View:
Download DOC
Download PDF
Download XLS
Prepared by R.R. Donnelley Financial -- FORM 10-Q
Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2002
 
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)
 
P.O. BOX 208
Wichita, Kansas 67201
(316) 261-6611
(Address, including Zip code and telephone number, including area code, of registrant’s principal executive offices)
 
 
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 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 August 8, 2002)
 
Registrant meets the conditions of General Instruction H(1)(a) and (b) to Form 10-Q for certain wholly-owned subsidiaries and is therefore filing this form with a reduced disclosure format.
 

Table of Contents
TABLE OF CONTENTS
 
         
Page
PART I.
   
Financial Information
     
  Item 1.
   
Financial Statements
     
       
4
       
5-6
       
7
       
8
Item 2.
      
15
Item 3.
      
21
PART II.
   
Other Information
     
Item 1.
      
22
Item 2.
      
22
Item 3.
      
22
Item 4.
      
22
Item 5.
      
22
Item 6.
      
22
  
23

2

Table of Contents
FORWARD-LOOKING STATEMENTS
 
Certain matters discussed in this Form 10-Q 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,” “expect,” or 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,
 
·
 
possible corporate restructurings, mergers, acquisitions and dispositions,
 
·
 
compliance with debt and other restrictive covenants,
 
·
 
interest and dividends,
 
·
 
the financial condition of other Westar Energy, Inc.’s subsidiaries and their impact on Westar Energy, Inc.’s results, including impairment charges that were recorded in the first quarter of 2002 that may affect our liquidity,
 
·
 
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,
 
·
 
ongoing municipal, state and federal activities, such as the Wichita municipalization effort,
 
·
 
future economic conditions,
 
·
 
changes in accounting requirements and other accounting matters,
 
·
 
changing weather,
 
·
 
rate and other regulatory matters, including the impact of (i) the Kansas Corporation Commission’s order to reduce our rates issued on July 25, 2001 and (ii) the Kansas Corporation Commission’s order issued July 20, 2001 and related proceedings, with respect to the proposed separation of Westar Energy, Inc.’s electric utility businesses (including us) from Westar Industries, Inc.,
 
·
 
the impact of changes and downturns in the energy industry and the market for trading wholesale electricity,
 
·
 
the proposed sale of Westar Energy, Inc.’s interests in ONEOK, Inc.,
 
·
 
political, legislative and regulatory developments,
 
·
 
amendments or revisions to Westar Energy, Inc.’s current business and financial plans,
 
·
 
regulatory, legislative and judicial actions,
 
·
 
regulated and competitive markets and
 
·
 
other circumstances affecting anticipated operations, sales and costs.
 
These lists are not all-inclusive because it is not possible to predict all possible factors.
 
See “Item 1. Business—Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2001, for additional information on matters that could impact our operations and financial results. Any forward-looking statement speaks only as of the date such statement was made, and we do 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.

3

Table of Contents
PART I.  Financial Information
 
ITEM 1.  FINANCIAL STATEMENTS
 
KANSAS GAS AND ELECTRIC COMPANY
 
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
 
    
June 30, 2002
     
December 31, 2001
  
ASSETS
                  
CURRENT ASSETS:
                  
Cash and cash equivalents
   
$
5,472
 
   
$
5,564
 
Restricted cash
   
 
10,281
 
   
 
—
 
Accounts receivable, net
   
 
57,877
 
   
 
45,209
 
Receivable from affiliates
   
 
—
 
   
 
17,349
 
Inventories and supplies
   
 
63,242
 
   
 
65,531
 
Energy trading contracts
   
 
12,897
 
   
 
4,887
 
Deferred tax assets
   
 
—
 
   
 
1,002
 
Prepaid expenses and other
   
 
47,193
 
   
 
23,312
 
    
  
Total Current Assets
   
 
196,962
 
   
 
162,854
 
    
  
PROPERTY, PLANT AND EQUIPMENT, NET
   
 
2,405,278
 
   
 
2,426,875
 
    
  
OTHER ASSETS:
                  
Restricted cash
   
 
140,130
 
   
 
—
 
Regulatory assets
   
 
251,764
 
   
 
244,108
 
Energy trading contracts
   
 
4,138
 
   
 
—
 
Other
   
 
103,388
 
   
 
96,208
 
    
  
Total Other Assets
   
 
499,420
 
   
 
340,316
 
    
  
TOTAL ASSETS
   
$
3,101,660
 
   
$
2,930,045
 
    
  
LIABILITIES AND SHAREHOLDER’S EQUITY
                  
CURRENT LIABILITIES:
                  
Accounts payable
   
$
47,434
 
   
$
51,384
 
Payable to affiliates
   
 
139,926
 
   
 
—
 
Accrued liabilities
   
 
72,062
 
   
 
66,642
 
Energy trading contracts
   
 
12,643
 
   
 
9,970
 
Deferred income taxes
   
 
12,057
 
   
 
—
 
Other
   
 
6,742
 
   
 
6,362
 
    
  
Total Current Liabilities
   
 
290,864
 
   
 
134,358
 
    
  
LONG-TERM LIABILITIES:
                  
Long-term debt, net
   
 
684,424
 
   
 
684,360
 
Deferred income taxes and investment tax credits
   
 
715,780
 
   
 
726,676
 
Deferred gain from sale-leaseback
   
 
168,552
 
   
 
174,466
 
Energy trading contracts
   
 
1,325
 
   
 
6,130
 
Other
   
 
175,092
 
   
 
155,666
 
    
  
Total Long-Term Liabilities
   
 
1,745,173
 
   
 
1,747,298
 
    
  
COMMITMENTS AND CONTINGENCIES
                  
SHAREHOLDER’S EQUITY:
                  
Common stock, without par value; authorized and issued 1,000 shares
   
 
1,065,634
 
   
 
1,065,634
 
Accumulated other comprehensive loss, net
   
 
(50
)
   
 
(11,023
)
Retained earnings (accumulated deficit)
   
 
39
 
   
 
(6,222
)
    
  
Total Shareholder’s Equity
   
 
1,065,623
 
   
 
1,048,389
 
    
  
TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY
   
$
3,101,660
 
   
$
2,930,045
 
    
  
 
The accompanying notes are an integral part of these consolidated financial statements.

4

Table of Contents
 
KANSAS GAS AND ELECTRIC COMPANY
 
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Dollars in Thousands)
(Unaudited)
 
    
Three Months Ended
June 30,
  
    
2002
     
2001
  
SALES
   
$
171,949
 
   
$
165,965
 
COST OF SALES
   
 
56,917
 
   
 
59,959
 
    
  
GROSS PROFIT
   
 
115,032
 
   
 
106,006
 
    
  
OPERATING EXPENSES:
                  
Operating and maintenance
   
 
55,737
 
   
 
48,559
 
Depreciation and amortization
   
 
22,395
 
   
 
26,345
 
Selling, general and administrative
   
 
17,806
 
   
 
15,347
 
    
  
Total Operating Expenses
   
 
95,938
 
   
 
90,251
 
    
  
INCOME FROM OPERATIONS
   
 
19,094
 
   
 
15,755
 
    
  
OTHER EXPENSE, NET
   
 
693
 
   
 
1,639
 
    
  
INTEREST EXPENSE:
                  
Interest expense on long-term debt
   
 
11,027
 
   
 
11,456
 
Interest expense on short-term debt and other
   
 
752
 
   
 
874
 
    
  
Total Interest Expense
   
 
11,779
 
   
 
12,330
 
    
  
EARNINGS BEFORE INCOME TAXES
   
 
6,622
 
   
 
1,786
 
Income tax benefit
   
 
(1,000
)
   
 
(1,142
)
    
  
NET INCOME
   
$
7,622
 
   
$
2,928
 
    
  
OTHER COMPREHENSIVE INCOME, NET OF TAX:
                  
Unrealized holding gains on cash flow hedges arising during the period
   
$
3,601
 
   
$
—  
 
Adjustment for losses included in net income
   
 
823
 
   
 
—  
 
Income tax expense
   
 
(1,666
)
   
 
—  
 
    
  
Total other comprehensive gain, net of tax
   
 
2,758
 
   
 
—  
 
    
  
COMPREHENSIVE INCOME
   
$
10,380
 
   
$
2,928
 
    
  
 
The accompanying notes are an integral part of these consolidated financial statements.

5

Table of Contents
KANSAS GAS AND ELECTRIC COMPANY
 
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Dollars in Thousands)
(Unaudited)
 
    
Six Months Ended
June 30,
  
    
2002
     
2001
  
SALES
   
$
337,228
 
   
$
329,958
 
COST OF SALES
   
 
112,383
 
   
 
111,952
 
    
  
GROSS PROFIT
   
 
224,845
 
   
 
218,006
 
    
  
OPERATING EXPENSES:
                  
Operating and maintenance
   
 
107,870
 
   
 
100,221
 
Depreciation and amortization
   
 
48,987
 
   
 
52,221
 
Selling, general and administrative
   
 
43,350
 
   
 
30,734
 
    
  
Total Operating Expenses
   
 
200,207
 
   
 
183,176
 
    
  
INCOME FROM OPERATIONS
   
 
24,638
 
   
 
34,830
 
    
  
OTHER EXPENSE, NET
   
 
4,074
 
   
 
4,453
 
    
  
INTEREST EXPENSE:
                  
Interest expense on long-term debt
   
 
21,758
 
   
 
22,288
 
Interest expense on short-term debt and other
   
 
1,522
 
   
 
1,777
 
    
  
Total Interest Expense
   
 
23,280
 
   
 
24,065
 
    
  
EARNINGS (LOSSES) BEFORE INCOME TAXES
   
 
(2,716
)
   
 
6,312
 
Income tax benefit
   
 
(8,976
)
   
 
(1,714
)
    
  
NET INCOME BEFORE ACCOUNTING CHANGE
   
 
6,260
 
   
 
8,026
 
Cumulative effect of accounting change, net of tax of $8,520
   
 
—  
 
   
 
12,898
 
    
  
NET INCOME
   
$
6,260
 
   
$
20,924
 
    
  
OTHER COMPREHENSIVE INCOME, NET OF TAX:
                  
Unrealized holding gains on cash flow hedges arising during the period
   
$
16,733
 
   
$
—  
 
Adjustment for losses included in net income
   
 
1,488
 
   
 
—  
 
Income tax expense
   
 
(7,248
)
   
 
—  
 
    
  
Total other comprehensive gain, net of tax
   
 
10,973
 
   
 
—  
 
    
  
COMPREHENSIVE INCOME
   
$
17,233
 
   
$
20,924
 
    
  
 
The accompanying notes are an integral part of these consolidated financial statements.

6

Table of Contents
 
KANSAS GAS AND ELECTRIC COMPANY
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 
    
Six Months Ended
June 30,
  
    
2002
     
2001
  
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
                  
Net income
   
$
6,260
 
   
$
20,924
 
Adjustments to reconcile net income to net cash provided by operating activities:
                  
Cumulative effect of accounting change
   
 
—
 
   
 
(12,898
)
Depreciation and amortization
   
 
48,987
 
   
 
52,221
 
Amortization of nuclear fuel
   
 
5,881
 
   
 
8,367
 
Amortization of deferred gain from sale-leaseback
   
 
(5,914
)
   
 
(5,914
)
Net deferred and accrued taxes
   
 
(5,085
)
   
 
(18,217
)
Net changes in energy trading assets and liabilities
   
 
3,941
 
   
 
(6,754
)
Loss on sale of property
   
 
1,423
 
   
 
—
 
Changes in working capital items:
                  
Restricted cash
   
 
(10,281
)
   
 
—
 
Accounts receivable, net
   
 
(7,827
)
   
 
25,135
 
Inventories and supplies, net
   
 
2,289
 
   
 
(6,478
)
Prepaid expenses and other
   
 
(23,881
)
   
 
(22,999
)
Accounts payable
   
 
(3,950
)
   
 
(5,140
)
Accrued and other current liabilities
   
 
5,864
 
   
 
19,752
 
Changes in other assets and liabilities
   
 
(6,541
)
   
 
3,639
 
    
  
Cash flows from operating activities
   
 
11,166
 
   
 
51,638
 
    
  
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
                  
Additions to property, plant and equipment
   
 
(34,738
)
   
 
(36,611
)
Proceeds from disposition of property
   
 
1,205
 
   
 
—
 
    
  
Cash flows used in investing activities
   
 
(33,533
)
   
 
(36,611
)
    
  
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
                  
Funds in trust for debt repayment
   
 
(135,000
)
   
 
—
 
Advances from parent company, net
   
 
157,275
 
   
 
30,903
 
Dividends to parent company
   
 
—
 
   
 
(50,000
)
    
  
Cash flows used in financing activities
   
 
22,275
 
   
 
(19,097
)
    
  
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
   
 
(92
)
   
 
(4,070
)
CASH AND CASH EQUIVALENTS:
                  
Beginning of period
   
 
5,564
 
   
 
7,101
 
    
  
End of period
   
$
5,472
 
   
$
3,031
 
    
  
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
                  
CASH PAID FOR:
                  
Interest on financing activities, net of amount capitalized
   
$
82,151
 
   
$
63,934
 
Income taxes
   
 
—
 
   
 
—
 
 
The accompanying notes are an integral part of these consolidated financial statements.

