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 ~~September~~June 30, ~~2003~~2004

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

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

Common Stock, No Par Value		1,000 Shares
(Class)		(Outstanding at ~~November~~August 101, ~~2003~~2004)

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

		Page
PART I. Financial Information
Item 1.	Condensed Financial Statements (Unaudited)
	Consolidated Balance Sheets	4
	Consolidated Statements of Income and Comprehensive Income	5-6
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Financial Statements	8
	Condensed Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1413
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2320
Item 4.	Controls and Procedures	2320
PART II. Other Information
Item 1.	Legal Proceedings	2422
Item 2.	Changes in Securities and Use of Proceeds	2422
Item 3.	Defaults Upon Senior Securities	2422
Item 4.	Submission of Matters to a Vote of Security Holders	2422
Item 5.	Other Information	2422
Item 6.	Exhibits and Reports on Form 8-K	2422
Signature		2523

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,” “target,” “expect,” “pro forma,” “estimate,” “intend” and words of similar meaning. Forward-looking statements describe our future plans, objectives, expectations or goals. Such statements address future events and conditions concerning:

•

capital expenditures,

•

earnings,

•

liquidity and capital resources,

•

litigation,

•

accounting matters,

• possible corporate restructurings, acquisitions and dispositions,

• the sale of assets proposed in Westar Energy, Inc.’s Debt Reduction and Restructuring Plan as approved by the Kansas Corporation Commission on July 25, 2003,

•

compliance with debt and other restrictive covenants,

• interest ~~and dividends~~rates,

•

environmental matters,

•

nuclear operations, and

•

the overall economy of our service area.

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

•

electric utility deregulation or re-regulation,

•

regulated and competitive markets,

•

ongoing municipal, state and federal activities,

• economic and capital market conditions,

•

changes in accounting requirements and other accounting matters,

•

changing weather,

• ~~rate~~rates, cost recoveries and other regulatory matters,

•

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

• the ~~sale~~impact of ~~Westar~~“Hours ~~Energy,~~of ~~Inc.’s~~Service” ~~interests~~legislation that was enacted in ~~ONEOK,~~January ~~Inc.~~2004 on the number of hours during which employees may operate equipment,

• the ~~proposed~~outcome ~~sale~~of the notice of violation received by Westar Energy, Inc.’s ~~interest~~on inJanuary 22, 2004 from the Environmental Protection ~~One,~~Agency ~~Inc.~~and other environmental matters,

• the impact on Westar Energy, Inc. of the ~~federal~~outcome ~~grand~~of ~~jury~~the ~~subpoena~~investigation being conducted by the ~~United~~Federal ~~States~~Energy ~~Attorney’s~~Regulatory ~~Office~~Commission ~~requesting~~regarding ~~certain~~power ~~information~~trades ~~from~~with ~~Westar~~Cleco ~~Energy,~~Corporation ~~Inc.~~and its affiliates and other energy marketing and transmission transactions,

• ~~the~~political, ~~impact on Westar Energy~~legislative, ~~Inc.~~judicial ~~of the outcome of the investigation being conducted by the Federal Energy Regulatory Commission regarding power trades with Cleco Corporation~~ and ~~its~~regulatory ~~affiliates and other power marketing and transmission transactions~~developments,

• political, legislative and regulatory developments,

• regulatory, legislative and judicial actions,

•

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

•

the impact of changes in interest rates,

•

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

•

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

•

transmission reliability rules,

•

homeland security considerations,

•

coal, natural gas and oil prices, and

•

other circumstances affecting anticipated operations, sales and costs.

These lists are not all-inclusive because it is not possible to predict all factors. This report should be read in its entirety and in conjunction with our Annual Report on Form 10-K for the year ended December 31, ~~2002~~2003. No one section of ~~the~~this report deals with all aspects of the subject matter and additional information on some matters that could impact our operations and financial results may be included in our Annual Report on Form 10-K for the year ended December 31, ~~2002~~2003. Any forward-looking statement speaks only as of the date such statement was made, and we ~~are~~do not ~~obligated~~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.

PART I. Financial Information

ITEM 1.

