Certain matters discussed in this Annual Report on Form 10-K are "forward-looking“forward-looking statements."” The Private Securities Litigation Reform Act of 1995 has established that these statements qualify for safe harbors from liability. Forward-looking statements may include words like we "believe," "anticipate," "target," "expect," "estimate," "intend"“believe,” “anticipate,” “target,” “expect,” “estimate,” “intend” and words of similar meaning. Forward-looking statements describe our future plans, objectives, expectations or goals. Such statements address future events and conditions concerning matters such as, but not limited to:

We have entered into two unrelated renewablefour additional wind energy purchase agreements. Under eachOne agreement we plan to purchase an additionalis for approximately 200 MW of additional installed designed capacity,capability. In addition, we have begun constructing a wind generating facility expected to have a designed installed capability of approximately 280 MW. The last two agreements are for a totalapproximately 100 MW each with Westar holding an option for the purchase of 400 MW. One agreement isone of the facilities. These four agreements are to provide thisapproximately 680 MW generating capability by the end of 2015 while the other is to provide additional generating capability by the end of 2016.early 2017.

Our aggregate 20142015 peak system net load of 5,2265,167 MW occurred in August 2014.July 2015. Because of the intermittent nature of wind generation, only 58152 MW of net accredited generating capacity is associated with our wind generation facilities. Our net accredited generating capacity, combined with firm capacity purchases and sales and potentially interruptible load, provided a capacity margin of 19%20% above system peak responsibility at the time of our 20142015 peak system net load, which satisfied Southwest Power Pool, Inc. (SPP) planning requirements.

Under wholesale agreements, we provide firm generating capacity to other entities as set forth below.

The effectiveness of a fuel to produce heat is measured in British thermal units (Btu). The higher the Btu content of a fuel, the smaller the volume of fuel that is required to produce a given amount of electricity. We measure the quantity of heat consumed during the generation of electricity in millions of British thermal units (MMBtu).

The BNSF Railway Company (BNSF) and Union Pacific Railroad Company transport coal to JEC under a long-term rail transportation contract. The contract term continues through December 31, 2020, at which time we plan to enter into a new contract. The contract price is subject to price escalation based on certain costs incurred by the railroads.

    

During 2014,2015, the average delivered cost of coal consumed in the Lawrence units was approximately $1.68$1.75 per MMBtu, or $29.81$31.30 per ton. The average delivered cost of coal consumed in the Tecumseh units was approximately $1.67$1.76 per MMBtu, or $29.75$31.46 per ton.

We use natural gas as a primary fuel at our Gordon Evans, Murray Gill, Hutchinson, Spring Creek and Emporia Energy Centers and at the State Line facility and in the gas turbine units at Tecumseh Energy Center.facility. We can also use natural gas as a supplemental fuel in the coal-fired units at Lawrence and Tecumseh Energy Centers. During 2014,2015, we consumed 15.313.4 million MMBtu of natural gas for a total cost of $87.1$48.9 million, or approximately $5.71$3.64 per MMBtu. Natural gas accounted for approximately 6%5% of the total MMBtu of fuel we consumed and approximately 17%11% of our total fuel expense in 2014.2015. From time to time, we may enter into contracts, including the use of derivatives, in an effort to manage the cost of natural gas. For additional information about our exposure to commodity price risks, see "Item“Item 7A. Quantitative and Qualitative Disclosures About Market Risk."”

We use diesel to start some of our coal generating stations, as a primary fuel in the Hutchinson No. 4 combustion turbine and in our diesel generators. We purchase No. 2 diesel in the spot market. We maintain quantities in inventory that we believe will allow us to facilitate economic dispatch of power and satisfy emergency requirements. We do not use significant amounts of diesel in our operations.

Wolf Creek has on hand or under contract all of the uranium and conversion services needed to operate through September 2016March 2018 and approximately 70%37% of the uranium and conversion services needed after that date through March 2021.September 2022. The owners also have under contract all of the uranium enrichment and fabrication services required to operate Wolf Creek through March 2027 and September 2025, respectively. All such agreements have been entered into in the ordinary course of business.