7

Table of Contents
KANSAS GAS AND ELECTRIC COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(Unaudited)
 
1.    DESCRIPTION OF BUSINESS
 
Kansas Gas and Electric Company (KGE, the company, we, us or our) is a rate-regulated electric utility incorporated in 1990 in the State of Kansas. We are a wholly owned subsidiary of Westar Energy, Inc. (Westar Energy) and we provide rate-regulated electric service using the name Westar Energy. We are engaged principally in the generation, purchase, transmission, distribution and sale of electricity in southeastern Kansas, including the Wichita metropolitan area.
 
We own 47% of Wolf Creek Nuclear Operating Corporation (WCNOC), the operating company for Wolf Creek Generating Station (Wolf Creek). We record our proportionate share of all transactions of WCNOC as we do other jointly owned facilities.
 
 
2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Principles of Consolidation
 
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q. Accordingly, certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP have been condensed or omitted. The accompanying consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and the notes included in our Annual Report on Form 10-K for the year ended December 31, 2001 (2001 Form 10-K).
 
Use of Management’s Estimates
 
The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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. In management’s opinion, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation of the financial statements, have been included. The results of operations for the three and six months ended June 30, 2002 are not necessarily indicative of the results to be expected for the full year.
 
Defeasance of Outstanding Debt
 
Under GAAP, we are required to continue reporting as outstanding debt on our consolidated balance sheets the $135 million principal amount of our first mortgage bonds due December 15, 2003, until the funds deposited with the trustee are used to retire such bonds at maturity. The cash deposited with the trustee is included in restricted cash on our consolidated balance sheet and can only be used for the purpose of repaying this indebtedness and related interest. See Note 7, “Debt Financings” for discussion of debt financings completed during the second quarter of 2002.

8

Table of Contents
 
Cumulative Effect of Accounting Change
 
Effective January 1, 2001, we adopted Statement of Financial Accounting Standard (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS Nos. 137 and 138 (collectively, SFAS No. 133). We use derivative instruments (primarily swaps, options and futures) to manage interest rate exposure and the commodity price risk inherent in fossil fuel purchases and electricity sales. Under SFAS No. 133, all derivative instruments, including our energy trading contracts, are recorded on our consolidated balance sheet as either an asset or liability measured at fair value. Changes in a derivative’s fair value must be recognized currently in earnings unless specific hedge accounting criteria are met. Cash flows from derivative instruments are presented in net cash flows from operating activities.
 
Derivative instruments used to manage commodity price risk inherent in fuel purchases and electricity sales are classified as energy trading contracts on our consolidated balance sheet. Energy trading contracts representing unrealized gain positions are reported as assets; energy trading contracts representing unrealized loss positions are reported as liabilities.
 
Prior to January 1, 2001, gains and losses on our derivatives used for managing commodity price risk were deferred until settlement. These derivatives were not designated as hedges under SFAS No. 133. Accordingly, on January 1, 2001, we recognized an unrealized gain of $12.9 million, net of $8.5 million of tax. This gain is presented on our consolidated statement of income in our 2001 Form 10-K as a cumulative effect of a change in accounting principle.
 
After January 1, 2001, changes in fair value of all derivative instruments used for managing commodity price risk that are not designated as hedges are recognized in revenue as discussed in Note 2 of the “Notes to Consolidated Financial Statements” in our 2001 Form 10-K. Accounting for derivatives under SFAS No. 133 will increase volatility of our future earnings.
 
Change in Depreciation Rates
 
In its rate order of July 25, 2001, the Kansas Corporation Commission (KCC) extended the recovery period for certain of our generating assets for regulatory rate making purposes. On April 1, 2002, we adopted the new depreciation rates as prescribed in the KCC order for GAAP purposes after exhausting the available appeals process to contest the extension of our recovery periods for our LaCygne 2 and Wolf Creek generating stations. This change is expected to reduce our annual depreciation expense in our GAAP financial statements by approximately $18 million. See Note 3, “Rate Matters and Regulation” for additional information.
 
Reclassifications
 
Certain amounts in prior years have been reclassified to conform with classifications used in the current year presentation.
 
 
3.    RATE MATTERS AND REGULATION
 
KCC Rate Proceedings
 
On November 27, 2000, Westar Energy and we filed applications with the KCC for an increase in retail rates. On July 25, 2001, the KCC ordered an annual reduction in our electric rates of $41.2 million.
 
On August 9, 2001, Westar Energy and we filed petitions with the KCC requesting reconsideration of the July 25, 2001 order. The petitions specifically asked for reconsideration of changes in depreciation, reductions in rate base related to deferred income taxes associated with the acquisition premium and a deferred gain on the sale and leaseback of our LaCygne 2 generating unit and several other issues. On September 5, 2001, the KCC issued an order in response to our motion for reconsideration, which did not change our rate reduction. On November 9, 2001, we filed an appeal of the KCC decisions with the Kansas Court of Appeals in an

9

Table of Contents
action captioned “Western Resources, Inc. and Kansas Gas and Electric Company vs. The State Corporation Commission of the State of Kansas.” On March 8, 2002, the Court of Appeals upheld the KCC orders. On April 8, 2002, Westar Energy and we filed a petition for review of the decision of the Court of Appeals with the Kansas Supreme Court. Our petition for review was denied on June 12, 2002.
 
KCC Investigation and Order
 
See Note 4 for a discussion of the order issued by the KCC on July 20, 2001 in the KCC’s docket investigating the proposed separation of Westar Energy’s electric utility businesses (including us) from its non-utility businesses and other aspects of Westar Energy’s unregulated businesses.
 
 
4.    PNM TRANSACTION AND SPLIT-OFF OF WESTAR INDUSTRIES
 
PNM Transaction
 
On May 28, 2002, Westar Energy gave notice to Public Service Company of New Mexico (PNM) of termination of the merger agreement with PNM and demanded payment of a termination fee in the amount of $25 million.
 
KCC Proceedings and Orders
 
The merger with PNM contemplated the completion of a rights offering for shares of Westar Industries, Inc. (Westar Industries), a wholly owned subsidiary of Westar Energy, prior to closing. On May 8, 2001, the KCC opened an investigation of the proposed separation of Westar Energy’s electric utility businesses (including us) from its non-utility businesses, including the rights offering, and other aspects of its unregulated businesses. The order opening the investigation indicated that the investigation would focus on whether the separation and other transactions involving Westar Energy’s unregulated businesses are consistent with its obligation to provide efficient and sufficient electric service at just and reasonable rates to its electric utility customers. The KCC staff was directed to investigate, among other matters, the basis for and the effect of the Asset Allocation and Separation Agreement Westar Energy entered into with Westar Industries in connection with the proposed separation and the intercompany payable owed by Westar Energy to Westar Industries, the separation of Westar Industries, the effect of the business difficulties faced by Westar Energy’s unregulated businesses and whether they should continue to be affiliated with its electric utility business, and Westar Energy’s present and prospective capital structures. On May 22, 2001, the KCC issued an order nullifying the Asset Allocation and Separation Agreement, prohibiting Westar Energy and Westar Industries from taking any action to complete the rights offering for common stock of Westar Industries, which was to be a first step in the separation, and scheduling a hearing to consider whether to make the order permanent.
 
On July 20, 2001, the KCC issued an order that, among other things: (1) confirmed its May 22, 2001 order prohibiting Westar Energy and Westar Industries from taking any action to complete the proposed rights offering and nullifying the Asset Allocation and Separation Agreement; (2) directed Westar Energy and Westar Industries not to take any action or enter into any agreement not related to normal utility operations that would directly or indirectly increase the share of debt in Westar Energy’s capital structure applicable to its electric utility operations, which has the effect of prohibiting it from borrowing to make a loan or capital contribution to Westar Industries; and (3) directed Westar Energy to present a financial plan consistent with parameters established by the KCC’s order to restore financial health, achieve a balanced capital structure and protect ratepayers from the risks of its non-utility businesses. In its order, the KCC also acknowledged that Westar Energy and we are currently operating efficiently and at reasonable cost and stated that it was not disapproving the PNM transaction or a split-off of Westar Industries. Westar Energy appealed the orders issued by the KCC to the District Court of Shawnee County, Kansas. On February 5, 2002, the District Court issued a decision finding that the KCC orders were not final orders and that the District Court lacked jurisdiction to consider the appeal. Accordingly, the matter was remanded to the KCC for review of the financial plan Westar Energy filed as ordered by the KCC as discussed below.

10

Table of Contents
 
On February 11, 2002, the KCC issued an order primarily related to procedural matters for the review of the financial plan. In addition, the order required that Westar Energy and the KCC staff make filings addressing whether the filing of applications by Westar Energy and us at the Federal Energy Regulatory Commission (FERC), seeking renewal of existing borrowing authority, violated the July 20, 2001 KCC order directing that Westar Energy not increase the share of debt in its capital structure applicable to its electric utility operations. The KCC staff subsequently filed comments asserting that the refinancing of existing indebtedness with new indebtedness secured by utility assets would in certain circumstances violate the July 20, 2001 KCC order. The KCC filed a motion to intervene in the proceeding at FERC asserting the same position.
 
On March 26, 2002, the KCC issued an order in which it acknowledged that Westar Energy’s FERC filings technically did not violate the July 20, 2001 KCC order. However, the KCC expressed concern that Westar Energy’s refinancing plans as described in the FERC filings could, when implemented, increase the share of debt in the capital structure applicable to Westar Energy’s electric utility operations. By agreement with the KCC staff and other intervenors, the FERC applications were amended so that the requested authority was limited to short-term (12 months or less) borrowing authority, and as a result, the KCC’s and certain other parties’ interventions were withdrawn. On May 10, 2002 and June 6, 2002, Westar Energy completed financings under then existing FERC financing authority totaling $1.5 billion. Proceeds from these offerings were used to satisfy upcoming long-term debt maturities and fees related to the offerings. On June 14, 2002, the FERC issued orders approving Westar Energy’s and our application for short-term borrowing authority. We and Westar Energy may file applications for authority for medium- or long-term financing with the FERC related to refinancing future maturing indebtedness. If such applications are filed, we and Westar Energy are unable to predict whether the KCC staff or other parties will protest or intervene and, if they do so, the extent to which the FERC will incorporate their positions in orders approving that borrowing authority or any resulting impact on Westar Energy’s ability to refinance future maturing indebtedness.
 
The Financial Plan
 
The July 20, 2001 KCC order directed Westar Energy to present a financial plan to the KCC. Westar Energy presented a financial plan to the KCC on November 6, 2001, which it amended on January 29, 2002. The principal objective of the financial plan is to reduce Westar Energy’s total debt as calculated by the KCC to approximately $1.8 billion, a reduction of approximately $1.2 billion. The financial plan contemplated that Westar Energy would proceed with a rights and warrants offering of Westar Industries common stock to Westar Energy’s shareholders and that, in the event that the PNM merger and related split-off did not close, Westar Energy would use its best efforts to sell its shares of Westar Industries common stock, or shares of its common stock, upon the occurrence of certain events.
 
On May 30, 2002, Westar Industries gave notice pursuant to a shareholder agreement with ONEOK, Inc. (ONEOK) of its intention to sell all of the common stock and preferred stock of ONEOK owned by Westar Industries. As a result of this notice having been given, ONEOK or its designee has the right to purchase the common stock and preferred stock held by Westar Industries at a cash sales price of $21.77 per share for a period ending on the later of August 28, 2002 and 30 days from the date of receipt of all necessary regulatory approvals, but in no event later than 180 days after May 30, 2002. The sale to ONEOK would provide proceeds to Westar Energy of approximately $738 million before expenses. If ONEOK purchases the stock, Westar Energy would not proceed with the financial plan presented to the KCC.
 
A hearing at the KCC that reviewed the financial plan began on July 1, 2002 and concluded July 11, 2002. In conjunction with the hearing, on July 9, 2002, the KCC approved the sale of Westar Industries’ interest in ONEOK subject to, among other things, the condition that the net proceeds be used to decrease utility debt. The parties in the docket, including Westar Energy, will file initial briefs with respect to the hearings by August 19, 2002. Reply briefs must be filed by August 30, 2002. A decision by the KCC will follow that date, but Westar Energy is unable to predict whether or when the KCC will approve the financial plan or what other action with respect to the financial plan and related matters the KCC may take. Westar Energy cannot predict whether it will be successful in executing the plan.

11

Table of Contents
 
5.    INCOME TAXES
 
We have recorded income tax benefits for the interim periods using the federal statutory rate of 35%. The difference between our effective rate and the statutory rate benefit for the three and six month periods ending June 30, 2002 compared to 2001 results primarily from income from operations and other differences. These include the tax benefit of excluding from taxable income, in accordance with IRS rules, the income from corporate-owned life insurance; certain expenses for depreciation, compensation, amortization and state income taxes; and the loss of affordable housing tax credits.
 
