ML15133A220

Wolf Creek - Kansas Electric Power Cooperative, Inc., 2014 Annual Report

ML15133A220
Person / Time
Site:	Wolf Creek
Issue date:	05/05/2015
From:	Kansas Electric Power Cooperative
To:	Document Control Desk, Office of Nuclear Reactor Regulation
Shared Package
ML15133A210	List: ML15133A217 ML15133A218 ML15133A219 ML15133A220
References
RA 15-0047
Download: ML15133A220 (44)

Text

2014Annual ReportKansas Electric Power Cooperative, Inc.

ContentsPageOrganization and Resources

.......................

1Leadership Message ........................................

2-52014 H ighlights

................................................

6-7KEPCo Trustees and Managers

....................

8-11Operating Statistics

......................................

12Report of Independent Public Accountants

....... 13Financial Statements PageBalance Sheets ............................................

14-15Statements of Margin ..................................

16Statements of Patronage Capital .................

17Statements of Cash Flows ...........................

18Notes to Financial Statements

.....................

19-40Mission & Vision Statement

/ Area Map ..... 4144444KEPCo StaffMarcus Harris ................

Executive Vice President

& Chief Executive OfficerLes Evans ...........................

Senior Vice President

& Chief Operating OfficerWilliam Riggins .........

Senior Vice President, ChiefStrategic Officer & General CounselColeen Wells ..................................

Vice President

& Chief Financial OfficerStephanie Anderson

................................

Finance& Benefits AnalystMark Barbee .........

Vice President of Engineering, KSI Vice President of Engineering Chris Davidson

.....................................

Engineer 3Terry Deutscher

........................

Manager, SCADA& Meter Maintenance Mark Doljac ...........

Director of Rates & Regulation Carol Gardner .........................

Operations AnalystShawn Geil ..........

Director of Information SystemsMaurice Hall ....... Sr. SCADA/Metering Technician Robert Hammersmith

.........................

Sr. SCADA/Metering Technician Shari Koch .............................

Finance & AccountsPayable/Payroll Specialist Elizabeth Lesline ............

Administrative Assistant/

Receptionist M itch Long .........................................

Sr. SCADA/Metering Technician Matt Ottman ...... Information System Specialist 2John Payne ................................

Senior EngineerRita Petty ...............................

Executive Assistant

& Manager of Office ServicesKelsey Schrempp

...........

Administrative Assistant

& Benefits Specialist Paul Stone ..................................

System OperatorJill Taggart ...... Director of Forecasting

& PlanningPhil Wages .............

Director of Member Services, Government Affairs & Business Development Organization and Resources Kansas Electric Power Cooperative, Inc. (KEPCo),

headquartered in Topeka, Kansas, wasincorporated in 1975 as a not-for-profit generation and transmission cooperative (G&T). It isKEPCo's responsibility to procure an adequate and reliable power supply for its nineteen distribution rural electric cooperative members at a reasonable cost.Through their combined resources, KEPCo Members support a wide range of other services, suchas rural economic development, marketing and diversification opportunities, power requirement andengineering

studies, and rate design, among others.KEPCo is governed by a Board of Trustees representing each of its nineteen Members whichcollectively serve more than 120,000 electric meters in two-thirds of Kansas. The KEPCo Board ofTrustees meets regularly to establish policies and act on issues that often include recommendations from working committees of the Board and KEPCo staff. The Board also elects a seven-person Executive Committee which includes the President, Vice President, Secretary, Treasurer, and threeadditional Executive Committee members.KEPCo was granted a limited certificate of convenience and authority by the Kansas Corporation Commission in 1980 to act as a G&T public utility.

KEPCo's power supply resources consist of: 70MW of owned generation from the Wolf Creek Generating Station; 30 MW of owned generation fromthe latan 2 Generating Unit; the 20 MW Sharpe Generating Station located in Coffey County;hydropower purchases of an equivalent 100 MW from the Southwestern Power Administration; and14 MW from the Western Area Power Administration; plus partial requirement power purchases fromregional utilities.

KEPCo is a Touchstone Energy@ Cooperative.

Touchstone Energy@ is a nationwide alliance ofmore than 700 cooperatives committed to promoting the core strengths of electric cooperatives

-integrity, accountability, innovation, personal service and a legacy of community commitment.

Thenational program is anchored by the motto "The Power of Human Connections."

Kansas ElectricPower Cooperative, Inc.P.O. Box 4877 Topeka, KS 66604600 SW Corporate View Topeka, KS 66615(785) 273-7010A Touchstone Energy Cooperative -.1 2014 MessagefromScott Whittington KEPCo President

&Marcus HarrisExecutive Vice President

& Chief Executive Officer2014 was highlighted by theselection of Marcus Harmsas the new Executive VicePresident and ChiefExecutive Officer of KEPCo.Harris replaces Charles"Chuck" Terrill who retired inDecember.

Harris comes toKEPCo from South CarolinaElectric and Gas Company(SCE&G),

where heamassed over twenty-three years of leadership experience in various roleswithin the utility, including wholesale power marketing, operations

planning, transmission and distribution operations, powerorigination and mostrecently, directing therenewable and demand sidemanagement activities ofSCE&G.The costs associated withthe production andtransmission of electricity areof utmost concern for everyelectric utility.

In today'sregulatory-laden environment, these concerns have beenaugmented even more. Effortsto control costs are ofparamount importance toKEPCo, as our coreresponsibility is to provideeconomic and reliablewholesale power to ournineteen Member electriccooperatives.

Reflective ofthis responsibility was thedecision made to refinance KEPCo's debt associated withthe Wolf Creek NuclearGenerating Station (WolfCreek), which included therefinancing of KEPCo'sGrantor Trust Series andpollution control revenuebonds, and the method inwhich KEPCo's wholesale rateadjusters are calculated.

Nationwide, the cost toproduce electricity continues torise. Cost drivers such aslabor, materials, maintenance, and ever-increasing regulatory compliance costs have causedrates to increase.

In an effortto slow this trend, a strategic decision was made in 2013 torefinance the debt instruments associated with Wolf Creek. Bydoing so, KEPCo is able tomore closely match the debtpayment with the useful life ofWolf Creek, which, a few yearsago, received an operating license extension to 2045.Completed in 2014, therefinancing of the debtinstruments resulted in a fourmill, or nearly five percent,reduction in wholesale rates.2 In July, KEPCo staff presented to the KEPCoBoard of Trustees a plan to change the methodin which several wholesale rate adjustments arecalculated and applied to the Member's rates.Later in the year, the Board unanimously approved the new rate adjustment method,which was implemented on January 1, 2015. Byimplementing the change, the basic wholesale rate structure remains unchanged, a bettertiming of revenue and expenses are realized, and KEPCo will have a more accurate picture ofits financial

position, since KEPCo will usebudgeted cost figures rather than historical costs. KEPCo's Margin Stabilization Adjustment will flow back any over-recovery or collect anyunder-recovery, in aggregate, while maintaining KEPCo's margin to meet its minimum financial requirements.

Access to low-cost capital through the RuralUtilities Service (RUS) is critical in keepingKEPCo's cost of borrowing as low as possible, which in turn keeps KEPCo's wholesale ratemore economical.

KEPCo completed a ten-yearfinancial forecast as part of the requirement fora RUS Wolf Creek capital addition loanapplication, which was completed and filed latein the year. The forecast shows a modestincrease in rates over the ten-year period, whencompared to the previous ten-year period. Thefinancial forecast illustrates the positive rateimpact of the Wolf Creek debt restructuring andthe change in rate adjuster calculations.

KEPCo had a strong financial performance in2014. KEPCo's total assets, including those ofits subsidiary, KEPCo Services Incorporated (KSI), were nearly $281 million, an increase ofover $6 million from 2013. KEPCo achieved anet margin sufficient to meet all of its financial requirements, which provided the neededflexibility for the successful operation of thecompany.

KEPCo's positive financial performance was further illustrated with itsequity-to-asset ratio improving to 21.2%.In 2013, KEPCo implemented a MemberInvestment

Program, which ended this year witha balance of over $3 million.

The program offersMembers an alternative investment resource ata competitive rate of return, while providing KEPCo with an additional source of capital.KEPCo also allocated over $3 million inpatronage capital to its Members, and since1995, KEPCo has allocated more than $80million in capital credits.KEPCo's peak demand of 433 MW wasvirtually the same as last year, and is nearlyfive percent less than the all-time peak KEPCoset in 2011 of 455 MW. Energy sales toMembers increased by four percent, whichfollows a two percent increase in 2013. Since2010, KEPCo's energy sales have increased nearly eight percent.

The increase in energysales and the decline and flattening of demandreflects Member load management response toKEPCo's pricing signals, thereby shifting loadfrom peak demand hours to other times of day,and also reflects somewhat milder temperatures in more recent years during the peakingsummer season. In addition, a few Membercooperatives have installed peaking generators that are called upon during peak times, whichhave contributed to decreasing KEPCo's peakdemand, and several more Membercooperatives are in the process of installing peaking generators that will be available for the2015 summer season. KEPCo's Membersbenefit from the flattening of demand growthwhen energy consumption grows more rapidly,as capacities of generating, transmission anddelivery systems are better utilized and costsper unit of energy are reduced because theassociated fixed costs are spread over agreater quantity of energy consumption.

3 KEPCo's generation resources continue to bethe cornerstone of KEPCo's ability to providean economic and reliable power supply. In2014, Matt Sunseri, CEO of the Wolf CreekNuclear Operating

Company, retired and AdamHeflin was selected as his successor.