Plant performance, including extended or unscheduled shutdowns of Wolf Creek, could cause us to purchase replacement power, rely more heavily on our other generating units and/or reduce amounts of power available for us to sell in the wholesale market. Plant performance also affects the degree of regulatory oversight and related costs. In early 2014, Wolf Creek underwent a planned maintenance outage. Because the outage was not part of a refueling outage, the related costs were expensed as incurred. Our share of the outage costs were approximately $8.7 million. The next refueling and maintenance outage is planned for the first quarter of 2015.

Wolf Creek normally operates on an 18-month planned refueling and maintenance outage schedule. As authorized by our regulators, incremental maintenance costs of planned refueling and maintenance outages are deferred and amortized ratably over the period between planned refueling and maintenance outages. In early 2015, Wolf Creek underwent a planned refueling and maintenance outage. Our share of the outage costs were approximately $31.9 million. The next refueling and maintenance outage is planned for the fall of 2016.

The NRC evaluates, monitors and rates various inspection findings and performance indicators for Wolf Creek based on safety significance. Although not expected, the NRC could impose an unscheduled plant shutdown due to security or safety concerns. Those concerns need not be related to Wolf Creek specifically, but could be due to concerns about nuclear power generally or circumstances at other nuclear plants in which we have no ownership.

See Note 13 of the Notes to Consolidated Financial Statements, "Commitments“Commitments and Contingencies,"” for additional information regarding our nuclear operations.

 

As discussed in Note 13 to the Consolidated Financial Statements, "Commitments and Contingencies," Kansas law specifies that a portion ofWind is our energy supply resources be from renewable sources. For us, wind has been the primary source of renewable energy. As of December 31, 2014,2015, we owned approximately 149 MW of designed installed wind capacitycapability and had under contract the purchase of wind energy produced from approximately 9151,314 MW of designed installed wind capability. Of the 9151,314 MW under contract, 515914 MW are currently in operation and approximately 400 MW are associated with agreements that are scheduled to deliver power beginning in late 2015early 2017. We have begun constructing a wind generating facility that is expected to have a designed installed capability of approximately 280 MW and 2016.is scheduled to begin delivering power in early 2017.

The Federal Energy Regulatory Commission (FERC) requires owners of regulated transmission assets to allow third parties nondiscriminatory access to their transmission systems. We are a member of the SPP RTO and transferred the functional control of our transmission system, including the approval of transmission service, to the SPP. The SPP coordinates the operation of our transmission system within an interconnected transmission system that covers all or portions of nine14 states. The SPP collects revenues for the use of each transmission owner'sowner’s transmission system. Transmission customers transmit power purchased and generated for sale or bought for resale in the wholesale market throughout the entire SPP system. Transmission capacity is sold on a first come/first served non-discriminatory basis. All transmission customers are charged rates applicable to the transmission system in the zone where energy is delivered, including transmission customers that may sell power inside our certificated service territory. The SPP then distributes as revenue to transmission owners the amounts it collects from transmission users less an amount it retains to cover administrative expenses.

The SPP launched their new Integrated Marketplace (IM) in March 2014. The IM is similar to organized power markets currently operating in other RTOs. The IM impacts how we commit and sell the output from our generation facilities and buy power to meet the needs of our customers. The SPP has the authority to start and stop generating units participating in the market and selects the lowest cost resource mix to meet the needs of the various SPP customers while ensuring reliable operations of the transmission system.

We own a 50% interest in Prairie Wind Transmission, LLC (Prairie Wind), which is a joint venture between us and Electric Transmission America, LLC, which itself is a joint venture between affiliates of American Electric Power Company, Inc. and Berkshire Hathaway Energy Company. In 2014, Prairie Wind completed construction on, and energized, a 108 mile 345 kV double-circuit transmission line that is now being used to provide transmission service in the SPP.

In 2011, the FERC issued Order No. 1000, which revised the FERC'sFERC’s existing regulations governing the process for planning enhancements and expansions of the electric transmission grid, along with the corresponding process for allocating the costs of such expansions. Among other things, Order No. 1000 sets forth a framework pursuant to which certain transmission projects that are approved by the RTOs including the SPP, become subject to a competitive bidding process whereby qualified entities can build and own the transmission facilities, even if the entities are not located in the service territory covered by the transmission facilities. This process is complicated, and is governed by Order No. 1000 and the tariff each RTO has with the FERC. In addition, notwithstanding the competitive processes created by Order No. 1000, incumbent utilities maintain a right of first refusal for certain transmission projects, depending on, among other things, the date by which the projects must be completed, the size of the projects and whether the incumbent utilities have pre-existing facilities that are being impacted by the projects.