CONDENSED FINANCIAL STATEMENTS

KANSAS GAS AND ELECTRIC COMPANY

CONSOLIDATED BALANCE SHEETS

(InDollars in Thousands)

(Unaudited)

	September 30, 2003				December 31, 2002
	June 30,2004			December 31,2003
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	78,~~948~~553		$	$6,321	~~6,150~~
Restricted cash		140,152				145,282
Accounts receivable, net		88,476			80,771
Accounts receivable, net		84,339				50,738
Inventories and supplies		62,339			66,930
Inventories and supplies		64,530				65,555
Energy marketing contracts		4,096			8,688
Energy trading contracts		12,331				11,039
Deferred tax assets		3,515			1,064
Prepaid expenses and other		35,741				24,158
Prepaid expenses		44,016			24,657
Total Current Assets		345,041				302,922
Other		2,687			1,457
PROPERTY, PLANT AND EQUIPMENT, NET		2,365,767				2,375,645
Total Current Assets		213,682			189,888
OTHER ASSETS:
PROPERTY, PLANT AND EQUIPMENT, NET		2,349,340			2,362,371
Regulatory assets		305,605				238,294
OTHER ASSETS:
Energy trading contracts		476				4,525
Regulatory assets		327,369			316,670
Other		98,148				85,007
Nuclear decommissioning trust		83,543			80,075
Total Other Assets		404,229				327,826
Other		40,808			31,225
TOTAL ASSETS	$	3,115,037			$	3,006,393
Total Other Assets		451,720			427,970
LIABILITIES AND SHAREHOLDER’S EQUITY
TOTAL ASSETS	$	3,014,742		$	2,980,229
CURRENT LIABILITIES:
LIABILITIES AND SHAREHOLDER’S EQUITY
Current maturities of long-term debt	$	135,000			$	135,000
CURRENT LIABILITIES:
Accounts payable	$	3734,~~054~~389		$	42,231	~~31,182~~
Payable to affiliates		2083,~~642~~745			81,380	~~24,077~~
Accrued liabilities		83,402				66,169
Accrued interest		6,564			8,246
Energy trading contracts		8,516				9,480
Accrued taxes		31,690			28,059
Deferred tax liability		11,752				13,470
LaCygne 2 lease		36,980			32,543
Other		7,124				6,929
Energy marketing contracts		4,994			6,799
Total Current Liabilities		303,490				286,307
Other		14,203			10,578
LONG-TERM LIABILITIES:
Total Current Liabilities		212,565			209,836
Long-term debt, net		549,574				549,486
LONG-TERM LIABILITIES:
Deferred income taxes and investment tax credits		712,773				714,256
Long-term debt, net		552,414			549,604
Deferred gain from sale-leaseback		153,767				162,638
Deferred income taxes and investment tax credits		734,714			731,736
Energy trading contracts		604				2,616
Deferred gain from sale-leaseback		144,895			150,810
Other		289,425				171,709
Asset retirement obligation		83,906			80,695
Total Long-Term Liabilities		1,706,143				1,600,705
Nuclear decommissioning		83,543			80,075
COMMITMENTS AND CONTINGENCIES (Note 5)
Other		112,258			91,895
SHAREHOLDER’S EQUITY:
Total Long-Term Liabilities		1,711,730			1,684,815
Common stock, without par value; authorized and issued 1,000 shares		1,065,634				1,065,634
COMMITMENTS AND CONTINGENCIES (Note 6)
Accumulated other comprehensive (loss) income, net		(479	)			430
SHAREHOLDER’S EQUITY:
Retained earnings		40,249				53,317
Common stock, no par value; authorized and issued 1,000 shares		1,065,634			1,065,634
Total Shareholder’s Equity		1,105,404				1,119,381
Retained earnings		24,813			19,944
TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY	$	3,115,037			$	3,006,393
Total Shareholder’s Equity		1,090,447			1,085,578
TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY	$	3,014,742		$	2,980,229

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

KANSAS GAS AND ELECTRIC COMPANY

CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

(InDollars in Thousands)

(Unaudited)

