ML15133A220

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
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ML15133A210	List: ML15133A217 ML15133A218 ML15133A219 ML15133A220
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RA 15-0047
Download: ML15133A220 (44)

Text

2014 Annual Report Kansas Electric Power Cooperative, Inc.

Contents Page Organization and Resources

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

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

2-5 2014 H ighlights

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

6-7 KEPCo Trustees and Managers ....................

8-11 Operating Statistics

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

12 Report of Independent Public Accountants

....... 13 Financial Statements Page Balance Sheets ............................................

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

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

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

18 Notes to Financial Statements

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

19-40 Mission & Vision Statement

/ Area Map ..... 41 4 4 4 4 4 KEPCo Staff Marcus Harris ................

Executive Vice President& Chief Executive Officer Les Evans ...........................

Senior Vice President& Chief Operating Officer William Riggins .........

Senior Vice President, Chief Strategic Officer & General Counsel Coleen Wells ..................................

Vice President& Chief Financial Officer Stephanie Anderson ................................

Finance& Benefits Analyst Mark Barbee .........

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

Engineer 3 Terry Deutscher

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

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

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

Operations Analyst Shawn Geil ..........

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

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

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

Finance & Accounts Payable/Payroll Specialist Elizabeth Lesline ............

Administrative Assistant/

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

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

Senior Engineer Rita Petty ...............................

Executive Assistant& Manager of Office Services Kelsey Schrempp ...........

Administrative Assistant& Benefits Specialist Paul Stone ..................................

System Operator Jill Taggart ...... Director of Forecasting

& Planning Phil Wages .............

Director of Member Services, Government Affairs & Business Development Organization and Resources Kansas Electric Power Cooperative, Inc. (KEPCo), headquartered in Topeka, Kansas, was incorporated in 1975 as a not-for-profit generation and transmission cooperative (G&T). It is KEPCo'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, such as rural economic development, marketing and diversification opportunities, power requirement and engineering studies, and rate design, among others.KEPCo is governed by a Board of Trustees representing each of its nineteen Members which collectively serve more than 120,000 electric meters in two-thirds of Kansas. The KEPCo Board of Trustees 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 three additional 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: 70 MW of owned generation from the Wolf Creek Generating Station; 30 MW of owned generation from the 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; and 14 MW from the Western Area Power Administration; plus partial requirement power purchases from regional utilities.

KEPCo is a Touchstone Energy@ Cooperative.

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

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

The national program is anchored by the motto "The Power of Human Connections." Kansas Electric Power Cooperative, Inc.P.O. Box 4877 Topeka, KS 66604 600 SW Corporate View Topeka, KS 66615 (785) 273-7010 A Touchstone Energy Cooperative -.1 2014 Message from Scott Whittington KEPCo President&Marcus Harris Executive Vice President& Chief Executive Officer 2014 was highlighted by the selection of Marcus Harms as the new Executive Vice President and Chief Executive Officer of KEPCo.Harris replaces Charles"Chuck" Terrill who retired in December.

Harris comes to KEPCo from South Carolina Electric and Gas Company (SCE&G), where he amassed over twenty-three years of leadership experience in various roles within the utility, including wholesale power marketing, operations planning, transmission and distribution operations, power origination and most recently, directing the renewable and demand side management activities of SCE&G.The costs associated with the production and transmission of electricity are of utmost concern for every electric utility. In today's regulatory-laden environment, these concerns have been augmented even more. Efforts to control costs are of paramount importance to KEPCo, as our core responsibility is to provide economic and reliable wholesale power to our nineteen Member electric cooperatives.

Reflective of this responsibility was the decision made to refinance KEPCo's debt associated with the Wolf Creek Nuclear Generating Station (Wolf Creek), which included the refinancing of KEPCo's Grantor Trust Series and pollution control revenue bonds, and the method in which KEPCo's wholesale rate adjusters are calculated.

Nationwide, the cost to produce electricity continues to rise. Cost drivers such as labor, materials, maintenance, and ever-increasing regulatory compliance costs have caused rates to increase.

In an effort to slow this trend, a strategic decision was made in 2013 to refinance the debt instruments associated with Wolf Creek. By doing so, KEPCo is able to more closely match the debt payment with the useful life of Wolf Creek, which, a few years ago, received an operating license extension to 2045.Completed in 2014, the refinancing of the debt instruments resulted in a four mill, or nearly five percent, reduction in wholesale rates.2 In July, KEPCo staff presented to the KEPCo Board of Trustees a plan to change the method in which several wholesale rate adjustments are calculated 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. By implementing the change, the basic wholesale rate structure remains unchanged, a better timing of revenue and expenses are realized, and KEPCo will have a more accurate picture of its financial position, since KEPCo will use budgeted cost figures rather than historical costs. KEPCo's Margin Stabilization Adjustment will flow back any over-recovery or collect any under-recovery, in aggregate, while maintaining KEPCo's margin to meet its minimum financial requirements.

Access to low-cost capital through the Rural Utilities Service (RUS) is critical in keeping KEPCo's cost of borrowing as low as possible, which in turn keeps KEPCo's wholesale rate more economical.

KEPCo completed a ten-year financial forecast as part of the requirement for a RUS Wolf Creek capital addition loan application, which was completed and filed late in the year. The forecast shows a modest increase in rates over the ten-year period, when compared to the previous ten-year period. The financial forecast illustrates the positive rate impact of the Wolf Creek debt restructuring and the change in rate adjuster calculations.