We are actively participating in the SPP’s transmission planning activities and implementation of Order No. 1000.1000 in the SPP and the Midcontinent Independent System Operator, Inc. We believe we have opportunities to develop transmission infrastructure, including projects pursuant to which we, as the incumbent, have a right of first refusal and those projects that are subject to the Order No. 1000 competitive processes. However, due in part to the long termlong-term nature of transmission planning activities, coupled with the fact thatuncertainty surrounding the implementation of the Clean Power Plan (CPP) and its impact on the region’s generating fleet and the infancy of implementation of Order No. 1000, is in its very early stages, we are unable to predict the impact of Order No. 1000. Accordingly, in our forecasted capital expenditure table, there are no dollars of investment associated with Order No. 1000 projects.

Kansas law gives the Kansas Corporation Commission (KCC) general regulatory authority over our retail prices, extensions and abandonments of service and facilities, the classification of accounts, the issuance of some securities and various other matters. We are also subject to the jurisdiction of FERC, which has authority over wholesale electricity sales, including prices, the transmission of electric power and the issuance of some securities. We are subject to the jurisdiction of the NRC for nuclear plant operations and safety. Regulatory authorities have established various methods permitting adjustments to our prices for the recovery of costs. For portions of our cost of service, regulators allow us to adjust our prices periodically through the application of formulaea formula that tracktracks changes in our costs, which reducereduces the time between making expenditures or investments and reflecting them in the prices we charge customers. However, for the remaining portions of our cost of service, we must file a general rate review, which lengthens the period of time between when we make and recover expenditures and a return on our investments. See Note 3 of the Notes to Consolidated Financial Statements, "Rate“Rate Matters and Regulation,"” for information regarding our rate proceedings with the KCC and FERC.

We are subject to various federal, state and local environmental laws and regulations. Environmental laws and regulations affecting our operations are overlapping, complex, subject to changes, have become more stringent over time and are expensive to implement. Such laws and regulations relate primarily to air quality, water quality, the use of water and the handling, disposal and clean-up of hazardous and non-hazardous substances and wastes, including coal combustion byproducts (CCBs). These laws and regulations oftentimes require a lengthy and complex process for obtaining licenses, permits and approvals from governmental agencies for new, existing or modified facilities. If we fail to comply with such laws, regulations and permits, or fail to obtain and maintain necessary permits, we could be fined or otherwise sanctioned by regulators, and such fines or the cost of sanctions may not be recoverable in our prices. We have incurred and will continue to incur significant capital and other expenditures to comply with environmental laws and regulations.

We are currentlyHistorically, we were permitted to recover certain of thesethe costs associated with environmental projects through thean environmental cost recovery rider, (ECRR), which, in comparisongeneral, allowed us to a general rate review, reducesannually file with the amount of time it takesKCC to begin collecting in retailadjust our prices the costs associated with capital expenditures for qualifying environmental improvements. We are not allowedIn connection with the 2015 state general rate review, we agreed to use the ECRR to collect approximately $610.0 million of the projected capital investment associatedno longer make annual filings with environmental upgrades at La Cygne. In November 2013, the KCC issued an order allowing us to increaseadjust our prices to include the additional investment in the La Cygne environmental upgrades through June 30, 2013, and to reflect cost reductions elsewhere. The new prices were expected to increase our annual retail revenues by approximately $30.7 million.

See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Environmental Regulation,” “Item 1A. Risk Factors"Factors” and Notes 3 and 13 of the Notes to Consolidated Financial Statements, “Rate Matters and Regulation - KCC Proceedings - Environmental Costs” and “Commitments and Contingencies - Environmental Matters,” respectively, for more information regarding environmental trends, risks and laws and regulations.

The safety and health of our employees is vital to our business. We are subject to a number of federal and state laws and regulations, including the Occupational Safety and Health Act of 1970. We have measures in place to promote the safety and health of our employees and to monitor our compliance with such laws and regulations.