Prior tocoming to Wolf Creek, Heflin was the ChiefNuclear Officer for Ameren Missouri, where heled the operations of the Callaway EnergyCenter, a plant nearly identical in design toWolf Creek. Heflin's previous experience andresponsibilities enabled a smooth transition intothe responsibility of leading improvements inthe efficiency and reliability at Wolf Creek whilemaintaining the plant's strong safety record.that, in 2014, provided KEPCo with nearlyseven percent of its energy. This is less thanthe production level achieved in 2013 due to ascheduled 52-day maintenance outage.latan 2Wolf Creek Nuclear Generating StationFor the past few years, the electric utilityindustry has had to react to several new EPAregulations by expending money and resources to retrofit existing coal-fired generating facilities with environmental controls to comply with theregulations.

These mandated actions havecontributed greatly to the rise in costsassociated with the production of electricity.

Completing its fourth year of operation in 2014,and since it became commercially operational in 2010, latan 2 has met or exceeded all EPAregulations without expending resources forany additional environmental controlequipment, thus shielding KEPCo membersfrom regulatory compliance costs on a resourceTo provide further surety of KEPCo's diversepower supply, in December, KEPCo executed acontract extension for hydropower with theWestern Area Power Administration (WAPA) toyear 2054. Since 1989, KEPCo has received14 MW of energy annually from WAPA and isone of KEPCo's least-cost resources.

Thecontract extension will provide KEPCo and itsmembers the security of firm, low-cost energyfor the next 40 years.On behalf of the Board ofTrustees and KEPCo staff, awell-deserved thank you isextended to Chuck Terrill forhis service to KEPCo.Chuck served as EVP &CEO on two separateoccasions; the first fromChuck Terrill 1988 to 1995 and thesecond from 2013 until his retirement in December of 2014. During both tenures,Chuck provided KEPCo with leadership andguidance, while orchestrating manyaccomplishments that will be long-lasting andappreciated by KEPCo Member cooperatives for many years to come. From your friends atKEPCo, thank you for your service and we wishyou a long and healthy retirement.

4 A special thank you is also extended to theKEPCo Board of Trustees and KEPCo staff fortheir hard work and dedication during the pastyear. It is gratifying to have so many highlyskilled individuals working through thecomplexities of today's energy industry andshowing the resolve to work on compoundenergy issues for the future of rural Kansas.Marcus HarrisKEPCo EVP & CEOý9c.444ý-r -Scott Whittington KEPCo President Back row, left to right: Scott Whittington

-President; Kevin Compton -Vice President; Dean Allison -Secretary.

Front row, left to right;Bryan Coover -Executive Committee; Kirk Thompson

-Executive Committee.

Not pictured:

Dale Short -Treasurer; Larry Stevens -Executive Committee.

5 2014 KEPCo Highlights Mr. Marcus Harris was selected by the KEPCo Board of Trustees as theExecutive Vice-President

& CEO of KEPCo. Mr. Harris succeeds Mr. Charles"Chuck" Terrill who retired in December.

The KEPCo Board of Trustees unanimously approved a change in the method inwhich wholesale rate adjustments are calculated.

The change will facilitate abetter timing of revenue and expenses, which will allow KEPCo to have a moreMarcus Harris accurate picture of its financial position.

Beginning in 2013 and finalized in 2014, KEPCorefinanced the debt instruments associated with the WolfCreek Nuclear Generating Station.

This action resulted ina cumulative wholesale rate reduction of approximately five percent.KEPCo completed a ten-year financial forecast that wasunanimously approved by the KEPCo Board of Trustees.

Wolf Creek Nuclear Generating StationKEPCo successfully appealed its Kansas property valuation tax assessment, resulting in asignificant savings for KEPCo and its Member cooperatives.

At the May Board meeting, KEPCo conducted a businessretreat at which various aspects of distributed generation were discussed.

Representatives from several renewable anddistributed generation companies gave presentations to theBoard, discussing topics which included solar panel designand performance, optimal solar array configuration, cost andfinancing structures, marketing strategies, and utility ratedesign.Chuck Terrill addresses the Board during the retreatKEPCo negotiated with Sunflower to restructure terms of its Wholesale Power Agreement, resulting in a savings for KEPCo and its Member cooperatives over the remainder of the contract, whichexpires in 2020.6 KSI conducted Arc Flash Hazard Assessments for 13 memberelectric cooperatives and two non-member electric cooperatives.

The assessments were prepared as a guide to assist cooperatives inselecting appropriate clothing for workers that could be exposed to Shazards from flames or electric arcs. In addition, KSI completed E ' rConstruction Work Plans for four Member electric cooperatives.

lI nee n r lnKEPCo Staff continues to work diligently with KEC andSunflower on legislative issues in Kansas andWashington, D.C. Staff testified on several bills in 2014and tracked numerous pieces of legislation.

InWashington, D.C., KEPCo staff participated in theNRECA Legislative Conference.

Kansas State Capitol, Topeka, KansasKEPCo executed the documents to extend its WesternArea Power Administration (WAPA) contract to 2054.KEPCo receives 14MW of energy from WAPA and isone of KEPCo's least-cost energy resources.

Parker Dam -Lake HavasuKEPCo continues to work with its Member cooperatives in anUSDA ~aggressive rural development program that has successfully Rural created rural jobs and wealth retention in Kansas. The USDADevelopment Rural Economic Development Loan & Grant (REDLG) programCommitted to the future of rural communities.

provides zero interest loans to worthy projects.

Safety of our employees is essential to the continued operational success of KEPCo. Severalsafety meetings are conducted throughout the year for KEPCo's SCADA Technicians andadministrative personnel.

KEPCo is proud to report there were no lost time accidents recorded in2014.7 KEPCo Member Cooperatives

Trustees, Alternates and ManagersArk Valley Electric Cooperative Assn., Inc.PO Box 1246, Hutchinson, KS 67504620-662-6661 Trustee Rep. -- Joseph SeiwertAlternate Trustee -- Bob HallManager -- Bob HallJoseph Seiwert BobBluestem Electric Cooperative, Inc.PO Box 5, Wamego, KS 66547 785-456-2212 PO Box 513, Clay Center, KS 67432 785-632-3111 Trustee Rep. -- Kenneth J. MaginleyAlternate Trustee -- Robert OhldeManager -- Kenneth J. MaginleyKen Maginley Bob IBrown-Atchison Electric Cooperative, Assn., Inc.PO Box 230, Horton, KS 66439 785-486-2117 Trustee Rep. -- Kevin ComptonAlternate Trustee -- James CurrieManager -- James CurrieKevin Compton JimButler Rural Electric Cooperative Assn., Inc.PO Box 1242, El Dorado, KS 67402 316-321-9600 Trustee Rep. -- Dale ShortAlternate Trustee -- Riley WaltersManager -- Dale ShortDale Short Riley\Caney Valley Electric Cooperative Assn., Inc.PO Box 308, Cedar Vale, KS 67204 620-758-2262 Trustee Rep. -- Dwane Kessinger Alternate Trustee -- Allen A. Zadorozny Manager -- Allen A. Zadorozny u rrleNaltersDwane Kessinger Allen Zadorozny 8

CMS Electric Cooperative, Inc.PO Box 790, Meade, KS 67864 620-873-2184 Trustee Rep. -- Kirk A. ThompsonAlternate Trustee -- Clifford FriesenManager -- Kirk A. ThompsonDS&O Electric Cooperative, Inc.PO Box 286, Solomon, KS 67480 785-655-2011 Trustee Rep. -- Dean AllisonAlternate Trustee -- Donald HellwigManager -- Donald HellwigFlint Hills Electric Cooperative Assn., Inc.PO Box B, Council Grove, KS 66846 620-767-5144 Trustee Rep. -- Robert E. ReeceAlternate Trustee -- William HeinManager -- Robert E. ReeceHeartland Rural Electric Cooperative, Inc.PO Box 40, Girard, KS 66743 620-724-8251 Trustee Rep. -- Dennis PeckmanAlternate Trustee -- Dale CoomesManager -- Dale CoomesLJECPO Box 70, McLouth, KS 66054 913-796-6111 Trustee Rep. -- Larry StevensAlternate Trustee -- Steven 0. FossManager -- Steven 0. FossLyon-Coffey Electric Cooperative, Inc.PO Box 229, Burlington, KS 66839 620-364-2116 Trustee Rep. -- Scott Whittington Alternate Trustee -- Donna WilliamsManager -- Scott Whittington Dennis Peckmanuaie L;oomes9 KEPCo Member Cooperatives qTrustees, Alternates and Managers44Ninnescah Electric Cooperative Assn., Inc. 4PO Box 967, Pratt, KS 67124 620-672-5538 4Trustee Rep. -- Curtis Durall 4Alternate Trustee -- Teresa MillerManager -- Teresa Miller4Curtis Durall Teresa MillerPrairie Land Electric Cooperative, Inc. 4PO Box 360, Norton, KS 67654 785-877-3323 District Office, Bird City 785-734-2311 4District Office, Concordia 785-243-1750 Trustee Rep. -- Gilbert BerlandAlternate Trustee -- Allan J. Miller 4Gilbert Berland Manager -- Allan J. Miller Allan MillerRadiant Electric Cooperative, Inc. 4PO Box 390, Fredonia, KS 66736 620-378-2161 Trustee Rep. -- Dennis Duft 4Alternate Trustee -- Tom AyersAdministrative Manager -- Leah TindleOperations Manager -- Dennis Duft 4Dennis Duft Tom Ayers Leah Tindle4Rolling Hills Electric Cooperative, Inc. 4PO Box 307, Mankato, KS 66956 785-378-3151 4District