KEPCo had a strong financial performance in 2014. KEPCo's total assets, including those of its subsidiary, KEPCo Services Incorporated (KSI), were nearly $281 million, an increase of over $6 million from 2013. KEPCo achieved a net margin sufficient to meet all of its financial requirements, which provided the needed flexibility for the successful operation of the company. KEPCo's positive financial performance was further illustrated with its equity-to-asset ratio improving to 21.2%.In 2013, KEPCo implemented a Member Investment Program, which ended this year with a balance of over $3 million. The program offers Members an alternative investment resource at a competitive rate of return, while providing KEPCo with an additional source of capital.KEPCo also allocated over $3 million in patronage capital to its Members, and since 1995, KEPCo has allocated more than $80 million in capital credits.KEPCo's peak demand of 433 MW was virtually the same as last year, and is nearly five percent less than the all-time peak KEPCo set in 2011 of 455 MW. Energy sales to Members increased by four percent, which follows a two percent increase in 2013. Since 2010, KEPCo's energy sales have increased nearly eight percent. The increase in energy sales and the decline and flattening of demand reflects Member load management response to KEPCo's pricing signals, thereby shifting load from peak demand hours to other times of day, and also reflects somewhat milder temperatures in more recent years during the peaking summer season. In addition, a few Member cooperatives have installed peaking generators that are called upon during peak times, which have contributed to decreasing KEPCo's peak demand, and several more Member cooperatives are in the process of installing peaking generators that will be available for the 2015 summer season. KEPCo's Members benefit from the flattening of demand growth when energy consumption grows more rapidly, as capacities of generating, transmission and delivery systems are better utilized and costs per unit of energy are reduced because the associated fixed costs are spread over a greater quantity of energy consumption.

3 KEPCo's generation resources continue to be the cornerstone of KEPCo's ability to provide an economic and reliable power supply. In 2014, Matt Sunseri, CEO of the Wolf Creek Nuclear Operating Company, retired and Adam Heflin was selected as his successor.

Prior to coming to Wolf Creek, Heflin was the Chief Nuclear Officer for Ameren Missouri, where he led the operations of the Callaway Energy Center, a plant nearly identical in design to Wolf Creek. Heflin's previous experience and responsibilities enabled a smooth transition into the responsibility of leading improvements in the efficiency and reliability at Wolf Creek while maintaining the plant's strong safety record.that, in 2014, provided KEPCo with nearly seven percent of its energy. This is less than the production level achieved in 2013 due to a scheduled 52-day maintenance outage.latan 2 Wolf Creek Nuclear Generating Station For the past few years, the electric utility industry has had to react to several new EPA regulations by expending money and resources to retrofit existing coal-fired generating facilities with environmental controls to comply with the regulations.

These mandated actions have contributed greatly to the rise in costs associated 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 EPA regulations without expending resources for any additional environmental control equipment, thus shielding KEPCo members from regulatory compliance costs on a resource To provide further surety of KEPCo's diverse power supply, in December, KEPCo executed a contract extension for hydropower with the Western Area Power Administration (WAPA) to year 2054. Since 1989, KEPCo has received 14 MW of energy annually from WAPA and is one of KEPCo's least-cost resources.

The contract extension will provide KEPCo and its members the security of firm, low-cost energy for the next 40 years.On behalf of the Board of Trustees and KEPCo staff, a well-deserved thank you is extended to Chuck Terrill for his service to KEPCo.Chuck served as EVP &CEO on two separate occasions; the first from Chuck Terrill 1988 to 1995 and the second from 2013 until his retirement in December of 2014. During both tenures, Chuck provided KEPCo with leadership and guidance, while orchestrating many accomplishments that will be long-lasting and appreciated by KEPCo Member cooperatives for many years to come. From your friends at KEPCo, thank you for your service and we wish you a long and healthy retirement.

4 A special thank you is also extended to the KEPCo Board of Trustees and KEPCo staff for their hard work and dedication during the past year. It is gratifying to have so many highly skilled individuals working through the complexities of today's energy industry and showing the resolve to work on compound energy issues for the future of rural Kansas.Marcus Harris KEPCo EVP & CEOý9c.44 4ý-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 the Executive 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 in which wholesale rate adjustments are calculated.

The change will facilitate a better timing of revenue and expenses, which will allow KEPCo to have a more Marcus Harris accurate picture of its financial position.Beginning in 2013 and finalized in 2014, KEPCo refinanced the debt instruments associated with the Wolf Creek Nuclear Generating Station. This action resulted in a cumulative wholesale rate reduction of approximately five percent.KEPCo completed a ten-year financial forecast that was unanimously approved by the KEPCo Board of Trustees.Wolf Creek Nuclear Generating Station KEPCo successfully appealed its Kansas property valuation tax assessment, resulting in a significant savings for KEPCo and its Member cooperatives.

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

Representatives from several renewable and distributed generation companies gave presentations to the Board, discussing topics which included solar panel design and performance, optimal solar array configuration, cost and financing structures, marketing strategies, and utility rate design.Chuck Terrill addresses the Board during the retreat KEPCo 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, which expires in 2020.6 KSI conducted Arc Flash Hazard Assessments for 13 member electric cooperatives and two non-member electric cooperatives.

The assessments were prepared as a guide to assist cooperatives in selecting appropriate clothing for workers that could be exposed to S hazards from flames or electric arcs. In addition, KSI completed E ' r Construction Work Plans for four Member electric cooperatives.

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

In Washington, D.C., KEPCo staff participated in the NRECA Legislative Conference.

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

Parker Dam -Lake Havasu KEPCo continues to work with its Member cooperatives in an USDA ~aggressive rural development program that has successfully Rural created rural jobs and wealth retention in Kansas. The USDA Development Rural Economic Development Loan & Grant (REDLG) program Committed 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. Several safety meetings are conducted throughout the year for KEPCo's SCADA Technicians and administrative personnel.