6.    ICE STORM
 
In late January 2002, a severe ice storm swept through our service area causing extensive damage and loss of power to numerous customers. Through June 30, 2002, we incurred total costs of $12.0 million for restoration costs, a portion of which was capitalized. We have deferred and recorded as a regulatory asset on our June 30, 2002 consolidated balance sheet restoration costs of approximately $8.5 million. We have received an accounting authority order from the KCC that allows us to accumulate and defer for future recovery all operating and carrying costs related to storm restoration.
 
7.    DEBT FINANCINGS
 
On May 10, 2002, Westar Energy completed offerings for $365 million of its first mortgage bonds and $400 million of its unsecured senior notes, both of which will be due on May 1, 2007. The first mortgage bonds bear interest at an annual rate of 7 7/8% and the unsecured senior notes bear interest at an annual rate of 9 3/4%. Interest on the first mortgage bonds and unsecured senior notes is payable semi-annually on May 1 and November 1 of each year, beginning on November 1, 2002. The net proceeds from these offerings were used to repay outstanding indebtedness of $547 million under Westar Energy’s existing secured bank term loan, provide for the repayment of $100 million of Westar Energy’s 7.25% first mortgage bonds due August 15, 2002 together with accrued interest, reduce the outstanding balance on Westar Energy’s existing secured revolving credit facility and pay fees and expenses of the transactions. In conjunction with the May 10, 2002 financing, Westar Energy amended its secured revolving credit facility to reduce the total commitment under the facility to $400 million from $500 million and to release another $100 million of Westar Energy’s first mortgage bonds from collateral.
 
On June 6, 2002, Westar Energy entered into a secured credit agreement providing for a $585 million term loan and a $150 million revolving credit facility, each maturing on June 6, 2005, provided that if Westar Energy has not refinanced or provided for the payment of its 6.25% senior unsecured notes, that are putable and callable on August 15, 2003, or its 6.875% senior unsecured notes due August 15, 2004, at least 60 days prior to either such date, the maturity date is the date 60 days prior to either such date. As of August 8, 2002, $166.6 million principal amount of Westar Energy’s senior unsecured notes and $305.5 million principal amount of Westar Energy’s 6.875% senior unsecured notes were outstanding. All loans under the credit agreement are secured by our first mortgage bonds. The proceeds of the term loan were used to retire an existing Westar Energy revolving credit facility with an outstanding principal balance of $380 million, to provide for the repayment at maturity of $135 million principal amount of our first mortgage bonds due December 15, 2003 together with accrued interest, to repurchase approximately $45 million of Westar Energy’s outstanding unsecured notes and to pay customary fees and expenses of the transactions. There were no borrowings under the revolving credit facility at closing. As of August 8, 2002, Westar Energy’s borrowings under the revolving credit facility were $107 million.
 
Under GAAP, we are required to continue reporting as outstanding debt on our consolidated balance sheets the $135 million principal amount of our first mortgage bonds due December 15, 2003 until the funds deposited with the trustee are used to retire such bonds at maturity. The cash deposited with the trustee is included in restricted cash on our consolidated balance sheet and can be used for the sole purpose of repaying this indebtedness and related interest.

12

Table of Contents
 
8.    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 upon our overall financial position or results of operations. See also Notes 3 and 4 for discussion of FERC proceedings and KCC regulatory proceedings.

13

Table of Contents
 
9.    RELATED PARTY TRANSACTIONS
 
All employees we utilize are provided by Westar Energy. 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. Management believes such allocation procedures are reasonable.
 
As of June 30, 2002, we had received advances from Westar Energy of $157.3 million, $150.4 of which represents funds used to defease $135 million principal amount of our first mortgage bonds due December 15, 2003, along with related interest.
 
During the fourth quarter of 2001, we entered into an option agreement to sell an office building located in downtown Wichita, Kansas, to Protection One, Inc., a subsidiary of Westar Industries, which is a wholly owned subsidiary of Westar Energy, for approximately $0.5 million. The sales price was determined by management based on three independent appraisers’ findings. This transaction was completed during June 2002. Although we recognized a loss of $2.6 million on this transaction, we expect to realize an annual operating cost savings of approximately $0.9 million. The cost savings will be treated as a regulatory liability in accordance with a March 26, 2002 KCC order.
 
 
 
10.    SUBSEQUENT EVENT
 
Effective July 1, 2002, we adopted the Financial Accounting Standards Board’s Emerging Issues Task Force Issue 02-3 (Issue 02-3), “Accounting for Contracts Involved in Energy Trading and Risk Management Activities.” Issue 02-3 requires net presentation of the mark-to-market gains and losses on energy trading contracts (whether realized or unrealized) in the income statement, unless the contract will settle physically. Currently, we report gains in these contracts in sales and losses in cost of sales in the income statement. The changes will be reflected on our consolidated financial statements for the third quarter of 2002. Prior periods shown in our consolidated financial statements will be reclassified to reflect the effect of this change and be comparable as required by GAAP. Adoption of Issue 02-3 will not affect reported net income.

14

Table of Contents
 
KANSAS GAS AND ELECTRIC COMPANY
 
ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
INTRODUCTION
 
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations updates the information provided in our Annual Report on Form 10-K for the year ended December 31, 2001 (2001 Form 10-K), and should be read in conjunction with that report. In this section, we discuss our general financial condition, significant changes and our operating results. We explain:
 
·  what factors impact our business,
·  what our earnings and costs were for the three and six months ended June 30, 2002 and 2001,
·  why these earnings and costs differ from period to period,
·  how our earnings and costs affect our overall financial condition and
·  any other items that particularly affect our financial condition or earnings.
 
 
SUMMARY OF SIGNIFICANT ITEMS
 
Potential Changes in Westar Industries’ ONEOK Ownership
 
On May 30, 2002, Westar Industries, Inc. (Westar Industries), a wholly-owned subsidiary of Westar Energy, Inc. (Westar Energy), gave notice pursuant to a shareholder agreement with ONEOK, Inc. (ONEOK) of its intention to sell all of the common stock and preferred stock of ONEOK owned by Westar Industries. As a result of this notice having been given, ONEOK or its designee has the right to purchase the common stock and preferred stock held by Westar Industries at a cash sales price of $21.77 per share for a period ending on the later of August 28, 2002 and 30 days from the date of receipt of all necessary regulatory approvals, but in no event later than 180 days after May 30, 2002. If ONEOK does not purchase the stock during such period, Westar Industries may sell the stock within a 16 month period after May 30, 2002. Net after tax proceeds from the sale to ONEOK would be approximately $738 million before expenses. On July 9, 2002, the sale of Westar Industries’ interest in ONEOK was approved by the Kansas Corporation Commission (KCC) subject to the condition that the net proceeds be used to reduce Westar Energy’s and our utility debt. Westar Energy’s bank credit facility requires that the net cash proceeds from a sale of ONEOK stock be used to reduce Westar Energy’s and our debt. Westar Energy is unable to predict whether any transaction related to a sale of ONEOK will be completed.
 
Declines in Energy Markets
 
During 2002, the energy trading market deteriorated due to the effects of overcapacity, narrowing margins, the Enron Corp. bankruptcy and a reduced number of creditworthy counter parties. This deterioration has resulted in significant declines in volume and liquidity, influencing the wholesale power market, primarily in the forward market. As a result, numerous participants in the market for wholesale trading of electricity have recently suffered financial setbacks that have been reported in the media and in Securities and Exchange Commission (SEC) reports. In relation to illegal or inappropriate trading practices, the Federal Energy Regulatory Commission (FERC) and the SEC are investigating many of these same participants. Market capitalization of these companies has been substantially reduced and credit ratings have, in many cases, been downgraded. Westar Energy’s power marketing group routinely does business with some of these companies and these companies may be counter parties to several other entities with whom Westar Energy routinely does business. These developments have adversely impacted Westar Energy’s power marketing business and Westar Energy is unable to predict if or when the business environment will improve.
 
 
CRITICAL ACCOUNTING POLICIES
 
Since December 31, 2001, we have not experienced any significant changes in our critical accounting policies except for the impact of the defeasance of outstanding debt and the change in depreciation rates as discussed below. For additional information on our critical accounting policies, see our 2001 Form 10-K.

15

Table of Contents
 
Defeasance of Outstanding Debt
 
Under generally accepted accounting principles (GAAP), we are required to continue reporting as outstanding debt on our consolidated balance sheets the $135 million principal amount of our first mortgage bonds due December 15, 2003, until the funds deposited with the trustee are used to retire such bonds at maturity. The cash deposited with the trustee is included in restricted cash on our consolidated balance sheet and can be used for the sole purpose of repaying this indebtedness and related interest.
 
Change in Depreciation Rates
 
In its rate order of July 25, 2001, the Kansas Corporation Commission (KCC) extended the recovery period for certain of our generating assets for regulatory rate making purposes. On April 1, 2002, we adopted the new depreciation rates as prescribed in the KCC order for GAAP purposes after exhausting the available appeals process to contest the extension of our recovery periods from our LaCygne 2 and Wolf Creek generating stations. This change is expected to reduce our annual depreciation expense in our GAAP financial statements by approximately $18 million. See Note 3, “Rate Matters and Regulation” for additional information.
 
 
OPERATING RESULTS
 
The following discussion explains significant changes in operating results. Our electric sales for the three and six months ended June 30, 2002 and 2001 are as follows:
 
    
Three Months Ended June 30,
  
    
2002
   
2001
   
% Change
  
    
(In Thousands)
  
Residential
   
$
49,114
   
$
56,655
   
(13.3
)
Commercial
   
 
43,150
   
 
43,056
   
0.2
 
Industrial
   
 
38,225
   
 
40,368
   
(5.3
)
Other
   
 
12,893
   
 
5,720
   
125.4
 
    
  
      
Total retail
   
 
143,382
   
 
145,799
   
(1.7
)
Power Marketing
   
 
10,476
   
 
1,609
   
551.1
 
Wholesale and Interchange
   
 
18,091
   
 
18,557
   
(2.5
)
    
  
      
Total
   
$
171,949
   
$
165,965
   
3.6
 
    
  
      
    
Six Months Ended June 30,
  
    
2002
   
2001
   
% Change
  
    
(In Thousands)
  
Residential
   
$
92,336
   
$
105,537
   
(12.5
)
Commercial
   
 
79,510
   
 
82,613
   
(3.8
)
Industrial
   
 
73,539
   
 
78,408
   
(6.2
)
Other
   
 
25,740
   
 
11,756
   
119.0
 
    
  
      
Total retail
   
 
271,125
   
 
278,314
   
(2.6
)
Power Marketing
   
 
24,171
   
 
8,202
   
194.7
 
Wholesale and Interchange
   
 
41,932
   
 
43,442
   
(3.5
)
    
  
      
Total
   
$
337,228
   
$
329,958
   
2.2
 
    
  
      
 
The following tables reflect changes in electric sales volumes, as measured by megawatt hours (MWh), for the three and six months ended June 30, 2002 and 2001. No sales volumes are included for power marketing sales because these sales are not based on electricity we generate.

16

Table of Contents
 
    
Three Months Ended June 30,
  
    
2002
   
2001
   
% Change
  
    
(Thousands of MWh)
  
Residential
   
655
   
671
   
(2.4
)
Commercial
   
674
   
621
   
8.5
 
Industrial
   
851
   
903
   
(5.8
)
Other
   
11
   
11
   
—
 
    
  
      
Total retail
   
2,191
   
2,206
   
(0.7
)
Wholesale and Interchange
   
733
   
554
   
32.3
 
    
  
      
Total
   
2,924
   
2,760
   
5.9
 
    
  
      
    
Six Months Ended June 30,
  
    
2002
   
2001
   
% Change
  
    
(Thousands of MWh)
  
Residential
   
1,274
   
1,309
   
(2.7
)
Commercial
   
1,244
   
1,199
   
3.8
 
Industrial
   
1,645
   
1,734
   
(5.1
)
Other
   
22
   
22
   
—
 
    
  
      
Total retail
   
4,185
   
4,264
   
(1.9
)
Wholesale and Interchange
   
1,872
   
1,279
   
46.4
 
    
  
      
Total
   
6,057
   
5,543
   
9.3
 
    
  
      
 
Three Months Ended June 30, 2002, Compared to Three Months Ended June 30, 2001: Sales increased approximately $6.0 million, or 4%. The increase in other revenues is attributable to a new Southwest Power Pool (SPP) network tariff. The new tariff requires us to pay to the SPP all expenses associated with transporting our power from our generating stations. The SPP then pays us for distributing power to our retail customers and these payments are reflected in other revenues. Prior to the implementation of the new tariff, we had offsetting revenues and expenses, because an internal allocation was used. Otherwise, retail sales decreased approximately $9.6 million, or 7%, reflecting the effect of the July 2001 rate decrease and lower industrial sales caused by weak economic conditions. The increase in power marketing sales was primarily due to increased marketing efforts despite lower wholesale energy prices.
 
Cost of sales is comprised of fuel used for generation, mark to market on derivatives and purchased power expense. Cost of sales decreased $3.0 million, or 5%, primarily due to a $1.6 million decrease in fuel expenses and a $22.9 million decrease due to marking to market derivatives as prescribed by Statement of Financial Accounting Standard No. 133. These decreases were partially offset by a $9.6 million increase in purchased power costs and an $11.9 million increase in costs associated with the dispatching of electric power. The increase in purchased power expense is primarily as a result of the increase in the power marketing sales. Gross profit increased $9.0 million, or 9%.
 