We rely upon information technology networks and systems to process, transmit and store electronic information, and to manage or support a variety of business processes and activities, including the generation, transmission and distribution of electricity, supply chain functions and the invoicing and collection of payments from our customers. These networks and systems are in some cases owned or managed by third-party service providers. Cybersecurity breaches, criminal activity, terrorist attacks and other disruptions to our information technology infrastructure, including infrastructure owned by third-parties we utilize, could interfere with our operations, could expose us or our customers or employees to a risk of loss and could expose us to liability or regulatory penalties or cause us reputational damage or other harm to our business. We have taken measures to secure our network and systems, but such measures may not be sufficient, especially due to the increasing sophistication of cyberattacks. See "Item“Item 1A. Risk Factors"Factors” for additional information.

Our electricity sales and revenues are seasonal, with the third quarter typically accounting for the greatest of each. Our electricity sales are impacted by weather conditions, the economy of our service territory and other factors affecting customers'customers’ demand for electricity.

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K are available free of charge either on our Internet website at www.westarenergy.com or through requests addressed to our investor relations department. These reports are available as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The information contained on our Internet website is not part of this document.

Executive officers serve at the pleasure of the board of directors. There are no family relationships among any of the executive officers, nor any arrangements or understandings between any executive officer and other persons pursuant to which he was appointed as an executive officer.

We operate in market and regulatory environments that involve significant risks, many of which are beyond our control. In addition to other information in this Form 10-K, including "Item“Item 1. Business"Business” and "Item“Item 7. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations,"” and in other documents we file with the SEC from time to time, the following factors may affect our results of operations, our cash flows and the value of our equity and debt securities. These factors may cause results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. The factors listed below are not intended to be an exhaustive discussion of all such risks, and the statements below must be read together with factors discussed elsewhere in this document and in our other filings with the SEC.

Weather conditions directly influence the demand for electricity. Our customers use electricity for heating in winter months and cooling in summer months. Because of air conditioning demand, typically we produce our highest revenues in the third quarter. Milder temperatures reduce demand for electricity and have a corresponding impact on our revenues. Unusually mild weather in the future could adversely affect our consolidated financial results.

In addition, severe weather conditions can produce storms that can inflict extensive damage to our equipment and facilities, which can require us to incur additional operating and maintenance expense and additional capital expenditures. Our prices may not always be adjusted timely or adequately to reflect these higher costs. Additionally, because many of our power plants use water for cooling, persistent or severe drought conditions could result in limited power production. High water conditions can also impair planned deliveries of fuel to our plants.

We must obtain from state and federal regulators the authority to establish terms and prices for our services. The KCC and, for most of our wholesale customers, FERC, use a cost-of-service approach that takes into account operating expenses, fixed obligations and recovery of and return on capital investments. Using this approach, the KCC and FERC set prices at levels calculated to recover such costs and a permitted return on investment. Except for wholesale transactions for which the price is not so regulated, and except to the extent the KCC and FERC permit us to modify our prices through the application of formulaea formula that tracktracks changes in certain of our costs, our prices generally remain fixed until changed following a rate review. Further, the adjustments may be modified, limited or eliminated by regulatory or legislative actions. We may apply to change our prices or intervening parties may request that our prices be reviewed for possible adjustment.

Rate proceedings through which our prices and terms of service are determined typically involve numerous parties including electricity consumers, consumer advocates and governmental entities, some of whom take positions adverse to us. In addition, regulators'regulators’ decisions may be appealed to the courts by us or other parties to the proceedings. These factors may lead to uncertainty and delays in obtaining or implementing changes to our prices or terms of service. There can be no assurance that our regulators will find all of our costs to have been prudently incurred. A finding that costs have been imprudently incurred can lead to disallowance of recovery for those costs. Further, the prices approved by the applicable regulatory body may not be sufficient for us to recover our costs and to provide for an adequate return on and of capital investments.

We cannot predict the outcome of any rate review or the actions of our regulators. The outcome of rate proceedings, or delays in implementing price changes to reflect changes in our costs, could have a material affecteffect on our consolidated financial results.

We are subject to extensive federal, state and local environmental laws and regulations relating to air quality, water quality, the use of water, the handling, disposal and clean-up of hazardous and non-hazardous substances and wastes, natural resources and health and safety. Compliance with these legal requirements, which change frequently and have tended to become more restrictive, requires us to commit significant capital and operating resources toward permitting, emission fees, environmental monitoring, installation and operation of air and water quality control equipment and purchases of air emission allowances and/or offsets. These laws and regulations oftentimes require a lengthy and complex process for obtaining licenses, permits and approvals from governmental agencies for new, existing or modified facilities. If we fail to comply with such laws, regulations and permits, or fail to obtain and maintain necessary permits, we could be fined or otherwise sanctioned by regulators, and such fines or the cost of sanctions may not be recoverable in our prices.