Offices, Belleville 785-527-2251 Ellsworth 785-472-4021 Trustee Rep. -- Leon EckAlternate Trustee -- Douglas J. Jackson 4Leon Eck Manager -- Douglas J. Jackson Doug Jackson 4Sedgwick County Electric Cooperative Assn., Inc. 4PO Box 220, Cheney, Ks 67025 316-542-3131 Trustee Rep. -- Donald Metzen 4Alternate Trustee -- David Childers 4Manager -- David Childers 4Donald Metzen Dave Childers10I Sumner-Cowley Electric Cooperative, Inc.PO Box 220, Wellington, KS 67152 620-326-3356 Trustee Rep. -- Charles RiggsAlternate Trustee -- Cletas RainsManager -- Cletas RainsTwin Valley Electric Cooperative, Inc.PO Box 368, Altamont, KS 67330 620-784-5500 Trustee Rep. -- Bryan CooverAlternate Trustee -- Ron HolsteenManager -- Ron HolsteenVictory Electric Cooperative Assn., Inc.PO Box 1335, Dodge City, KS 67801 620-227-2139 Trustee Rep.-- Shane LawsAlternate Trustee -- Daryl TiebenManager -- Shane LawsCletas RainsShane Laws2014 -2015 KEPCo Executive Committee Scott Whittington

-President Kevin Compton -Vice President Dale Short -Treasurer Dean Allison -Secretary Bryan Coover -Committee MemberLarry Stevens -Committee MemberKirk Thompson

-Committee Member11 Operating Statistics 44442,300,000 01,800,000 11,300,000 Operating ExpensesKEPCO O&M NucleaandA&G 2.03.8%nteresýC 001 LrFuelDepr. and Amort.6.4%Wolf Creek O&M-2and A&G10.9%%latan 2 Fuel1.6%0atan20&M and A&G1.2%Purchased Power68.3%2010 2011 2012 2013 2014Year500450140035030085S6545Sources of EnergyWAPA3.8%12010 2011 2012 2013 2014Yearlatan 26.7%--8.2%SunflowerU 17.4%-WestarEnergy 41.4%\-Wolf Creek22.5%2010 2011 2012 2013 2014Year12 INDEPENDENT AUDITORS'REPORT To the Board of Directors Kansas Electric Power Cooperative, Inc.Topeka, KansasWe have audited the accompanying consolidated financial statements of Kansas Electric Power Cooperative, Inc. andsubsidiary

("KEPCo"),

which comprise the consolidated balance sheets as of December 31, 2014 and 2013, and the relatedconsolidated statements of margin, patronage

capital, and cash flows for the years then ended and the related notes to thefinancial statements.

Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, andmaintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that arefree from material misstatement, whether due to fraud or error.Auditors' Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted ouraudits in accordance with auditing standards generally accepted in the United States of America and Government AuditingStandards, issued by the Comptroller General of the United States. Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the consolidated financial statements are free from materialmisstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements.

The procedures selected depend on the auditor's

judgment, including the assessment of the risks ofmaterial misstatement of the consolidated financial statements, whether due to fraud or error. In making those riskassessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of theconsolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for thepurpose of expressing an opinion on the effectiveness of the entity's internal control.

Accordingly, we express no suchopinion.

An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness ofsignificant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified auditopinion.Basis for Qualified OpinionAs more fully described in Note 3 to the financial statements, certain depreciation and amortization methods have been usedin the preparation of the 2014 and 2013 consolidated financial statements which, in our opinion, are not in accordance withaccounting principles generally accepted in the United States of America.

The effects on the consolidated financial statements of the aforementioned departure are explained in Note 3.Qualified OpinionIn our opinion, except for the effects of using the aforementioned depreciation and amortization methods as discussed in Note3, the consolidated financial statements referred to in the first paragraph present fairly, in all material

respects, the financial position of KEPCo as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years thenended in accordance with accounting principles generally accepted in the United States of America.Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we also have issued our report dated April 2, 2015, on our consideration of KEPCo's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters.

The purpose of that report is to describe the scope of our testing ofinternal control over financial reporting and compliance and the results of that testing and not to provide an opinion on theinternal control over financial reporting or on compliance.

That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering KEPCo's internal control over financial reporting and compliance.

Mayer Hoffman McCann P.C.Topeka, KansasApril 2, 201513 Consolidated Balance SheetsAssetsDecember 31,Utility PlantIn-service Less allowances for depreciation Net in-service Construction work in progressNuclear fuel (less accumulated amortization of $23,151,678 and$19,911,283 for 2014 and 2013, respectively)

Total utility plantRestricted AssetsInvestments in the National Utilities Cooperative Finance Corpo-rationBond fund reserveDecommissioning fundInvestments in other associated organizations Total restricted assetsCurrent AssetsCash and cash equivalents Member account receivables Materials and supplies inventory Other assets and prepaid expensesTotal current assets2014$ 340,615,798 (148,469,211) 192,146,587 9,776,657 9,809,670 211,732,914 11,741,745 4,490,786 19,378,279 264,97635,875,786 1,202,643 14,041,772 6,391,899 699,23622,335,550 2013$ 318,326,772 (143,755,156) 174,571,616 18,837,972 7,806,307 201,215,895 12,094,536 4,465,868 17,844,344 252,07734,656,825 5,181,544 5,664,940 5,756,835 734,93717,338,256 44444444Other Long-term AssetsDeferred chargesWolf Creek disallowed costs (less accumulated amortization of$17,178,044 and $16,420,880 for 2014 and 2013, respectively)

Wolf Creek deferred plants costs (less accumulated amortization of $40,688,954 and $37,559,034 for 2014 and 2013, respectively)

Wolf Creek decommissioning regulatory assetDeferred incremental outage costsOther deferred charges (less accumulated amortization of$9,515,076 and $9,279,497 for 2014 and 2013, respectively)

Unamortized debt issuance costsOtherPrepaid pension costTotal long-term assets48,804,877 9,562,041 6,259,839 (7,217,629) 1,185,502 391,10380,055247,5381,073,323 10,824,608 9,389,759 (6,499,881) 6,259,359 801,338147,664235,1821,545,694 21,441,156

$ 274,652,132 ITotal assets$ 280,768,858 14 Consolidated Balance SheetsLiabilities and Patronage CapitalPatronage CapitalMemberships Patronage capitalAccumulated other comprehensive lossTotal patronage capitalDecember 31,2014$ 3,20073,517,749 (8,379,226) 65,141,723 Long-term Debt152,126,943 Other Long-term Liabilities Wolf Creek decommissioning liability Wolf Creek pension and postretirement benefit plansWolf Creek deferred compensation Total other long-term liabilities Current Liabilities Current maturities of long-term debtAccounts payablePayroll and payroll-related liabilities Short term note payableDeferred revenueAccrued property taxesAccrued income taxesAccrued interest payableTotal current liabilities Total patronage capital and liabilities 13,320,625 12,004,519 1,314,323 26,639,467 15,683,929 14,199,898 257,5231,429,000 3,325,322 1,371,811 3,518589,72436,860,725

$ 280,768,858 2013$ 3,20070,025,317 (4,071,781) 65,956,736 140,460,064 12,542,673 7,432,482 1,120,601 21,095,756 22,493,911 14,523,217 243,0446,500,000 1,224,424 1,519,915 635,06547,139,576

$ 274,652,132 15 Consolidated Statements of MarginFor the years endingDecember 31,2014 2013Operating RevenuesSale of electric energyOperating ExpensesPower purchased Nuclear fuelPlant operations Plant maintenance Administrative and generalAmortization of deferred chargesDepreciation and decommissioning Total operating expensesNet operating revenuesInterest and Other Deductions Interest on long-term debtAmortization of debt issuance costsOther deductions Total interest and other deductions Operating incomeOther Incomel(Expense)

Interest incomeOther incomeIncome tax$ 172,576,128 116,339,132 3,402,688 16,231,337 6,647,651 6,284,806 4,122,663 7,444,553 160,472,830 12,103,298 9,415,650 67,609407,6499,890,908 2,212,390 915,409370,401(5,768)1,280,042

$ 3,492,432

$ 164,048,145 107,958,510 3,303,643 18,223,619 6,115,338 6,105,859 4,185,313 6,944,842 152,837,124 11,211,021 9,599,108 77,813190,3179,867,238 1,343,783 859,711390,2861,249,997

$ 2,593,780

$ 2,593,780 3,984,833 733,259$ 7,311,872 Total other incomeNet marginNet Margin$ 3,492,432 Other comprehensive (loss)/income Net (loss)/earnings arising during year on pension obligation (4,717,230)

Amortization of prior year service costsincluded in net periodic pension costs 409,785Comprehensive (loss)/income

$ (815,013) 16 Consolidated Statements of Patronage CapitalPatronage Memberships CapitalAccumulated OtherComprehensive Income (Loss)TotalBalance at December 31, 2012$ 3,200 $67,431,537

$ (8,789,873)

$ 58,644,864 Net margin2,593,780 2,593,780 Defined benefit pension plans:Net earnings arising during yearAmortization of prior year service costsincluded in net periodic pension costs3,984,833 3,984,833

-733,259 733,259Balance at December 31, 20133,200 70,025,317 (4,071,781) 65,956,736 Net margin3,492,432

-3,492,432 Defined benefit pension plans:Net loss arising during yearAmortization of prior year service costs(4,717,230)

(4,717,230) included in net periodic pension costs 409,785 409,785Balance at December 31, 2014$ 3,200 $ 73,517,749

$ (8,379,226)

