##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



FORM 10-K



---



|x | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2004



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from  to



Commission File Number 1-7324



---



KANSAS GAS AND ELECTRIC COMPANY

---

(Exact name of registrant as specified in its charter)



---



|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Kansas                                                         |  | 48-1093840                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)



120 East First
Street, Wichita, Kansas 67201 (316) 261-6611

---

(Address, including zip code and
telephone number, including area code, of registrants principal executive offices)



---



Securities registered pursuant to section 12(b) of the Act: None



Securities registered pursuant to section 12(g) of the
Act: None



---



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x



Indicate by check mark whether
the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes ̈No  x



Indicate the number of shares outstanding of each of the registrants classes of common stock, as of the latest practicable date.



|                           |  |                                
|-------------------------- |  | -------------------------------
|Common Stock, No par value |  | 1,000
Shares                   
|(Class)                    |  | (Outstanding at March 14, 2005)



Registrant meets the
conditions of General Instruction I(1)(a) and (b) to Form 10-K for certain wholly owned subsidiaries and is therefore filing an abbreviated form.



Documents Incorporated by Reference: None



---



---

##### Table of Contents

TABLE OF CONTENTS



|           |  |                                                                                       |  |     
|---------- |  | ------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                       |  | Page
|           |  | PART I                                                                                |  |     
|           |  |                                                                                      
|Item 1.    |  | Business                                                                              |  | 4   
|           |  |                                                                                      
|Item 2.    |  | Properties                                                                            |  | 15  
|           |  |                                                                                      
|Item 3.    |  | Legal Proceedings                                                                     |  | 15  
|           |  |                                                                                      
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 15  
|           |  |                                                                                      
|           |  | PART II                                                                               |  |     
|           |  |                                                                                      
|Item 5.    |  | Market for Registrants Common Equity and Related Stockholder Matters                 |  | 16  
|           |  |                                                                                      
|Item 6.    |  | Selected Financial Data                                                               |  | 16  
|           |  |                                                                                      
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 17  
|           |  |                                                                                      
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 28  
|           |  |                                                                                      
|Item 8.    |  | Financial Statements and Supplementary Data                                           |  | 30  
|           |  |                                                                                      
|Item 9.    |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure  |  | 59  
|           |  |                                                                                      
|Item 9A.   |  | Controls and Procedures                                                               |  | 59  
|           |  |                                                                                      
|Item 9B.   |  | Other Information                                                                     |  | 59  
|           |  |                                                                                      
|           |  | PART III                                                                              |  |     
|           |  |                                                                                      
|Item 10.   |  | Directors and Executive Officers of the Registrant                                    |  | 59  
|           |  |                                                                                      
|Item 11.   |  | Executive Compensation                                                                |  | 59  
|           |  |                                                                                      
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 59  
|           |  |                                                                                      
|Item 13.   |  | Certain Relationships and Related Transactions                                        |  | 59  
|           |  |                                                                                      
|Item 14.   |  | Principal Accountant Fees and Services                                                |  | 60  
|           |  |                                                                                      
|           |  | PART IV                                                                               |  |     
|           |  |                                                                                      
|Item 15.   |  | Exhibits and Financial Statement Schedules                                            |  | 61  
|           | 
|Signatures |  | 64                                                                                   



2



---

##### Table of Contents

FORWARD-LOOKING STATEMENTS



Certain matters discussed in this Annual Report on Form 10-K are 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, pro forma, 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:



| |  |  | capital expenditures,
| | - |  | ---------------------



| |  |  | earnings,
| | - |  | ---------



| |  |  | liquidity and capital resources,
| | - |  | --------------------------------



| |  |  | litigation,
| | - |  | -----------



| |  |  | accounting matters,
| | - |  | -------------------



| |  |  | possible corporate restructurings, acquisitions and dispositions,
| | - |  | -----------------------------------------------------------------



| |  |  | compliance with debt and other restrictive covenants,
| | - |  | -----------------------------------------------------



| |  |  | interest rates,
| | - |  | ---------------



| |  |  | environmental matters,
| | - |  | ----------------------



| |  |  | nuclear operations, and
| | - |  | -----------------------



| |  |  | the overall economy of our service area.
| | - |  | ----------------------------------------





What happens in each case could vary materially from what we expect because
of such things as:



| |  |  | electric utility deregulation or re-regulation,
| | - |  | -----------------------------------------------



| |  |  | regulated and competitive markets,
| | - |  | ----------------------------------



| |  |  | ongoing municipal, state and federal activities,
| | - |  | ------------------------------------------------



| |  |  | economic and capital market conditions,
| | - |  | ---------------------------------------



| |  |  | changes in accounting requirements and other accounting matters,
| | - |  | ----------------------------------------------------------------



| |  |  | changing weather,
| | - |  | -----------------



| |  |  | rates, cost recoveries and other regulatory matters,
| | - |  | ----------------------------------------------------



| |  |  | the impact of changes and downturns in the energy industry and the market for trading wholesale electricity,
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | the outcome of the notice of violation received by Westar Energy, Inc. on January 22, 2004 from the Environmental Protection Agency and other environmental matters,
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | political, legislative, judicial and regulatory developments,
| | - |  | -------------------------------------------------------------



| |  |  | the impact of the purported shareholder and employee class action lawsuits filed against Westar Energy, Inc.,
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | the impact of changes in interest rates,
| | - |  | ----------------------------------------



| |  |  | changes in, and the discount rate assumptions used for, Wolf Creek Nuclear Operating Corporation pension and other post-retirement benefit liability calculations, as well as actual
and assumed investment returns on pension plan assets,
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the impact of changing interest rates and other assumptions on our nuclear decommissioning liability for Wolf Creek Generating Station,
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Kansas Corporation Commission and the North American Electric Reliability Councils utility service reliability standards,
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | homeland security considerations,
| | - |  | ---------------------------------



| |  |  | coal, natural gas, oil and wholesale electricity prices,
| | - |  | --------------------------------------------------------



| |  |  | availability and timely provision of rail transportation for our coal supply, and
| | - |  | ---------------------------------------------------------------------------------



| |  |  | other circumstances affecting anticipated operations, sales and costs.
| | - |  | ----------------------------------------------------------------------



These lists are not all-inclusive because it is not possible to predict all factors. This report should be read in its
entirety. No one section of this report deals with all aspects of the subject matter. Any forward-looking statement speaks only as of the date such statement was made, and we are not obligated to update any forward-looking statement to reflect
events or circumstances after the date on which such statement was made except as required by applicable laws or regulations.



3



---

##### Table of Contents

PART I



ITEM 1. BUSINESS



GENERAL



Kansas Gas and Electric Company is a regulated electric utility incorporated
in 1990 in Kansas. Unless the context otherwise indicates, all references in this Annual Report on Form 10-K to the company, KGE, we, us, our and similar words are to Kansas Gas and
Electric Company.



We are a wholly owned subsidiary of Westar
Energy, Inc. (Westar Energy) and we provide rate-regulated electric service, together with the electric utility operations of Westar Energy, using the name Westar Energy. We provide electric generation, transmission and distribution services to
approximately 301,000 customers in south-central and southeastern Kansas, including the city of Wichita, Kansas. Our corporate headquarters is located in Wichita, Kansas.



We own a 47% interest in the Wolf Creek Generating Station (Wolf Creek), a nuclear power plant located near Burlington,
Kansas, and a 47% interest in Wolf Creek Nuclear Operating Corporation (WCNOC), the operating company for Wolf Creek.



SIGNIFICANT BUSINESS DEVELOPMENTS DURING 2004



Refinancing of Debt



On June 10, 2004, we refinanced $327.5 million of pollution control bonds. The original issue had an interest rate of 7% and was due in 2031. This issue
was replaced with pollution control bonds at interest rates of 5.3% on $127.5 million that mature in 2031, 2.65% on $100.0 million that are putable in 2006, and a variable rate on $100.0 million that mature in 2031.



OPERATIONS



General



We supply electric energy at retail to approximately 301,000 customers in south-central and southeastern Kansas. We also supply electric energy at
wholesale to the electric distribution systems of 24 Kansas cities and one electric cooperative. We have contracts for the sale, purchase or exchange of wholesale electricity with other utilities.



Generation Capacity



We have 2,587 megawatts (MW) of generating capacity. See Item 2. Properties for additional information on our
generating units. The capacity by fuel type is summarized below.



|                   |  |               |  |                          
|------------------ |  | ------------- |  | -------------------------
|Fuel Type          |  | Capacity (MW) |  | Percent of Total Capacity
|Coal               |  | 1,124         |  | 43.4                     
|Nuclear            |  | 548           |  | 21.2                     
|Natural gas or oil |  | 912           |  | 35.3                     
|Diesel fuel        |  | 3             |  | 0.1                      
|                   |  |               |  |                          
|Total              |  | 2,587         |  | 100.0                    
|                   |  |               |  |                          



Our aggregate 2004
peak system net load of 2,105 MW occurred on August 3, 2004.



4



---

##### Table of Contents

We have an agreement with Midwest Energy, Inc. to provide it with peaking capacity of 60 MW through May
2008.



Fossil Fuel Generation



Fuel Mix



The effectiveness of a fuel to produce heat is measured in British thermal
units (Btu). The higher the Btu content of a fuel, the lesser quantity of the fuel it takes to produce electricity. The quantity of heat consumed during the generation of electricity is measured in millions of Btu (MMBtu).



Based on MMBtus, our 2004 actual fuel mix was 59% coal, 34% nuclear and 7%
natural gas, oil or diesel fuel. We expect in 2005 to use a higher percentage of coal and a lower percentage of uranium because in 2005 we will refuel Wolf Creek. Our fuel mix fluctuates with the operation of Wolf Creek, as discussed below under
 Nuclear Generation, fluctuations in fuel costs, plant availability, customer demand and the cost and availability of wholesale market power.



Coal



Jeffrey Energy Center: The three coal-fired units at Jeffrey Energy Center have an aggregate capacity of 2,213 MW, of which we own a 20% share, or
443 MW. Westar Energy, the operator of Jeffrey Energy Center, and we have a long-term coal supply contract with Foundation Coal West to supply coal to Jeffrey Energy Center from mines located in the Powder River Basin (PRB) in Wyoming. The contract
contains a schedule of minimum annual MMBtu delivery quantities. All of the coal used at Jeffrey Energy Center is purchased under this contract. The contract expires December 31, 2020. The contract provides for price escalation based on certain
indexed costs of production. The price for quantities purchased over the scheduled annual minimum is subject to renegotiation every five years to provide an adjusted price for the ensuing five years that reflects then current market prices. The next
re-pricing is scheduled for 2008.



The coal supplied to Jeffrey
Energy Center during 2004 was surface mined and had an average Btu content of approximately 8,449 Btu per pound and an average sulfur content of 0.47 lbs/MMBtu (see  Environmental Matters for a discussion of sulfur content). The
average delivered cost of coal burned at Jeffrey Energy Center during 2004 was approximately $1.24 per MMBtu, or $20.93 per ton.



We transport coal from Wyoming under a long-term rail transportation contract with the Burlington Northern Santa Fe (BNSF) and Union Pacific railroads.
The contract term continues through December 31, 2013. The contract price is subject to price escalation based on certain costs incurred by the rail carriers. We anticipate that the cost of transporting coal may increase due to higher prices for the
items subject to contractual escalation.



LaCygne Generating
Station: The two coal-fired units at LaCygne Generating Station (LaCygne) have an aggregate generating capacity of 1,362 MW, of which we own or lease a 50% share, or 681 MW. LaCygne 1 uses a blended fuel mix containing approximately 85% PRB coal
and 15% Kansas/Missouri coal. LaCygne 2 uses PRB coal. The operator of LaCygne, Kansas City Power & Light Company (KCPL), arranges coal purchases and transportation services for LaCygne. All of the LaCygne 1 and LaCygne 2 PRB coal is supplied
through fixed price contracts through 2005 and is transported under KCPLs Omnibus Rail Transportation Agreement with the BNSF and Kansas City Southern Railroad through December 31, 2010. As the PRB coal contracts expire, we anticipate that
KCPL will negotiate new supply contracts or purchase coal on the spot market. The LaCygne 1 Kansas/Missouri coal is purchased from time to time from local Kansas and Missouri producers.



The PRB coal supplied to LaCygne 1 and LaCygne 2 during 2004 had an average Btu content of approximately 8,630 Btu per pound
and an average sulfur content of 0.32 lbs/MMBtu. During 2004, the average delivered cost of all coal burned at LaCygne 1 was approximately $0.89 per MMBtu, or $15.51 per ton. The average delivered cost of coal burned at LaCygne 2 was approximately
$0.81 per MMBtu, or $13.74 per ton.



5



---

##### Table of Contents

General: We have entered into all of our coal supply agreements in the ordinary course of business
and believe we are not substantially dependent on these contracts. We believe there are other suppliers with plentiful sources of coal available at spot market prices to replace, if necessary, fuel supplied pursuant to these contracts and that we
would be able to make transportation arrangements for such coal. In the event that we were required to replace our coal agreements, we would not anticipate a substantial disruption of our business, although the cost of purchasing coal could
increase. Because we meet the majority of our coal needs through long-term contracts as discussed above, we do not anticipate being materially impacted by price changes in the spot market.



We have entered into all of our coal transportation contracts in the ordinary
course of business. Although several rail carriers are capable of serving the coal mines from where our coal originates, Jeffrey Energy Center can be served by only one rail carrier. In the event the rail carrier fails to provide reliable service,
we could experience a disruption of our business that could have a material adverse impact on our business, consolidated financial condition and results of operations.



Natural Gas



We use natural gas either as a primary fuel or as a start-up and/or secondary fuel, depending on market prices, at our Gordon Evans, Murray Gill and
Neosho Energy Centers. We purchase natural gas in the spot market, which supplies our facilities with a flexible natural gas supply as necessary to meet operational needs. During 2004, we purchased 1.6 million MMBtu of natural gas on the spot market
for a total cost of $8.9 million. Natural gas accounted for approximately 1% of our total fuel burned during 2004.



If natural gas prices are higher than the amount we are able to recover through our retail rates, we may be exposed to increased natural gas costs and our
exposure could be material. We may be able to reduce our exposure to the risk of high natural gas prices due to our ability to use other fuel types and by using other pricing techniques available to us, such as purchasing derivative contracts. To
recover increased natural gas costs in excess of the cost included in retail rates, we would have to file a request for a change in rates with the Kansas Corporation Commission (KCC) or request a recovery mechanism through the KCC, which could be
denied in whole or in part. For additional information on our exposure to commodity price risks, see Item 7A. Quantitative and Qualitative Disclosures About Market Risk.



We meet a portion of our natural gas transportation requirements through firm natural gas transportation capacity agreements
with Southern Star Central Pipeline. The firm transportation agreement that serves Gordon Evans and Murray Gill extends through April 1, 2010. The agreement for the Neosho facility extends through June 1, 2016.



Oil



Once started with natural gas, most of the steam units at our Gordon Evans, Murray Gill and Neosho Energy Centers have the
capability to burn oil or natural gas. We use oil as an alternate fuel when economical or when interruptions to natural gas supply make it necessary. During 2004 oil was more economical than natural gas, therefore, we used oil as the primary fuel in
these generating facilities for most of 2004. During 2004, we burned 8.6 million MMBtu of oil at a total cost of $32.8 million. Oil accounted for approximately 6% of our total MMBtu of fuel burned during 2004. Because oil does not burn as cleanly as
natural gas, our ability to use as much oil in the future could be constrained by new environmental rules or future settlements regarding environmental matters.



Oil is also used as a start-up fuel at some of our generating stations and in our diesel generator. We purchase oil in the spot market and under
longer-term contracts. We maintain quantities in inventory that we believe will allow us to facilitate economic dispatch of power, to satisfy emergency requirements and to protect against reduced availability of natural gas for limited periods or
when the primary fuel becomes uneconomical to burn.



If oil
prices are higher than the amount we are able to recover through our retail rates, we may be exposed to increased oil costs and our exposure could be material. We may be able to reduce our exposure to the risk of high oil prices due to our ability
to use other fuel types and by using other pricing techniques available to us, such as purchasing derivative contracts. To recover increased oil



6



---

##### Table of Contents

costs in excess of the cost included in retail rates, we would have to file a request for a change in rates with the KCC
or request a recovery mechanism through the KCC, which could be denied in whole or in part. For additional information on our exposure to commodity price risks, see Item 7A. Quantitative and Qualitative Disclosures About Market Risk.



Other Fuel Matters



The table below provides information relating to the weighted average cost
of fuel that we have used, including the fuel and transportation costs and any other associated costs.



|                   |  |      |       |      |   |       |  |   |     
|------------------ |  | ---- | ----- | ---- | - | ----- |  | - | ----
|                   |  | 2004 |       | 2003 |   | 2002 
|Per Million Btu:   |  |      |       |      |   |       |  |   |     
|Nuclear            |  | $    | 0.39  |      | $ | 0.39  |  | $ | 0.40
|Coal               |  |      | 0.99  |      |   | 0.96  |  |   | 0.94
|Natural Gas        |  |      | 5.45  |      |   | 4.51  |  |   | 3.15
|Oil                |  |      | 3.79  |      |   | 3.20  |  |   | 2.75
|                   |  |      |      
|Per MWh Generation |  | $    | 10.82 |      | $ | 10.24 |  | $ | 9.85



Purchased Power



At times, we purchase power to meet the energy needs of our customers.
Factors that cause us to purchase power to serve our customers include outages at our generating plants, prices for wholesale energy, extreme weather conditions, growth, and other factors. If we were unable to generate an adequate supply of
electricity to serve our customers, we would typically purchase power in the wholesale market. Constraints in the transmission system may keep us from purchasing power in which case we would have to implement curtailment or interruption procedures
as permitted by our tariffs and terms and conditions of service. Purchased power for the year ended December 31, 2004 comprised approximately 5% of our total operating expenses.



Nuclear Generation



General



Wolf Creek is a 1,166 MW nuclear power plant located near Burlington, Kansas. Wolf Creek began operation in 1985. We own a 47% interest in Wolf Creek, or
548 MW, which represents approximately 21% of our total generating capacity. KCPL owns a 47% interest in Wolf Creek and a 6% interest is owned by Kansas Electric Power Cooperative, Inc. Wolf Creek is operated by WCNOC, a corporation owned by the
co-owners of Wolf Creek. The co-owners pay the operating costs of WCNOC equal to their percentage ownership in Wolf Creek. WCNOC has approximately 1,000 employees.



Fuel Supply



We have 100% of the uranium and conversion services needed to operate Wolf Creek under contract through September 2009. We also have 100% of the
enrichment services required to operate Wolf Creek under contract through approximately March 2008. Fabrication requirements are under contract through 2024. We will be exposed to the price risk associated with any components not currently under
contract if a counterparty were to fail its contractual obligations.



All uranium, uranium conversion and uranium enrichment arrangements, as well as the fabrication agreement, have been entered into in the ordinary course of business, and WCNOC believes Wolf Creek is not substantially dependent on these
agreements. However, contraction and consolidation among suppliers of these commodities and services, coupled with increasing worldwide demand and past inventory draw-downs, have introduced uncertainty as to WCNOCs ability to replace, if
necessary, some of these contracts in the event of a protracted supply disruption. WCNOC believes this potential problem is common in the nuclear industry. Accordingly, in the event the affected contracts were required to be replaced, WCNOC believes
that the industry and government would arrive at a solution to minimize disruption of the nuclear industrys operations.



7



---

##### Table of Contents

Nuclear fuel is amortized to fuel and purchased power based on the quantity of heat produced for the
generation of electricity.



Radioactive Waste Disposal



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 pays the DOE a quarterly fee for the future disposal of spent nuclear fuel. The fee is one-tenth of a cent for each kilowatt-hour of net nuclear
generation produced. We include these disposal costs in operating expenses.



A permanent disposal site will not be available for the nuclear industry until 2012 or later. Under current DOE policy, once a permanent site is available, the DOE will accept spent nuclear fuel on a priority basis.
The owners of the oldest spent fuel will be given the highest priority. As a result, disposal services for Wolf Creek will not be available prior to 2018. Wolf Creek has on-site temporary storage for spent nuclear fuel. In early 2000, Wolf Creek
completed replacement of spent fuel storage racks to increase its on-site storage capacity for all spent fuel expected to be generated by Wolf Creek through the end of its licensed life in 2025.



In 2002, the Yucca Mountain site in Nevada was approved for the development
of a nuclear waste repository for the disposal of spent nuclear fuel and high level nuclear waste from the nations defense activities. This action allows the DOE to apply to the Nuclear Regulatory Commission (NRC) to license the project. The
DOE expects that this facility will open in 2012. However, the opening of the Yucca Mountain site has been delayed many times and could be delayed further due to litigation and other issues related to the site as a permanent repository for spent
nuclear fuel.



Wolf Creek disposes of all classes of its
low-level radioactive waste at existing third-party repositories. Should disposal capability become unavailable, Wolf Creek is able to store its low-level radioactive waste in an on-site facility. WCNOC believes that a temporary loss of low-level
radioactive waste disposal capability would not affect Wolf Creeks continued operation.



The Low-Level Radioactive Waste Policy Amendments Act of 1985 mandated that the various states, individually or through interstate compacts, develop alternative low-level radioactive waste disposal facilities. The
states of Kansas, Nebraska, Arkansas, Louisiana and Oklahoma formed the Central Interstate Low-Level Radioactive Waste Compact (Compact), and the Compact Commission, which is responsible for causing a new disposal facility to be developed within one
of the member states. The Compact Commission selected Nebraska as the host state for the disposal facility. WCNOC and the owners of the other five nuclear units in the Compact provided most of the pre-construction financing for this project. Our net
investment in the Compact is approximately $7.4 million.



In
December 1998, the Nebraska agencies responsible for considering the developers license application denied the application. Most of the utilities that had provided the projects pre-construction financing, including WCNOC as well as the
Compact Commission itself, filed a lawsuit in federal court contending Nebraska officials acted in bad faith while handling the license application. In September 2002, the court entered a judgment of $151.4 million, about one-third of which
constitutes prejudgment interest, in favor of the Compact Commission and against Nebraska, finding that Nebraska had acted in bad faith in handling the license application. Following unsuccessful appeals of the decision by Nebraska, in August 2004
Nebraska and the Compact Commission settled the case. The settlement requires Nebraska to pay the Compact Commission a one-time amount of $140.5 million or, alternatively, four annual installments of $38.5 million beginning in August 2005. The
parties agreed to dismiss all pending litigation and appeals relating to this matter. Once Nebraska makes its final payment, it will be relieved of its responsibility to host a disposal facility. Meanwhile, the Compact Commission is pursuing other
strategies for providing disposal capability for waste generators in the Compact region.



Outages



Wolf Creek
operates on an 18-month refueling and maintenance outage schedule that permits operations during every third calendar year without a refueling outage. Wolf Creek was shut down for 45 days in 2003 for its



8



---

##### Table of Contents

thirteenth scheduled refueling and maintenance outage, which began on October 18, 2003 and ended on December 2, 2003.
During outages at the plant we meet our electric demand primarily with our fossil-fueled generating units and by purchasing power depending on availability and cost. As provided by the KCC, we amortize the incremental maintenance costs incurred for
planned refueling outages evenly over the units 18 month operating cycle. We do not defer and amortize the incremental fuel or purchased power costs incurred as a result of a refueling outage. Wolf Creek is scheduled to be taken off-line in
the spring of 2005 for its fourteenth refueling and maintenance outage.



An extended or unscheduled shutdown of Wolf Creek could have a substantial adverse effect on our business, financial condition and consolidated results of operations because of higher replacement power and other costs and reduced amounts of
power available to sell at wholesale. Although not expected, the NRC could impose an unscheduled plant shutdown due to security or other concerns.



The NRC evaluates, monitors and rates various inspection findings and performance indicators for Wolf Creek based on their safety significance. Wolf Creek
currently meets all NRC oversight objectives and receives the minimum regimen of NRC inspections. However, because of Wolf Creeks recent experience with unscheduled outages, one additional unscheduled outage before September 30, 2005 may
result in the NRC lowering the Wolf Creek rating for one performance indicator. This might require additional NRC inspections to evaluate possible corrective actions that if required might result in additional expense or disruption in Wolf
Creeks operation.



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 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 funds required for nuclear
decommissioning will be accumulated prior to the termination of the license of the related nuclear power plant.



We expense nuclear decommissioning costs over the expected life of Wolf Creek. The amount we expense is based on an estimate of nuclear decommissioning
costs that we will incur upon retirement of the plant. Nuclear decommissioning costs that are recovered in rates are deposited in an external trust fund. In 2004, we expensed approximately $3.9 million for nuclear decommissioning. We record our
investment in the nuclear decommissioning fund at fair value. Fair value approximated $91.1 million at December 31, 2004 and $80.1 million at December 31, 2003.



The KCC reviews nuclear decommissioning plans in two phases. Phase one is the approval of the nuclear decommissioning study, the current-year funding
and future funding. Phase two is the filing of a funding schedule by the owner of the nuclear facility detailing how it plans to fund the future-year dollar amount for its pro rata share of the plant.



We filed an updated nuclear decommissioning and dismantlement cost estimate
with the KCC on August 30, 2002. Estimated costs outlined by this study were developed to decommission Wolf Creek following a shutdown. The analyses relied on site-specific, technical information, updated to reflect current plant conditions and
operating assumptions. Based on this study, our share of Wolf Creeks nuclear decommissioning costs, under the immediate dismantlement method, is estimated to be approximately $220.0 million in 2002 dollars. These costs include decontamination,
dismantling and site restoration and are not inflated, escalated, or discounted over the period of expenditure. The actual nuclear decommissioning costs may vary from the estimates because of changes in technology and changes in costs for labor,
materials and equipment.