Costs of compliance with environmental laws and regulations or fines or penalties resulting from non-compliance, if not recovered in our prices, could adversely impact our operations and/or consolidated financial results, especially if emission and/or discharge limits are tightened, more extensive permitting requirements are imposed, additional substances become regulated or the number and types of assets we operate increases. We cannot estimate our compliance costs or any possible fines or penalties with certainty, or the degree to which such costs might be recovered in our prices, due to our inability to predict the requirements and timing of implementation of environmental rules or regulations. See “Item 1. Business - Environmental Matters,” “Item 7. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations-Executive Summary-Current Trends-EnvironmentalTrends and Uncertainties-Environmental Regulation” and Notes 3 and 13 of the Notes to the Consolidated Financial Statements, “Rate Matters and Regulation - KCC Proceedings - Environmental Costs” and “Commitments and Contingencies - Environmental Matters,” respectively, for additional information.

Further, in the course of operating our coal generation plants, we produce CCBs, including fly ash, gypsum and bottom ash, which we must handle, recycle, process or dispose of. We historically have recycled some of our ash production, principally by selling to the aggregate industry. In December 2014, theThe EPA issuedpublished a final rule that regulatesto regulate CCBs as non-hazardous solid waste under Resource Conservation and Recovery Act. The final rulein April 2015, which will impact the manner in which we dispose of CCBs, and it may adversely impact our ability to recycle ash or require additional CCB handling, processing and storage equipment or both.and potential closure of certain ash disposal areas. See Note 13 of the Notes to the Consolidated Financial Statements, “Commitments and Contingencies-Environmental Matters” for additional information. The impact of this rule on our operations and consolidated financial results could be material.

As a result of the Energy Policy Act of 2005, owners and operators of the bulk power transmission system, including Westar Energy and KGE, are subject to mandatory reliability standards promulgated by the North American Electric Reliability Corporation and enforced by FERC. If we were found to be out of compliance with the mandatory reliability standards, we could be subject to sanctions, including substantial monetary penalties, which we might not be able to recover in the prices we charge our customers. This could have a material adverse effect on our consolidated financial results.

Our operations are impacted by economic conditions. Adverse economic conditions, including a prolonged recession or capital market disruptions, may:

Through KGE'sKGE’s ownership interest in Wolf Creek, we are subject to the risks of nuclear generation, which include:

The NRC has authority to impose licensing and safety-related requirements for the operation of nuclear generation facilities. In the event of non-compliance, the NRC has authority to impose fines or shut down a unit, or both, depending upon its assessment of the severity of the situation, until compliance is achieved. Revised safety requirements enacted by the NRC could necessitate substantial capital expenditures at Wolf Creek.

An incident at Wolf Creek could have a material impact on our consolidated financial results. Furthermore, the non-compliance of other nuclear facilities operators with applicable regulations or the occurrence of a serious nuclear incident at other facilities anywhere in the world could result in increased regulation of the industry as a whole, which could in turn increase Wolf Creek'sCreek’s compliance costs and impact our consolidated financial results. Such events could also result in a shutdown of Wolf Creek.

We attempt to forecast demand to determine the timing and adequacy of our energy and energy delivery resources. Long-term forecasts involve risks because they rely on assumptions we make concerning uncertain factors including weather, technological change, environmental and other regulatory requirements, economic conditions, social pressures and the responsiveness of customers'customers’ electricity demand to conservation measures and prices. Both actual future demand and our ability to satisfy such demand depend on these and other factors and may vary materially from our forecasts. If our actual experience varies significantly from our forecasts, our consolidated financial results may be adversely impacted.

These and other factors, or any combination of them, could cause us to defer or limit our capital expenditure program and could adversely impact our consolidated financial results.    