	Three Months EndedSeptember 30,
	Three Months EndedJune 30,
	2003			2002
	2004			2003
SALES	$	~~207~~180,~~261~~335		$	~~217~~172,~~607~~165
FUEL AND PURCHASED POWER		51,498			47,091
GROSS PROFIT		155,763			170,516
OPERATING EXPENSES:
Operating and maintenance		56,007			54,428
Fuel and purchased power		39,735			41,191
Depreciation and amortization		22,601			22,260
Operating and maintenance		58,402			56,260
Selling, general and administrative		19,086			17,191
Depreciation and amortization		22,894			22,989
Total Operating Expenses		97,694			93,879
Selling, general and administrative		16,334			16,737
INCOME FROM OPERATIONS		58,069			76,637
Total Operating Expenses		137,365			137,177
OTHER INCOME (EXPENSES), NET		667			(6,029	)
INCOME FROM OPERATIONS		42,970			34,988
INTEREST EXPENSE:
OTHER INCOME (EXPENSE):
Interest expense on long-term debt		11,028			11,057
Other income		6,172			1,075
Interest expense on short-term debt and other		8,334			690
Other expense		(2,641	)		(2,592	)
Total Interest Expense		19,362			11,747
Total Other Income (Expense)		3,531			(1,517	)
EARNINGS BEFORE INCOME TAXES		39,374			58,861
Interest expense		8,519			11,717
Income tax expense		10,451			21,130
INCOME BEFORE INCOME TAXES		37,982			21,754
NET INCOME	$	28,923		$	37,731
Income tax expense		11,059			5,770
NET INCOME		26,923			15,984
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized holding loss on cash flow hedges arising during the period	$	(1,261	)	$	(1,591	)
Unrealized holding gain on cash flow hedges		—			2,199
Reclassification adjustment for gain included in net income		(4,255	)		(114	)
Adjustment for gains included in net income		—			(766	)
Income tax benefit (expense)		2,194			(450	)
Income tax expense related to items of other comprehensive income		—			(570	)
Total other comprehensive loss, net of tax		(3,322	)		(2,155	)
Total other comprehensive gain, net of tax		—			863
COMPREHENSIVE INCOME	$	2526,~~601~~923		$	3516,~~576~~847

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

KANSAS GAS AND ELECTRIC COMPANY

CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

(InDollars in Thousands)

(Unaudited)

	Nine Months EndedSeptember 30,
	Six Months EndedJune 30,
	2003			2002
	2004			2003
SALES	$	~~552~~342,~~096~~426		$	~~528~~344,~~163~~835
FUEL AND PURCHASED POWER		135,615			132,801
GROSS PROFIT		416,481			395,362
OPERATING EXPENSES:
Operating and maintenance		167,702			162,297
Fuel and purchased power		94,776			84,116
Depreciation and amortization		67,935			71,247
Operating and maintenance		113,366			111,695
Selling, general and administrative		51,423			60,540
Depreciation and amortization		45,647			45,335
Total Operating Expenses		287,060			294,084
Selling, general and administrative		34,077			32,337
INCOME FROM OPERATIONS		129,421			101,278
Total Operating Expenses		287,866			273,483
OTHER INCOME (EXPENSES), NET		(3,262	)		(10,107	)
INCOME FROM OPERATIONS		54,560			71,352
INTEREST EXPENSE:
OTHER INCOME (EXPENSE):
Interest expense on long-term debt		32,987			32,815
Other income		12,162			2,314
Interest expense on short-term debt and other		9,855			2,211
Other expense		(6,893	)		(6,243	)
Total Interest Expense		42,842			35,026
Total Other Income (Expense)		5,269			(3,929	)
EARNINGS BEFORE INCOME TAXES		83,317			56,145
Interest expense		17,925			23,480
Income tax expense		21,386			12,154
INCOME BEFORE INCOME TAXES		41,904			43,943
NET INCOME	$	61,931		$	43,991
Income tax expense		12,035			10,935
NET INCOME		29,869			33,008
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized holding gain on cash flow hedges arising during the period	$	3,512		$	15,142
Unrealized holding gain on cash flow hedges		—			4,773
Reclassification adjustment for (gain) loss included in net income		(5,021	)		1,374
Adjustment for gains included in net income		—			(766	)
Income tax benefit (expense)		600			(7,698	)
Income tax expense related to items of other comprehensive income		—			(1,594	)
Total other comprehensive (loss) gain, net of tax		(909	)		8,818
Total other comprehensive gain, net of tax		—			2,413
COMPREHENSIVE INCOME	$	6129,~~022~~869		$	5235,~~809~~421

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

KANSAS GAS AND ELECTRIC COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(InDollars in Thousands)

(Unaudited)