The KCC issued an order on April 16,
2003 approving the August 2002 nuclear decommissioning study for Wolf Creek. On June 2, 2003, we filed a funding schedule with the KCC to reflect the KCCs April 16, 2003 order. On October 10, 2003, the KCC approved the funding schedule as
filed without any change to our funding obligation. We expect to file an updated decommissioning cost study with the KCC by September 1, 2005.



9



---

##### Table of Contents

We charge nuclear decommissioning costs to operating expense in accordance with the July 25, 2001 KCC
rate order as modified by the KCCs approval of the funding schedule in the KCCs October 13, 2003 order. Electric rates charged to customers provide for recovery of these nuclear decommissioning costs over the life of Wolf Creek, which,
as determined by the KCC for purposes of the funding schedule, will be through 2045. The NRC requires that funds to meet its nuclear decommissioning funding assurance requirement be in our nuclear decommissioning fund by the time our license expires
in 2025. We believe that the KCC approved funding level will be sufficient to meet the NRC minimum financial assurance requirement. However, our consolidated results of operations would be materially adversely affected if we are not allowed to
recover the full amount of the funding requirement.



Competition and
Deregulation



Electric utilities have historically
operated in a rate-regulated environment. The Federal Energy Regulatory Commission (FERC), the federal regulatory agency having jurisdiction over our wholesale rates and transmission services, and other utilities have initiated steps expected to
result in a more competitive environment for utility services in the wholesale market.



The 1992 Energy Policy Act began deregulating the electricity market for generation. The Energy Policy Act permitted FERC to order electric utilities to allow third parties to use their transmission systems to
transport electric power to wholesale customers. In 1992, we agreed to permit third parties access to our transmission system for wholesale transactions. FERC also requires us to provide transmission services to others under terms comparable to
those we provide ourselves. In December 1999, FERC issued an order encouraging the formation of regional transmission organizations (RTO). RTOs are designed to control the wholesale transmission services of the utilities in their regions, thereby
facilitating open and more competitive markets in bulk power.



Regional Transmission Organization



We are a
member of the Southwest Power Pool (SPP). On October 1, 2004, FERC granted RTO status to the SPP. Westar Energy is now a member of the SPP RTO. Because we provide electric service together with the electric utility operations of Westar Energy, we
are a member of the SPP through Westar Energys membership and do not have a separate KGE membership.



As a result of the SPP attaining RTO status, if approved by the KCC, we expect to turn operational control of our transmission system over to the SPP RTO
under its membership agreement and applicable tariff. The SPP RTO will operate our transmission system as part of an interconnected transmission system across eight states. The SPP will collect revenues attributable to the use of each members
transmission system. Members and transmission customers will be able to transmit power purchased and generated for sale or bought for resale in the wholesale market throughout the entire SPP system. We believe each transmission owner generally
retains the transmission capacity needed to serve its retail customers. Any additional transmission capacity will be sold on a first come/first served non-discriminatory basis. All transmission customers will be charged uniform rates for use of the
transmission system, including entities that may sell power inside our certificated service territory. We do not expect that our participation in the SPP will have a material effect on our operations; however, we expect costs to increase due to the
establishment of the RTO and associated markets. At this time, we are unable to quantify these costs because market implementation issues remain unresolved. We expect that we will recover these costs in rates we charge to our customers.



Regulation and Rates



As a Kansas electric utility, we are subject to the jurisdiction of the KCC, which has general regulatory authority over our
rates, extensions and abandonments of service and facilities, valuation of property, 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 sales of electricity, 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.



10



---

##### Table of Contents

As a result of an earlier KCC order, Westar Energy and we will file a request for a rate review with the
KCC by May 2, 2005, based on a test year consisting of the 12 months ended December 31, 2004.



Effective January 4, 2004, the Hours of Service regulations that govern the length of time that drivers may operate vehicles and the length of time they must be off-duty were revised. This legislation was
designed to reduce accidents related to driver fatigue. Electric utilities were exempt from implementing these changes until September 2004. During restoration of electric service after a power outage, we must obtain a declaration of a state of
emergency in order to gain an exception from these rules. Such an exception permits employees required to restore electric power to operate equipment for extended hours without the otherwise required off-duty time. The impact of this legislation
could affect customer service and could result in increased operating costs if we have to hire additional employees or contractors or lengthen electric service outages.



On January 16, 2004, the KCC issued an order regarding electric service reliability for retail customers. The order was
intended to help the KCC assess the reliability of retail electric service. Specifically, the KCC wanted to establish uniform definitions and requirements regarding service obligations, record keeping, customer notification and methods of reporting
results to the KCC. On February 10, 2004, the North American Electric Reliability Council (NERC) issued reliability improvement initiatives stemming from the investigation of the August 14, 2003 blackout in portions of the northeastern United
States. These initiatives will impact our operations in a number of ways, including system relay protection, vegetation management and operator training. The NERC and the ten operating regions in the United States, including the SPP, are working
together to determine what operating policies and planning standards changes are necessary to achieve the NERCs goals. We are unable to estimate potential compliance costs at this time; however, it is likely that our annual capital and
maintenance expenditure requirements will increase in the future.



Public
Utility Holding Company Act of 1935



Westar Energy is a
holding company under the Public Utility Holding Company Act of 1935 (1935 Act) as a result of Westar Energys ownership of us and Westar Generating, Inc., each a wholly-owned subsidiary of Westar Energy. Currently, Westar Energy claims an
exemption from registration under the 1935 Act based on its operations being conducted predominantly within Kansas. Following a recent decision by the Securities and Exchange Commission (SEC) with respect to its interpretation of the
criteria that must be satisfied to claim a predominantly intrastate exemption and as a result of the amount of sales of wholesale electricity outside of Kansas by Westar Energys energy marketing operations, it is possible that the
SEC could question Westar Energys eligibility for an exemption from registration under the 1935 Act. In that event, Westar Energy would evaluate its options, including filing an application for exemption and asking the SEC to formally consider
that request, becoming a registered holding company, restructuring its operations in a manner that would allow it to maintain eligibility to claim an exemption or restructuring its organizational structure to consolidate all utility operations into
one entity so that Westar Energy is no longer a utility holding company.



In the event Westar Energy elects to register, the 1935 Act and related regulations issued by the SEC would govern its activities and the activities of its subsidiaries with respect to the acquisition, issuance and
sale of securities, acquisition and sale of utility assets, certain transactions among affiliates, engaging in business activities not directly related to the utility or energy business and other matters. We are unable to predict whether Westar
Energy will continue to be eligible for an exemption for registration under the 1935 Act, however, we believe that Westar Energy becoming a registered holding company under the 1935 Act or taking steps, together with us, to reorganize its corporate
structure to avoid registration would not have a material impact on our consolidated financial position, results of operations or cash flows.



Environmental Matters



General



We are subject to various federal, state and local environmental laws and regulations. These laws and regulations primarily relate to discharges into the
air and air quality, discharges of effluents into water and the use of water, and the handling and disposal of hazardous substances and wastes. These laws and regulations require a



11



---

##### Table of Contents

lengthy and complex process for obtaining licenses, permits and approvals from governmental agencies for our new,
existing or modified facilities. If we fail to comply with such laws and regulations, we could be fined or otherwise sanctioned by regulators. In addition, under certain laws, we could be responsible for costs relating to contamination at our
current and former facilities or at third-party waste disposal sites. We have incurred and will continue to incur capital and other expenditures to comply with environmental laws and regulations.



Environmental laws and regulations affecting power plants are overlapping,
complex, subject to changes in interpretation and implementation and have tended to become more stringent over time. Although we believe that we can recover in rates the costs relating to compliance with such laws and regulations, there can be no
assurance that we will be able to recover all or any such increased costs from our customers or that our business, consolidated financial condition or results of operations will not be materially and adversely affected as a result of costs to comply
with such existing and future laws and regulations.



Air
Emissions



The Clean Air Act, state laws and implementing
regulations impose, among other things, limitations on major pollutants, including sulfur dioxide (SO2), particulate matter and nitrogen oxides (NOx).



Certain Kansas Department of Health and Environment (KDHE) regulations applicable to our generating facilities prohibit the emission of SO2 in excess of
certain levels. In order to meet these standards, we use low-sulfur coal, fuel oil and natural gas and have equipped our generating facilities with pollution control equipment.



In addition, we must comply with the provisions of the Clean Air Act Amendments of 1990 that require a two-phase reduction
in some emissions. We have installed continuous monitoring and reporting equipment in order to meet the acid rain requirements. We have not had to make any material capital expenditures to meet Phase II SO2 and NOx requirements.



Title IV of the Clean Air Act created an SO2 allowance and trading program as
part of the federal acid rain program. Under the allowance and trading program, the Environmental Protection Agency (EPA) allocated annual SO2 emissions allowances for each affected emitting unit. An SO2 allowance is a limited authorization to emit
one ton of SO2 during a calendar year. At the end of each year, each emitting unit must have enough allowances to cover its emissions for that year. Allowances are tradable so that operators of affected units that are anticipated to emit SO2 in
excess of their allowances may purchase allowances from operators of affected units that are anticipated to emit SO2 in an amount less than their allowances. Because of strong demand for generation during 2002 and 2003, we consumed more SO2
allowances than were allocated to us by the EPA. We made up the shortfall by buying allowances. In 2004, we had enough emissions allowances to meet planned generation and we expect to have enough in 2005. In future years, we expect to purchase SO2
allowances in order to meet the acid rain requirements of the Clean Air Act. We cannot estimate the cost at this time, but anticipate these costs may be material. The pricing of emissions allowances is unpredictable and may change over time.



On January 30, 2004, the EPA published two proposed air
quality rules referred to as the Interstate Air Quality Rule and the Utility Mercury Reduction Rule that, if adopted, would impact our operations. In an attempt to address the impact of interstate transport of air pollutants
on downwind states, the proposed Clean Air Interstate Rule would require reductions of SO2 and NOx in certain states, including Kansas, in two separate phases. The first reductions would be required in 2010 and the second in 2015.



The proposed Utility Mercury Reduction Rule sets out two approaches for
requiring subject power plants to control mercury and nickel emissions. The first option, a traditional command and control approach, would require subject plants to meet Hazardous Air Pollutant emissions standards for mercury and nickel based on
the application of maximum achievable control technology. The second option would establish standards of performance limiting mercury and nickel emissions, and include a cap and trade program for mercury emissions. The EPA is expected to
issue its final rule in 2005. New requirements for reductions of nickel emissions will be applicable only to our generating facilities that burn a significant amount of oil. Based on currently available information, we cannot estimate our costs to
comply with these two proposed rule changes, but these costs could be material.



12



---

##### Table of Contents

We may be required to further reduce emissions of SO2, NOx, particulate matter, mercury and carbon
dioxide (CO2) as a result of various other current or pending laws, including, in particular:



| |  |  | the EPAs national ambient air quality standards for particulate matter and ozone,
| | - |  | ----------------------------------------------------------------------------------



| |  |  | the EPAs regional haze rules, designed to reduce SO2, NOx and particulate matter emissions, and
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | additional legislation introduced in the past few years in Congress, such as the various multi-pollutant bills sponsored by members of Congress requiring reductions of
CO2, NOx, SO2 and mercury, and the Clear Skies legislation proposed by the President, which would cap emissions of NOx, SO2 and mercury.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





Based on currently available information, we
cannot estimate our costs to comply with these proposed laws, but such costs could be material.



EPA New Source Review



The EPA is conducting investigations nationwide to determine whether modifications at coal-fired power plants are subject to New Source Review
requirements or New Source Performance Standards under Section 114(a) of the Clean Air Act (Section 114). These investigations focus on whether projects at coal-fired plants were routine maintenance or whether the projects were substantial
modifications that could have reasonably been expected to result in a significant net increase in emissions. The Clean Air Act requires companies to obtain permits and, if necessary, install control equipment to remove emissions when making a major
modification or a change in operation if either is expected to cause a significant net increase in emissions.



The EPA has requested information from Westar Energy under Section 114 regarding projects and maintenance activities that have been conducted since 1980
at the three coal-fired plants it operates. On January 22, 2004, the EPA notified Westar Energy that certain projects completed at Jeffrey Energy Center violated pre-construction permitting requirements of the Clean Air Act.



Westar Energy is in discussions with the EPA concerning this matter in an
attempt to reach a settlement. Westar Energy expects that any settlement with the EPA could require Westar Energy to update or install emissions controls at Jeffrey Energy Center over an agreed upon number of years. Additionally, Westar Energy might
be required to update or install emissions controls at its other coal-fired plants, pay fines or penalties, or take other remedial action. Together, these costs could be material. The EPA informed Westar Energy that it has referred this matter to
the Department of Justice (DOJ) for the DOJ to consider whether to pursue an enforcement action in federal district court. We believe that costs related to updating or installing emissions controls would qualify for recovery through rates. If Westar
Energy were to reach a settlement with the EPA, Westar Energy may be assessed a penalty. The penalty could be material and may not be recovered in rates. We anticipate that a portion of any of these potential costs would be allocated to us.



Manufactured Gas Sites



We have been associated with three former manufactured gas sites located in
Kansas that may contain coal tar and other potentially harmful materials. We and the KDHE entered into a consent agreement in 1994 governing all future work at these sites. Through December 31, 2004, the costs incurred for preliminary site
investigation and risk assessment have been minimal.



EMPLOYEES



Westar Energy provides all employees we utilize to
perform our work and allocates the cost of such employees to us.



13



---

##### Table of Contents

ACCESS TO COMPANY INFORMATION



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 through Westar Energys Internet website at www.wr.com or by responding to requests addressed to its investor relations department at Investor Relations, Westar Energy, Inc., P.O. Box 889, Topeka, Kansas, 66601-0889; phone number (785)
575-1898. 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 Westar Energys Internet website is not part of this document.



14



---

##### Table of Contents

ITEM 2. PROPERTIES



ELECTRIC UTILITY FACILITIES



|                                     |  |                    |  |          |  |                |  |               |  |                  
|------------------------------------ |  | ------------------ |  | -------- |  | -------------- |  | ------------- |  | -----------------
|Name                                 |  | Location           |  | Unit No. |  | Year Installed |  | PrincipalFuel |  | Unit Capacity(MW)
|Gordon Evans Energy Center:          |  | Colwich, Kansas    |  |          |  |                |  |               |  |                  
|Steam Turbines                       |  |                    |  | 1        |  | 1961           |  | GasOil       |  | 149.0            
|                                     |  |                    |  | 2        |  | 1967           |  | GasOil       |  | 383.0            
|Diesel Generator                     |  |                    |  | 1        |  | 1969           |  | Diesel        |  | 3.0              
|                                     |  |                    |  |          | 
|Jeffrey Energy Center (20%):         |  | St. Marys, Kansas  |  |          |  |                |  |               |  |                  
|Steam Turbines                       |  |                    |  | 1(a)     |  | 1978           |  | Coal          |  | 147.0            
|                                     |  |                    |  | 2(a)     |  | 1980           |  | Coal          |  | 147.0            
|                                     |  |                    |  | 3(a)     |  | 1983           |  | Coal          |  | 149.0            
|Wind Turbines                        |  |                    |  | 1(a)     |  | 1999           |  |              |  | 0.1              
|                                     |  |                    |  | 2(a)     |  | 1999           |  |              |  | 0.1              
|                                     |  |                    |  |          | 
|LaCygne Station (50%):               |  | LaCygne, Kansas    |  |          |  |                |  |               |  |                  
|Steam Turbines                       |  |                    |  | 1(a)     |  | 1973           |  | Coal          |  | 344.0            
|                                     |  |                    |  | 2(b)     |  | 1977           |  | Coal          |  | 337.0            
|                                     |  |                    |  |          | 
|Murray Gill Energy Center:           |  | Wichita, Kansas    |  |          |  |                |  |               |  |                  
|Steam Turbines                       |  |                    |  | 1        |  | 1952           |  | Gas           |  | 40.0             
|                                     |  |                    |  | 2        |  | 1954           |  | GasOil       |  | 71.0             
|                                     |  |                    |  | 3        |  | 1956           |  | GasOil       |  | 104.0            
|                                     |  |                    |  | 4        |  | 1959           |  | GasOil       |  | 102.0            
|                                     |  |                    |  |          | 
|Neosho Energy Center:                |  | Parsons, Kansas    |  |          |  |                |  |               |  |                  
|Steam Turbine                        |  |                    |  | 3        |  | 1954           |  | GasOil       |  | 63.0             
|                                     |  |                    |  |          | 
|Wolf Creek Generating Station (47%): |  | Burlington, Kansas |  |          |  |                |  |               |  |                  
|Nuclear                              |  |                    |  | 1(a)     |  | 1985           |  | Uranium       |  | 548.0            
|                                     |  |                    |  |          |  |                |  |               |  |                  
|Total                                |  |                    |  |          |  |                |  |               |  | 2,587.2          
|                                     |  |                    |  |          |  |                |  |               |  |                  

---

|(a) | We jointly own Jeffrey Energy Center (20%), LaCygne 1 generating unit (50%), and Wolf Creek Generating Station (47%). Westar Energy jointly owns 64% of Jeffrey Energy Center. Unit
capacity amounts reflect our ownership only.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | In 1987, we entered into a sale-leaseback transaction involving our 50% interest in the LaCygne 2 generating unit.
|--- | ------------------------------------------------------------------------------------------------------------------



We own approximately 2,200 miles of transmission lines, approximately 9,900
miles of overhead distribution lines and approximately 2,000 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.



ITEM 3. LEGAL PROCEEDINGS



Information on our legal proceedings is set forth in Notes 3, 12, 14 and 15 of the Notes to Consolidated Financial Statements, Rate Matters and Regulation, Commitments and Contingencies  EPA New Source Review,
Legal Proceedings, and Ongoing Investigations, respectively, which are incorporated herein by reference.



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



Information required by Item 4 is omitted pursuant to General Instruction I(2)(c) to Form 10-K.



15



---

##### Table of Contents

PART II



ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS



All of our common stock is owned by Westar Energy and is not traded.



ITEM 6. SELECTED FINANCIAL DATA



|                                                |  |                                 |         |      |   |         |  |      |         |      |   |         |  |   |        
|----------------------------------------------- |  | ------------------------------- | ------- | ---- | - | ------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                                |  | For the Year Ended December 31,
|                                                |  | 2004                            |         | 2003 |   | 2002    |  | 2001 |         | 2000
|                                                |  | (In Thousands)                 
|Income Statement Data:                          |  |                                 |         |      |   |         |  |      |         |      |   |         |  |   |        
|Sales                                           |  | $                               | 714,939 |      | $ | 709,654 |  | $    | 695,524 |      | $ | 631,391 |  | $ | 685,673
|Income from operations before accounting change |  |                                 | 81,228  |      |   | 66,627  |  |      | 59,539  |      |   | 37,301  |  |   | 86,708 



|                                                                                                           |  |                    |           |      |   |           |  |      |           |      |   |           |  |   |          
|---------------------------------------------------------------------------------------------------------- |  | ------------------ | --------- | ---- | - | --------- |  | ---- | --------- | ---- | - | --------- |  | - | ---------
|                                                                                                           |  | As of December 31,
|                                                                                                           |  | 2004               |           | 2003 |   | 2002      |  | 2001 |           | 2000
|                                                                                                           |  | (In Thousands)    
|Balance Sheet Data:                                                                                        |  |                    |           |      |   |           |  |      |           |      |   |           |  |   |          
|Total assets                                                                                               |  | $                  | 2,991,190 |      | $ | 2,981,673 |  | $    | 3,006,381 |      | $ | 2,933,044 |  | $ | 2,988,573
|Long-term debt (a)                                                                                         |  |                    | 552,419   |      |   | 549,604   |  |      | 684,486   |      |   | 684,360   |  |   | 684,366  
|(a)    In
2003, we repaid $135.0 million of our 7.6% first mortgage bonds that were due December 15, 2003.



16



---

##### Table of Contents

|ITEM  7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|-------- | -------------------------------------------------------------------------------------



INTRODUCTION



We are a regulated electric utility in Kansas and a wholly owned subsidiary of Westar Energy. We provide rate-regulated electric service, together with
the electric utility operations of Westar Energy, using the name Westar Energy. We produce, transmit and sell electricity at retail in Kansas and at wholesale in a multi-state region in the central United States under the regulation of the KCC and
FERC.



Our goals for 2005 are to improve our business by
improving credit quality, establishing a successful clean air plan, completing a successful rate review, improving our service quality, making our operations more efficient and continuing our involvement in community affairs.



Key factors affecting our business in any given period include the weather,
the economic well-being of our Kansas service territory, performance of our electric generating facilities, conditions in fuel markets and the markets for wholesale electricity and the cost of dealing with public policy initiatives.



As you read Managements Discussion and Analysis, please refer to our
consolidated financial statements and the accompanying notes, which contain our operating results.



CRITICAL ACCOUNTING ESTIMATES



We base our discussion and analysis of financial condition and results of operations 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 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 susceptibility of matters to change.



Pension Benefit Plans



WCNOC calculates its pension benefit and post-retirement medical benefit obligations and related costs using actuarial
concepts within the guidance provided by Statement of Financial Accounting Standards (SFAS) No. 87, Employers Accounting for Pensions and SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than
Pensions, respectively.



In accounting for WCNOCs
retirement plans and other post-retirement benefits, WCNOC makes assumptions regarding the valuation of benefit obligations and the performance of plan assets. The reported costs of WCNOCs pension benefit plan is impacted by estimates
regarding earnings on plan assets, contributions to the plan, discount rates used to determine projected benefit obligation and pension costs and employee demographics including age, compensation levels and employment periods. A change in any of
these assumptions could have a significant impact on future costs, which may be reflected as an increase or decrease in net income in the current and future periods.



17



---

##### Table of Contents

The following table shows the annual impact of a 0.5% decrease in our share of WCNOCs pension plan
discount rate and rate of return on plan assets. If the discount rate increased by 0.5%, the impact would be a similar amount in the opposite direction.



|                              |  |                     |  |                                               |       |                                      |   |                                              |  |   |    
|----------------------------- |  | ------------------- |  | --------------------------------------------- | ----- | ------------------------------------ | - | -------------------------------------------- |  | - | ---
|                              |  | Change inAssumption |  | AnnualIncrease inProjected Benefit Obligation |       | Annual Increase in Pension Liability |   | Annual Increase in Projected Pension Expense
|                              |  |                     |  | (In Thousands)                               
|Discount rate                 |  | 0.5% decrease       |  | $                                             | 3,339 |                                      | $ | 3,992                                        |  | $ | 355
|Rate of return on plan assets |  | 0.5% decrease       |  |                                               |      |                                      |   |                                             |  |   | 155



The following table
shows the annual impact of a 0.5% decrease in our share of WCNOCs post-retirement plan discount rate and rate of return on plan assets. If the discount rate increased by 0.5%, the impact would be a similar amount in the opposite direction.



|                              |  |                      |  |                                                |     |                                              |   |                                                      |  |   |   
|----------------------------- |  | -------------------- |  | ---------------------------------------------- | --- | -------------------------------------------- | - | ---------------------------------------------------- |  | - | --
|                              |  | Change in Assumption |  | Annual Increase inProjected Benefit Obligation |     | Annual Increase in Post-retirement Liability |   | Annual Increase in Projected Post-retirement Expense
|                              |  |                      |  | (In Thousands)                                
|Discount rate                 |  | 0.5% decrease        |  | $                                              | 296 |                                              | $ |                                                     |  | $ | 24
|Rate of return on plan assets |  | 0.5% decrease        |  |                                                |    |                                              |   |                                                     |  |   |  



Revenue Recognition  Energy
Sales



We recognize revenues from retail energy sales upon
delivery to the customer and include an estimate for energy delivered but unbilled. Our estimate of revenue attributable to this unbilled portion is based on the total energy available for sale measured against billed sales. At December 31, 2004, we
had estimated unbilled revenue of $25.0 million.



We are
allocated a share of revenues from energy marketing derivative contracts that are jointly entered into with Westar Energy based on actual fuel burned at our generating facilities. The amount of actual fuel burned by a given generating facility is
largely determined by utilizing the most economical units first. We account for energy marketing derivative contracts under the mark-to-market method of accounting. Under this method, we recognize changes in the portfolio value as gains or losses in
the period of change. Unless related to fuel, we include the net mark-to-market change in sales on our consolidated statements of income. We record the resulting unrealized gains and losses as energy marketing long-term or short-term assets and
liabilities on our consolidated balance sheets as appropriate. We use quoted market prices to value our energy marketing derivative contracts when such data are available. When market prices are not readily available or determinable, we use
alternative approaches, such as model pricing. Prices used to value these transactions reflect our best estimate of fair values of our trading positions. Results actually achieved from these activities could vary materially from intended results and
could affect our consolidated financial results.