KEPCo is proud to report there were no lost time accidents recorded in 2014.7 KEPCo Member Cooperatives Trustees, Alternates and Managers Ark Valley Electric Cooperative Assn., Inc.PO Box 1246, Hutchinson, KS 67504 620-662-6661 Trustee Rep. -- Joseph Seiwert Alternate Trustee -- Bob Hall Manager -- Bob Hall Joseph Seiwert Bob Bluestem 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. Maginley Alternate Trustee -- Robert Ohlde Manager -- Kenneth J. Maginley Ken Maginley Bob I Brown-Atchison Electric Cooperative, Assn., Inc.PO Box 230, Horton, KS 66439 785-486-2117 Trustee Rep. -- Kevin Compton Alternate Trustee -- James Currie Manager -- James Currie Kevin Compton Jim Butler Rural Electric Cooperative Assn., Inc.PO Box 1242, El Dorado, KS 67402 316-321-9600 Trustee Rep. -- Dale Short Alternate Trustee -- Riley Walters Manager -- Dale Short Dale 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 rrle Nalters Dwane Kessinger Allen Zadorozny 8 CMS Electric Cooperative, Inc.PO Box 790, Meade, KS 67864 620-873-2184 Trustee Rep. -- Kirk A. Thompson Alternate Trustee -- Clifford Friesen Manager -- Kirk A. Thompson DS&O Electric Cooperative, Inc.PO Box 286, Solomon, KS 67480 785-655-2011 Trustee Rep. -- Dean Allison Alternate Trustee -- Donald Hellwig Manager -- Donald Hellwig Flint Hills Electric Cooperative Assn., Inc.PO Box B, Council Grove, KS 66846 620-767-5144 Trustee Rep. -- Robert E. Reece Alternate Trustee -- William Hein Manager -- Robert E. Reece Heartland Rural Electric Cooperative, Inc.PO Box 40, Girard, KS 66743 620-724-8251 Trustee Rep. -- Dennis Peckman Alternate Trustee -- Dale Coomes Manager -- Dale Coomes LJEC PO Box 70, McLouth, KS 66054 913-796-6111 Trustee Rep. -- Larry Stevens Alternate Trustee -- Steven 0. Foss Manager -- Steven 0. Foss Lyon-Coffey Electric Cooperative, Inc.PO Box 229, Burlington, KS 66839 620-364-2116 Trustee Rep. -- Scott Whittington Alternate Trustee -- Donna Williams Manager -- Scott Whittington Dennis Peckman uaie L;oomes 9 KEPCo Member Cooperatives q Trustees, Alternates and Managers 4 4 Ninnescah Electric Cooperative Assn., Inc. 4 PO Box 967, Pratt, KS 67124 620-672-5538 4 Trustee Rep. -- Curtis Durall 4 Alternate Trustee -- Teresa Miller Manager -- Teresa Miller 4 Curtis Durall Teresa Miller Prairie Land Electric Cooperative, Inc. 4 PO Box 360, Norton, KS 67654 785-877-3323 District Office, Bird City 785-734-2311 4 District Office, Concordia 785-243-1750 Trustee Rep. -- Gilbert Berland Alternate Trustee -- Allan J. Miller 4 Gilbert Berland Manager -- Allan J. Miller Allan Miller Radiant Electric Cooperative, Inc. 4 PO Box 390, Fredonia, KS 66736 620-378-2161 Trustee Rep. -- Dennis Duft 4 Alternate Trustee -- Tom Ayers Administrative Manager -- Leah Tindle Operations Manager -- Dennis Duft 4 Dennis Duft Tom Ayers Leah Tindle 4 Rolling Hills Electric Cooperative, Inc. 4 PO Box 307, Mankato, KS 66956 785-378-3151 4 District Offices, Belleville 785-527-2251 Ellsworth 785-472-4021 Trustee Rep. -- Leon Eck Alternate Trustee -- Douglas J. Jackson 4 Leon Eck Manager -- Douglas J. Jackson Doug Jackson 4 Sedgwick County Electric Cooperative Assn., Inc. 4 PO Box 220, Cheney, Ks 67025 316-542-3131 Trustee Rep. -- Donald Metzen 4 Alternate Trustee -- David Childers 4 Manager -- David Childers 4 Donald Metzen Dave Childers 10 I Sumner-Cowley Electric Cooperative, Inc.PO Box 220, Wellington, KS 67152 620-326-3356 Trustee Rep. -- Charles Riggs Alternate Trustee -- Cletas Rains Manager -- Cletas Rains Twin Valley Electric Cooperative, Inc.PO Box 368, Altamont, KS 67330 620-784-5500 Trustee Rep. -- Bryan Coover Alternate Trustee -- Ron Holsteen Manager -- Ron Holsteen Victory Electric Cooperative Assn., Inc.PO Box 1335, Dodge City, KS 67801 620-227-2139 Trustee Rep.-- Shane Laws Alternate Trustee -- Daryl Tieben Manager -- Shane Laws Cletas Rains Shane Laws 2014 -2015 KEPCo Executive Committee Scott Whittington

-President Kevin Compton -Vice President Dale Short -Treasurer Dean Allison -Secretary Bryan Coover -Committee Member Larry Stevens -Committee Member Kirk Thompson -Committee Member 11 Operating Statistics 4 4 4 4 2,300,000 0 1,800,000 1 1,300,000 Operating Expenses KEPCO O&M Nuclea andA&G 2.0 3.8%nteresýC 001 L rFuel Depr. and Amort.6.4%Wolf Creek O&M-2 and A&G 10.9%%latan 2 Fuel 1.6%0atan20&M and A&G 1.2%Purchased Power 68.3%2010 2011 2012 2013 2014 Year 500 450 1400 350 300 85 S65 45 Sources of Energy WAPA 3.8%1 2010 2011 2012 2013 2014 Year latan 2 6.7%--8.2%SunflowerU 17.4%-WestarEnergy 41.4%\-Wolf Creek 22.5%2010 2011 2012 2013 2014 Year 12 INDEPENDENT AUDITORS'REPORT To the Board of Directors Kansas Electric Power Cooperative, Inc.Topeka, Kansas We have audited the accompanying consolidated financial statements of Kansas Electric Power Cooperative, Inc. and subsidiary

("KEPCo"), which comprise the consolidated balance sheets as of December 31, 2014 and 2013, and the related consolidated statements of margin, patronage capital, and cash flows for the years then ended and the related notes to the financial 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, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free 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 our audits in accordance with auditing standards generally accepted in the United States of America and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