$ 65,141,723 17 Consolidated Statements of Cash Flows4For the years endingDecember 31,20142013qCash Flows From Operating Activities Net marginAdjustments to reconcile net margin to net cash flows from operating activities Depreciation and amortization Decommissioning Amortization of nuclear fuelAmortization of deferred chargesAmortization or deferred incremental outage costsAmortization of debt issuance costsChanges inMember accounts receivable Materials and suppliesOther assets and prepaid expenseAccounts payablePayroll and payroll-related liabilities Accrued property taxAccrued interest payableAccrued income taxesOther long-term liabilities Prepaid pension costDeferred revenue$ 3,492,432

$ 2,593,780 7,028,254 1,495,700 3,240,394 4,122,662 5,668,059 67,609(8,376,832)

(635,064) 35,701(323,319) 14,479(148,104)

(45,341)3,518445,958472,3712.100.898 6,540,599 2,904,092 2,819,442 4,175,257 5,386,940 77,8137,609,332 (485,950) 106,504599,854(102,839)

(67,149)12,5561,0921,147,579 (1,545,694) 1.224.424 Net cash flows from operating activities Cash Flows From Investing Activities Additions to electrical plantAdditions to nuclear fuelReductions in deferred chargesAdditions to deferred incremental outage costsInvestments in decommissioning fund assetsProceeds from associated organizations Investments in bond reserve assetsProceeds from the sale of propertyNet cash flows from investing activities Cash Flows From Financing Activities Principal payments on long-term debtProceeds from issuance of long-term debtShort term notes payablePayments unapplied 18,659,375 (15,556,312)

(5,243,757) 174,656(594,202)

(1,533,935) 339,892(24,918)14,402(22,424,174)

(19,429,155) 25,993,166 (5,071,000)

(1,707,113)

(214,102) 32,997,632 (3(21744(2 ,1447,278,012)

(503,127) 95,3350,359,443) 2,942,327) 17,442(26,164)41,837~0, 954,459):0,168,539) 11,594,273 6,500,000 2,388,503 2314,2372,357,410 2,824,134 5,181,544 9,776,900 3Net cash flows from financing activities Net (decrease) increase in cash and cash equivalents (3,978,901)

Cash and Cash Equivalents, Beginning of YearCash and Cash Equivalents, End of YearSupplemental Disclosure of Cash Flow Information Interest paid5,181,544

$ 1,202,643

$ 9,868,600 18 Notes to Consolidated Financial Statements (1) Nature of Operations and Summary of Significant Accounting PoliciesNature of Operations

-Kansas Electric Power Cooperative, Inc., and its subsidiary (KEPCo),headquartered in Topeka, Kansas, was incorporated in 1975 as a not-for-profit generation andtransmission cooperative (G&T). KEPCo was granted a limited certificate of convenience and authority by the Kansas Corporation Commission (KCC) in 1980 to act as a G&T public utility.

It is KEPCo'sresponsibility to procure an adequate and reliable power supply for its 19 distribution rural electriccooperative members pursuant to all requirements of its power supply contracts.

KEPCo is governed bya board of trustees representing each of its 19 members, which collectively serve approximately 120,000 electric meters in rural Kansas.System of Accounts

-KEPCo maintains its accounting records substantially in accordance withthe Rural Utilities Service (RUS) Uniform Systems of Accounts and in accordance with accounting practices prescribed by the KCC.Rates -Under a 2009 change in Kansas state law, KEPCo has elected to be exempt from KCCregulation for most purposes, including the setting of rates. Rates are set by action of the Board, subjectonly to statutory review by the KCC if demanded by four or more members.

KEPCo's rates were last setby the KCC by an order effective September 1, 2008. KEPCo's rates now include an Energy CostAdjustment (ECA) mechanism, an annual Demand Cost Adjustment (DCA) mechanism and a MarginStabilization Adjustment (MSA) mechanism, allowing KEPCo to pass along increases in certain energyand demand costs to its member cooperatives.

Principles of Consolidation

-The consolidated financial statements include the accounts ofKEPCo and its wholly owned subsidiary, KEPCo Services, Inc. Undivided interests in Wolf CreekNuclear Operating Corporation and latan 2 generation facilities are consolidated on a pro rata basis. Allmaterial intercompany accounts and transactions have been eliminated in consolidation.

Estimates

-The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts ofrevenues and expenses during the reporting period. Actual results could differ from those estimates.

Utility Plant and Depreciation

-Utility plant is stated at cost. Cost and additions to utility plantinclude contractual work, direct labor, materials and interest on funds used during construction.

Nointerest has been capitalized in 2014 and 2013. The cost of repairs and minor replacements arecharged to operating expenses as appropriate.

The original cost of utility plant retired and the cost ofremoval less salvage are charged to accumulated depreciation.

The composite depreciation rates for electric generation plant for the years ended December 31, 2014and 2013 are 3.59% and 3.44%, respectively.

The provision for depreciation computed on a straight-line basis for electric and other components ofutility plant is as follows:Transportation and equipment 25-33 yearsOffice furniture and fixtures 10-20 yearsLeasehold improvements 20 yearsTransmission equipment (metering, communication and SCADA) 10 years19 Notes to Consolidated Financial Statements latan 2 -latan 2 is an 850 MW high efficiency coal-fired power plant utilizing state-of-the-art environmental controls that became commercially operational December 31, 2010. KEPCo owns a3.53% share of latan 2, or 30 MW. latan 2, located in Weston, MO, is operated and majority owned byKCP&L.Wolf Creek Nuclear Operating Corporation

-KEPCo owns 6% of Wolf Creek Nuclear Operating Corporation (WCNOC),

which is located near Burlington, Kansas. The remainder is owned by theKansas City Power & Light Company (KCPL) 47% and Kansas Gas & Electric Company (KGE) 47%.KGE is a wholly owned subsidiary of Westar Energy, Inc. KCPL is a wholly owned subsidiary of GreatPlains Energy, Inc. KEPCo's undivided interest in WCNOC is consolidated in the financial statements on a pro rata basis. KEPCo is entitled to a proportionate share of the capacity and energy fromWCNOC, which is used to supplement a portion of KEPCo's members' requirements.

KEPCo is billedon a daily basis for 6% of the operations, maintenance, administrative and general costs, and cost ofplant additions related to WCNOC.WCNOC's operating license expires in 2045. Wolf Creek is regulated by the Nuclear Regulatory Commission (NRC), with respect to licensing, operations and safety related requirements.

WCNOC disposes of all classes of its low-level radioactive waste at existing third-party repositories.

Should disposal capability become unavailable, WCNOC is able to store its low-level radioactive wastein an on-site facility for up to three years under current regulations.

Nuclear Fuel -The cost of nuclear fuel in the process of refinement, conversion, enrichment andfabrication is recorded as a utility plant asset at original cost and is amortized to nuclear fuel expensesbased upon the quantity of heat produced for the generation of electric power. Under the Nuclear WastePolicy Act of 1982, the Department of Energy (DOE) is responsible for the permanent disposal of spentnuclear fuel. Wolf Creek paid into a federal Nuclear Waste Fund administered by the DOE a quarterly fee for the future disposal of spent nuclear fuel. In November 2013, a federal court of appeals ruled thatthe DOE must stop collecting this fee effective May 2014. KEPCo's share of the fee, calculated as onetenth of a cent for each kilowatt-hour of net nuclear generation delivered to customers, was $104,499and $388,024 in 2014 and 2013, respectively.

KEPCo included these costs in fuel and purchased powerexpense on the consolidated statements of margin.Nuclear Decommissioning

-Nuclear decommissioning is a nuclear industry term for the permanent shutdown of a nuclear power plant and the removal of radioactive components in accordance withNuclear Regulatory Commission (NRC) requirements.

The NRC will terminate a plant's license andrelease the property for unrestricted use when a company has reduced the residual radioactivity of anuclear plant to a level mandated by the NRC. The NRC requires companies with nuclear plants toprepare formal financial plans to fund nuclear decommissioning.

These plans are designed so thatsufficient funds required for nuclear decommissioning will be accumulated prior to the expiration of thelicense of the related nuclear power plant. Wolf Creek files a nuclear decommissioning site study withthe KCC every three years.The KCC reviews nuclear decommissioning plans in two phases. Phase one is the approval of therevised nuclear decommissioning study including the estimated costs to decommission the plant. Phasetwo involves the review and approval of a funding schedule prepared by the owner of the plant detailing how it plans to fund the future-year dollar amount of its pro rata share of the decommissioning costs.In 2011, the nuclear decommissioning study was revised.

Based on the study, KEPCo's share ofdecommissioning costs, including decontamination, dismantling and site restoration, is estimated to be$37.8 million.

This amount compares to the prior site study estimate of $35.6 million.

The site study cost20 Notes to Consolidated Financial Statements estimate represents the estimate to decommission Wolf Creek as of the site study year. The actualnuclear decommissioning costs may vary from the estimates because of changes in regulations andtechnologies as well as changes in costs for labor, materials, and equipment.

KEPCo is allowed to recover nuclear decommissioning costs in its prices over a period equal to theoperating license of Wolf Creek, which is through 2045. The NRC requires that funds sufficient to meetnuclear decommissioning obligations be held in a trust. KEPCo believes that the KCC approved fundinglevel will also be sufficient to meet the NRC requirement.

The consolidated financial results would bematerially affected if KEPCo was not allowed to recover in its prices the full amount of the fundingrequirement.

KEPCo recovered in its prices and deposited in an external trust fund for nuclear decommissioning approximately

$0.5 million in 2014 and $0.5 million in 2013. KEPCo records its investment in theNuclear Decommissioning Trust fund at fair value, which approximated

$19.4 million and $17.8 millionas of December 31, 2014 and 2013, respectively.