	Nine Months Ended September 30,
	Six Months EndedJune 30,
	2003			2002
	2004			2003
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income	$	6129,~~931~~869		$	4333,~~991~~008
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		6745,~~935~~647			7145,~~247~~335
Amortization of nuclear fuel		107,~~616~~106			97,~~510~~070
Amortization of deferred gain from sale-leaseback		(85,~~871~~914	)		(85,~~871~~914	)
Net deferred taxes		(2,602	)		(9,891	)
Amortization of prepaid corporate owned life insurance		5,953			5,679
Net changes in energy trading assets and liabilities		(1,727	)		2,625
Net deferred taxes		2,641			761
Loss on sale of property		—			1,424
Net changes in energy marketing assets and liabilities		3,145			453
Changes in working capital items:
Restricted cash		~~5,130~~—			~~(10~~5,~~281~~130	)
Accounts receivable, net		(137,~~490~~705	)		(2217,~~451~~981	)
Inventories and supplies		14,~~025~~591			1(2,~~885~~413	)
Prepaid expenses and other		(1143,~~583~~747	)		(1047,~~614~~404	)
Accounts payable		5(8,~~872~~004	)		~~(32~~6,~~529~~934	)
Accrued and other current liabilities		17,429			6,094
Payable to affiliates		2,365			12,088
Changes in other, assets		(12,807	)		(5,944	)
Accrued and other current liabilities		6,880			14,065
Changes in other, liabilities		22,953			17,102
Changes in other, assets		(1,603	)		(194	)
Cash flows from operating activities		141,811			53,297
Changes in other, liabilities		737			996
Cash flows from operating activities		41,961			57,613
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Additions to property, plant and equipment, net		(61,573	)		(44,877	)
Additions to property, plant and equipment		(43,066	)		(44,161	)
Proceeds from disposition of property		—			1,205
Investment in corporate-owned life insurance		(19,658	)		(19,599	)
Cash flows used in investing activities		(6162,~~573~~724	)		(4363,~~672~~760	)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Funds in trust for debt repayment		—			(135,000	)
Proceeds of long-term debt		321,540			—
Advances from parent company, net		(3,435	)		128,900
Retirements of long-term debt		(329,138	)		(5	)
Retirements of long-term debt		(5	)		—
Net borrowings against cash surrender value of corporate-owned life insurance		55,593			57,299
Dividends to parent company		(7525,000	)		—(50,000	)
Cash flows used in financing activities		(78,440	)		(6,100	)
Cash flows from financing activities		22,995			7,294
NET INCREASE IN CASH AND CASH EQUIVALENTS		12,~~798~~232			31,~~525~~147
CASH AND CASH EQUIVALENTS:
Beginning of period		6,~~150~~321			56,~~564~~150
End of period	$	78,~~948~~553		$	97,~~089~~297
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID FOR:
Interest on financing activities, net of amount capitalized	$	24,047		$	44,357
Interest, net of amount capitalized	$	17,195		$	21,953

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

KANSAS GAS AND ELECTRIC COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~JUNE 30, ~~2003~~2004

(Unaudited)

1. DESCRIPTION OF BUSINESS

Kansas Gas and Electric Company is a ~~rate-~~regulated electric utility incorporated in 1990 in the state of Kansas. Unless the context otherwise indicates, all references in this Form 10-Q to “the company,” “KGE,” “we,” “us,” “our” or and similar words are to Kansas Gas and Electric Company. We are a wholly owned subsidiary of Westar Energy, Inc. (Westar Energy) and we provide rate-regulated electric service, together with the electric utility operations of Westar Energy, using the name Westar Energy. We provide electric generation, transmission and distribution services to approximately ~~302~~300,000 customers in south-central and southeastern Kansas, including the Wichita metropolitan area.

We own a 47% ofinterest ~~Wolf~~in ~~Creek Nuclear Operating Corporation (WCNOC),~~ the ~~operating company for~~ Wolf Creek Generating Station (Wolf Creek), ~~our~~a nuclear ~~powered~~power ~~generating~~plant ~~facility.~~located Wenear ~~record~~Burlington, ~~our~~Kansas, ~~proportionate~~and ~~share~~a of47% ~~all~~interest ~~transactions~~in ofWolf ~~WCNOC~~Creek asNuclear weOperating doCorporation ~~other~~(WCNOC), ~~jointly~~the ~~owned~~operating company ~~facilities~~for Wolf Creek.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

We prepare our condensed consolidated financial statements in accordance ~~with~~ with generally accepted accounting principles (GAAP) for the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP have been condensed or omitted. ~~You~~The ~~should read the~~ accompanying condensed 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, ~~2002~~2003 (~~2002~~2003 Form 10-K).