To fund our capital expenditures and for working capital and liquidity, we rely on access to capital markets and to short-term credit. Disruption in capital markets, deterioration in the financial condition of the financial institutions on which we rely, any credit rating downgrade or any decrease in the market price of Westar Energy'sEnergy’s common stock may make capital more difficult and costly for us to obtain, may restrict liquidity available to us, may require us to defer or limit capital investments or impact operations or may reduce the value of our financial assets. These could adversely impact our business and consolidated financial results, including our ability to pay dividends and to make investments or undertake programs necessary to meet regulatory mandates and customer demand.

Further, we have significant future financial obligations with respect to employee benefit obligations and the Wolf Creek NDT. The value of the assets needed to meet those obligations are subject to market fluctuations and will yield uncertain returns, which may fall below our expectations for meeting our obligations. Additionally, inflation and changes in interest rates impact the value of future liabilities. In general, when interest rates decline, the value of future liabilities increase. While the KCC allows us to implement a regulatory accounting mechanism to track certain of our employee benefit plan expenses, this mechanism does not allow us to make automatic price adjustments. Only in future rate proceedings may we be allowed to adjust our prices to reflect changes in our funding requirements. Further, the tracking mechanism for these benefit plan expenses is part of our overall rate structure, and as such, it is subject to KCC review and may be modified, limited or eliminated in the future. If these assets are not managed successfully, our consolidated financial results and cash flows could be adversely impacted.

We rely upon information technology networks and systems to process, transmit and store electronic information, and to manage or support a variety of business processes and activities, including the generation, transmission and distribution of electricity, supply chain functions, and the invoicing and collection of payments from our customers. We also use information technology networks and systems to record, process and summarize financial information and results of operations for internal reporting purposes and to comply with financial reporting, legal and tax requirements. Our technologyThese networks and systems are in some cases owned or managed by third-party service providers. In the ordinary course of business, we collect, store and storetransmit sensitive data including system operating information, proprietary business information belonging to us and third parties and personal information belonging to our customers and employees.

Our information technology networks and infrastructure, as well as the networks and infrastructure belonging to third-party service providers that we utilize, may be vulnerable to damage, disruptions or shutdowns due to attacks or breaches by hackers or breaches due to employeeother unauthorized third parties; error or malfeasance by one or other disruptions duringmore of our or our service providers’ employees; software or hardware upgrades,upgrades; additions or replacements; malicious software code; telecommunication failures orfailures; natural disasters or other catastrophic events. These attacks or breachesThe occurrence of any of these events could, among other things, impact the reliability or safety of our generation, transmission and distribution systems; result in the erasure of data or render our equipment unusable. The occurrence of any of these events could impact the reliability of our generation, transmission and distribution systems; couldunusable; impact our ability to conduct business in the ordinary course; could expose us and our customers, or our employees and vendors to a risk of loss or misuse of information; and could result in legal claims or proceedings, liability or regulatory penalties against us, damage our reputation or otherwise harm our business. We cannot accurately assess the probability that a security breach may occur, despite the measures that we take to prevent such

Additionally, we cannot predict the impact that any future information technology or terrorist attack may have on the energy industry in general. Our facilities could be direct targets or indirect casualties of such attacks. The effects of such attacks could include disruption to our generation, transmission and distribution systems or to the electrical grid in general, and could increase the cost of insurance coverage or result in a decline in the U.S. economy. Any of the foregoing could adversely impact our operations or financial results

The generation, distribution and transmission of electricity require the use of expensive and complicated equipment, much of which is aged, and all of which requires significant ongoing maintenance. Our power plants and equipment are subject to extended or unplanned outages because of equipment failure, weather, transmission system disruption, operator error, contractor or subcontractor failure and other factors beyond our control.factors. In such events, we must either produce replacement power from our other plants, which may be less efficient or more expensive to operate, purchase power from others at unpredictable and potentially higher costs in order to meet our sales obligations, or suffer outages. Such events could also limit our ability to make sales to customers. Therefore, the occurrence of extended or unplanned outages could adversely affect our consolidated financial results.

We own and have in service approximately 6,3006,400 miles of transmission lines, approximately 24,000 miles of overhead distribution lines and approximately 4,8004,900 miles of underground distribution lines.

 

Substantially all of our utility properties are encumbered by first priority mortgages pursuant to which bonds have been issued and are outstanding.

Information on legal proceedings is set forth in Notes 3, 13 and 15 of the Notes to Consolidated Financial Statements, "Rate“Rate Matters and Regulation," "Commitments” “Commitments and Contingencies"Contingencies” and "Legal“Legal Proceedings,"” respectively, which are incorporated herein by reference.