A portion of the increase in purchased power expenses was attributable to the maintenance outage at Wolf Creek as other more expensive sources of power were used to replace the loss of power from Wolf Creek. Wolf Creek has a scheduled refueling and maintenance outage approximately every 18 months. Wolf Creek was shut down for 36 days for its 12th scheduled refueling and maintenance outage, which began on March 23, 2002 and ended on April 27, 2002. Wolf Creek operated the entire year of 2001 without any refueling outages.
 
Operating expenses increased $5.7 million, or 6%, primarily due to a scheduling charge from the SPP as a result of the new SPP network tariff as discussed above and an increase in allocated compensation expense. Lower depreciation expense as discussed in Note 2 of the “Notes to Consolidated Financial Statements” partially offset this increase.
 
Income from operations increased $3.3 million, or 21%, for the reasons set forth above.

17

Table of Contents
 
Six Months Ended June 30, 2002, Compared to Six Months Ended June 30, 2001:  Sales increased $7.3 million, or 2%. Retail sales were down as a result of the July 2001 rate decrease and lower industrial demand related to weak economic conditions. The increase in other revenues is attributable to the new Southwest Power Pool (SPP) network tariff as discussed above. Wholesale and interchange sales changed primarily due to market and weather conditions. The increase in power marketing sales was primarily due to increased marketing efforts despite lower wholesale energy prices.
 
Cost of sales remained essentially unchanged for the period. The mark to market on derivatives decreased $18.6 million and fuel expense decreased $3.7 million. However, purchased power costs increased by $10.4 million, in part due to the maintenance outage at Wolf Creek as discussed above, and the higher costs associated with the dispatching of electric power which increased $12.4 million. Gross profit increased $6.8 million, or 3%.
 
Operating expenses increased $17.0 million, or 9%, primarily due to a scheduling charge from the SPP as a result of the new SPP network tariff as discuss above and increased selling, general and administrative expenses due to allocated compensation charges. Lower depreciation expense as discussed in Note 2 of the “Notes to Consolidated Financial Statements” partially offset this increase.
 
Income from operations decreased $10.2 million, or 29%, for the reasons set forth above.
 
Income Taxes
 
We have recorded income tax benefits for the interim periods using the federal statutory rate of 35%. The difference between our effective rate and the statutory rate benefit for the three and six month periods ending June 30, 2002 compared to 2001 results primarily from income from operations and other differences. These include the tax benefit of excluding from taxable income, in accordance with IRS rules, the income from corporate-owned life insurance; certain expenses for depreciation, compensation, amortization and state income taxes; and the loss of low-income housing tax credit.
 
 
LIQUIDITY AND CAPITAL RESOURCES
 
Our internally generated cash is generally 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 issue which could require us to obtain a credit facility for our short-term cash needs and which could result in higher borrowing costs.
 
On May 10, 2002, Westar Energy completed offerings for $365 million of its first mortgage bonds and $400 million of its unsecured senior notes, both of which will be due on May 1, 2007. The first mortgage bonds bear interest at an annual rate of 7 7/8% and the unsecured senior notes bear interest at an annual rate of 9 3/4%. Interest on the first mortgage bonds and unsecured senior notes is payable semi-annually on May 1 and November 1 of each year, beginning on November 1, 2002. The net proceeds from these offerings were used to repay outstanding indebtedness of $547 million under Westar Energy’s existing secured bank term loan, provide for the repayment of $100 million of Westar Energy’s 7.25% first mortgage bonds due August 15, 2002 together with accrued interest, reduce the outstanding balance on Westar Energy’s existing secured revolving credit facility and pay fees and expenses of the transactions. In conjunction with the May 10, 2002 financing, Westar Energy amended its secured revolving credit facility to reduce the total commitment under the facility to $400 million from $500 million and to release another $100 million of Westar Energy’s first mortgage bonds from collateral.
 
On June 6, 2002, Westar Energy entered into a secured credit agreement providing for a $585 million term loan and a $150 million revolving credit facility, each maturing on June 6, 2005, provided that if Westar Energy has not refinanced or provided for the payment of its 6.25% senior unsecured notes that are putable and callable on August 15, 2003, or its 6.875% senior unsecured notes due August 15, 2004, at least 60 days prior to either such date, the maturity date is the date 60 days

18

Table of Contents
prior to either such date. As of August 8, 2002, $166.6 million principal amount of Westar Energy’s senior unsecured notes and $305.5 million principal amount of Westar Energy’s 6.875% senior unsecured notes were outstanding. All loans under the credit agreement are secured by our first mortgage bonds. The proceeds of the term loan were used to retire an existing Westar Energy revolving credit facility with an outstanding principal balance of $380 million, to provide for the repayment at maturity of $135 million principal amount of our first mortgage bonds due December 15, 2003 together with accrued interest, to repurchase approximately $45 million of Westar Energy’s outstanding unsecured notes and to pay customary fees and expenses of the transactions. There were no borrowings under the revolving credit facility at closing. As of August 8, 2002, Westar Energy’s borrowings under the revolving credit facility were $107 million.
 
On July 25, 2002, Westar Energy and we entered into an amendment to the agreement related to our accounts receivable securitization that extended the term for an additional year and eliminated Westar Energy’s right to increase the amount of the accounts receivable Westar Energy and we had a right to sell during certain periods from $125 million to $175 million. See Note 4 of the Notes to Consolidated Financial Statements in our 2001 Form 10-K for additional information about the accounts receivable securitization.
 
Under GAAP, we are required to continue reporting as outstanding debt on our consolidated balance sheets the $135 million principal amount of our first mortgage bonds due December 15, 2003, until the funds deposited with the trustee are used to retire such bonds at maturity. The cash deposited with the trustee is included in restricted cash on our consolidated balance sheet and can only be used for the purpose of repaying this indebtedness and related interest.
 
The table below shows changes from our 2001 Form 10-K, in the projected future cash payments for our contractual obligations for long-term debt existing at June 30, 2002:
 
At June 30, 2002:
 
Contractual Obligations
   
Total
       
July 1, 2002
through
December 31, 2002
   
2003
     
2004
   
2005–2006
   
Thereafter
    
(Dollars in Thousands)
Long-term debt
   
$
684,424
 
     
$
 —
   
$
135,000
 
   
$
 —
   
$
165,000
   
$
384,424
Restricted cash deposited with the trustee for defeasance (a)
   
 
(135,000
)
     
 
—
   
 
(135,000
)
   
 
—
   
 
—
   
 
—
    
    
  
  
  
  
Adjusted long-term debt
   
$
549,424
 
     
$
 —
   
$
—
 
   
$
—
   
$
165,000
   
$
384,424
    
    
  
  
  
  
(a)    See Note 2 of the “Notes to Consolidated Financial Statements” for description of funds deposited with trustee for repayment of debt.
 
OTHER INFORMATION
 
Competition and Deregulation
 
As reported in our 2001 Form 10-K, the Southwest Power Pool (SPP) and the Midwest Independent System Operator (MISO) agreed in October 2001 to consolidate and form a regional transmission organization (RTO). On May 30, 2002, FERC approved the planned merger. The merger order requires MISO and SPP to file a revised consolidated open-access transmission tariff by November 1, 2002. This new organization will operate our transmission system as part of an interconnected transmission system encompassing over 120,000 MW of generation capacity located in 20 states. MISO collects revenues attributable to the use of each member’s transmission system, and each member is able to transmit power purchased, generated for sale or bought for resale in the wholesale market, throughout the entire MISO system. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Other Information—Electric Utility—Competition and Deregulation,” in our 2001 Form 10-K.

19

Table of Contents
 
Market Risk Disclosure
 
We are exposed to market risk, including market changes, changes in commodity prices and interest rates. Since December 31, 2001, we have not experienced any significant changes in our exposure to market risk. For additional information on our market risk, see our 2001 Form 10-K.
 
Hedging Activity
 
The following table summarizes the effects natural gas hedges had on our financial position and results of operations for the three and six months ended June 30, 2002:
 
   
Natural gas
Hedges(a)
  
   
(Dollars in Thousands)
  
Three Months Ended June 30, 2002:
      
Fair value of derivative instruments:
      
Current
  
              $  1,123
 
Long-term
  
                   3,228
 
   
Total
  
                $4,351
 
   
Change in amounts in accumulated other comprehensive income
  
$  3,601
 
Adjustment for losses included in net income
  
823
 
Change in estimated income tax expense
  
               (1,666
)
   
Net Comprehensive Gain
  
              $  2,758
 
   
Anticipated reclassifications to earnings in the next 12 months (b)
  
$  1,123
 
Duration of hedge designation as of June 30, 2002
  
25 months
 
   
Natural gas
Hedges(a)
  
   
(Dollars in Thousands)
  
Six Months Ended June 30, 2002:
      
Fair value of derivative instruments:
      
Current
  
$  1,123
 
Long-term
  
                   3,228
 
   
Total
  
              $  4,351
 
   
Change in amounts in accumulated other comprehensive income
  
$16,733
 
Adjustment for losses included in net income
  
1,488
 
Change in estimated income tax expense
  
               (7,248
)
   
Net Comprehensive Gain
  
             $10,973
 
   
Anticipated reclassifications to earnings in the next 12 months(b)
  
$  1,123
 
Duration of hedge designation as of June 30, 2002
  
25 months
 
(a)    Natural gas hedge assets and liabilities are classified in the balance sheet as energy trading
  contracts. Due to the volatility of gas commodity prices, it is probable that gas prices will
  increase and decrease over the remaining 25 months that these relationships are in place.
(b)    The actual amounts that will be reclassified to earnings could vary materially from this
  estimated amount due to changes in market conditions.
 

20

Table of Contents
 
Fair Value of Energy Trading Contracts
 
The tables below show the difference between the market value and the notional values of energy trading contracts outstanding for the six months ended June 30, 2002, their sources and maturity periods:
 
    
Fair Value of Contracts
  
    
(In Thousands)
  
Net fair value of contracts outstanding at the beginning of the period
   
$
(11,213
)
Less contracts realized or otherwise settled during the period
   
 
(171
)
Fair value of new contracts entered into during the period
   
 
14,109
 
    
Fair value of contracts outstanding at the end of the period
   
$
3,067
 
    
 
    
Fair Value of Contracts at End of Period
Source of Fair Value
   
Total Fair
Value
     
Maturity
Less Than
1 Year
     
Maturity
1-3 Years
     
Maturity
4-5 Years
     
Maturity in
Excess of
5 Years
    
(In Thousands)
Prices actively quoted (futures)
   
$
—
 
   
$
—
 
   
$
—
 
   
$
—
     
$
—
Prices provided by other external sources (swaps and forwards)
   
 
4,106
 
   
 
1,264
 
   
 
2,842
 
   
 
—
     
 
—
Prices based on models and other valuation models (options and other)
   
 
(1,039
)
   
 
(1,010
)
   
 
(29
)
   
 
—
     
 
—
    
  
  
  
    
Total fair value of contracts outstanding
   
$
3,067
 
   
$
254
 
   
$
2,813
 
   
$
—
     
$
—
    
  
  
  
    
 
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Information relating to the market risk disclosure is set forth in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Other Information—Market Risk Disclosure” which is incorporated herein by reference.

21

Table of Contents
 
KANSAS GAS AND ELECTRIC COMPANY
 
PART II.  Other Information
 
ITEM 1.  LEGAL PROCEEDINGS
 
Information regarding legal proceedings is set forth in Note 8 in the “Notes to Consolidated Financial Statements” included in Part 1, Item 1 of this report. The disclosure set forth in Note 8, “Legal Proceedings” is incorporated herein by reference.
 
 
ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS
 
None
 
 
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
 
None
 
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
Information required by Item 4 is omitted pursuant to General Instruction H(2)(b) to Form 10-Q.
 
 
ITEM 5.  OTHER INFORMATION
 
None
 
 
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
 
(a)  Exhibits:
 
 
  4.1    —
 
Forty-First Supplemental Indenture dated June 6, 2002 between Kansas Gas and Electric Company and BNY Midwest Trust Company, as Trustee.
 