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 of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant 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 audit opinion.Basis for Qualified Opinion As more fully described in Note 3 to the financial statements, certain depreciation and amortization methods have been used in the preparation of the 2014 and 2013 consolidated financial statements which, in our opinion, are not in accordance with accounting 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 Opinion In our opinion, except for the effects of using the aforementioned depreciation and amortization methods as discussed in Note 3, 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 then ended 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 of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal 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, Kansas April 2, 2015 13 Consolidated Balance Sheets Assets December 31, Utility Plant In-service Less allowances for depreciation Net in-service Construction work in progress Nuclear fuel (less accumulated amortization of $23,151,678 and$19,911,283 for 2014 and 2013, respectively)

Total utility plant Restricted Assets Investments in the National Utilities Cooperative Finance Corpo-ration Bond fund reserve Decommissioning fund Investments in other associated organizations Total restricted assets Current Assets Cash and cash equivalents Member account receivables Materials and supplies inventory Other assets and prepaid expenses Total current assets 2014$ 340,615,798 (148,469,211) 192,146,587 9,776,657 9,809,670 211,732,914 11,741,745 4,490,786 19,378,279 264,976 35,875,786 1,202,643 14,041,772 6,391,899 699,236 22,335,550 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 17,844,344 252,077 34,656,825 5,181,544 5,664,940 5,756,835 734,937 17,338,256 4 4 4 4 4 4 4 4 Other Long-term Assets Deferred charges Wolf 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 asset Deferred incremental outage costs Other deferred charges (less accumulated amortization of$9,515,076 and $9,279,497 for 2014 and 2013, respectively)

Unamortized debt issuance costs Other Prepaid pension cost Total long-term assets 4 8,804,877 9,562,041 6,259,839 (7,217,629) 1,185,502 391,103 80,055 247,538 1,073,323 10,824,608 9,389,759 (6,499,881) 6,259,359 801,338 147,664 235,182 1,545,694 21,441,156

$ 274,652,132 I Total assets$ 280,768,858 14 Consolidated Balance Sheets Liabilities and Patronage Capital Patronage Capital Memberships Patronage capital Accumulated other comprehensive loss Total patronage capital December 31, 2014$ 3,200 73,517,749 (8,379,226) 65,141,723 Long-term Debt 152,126,943 Other Long-term Liabilities Wolf Creek decommissioning liability Wolf Creek pension and postretirement benefit plans Wolf Creek deferred compensation Total other long-term liabilities Current Liabilities Current maturities of long-term debt Accounts payable Payroll and payroll-related liabilities Short term note payable Deferred revenue Accrued property taxes Accrued income taxes Accrued interest payable Total current liabilities Total patronage capital and liabilities 13,320,625 12,004,519 1,314,323 26,639,467 15,683,929 14,199,898 257,523 1,429,000 3,325,322 1,371,811 3,518 589,724 36,860,725

$ 280,768,858 2013$ 3,200 70,025,317 (4,071,781) 65,956,736 140,460,064 12,542,673 7,432,482 1,120,601 21,095,756 22,493,911 14,523,217 243,044 6,500,000 1,224,424 1,519,915 635,065 47,139,576

$ 274,652,132 15 Consolidated Statements of Margin For the years ending December 31, 2014 2013 Operating Revenues Sale of electric energy Operating Expenses Power purchased Nuclear fuel Plant operations Plant maintenance Administrative and general Amortization of deferred charges Depreciation and decommissioning Total operating expenses Net operating revenues Interest and Other Deductions Interest on long-term debt Amortization of debt issuance costs Other deductions Total interest and other deductions Operating income Other Incomel(Expense)

Interest income Other income Income 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 67,609 407,649 9,890,908 2,212,390 915,409 370,401 (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 77,813 190,317 9,867,238 1,343,783 859,711 390,286 1,249,997$ 2,593,780$ 2,593,780 3,984,833 733,259$ 7,311,872 Total other income Net margin Net 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 costs included in net periodic pension costs 409,785 Comprehensive (loss)/income

$ (815,013)16 Consolidated Statements of Patronage Capital Patronage Memberships Capital Accumulated Other Comprehensive Income (Loss)Total Balance at December 31, 2012$ 3,200 $67,431,537

$ (8,789,873)

$ 58,644,864 Net margin 2,593,780 2,593,780 Defined benefit pension plans: Net earnings arising during year Amortization of prior year service costs included in net periodic pension costs 3,984,833 3,984,833-733,259 733,259 Balance at December 31, 2013 3,200 70,025,317 (4,071,781) 65,956,736 Net margin 3,492,432-3,492,432 Defined benefit pension plans: Net loss arising during year Amortization of prior year service costs (4,717,230)

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

$ (8,379,226)

$ 65,141,723 17 Consolidated Statements of Cash Flows 4 For the years ending December 31, 2014 2013 q Cash Flows From Operating Activities Net margin Adjustments to reconcile net margin to net cash flows from operating activities Depreciation and amortization Decommissioning Amortization of nuclear fuel Amortization of deferred charges Amortization or deferred incremental outage costs Amortization of debt issuance costs Changes in Member accounts receivable Materials and supplies Other assets and prepaid expense Accounts payable Payroll and payroll-related liabilities Accrued property tax Accrued interest payable Accrued income taxes Other long-term liabilities Prepaid pension cost Deferred 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)3,518 445,958 472,371 2.100.898 6,540,599 2,904,092 2,819,442 4,175,257 5,386,940 77,813 7,609,332 (485,950)106,504 599,854 (102,839)(67,149)12,556 1,092 1,147,579 (1,545,694) 1.224.424 Net cash flows from operating activities Cash Flows From Investing Activities Additions to electrical plant Additions to nuclear fuel Reductions in deferred charges Additions to deferred incremental outage costs Investments in decommissioning fund assets Proceeds from associated organizations Investments in bond reserve assets Proceeds from the sale of property Net cash flows from investing activities Cash Flows From Financing Activities Principal payments on long-term debt Proceeds from issuance of long-term debt Short term notes payable Payments 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 (2 1744 (2 ,14 4 7,278,012)

(503,127)95,335 0,359,443) 2,942,327) 17,442 (26,164)41,837~0, 954,459):0,168,539) 11,594,273 6,500,000 2,388,503 2 314,237 2,357,410 2,824,134 5,181,544 9,776,900 3 Net cash flows from financing activities Net (decrease) increase in cash and cash equivalents (3,978,901)

Cash and Cash Equivalents, Beginning of Year Cash and Cash Equivalents, End of Year Supplemental Disclosure of Cash Flow Information Interest paid 5,181,544$ 1,202,643$ 9,868,600 18 Notes to Consolidated Financial Statements (1) Nature of Operations and Summary of Significant Accounting Policies Nature 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 and transmission 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's responsibility to procure an adequate and reliable power supply for its 19 distribution rural electric cooperative members pursuant to all requirements of its power supply contracts.