Holders of Westar Energy'sEnergy’s common stock are entitled to dividends when and as declared by Westar Energy'sEnergy’s board of directors.

Certain matters discussed in Management'sManagement’s Discussion and Analysis are "forward-looking“forward-looking statements."” The Private Securities Litigation Reform Act of 1995 has established that these statements qualify for safe harbors from liability. Forward-looking statements may include words like we "believe," "anticipate," "target," "expect," "estimate," "intend"“believe,” “anticipate,” “target,” “expect,” “estimate,” “intend” and words of similar meaning. Forward-looking statements describe our future plans, objectives, expectations or goals. See "Forward-Looking Statements"“Forward-Looking Statements” above for additional information.

    

Net income attributed to common stock and basic EPS for the year ended December 31, 2014 increased2015, decreased due primarily to higher pricesa reduction in equity allowance for funds used during construction (AFUDC), a reduction in transmission revenues for our estimated refund obligation associated with a FERC proceeding and increased demandlower retail sales. See Note 3 of the Notes to Consolidated Financial Statements, “Rate Matters and Regulation - FERC Proceedings,” for a discussion of the FERC proceeding. Also, energy marketing margins were lower in 2015 than in 2014 due to greater volatility in 2014 of wholesale power prices. Partially offsetting these reductions was a decrease in operations and maintenance expense. EPS was further reduced in 2015 by approximately $0.13 due to the issuance of common stock from our industrial customers.forward sales transactions. See the discussion under "—“—Operating Results"Results” below for additional information.

The principal business, economic and other factors that affect our operations and financial performance include:

We are subject to various federal, state and local environmental laws and regulations. Environmental laws and regulations affecting our operations are overlapping, complex, subject to changes, have become more stringent over time and are expensive to implement. There are a variety of final and proposed laws and regulations that could have a material adverse effect on our operations and consolidated financial results, including those relating to:

See andNote 13 of the Notes 3 and 13 to the Consolidated Financial Statements, “Rate Matters and Regulation – KCC Proceeding – Environmental Costs” and “Commitments and Contingencies—Environmental Matters,” respectively, for a discussion of environmental costs, laws, regulations and other contingencies.

Allowance for funds used during construction (AFUDC)AFUDC represents the allowed cost of capital used to finance utility construction activity. We compute AFUDC by applying a composite rate to qualified construction work in progress.progress (CWIP). We credit other income (for equity funds) and interest expense (for borrowed funds) for the amount of AFUDC capitalized as construction cost on the accompanying consolidated statements of income as follows:

We expect AFUDC for both borrowed funds and equity funds to be lowerfluctuate over the next several years as major projects within our capital expenditure program have beenare being completed.

We expect interest expense to increase over the next several years as we issue new debt securities to fund our capital expenditure program. We continue to believe this increase will be reflected in the prices we are permitted to charge customers, as cost of capital will be a component of future rate proceedings and is also recognized in some of the other rate adjustments we are permitted to make. In addition, short-term interest rates are extremely low by historical standards. We cannot predict to

We do not expect the number of outstandingto issue additional shares of Westar Energy common stock to increase through 2015 as we issue additionalin 2016, other than modest amounts under our dividend reinvestment plan and for the vesting of restricted share unit (RSU) awards. The shares previously priced through forward sales agreements to fund our capital expenditure program.were issued in 2015. See Note 16 of the Notes to Consolidated Financial Statements, "Common and Preferred“Common Stock,"” for additional information regarding our share issuances.

In 2015,2016, we expect to maintain our current business strategy and regulatory approach. Assuming normal weather, we expect 20152016 retail electricity sales to be in line with our projected retail customer growth of about 1.5% higher than weather normalized 2014 sales.0.5%.

Our discussion and analysis of financial condition and results of operations are based on our consolidated financial statements, which have been prepared in conformity with Generally Accepted Accounting Principles (GAAP). Note 2 of the Notes to Consolidated Financial Statements, "Summary“Summary of Significant Accounting Policies,"” contains a summary of our significant accounting policies, many of which require the use of estimates and assumptions by management. The policies highlighted below have an impact on our reported results that may be material due to the levels of judgment and subjectivity necessary to account for uncertain matters or their susceptibility to change.