18



---

##### Table of Contents

The tables below show fair value of energy marketing contracts outstanding for the year ended December
31, 2004, their sources and maturity periods.



|                                                                                                               |  |                         |        |  
|-------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | -
|                                                                                                               |  | Fair Value of Contracts |       
|                                                                                                               |  | (In Thousands)          |       
|Net fair value of contracts outstanding at the beginning of the period                                         |  | $                       | 2,014  |  
|Contracts outstanding at the beginning of the period that were realized or otherwise settled during the period |  |                         | (1,843 | )
|Changes in fair value of contracts outstanding at the beginning and end of the period                          |  |                         | (1,303 | )
|Fair value of new contracts entered into during the period                                                     |  |                         | 2,757  |  
|                                                                                                               |  |                         |        |  
|Fair value of contracts outstanding at the end of the period                                                   |  | $                       | 1,625  |  
|                                                                                                               |  |                         |        |  



The sources of the
fair values of the financial instruments related to these contracts are summarized in the following table.



|                                                                                              |  |                                          |       |                           |   |                    |  |   |    
|--------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ----- | ------------------------- | - | ------------------ |  | - | ---
|                                                                                              |  | Fair Value of Contracts at End of Period
|                                                                                              |  | Total Fair Value                         |       | Maturity Less Than 1 Year |   | Maturity 1-3 Years
|Sources of Fair Value                                                                         |  | (In Thousands)                          
|Prices provided by other external sources (swaps and forwards)                                |  | $                                        | 789   |                           | $ | 687                |  | $ | 102
|Prices based on the Black Option Pricing model (options and other) (a)                        |  |                                          | 836   |                           |   | 836                |  |   |   
|                                                                                              |  |                                          |       |                           |   |                    |  |   |    
|Total fair value of contracts outstanding                                                     |  | $                                        | 1,625 |                           | $ | 1,523              |  | $ | 102
|                                                                                              |  |                                          |       |                           |   |                    |  |   |    
|(a)    The
Black Option Pricing model is a variant of the Black-Scholes Option Pricing model. |  |                                          |      



Income Taxes



We use the asset and liability method of accounting for income taxes as
required by SFAS No. 109, Accounting for Income Taxes. Under the asset and liability method, we recognize deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial
statement carrying amounts and the tax basis of existing assets and liabilities. We recognize the future tax benefits to the extent that realization of such benefits is more likely than not. We amortize deferred investment tax credits over the lives
of the related properties.



OPERATING RESULTS



We evaluate operating results based on income from operations. We have
various classifications of sales, defined as follows:



Retail: Sales of energy made to residential, commercial and industrial customers.



Other retail: Sales of energy for lighting public streets and highways, net of revenues reserved for rebates.



Tariff-based wholesale: Includes the sales of electricity to electric
cooperatives, municipalities and other electric utilities, the rate for which is generally based on cost as prescribed by FERC tariffs, and changes in valuations of contracts that have yet to settle.



19



---

##### Table of Contents

Market-based wholesale: Includes sales of electricity to other wholesale customers, the rate for
which is based on prevailing market prices as allowed by our FERC approved market-based tariff, and changes in valuations of contracts that have yet to settle.



Energy marketing: Includes (1) financially settled products and physical transactions sourced outside our control area; and (2) changes in
valuations for contracts that have yet to settle that may not be recorded either in cost of fuel or tariff- or market-based wholesale revenues.



Transmission: Reflects transmission revenues received, including those based on a tariff with the SPP.



Other: Miscellaneous electric revenues including ancillary service
revenues and rent from electric property leased to others.



Regulated electric utility sales are significantly impacted by such things as rate regulation, customer conservation efforts, wholesale demand, the overall economy of our service area, the weather and competitive forces. Our wholesale sales
are impacted by, among other factors, demand, cost of fuel and purchased power, price volatility and available generation capacity.



2004 compared to 2003: Below we discuss our operating results for the year ended December 31, 2004 as compared to the results for the year ended
December 31, 2003.



|                                    |  |                         |         |      |   |         |  |   |          |   |  |       |  
|----------------------------------- |  | ----------------------- | ------- | ---- | - | ------- |  | - | -------- | - |  | ----- | -
|                                    |  | Year Ended December 31, |        
|                                    |  | 2004                    |         | 2003 |   | Change  |  |   | % Change |  
|                                    |  | (In Thousands)          |        
|SALES:                              |  |                         |         |      |   |         |  |   |          |   |  |       |  
|Residential                         |  | $                       | 218,362 |      | $ | 220,929 |  | $ | (2,567   | ) |  | (1.2  | )
|Commercial                          |  |                         | 174,543 |      |   | 169,670 |  |   | 4,873    |   |  | 2.9   |  
|Industrial                          |  |                         | 154,593 |      |   | 153,463 |  |   | 1,130    |   |  | 0.7   |  
|Other retail                        |  |                         | 978     |      |   | 3,253   |  |   | (2,275   | ) |  | (69.9 | )
|                                    |  |                         |         |      |   |         |  |   |          |   |  |       |  
|Total Retail Sales                  |  |                         | 548,476 |      |   | 547,315 |  |   | 1,161    |   |  | 0.2   |  
|Tariff-based wholesale              |  |                         | 20,058  |      |   | 20,693  |  |   | (635     | ) |  | (3.1  | )
|Market-based wholesale              |  |                         | 95,790  |      |   | 86,169  |  |   | 9,621    |   |  | 11.2  |  
|Energy marketing                    |  |                         | 891     |      |   | 6,093   |  |   | (5,202   | ) |  | (85.4 | )
|Transmission (a)                    |  |                         | 36,771  |      |   | 36,217  |  |   | 554      |   |  | 1.5   |  
|Other                               |  |                         | 12,953  |      |   | 13,167  |  |   | (214     | ) |  | (1.6  | )
|                                    |  |                         |         |      |   |         |  |   |          |   |  |       |  
|Total Sales                         |  |                         | 714,939 |      |   | 709,654 |  |   | 5,285    |   |  | 0.7   |  
|                                    |  |                         |         |      |   |         |  |   |          |   |  |       |  
|OPERATING EXPENSES:                 |  |                         |         |      |   |         |  |   |          |   |  |       |  
|Fuel used for generation (b)        |  |                         | 151,711 |      |   | 155,390 |  |   | (3,679   | ) |  | (2.4  | )
|Purchased power                     |  |                         | 29,328  |      |   | 22,585  |  |   | 6,743    |   |  | 29.9  |  
|Operating and maintenance           |  |                         | 229,587 |      |   | 221,667 |  |   | 7,920    |   |  | 3.6   |  
|Depreciation and amortization       |  |                         | 91,835  |      |   | 90,604  |  |   | 1,231    |   |  | 1.4   |  
|Selling, general and administrative |  |                         | 75,105  |      |   | 70,737  |  |   | 4,368    |   |  | 6.2   |  
|                                    |  |                         |         |      |   |         |  |   |          |   |  |       |  
|Total Operating Expenses            |  |                         | 577,566 |      |   | 560,983 |  |   | 16,583   |   |  | 3.0   |  
|                                    |  |                         |         |      |   |         |  |   |          |   |  |       |  
|INCOME FROM OPERATIONS              |  | $                       | 137,373 |      | $ | 148,671 |  | $ | (11,298  | ) |  | (7.6  | )
|                                    |  |                         |         |      |   |         |  |   |          |   |  |       |  

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |  |  |  |  |  |  | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|(a)    Transmission: Includes an SPP network transmission tariff. In 2004, our transmission costs were approximately $33.3 million. This amount, less $2.2 million that was retained by the SPP as administration
cost, was returned to us as revenues. In 2003, our transmission costs were approximately $32.7 million with an administration cost of $2.9 million retained by the SPP. (b)    Fuel used for generation: Includes cost of fuel burned, changes in fair value of fuel contracts
and net dispatch costs, which represent energy transactions allocated to us by Westar Energy.



20



---

##### Table of Contents

The following table reflects changes in electric sales volumes, as measured by thousands of megawatt
hours (MWh) of electricity, for the two years ended December 31, 2004 and 2003. No sales volumes are shown for energy marketing, transmission or other.



|                       |  |                    |  |        |  |        |   |  |          |  
|---------------------- |  | ------------------ |  | ------ |  | ------ | - |  | -------- | -
|                       |  | 2004               |  | 2003   |  | Change |   |  | % Change |  
|                       |  | (Thousands of MWh) |  |        |  |       
|Residential            |  | 2,816              |  | 2,842  |  | (26    | ) |  | (0.9     | )
|Commercial             |  | 2,768              |  | 2,685  |  | 83     |   |  | 3.1      |  
|Industrial             |  | 3,511              |  | 3,459  |  | 52     |   |  | 1.5      |  
|Other retail           |  | 44                 |  | 44     |  |       |   |  |         |  
|                       |  |                    |  |        |  |        |   |  |          |  
|Total Retail           |  | 9,139              |  | 9,030  |  | 109    |   |  | 1.2      |  
|Tariff-based wholesale |  | 417                |  | 488    |  | (71    | ) |  | (14.5    | )
|Market-based wholesale |  | 2,804              |  | 2,668  |  | 136    |   |  | 5.1      |  
|                       |  |                    |  |        |  |        |   |  |          |  
|Total                  |  | 12,360             |  | 12,186 |  | 174    |   |  | 1.4      |  
|                       |  |                    |  |        |  |        |   |  |          |  



Our residential and
tariff-based wholesale customers used less energy and our sales volumes decreased because of cooler weather during the summer. When measured by cooling degree days, the weather during 2004 was 4% cooler than during 2003 and 9% below the 20-year
average. We measure cooling degree days experienced in the Wichita metropolitan area, which we believe to be generally reflective of conditions in our service territory. The accrual for rebates to be paid to customers in 2005 and 2006 pursuant to
the July 25, 2003 KCC order also reduced revenues from retail sales. During 2004, we accrued $4.0 million as compared to $1.7 million accrued during 2003.



Market-based wholesale sales increased due primarily to increased sales volumes and an approximate 6% increase in the average price per MWh. As a result
of the milder weather, we had additional energy production available for sale at certain times during the year that was not needed to serve our retail and tariff-based wholesale customers. Increased sales volumes accounted for approximately $4.6
million of the increased market-based wholesale sales and higher average market prices accounted for approximately $5.0 million of the increase. Energy marketing sales declined because we had less favorable changes in 2004 as compared to the
favorable changes in 2003 in the settlement and the fair value of positions receiving mark-to-market accounting treatment.



Fuel used for generation decreased in 2004 due primarily to a reduction in fuel costs that were allocated to us by Westar Energy. In 2004, Wolf Creek did
not have a scheduled refueling outage.



Purchased power expense
increased due primarily to a 10% increase in volumes purchased during 2004 as compared to 2003. This was due to the unplanned outages or reduced operating capability of our units at certain times and the availability of economically priced power due
to cooler weather in our region. At times, it was more economical to purchase power than to operate our available generating units.



Selling, general and administrative expenses increased in 2004, which reflects an increase in labor overheads allocated to us by Westar Energy. Operating
and maintenance expenses increased due primarily to increased expenses associated with maintenance at Jeffrey Energy Center, increased planned and unplanned unit maintenance at various other generating units, increased maintenance of the
distribution system, increased operating costs at Wolf Creek and an increase in transmission costs. During 2004, increased maintenance of our generating units accounted for 14% of the increase in operating and maintenance expenses. The increase in
distribution expenses accounted for 35% of the increase in operating and maintenance expenses. Distribution expenses increased due to increased staffing levels and higher costs associated with the termination of portions of the ONEOK, Inc. shared
services agreement as discussed in Note 17 of the Notes to Consolidated Financial Statements, Related Party Transactions. Wolf Creek operating costs increased 22% because it operated more during 2004 because Wolf Creek did not have a
scheduled refueling outage as it did in 2003. An increase in transportation costs accounted for 9% of the increase in operating and maintenance expenses.



21



---

##### Table of Contents

2003 compared to 2002: Below we discuss our operating results for the year ended December 31, 2003
as compared to the results for the year ended December 31, 2002.



|                                    |  |                         |         |      |   |         |  |   |          |   |  |         |  
|----------------------------------- |  | ----------------------- | ------- | ---- | - | ------- |  | - | -------- | - |  | ------- | -
|                                    |  | Year Ended December 31, |        
|                                    |  | 2003                    |         | 2002 |   | Change  |  |   | % Change |  
|                                    |  | (In Thousands)          |         |      |   |        
|SALES:                              |  |                         |         |      |   |         |  |   |          |   |  |         |  
|Residential                         |  | $                       | 220,929 |      | $ | 223,339 |  | $ | (2,410   | ) |  | (1.1    | )
|Commercial                          |  |                         | 169,670 |      |   | 170,847 |  |   | (1,177   | ) |  | (0.7    | )
|Industrial                          |  |                         | 153,463 |      |   | 152,915 |  |   | 548      |   |  | 0.4     |  
|Other retail                        |  |                         | 3,253   |      |   | 4,952   |  |   | (1,699   | ) |  | (34.3   | )
|                                    |  |                         |         |      |   |         |  |   |          |   |  |         |  
|Total Retail Sales                  |  |                         | 547,315 |      |   | 552,053 |  |   | (4,738   | ) |  | (0.9    | )
|Tariff-based wholesale              |  |                         | 20,693  |      |   | 25,029  |  |   | (4,336   | ) |  | (17.3   | )
|Market-based wholesale              |  |                         | 86,169  |      |   | 69,433  |  |   | 16,736   |   |  | 24.1    |  
|Energy marketing                    |  |                         | 6,093   |      |   | 449     |  |   | 5,644    |   |  | 1,257.0 |  
|Transmission (a)                    |  |                         | 36,217  |      |   | 36,189  |  |   | 28       |   |  | 0.1     |  
|Other                               |  |                         | 13,167  |      |   | 12,371  |  |   | 796      |   |  | 6.4     |  
|                                    |  |                         |         |      |   |         |  |   |          |   |  |         |  
|Total Sales                         |  |                         | 709,654 |      |   | 695,524 |  |   | 14,130   |   |  | 2.0     |  
|                                    |  |                         |         |      |   |         |  |   |          |   |  |         |  
|OPERATING EXPENSES:                 |  |                         |         |      |   |         |  |   |          |   |  |         |  
|Fuel used for generation (b)        |  |                         | 155,390 |      |   | 156,906 |  |   | (1,516   | ) |  | (1.0    | )
|Purchased power                     |  |                         | 22,585  |      |   | 13,825  |  |   | 8,760    |   |  | 63.4    |  
|Operating and maintenance           |  |                         | 221,667 |      |   | 215,796 |  |   | 5,871    |   |  | 2.7     |  
|Depreciation and amortization       |  |                         | 90,604  |      |   | 93,934  |  |   | (3,330   | ) |  | (3.5    | )
|Selling, general and administrative |  |                         | 70,737  |      |   | 81,249  |  |   | (10,512  | ) |  | (12.9   | )
|                                    |  |                         |         |      |   |         |  |   |          |   |  |         |  
|Total Operating Expenses            |  |                         | 560,983 |      |   | 561,710 |  |   | (727     | ) |  | (0.1    | )
|                                    |  |                         |         |      |   |         |  |   |          |   |  |         |  
|INCOME FROM OPERATIONS              |  | $                       | 148,671 |      | $ | 133,814 |  | $ | 14,857   |   |  | 11.1    |  
|                                    |  |                         |         |      |   |         |  |   |          |   |  |         |  

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|(a)    Transmission: Includes an SPP network transmission tariff. In 2003, our transmission costs were approximately $32.7 million. This amount, less $2.9 million that was retained by the SPP as administration
cost, was returned to us as revenues. In 2002, our transmission costs were approximately $32.9 million with an administration cost of $2.9 million retained by the SPP. (b)    Fuel used for generation: Includes cost of fuel burned, changes in fair value of fuel contracts
and net dispatch costs allocated to us by Westar Energy.



The following table
reflects changes in electric sales volumes, as measured by thousands of MWh of electricity, for the two years ended December 31, 2003 and 2002. No sales volumes are shown for energy marketing, transmission or other.



|                       |  |                    |  |        |  |        |   |  |          |  
|---------------------- |  | ------------------ |  | ------ |  | ------ | - |  | -------- | -
|                       |  | 2003               |  | 2002   |  | Change |   |  | % Change |  
|                       |  | (Thousands of MWh) |  |        |  |       
|Residential            |  | 2,842              |  | 2,889  |  | (47    | ) |  | (1.6     | )
|Commercial             |  | 2,685              |  | 2,675  |  | 10     |   |  | 0.4      |  
|Industrial             |  | 3,459              |  | 3,397  |  | 62     |   |  | 1.8      |  
|Other retail           |  | 44                 |  | 44     |  |       |   |  |         |  
|                       |  |                    |  |        |  |        |   |  |          |  
|Total Retail           |  | 9,030              |  | 9,005  |  | 25     |   |  | 0.3      |  
|Tariff-based wholesale |  | 488                |  | 744    |  | (256   | ) |  | (34.4    | )
|Market-based wholesale |  | 2,668              |  | 3,087  |  | (419   | ) |  | (13.6    | )
|                       |  |                    |  |        |  |        |   |  |          |  
|Total                  |  | 12,186             |  | 12,836 |  | (650   | ) |  | (5.1     | )
|                       |  |                    |  |        |  |        |   |  |          |  



Our residential and
tariff-based wholesale customers used less energy and our sales declined because of cooler weather. The remainder of the decline in retail sales revenues was due primarily to the decline in the accrual of approximately $1.7 million to be refunded to
customers in 2005 and 2006 pursuant to a KCC order.



The
increases in energy marketing and wholesale sales revenues more than offset the decline in retail sales revenues. Higher wholesale market prices were the primary cause of improvement in energy marketing and wholesale sales revenues. The higher
wholesale market prices more than offset the decline in wholesale sales volumes.



Fuel used for generation decreased in 2003 due primarily to a reduction in fuel costs that were allocated to us by Westar Energy.



Selling, general and administrative expenses declined in 2003, which reflects a reduction in numerous incremental
administrative expenses incurred in 2002 that were allocated to us for Westar Energys work force



22



---

##### Table of Contents

reduction. Depreciation and amortization expense decreased due primarily to the adoption of new depreciation rates on
April 1, 2002. Operating and maintenance expense increased due primarily to increased general maintenance expenses at our generating facilities.



LIQUIDITY AND CAPITAL RESOURCES



Overview



Most of our cash requirements consist of capital and maintenance expenditures designed to improve and maintain facilities that provide electric service
and meet future customer service requirements. Our ability to provide the cash or debt to fund our capital expenditures depends on many things, including available resources, Westar Energys and our financial condition and current market
conditions.



We expect our internally generated cash, advances
from Westar Energy, availability of cash through Westar Energys credit facilities and access to capital markets to be sufficient to fund operations and debt service payments. We do not maintain independent short-term credit facilities and rely
on Westar Energy for short-term cash needs. If Westar Energy is unable to borrow under its credit facilities, we could have a short-term liquidity problem that could require us to obtain a credit facility for our short-term cash needs and that could
result in higher borrowing costs.



Capital Resources



Our mortgage contains provisions restricting the amount of first mortgage
bonds that could be issued. Additionally, Westar Energys revolving credit facility prohibits us and Westar Energy from increasing the amount of secured indebtedness outstanding as of March 12, 2004 by more than $300.0 million. Therefore, we
must ensure that we will be able to comply with such restrictions prior to the issuance of additional first mortgage bonds or other secured indebtedness.



Our mortgage prohibits additional first mortgage bonds from being issued, except in connection with certain refundings, unless our net earnings before
income taxes and before provision for retirement and depreciation of property for a period of 12 consecutive months within 15 months preceding the issuance are not less than either two and one-half times the annual interest charges on, or 10% of the
principal amount of, all of our first mortgage bonds outstanding after giving effect to the proposed issuance. In addition, the issuance of bonds is subject to limitations based on the amount of bondable property additions. At December 31, 2004,
based on an assumed interest rate of 6%, approximately $874.0 million principal amount of additional first mortgage bonds could be issued under the most restrictive provisions in the mortgage.



Westar Energys revolving credit facility prohibits us and Westar Energy
from increasing the amount of secured indebtedness outstanding as of March 12, 2004 by more than $300.0 million. In June 2004, Westar Energy issued $250.0 million of Westar Energy first mortgage bonds and immediately placed the funds in escrow for
retirement of $225.0 million of Westar Energy first mortgage bonds, which was completed in July 2004. Therefore, at December 31, 2004, we could incur a maximum of $275.0 million of additional secured debt under this provision in the Westar Energy
revolving credit facility. On January 18, 2005, Westar Energy sold $250.0 million aggregate principal amount of Westar Energy first mortgage bonds. Following this issuance, we and/or Westar Energy can incur a maximum of $25.0 million of additional
secured debt under this provision in Westar Energys revolving credit facility.



Cash Flows from Operating Activities



Cash
flows from operating activities decreased $3.4 million to $137.5 million in 2004 from $140.9 million in 2003. This decrease was mostly attributable to changes in working capital.



23



---

##### Table of Contents

Cash Flows used in Investing Activities



In general, cash used for investing purposes relates to the growth and improvement of our utility operations. Our business
is capital intensive and requires significant investment in plant on an annual basis. We spent $99.3 million in 2004, $90.2 million in 2003 and $65.2 million in 2002 on net additions to property, plant and equipment.



Cash Flows used in Financing Activities



Net cash used in financing activities totaled $25.5 million for the year
ended December 31, 2004 as compared to $30.9 million for the year ended December 31, 2003. In 2004, cash was used for the retirement of long-term debt and to pay $75.0 million in dividends to Westar Energy. In 2003, cash was used to retire long-term
debt and to pay $100.0 million in dividends to Westar Energy. Net cash used in financing activities totaled $81.9 million for the year ended December 31, 2002 due primarily to funds placed in a trust for long-term debt retirement.



Future Cash Requirements



Our business requires significant capital investments. Through 2007, we
expect we will need cash mostly for utility construction programs designed to improve facilities providing electric service and for future peaking capacity needs. We believe that internally generated funds, borrowings from Westar Energy and access
to capital markets will be sufficient to meet our operating and capital expenditure requirements and debt service payments.



We are required to pay our share of the combined rebates to retail customers of $10.5 million on May 1, 2005 and $10.0 million on January 1, 2006. We
currently estimate we will be responsible for 47% of the rebate. Ultimate allocation will be determined by the KCC. Westar Energy and we believe we can fund these rebates with internally generated cash flow and available borrowing capacity under
Westar Energys revolving credit facility.



If Westar
Energy is required to update emissions controls or take other remedial action as a result of the EPAs investigation of Westar Energy, the costs could be material. Westar Energy may also have to pay fines or penalties or make significant
capital or operational expenditures related to the notice of violation Westar Energy received from the EPA in connection with certain projects completed at Jeffrey Energy Center. In addition, significant capital or operational expenditures may be
required in order to comply with future environmental regulations or in connection with future remedial obligations. We anticipate that we would be allocated a portion of any of these potential costs. The following table does not include any amounts
related to these possible expenditures. In addition, KCPL, the operator of our jointly owned LaCygne Generating Station, has informed us that it is considering updating or installing additional equipment related to emissions controls at the LaCygne
Generating Station. If KCPL decides to complete this work, we will incur costs beginning in 2005 and continuing through the completion of installation in 2007. We expect that costs related to updating or installing emissions controls will be
material. These costs are not included in the following table. We believe that these costs would qualify for recovery through rates.



Capital expenditures for 2004 and anticipated capital expenditures for 2005 through 2007, including costs of removal, are shown in the following table.



|                           |  |                |        |      |   |         |  |      |         |  |   |        
|-------------------------- |  | -------------- | ------ | ---- | - | ------- |  | ---- | ------- |  | - | -------
|                           |  | Actual 2004    |        | 2005 |   | 2006    |  | 2007
|                           |  | (In Thousands)
|Replacements and other     |  | $              | 57,037 |      | $ | 70,400  |  | $    | 80,900  |  | $ | 79,200 
|Additional capacity        |  |                | 2,709  |      |   | 5,100   |  |      | 2,100   |  |   | 3,500  
|New customer construction  |  |                | 18,616 |      |   | 21,400  |  |      | 25,900  |  |   | 24,300 
|Nuclear fuel               |  |                | 20,965 |      |   | 4,900   |  |      | 19,400  |  |   | 24,000 
|                           |  |                |        |      |   |         |  |      |         |  |   |        
|Total capital expenditures |  | $              | 99,327 |      | $ | 101,800 |  | $    | 128,300 |  | $ | 131,000
|                           |  |                |        |      |   |         |  |      |         |  |   |        



We prepare these
estimates for planning purposes and revise our estimates from time to time. Actual expenditures will differ from our estimates. These amounts do not include any estimate of expenditures that may be incurred as a result of the EPA investigation or
other enacted or proposed environmental regulations. Environmental expenditures could be material.



24



---

##### Table of Contents

Maturities of long-term debt at December 31, 2004 are as follows.



|           |  |                  |        
|---------- |  | ---------------- | -------
|           |  | Principal Amount
|Year       |  | (In Thousands)  
|2005       |  | $                | 65,000 
|2006       |  |                  | 100,000
|Thereafter |  |                  | 387,419
|           |  |                  |        
|           |  | $                | 552,419
|           |  |                  |        



Debt Financings



On March 12, 2004, Westar Energy entered into a revolving credit facility.
The credit facility matures on March 12, 2007. It is used as a source of short-term liquidity. It allows borrowings up to an aggregate limit of $300.0 million, including letters of credit up to a maximum aggregate amount of $50.0 million. At
December 31, 2004, Westar Energy had no outstanding borrowings and $15.3 million of letters of credit outstanding under the revolving credit facility. All borrowings under the revolving credit facility are secured by our first mortgage bonds.



On June 10, 2004, we refinanced $327.5 million of pollution
control bonds. The original issue had an interest rate of 7% and was due in 2031. This issue was replaced with pollution control bonds at interest rates of 5.3% on $127.5 million that matures in 2031, 2.65% on $100.0 million that is putable in 2006,
and a variable rate on $100.0 million that matures in 2031.