KEPCo is governed by a 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 with the 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 KCC regulation for most purposes, including the setting of rates. Rates are set by action of the Board, subject only to statutory review by the KCC if demanded by four or more members. KEPCo's rates were last set by the KCC by an order effective September 1, 2008. KEPCo's rates now include an Energy Cost Adjustment (ECA) mechanism, an annual Demand Cost Adjustment (DCA) mechanism and a Margin Stabilization Adjustment (MSA) mechanism, allowing KEPCo to pass along increases in certain energy and demand costs to its member cooperatives.

Principles of Consolidation

-The consolidated financial statements include the accounts of KEPCo and its wholly owned subsidiary, KEPCo Services, Inc. Undivided interests in Wolf Creek Nuclear Operating Corporation and latan 2 generation facilities are consolidated on a pro rata basis. All material 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 of revenues 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 plant include contractual work, direct labor, materials and interest on funds used during construction.

No interest has been capitalized in 2014 and 2013. The cost of repairs and minor replacements are charged to operating expenses as appropriate.

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

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

The provision for depreciation computed on a straight-line basis for electric and other components of utility plant is as follows: Transportation and equipment 25-33 years Office furniture and fixtures 10-20 years Leasehold improvements 20 years Transmission equipment (metering, communication and SCADA) 10 years 19 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 a 3.53% share of latan 2, or 30 MW. latan 2, located in Weston, MO, is operated and majority owned by KCP&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 the Kansas 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 Great Plains 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 from WCNOC, which is used to supplement a portion of KEPCo's members' requirements.

KEPCo is billed on a daily basis for 6% of the operations, maintenance, administrative and general costs, and cost of plant 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 waste in 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 and fabrication is recorded as a utility plant asset at original cost and is amortized to nuclear fuel expenses based upon the quantity of heat produced for the generation of electric power. Under the Nuclear Waste Policy Act of 1982, the Department of Energy (DOE) is responsible for the permanent disposal of spent nuclear 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 that the DOE must stop collecting this fee effective May 2014. KEPCo's share of the fee, calculated as one tenth of a cent for each kilowatt-hour of net nuclear generation delivered to customers, was $104,499 and $388,024 in 2014 and 2013, respectively.

KEPCo included these costs in fuel and purchased power expense 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 with Nuclear Regulatory Commission (NRC) requirements.

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

These plans are designed so that sufficient funds required for nuclear decommissioning will be accumulated prior to the expiration of the license of the related nuclear power plant. Wolf Creek files a nuclear decommissioning site study with the KCC every three years.The KCC reviews nuclear decommissioning plans in two phases. Phase one is the approval of the revised nuclear decommissioning study including the estimated costs to decommission the plant. Phase two 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 of decommissioning 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 cost 20 Notes to Consolidated Financial Statements estimate represents the estimate to decommission Wolf Creek as of the site study year. The actual nuclear decommissioning costs may vary from the estimates because of changes in regulations and technologies 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 the operating license of Wolf Creek, which is through 2045. The NRC requires that funds sufficient to meet nuclear decommissioning obligations be held in a trust. KEPCo believes that the KCC approved funding level will also be sufficient to meet the NRC requirement.

The consolidated financial results would be materially affected if KEPCo was not allowed to recover in its prices the full amount of the funding requirement.

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 the Nuclear Decommissioning Trust fund at fair value, which approximated

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

Asset retirement obligation

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

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

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

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

At various times during the fiscal year, the organization's cash in bank 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 and customers.

KEPCo provides allowances for doubtful accounts, which is based upon a review of outstanding 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 the floating/fixed rate pollution control revenue bonds, mortgage notes payable to the National Rural Utilities 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 the remaining life of the bonds and notes.Cash Surrender Value of Life Insurance Contracts

-The following amounts related to Wolf Creek Nuclear Operating Corporation (WCNOC) corporate-owned life insurance contracts, primarily with one highly rated major insurance company, are included in other long-term assets on the consolidated balance sheets. 4 2014 20134 Cash surrender value of contracts

$ 7,169,655

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

(6,578,912)

$ 247,538 $ 235,182 Borrowings against contracts include a prepaid interest charge. KEPCo pays interest on these borrowings 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 sale of 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 taxes have not been reflected in the accompanying consolidated financial statements.

KEPCo is no longer subject 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 from income 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 not that 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 the balance sheets related to uncertain tax positions.