Asset retirement obligation

-KEPCo recognizes and estimates the legal obligation associated withthe cost to decommission Wolf Creek. KEPCo initially recognized an asset retirement obligation at fairvalue for the estimated cost with a corresponding amount capitalized as part of the cost of the relatedlong-lived asset and depreciated over the useful life.A reconciliation of the asset retirement obligation for the years ended December 31, 2014 and 2013 isas follows:2014 2013Balance at January 1 $ 12,542,673

$ 11,810,322 Accretion 777,952 732,351Balance at December 31 $ 13,320,625

$ 12,542,673 Any net margin effects are deferred in the Wolf Creek decommissioning regulatory asset and will becollected from members in future electric rates.Cash and Cash Equivalents

-All highly liquid investments purchased with an original maturity of threemonths or less are considered to be cash equivalents and are stated at cost, which approximates fairvalue. Cash equivalents consisted primarily of repurchase agreements, money market accounts andcertificates of deposit.The Federal Deposit Insurance Corporation insures amounts held by each institution in theorganization's name up to $250,000.

At various times during the fiscal year, the organization's cash inbank balances exceeded the federally insured limits.KEPCo's repurchase agreements have collateral pledged by a financial institution, which are securities that are backed by the federal government.

21 Notes to Consolidated Financial Statements Accounts Receivable

-Accounts receivable are stated at the amount billed to members andcustomers.

KEPCo provides allowances for doubtful

accounts, which is based upon a review ofoutstanding receivables, historical collection information and existing economic conditions.

Materials and Supplies Inventory

-Materials and supplies inventory are valued at average cost.Unamortized Debt Issuance Costs -Unamortized debt issue costs relate to the issuance of thefloating/fixed rate pollution control revenue bonds, mortgage notes payable to the National RuralUtilities Cooperative Finance Corporation (CFC) trusts and fees for re-pricing the Federal Financing Bank (FFB) debt. These costs are being amortized using the effective interest method over theremaining life of the bonds and notes.Cash Surrender Value of Life Insurance Contracts

-The following amounts related to Wolf CreekNuclear Operating Corporation (WCNOC) corporate-owned life insurance contracts, primarily with onehighly rated major insurance

company, are included in other long-term assets on the consolidated balance sheets. 42014 20134Cash surrender value of contracts

$ 7,169,655

$ 6,814,094 Borrowings against contracts (6,922,117)

(6,578,912)

$ 247,538 $ 235,182Borrowings against contracts include a prepaid interest charge. KEPCo pays interest on theseborrowings at a rate of 5.00% for the years ended December 31, 2014 and 2013.Revenues

-Revenues are recognized during the month the electricity is sold. Revenues from the saleof electricity are recorded based on usage by member cooperatives and customers and on contracts and scheduled power usages as appropriate.

Income Taxes -As a tax-exempt cooperative, KEPCo is exempt from income taxes under Section 501(c)(12) of the Internal Revenue Code of 1986, as amended.

Accordingly, provisions for income taxeshave not been reflected in the accompanying consolidated financial statements.

KEPCo is no longersubject to federal or state income tax examinations by taxing authorities for years prior to 2011.KEPCo Services, Inc., a subsidiary of Kansas Electric Power Cooperative, Inc., is not exempt fromincome taxes. The organization's present accounting policy for the evaluation of uncertain tax positions is to review those positions on an annual basis. A liability would be recorded in the financial statements during the period which, based on all available

evidence, management believes it is more likely than notthat the tax position would not be sustained upon examination by taxing authorities and the liability would be incurred by the organization.

There has been no interest or penalties recognized neither in the statements of margin nor in thebalance sheets related to uncertain tax positions.

In addition, no tax positions exist for which it isreasonably possible that the total amounts of unrecognized tax benefits will significantly increase ordecrease within the next twelve months. Tax years with open statutes of limitations are 2011 andforward.22 Notes to Consolidated Financial Statements (2) Factors That Could Affect Future Operating ResultsKEPCo currently applies accounting standards that recognize the economic effects of rate regulation and, accordingly, has recorded regulatory assets and liabilities related to its generation andtransmission operations in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 980, Regulated Operations.

In the event KEPCo determines that it nolonger meets the criteria of ASC 980, the accounting impact could be a noncash charge to operations ofan amount that would be material.

Criteria that could give rise to the discontinuance of ASC 980 include:1) increasing competition that restricts KEPCo's ability to establish prices to recover specific costs and2) a significant change in the manner in which rates are set by regulators from a cost-based regulation to another form of regulation.

KEPCo periodically reviews these criteria to ensure the continuing application of ASC 980 is appropriate.

Any changes that would require KEPCo to discontinue theapplication of ASC 980 due to increased competition, regulatory changes or other events maysignificantly impact the valuation of KEPCo's investment in utility plant, its investment in Wolf Creek andnecessitate the write-off of regulatory assets. At this time, the effect of competition and the amount ofregulatory assets that could be recovered in such an environment cannot be predicted.

The 1992 Energy Policy Act began the process of restructuring the United States electric utility industryby permitting the Federal Energy Regulatory Commission to order electric utilities to allow third partiesto sell electric power to wholesale customers over their transmission systems.

KEPCo has elected toderegulate its rate making for sales to its members under recent statutory amendments.

Subject to the possibility of KCC review, KEPCo's member rates are now set by action of the Board.KEPCo's ability to timely recover its costs is enhanced by this change.(3) Departures From Generally Accepted Accounting Principles Effective February 1, 1987, the KCC issued an order to KEPCo requiring the use of present worth(sinking fund) depreciation and amortization.

Such depreciation and amortization methods constituted phase-in plans that did not meet the requirements of ASC 980-340 Regulated Operation, Other Assetsand Deferred Costs.Effective February 1, 2002, the KCC issued an order that extended the depreciable life of Wolf Creekfrom 40 years to 60 years. This order also permitted recovery in rates of the $53.5 million cumulative difference between historical present worth (sinking fund) depreciation and amortization and straight-line depreciation and amortization of the Wolf Creek generation plant and disallowed costs over a 15-year period. Recovery of these costs in rates is included in operating

revenues, and the relatedamortization expense is included in deferred charges in the consolidated statements of margin.The effect of these departures from accounting principles generally accepted in the United States ofAmerica is to overstate (understate) the following items in the consolidated financial statements by thefollowing amounts:2014 2013Deferred charges $ 7,127,268

$ 10,690,902 Patronage capital $ 7,127,268

$ 10,690,902 Net margin $ (3,563,634)

$ (3,563,634) 23 Notes to Consolidated Financial Statements Wolf Creek Disallowed Costs -Effective October 1, 1985, the KCC issued a rate order relating toKEPCo's investment in Wolf Creek, which disallowed

$26.0 million of KEPCo's investment in WolfCreek ($8.8 million net of accumulated amortization as of December 31, 2014). A subsequent rateorder, effective February 1, 1987, allows KEPCo to recover these disallowed costs and other costsrelated to the disallowed portion (recorded as deferred charges) for the period from September 3, 1985through January 31, 1987, over a 27.736-year period starting February 1, 1987. Pursuant to a KCCrate order dated December 30, 1998, the disallowed portion's recovery period was extended to a 30-year period. Through December 31, 2001, KEPCo used the present worth (sinking fund) method torecover the disallowed costs, which enabled it to meet the times-interest-earned ratio and debt servicerequirements in the KCC rate order dated January 30, 1987. The method used by KEPCo through2001 constituted a phase-in plan that did not meet the requirements of ASC 980-340, Regulated Operations, Other Assets and Deferred Costs.Effective February 1, 2002, the KCC issued an order permitting recovery in rates of the $6.5 millioncumulative difference between historical present worth (sinking fund) and straight-line amortization ofWolf Creek disallowed costs over a 15-year period. Such depreciation practice does not constitute aphase-in plan that meets the requirements of ASC 980-340.If the disallowed costs were recovered using a method in accordance with U.S. generally acceptedaccounting principles, the costs would have been expensed in their entirety upon implementation of theKCC order, with a corresponding decrease in patronage capital.Amortization of the Wolf Creek disallowed costs is included in amortization of disallowed charges andamounts to $0.8 million for each of the years ended December 31, 2014, and 2013.Wolf Creek Deferred Plant Costs -Effective February 1, 2002, the KCC issued an order permitting recovery in rates of the $46.9 million cumulative difference between historical present worth (sinkingfund) depreciation and straight-line depreciation of Wolf Creek generation plant over a 15-year period.Such depreciation practice does not constitute a phase-in plan that meets the requirements of ASC980-340.

In 2002, this cumulative difference was reclassified from utility plant allowance fordepreciation to deferred charges on the consolidated balance sheets to reflect the amount as aregulatory asset.Amortization of the Wolf Creek deferred plant costs is included in amortization of deferred charges andamounts to $3.1 million for each of the years ended December 31, 2014 and 2013.If the deferred plant costs were recovered using a method in accordance with accounting principles generally accepted in the United States of America, the costs would have been expensed in theirentirety upon implementation of the KCC order, with a corresponding decrease in patronage capital.(4) Investments in Associated Organizations Investments in associated organizations are carried at cost. At December 31, 2014 and 2013,investments in associated organizations consisted of the following:

24 Notes to Consolidated Financial Statements 2014 2013Cooperative Financial Corporation Memberships

$ 1,000 $ 1,000Capital term certificates 395,970 395,970Patronage capital certificates 1,317,279 1,054,664 Equity term certificates 10,027,496 8,142,902 Member capital certificates

-2,500,000 11,741,745 12,094,536 Other 264,976 252,077$ 12,006,721

$ 12,346,613 (5) Bond Fund ReserveKEPCo has entered into a bond covenant whereby KEPCo is required to maintain, with a trustee, abond fund reserve of approximately

$4.4 million.

