy business. Through the deveky-nearly flawless integration of the two ment ofour Astra Resources unregu-i l companies' operations. Joint dispatch lated companies we are better able to of power plants; combined customer exploit such opportunities. We must j offices, meter reading, and billing; also be active in our industry's efforts consolidation of administrative func-to work with others to solveproblems I tions; and an early retirement of national, and local, concern such f program were allimplemented within as permanent disposal of radioactive three months of the merger's close. waste and the extent to which stan-As a result, we are achieving dards may be necessary to control j substantial savings from the merger. exposure to electromagnetic fields. i' tw o.' ,u. --w.

n Perhaps the most fundamental We take great pride in what we have change in our industry is in the done to prcwide a better habitat for perspect ive ofour customers. They are people and wildlife in our sen ice area. the ultimate force tcward competi-We anticipate no difficulty meeting tion. The time when we and our the proposed requirements of the new regulators could establish the stan-federal Clean Air Act. dards for excellent service and fair Our missionis to provide the high-prices lus passed. Regulation is not est quality energy services to our wit hering away, but it too is changing customers, to be a good place to in response to this force. We helieve work, to maintain the public trust, we understand these changes and and to build financial strength for our have the ability to work in harmony owners. We hope you agree that this with them. Annual kport shows significant Our strategic plan emphasi:esthat, progress in terms of that mission throughout our service territory, and, more importantly, a resolve to we must be the energy supplier of continuous improvement. choice. Competition makes this an 1 am pleased to report that our increasingly difficult goal to achieve. record of continuous dividend Many of our customers have alter-payments extends into this year. Your natives to our products and services Board of Directors in January raised through cogenerat ion, other fueh, or the quarterly dividend for a common I other suppliers. We must anticipate share to 4SM cents. customer needs and provide the pric' Sincerely, ing, products, and service options which meet those needs. Customer 7 loyalty must be earned anew every day. d One way in which we have worked particularly hard to satisfy our John E. Hayn, Jr. O*" "I the Nd'd#'*3" ""3 customers is in the area of the environ-Chief Executive Otficer ment.With our customers, we recog-ni:e the importance of protecting our natural environment and, in many cases, the urgent need for action. Our environmental work has been ] recognized regionally and nationally, asdescribedin the bodyof thisnprt. j l win rn u sol'kca INC l page 3

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d On hiay 8,1992,folkwing approval customer service has improved, and j at the hiay 5,1992, Annualhieetmg new opportunities have been created i of Shareholders, The Kansas Ihrer for employees. This is attributable to ll j and Light Companychanged itsname the work of our employees who, over i to Western Resources, Inc. the course of the 17 months from j p merger announcement to completion, i 1 A formulated the plans which brought y/ 1 l the two companies together. Because l M of this wrk,we began economic joint j The name change was the natural dispatch of power plants on the day ] outcome of the merger with Kansas folkwing the merger, combined all i Gas and Electric Company (KG&E). local offices in overlapping territories a i The merger, which was announced within 60 days, and provided new

c,1,_ m.ns a ;wnmo n on October 28, 1990, closed on combination customers (tho.se receiv-v' a n a;,; m aN rk.u;mso ci hiarch 31,1992.

ing both natural gas and electric j ,,f Kanus Gas anJ ELtre Ce; any KG&E is now a wholly-owned service) with a combined monthly bill j uasum;hdon m cul.1*2 subsidiary of Western Resources and within 90 days. A mu name-m n mcx is operated, along with the Gas We grew by some 260,000 electric customers and over $3 billion in inc -c. m i ,u w on n n s P 92. l new assets through the mercer. on th.c Ja3 e 6 Mm n.u.%,, um i n nt sta ihAne unJc:L yppy j gg O s>&1WR l Earnings per share of com-l . h t m efti mc m m a rk neu 4 1 . mon stock for the year were l com;e c m awJ n Jem e n c3 m k t - 5 $2.20, compared to $2.41 in Tucang n.u ct ea la: c.9,., merc, unk < 1 the L, mp.2n)i cmr m: m <t d n c kmsn (im ad Eccrs Lnnl wry uas carnpbred rn 1932 1991* which included the i i nu ma oscenc n~ nruuq a x ga runn;"'" hive effect of a change Jd b'*' ficri u hen :h r@ acJ Jojus: ton m

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Service and KPL divisions, as an oper-in accounting. Net income for 1992 ann nmuJ m < u4cr 19e thmaa j ~ ating company, with responsibilities was $127.884,000. rk ed of Iv92. j for both electric and natural gas hiild 1992 weather-a warm winter ] Tk mcwy 2!bws :k a ntam ro MJ service in southeastern and south and cool summer-lowered energy J j on a (nye ~r hernaec o.f danc ad central Kansas. sales and reduced potential earn-ingsby over 50 cents per share.By the l ru:m; cas sen te and cmt-ener saaqa.n n How is the merger going? measures of cooling and heating l The merger is a success. Expected degree days, the summer of1992 was i merger savings are being achieved, 23 percent cooler than a normalyear l i paRC 4 l

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1 1 l and the winter was 11 percent warmer 12.8 billion kiknearthours. Tweh=e income, is healthy and new business l than normal. (See etaphs and months of KPl's and KG&E's com-starts show a net gain over the ) additional information in "Manate-bined electric sales for 1992 compared recent years. j ment's Discussion" on pace 19.) to 1991 were four percent knver. Natu-The area has a balance of manufac-l However, merger-related savings ral gas deliveries, including gas t rans-turing, agribusiness, and technology j and the ability to {"~m"" ported for latee devek,pment industries that create refmance several O indusnial and com-long-term economic stability. While n I bond issues and b mercial customers, this may litmt enntth in boom times, p@ i other debt at lower were 205 million it also insulates the local economy jg j F , Mg ~ interest rates held k QW m - q; ;j/ mcf(thousand cubic during hard times. y l down costs and feet), down nine Working in partnership with state pnwided the overall percent from the and local organi ations, our economic j earnings improve-previous year. development efforts have brought new men t. KG&E The Company is businesses to ihe service territory and i resulr> of operanons Ha;nrawa,Joom amsee required to adopt helped existing businesses gmw. ad ka.ad +p-dkrm u ch dwr dcam Statement of Fman-Among the business additions to s in lmdanin included in

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are i dr !%rr Tchi d p Cc,e m hh:u j financial statements cial Accounting our service territory in 1992 were an fa only the last three quarters of 1992. Standards (SFAS) No.106 in 1993 Omaha, Nebraska-based company, Reduction of personnel, throuch which accounts for posnetirement Millard Refrigeration Service, which j attrition, early retirements, and a bene 6ts other than pensions (aho located a 500,000-square-foot i j voluntary separation program; eco-see Note S).The Company has taken refrigerated distribution and public l nomic dispatch of combined electric two steps to miticate the impact of warehouse facility in Edwurdsville, generating facilities; and the con-SEAS 106 expenses. We have imple-Kansas, and Vulcan Chemicals, l solidation of information systems mented programs to reduce health which announced a $36 million 4 l provided much of the merger-care costs and purchased corporate-expansion to its Wichita plant. The.se related savines. owned life insurance to generate an two projects ak>ne will add millions f In l992 the Company was irwolved income stream ro offset future health of kilowatthour sales to the l in issuing over 5S76 million of care costs. Company's system. securities. Of the total,5576 million Our industrial marketing con-l were issued to take advantage of local economy is bright suhants help our customers make j economic ref unding opportunities. Within the Company's servicc area, intelligent energy use choices. For l These actions willsave the Company the effects of a national recession are many industrial and municipal over $10 million each year. limited because of the area's more customers who must meet tougher Retail sales of electricity in stable economy. The business climat e federal and state regulat ions on clean 1992, including KG&E for the last in Kansas, which provides over 90 air and water, this counsel is in the l threc quarters of the year, were percent of the Company's operating new area of electrotechnologies, i [> J f C 6

I \\ 1 i i l Electrotechnologies for wuter and was installed at the la rence Energy WCNOC Board of Directors, along i l waste water treatment replace chemi-Center in a much-tecognized, indus-with representatives from the twu i i cal treatment or aeration systems. try-leadine retrofit. I { Electrotechnologies reduce the To meet proposed amount of contaminants discharged new C1ean Air V i j into rivers and streams. improve water requirements, the _ i quality, reduce operatine ce>ts, and Companywillinstall p ^ - y V 4 - mcrease treatment system etnciency. conunaous ermssion l The Company's expeni-c in this monitoxing and 1 l emergine technology is offered to nponing equipment l customers to help them improve at all generating their profitability. facilities. Unlike ra,um dunn,wmat a resrcrn u csum m.unc fan tv rument.d StcturrJJap Anurd h dw Fnh ami TR!c Servi.c of the I Waste wuter treatment solutions for many coal-burning U S Dencvne,a of dw Nrenar a rcJ udcJ lud s.m rcicacJ ar de Jcfwv Enem Coe The iuuA um MuhibutcJ ar a Corn;aeseen:cJ tcdJafe the Fritobv plant in Topcka, Kansas, unlities, installation Muwa= numem w rwnes earned the Company the Edison of additional equipment to reduce other joint owners. Elect ric 1nsor ute's highest industrial sulfur emissions will not be necessary. Western Resources has been l marketing award in 1992. In aJJition to coal and natural gas, identified as being associated with the Company uses clean nuclear fuel old sites that were used to produce Caring for the environment to produce electricity. KG&E owns manufactured gas a century ago. Protecting the environment, recy-a 47 percent interest in Kansas' only The Company has taken a proactive cling, w ildhfe conservation, reducing nuclear generat ing facility. %1f Creek posit ion with respect to the potential the burden on overilowing landfills, Generating Station is one of the environmental liability at these improving air and wuter quality-all world's most efficient generators of sites. We have a regulatory agree-are themes now beine adopted by electricit v. Wolf Creek, in 1989, was ment to systematically evaluate i individuals and businesses around the the first nuclear plant to lead the these sites in Kansas and are work-country. We have a long4tanding United States in ksvest cost power ing toward a similar agreement j q hi3 tory and commitment to maintain production. In 1990 it was the second in hiissouri. l and improve the quality oflife within lowest cost producer and in 1991 it set In addition Western Resources I t our service area, and beyond. what was then the world record for has been named as a potentially ? The Company was a pioneer in the continuous operation-487 days. Its responsible party in three Superfund installation of flue gas scrubbers to capacity factor is consistently higher national priority listed environmental l 1 reduce sulfur dioxide at coal-fired than industry averages. sites. Tuu sites are solid waste landfills l l l power plants. hiost of the Company's The plant is operated by the and one involves ground wat er i i r coal. fired plants born low-sulfur Elf Creek Nuclear operating Cor-contamination. Even thouch some l coal. Even before the Clean Ait Act, poratior. (WCNOC). Five Western potential liability is expected, it is not equipment to reduce rutrogen oxides Resources officers are members of the anticipated to be material. i 1 page 7 WL8TE RN RLsOl:FCLK INC 1 a

i 1 i Another example of Western of Wildlife and Conservation hon-l Resources' environmental activism is cred the Company for assistance l j our " Green Team." This employee-in developing a new wetlands f directed environmental task force has near Nowata. been in operation since The American Gas Association Jw 1990, creating and carry-gP honored the Companyin May ing out projects that use L M for national leadership in T theCornparrisassets(empk ee employee /public environ-l 3 l expertise, property holdings, mentalcommunications.The a i speciali:ed equipment) to Edison Electric Institute rec-improve the environ-ogneed Western Resources ment. Green Team with a CommonGoals i projects are not limited award, naming the Green Team as the to Company property. ,X.es:en r,mwcc w hmed m, In the past two years, [j] ""K g top environmental I i G the Green Team has concentrated partnership of 1992. l w;sx us;mu.t> xd ;enu, on projects involving recycling; l Vm;> niWy f, ik naiam a wildlife habitat development, restora. Technology u 4 !ard m-hxd a: mem Rsaura s tion, and preservation; wetlands Anticipatingand meetingcustomer A!a me c,senu ahn.: dcan an preservation and enhancement; needs is the key to customer satisfac-1 % ni Rw;es ;+ duc3 ckmary and species protection. The Team tion. Reliability of electric service is l is involved in the promotion of a reasonable customer expectation. W o m faa,rc m, M s-n um 4 i energy conservation / efficiency and But for many businesses, and even

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i i alternative-fueled vehicles. home personal computer owners, Hom cmnA;a:;wa Ahena:s The Company's environmental other concerns exist. ca.mc ma > uncal raiukj s aub efforts, particularly those of the Green To help our customers with power j at a ce mne anmumem. Em;4 oco. Team, were recogni:ed on numerous quality concerns, a Power Technology l q:cn mune.a wiugmmmmm occasions in 1992. The Kansas Center (PTC) was established in j .ex. su;,;ai,m m; e;jns zu. Wildlife Federation recogni:ed the Wichita in 1992. Company engineers e Company as its Conservation and technicians work throughout our

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I Training is also 94; gyg j ; use of 21 dedicated for Emission Reductions in bwn I important for empk - , - lMN#fi natural gas-fueled Care. We are a charter member of 5 1. m j l vehicles in the the Consortium, which consists of ees to assist them in the safe and efficient V db Y' ~2 Western Resources the Edison Electric Institute, the g . i1eet, and the Electric Pmer Research Instit ute, and 1 completion of their 'f expected addition of nine utilities. [ I assignments. The f 2 L, 4a 40 to 30 more natural The Company will distribute 100 Company has an 3 =' Electric Training .,' f %' ' gas vehicles through battery-powered lawn mowers to x. 4' w, eV -,,', normal replacements selected electric customers in early

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1993. The cordless electric mowers Natural Gas Fire Safety School in We helped coor-will be exchanged for the partici-wws &wmas n Abilene, Kansas,and, [j_yjjf"@gg dinate exhibits at the pants' old casoline-powered mowers. in 1992, opened a j % ;" Q @ f * '**#$ first International The Environmental Protection Gas Training Center in hiJkpendence, Alternative-Fueled Vehicle Round-up Agency (EPA)willtest theold mowers Missouri. in Topeka in June. Sponsored by the to help determine if emission Designed with three training State of Kansas, the exposition standards should be set for gasoline-areas-Distribution Hill, Training attracted more than 2,500 visitors. powered lawn mowers. The EPA Town, and a welding shop-the Gas Company vehicles and the electric estimates that the nation's 83 million Trainine Center provides hands-on G -Va n, sponsored by Western lawn mowers produce as much air ) training for new and experienced Resources for research at pollution each year as 3.5 million i e employees. Equipment repair, elding, Kansas State new cars. O~"M( also is taking relichting, meter sets, and leak University. were LI Meter reading ma' V. # * ! A ~ inspections are some of the situations on dispbv. Our M "st uJent s" encounter. Const ruct ion emphyees made w - mm major techno-l and maintenance techniques for presentations M22,727"jf""""$jj" lo gic a l st er. nutd gnluch d imLA and vnt c tans we albd plastic, steel, and cast-iron pipes are on the environ-g, y n,,4, a, y,;m,,,,n,a E7hile Company taught on lines pressuri:ed with air to mental benefits of alternative fuels. meter readers for several years have simulate actual conditions. bbora-The Company organi:ed and was used a hand-held computer device to tories also provide technical t rainine co-sponsor of the Midwest Natural record their findings at customer in arcas such as phstic ripe fusion and Gas Vehicle Conference, held in homes and businesses, soon those i pressure control. Kansas City, Missouri, in August. readings will be obtained from a The Company continues to study The two-day event attracted more distance. The devices, which can read i and use alternative-fueled vehicles. than 350 attendees from across a meter from several hundred l This commitment to clean air tech-the country. feet away-well out of the rance of nologies and new markets for natural Clean air above yourown front bxn does or locked doors and gates- ] gas and electric energy mcludes the is the goal of the National Consortium are being tested on electric and i i page 10

natural gas meters in the St. ) eph, D5h1 has benefits for both electric completion of the merger. The next Kansas City, and ibpeka areas. Using companies and their customers refund (58.5 million) will be made a larger device mounted in a service through more efficient use of in December 1993 and the final van, meters can be read from power plants and, in the future, refund in September 1994. the street. Both y Deregulation of the natural gas units use radio sig- % h industry moved forward with the M, nals to scan the f issuance of Federal Energy Regulatory

1. we meter index. If the Commission (FERC) Order No. 636.

,j .c w, The order is intended to complete tests prove the a. p device is efficient l l ~ ~ 4 EG the deregulation of natural gas pro-ap and accurate. it will l J ' [.F Nah duction and facilitate competition m .2 mq l be put into use g, g > in the gas transportation industry. %E While Order 636 brings more risk to Companywide. to a,m.w % u 2 2.uwma% m,Aud gfd Questions are %,ou.12, r1,-auca mct, nyw local natural gas distribution A ,uanzuw m cm a n m u caw % w being raised about mawas - m.na ~~ companies, Western Resources is well possible healt h effect s of electric and reduced higher-priceJ peak fuel use, positioned to meet its challenges. macnetic fields (Eh1Fs) from appli-reduc ed or delayed need for generat ing The Company has more than 60 ances, home wiring, anJ power lines. plant construction, and environ-years of experience in negotiating The Company actively supports EhiF mental benefits from efficient energy cont ract s for gas at the wellhead for its research by universities and indepen-use and production. nat u ral gas t ransmission pipeline and dent research centers such as the other systems. Two-thirds of our Electric Power Research Institute Rates and regtdation annual requirements are under long-and the Kansas Electric Utility The Company sought no new rate term contracts with producers, Research Program. increases durine 1992. diminishing the impact of market Customers and shareholders As a condition to approving the ductuations. Western Resources is interested m more information about mercer, the Kansas Corporation reordering gas supplies in line with EhiFs are encouraged to contact Commission (KCC) imposed a rate the changes in pipeline service the Company. increase moratorium on electric and offermgs under Order 636. Traditionally, utilities and their natural gas rates in Kansas until In October 1992, Congress passed customers have relied on the supply-August 1995. This moratorium does the National Energy Policy Act of side (ceneration) to meet all present not apply to extraordinary events 1992, bringing a new emphasis to the and fut ure electricity needs. In today's beyond the Company's control. The way the nation's energy resources are energy companies, demand-side KCC also required 532 million distributed and conserved. Among its management (DShi) is being in refunJs for Kansas customers. many provisions, the Act establishes employed to help customers make The first portion of the refund new energy efficiency standards for more efficient use of electricity. (SS.5 million) was made following buiklings and appliances, promotes page i! wismN mDUCLs WC

i ii l development and use of alternative-established a new Companyfunction j fueled vehicles, requires states to con-to develop and coordinate the a j sider integrated resource planning for customer service activities of all ) electric and natural gas utilities, and operating groups and departments. j paves the way for increased competi-Employee teams are looking at 1 { tion in electric generation. The Act customer expectations and current aids electric generating companies Comparv procedures.Their goalis to o m Its = cs u ;% uJ e es r j' sme sc,acc of pau,r.c p a, selling wholesale pcwer over transmis-develop a uniform set of policies and j sion lines cntned by other electric procedures to help employees meet + cw.in.c sema ne gn: t dn a t, j ut ihty companies. Western Resources service expectations and improve

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a h;; Lt 9 cuu m, esbam by the new law. will kmk at both field and office opera-waam n encJ u sm:6 6 TheState of Kansas made sweeping tions, including the growing area of yydn rcue smu sa r. de wa, changes in its property tax classifica-service contacts via the telephone. j tion system in 1992. A constitutional The Company continues its com-c4vo guW :,en f6. m thc j amendment changed the assessment mitment to safe energy delivery. s u! czem Jww w.i in cd ~ on utility property from 30 percent to l DDR1raiS8 y0lt100lslipto be as s: mis mec wivd mccm 33 percent, while kuering residential Am 5 n cd h ; d ecm:o m d' property from 12 percent to 11.5 /_ d uti m d c) xd t' ga de most ma percent and non-utilit3 business prop- <f e a u m.2 vs sick e nc m u c crty from 30 percent to 25 percent. The Company expects the additional tax liability to amount to approxi-mately $6 million on property at d ncJayc, ac,cm m accacmaicoman vnh mefuf darnc Imcus a f,cquem Cmqum inventory, including coal and natural sg.r3 meme. gas reserves. Customer communications, through bill inserts and advertising, deliver a Customer service and safety variety of electric and natural gas Western Resources has set as its safety messages and alert energy users I goal excellent customer service, the to the hazards inherent in the unsafe i type of service which results in use of energy. 1 customer satisfaction for both those The Missouri Public Service j a within and without the Company. Commission (MPSC) in October As part of the effort to provide the approved a change in our extensive I type of service which produces natural gas service line replacement customer satisfaction, we have program. Based on the findings of j l t l page 12 i 1

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l l an independent safety audit of our $98,000 to fund research on provides information on safety, first natural gas system and procedures, birth defects. aid,and graving up in a world bigger i the hiPSCpermitted theComparrito The Company's sponsorshipof the than they. s j-slow the replacement program in legal Guides for Senior Citi: ens proj-The project,like theIrgalGuides, q Missouri by approximately 20 percent ects in Kansas and hiissouri was is an excellent example of public/ j of the annual quota. This change recogni:ed with a Common Goals private sector cooperation and has will save an estimated H million award in Community Responsibility received much nurable public and i annually and alkwv concentration on from the Edison Electric Institute. professional group acclaim. additional aspects of natural gas The Company also worked with the Empkyees helped sponsor or par-3 distribution safety. The Company Kansas Department on Aging ticipated in numerous community I replaced more than 21,000 lines in (producer of the Kansaslegal Guide) improvement drives throughout the l hiissouri during 1992. to produce "A Categiver's Guide For 3 ear. Kansas City area emph yees ] Service line replacement con-Al:heimer's and Related Disorders." earned the Bron:e Award in Com-l tinues in Kansas and Oklahoma at These publications have been munity Enhancement from the l previous rates. extremely well received by ihe American Gas Association for their ) public as well as health care and leadership and participation in the Communirv relations legal professionals. Harvesters' Corporate Food Drive. 1 Western Resources is only as strong In 1992, Western Resources worked Empkgees annually contribute or seek and successful as the communities we with the Kansas Department ofSocial donations of thousands of pounds of I l serve. Giving something back to those and Rehabilitation Ser- - V food for this and other j communities is good business and is vices to produce a ~ communityfoodbanks. l part of the tradition of our predeces-publication containing Company empkwes, { sors Western Resources is proud necessary information family members, and l to continue. about being part of a friends volunteered l Again in 1992 the Company served family-from both the 7 i: their tak nts, skills, and 4 e~ t l as a major corporate sponsor for perspective of the time tohelplcwincome the March of Dimes WalkAmerica parent and of the child. and elderlypersons and events m eight communities. Western "The Ihrer Partner-personswith disabilities s i j Resources will continue an expanded ship" has two distinct prepare their homes j sponsorship in 1993. Employee sections. One section Em;.im a=co ua~d ae for winter during the %es and spmu of m er unc kmhed j participation also was high in provides information to eK,badd h gendmg Company's annual a me wrual Cmnjamcae weak:a-the 11 other communities within parents about services a ;wCw= m o* "Christmasin october" l the service area that held Walks and resources available to them to help project. The project expanded in 1992 I in 1992. The Company and the raise healthy, active children. The to assist more than 100householdsin 1 J 750 employees and their family other half of the book is directed 17 communities in the Western i members who participated raised over toward children of all ages and Resources service territory. If page 14 i d a

Whether it was a team of five and success in t urning a disaster into small, it is expected to grow as these employees weatheri:ing ihe home an opportunity to improve customer businesses mature and other areas of of an elderly resident or a large service. Company disaster planning opportunity are developed. community-wide effort in which met the stornA challenges. do: ens of homes were repaired, Changes painted, and weatherized, the Unregulated im estments William E. Wall retired from the volunteers' spirit of giving brightened The Company's wholly-owned Board of Directors following the An- [ the homes and hearts of those who subsidiary for non-regulated businesses nual hiceting in hiay 1992. Wall was benefited from the project. also received a new name in 1992. a former chairman of the KPL Board Corporate responsibility also is Astra Resources, Inc., seeks invest-and a director since 1975. shown in how business N ment oprot t unities Wilson K. Cadman, vice chairman is conducted. Western L closely related to of theCompanyfollowingthe merger Resources was recogni:ed in Western Resources' and chairnun of the board ofKG&E, e 4 1992 as a hiinority and Women j core business interests. retired from the Western Resources Business AJvocate of the Year by L)_ These investments are und KG&E Boards of Directors on the Kansas Department of not speculative, but designed June 1. Cadnun had been chairman Commerce and Housing, If to enhance and strengthen the of the KG&E Board since 1982. 1 l Office of hiinority Business e core business. Balfour S. Jeffrey, ret ired chairmaa Affaits Division. Some of Astra Resources' of the hoard, died in July. He was S6. The Company wa3 hon-principal businesses are Jeffrey served the Company from I ored with an Earle Award Rangeline, a natural gas 1953 until 19S1. The two millio - 4csm ca" a+uned w marketer; Cont ract kilowatt Jeffrey Energy Center was 0""ud"w c A" *n from the American Gas Association's and Edison QQlyg"g,"g""; Compression, Inc., named in his honor. Electric lnstitute's Cus- {lfgMis"* which offers compres-tomer Activities / Services Mdl2.hj7"3 sion services to oil and Committee. The award, gas producers and in the recovery success story category, natural gas gathering pipeline and 1 recognized our response to damage on processing companies; and KPL our electric and natural gas systems in Limited Partners, Inc., which holds the Wichita area following the interests m research and devehpnent April 26,1991, tornados. The storm partr,erships, including the company disrupted service to some 65.000 which makes the electronic meter customers and damaced or destroyed reading equipment the Company is hundreds of homes and businesses. using and testing. The recognition is a tribute to While Astm Resources' financial employees for their cnsis response contnbution tothe Company remains 2 page 15 u"Es TE RN RE SOURCES. INC

I Western Resources, Inc., with its distnbution in all three states. The Com-headquarters for KPL aho in Topeka, for ) operating groups KPL,KG&E, and Gas pany ans a natural gas underground Gas Service in Kansas City Missouri, Service, is a combination natural gas and storage field in south central Kansas and for KG&E in Wichita, Kansas. electric utility serving customers in and leases additional storage space. At year end, the Company had Kansas, Missouri, and Oklahoma. Total net electric generating capa-5,13S employer-The economy of the service area is based primarily in agriculture, mineral l production, aircraft and vehicle assembly, j and related mdustries. Since it is at the Retail electric service is prcwded in 462 bility was 4,807.000 kikmutts at the time geographic center of the continent, the Kansas communities to a total of 578000 of peak system demand in 1992. The service area is well positioned as a com-customers at year's end. Natural gas is system peak hour of 3,683,000 kikwatts munications and transportation center. distributed in 519 communities in the occurred on August 10. During 1992,77 Astra Resources, Inc., is a wholly-three states. The utility had approxi-percent of the Company's electricity was mned subsidiary for the Company's non-mately 1.1 million natural gas customers produced from kwsulfur coal,20 percent utility businesses, including natural gas at the end of the year. from nuclear power, and the remainder marketing, natural gas compression Western Resources operates an from natural gas. The Company has no services, and technology development. intrastate natural gas transmission power plants under construction. pipeline system in Kansas and purchases The Company's corporate offices gas from interstate pipeline companies for are in Topeka, Kansas, with operations y yweme - " m%g :y" ' 1 m.. W M q.