Debt Covenants



Some of Westar Energys debt instruments contain
restrictions that require it to maintain various coverage and leverage ratios as defined in the agreements. Westar Energy calculates these ratios in accordance with its credit agreements. These ratios are used solely to determine compliance with its
various debt covenants. Westar Energy was in compliance with these covenants at December 31, 2004.



Credit Ratings



Standard & Poors Ratings Group (S&P), Moodys Investors Service (Moodys) and Fitch Investors Service (Fitch) are independent credit-rating agencies that rate Westar Energys and our debt securities. These
ratings indicate the agencies assessment of our ability to pay interest and principal when due on our securities.



On February 23, 2005, Moodys upgraded its ratings for our debt and affirmed the speculative liquidity rating it assigned to Westar Energy of SGL-2,
reflecting its view that Westar Energy has good liquidity. On December 22, 2004, Fitch raised its outlook rating to positive from stable and affirmed its ratings as shown in the table below. On July 22, 2004, S&P improved its ratings
on our first mortgage bonds to BBB from BB+.



As of March 1,
2005, ratings with these agencies are as shown in the table below.



|        |  |                                  |  |                             |  |                      
|------- |  | -------------------------------- |  | --------------------------- |  | ---------------------
|        |  | Westar Energy MortgageBondRating |  | Westar Energy UnsecuredDebt |  | KGEMortgageBondRating
|S&P     |  | BBB-                             |  | BB-                         |  | BBB                  
|Moodys |  | Baa3                             |  | Ba1                         |  | Baa3                 
|Fitch   |  | BBB-                             |  | BB+                         |  | BBB-                 



25



---

##### Table of Contents

In general, less favorable credit ratings make debt financing more costly and more difficult to obtain on
terms that are economically favorable to us. Westar Energy and we have credit rating conditions under our revolving credit agreement and in the agreements governing the sale of our accounts receivable discussed in Note 4 of the Notes to Consolidated
Financial Statements, Accounts Receivable and Variable Interest Entities that affect the cost of borrowing but do not trigger a default. We may enter into new credit agreements that contain credit conditions, which could affect our
liquidity and/or our borrowing costs.



Capital Structure



Our consolidated capital structure at December 31, 2004 and 2003 was as
follows.



|                     |  |      |   |  |      |  
|-------------------- |  | ---- | - |  | ---- | -
|                     |  | 2004 |   |  | 2003 |  
|Shareholders equity |  | 66   | % |  | 66   | %
|Long-term debt       |  | 34   | % |  | 34   | %
|                     |  |      |   |  |      |  
|Total                |  | 100  | % |  | 100  | %
|                     |  |      |   |  |      |  



OFF-BALANCE SHEET ARRANGEMENTS



Accounts Receivable Sales Program



Under a revolving accounts receivable sales program, we and Westar Energy
can currently sell up to $125.0 million of our accounts receivable. For additional detail, see Note 4 of the Notes to Consolidated Financial Statements, Accounts Receivable and Variable Interest Entities.



LaCygne 2 Sale/Leaseback Agreement



In 1987, KGE sold and leased back its 50% undivided interest in the LaCygne
2 generating unit. The LaCygne 2 lease has an initial term of 29 years, with various options to renew the lease or repurchase the 50% undivided interest. KGE remains responsible for its share of operating and maintenance costs and other related
operating costs of LaCygne 2. The lease is an operating lease for financial reporting purposes. We recognized a gain on the sale, which was deferred and is being amortized over the lease term. See Note 16 of the Notes to Consolidated Financial
Statements, Operating Leases, for additional information.



CONTRACTUAL CASH OBLIGATIONS



In the course of
our business activities, we enter into a variety of contractual obligations. Some of these result in direct obligations reflected on our consolidated balance sheets while others are commitments, some firm and some based on uncertainties, not
reflected in our underlying consolidated financial statements. The obligations listed below do not include amounts for on-going needs for which no contractual obligations existed at December 31, 2004, and represent only those amounts that we were
contractually obligated to meet at December 31, 2004. We may from time to time enter into new contracts to replace contracts that expire.



26



---

##### Table of Contents

The following table summarizes the projected future cash payments for our contractual obligations
existing at December 31, 2004.



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                |           |          |   |                |  |             |         |            |   |         |  |   |          
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | --------- | -------- | - | -------------- |  | ----------- | ------- | ---------- | - | ------- |  | - | ---------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | Total          |           | 2005 (c) |   | 2006 (c) 2007 |  | 2008  2009 |         | Thereafter
|Contractual Obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | (In Thousands) |           |         
|Long-term debt (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | $              | 552,419   |          | $ | 65,000         |  | $           | 100,000 |            | $ |        |  | $ | 387,419  
|Interest payments on long-term debt (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                | 356,327   |          |   | 23,251         |  |             | 31,852  |            |   | 25,653  |  |   | 275,571  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                |           |          |   |                |  |             |         |            |   |         |  |   |          
|Adjusted long-term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                | 908,746   |          |   | 88,251         |  |             | 131,852 |            |   | 25,653  |  |   | 662,990  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                |           |          |  
|Operating leases (d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                | 567,444   |          |   | 41,418         |  |             | 126,534 |            |   | 59,627  |  |   | 339,865  
|Fossil fuel (e)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                | 355,655   |          |   | 43,298         |  |             | 70,953  |            |   | 64,264  |  |   | 177,140  
|Nuclear fuel (f)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                | 162,691   |          |   | 4,404          |  |             | 39,898  |            |   | 12,649  |  |   | 105,740  
|Unconditional purchase obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                | 21,956    |          |   | 15,982         |  |             | 5,974   |            |   |        |  |   |         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                |           |          |   |                |  |             |         |            |   |         |  |   |          
|Total contractual obligations, including adjusted long-term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | $              | 2,016,492 |          | $ | 193,353        |  | $           | 375,211 |            | $ | 162,193 |  | $ | 1,285,735
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                |           |          |   |                |  |             |         |            |   |         |  |   |          
|(a)    See
Note 9 of the Notes to Consolidated Financial Statements, Long-term Debt, for individual long-term debt maturities. (b)    We calculate interest payments on our variable rate debt based on the effective interest rate at December 31, 2004. (c)    We have an obligation to pay rebates to customers in 2005 and 2006. (d)    Includes the LaCygne 2 lease, office space, operating facilities, office equipment, operating
equipment and othermiscellaneous commitments. (e)    Coal and natural gas commodity and
transportation contracts. (f)     Uranium concentrates, conversion, enrichment,
fabrication and spent fuel disposal.



OTHER INFORMATION



Ice Storm



On January 4 and 5, 2005, substantially all of our service territory experienced a severe ice storm. The storm interrupted
electric service in a large portion of our service territory and damaged a significant portion of our electric distribution system. We estimate that we will incur $31.0 million to $35.0 million of system restoration costs. Of this amount, we expect
$5.5 million to $7.5 million to be accounted for as capital expenditures and we expect the balance related to maintenance expenditures to be accounted for as a regulatory asset. On February 3, 2005, we filed an application for an accounting
authority order with the KCC requesting that we be allowed to accumulate and defer for future recovery maintenance costs related to system restoration. We can provide no assurance that the KCC will approve our application, however, in the past the
KCC has approved similar requests.



Impact of Regulatory Accounting



We currently apply accounting standards that recognize
the economic effects of rate regulation and record regulatory assets and liabilities related to our operations. If we determine that we no longer meet the criteria of SFAS No. 71, we may have a material non-cash charge to earnings.



At December 31, 2004, we had recorded regulatory assets currently subject to
recovery in future rates of approximately $321.4 million. Of this amount, $144.8 million is related to income tax benefits previously passed on to customers. The remainder of the regulatory assets include asset retirement obligations, system
restoration, loss on reacquired debt, refinancing costs on the LaCygne 2 lease, deferred employee benefit costs, deferred plant costs and coal contract settlement costs. We periodically review SFAS No. 71 criteria and believe that our net regulatory
assets are probable of future recovery.



Asset Retirement Obligations



In January 2003, we adopted SFAS No. 143,
Accounting for Asset Retirement Obligations. SFAS No. 143 requires recognition of legal obligations associated with the retirement 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 an asset retirement obligation is capitalized and depreciated over the remaining life of the asset. Any income effects are offset by regulatory accounting pursuant
to SFAS No. 71.



27



---

##### Table of Contents

Legal Liability - Wolf Creek



On January 1, 2003, we recognized the liability for our 47% share of the estimated cost to decommission Wolf Creek. SFAS No.
143 requires the recognition of the present value of the asset retirement obligation we incurred at the time Wolf Creek was placed into service in 1985. On January 1, 2003, we recorded an asset retirement obligation of $74.7 million. In addition, we
increased our property and equipment balance, net of accumulated depreciation, by $10.7 million. We also established a regulatory asset for $64.0 million, which represents the accretion of the liability since 1985 and the increased depreciation
expense associated with the increase in plant. The asset retirement obligation is included on our consolidated balance sheets in other long-term liabilities. Costs to retire Wolf Creek are currently being recovered through rates as provided by the
KCC.



Non-legal Liability - Cost of Removal



We have recovered amounts in rates to provide for recovery of the
probable costs of removing utility plant assets, but which do not represent legal retirement obligations. At December 31, 2004, we had $2.6 million in removal costs classified as a regulatory liability. At December 31, 2003, we had $2.1 million in
removal costs classified as a regulatory asset. The net amount related to non-legal retirement costs can fluctuate based on amounts related to removal costs recovered compared to removal costs incurred.



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Hedging Activity



Westar Energy and we jointly use financial and physical instruments to economically hedge the price of a portion of our anticipated fossil fuel needs. At the time we enter into these transactions, we are unable to determine what the value
will be when the agreements are actually settled.



In an effort
to mitigate market risk associated with fuel and energy prices, we may use economic hedging arrangements to reduce our exposure to price increases. Our future exposure to changes in prices will be dependent on the market prices and the extent and
effectiveness of any economic hedging arrangements into which we enter.



See Note 5 of the Notes to Consolidated Financial Statements, Financial Instruments, Energy Marketing and Risk Management  Derivative Instruments and Hedge Accounting  Hedging Activities, for detailed information
regarding hedging relationships.



Market Price Risks



Our economic hedging and trading activities involve risks, including
commodity price risk, interest rate risk and credit risk. Commodity price risk is the risk that changes in commodity prices may impact the price at which we are able to buy and sell electricity and purchase fuels for our generating units. We believe
we will continue to experience volatility in the prices for these commodities. This volatility may increase or decrease future earnings.



Interest rate risk represents the risk of loss associated with movements in market interest rates. In the future, we may use swaps or other financial
instruments to manage interest rate risk.



Credit risk
represents the risk of loss resulting from non-performance by a counterparty of its contractual obligations. We have exposure to credit risk and counterparty default risk with our retail, wholesale and energy marketing activities. We maintain credit
policies intended to reduce overall credit risk. We employ additional credit risk control mechanisms that we believe are appropriate, such as letters of credit, parental guarantees and master netting agreements with counterparties that allow for
offsetting exposures. Results actually achieved from economic hedging and trading activities could vary materially from intended results and could materially affect our consolidated financial results depending on the success of our credit risk
management efforts.



28



---

##### Table of Contents

Commodity Price Exposure



We are exposed to commodity price changes outside of trading activities. We use derivative contracts for non-trading purposes and a mix of various fuel
types primarily to reduce exposure relative to the volatility of market and commodity prices. The wholesale power market is extremely volatile in price and supply. This volatility impacts our costs of power purchased and our participation in energy
trades. If we were unable to generate an adequate supply of electricity for our customers, we would purchase power in the wholesale market to the extent it is available, subject to possible transmission constraints, and/or implement curtailment or
interruption procedures as permitted in our tariffs and terms and conditions of service. The increased expenses or loss of revenues associated with this could be material and adverse to our consolidated results of operations and financial condition.



From 2003 to 2004, we experienced an approximate 18% increase
in the average price per MWh of electricity purchased for utility operations. Volatility in the prices for power we purchase could be greater than the average price increase indicates. Additionally, short-term, but extreme price volatility could
potentially be of greater significance than the change in the average price would indicate, especially during adverse weather or market conditions. If we were to have a 10% increase in our purchased power price from 2004 to 2005, given the amount of
power purchased for utility operations during 2004, we would have exposure of approximately $2.0 million of operating income. Due to the volatility of the power market, we believe past prices are not a good predictor of future prices.



We use various fossil fuel types, including coal, natural gas and oil, to
operate our plants. A significant portion of our coal requirements are purchased under long-term contracts. During 2004, we experienced an approximate 21% increase, or $0.94 per MMBtu, in our average cost for natural gas purchased for utility
operations. Due to this substantial increase in natural gas cost, we decreased our natural gas usage by approximately 1% compared to the amount burned in 2003. Due to the volatility of natural gas prices, we have increasingly operated facilities
that have allowed us to use lower cost fuel types as generating unit constraints and environmental restrictions allow, primarily by using oil in our facilities that also burn natural gas. Although the average cost for oil purchased for utility
operations increased $0.59 per MMBtu, or approximately 19%, compared to the average cost in 2003, it was $1.66 per MMBtu less than the average cost of the natural gas we burned. If we were to have a 10% increase in our price for natural gas and oil
burned from 2004 to 2005, based on MMBtus of natural gas and oil burned during 2004, we would have exposure of approximately $4.2 million of operating income. Due to the volatility of natural gas prices, past prices cannot be used to predict future
prices.



We have 100% of the uranium and conversion services
required to operate Wolf Creek under contract through September 2009. We also have 100% of the enrichment services required to operate Wolf Creek under contract through March 2008. We will be exposed to the price risk associated with any components
not currently under contract if a counterparty were to fail its contractual obligations.



Additional factors that affect our commodity price exposure are the quantity and availability of fuel used for generation and the quantity of electricity customers consume. Quantities of fossil fuel used for
generation vary from year to year based on the availability, price and deliverability of a given fuel type as well as planned and scheduled outages at our facilities that use fossil fuels and the nuclear refueling schedule. Our customers
electricity usage could also vary from year to year based on the weather or other factors.



Interest Rate Exposure



We had approximately $211.4 million of variable rate debt and current maturities of fixed rate debt at December 31, 2004. A 100 basis point change in interest rates applicable to this debt would impact operating income on an annualized
basis by approximately $2.0 million.



29



---

##### Table of Contents

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



TABLE OF CONTENTS



|                                                                                                                |  |     
|--------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                |  | PAGE
|Report of Independent Registered Public Accounting Firm                                                         |  | 31  
|                                                                                                                | 
|Financial Statements:                                                                                           |  |     
|                                                                                                                | 
|Kansas Gas and Electric Company:                                                                                |  |     
|Consolidated Balance Sheets, as of December 31, 2004 and 2003                                                   |  | 32  
|Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2004, 2003 and 2002 |  | 33  
|Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002                      |  | 34  
|Consolidated Statements of Shareholders Equity for the years ended December 31, 2004, 2003 and 2002            |  | 35  
|                                                                                                                | 
|Notes to Consolidated Financial Statements                                                                      |  | 36  
|                                                                                                                | 
|Schedule II - Valuation and Qualifying Accounts                                                                 |  | 63  



SCHEDULES OMITTED



The following schedules are omitted because of the absence of the
conditions under which they are required or the information is included on our consolidated financial statements and schedules presented:



I, III, IV, and V.



30



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors of

Kansas Gas and Electric Company

Topeka, Kansas



We have audited the accompanying
consolidated balance sheets of Kansas Gas and Electric Company (the Company), a wholly-owned subsidiary of Westar Energy, Inc., as of December 31, 2004 and 2003, and the related consolidated statements of income and comprehensive income,
shareholders equity, and cash flows for each of the three years in the period ended December 31, 2004. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement
schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.



We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.



In our opinion,
such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly in all material respects the information set forth therein.



As discussed in Note 13 to the consolidated financial statements, effective January 1, 2003, the Company adopted Statement of Financial Accounting Standard No. 143, Accounting for Asset Retirement
Obligations.



DELOITTE & TOUCHE LLP

Kansas City, Missouri

March 11, 2005



31



---

##### Table of Contents

KANSAS GAS AND ELECTRIC COMPANY

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)



|                                                                    |  |                    |           |      |   |          
|------------------------------------------------------------------- |  | ------------------ | --------- | ---- | - | ---------
|                                                                    |  | As of December 31,
|                                                                    |  | 2004               |           | 2003
|ASSETS                                                              |  |                    |           |      |   |          
|CURRENT ASSETS:                                                     |  |                    |           |      |   |          
|Cash and cash equivalents                                           |  | $                  | 812       |      | $ | 6,321    
|Accounts receivable, net                                            |  |                    | 92,284    |      |   | 80,771   
|Inventories and supplies                                            |  |                    | 64,397    |      |   | 66,482   
|Energy marketing contracts                                          |  |                    | 4,020     |      |   | 8,688    
|Deferred tax assets                                                 |  |                    | 544       |      |   | 2,956    
|Prepaid expenses                                                    |  |                    | 24,070    |      |   | 24,657   
|Other                                                               |  |                    | 2,633     |      |   | 1,457    
|                                                                    |  |                    |           |      |   |          
|Total Current Assets                                                |  |                    | 188,760   |      |   | 191,332  
|                                                                    |  |                    |           |      |   |          
|PROPERTY, PLANT AND EQUIPMENT, NET                                  |  |                    | 2,349,673 |      |   | 2,362,371
|                                                                    |  |                    |           |      |   |          
|OTHER ASSETS:                                                       |  |                    |           |      |   |          
|Regulatory assets                                                   |  |                    | 321,359   |      |   | 316,670  
|Nuclear decommissioning trust                                       |  |                    | 91,095    |      |   | 80,075   
|Other                                                               |  |                    | 40,303    |      |   | 31,225   
|                                                                    |  |                    |           |      |   |          
|Total Other Assets                                                  |  |                    | 452,757   |      |   | 427,970  
|                                                                    |  |                    |           |      |   |          
|TOTAL ASSETS                                                        |  | $                  | 2,991,190 |      | $ | 2,981,673
|                                                                    |  |                    |           |      |   |          
|LIABILITIES AND SHAREHOLDERS EQUITY                                |  |                    |           |      |   |          
|CURRENT LIABILITIES:                                                |  |                    |           |      |   |          
|Current maturities of long-term debt                                |  | $                  | 65,000    |      | $ |         
|Accounts payable                                                    |  |                    | 39,772    |      |   | 41,783   
|Payable to affiliates                                               |  |                    | 91,504    |      |   | 81,380   
|Accrued interest                                                    |  |                    | 7,308     |      |   | 8,246    
|Accrued taxes                                                       |  |                    | 29,420    |      |   | 28,059   
|Energy marketing contracts                                          |  |                    | 2,497     |      |   | 6,799    
|Other                                                               |  |                    | 30,079    |      |   | 24,543   
|                                                                    |  |                    |           |      |   |          
|Total Current Liabilities                                           |  |                    | 265,580   |      |   | 190,810  
|                                                                    |  |                    |           |      |   |          
|LONG-TERM LIABILITIES:                                              |  |                    |           |      |   |          
|Long-term debt, net                                                 |  |                    | 487,419   |      |   | 549,604  
|Unamortized investment tax credits                                  |  |                    | 46,073    |      |   | 48,663   
|Deferred income taxes                                               |  |                    | 656,838   |      |   | 684,965  
|Deferred gain from sale-leaseback                                   |  |                    | 138,981   |      |   | 150,810  
|Asset retirement obligation                                         |  |                    | 87,118    |      |   | 80,695   
|Nuclear decommissioning                                             |  |                    | 91,095    |      |   | 80,075   
|Other                                                               |  |                    | 126,280   |      |   | 110,473  
|                                                                    |  |                    |           |      |   |          
|Total Long-Term Liabilities                                         |  |                    | 1,633,804 |      |   | 1,705,285
|                                                                    |  |                    |           |      |   |          
|COMMITMENTS AND CONTINGENCIES (Note 12)                             |  |                    |           |      |   |          
|SHAREHOLDERS EQUITY:                                               |  |                    |           |      |   |          
|Common stock, without par value; authorized and issued 1,000 shares |  |                    | 1,065,634 |      |   | 1,065,634
|Retained earnings                                                   |  |                    | 26,172    |      |   | 19,944   
|                                                                    |  |                    |           |      |   |          
|Total Shareholders Equity                                          |  |                    | 1,091,806 |      |   | 1,085,578
|                                                                    |  |                    |           |      |   |          
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                          |  | $                  | 2,991,190 |      | $ | 2,981,673
|                                                                    |  |                    |           |      |   |          



The accompanying notes
are an integral part of these consolidated financial statements.



32



---

##### Table of Contents

KANSAS GAS AND ELECTRIC COMPANY



CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

(Dollars in Thousands)



|                                                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                            |  | Year Ended December 31, |        
|                                                                            |  | 2004                    |         |   | 2003 |   |         | 2002 | 
|SALES                                                                       |  | $                       | 714,939 |   |      | $ | 709,654 |      |  | $ | 695,524 |  
|                                                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|OPERATING EXPENSES:                                                         |  |                         |         |   |      |   |         |      |  |   |         |  
|Fuel and purchased power                                                    |  |                         | 181,039 |   |      |   | 177,975 |      |  |   | 170,731 |  
|Operating and maintenance                                                   |  |                         | 229,587 |   |      |   | 221,667 |      |  |   | 215,796 |  
|Depreciation and amortization                                               |  |                         | 91,835  |   |      |   | 90,604  |      |  |   | 93,934  |  
|Selling, general and administrative                                         |  |                         | 75,105  |   |      |   | 70,737  |      |  |   | 81,249  |  
|                                                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|Total Operating Expenses                                                    |  |                         | 577,566 |   |      |   | 560,983 |      |  |   | 561,710 |  
|                                                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|INCOME FROM OPERATIONS                                                      |  |                         | 137,373 |   |      |   | 148,671 |      |  |   | 133,814 |  
|                                                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|OTHER INCOME (EXPENSE):                                                     |  |                         |         |   |      |   |         |      |  |   |         |  
|Other income                                                                |  |                         | 25,353  |   |      |   | 13,921  |      |  |   | 2,784   |  
|Other expense                                                               |  |                         | (14,880 | ) |      |   | (14,412 | )    |  |   | (14,185 | )
|                                                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|Total Other Income (Expense)                                                |  |                         | 10,473  |   |      |   | (491    | )    |  |   | (11,401 | )
|                                                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|Interest Expense                                                            |  |                         | 32,060  |   |      |   | 54,550  |      |  |   | 46,795  |  
|                                                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|INCOME FROM OPERATIONS BEFORE INCOME TAXES                                  |  |                         | 115,786 |   |      |   | 93,630  |      |  |   | 75,618  |  
|                                                                            |  |                         |        
|Income tax expense                                                          |  |                         | 34,558  |   |      |   | 27,003  |      |  |   | 16,079  |  
|                                                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|NET INCOME                                                                  |  | $                       | 81,228  |   |      | $ | 66,627  |      |  | $ | 59,539  |  
|                                                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|OTHER COMPREHENSIVE INCOME, NET OF TAX:                                     |  |                         |         |   |      |   |         |      |  |   |         |  
|Unrealized holding gain on cash flow hedges                                 |  | $                       |        |   |      | $ | 2,421   |      |  | $ | 17,644  |  
|Adjustment for (gain) loss included in net income                           |  |                         |        |   |      |   | (3,135  | )    |  |   | 1,374   |  
|Income tax benefit (expense) related to items of other comprehensive income |  |                         |        |   |      |   | 284     |      |  |   | (7,565  | )
|                                                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|Total other comprehensive (loss) gain, net of tax                           |  |                         |        |   |      |   | (430    | )    |  |   | 11,453  |  
|                                                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|COMPREHENSIVE INCOME                                                        |  | $                       | 81,228  |   |      | $ | 66,197  |      |  | $ | 70,992  |  
|                                                                            |  |                         |         |   |      |   |         |      |  |   |         |  



The accompanying notes
are an integral part of these consolidated financial statements.