99.1    —
 
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
(b)  Reports on Form 8-K filed during the three months ended June 30, 2002: None

22

Table of Contents
SIGNATURE
 
Pursuant to the requirements 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:
  
August 14, 2002
  
By:
  
/s/    PAUL R. GEIST        
           
Paul R. Geist, Vice President and Treasurer
(Principal Financial and Accounting Officer)

23 


================================================================================

                         KANSAS GAS AND ELECTRIC COMPANY

                                       TO

                            BNY MIDWEST TRUST COMPANY
                  (successor to Harris Trust and Savings Bank)

                                       and

                               JUDITH L. BARTOLINI
         (successor to W. A. Spooner, Henry A. Theis, Oliver R. Brooks,
              Wesley L. Baker, Edwin F. McMichael and R. Amundsen)

               as Trustees under Kansas Gas and Electric Company's
              Mortgage and Deed of Trust, Dated as of April 1, 1940

                       FORTY-FIRST SUPPLEMENTAL INDENTURE

                       Providing, among other things, for

                    First Mortgage Bonds, 8% Series Due 2005

                            Dated as of June 6, 2002

================================================================================




                       FORTY-FIRST SUPPLEMENTAL INDENTURE

         INDENTURE, dated as of June 6, 2002, between KANSAS GAS AND ELECTRIC
COMPANY, a corporation of the State of Kansas (formerly named KCA Corporation
and successor by merger to Kansas Gas and Electric Company, a corporation of the
State of Kansas, hereinafter sometimes called the "Company-Kansas"), whose post
office address is 120 East First Street, Wichita, Kansas 67202 (hereinafter
sometimes called the "Company"), and BNY Midwest Trust Company, a corporation of
the State of Illinois, whose post office address is 2 North LaSalle Street,
Suite 1020, Chicago, Illinois 60602 (successor to Harris Trust and Savings Bank
(the "Corporate Trustee")), and JUDITH L. BARTOLINI (successor to W.A. Spooner,
Henry A. Theis, Oliver R. Brooks, Wesley L. Baker, Edwin F. McMichael and
R. Amundsen, and being hereinafter sometimes called the "Individual Trustee"),
whose post office address is 2 North LaSalle Street, Suite 1020, Chicago,
Illinois 60602 (the Corporate Trustee and the Individual Trustee being
hereinafter together sometimes called the "Trustees"), as Trustees under the
Mortgage and Deed of Trust, dated as of April 1, 1940 (hereinafter called the
"Mortgage"), which Mortgage was executed and delivered by Kansas Gas and
Electric Company, a corporation of the State of West Virginia to which the
Company-Kansas was successor by merger (hereinafter sometimes called the
"Company-West Virginia"), to secure the payment of bonds issued or to be issued
under and in accordance with the provisions of the Mortgage, reference to which
Mortgage is hereby made, this Indenture (hereinafter sometimes called the
"Forty-first Supplemental Indenture") being supplemental thereto;

         WHEREAS, the Company-West Virginia caused the Mortgage to be filed for
record as a mortgage of real property and as a chattel mortgage in the offices
of the Registers of Deeds in various counties in the State of Kansas, and on
April 25, 1940 paid to the Register of Deeds of Sedgwick County, Kansas, that
being the County in which the Mortgage was first filed for record, the sum of
$40,000 in payment of the Kansas mortgage registration tax as provided by
Section 79-3101 et seq., General Statutes of Kansas 1935; and

         WHEREAS, by the Mortgage, the Company-West Virginia covenanted that it
would execute and deliver such supplemental indenture or indentures and such
further instruments and do such further acts as might be necessary or proper to
carry out more effectually the purposes of the Mortgage and to make subject to
the lien of the Mortgage any property thereafter acquired, intended to be
subject to the lien thereof; and

         WHEREAS, an instrument, dated May 31, 1949, was executed by the
Company-West Virginia appointing Oliver R. Brooks as Individual Trustee in
succession to said Henry A. Theis, resigned, under the Mortgage, and by Oliver
R. Brooks accepting the appointment as Individual Trustee under the Mortgage in
succession to said Henry A. Theis, which instrument was filed for record in the
offices of the Registers of Deeds in various counties in the State of Kansas;
and

         WHEREAS, an instrument, dated March 3, 1958, was executed by the
Company-West Virginia appointing Wesley L. Baker as Individual Trustee in
succession to said Oliver R. Brooks, resigned, under the Mortgage, and by Wesley
L. Baker accepting the appointment as Individual Trustee



                                       -3-


under the Mortgage in succession to said Oliver R. Brooks, which instrument was
filed for record in the offices of the Registers of Deeds in various counties in
the State of Kansas; and

         WHEREAS, an instrument, dated November 20, 1969, was executed by the
Company-West Virginia appointing Edwin F. McMichael as Individual Trustee in
succession to said Wesley L. Baker, resigned, under the Mortgage, and by Edwin
F. McMichael accepting the appointment as Individual Trustee under the Mortgage
in succession to said Wesley L. Baker, which instrument was filed for record in
the offices of the Registers of Deeds in various counties in the State of
Kansas; and

         WHEREAS, by the Twenty-seventh Supplemental Indenture mentioned below,
the Company-Kansas, among other things, appointed R. Amundsen as Individual
Trustee in succession to said Edwin F. McMichael, resigned, under the Mortgage,
and by R. Amundsen accepting the appointment as Individual Trustee under the
Mortgage in succession to said Edwin F. McMichael; and

         WHEREAS, by the Thirty-second Supplemental Indenture mentioned below,
the Company-Kansas, among other things, appointed W. A. Spooner as Individual
Trustee in succession to said R. Amundsen, resigned, under the Mortgage, and by
W. A. Spooner accepting the appointment as Individual Trustee under the Mortgage
in succession to said R. Amundsen; and

         WHEREAS, by the Fortieth Supplemental Indenture mentioned below, the
Company-Kansas, among other things, appointed Judith L. Bartolini as Individual
Trustee in succession to said W.A. Spooner resigned, under the Mortgage, and by
Judith L. Bartolini accepting the appointment as Individual Trustee under the
Mortgage in succession to said W.A. Spooner; and

         WHEREAS, the Company-West Virginia executed and delivered to the
Trustees a First Supplemental Indenture, dated as of June 1, 1942 (which
supplemental indenture is hereinafter sometimes called the "First Supplemental
Indenture"); and

         WHEREAS, the Company-West Virginia caused the First Supplemental
Indenture to be filed for record as a mortgage of real property and as a chattel
mortgage in the offices of the Registers of Deeds in various counties in the
State of Kansas, but paid no mortgage registration tax in connection with the
recordation of the First Supplemental Indenture, no such tax having been payable
in connection with such recordation; and

         WHEREAS, the Company-West Virginia executed and delivered to the
Trustees the following supplemental indentures:

                            Designation                   Dated as of
                            -----------                   -----------

       Second Supplemental Indenture ..................   March 1, 1948
       Third Supplemental Indenture ...................   December 1, 1949
       Fourth Supplemental Indenture ..................   June 1, 1952
       Fifth Supplemental Indenture ...................   October 1, 1953
       Sixth Supplemental Indenture ...................   March 1, 1955
       Seventh Supplemental Indenture .................   February 1, 1956
       Eighth Supplemental Indenture ..................   January 1, 1961



                                       -4-


       Ninth Supplemental Indenture ...................   May 1, 1966
       Tenth Supplemental Indenture ...................   March 1, 1970
       Eleventh Supplemental Indenture ................   May 1, 1971
       Twelfth Supplemental Indenture .................   March 1, 1972

which supplemental indentures are hereinafter sometimes called the Second
through Twelfth Supplemental Indentures, respectively; and

         WHEREAS, the Company-West Virginia caused the Second through Eighth
Supplemental Indentures to be filed for record as a mortgage of real property
and as a chattel mortgage in the offices of the Registers of Deeds in various
counties in the State of Kansas, and caused the Ninth through Twelfth
Supplemental Indentures to be filed for record as a mortgage of real property
in the offices of the Registers of Deeds in various counties in the State of
Kansas and as a chattel mortgage in the Office of the Secretary of State of
Kansas, and on the following dates paid to the Register of Deeds of Sedgwick
County, Kansas, that being the County in which the Second through Twelfth
Supplemental Indentures were first filed for record as a mortgage of real
property, the following amounts:

                      Date                                Amount
                      ----                                ------

        March 30, 1948                                    $12,500
        December 7, 1949                                    7,500
        June 17, 1952                                      30,000
        October 21, 1953                                   25,000
        March 22, 1955                                     25,000
        March 5, 1956                                      17,500
        January 24, 1961                                   17,500
        May 17, 1966                                       40,000
        March 10, 1970                                     87,500
        May 19, 1971                                       87,500
        March 23, 1972                                     62,500

such amounts being in payment of the Kansas mortgage registration tax as
provided by the then currently applicable sections of the statutes of the State
of Kansas in effect on those dates; and

         WHEREAS, the Company-West Virginia was merged into the Company-Kansas
on May 31, 1973; and

         WHEREAS, in order to evidence the succession of the Company-Kansas to
the Company-West Virginia and the assumption by the Company-Kansas of the
covenants and conditions of the Company-West Virginia in the bonds and in the
Mortgage contained, and to enable the Company-Kansas to have and exercise the
powers and rights of the Company-West Virginia under the Mortgage in accordance
with the terms thereof, the Company-Kansas executed and delivered to the
Trustees a Thirteenth Supplemental Indenture, dated as of May 31, 1973 (which
supplemental indenture is hereinafter sometimes called the "Thirteenth
Supplemental Indenture"); and



                                       -5-


         WHEREAS, the Company-Kansas caused the Thirteenth Supplemental
Indenture to be filed for record as a mortgage of real property in the offices
of the Registers of Deeds in various counties in the State of Kansas and as a
chattel mortgage in the Office of the Secretary of State of Kansas, but paid no
mortgage registration tax in connection with the recordation of the Thirteenth
Supplemental Indenture, no such tax having been payable in connection with such
recordation; and

         WHEREAS, the Company-Kansas executed and delivered to the Trustees the
following supplemental indentures:

       Designation                                        Dated as of
       -----------                                        -----------

       Fourteenth Supplemental Indenture ..............   July 1, 1975
       Fifteenth Supplemental Indenture ...............   December 1, 1975
       Sixteenth Supplemental Indenture ...............   September 1, 1976
       Seventeenth Supplemental Indenture .............   March 1, 1977
       Eighteenth Supplemental Indenture ..............   May 1, 1977
       Nineteenth Supplemental Indenture ..............   August 1, 1977
       Twentieth Supplemental Indenture ...............   March 15, 1978
       Twenty-first Supplemental Indenture ............   January 1, 1979
       Twenty-second Supplemental Indenture ...........   April 1, 1980
       Twenty-third Supplemental Indenture ............   July 1, 1980
       Twenty-fourth Supplemental Indenture ...........   August 1, 1980
       Twenty-fifth Supplemental Indenture ............   June 1, 1981
       Twenty-sixth Supplemental Indenture ............   December 1, 1981
       Twenty-seventh Supplemental Indenture ..........   May 1, 1982
       Twenty-eighth Supplemental Indenture ...........   March 15, 1984
       Twenty-ninth Supplemental Indenture ............   September 1, 1984
       Thirtieth Supplemental Indenture ...............   September 1, 1984
       Thirty-first Supplemental Indenture ............   February 1, 1985
       Thirty-second Supplemental Indenture ...........   April 15, 1986
       Thirty-third Supplemental Indenture ............   June 1, 1991
       Thirty-fourth Supplemental Indenture ...........   March 31, 1992
       Thirty-fifth Supplemental Indenture ............   December 17, 1992
       Thirty-sixth Supplemental Indenture ............   August 12, 1993
       Thirty-seventh Supplemental Indenture ..........   January 15, 1994
       Thirty-eighth Supplemental Indenture ...........   March 1, 1994
       Thirty-ninth Supplemental Indenture ............   April 15, 1994
       Fortieth Supplemental Indenture ................   June 28, 2000

which supplemental indentures are hereinafter sometimes called the Fourteenth
through Fortieth Supplemental Indentures, respectively; and

         WHEREAS, the Company-Kansas caused the Fourteenth Supplemental
Indenture to be filed for record as a mortgage of real property in the offices
of the Registers of Deeds in various counties in the State of Kansas and as a
chattel mortgage in the Office of the Secretary of State of Kansas; and



                                       -6-


         WHEREAS, the Company-Kansas caused the Fifteenth Supplemental Indenture
to be filed for record as a mortgage of real property in the office of the
Register of Deeds of Sedgwick County, Kansas (filed on December 10, 1975, Film
169, page 363), and as a chattel mortgage in the Office of the Secretary of
State of Kansas (filed on December 10, 1975 and indexed as No. 325,911); and

         WHEREAS, the Company-Kansas caused the Sixteenth Supplemental Indenture
to be filed for record as a mortgage of real property in the office of the
Register of Deeds of Sedgwick County, Kansas (filed on September 29, 1976, Film
21 1, page 363), and as a chattel mortgage in the Office of the Secretary of
State of Kansas (filed on September 29, 1976 and indexed as No. 363,835); and

         WHEREAS, the Company-Kansas caused the Seventeenth Supplemental
Indenture to be filed for record as a mortgage of real property in the office of
the Register of Deeds of Sedgwick County, Kansas (filed on March 16, 1977, Film
234, page 492), and as a chattel mortgage in the Office of the Secretary of
State of Kansas (filed on March 1, 1977 and indexed as No. 384,759); and

         WHEREAS, the Company-Kansas caused the Eighteenth Supplemental
Indenture to be filed for record as a mortgage of real property in the office of
the Register of Deeds of Sedgwick County, Kansas (filed on May 26, 1977, Film
246, page 655), and as a chattel mortgage in the Office of the Secretary of
State of Kansas (filed on May 26, 1977 and indexed as No. 394,573); and

         WHEREAS, the Company-Kansas caused the Nineteenth Supplemental
Indenture to be filed for record as a mortgage of real property in the office of
the Register of Deeds of Sedgwick County, Kansas (filed on August 31, 1977, Film
263, page 882), and as a chattel mortgage in the Office of the Secretary of
State of Kansas (filed on September 1, 1977 and indexed as No. 406,577); and