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SELECTED FINANCIAL DATA Year Ende.f December 31. 1992 0) 1991 1990 1989 19B8-(Dam in Rwunds) income Statement Data Operating revenues: Natural gas..... $ 673,363 $ 690,339 $ 686,048 $ 675,280 $ 704,954 Electric..... SS2.SS5 471,839 463,707 452,343. 461,160 Total operating revenues 1.556,24S 1,162,178 1,149,755 1,127,623 1,166,114' Operating expenses. 1,317,079 1,032,557 1,017,765 1,002,087 1,035,692 Alkumce for funds used during construction.. 2,002 1,070 1,181 1,503 1,327 Income before cumulative effect of accounting change.... 127,884 72,285 79,619 72,778 79,791 Cumulati.e effect to January 1,1991, of change in revenue recc c;nition.. 17.360 127.884 89,645 79,619 72,778 79,791 Net income...... Earnings applicable to common stock... 115,133 83,268 77,875 70,921 77,821 December 31, 1992 0) 1991 1990 1969 1988 (Dam in Amsards) Balance Sheet Data Gross plant in service 56,024.204 $2,535.448 $2,421,562 $2,305,279 $2,162,271 Construction work in prt. jess. 68.041 17,114 20,201 19,571 24,945 5,523,629 2,112,513 2,016,029 1,959,044 1,787,930 Total assets..... Long-term debt and preferred and preference stock sul

to mandatory redempuu.

2,077,459 690,612 595,524 552,538 556,388 hr Erded Dcccmber 31, 1992 0) 1991 1990 1989 198S T Common Stock Data Earnings per share before cumulative effect of accounting change..... 5 2.20 1.91 2.25 2.05 2.25 Cumulatin effect to January 1,1991, of change in revenue recognition per share.. .50 Earnings per share... S 2.20 2.41 2.25 2.05 5 2.25 1.90 2.04 (2) $ 1.80 1.76 1.72 Dividends per share Book value per share..... S 21.51 5 18.59 18.25 17.80 17.51 Average shares outstanding (1,000s)... 52.272 34,566 34,566 34,566 34,566 Interest cwerage ratio (before income taxes, including AFUDC).. 2.27 2.69 2.86 2.96 3.41 l11 informatwn f vr 1992 reflects the merger wah KGEE on March 31.1992. (Note 2) m includes special, one-tune dwdend of 50.18 in share Imd Fe bruary 28.1991. OPERATlHG REVENilES OPERATING EXPENSES Residentia!..... ..... A Capital Cost............I b f'~ Q. e i - %......... 3..... 4N Energy Cost...... 2:Q w Other......... jl8%?' Taxes............ [9% fy Depreciation & d( Amortization..... 10% Industrial.......' 14% ' . Y$h%j pQ w>. Operation & Comme rcial................... 28% l Maint enance.................. 25% Pagt 17 WEST F.RN RESOUkCER INC

MANAGEMENT'S DISCUSSION AND ANALYSIS. HNANCIAL CONDITION On Febmary 9,1993,the Gunpany caused Generah Earnings were $2.20 per share of CONSTRUCDON EXPENDITURES - the issuance of 5583 million of 6% Ibtlution . common stock based on 52,271,932 average Control Revenue Refunding Bonds due i shares fir 1992, a decrease fnun $2A1 in 1991 4" E Mruary 1,2033. The net proceeds from the - '88 on 34,566,170 average shares. The decrease newh nds,together with available cash, were : resulted from a one-time cumulative effect : ?V' used to refund $583 million of 95/S% Pollu-change in the method of accounting to eyp ',, tion Cmtrol Refunding and Impnwement d record unbilled revenues in 1991 of $030 per g, RevenueBondsdue2013,inchdingaredemp, share (see Note 1). Earmags for 1992 com-. - 4n, . tion premium of $1.755 million. S On September 11,1992,theQxnpany filed - pared to 1991 earnings, before the account-no . ing change, increased as a result of the merger F a shelf registration statement for up to with Kansas Gas and Electric Company [; $100 million of first mortgage bonds to be ion (KG&E) on March 31,1992 (the Merger). issueo under the Western Resources Unusually mild winter and summer tem-so Mortgage and Deed of Trust, dated July 1, . peratures in 1992 had a negative impact on l 1939. Also on September 11, KG&E filed a ? earnings of more than $050 per share. i shelf registration statement for up to 60 The Company continues a long history of l $200 million of first mortgage bonds under returning a major portion of earnmes to its l the KG&E Mortgage and Deed of Trust - y o y y y shareholders. Dividends per common share l dated April 1,1940. me $1.90 in 1992, an increase offour cents On December 17,1992, $135 million of L 4 from 1991 (exchdmg a special, one-time divi-First Wrtgage Bonds,7.60% Series due dend of $0.18 per share paid Frbruary 28, for bonds and preference stock, will be December 15,2003, were issued under the 1991). In January 1993, t he Board of Direc-provided from internal and external KG&E shelf registration. The net proceeds tors declared a quarterly dividend of 4Sh sources available under then existing fan the new issue, together with available. cents per common share, an increase of one financial conditions. cash, were used to refund $40 million of cent over the perious quarter. The embedded cost oflong-term debt was KG&E's First Wrtgage Bonds,95/S% Series The book value per share was $2131 at 7.6% at December 31,1992, a decrease imm due 2005, at the optional redemption price December 31,1992, compared to $1S39 at 85% at December 31,1991. The decrease of 104.09% of the principal amount; December 31,1991.The 1992 closing stock was primarily accomplished through refi- $50 million of KG&E's First Mortgage price of $3130 was 146% of book value. nancing ofhigher cost debr as discussed iater. Bonds,9 3/4% Series due 2016, at the' There were 58,04$ D common shares The issuance and retirement of long-term optional redemption price of 107.41% of the outstanding at Dece ser 31,1992. debt and geference stock are summari:ed in principal amount; and $35 million of Liquidity and Capital Resources: The the folkning table: KG&E'sFirst M(stgageBonds,81/2% Series = Company's 1iquidity is a functim ofits ongo-due 2000, at the optional redemptinn price ing construction pogram (>ee "Construcnon y

g. m j of 102.06% of the principal amoun Expenditures" graph), designed to improve On July 14,1992, the Company issued 3 g facilities which provide electric and natural g,j

$125 million of First Mortgage Bonds, gas service and meet future customer 71/4% Series due July 1,1999, and service requirements. M NH 4 t-" $125 million of First Mortgage Bonds, During 1992, construction expenditures hnsb Bu 81/2% Series..due July 1,2022. The net for improvements on the natural gas syste n, .?"" proceeds from the new issues were applied : including the Company's senice line replace- "lP, toward the repayment of $250 million of the ment program, were $91 million. $4S0 million bank term kian bormwed io The construction expenditures for the _ D i " , . E connection with the acquisition of KG&E Qimparw's electric system,inchding KG&E

cv in. >

(see Notes 2 and 12). since March 31, were $96 million during y"w+?' C On August 20,1992,the Companv issued 1992. It is projected that adequate capacity '*v h f $100 million of First Mangage Bonds,71/4% marginswillbe maintained v but the addi-W"-' Series due August 15,2002. The pmceeds tim of any major generati-r ' ilities through from the new issue were used to refund

a y y the turn of the century.

~: n%u $60 million of First Wrtgage Bonds,81/4% During the last five 3 rats, the Company's e M,a w x Series due 1996, at the optional redemption internal cash generat ion for construct ion has price of 101.18% of the principal amount and - _, i, awraged 63% in 1993, the Cornpany expects ] $45 million of First Mortgage Bonds,65/S% ' , (: [i((11 price of 102.62% of the principal amount. improved cash generation resuhing from Series due 2006, at the optional redemption Merger-related cost savings and assuming a return to normal weather. On May 31,1991, the Company issued s.mm.,o.o The Company's capital needs thmugh am .m 1,000,000 shares of preference stock at $100 1997af approximately 5325 million for bond

* *-C 1,

• per share with a dividend rate of S30% On

- nuturit ies and cash sinking fund requirements Agd 15 1992, the Company issued 500,000 page 18

F shares at $100 per share with a dividend rate

HEAUNG DEGREE DAYS The fuel costs are ncw includ d in base rates -

c f 7.58% The proceeds for the new issues. and were established at a level intended 1 the L o gn 7 mere used to repay short term debt and g&Y KCC to equal the projected average' cost of - reimburse the Company's~ treasury for 6000 fuel thfough August 1995, . cmstruction costs. g M_ 1992 COMPARED 70199h Natural gas t At year-end, the Company had.5250 J A ' revenues decreased mer two percent' due to. 2 a nine percent decrease in' natural gas -

million available under short term bank g,

y E. m e ? U [ credit arrangementsi in addition, the Comi f . deliveries, excluding' sales related to thei aooo ! cumulative effect of the unbilled revenue y pany has a commercial paper program and uncommitted loan participation agree-l adjustment in 1991, Also contributing to the' ' = ments. At December 31,1992, short-term l decrease was an approximately four percent. ' borrowings amounted to $222 million in the decrease in the unit cost of natural gas which : . form of commercial paper and bank loans is passed on to customers through the pur-3 (see Note 13). 200o - chased gas asustment clause (PGA). The. in January 1993, the Board of Directors l decrease in sales can be attributed to mild (Board) approved the establishment of a l winter temperatures in 1992 (see " Hearing - m e m e B Degree Days" graph). Part ially offsetting the customer stock purchase plan (the Plan).The l. Gunpany anticipates offering the Plan to l 2 decreased sales were increased retail rates in : i W . Kansas and Missouri beginning early in 1992 ] customers in May 1993, or upm receiving the w~ necessary regulatory apprcwals. He Plan will COOUNG DEGREE DAYS (see Note 4). . 1 Electric re enues increased significantly in. ' + prcwide most retail customers with a method to become owners of Western Resources com-ACM, 1992 as a resuk of the Merger. KG&E elec-tric revenues for the nine months ended mon stock,on an instalhnent basis, and thus 2500 / December 31,1992, of $424 million' j improst their understanding of the Company have been included in the Company's. and our business. The Plan alkws the Com. ,ny the option to buy the shares of common . o. ~ electnc revenues. Partially ofsetting this increase in restnues smck on the open market or issue new shares. were reduced retail electric sales as a result i The Board has authori:ed the issuance of noo 2.5 million shares. He Board aho authori:ed of the abnormally mild summer temperatures amendments to the Comparis dividend in 1992 (see " Cooling Degree Days" graph).. reinvestment plan for the issuance of up to Electric revenues for 1992 compared q 2 million shares. to pro forma rewnues for 1991, giving effect ; The capital structure at December 31, soo to the Merger as if it had occurred u 1992, was 37% common stock equity,5% Januah 1,1991, would also have been lower preferred and preference stock, and 5S% l as a result of the mild summer and winter i . kog-term debt. The Company is committed temperatures in 1992. Retail sales ofkikwatt-l y y y to maintaining a capital structure that hours on a pro forma comparative basis-prescrws an appropriate balance between ,;_ ;y decreased from approximately 15.1 billim for < dat and equity and prcwidesilexibility in the a fair rate of return. Future natural gas and 1991 to approximately 14.6 billion for'1992, ; timing and amounts ofkmg-term financing. electric sales will continue to be affected by or 3.6 percent.. weather conditions, competing fuel sources, 1991 COMPARED 701990: Natural gas

i RESUL7SOFOPERAT10NS customer cmservation efforts, and the twerall revenues increased slightly due to a two The folkwing is an explanation of signifi-econany of the Company's service area.

percent increase in natural gas sales,- cant variations from prior year results in The Kansas Corporation Commission excludmg sales related to the cumulative rewnues, operating expenses, other income (KCC) order approving the Merger provided effect d the unbilled revenue' adjustment. and deductions, interest charges and pre-a moratorium on increases, with certain These increased sales are a result of cooler ferred and preference dwidend requirements. exceptions, in the Company's jutisdictional winter temperatures in 1991 compared to' As the Merger did not occur until March 31, electric and natural gas rates until August 1990. Also contributing to the increase was j 1992, the results of operations of the 1995. The KCC ordered refunds totalling a full year of permanent rate relief in the j Gmpany include the activities of KG&E for $32 million to the combined companies' Company's Missouri and Oklahoma only the nine months ended December 31, customers in order to share with customers operations (see Note 4). .1992. Additional information relating to the Merger-related cost savings achieved His increase was partially offset by large. changes beween years is provided in the during the moratorium period. The first industrial customers switching to transporta-r Notes to Consolidated Financial Statements. refund of 58.5 million was made in April tim for which the Company does not collect Revenues: The operating revenues 1992. A refund of the same amount will be the cost of gas and a decrease in the unit cost of the Company are based on sales volumes made in 1993 and an additional refund of ofnatural gas which is passed on to customers - and rates authori:ed by certain state $15 million will be made in 1994 (see Note 2). through the PGA. regulatory commissions and the Federal On March 26,1992, in connection with Electric revenues increased two percent 1 Energy Regulatory Ognmission (FERC) t he Merger, the KCC apprcwed the elimina-due to a three percent increa,e in sales to charged for the sale and delivery of narural gas tion of the Energy Cost Adjustment claue retail custmers, exckthng sales rdated to the and electricity. These rates are designed to for most Kansas retail customers of both the cumulative effect of the unbilled revenue - recova the cost of service and allow irn estors Comparw and KG&E cffectiw April 1,1992. adjustment. nese increased sales are a result -{ l page 19. nsTUN RESOURCES INC N

of warmer summer temperatures in 1991 AVERAGE COST OF GAS the future kwer lease expense. On SAprember; compared to 1990. 29,1992,theTrusteelessorrefinancedbmds - Partially offsetting the increase uas an m r, having a coupon rate of approximately ~ 11 percent decrease in wholesale and firm @f 7 .. 3 11J% with bonds having a coupon rate interchange sales resulting from changing G contract commitments and the availability of - 4',' . of approximately 7.7% . Totaloperat-1991COME4 RED 701990: lower cost pmu on the spot market. %] ] ing expenses increased slightly over one per-1990 COME4 RED TO 1989: Naturai - lp{l cent in 1991. The primary factors causing the gas revenues increased two percent as 2 increase were higher other operations and l a result of a five percent increase in the l maintenance expense resuhing fmm discon; unit cost of natural gas which is passed on l tinuing, in 1990, the deferral of gas line. to customers through the PGA. Also con-l 1 suney costs in Missouri and the amortization r tributing to the increase were increased l l of those costs to expense. Increases in payroll rates in the Company's Missouri (May and medical expenses also contributed to the ll l increase as well as the operation of a new, l 1990) and Oklahoma (April 1990) opera-tions and a four percent increase in l l impmved custorner information system.,. Other factors contributing to higher; transportation revenue. s so oc oi a: Parnally offsetting the increase in revenue crerating expenses were increased property. was an eight percent decrease in residential ' taxes in Kansas and additional depeciation sales resulting from much milder tempera-AVERAGE COST OF FUEL and amorti:ation expense of safety-related tures during the heating season compared to cmstruction costs previously deferred 3 1959 and normal. An 11 percent reduction fWW (see Note 4). in commercial and industrial sales, 7 Partially offsetting these increases ~ u s attributable to inge commercial and , W E A was a reduction in natural gas purchase industrial customers switching to rransporta- ,' ~ expense caused by a decreased unit u tion for which the Canpany does not collect lf cost of natural gas. the gas cost, also partially offset the increase L2 1990COME4 RED 701989: Total operat-in natural gas revenues. [F ing expense increased two percent in 1990. Electric revenues increased three percent [. Increases in natural gas purchases and other as a result of a five percent increase in sales i" operations expense were the primary factors g, to retail customers. These increased sales are l' causing the increase. A higher unit cost of a result of the warmer summer temperatures . e4 natural gas of five percent, partially offset by in 1990 compared to 1989. Alsocontributing l lower gas sales as a resuh of milder - t to the increase was a shghtly higher unit cost - DA temperatures during the heating season and .f of fuel used for electric generation which l large commercial and industrial customers was passed on to customers through fuel l r w y y o, switching to transpottarion for which the. adjustment clauses. l Company does not incur the cost of gas, Partially otisetting the increase in retail resuhed in the higher natural gas purchases sales was a 13 percent decrease in wholesale Partially offsetting those increases in expense. The increase in other cperations and firm interchange sales as a result of operating expenses was the commencement expense can be attributed to higher empkiyee - changing contract commitments and the of savings as a result of the Merger. The benefits expense caused by tapidly escalating availability of lower cost power on the Company also changed the depreciable life health care costs and increased payroll. r spot market. of Jeffrev Energy Center, for book purposes, Fuel used for electric generation was lawn.. Operating Expenses: 1992 COME4 RED to 40 years, reaulting in a reduction to in' 1990 campared to 1989,' ahhough the TO 1991: Operating expenses increased dereciation expense of approximately unit cost of fuel was slightly higher significantly for 1992 as a result of the Merger. 55.4 million. Imr natural gas purchases as (see Wrage Cost of Fuel" graph). Offset-KG&E crerating expenses for the nine a result of the mild temperatures and a ting this reduction was higher cost of months ended December 31,1992, of reduced unit cost (see " Average Cost of Gas" purchased power. The Company was a net 5316 million have been included in the graph) also partially offset the increase in purchaser of electric power in 1990 because. Company's operating expenses. operat mg expense. of the availability of kiwer cost power from Other factors, excluding the Merger. con-As permitted under the 1.a Cynne 2 other utilities. Other contributors to the ' tributing to increased operating expenses generating station lease agreement, KG&E increase in total operating expense were were a one-time charge for the Company's requested the Trustee Irssor to refmance higher depreciation expense and general taxes portion of the early retitement plan and 5341,127,000 of secured facihty bonds of the resulting from increased plant resulting from voluntary separation program of approxi-Trustee and owner of La Cvgne 2. The tran-continued investment in the Company's mately $11 million; higher depreciation and saction was requested to reduce the service line replacement program. ) amortization expense caused by increased Company's recurring future net lease Partially offsetting the increases in total plant investment and the beginning of the expense. To accomplish this transaction, a operating expense was lower income tax amortt:ation of previousl> deferred safety-one-time payment of approximately expense resulting from a lower effective. related expenditures in Kansas; and increased $27 milhon was made which will be amarti:ed income tax rate. pnperty taxes due to increases in plant and over the remaining life of the lease and will Other income and Deductions: Other tax mill levies, be included in operating expense as part of income and deductions, net of taxes, was i 'f JwRe 2 D

significantly higher in 1992 compared to EMBEDDED COST (D DEST ' l a firm (non-interruptable) basis. The order-1991 and 1990, respectively, as a result of the pm also separates the purchase of natural gas t Merger. KG&E contributed, for the nine .J O fnun the transportatian and stwage of natural - ~ months ended December 31, 1992, 517 7 gas, shifting additional responsibility to ~ - million to other income and deduct ions, net j distribution companies for the provision sa of taxes. Signi% ant items of other income igg; # (through purchase and/or storage) of long- . include approximately 59 million from [Q Q term gas supply and transportation to KG&E's corporate-owned life insurance and d.x, 8 distribution points. Under the new rules, KG&E's recognition of the recovery of Q y' ' distribution companies will elect the amount approximately 54.2 million of a previously o. 7.s and type ofservices taken fican pipelines.The written offinvestment. Company may be liable to one or more of its Other income and deductions, net of taxes, . 7.6 pipeline suppliers f r costs associated with any was sigmficantly higher in 1990 compared to reduction in firm service demands. The i 1991 as a result of the recognition oflost earn- . u Oxnpany believes substantially all of these lll l costs will be recovered fran its customers and ~ [ ings recosued in the favorable settlement of a natural gas anti-trust lawsuit. Of the Com-1 l any additional transition costs will be imma-pany's total pirt on of the pmceeds, approxi-lw terial to the Company's resuhs of cperations - 89 90 or o2 mately 512 milhm related to kwt earnings was 1 The Company is participating in pipeline booked, net of tax, to other income in 1990. restructuring ' negotiations and does not ~ Interest Charges and Preferred and anticipate any material difficulty in continu-t Preference Dividend Requirements: ing the service provided in the past for its Total interest charges increased significantly been considered in purchase accounting fa gas operations. kr 1992 as a result of the Merger. Panially off-the Merger. Other costs, including costs ofthe Property Tax Classificatiom The State of setting this increase were kmu shan-tenn early retirement incentive pograms ard other Kansas made changes in its poperty tax and Img-term interest rates. The Company's empknee severance compensation programs classification system in 1992. A consti-- embedded cost of long term debt decreased for former Kansas Power and Light Company tutional amendment changed the assessment - from S.5% at December 31,1991, to 7.8% at empkyees, une charged to expense in 1992. on utility properry from 30 percent to 33 per-December 31,1992, primarily as a result of See Note 8 for a discussion regarding the cent. As a result of this change, the Company 1 the refinancing of higher cost debt. early retirement and Merger severance plans. expects an additional pnperty tax liability of - Total interest charges decreased one argaximately S6 million, including coal and percent in 1991 compared to 1990 because OTHER INFORMATION natural gas inventory, for 1993. of lower interest rate 3 on commercial paper. Inflation: Under the ratemaking proce-Environmental:TheCompany has rec-This decrease was partially offset by higher dures prescribed by the regulatory axnmis-ogni:ed the importance of environmental commercial peer balances. The Company's sions to which the Company is subject, only responsibility and has taken a prnactive posi-commercial peer balances increawd during the original cost of plant is recoverable in tion with respect to the potential environ-1991 to fund construction costs and other revenues as depreciation. Therefore, because mental liability associated with former deferred assets not yet recmuable in rates. ofin0ation, pesent and future depreciation manufactured gas sites.The Company has an Total interest chages increased 14 percent povisions are inadequate for purposes of agreement with the Kansas Depanment of in 1990 compared to 1989 because of both maintaining the purchasing gwer invested Heahh and Envimnment to systematically higher commercial paper and k>ng-term debt 15 c unman shareholders and the related cash evaluate these s tes in Kansas (see Note 3). - balances partially offset byImvr interest rates flows are inadequate for replacing pmperty. The Company anticipates limited expvure on c unmercial paper. The impact of this ratemaking nocess on associated wit h Phase l ofthe Clean Air Act Preferred and preference dividend common shareholders is mitigated to the of 1990 and minimal capital expenditures t requirements increased in 1992 compared to extent depeciable property is financed with required for Phase 11(see Note 3).' ' l 1991 as a result of the issuance of $50 million debt that can be repaid with dollars ofless Energy Iblicy Act: In 1992, Congress of 7.5S% peference stock in the second purchasing power. While the Company has passed and the President signed the Energy l quarter of 1992. Preferred and geference experienced relatively kw inflation in the Policy Act (the Act) which affects all types dividend requirements increased in 1991 recent past, the cumulative effect ofin0ation ofenergy.The Act willrequire increased effi-compared to 1990 as a result of a $100 milhon on rperating costs requires the Canpany ciency of energy usage and will potentially - i issuance of 8.50% preference stock in the to seek regulatory rate relief to recover change the wav electricity is marketed. The i second quarter of 1991. Preferred and these higher costs. Company is analy:ing the impact of the Act' preference dividend requirements were kwer FERCOrderNa 636:On April 8,1992, on its business rpportunities. As part of the - l for the year 1990 as a result of redempions the FERC issued Order Na 636 which is Act, a special assessment will be collected thmugh sinking fund requirements. intended to complete the deregulation of from utilities for a uranium-enrichment - l Merger Implementation: In 1992 the natural gas poduction and facilitate competi-decontamination and decommissioning j Company completed the consolidation of cer-tion in the gas transprtation industry. Order fund. It is estimated that KG&E's a rtion of i tain operations of the Company and KG&E. 636 is expected to affect the Company in the assessment for WolfCreek will be approxi-In coniunction with these efforts the Com-several ways. The rules provide greater po-mately $10 million, payable over 15 years. pany incurred costs of consolidat ing faciht ies, tection fa pipeline annpanies by poviding Statement of Financial Accounting tronJerring certain empbyees, and other for recwery of all fixed costs through con-Standards Na 106 (SFAS 106): For discus-l costs associated with comple:ing the Merger. tracts with local distribution companies and sion regarding the effect of SFAS 106 on the Certain of these costs related to KG&E have other customers choosing to transport gas on Company see Note 8. pMe 21 WF STE NN RDOURCER -lNC

CONSOLIDATED BALkNCE SHEETS ' December 31. 19920) 1991 (Dollars in Tlwusards) Assets '

Utility Plant (Notes 1 and 10):

Electric plant in service... '54,999,83) >1.676,449; ' Natural gas plant in service...................... 1.024,369 858,999 - 6,024,204 2,535,448-less-Accumulated depreciation.. 1.682,804 -826,118-4,341,400' 1,709,330 68,041 ' 17,114: Construction work in progress............., 33,312-Nuclear fuel (net) Net utility plant......, 4.442,753 1,726,444-Other Pwperty and Emestments: Net non-utility investments......................,............. 29,901 21,360'. ......u. 9,272 Decommissioning trust (Note 3)....................... 2.. 31,634 Other...... 70.807 - 21.360 ~ Current Assets: Cash and cash equivalents (Note 1)........... 875 6,817-Accounts receivable and unbilled revenues (net) (Note 1)................ 222,601 198,752' 49,007 43,471' Fossil fuel, at average cost......... Gas stored underground, at average cost.... 14,644 19,166 59,357 l 17,092 Materials and supples, at average cost...... 17.574 4.051 Prepayments and other current assets... 364.05B 289,349 Deferred Charges and Other Assets: 247,051 s Deferred future income taxes (Note 6)............ 24,520 Deferred coal contract settlement costs (Note 4).. 96,495 Phase-in revenues (Note 4) Corporate-owned life insurance -(net) (Note 1)....................... 146,713 32.212 Other deferred plant costs. 99.020 75.360: Other (Note 4). 646.011 75,360 i $5.523.629 $2,112,513 - Total Assets....... Capitali:ation and Liabilities Capitall:ation (see statement).... 53,350.684 '51,357,919 ] Current Liabilities: 222,225 135,800 Short-term debt (Note 13)........ Long-term debt due within one year (Note 12)................,......... 1,961 2,733 ' Preferred and preference stock redeemable within one year (Note 5). 1,300 1,300 -1 214.752 151,556: Accounts payable. 21,793 47,823-Accrued taxes............... 71.877-35,224 j Accrued interest and dividends.... 44.757 46,476 Other... 57S.695 420.c;2 -t Deferred Credits and Other Liabilities: 1,103,368 252,020 Deferred income taxes (Note 6).............................. 149,946 70,6.42, Deferred investment tax credits (Note 6)........ 271,621 1 - Deferred gain from sale-leaseback (Note 11)... 69,315 11,020 j Ot h e r.................,........ 1,594,250 333,682 1 i Commitments and Contingencies (Notes 3 and 7) ' $2,112,513 \\ 55,523.629 . Total Capitali:ation and Liabilities. . O) Infmmaram for 1992 reficers the merger unh KGFE un Mrrch 31,1992. (Nore 2) The Notes a Gensoldared FmancialSrarements are on integra! pan of thi< sratcment. page 22 - a L

il . CONSOLIDATED STATEMENTS OF JNCOME

\\

i ! War Endd December 31, 1992 41) 1991 1990 l 1 (D<Ans m Thands, except Per he Amowin) OperatingRewnues (Notes 1 and 4): } . Natural gas......,... $ ' 673,363' $ : L 690.339 686,048-SS2.885 ' 471,839 463,707! . Elect ric'.....,................ 1,556,248 1,162,178' 1,149,755

Total operating revenues..