33



---

##### Table of Contents

KANSAS GAS AND ELECTRIC COMPANY



CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)



|                                                                                       |  |                         |          |   |      |   |          |      |  |   |          |  
|-------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                       |  | Year Ended December 31, |         
|                                                                                       |  | 2004                    |          |   | 2003 |   |          | 2002 | 
|CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:                                        |  |                         |          |   |      |   |          |      |  |   |          |  
|Net income                                                                             |  | $                       | 81,228   |   |      | $ | 66,627   |      |  | $ | 59,539   |  
|Adjustments to reconcile net income to net cash provided by operating activities:      |  |                         |          |   |      |   |          |      |  |   |          |  
|Depreciation and amortization                                                          |  |                         | 91,835   |   |      |   | 90,604   |      |  |   | 93,934   |  
|Amortization of nuclear fuel                                                           |  |                         | 14,221   |   |      |   | 12,410   |      |  |   | 13,142   |  
|Amortization of deferred gain from sale-leaseback                                      |  |                         | (11,828  | ) |      |   | (11,828  | )    |  |   | (11,828  | )
|Amortization of prepaid corporate-owned life insurance                                 |  |                         | 12,764   |   |      |   | 12,060   |      |  |   | 14,956   |  
|Net deferred taxes                                                                     |  |                         | (13,402  | ) |      |   | 4,469    |      |  |   | 18,477   |  
|Net changes in energy marketing assets and liabilities                                 |  |                         | 388      |   |      |   | 739      |      |  |   | 4,338    |  
|(Gain) loss on sale of property                                                        |  |                         | (503     | ) |      |   |         |      |  |   | 1,423    |  
|Changes in working capital items:                                                      |  |                         |          |   |      |   |          |      |  |   |          |  
|Restricted cash                                                                        |  |                         |         |   |      |   |         |      |  |   | (10,282  | )
|Accounts receivable, net                                                               |  |                         | (11,513  | ) |      |   | (31,993  | )    |  |   | (4,418   | )
|Inventories and supplies                                                               |  |                         | 2,085    |   |      |   | (926     | )    |  |   | (24      | )
|Prepaid expenses and other                                                             |  |                         | (44,688  | ) |      |   | (45,693  | )    |  |   | (48,233  | )
|Accounts payable                                                                       |  |                         | (2,427   | ) |      |   | 10,209   |      |  |   | (20,572  | )
|Payable to affiliates                                                                  |  |                         | 10,124   |   |      |   | 26,517   |      |  |   | 45,951   |  
|Other current liabilities                                                              |  |                         | 2,409    |   |      |   | 3,309    |      |  |   | (7,378   | )
|Changes in other, assets                                                               |  |                         | (6,139   | ) |      |   | (9,385   | )    |  |   | (7,269   | )
|Changes in other, liabilities                                                          |  |                         | 12,923   |   |      |   | 13,803   |      |  |   | 16,275   |  
|                                                                                       |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash flows from operating activities                                                   |  |                         | 137,477  |   |      |   | 140,922  |      |  |   | 158,031  |  
|                                                                                       |  |                         |          |   |      |   |          |      |  |   |          |  
|CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:                                        |  |                         |          |   |      |   |          |      |  |   |          |  
|Additions to property, plant and equipment                                             |  |                         | (92,994  | ) |      |   | (85,580  | )    |  |   | (59,232  | )
|Removal, dismantlement and salvage of property, plant and equipment                    |  |                         | (6,333   | ) |      |   | (4,645   | )    |  |   | (5,980   | )
|Investment in corporate-owned life insurance                                           |  |                         | (19,658  | ) |      |   | (19,599  | )    |  |   | (19,399  | )
|Proceeds from investment in corporate-owned life insurance                             |  |                         |         |   |      |   |         |      |  |   | 7,859    |  
|Proceeds from sale of property                                                         |  |                         | 1,506    |   |      |   |         |      |  |   | 1,205    |  
|                                                                                       |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash flows used in investing activities                                                |  |                         | (117,479 | ) |      |   | (109,824 | )    |  |   | (75,547  | )
|                                                                                       |  |                         |          |   |      |   |          |      |  |   |          |  
|CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:                                        |  |                         |          |   |      |   |          |      |  |   |          |  
|Proceeds from long-term debt                                                           |  |                         | 321,540  |   |      |   |         |      |  |   |         |  
|Retirements of long-term debt                                                          |  |                         | (329,137 | ) |      |   | (135,005 | )    |  |   |         |  
|Funds in trust for debt repayments                                                     |  |                         |         |   |      |   | 145,260  |      |  |   | (135,000 | )
|Borrowings against cash surrender value of corporate-owned life insurance              |  |                         | 57,090   |   |      |   | 58,818   |      |  |   | 61,120   |  
|Repayment of borrowings against cash surrender value of corporate-owned life insurance |  |                         |         |   |      |   |         |      |  |   | (8,018   | )
|Dividends to parent company                                                            |  |                         | (75,000  | ) |      |   | (100,000 | )    |  |   |         |  
|                                                                                       |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash flows used in financing activities                                                |  |                         | (25,507  | ) |      |   | (30,927  | )    |  |   | (81,898  | )
|                                                                                       |  |                         |          |   |      |   |          |      |  |   |          |  
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                   |  |                         | (5,509   | ) |      |   | 171      |      |  |   | 586      |  
|                                                                                       |  |                         |         
|CASH AND CASH EQUIVALENTS:                                                             |  |                         |          |   |      |   |          |      |  |   |          |  
|Beginning of period                                                                    |  |                         | 6,321    |   |      |   | 6,150    |      |  |   | 5,564    |  
|                                                                                       |  |                         |          |   |      |   |          |      |  |   |          |  
|End of period                                                                          |  | $                       | 812      |   |      | $ | 6,321    |      |  | $ | 6,150    |  
|                                                                                       |  |                         |          |   |      |   |          |      |  |   |          |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                     |  |                         |          |   |      |   |          |      |  |   |          |  
|CASH PAID FOR:                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|Interest on financing activities, net of amount capitalized                            |  | $                       | 30,133   |   |      | $ | 44,696   |      |  | $ | 43,917   |  



The accompanying notes
are an integral part of these consolidated financial statements.



34



---

##### Table of Contents

KANSAS GAS AND ELECTRIC COMPANY



CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

(Dollars in Thousands)



|                                                  |  |                         |           |   |      |   |           |      |  |   |           |  
|------------------------------------------------- |  | ----------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                  |  | Year Ended December 31, |          
|                                                  |  | 2004                    |           |   | 2003 |   |           | 2002 | 
|Common Stock                                      |  | $                       | 1,065,634 |   |      | $ | 1,065,634 |      |  | $ | 1,065,634 |  
|                                                  |  |                         |           |   |      |   |           |      |  |   |           |  
|Accumulated other comprehensive income:           |  |                         |           |   |      |   |           |      |  |   |           |  
|Beginning balance                                 |  |                         |          |   |      |   | 430       |      |  |   | (11,023   | )
|Unrealized holding gain on cash flow hedges       |  |                         |          |   |      |   | 2,421     |      |  |   | 17,644    |  
|Adjustment for (gain) loss included in net income |  |                         |          |   |      |   | (3,135    | )    |  |   | 1,374     |  
|Tax benefit (expense)                             |  |                         |          |   |      |   | 284       |      |  |   | (7,565    | )
|                                                  |  |                         |           |   |      |   |           |      |  |   |           |  
|Accumulated other comprehensive income            |  |                         |          |   |      |   |          |      |  |   | 430       |  
|                                                  |  |                         |           |   |      |   |           |      |  |   |           |  
|Retained Earnings:                                |  |                         |           |   |      |   |           |      |  |   |           |  
|Beginning balance                                 |  |                         | 19,944    |   |      |   | 53,317    |      |  |   | (6,222    | )
|Net income                                        |  |                         | 81,228    |   |      |   | 66,627    |      |  |   | 59,539    |  
|Dividends to parent company                       |  |                         | (75,000   | ) |      |   | (100,000  | )    |  |   |          |  
|                                                  |  |                         |           |   |      |   |           |      |  |   |           |  
|Ending balance                                    |  |                         | 26,172    |   |      |   | 19,944    |      |  |   | 53,317    |  
|                                                  |  |                         |           |   |      |   |           |      |  |   |           |  
|Total Shareholders Equity                        |  | $                       | 1,091,806 |   |      | $ | 1,085,578 |      |  | $ | 1,119,381 |  
|                                                  |  |                         |           |   |      |   |           |      |  |   |           |  



The accompanying notes
are an integral part of these consolidated financial statements.



35



---

##### Table of Contents

KANSAS GAS AND ELECTRIC COMPANY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. DESCRIPTION
OF BUSINESS



Kansas Gas and Electric Company is a
regulated electric utility incorporated in 1990 in Kansas. Unless the context otherwise indicates, all references in this Annual Report on Form 10-K to the company, KGE, we, us, our and
similar words are to Kansas Gas and Electric Company. We are a wholly owned subsidiary of Westar Energy, Inc. (Westar Energy) and we provide rate-regulated electric service, together with the electric utility operations of Westar Energy, using the
name Westar Energy. We provide electric generation, transmission and distribution services to approximately 301,000 customers in south-central and southeastern Kansas, including the city of Wichita, Kansas. Our corporate headquarters is located in
Wichita, Kansas.



We own a 47% interest in the Wolf Creek
Generating Station (Wolf Creek), a nuclear power plant located near Burlington, Kansas, and a 47% interest in Wolf Creek Nuclear Operating Corporation (WCNOC), the operating company for Wolf Creek.



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Principles of Consolidation



We prepare our consolidated financial statements in accordance with
Generally Accepted Accounting Principles (GAAP) for the United States of America. Our consolidated financial statements include our undivided interests in jointly-owned generation facilities on a pro rata basis. Material intercompany accounts and
transactions have been eliminated in consolidation.



Use of
Managements Estimates



When we prepare our
consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our
consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates on an on-going basis, including those related to bad debts, inventories, valuation of commodity contracts,
depreciation, unbilled revenue, valuation of our energy marketing portfolio, intangible assets, income taxes, our portion of WCNOCs pension and other post-retirement benefits, our asset retirement obligations including decommissioning of Wolf
Creek, environmental issues, contingencies and litigation. Actual results may differ from those estimates under different assumptions or conditions.



Regulatory Accounting



We currently apply accounting standards for our regulated utility operations that recognize the economic effects of rate regulation in accordance with
Statement of Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation, and, accordingly, have recorded regulatory assets and liabilities when required by a regulatory order or based on
regulatory precedent.



36



---

##### Table of Contents

Regulatory assets represent incurred costs that have been deferred because they are probable of future
recovery in customer rates. Regulatory liabilities represent probable obligations to make refunds to customers for previous collections for costs that are not likely to be incurred in the future. Regulatory assets and liabilities reflected on our
consolidated balance sheets are as follows.



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                    |         |      |   |        
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | ---- | - | -------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | As of December 31,
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | 2004               |         | 2003
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | (In Thousands)    
|Amounts due from customers for future income taxes, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | $                  | 144,817 |      | $ | 155,800
|Debt reacquisition costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                    | 26,264  |      |   | 18,074 
|Deferred employee benefit costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                    | 2,526   |      |   |       
|Deferred plant costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                    | 27,979  |      |   | 28,532 
|2002 ice storm costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                    | 10,748  |      |   | 9,898  
|Asset retirement obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                    | 77,349  |      |   | 70,455 
|KCC depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                    | 22,596  |      |   | 14,294 
|Wolf Creek outage                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                    | 6,467   |      |   | 13,645 
|Other regulatory assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                    | 2,613   |      |   | 5,972  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                    |         |      |   |        
|Total regulatory assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | $                  | 321,359 |      | $ | 316,670
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                    |         |      |   |        
|Total regulatory liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | $                  | 14,689  |      | $ | 6,374  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                    |         |      |   |        
|      Amounts due from customers for future income taxes, net: In accordance with various rate orders, we have reduced rates to reflect the tax benefits associated with certain accelerated tax
deductions. We believe it is probable that the net future increases in income taxes payable will be recovered from customers when these temporary tax benefits reverse. We have recorded a regulatory asset for these amounts. We also have recorded a
regulatory liability for our obligation to reduce rates charged customers for deferred taxes recovered from customers at corporate tax rates higher than the current tax rates. The rate reduction will occur as the temporary differences resulting in
the excess deferred tax liabilities reverse. The tax-related regulatory assets and liabilities as well as unamortized investment tax credits are also temporary differences for which deferred income taxes have been provided. These items are measured
by the expected cash flows to be received or settled through future rates. The net regulatory asset for these tax items is classified above as amounts due from customers for future income taxes.        Debt
reacquisition costs: Includes loss on reacquired debt and refinancing costs on the LaCygne 2 generating unit lease. Debt reacquisition costs are amortized over the original term of the reacquired debt or, if refinanced, the term of the new
debt.        Deferred employee benefit costs: Employee benefit costs as authorized by a Kansas Corporation Commission (KCC) accounting authority order received January 13, 2005.        Deferred plant costs: Deferred plant costs under SFAS No. 90 Registered Enterprises  Accounting for Abandonments and Disallowances of Plant Costs, related to the Wolf Creek
nuclear generating facility will be recovered over the term of the plants operating license through 2025.        2002 ice storm costs: We accumulated and deferred for future recovery costs
related to system restoration from an ice storm that occurred in January 2002. We were authorized to accrue carrying costs on this item. Recovery of this asset will be considered during the 2005 rate review.        Asset
retirement obligations: Asset retirement obligations represent amounts associated with our legal obligation to retire Wolf Creek. We recover final retirement costs through rates as provided by the KCC. We have placed amounts recovered through
rates in a trust. The trusts funds will be used to pay for the costs to retire and decommission Wolf Creek. See Note 13, Asset Retirement Obligations, for information regarding our Nuclear Decommissioning Trust Fund.        KCC
depreciation: Due to the change in our depreciation rates for ratemaking purposes for Wolf Creek and LaCygne 2, we record a regulatory asset for the amount that our depreciation expense exceeds our depreciation costs recovered in rates. See
Depreciation for additional information.



37



---

##### Table of Contents

| |  |  | Wolf Creek outage: Represents maintenance costs incurred in our most recent refueling outage. In accordance with regulatory treatment, this amount is amortized to expense
ratably over the 18-month period after the outage.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other regulatory assets: This includes various regulatory assets that are relatively small in relation to the total regulatory assets balance. Other regulatory assets include
coal contract settlement costs, rate review expense, and the net removal component included in depreciation rates.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other regulatory liabilities: This includes various regulatory liabilities that are relatively small and includes provisions for rate refunds, property taxes, emissions
allowances, savings from the sale of an office building and the net removal component included in depreciation rates. Other regulatory liabilities are included in other long-term liabilities on our consolidated balance sheets.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



A return is allowed on the KCC depreciation and
coal contract settlement costs.



Cash and Cash Equivalents



We consider highly liquid investments with maturities of three months or
less when purchased to be cash equivalents.



Inventories and Supplies



Inventories and supplies are stated at average cost.



|Property, | Plant and Equipment
|--------- | -------------------



Property, plant and equipment is stated at cost. For utility plant, cost includes contracted services, direct labor and materials, indirect charges for
engineering and supervision, and an allowance for funds used during construction (AFUDC). AFUDC represents the cost of borrowed funds used to finance construction projects. The AFUDC rate was 3.8% in 2004, 5.3% in 2003 and 6.0% in 2002. The cost of
additions to utility plant and replacement units of property is capitalized. AFUDC capitalized was $1.1 million in 2004, $0.9 million in 2003 and $1.0 million in 2002.



Maintenance costs and replacement of minor items of property are charged to expense as incurred. Normally, when a unit of
depreciable property is retired, the original cost, less salvage value, is charged to accumulated depreciation.



Depreciation



Utility plant is depreciated on the straight-line method at rates based on the estimated remaining useful lives of the assets, which are based on an
average annual composite basis using group rates that approximated 2.2% during 2004, 2.2% during 2003 and 2.4% during 2002.



Effective April 1, 2002, we adopted new depreciation rates which reduced our annual depreciation expense by approximately $18.0 million.



As part of the 2001 KCC rate order, the KCC extended the estimated retirement
date for Wolf Creek from 2025 to 2045, although our operating license for Wolf Creek expires in 2025. The KCC also extended the estimated retirement date for LaCygne 2 to 2032, although the term of our lease for LaCygne 2 expires in 2016. The effect
of extending the retirement date was to reduce our depreciation and amortization expense recovered in customer rates. For financial statement purposes, we recognize depreciation and amortization expense based on the current operating license and the
lease term. We record a regulatory asset for the difference between the KCC allowed expense and the expense recorded for financial statement purposes.



38



---

##### Table of Contents

Depreciable lives of property, plant and equipment are as follows.



|                                  |  |         
|--------------------------------- |  | --------
|                                  |  | Years   
|Fossil fuel generating facilities |  | 6 to 68 
|Nuclear fuel generating facility  |  | 38 to 45
|Transmission facilities           |  | 28 to 65
|Distribution facilities           |  | 19 to 57
|Other                             |  | 5 to 55 



Nuclear Fuel



Our share of the cost of nuclear fuel used in the process of refinement,
conversion, enrichment and fabrication is recorded as an asset in property, plant and equipment on our consolidated balance sheets at original cost and is amortized to fuel and purchased power based on the quantity of heat consumed during the
generation of electricity, as measured in millions of British Thermal Units (MMBtu). The accumulated amortization of nuclear fuel in the reactor was $30.9 million at December 31, 2004 and $16.6 million at December 31, 2003. Spent fuel charged to
fuel and purchased power was $19.3 million in 2004, $17.0 million in 2003 and $17.8 million in 2002.



Cash Surrender Value of Life Insurance



We recorded the following amounts related to corporate-owned life insurance policies (COLI) in other long-term assets on our consolidated balance sheets at December 31.



|                                 |  |                |          |   |      |   |          |  
|-------------------------------- |  | -------------- | -------- | - | ---- | - | -------- | -
|                                 |  | 2004           |          |   | 2003 |  
|                                 |  | (In Thousands) |         
|Cash surrender value of policies |  | $              | 825,268  |   |      | $ | 767,742  |  
|Borrowings against policies      |  |                | (812,096 | ) |      |   | (755,006 | )
|                                 |  |                |          |   |      |   |          |  
|COLI, net                        |  | $              | 13,172   |   |      | $ | 12,736   |  
|                                 |  |                |          |   |      |   |          |  



Income is recorded for
increases in cash surrender value and net death proceeds. Interest incurred on amounts borrowed is offset against policy income. Income recognized from death proceeds is highly variable from period to period. Death benefits recognized as income on
our consolidated statements of income approximated $0.8 million in 2004, $0.2 million in 2003 and $2.1 million in 2002.



Revenue Recognition  Energy Sales



We recognize revenues from retail energy sales upon delivery to the customer and include an estimate for energy delivered but unbilled. Our estimate of
revenue attributable to this unbilled portion is based on the total energy available for sale measured against total billed sales. At December 31, 2004, we had estimated unbilled revenue of $25.0 million.



We are allocated a share of revenues from energy marketing derivative
contracts that are jointly entered into with Westar Energy based on actual fuel burned at our generating facilities. The amount of actual fuel burned by a given generating facility is largely determined by utilizing the most economical units first.
We account for energy marketing derivative contracts under the mark-to-market method of accounting. Under this method, we recognize changes in the portfolio value as gains or losses in the period of change. Unless related to fuel, we include the net
mark-to-market change in sales on our consolidated statements of income. We record the resulting unrealized gains and losses as energy marketing long-term or short-term assets and liabilities on our consolidated balance sheets as appropriate. We use
quoted market prices to value our energy marketing derivative contracts when such data are available. When market prices are not readily available or determinable, we use alternative approaches, such as model pricing. Prices used to value these
transactions reflect our best estimate of fair values of our trading positions. Results actually achieved from these activities could vary materially from intended results and could affect our consolidated financial results.



39



---

##### Table of Contents

Income Taxes



We use the asset and liability method of accounting for income taxes as required by SFAS No. 109, Accounting for Income Taxes. Under the asset
and liability method, we recognize deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. We
recognize the future tax benefits to the extent that realization of such benefits is more likely than not. We amortize deferred investment tax credits over the lives of the related properties.



Reclassifications



We have reclassified certain prior year amounts to conform with classifications used in the current-year presentation as
necessary for a fair presentation of the financial statements.



3. RATE
MATTERS AND REGULATION



Rate Review Request



As a result of an earlier KCC order, Westar Energy and we will file a
request for a rate review with the KCC by May 2, 2005, based on a test year consisting of the 12 months ended December 31, 2004.



Electric Service Reliability



On January 16, 2004, the KCC issued an order regarding electric service reliability for retail customers. The order was intended to help the KCC assess
the reliability of retail electric service. Specifically, the KCC wanted to establish uniform definitions and requirements regarding service obligations, record keeping, customer notification and methods of reporting results to the KCC. On February
10, 2004, the North American Electric Reliability Council (NERC) issued reliability improvement initiatives stemming from the investigation of the August 14, 2003 blackout in portions of the northeastern United States. These initiatives will impact
our operations in a number of ways, including system relay protection, vegetation management and operator training. The NERC and the ten operating regions in the United States, including the Southwest Power Pool, are working together to determine
what operating policies and planning standards changes are necessary to achieve the NERCs goals. We are unable to estimate potential compliance costs at this time, it is likely that our annual capital and maintenance expenditure requirements
will increase in the future.



4. ACCOUNTS RECEIVABLE AND VARIABLE INTEREST
ENTITIES



Our accounts receivable on our consolidated
balance sheets are comprised as follows.



|                                           |  |                    |        |   |      |   |        |  
|------------------------------------------ |  | ------------------ | ------ | - | ---- | - | ------ | -
|                                           |  | As of December 31, |       
|                                           |  | 2004               |        |   | 2003 |  
|                                           |  | (In Thousands)     |       
|Customer accounts receivable               |  | $                  | 97,017 |   |      | $ | 85,712 |  
|Allowance for uncollectable accounts       |  |                    | (5,152 | ) |      |   | (5,313 | )
|                                           |  |                    |        |   |      |   |        |  
|Transferred receivables, net               |  |                    | 91,865 |   |      |   | 80,399 |  
|Other accounts receivable                  |  |                    | 475    |   |      |   | 462    |  
|Other allowance for uncollectable accounts |  |                    | (56    | ) |      |   | (90    | )
|                                           |  |                    |        |   |      |   |        |  
|Accounts receivable, net                   |  | $                  | 92,284 |   |      | $ | 80,771 |  
|                                           |  |                    |        |   |      |   |        |  



Accounts Receivable Sales Program



WR Receivables Corporation, a wholly owned subsidiary of
Westar Energy, has an agreement with a financial institution whereby WR Receivables can sell an interest of up to $125.0 million in a designated pool of our qualified accounts receivable. The agreement expires in July 2005. Under the terms of the
agreement, new receivables generated by us are continuously purchased by WR Receivables. The receivables sold to the financial institution are not reflected in the accounts receivable balance in the accompanying consolidated balance sheets. The
amounts sold to the financial institution were $80.0 million at December 31, 2004 and 2003.



40



---

##### Table of Contents

We service, administer and collect the receivables on behalf of the financial institution. Administrative
expenses associated with the sale of these receivables were $2.1 million in 2004, $2.4 million in 2003 and $1.3 million in 2002. We include these expenses in other expense on our consolidated statements of income.



We record receivables transferred to WR Receivables at book value, net of
allowances for bad debts. This approximates fair value due to the short-term nature of the receivable. We include the transferred accounts receivables in accounts receivable, net, on our consolidated balance sheets. The interests that we hold are
included in the table below.



|                                                     |  |                    |        |      |   |       
|---------------------------------------------------- |  | ------------------ | ------ | ---- | - | ------
|                                                     |  | As of December 31,
|                                                     |  | 2004               |        | 2003
|                                                     |  | (In Thousands)    
|Accounts receivables retained by WR Receivables, net |  | $                  | 81,842 |      | $ | 71,213
|Accounts receivables reserved for purchaser, net     |  |                    | 10,023 |      |   | 9,186 
|                                                     |  |                    |        |      |   |       
|Transferred receivables, net                         |  | $                  | 91,865 |      | $ | 80,399
|                                                     |  |                    |        |      |   |       



The following table
provides gross proceeds and repayments between WR Receivables and the financial institution. We record these items on the consolidated statements of cash flows in the accounts receivable, net, line of cash flows from operating activities.



|                                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                |  | Year Ended December 31, |        
|                                                                |  | 2004                    |         |   | 2003 |   |         | 2002 | 
|                                                                |  | (In Thousands)          |        
|Proceeds from the purchaser due to the sale of receivables      |  | $                       | 40,000  |   |      | $ |        |      |  | $ | 30,000  |  
|Payments to the purchaser for net collection of its receivables |  |                         | (40,000 | ) |      |   | (30,000 | )    |  |   | (20,000 | )
|                                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|Proceeds and repayments, net                                    |  | $                       |        |   |      | $ | (30,000 | )    |  | $ | 10,000  |  
|                                                                |  |                         |         |   |      |   |         |      |  |   |         |  



Consolidation of Variable Interest
Entities



In January 2003, the Financial Accounting
Standards Board (FASB) issued Financial Interpretation Number (FIN) 46, Consolidation of Variable Interest Entities, which was subsequently revised in December 2003 with the issuance of FIN 46R. The objective of this interpretation is to
provide guidance on how to identify variable interest entities (VIE) and determine when the assets, liabilities, non-controlling interests and results of operations of a VIE need to be included in a companys consolidated financial statements.
A company that holds variable interests in an entity will need to consolidate the entity if the companys interest in the VIE is such that the company will absorb a majority of the VIEs expected losses and/or receive a majority of the
entitys expected residual returns, if they occur. FIN 46R also requires additional disclosures by primary beneficiaries and other significant variable interest holders. The provisions of this interpretation became effective upon issuance. We
were not affected by FIN 46R.



41



---

##### Table of Contents

5. FINANCIAL INSTRUMENTS, ENERGY MARKETING AND RISK MANAGEMENT



Values of Financial Instruments



The carrying values and estimated fair values of our financial instruments
are as shown in the table below.



|                                               |  |                    |         |            |   |         |  |      |         |  |   |        
|---------------------------------------------- |  | ------------------ | ------- | ---------- | - | ------- |  | ---- | ------- |  | - | -------
|                                               |  | Carrying Value     |         | Fair Value
|                                               |  | As of December 31,
|                                               |  | 2004               |         | 2003       |   | 2004    |  | 2003
|                                               |  | (In Thousands)    
|Fixed-rate debt, net of current maturities (a) |  | $                  | 340,988 |            | $ | 505,988 |  | $    | 354,079 |  | $ | 519,094

---

|(a) | Fair value is estimated based on quoted market prices for the same or similar issues or on the current rates offered for instruments of the same remaining maturities and redemption
provisions.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The recorded amounts of accounts
receivable and other current financial instruments approximate fair value. Cash and cash equivalents, short-term borrowings and variable-rate debt are carried at cost, which approximates fair value and are not included in the table above.