We apply accounting standards that recognize the economic effects of rate regulation. Accordingly, we have recorded regulatory assets and liabilities when required by a regulatory order or based on regulatory precedent. Regulatory assets represent incurred costs that have been deferred because they are probable of future recovery in our prices. Regulatory liabilities represent probable future reductions in revenue or refunds to customers.

The deferral of costs as regulatory assets is appropriate only when the future recovery of such costs is probable. In assessing probability, we consider such factors as specific regulatory orders, regulatory precedent and the current regulatory environment. If we deem it no longer probable that we would recover such costs, we would record a charge against income in the amount of the related regulatory assets.

We and Wolf Creek calculate our pension benefit and post-retirement medical benefit obligations and related costs using actuarial concepts within the guidance provided by applicable GAAP.

In accounting for our retirement plans and post-retirement benefits, we make assumptions regarding the valuation of benefit obligations and the performance of plan assets. The reported costs of our pension plans are impacted by estimates regarding earnings on plan assets, contributions to the plan, discount rates used to determine our projected benefit obligation and pension costs and employee demographics including age, life expectancy and compensation levels and employment periods. Changes in these assumptions result primarily in changes to regulatory assets, regulatory liabilities or the amount of related pension and post-retirement benefit liabilities reflected on our consolidated balance sheets. Such changes may also require cash contributions.

The following table shows the impact of a 0.5% change in our pension plan discount rate, salary scale and rate of return on plan assets. 

The following table shows the impact of a 0.5% change in the discount rate and rate of return on plan assets and a 1% change in the annual medical trend on our post-retirement benefit plans.

The application of income tax law is complex. Laws and regulations in this area are voluminous and often ambiguous. Accordingly, we must make judgments regarding income tax exposure. Interpretations of and guidance surrounding income tax laws and regulations change over time. As a result, changes in our judgments can materially affect amounts we recognize in our consolidated financial statements. See Note 10, "Taxes,"“Taxes,” for additional detail on our accounting for income taxes.

We have recognized legal obligations associated with the disposal of long-lived assets that result from the acquisition, construction, development or normal operation of such assets. Concurrent with the recognition of the liability, the estimated cost of the asset retirement obligation (ARO) is capitalized and depreciated over the remaining life of the asset. We estimate our AROs based on the fair value of the AROs we incurred at the time the related long-lived assets were either acquired, placed in service or when regulations establishing the obligation became effective.

We initially recorded AROs at fair value for the estimated cost to decommission Wolf Creek (our 47% share), retire our wind generating facilities, dispose of asbestos insulating material at our power plants, remediate ash disposal ponds and dispose of polychlorinated biphenyl contaminated oil. In determining our AROs, we make assumptions regarding probable future disposal costs. A change in these assumptions could have a significant impact on the AROs reflected on our consolidated balance sheets.

 

We and our subsidiaries are currently involved in certainvarious legal, environmental and regulatory proceedings, and we have estimated the probable cost for the resolution of these claims.proceedings. These estimates are based on an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible that our future consolidated financial results could be materially affected by changes in our assumptions. See Notes 3, 13 and 15 of the Notes to Consolidated Financial Statements, "Commitments“Rate Matters and Contingencies"Regulations”, “Commitments and "LegalContingencies” and “Legal Proceedings,"” for additional information.

We evaluate operating results based on EPS. We have various classifications of revenues, defined as follows:

Electric utility revenues are impacted by things such as rate regulation, fuel costs, technology, customer behavior, the economy and competitive forces. Changing weather also affects the amount of electricity our customers use as electricity sales are seasonal. As a summer peaking utility, the third quarter typically accounts for our greatest electricity sales. Hot summer temperatures and cold winter temperatures prompt more demand, especially among residential and commercial customers, and to a lesser extent, industrial customers. Mild weather reduces customer demand. Our wholesale revenues are impacted by, among other factors, demand, cost and availability of fuel and purchased power, price volatility, available generation capacity, transmission availability and weather.

In November 2013,September 2015, the KCC issued an order in our state general rate review allowing us to adjust our prices to include, theamong other things, additional investment in the La Cygne environmental upgrades as discussed below, and investment to reflect cost reductions elsewhere.extend the life of Wolf Creek. The new prices were effective late October 2015 and are expected to increase our annual retail revenues by approximately $30.7$78.3 million.