Operating Expenses: 456,868 't '403,326 '439.323; Natural gas purchases....................... Fuel used for generation: ' Fossil fuel 190,653 146,256 148,681-Nuclear fuel....... 10,126 14,819 -5,335-2,658. l Rwer purchased,.. 296,642 '193,319 178,448 1 Other operations.. 101,611 60,515 57,817 i Maintenance. 144,013-85,735 76,815 ' Depreciation and amorti:ation...... 13,liS Amorti:ation of phase-in revenues. Taxes (see statement): Federal income.... 34,905 '24.516 . 24,632 l State income... 7,095 6,066 6,034 ~ L General...... 100,731 71,492 65.812 l 1.317,079 1,032,557 1,017.765 i Total operating expenses 239,1'69 129,621. 131,990 j Operating Income.... Other Income and Deductions (net of taxes).. 24.186 -3,351 9,012 ' Income Before Interest Charges 263,355 132,972 141,002 - interest Charges: i '117,464 51,267 51,542 i ' long-term debt.. 20,009 10,490 11.022 Other...... Alkwance for borrowed funds used during L construction (credit). (2.002) (1,070) (1,181) l f l Total interest charges '135,471 60,687 61,383' Income Before Cumulatiw Effeet of 127,884 72,285 79,619' l Accounting Change ' Cumulatiw Effect toJanuary 1,1991, of Change in Rewnue Recognition (net of ] 17.360 tues)(Note 1).. 127..SS4 89,645 79,619 Net Income.... Preferredand Preference Dividends. 12.751 6.377 1.744' 115.133 83,268 77,875 l Earnings Applicable to Common Stock.. Average Common Shares Outstanding..... 52,271.932 34,566,170 34,566,170 l Earnings 1kr Awrage Common Share Outstanding Before Cumulatiw Effect ofAccounting Change........ 1.20 1.91 2.25-Cumulatiw Effcct toJanuary 1,1991, of Change in Revenue Recognition Per Share .50 i Estnings 1br Awrage Common Share l- ' Outstanding.... S 2.20 2A1 2.25 Dividends Declared Per Common Share... 1.90 2.04 (2) $ 1.80 l

41) Inf mnation f >r 1992 reflecu rib merger uAh KGEE <m March 31,1992. the 2)

(2) Inchufcs spraal. one-rnne dmdend of $a 18 per share tend Fchruary 28.1991. l The Wes to Omsoldncd Financial Sraremenn are arunregral orr 4this setement j t I l page 23 TESTERN RESOURCES. INC l

E LCONSDLIDATED STATEMENTS OF CAPITALIZATION: Dec$nber 31. 1992 (1) : ~ 991-1 (DalLm m Thousasds) . Common Stock Equity (see statement):

Common stock, par value $5 per share, autlwri

ed

85,000,000 shares, outstanding 58,045,550 and -

134,566,170 shares, respectively.... 4 ~ $ 290,228- - $ 172,831 - Pa id-in capital...................... _...................... 559,636 87,099 - Retained earnings., 398.503_ 382,519 1.248.367 37 % ! 642,449 47 % Cumulative Preferred and Preference Stock (Note 5): Not subject to mandatory redemption, par value $100 per share, authorized 6.600,000 shares, outstanding-4M% Series, 138,576 shares. 13,858 13,858 . 4%% Series, 60,000 shares......... 6.000 6,000 ~ 5% Series,50,000 shares.. 5.000 5.000 24.858 -24,858 Subject to mandatory redemption, without par value. $100 stated value, authorized 4,000,000 shares, outstanding-8.70% Series, 157,000 and 183,000 shares, respectively...... 15,700 18,300 50,000 7.58% Series, 500,000 shares................ ' 8.50% Series, 1,000.000 shares... 100,000 100,000 Less: Preference stock reacquired, 135,000 shares.. 12,967-12,967-Preference stock redeemable within one year 1,300 '1,300, -i 151.433 104,033-176.291 5% 128,891 10 % Long. Term Debt (Note 12): First mortgage bonds. 984.932 455,398 Pollution control bonds 50.8,940 135,500-: Bank term loans..... 230,000 Other pollution control obligations ; 14.205 Revolving credit agreement 150,000 Other tong-term agreement. 46,640 Less: Unamortized debt discount 6.730 1,586; long-term debt due uhin a y.m 1,961 2.733-

,926.026 58 %

586,579 43 % Total Capitalization....... 53,350,6S4 100 % $1,357,919100%- (1) Infsmarum fw 1992 teficas the merger uuh AU&E on March 31,1991 (% c 2) The %:es to Conwidarc.d Fmancial Srarements arc an mregral part of this statenu nr. 3 ) ( f N page 24

CONSOLIDATED STATEMENTS 'OF CASH FLOWS. i 2 Year En3ed December 31, N92 W - '1991 1990' (DdLm in Thousards) Cash Flows Emm Operating Activities: 5 127,8S4 5. 89,645' 5 - 79,619 i Net income.......... Depreciation and amortization........ 152,943 85,735 76,815'- Deferred taxes and investment tax credits (net) -..... 26,900 . 9,319 3,44) - - + Amorti:ation of phase-in revenues.. 13,158 1 d Corporate. owned life insurance........ . (14,704) ' 4 Amorti:ation of gain from sale-leaseback... G,231) Changes in other working capital items: Accounts receivable and unbilled revenues (net)(Note 1).. (12,227). (72,879). . 5,976 14,990 (522) ' (9.322) lbssil fuel............. Gas stored underground.......... 4,522 . (2,340) G,709) (10,194) (3,125) (23,954)-- Accounts p:rvable.. Accrued taxes. (52.185) (14,130) 6,245 (19,433) 11,661' 4,610 - 1 Other. Changes in other assets ard liabihties 21,508 '31,992 8,603 245.931 135,356 144,328' j Net cash flows from operating activities. Cash Flows usedin investing Activities: Merger with KG&E. 473.752 . 18,125' 29.099 Non-utihty investments. Corporate. owned life msurance polices. 20.233 Death proceeds of corporate-owned life insurance policies (6,789) Additions to utihty plant 202,493 125.675 135.001 718.788 143.800 -135.001: Cash ilows used in investing activities.... Cash Flows Emm Financing Activities: 42,825 20,300 (17,600). Short-term debt (net)..... Bank term loan issued for Merger with KG&E 480,000 Bank term k>an retired... (250,000) 427,708 ' 75,0C0 long-term debt issued.. (236,966) (30,233) (3,495) - long-term debt retired Other long-term debt issued.. 107,946 . Other long4erm debt retired. (36.156) Preference stock issued..... 50,000 100,000 i Preferred and preference stock redeemed. '(2,6001 (1,300) (1,300). long term debt issuance expenses..... (10,753) Borrowings against life insurance policies (net) (5,649) Preference stock issuance expenses... = (1,130) Dividends on preferred, preference and common stock.. (99,440)- G6,891) (63.963).. { Net cash flows from (used in) fmancing activities.. 466,915 10.746-(11.356) Increase (Decrease)in Cash and Cash Equivalents. (5.942) 2,302 (2,031) l Cash and Cash Equivalents: 6.817 4.515 6.546_ l Beginning of the period. End of the period 5 875 5 6.817 5 4.515 Supplemental Disclosures of Cash Flow Infonnation Cash PaidFor: - Interest on financing activities (net of amount capitalized). 5 159.54S 5 58,462 5-57,029 l ~ Income taxes. 24,966 40,062 20,528 Components ofMerger with KG&E: l Assets acquired. 5 3,142,455 Liabilities assumed... (2,076,821) Common stock issued. (589.920) Cash paid...... 475.714 I less cash acquired (1.962). .) Net cash paid ~. 5 473.752 (l) Informaram for 1992 reflects the merger m:h KG6'E on March 31,1992. (Lc 2) The Les to ConsoldarcJ Fmancia! Scarements are an mregral part of thu statement. i page 25 TI. STERN RESOURCES. INC l l

p CONSOODATED STATEMENTS OF TAXES - %ar Esfed December 31. 1992 (1) -1991 1990 (D4rs in Housands) IkderalIncome Taxes: r . Payable currently............................. $ 16,687. - $ 18,479 . 5 27,751 l Deferred taxes arising from: Depreciation and other property related items........ 25,163 9,662 L 7,492 : Energy and purchased gas adjustment clauses. (4,180) ' (15,535) . (1,610). Unbilled revenues. 2,458-17,249 (1,894) l Natural gas line survey and replacement program..... (1,106) 1,015 2,880 j Other .4,121 (1,109) - (778)- ll Amortization of investment tax credits.... (4,918) (4.238) (4,198) Total Federal income taxes.... 38,225 25,523 29,643 Federal income taxes applicable to non-operating items... (3,320) (1,007) - (5,011) Total Federal income taxes charged to operations.. 34,905 24,516 24,632 l State Income Taxes: - Payable currently. 2,522 4,033 15,540 Deferred (net)..... 5.352 2,276 1,553 ' Total state income taxes. 7,874 6,309 .7,093 State income taxes applicable to non-operating irems. (779) (243) (1,059) Total state income taxes charged to operations 7.095 6,066 6,034. [ General Taxes: l Property and other taxes... 68,643 40,429 35,565 Franchise taxes.. 19,583 20,576 20,126 Payroll taxes 12,505 10,566 10,197 100,731 71,571 65,888 [ Total general taxes.... General taxes applicable to non-operatmg items.. (79) (76) Total general taxes charged to operations. 100,731 71,492 65,812 r Total Taxes Charged to Operations $142,731 $102,074 5 96.478 i The effective income tax rates set forth below are computed by dividing total Federal and state income taxes by the sum-- of such taxes and net income. The difference between the effective rates and the Federal statutory income tax rates are as follows: ( l Year Ended December 31. 1992 m 1991 1990 I l i Effective Income Tax Rate...... 27.0 % 32.2 % 31.6% Effect of: (5.1) (2.7) (2.8). Additional depreciation... Accelerated amorti:ation of certain deferred taxes.. 7.6 3.9 4.8 - (2.6) -(4.0) (4.0) State income taxes.. Amortization of investment tax credits. 3.4 3.2 3.6 Corporate-owned life insurance...... 2.9 ( Other differences .8 1.4 .8 Statutory FederalIncome Tax Rate.. 34.0 % 34.0 % 34.0%. i (1) Inh,manm kr 1992 rdects the merp ah ME m Manh 31,1992. tNote 2) Thc Notes to Consaldued Fmancul Stateneus are an mtegral part of this statement. i 'page 26

r :.. plU E ECONSOLIDATED STATEMENTS OF' COMMON STOCK EQUITY - COMMON. PAID-IN - RETAINED Year Ended December 31. S'10CK CAPITAL. ' EARNINGS. (Dollars in Thousands) - - Balance December 31,1989, 34,566,170 shares..... $172,831 $ 88,215 5354,123 0 Net income. 79,619 Cash dividends: Preferred and preference stock....... (1.,744) (62,219) ' Common stock, $1.80 per share.... Expenses on preference stock...... 7 G) Bahnce December 31,'1990, 34,566,170 shares. 172,831 L 88,222 369,772. Net income... 89,645 - Cash dividends: . Preferred and preference stock. (6,377) Common stock, $2.040) per share G0,514) Expenses on preference stock. - (1,123) G) ~ Balance December 31,1991, 172,831 87,099 382,519 34,566,170 shares. - Net income... 127,884 Cash dividends: (12,751) Preferred and preference stock. (99,135) Common stock, $1.90 per share. Expenses on preference stock.. 14 .(14) Issuance of 23,479,380 shares of common stock 117,397 472.523 in the Merger with KGStE.. Balance December 31,1992, 5290.228 $559,636. 5398,503 58,045,550 shares (1) includes speaa!. one-ume dntiend of 50.1b per share pad February Zh !991. The Notes to CorwAfa:cd Fmanaal Sumnents are an rmegral;un of this wremem. page 27 WESTERN I<ESOURCES. INC

cNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY

OF SIGNIHCANT cumulative effect of the accounting change prior to January 1,1991, ' v ACCOUNTING POLICIES and a decrease of $1.4 million or 50.04 per share in the 1991 income Generah The consolidated financial statements of Western before cumulative effect of a change in accounting principle.The pro Resources, lnc. (formerly The Kansas Power and Light Company)(the forma net income and earnings per share of common stock for the Company, Western Resources), include the accounts of its whcily. vear ended December 31,1990, assuming the accrual for estimated owned subsidiaries Astra Resources,Inc., Kansas Gas and Electric unbilled revenues was applied retroactively to the period, would have Company (KG&E) since March 31,1992 (see Note 2), and KPL been $75.5 milhon, or $2.13 per share. Unbilled revenues of $663 r Funding Corporation (KFC). KG&E owns 47 percent of the %bif and $61.9 million are recorded as a component of accounts receivable Creek Nuclear Operating Corporation (WCNOC), the operating on the cmsolidated balance sheets as of December 31,1992 and 1991, company for the Wolf Creek Generating Station (Wolf Creek). The respectively. Certain amounts of unbilled revenues have been sold Companf records its proportionate share of all transactions of (see Note 12). . The Company had reserves for doubtful accounts receivable of WCNOC as it does other jointly-owned facilities. All significant intercompany transactions have been eliminated. The accounting $3.3 and $2.0 million at December 31,1992 and 1991, respectively. policies of the Company are in accordance with generally accepted Fuel Costs: The cost of nuclear fuel in process of refinement, accounting principles as applied to regulated public utihties. The conversion, enrichment, and fabrication is recorded as an asset at accounting and rates of the Company are subject to requirements original cost and is amorti:ed to expense based upon the quantity of certain state regulatory commissions and the Federal Energy of heat produced for the generation of electricity. The accumulated Regulatory Commission (FERC). amortization of nuclear fuel in the reactor at December 31,1992, u as Utilirr Plant: Utility plant is stated at cost. Fur constructed plant, $26 million. l cost includes contracted services, direct labor ard materials, indirect Cash Surrender Value of Life insurance Contracts: The folkw-charges for engineering, supervision, general and administrative costs, ing amounts related to corporate-owned hfe insurance contracts, and an allowance for funds used during construct on (AFUDC). The priman!v uith one highly rated major insurance company, are AFUDC rate was 5.99% in 1992,6.25% in 1991, and 8.25% in 1990. recorded on the consolidated balance sheet (millions of dollars): 1902 The cost of additions to utihty plant and replacement units of prop-erty is capitalized. Maintenance costs and r eplacement of minor items Cash surrender value of contracts.. $256.3 (1016) of property are charged to expense as incurred. When units of Borrowings against contracts. depreciable property are retired, they are removed from the plant Net. $146.7. accounts and the original cost plus removal charges less sah age are charged to accumulated depreciation. Interest expense included in other income and deductions, net Depreciation: Depreciation is pnwided on the straight-line methcd of taxes, related to KG&E's corporate-owned life insurance (net) based on estimated useful lives of property. Composite pnwisions for for the nme months ended December 31,1992, was $ 5.3 million. book depreciation approximated 3.03% during 1992,334% during The Company is proposing, to the regulatory commissions, to defer ' t 1991, and 3.32% during 1990 of the average original cost of and offset Statement of Financial Accounting Standards No.106 t depreciable property. (SFAS 106) expenses with a portion of the net income stream Cash and Cash Equivalentst Fur purposes of the Consolidated generated by corporate owned life insurance policies purchased Statements of Cash Flows, cash and cash equivalents include cash in 1992 by the Company and KG&E (see Note 8). Management on hand and highly liquid collaterali:ed debt instruments purchased expects to reali:e increases in cash surrender value of contracts with maturities of three months or less. resulting from premiums and investment earnings on a tax Income hes: Income tax expense includes provisions for free basis upon receipt of net proceeds frort. death benefits under income taxes currently payable and deferred income taxes calculated the contracts. in conformance with income tax laws, regulatory orders, and State. Reclassifications: Certain amounts in prior years have been ment of Financial Accounting Standards No.109 (SFAS 109) reclassified to conform with classifications used in the cunent (see Note 6). year presentation. Investment tax credits are deferred as realized and amorti:ed to income over the life of the property which gave rise to the credits. h ACOU 1 SIT 10N ANDMERGER Retenues: Effective January 1,1991, the Company changed its On March 31,1992, tne Company, through its wholly-owned method of accounting for recogni:ing electric ard natural gas subsidiary KCA Corporation (KCA), acquired all of the outstand-revenues to provide for the accrual of estimated unbi!!ed revenues. ing common and preferred stock of Kansas Gas and Electnc 3e accounting change provd.es a better matching ofrevenues with Company for $454 million in cash and 23,479,380 shares of com-costs of servic es provded to custorners and also serves to conform the mon stock (the Merger). The Company also paid $20 million in Company s accountmg treatment of unbilled revenues with the tax costs to complete the Merger. Simultaneously KCA and Kansas treatment ofsuch revenues. Unbilled revenues represent ihe estimated Gas and Electric Company merged and adopted the name cfKansas amount customers will be billed for service provided from the time Gas and Electric Company (KG&E). The Merger was accounted meters werelast read tothe end of the accounting period Meters are for as a purchase. For income tax purposes the tax basis of the KG&E - read and services are billed on a cycle basis and, prior to the assets was not changed by the Merger. accounting change, revenues were recogni:ed in the accounting As the Compony acquired 100 percent of the common and period durine which services were billed. preferred stock of KG&E, the Company recorded an acquisition He after-tax effect of the change in accounting method for the premium of $490 million on the consolidated balance sheet for the year ended December 31, 1991, is an increase in net incorne of difference in purchase price and book value. This acquisition $15.9 million or 50.46 per share. This increase is a cornbination of premium and relat ed income tax requirement of $306 million under an increase of $17.3 nillion or 50.50 per share, artnbutable to the SFAS 109 have been classified as plant acquisition adjustment in page 28

electric plant in service on the consolidated balance sheet. The total -On July 14,1992, the Company issued $125 millice of First cost of the acquisition was $1.066 billion. Under the provisions of Mortgage Bonds,71/4% Series due July 1,1999, and $125 milhon orders of the Kansas Corporation Commission (KCC) and the of First Mortgage Bonds,81/2% Series due July 1,2022 The net Missouri Public Service Commission (MPSC), the acquisition proceeds from the new issues were applied toward the redemption n premium is recceded as an acquisttion adjustment and not alk>cated of $250 million of the First Mortgage Bonds,7.46% Demand to the other assets and liabilities of KG&E, As the merger with Series, held by KFC and KFC repaid $250 million of the bank KG&E occurred on March 31,1992, the balance sheet accounts of term loan (see Note 12). the Company at December 31,1992, include the accounts of KG&E and are not directly comparable to the balances presented at g COMMITMENTS AND CONTINGENCIES December 31,1991. In the November 1991 KCC order approving the Merger, a As part ofits ongoing operations and construction program, the mechanism was approved to share equally betwen the shareholders Company has commitments under purchase orders and contracts and ratepayers the cost savings generated by the Merger in excess of which have an unexpended balance of approximately $110 million the revenue requirement needed to alkw recovery of the amorti:a-at December 31,1992. Approximately $46 million is attributable tion of a portion of the acquisition adjustment, inchiding income tax, to modifications to upgrade the three turbines at Jeffrey Energy calculated on the basis of a purchase price of KG&E's common stock Center to be completed by December 31, 1998. Plans for at $29.50 per share. The order provides an amorti:ation period for future construction to existing utility plant are discussed in the the acquisition adjustment of 40 years commencing in August 1995, " Management's Discussion and Analysis" section. at which time the full amount t fcost savings is expected tohave been The Environmental Protection Agency (EPA) has associated the implemented. Merger savings will be measured by application of an Company with, and performed preliminary assessments at, eleven inflation index to certain pre-merger operating and maintenance costs former manufactured gas sites which may contain coal tar and other at the time of the next Kansas rate case. While the Company alleged potentially harmful materials. Six of these sites are currently anncipates substantial savings from the Merger, there is no assurance under site investigation and one site is being investigated by the that the cost savings shadng mechanism will be adequate to offset Kansas Department of Health and Environment (KDHE). The the amortization of the acquisition adjustment. The order further Company has not received any indication from the EPA that fur-provides a moratorium on increases, with certain exceptions, in the ther action or investigation will be taken on these sites. The Company's Kansas electric and natural gas rates until August 1995. Company does not anticipate any fines or penalties related to any l The KCC ordered refunds totalling $32 million to the combined corn-of these eleven sites. The Company and KDHE have announced panies' customers in order to share the Merger-related cost savings that they have entered into a consent agreement to perform achieved during the moratorium period with customers. The first preliminary assessments of 20 former manufactured gas sites, some - refund was made in April 1992 and amounted to $S.5 million. A of which are being investigated by the EPA as discussed previously. refund of the same amount will be made in 1993 and an additional At this time, it is not known to what degree these sites have refund of $15 million will be made in 1994. The KCC order approv-environmental contamination. Until such time that the ing the Merger requires the legal reorgani:at ton of KG&E so that it assessments are completed, the Company will be unable to estimate is no longer held as a separate subsidiary afterJanuary 1,1995, unless the accurate cost to remediate these sites. However, in the opinion good cause is shun wiri such separate existence should be main-of the Company's management, any expense related to the remedia-tained. The Secunties and Exchange Commission order relating to tion of these sites will not have a material effect on the Company's the Merger granted the Company an exemption under the Public financial position or results of operations. Utiht es Holding Company Act until January 1,1995. The Company has been ident ified as one of numerous potentially As the Merger did not occur until March 31,1992, the 12-month responsible partles in three hazardous waste sites listed by the EPA results of operations for the Company reported in its statements of as Superfund sites. One site is a groundwater contamination site income, cash flows, and common stock equity reflect KG&E's results in Wichita, Kansas. The other two sites are old solid waste land-of operations for only the nine months ended December 31,1992. fills located in Edwardsville and Hutchinson, Kansas. The The pro forma combined revenues, operating income, net income, Company's obligation at these sites appears to be limited, and it and earnings per common share of the Company presented beim give is the opinion of the Company's management that the resolution effect to the Merger as if it had occurred at January 1,1990. This pro of these matters will not have a material impact on the financial forma information is not necessarily indicarive of the results of opera-position of the Company or results of operations. tions : hat would have occurred had the Merger been consummated SpentNuclearFue1 Disposal: Under the Nuclear Waste Policy for the period for which it is being given effect nor is it necessarily Act of 1982, the U.S. Department of Energy (DOE)is responsible indicative of future operating resuhs. for the ultimate storage and disposal of spent nuclear fuel removed from nuclear reactors. Under a contract with the DOE for disposal Year Ended December 31, 1992 1991 1990 of spent nuclear fuel, the Company pays a quarterly fee to DOE of (5h0005 cuer per share anurunn) one mill per kilowarthour on net nuclear generation. These fees Revenues.. .51.6S4,885 51,748,S44 51,728,094 are included as part of nuclear fuel expense. Operating income. 268,772 279,458 295,030 Decommissioning: The Company's share of Wolf Creek decom-Net income. 131,524 110.290 (1) 128,206 missioning costs is currently estimated to be approximately Earnings Per Common Share. $2.03 51.72 (1) 52.11 $97 million m 1988 dollars. Decommissioning costs are being (1) RefIccr5 informamm befse the cumularmc effect of the Janwan I,1991. cliarged to operating expenses. Electric rates charged to customers change m acmunting method of recogagmg verem.cs. provide for recovery of these decommissioning costs over the To finance the Merger, the Company issued $370 million of First life of Wolf Creek. Amounts so collected from customers are Mortgage Bonds,7.46% Demand Series, to KFC, a wholly <>wned deposited in an external trust fund and will be used solely for subsidiary. These first mortgage bonds along with the common the physical decommissioning of the plant. At December 31,1992, stock of KG&E held by the Company were pledged to secure 59.3 rnillion was on deposit in the decommissioning fund. A new 5480 million in bank term loans of which 5370 million was study is expected to be completed in 1993 which may result borrowed by KFC. in increased decommissioning cost estimates. Management page 29 WT5 TERN RESOURCES. INC.

expects such increases to be reccwered through the rate-financial position and results of operations. Additional income tax maling process. payments, if any, are expected to be offset by investment tax credit The Company canies $164 million in premature decommission-carryforwards, alternative minimum tax credit carryforwards, or ing insurance in the esrnt of a shortfall in the trust fund. deferred tax provisions. The insuranc e coverage has several restrict ions. One of these is that Fuel Commitments: To supply a portion of the fuel requirements it can only be used if Wolf Creek incurs an accident exceedmg for its generating plants, the Company has entered into various $500 million in expenses to safely stabili:e the reactor, to decon-commirments to obtain nuclear fuel, coal, and natural gas. Some of taminate the reactor and reactor station site in accordance with a plan these contracts contain provisions for price escalarbn and mmimum approved by the Nudear Energy Regulatory Commission (NRC), and purchase commitments. At December 31,1992 WCNOC's nudear to pay for on-site property damages. If the amount designated as fuel ccmmitments (Company's share) were approximately decommissioning insurance is needed to implement the NRC- $22.4 million 6w uranium concentrates through 1995 and in 1997, approved plan for stabili:ation and decontamination, it would not be 5137.2 million for enrichment thmugh 1995 and in 2014, and available for decommissioning purposes. 550.4 million for fabrication through 2014. At December 31,1992, Nuclear 1nsurancerThe Price-Anderson Act limits the combined the Company's coal and natural gas contract commitments in 1992 public liability of the on ners of nudear power plants to 57.8 billion dollars under the remaining term of the contracts are $2.9 bilhon and far a sincie nuclear incident. The Wolf Cteek owners (Owners) have 527.2 million. respectively The largest coal contract expires in 2013 purchased the maximum available private insurance of $200 millko with the remaining coal contracts expiring in 1993. The majority and the balance is provided by an assessment plan mandated by the of natural gas contracts continue through 1995 with automatic one-NRC. Under this plan, the Owners are jointly and severally subject year extension pnwisions. During 1993, additional commitments will to a retrospectP e assessment of up to $66:2 million ($ 31.1 million, be made to assure adequate fuel supplies. Company's slure)in the event there is a nudear mcident involving any of the nation's licensed reactors. This assessment is subject to an