The fair value estimates are based on information available at
December 31, 2004 and 2003. These fair value estimates have not been comprehensively revalued since that date and current estimates of fair value may differ significantly from the amounts above.



Derivative Instruments and Hedge Accounting



We are exposed to market risks from changes in commodity prices and interest
rates that could affect our consolidated results of operations and financial condition. We manage our exposure to these market risks through our regular operating and financing activities and, when deemed appropriate, economically hedge a portion of
these risks through the use of derivative financial instruments. We use the term economic hedge to mean a strategy designed to manage risks of volatility in prices or rate movements on some assets, liabilities or anticipated transactions by creating
a relationship in which gains or losses on derivative instruments are expected to counterbalance the losses or gains on the assets, liabilities or anticipated transactions exposed to such market risks. We use derivative instruments as risk
management tools consistent with our business plans and prudent business practices and for energy marketing purposes.



Westar Energy and we jointly use derivative financial and physical instruments primarily to manage risk as it relates to changes in the prices of
commodities including natural gas, oil, coal and electricity. We classify derivative instruments used to manage commodity price risk inherent in fossil fuel and electricity purchases and sales as energy marketing contracts on our consolidated
balance sheets. We report energy marketing contracts representing unrealized gain positions as assets; energy marketing contracts representing unrealized loss positions are reported as liabilities.



Energy Marketing Activities



We engage in both financial and physical trading to manage our commodity
price risk. We trade electricity, coal, natural gas and oil. We use financial instruments, including forward contracts, options and swaps and we trade energy commodity contracts daily. We may also use economic hedging techniques to manage overall
fuel expenditures. We procure physical product under forward agreements and spot market transactions.



Within the trading portfolio, we take certain positions to economically hedge a portion of physical sale or purchase contracts and we take certain
positions to take advantage of market trends and conditions. We reflect changes in value on our consolidated statements of income. We believe financial instruments help us manage our contractual commitments, reduce our exposure to changes in cash
market prices and take advantage of selected market opportunities. We refer to these transactions as energy marketing activities.



42



---

##### Table of Contents

We are involved in trading activities to reduce risk from market fluctuations, enhance system reliability
and increase profits. Net open positions exist, or are established, due to the origination of new transactions and our assessment of, and response to, changing market conditions. To the extent we have open positions, we are exposed to the risk that
changing market prices could have a material, adverse impact on our consolidated financial position or results of operations.



We have considered a number of risks and costs associated with the future contractual commitments included in our energy portfolio. These risks include
credit risks associated with the financial condition of counterparties, product location (basis) differentials and other risks. Declines in the creditworthiness of our counterparties could have a material adverse impact on our overall exposure to
credit risk. We maintain credit policies with regard to our counterparties that, in managements view, reduce our overall credit risk.



We are also exposed to commodity price changes outside of trading activities. We use derivative contracts for non-trading purposes and a mix of various
fuel types primarily to reduce exposure relative to the volatility of market and commodity prices. The wholesale power market is extremely volatile in price and supply. This volatility impacts our costs of power purchased and our participation in
energy trades. If we were unable to generate an adequate supply of electricity for our customers, we would purchase power in the wholesale market to the extent it is available, subject to possible transmission constraints, and/or implement
curtailment or interruption procedures as permitted in our tariffs and terms and conditions of service. The increased expenses or loss of revenues associated with this could be material and adverse to our consolidated results of operations and
financial condition.



We use various fossil fuel types,
including coal, natural gas and oil, to operate our plants. A significant portion of our coal requirements are purchased under long-term contracts. Due to the volatility of natural gas prices, we have increasingly operated facilities that have
allowed us to use lower cost fuel types as generating unit constraints and environmental restrictions allow, primarily by using oil in our facilities that also burn natural gas.



Additional factors that affect our commodity price exposure are the quantity and availability of fuel used for generation
and the quantity of electricity customers consume. Quantities of fossil fuel used for generation vary from year to year based on the availability, price and deliverability of a given fuel type as well as planned and scheduled outages at our
facilities that use fossil fuels and the nuclear refueling schedule. Our customers electricity usage could also vary from year to year based on weather or other factors.



Although we generally attempt to balance our physical and financial contracts in terms of quantities and contract
performance, net open positions typically exist. We will at times create a net open position or allow a net open position to continue when we believe that future price movements will increase the portfolios value. To the extent we have open
positions, we are exposed to the risk that changing market prices could have a material, adverse impact on our consolidated financial position or results of operations.



The prices we use to value price risk management activities reflect our estimate of fair values considering various factors,
including closing exchange and over-the-counter quotations, time value of money and price volatility factors underlying the commitments. We adjust prices to reflect the potential impact of liquidating our position in an orderly manner over a
reasonable period of time under present market conditions. We consider a number of risks and costs associated with the future contractual commitments included in our energy portfolio, including credit risks associated with the financial condition of
counterparties and the time value of money. We continuously monitor the portfolio and value it daily based on present market conditions.



Hedging Activities



During the third quarter of 2001, Westar Energy and we entered into hedging relationships to manage commodity price risk associated with future natural
gas purchases. Initially, Westar Energy entered into futures and swap contracts with terms extending through July 2004 to hedge price risk for a portion of anticipated natural gas fuel requirements for generation facilities. We designated these
hedging relationships as cash flow hedges.



43



---

##### Table of Contents

In 2002, due to the increased availability of coal units and because we began burning more oil as use of
oil became more economically favorable than natural gas, we did not burn our forecasted amount of natural gas. In September 2002, we determined that we had over-hedged approximately 8,280,000 MMBtu for the remaining period of the hedge. As a result
of the discontinuance of this portion of the cash flow hedge, we recognized a gain of $2.8 million. In December 2003, we determined we could no longer meet the criteria to use hedge accounting for the 2004 forecasted natural gas purchases. As a
result, we recognized in income a gain of $1.8 million.



6. PROPERTY, PLANT
AND EQUIPMENT



The following is a summary of property,
plant and equipment at December 31.



|                                      |  |                |            |   |      |   |            |  
|------------------------------------- |  | -------------- | ---------- | - | ---- | - | ---------- | -
|                                      |  | 2004           |            |   | 2003 |  
|                                      |  | (In Thousands) |           
|Electric plant in service             |  | $              | 3,072,629  |   |      | $ | 3,028,120  |  
|Electric plant acquisition adjustment |  |                | 800,971    |   |      |   | 800,971    |  
|Accumulated depreciation              |  |                | (1,595,241 | ) |      |   | (1,531,806 | )
|                                      |  |                |            |   |      |   |            |  
|                                      |  |                | 2,278,359  |   |      |   | 2,297,285  |  
|Construction work in progress         |  |                | 35,302     |   |      |   | 35,818     |  
|Nuclear fuel, net                     |  |                | 35,942     |   |      |   | 29,198     |  
|                                      |  |                |            |   |      |   |            |  
|Net utility plant                     |  |                | 2,349,603  |   |      |   | 2,362,301  |  
|Non-utility plant in service          |  |                | 70         |   |      |   | 70         |  
|                                      |  |                |            |   |      |   |            |  
|Net property, plant and equipment     |  | $              | 2,349,673  |   |      | $ | 2,362,371  |  
|                                      |  |                |            |   |      |   |            |  



Depreciation expense
on property, plant and equipment was $71.7 million in 2004, $70.5 million in 2003 and $73.8 million in 2002.



7. JOINT OWNERSHIP OF UTILITY PLANTS



Under joint ownership agreements with other utilities, we have undivided ownership interests in three electric generating stations. Energy generated and operating expenses are divided on the same basis as ownership
with each owner reflecting its respective costs in its statements of income. Information relative to our ownership interest in these facilities at December 31, 2004 is shown in the table below.



|                   |  |                                    |  |            |  |                          |           |        |   |                   |  |       |  |   
|------------------ |  | ---------------------------------- |  | ---------- |  | ------------------------ | --------- | ------ | - | ----------------- |  | ----- |  | --
|                   |  | Our Ownership at December 31, 2004
|                   |  | In-Service Dates                   |  | Investment |  | Accumulated Depreciation |           | Net MW |   | Ownership Percent
|                   |  | (Dollars in Thousands)            
|LaCygne 1 (a)      |  | June                               |  | 1973       |  | $                        | 191,346   |        | $ | 118,168           |  | 344.0 |  | 50
|Jeffrey 1 (b)      |  | July                               |  | 1978       |  |                          | 75,889    |        |   | 36,926            |  | 147.0 |  | 20
|Jeffrey 2 (b)      |  | May                                |  | 1980       |  |                          | 73,131    |        |   | 34,792            |  | 147.0 |  | 20
|Jeffrey 3 (b)      |  | May                                |  | 1983       |  |                          | 102,431   |        |   | 51,518            |  | 149.0 |  | 20
|Jeffrey wind 1 (b) |  | May                                |  | 1999       |  |                          | 208       |        |   | 52                |  | 0.1   |  | 20
|Jeffrey wind 2 (b) |  | May                                |  | 1999       |  |                          | 207       |        |   | 52                |  | 0.1   |  | 20
|Wolf Creek (c)     |  | Sept.                              |  | 1985       |  |                          | 1,409,238 |        |   | 590,055           |  | 548.0 |  | 47

| | 
| | 

| | (a) | Jointly owned with Kansas City Power & Light Company (KCPL)
| | --- | -----------------------------------------------------------

| | (b) | Jointly owned with Aquila, Inc. and Westar Energy.
| | --- | --------------------------------------------------

| | (c) | Jointly owned with KCPL and Kansas Electric Power Cooperative, Inc.
| | --- | -------------------------------------------------------------------



44



---

##### Table of Contents

Amounts and capacity presented above represent our share. Our share of operating expenses of the above
plants, as well as such expenses for a 50% undivided interest in LaCygne 2 (representing 337 megawatt (MW) capacity) sold and leased back to us in 1987, are included in operating expenses on our consolidated statements of income. Our share of other
transactions associated with the plants is included in the appropriate classification on our consolidated financial statements.



8. SHORT-TERM BORROWINGS



We had no short-term borrowings outstanding at December 31, 2004 and 2003. Our short-term liquidity needs are met from cash advances by Westar Energy.



Westar Energy has an arrangement with a syndicate of banks to
provide it a revolving credit facility on a committed basis totaling $300.0 million. The facility is secured by our first mortgage bonds and matures on March 12, 2007.



See Note 9, Long-term Debt, for a discussion of covenants applicable to Westar Energys credit facilities.



9. LONG-TERM DEBT



The amount of our first mortgage bonds authorized by our Mortgage and Deed
of Trust (Mortgage) dated April 1, 1940, as supplemented, is limited to a maximum of $2.0 billion. Amounts of additional bonds that may be issued are subject to property, earnings and certain restrictive provisions of the Mortgage. Electric plant is
subject to the lien of the Mortgage except for transportation equipment. At December 31, 2004, based on an assumed interest rate of 6%, approximately $874.0 million principal amount of additional first mortgage bonds could be issued under the most
restrictive provisions in the mortgage.



Long-term debt
outstanding at December 31 is as follows.



|                                              |  |                |         |   |      |   |         |  
|--------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | -
|                                              |  | 2004           |         |   | 2003 |  
|                                              |  | (In Thousands) |        
|First mortgage bond series:                   |  |                |         |   |      |   |         |  
|6.50% due 2005                                |  | $              | 65,000  |   |      | $ | 65,000  |  
|6.20% due 2006                                |  |                | 100,000 |   |      |   | 100,000 |  
|                                              |  |                |         |   |      |   |         |  
|                                              |  |                | 165,000 |   |      |   | 165,000 |  
|                                              |  |                |         |   |      |   |         |  
|Pollution control bond series:                |  |                |         |   |      |   |         |  
|5.10% due 2023                                |  |                | 13,488  |   |      |   | 13,488  |  
|Variable due 2027, 1.75% at December 31, 2004 |  |                | 21,940  |   |      |   | 21,940  |  
|7.00% due 2031                                |  |                |        |   |      |   | 327,500 |  
|5.30% due 2031                                |  |                | 108,600 |   |      |   |        |  
|5.30% due 2031                                |  |                | 18,900  |   |      |   |        |  
|2.65% due 2031 and putable 2006               |  |                | 100,000 |   |      |   |        |  
|Variable due 2031, 1.92% at December 31, 2004 |  |                | 100,000 |   |      |   |        |  
|Variable due 2032, 1.67% at December 31, 2004 |  |                | 14,500  |   |      |   | 14,500  |  
|Variable due 2032, 1.85% at December 31, 2004 |  |                | 10,000  |   |      |   | 10,000  |  
|                                              |  |                |         |   |      |   |         |  
|                                              |  |                | 387,428 |   |      |   | 387,428 |  
|                                              |  |                |         |   |      |   |         |  
|Unamortized debt discount (a)                 |  |                | (9      | ) |      |   | (2,824  | )
|Long-term debt due within one year            |  |                | (65,000 | ) |      |   |        |  
|                                              |  |                |         |   |      |   |         |  
|Long-term debt, net                           |  | $              | 487,419 |   |      | $ | 549,604 |  
|                                              |  |                |         |   |      |   |         |  

| | 
| | 

| | (a) | We amortize debt discount over the term of the respective issue.
| | --- | ----------------------------------------------------------------



45



---

##### Table of Contents

Debt Covenants



Some of Westar Energys debt instruments contain restrictions that require it to maintain various coverage and leverage ratios as defined in the
agreements. Westar Energy calculates these ratios in accordance with its credit agreements. These ratios are used solely to determine compliance with its various debt covenants. Westar Energy was in compliance with these covenants at December 31,
2004.



Maturities



Maturities of long-term debt at December 31, 2004 are as follows.



|           |  |                  |        
|---------- |  | ---------------- | -------
|           |  | Principal Amount
|Year       |  | (In Thousands)  
|2005       |  | $                | 65,000 
|2006       |  |                  | 100,000
|Thereafter |  |                  | 387,419
|           |  |                  |        
|           |  | $                | 552,419
|           |  |                  |        



Our interest expense
on long-term debt was $29.6 million in 2004, $46.5 million in 2003 and $46.8 million in 2002.



10. EMPLOYEE BENEFIT PLANS



Pension
and Post-retirement Benefits



The WCNOC pension plan
expense and liabilities are measured using assumptions, which include discount rates, compensation rates and past and future estimated plan asset returns. Due to a decrease in interest rates and a corresponding decrease in the discount rates used to
estimate pension liabilities, the fair value of WCNOCs pension plan assets was less than the accumulated benefit obligation at the measurement dates. On March 29, 2004, the Federal Energy Regulatory Commission (FERC) issued guidance allowing
an entity to recognize the amount of the minimum pension liability otherwise chargeable to other comprehensive income as a regulatory asset. On January 13, 2005, we received an accounting authority order from the KCC to recognize as a regulatory
asset the additional minimum pension liability that otherwise would have been charged to other comprehensive income. At December 31, 2004, our share of WCNOCs additional minimum pension liability adjustment was $3.1 million, offset by an
intangible asset of $0.6 million and a regulatory asset of $2.5 million. At December 31, 2003, our share of WCNOCs additional minimum pension liability was immaterial.



46



---

##### Table of Contents

As a co-owner of WCNOC, we are indirectly responsible for 47% of the liabilities and expenses associated
with the WCNOC pension and post-retirement plans. We accrue our 47% of the WCNOC cost of pension and post-retirement benefits during the years an employee provides service. Our 47% share is included in the tables that follow.



|                                                                                                                                                                                                                                                                                                                                                                                             |  |                  |         |   |                          |   |         |      |  |   |        |   |  |   |        |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ------------------------ | - | ------- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                                                                                                                                                                                                                                                                                             |  | Pension Benefits |         |   | Post-retirement Benefits |  
|                                                                                                                                                                                                                                                                                                                                                                                             |  | 2004             |         |   | 2003                     |   |         | 2004 |  |   | 2003   |  
|At December 31,                                                                                                                                                                                                                                                                                                                                                                              |  | (In Thousands)   |        
|Change in Benefit Obligation:                                                                                                                                                                                                                                                                                                                                                                |  |                  |         |   |                          |   |         |      |  |   |        |   |  |   |        |  
|Benefit obligation, beginning of year                                                                                                                                                                                                                                                                                                                                                        |  | $                | 49,927  |   |                          | $ | 44,519  |      |  | $ | 5,455  |   |  | $ | 4,857  |  
|Service cost                                                                                                                                                                                                                                                                                                                                                                                 |  |                  | 2,572   |   |                          |   | 2,545   |      |  |   | 235    |   |  |   | 218    |  
|Interest cost                                                                                                                                                                                                                                                                                                                                                                                |  |                  | 3,295   |   |                          |   | 2,928   |      |  |   | 356    |   |  |   | 289    |  
|Plan participants contributions                                                                                                                                                                                                                                                                                                                                                             |  |                  |        |   |                          |   |        |      |  |   | 147    |   |  |   | 111    |  
|Benefits paid                                                                                                                                                                                                                                                                                                                                                                                |  |                  | (849    | ) |                          |   | (729    | )    |  |   | (416   | ) |  |   | (349   | )
|Actuarial losses                                                                                                                                                                                                                                                                                                                                                                             |  |                  | 4,223   |   |                          |   | 664     |      |  |   | 325    |   |  |   | 329    |  
|                                                                                                                                                                                                                                                                                                                                                                                             |  |                  |         |   |                          |   |         |      |  |   |        |   |  |   |        |  
|Benefit obligation, end of year                                                                                                                                                                                                                                                                                                                                                              |  | $                | 59,168  |   |                          | $ | 49,927  |      |  | $ | 6,102  |   |  | $ | 5,455  |  
|                                                                                                                                                                                                                                                                                                                                                                                             |  |                  |         |   |                          |   |         |      |  |   |        |   |  |   |        |  
|Change in Plan Assets:                                                                                                                                                                                                                                                                                                                                                                       |  |                  |         |   |                          |   |         |      |  |   |        |   |  |   |        |  
|Fair value of plan assets, beginning of year                                                                                                                                                                                                                                                                                                                                                 |  | $                | 26,799  |   |                          | $ | 22,276  |      |  | $ | N/A    |   |  | $ | N/A    |  
|Actual return on plan assets                                                                                                                                                                                                                                                                                                                                                                 |  |                  | 2,551   |   |                          |   | 2,622   |      |  |   | N/A    |   |  |   | N/A    |  
|Employer contribution                                                                                                                                                                                                                                                                                                                                                                        |  |                  | 3,810   |   |                          |   | 2,459   |      |  |   | N/A    |   |  |   | N/A    |  
|Benefits paid                                                                                                                                                                                                                                                                                                                                                                                |  |                  | (669    | ) |                          |   | (558    | )    |  |   | N/A    |   |  |   | N/A    |  
|                                                                                                                                                                                                                                                                                                                                                                                             |  |                  |         |   |                          |   |         |      |  |   |        |   |  |   |        |  
|Fair value of plan assets, end of year                                                                                                                                                                                                                                                                                                                                                       |  | $                | 32,491  |   |                          | $ | 26,799  |      |  | $ | N/A    |   |  | $ | N/A    |  
|                                                                                                                                                                                                                                                                                                                                                                                             |  |                  |         |   |                          |   |         |      |  |   |        |   |  |   |        |  
|Funded status                                                                                                                                                                                                                                                                                                                                                                                |  | $                | (26,677 | ) |                          | $ | (23,128 | )    |  | $ | (6,102 | ) |  | $ | (5,455 | )
|Unrecognized net loss                                                                                                                                                                                                                                                                                                                                                                        |  |                  | 15,239  |   |                          |   | 11,589  |      |  |   | 2,211  |   |  |   | 2,028  |  
|Unrecognized transition obligation, net                                                                                                                                                                                                                                                                                                                                                      |  |                  | 398     |   |                          |   | 455     |      |  |   | 461    |   |  |   | 519    |  
|Unrecognized prior service cost                                                                                                                                                                                                                                                                                                                                                              |  |                  | 220     |   |                          |   | 252     |      |  |   |       |   |  |   |       |  
|Post-measurement date adjustments                                                                                                                                                                                                                                                                                                                                                            |  |                  | 740     |   |                          |   | 441     |      |  |   |       |   |  |   |       |  
|                                                                                                                                                                                                                                                                                                                                                                                             |  |                  |         |   |                          |   |         |      |  |   |        |   |  |   |        |  
|Accrued post-retirement benefit costs                                                                                                                                                                                                                                                                                                                                                        |  | $                | (10,080 | ) |                          | $ | (10,391 | )    |  | $ | (3,430 | ) |  | $ | (2,908 | )
|                                                                                                                                                                                                                                                                                                                                                                                             |  |                  |         |   |                          |   |         |      |  |   |        |   |  |   |        |  
|Amounts Recognized in the Balance Sheets Consist Of:                                                                                                                                                                                                                                                                                                                                         |  |                  |         |   |                          |   |         |      |  |   |        |   |  |   |        |  
|Accrued benefit liability                                                                                                                                                                                                                                                                                                                                                                    |  | $                | (10,080 | ) |                          | $ | (10,391 | )    |  | $ | (3,430 | ) |  | $ | (2,908 | )
|Additional minimum liability                                                                                                                                                                                                                                                                                                                                                                 |  |                  | (3,144  | ) |                          |   | (66     | )    |  |   | N/A    |   |  |   | N/A    |  
|Intangible asset                                                                                                                                                                                                                                                                                                                                                                             |  |                  | 618     |   |                          |   | 35      |      |  |   | N/A    |   |  |   | N/A    |  
|Other comprehensive income (a)                                                                                                                                                                                                                                                                                                                                                               |  |                  |        |   |                          |   | 31      |      |  |   | N/A    |   |  |   | N/A    |  
|Regulatory asset (a)                                                                                                                                                                                                                                                                                                                                                                         |  |                  | 2,526   |   |                          |   |        |      |  |   | N/A    |   |  |   | N/A    |  
|                                                                                                                                                                                                                                                                                                                                                                                             |  |                  |         |   |                          |   |         |      |  |   |        |   |  |   |        |  
|Net amount recognized                                                                                                                                                                                                                                                                                                                                                                        |  | $                | (10,080 | ) |                          | $ | (10,391 | )    |  | $ | (3,430 | ) |  | $ | (2,908 | )
|                                                                                                                                                                                                                                                                                                                                                                                             |  |                  |         |   |                          |   |         |      |  |   |        |   |  |   |        |  
|(a)    On
March 29, 2004, FERC issued guidance allowing an entity to recognize the amount of the minimum pension liability otherwise chargeable to other comprehensive income as a regulatory asset. On January 13, 2005, we received an accounting authority order
from the KCC to record the other comprehensive income related to pension benefit obligation costs as a regulatory asset. | 



47



---

##### Table of Contents

|                                                                                                       |  |                        |        |   |                          |   |        |      |  |   |       |   |  |   |       |  
|------------------------------------------------------------------------------------------------------ |  | ---------------------- | ------ | - | ------------------------ | - | ------ | ---- |  | - | ----- | - |  | - | ----- | -
|                                                                                                       |  | Pension Benefits       |        |   | Post-retirement Benefits |  
|                                                                                                       |  | 2004                   |        |   | 2003                     |   |        | 2004 |  |   | 2003  |  
|At December 31,                                                                                        |  | (Dollars in Thousands) |       
|Accumulated Benefit Obligation                                                                         |  | $                      | 46,455 |   |                          | $ | 37,037 |      |  | $ | N/A   |   |  | $ | N/A   |  
|Pension Plans With a Projected Benefit Obligation In Excess of Plan Assets:                            |  |                        |        |   |                          |   |        |      |  |   |       |   |  |   |       |  
|Projected benefit obligation                                                                           |  | $                      | 59,168 |   |                          | $ | 49,927 |      |  |   | N/A   |   |  |   | N/A   |  
|Accumulated benefit obligation                                                                         |  |                        | 46,455 |   |                          |   | 37,037 |      |  |   | N/A   |   |  |   | N/A   |  
|Fair value of plan assets                                                                              |  |                        | 32,491 |   |                          |   | 26,799 |      |  |   | N/A   |   |  |   | N/A   |  
|                                                                                                       |  |                        |        |  
|Pension Plans With an Accumulated Benefit Obligation In Excess of Plan Assets:                         |  |                        |        |   |                          |   |        |      |  |   |       |   |  |   |       |  
|Projected benefit obligation                                                                           |  | $                      | 59,168 |   |                          | $ | 49,927 |      |  |   | N/A   |   |  |   | N/A   |  
|Accumulated benefit obligation                                                                         |  |                        | 46,455 |   |                          |   | 37,037 |      |  |   | N/A   |   |  |   | N/A   |  
|Fair value of plan assets                                                                              |  |                        | 32,491 |   |                          |   | 26,799 |      |  |   | N/A   |   |  |   | N/A   |  
|                                                                                                       |  |                        |        |  
|Post-retirement Plans With an Accumulated Post-retirement Benefit Obligation In Excess of Plan Assets: |  |                        |        |   |                          |   |        |      |  |   |       |   |  |   |       |  
|Accumulated post-retirement benefit obligation                                                         |  |                        | N/A    |   |                          |   | N/A    |      |  | $ | 6,060 |   |  | $ | 5,455 |  
|Fair value of plan assets                                                                              |  |                        | N/A    |   |                          |   | N/A    |      |  |   | N/A   |   |  |   | N/A   |  
|                                                                                                       |  |                        |        |  
|Weighted-Average Actuarial Assumptions used to Determine Net Periodic Benefit Obligation:              |  |                        |        |   |                          |   |        |      |  |   |       |   |  |   |       |  
|Discount rate                                                                                          |  |                        | 6.00   | % |                          |   | 6.20   | %    |  |   | 6.00  | % |  |   | 6.20  | %
|Compensation rate increase                                                                             |  |                        | 3.00   | % |                          |   | 3.20   | %    |  |   | N/A   |   |  |   | N/A   |  



WCNOC uses a
measurement date of December 1 for the majority of its pension and post-retirement benefit plans.