         WHEREAS, the Company-Kansas caused the Twentieth Supplemental Indenture
to be filed for record as a mortgage of real property in the office of the
Register of Deeds of Sedgwick County, Kansas (filed on March 29, 1978, Film 297,
pages 635-656), and as a chattel mortgage in the Office of the Secretary of
State of Kansas (filed on March 30, 1978 and indexed as No. 434,072); and

         WHEREAS, the Company-Kansas caused the Twenty-first Supplemental
Indenture to be filed for record as a mortgage of real property in the office of
the Register of Deeds of Sedgwick County, Kansas (filed on January 9, 1979, Film
345, page 648), and as a chattel mortgage in the Office of the Secretary of
State of Kansas (filed on January 10, 1979 and indexed as No. 470,851); and

         WHEREAS, the Company-Kansas caused the Twenty-second Supplemental
Indenture to be filed for record as a mortgage of real property in the office of
the Register of Deeds of Sedgwick County, Kansas (filed on April 2, 1980, Film
413, page 1,468), and as a chattel mortgage in the Office of the Secretary of
State of Kansas (filed on April 3, 1980 and indexed as No. 533,415); and

         WHEREAS, the Company-Kansas caused the Twenty-third Supplemental
Indenture to be filed for record as a mortgage of real property in the office of
the Register of Deeds of Sedgwick County, Kansas (filed on July 1, 1980, Film
425, page 1,003), and as a chattel mortgage in the Office of the Secretary of
State of Kansas (filed on July 2, 1980 and indexed as No. 546,185); and



                                       -7-


         WHEREAS, the Company-Kansas caused the Twenty-fourth Supplemental
Indenture to be filed for record as a mortgage of real property in the office of
the Register of Deeds of Sedgwick County, Kansas (filed on August 28, 1980, Film
435, page 266), and as a chattel mortgage in the Office of the Secretary of
State of Kansas (filed on August 29, 1980 and indexed as No. 554,543); and

         WHEREAS, the Company-Kansas caused the Twenty-fifth Supplemental
Indenture to be filed for record as a mortgage of real property in the office of
the Register of Deeds of Sedgwick County, Kansas (filed on June 30, 1981, Film
483, page 1,512), and as a chattel mortgage in the Office of the Secretary of
State of Kansas (filed on June 30, 1981 and indexed as No. 601,270); and

         WHEREAS, the Company-Kansas caused the Twenty-sixth Supplemental
Indenture to be filed for record as a mortgage of real property in the office of
the Register of Deeds of Sedgwick County, Kansas (filed on December 30, 1981,
Film 510, page 300), and as a chattel mortgage in the Office of the Secretary of
State of Kansas (filed on December 31, 1981 and indexed as No. 628,293); and

         WHEREAS, the Company-Kansas caused the Twenty-seventh Supplemental
Indenture to be filed for record as a mortgage of real property in the office of
the Register of Deeds of Sedgwick County, Kansas (filed on May 6, 1982, Film
526, page 1,141), and as a chattel mortgage in the Office of the Secretary of
State of Kansas (filed on May 7, 1982 and indexed as No. 650,115); and

         WHEREAS, the Company-Kansas caused the Twenty-eighth Supplemental
Indenture to be filed for record as a mortgage of real property in the office of
the Register of Deeds of Sedgwick County, Kansas (filed on March 22, 1984, Film
645, page 1,524), and as a chattel mortgage in the Office of the Secretary of
State of Kansas (filed on March 23, 1984 and indexed as No. 796,449); and

         WHEREAS, the Company-Kansas caused the Twenty-ninth Supplemental
Indenture to be filed for record as a mortgage of real property in the office of
the Register of Deeds of Sedgwick County, Kansas (filed on September 5, 1984,
Film 681, page 763), and as a chattel mortgage in the Office of the Secretary of
State of Kansas (filed on September 6, 1984 and indexed as No. 852,425); and

         WHEREAS, the Company-Kansas caused the Thirtieth Supplemental Indenture
to be filed for record as a mortgage of real property in the office of the
Register of Deeds of Sedgwick County, Kansas (filed on September 12, 1984, Film
682, page 1,087), and as a chattel mortgage in the Office of the Secretary of
State of Kansas (filed on September 13, 1984 and indexed as No. 854,284); and

         WHEREAS, the Company-Kansas caused the Thirty-third Supplemental
Indenture to be filed for record as a mortgage of real property in the office of
the Register of Deeds of Sedgwick County, Kansas (filed on June 18, 1991, Film 1
177, page 0876), and as a security agreement in the Office of Secretary of State
of Kansas (filed on June 18, 1991 and indexed as No. 1,693,446); and

         WHEREAS, the Company-Kansas caused the Fortieth Supplemental Indenture
to be filed for record as a mortgage of real property in the office of the
Register of Deeds of Sedgwick County, Kan-



                                       -8-


sas (filed on June 28, 2000, Film 2062, page 0053), and as a security agreement
in the Office of Secretary of State of Kansas (filed on June 28, 2000, and
indexed as No. 3756913); and

         WHEREAS, the Company on the following dates paid to the Register of
Deeds of Sedgwick County, Kansas, that being the County in which the Fourteenth
through Thirtieth Supplemental Indentures, the Thirty-third Supplemental
Indenture and the Fortieth Supplemental Indenture were first filed for record as
a mortgage of real property, the following amounts:

                            Date                          Amount
                            ----                          ------

        July 2, 1975 ..................................   $100,000
        December 10, 1975 .............................     48,750
        September 29, 1976 ............................     62,500
        March 16, 1977 ................................     62,500
        May 26, 1977 ..................................     25,000
        August 31, 1977 ...............................      6,100
        March 29, 1978 ................................     62,500
        January 9, 1979 ...............................     36,250
        April 2, 1980 .................................     67,500
        July 1, 1980 ..................................     37,500
        August 28, 1980 ...............................     63,750
        June 30, 1981 .................................     75,000
        December 30, 1981 .............................     62,500
        May 6, 1982 ...................................    100,000
        March 22, 1984 ................................     93,750
        September 5, 1984 .............................     75,000
        September 12, 1984 ............................     50,000
        June 18, 1991 .................................    334,100
        June 28, 2000 .................................  1,780,538.50

such amounts being in payment of the Kansas mortgage registration tax as
provided by the then currently applicable sections of the statutes of the State
of Kansas in effect on those dates; and

         WHEREAS, the Company-Kansas caused the Thirty-first Supplemental
Indenture to be filed for record as a mortgage of real property in the office of
the Register of Deeds of Sedgwick County, Kansas (filed on February 1, 1985,
Film 707, page 378), and as a chattel mortgage in the Office of the Secretary of
State of Kansas (filed on February 4, 1985 and indexed as No. 895,468), but paid
no mortgage registration tax in connection with the recordation of the
Thirty-first Supplemental Indenture, no such tax having been payable in
connection with such recordation; and

         WHEREAS, the Company-Kansas caused the Thirty-second Supplemental
Indenture to be filed for record as a mortgage of real property in the office of
the Register of Deeds of Sedgwick County, Kansas (filed on April 16, 1986, Film
791, page 1,336), and as a chattel mortgage in the Office of the Secretary of
State of Kansas (filed on April 17, 1986 and indexed as No. 1,048,212), but



                                       -9-


paid no mortgage registration tax in connection with the recordation of the
Thirty-second Supplemental Indenture, no such tax having been payable in
connection with such recordation; and

         WHEREAS, in order to evidence the succession of the Company to the
Company-Kansas and the assumption by the Company of the covenants and conditions
of the Company-Kansas in the bonds and in the Mortgage contained, and to enable
the Company to have and exercise the powers and rights of the CompanyKansas
under the Mortgage in accordance with the terms thereof, the Company executed
and delivered to the Trustees a Thirty-fourth Supplemental Indenture, dated as
of March 31, 1992 (which supplemental indenture is hereinafter sometimes called
the "Thirty-fourth Supplemental Indenture"); and

         WHEREAS, the Company-Kansas caused the Thirty-fourth Supplemental
Indenture to be filed for record as a mortgage of real property in the office of
the Register of Deeds of Sedgwick County, Kansas (filed on March 31, 1992, Film
1236, page 987), and as a security agreement in the Office of Secretary of State
of Kansas (filed on March 31, 1992 and indexed as No. 1,780,893), but paid no
mortgage registration tax in connection with the recordation of the
Thirty-fourth Supplemental Indenture, no such tax having been payable in
connection with such recordation; and

         WHEREAS, the Company caused the Thirty-fifth Supplemental Indenture to
be filed for record as a mortgage of real property in the office of the Register
of Deeds of Sedgwick County, Kansas (filed on December 16, 1992, Film 301, page
0104), and as a security agreement in the Office of Secretary of State of Kansas
(filed on December 16, 1992 and indexed as No. 1,861,886), but paid no mortgage
registration tax in connection with the recordation of the Thirty-fifth
Supplemental Indenture, no such tax having been payable in connection with such
recordation; and

         WHEREAS, the Company-Kansas caused the Thirty-sixth Supplemental
Indenture to be filed for record as a mortgage of real property in the office of
the Register of Deeds of Sedgwick County, Kansas (filed on August 10, 1993, Film
1364, page 0515), and as a security agreement in the Office of Secretary of
State of Kansas (filed on August 11, 1993 and indexed as No. 1,936,501), but
paid no mortgage registration tax in connection with the recordation of the
Thirty-sixth Supplemental Indenture, no such tax having been payable in
connection with such recordation; and

         WHEREAS, the Company-Kansas caused the Thirty-seventh Supplemental
Indenture to be filed for record as a mortgage of real property in the office of
the Register of Deeds of Sedgwick County, Kansas (filed on January 18, 1994,
Film 1411, page 0710), and as a security agreement in the Office of Secretary of
State of Kansas (filed on January 18, 1994 and indexed as No. 1,985,104), but
paid no mortgage registration tax in connection with the recordation of the
Thirty-seventh Supplemental Indenture, no such tax having been payable in
connection with such recordation; and

         WHEREAS, the Company-Kansas caused the Thirty-eighth Supplemental
Indenture to be filed for record as a mortgage of real property in the office of
the Register of Deeds of Sedgwick County, Kansas (filed on February 28, 1994,
Film 1422, page 1046), and as a security agreement in the Office of Secretary of
State of Kansas (filed on February 28, 1994 and indexed as No. 1,997,743), but
paid no mortgage registration tax in connection with the recordation of the
Thirty-eighth Supplemental Indenture, no such tax having been payable in
connection with such recordation;



                                       -10-


         WHEREAS, the Company-Kansas caused the Thirty-ninth Supplemental
Indenture to be filed for record as a mortgage of real property in the office of
the Register of Deeds of Sedgwick County, Kansas (filed on April 27, 1994, Film
1440, page 855), and as a security agreement in the Office of Secretary of State
of Kansas (filed on April 27, 1994 and indexed as No. 1,377,915), but paid no
mortgage registration tax in connection with the recordation of the Thirty-ninth
Supplemental Indenture, no such tax having been payable in connection with such
recordation; and

         WHEREAS, the Company-West Virginia, the Company-Kansas or the Company
has from time to time caused to be filed in the respective offices of the
above-mentioned Registers of Deeds and Secretary of State affidavits executed by
the Trustees under the Mortgage, preserving and continuing the lien thereof
either as a chattel mortgage in accordance with the provisions of K.S.A. 58-303
(Section 58-303 of the General Statutes of Kansas 1935) or as a security
agreement under the provisions of K.S.A. 84-9-401 et seq.; and

         WHEREAS, in addition to the aforesaid filings for record in the
respective offices of the above-mentioned Registers of Deeds, the Company-West
Virginia, the Company-Kansas or the Company has filed copies of the Mortgage and
the First through Fortieth Supplemental Indentures, certified as true by it,
with the Secretary of State of Kansas; and

         WHEREAS, the Company-West Virginia, the Company-Kansas or the Company
has heretofore issued, in accordance with the provisions of the Mortgage, as
heretofore supplemented, the following series of First Mortgage Bonds:

                                                     Principal    Principal
                                                       Amount      Amount
                Series                                 Issued    Outstanding
                ------                                --------   -----------

       3-3/8% Series due 1970 ....................  $16,000,000         None
       3-1/8% Series due 1978 ....................    5,000,000         None
       2-3/4% Series due 1979 ....................    3,000,000         None
       3-3/8% Series due 1982 ....................   12,000,000         None
       3-5/8% Series due 1983 ....................   10,000,000         None
       3-3/8% Series due 1985 ....................   10,000,000         None
       3-3/8% Series due 1986 ....................    7,000,000         None
       4-5/8% Series due 1991 ....................    7,000,000         None
       5-5/8% Series due 1996 ....................   16,000,000         None
       8-1/2% Series due 2000 ....................   35,000,000         None
       8-1/8% Series due 2001 ....................   35,000,000         None
       7-3/8% Series due 2002 ....................   25,000,000         None
       9-5/8% Series due 2005 ....................   40,000,000         None
       6% Series due 1985 ........................    7,000,000         None
       7-3/4% Series due 2005 ....................   12,500,000         None
       8-3/8% Series due 2006 ....................   25,000,000         None
       8-1/2% Series due 2007 ....................   25,000,000         None
       6% Series due 2007 ........................   10,000,000         None