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

In the event KEPCo determines that it no longer meets the criteria of ASC 980, the accounting impact could be a noncash charge to operations of an 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 and 2) 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 the application of ASC 980 due to increased competition, regulatory changes or other events may significantly impact the valuation of KEPCo's investment in utility plant, its investment in Wolf Creek and necessitate the write-off of regulatory assets. At this time, the effect of competition and the amount of regulatory 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 industry by permitting the Federal Energy Regulatory Commission to order electric utilities to allow third parties to sell electric power to wholesale customers over their transmission systems. KEPCo has elected to deregulate 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 Assets and Deferred Costs.Effective February 1, 2002, the KCC issued an order that extended the depreciable life of Wolf Creek from 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 related amortization 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 of America is to overstate (understate) the following items in the consolidated financial statements by the following amounts: 2014 2013 Deferred 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 to KEPCo's investment in Wolf Creek, which disallowed

$26.0 million of KEPCo's investment in Wolf Creek ($8.8 million net of accumulated amortization as of December 31, 2014). A subsequent rate order, effective February 1, 1987, allows KEPCo to recover these disallowed costs and other costs related to the disallowed portion (recorded as deferred charges) for the period from September 3, 1985 through January 31, 1987, over a 27.736-year period starting February 1, 1987. Pursuant to a KCC rate 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 to recover the disallowed costs, which enabled it to meet the times-interest-earned ratio and debt service requirements in the KCC rate order dated January 30, 1987. The method used by KEPCo through 2001 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 million cumulative difference between historical present worth (sinking fund) and straight-line amortization of Wolf Creek disallowed costs over a 15-year period. Such depreciation practice does not constitute a phase-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 accepted accounting principles, the costs would have been expensed in their entirety upon implementation of the KCC order, with a corresponding decrease in patronage capital.Amortization of the Wolf Creek disallowed costs is included in amortization of disallowed charges and amounts 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 (sinking fund) 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 ASC 980-340. In 2002, this cumulative difference was reclassified from utility plant allowance for depreciation to deferred charges on the consolidated balance sheets to reflect the amount as a regulatory asset.Amortization of the Wolf Creek deferred plant costs is included in amortization of deferred charges and amounts 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 their entirety 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 2013 Cooperative Financial Corporation Memberships

$ 1,000 $ 1,000 Capital term certificates 395,970 395,970 Patronage 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 Reserve KEPCo has entered into a bond covenant whereby KEPCo is required to maintain, with a trustee, a bond fund reserve of approximately

$4.4 million. This stipulated amount is sufficient to satisfy certain future interest and principal obligations.

The amount held in the bond fund reserve is invested by the trustee in tax-exempt municipal securities, pursuant to the restrictions of the indenture agreement, which are carried at amortized cost.(6) Deferred Charges Deferred Incremental Outage Costs -In 1991, the KCC issued an order that allowed KEPCo to defer 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 are being amortized over the approximate 18-month operating cycle coinciding with the recognition of the related revenues.

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

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

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

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

(7) Line of Credit As of December 31, 2014, KEPCo has a $20 million line of credit available with the Cooperative Finance Corporation.

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 vary and 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 were no funds borrowed against the line of credit at December 31, 2014 and 2013. Interest rate options, as selected by the Company, are a weekly quoted variable rate in which CoBank establishes a rate on the first business day of each week or a LIBOR option at a fixed rate equal to LIBOR plus 1.6%. This line of credit expires May 31, 2015.25 Notes to Consolidated Financial Statements (8) Short-Term Note Payable As of December 31, 2014 and 2013, KEPCo had a $1.4 million and $6.5 million short-term note payable to the Cooperative Finance Corporation at an interest rate of 3.08% and 2.5%, respectively.

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

The terms of the notes as of December 31 are as follows: Mortgage notes payable to the FFB at fixed rates varying from .818% to 9.21%, payable in quarterly installments through 2043 Mortgage notes payable to the Grantor Trust Series 1997 at a rate of 7.522%, payable semi-annually, principal payments commencing in 1999 and continuing annually through 2017 Floating/fixed rate pollution control revenue bonds, City of Burlington, Kansas, Pooled Series 1985C, variable interest rate of .34%, payable annually through 2015 Note payable to CoBank at a rate of 3.03%, payable in quarterly installments through 2023 Mortgage notes payable, equity certificate loans and member capital security notes to the CFC at fixed rates of 2.45% to 7.50%, payable quarterly through 2045 Less 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 E I 1,228,745 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 to maintain a times-interest earned ratio of at least 1.05 and debt-service coverage ratio of at least 1.0, on average, in the two best years out of the three most recent calendar years. The covenants also prohibit distribution of net patronage capital or margins until, after giving effect to any such distribution, total patronage capital equals or exceeds 20% of total assets, unless such distribution is approved by the Rural 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 to maintain a debt-service coverage ratio, as defined by CoBank of at least 1.10. KEPCo was in compliance 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 the establishment of a new CFC Grantor Trust Series 1997 (the Series 1997 Trust) by CFC. This refinancing reduced the guaranteed interest rate payable on the mortgage notes to a fixed rate of 7.522%. The mortgage notes payable are pre-payable at any time with no prepayment penalties.

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

The swap agreement was put into place in order to mitigate the interest rate risk inherent in the Trust, which holds 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 of the debt. However, any termination costs relating to the termination of the assigned interest rate swaps is KEPCo's responsibility.

At December 31, 2014, the termination obligation associated with the assigned 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 to fluctuate 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 the swap agreement.

However, KEPCo does not anticipate nonperformance by the counterparty.

(10) Benefit Plans National Rural Electric Cooperative Association (NRECA) Retirement and Security Program -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 under Section 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 plan assets 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 to provide 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 total contributions made to the plan by all participating employers.

KEPCo's expense under this program was approximately

$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 2013 contributions.

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

In total, the RS Plan was over 80 percent funded on January 1, 2014, and over 80 percent funded on January 1, 2013, based on the PPA 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 and surcharges are not applicable.