1. h inflation adjustment based on the Consurner Price Index. There is U RATE 3fATTERS AND REGULATION a limitation of 510 milhon ($4.7 milhon, Company's share) in The Company, under rate orders from certain state regulatory retrospective assessments per incident per vear.

commissions and the FERC, recovers increases in fuel and natural The Owms carry decontamination liabdit y, prenuture decommis-cas costs through fuel adjustment clauses for wholesale and certain - sioning habihty, and pnverty damage insurance for Wolf Creek retail electric customers and varkus purdiased gas adjustment dmses totalling approximately $2.6 bdlion. This insurance is provided by (PGA) s e gas customers. Certain state regulatory commissions require a combination of " nuclear insurance pools" and Nudear Electric the annual difference between actual gas cost incurred and cost-Insurance Limited (NEIL). The Owners also carry additional recmered thmugh the application of the PGA be deferred and insurance with NEIL to caer costs of replacement pmver and amorti:ed through rates in subequent periods, other extra expenses incurred during a prolonned outage resulting Elimination o/the Energy Cost Adjustment Clause (ECAh On from accidental property damage at Wolf Creek. If losses incurred hiarch 26,1992, in connectk n with the hierger, the KCC appnn ed at any of the nuclear plants insured under the NEll policies the eliminatian of the ECA for most Kansas terail customers of both exceed premiums, reserves, and other NElL resources, the Canpany the Gunpany and KG&E effectn'e April 1,1992. The provisions may be subject to retrospective assessments of approxmutely for fuel costs included in base rates were established at a level intended $S million per year. by the KCC to equal the projected average cost of fuel through There can be no assurance that all potential losses or liabiht ies will August 1995 and to include recovery of costs provided by previously be insurable or t hat the amount ofinsurance wdl be sufficient to cover issued orders relating to coal contract settlements. them. Any suhtantiallosses not covered by insurance could have a A fPSCRare Pmceedings: On February 5,1993, the Company fded material adverse effect on the Comparw's financial conditk>n and an application with the h1PSC requesting an increase in natural gas results of operations. rates of $20.8 million or seven percent. The proposed increase, if Clean Air Act: The Clean Att Act Amendments of 1990 (the Act) appmved by the hiPSC. will take effect by January 1994. require a two-phase reduction in sulfur dioxide emissions effective On January 22,1992, the hiPSC issued an order aut hori:ing the in 1995 and 2000 and a reduction in mtrous oxide and toxic emie Company to increase natural gas rates 57.3 million annually. On sions effective in 20001 To meet Phase 1 of the Act requirement s, t he February 5,1992, t he Company filed an applicarion for the issuance Company wdl install cont inuous emission monitormg and uport mg of an accounting order to defer service line nylacement program costs equipment at all generating facdities. Unhke many coal-burmng incun ed since July 1,1991, including depreciat bn expenses, property ut dines, additional equipment to reduce sulfur emissions w dl not be taxes, and carrving costs for recovery in the next general rate case. necessarv. The mirous oxide and toxic limits, which were not set The hiPSC subsequently issued an accounting order allowing the in the law (but are a part of Phase 11), will be specified in future deferral of service line nylacement program costs. At December 31, EPA regulations. While difficult to predict, the Company antici-1992, approximately 53.1 million of these deferrals have been induded pares capital expenditures wdl not be matenal to the Company's in other deferred charges on the consolidated balance sheet. fmancial position. On April 27,1990, the hiPSC approved an agreement among the Federallncome Taxes: During 1991. the Internal Revenue Service Company, the hiPSC staff, and interrenors to increase natural gas (IRS) completed an examination of KG&E's federal income tax rates $18.5 milhon annually, effective hiay 1,1990. The Company returns for the years 1984 through 1958. In April 1992, KG&E discontinued the deferral of accelerated line surveys and carrymg received the examination report and upon review ided a wntren charges on plant investment in new service lines on April 30,1990, pmtest in August 1992.The most significant adjustments proposed and began amorti:ing the balance to expense over a three-year period by the IRS reduce the depreciable basis of certain assets and which began hiay 1,1990. investment tax credits generated hianagement belietes there are KCC Rare Proceedingsr On December 30, 1991, the KCC significant questions regarding the theory, computanons, and samp-approved a permanent rate increase of 539 million annually and ihe ling redmiques used by the IRS to arrive at its pmposed adjustments, Company discontinued ihe deferral of accelerated line surveys on and also believes any additional tax expense incurred or loss of January 1,1992. Approximately S13.6 milhon of these deferrals remain investment tax credits will not be material to the Company's in other deferred diarces on the consolidated balance sheet at Ime 3 0

December 31,1992, with the balance being amortized to expense further hahhty for take or-pay settlement costs incurred ty its pipeline during a 43-nunth period, commencing January 1,1992. stopliers. The Genpany believes it will be able to recover costs billed On January 24. 1992, the KCC issued an order ahvmg the from its supphers through recovery mechanisms appnwed by ns state Company to continue the deferral of service line replacement pro-regulatory commissions. gram costs incurred since January 1,1992, including depreciation, pnperty taxes, and carrying costs for recovery in the next general rate case. At December 31,1992, appnaimately $784,000 of these g CUMULATIVEPREERRED AND deferrals have been included in otha deferred charges on the v PREFERENCES 7DCK consolidated balance sheet. Not subject to mandatory redemption: ~Ile cumulative preferred Gas Transportation Charges: On September 12,1991, the KCC stock is redeemable in whole or in part on 30 to 60 days not ice at the authorized the Company to begin recovering increased suirlier gas (ption of the Company. trarisportation rates, charged Western Remurco by Panhandle and Subject to mandatorr redemption: The mandatory sinking fund Trunkline Gas Company, in the PGA. The KCC also authori:ed prcuisk>ns of the 8.70% Series preference stock require the Company recowry of deferred costs of $9,9 millbn through December 31,1990, to redeem 13,000 shares annually on October 1, at par value. The based on a three-year amorti ation schedule. On December 30,1991. Company may, at its option, redeem up to an additional 11000 shares the KCC authori:ed t he Company to recover deferred transpirtatain on each Oct >ber 1, at par value. The S.70% Series also is redeemable costs of approximately $2.8 million mcurred subsequent to m wholc or in part, at the option of the Company, subicct to certain December 31,1990, through the PGA mer a 32-month peri d. The restrictions on refunding, at a redemption price of $103.99, $103.63, Company dncontinued the deferral of these costs on January 1,1992. and $103.26 per share after October 1,1992,1993., and 1994, respec-At December 31,1992, a;puaimately $S.6 nullion of these deferrals ovely. The Company held 135,000 shares in treasury stock at renuin m at her deferred charces on the consohdated balance sheet. December 31,1992, which may not be used for stock redemptions Tight Sands: In December 1991, the KCC, MPSC, and Oklahorna under mandatory or optional smking fund pumsions. Corporation Commission (OCC) appmved agreements authori:ing The mandatory sinking fund provisions of the 8.50% Series the Company to refunJ to customers approximately $40 million of preference stock require the Company to redeem 50,000 shares ihe proceeds of the Tight Sands anti-trust litication settlement to be annually beginning on July 1,1997, at $100 per share. The Company collec ted on behalf (4 Western Resources' natural gas customers. L may, at its option, redeem up to an additional 50,000 shares secure the refund of settlement proceeds, the Commissions author-on each July 1, at $1m per share. The 8.50% Series al,o is redeeny i:ed the establishment of an independently administered trust to col-able in whole or in part, at the option (ithe Canpany, subject to lect and maintain cash receipts received under Tight Sands settle-certain restrictions on refundme, at a redemption price of $107.93, ment agreements and proviJe for the refunds made. The rust has a $107.37, and $106.80 per share beginning July 1,1992,1993,and term ti 10 years. 1994, respectively. Rare Stabilization Plan: In 1988, t he KCC issued an order requir-The mandatory sinking fund provisions of the 7.5S% Series inn that the accrual of phase-in revenues be discontinued by KG&E preference stock require the Company to redeem 25,000 shares effect ve Decunber 31,1988. Etiective January 1,1989 KG&E began annually beginning on April 1,2002 and each April 1 t hrough 2006 amorn:mg the phase-in revenue asset on a straight-line basis over and the remainme shares on Aptd h 2007,all at $100 per share.The 9h years. Company mav, at its option, redeem up to an additional 25D00 shares Coal Contract Settlements: In March 1900, the KCC issued an on each April 1 at $100 per share. The 7.58% Series also is redeem-order allowing KG&E to defer its share of a 1989 coal contract able in whole or in part, at the option of the Company, subject to settlement with the Patsburg and Midway Coal Mming Company certain restrictions on refundmg, at a redemption price ot $107.58, amounting to $22.5 milhon. This amount is recorded as a deferred 5106.82, and $106.06 per share beginning April 1,1992,1993,and charge on the consolidated balance sheet. The settlement resuhed 1994, renpectively. in the termmation of a long-term coal contract. In June 1991, the KCC rermit teJ KG&E ro tecover this settlement as fullows: 76 per-O cent of the settlement plus a return through its ECA over the remain-U INCOME TAXES ing term of the terminated contract (thmugh 2002) and 24 perc ent to The Company adopted the provisions of SEAS 109 in the fust be amortced to expense with a deferred return equivalent to the quarter of 1992. KG&E adopted the provisions of SFAS 96 in 1987 carrying cost of the asser. and SFAS 109 in 1992. These statements require the Company to in February 1991, KG&E paid SS.5 mdhon to settle a coal contract e tablish deferred tax asset s and liahhties, as appropriate, for all tem-lawsuit with AMAX Coal Company and recorded the rayment as parary ddierences, and to adjust deferred tax balances to reflect a deferred charge on the consolidated balance sheet. In July 1991, changes in tax rates expected to be m effect during the periods the the KCC approved the recovery of the settlement plus a return, temporary diferences rwerse. equivalent to the carryme cost of the asset, through the ECA over in accordance with various rate orders received from the KCC, the remamine term of the terminateJ contract (through 1996). M PSC, and OCC, t he Company has not yet collected through rates FERC Onfer No. 528: In 1990, the FERC issued Order Nu 528 the amounts necessary to pay a significant portion of the net deferred which authorized new methods for the allocar un and recovery of take-income tax liabihties. As management believes it is probable that the or-pay settlement costs by natural gas prehnes from iben customers. net future increases in income taxes payable will be recovered from A settlement was reached between one of the Company's cas pipelines customers through futute rates, it has recorded net deferred future and its customers concerning the amount and allocation of take-or-income taxes for the p >rtions of the net deferred income tax habilities pay settlement costs to be recovered from its customers. Approval not yet collected through rates. These assets are also a temporary of a settlement with another of Western Resources' natural gas diference for which deferred income tax habihties have been provided. pipelines is currently rendmg before the FERC. Negotianon and Accordmgly. the adoption of SFAS 109 did not have a matenal impact litigation continues between Western Resources and other sup-on the Companyi results of operations. phers concerning the amount of such costs to be allocated to Western At December 31,1992, the Company had unused investment tax Resources. Due to the present uncertainty of the outcome of the credits of approximately $14.5 milhon available for carryforward to litigation and negotiations, the Company is unable to estimate anv future years which, if not utilized, will expire in the years 2000 f> age 31 M STERN Ef 50UECES INC i I

TN through 2002. hi addirion, the Company has alternative minimen. VJ EMPLOYEE BENEFITPLANS.. tax credits generated pior to April 1,1992, which carryforward Pensiont The Company maintains noncontributory defmed- ?without expiratkn. of539.9 millim which may be used to offset future benefitpensionplanscoveringsubstantiallyallemployees. Pension - regular tax to the extent the regular tax exceeds the alternative - benefits are based on years'of service and the employee's compen.; minimum tax. These credits have been applied in determining the . sation during the five highest paid consecutive years out of ten Company's net deferred income tax liability and corresponding before retirement. The Company's policy is'to fund pension -- deferred future income taxes at December 31,1992;

costs ' accrued, subject to limitations set by the EmployeeJ L Deferred income taxes result from temporary differences between -

Retitement income SecurityLAct of 1974 and'the Internali the financial statemmt and tax basis of the Company's assets and Revenue Code, liabilit les. The sources of these differences and their cumulative tax The following tables provide information on the components effects are as folkws: of pension cost, funded status, and actuarial assumptions for the ; 1 1992 Company's pension plans: Dents Credits Total Year Ended December 31,($1000s) - 1992 1991- '1990 04ms m Tbms) Pension Cost:.

Sources'of Deferred Service cost

...c. a........... S' 9,647.5 6,589. 5 6 345 ? income Taxes: Interest cost on projected.

t Accelerated depreciatim.

5 (627,2SS) $ (627,2SS) benefit obligaton c......... f 29,457 L - 20,9S5 L ISJ29 Disallocance of plant costs... 5 26,916 26,916 Retum on plan assets.... ~ (38,967) : (59,161) ;; (3,619); 1: Accelerated amorti:ation....- (37,564) -(37,564) Deferred gain (loss)on plan assets.... 7J05 38,0151(15J21); the-in rewnues. Net amorti:ation.. '... (948) - - (131) <242' (9,127) (9,127) Deferred gain on sale-Net pension cost. .c 5 ' 7h94 5 6,297 5 5.776) j leaseback. 104,573 104,573 Altemative minimum December 31,($1D00s) 1992 -1991 1990 tax credits. 39,852 39,882 Funded Status: i Deferred coal cmtract Actuarial present value settlements. (9.263) (9,263) of benefit obligatiom: Acquisition premium. (313J21) (313J21) Eted............. 5316.100 5200,435 5183,262 19331. 13,935 ~ 12.790 Deferred compensaton.. 7,693 7,693 Non-vested. ' Pension liability. 3,309 3,309 Total.. .. 5335.431 5214,370 5196.052 : la Cygne operating lease. 2,255 2,255 Deferred future income taxes 219.001 (522,6S7) (303,6S6) Plan assets (principally debt and. t 24,962 (12309) 12,653 equity secmities) at fair value... ., 5452372.5324.7B0 $274,622 Other. ' Total Deferred Income Taxes $428,591 5(1,531,959) $(1,103,36S) Projected benefit obligatkm.. ' 424.232 282.062 -262.831 j Pian assets in excess of projected . :28,140 : 42J18 Ilj91 ' i benefit obligation ' 1991 Unrecogni:ed transition asset.. m., e : (3.092) 1(1,253). (1,370) l Debts cuats Total Unrecogni:ed prior service costs L..., 55,SS6 27,216 - 29,321* Damsin hed) Unrecogni:ed net gam..... (106.4S6) (69,494) - (40.19S) Sources of Deferred Accrued pension costs.... 5(25352)5 (813) 5 ' (456) income Taxes: . Year Ended December 31 1992 1991 - 1990 Accelerated depreciation. 5 (269,942) 5 (269,942) Other. 5 29.485 (11,563) 17,922 Actuarial Assumptions: , B2%. 8f%i i l Ncmnt rate.. m.a 82-8.5% Total Deferred Income Taxes 5 29,485 5 (281,505) 5 (252,020) Annual salary increase rate......,

62% 62%.. 6.0% -

5 ' Inng-term rate of rctum '........... - 826.5% 8.0% ,8D% CD LEGAL PROCEEDINGS ' r ""c~c"' '"' ""* 'r s'? c" " ' '" ) """ 1992 the Board of Directors approved early retirement plans and. The Company was named as a defendant in lawsuits arising out voluntary separation programs. The voluntary early retirement plans of an explosion which occurred in the River Market area of Kansas wre offered to all vested participants in the Company's defined pen-e City, Missouri, in July 1990. In December 1992, the litigation was sion plan who reached the age of 55 with 10er more years (Iservice settled. The resolution of this litigation did not have a material on or before May 1,1992. Certain pension plan improvements were 'l adverse impact on the Company's financial position or results made, including a waiver of the actuarial reduction factors for early - ofoperations. ' retirement and a cash incentive payable as a monthly supplement upi In 198S, KG&E was named as a third party defendant in a suit to 60 months or as a lump sum payment. Of the738 employees eligi-against Kansas Gas Supply brought by Chevron USA in 1987. In ble for the early retirement option,531, representing ten percent of 3 January 1993, all claims against KG&E were resolved and the suit the combined Company % work force, elected to retire on or before L was dismissed. The cost of the settlement was adequately provided the May 1,1992, deadline. Seventy.one of those electing to retire } for prior to the Merger. were employees of KG&E acquired March 31,1992 (see Note 2). 1The Company and its subsidiaries are involved in various other Another 67 employees, with 10 or more years of se-vice, elected to - legal and environmental proceedings. Management believes that participate in the voluntary separation program. Of those,29 were. adequate provision hasbeen made within the consolidated finan-empkwees of KG&E. In addition,68 employees received Mergere cial statements for these matters and accordingly believes their related severance benefits, including 61 emphryces of KG&E. The ' ultimate dispositions will not have a material adverse effect upon actuarial cost, based on plan provisions for early retirement and volun- - I the business or financial position of the Company. tary separation programs, and Merger-related severance benefits for. i page 32 '

'the KG&E employees, was censidered in purchase accounting for the fixed-rate Debt-Mercer. The actuarial cost of the koner Kansas her and Light Com-The fair value of the fixed < ate debt is based on the sum of the 1, pany employees,ofapproximately $11 million, was expensed in 1992. estimated value of each issue, taking into consideration the Ibtretiremener The Company prcuides heahh care and life coupc n rate, maturity, and redemption prcwisions of each issue. insurance benefits to its retired employees. The Company's policy Redeemable Preference Stocle-has been to recognize expenses as claims are pail The cost of retiree The fair value of the redeemable preference stock is based on the heahh care and hfe insurance benefits is recognized as expense when sum of the estimated value of each issue, taking into considera-claims and premiums for life insurance policies are paid. The cost tim the ccxem, maturity, and redem; tion provisims tfeach issue. of prcwiding health care and the hfe insurance benefits (ca 5,138 The estimated fair values of the Company's financial instruments are mployees was $19.3 millian in 1992, while the cost ofprxiding those as folkws: e benefit 3 to 2,928 retirees was 58.1 million. The cost of pnwiding December 31.1992 h ahh care and life insurance benefits for retired ard active employees Canong Fa:t totalled $23.0 and 520.4 million kr 1991 and 1990, respectively. The wlue %!ue cost ofprmiding benefits fcr 1,911, and 1,SS6 retirees is not separable (D4an in n> mans) from the cost of prcuiding benefits for the 4,474 and 4,614 active Cash and cash equivalents.... S 875 5 875 t emphyees in 1991 and 1990, respectively. Decommissioning trust. 9,272 9,500 In December 1990 the Financial Accounting Standards Board %nable-rate debt. 758,449 758,449-(FASB) issued SFAS 106. The Company plans to implement SFAS 106 Fixed rate debt 1,508,077 1,563,375 for its fiscal year endiag December 31,1993. SFAS 106 will require Redeemable preference stock. 152J33 161,733 accrual of postretirement benefits other than pensions, primarily medical benefits costs, during the yean, an emplcgve provides services' h 101NTOWNERSHIPOF UTILITY PLANTS Management believes, based on discussions with its consuhing actuaries, that the annual expense under SFAS 106 commencing after Compann Ownership at December 31,1992 - adoption will be approximately $28 million and the Company's total In.Semcc Accumulated Net obligation will be approximately SISO millim. These ccus historically Dates hwestment Derreciation (Mo Percent have been alkwed in rates when paid. To mitigate the impact of (Dam m Thaiamis) SFAS 106 expenses, the Company has implemented programs to 1.a Cvgne 1 (a) Jun 1973 5 130,282 5 86,576 342-50 reduce health care costs and has filed applicat ions with its three state Jeffrey 1 (b) Jul 1978 274,123 129,930 569 S4 regulatory commissions for orders permitting the initial deferral of Jeffrey 2 (b) May 1930 272,415 90J61 565 S4. 3S6,41 105,659 565 B4 SFAS 106 expense and its indusion in the computation of cost of Jedrey 3 (b) May 1983 1.355,6 n,4 service net of an income stream generated from corporatewned if Creek (c) Sep 19:o 247,227 532 44 hie insurance. Hcurver, if the state regulatory commissions were to Wl*ub wned with Kamas Cny Pwer & Light Comtony GCCPI) Mainth wned wah UtiliCorp United Inc. and a thnd funy recognize postretirement benefit costs under a different method, (c)Jumth wned mth KCPL and Lamas Electric Pwer Cwpemure, inc. earnings could be impacted negatively. Ibstemployment: The FASB has issued a new statement SFAS 112,' Amounts and capacity represent the Company's share. The uhich establishes accounting and reporting standards for post. Company's share of operating expenses of the plants in service empk ment benefits.The new statement will require the Company above, as well as such expenses for a 50 percent undidded interest in 5 to recognize the liabihty to provide postempkiyment benefits when La Cygne 2 (representing 335 MW capacity) sold and leased back the liability has been incurred. The Company is required to adopt to the Company m 1987, are mcluded in operating expenses in the SFAS 112 no later than January 1,1994. Although the effect of ador, statements f inccee. The Cmnpany's share of other transactions associ ted with the plants is mcluded in the appropriate classifica-t son has not been determined, the Canpany does not expect adcprion tim in the Company s cmsolidated financial statements. to have a material effect on results of operations. Savings: The Company maintains savings plans in which substan-tially all empkwees participate. The Company matches empkiyees' LEASES contributions up to specified maximum limits. The furds of the plans At December 31,1992, the Company had leases covering various are deposited with a trustee and invested at each empkwee s option property and equipment. Certain lease agreements meet the in one or more investment funds, mcluding a Company stock fund. criteria, as set forth in Statement of Financial Accounting i The Company 5 contributions were 55A,53.3, and 52.8 million for Standards No.13, for classification as capitalleases. 1992,1991, and 1990, respectively. Rental payments for capital and operating leases and estimated rental commitments are as follows: h Capital 0;wrating V E4IR U4LUEOFTINANCIALINSTRUMENTS Year hane December 3L 61.000s) Leases Leases f The folkwing methods and assumptions were used to estimate the 1990 5 803 5 17,743-fair value of each class of financial instruments for which it is 1991 1,217 21,501 practicable to estimate that value as set forth in Statement ofFinancial 1992 2.426 52,701 I Accounting Standards No.107: Future commitments: Cash and Cash Fauivalents-1993 5 4.002 5 47,273 The carrying amount approximates the fair value because of 1994 4,002 45,024 1 the short-term maturity of those investments. 1995 3,783 43,113 Decommissioning Trust-1996 3,627 40,956 The fair value of the Decommissiomne Trust isbased on quoted 1997 1,511 40,368 Thereafter 811,263 market prices at December 31,1992. %riable-rate Debr-Total 16,925 51,027,997 The carrying amount approximates the fair value because of the less interest 2.528 short-term variable-rates of those debt instruments. Net (bligation 5 14.397 page 33 wESTLRN RESOURCES, INC

p lin 1987, KG&E sold and lea.,ed back its 50 pertent undivided i Long-term debt outstanding at December 31, was as follows-b - interest in la Cygne 2 The leai.e has an initial term of 29 years, with

various options. to renewithe lease or_ repurchase the 1992'

.1991 50 percent undivided interest. The Company remains respmsible for - IMamT M 4' its share of operation and maintenance costs and other related LEtem Resourres . operating costs of La Cygne 2. The lease is an operating lease Er Fi t i, t md series A r unde t e lease agreement, KG&E, in 1992, y.35 % due 1998... 75,000 75,000- " ""^ I ~ requested the Trustee lessor to refinance $341.1 million of secured. y facility bonds of the Trustee and owner of12 Cmne 2. The transac' S 3/4% due 2000..' ' '[ [ $. l [..' 000 20,000 ; 20,000 . ion us requested to reduce recurring future net le.ase expense. In 8 7/S% due 2000.,,.... 75,000 75,000 - connection with the refinancing on September 29,1992, a one' 714% due 2002. 100,000

time payment of appnwimately $27 million was made by KG&E S 5/S% due 2005.

35,000 35,000 which has been deferred and is being amorti:ed over the remaining S 5!8% due 2006..-.