The prior service cost is amortized on a straight-line basis over the average future service of the active plan participants benefiting under the plan at
the time of the amendment. The net actuarial loss subject to amortization is amortized on a straight-line basis over the average future service of active plan participants benefiting under the plan, without application of the amortization corridor
described in SFAS Nos. 87 and 106.



|                                                                            |  |                        |        |   |                          |   |              |      |  |   |              |   |      |   |       |  |   |       |  |   |      
|--------------------------------------------------------------------------- |  | ---------------------- | ------ | - | ------------------------ | - | ------------ | ---- |  | - | ------------ | - | ---- | - | ----- |  | - | ----- |  | - | -----
|                                                                            |  | Pension Benefits       |        |   | Post-retirement Benefits
|                                                                            |  | 2004                   |        |   | 2003                     |   |              | 2002 |  |   | 2004         |   | 2003 |   | 2002 
|For the Year Ended December 31,                                             |  | (Dollars in Thousands)
|Components of Net Periodic Cost:                                            |  |                        |        |   |                          |   |              |      |  |   |              |   |      |   |       |  |   |       |  |   |      
|Service cost                                                                |  | $                      | 2,572  |   |                          | $ | 2,545        |      |  | $ | 2,207        |   |      | $ | 235   |  | $ | 218   |  | $ | 166  
|Interest cost                                                               |  |                        | 3,295  |   |                          |   | 2,928        |      |  |   | 2,613        |   |      |   | 356   |  |   | 289   |  |   | 272  
|Expected return on plan assets                                              |  |                        | (2,780 | ) |                          |   | (2,464       | )    |  |   | (2,469       | ) |      |   |      |  |   |      |  |   |     
|Amortization of unrecognized:                                               |  |                        |        |   |                          |   |              |      |  |   |              |   |      |   |       |  |   |       |  |   |      
|Transition obligation, net                                                  |  |                        | 57     |   |                          |   | 57           |      |  |   | 57           |   |      |   | 58    |  |   | 58    |  |   | 57   
|Prior service costs                                                         |  |                        | 31     |   |                          |   | 31           |      |  |   | 27           |   |      |   |      |  |   |      |  |   |     
|Loss, net                                                                   |  |                        | 802    |   |                          |   | 603          |      |  |   | 21           |   |      |   | 141   |  |   | 99    |  |   | 73   
|Curtailments, settlements and special term benefits                         |  |                        |       |   |                          |   |             |      |  |   | 284          |   |      |   |      |  |   |      |  |   |     
|                                                                            |  |                        |        |   |                          |   |              |      |  |   |              |   |      |   |       |  |   |       |  |   |      
|Net periodic cost                                                           |  | $                      | 3,977  |   |                          | $ | 3,700        |      |  | $ | 2,740        |   |      | $ | 790   |  | $ | 664   |  | $ | 568  
|                                                                            |  |                        |        |   |                          |   |              |      |  |   |              |   |      |   |       |  |   |       |  |   |      
|Weighted-Average Actuarial Assumptions used to Determine Net Periodic Cost: |  |                        |        |   |                          |   |              |      |  |   |              |   |      |   |       |  |   |       |  |   |      
|Discount rate                                                               |  |                        | 6.20%  |   |                          |   | 6.75%        |      |  |   | 7.25%        |   |      |   | 6.10% |  |   | 6.50% |  |   | 7.25%
|Expected long-term return on plan assets                                    |  |                        | 9.00%  |   |                          |   | 9.00%        |      |  |   | 9.02%        |   |      |   | 8.50% |  |   | N/A   |  |   | N/A  
|Compensation rate increase                                                  |  |                        | 3.20%  |   |                          |   | Graded rates |      |  |   | Graded rates |   |      |   | N/A   |  |   | N/A   |  |   | N/A  



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 portfolio. 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 portfolio 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. In selecting the
discount rate, fixed income security yield rates for corporate high-grade bond yields are considered.



48



---

##### Table of Contents

For measurement purposes, the assumed annual health care cost growth rates were as follows.



|                                                                                  |  |                 |   |  |      |  
|--------------------------------------------------------------------------------- |  | --------------- | - |  | ---- | -
|                                                                                  |  | At December 31, |  
|                                                                                  |  | 2004            |   |  | 2003 |  
|Health care cost trend rate assumed for next year                                 |  | 8.5             | % |  | 9.0  | %
|Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) |  | 5.0             | % |  | 5.0  | %
|Year that the rate reaches the ultimate trend rate                                |  | 2012            |   |  | 2012 |  



The health care cost
trend rate has a significant effect on the projected benefit obligation. A 1% change in assumed health care cost growth rates would have effects shown in the following table.



|                                                                            |  |                                |    |                                |   |     |  
|--------------------------------------------------------------------------- |  | ------------------------------ | -- | ------------------------------ | - | --- | -
|                                                                            |  | One-Percentage- Point Increase |    | One-Percentage- Point Decrease |  
|                                                                            |  | (In Thousands)                 |   
|Effect on total of service and interest cost                                |  | $                              | 3  |                                | $ | (3  | )
|Effect on the present value of the accumulated projected benefit obligation |  |                                | 46 |                                |   | (45 | )



The asset allocation
for the pension plans at the end of 2004 and 2003, and the target allocation for 2005, by asset category are as shown in the following table.



|                  |  |                            |  |             |   |  |      |  
|----------------- |  | -------------------------- |  | ----------- | - |  | ---- | -
|                  |  |                            |  | Plan Assets |  
|Asset Category    |  | Target Allocation for 2005 |  | 2004        |   |  | 2003 |  
|Pension Plans:    |  |                            |  |             |   |  |      |  
|Equity securities |  | 50% - 70%                  |  | 65          | % |  | 66   | %
|Debt securities   |  | 30% - 50%                  |  | 28          | % |  | 33   | %
|Other             |  | 0%                         |  | 7           | % |  | 1    | %
|                  |  |                            |  |             |   |  |      |  
|Total             |  |                            |  | 100         | % |  | 100  | %
|                  |  |                            |  |             |   |  |      |  



WCNOCs pension
plan investment strategy supports the objective of the fund, which is to earn the highest possible return on plan assets consistent with a reasonable and prudent level of risk. Investments are diversified across classes, sectors and manager style to
minimize the risk of large losses. WCNOC delegates investment management to specialists in each asset class and where appropriate, provides the investment manager with specific guidelines, which include allowable and/or prohibited investment types.
Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews.



49



---

##### Table of Contents

Expected cash flows



|                           |  |                  |         |   |                          |   |      |                 |  |                          |     |  |   |        |  
|-------------------------- |  | ---------------- | ------- | - | ------------------------ | - | ---- | --------------- |  | ------------------------ | --- |  | - | ------ | -
|                           |  | Pension Benefits |         |   | Post-Retirement Benefits |  
|                           |  | To/(From) Trust  |         |   | To/(From) Company Assets |   |      | To/(From) Trust |  | To/(From) Company Assets |    
|                           |  | (In Thousands)   |        
|Expected contributions:    |  |                  |         |   |                          |   |      |                 |  |                          |     |  |   |        |  
|2005                       |  | $                | 4,700   |   |                          | $ | 200  |                 |  | $                        | N/A |  | $ | 300    |  
|Expected benefit payments: |  |                  |         |   |                          |   |      |                 |  |                          |     |  |   |        |  
|2005                       |  | $                | (800    | ) |                          | $ | (200 | )               |  | $                        | N/A |  | $ | (300   | )
|2006                       |  |                  | (900    | ) |                          |   | (200 | )               |  |                          | N/A |  |   | (300   | )
|2007                       |  |                  | (1,100  | ) |                          |   | (200 | )               |  |                          | N/A |  |   | (300   | )
|2008                       |  |                  | (1,400  | ) |                          |   | (200 | )               |  |                          | N/A |  |   | (400   | )
|2009                       |  |                  | (1,600  | ) |                          |   | (200 | )               |  |                          | N/A |  |   | (400   | )
|2010  2014                |  |                  | (13,800 | ) |                          |   | (900 | )               |  |                          | N/A |  |   | (2,600 | )



Savings Plan



WCNOC maintains a qualified 401(k) savings plan in which most of its
employees participate. They match employees contributions in cash up to specified maximum limits. WCNOCs contribution to the plan is deposited with a trustee and is invested at the direction of plan participants into one or more of the
investment alternatives provided under the plan. Our portion of expense associated with WCNOCs matching contributions was $0.8 million for 2004, $0.9 million for 2003 and $0.8 million for 2002.



11. INCOME TAXES



Income tax expense (benefit) is composed of the following components at December 31.



|                                   |  |                |         |   |      |   |        |      |  |   |        |  
|---------------------------------- |  | -------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                   |  | 2004           |         |   | 2003 |   |        | 2002 | 
|                                   |  | (In Thousands) |        
|Current income taxes:              |  |                |         |   |      |   |        |      |  |   |        |  
|Federal                            |  | $              | 42,178  |   |      | $ | 18,074 |      |  | $ | (1,994 | )
|State                              |  |                | 5,782   |   |      |   | 4,460  |      |  |   | (404   | )
|Deferred income taxes:             |  |                |         |   |      |   |        |      |  |   |        |  
|Federal                            |  |                | (10,282 | ) |      |   | 4,921  |      |  |   | 16,325 |  
|State                              |  |                | (1,076  | ) |      |   | 1,486  |      |  |   | 4,284  |  
|Investment tax credit amortization |  |                | (2,044  | ) |      |   | (1,938 | )    |  |   | (2,132 | )
|                                   |  |                |         |   |      |   |        |      |  |   |        |  
|Total income tax expense           |  | $              | 34,558  |   |      | $ | 27,003 |      |  | $ | 16,079 |  
|                                   |  |                |         |   |      |   |        |      |  |   |        |  



Deferred tax assets
and liabilities are reflected on our consolidated balance sheets as follows.



|                                          |  |                |         |      |   |        
|----------------------------------------- |  | -------------- | ------- | ---- | - | -------
|                                          |  | December 31,  
|                                          |  | 2004           |         | 2003
|                                          |  | (In Thousands)
|Current deferred tax assets, net          |  | $              | 544     |      | $ | 2,956  
|                                          |  |               
|Non-current deferred tax liabilities, net |  |                | 656,838 |      |   | 684,965
|                                          |  |                |         |      |   |        
|Net deferred tax liabilities              |  | $              | 656,294 |      | $ | 682,009
|                                          |  |                |         |      |   |        



50



---

##### Table of Contents

Temporary differences related to deferred tax assets and deferred tax liabilities are summarized in the
following table.



|                                                                                                                                                                                                          |  |                |         |      |   |        
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | ---- | - | -------
|                                                                                                                                                                                                          |  | December 31,  
|                                                                                                                                                                                                          |  | 2004           |         | 2003
|                                                                                                                                                                                                          |  | (In Thousands)
|Deferred tax assets:                                                                                                                                                                                      |  |                |         |      |   |        
|Deferred gain on sale-leaseback                                                                                                                                                                           |  | $              | 61,241  |      | $ | 66,448 
|Disallowed plant costs                                                                                                                                                                                    |  |                | 13,484  |      |   | 14,527 
|General business credit carryforward (a)                                                                                                                                                                  |  |                | 10,746  |      |   | 7,602  
|Accrued liabilities                                                                                                                                                                                       |  |                | 4,920   |      |   | 4,956  
|Other                                                                                                                                                                                                     |  |                | 25,321  |      |   | 25,618 
|                                                                                                                                                                                                          |  |                |         |      |   |        
|Total deferred tax assets                                                                                                                                                                                 |  | $              | 115,712 |      | $ | 119,151
|                                                                                                                                                                                                          |  |                |         |      |   |        
|Deferred tax liabilities:                                                                                                                                                                                 |  |                |         |      |   |        
|Accelerated depreciation                                                                                                                                                                                  |  | $              | 377,454 |      | $ | 384,612
|Acquisition premium                                                                                                                                                                                       |  |                | 242,585 |      |   | 250,583
|Amounts due from customers for future income taxes, net                                                                                                                                                   |  |                | 144,817 |      |   | 155,800
|Other                                                                                                                                                                                                     |  |                | 7,150   |      |   | 10,165 
|                                                                                                                                                                                                          |  |                |         |      |   |        
|Total deferred tax liabilities                                                                                                                                                                            |  | $              | 772,006 |      | $ | 801,160
|                                                                                                                                                                                                          |  |                |         |      |   |        
|Net deferred tax liabilities                                                                                                                                                                              |  | $              | 656,294 |      | $ | 682,009
|                                                                                                                                                                                                          |  |                |         |      |   |        
|(a)    Balance
represents unutilized tax credits generated from affordable housing partnerships in which we sold the majority of our interests in 2001. These credits expire beginning 2019 through 2024.



In accordance with
various rate orders, we have reduced rates to reflect the tax benefits associated with certain accelerated tax deductions. We believe it is probable that the net future increases in income taxes payable will be recovered from customers when these
temporary tax benefits reverse. We have recorded a regulatory asset for these amounts. We also have recorded a regulatory liability for our obligation to reduce rates charged customers for deferred taxes recovered from customers at corporate tax
rates higher than the current tax rates. The rate reduction will occur as the temporary differences resulting in the excess deferred tax liabilities reverse. The tax-related regulatory assets and liabilities as well as unamortized investment tax
credits are also temporary differences for which deferred income taxes have been provided. This liability is classified above as amounts due from customers for future income taxes.



The effective income tax rates set forth below are computed by dividing total federal and state income taxes by the sum of
such taxes and net income. The difference between the effective tax rates and the federal statutory income tax rates are as follows.



|                                                       |  |                                 |   |  |       |   |  |       |  
|------------------------------------------------------ |  | ------------------------------- | - |  | ----- | - |  | ----- | -
|                                                       |  | For the Year Ended December 31, |  
|                                                       |  | 2004                            |   |  | 2003  |   |  | 2002  |  
|Statutory federal income tax rate                      |  | 35.0                            | % |  | 35.0  | % |  | 35.0  | %
|Effect of:                                             |  |                                 |   |  |       |   |  |       |  
|State income taxes                                     |  | 3.9                             |   |  | 4.1   |   |  | 3.2   |  
|Amortization of investment tax credits                 |  | (1.8                            | ) |  | (2.1  | ) |  | (2.8  | )
|Corporate-owned life insurance policies                |  | (10.4                           | ) |  | (13.3 | ) |  | (16.5 | )
|Accelerated depreciation flow through and amortization |  | 3.6                             |   |  | 5.3   |   |  | 2.0   |  
|Change in provision for accrued taxes                  |  | 2.5                             |   |  |      |   |  |      |  
|Other                                                  |  | (2.9                            | ) |  | (0.2  | ) |  | 0.4   |  
|                                                       |  |                                 |   |  |       |   |  |       |  
|Effective income tax rate                              |  | 29.9                            | % |  | 28.8  | % |  | 21.3  | %
|                                                       |  |                                 |   |  |       |   |  |       |  



We are a member of
Westar Energys consolidated tax group. We file consolidated tax returns with Westar Energy. Westar Energy allocates to us our pro rata portion of consolidated income taxes based on our contribution to consolidated taxable income.



51



---

##### Table of Contents

As of December 31, 2004, we had recorded reserves for uncertain tax positions, including interest, of
$2.9 million. Tax reserves are established for tax deductions or income positions taken in prior income tax returns that we believe were treated properly on the tax returns but may be challenged if such tax returns are audited. The tax returns
containing these tax deductions or income positions are currently under audit or will likely be audited. The timing of the resolution of these audits is uncertain. If the positions taken on the returns are ultimately sustained, we will reverse these
tax provisions to income. If the positions taken on the tax returns are not ultimately sustained, we may be required to make cash payments plus interest. We also have a tax reserve of $0.5 million (after-tax) for property and sales tax assessments
by various state and local taxing authorities.



12. COMMITMENTS AND
CONTINGENCIES



Purchase Orders and Contracts



As part of our ongoing operations and construction program, we have purchase
orders and contracts, excluding fuel, which is discussed below under   Fuel Commitments, that have an unexpended balance of approximately $22.0 million at December 31, 2004, all of which has been committed. These commitments relate
to purchase obligations issued and outstanding at year-end.



The yearly detail of the aggregate amount of required payments at December 31, 2004 was as follows.



|     |  |                  |       
|---- |  | ---------------- | ------
|     |  | Committed Amount
|     |  | (In Thousands)  
|2005 |  | $                | 15,982
|2006 |  |                  | 3,630 
|2007 |  |                  | 2,344 
|     |  |                  |       
|     |  | $                | 21,956
|     |  |                  |       



Clean Air Act



Generally, we must comply with the Clean Air Act, state laws and
implementing regulations that impose, among other things, limitations on major pollutants, including sulfur dioxide (SO2), particulate matter and nitrogen oxides (NOx). In addition, we must comply with the provisions of the Clean Air Act Amendments
of 1990 that require a two-phase reduction in some emissions. We have installed continuous monitoring and reporting equipment in order to meet the acid rain requirements. We have not had to make any material capital expenditures to meet Phase II SO2
and NOx requirements.



EPA New Source Review



The Environmental Protection Agency (EPA) is conducting investigations
nationwide to determine whether modifications at coal-fired power plants are subject to New Source Review requirements or New Source Performance Standards under Section 114(a) of the Clean Air Act (Section 114). These investigations focus on whether
projects at coal-fired plants were routine maintenance or whether the projects were substantial modifications that could have reasonably been expected to result in a significant net increase in emissions. The Clean Air Act requires companies to
obtain permits and, if necessary, install control equipment to remove emissions when making a major modification or a change in operation if either is expected to cause a significant net increase in emissions.



The EPA has requested information from Westar Energy under Section 114
regarding projects and maintenance activities that have been conducted since 1980 at the three coal-fired plants it operates. On January 22, 2004, the EPA notified Westar Energy that certain projects completed at Jeffrey Energy Center violated
pre-construction permitting requirements of the Clean Air Act.



52



---

##### Table of Contents

Westar Energy is in discussions with the EPA concerning this matter in an attempt to reach a settlement.
Westar Energy expects that any settlement with the EPA could require Westar Energy to update or install emissions controls at Jeffrey Energy Center over an agreed upon number of years. Additionally, Westar Energy might be required to update or
install emissions controls at its other coal-fired plants, pay fines or penalties, or take other remedial action. Together, these costs could be material. The EPA informed Westar Energy that it has referred this matter to the Department of Justice
(DOJ) for the DOJ to consider whether to pursue an enforcement action in federal district court. We believe that costs related to updating or installing emissions controls would qualify for recovery through rates. If Westar Energy were to reach a
settlement with the EPA, Westar Energy may be assessed a penalty. The penalty could be material and may not be recovered in rates. We anticipate that a portion of any of these potential costs would be allocated to us.



Manufactured Gas Sites



We have been associated with three former manufactured gas sites located in Kansas that may contain coal tar and other
potentially harmful materials. We and the Kansas Department of Health and Environment entered into a consent agreement in 1994 governing all future work at these sites. Through December 31, 2004, the costs incurred for preliminary site investigation
and risk assessment have been minimal.



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 funds required for nuclear decommissioning will be accumulated prior to the termination of the license of the related nuclear power plant.



We expense nuclear decommissioning costs over the expected life of Wolf Creek. The amount we expense is based on an estimate of nuclear decommissioning
costs that we will incur upon retirement of the plant. Nuclear decommissioning costs that are recovered in rates are deposited in an external trust fund. In 2004, we expensed approximately $3.9 million for nuclear decommissioning. We record our
investment in the nuclear decommissioning fund at fair value. Fair value approximated $91.1 million at December 31, 2004 and $80.1 million at December 31, 2003.



The KCC reviews nuclear decommissioning plans in two phases. Phase one is the approval of the nuclear decommissioning study, the current-year funding
and future funding. Phase two is the filing of a funding schedule by the owner of the nuclear facility detailing how it plans to fund the future-year dollar amount for the pro rata share of the plant.



We filed an updated nuclear decommissioning and dismantlement cost estimate
with the KCC on August 30, 2002. Estimated costs outlined by this study were developed to decommission Wolf Creek following a shutdown. The analyses relied on site-specific, technical information, updated to reflect current plant conditions and
operating assumptions. Based on this study, our share of Wolf Creeks nuclear decommissioning costs, under the immediate dismantlement method, is estimated to be approximately $220.0 million in 2002 dollars. These costs include decontamination,
dismantling and site restoration and are not inflated, escalated, or discounted over the period of expenditure. The actual nuclear decommissioning costs may vary from the estimates because of changes in technology and changes in costs for labor,
materials and equipment.



The KCC issued an order on April 16,
2003 approving the August 2002 nuclear decommissioning study for Wolf Creek. On June 2, 2003, we filed a funding schedule with the KCC to reflect the KCCs April 16, 2003 order. On October 10, 2003, the KCC approved the funding schedule as
filed without any change to our funding obligation.



We charge
nuclear decommissioning costs to operating expense in accordance with the July 25, 2001 KCC rate order as modified by the KCCs approval of the funding schedule in the KCCs October 13, 2003 order. Electric



53



---

##### Table of Contents

rates charged to customers provide for recovery of these nuclear decommissioning costs over the life of Wolf Creek,
which, as determined by the KCC for purposes of the funding schedule, will be through 2045. The NRC requires that funds to meet its nuclear decommissioning funding assurance requirement be in our nuclear decommissioning fund by the time our license
expires in 2025. We believe that the KCC approved funding level will be sufficient to meet the NRC minimum financial assurance requirement. However, our consolidated results of operations would be materially adversely affected if we are not allowed
to recover the full amount of the funding requirement.



Storage of Spent
Nuclear Fuel



Under the Nuclear Waste Policy Act of 1982,
the Department of Energy (DOE) is responsible for the permanent disposal of spent nuclear fuel. As required by federal law, the WCNOC co-owners entered into a standard contract with the DOE in 1984 in which the DOE promised to begin accepting from
commercial nuclear power plants their used nuclear fuel for disposal beginning in early 1998. In return, Wolf Creek pays into a federal Nuclear Waste Fund administered by the DOE a quarterly fee for the future disposal of spent nuclear fuel. The fee
is one-tenth of a cent for each kilowatt-hour of net nuclear generation produced. We include these disposal costs in operating expenses.



A permanent disposal site will not be available for the nuclear industry until 2012 or later. Under current DOE policy, once a permanent site is
available, the DOE will accept spent nuclear fuel on a priority basis. The owners of the oldest spent fuel will be given the highest priority. As a result, disposal services for Wolf Creek will not be available prior to 2018. Wolf Creek has on-site
temporary storage for spent nuclear fuel. In early 2000, Wolf Creek completed replacement of spent fuel storage racks to increase its on-site storage capacity for all spent fuel expected to be generated by Wolf Creek through the end of its licensed
life in 2025.



In 2002, the Yucca Mountain site in Nevada was
approved for the development of a nuclear waste repository for the disposal of spent nuclear fuel and high level nuclear waste from the nations defense activities. This action allows the DOE to apply to the NRC to license the project. The DOE
expects that this facility will open in 2012. However, the opening of the Yucca Mountain site has been delayed many times and could be delayed further due to litigation and other issues related to the site as a permanent repository for spent nuclear
fuel.



Nuclear Insurance



We maintain nuclear insurance for Wolf Creek in four areas: liability,
worker radiation, property and accidental outage. These policies contain certain industry standard exclusions, including, but not limited to, ordinary wear and tear and war. Both the nuclear liability and property insurance programs subscribed to by
members of the nuclear power generating industry include industry aggregate limits for non-certified acts, as defined by the Terrorism Risk Insurance Act, of terrorism-related losses, including replacement power costs. An industry aggregate limit of
$300.0 million exists for liability claims, regardless of the number of non-certified acts affecting Wolf Creek or any other nuclear energy liability policy or the number of policies in place. An industry aggregate limit of $3.24 billion plus any
reinsurance recoverable by Nuclear Electric Insurance Limited (NEIL), our insurance provider, exists for property claims, including accidental outage power costs for acts of terrorism affecting Wolf Creek or any other nuclear energy facility
property policy within twelve months from the date of the first act. These limits are the maximum amount to be paid to members who sustain losses or damages from these types of terrorist acts. For certified acts of terrorism, the individual policy
limits apply. In addition, industry-wide retrospective assessment programs (discussed below) can apply once these insurance programs have been exhausted.



Nuclear Liability Insurance



Pursuant to the Price-Anderson Act, we are required to insure against public liability claims resulting from nuclear
incidents to the full limit of public liability, which is currently approximately $10.8 billion. This limit of liability consists of the maximum available commercial insurance of $300.0 million, and the remaining $10.5 billion is provided through
mandatory participation in an industry-wide retrospective assessment program. Under this retrospective assessment program, we can be assessed up to $100.6 million per incident at any commercial reactor in the country, payable at no more than $10.0
million per incident per year. This assessment is subject to an inflation adjustment based on the Consumer Price Index and applicable premium taxes. This assessment



54



---

##### Table of Contents

also applies in excess of our worker radiation claims insurance. In addition, Congress could impose additional
revenue-raising measures to pay claims. If the $10.8 billion liability limitation is insufficient, Congress will consider taking whatever action is necessary to compensate the public for valid claims.