This stipulated amount is sufficient to satisfy certainfuture interest and principal obligations.

The amount held in the bond fund reserve is invested by thetrustee in tax-exempt municipal securities, pursuant to the restrictions of the indenture agreement, whichare carried at amortized cost.(6) Deferred ChargesDeferred Incremental Outage Costs -In 1991, the KCC issued an order that allowed KEPCo todefer its 6% share of the incremental operating, maintenance and replacement power costs associated with the periodic refueling of Wolf Creek. Such costs are deferred during each refueling outage and arebeing amortized over the approximate 18-month operating cycle coinciding with the recognition of therelated revenues.

Additions to the deferred incremental outage costs were $.6 million and $10.4 millionin 2014 and 2013, respectively.

The current year amortization of the deferred incremental outage costswas $5.7 million and $5.4 million in 2014 and 2013, respectively.

Other Deferred Charges -KEPCo includes in other deferred charges the early call premiumresulting from refinancing.

These early call premiums are amortized using the effective interest methodover the remaining life of the new agreements.

(7) Line of CreditAs of December 31, 2014, KEPCo has a $20 million line of credit available with the Cooperative FinanceCorporation.

There were no funds borrowed against the line of credit at December 31, 2014 and 2013.The line of credit requires the Cooperative to pay down the balance to zero annually.

Interest rates varyand were 2.90% at December 31, 2014 and 2013. This line of credit expires in March 3, 2017.At December 31, 2014, KEPCo has a $10 million line of credit available with CoBank, ACB. There wereno funds borrowed against the line of credit at December 31, 2014 and 2013. Interest rate options, asselected by the Company, are a weekly quoted variable rate in which CoBank establishes a rate on thefirst business day of each week or a LIBOR option at a fixed rate equal to LIBOR plus 1.6%. This line ofcredit expires May 31, 2015.25 Notes to Consolidated Financial Statements (8) Short-Term Note PayableAs of December 31, 2014 and 2013, KEPCo had a $1.4 million and $6.5 million short-term notepayable to the Cooperative Finance Corporation at an interest rate of 3.08% and 2.5%, respectively.

(9) Long-Term DebtLong-term debt consists of mortgage notes payable to the United States of America acting through theFederal Financing Board, the CFC and others. Substantially all of KEPCo's assets are pledged ascollateral.

The terms of the notes as of December 31 are as follows:Mortgage notes payable to the FFB at fixedrates varying from .818% to 9.21%, payablein quarterly installments through 2043Mortgage notes payable to the Grantor TrustSeries 1997 at a rate of 7.522%, payablesemi-annually, principal payments commencing in 1999 and continuing annually through 2017Floating/fixed rate pollution control revenuebonds, City of Burlington, Kansas, Pooled Series1985C, variable interest rate of .34%, payableannually through 2015Note payable to CoBank at a rate of 3.03%, payable inquarterly installments through 2023Mortgage notes payable, equity certificate loansand member capital security notes to the CFC atfixed rates of 2.45% to 7.50%, payable quarterly through 2045Less current maturities 2014$ 62,732,450 13,140,000 2013$ 49,124,279 18,440,000 1,995,000 1,111,684 5,795,000 EI1,228,745 88,831,738 167,810,872 (15,683,929) 88,365,951 162,953,975 (22,493,911)

$ 152,126,943

$ 140,460,064 Aggregate maturities of long-term debt for the next five years and thereafter are as follows:2015 $ 15,683,929 2016 10,678,447 2017 9,806,759 2018 6,421,411 2019 6,531,740 Thereafter 118,688,586

$ 167,810,872 26 Notes to Consolidated Financial Statements Restrictive covenants related to the CFC debt require KEPCo to design rates that would enable it tomaintain a times-interest earned ratio of at least 1.05 and debt-service coverage ratio of at least 1.0, onaverage, in the two best years out of the three most recent calendar years. The covenants also prohibitdistribution of net patronage capital or margins until, after giving effect to any such distribution, totalpatronage capital equals or exceeds 20% of total assets, unless such distribution is approved by theRural Utility Service.

KEPCo was in compliance with such restrictive covenants as of December 31,2014 and 2013.Restriction covenants related to the CoBank debt require KEPCo to design rates that would enable it tomaintain a debt-service coverage ratio, as defined by CoBank of at least 1.10. KEPCo was incompliance with the restrictive covenant as of December 31, 2014 and 2013.In 1997, KEPCo refinanced its mortgage notes payable to the 1988 CFC Grantor Trust through theestablishment of a new CFC Grantor Trust Series 1997 (the Series 1997 Trust) by CFC. Thisrefinancing reduced the guaranteed interest rate payable on the mortgage notes to a fixed rate of7.522%. The mortgage notes payable are pre-payable at any time with no prepayment penalties.

TheTrust holds certain rights KEPCo assigned to the Trust under an interest rate swap agreement.

Theswap agreement was put into place in order to mitigate the interest rate risk inherent in the Trust, whichholds a fixed rate asset with a variable rate obligation.

The swap agreement terminates in 2017, but is subject to early termination upon the early redemption ofthe debt. However, any termination costs relating to the termination of the assigned interest rate swapsis KEPCo's responsibility.

At December 31, 2014, the termination obligation associated with theassigned swap agreement to early retire the mortgage notes payable is approximately

$1.5 million.This fair value estimate is based on information available at December 31, 2014, and is expected tofluctuate in the future based on changes in interest rates and outstanding principal balance.KEPCo also is exposed to possible credit loss in the event of noncompliance by the counterparty to theswap agreement.

However, KEPCo does not anticipate nonperformance by the counterparty.

(10) Benefit PlansNational Rural Electric Cooperative Association (NRECA) Retirement and SecurityProgram -KEPCo participates in the NRECA Retirement and Security Program for its employees.

The NRECA is a defined benefit pension plan qualified under Section 401 and tax-exempt underSection 501(a) of the Internal Revenue Code. It is a multiemployer plan under the accounting standards.

The plans sponsor's Employer Identification Number is 53-0116145 and the Plan Number is 333.A unique characteristic of a multiemployer plan compared to a single employer plan is that all planassets are available to pay benefits of any plan participant.

Separate asset accounts are not maintained for participating employers.

This means that assets contributed by one employer may be used toprovide benefits to employees of other participating employers.

KEPCo's contributions to the RS Plan in 2014 and 2013 represented less than 5 percent of the totalcontributions made to the plan by all participating employers.

KEPCo's expense under this program wasapproximately

$0.4 million and $0.4 million, for the year ended December 31, 2014 and 2013,respectively.

There have been no significant changes that affect the comparability of 2014 and 2013contributions.

27 Notes to Consolidated Financial Statements For the RS Plan, a "zone status" determination is not required, and therefore not determined, under thePension Protection Act (PPA) of 2006. In addition, the accumulated benefit obligations and plan assetsare not determined or allocated separately by individual employer.

In total, the RS Plan was over 80percent funded on January 1, 2014, and over 80 percent funded on January 1, 2013, based on thePPA funding target and PPA actuarial value of assets on those dates.Because the provisions of the PPA do not apply to the RS Plan, funding improvement plans andsurcharges are not applicable.

Future contribution requirements are determined each year as part ofthe actuarial valuation of the plan and may change as a result of plan experience.

NRECA Savings 401(k) Plan -All employees of KEPCo are eligible to participate in the NRECASavings 401(k) Plan. Under the plan, KEPCo contributes an amount not to exceed 5%, dependent upon each employee's level of participation and completion of one year of service, of the respective employee's base pay to provide additional retirement benefits.

KEPCo contributed approximately

$90,000 to the plan for the years ended December 31, 2014 and 2013.WCNOC Pension and Postretirement Plans -KEPCo has an obligation to the WCNOC retirement, supplemental retirement and postretirement medical plans for its 6% ownership interest in Wolf Creek.The plans provide for benefits upon retirement, normally at age 65. In accordance with the EmployeeRetirement Income Security Act of 1974, KEPCo has satisfied its minimum funding requirements.

Benefits under the plans reflect the employee's compensation, years of service and age at retirement.

WCNOC uses a measurement date of December 31 for its retirement plan, supplemental retirement plan and postretirement plan (collectively, the Plans). Information about KEPCo's 6% of the Plans'funded status is on the following page.28 Notes to Consolidated Financial Statements Pension Benefits Postretirement Benefits2014 2013 2014 2013Change in benefitobligation:

Benefit obligation beginning of yearService costInterest costPlan participants' contributions Benefits paidActuarial (gains)lossesBenefit obligations, end of year$ 20,785,543 726,9561,081,152 (643,257) 4,898,967

$ 26,849,361

$ 22,581,857 872,519965,450(555,243)

(3,079,040)

$ 20,785,543

$ 1,277,753 22,12259,18297,847(164,795)

(240,184)

$ 1,051,925

$ 1,406,813 26,34852,64888,823(130,531)

(166,348)

$ 1,277,753 Change in plan assets:Fair value of plan assets,beginning of yearActual return on planassetsEmployercontributions Plan participants' contributions Benefits paidFair value of plan assets,end of year$ 14,646,824 973,542905,022(611,384) 15,914,004

$ (10,935,357)

$ 12,517,154

$1,990 $1,6981,680,711 973,21065,72042,000(524,251) 14,646,824

$ (6,138,719) 97,847(164,795) 76288,823(130,531) 1,990Funded status, endofyear$ (1,051,163)

$ (1,275,763)

Amounts recognized in the consolidated balance sheets:Other long-term liabilities Wolf Creek pension andpostretirement benefit plans2014 2013$ 12,004,519

$ 7,432,482 29 Notes to Consolidated Financial Statements Amounts recognized in accumulated other comprehensive income (loss) not yet recognized as components of net periodic benefit cost consist of:Pension B2014enefits Postretirement Benefits2013 2014 2013Net lossPrior service costAccumulated othercomprehensive loss$ (8,304,185)

(71,323)$ (8,375,508)

$ (3,728,059)

(78,759)$ (3,718)$ (264,963)

$ (3,806,818)

$ (3,718)$ (264,963)

Information for the pension plan with an accumulated benefit obligation in excess of plan assets:Pension B2014enefits Postretirement Benefits2013 2014 2013Projected benefitobligation Accumulated benefitobligation Fair value of planassets$ 26,849,361 22,880,170

$ 15,914,004

$ 20,785,543 17,547,994

$ 14,646,824

$ 1,051,925

$ 1,277,752

$ 762$ 1,990Weighted average actuarial assumptions used to determine net periodic benefit obligation:

Pension Benefits Postretirement Benefits2013 2014 20132014Discount rateAnnual salary increase rate4.20%4.00%4.16%4.00%4.70%N/A4.70%N/AWolf Creek uses a measurement date of December 31 for its pension and post-retirement benefit plans. Thediscount rate to determine the current year pension obligation and the following year's pension expense isbased on a bond selection-settlement portfolio approach.