- -. s45,000 . life of the lease and included in operating expense as part d the future S 1/8% due 2007. lease expense. S 3/4 % due 2008,.... '30,000 J30,000 ' 35,000 ' 35,000 Future minimum annuallease payments, included in the preceding 8 5/8% due 2017 a., . 50,000. 50,000' table, required under the lease agreement are approximately S il2% due 2022... 125.000 - $34.6 milhon kr each year through 1997 and $749.6 million over the remainder of the lease. 6S9,000 '444.000 ' The gain of approximately $322 million reali:ed at the date ofthe I"Uuti"" (**I bond seriew 3 3 sale has been deferred kr financial reporting purposes, and is lying { "f amortced over the mittal lease term in proportim to the related lease 95/S% due 2013. 58,500 : 58,500 - expense. KG&E e lease expense, net of amorti:ation of the deferred gain and the one-time pavment, was appnwimately $20.6 million for 135.000 : 135.500 the nine months ended December 31,1992^ KG&E First mortgage hnd series: 5 5/8% due 1996.. 16.000 LONG-TERM DEBT 0I'0% 0"'IO0I 33 ~ 7 3!S% due 2002.. .5'000

• * '~^

,000 The amount of first mortgage bonds authori:ed by the Western 7.60 % due 2003. 135.000 - Resources Mortgage and Deed of Trust dated July 1,1939, as 8 3/8% due 2006. supplemented, is unlimited. The amaunt of first mort gage bonds S !!2 % due 2007.. 25,000 authonzed by the KG&E Mortgage dated April 1,1940, as sup-8 7/S% due 200S. 25,000. 30.000 d plemented, is limited to a maximum of $2 billion. The amount of ' first mortgage londs authori:ed byThe Gas Service Company (GSC) 291,000-i Mortgage and Deed of Trust dated September 1,1949, as sup. Pollution control band series: plemerded, is limited to a maximum of $200 million. Amounts of 6.8% due 2004. 14,500 -l additional bonds which may be issued are subject to certain 5 7/S% due 2007... 21,940 restrictive provisions of each Mortgage. 6% due 2007. 10,000 Debt discounts and expenses are being amortized over the 7.0% due 2031 327,500 remaining lives of each issue. The Western Resources and KG&E -373.940 impnwement and maintenance fund requirements for certain first ggg mortgage bond series can be met by bonding additional property.The sinking fund requirements for certain Western Resources and KG&E F rst mortgage bond series 10.0 % due 1995 4,000 pollution contrul series and GSC first mortgage bonds can be met 61/2% due 1997. 4,932 7,398 only through the acquisition and retirement of outstanding bonds. Bmds maturing and acquisition and retirement of bond 3 Er sinking 493', II'39"a fund requirements far the five yean, subsequent to December 31,1992 Bank term loans. 230,000 - are as folkws: Other pollution control obligations. 14.205 Revolving credit agreement. 150,000 - Year Matunng Bonds Retiring Nnd., Other Log-tenn agreement.. 46.640 less-N *I dY Unamorti:ed debt discount... 1993 $1.961 Inng-term debt due within one year.... 6,730 - 1,5S6 1,961 2.733 1994 1,973 51,926.026 5586.579-1995 1,966 1996_ 17.233 770 To finance the Merger, the Company arranged for a bank term 1997 1,333 loan and revolving credit facility for $600 million, of which Jage 34i

a $ 480 million ierm kian wm drawn down at the close of the Merger. SEG(fENTS DEBUSINESS. At December 31,1992, a $230 million termloan remained outstandi The Company is 'a public utility engaged in the generation, ing under the tacility with no tonowings under the $120 million transmission distribution, and sale of electricity in Kansas and the. revolving credit agreement; In January 1993, the Company transportation, distribution, and sale of natural gas in Kansas, t renegotiated this facihty into a $350 milli 6n revoh mg credit facility, Missouri, and Oklahoma. .' secured by KG&E common stock. As a result of the negotiations, 1 '$120 :million of bonds pledged as collateral were released. The bt En3ed December 31,(SIM0s) 1992(1) 1991

1990 :

revolver has an initial term of three years with options to tenew for . Operating tevenues: an additional tuu years with the consent of the banks-Natural gu. i 5 673,363l 5 690,33915 656,04S. The KG&E rem!ving credit agreement, which expires in 1994, Electric......... 882,685

471,839:

463207? d prcwides for borrowings of up to $150 million. This agreement 1.556.248 - 1,162,178 - 1,149J55 [ may be extended unal 1995 wit h the consent of the banks and it may - be repaid prior td its expiration date without penalry. The weighted j average interest rate, includmg fees, was 6.6% for the nine months Operating expenses excluding ended December 31,1992, income taxes: 642,910 664.825: 660,856; j The unused portion of the alwe-mentioned remlving credit Nat ural gas.... 1 agreements may be used to provide suppon for outstanding Electric.. 632,169: 337.150. 326,243 ' i short-term debt. 1.275,079 1 1.001.975. 987,099 -- The other KG&E kmg-term agreement, which expires in 1995, contains pnwisions for the sale of accounts receivable and unbilled I"'"*****' revenues (receivables) and phase-in revenues up to a total of ~ 816 -(L657) 1.072 Natural gas. + . $1S0 million. Anuunts related to receivables are accounted for as sales 41364 32.239 ~ -29,594 - Electric. while those related to phase-in revenues are accounted for as collaterah:ed horrowings. Additional receivables are continually 42,000 30,582. 30,666 - sold to replace those collected. At December 31,1992, outstanding receivables amounting to 547J million are considered sold under the Operating income: ! 24,120 agreement. The credit risk asociated with the sale of customer Natural gas..-. 29,637 27,171 accounts receivable is considered minimal. The weighted average - Electric. . c. 209,532 102,450 107,870: interest rate, including fees, was 6.6% for the nine months ended 5 239.169 5 129.621 5 131,990 December 31, 1992. At December 31,1992, an additional $37.9 million was available under the agreement. j identifiable assets at December 31: Natural gas.. . 5 91S,729 5 646.692? SL 766,247 SHORT-TERM DEBT Electric...... ... '4.572.343 1.196.023 1,185,780 ~ The Company's shon-term financing requirements are satisfied Other corporate assets (2F- - 32,552. 75J95 61,002 - 4 through the sale of commercial paper, short-term bank loans, and borrou ings under unsec ured lines of credit maintained with banks. 55.523.629 52d12.513 52,016.029 Information concerning these arrangements for the years ended December 31,1992,1991, and 1990, is set forth bekiw: Other Infamiation-br Ended December 31. 61.000s) 1992' 1991 1940 Depreciation and amorti ation: 5 38.171. 5. 32,103. 5 - 25,005 - lines of credit at year end..5250.000(1) 5185,000(2) 5165,0000) Natural gas... Short-term debt ainstardmg Electric 105.542 53,632 51.810 - at year end - 222.225 135.800 115,500 ' 5 144,013 ' 5. E5335 $ 16 S15 L Weighted average interest rate on debt outstandinc at year end (includinc fees).. 4.70% 5.07 % 5.43% Maintenance: Maximum ammmt of shmt-Natural gas. - 5 26,507: ' 5.. 26,275-5. 24.263 term debt ouatandmg Electnc ' 43'104 - 34,240 33.554-durine the peritd. . 5263,900 5175,000 5179.000 Monthly average short. 5 101.611 5 60.515 ',5 57.5171 term debt... .. 179,577 125,965 109,195 Weighted dady awtage interest g rates dunne ttne par 4 5 91.1S9 5. 61,961 5 e5,617... (includme fees). 4.90 % 6.69 % 9.18 % Natural gas. (1) Decraed to $!55 mi!Irm m Januan 1993. Electnc... 95.465 43314 49,384 a; 1ncreased to $200 nuffum in farmary 1992. 5 1S6.654 ' 5 125,675 1 5.135,001 I

0) Inacased to 5185 millum m January 199L

j in connection with the commitments, the Company has agreed m

rrr 199 n A merger unh KGFE on March 31,1992. to pay certam tees to the banks. Lines of nedit also are utilized to m pu,%d. temgirspemestments, n,wurihry mvestmenn, md i support the Company 's outstanding short-term debt. defe red charges. 1 page:35 KE ST ERN KL50CRCES. INC l 1

\\ q\\ f QUARTERLYRESTJLTS(Unaudited)' The amounts in the table are unaudited but, in the opinion of management, contain all ' adjustments E

(consisting only ofnormal recurring adjustments) necessary for a fair presentation ofthe results of such perials.'

The business of the Comparv is seasonal in nature and,in the opinim cimanagement, comparisons betwren - the quarters of a year do not give a true indication of omtall trends and changes in operations. First Second Third -

lburth :

'i (in Thousards, except Pn Share Amounts)- 1992 m : ' Operating revenues............ $373,620 - $341,715.'5380,745 : $460,168 Operating income...... 42,684 45,830 l 77,010 73,645 z i Net income 27,984 18,434 42,185-39,281: Earnings applicable to common stock...... 25,472 ~ 15,113, 38,726 35,822-Earnings per share. 50.74 $0.26 - 50.67 ' $0.62 Dividends per share....... $0.475 $0.475 $0.475 $0.475 :- Average common shares outstanding....... 34,566 .58,046-58.046-58.046 Common stock price:- High.... $29% $26% $30% $32% - $25% $25% $26%' $28% Im 5 1991 . $389,984 .$210,824 $219,797- _$341,573. r Operating revenues. - Operating income. 43,367 22,249-31,680 .32,325 Income before cumulative effect of l accounting change...... 28,125-7,192 17,918 g 19,050-Cumulative effect to January 1,1991, of change in revenue recognition (net of income taxes) (Note 1).......... 17.360 Net income 45,485' -7,192 17,918. 19,050-

• i Earnings applicable to common stock.....

45,071 6,281 15,379 16,537 Earnings per average common share outstanding before cumulative effect i' of accounting change... 50.81 $0.18 $0.44 - $0.48 Cumulative effect to January 1,1991, of change in revenue recognition per share.. 0J50 - Earnings per share.. $1.31 $0.18 $0.44 $0.48 1 $0.645 (2) 50.465 $0.465 $0.465 i Dividends per share.... Average ccr. mon shares outstanding. 34,566 34,566 34,566 34,566 Common stock price: ]' $24 $25% .526% $28% High............ $20% $23% $23% $25% low. (1) IMirrnation fur 1992 reflects the merger with KG&E on M2rch 31,1992. j (2) Inchdes special. une-trme dalend c450.18 per share teid February 28,1991. 2 i i l I 1 i i ~ page 36 '

,s ^ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS i To the Shareholders and Board of Directors of Western Resources, Inc.: j .t; We have audited the accompanying consolidated balance sheet s and statements of capitali-

ation of Western Resources, Inc., and subsidiaries as of December 31,1992 and 1991, and the i

related consolidated statements ofincome, cash flows, taxes, and common stock equity for each j of the three years in the period ended December 31,1992. These financial statements are the - .j responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Kansas Gas and Electric Company, a wholly-owned subsidiary of Western Resources, Inc., which state-ments reflect assets and revenues of 61 percent and 27 percent, respectively, of the consolidated - totals for 1992. Those statements were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to the amounts included for that entity, is based solely j on the report of other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards mquire that we plan and perform the audit to obtain reasonable assurance almut whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosums in the financial statements. An audit i also includes assessing the accounting principles used and significant estimates made by manage-j ment, as well as evaluating the overall financial statement presentation. We believe that our audits 1 and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audit and the report of other auditors, the financial statements refermd to above present fairly, in all material respects, the fmancial position ofWestern Resources, j inc., and its subsidiaries as of December 31,1992 and 1991, and the results of their operations and their cash flows for each of the three years in the period ended December 31,1992, in conformity with generally accepted accounting principles. j As explained in Note I to the consolidated financial statements, effective January 1,1991, the Company changed to a preferred method of accounting for revenue mcognition. As explained in Note 6 to the consolidated financial stat ements, effective January 1,1992, the Company changed its method of accounting for income taxes. ARTHUR ANDERSEN & CO. i Kansas City, Missouri, January 29,1993 1 6 .l l gn' 3 WE STE RN RE sol?RCES.1NC.

TEN-YEAR: COMPARATIVE DATA INCOMESTATEMENTDATA ($1,000s): Operating Expenses Total Natural Fuel Iber krs Revenues Purchases Gerrration (Net) Operations

tenance, ciation Tames

' Operating Operating Gas Used for Purchased Other Main-Depre-Income 19420) 51,556.24% 540(126 5200.779 514.N 4 52% 642 5101.c11. 5157.171 5142.731-5239.160 1991 1,162,178 439,323 146,256 5,335 193,319 60,515 85,735 102.074 129,621 1990 1,149,755 456,868 148,681 2,658 178,448-57,817 76.815 96,478 131,990 1989 1,127,623 451,8 % 149,796 148 171,094 58,442 73,305 97,406 125.536 1988 1,166,114 486,347 148,787 (2,356) 165,234 55,128 70,406 112,146 130,422 1987 1,166,458 485,995 144,495 2,328 153,789 49,598 67,804 124,115 138,334 19S6 1,198,884 511,344 144,693 2,065 151,676 45,842 65,208 135,417 142,639 1983 1,354,128 655,429 150,679 2,279 150,295-45,962. 60,794 142 680 146,010 ~ -1964 1,480,182 764,819 173,709 4,319 145,559 45,181 58,552 144,316 143,727 1983 922.,080 376,115 158,127 11,734 82,582 31,719 45,144 99,791 -116,868 ELECTRIC STATISTICS: Company System Supply at MWH Sales (1000s) IVak 11our (Net MW) System System Generating Resi. Com. Indus-Hourly hk. Generating Capacity brs dential mercial trial Other Total hk Net (2) Capacity Net (2) 19920) 3.w42 4A73 4.419 3J19 15.r 53 3fs3 1.590 5.134 4.507 1991 2,556 3,051 1,947 1,984 (6) 9,538 (6) 2,077 . 1,959 _ 2,622 2,367 1990 2,403 2,952 1,954 1,820 9,129 2,066 1,948 2,589 2,344 1989 2,248 2,814 1,925 2,077 9,064 1,933 1,823 2,589 2,345 1988 2,2 % 2,782 1,877 2,174 9,129 2,031 1,919 2,526 2,287 1987 2,153 2,633 1,816 2,001 8/03 1,917. 1,821-2,505 2,241 1986 2,075 2,521 1,821 2,125 8,542 1,844 1,740 - 2,531 2,262 1985 1,989 2,405 1,852 2,296 8,542 1,728 1,615 2,672 2,435 1984 1,991 2,322 1,777 2,379 8,469 1,802 - 1,668 2,681 2,387 1983 2,062 2,300 1,599 2,404 8,365 1,853-1,735 2,681 2,371 NATURAL GAS STATISTICS: MCF Sales (1D00s) Average Cost of Gas - Purchased k rs Residential Commercial Industrial Other Transportation Total Ihr MCF IW2 43.779 415 % 2,214 94 ts.425 2 05.D/+ $2.74 1991 97,297 47,075 2.655 14,960 (6) 78,055 240,042 (6) 2.87 l 1990 95,247 43,973 3.207 1,361 72,623 216,411 2.90 1989 104,057 47,339 5,637 1,403 58,025 216,461 2.75. 198B 104,471 52,567 19,929 2,455 37,424 216,846 2.57 1987 94,842 50,946 29,917 2,101 24,584 202,390 2.67-1986 97,368 54,132 48,181 2,523 5,752 207,956 2.50 1985 106,315 - - 59.947 53,170 7,540 9/64 236,636 '2.79 1984 104,092 57,624 61,163 3,815 226,694 - 3.25 - 1983 48,332 26,185 35,507 8,381 118,405 _ 3.10_ (1) Informatum fra 1992 uflects the merger with KG&E em March 31,1992. (Note 1) (2) Net of off-system sales and nachases. i (3) Restated to reflect tuwftn4mc stock sida on May 5.1987. (4) includes cumulatne cffect to January I, t 985, of clumge in nwnue recognitism, a $5,793.000 or 50.17 ter slune decume. i pagd 38 l

yp u f Other Income c And Deductions Interest Charges income, Earnings and Dividends Earnings ~ Dividends - Other. Preferred .. Applicable - Earnings Declared Income & : to. per per . AFUDC. Deductions long-Term AFUDC-Net Preference Common ' Common . Common Equity (Net) Debt Other Debt - Income - Dividends - Stock Share (3) - Share (3) ~ 5 $24.1s6 5117.464 $20.004 5C.002) 5127M4 512,751 5115.13 3 ~ 52.20 $1.90 3,351 51,267 10,490 (1,070) 89,645 (6) 6,377.' 83,268 (6) 2.41 (6) 2.04 (5):. 9,012 -51,542 11,022 (1,181) 79,619 1,744 77,875 2.25 -1.80 859 46,378 8.742 (1,503) 72,778 1,857 70,921- . 2.05. . 1.76 (461) 44,362 ' 7,135 (1,327) 79,791 1,970 - 77,621 2.25 1.72 375 1,188 48,185 3.517 (496) 88,691 3,700 84,991 2,46.. 1.65 ' 366 750 50,213 2.902 G42) 91.382 7,633 83,749 2.42 1.58 406 41 48,423 5,026 G60) 87,975 (4) 8,973 79,002 (4) 2.30 (4) 1.48 800 1,635 50,577 6,103 (166) 89,848 9,759. 80,089 .2.40 1.38 8,208 350 43,360 4,224 (5,762) 83,604 8,311 75,293 2.33 1.28 Utility Plant Electric Revenues ($1,000s) Customers ($1,000s) Average Gross Residential Commercial Industrial Other Total Total Additions ' Total. 524 o i! 5271.303 5211,54% 3103.072 3 % 2,585 577,915 543.340 $5.048.903. t 160,831 149,152 78.138 83,718 471,839 306,203 42,387 1,684,147 152,509 146,001 79,225 85,972 463,707 303,535 46,697 1,649,367 142,30S 139,567 78,267 92,201 452,343 300,028 54,207 .1,613,095 149,155 138,318 77,201 96,486 461,160 295,072 62,010 1,563,444 149,914 143,084 82,972 93,755 469,725 295,371 52,792.- 1,510,067 150,950 145,166 89,084 97,674 482,874 291,967 -47,526-1,466,334 145,712 140,764 91,747 101,951 480,174 288,674 48,109 1,428,383 152,151 144,069 94,468 113,195 503,883 285,232 42,195 1.367,074 142,985 126,904 75,092 114,747 459,728 281,533 65,114 1,351,864 Utility Plant - Natural Gas Revenues ($1,0005) Customers ($1,000s) - Average Gross Recidential Commercial industrial Other Total Total Additions Total - 5442,230 ile4,470 5 7.504 555.6 0 567ti63 1,0M.407 554.520 $1.04?,373 433,871 182,466 10,546 63.436 690,339 1,067,840 80,630 865,448 - 439,956 176,279 12,994 56,819 686,048 1,059,140 84,553 789,428 ~ 430,250 172,628 18,021 54,381 675,280 1,053,787 91,613 708,787 418,190 181,506 57,434 47,824 704,954 1;042,140 50,227 620,803 ~ 390,218 178.402 87,207 40,906 696,733 1,030,422 49.906 572,382' 386,954 184,721. 131,090 13,245 716,010 1,011,686 46,319 520,631-452,854 225,735 164,782 30,583 873,954 998,306 40,370 462,677-494,643 244,249 218,890 18,517 976,299 955,268 41,848 422,993 214,544 104,178 117,545 26,085 462,352 975,521 14.123 379,206 (5) Inclwies specul. une-ume dmdend of 50.18 ter share pad February 28,1991. (6) hwludes cumulatwe effect to January 1,1991, of change m rewrme reco;mthm, a 517,360,000 or 50.50 per share merease. The cumulatwe effect of this ' chary;c increased snatural gas sales by 14,838,000 MCF and electrsc sales by 256,000 M Wit page I9 _ MST L im RESULNEL INC ~

h;9TCl0TS < lWS 9 ' DIRECTORS Marjorie 1. Serier * (68) 1992 Richard M. Haden (53) 1966. David E. hth 07) 1979 2 GmsultaraAkemsmg ExecutwcVwe Presidan.FwLlSemces Vwe Presdera, Idwr Frank J. Becker3 * (55) 1992 WWra, L aas PerstmalImestments Norman E.Jackwo (55) 1960 Edward H. Schaub (61) 1989 8 Drnado, unsas louis W. Smith 2 * (49) 1991 &ccurne Vice Presil,c, Bcctric Vre Presdera, Griemment Aff.ms' Presden Engmeerrng and PscLl Operatims Gene A. Budig.2 (53) 1987 Allied-Signal Aerostuce Corrguny Laneth T. Wymore (40) 1974 l i Dancellar Onsas Cny. Missouri Vice Presdent, Tb Unwersity of unsa5 gp Management infwmarion ~ Imrence, knw Kenneth J. Wagnon 3 (54) 1987 Ent R. Brown (47) 1982 Se ces and Telecommunicarkms i 4 Pmilnr President and Odef Execurwe Officer l. C Q. Chandler * (66) 1992 Capual Enter;nnes, Inc. Jerry D. Couringttm (47) 1977. 1 Osaman of dr &md Wicfara, n n3a5 Richard D.12 Gree (62) 1956 Cmm,Iler l Fas Narkmal Rmk of Wara y,, 9,,3,,,, p;g; opc,,,,,, _ Weidra, Kansas OFFICERS Thomas E. Shea (43) 1972 of Western Resources. Inc., its Treasurer l - Thomas R.Clevenger 2(57)1975 operating groups ard subsidiaries GAS SERV!CE - 2 t Fmancial Omsufrara Richard D. Terrill(38) 1980 g wia,nn, William L Johnson (50) 1990 3,, EXECUTIVE OFF1CERS Presdent ard Odef Executwe Offwer Chuul L Cray, Jr>* (70) 1973 Darrell D. Bledsoe (49) 1985 C ar I da rs, Inc. '#f her" "* /E" ' Transnahm, and SmaF E. Ignn Cook (48) 1985 Archm, unsas W Iliarn E. Brwn (53) 1962 Hans E. Mertens (43) 1990 John C Dieus ** (59) 1990 2 Pr ard Odef Execurwe ygc, p,esdag, Enonenmg Stacy E Kramer (36) 1979 Ounman of die Rurd Capad Frderal baving Assistant Sewetary liipda, Kare Verneda E Robinson (32) 1985 James S. Haines, Jr. (46) 1980 Vee Presdera, Custrnner Semcc ~ ~ l Lecurne Vice Presdan and George R. Melling (44) 1978 0 of d e Quef Afmirdstrarne Offic" P. Thomas HallIII (50) 1983 U and Ouef Decurwe Offker Asustant Ver President, Steven L Kitchen (47) 1964 Gnnmunin Relarkms . ASTRA RESOURCES, INC yesten gmca, ync. Fxcutwe Vwe Presdera and ^ OdefFmanaalOffrer Richard H. Tangeman (43) 1972 C Bob Cline (46)1991 [id H diest *(64)1988 John K. benberg (47) 1979 Of km 'C' g Execurice Vice Presdent and Hallmark Cards, Inc. (rcrired) General Counsel Dwain L Williams (47) 1993 une 0, M15soun CORPORATE Yke Presdent, Ainurdstratum, 0 Carl M. Lupal,Jr. (39) 1992 and Odef FmancialOffeer Russell W. Meyer, JrA 8 (60) 1992 yg, %, o Fred M. Bryan (51) 1970 Charrnanand Odef Execurne Offrer Grmmunrations, Markering he ane VuePmdan, 1 Mmber Ada ard Fmance Onnmaar Cessna gaft Gwnfuny ~ and Economic Developrrwra 2 Member Human Resources Gnnmirrce Hunun Rewce5 Wefdza, Aane i Memfer Namnuurre Onnmure James T. Clark (51) 1978

• Member crirporate Public rohey Jolen H. Robinson 2 5 (66) 1991 KPL Vrc President. Intemal Audu Commarec Gar man Emerntus

( ) he as 4Daember31,1992 ' Mack & Ward, M. Ire Brunton (57) 1958 William B. Moore (40) 1978 Dad an"* 'hr G"nl*") - 1 nmas cay, yig,ur; Executns vice Presdent, ywe presde,a, Fmance Electric Prrductsm ? fage s

j i i " DIVIDENDS TRANSFERRING STOCK Quartedy dwidena on etnumm ard preferred stock narmally are paid A stock transfer is required when stock is sold or a name changed on l un or ahut the first of Jatuary. April, julv, and October to shareholders the cenificate.To transfer the stock, complete the assignment form on the .i of record as of akut the thad day of the precedmg month. All cash reverse sue dthe certificate and erdan,e it exactly as the registrarian skwn divderds paid by the Company are taxable as ordinary income. m the face of the ceruficate.The signature (s) must be guaranteed by a cmv mercial bank or aIvokerage firm that is a member of a medallion signature guarantee program.The certificate and apphcable documentation then is sent, preferably by registered mail, to:. Western Resources, Inc. Stock issuance Department 1 p E O. Bax 24970 Church Street Station New Erk, New brk 102494018 H lh } tj llf tjl l f LDSTOR STOLENCERTIFICATES 'l If a certificate is missing, rmfy the transfer ? j V Ls agent inunediately in wnting, cw by calhng j (S00) 648-8165. A "stm transfer" will be entered in the records and an affdant will SHAREHOLDER INQUIRIES be mailed to you for cornpletion. A surety krd fee must be pa d to replace l Communications regardmg stock transfers, lost or stolen cert dicates or the certificate (s). The bond fee amount will be included with i dwdend checks, cw other inbrmation requests should be directed to our the affdavit. prmcipal transfer acent and registrar Ormical Bank. Please incbde in EXCHANGE LISTING AND SIDCKSl'MBOLS nn correspmdence a telephone number where wu can be : cached during New brk Stock Exchange Ticker Symbol: WR papa Mmg:Wunk We m bources, Inc. Toll-free: clo Chemical Bank (S00) 64S-8165 CORPORATEADDRESS Sharchddei Services Collect, outsde the U.S.- Western Resources. Inc, E O. Box 24970. Church Street Station (212) 613-7147 SIS Kansas Avenue New hk, New hk 102494018 Topeka, Kansas 66612-1217 (913)575-6300 i Irnsww questions concerning the Compan),6 operatKus or finanClaI performance should be addressed to: CO3GION, PREFERRED, AND PREFERENCE STOCK Western Resources. Inc. Principal Transfer Agent and Registrar Irnrstor Relations Department Chemical Bank E O.Ba 889 E O. Box 24970, Ourch Street Statim T+eka, Kansas 66601-08s9 New hk, New hk 1024?4018 r (913) 575-6226 C&lransfer Agent Co-Retistrat DIVIDEND REINVESTAfENTPLAN Bank IV T@cka, N.A. The Merchants National Bank The Gunrant's Automatic Dwderd Renwestment and Stock Purchase Trust Department E O. Bm 178 Plan (DRIPI offers comnum sharchdders a convement and ecorunnical One busite Pla::a, PD. Bm SS Topeka, Kansas 66601-0178 method dpurchasmg additumal shares of common stock. Topeka, Kansas 6660140SS Arw common sharchdder of record is eligible to panicipate in the Plan. M'ESTERN RESOURCESWPL FIRSTMORTGACE BONDS Addnnal information on DRIP and an authon:atim card will be sent Principal Trustee, Paving Agent, and Registrar. '" W" * '*4"#": Harris Trust and Savings Bank Western hources, Inc. 111 West Abnroe Street Divdend Remvestment Chicagcx Ilhnos 60603-4003 E,0. Bm 24970. Church b.treet Stanon (312) 461-6538 Gdlect i hew L k. New hk 10249 4018 r (500) 648-F165 CSCFIRSTAf0RTGAGEBONDS ""('ln ADDRESS CHANGES, DUPLICATE AIAILINGS, AND P t CONSOL1DATINGACCOUNTS 4 Chase Metratech Center,3'rd fhNw Address chances may be made by callmg (800) 648-8165 or by Brooklyn. New hk 11245 written request. Please PRIN7 all changes on wntten requests. GISD42-7272 Gh It pu are receivmg duphcate capies of Company reports due to your name or address bemg listed on our records in more than one form, the duplica-CoTrustee t im can be wpped by wntten request.or by calhng (S00) 64 S-8165.This Commerce Bank of Kansas Gry, N.A. authwization will not affect the dattihanan of dividends or proxy material. E O. Box 248 i Such requests shoulJ be sent to-Kansas Cny. Missouri 64141-6248 Wegern bouren, Ire. (616) 234-2003 Collect Shackader Sernces RGLE FIRSThiORTGAGE BONDS E O. Bm 24070, Church Street draum Morgan Guaranty Trust Company of New hk i New hk, New brk 10249 4018 Corporate Trust Departmera OTHER REPORTS 60 Wall Street,36th ikor Shareholden nmd tam without charge a cm of pericdic reports filed New brk, New brk 102604060 with the Secunties ard Exchange Gunmission. Requests should be (212) 64S-9261 Collect addinsed to: ANNUAL hfEETING Ustern bources, Inc. The annual meeting of sharchdJers is Irld on the first Tuesday in May. lmyt.w[ nons Department in 1993 the meetmg will be held May 4 inTopeka Kansas, at 11:00 a.m. g TcLa, Kansas 666014S89 r s