Future contribution requirements are determined each year as part of the 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 NRECA Savings 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 Employee Retirement 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 Benefits 2014 2013 2014 2013 Change in benefit obligation:

Benefit obligation beginning of year Service cost Interest cost Plan participants' contributions Benefits paid Actuarial (gains)losses Benefit obligations, end of year$ 20,785,543 726,956 1,081,152 (643,257)4,898,967$ 26,849,361

$ 22,581,857 872,519 965,450 (555,243)(3,079,040)

$ 20,785,543

$ 1,277,753 22,122 59,182 97,847 (164,795)(240,184)$ 1,051,925$ 1,406,813 26,348 52,648 88,823 (130,531)(166,348)$ 1,277,753 Change in plan assets: Fair value of plan assets, beginning of year Actual return on plan assets Employer contributions Plan participants' contributions Benefits paid Fair value of plan assets, end of year$ 14,646,824 973,542 905,022 (611,384)15,914,004

$ (10,935,357)

$ 12,517,154

$1,990 $1,698 1,680,711 973,210 65,720 42,000 (524,251)14,646,824

$ (6,138,719) 97,847 (164,795)762 88,823 (130,531)1,990 Funded status, end ofyear$ (1,051,163)

$ (1,275,763)

Amounts recognized in the consolidated balance sheets: Other long-term liabilities Wolf Creek pension and postretirement benefit plans 2014 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 B 2014 enefits Postretirement Benefits 2013 2014 2013 Net loss Prior service cost Accumulated other comprehensive 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 B 2014 enefits Postretirement Benefits 2013 2014 2013 Projected benefit obligation Accumulated benefit obligation Fair value of plan assets$ 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$ 1,990 Weighted average actuarial assumptions used to determine net periodic benefit obligation:

Pension Ben efits Postretirement Benefits 2013 2014 2013 2014 Discount rate Annual salary increase rate 4.20%4.00%4.16%4.00%4.70%N/A 4.70%N/A Wolf Creek uses a measurement date of December 31 for its pension and post-retirement benefit plans. The discount rate to determine the current year pension obligation and the following year's pension expense is based 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 the projected 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 market value of the bonds selected.30 Notes to Consolidated Financial Statements Pension Benefits 2014 2013 Postretirement Benefits 2014 2013 Components of net periodic cost (benefit):

Service cost Interest cost Expected return on plan assets Amortization Transition obligation, net Prior service cost Actuarial loss, net Net periodic cost Other changes in plan obligations recognized in other comprehensive income: Current year actuarial loss(gain)

Amortization of actuarial loss Amortization of prior service cost Amortization of transition obligation Total recognized in other comprehensive income Total recognized in net periodic cost and other comprehensive income Weighted average actuarial assumptions used to determine net periodic cost: Discount rate Expected long term return on plan assets Compensation rate increase$ 726,956 1,081,152 (1,031,989)

$ 872,519 965,450 (941,266)$ 22,122 59,182$ 26,348 52,648 32 7,436 381,287$1,164,842 7,436 691,984 21,062$1,596,123

$ 102,366 33,807$ 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/A N/A N/A N/A 31 Notes to Consolidated Financial Statements KEPCo estimates they will amortize the following amounts from regulatory assets into net periodic cost in 2015: Pension Postretirement Benefits Benefits Actuarial loss $ 381,287 $ 21,062 Prior service cost 7,436 _Total $ 388,723 $ 21,062 The expected long-term rate of return on plan assets is based on historical and projected rates of return for current and planned asset classes in the plans' investment portfolios.

Assumed projected rates of return for each asset class were selected after analyzing long-term historical experience and future expectations of the volatility of the various asset classes. Based on target asset allocations for each asset 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 and for the effect of expenses paid from plan assets.For measurement purposes, the assumed annual health care cost growth rates were as follows: 2014 2013 Health care cost trend rate assumed for next year 7.00% 7.50%Rate to which the cost trend rate is assumed to decline 5.00% 5.00%Year that the rate reaches the ultimate trend rate 2019 2019 The health care cost trend rate affects the projected benefit obligation.

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

$ (14,116) $ 14,448 In 2012, Wolf Creek changed its investment advisor resulting in the sale of its then existing levels 1, 2 and 3 investments and the purchase of other level 2 and 3 investments.

Its pension and post-retirement plan investment strategy is to manage assets in a prudent manner with regard to preserving principal while providing reasonable returns. It has adopted a long-term investment horizon such that the chances and duration of investment losses are carefully weighed against the long-term potential for appreciation of assets. Part of its strategy includes managing interest rate sensitivity of plan assets relative to the 32 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 improve its funded status. The primary objective of the post-retirement benefit plan is growth in assets and preservation of principal, while minimizing interim volatility, to meet anticipated claims of plan participants.

Wolf Creek delegates the management of its pension and post-retirement benefit plan assets to independent investment advisors who hire and dismiss investment managers based upon various factors. The investment advisors strive to diversify investments across asset classes, sectors and 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 and monitors investment risk on an ongoing basis through quarterly investment portfolio reviews and annual liability 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% to commodity investments and 4% to other investments.

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

The investments in debt include core and high-yield bonds. Core bonds include funds invested in investment grade debt securities of corporate entities, obligations of U.S. and foreign governments and their agencies, and private 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 as reported by the trustee. However, level 3 investments in real estate funds and alternative funds are invested 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 for underlying real estate investments include estimated market discount rates, projected cash flows and estimated value into perpetuity.

Alternative funds invest in a wide range of investments typically with low correlations 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 at fair value. From time to time, the Wolf Creek pension trust may buy and sell investments resulting in changes within the hierarchy.

Where quoted market prices are available in an active market, plan assets are 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 by using 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 cases where Level 1 or Level 2 inputs are not available, plan assets are classified within Level 3 of the hierarchy and include certain real estate investments.