The Price-Anderson Act expired in August 2002 but was extended until December
31, 2003 for Licensees. Licensees such as Wolf Creek continue to be grandfathered under the Act. The current version of a comprehensive energy bill expected to be adopted in 2005 by Congress contains provisions that would amend Federal Law (the
Price-Anderson Act) addressing public liability from nuclear energy hazards in ways that would increase the annual limit on retrospective assessments from $10.0 million to $15.0 million per reactor per incident.



Nuclear Property Insurance



The owners of Wolf Creek carry decontamination liability, premature nuclear
decommissioning liability and property damage insurance for Wolf Creek totaling approximately $2.8 billion (our share is $1.3 billion). This insurance is provided by NEIL. 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. Our share of any remaining proceeds can be used to pay for property damage or decontamination expenses or, if certain requirements are met, including
nuclear decommissioning the plant, toward a shortfall in the nuclear decommissioning trust fund.



Accidental Nuclear Outage Insurance



The owners also carry additional insurance with 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, we may be subject to retrospective assessments under the current policies of approximately $26.0 million (our share is $12.2 million).



Although we maintain various insurance policies to provide coverage for
potential losses and liabilities resulting from an accident or an extended outage, our 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 through rates, would have a material adverse effect on our consolidated financial condition and results of operations.



Fuel Commitments



To supply a portion of the fuel requirements for our generating plants, we have entered into various commitments to obtain nuclear fuel and coal. Some of
these contracts contain provisions for price escalation and minimum purchase commitments. At December 31, 2004, our share of WCNOCs nuclear fuel commitments were approximately $13.5 million for uranium concentrates expiring in 2007, $1.7
million for conversion expiring in 2007, $8.6 million for enrichment expiring at various times through 2006 and $52.4 million for fabrication through 2024.



At December 31, 2004, our coal and coal transportation contract commitments in 2004 dollars under the remaining terms of the contracts were approximately
$354.5 million. The largest contract expires in 2020, with the remaining contracts expiring at various times through 2013.



At December 31, 2004, our natural gas transportation commitments in 2004 dollars under the remaining terms of the contracts were approximately $1.1
million. The natural gas transportation contracts provide firm service to several of our natural gas burning facilities and expire at various times through 2016.



Energy Act



As part of the 1992 Energy Policy Act, a special assessment is being collected from utilities for a uranium enrichment decontamination and nuclear
decommissioning fund. Our portion of the assessment, including carrying costs, for Wolf Creek is approximately $11.1 million, adjusted for inflation. To date, we have paid approximately $9.7 million, with the estimated remainder payable over the
next two years. We recover such costs from prices we charge our customers.



55



---

##### Table of Contents

13. ASSET RETIREMENT OBLIGATIONS



In January 2003, we adopted SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires
recognition of legal obligations associated with the retirement 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 an asset retirement obligation is capitalized and depreciated over the remaining life of the asset. Any income effects are offset by regulatory accounting pursuant to SFAS No. 71.



Legal Liability - Wolf Creek



On January 1, 2003, we recognized the liability for our 47% share of the estimated cost to decommission Wolf Creek. SFAS No. 143 requires the recognition
of the present value of the asset retirement obligation we incurred at the time Wolf Creek was placed into service in 1985. On January 1, 2003, we recorded an asset retirement obligation of $74.7 million. In addition, we increased our property and
equipment balance, net of accumulated depreciation, by $10.7 million. We also established a regulatory asset for $64.0 million, which represents the accretion of the liability since 1985 and the increased depreciation expense associated with the
increase in plant. The asset retirement obligation is included on our consolidated balance sheets in other long-term liabilities. Currently, we recover costs to retire Wolf Creek through rates as provided by the KCC.



The following table is a reconciliation of the legal asset retirement
obligation related to the nuclear decommissioning of WCNOC, which is included on our consolidated balance sheets in other long-term liabilities.



|                                      |  |                         |       
|------------------------------------- |  | ----------------------- | ------
|                                      |  | As of December 31, 2004
|                                      |  | (In Thousands)         
|Beginning asset retirement obligation |  | $                       | 80,695
|Accretion expense                     |  |                         | 6,423 
|                                      |  |                         |       
|Ending asset retirement obligation    |  | $                       | 87,118
|                                      |  |                         |       



Non-legal Liability - Cost of
Removal



We have recovered amounts in rates to provide for
recovery of the probable costs of removing utility plant assets, but which do not represent legal retirement obligations. At December 31, 2004, we had $2.6 million in removal costs classified as a regulatory liability. At December 31, 2003, we had
$2.1 million in removal costs classified as a regulatory asset. The net amount related to non-legal retirement costs can fluctuate based on amounts related to removal costs recovered compared to removal costs incurred.



14. LEGAL PROCEEDINGS



We are involved in various legal, environmental and regulatory proceedings. We believe that adequate provisions have been
made and accordingly believe that the ultimate disposition of such matters will not have a material adverse effect on our consolidated financial position or results of operations. See also Notes 3, 12, and 15 for discussion of KCC regulatory
proceedings, alleged violations of the Clean Air Act and an investigation by FERC.



56



---

##### Table of Contents

15. ONGOING INVESTIGATIONS



FERC Subpoena



On December 16, 2002, Westar Energy received a subpoena from FERC seeking details on power trades with Cleco Corporation and its affiliates, documents
concerning power transactions between our system and our marketing operations and information on power trades in which we or other trading companies acted as intermediaries. Westar Energy has provided information to FERC in response to the original
subpoena, subsequent requests submitted through its counsel and additional subpoenas received July 28, 2003 and October 27, 2003 seeking information about compliance with FERC codes of conduct applicable to generation and transmission activities.
Westar Energy believes that our participation in these transactions and the conduct of its generation and transmission operations did not violate FERC rules and regulations. However, Westar Energy is unable to predict the ultimate outcome of the
investigation.



16. OPERATING LEASES



We lease office buildings, computer equipment, vehicles, railcars and other
property and equipment with various terms and expiration dates ranging from 1 to 15 years. We have the right at the expiration of the basic lease terms to renew several leases, including the LaCygne 2 lease, static var equipment lease, and several
railcar leases. We also have the right to purchase the equipment or assets at the expiration of the basic lease term or any renewal term at a price equal to the fair market value of the equipment if certain notification requirements are met.



In determining lease expense, we recognize the effects of
scheduled rent increases on a straight-line basis over the minimum lease term. The rental expense associated with the LaCygne 2 operating lease includes an offset for the amortization of the deferred gain on the sale-leaseback. The rental expense
and estimated commitments are as follows for the LaCygne 2 lease and other operating leases.



|                         |  |                     |         |                        |   |        
|------------------------ |  | ------------------- | ------- | ---------------------- | - | -------
|Year Ended December 31,  |  | LaCygne 2 Lease (a) |         | Total Operating Leases
|                         |  | (In Thousands)     
|Rental expense:          |  |                     |         |                        |   |        
|2002                     |  | $                   | 28,895  |                        | $ | 38,316 
|2003                     |  |                     | 28,895  |                        |   | 34,199 
|2004                     |  |                     | 28,895  |                        |   | 32,071 
|Future commitments:      |  |                     |         |                        |   |        
|2005                     |  | $                   | 38,013  |                        | $ | 41,418 
|2006                     |  |                     | 42,287  |                        |   | 45,785 
|2007                     |  |                     | 78,268  |                        |   | 80,749 
|2008                     |  |                     | 12,609  |                        |   | 15,031 
|2009                     |  |                     | 42,287  |                        |   | 44,596 
|Thereafter               |  |                     | 289,154 |                        |   | 339,865
|                         |  |                     |         |                        |   |        
|Total future commitments |  | $                   | 502,618 |                        | $ | 567,444
|                         |  |                     |         |                        |   |        

| | 
| | 

| | (a) | The LaCygne 2 lease amounts are included in the total operating leases column above.
| | --- | ------------------------------------------------------------------------------------



In 1987, we sold and leased back our 50% undivided interest in the LaCygne 2 generating unit. The LaCygne 2 lease has an
initial term of 29 years, with various options to renew the lease or repurchase the 50% undivided interest. We remain responsible for our share of operating and maintenance costs and other related operating costs of LaCygne 2. The lease is an
operating lease for financial reporting purposes. We recognized a gain on the sale, which was deferred and is being amortized over the lease term. The increase in payments in 2006 and 2007 represents a change in accordance with the terms of the
lease from the lease payments being made in arrears to the lease payments being made in advance and are included on a straight-line basis over the minimum lease term when determining lease expense.



57



---

##### Table of Contents

17. RELATED PARTY TRANSACTIONS



Our cash management function, including cash receipts and disbursements, is performed by Westar Energy. An intercompany
account is used to record receipts and disbursements between Westar Energy and us. The net amount payable to affiliates was approximately $91.5 million at December 31, 2004 and approximately $81.4 million at December 31, 2003 as reflected on our
consolidated balance sheets.



Westar Energy provides all
employees we use. Certain operating expenses have been allocated to us from Westar Energy. These expenses are allocated, depending on the nature of the expense, based on allocation studies, net investment, number of customers and/or other
appropriate factors. We believe such allocation procedures are reasonable.



We declared and paid dividends of $75.0 million to Westar Energy for the year ended December 31, 2004 and $100.0 million for the year ended December 31, 2003. There were no dividends declared or paid in 2002.



Termination of Shared Services Agreement



Westar Energy previously maintained shared services agreements with ONEOK,
Inc. (ONEOK) pursuant to which Westar Energy and ONEOK provide customer service functions to each other, including meter reading, customer billing and call center operations. ONEOK terminated portions of this shared services agreement in September
2004, including electric service orders, call center functions, bill processing and remittance processing. In addition to joint meter reading, Westar Energy and ONEOK plan to continue to share some facilities and a mobile communications system.



18. QUARTERLY RESULTS (UNAUDITED)



Our business is seasonal in nature and, in our opinion, comparisons between
the quarters of a year do not give a true indication of overall trends and changes in operations.



|                       |  |                |         |        |   |         |  |        |         |  |   |        
|---------------------- |  | -------------- | ------- | ------ | - | ------- |  | ------ | ------- |  | - | -------
|                       |  | First          |         | Second |   | Third   |  | Fourth
|                       |  | (In Thousands)
|2004                   |  |                |         |        |   |         |  |        |         |  |   |        
|Sales                  |  | $              | 162,091 |        | $ | 180,335 |  | $      | 202,209 |  | $ | 170,304
|Income from operations |  |                | 11,591  |        |   | 42,970  |  |        | 50,445  |  |   | 32,367 
|Net income             |  |                | 2,945   |        |   | 26,923  |  |        | 33,948  |  |   | 17,412 
|                       |  |                |         |       
|2003                   |  |                |         |        |   |         |  |        |         |  |   |        
|Sales                  |  | $              | 172,670 |        | $ | 172,165 |  | $      | 207,261 |  | $ | 157,558
|Income from operations |  |                | 36,364  |        |   | 34,988  |  |        | 58,069  |  |   | 19,250 
|Net income             |  |                | 17,024  |        |   | 15,984  |  |        | 28,923  |  |   | 4,696  



19. SUBSEQUENT EVENT  Ice
Storm



On January 4 and 5, 2005, substantially all of our
service territory experienced a severe ice storm. The storm interrupted electric service in a large portion of our service territory and damaged a significant portion of our electric distribution system. We estimate that we will incur $31.0 million
to $35.0 million of system restoration costs. Of this amount, we expect $5.5 million to $7.5 million to be accounted for as capital expenditures and we expect the balance related to maintenance expenditures to be accounted for as a regulatory asset.
On February 3, 2005, we filed an application for an accounting authority order with the KCC requesting that we be allowed to accumulate and defer for future recovery maintenance costs related to system restoration. We can provide no assurance that
the KCC will approve our application, however, in the past the KCC has approved similar requests.



58



---

##### Table of Contents

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



None.



ITEM 9A. CONTROLS AND PROCEDURES



We are a wholly owned subsidiary of Westar Energy and all evaluations of our controls and procedures were conducted in conjunction with those undertaken by Westar Energy. Under the supervision and with the participation of Westar
Energys management, including our president and our principal financial and accounting officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) of the
Securities Exchange Act of 1934. These controls and procedures are designed to ensure that material information relating to the company and its subsidiaries is communicated to the chief executive officer and the chief financial officer. Based on
that evaluation, our president and our principal financial and accounting officer concluded that, at December 31, 2004, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we
file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.



There were no changes in our internal control over financial reporting during
the fourth quarter ended December 31, 2004, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



ITEM 9B. OTHER INFORMATION



None.



PART III



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



Information required by Item 10 is omitted pursuant to General Instruction I(2)(c) to Form 10-K.



ITEM 11. EXECUTIVE COMPENSATION



Information required by Item 11 is omitted pursuant to General Instruction I(2)(c) to Form 10-K.



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



Information required by Item 12 is omitted pursuant to General Instruction I(2)(c) to Form 10-K.



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



Information required by Item 13 is omitted pursuant to General Instruction I(2)(c) to Form 10-K.



59



---

##### Table of Contents

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



Independent Auditor Fees



The aggregate fees
billed by our principal accounting firm, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, Deloitte & Touche) for services provided for fiscal years ended December
31, 2004 and 2003 are as follows.



|           |  |      |         |      |   |        
|---------- |  | ---- | ------- | ---- | - | -------
|           |  | 2004 |         | 2003
|Audit fees |  | $    | 365,762 |      | $ | 220,000
|           |  |      |         |      |   |        



Audit Committee Pre-Approval
Policies and Procedures



Westar Energys Audit
Committee charter provides that the Audit Committee will pre-approve audit services and non-audit services to be provided by our independent auditors before the accountant is engaged to render these services. Westar Energys Audit Committee may
consult with management in the decision-making process, but may not delegate this authority to management. Westar Energys Audit Committee may delegate its authority to pre-approve services to one or more committee members, provided that the
designees present the pre-approvals to the full committee at the next committee meeting.



Westar Energys Audit Committee has authorized the Chairman of the Audit Committee to pre-approve the retention of an independent auditor for audit-related and permitted non-audit services not contemplated by the
engagement letter for the annual audit, provided that: (a) these services are approved no more than thirty days in advance of the auditor commencing work; (b) the fees to be paid to the auditor for services related to any single engagement do not
exceed $25,000; (c) the aggregate fees to be paid to the auditor for services in any calendar year do not exceed $100,000; and (d) the Chairman advises the Audit Committee of the pre-approval of the services at the next meeting of the Audit
Committee following the approval.



60



---

##### Table of Contents

PART IV



ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



FINANCIAL STATEMENTS INCLUDED HEREIN

|
|

|                                                                                                                
|----------------------------------------------------------------------------------------------------------------
|Kansas Gas and Electric Company                                                                                 
|Report of Independent Registered Public Accounting Firm                                                         
|Consolidated Balance Sheets, as of December 31, 2004 and 2003                                                   
|Consolidated Statements of Income and Comprehensive Income, for the years ended December 31, 2004, 2003 and 2002
|Consolidated Statements of Cash Flows, for the years ended December 31, 2004, 2003 and 2002                     
|Consolidated Statements of Shareholders Equity, for the years ended December 31, 2004, 2003 and 2002           
|Notes to Consolidated Financial Statements                                                                      



SCHEDULES



Schedule II  Valuation and Qualifying Accounts



Schedules omitted as not applicable or not required under the Rules of
Regulation S-X: I, III, IV, and V



61



---

##### Table of Contents

EXHIBIT INDEX



All exhibits marked I are incorporated herein by reference. All exhibits marked by an asterisk are management
contracts or compensatory plans or arrangements required to be identified by Item 14(a)(3) of Form 10-K.



Description



|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |  
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -
|3(a)  |  | -Articles of Incorporation (Filed as Exhibit 3(a) to Form 10-K for the year ended December 31, 1992, File No. 1-7324)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | I
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|3(b)  |  | -Certificate of Merger of Kansas Gas and Electric Company into KCA Corporation (Filed as Exhibit 3(b) to Form 10-K for the year ended December 31, 1992, File No. 1-7324)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | I
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|3(c)  |  | -By-laws as amended (Filed as Exhibit 3(c) to Form 10-K for the year ended December 31, 1992, File No. 1-7324)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | I
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4(c)  |  | -Mortgage and Deed of Trust, dated as of April 1, 1940 to Guaranty Trust Company of New York (now Morgan Guaranty Trust Company of New York) and Henry A. Theis (to whom W. A. Spooner is
successor), Trustees, as supplemented by forty-three Supplemental Indentures, dated as of June 1, 1942, March 1, 1948, December 1, 1949, June 1, 1952, October 1, 1953, March 1, 1955, February 1, 1956, January 1, 1961, May 1, 1966, March 1, 1970, May
1, 1971, March 1, 1972, May 31, 1973, July 1, 1975, December 1, 1975, September 1, 1976, March 1, 1977, May 1, 1977, August 1, 1977, March 15, 1978, January 1, 1979, April 1, 1980, July 1, 1980, August 1, 1980, June 1, 1981, December 1, 1981, May 1,
1982, March 15, 1984, September 1, 1984 (Twenty-ninth and Thirtieth), February 1, 1985, April 15, 1986, June 1, 1991, March 31, 1992, December 17, 1992, August 24, 1993, January 15, 1994, March 1, 1994, April 15, 1994 and June 28, 2000, (Filed,
respectively, as Exhibit A-1 to Form U-1, File No. 70-23; Exhibits 7(b) and 7(c), File No. 2-7405; Exhibit 7(d), File No. 2-8242; Exhibit 4(c), File No. 2-9626; Exhibit 4(c), File No. 2-10465; Exhibit 4(c), File No. 2-12228; Exhibit 4(c), File No.
2-15851; Exhibit 2(b)-1, File No. 2-24680; Exhibit 2(c), File No. 2-36170; Exhibits 2(c) and 2(d), File No. 2-39975; Exhibit 2(d), File No. 2-43053; Exhibit 4(c)2 to Form 10-K, for December 31, 1989, File No. 1-7324; Exhibit 2(c), File No. 2-53765;
Exhibit 2(e), File No. 2-55488; Exhibit 2(c), File No. 2-57013; Exhibit 2(c), File No. 2-58180; Exhibit 4(c)3 to Form 10-K for December 31, 1989, File No. 1-7324; Exhibit 2(e), File No. 2-60089; Exhibit 2(c), File No. 2-60777; Exhibit 2(g), File No.
2-64521; Exhibit 2(h), File No. 2-66758; Exhibits 2(d) and 2(e), File No. 2-69620; Exhibits 4(d) and 4(e), File No. 2-75634; Exhibit 4(d), File No. 2-78944; Exhibit 4(d), File No. 2-87532; Exhibits 4(c)4, 4(c)5 and 4(c)6 to Form 10-K for December
31, 1989, File No. 1-7324; Exhibits 4(c)2 and 4(c)3 to Form 10-K for December 31, 1992, File No. 1-7324; Exhibit 4(b) to Form S-3, File No. 33-50075; Exhibits 4(c)2 and 4(c)3 to Form 10-K for December 31, 1993, File No. 1-7324; Exhibit 4(c)2 to Form
10-K for December 31, 1994, File No. 1-7324); Exhibit 4.1 to the June 30, 2002 Form 10-Q |  | I
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4(d)  |  | -Forty-Second Supplemental Indenture dated March 12, 2004 between Kansas Gas and Electric Company and BNY Midwest Trust Company, as Trustee (filed as an Exhibit to this Form 10-K)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |  
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4(e)  |  | -Forty-Third Supplemental Indenture dated June 1, 2004 between Kansas Gas and Electric Company and BNY Midwest Trust Company, as Trustee (filed as an Exhibit to this Form 10-K)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |  
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|      |  | Instruments defining the rights of holders of other long-term debt not required to be filed as exhibits will be furnished to the Commission upon request.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |  
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10(a) |  | -LaCygne 2 Lease (filed as Exhibit 10(a) to Form 10-K for the year ended December 31, 1988, File No. 1-7324)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | I
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10(a) |  | -Amendment No. 3 to LaCygne 2 Lease Agreement dated as of September 29, 1992 (filed as Exhibit 10(b)1 to Form 10-K for the year ended December 31, 1992, File No. 1-7324)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | I
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10(b) |  | -Outside Directors Deferred Compensation Plan (filed as Exhibit 10(c) to the Form 10-K for the year ended December 31, 1993, File No. 1-7324)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | I
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|12    |  | -Computations of Ratio of Consolidated Earnings to Fixed Charges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |  



62



---

##### Table of Contents

|      |  |                                                                                                                                                                                                                                                                                                              |  |  
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -
|31(a) |  | -Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                      |  |  
|      |  |                                                                                                                                                                                                                                                                                                             
|31(b) |  | -Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                     |  |  
|      |  |                                                                                                                                                                                                                                                                                                             
|32    |  | -Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished and not to be considered filed as part of the Form 10-K)                                                                                                                                                                |  |  
|      |  |                                                                                                                                                                                                                                                                                                             
|99(a) |  | -Order on Rate Applications from The Corporation Commission of the State of Kansas in the Matter of the Application of Kansas Gas and Electric Company for the Approval to Make Certain Changes
in its Charges for Electric Service (Filed as Exhibit 99.1 to Form 10-Q for the quarter ended June 30, 2001) |  | I
|      |  |                                                                                                                                                                                                                                                                                                             
|99(b) |  | -Kansas Corporation Commission Order dated November 8, 2002 (filed as Exhibit 99.2 to Form 10-Q for the quarter ended June 30, 2002)                                                                                                                                                                         |  | I
|      |  |                                                                                                                                                                                                                                                                                                             
|99(c) |  | -Kansas Corporation Commission Order dated December 23, 2002 (filed as Exhibit 99(f) to Form 10-K for the year ended December 31, 2002)                                                                                                                                                                      |  | I
|      |  |                                                                                                                                                                                                                                                                                                             
|99(d) |  | -Debt Reduction Plan filed with the Kansas Corporation Commission on February 6, 2003 (filed as Exhibit 99(g) to Form 10-K for the year ended December 31, 2002)                                                                                                                                             |  | I
|      |  |                                                                                                                                                                                                                                                                                                             
|99(e) |  | -Kansas Corporation Commission Order dated February 10, 2003 (filed as Exhibit 99(h) to Form 10-K for the year ended December 31, 2002)                                                                                                                                                                      |  | I
|      |  |                                                                                                                                                                                                                                                                                                             
|99(f) |  | -Kansas Corporation Commission Order dated March 11, 2003 (filed as Exhibit 99(i) to Form 10-K for the year ended December 31, 2002)                                                                                                                                                                         |  | I



KANSAS GAS AND ELECTRIC COMPANY

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS



|                                                          |  |                              |       |                             |   |            |  |   |                        |   |  |   |      
|--------------------------------------------------------- |  | ---------------------------- | ----- | --------------------------- | - | ---------- |  | - | ---------------------- | - |  | - | -----
|Description                                               |  | Balance atBeginningof Period |       | Charged toCosts andExpenses |   | Deductions |  |   | Balanceat Endof Period
|                                                          |  | (In Thousands)              
|Year ended December 31, 2002                              |  |                              |       |                             |   |            |  |   |                        |   |  |   |      
|Allowances deducted from assets for doubtful accounts (a) |  | $                            | 6,552 |                             | $ | 5,584      |  | $ | (5,976                 | ) |  | $ | 6,160
|                                                          |  |                              |       |                            
|Year ended December 31, 2003                              |  |                              |       |                             |   |            |  |   |                        |   |  |   |      
|Allowances deducted from assets for doubtful accounts (a) |  |                              | 6,160 |                             |   | 3,807      |  |   | (4,564                 | ) |  |   | 5,403
|                                                          |  |                              |       |                            
|Year ended December 31, 2004                              |  |                              |       |                             |   |            |  |   |                        |   |  |   |      
|Allowances deducted from assets for doubtful accounts (a) |  |                              | 5,403 |                             |   | 2,581      |  |   | (2,776                 | ) |  |   | 5,208

| | 
| | 

| | (a) | Deductions are primarily the result of write-offs of accounts receivable.
| | --- | -------------------------------------------------------------------------



63



---

##### Table of Contents

SIGNATURE



Pursuant to the
requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                     |  |                                 |  |                             
|-------------------- |  | ------------------------------- |  | ----------------------------
|                     |  | KANSAS GAS AND ELECTRIC COMPANY
|                     |  |                                
|Date: March 16, 2005 |  | By:                             |  | /s/ Mark A. Ruelle          
|                     |  |                                 |  | Mark A. Ruelle              
|                     |  |                                 |  | Vice President and Treasurer



SIGNATURES



Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                                               |  |                                                                           |  |               
|---------------------------------------------- |  | ------------------------------------------------------------------------- |  | --------------
|Signature                                      |  | Title                                                                     |  | Date          
|                                               |  |                                                                          
|/s/ William B. Moore(William B. Moore)         |  | Chairman of the Board and President(Principal Executive Officer)          |  | March 16, 2005
|                                               |  |                                                                          
|/s/ Mark A. Ruelle(Mark A. Ruelle)             |  | Vice President and Treasurer (Principal Financial and Accounting Officer) |  | March 16, 2005
|                                               |  |                                                                          
|/s/ Douglas R. Sterbenz(Douglas R. Sterbenz)   |  | Director                                                                  |  | March 16, 2005
|                                               |  |                                                                          
|/s/ Caroline A. Williams(Caroline A. Williams) |  | Director                                                                  |  | March 16, 2005



64