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03s3093 16:16 - '3fr138737014 ES ELEC P9R COOP 3001 3. cented pune secoumoro ICooaers !&Ly] rand RTPORT OF INDEPDIDDIT ACCOUNTANTS The Ecard of Trustaas K;r.ncan Electric Power cooperative, Inc.: We have audited the accompanying balance sheets of Kansas Electric Power Cooperative, Inc. Os of Deccuber 31, 1992 and 1991, and the related statements of operations, patronage capital (deficit) and other equities, and cash flows for the years then ended. Thece financial sutements are the responsibil_ity of the cooperative's nanagenent. Our respunuibility is to express an opinion on these financial statenents based on our audits. We concucted cur audits in acc rdance with generally accepted auditing i standarcs and Goverrnent Aud.iC1Dg Standards issued by the Comptroller General of the Unine:1 States. Those standards require that we plan and perfern the audit to obtain reasonable assurance about stether the i financial statamnts are free or naterial misstatenent. An audit includes evnining, on a test basis, evicence supporting the amounts and disclosures in the financial statements. An audit also includes i assessing the accounting principles used and significant estimates nade by w.nagenent, as well as evaluating the overall~ financial statement presentation. We believe that our audits provide a reasonable basis for cur opinion. As incre fully described in Note 1 to the financial statenants, certain depraciation and anortization nethods have been used in the preparation of' the financial statenents which do not, in our opinion, conforn to generally accepted accotnting principles. In cur opinion, av.copt for the effocts of the natters rnfArred to in the preceding paragraph, the financial statements reforred to ahnvn pre:sent f-41y, in all material respects, the financial position of Kansas Electric Fover Cocperativo, Inc. ac of December 31, 1992 and 1991, end the results of it,s operations and its cach flows for the yeers then ended, in conformity with generally accepted accounting principles. I 4AO 4 Kansas City, Missouri February 17, 1993 Postat*c:andtaxnasmt:mJmeno7Ft j we / 7 l '* k n ; e % V' l"Sn 1 Otshorn " w e? C<<<c \\" UP' o l 1 ?)% F)b)Did . Thu. M4.9 W Y' V ? CILI

03/24/93 16:17 179132737014 ES ELEC PFR C00? 2 00: s IT5CIE ELECTRIC IUMP. CoorHRLrIVE, INC. 6 rJ.1ANCE SM r Decenter 32. Assets 1992 1221 i Etility plant ziectra: plant in service $200,16E,121 S200,742,253 tess r.119wances for deprect.at*cn 20,931,899 18,792.591 Not utility pl.a.ut 179,236,222 181,?40,752 ccnstr::tien work in precess 1,082.312 565,330 Nuclear fuel, less > - - lated amortizatica or 510,b94,abb anc $9,2Jb,0bt at te t.eciarr 31, 1992 at.ad 1993, runspectively 4 839,135 4.160,C11 Total reility plant 18*.157,660 1EG,675.10G Restricted assets 1 Cash and cash equivale=ts 209,858 203,332 investnents in associated crgwitatio=s 2,668,927 2,668,715 Bond r.2nd reserve 3,923,577 3,921,323 ree d smi

• 7 fund ansets 1,334,27ti 1,036,24_6 Total rest-icted assets 8.1 RG rRR 7.R7o.61A Current assets:

Cash and cash equivale=ts 3,240,493 5,342,738 i dational Rural uttittias cooperative rimance Corp. patronage capita.1 certificate 4,292 3,477 Accounte recalvablo frcen rumbe.re 5,807,523 5,5;,,5,446 vaterials and supp14mm f rvarrtery 2,023,214 1,A67,692 Other assets and prepaid czpenses 581,2Q1 515.-EE Total current assets

• 1,656,803

__13,239,719 other long-ter:n assets: Deferred ehrrces, less accumulated emortization 1 of 5?,079,957 and g3,*.63,#.?3 at nacernber 31, 1997 and 1991, ranpectively 24,910,243 7 t., O A,c72 referred incremental octage costs 383,199 2,404,783 Unamer: iced bond issue ecst 1,224,315 1,256,115 Wolf creek Kuolear Operating Cerp. Acrest erts, at cost 1,153,01_8 85%r/ts Total ot w long-term c Oct: 27.680,775 30.077,3_42 Total assets $232,681.835 5237,821.E91_ 1 i i i 1 The acec=panying notes are en intem al part of these fir.ancial statennts. 2 l ) 1 I

03<24/93 16516 39132s014 KS El.EC FFR COOP 2001 D 't 'A cetned pu: Sea:meroe i V30JerS i&Ly] rand 1 M POW 7' OF INDEPDIDENT ACCOUNTANTS The Board of Trustens Kancan Eloetric Power cooperative, Inc.: i We have audited the accompanying balance chaeta of Kansas Electric j Power Cooperative, Inc. cs of Decenbcr 31, 1992 and 1991, and the i related statements of operations, patronage capital (deficit) and other equities, and cash flows for the years then ended. Thecc financial sLstements are the responsibility of the cooperative's nanagernnt. Our respumsibility is to express an opinion on these financial statements based on our audits. We concucted cur audits in acccrdance with generany accepted auditing standarcs and Govern 2::ent Auditing Standards issued by the Conptroller General of the United States. Those standards reqaire that we plan and perform the audit to obtain reasonable assurance about whether the financial statannnts are free or naterial misstatement. An audit includes avnining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting prirciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis ior cur opinion. As nere fully described in Note 1 to the financial statenents, certain deprani r.ti on and arortization nethods have been used in the preparation of' thn financial statements which do not, in our opinion, conforn to generally acenprad accounting principles. In cur opinion, excopt for the offects of the matters rafarred to in the preceding paragraph, the financial statements reforred to abova present fairly, in all material recpects, the financial position of Fannas Electric Fower Cocperativo, Inc. ac of December 31, 1992 and 1991, and the results of its operations and its cach flows for the years tlw.n ended, in confor=ity with generally accepted accounting principles. AG 4 Kansas City, Missouri February 17, 1993 Post-tt* Dran;f taxvansm?::gJ mernam l+of ens * / 7 e.ntG e u-n W 07I? 0b$hDm " we# C,,, c Updo l 1 f)b GT)3 ')C/C j.(e. M 4. M38

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03/24/93 '16:17 9913:737016 ES ELEC PFR COOP 8 00: 1 TJ5EaC ELDcTRIC PCE"ER COQ?HR&TIVE, I2IC. till3CE SM 3ecader 32. ASSETS 1992 M Ctility plants Electra: plant in service $200,168,121 S200,742,253 Less allowances for depreciation 20,931,8 3 18,797.591 Nat utility planc 179,236,222 181,043,7G2 Constr :tien work in precess 1,082.312 565,310 Nuclear fuel, less ar-lated amortizaticn or 510,n4,1bb anc 59,2J6,06E at ten,e:::d>er.r 31, 1992 and 1991, res1wctively f>83%135 4.160,034 Total t.'.tility pla=t IM.157. M9 1E Gm E75.10G Restricted assets: cash and cash equivale=ts 209,858 203,332 Investmects in associated organintions 2,668,927 2,568,715 Eced nn:1 reserve 3,923,577 3,921,323 s re dosi dn7 _%d amts 1,304,2>G 1,036,2/s88 Total rest-Leted assets e.186. 99 7, npo. m m Current assets: Cash and cash equivale=ts 3,240,493 5,342,738 bation&L ictral Utilities cooperative F*Pance corp. patronage capital certificater 4,292 8,477 Accounte receivablo fra:n here E,807,523 5,505,446 y waterials and stopplian 4venntory 2,023,214 1.A67,692 other arsets and prepaid expenses 581,201 515.3EE Total curre.nt assets 11,656,803 _13,239,719 other long-term assets: Deferred charoes, less accmnu? ated e.:nortizatics of 54,079,S57 and $3,tG3,443 at a nacernbar 31, 1997 anr1 1991, raerpactively 24,910,242 7e.,rds,c72 referred incremental octage costs 383,199 2,404,783 Unamorri ed bond issue cest 1,224,315 1,286,115 Wolf creek Kuclear Operating Corp. L e erts, at cost '.,1 53,01_8 sw,275 Total o+h long-tez:n c=cetc 27,680,77E 30.077.ua a Total assets 1232,681.835 $237,821,F91 i i I 1 The ace==panying rctes are en integral part of these financial statements. 2 i

03/24<93 16:16 @9132737014 ES ELEC PVR COOP E003 o I i ? Deenber 31, CPSDT.TzmCN AND LMITTTTrK 1397 g Capitali utic= Patronage capital (deficit) and other equitles: M e hershipS 2,500 2,900 retronage capital (deficit) callanLui e and other equitina (see cratemcet) (9.350,747) (7.05e.075) 3 Total patrona:;a eacital fdeficit) ed other egaities (9,357,847) (7,055,175) ~! Lteig-ter= cent, less current por:1=n 230,192.632 233,526,E02 Total capit=1in= tion 20,034,705 2 2 S. 471_, Cl_7 tiabil.ities a curzent 14 zh111 tiers

• i Accounts payable 4,763,477 5,577,E47 i

Fayroll and payroll related '

• philities 57,350 51,2E9 Ac rced po w y taxes 1,305,242 835,722 Accrued interest payable 719,032 782,546

& went pertion cr long-ter= cex 3.333, m 2,940,332 j r rotal current li.abilitto 30,1_7e,cos _10,107,736 other liabilities: 'l Decomiasioning liability 1,384,226 1,036,248 Otter licilities 283,828 125,9B0 Octal other lismilities 1,563,054 1,152,228 l r i i commitneste c.nd ecctisgencico Total capitalization cad liabilities $232,681,835_ 5237,821,592 i i i 1 n - i 4 ew w we de%

03/24/93 16:19 0913:737014 ES ELEC PFR COOP 2004-t l t i RECAC Ir ECTE!Q ?Um COOPERAr1Tu, INC. S'"A'fN'TS OF CPI 3tATIONS f I rears recea Dm eerer 31, f 1992 1991 j Cpeating revenues Membat S64,974,591 567,875,208 bcz=ne=oer 144,872 UI.E10 Total operating revenue 65,119,463 65,006,718 + Operati ; expenses: Pcwer p::reased 32,227,228 35,503,538 Nuclear hel 1,751,054 1,226,374 Nuclear plant cperations 3,343,035 2,892,592 Nuclear pla.c n ine-m ee 1,988,831 1,531,133 Nuclear plant 40.ut ids:.rmtive and general 4,692,652 3,649,411 W inistrativa s.r.d general 2,200,447 2,222,540 A=ortization of <5pfo: red charges 616,411 582,645 Oepreciation 3. S c ?. 7 62, 7.407.673 Octal. Operating exper.ees 50,231.940 50.526.603 OIw a'.ig; m gin 14,587,523 17,490,11:i Interest 2 rir nma 622. C 3_G 991,910 i Income before interest charges 15,520,378 18,472,045 interest expense on long-ter= de.bt 17.82_3_,010 18,741,551 Net margir. (less) F(2,300.672) r s R C 9, M G) r t i r 5 v i l The a::oc:pe.nying n tes are an integral part of these finacci.a1 statan nts. ] j

03/24/03 16:20 'J913 *737014 ES ELIC PSR COOP 2 007 t I = s EANGAS "M.IC PCEER COOFIIB.TIVE, Esc. SMMS or PATRONACI CA.PTTAL (DEFICIT) AND OTEER EQUITTRS t

• ar +2,- Years Ended necerber 31. 1992 ard

!=9*. Datrnnaga Capital (Deficit) Other i Mor.berships N ilocated Ecuities M Ralanco, Ocec=ber 31, 1990 C2,900 S(11,744,952) $ 4,956,393 C(6,72E,6E9) capital alTecatic: 438,692 (438.692) 1991 net =argin (less) (1,251.446) _ 981.930 f769,51t) i SalaLLw, Dece= Der 31, 1991 2,900 (12,557,70t1 5,4S9,631 (7,055,173) ige 7 net =argin (less} (2.9?F.4871 6?2.825 (0. ? O2. 02 ) Balance, Decc=cer 31, 1992 52,900 Sf15,493,193) 5_A132,446 Sf9,357,F47) P i i t f I I i l i l } 1 Tne a :::panying notes are an integral part of these fi n nelal statements. 4 i a

03,24/93 16:21 C9132737014 ES ELEC PVR COOP id OO6 e KANSAS "rc KIC POWER cOOFZPATIVE, INc. MTATFMITCS OF CASE FLOWS b _ Years Ended Dece:sber 31. ) i 1993 1991 ~ Cash flcws from cperations: Cash received fres me=ber sales S 64,867,371 5 68,530,S45 ..- esp, s y g. y a. g g g-catac ,22, E, M, - <,-E}? 433 i Cash paid fer Wolf Creek cperations (6,92 % 075) (7,003,062) Cash paid fer EEPCo operations (2,309,943) {2,205,441) 2nterest paid (17,753,552) (18,873,969) Propert y Lam paid (2,161,d09) (1,545,765) Intercat received 7C9,201 1,120,07C t' ash paid to decommissioning trusc (297,2503 (237,800) Eiscellaneces cash received 5,??? 2.079 Net cash provided by operations 4.194.14_7 4.3 9 0 3.1_0 ccch flows frem investing activitiesa i v<-.- c..., ---s. sst-- rs-',-'-'t-,=6*,---, Dlar+ Mditions (1,079,342) (1,353,545) Wolf Creek Nuclear operating Corp. im estrnants (239,224) (17R,3n5) Cash pai.d for purchase cf edcipal bends (80,879) Cash received from the sale of goverrm'rt bcnds 3_3,768 Net cash used in investint; activities id,353,155) i 4, U50_M 1) Cash flows frc= financing activities: Repayraent of lenq-term debt (2,940,637) (2,585,509) Payment os lir.e of credit (400,000) i i . Net cash used in *1nancing activities (2,940,637) 77,985,5D9) nor-roase in etsh and cash equivalects (2,102,245) (2,748,520) Cash and cash equivalen.s, beginning ef year 5.342,738 8,091,258 cowh and rash equivalstn s, etc of year S 3,240,493 5.342,738 i i j f l n NN 5 l

03/24,93 16:22 C9132737014 KS ELEC PVR COOP @ 007 a. KANSAS II.rermic pcura coorrRATI7r, INc. 5*:3.IIME1C5 OF C35H FLCWS, Continued Ycer: Ended December 31. f 1992 ?091 Reconciliation Of net inecma tc cet cash provided by Operating arrivitiest Net me.rgin (less.) 5 (2,302,672) 5 4269.516) Adjustzsentu to reconcilo rm ec.rgin to net cash provided by (usad 4,) npaea*ing aerivities: Oepreciaticn '3,297,269 2.907,673 A:nortization of nuclear fuel Amcrtizatice of deferred charges 1,358,088 881,092 616,414 582,645 Amortization of ce:erre: incremental outage ccst.n 2,390,067 1,546,172 Azsortisation of bond issue ecsts C1,000. 62,045 Accretin, nf r9f er-ry. tnt /amrtization of premina (2,255) (2,2EG) Loss on sales of assets 22,021 62,654 (Increase) in restricted cash and short-term investments (6,525) (4,936) (Increase) cecrease in investments in assouleimd c.W:ations (211) 17,623 (Incrcaco) in cesh surrender value of life insursace (64,518) (62,643) (Increase) in deco =missi oning fund a===ta (v.7,978) (301,970) Increase in decnmnissionic; liability 347.978 301,970 (Increase) in deferred in=remental outage expense (369,083) (3,169,055) Increase in arbitrage payable 147,b48 llB,423 l Net change in cunm annuLa and 1 NhillLlwmz National Rural Utilitico Cocperctive Phene i corp _ pat,nnage capital eertificate 4,1ss 5,959 Accounts receivable (302,077) 359,755 Eateri.als and stypties inventory (155,521) 40,552 Cther assets and prepaid expenses (109,010) 88,701 ,t Accounts payacle (814,370) 1,248,479 Payroll aAal payroll related liabilities 6,091 6,273 ?.eerue,d prcpe.cy taxes 409,520 131,570 Acerned intsrect payable f63,514) (245,925) l Tott.1 adinstments 6.495.819 4.574.225 l Total previded by operaticcs S 4,194,14_1 5 4,305,313 I f e I l i 1 The a cepanying notes are an integral part of these f Nncial statements. ] l C

03/24 93 16:23 C9132737014 ES ELEC PVR COOP Q006 F Kusas Ir_ ECTR:c ?om coorrnaitvn, INC. NCr!ES To FINANCDLL S"'2N3TS L 1. Derar+tros From Cencrclly A'-cepted Acccuntf.nty Princirles: Effective February 1,1987, the rnaas corporatirm crwntssiera (rec) issued an order to Kneas Electric Power Cooperative, Inc. (TEPCo) rec.dring the nse of present worth (sinking fund) depreciation and amortization. As more fully describec in hores 3 and 6a, such depreciation and a:nortization practicas ecastitute phame-In plans we co not meet the res21recents of FASB Iio. 52, " accounting fer Phase in Plans.* rhe effect of the== deps:T; urns on the financial =+atements as cf Decem ber 31, 1990 cnd-1991 is to overstate net utility plan by S25,633,852 and S21,7R7,7En, r verstate deforred chaxgas by S3,491,993 and $2,973,796, understate the deficit in patronage capital l (deficit) by 529,172,E45 and 524,761,546, and understate the net loss by 54,411,299 and 54,758.401, respectively. 7. &- :-a.rv ef Sienificer 'ceountino Policies e a. syste= cf Ace;ounts: KEPCo cutintains its accountin; records substantially in accordance with the rederal Energy steptiatory cmssion's enart of accounts as adopted by the &..ral Electrifi.;ati:.:n Arministration (RE:a) and in acccrdance vlta acco2nting practioca prescribed bT the KCC. b. D ility Plant ard Deerecia*' m; t Utility plant is stated at cest. The ecsts of repairs and ninnr replace- ~ s are enarged to operating expense as appropriate. Costs of reneva.ls and LeLLu.rwats are capitalized. The original cost c: ut 11ty plant retired c=d the cost of removal, less salvase, e.rw charged to a==n:m21ated dep-*?iation. Through Janucry 31, 1987, the provision fer depreciation for electric plant in service was co=puted on the streight-lhae method at a 3.44ts annual conposite rate. Effective Febecary 2, 1987, in accordance with an crder issued ny ese exc, the provlsuas rer ceprectation is computed on a present worth (sinEng f 14) weLhul which provides for increasing annual pretrisiccs over tha next 25 ye,sra. rhe cceposite rates for the years ended Doc,wnha - 12, 1992 and 1391 woro 1.71906 and 1.53Gh, roepuetively. Pursuant to a KCC rate crder '.'ated Earch 27, 1992, hacinting.Tamary 1, 1992, all additicns, betterments and improvements are depreciated on a straight-line basis over 20 years. ~te provision for depreciatien, c+te.d o:2 a straight-line bas 2.s, of other components of utility p1nt are fulluww am Tramrpertr. tion o<;uigr. ment 25 to 33% office fczniture and fiwrnres 10 to 20s Leasehold 4-oveets 20% Orans:cission equipment 101 Depreciatic expense etner -e as cet forth in the staternants of operaticce is ucL miwul.fical_L. Ccntinued 7

03/24/93 16:85 09138737014 ES ELEC PFR COOP 2 009 t i f c. we-l ea r mot. f Nuclear fuel cost is t.nortized to fuel expense based upcn the quantity of heat proc cod for the generation cf electric power. The pernanent disposal cf spect inel is the recpensihinty cf the Departnart cf Energy (DOE). KEP'm pays one mill per net kwh c: nuclear generaticn to the DOE for the futurc dieposal service. These dispoeni uuaLa arw charged to fuel expense. d. Invest =ents in z uw~-inted ommh=Hve, Invest =ents in associated ceganizations are carried at cost and consist prir.cipally of patronage capital certificates, capital term certificates and subordinated ter= carti:tcates of the National Raral Utilities cooperative Finance cosy. (cre). c!c patronage capital certificates mat. iring within one year of the b-irme sheet date are reflected as a current asset. e. Cash Etaivalents: All highly liquid invest ants wnich cature within three menths er less from the date of puuhane are considered to te cash egaivalents and are statec at cost wtich appr xiantes market. f. Mate, rials f.rd scenlier T m e,-v-Eaterials and supplies inventog for the Wolf creek Generating station is stated at cost cete"*4*ed by S.e average cost method. g. "Jnamertired nond Issue costas i Unamortize:i bend issue costs related to the i=ananco nf the floating / fixed rate pollution centrol revenue bonds and mortgage notes payable to the l National Rural Utilities Cooperative Finance Corpcration are being l a=ortized using the interest method over the remaini g life of the bcnds. h. Decommissicciro Pti.d Assets /Decon f%1cdou Liabili_tyt At December 31,1942 and 1447, 51,184,226 and $1,036,21.8, respectively, has been ecilected and is beine retained in an interest-bearing trust fund to be used for the physical doen-m asi, ring cf Wolf Creek. During 1989, the KCC extended the estinated useful life of the Wolf creek Generating Station to 40 years Irem the origi-a1 estinate of 30 years only fcr the detemin=tuc. uI deuumidamioning costs. M*ttionally, the estimated cost of decocntecioning Wolf creek was increased to 320G nillion in ISES i dellarw. KEPOo is responsible fcr a 6 percent mbare of the decommicciening l costs for the Wolf Creek Ger.arating statinn_ 'rbone rn=ta are being recovered and charged to operaticas cre the life of the plant.

i. Income Terest In February 1992, the Financial BuuuuuL12xu St:.andards Sourd (Th55) issued FAER Str.tement No.

109, "?.cccu.cting for Income TsJee s, ' which requires '{ cocpa.nies to adopt the me mothed of a.~ counting for income tsaces no later than fiscal year 1993. EEPCo has net adopted early applicatien of the provisions of FAss statement No. 109, however, management expects no i= pact on the financial statements as a result of adopting this Statement. Petrc.nece coultel em! Other Ecuities-Operating na gin, ner of interest expance, is credited or charged to patronage capital. Nencperati.ng maegin (internet inenme) ft a rredited to other equitiesi however, upon an affImtive vote of the menbership, margins may be anocated to patronage capital unallocated. Continued 0 ~~ 4

03/26/93 16:27 ".7913MMOM ES ELEC PSI COOP ilM O k. h The KOC has ar.thority to establish FIPCo's electric rates subiect to timer ~ interest earned ratio and debt service ecverage reg irements set fcrth by the Rcral Electratication 2 * "'stratict (REA). KrPco balieves it is probable that f u.re ratas, as established by tlw KCC, will niinw the recovery of deferred charges (see Noto 6).

f subsequent recovery is not permitted, the unrecovered defer +nd haians-n* would be charged to expente at that t!ne.

1. KevPSUEST Rcrcnues frocs the sale of electric 1'.y are rwourdned 1:awd on bl.11.ings to < usto:nars and on contracts and ccheduled power usagco, as appropriate. m. Fair Values of yinancial In. hnts the carrying value of finaccial instruments as of December 21, 1592 ayy2urimSted fair vaine. Tre :atr e.arxet values were determ'ned baced on euoted market priven fvc Ll:a' Instnz::wnts er fcr s 511ar types or instr =:mnte c: of December 21, 1902, or on the current rates offe. red to IEPCo for debt ne + % me reatm

• c t,g c2aturities.

n. Peclassificatio-n YJJto has reclassatiec tne presentation of certain prior year i.3 formation to conform with the current presennation. 3. Wolf Creek Gea m t N Mert4nat KEPCo evns 6 percent of the Wolf Creek Generating station rear Burlington, Eansas. Tae re-' aimer is cvned by the Kansas City Pcwer & Light Company (KCFL-47%) cmd L,ves oss & ziectric ccmpany trGE-47s). Substantially all of ra:. rec's utility plant repreecnts !to share of the Wolf creek Generating Staticn. KrPCJ 3 is entitled to a propertionate share of the capacit and energy fron Wolf creck I which is used to supply a portinn n* ltimen's memberm' werIni rement a. RTPeo is billed for 5 percent of the operations, caintenance and thinistrati.ve and general costs related to Wolf Creek. All operations are accernted for in the same manner as would be a wholly w ed facility. The Kcc doulared wvir creek co=aercially cperable on September 3, 19E5. 1"CPCo's totc1 investment includes interest and acWiatrative costs during tnne rterien. Effective February 1, 1987, the IOC issued an order to EEPCo to utilite a present wortJ. (sinking fund) depreciation method which does cet conferm with generally accepted accounting principles and which constitutes a phase--in plan i which does not meet the cri.teria of rm No. 92. If depre=1arien on electric ple.nt in service was calculated using a nethcad la accordaa:e with gene.cally accepted accounting principloc, depreciation expen=c would bo inercased and KEPco's operating margin wnnlet ha tiar *panari by 51,89b 102 and $4,209,692 for the years ended Dece=ber 31, 1992 and 1991, respectively. In addition, net utility plant would be decreased and the deficit b patronage capital (deficit) unallocated would be increased by S25,683,852 and $21,787,750 at December 31, 1992 and 1951, respeettrely. 4. Inves.mentsu i EEPCo*f portfolio, whien is included in the balance sheet at cost as cash and cash equivalents, is invested in fixed inrrwe securities and is ec= posed cf the followin; securit:e.s at December 31: I l Continued 9

03/24<93 16:29 09132737014 ES ELEC PFR COOP 2 011 4 19_92 1 *r 91 Decesits at federally insured banks 5 6,cfC s 22a,392 United States t h a t agency cblicatiens 2,994,255 2,49G,677 Collateralized repurchase a_w,e.ts 450,000 Naticcal Rnral Utilities Cooperative Finance Carpcration terc}: cacnercial paper 2,825,033 KEPCo has estmeavi 4 mten a bond covenant wherahy the Coeparative 1.s requirod to mai.ntain, with a trustee, a Bend Fund Reserve cf a stipulated amount of approxirately 53.9 million, sufficie=t to satisfy certa.im future interect and principal obligatiens. '"he a: cunt held is the Bond Fr.nd Reserve is inverted by the trustee in varacus seccrities pursnan* to the restrictices of the indenture e.greeme.st. These rewerve funds have been invested by the trustee in ma icip l securitics cnd cre carried at come. The decc:maissioning funds have been invested by the trustee in United Rtata= Treasury obligations z.nd are carried at cost. 3. ra vestuw.t w_in Associated orcanizations 1* Leeeciber 31, 1992 and 1991, inves ::mente in accociated ergrenizations ccasisted of the following: 1_992 1991 National R-M Uti1* ties Cooperative Fir.e.nce Corpcration (CFC): Mecibership g 1,000 g 1,000 Capital term certificates Wi,47n ~395,970 Saberdinated ter: certificates 2,205,000 2,205,000 Patrenage capital certificates 56,526 60,347 Otner 10,431 6,398 $2,665,927 52,668,715 5. Dxferred Charge.gl a. Df aallowed costs-EffeuLive october 1,1985, the Kcc issued a rate creer relating tc Myco's invcat-w et in Wolf creek which disallowed approximately 322.9 sd.111cra of IIPco's in-recte.ent in Wolf creak. A rubsequent rate order, cifcetive i Tetraary 1, 1987, allows EEPCo to recover thew dimm11nwr,r1 r nce a, ma well as intereet costs and prooerty taxes related to the disallowed portion for the period fran Sentenber 3, 1985 threcch Jaruary 31, 1987, over a 27.736 year period startlng February 1, 1987. KIFCo is using present worth (sinking func) amortizatice to reccver the disallowes costs wnien enaDies it to meet the LMs, laLetest eraued raLiu mud debt service require:nents in the Ecc r:tc crder dated Jannery 30, 1987. The method used by K2?co constientes m. rhat.e-in plan which does not neet the critaria of FASB No. 92 and, accc.hly, an additienal 5518,197 tad $558,709 should be charged to expense fer 1992 and 1991, respectively. In addition, deferred charges would be decreased and the deficit in patrcnage capital (deficit) 4 milocatec votic de increased by 53,491,593 and $2,973,795 at December 31, 1992 and 1991, remineut.1vwly. COOti2uDd 10 m