Use of Management’s Estimates

When we prepare our consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates on an on-going basis, including those related to bad debts, inventories, valuation of commodity contracts, depreciation, unbilled revenue ~~recognition~~, ~~investments~~valuation of our energy marketing portfolio, intangible assets, income taxes, ~~decommissioning~~our portion of WCNOC’s ~~Wolf~~pension ~~Creek~~and other post-retirement benefits, our asset retirement obligations including decommissioning of Wolf Creek, environmental issues, ~~contingencies~~ and litigation. Actual results may differ from those estimates under different assumptions or conditions. ~~In our 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 ~~nine~~six months ended ~~September~~ June 30, ~~2003~~2004 are not necessarily indicative of the results to be expected for the full year.

~~Consolidation~~Reclassifications ~~of Variable Interest Entities~~

InWe ~~January~~have ~~2003,~~reclassified ~~the~~certain ~~Financial~~prior ~~Accounting~~year ~~Standards~~amounts ~~Board~~to ~~(FASB)~~conform ~~issued~~with ~~Financial~~classifications ~~Interpretation~~used ~~Number~~in ~~(FIN)~~the ~~46, “Consolidation of Variable Interest Entities~~ current-year anpresentation ~~Interpretation of ARB No. 51.” This interpretation provides guidance related to identifying variable interest entities (previously known generally~~ as ~~special~~necessary ~~purpose~~for ~~entities or SPEs) and determining whether such entities should be consolidated. Certain disclosures are required if it is reasonably possible that~~ a ~~company~~fair will consolidate or disclose information about a variable interest entity. This interpretation must be applied immediately to variable interest entities created or obtained after January 31, 2003. For thosepresentation ~~variable interest entities created or obtained on or before January 31, 2003, the provisions~~ of ~~FIN 46 must be applied by~~ the ~~fourth quarter of 2003. We are evaluating the impact this new pronouncement will have on our~~ financial statements.

~~Accounting~~Our previously filed consolidated statement of cash flows for ~~Energy~~the ~~Trading~~six ~~Contracts~~months ended June 30, 2003 presented cash flow activity related to our corporate owned life insurance (COLI) policies net in the Operating Activities section of our consolidated statement of cash flows. For the six months ended June 30, 2004, our consolidated statement of cash flows reports cash outflows associated with the portion of the premium payment that increases the cash surrender value of the COLI policies as an investing activity and the cash received from borrowings against the COLI policies as a financing activity. Accordingly, on our statement of cash flows for the six months ended June 30, 2003, we have decreased cash flows from operating activities by $37.7 million, increased cash flows used in investing activities by $19.6 million as it relates to cash outflows associated with the portion of the premium payment that increases the cash surrender value of the COLI policies, and increased cash flows from financing activities by $57.3 million as it relates to the cash received from borrowings against the COLI policies.

~~In April 2003, FASB issued Statement of Financial Accounting Standards (SFAS) No~~3. ~~149,~~RATE ~~“Amendment~~MATTERS ofAND ~~Statement~~REGULATION ~~133~~— onCURRENT ~~Derivative~~STATUS ~~Instruments~~OF ~~and~~THE ~~Hedging~~DEBT ~~Activities.”~~REDUCTION ~~SFAS~~PLAN No. 149 amends the accounting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities, and identifies which contracts qualify as “normal purchase/normal sale” contracts. SFAS No. 149 also amends certain other existing pronouncements and requires contracts with comparable characteristics to be accounted for similarly. In particular, SFAS No. 149 clarifies when a contract with an initial net investment meets the characteristics of a derivative and when a derivative that contains a financing component will require special reporting in the statement of cash flows. SFAS No. 149 was effective for contracts entered into or modified after June 30, 2003. Adoption of SFAS No. 149 did not have a material effect on our results of operations, financial position or cash flows.

~~Reclassifications~~In August 2003, we began ratably recording a regulatory liability for rebates that will be paid to customers in 2005 and 2006. Accordingly, as of June 30, 2004, we have recorded a regulatory liability of $3.7 million for these rebates, which is included in other current liabilities on our consolidated balance sheets.