                                       -11-


                                                     Principal     Principal
                                                       Amount       Amount
                Series                                 Issued     Outstanding
                ------                                --------    -----------

       5-7/8% Series due 2007 ....................   21,940,000          None
       8-7/8% Series due 2008 ....................   30,000,000          None
       6.80% Series due 2004 .....................   14,500,000          None
       16-1/4% Series due 1987 ...................   30,000,000          None
       6-1/2% Series due 1983 ....................   15,000,000          None
       7-1/4% Series due 1983 ....................   25,500,000          None
       14-7/8% Series due 1987-1991 ..............   30,000,000          None
       16% Series due 1996 .......................   25,000,000          None
       15-3/4% Series due 1989 ...................   40,000,000          None
       13-1/2% Series due 1989 ...................  100,000,000          None
       14.05% Series due 1991 ....................   30,000,000          None
       14-1/8% Series due 1991 ...................   20,000,000          None
       10-7/8% Series due 1987 ...................   30,000,000          None
       9-3/4% Series due 2016 ....................   50,000,000          None
       7.00% Series A due 2031 ...................   18,900,000    18,900,000
       7.00% Series B due 2031 ...................  308,600,000   308,600,000
       7.60% Series due 2003 .....................  135,000,000          None
       6-1/2% Series due 2005 ....................   65,000,000    65,000,000
       6.20% Series due 2006 .....................  100,000,000   100,000,000
       5.10% Series due 2023 .....................   13,982,500    13,492,500
       7-1/2% Series A due 2032 ..................   14,500,000    14,500,000
       7-1/2% Series B due 2027 ..................   21,940,000    21,940,000
       7-1/2% Series C due 2032 ..................   10,000,000    10,000,000
       9-1/2% Series due 2003 ....................  600,000,000          None

hereinafter sometimes called Bonds of the First through Fortieth Series; and

         WHEREAS, Section 8 of the Mortgage provides that the form of each
series of bonds (other than the First Series) issued thereunder and of the
coupons to be attached to the coupon bonds of such series shall be established
by Resolution of the Board of Directors of the Company and that the form of such
series, as established by said Board of Directors, shall specify the descriptive
title of the bonds and various other terms thereof, and may also contain such
provisions not inconsistent with the provisions of the Mortgage as the Board of
Directors may, in its discretion, cause to be inserted therein expressing or
referring to the terms and conditions upon which such bonds are to be issued
and/or secured under the Mortgage; and

         WHEREAS, Section 120 of the Mortgage provides, among other things, that
any power, privilege or right expressly or impliedly reserved to or in any way
conferred upon the Company by any provision of the Mortgage whether such power,
privilege or right is in any way restricted or is unrestricted, may be in whole
or in part waived or surrendered or subjected to any restriction if at the time
unrestricted or to additional restriction if already restricted, and the Company
may enter into any fur-



                                       -12-


ther covenants, limitations or restrictions for the benefit of any one or more
series of bonds issued thereunder, or the Company may cure any ambiguity
contained therein or in any supplemental indenture, or may establish the terms
and provisions of any series of bonds other than said First Series, by an
instrument in writing executed and acknowledged by the Company in such manner as
would be necessary to entitle a conveyance of real estate to record in all of
the states in which any property at the time subject to the lien of the Mortgage
shall be situated; and

         WHEREAS, the Company now desires to create a new series of bonds; and

         WHEREAS, the execution and delivery by the Company of this Forty-first
Supplemental Indenture, and the terms of the Bonds of the 2005 Series,
hereinafter referred to, have been duly authorized by the Board of Directors of
the Company by appropriate Resolutions of said Board of Directors;

         NOW, THEREFORE, THIS INDENTURE WITNESSETH:

         That Kansas Gas and Electric Company, in consideration of the premises
and of One Dollar ($1) to it duly paid by the Trustees at or before the
ensealing and delivery of these presents, the receipt whereof is hereby
acknowledged, and in further evidence of assurance of the estate, title and
rights of the Trustees and in order further to secure the payment both of the
principal of and interest and premium, if any, on the bonds from time to time
issued under the Mortgage, according to their tenor and effect and the
performance of all the provisions of the Mortgage (including any instruments
supplemental thereto and any modification made as in the Mortgage provided) and
of said bonds, hereby grants, bargains, sells, releases, conveys, assigns,
transfers, mortgages, pledges, sets over and confirms (subject, however, to
Excepted Encumbrances as defined in Section 6 of the Mortgage) unto BNY Midwest
Trust Company and to Judith L. Bartolini, as Trustees under the Mortgage, and to
their successor or successors in said trust, and to said Trustees and their
successors and assigns forever, all property, real, personal and mixed, acquired
by the Company after the date of the execution and delivery of the Mortgage, in
addition to property covered by the First through the Fortieth Supplemental
Indentures (except any herein or in the Mortgage, as heretofore supplemented,
expressly excepted), now owned or, subject to the provisions of Section 87 of
the Mortgage, hereafter acquired by the Company and wheresoever situated,
including (without in anywise limiting or impairing by the enumeration of the
same the scope and intent of the foregoing or of any general description
contained in this Forty-first Supplemental Indenture) all lands, flowage rights,
water rights, flumes, raceways, dams, rights of way and roads; all steam and
power houses, gas plants, street lighting systems, standards and other equipment
incidental thereto, telephone, radio and television systems, air-conditioning
systems and equipment incidental thereto, water works, steam heat and hot water
plants, lines, service and supply systems, bridges, culverts, tracks, rolling
stock, ice or refrigeration plants and equipment, street and interurban railway
systems, offices, buildings and other structures and the equipment thereof; all
machinery, engines, boilers, dynamos, electric and gas machines, regulators,
meters, transformers, generators, motors, electrical, gas and mechanical
appliances, conduits, cables, water, steam heat, gas or other pipes, gas mains
and pipes, service pipes, fittings, valves and connections, pole and
transmission lines, wires, cables, tools, implements, apparatus, furniture,
chattels and chooses in action; all municipal and other franchises; all lines
for the transmission and distribution of electric current, gas, steam heat or
water for any purpose, including poles, wires, cables, pipes, conduits, ducts
and all apparatus for use in connection therewith; all real estate, lands,



                                       -13-


easements, servitudes, licenses, permits, franchises, privileges, rights of way
and other rights in or relating to real estate or the occupancy of the same and
(except as herein or in the Mortgage, as heretofore supplemented, expressly
excepted), all the right, title and interest of the Company in and to all other
property of any kind or nature appertaining to and/or used and/or occupied
and/or enjoyed in connection with any property hereinbefore or in the Mortgage,
as heretofore supplemented, described.

         TOGETHER WITH all and singular the tenements, hereditarnents and
appurtenances belonging or in anywise appertaining to the aforesaid property or
any part thereof, with the reversion and reversions, remainder and remainders
and (subject to the provisions of Section 57 of the Mortgage) the tolls, rents,
revenues, issues, earnings, income, product and profits thereof, and all the
estate, right, title and interest and claim whatsoever, at law as well as in
equity, which the Company now has or may hereafter acquire in and to the
aforesaid property and franchises and every part and parcel thereof.

         IT IS HEREBY AGREED by the Company that, subject to the provisions of
Section 87 of the Mortgage, all the property, rights and franchises acquired by
the Company after the date hereof (except any herein or in the Mortgage, as
heretofore supplemented, expressly excepted), shall be as fully embraced within
the lien hereof and the lien of the Mortgage, as if such property, rights and
franchises were now owned by the Company and were specifically described herein
and conveyed hereby.

         PROVIDED that the following are not and are not intended to be now or
hereafter granted, bargained, sold, released, conveyed, assigned, transferred,
mortgaged, pledged, set over or confirmed hereunder and are hereby expressly
excepted from the lien and operation of this Forty-first Supplemental Indenture
and from the lien and operation of the Mortgage, viz.: (1) cash, shares of stock
and obligations (including bonds, notes and other securities) not hereafter
specifically pledged, paid, deposited or delivered under the Mortgage or
covenanted so to be; (2) merchandise, equipment, materials or supplies held for
the purpose of sale in the usual course of business and fuel, oil and similar
materials and supplies consumable in the operation of any properties of the
Company; vehicles and automobiles; (3) bills, notes and accounts receivable, and
all contracts, leases and operating agreements not specifically pledged under
the Mortgage or covenanted so to be; and (4) electric energy, and other
materials or products generated, manufactured, produced or purchased by the
Company for sale, distribution or use in the ordinary course of its business;
provided, however, that the property and rights expressly excepted from the lien
and operation of the Mortgage and this Forty-first Supplemental Indenture in the
above subdivisions (2) and (3) shall (to the extent permitted by law) cease to
be so excepted in the event that either or both of the Trustees or a receiver or
trustee shall enter upon and take possession of the Mortgaged and Pledged
Property in the manner provided in Article XII of the Mortgage by reason of the
occurrence of a Default as defined in said Article XII.

         THERE is expressly excepted from the lien of the Mortgage and from the
lien hereof all property of the Company located in the State of Missouri now
owned or hereafter acquired unless such property in the State of Missouri shall
be subjected to the lien of the Mortgage by an indenture or indentures
supplemental thereto, pursuant to authorization by the Board of Directors of the
Company.



                                       -14-


         TO HAVE AND TO HOLD all such properties, real, personal and mixed,
granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged,
pledged, set over or confirmed by the Company as aforesaid, or intended so to
be, unto the Trustees, their successors and assigns forever.

         IN TRUST NEVERTHELESS, for the same purposes and upon the same terms,
trusts and conditions and subject to and with the same provisos and covenants as
are set forth in the Mortgage, as supplemented, this Forty-first Supplemental
Indenture being supplemental thereto.

         AND IT IS HEREBY COVENANTED by the Company that all the terms,
conditions, provisos, covenants and provisions contained in the Mortgage, as
supplemented, shall affect and apply to the property hereinbefore described and
conveyed and to the estate, rights, obligations and duties of the Company and
Trustees and the beneficiaries of the trust with respect to said property, and
to the Trustees and their successors as Trustees of said property in the same
manner and with the same effect as if the said property had been owned by the
Company at the time of the execution of the Mortgage, and had been specifically
and at length described in and conveyed to the Trustees by the Mortgage as a
part of the property therein stated to be conveyed.

         The Company further covenants and agrees to and with the Trustees and
their successors in said trust under the Mortgage, as follows:

                                    ARTICLE I

                              2005 SERIES OF BONDS

         SECTION 1. (I) There shall be a series of bonds designated 8% Series
due 2005 (herein sometimes referred to as the "Bonds of the 2005 Series"), each
of which shall also bear the descriptive title, First Mortgage Bond, and the
form thereof, which is established by Resolution of the Board of Directors of
the Company, shall contain suitable provisions with respect to the matters
hereinafter in this Article I specified. Bonds of the 2005 Series shall be
limited to $735,000,000 in aggregate principal amount, except as provided in
Section 16 of the Mortgage, shall mature on June 6, 2005, and shall be issued as
fully registered bonds in denominations of Five Thousand Dollars and in any
multiple or multiples of Five Thousand Dollars. Bonds of the 2005 Series shall
bear interest at the rate of eight percent (8%) per annum payable (subject to
the second paragraph of Section 1(III)) on the interest payment dates for the
Loans (as defined below). Every Bond of the 2005 Series shall bear interest from
each interest payment date for the Loans next preceding the date thereof, unless
no interest has been paid on this Bond in which case from June 6, 2002. The
principal of and interest on Bonds of the 2005 Series shall be payable at the
office or agency of the Company in the Borough of Manhattan, City of New York,
in such coin or currency of the United States of America as at the time of
payment is legal tender for public and private debts. Bonds of the 2005 Series
shall be dated as in Section 10 of the Mortgage provided.

         (II) Bonds of the 2005 Series are redeemable prior to maturity only
upon demand therefor by the Collateral Agent. To effect the redemption of Bonds
of the 2005 Series, the Collateral Agent shall deliver to the Trustee (and
deliver a copy thereof to the Company) a written demand (hereinafter



                                       -15-


referred to as a "Redemption Demand") for the redemption of Bonds of the 2005
Series, signed by an authorized officer and dated the date of its delivery to
the Corporate Trustee, stating (i) that an Event of Default (as defined in the
Collateral Agreement) has occurred and is continuing, (ii) that there are not
sufficient available funds held by the Collateral Agent pursuant to the
Collateral Agreement to make all payments required as a result of such Event of
Default, (iii) the amount of funds, in addition to available funds held by the
Collateral Agent pursuant to the Collateral Agreement, required to make such
payments, and (iv) the principal amount of Bonds of the 2005 Series the
Collateral Agent demands to have redeemed and the redemption date therefor which
date should be at least thirty-one (31) days after the date of such Redemption
Demand (provided, such principal amount shall not exceed the amount of funds
specified pursuant to the foregoing clause (iii)). The Trustee may conclusively
presume the statements contained in the Redemption Demand to be correct.
Redemption of Bonds of the 2005 Series shall in all cases be at a price equal to
the principal amount of the Bonds to be redeemed together with accrued interest
to the redemption date, and such amount shall become and be due and payable on
the redemption date.