0 24,93 10:30 09132737014 ES ELEC ITR COOP 2 012 f 5. '-411 v Pi e ecces, a ".arui utility plant costs were not in=1mded in KKPCo's 1985 rate request because the Kcc required KEPCc to file t.be rate request based en proiected total utility plant costs. The February 1,1967 rate order included these costs in F.P.h:o's rate prospectively. Ecwever, no provision was cade in the rate crder fcr ::ecovery uf 0.2e related depreciation, property taxes and intersst coste for the period from cepter.ner 3, 1905 through January 31, Acen-r inef y, r7Pco included the related depreciation, preportv taxes a 1987. e.nd interest =csts foe "e period from september 3, 1985 threu;n Ja=cary 31, 1987 i. deferred ch s and, in acccrdarce with a rate order dated Febr:ary 11,- 19a8, KI?Co amortivirg these deferred costs effective January 1, 1968 ove-26 t 2 years. Pursvar.t to a KCC rate order dated Earch 27, 1992, theme cu=Lu were try.nsferred to utility plant in i I service i_n the accompanying b:1:nce ebceto. The - =ortised balance will be depreciarmi nva-who rec = W mg life of the plant concistent with the cresent worth (sinkinc fund). depreciation method. i c. Revenue and Eroenses for the.__ Period from Secte s er 3, 1965 Throurth d e c tac c o r_ 3 0, l'jU).1 7.lthough the Wolf creek c-enerari.ng stetion began --rcul operaticas on ta-emeer 3, 1.925, the Ecc erdered TIPco to accur::clase all revenues and expam as related to the operatien =f Wolf creek f or the peri ori frort September 3, '955 through Septecber 30,19ES in deferred charecs. The KCC i issued an order en Tebr::ary 1,1987 eich allowned KEPCc to recover thcce 4 i costs ever a ten year peried. 7n=tal amortization of such costs increases uver the recore g period. I I d. Refarrod Incremental m hae Coctre i On April 9, 1991, the KCC issued a= crder that allcwed IIPco to defer its I 5 per ect sha-e of tne increr. ental =aintenance ard replacement pcu.r costs j associated with refueling of the Wolf Creek Gertrating statien. Such deferren ecs s t.re being amorti.=ed over the cperating cycae coincicent q with the.ecc u i C w cf LLw related r evuum. Tutal cowtai deferred at j December 31, 1990 and 1991 verc $382,199 and $2,404,783, respectively. l Aranrti -ar i nn ovpenea fer 1992 and 1991 was S2,390,667 and 51,546,172, resoectively. I 3 1. uo m e:: pezt-1 LCa jir-tcrm debt cCSSiSts cf scrtinge note.s psynble to the United States of ) i Wrica at-tir.g througts the Fsescal Financing sank (FF3), the Naticnal Ps.ral j j Utilitiet Cooperative Finance Corscration (CFC) and others. Substanti.:.lly all cf KF.7Co's arcsts are pledged as collateral. "*he tomc of the notes as of i ] Deccoer 31 are as fellows: 1992 19M Mcr: gage no cc payabic te the Federe1 F%a,*-irr* Mnk (Fy?) at rates varying fr m a j 7.030% to 9.365% payable in q arterly 4 ins

• 4ents througn 2018.

$133,317,00? S132,262,867 4 i j Mortgage n=tes payable to the Natier.al Rural Utillties cocperative Finance l t Corporation at a care of 10.C l:01rs i i threr@ December 1997 m,a 9.831 thereaftsr, l payable SM-annually, principal payments i

xnencirg in 2003 and continuing anacally through 2017.

51,3/,C,000 51,340,000 4 j contimed J 11

- 03<24<93 16:32 39132737014 ES ELEC PTR COOP 2 013 1Gc2 1o91 Hortgace notes payable to the Naticnal r< ural Utilities Coeperative Firence carpurt. tion at a rate of.9.52745 through Donmher,1097 and 9.33% thereaf tw, payablu aw.i-="enmily, principal payzecr.tr en r'encing in 1989 med continuing annt=T1y through 2002. 5 10,169,490 $ 10,764,267 ricating/ fixed rate pollution control ruvence bonds, t.ity of uurlington, ormas, N 1ed Series 1985C, variable laberecmL rate, (2.694 tt December 31, 1992} psytble annually through sm s. 41,700.000 c. ioo oo_o m 233,526,497 226,467,134 I.ecs c=rzut pertion 3.333.869 2,940,332 5230,192,632 5221,576.807 Ag;;megate e-anrities of mor gage rotes payabla to tha roderal Financing Bank and Natienal Eura' Utilities Ceeperative Finance Corporation and floating / fixed rate pollurica control bonfs as of Decer.ber 31, 1992 are as fellows: J.p_a,g Agpunt 1593 s 3,333,865 1994 3,563,811 1995 3,831,087 1996 4,261,627 1597 4,55e,621 '"hereafter to 1018 213,979,406 S233,526,497 At Dece ber 31, 1992, F3PCo has appr0ved TFB lcans guaranteed by REA with belens of $130,317,037. or m s ascust, 55,140,179 currently has astattrity date of March 31, 1904. Upon maturity of each short-term advance, ITPco may renew the adea.nce f or arcther two-year period or elect to extend the nr.aturity date cc a inr geem haete. '" b a ahnva cr-herfula nf ' nng-rom riah* maturities assu:nes that the 55,140,179 wn4 9 ma_tures en March 31, 1994 will be extended on a icng-tern basis with a maturity date of December 31, 2017. in additice, restrictive covenants require IEPCo to cesign rates enabling it Lo -f"Laiu en tin.as interest earned ratic and debt service coverage of at least ano-to-ccc in at lease two out of evesy three years. Restricted cash and short-ta=n irvest,--nts cc=sist cf unexpended loan preceeds ram 4""g in the Ccnstruction F=nd. These f=nds will be utili. zed fcr scheduled principal reduction Of the originating debt. S. Chert-te m Borrowincs I $17 mit14nn live nf reswif t with the CT'c wMeh romain,wl l KiEPCs has arw47mble m unused at Deccaber 31, 1992. 9. Omratine Lease: T,I?co ic,oca offica epace under a noncancellable operating lease expi. ring on Dacer, hew 31, '996 The related rental expense for 1992 r.nd 1991 was S120,519 and $93,462, respe::tively. I cuuLiu A 12 I

03/24/93 16:34 09132737014 ES ELEC PFR COOP E014 i 1 Future min t nr.:m leasa peymants fn? office space and eT.tipcent laased at December 31, 1992 are as follows: 7.Ra.E Amount 1.993 5110, e76 1994 100,720 1995 97,466 1.99E 93_Oc6 5406,958 The vrin f rnr.m le&se paycacts can be f remased to the extent that taxes and insuranco paid by the lesser exceed IMO levels.

10. Pension Plan-a.

National Rural Electric Cocnerative Ass 30ietien (NRECA) Retirement and 3esuri u Procrami FEPCo participatac in the National Rural Electrio cooperative Accociatien (KRECA) retirement and security progre.m fer its ecployeem All e,npinyeem of cembers of KRECA are eligible to carticipate in the program. 1 =oratcrius en contributtma is in effee. for the period Jul,y 1, 1987 through Dece=ber 31, 1992 d:e to reaching the full funding 1:mitatien.

n the master nutrie:plcyer plan which is available T.o all members cf NRCch, the err - iated benefits c.nd plae asseLs sue uuL deter mt rul ur allocated by 1.ndividual employec.

Y1Poo h:2 no pencien exponec for the plan for the yearn ended norwhor 31, 1992 and 1991. Substantially all employees of KEPCo also participate in the HRECA Eavings Plan 401(E) opticn. Cnder the plan, IIPCo contributes amounts not to exceed 3 percent, W ent on tne employee's level or participation, CZ the respective empicyee's be.se pay to provide add 1Licual leL11anent benefits. IEPCo centributed approximately $29,537 cnd E27,646 to the plan in 1992 and 19C1, ros;weively, b. Wolf C oek NucIcar Operatire Corporatien Petirement P!ar: EEPCo nas an CD11gation to the Wolf Creek Naclear Operating Corpora *cicn htirement Plan for its 6 percent ownership interegt it the Wolf CreCJC Cenerating Station. This plan provideo for benefits upon retira ant, non-m i ly at age EE. In accordance. with the Dcnicyae Retireraent T nr-me Security Act of 1974 (EPTSA), 17 pen han nati sfi ed at 1eant its min!m=a fundisq recuire:Lents. Senefits under this plan reflect the e=ployee's cc=pensation, years of service and age at retiramnnt. Provisicas for pensions are dete mined uncer tne rules prescriDed cy Financial h uvuullug s Lainb rd. Buard (TASS) Statement No. 87. The followl.ng Lc TIPco's portion of the fa ded status of the plan as of neremhe-ile 1992 1991 Ac m.tlatec benefit ocligation: Y es.thed $ 266,845 5 215,040 Nonvested 120,539 1C1,C20 Total e 2C 5 JEi L 21hfiQ t CC tinued L3

03/34,93 26:36 99'13:737014' ES ELEC PVR COOP _

koaB F I l'! 5 1992 1991_ ' Deter:::ination cf plan assets Imss obligations: l Fair value of plan assets (a) S 569,765 5 507,660 i Fre:ected bens:it obligaHnn (b) 1,191.226 952,740 't Difference $ f621,461) g ). j t Recccciliation cf diffarence Ccctributions to trusts: Accrued If.ahility 5 (459,540) S(246,840). t u-rtized transition amount (137,894) (145,140) curwcognized net gain .ts,Ulm 12,300 carecognised prior servic.e cost (62,045) r es,4or ) ? Difference e rnos. ast }' se4as.oso) (a) Plan assets are invested in insurance centracts, corporate bonds, equity securities, U.S. Gover=nent securities and abcrt-term i investmn,ts. ? (b) Based os di.ccount rato and rate of increcae 1.n future salary levels cf 8% and 65., rmrpart ival y. j Long-term rate of return on plan assets of 8% was used. j Components of provistons Ice pensions: { 1992 1991 serviep,mc+ $ 154,471 .$ 139,160 l Interest ecst on projected I benefit obligation 88,309 52,920 i Actual return en plan assets (64,387) (69,960) Other 35,311. 40,380 Total pension expense 3 212,704 $ 151,500

11. Incene Taxes; j

At Decesser 31, 1992, 12PCo had untsed net cperating. loss carryfervards avniinb1w to reduce future taxamle -inecce and investment tax credit carry-f forwards c.s follows j l wat OyrnHng nor nyerarLug ~ T.455 LCFS In?t.s* M" Available Carryfcrwards Carryfcrwards Tax Credit Thretch f300k Basisi (Tar Basis) Car-vforwards-l i 1396 3 5-7,160,000 5 1997 12,410,0C0 202 17,123,000 896 l 144R 1999 194,274 21,468,000 1,210 l 2000 1,977,542 4,442,000 7,731,327 2001 2,685,169 3,899,000 2002 1,292,EE2 4,263,000 2003 l 2004 1,5GZ,000 1 2005 1,3$1,000 2006 269,516 4,630,000 J 2007 2,302,672' 1,498,QQQ S 8,922 C55 580.336,000 S 7,733,636 ] I CCntinued 14

03/24/93'16:42 99132737014 ES ELEC FVE COOP 2 001' earsac paic mu l &Ly3 rand i ? REPORT OF INDEPENDENT ACCOUNTANTS i i Thn Moarti of 'Prustems Kansas Electric Power Conparativn, Tnc.: l i We have audited the accompanying balance sheets of Kansas Electrie l Power Cooparative, Inc. as of December 31, 1992 and 1991, a:x1 the related statenents of operations, patronage capital (deficit) and i other equitice, and each flowc for the yearc then onded. Theco d financici statements are the recponnihility of the cooperative's management. our responsibility is to express an opinien on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards and Covernment Auditing Standards issued by the Ccuptroller 1 General of the United SLatus. Those st-r=wds require that we plan. _l and perforn the audit to obtain reasonable assurance about whether the financial statenents are free of material misstatement.. 'An audit includes amining, on a test basis, evidence supporting the' amounts and disclosures in the rhiancial statements. An audit also includes i assessing the accounting principles used and significant estinates made by nanagenent, as well as evainating the overall tinancial j ] statement presentation. We believe that cur audits - provide a 'l reasenable basis for our opinion. 4 ~ As more fully described in Note 1 to the financial statements, certain depreciation and amortization ratheds have been used in the preparation of the financial statements which do not, in our opinion, l conferm to cenerally acca:.ted accounting orinciples. i 1 In our opinion, except for the effects of the matters' referred to in thn preceding paragraph, the financial statements referred to above present fairly, in all mtarial respects, tha financial position of j 3:ansas Electric Power conparativa, Tnc. an nf Decanhar 11, 1942 and-1991, and the res:ults of its operations and its cash flows for the years than ended, in confornity with gansrally accepted accounting principles. 4 j -A D Kansas ciLy, liissuari rebruary 17, 1993 Pod-It" brand tax transmina! memo 7571 hof mm * / 7 %e be '6m Gehun " We# C W (EBdc j

• *5/3_ m 3 a O/o 3f f.c M Ml3I 4/3M 3 -78/h

.- ~

03/84/93 16:43 C913 737014 ES ELEC PFR COOP E 00: 5 K2xsis II.TcT21C POWER COOPERATIV2, INC. BALA.NCI SEEITS Decer.bor 31,_ ASSETS 1992 12c1 etility plants rirut.rt:: plant in service $200,168,n1 5200,742,353 I css nii rwances for depreciatics _70,931,S99 1S,797.591 Net utility pla=t 179,736,722 181,949,762 Constru tien work in precess 1,082,312 565,310 twelear *uel, less ar---latec amortization of 310,;s4,13G and 39,236,063 at tocomber 31, 1992 and.1991, roepoetively 4,839,23_! 4,160,034 Total utility plant 185.157.E49 _126 f;7t: 1rm Festricted assets: cash anc cast equivale=ts 239,85a 2D3,332 Investcsents i.e. asavulnLed uryag,:stluam 2,555,927 2, ti6d,715 send fund recerve 3,023,577 3,921,323 ner nmimmiemive fund assets .724.221 1,035,248 Octal restricted assets _ B,185.58.3 7,829.618 ucrrent assets: cash and cast. @ vale.ut.m 3,260,493 5,342,745 Kational Nee.1 Utilitica cocpc.rative rim <-e Cn p. pe ronage empital eartLficate 4,292 S,477 Accoc=ts receivable from rembers 5,807,523 5,505,446 F.aterials and supplies i=ventory 2,02?.214 1,867,692 Ctter assets and prepaid expenses 581. F.@l 515,3E6 Total current assets 31.6 %.604 13,2 !9,719 Other icng-term, assets: Dafarred chargen, leau at rnw lated 2.mr-isation of 54,079,857 and 53,463,443 at Decem. oar 31,1992 and 1991, respe=tively 24,910,243 25~,526,9 72 Deferred inm--tal ettage costs 383,199 2,404,783 unamortized becc ss.ie cost 1,224,315 1,285,115 Mcif Creek hulcar operating Curp. inveetmem::, at coot 1 163,030 859,278 1 Te.al etter icag-ter= assets

27. s so. 77 t; To,077.34s Total assets

$23 2,681. 533,5, $237.821,591 i The aumpanyLag actes are an integral part of these finaccial state =ects. 2 p I f

03/24,93 16:45 C9132737014 ES ELEC Pa COOP 2 003 i w P neeende-31. CAPT'"1?.T7ATTfW LiiD T.TARTT.TMS M M Capita 14 ution: Patronage capinal (deficit) and etter eTaities: Me=berships S 2,900 S 2,900 Patrcnege capital (ceticiL) m ituccLud and ether equities {ses ata*mt) (L_360.747) (7.059.076) total patrocace capital (de'icit) and other egeities (9,357,847) (7,055,175) Long-te=s cent,.tess current portion 230,192,e32 233.526.802 tetal capitalization 2 20. 93 '.10 G 226.471.627 Liebliities: ca. st liabilities: Ar enmtn payable 4,763,477 5,577,847 Payroll and cavrell related liabilities 57,380 51,289 Accrced property taxes 1,205,242 835,722 A.~.ued interest paytble 719,032 782,d4b Cntrent pcrtion c" long-tern debt 3,333,865 2,940,332 Totsi e-r.rrc=t liabilities 10m379 995 __10.187.796 other liabilities: Dec e issioning liability 1,384,225 1,035,248 Other liabilities 283,82S _ 12_5,980 total other liabilities 1,668,C54 3 162.222 1 t l i l e 4+---La ns contL=ganoLes Tetzi capitalization and i 4 ahi14 ties E232,601,835 5237.871.591 I e )

03/24/93 16:45 09138737014 KS ELEC PFR COOP E 006 D.NSAS I".ECTRIC POW 12 COOPER 12n'E, INC. E'"3'*n'%'TS OF GPEPA!!CNS vars vedM Tw -horn. f 1992 1991 opwret*=g revenues Eember 464,974,591 567,875,208 No - hce 144,072 133.510 i Tetal operatir.c revenue 65,119 i611 65,006.71E Operating expenses: Pcwer Furenasea 32,227,235 35,503,638 Nuclear fac1 1,781,054 1,226,974 Nuclear plant operatioru: 3,343,C35' 2,892,5D2 Nuclear plant maintpasar-a 1,988,831 1,531,130 Nuclear clant ad,4nistrative anf! cencral 4,652,652 3,649,411 Administre.tive P.nd general 2,285,447 2,222,540 Amortizatics o* deferred charges 616,414 582,645 Depreciation 3,297,769 2.907.673 Total epc.~ ting cxpenscs 50.2?I, 9 0 _50,516,603 0:erating margin 1.".,887.523 17,490,115 Inter *st ir.come 6?2,E15 901,930 l howt: befuru incurien chcges 15,520,225 13,472,045 Tnte-oca expense ec leng-tar = dabt 17_J223. 010 18,741.561 Net =argi: (1 css) S (2 302,672) S (269,526) a 2 r P i t Wo star *O*3pt.cying notes are an integral part cf these financial statsansnts. 3

03/24,-93 16:46 9 9132737014 KS ELEC PFR COOP 2 003 5 + r msAs EI.EC"RIC ><mE2 cocPERFCP/I, INC. SUN'TS CF PATRONAGE CPJrIAL iDEFICIT) AND OTEER EQUIT1TS For the Yccru Ended December 32, 1992 end 2001 Patronage CayLtal (Deficit) Other t'e-Dcrs e s.es Dr.tllocatec Ecu. ties M 3aiarca, Dacanhe 31, 1990 S2,900 $(11,744,952) S 4,556,393 5(6,785,659) Capital tilocatic: 438,692 (438,692) 1991 ner =argan (icss) 15.251,445) 981,930 f269,516) E110.r.cc, Deces.ner 31, 1991 2,900 {22,357,700) 3,499,G31 '7,055,175) 1992 net r.arci.n (less) r?.o35.487) 639.R15 r?.302.6721 Bala ce, Dece=ber 31, 1992 J2 M $(15.493,193) S6,132,446 S(9,357.847) l i j I l l l l s i i 1 i Tts u m arying no as are am i=tegral part c taase rina.:lal stuements. 4

03/24/93 16:47 09132737014 ES ELEC PFR COOP 2.006 TAKKAS RT.Rf*PRTC DOWER fYt1DFDL?TVR, TNC. STI'"W7NTS OF CASH FLCTKS Yetrs EndM Deember 31. 1992 1991 cash : lows frc:n operationst cash received Irca muuln:: malem $ 64,867,371 5 E8,530,545 cash reco1vod from non rmhcr scico 153,745

22,671 cash paid fn* pnrchased pe%rer (32,093,193)

(30,604,318) Cash paid for Wolf Creek operaticas (E,926,075) (7,003,062) Cach paid for KEPCo operations (2,309,943) (2,205,441) e Interest palti (17,753,553) (18,873,959) L i'reperty taxes paic (2,161,509) (1,545,765) LLartemet :wcuivec 709,201 2,120,070 ccch paid to dee-issioning t nst (297,250) (237,000) Miscellaneous cash recalved E 353 2.079 Net cash provided by operations 4.194,147 4,305,310 caida fivw= frus investing activities: Nuclear fuel purchases ( 2, 037,10'J ) (2,409,3C0) Plant additLons (1,079,242) (1,353,645) Wolf Creek Nuclent Operating Corp. Investr. eets (239,224) (178,305) Cash paid for p:rchase of municipal bonds (80,879) Cash received frem the sale of gover-mert bonds 33.768 Net cash used dr. investing activities f 3,355, 7 5).) f4,068,3211 r c'ach flows frem ficercing activitie.n: Repay. ant cf lenc-ters debt (2,940,637) (2,585,509) Payment on line of credi: f400,000) ae cash used 1.n ri"ane-ing activities 42.940.637) <?,*85,599) T w ease in rash ara epoh a<piv=lents (2,1fD,7aG) (7,'7aR,52ri) Cash s d cash equivalents, begin+g of year 5.342.73_3 A,091,258 Cah s,nd cash equivalents, end of yea-s 3,240.493 $ S 342,735 l E 1 l t costimued 5

03/86/93 16:47 $9138737016 KS ELEC PFR COOP 2007 r.us2.c n:::c are rowmt coormu. Ivn, - Ixc. S*1*'TMS OF C2 SE F".IT,iS, Cottinued i _vean reded Deenmber 31.- yger 3e91 Reconciliation of net income to net cash pr0 viced Dy operating activities: Nw'. margin (1 css) 5 (2,302,672) 5 (269.516n J.db=tzsents to recencile net margin to ces cash previded by (used in) operating activities: Oe:::reciation 3,297,269 2,907,673 A:crtization =f nuclear feel I,358,088 E81,092 A::crtization of deferred charges 616,414 582,645 T e ization of deferred incrw,rrtal cutage costs 2,390,667 1,546,172 A;nortizatics of bcad issue co6Ls E1,800 62,C45 Accretica of discennt/zmor:Leatice of pre:nium (2,255) (2,255) Loss on sales of enspra 75,071 67,694 (Increase) in restricted cash and stcrt-term investments (6,525) (4,935) (Increase) decrease in i.nvesNJ in associated crg W rations (21.L) 17,623 (Increase) in cash sateudet v alt.e of life in.w. ace (E4,518) (62,640) ( Tneremm) % v4matmissionin2 fund asse s (347,978) (301,970) Occrease in d e 'ssicaing liability 347,978 201,970 (Increase) in deferred iterama--=1 cetage expence (3ES,C83) (3,169,055) increase in aruitrage payable 137,540 118,424 Neb chauge in current assets and liabilities: I N:tional R=rc.1 Utilities cooperat.ive P4v=nce (':nrp. patrenage capital certificate 4,195 G,959 Accounts receivable (302,077) 359,765 Materials and supplies inventcry (155,521) 40,562 Other assets and prepaid expenses (109,010) 88,701 Acccunts payable (814,370) 1,248,479 Payw11 v.nd payroll related 1 hhilities 6,091 6,273 Acerued property taxes 4C9,320 131,$70 Accrued i.sterest psyablo 163,5;4) f0's.935) Total adiust=ents 6,456,819 4,574,825 _j Tctal provided by operaticas S 4,194,147 3 4,305,310 q

• ne accocptnying scres are an integrai part or tnese rinancia.1 statements.