Significant inputs and valuation techniques used in 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 assets and the corresponding level of hierarchy as of December 31, 2014 and 2013: Fair Value Measurements Using Quoted prices in active markets for identical assets (Level 1)December 31, 2014 Significant other observable inputs (Level 2)$ 56,659 Significant unobservable inputs (Level 3)Fair Value Cash equivalents Equity securities U.S. companies International Debt securities Core bonds Commodities Alternative investments Real estate$56,659$$4,031,564 4,930,736 4,066,416 751,579 4,031,564 4,930,736 4,066,416 751,579 550,033 1,527,017 550,033 721,134 805,883 Total$ 15,914,004

$$ 14,642,837

$ 1,271,167 Fair Value Measurements Using Quoted prices in active markets for identical assets (Level 1)Significant other observable inputs (Level 2)Significant unobservable inputs (Level 3)December 31, 2013 Fair Value Cash equivalents Equity securities U.S. companies International companies Debt securities Core bonds Commodities Alternative investments Real estate$52,886 $$ 52,886 $3,906,209 4,706,569 3,437,348 669,611 3,906,209 4,706,569 3,437,348 669,611 529,374 1,344,827 529,374 650,341 694,486 Total$ 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 assets measured at fair value using significant level 3 inputs for the years ended December 31, 2014 and 2013: Real Estate Securities Alternative Investments Balance at January 1, 2014 Actual return on plan assets Relating to assets still held at the reporting date Balance at December 31, 2014 Balance at January 1, 2013 Actual return on plan assets Relating to assets still held at the reporting date$ 650,341$ 529,374 70,793 20,659$ 721,134 $ 550,033$ 579,665$ 497,891 31,483 70,676 Balance at December 31, 2013$ 650,341 $ 529,374 Estimated future benefit payments as of December 31, 2014, for the Plans, which future services, are as follows: reflect expected Pension Benefits Postretirement Benefits From company assets Expected contributions:

2015 Expected benefit payments: 2015 2016 2017 2018 2019 2020-2024 To/from trust$ 600,000$ 657,236 747,571 838,007 929,036 1,019,979 6,378,979 To/from trust From company assets$ 32,229 $ 74,801 $$ 32,229 31,819 31,383 30,919 30,425 144,248$ 75,563 $77,469 79,351 82,821 84,518 411,801 35 Notes to Consolidated Financial Statements (11) Commitments and Contingencies Current Economic Environment

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

Given the volatility of the current economic conditions, the values of assets and liabilities recorded in the financial 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 under state statutes, the Cooperative's rate making is deregulated and, therefore, expects to be able to recover any economic losses through future rates.Litigation

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

It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have an adverse effect on the consolidated financial position, results of operations and cash flows of the Cooperative.

There is a provision in the Wolf Creek operating agreement whereby the owners treat certain claims and losses arising out of the operations of Wolf Creek as a cost to be borne by the owners separately (but not jointly) in proportion to their ownership shares. Each of the owners has agreed to indemnify the others in such cases.Letter of Credit -KEPCo has an open letter of credit with the Cooperative Finance Committee in the amount of $1,500,000 which matures May 23, 2015. This letter of credit renews automatically each year 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 insure against 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 of Wolf 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 per year per reactor. Both the total and yearly assessment is subject to an inflationary adjustment every five years 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 any remaining 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 costs of replacement power and other extra expenses incurred during a prolonged outage resulting from accidental property damage at Wolf Creek. If significant losses were incurred at any of the nuclear plants insured under the NEIL policies, KEPCo may be subject to retrospective assessments under the current policies of approximately

$2.36 million.Although KEPCo maintains various insurance policies to provide coverage for potential losses and liabilities resulting from an accident or an extended outage, KEPCo's insurance coverage may not be adequate to cover the costs that could result from a catastrophic accident or extended outage at Wolf Creek. 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 has several restrictions, one of which can only be used if Wolf Creek incurs an accident exceeding

$500 million in expenses to safely stabilize the reactor, to decontaminate the reactor and reactor station site in 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 and decontamination has been complied with, the premature decommissioning coverage could pay for the decommissioning fund shortfall in the event an accident at Wolf Creek exceeds $500 million in covered damages and causes Wolf Creek to be prematurely decommissioned.

Nuclear Fuel Commitments

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

$3.5 million for uranium concentrates expiring in 2017, $0.5 million for conversion 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 to purchase power to supplement generation in the given service areas. KEPCo has provided the Southwest 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 sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.ASC Topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard 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 or liabilities; 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 the assets or liabilities Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities Following is a description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.

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

The following table presents the fair value measurements of assets and liabilities recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the ASC 820 fair value hierarchy in which the fair value measurements fall at December 31, 2014: Fair Value Measurements Using Decommissioning fund Domestic fund International fund Domestic bond fund Money market Total Fair Value$ 10,754,081 1,462,801 6,820,595 34,802$ 19,072,279 Quoted price in active markets for identical assets (Level 1)$ 10,754,081 1,462,801 6,820,595 34,802$ 19,072,279 Significant other observable inputs (Level 2)Significar unobserva inputs (Level 3$-$$$ble I I I I 4 4 I 4 4 4 4 4 4 I I.4 I 4 A 4 4 I 38 4-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, the carrying amount approximates fair value.Investments in CFC and Other Associated Organizations

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

As such, KEPCo management believes the fair value of these assets is not determinable and they are reflected at their carrying amount.Bond Fund Reserve -The bond fund reserve consists of various held-to-maturity securities where the fair value is primarily based on quoted market prices.Line of Credit and Long-Term Debt Variable-Rate Debt -The carrying amount approximates fair value because of the short-term variable rates of those debt instruments.

Fixed-Rate Debt -The fair value of all fixed-rate debt is based on the sum of the estimated value of each 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 at December 31, 2014 and 2013: December 31, 2014 December 31, 2013 Carrying Fair Carrying Fair Value Value Value Value Financial assets: Cash and cash equivalents

$ 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 Capital In 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 members as 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, total patronage capital would be substantially less. As noted in the consolidated statements of changes in patronage capital, no patronage capital distributions were made to members in 2014 and 2013.(14) Subsequent Events The 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 in the accompanying financial statements or notes.40 KEPCo's Mission Statement KEPCo exists on behalf of its Members to produce, procure, transmit, deliver and maintain a reliable supply of wholesale electricity within financial guidelines and risk tolerances established by the Board.KEPCo Member Area Map KEPCo's Vision Statement KEPCo will work to provide Consumer-Members the best possible value in reliable electricity and to play an active role in helping improve the economy and quality of life.41 Kansas Electric Power Cooperative, Inc.A Touchstone Energy Cooperative

• !,1)ýPO Box 4877 -Topeka, KS 66604 600 SW Corporate View -Topeka, KS 66615 (785)-273-7010 www.kepco.org