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Westar Energy Asks KCC to Reconsider Parts of Its Rate Order

Posted on: Tuesday, 17 January 2006, 18:00 CST

TOPEKA, Kan., Jan. 17 /PRNewswire-FirstCall/ -- Westar Energy, Inc. today asked the Kansas Corporation Commission to reconsider parts of its recent order in Westar's rate review.

As it stands, the order will reverse Westar's forward progress; it is inadequate to support Westar's return to being a basic utility. The order, if not changed, will send a policy signal that Westar will not be provided a reasonable opportunity to succeed as a pure Kansas electric utility.

The reaction of Westar's investors and the entities that rate Westar's credit show that the order fails to achieve a reasonable end result. From the date of the order, December 28, 2005, Westar's stock price has dropped from $22.30 per share to $21.22 per share on January 13, 2006, costing its investors -- including approximately 18,000 Kansans -- approximately $94 million of their savings. Since filing of KCC staff's recommendations last fall, Westar's market value loss has been approximately $270 million -- over a quarter of a billion dollars.

Standard and Poor's (S&P) indicated in a release issued on January 3, 2006, that the order "will not lift the company's financial metrics to levels suitable for investment-grade ratings at this time."

"If rates are set artificially low today, customers will end up paying even higher rates in the future," said Jim Haines, Westar president and chief executive officer. "We believe it is in everyone's best interest for fair prices to be established today."

In its request Westar specifically asked the KCC, among other things, to reconsider the treatment of wholesale sales margins, how merger savings are allocated and the allowed return on common equity.

Treatment of Wholesale Margins

When Westar's generating plants are not needed to serve its retail customers, it attempts to sell power in the wholesale market. Profits from such sales are then credited against the cost of serving retail customers. Westar proposes that the KCC allow it to credit customers with the actual margins from off-system sales. In its request for reconsideration, Westar pointed out that the KCC's order will require it to credit to retail customers more than it is able to gain from these sales. Westar agrees with the KCC that retail customers ought to receive substantial benefits from such sales but stated that it would be punitive to require Westar to credit customers more than it will earn from such sales.

Recovering Merger Costs out of Merger Savings

When KGE and KPL merged to form Westar in 1992, the KCC approved a method for allowing Westar to recover some of the costs it incurred to complete the merger out of the millions of dollars of savings resulting from the efficiencies created by combining the companies. Westar believes that method fairly apportioned merger savings, allowing Westar to retain a portion of such savings to defray its costs of completing the transaction, and requiring that a portion of the savings benefit customers. In a 2001 order, the KCC changed this method and reduced by $12.5 million, or by almost half, the annual amount Westar is allowed to retain. The petition for reconsideration asks the KCC to restore its original agreement with Westar and its shareholders.

Return on Common Equity

In its petition, Westar stated that the establishment of an allowed return on equity of only 10 percent puts Westar at a disadvantage in competing for investment capital. If Westar is not able to attract investment capital at competitive rates, its long-term financing costs will increase and result in higher customer rates in the future.

In its petition Westar noted that the KCC authorized a return on equity for Westar that is substantially lower than the returns other utilities in the region are allowed to recover in their rates.

Under Kansas regulation, the KCC has until Feb. 16 to respond to Westar's petition for reconsideration.

Westar Energy, Inc. is the largest electric utility in Kansas, providing electric service to about 659,000 customers in the state. Westar Energy has nearly 6,000 megawatts of electric generation capacity and operates and coordinates approximately 33,000 miles of electric distribution and transmission lines.

For more information about Westar Energy, visit us on the Internet at http://www.wr.com/ .

Forward-looking statements: Certain matters discussed in this news release 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 "believe,""anticipate,""target,""expect,""pro forma,""estimate,""intend,""guidance" or words of similar meaning. Forward-looking statements describe future plans, objectives, expectations or goals. Although Westar Energy believes that its expectations are based on reasonable assumptions, all forward-looking statements involve risk and uncertainty. Therefore, actual results could vary materially from what we expect. Please review our Quarterly Report on Form 10-Q for the period ended Sept. 30, 2005 for important risk factors that could cause results to differ materially from those in any such forward-looking statements. Any forward-looking statement speaks only as of the date such statement was made, and the company does not undertake any obligation 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.

Media contact: Karla Olsen, senior manager, media relations Phone: 888.613.0003 FAX: 316.261.6769 karla_olsen@wr.com Investor contact: Bruce Burns, director, investor relations Phone: 785.575.8227 bruce_burns@wr.com

First Call Analyst: FCMN Contact: gina_penzig@wr.com

Westar Energy

CONTACT: Media, Karla Olsen, senior manager, media relations,+1-888-613-0003, or fax, +1-316-261-6769, karla_olsen@wr.com , or Investors,Bruce Burns, director, investor relations, +1-785-575-8227,bruce_burns@wr.com , both of Westar Energy

Web site: http://www.wr.com/

Source: PRNewswire-FirstCall

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