6

03<24<$3 16:46 39132737014 T.S ELEC U R COOP 2 006 Y t II.NCAS CLOC"UCC TOWra CoCF2Rhr!VE, INC. NO"ZES To FTMCIAL ST2*TMEm*S 1. Fortrtrree Free Generally Ace d ad Accourtln: hire vles; 8 Effect'ive February 1,1987, tbn 7arnan cgration commissinn (rtr.) iccued an crder to Kansas Electric Power Cocoerative, Inc. (KEPCo) recairing the use of presean worth (sinking fund) dep-eciation and amortization. As more fully cescribed in Notas 3 and Ea, such depreciatics and anortiza.tien practices curwtitete p%=.e-in pleas which ce not mee: ste require: tents o-ras 3 Nc.12,

• Accounting fcr Phase-in Pl ar.s.
• The effect of these depar L.a.t:m un thw I

fimancial etat ensants am of Doocur.bor 31, 1992 and 1991 te to overstate net utility plant by 575,6AO,R O anet p1,7A7,7En, m.vatara dofarred charges by $3,491,993 and 52,973,796, understate the deficit in pa h oe carital (deficit) by 529,172,545 and 524,751,546, and understate the net loss by 54,411,299 and $4,768,401, respectively. 2. su Am" of Sienificant f.ecountLm Pelle!c:re a. Svstem of Acceen ar IIPCo ma t*=9s its acccuating reccrds substantially in acccrdance with the rederal t: ergy Regulatory r-ss;.cn* 5 enart os acccuntS Es aCOpteC Dy tne Rural ElecL ifiaation Adc.Laiwtretica (REA) ed in eccc 1.*ance with

.ecoanting practieem prescribed by the Icc.

b. Utility Pla-t and Der-eeintien Utili.ty plant is stated at cost. The costs of repairs and ciner repitee-ments tre enarged to operating expense as appropriate. Costs of renewals and buttw.rments are capitali=ef.. ~he crigine.1 cost of utility plant retired ar.d the cost of remove.1, le.ss salvage, are che.rred to ace.walated AerretLatLon. "hrough January 31, 1987, the previsicn for depreciaticn fer elec~.ric plant in service was ce=;r.:tec en the straight-line ce:h:>d at a 3.44% anrnal j compositc rate. Effective February 1, 1987, in.acccrdance with an order i issues by rue acc, the provisicc fer cepreciatien is co=;r.:ted en a present 1 worth (air.k# g f:.md) cathod wh"ch p.ovides fcr increasing om&1 provisions = over the nox: 25 yeare. The compocito ratec fer the yearc cr.ded Enre-nha-11, ' 1997 a mt 1991 wre 1.71405. and

1. EU2 %, rerpsetively.

Perstant to a ICC rate crder dated March 27, 1992, beg 4"* 7 January 1, 1992, all additions, betterments and i=provements are depreciated on a strtight-line basis crer 30 years. The provision for depreciation, conir.2:e On a straignt-itne bests, of ctter components or utility pla.nt are i a.= Iullwo: i Oranaper* ation equi;=ert 25 to 33% office furniture and fixtures 10 to "C% Leasebcid improvo-ets 20% Tramission equ' r emt 20% Depreciation expense other than as set forth in the statenents of opcrutions is not si.gnificant. Ccnt:.nce: 7 i i i j

03/26/93 16:49 09132737014 ES ELEC PFR COOP 2009 6 L e Nuclear ruele Kuclear fuel cost is amo.:ti ed to fue'. expense based upon the quantity of heat produced for the grmeration of electric power. ~~he per::.rnent disposal of spent feel is the respcmsibility cf the Espart=ent of Energy {poz). hreco pays one m111 per net kwh of nuclear generatics to the ::CE for the futu.ve Csyvnal aurvice. *1arw disposal costs are charged to fuel expense. d. Tnva=+--a

• e in Aeroeisted or -=e* watience Inves*. ents in associated crganizatices are carried at cost and consist principally of patronage capital certificates, capital term certi.ficates and s scrcinated ter= certi.*icates cf the National I:cral Utilities cuupw.rative rinance corp. (crc).

crc patronage capital certificates =aturing within one year of the balance cheet date are reflected as a current assat_ e. Cash E civalents: All highly liquid Leves e.nts which cature within three months or less from the date of ptrehase are considered to be cash equivclents and ere stated at ecat which approxic.ates :.aa;Ket. f. MattH el e and surelies Tave*~nrr-Materials and supplies inva-tney fer the Wolf Creek Generating station is stated at cost determined by the average cost method. 6 g. Ucer e ized Sond Is n e costs-Camar" tized bond innrei costs reimted tn the (menance nf the finating/ firad rate pollutien contr:1 revenne bonds and =ortgage notes payable to the Nati r--a l Rtral Utilities Cooperative F8We Ccrporatico are being + ascrtited using the interest methed over the rec.aining life cf the bonds. h. Seccmalssivai a Fu::d An rtw /Deutm,Su_lunin:.r_ ti.bilityr_ i s At 'ae< crahar 31,1992 and 1991, 51,384,126 and $1,036,249, respectively, has been collected and is being retained in an interest-bearing trust fund to be used for the physical d e 9*sioning of Wolf Creek. During 1989, the ICC extended the esti=ated useful life of the Wolf Creek Generat ng station

s cu years are: tne originz.i estimate of 30 years only for the ceL+~'-Llun of ewcum=1wstoning costs. Additicnally, the estimated cost of decem 4*sioning Wolf creek was increased to 3205 c.illien in 1900 dellars. IEPeo in responsible fer a G parce.at share of the dt oemnissioning costs.for the Wolf Creek Generating statien.

Bese cents arn baing recovered and chart;ed to coeratiens over the life of the clant. i 1. Tn~c=e Tares l + In rebruary 1932, tte Fincncial Acce.waLic, 3*.aada.Las Nazd (FASE) laeued j fag 2 statseact No. lo9, 'Accou=tir.g for Inconc *l:xce," vhich rcquirco e > ;g-les to aanpt cAn new me+hno nf memnc-ing far ter mma tares no later than fiscal vcar 1993. KEPCo has not adopted early application cf the provisions of nSE Stata*.a-r No.109, however, management expects no impact en the financial statements as a result ef adopting this Stater.ent. 1

3. Patmnace_ capital ud otbr: suitirm :

operating rnargin, cet of W em=t errem==, i= credited or charged to patrenage capital. Nonoperating =argin (L:terest ine :ne) is credited to ] other eg.tities; however, upon an affirnative vote of the menbership, margins may be allocated to patronage capital nraocated. l 2 conti=ced a i

03/24,93 16:50 99132737014 ES ELEC PFR COOP 2 010 i k. W%c r The KCC has authority to establish IEPCo's electric rates trabject to times i interert earred ratio and debt service coverage requiresents se fcrth by the ec:ra.1 tie ctraricat:.cn Acclaistratien (REA). KEP0o believe it i= probabic that futurc rcteo, c.s catablished by the ICC, will allew tb. w rica y of daferrad char;es (see Enta 6). If sebeequent recovery is not ppm-4tted. the unrecovered deferred bal ances would be charged to expense at that time. 1. Revencer; Revenuco frort the male of electricity are recorded based on billinge to emerwers a.nd en contracts and schadulod powar usages, as appecIriate. n. Fair _ Valtes cf Finenrial Instrumeants: Tne carrying value of financial instrcnonts as cf De c.2er 31, 1992 .typroxinated fa*r vaine. tne ra.Lr na: Ret values were cate

• e3 hased en quoted s.arket prices for the iner.=.=nente or for miniinr types of instruments as of December 31, 1992, er on the currant ratec effered to KEP0o ter dett of the sane reni ing caturities.

n. Reclassificatient i KEPCo has reclassified tte presentaticn of certain prior yea-inicmtion to cenfersr. with the current presentation. t 3. Wolf Creek Ge;teratin: Station: KIPCC ewns 6 parcent cf the Wolf Creek Cenerating Station rear Burlingten, T.Ansas. ite re* ** der is ownec by the d a"=as City facwer E Light Compary (ECFL-475) and Ita-mas cas s riectxic c x pe.ay (ser-47%). eubstentially all of KrPoo's utility plant repror onte its charo cf the Wolf Creek Canerating Station. IIPCo is actitled te a pmpn-rinaate ahmem of the capwc4ty and energy frem Wolf craale which is used to su:ralv a certien of KEPCc's ce=bers' rectirements. KEFCo is billed for 6 percent cf the cperations, maintenance and aAimistrative and general costs related to Wolf Creek. All cperatinns are accennted for in the Sare Carner 4.s wJ.:10 De a Wnolly-Cwnec TacL11ty. ':'h= ICO declarad Wolf Creek ec=ce =ially operable on cepta=bar 3, 1985. KE?co's total invastnant includas interort and aM M strative eccts during construction. ( Effective February 1, 1987, the KCC issued an creer to.UFCo to utilize a i present worth (sinking fund) deprecie.tien method which does net confere. With generally accepted accounting principles anc whien constitutes a phase-in plan which dcca not meet the criteria of TA33 No. 92. If deprecintion on electric plant in service was calcul.ated using a zaothos in accordance with gecerally accepted ateennting principlas, depreciation expense weeld be increased and KE?Co's operating mar ;in would be decreased by 53,893,102 and $4,209,692 for the years ended Dece=ber 31, 1992 and 1591, re p ively. In addition, net utilsty plant wer.1d be decreased and the deficit a patrenage capital (deficit) untliccated weald be increased by 425,6eo,ES2 r.nd 821,787,750 at vece::ter 31, 1992 and 1991, tespeu.;vely. 4. Invest =erts. KEPCo's portfolic, which is included in the balance sheet at cost as cash and i cash equivalents, is investec in rixed-incene securities and is cc:rposed cf the follo-14 se m i;.ien at. ceceuL'a.c. 31: Contirmed 9 i

03,*4,93 16:51 C913:73"014 ES ELEC FR COOP Q 011 I 1992 acci Deposits at federally insured banks S 6, ':56 5 224,393 1 United States covernment egency obligaticus 2,994,295 2,496,677 tcLlat**"al4 ec repar00ase agrecmcats 450,000 Naticaal Ra el Utilities cooperative e Pk w oo corporation (crc}: cow-w-r-t a i paper 2,s:5.003 T2?co has entered into t bend covenast wtereby the Cooperative is required to maintain, with a trustee, a Eend Fund Reserve of a stipulated amount of i appron=ately S3.s M 11 %", sufficient to satisfy certain future interest and princip tl cbligatio=s. the amoant teld in the Bond rund Eeserve is investec by the trustee in various securities purscent te the restrictions of the l int'en cre agreement. '"hace racervo funds have beer. invected by the trustee in -n ? cipal see rities and are carried at cost. l The de='v-8csiening funds have been invested by the trustee in United States Treasury ceilgations and are carried at cost. i S. 2 m r*ree c in Acceolated orcarinatic=r s At Dece=ber 31, 1992 and 1991, investments in asseriated creanizatiens consisted cf the following: 1 [ 1992 1991 National Rural Uti.Litiec cooperative Financa co y warinn (cre)e Membership S 1,000 5 1 COO Capital ter= certificates 395,970 395,970 Sube.~dirrted term certificates 2,205,000 2,205,000 Pat.crage capital certificates 26,o26 60,J4/ other 10,431 6,398 4 j ei_up,c?7 g 7 p o_ n 5 l 6. Defe ~ed Cntrces: Diw110wed ccrts. a. 2 Effeettre October 1, 1925, tbo Ecc issued a rato ceds.r relating to FIPeo's I invest.. e=t in Wolf Creek which disallowed approximately $22.9 tillics of i TIPCo's investment in Wolf Creek. A subsequent rate order, effective l' February 1, 1987, all0ws TJPCo to recever these disallCwed costs, as well cs interest costs and preperty taxes related to the disallowed portien for j the period fro = septe: Der 3, 1985 through January 31, 1587, over a 27.736 l 'j y e t.: period starting February 1, 1302. KI:Peo is using presen wcrth i {s M '"7 fund) asertizatica to recevne the disallowed ecsts which enables it to meet the tf-on interest aarned ratio and debt service raciiramnts in the KCC rate erder dated Janna:V 30, 1987. The =sthod tsed by TIPCo constitutes a phase-i: plus which does set meet the criteria of FASB Eo. 92 and, acecrdirgly, an additiccal 5518,197 and SESC,709 should be charged to expe Se for.L9fr2 and ani, respectively. ;n addition, deterred charges would be deu er_ac,d and : he: deficia la,Etcung e-capital (deficil) uni'.loe:ted wculd be increased by $3,491,993 ced C2,973,795 ct Decczber 31, 1992 and 1991, respectively. ) i i cc=ti=ced 10 i

03/20 93 16 5: 39132737014 ES ELEC FFR COOP 2 01: ? 1 h. Utility 31 = + f*me-ce J Certain utility plant costs were not included in KEPCe*s 1985 rate rer:ect l tecause the KOC required KIPCo to file the rate request based c= projected teta.1 utu:.ty plant costs. The February 1,1987 rate crder included these ce.eLa lu mco s rate p:nspectively. However, no provision vu nada 1.n enc 4 -ato order for recovery of he related depreciation, prcPerty ta^e* a.ud i-revee-ecst s for the pceiod fr m 58Ftec.bar 3, 1985 through Januarf 31, j 1987. Acccrdingly, KEPCc included the related depreciation, pmpa**y ares and ir.terest corts for the period fract Se=tenber 3, 1935 through Janna::v 31, 1987 in deferred charges and, in accordance with a rate crier datec ~Fanrua.ry 11, 1988, KEPCo ceqan ancrtizing these deferred corte euevtive January 1, 1925 ever 26.82 years. rursuan to a At.x.: rate ordar I cisted li.rch 17, 1902, these costs were trr:r.sferred to utility plar.t la r,awic-a in the accompanying balance sheets. The unamertised balance vill ]; be depre:icted over the r*-*i+g life of the plant ceu.i ntamt win Wa present worth (sinking fund) decreciation cethod. 1 f c. Pm me and ' Er>e res for the Fer-iod fro:n Sectenher 3 2985 *throuth j sett eber 3L M55: a i Although the Welf crook ceceratirg station began commercial eperation: en f i. Se;temher 3, 1985, the Kcc cedered roco to ner rol ate mil wavemo s a nti expenses related to the coeration of Fclf Creek for the period fro:n ] Septec.ber 3, 1565 througn se-erber 10, 1985 in deferred charges. The KCC 1 issued an Order en February 1, 1987 which allowed FIFCo t0 recover these t sts over a ten yetr pericd. /innual emertiration of sucn costs increases i l crer the recovery pe.;Od. i q d.

efe m d T,. v.>-+2' m a-o c-c+e.

4 i j On April 9,1991, the KCC hsued an order that a.l' owed KIPCc to cefer its j 6 percent share of :te inerenente.1 :::tintenance and replacement power costs ass 0ciated with rerren ng c: J.e Wei: Creet Gcrerating Station. Such 4 deferred costs c e Lei..y em.Limd uver ti.= uper aL12nj cycle coinr:ident i with the recognition of the rc1:ted revenuco. Total costa deferred at Dectsher M, 6 av 1041 tare $?8?,199 and $2,4C4,783, rerpetively. l Accrtization expense for 1992 and 1991 was 52.390,E67 and 51,545.172, l respectively. i 1 } 7. Omx-t er 2 tebtr i i l ?nnM en:: debt eensists of nortgago actas pymblo te t?.a Unitt,f states of i A=wrica actinc thr0;ch the Federal ?" ming Bank (FFB), the National Rural I Utilities Cooperative Finance Cc poration (CFC) and others. Substant' ally all a of KrPCo's assets are piedced as cellateral.

• he terr.s of the noter as of Dece%Oer 31 are E5 folloWS:

i a

• 992 1991 Mnrtgage notes paya bl e to ne re rie-a 1 Financin; Bank (FF3) at rates varying frca l

7.03Ct to 9.3661, payable in cuarte-ly j frstal?. rents throuch 2018. S120,317,037 5132,262,267 i .h % r.t e LU Le-a payable to the Naticnal y Rcr:11 Utilitico Cooperative Titanee l C2tpcrat

• On at a wate

,' f 't D. n%1 % i thrcugh December 1997 and 9.83% thereafter, payable semi-annually, principal pcy:nents l m ercing in 2003 j and centinuing annually through kort. M,443, UOJ t;,44J,uuu 4 a a OcY M@d \\

• 1 J

i 1 a

03e24,93 16:53 119132737014 ES ELEC PVR COOP 2 013 j I 1992 I?ci Mortgagn payable to the Trational nnroe P.nral Ut4 i h-4 os Cocperative Finance Corporation at a rate of 9.5274% thr::r.:gh December,1997 and 9.33% thereafter, paytble se:11-a m a11y, pr2.ncipal payments i co hsenuing in 1989 and w.a.ircing annually through 2002. $ 10,1C3,490 3 10,764,267 Floatin;/ fixed rate pollution control I reverne 60nds, City of Bu-lisqten, Kansas, Pooled Series 198SC, variable interest rar.e (2.69% at Decenber 31, 1992) payable errue.117 thrctgt 2015. 41,700,000 C2.100.000 233,536, G7 236,4(7,134 Less cu.rreat portion 1.**1. m ?.940. m !230,192,632 3233,576.807 Aggregate maturities or cortgage notes payanie to tne Feceral Financing Bank and Naticer1 Ra::a1 UtillLles Cagnerstl.a Fluam.e COr pteliva c.L:d fluating/ fixed rate pclietion contrcl bonde = cf Occer:bcr 31, 1992 are ao follows: Year Amount 1Y93 5 3,333,8E5 1394 3,553,211 199s 3,a31,cs7 1996 4,251,527 1997 4,556,621 j Thereafter to 2018 213,979,4E6 0233,526,4"i At ?ecc::ber 31, 1992. KEPCC has ay; roved TFS 10ans Cratranteed by REA with baltsces of 5130,317,007. of this aneunt, ES,*.40,179 currently has a maturity date of F. arch 21, 1934. Upon rat.ri.ty of each short-tem advance, IEPCo =ay renew ime a:vance ter another two year period er elect to extenu the ratcrity dele u. a icng-term basis. The above setecule or long-te=n cett maturities rasumes that the 35,140,179 which matures on March 31, 1994 will be extended en a long-t=- basis wit.h a raturity date cf Dece=.bar 31, 2017. In addition, restric-J.se cov.inants recuire Kr.Pco to design rates erablin: it to mainttin a times interest ea.rned ratio and debt service covarage of.at least cre-to-cre irn at lea.st two cut of every three years. F.eetric ed cesh e.nd stott-term 12.estcents ccasist of unexpeedent loa.a proceeds r-hi g 1.t the con truction Fund, rhoco fund; will be utilised for scheduled principal twinette w rd Wo twigirs*% g rich *. i 8. ShcM-term Berrcr.rines; 2PC.:s iets avalle.ble at $12 million line : f c:wdit with the CFC which re:se,ined unused at December 31, 1972. 9. C*oerati q Lease: A2.PCo leases c:01ce space nncer a contancellable cperating lease expiring cn Lecer.be II, 1996. Ler rele. Lwd renLai w.qwnsw fur n992 eud 1991.aw $123,519 { and F98,CE2, respectirely. Continned 12

03/24/93 16':54 C9132737014 ES ELEC PWR COOP E 014 s Future min M leata papnenen for of fi r. apar ar:r' er,mi;rnert l em mart at Decer:;ber 31, 1992 are as follows: Yeer M 1593 3110,676 199/. 108,720 1995 47,4AA 1996 ,,_iQ,,,, C,,.$ Q $ 406,958 The min'" m lecae pcymeaLa scu be Laurvered to the exter.t that ta,tes und incere. nee pr.id by the lessor exceed 1.990 leve.ls.

10. Pensien Pir.:::

a. N a*-i ma l Rural Eiertric Coooerative Anoci atica (NRECA1 Retirerert at 1 Swit v Procrae K2PCC participares in the Naticu1 Aural Elaetric Cooperative Accociatica t h~.t:22.) retirement ced security progra:2 for its e=:ployees. All en:ployees cf ne= bars of ERECA are eligible to participate in the program. A moratcrit:n c= contributio.s is in effect for the period July 1, '987 tr. rough rece=ber 31, *992 due to reaching the full funding limitation. In thw ma. ster ::raltie=picyer plan which is arm 11mble to all t:re=bers of X f *'m, the accumulated benefits e.nd plan cemeta are not determised or allocated by individual empicyee. K2Pco hr.s to pension expense for the plan for the years ended Daeec6er 31, 1992 a.nd 1991. Substantial".y all employees of TIPco also participate in the IEtcA savings Plan 401(I) option. Under the plan, ICFCo contributes accents not to exceed 3 percent, cepencent on tne e=picyee's level c participation, c: the respective caployee's base pay to provi.de additional retirement benefits. K2Peo centributed approximately 529,537 a.nd 527,846 to the plan im 1992 and 1991, res;ectively. b. Wolf __ Creek Nuclear Operati.nc C0rperution Retirement Plan: TJPCo ha.s an CD11;ation tc tr.e WC1f creak 11; clear L'perating Ucrpcratien Ret.ireact Flaa Ivt 1La 6 fetcent smuerably laterest la LLe wolf creek Ganarating station. thic plas providec for boccfite upon retiranten t, nnrmally a t-ar-o 65 Tn arv rwriant-a with the Mpiriyaa Rot hement In c::ae Security Act cf 1974 (IRISA), 3CPCo has satisfied at least its mini::!== funding repairements. Beefits under this plan reflect the e=ployee's ec=pensatien, years of service and age at retirec)cet. Pruvisiens :cr p siens are dete.~ined under the rules prescribed by Financial Accounting Gs.tnde.rds Oce.rd (FA3D) Otetec.ent No. 07. The fo11 cum; is Ir? v a portien of the fed states of the plan as of Dece=ber 31: 1992 _ 1991 .%cu=ulated benefit cbligati.on: Vested 3 2GC,04C 3 215,040 Nenvasted 128.539 201_67o Tctal 5__395,385 S 316.660 Couttrued 13

03 26,93 16

54

@9332737016. ES ELEC PFR COOP-C'15 - w w. J l i no? s ee

j Date mination of plan assets less obligations-Fair value of plan assets (a)

S 569,765 -S 507,660-Projectec benefit obligation {b) 1.J91.22ts- _ 9!2,740 Diffarcaco S (E21,461) g)~ i l Recoact14ation of difference ) Centributions to t astat S(246,840) Accreed liability .$ (459,540) l I_ UnamWrec tra.nsition amcunt (137,894) (145,140) Unstruugnizeed net gain 34,018 12,300 i Unrecognized prior service cost (62.045)- . f 652_400) Difference s (62.461) m) (a) Plan assets are invested in insurance contracts, corporate bonds,. eq2Lty securities, U.S. Government securities anc abort-term lavntzcants. ,i (b) Raced en discount rata and rate of Increase in future salary levels { cf 8% and 6% respectively. ) I,ong-tern rate of return on plan assets of 8% wa.s used. I co=ponents et provisiens for pensions: l 1992_ 1991 service eeen S 154,471~ -S.128,160' Interest cost on projected benefit obligation 88,309 52,920-Actual return on plan assets (64,387) (59,960) i other 26,311 40,380 Total pencien exponce C 212.70* l 1l

11. Ir:cene Taxes:

I 1 At pecocber 31, nn, KrPco nac unused. net operating loss carrvforwards l available Lu :=.L.uw fuLure Lazable luuuume and invemburuL tax urwdiL uarry- ~' fervarde no fc11ovos Net operating Icet operatirra i I,oss I,oss Investa:ent 4 AvM ishie Carryforwards Carryforwards Tax credit muc+1 fBook Basis) lTa2 Easis)_ _ Ca m forwards I 132C 3 S 7,100,000 3 j 1997 12,410,000 203 17,123,000 896 1998 1999 194,274 21,468,000 1,210 2000 1,977,542 4,442,000' 7,731,327 2001 2,885,159 3,899,000 1 2002 1,292,552 4,253,000 1 2003 2004 1,562,000 2005 1,851,000 2006 269,516 4,630,000 2007 7,307,672 1 498,000 1 S 8,922,055 b60,306.000 s1,t33,636 contirned" 14 .1 I )

03/24/93. 16:55 "J9132737014 ES ELEC PVlt COOP 2 n10 e The di nerance between the not ca.rgin (loca) abovn in the secompanying financial statenects and the net cparating icsses fer tax return purpcsen for 1992 and 1991 is due primari1T no cperating expenses deferred fer financial statecent purposes and expensed for ta.x return purposes and ti:r.ing differences relatec to cep e=i.ation expense and deferred refueling costs. As thcre were net losses in 1992 and 1991, no income tax provision has boca rwntded.

12. Contircere' es t

• itiestioq:

a. There is a, provimien in the Wolf creek operating agre-"t whereby the owners treat certain claitr.s and lonau== = riming out of the npovatinn of the Wolf Creek Generating Station as a cost to be born by the owners separately (but net jointly) in propertion to their ewcership shares. Eanh cf the owners has agreed to "da-m4 *y the ethers in such cases. As is the case alth cLLes electric aL111 Lies, the Cooicaative, frusa t h e tu tiz,e, is subjoet to veriece cotion= vhich ocenciensny include punitive danage clains. The cocparativa rna i tta i na insuranen p-nriding liability

verage; h0 wever, the insurance M c4es generally reserve the right to chanenge insuranca coverage for punitive danage recoveries. In he opinion of the general counsel of the Cooperative, _htre is not a sig"+ *1 cant probability that, as a result of pencing or threatened

ersonal 1.njury actions, t.he coo _r.ex ative win be liable for pymeuL of accus.1 cr puricive degec in s.n amount materia.1 to the fins.noisi po

itica of the conpen-4 re.

b. Neelea* l'_'mhility an6 Insurance: The Price-Ancerson Act anc its anencnents currently Iwt the public liability, lauluding eLLurnwy custa, of nuc1 war reactor owners icr clai=s t at could c.risc frocn a nuclear incident to C7.807 billion. accordingly, i Two ara ether owners of Wolf czwek have liability insuranes coverage of this anonnt which censists of the mrf m=n available private insurance of 5200 millfon and secendary ri-m ef=1 protection (srp). rne STF Coverage is tundec Dy a s.andatory progran et deterred premiuns c amen.wd against all cst.ers of lW".ed reacters for any n2: lear incident c77where in the ecuntrv. The - i~+ essessment per reactor is 3C3 millina (53.2 e.i.lueri - EEPeo's cha.re), plus~5% for atterney =csts. The Owners of Wolf Creek are jointly and severally li.able for these charges, cayable at a ' rate nct to exceed $10 million ($600,000 .'GPCo's share) per lncident per year. rhe cwrArs c: Wolf L' reek also htve property Cacage, cecentanination and dem,r,4 ssiori.ng Insacance fo;; loss resulting f cm derage to the wcif Creek facilities in the anou.nt of 52.625 billion. Nuclear incuranco poole provida $1.3 billinn of enven ga. Mncierr Electri c Tr ann nen ilmited (KIIL) crovides 51.325 b!Mim. In the event of an accident, insurance peceeeds cust first be used for reacter stabilization and site de:os*a-4 r atica. The renaining proceeds fron the $2.625 bi.11 ion instrt.nce coverage (51Fr.3 stil cn ITPco's snare), 1: any, can ce uses ter preperty d= n e wy Lv 3135.5 utM fua (KZ:?co's sharw) and yzessaLure decussissioning coste up to $21 minion (72Poo's chere) in exec== cf fundo previonaly collected for dn=anrninsf oning. 1 contiaaed 25 i i

1 03/24/93 16:56 @ l32737014 'ES ELEC PFR COOP 2 017 i 1 I 1 2 The cwners of Wolf creek have airo prne und cirtra.,rp n m In= nrm: ee f rem NEIL. Under both the NEIL croperty and extra expense policies the Company is subject to retroactive casess=:ect if 3rI* losses, with resocet to each policy year, exceed the acc==ulated fends available to the iEsurst under Aat policy. the estinated -e retroactive assesr -o.ts :or TrPCo's share under the policies total appm:.mawly 3876,59S per year. In the event of a catastrephie los at unif & 1r, the emnnnt nf inintrance available may not be adecuate fer sWy damages and extra expenses incurred. Uninsured losses, to the extent not recovered through rates, wesid be assuned by KEPCo and could have a caterial adverse effect on the IIPCo's financial CCndition. c. Naclear Puel cocttitecntes At December 31, 1992. Wolf Creek's nuclear fuel cccci'***ts (KEPCo's chare) were approximately (2.6 millien for :anic concentrates through 1997, 517.8 = llic: for ent4c+ent through 2014 and $6.4 millien for fahriettion 1 m n 2u14. d. RZA Devc1ctic ent r r KEPCo las received notification from the REA that, because EEPCo's financial statecents are net in cenformance with generally accepted accocnting principles, as di.scussed is Ncte 1, the REA vill evaluate all reTtests icr action on tne basis of #i"me -ial inforsation prepared as if Le 6:.talyht.-11nw mwtiud of dwpreciation had been used.

13. 0-her Mat

• m :

On March 27, 1992, the KCC issued a rate order increasing KEPCo's energy rate by 2.5 mills per le.t effective april 1,1992. on Dece:r.ber 31, 1992, t.be Rcc issued a rate crder allowing MCo to collect $8EP,0CC per year through an incretoo of.66 mil.c por kwh in ITn's energy rates effective Jennn y 1, 1943. '! h e i nt-ema co al i rrors i~ Pcn tn renver = N' * =1 preoerty taxes resniting from legislation passed durino the 1992 Kr.nsas legislative session. i 16 i}}