This approach develops a discount rate by selecting a portfolio of high quality, non-callable corporate bonds that generate a sufficient cash flow to provide for theprojected benefit payments of the plan. After the bond portfolio is selected, a single interest rate is determined that equates the present value of the plan's projected benefit payments discounted at this rate with the marketvalue of the bonds selected.

30 Notes to Consolidated Financial Statements Pension Benefits2014 2013Postretirement Benefits2014 2013Components of netperiodic cost (benefit):

Service costInterest costExpected return onplan assetsAmortization Transition obligation, netPrior service costActuarial loss, netNet periodic costOther changes in planobligations recognized in other comprehensive income:Current year actuarial loss(gain)

Amortization of actuarial lossAmortization of priorservice costAmortization of transition obligation Total recognized in othercomprehensive incomeTotal recognized in netperiodic cost and othercomprehensive incomeWeighted average actuarial assumptions used todetermine net periodiccost:Discount rateExpected long termreturn on plan assetsCompensation rateincrease$ 726,9561,081,152 (1,031,989)

$ 872,519965,450(941,266)

$ 22,12259,182$ 26,34852,648327,436381,287$1,164,842 7,436691,984 21,062$1,596,123

$ 102,36633,807$ 112,835$4,957,414 (381,287)

(7,436)$ (3,818,485)

(691,984)

$ (240,184)

$ (166,348)

(21,062)(33,807)(7,436)4,568,691 (4,517,905)

(261,246)

(200,187)

$ 5,733,533

$ (2,921,782)

$ (158,880)

$ (87,352)4.20%7.50%4.00%4.16%7.50%4.00%4.70%4.70%N/AN/AN/AN/A31 Notes to Consolidated Financial Statements KEPCo estimates they will amortize the following amounts from regulatory assets into net periodic costin 2015:Pension Postretirement Benefits BenefitsActuarial loss $ 381,287 $ 21,062Prior service cost 7,436 _Total $ 388,723 $ 21,062The expected long-term rate of return on plan assets is based on historical and projected rates of returnfor current and planned asset classes in the plans' investment portfolios.

Assumed projected rates ofreturn for each asset class were selected after analyzing long-term historical experience and futureexpectations of the volatility of the various asset classes.

Based on target asset allocations for eachasset class, the overall expected rate of return for the portfolios was developed, adjusted for historical and expected experience of active portfolio management results compared to benchmark returns andfor the effect of expenses paid from plan assets.For measurement

purposes, the assumed annual health care cost growth rates were as follows:2014 2013Health care cost trend rate assumedfor next year 7.00% 7.50%Rate to which the cost trend rate isassumed to decline 5.00% 5.00%Year that the rate reaches the ultimate trend rate 2019 2019The health care cost trend rate affects the projected benefit obligation.

A 1% change in assumed healthcare cost growth rates would have effects shown in the following table:One percentage One percentage point increase point decreaseEffect on total service and interest cost $ (1,050) $ 1,026Effect on post-retirement benefit obligation

$ (14,116)

$ 14,448In 2012, Wolf Creek changed its investment advisor resulting in the sale of its then existing levels 1, 2 and3 investments and the purchase of other level 2 and 3 investments.

Its pension and post-retirement planinvestment strategy is to manage assets in a prudent manner with regard to preserving principal whileproviding reasonable returns.

It has adopted a long-term investment horizon such that the chances andduration of investment losses are carefully weighed against the long-term potential for appreciation ofassets. Part of its strategy includes managing interest rate sensitivity of plan assets relative to the32 Notes to Consolidated Financial Statements associated liabilities.

The primary objective of the pension plan is to provide a source of retirement income for its participants and beneficiaries, and the primary financial objective of the plan is to improveits funded status. The primary objective of the post-retirement benefit plan is growth in assets andpreservation of principal, while minimizing interim volatility, to meet anticipated claims of planparticipants.

Wolf Creek delegates the management of its pension and post-retirement benefit planassets to independent investment advisors who hire and dismiss investment managers based uponvarious factors.

The investment advisors strive to diversify investments across asset classes, sectorsand manager styles to minimize the risk of large losses, based upon objectives and risk tolerance specified by Wolf Creek, which include allowable and/or prohibited investment types. It measures andmonitors investment risk on an ongoing basis through quarterly investment portfolio reviews and annualliability measurements.

The target allocations for Wolf Creek's pension plan assets are 31% to international equity securities, 25% to domestic equity securities, 25% to debt securities, 10% to real estate securities, 5% tocommodity investments and 4% to other investments.

The investments in both international anddomestic equity include investments in large-, mid- and small-cap companies, private equity funds andinvestment funds with underlying investments similar to those previously mentioned.

The investments indebt include core and high-yield bonds. Core bonds include funds invested in investment grade debtsecurities of corporate

entities, obligations of U.S. and foreign governments and their agencies, andprivate debt securities.

High-yield bonds include a fund with underlying investments in non-investment grade debt securities of corporate

entities, private placements and bank debt. Real estate securities include funds invested in commercial and residential real estate properties while commodity investments include funds invested in commodity-related instruments.

All of Wolf Creek's pension plan assets are recorded at fair value using daily net asset values asreported by the trustee.

However, level 3 investments in real estate funds and alternative funds areinvested in underlying investments that are illiquid and require significant judgment when measuring them at fair value using market and income-based models. Significant unobservable inputs forunderlying real estate investments include estimated market discount rates, projected cash flows andestimated value into perpetuity.

Alternative funds invest in a wide range of investments typically with lowcorrelations to traditional investments.

Similar to other assets measured at fair value, GAAP establishes a hierarchal framework for disclosing the transparency of the inputs utilized in measuring pension and post-retirement benefit plan assets atfair value. From time to time, the Wolf Creek pension trust may buy and sell investments resulting inchanges within the hierarchy.

Where quoted market prices are available in an active market, plan assetsare classified within Level 1 of the valuation hierarchy.

Level 1 plan assets include cash equivalents, equity and debt investments.

If quoted market prices are not available, then fair values are estimated byusing pricing models, quoted prices of plan assets with similar characteristics or discounted cash flows.Level 2 investments include cash equivalents, equity, debt and commodity investments.

In certain caseswhere Level 1 or Level 2 inputs are not available, plan assets are classified within Level 3 of thehierarchy and include certain real estate investments.

Significant inputs and valuation techniques usedin measuring Level 3 fair values include market discount rates, projected cash flows and the estimated value into perpetuity.

33 Notes to Consolidated Financial Statements The following table provides the fair value of KEPCo's 6% share of Wolf Creek's pension plan assetsand the corresponding level of hierarchy as of December 31, 2014 and 2013:Fair Value Measurements UsingQuoted pricesin activemarkets foridentical assets(Level 1)December 31,2014Significant otherobservable inputs(Level 2)$ 56,659Significant unobservable inputs(Level 3)Fair ValueCash equivalents Equity securities U.S. companies International Debt securities Core bondsCommodities Alternative investments Real estate$56,659$$4,031,564 4,930,736 4,066,416 751,5794,031,564 4,930,736 4,066,416 751,579550,0331,527,017 550,033721,134805,883Total$ 15,914,004

$$ 14,642,837

$ 1,271,167 Fair Value Measurements UsingQuoted pricesin activemarkets foridentical assets(Level 1)Significant otherobservable inputs(Level 2)Significant unobservable inputs(Level 3)December 31,2013Fair ValueCash equivalents Equity securities U.S. companies International companies Debt securities Core bondsCommodities Alternative investments Real estate$52,886 $$ 52,886 $3,906,209 4,706,569 3,437,348 669,6113,906,209 4,706,569 3,437,348 669,611529,3741,344,827 529,374650,341694,486Total$ 14,646,824

$-$ 13,467,109

$ 1,179,715 34 Notes to Consolidated Financial Statements The following tables provides reconciliation of KEPCo's 6% share of Wolf Creek's pension plan assetsmeasured at fair value using significant level 3 inputs for the years ended December 31, 2014 and2013:Real EstateSecurities Alternative Investments Balance at January 1, 2014Actual return on plan assetsRelating to assets still held at the reporting dateBalance at December 31, 2014Balance at January 1, 2013Actual return on plan assetsRelating to assets still held at the reporting date$ 650,341$ 529,37470,793 20,659$ 721,134 $ 550,033$ 579,665$ 497,89131,48370,676Balance at December 31, 2013$ 650,341 $ 529,374Estimated future benefit payments as of December 31, 2014, for the Plans, whichfuture services, are as follows:reflect expectedPension BenefitsPostretirement BenefitsFrom companyassetsExpected contributions:

2015Expected benefit payments:

201520162017201820192020-2024 To/from trust$ 600,000$ 657,236747,571838,007929,0361,019,979 6,378,979 To/from trustFrom companyassets$ 32,229 $ 74,801 $$ 32,22931,81931,38330,91930,425144,248$ 75,563 $77,46979,35182,82184,518411,80135 Notes to Consolidated Financial Statements (11) Commitments and Contingencies Current Economic Environment

-KEPCo considers the current economic conditions whenplanning for future power supply and liquidity needs. The current economic climate may also affectKEPCo's ability to obtain financing.