         The Company hereby covenants that if a Redemption Demand shall be
delivered to the Corporate Trustee, the Company will deposit, on or before the
redemption date, with the Corporate Trustee, in accordance with Article X of the
Mortgage, an amount in cash sufficient to redeem the Bonds of the 2005 Series so
called for redemption.

         (III) All Bonds of the 2005 Series shall be issued and pledged by the
Company to the Collateral Agent pursuant to a Collateral and Guarantee Agreement
dated as of June 6, 2002 among the Company, Western Resources, Inc. ("WRI") and
JPMorgan Chase Bank (in such capacity, the "Collateral Agent") to secure the
payment of the principal of, and up to 8% per annum of the interest on any of
the loans issued pursuant to the $735,000,000 Credit Agreement, dated as of June
6, 2002 among WRI, JPMorgan Chase Bank, as administrative agent, and the lenders
party thereto, (the "Credit Agreement" and the loans thereunder are referred to
collectively as the "Loans").

         The obligation of the Company to make payments with respect to the
principal of and interest on Bonds of the 2005 Series (including without
limitation upon maturity thereof) shall be fully or partially, as the case may
be, satisfied and discharged to the extent that, at the time that any such
payment shall be due, the then due principal of and interest on the Loans shall
have been fully or partially paid, or there shall be held by the Collateral
Agent pursuant to the Collateral Agreement sufficient available funds to fully
or partially pay the then due principal of and interest on the Loans.
Notwithstanding any other provisions of this Supplemental Indenture or the
Mortgage, interest on the Bonds of the 2005 Series shall be deemed fully or
partially satisfied and discharged as provided herein even if the interest rate
on Bonds of the 2005 Series may be higher or lower than the interest rate on any
of the Loans at the time interest on any such Loans is paid. The Corporate
Trustee may conclusively presume that the obligation of the Company to make
payments with respect to the principal of and interest on Bonds of the 2005
Series shall have been fully satisfied and discharged unless and until the
Corporate Trustee shall have received a written notice from the Collateral
Agent, signed by an authorized officer, stating (i) that timely payment of the
principal of or interest on the Loans required to be made by the Company has not
been made, (ii) that there are not sufficient available funds held by the
Collateral Agent pursuant to the Collateral Agreement to make such payment and



                                       -16-


(iii) the amount of funds, in addition to available funds held by the Collateral
Agent pursuant to the Collateral Agreement, required to make such payment.

         (IV) At the option of the registered owner, any Bonds of the 2005
Series, upon surrender thereof, for cancellation, at the office or agency of the
Company in the Borough of Manhattan, City of New York, shall be exchangeable for
a like aggregate principal amount of bonds of the same series of other
authorized denominations. The Bonds of the 2005 Series may bear such legends as
may be necessary to comply with any law or with any rules or regulations made
pursuant thereto or with the rules or regulations of any stock exchange or to
conform to usage with respect thereto.

         (V)  Bonds of the 2005 Series shall be transferable upon the surrender
thereof, for cancellation together with a written instrument of transfer in form
approved by the registrar duly executed by the registered owner or by his duly
authorized attorney, at the office or agency of the Company in the Borough of
Manhattan, City of New York.

                                   ARTICLE II

                            MISCELLANEOUS PROVISIONS

         SECTION 1. All Bonds of the 2005 Series acquired by the Company shall
forthwith be delivered to the Corporate Trustee for cancellation.

         SECTION 2. Subject to the amendments provided for in this Forty-first
Supplemental Indenture, the terms defined in the Mortgage, as heretofore
supplemented, shall, for all purposes of this Forty-first Supplemental
Indenture, have the meanings specified in the Mortgage, as heretofore
supplemented.

         SECTION 3. The Trustees hereby accept the trusts herein declared,
provided, created or supplemented and agree to perform the same upon the terms
and conditions set forth herein and in the Mortgage, as heretofore amended and
supplemented, and upon the following terms and conditions:

         The Trustees shall not be responsible in any manner whatsoever for or
in respect of the validity or sufficiency of this Forty-first Supplemental
Indenture or for or in respect of the recitals contained herein, all of which
recitals are made by the Company solely. In general, each and every term and
condition contained in Article XVI of the Mortgage, as heretofore amended and
supplemented, shall apply to and form part of this Forty-first Supplemental
Indenture with the same force and effect as if the same were herein set forth in
full with such omissions, variations and insertions, if any, as may be
appropriate to make the same conform to the provisions of this Forty-first
Supplemental Indenture.

         SECTION 4. Subject to the provisions of Article XV and Article XVI of
the Mortgage, as heretofore amended and supplemented, whenever in this
Forty-first Supplemental Indenture any of the parties hereto is named or
referred to, this shall be deemed to include the successors or assigns of such
party, and all the covenants and agreements in this Forty-first Supplemental



                                       -17-


Indenture contained by or on behalf of the Company or by or on behalf of the
Trustees shall bind and inure to the benefit of the respective successors and
assigns of such parties whether so expressed or not.

         SECTION 5. Nothing in this Forty-first Supplemental Indenture,
expressed or implied, is intended, or shall be construed, to confer upon, or to
give to, any person, firm or corporation, other than the parties hereto and the
holders of the bonds and coupons Outstanding under the Mortgage, any right,
remedy or claim under or by reason of this Forty-first Supplemental Indenture or
any covenant, condition, stipulation, promise or agreement hereof, and all the
covenants, conditions, stipulations, promises and agreements in this Forty-first
Supplemental Indenture contained by or on behalf of the Company shall be for the
sole and exclusive benefit of the parties hereto, and of the holders of the
bonds and of the coupons Outstanding under the Mortgage.

         SECTION 6. The Company reserves the right, subject to appropriate
corporate action, but without any consent or other action by holders of Bonds of
the 2005 Series, or of any subsequent series of bonds, to make such amendments
to the Mortgage, as supplemented, as shall be necessary in order to (A) permit
the issuance of additional Prior Lien Bonds other than to the Corporate Trustee
(i) in a principal amount not to exceed the principal amount of Bonds which
could then be issued on the basis of Property Additions under the Mortgage or
(ii) upon the redemption or retirement of Prior Lien Bonds secured by such Prior
Lien, (B) to remove the requirement that Prior Lien Bonds be issued to the
Corporate Trustee, (C) remove the provisions of Article V which eliminate from
the calculation of unfunded net Property Additions available for issuance of
Bonds the amount of any Property Additions subject to a Prior Lien if the
aggregate amount of Outstanding Prior Lien Bonds is 15% or more of the sum of
the Outstanding Bonds and Prior Lien Bonds, and (D) make such other amendments
to the Mortgage as may be necessary or desirable in the opinion of the Company
to effect the foregoing.

         SECTION 7. This Forty-first Supplemental Indenture shall be executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.





         IN WITNESS WHEREOF, KANSAS GAS AND ELECTRIC COMPANY has caused its
corporate name to be hereunto affixed, and this instrument to be signed and
sealed by Paul R. Geist, its Vice President and Treasurer, and its corporate
seal to be attested by Larry D. Irick, its Secretary for and in its behalf,
BNY MIDWEST TRUST COMPANY has caused its corporate name to be hereunto affixed,
and this instrument to be signed and sealed by D.G. Donovan, its Assistant Vice
President, and its corporate seal to be attested by C. Potter, one of its
Assistant Secretaries for and in its behalf, and Judith L. Bartolini has
hereunto set her hand, all as of the day and year first above written.

                                            KANSAS GAS AND ELECTRIC COMPANY

                                            By: /s/ Paul R. Geist
                                               ------------------
                                               Paul R. Geist
                                               Vice President and Treasurer

Attest:

/s/ Larry D. Irick
- ------------------
Larry D. Irick
Secretary

Executed, sealed and delivered by
   KANSAS GAS AND ELECTRIC COMPANY,
   in the presence of:

/s/ Peggy S. Wettengel
- ----------------------
Peggy S. Wettengel

/s/ Kathy J. Beach
- ------------------
Kathy J. Beach




                                            BNY MIDWEST TRUST COMPANY, as
                                            Trustee

                                            By: /s/ D.G. Donovan
                                               -----------------

 Attest:                                       Vice President

/s/ C. Potter
- -------------
Assistant Secretary

                                               /s/ Judith L. Bartolini
                                               -----------------------
                                               (Judith L. Bartolini)

Executed, sealed and delivered by
BNY MIDWEST TRUST COMPANY
and JUDITH L. BARTOLINI, in the
 presence of:

/s/ Hernandez A. Hernandez
- --------------------------

/s/ K. Gibson
- -------------





STATE OF KANSAS       )
                      :    ss.:
COUNTY OF SEDGWICK    )

         BE IT REMEMBERED, that on this 6th day of June, A.D. 2002, before me,
the undersigned, a Notary Public within and for the County and State aforesaid,
came Paul R. Geist, the Vice President and Treasurer of KANSAS GAS AND ELECTRIC
COMPANY, a corporation duly organized, incorporated and existing under the laws
of the State of Kansas, who is personally known to me to be such officer, and
who is personally known to me to be the same person who executed, as such
officer, the within instrument of writing, and such person duly acknowledged the
execution of the same to be the act and deed of said corporation and that said
instrument of writing was so executed by order of the Board of Directors of said
corporation.

         On this 6th day of June, 2002, before me appeared Larry D. Irick, to me
personally known, who being by me duly sworn did say that he is the Secretary of
KANSAS GAS AND ELECTRIC COMPANY, and that the seal affixed to the foregoing
instrument is the corporate seal of said corporation, and that said instrument
was signed and sealed in behalf of said corporation by authority of its Board of
Directors, and said Larry D. Irick acknowledged said instrument to be the free
act and deed of said corporation.

         IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed my
official seal on the day and year above written.

                                        /s/ Patti Beasley
                                        -----------------

                                        NOTARY PUBLIC -- STATE OF KANSAS
                                        MY APPOINTMENT EXPIRES November 18, 2004




STATE OF ILLINOIS    )
                     :    ss.:
COUNTY OF COOK       )

         BE IT REMEMBERED, that on this 6th day of June, A.D. 2002, before me,
the undersigned, a Notary Public within and for the County and State aforesaid,
came D.G. Donovan, an Assistant Vice President of BNY Midwest Trust Company, a
corporation, duly organized, incorporated and existing under the laws of the
State of Illinois, who is personally known to me to be such officer, and who is
personally known to me to be the same person who executed, as such officer, the
within instrument of writing, and such person duly acknowledged the execution of
the same to be the act and deed of said corporation and that said instrument of
writing was so executed by authority of the Board of Directors of said
corporation.

         On this 6th day of June, 2002, before me personally came C. Potter, to
me known, who being by me duly sworn did depose and say that she is an Assistant
Vice President of BNY MIDWEST TRUST COMPANY, one of the corporations described
in and which executed the above instrument; that she knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation, and that she signed her name thereto by like authority.

         IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed my
official seal on the day and year above written.

                                            /s/ Linda Ellen Garcia
                                            ----------------------

                                            NOTARY PUBLIC, STATE OF ILLINOIS
                                            NO.
                                            QUALIFIED IN COOK COUNTY
                                            COMMISSION EXPIRES




STATE OF ILLINOIS    )
                     :    ss.:
COUNTY OF COOK       )

         On this 6th day of June in the year 2002, before me, the undersigned, a
Notary Public in and for the State of Illinois, in the County of Cook,
personally appeared and came Judith L. Bartolini, Individual Trustee to me known
and known to me to be the person described in and who executed the within and
foregoing instrument and whose name is subscribed thereto and acknowledged to me
that he executed the same.

         IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed my
official seal the day and year in this certificate first above written.

                                            /s/ Linda Ellen Garcia
                                            ----------------------

                                            NOTARY PUBLIC, STATE OF ILLINOIS
                                            NO.
                                            QUALIFIED IN COOK COUNTY
                                            COMMISSION EXPIRES





                                                                    EXHIBIT 99.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                       AS ADOPTED PURSUANT TO SECTION 906
                        OF THE SARBANES-OXLEY ACT OF 2002

         In connection with the Quarterly Report of Kansas Gas and Electric
Company (the Company) on Form 10-Q for the quarterly period ended June 30, 2002
(the Report) which this certification accompanies, Caroline A. Williams in my
capacity as Chairman of the Board and President of the Company, and Paul R.
Geist, in my capacity as Vice President and Treasurer (Principal Financial and
Accounting Officer) of the Company, certify that the Report fully complies with
the requirements of section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934 (15 U.S.C. 78m or 78o(d)) and that information contained in the
Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.

Date:   August 14, 2002         By:         /s/  Caroline A. Williams
     ---------------------         ----------------------------------
                                             Caroline A. Williams,
                                      Chairman of the Board and President

Date:   August 14, 2002         By:           /s/  Paul R. Geist
     ---------------------         -----------------------------
                                                Paul R. Geist,
                                         Vice President and Treasurer
                                 (Principal Financial and Accounting Officer)

         The foregoing certification is being furnished solely pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by
the Company as part of the Report or as a separate disclosure document for
purposes of Section 18 or any other provision of the Securities Exchange Act of
1934, as amended.