Given the volatility of the current economic conditions, the values of assets and liabilities recorded in thefinancial statements could change rapidly, resulting in material future adjustments that could negatively impact the Cooperative's ability to meet debt covenants or maintain sufficient liquidity.

Currently understate statutes, the Cooperative's rate making is deregulated and, therefore, expects to be able torecover any economic losses through future rates.Litigation

-The Cooperative is subject to claims and lawsuits that arise primarily in the ordinarycourse of business.

It is the opinion of management that the disposition or ultimate resolution of suchclaims and lawsuits will not have an adverse effect on the consolidated financial

position, results ofoperations and cash flows of the Cooperative.

There is a provision in the Wolf Creek operating agreement whereby the owners treat certain claims andlosses arising out of the operations of Wolf Creek as a cost to be borne by the owners separately (butnot jointly) in proportion to their ownership shares. Each of the owners has agreed to indemnify theothers in such cases.Letter of Credit -KEPCo has an open letter of credit with the Cooperative Finance Committee in theamount of $1,500,000 which matures May 23, 2015. This letter of credit renews automatically eachyear unless notice is given. The letter of credit is intended to provide financial security to Southwest Power Pool pursuant to its credit policy.Nuclear Liability Insurance

-Pursuant to the Price-Anderson Act, which has been reauthorized through December 31, 2025, by the Energy Policy Act of 2005, the Cooperative is required to insureagainst public liability claims resulting from nuclear incidents to the current limit of public liability, approximately

$13.6 billion.

This limit of liability consists of the maximum available commercial insurance of $375.0 million and the remaining

$13.2 billion is provided through mandatory participation in an industry-wide retrospective assessment program.

In addition, Congress could impose additional revenue-raising measures to pay claims. Under this retrospective assessment

program, the owners ofWolf Creek are jointly and severally subject to an assessment of up to $127.3 million (KEPCo share is$7.64 million),

payable at no more than $19.0 million (KEPCo share is $1.14 million) per incident peryear per reactor.

Both the total and yearly assessment is subject to an inflationary adjustment every fiveyears with the next adjustment in 2018.The owners of Wolf Creek carry decontamination liability, premature nuclear decommissioning liability and property damage insurance for Wolf Creek totaling approximately

$2.8 billion (KEPCo's share is$168 million).

In the event of an accident, insurance proceeds must first be used for reactor stabilization and site decontamination in accordance with a plan mandated by the NRC. KEPCo's share of anyremaining proceeds can be used to pay for property damage or, if certain requirements are met,including decommissioning the plant, toward a shortfall in the NDT fund.36 Notes to Consolidated Financial Statements The owners also carry additional insurance with Nuclear Energy Industry Limited (NEIL) to cover costsof replacement power and other extra expenses incurred during a prolonged outage resulting fromaccidental property damage at Wolf Creek. If significant losses were incurred at any of the nuclearplants insured under the NEIL policies, KEPCo may be subject to retrospective assessments under thecurrent policies of approximately

$2.36 million.Although KEPCo maintains various insurance policies to provide coverage for potential losses andliabilities resulting from an accident or an extended outage, KEPCo's insurance coverage may not beadequate to cover the costs that could result from a catastrophic accident or extended outage at WolfCreek. Any substantial losses not covered by insurance, to the extent not recoverable in rate prices,would have a material effect on KEPCo's consolidated financial results.Decommissioning Insurances

-KEPCo carries premature decommissioning insurance that hasseveral restrictions, one of which can only be used if Wolf Creek incurs an accident exceeding

$500million in expenses to safely stabilize the reactor, to decontaminate the reactor and reactor station sitein accordance with a plan approved by the Nuclear Regulatory Commission (NRC) and to pay for on-site property damages.Once the NRC property rule requiring insurance proceeds to be used first for stabilization anddecontamination has been complied with, the premature decommissioning coverage could pay for thedecommissioning fund shortfall in the event an accident at Wolf Creek exceeds $500 million in covereddamages and causes Wolf Creek to be prematurely decommissioned.

Nuclear Fuel Commitments

-At December 31, 2014, KEPCo's share of WCNOC's nuclear fuelcommitments was approximately

$3.5 million for uranium concentrates expiring in 2017, $0.5 million forconversion expiring in 2017, $11.9 million for enrichment expiring at various times through 2045 and$4.3 million for fabrication through 2045.Purchase Power Commitments

-KEPCo has supply contracts with various utility companies topurchase power to supplement generation in the given service areas. KEPCo has provided theSouthwest Power Pool a letter of credit to help insure power is available if needed.(12) Fair Value of Assets and Liabilities ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sellan asset or paid to transfer a liability in an orderly transaction between market participants at themeasurement date.ASC Topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use ofobservable inputs and minimize the use of unobservable inputs when measuring fair value. Thestandard describes three levels of inputs that may be used to measure fair value:37 Notes to Consolidated Financial Statements Level I Quoted prices in active markets for identical assets or liabilities Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets orliabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of theassets or liabilities Level 3 Unobservable inputs that are supported by little or no market activity and that aresignificant to the fair value of the assets or liabilities Following is a description of the valuation methodologies used for assets and liabilities measured at fairvalue on a recurring basis and recognized in the accompanying consolidated balance sheets, as well asthe general classification of such assets and liabilities pursuant to the valuation hierarchy.

Decommissioning Fund -The decommissioning fund consists of various mutual funds wherefair value is determined by quoted market prices in an active market and, as such, are classified withinLevel 1 of the valuation hierarchy.

The following table presents the fair value measurements of assets and liabilities recognized in theaccompanying consolidated balance sheets measured at fair value on a recurring basis and the levelwithin the ASC 820 fair value hierarchy in which the fair value measurements fall at December 31, 2014:Fair Value Measurements UsingDecommissioning fundDomestic fundInternational fundDomestic bond fundMoney marketTotalFair Value$ 10,754,081 1,462,801 6,820,595 34,802$ 19,072,279 Quoted pricein activemarkets foridentical assets(Level 1)$ 10,754,081 1,462,801 6,820,595 34,802$ 19,072,279 Significant otherobservable inputs(Level 2)Significar unobserva inputs(Level 3$-$$$bleIIII44I444444II.4I4A44I384-Notes to Consolidated Financial Statements The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value.Cash and Cash Equivalents

-Due to the short term maturity of cash and cash equivalents, thecarrying amount approximates fair value.Investments in CFC and Other Associated Organizations

-KEPCo considers CFC and otherassociated organizations certificates to be a condition of borrowing and patronage capital certificates tobe directly related to borrowing.

As such, KEPCo management believes the fair value of these assets isnot determinable and they are reflected at their carrying amount.Bond Fund Reserve -The bond fund reserve consists of various held-to-maturity securities wherethe fair value is primarily based on quoted market prices.Line of Credit and Long-Term DebtVariable-Rate Debt -The carrying amount approximates fair value because of the short-term variablerates of those debt instruments.

Fixed-Rate Debt -The fair value of all fixed-rate debt is based on the sum of the estimated value ofeach issue, taking into consideration the current rate offered to KEPCo for debt of similar remaining maturities.

The following table presents estimated fair values of KEPCo's financial instruments atDecember 31, 2014 and 2013:December 31, 2014 December 31, 2013Carrying Fair Carrying FairValue Value Value ValueFinancial assets:Cash and cashequivalents

$ 1,202,643

$ 1,202,643

$ 5,181,544

$ 5,181,544 Bond fund reserve 4,490,786 4,531,117 4,465,868 4,579,181 Financial liabilities:

Long-term debt $ 167,810,872

$ 187,686,399

$ 162,953,975

$ 170,011,842 39 Notes to Consolidated Financial Statements (13) Patronage CapitalIn accordance with KEPCo's bylaws, KEPCo's current margins are to be allocated to members.KEPCo's current policy is to allocate to the members based on revenues collected from the membersas a percentage of total revenues.

As disclosed in note 3, if KEPCo's consolidated financial statements were adjusted to reflect accounting principles generally accepted in the United Stated of America, totalpatronage capital would be substantially less. As noted in the consolidated statements of changes inpatronage

capital, no patronage capital distributions were made to members in 2014 and 2013.(14) Subsequent EventsThe Company has evaluated subsequent events through April 2, 2015, which is the date the financial statements were available to be issued. No events were significant enough to warrant disclosures inthe accompanying financial statements or notes.40 KEPCo's Mission Statement KEPCo exists on behalf of its Members to produce,

procure, transmit, deliver andmaintain a reliable supply of wholesale electricity within financial guidelines and risktolerances established by the Board.KEPCo Member Area MapKEPCo's Vision Statement KEPCo will work to provide Consumer-Members the best possible value in reliableelectricity and to play an active role in helping improve the economy and quality of life.41 Kansas ElectricPower Cooperative, Inc.A Touchstone Energy Cooperative

• !,1)ýPO Box 4877 -Topeka, KS 66604600 SW Corporate View -Topeka, KS 66615(785)-273-7010 www.kepco.org