We4. ~~have~~ACCOUNTS RECEIVABLE ~~reclassified~~SALES ~~certain~~PROGRAM ~~amounts in prior years to conform with classifications used in the current year presentation.~~

3On July 28, 2000, Westar Energy and we entered into an agreement with WR Receivables Corporation, a wholly owned, bankruptcy-remote special purpose entity (SPE), to sell Westar Energy’s and our accounts receivable arising from the sale of electricity to the SPE. ~~RATE~~These transfers ~~MATTERS~~are ~~AND~~accounted ~~REGULATION~~for as sales in accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.” The SPE may sell up to $125 million of an undivided interest in our combined accounts receivable to a third-party conduit under various terms and conditions. The percentage ownership interest in receivables held by the third-party conduit will increase or decrease over time, depending on the characteristics of the SPE’s receivables, including delinquency rates and debtor concentrations. The agreement with the third-party conduit is renewable annually upon agreement by all parties. On July 21, 2004, the agreement was extended through July 19, 2005 on substantially similar terms.

~~KCC~~The ~~Orders~~SPE ~~and~~receivable ~~Westar~~from ~~Energy’s~~WR Receivables ~~Debt~~Corporation ~~Reduction~~represents our retained interests in the transferred receivables and ~~Restructuring~~is ~~Plan~~recorded at book value, net of allowances for bad debts. This approximates fair value due to the short-term nature of the receivable. The SPE receivable is included in accounts receivable, net, on our consolidated balance sheets. The interests that we hold are included in the table below:

On November 8, 2002, the Kansas Corporation Commission (KCC) issued an order directing Westar Energy to file a financial plan and to address additional concerns regarding Westar Energy’s level of debt and the structure of Westar Energy. The KCC issued an order on December 23, 2002 providing further direction in these matters. These orders led Westar Energy to file a Debt Reduction and Restructuring Plan (the Debt Reduction Plan) with the KCC on February 6, 2003.


	June 30, 2004		December 31, 2003
	(In Thousands)
Undivided Interest — Retained, net	$	77,436	$	71,213
Undivided Interest — Third-party conduit, net		10,680		9,186

SPE receivables, net	$	88,116	$	80,399

OnThe ~~February~~outstanding balance ~~10,~~of ~~2003,~~SPE ~~the~~receivables ~~KCC~~is ~~issued~~net ~~an order granting limited reconsideration~~ of ~~its December 23, 2002 order~~$80.0 ~~The~~million ~~KCC~~at ~~also~~June ~~stated~~30, ~~that~~2004 ~~the~~and ~~Debt~~December ~~Reduction Plan~~31, ~~appears~~2003 ~~to make a good-faith effort to address the concerns expressed~~ in ~~the~~undivided ~~KCC’s~~ownership ~~prior~~interests ~~orders~~sold ~~and~~by ~~that~~ the ~~KCC~~SPE ~~needed additional time~~ to ~~review~~ the ~~Debt~~third-party ~~Reduction Plan before addressing other issues raised in Westar Energy’s petition for reconsideration of the December 23, 2002 order~~conduit.

On July 21, 2003, Westar Energy and Westar Industries, Inc. (Westar Industries), a wholly owned subsidiary of Westar Energy, entered into a Stipulation and Agreement (Stipulation) with the KCC staff and certain other intervenors in the docket considering the Debt Reduction Plan. In the Stipulation, the parties to the Stipulation asked the KCC to issue an order approving the Debt Reduction Plan, subject to the terms and conditions of the Stipulation. The KCC issued an order approving the Stipulation on July 25, 2003. The principal terms of the Stipulation are as follows:

• Westar Energy agrees to fully implement the Debt Reduction Plan by December 31, 2004, unless prevented by events beyond its control, in which case the KCC may extend the deadline for implementation upon a proper showing by Westar Energy.

• Westar Energy commits to reduce its debt to a level consistent with investment grade bond ratings and to have a capital structure containing at least 40% common equity by December 31, 2004. This commitment replaces a requirement imposed in a previous KCC order that Westar Energy reduce utility debt to $1.67 billion by August 1, 2003.

•The ~~Westar~~following ~~Energy~~table ~~and~~provides wegross ~~will~~proceeds ~~file~~and ~~requests~~repayments ~~for~~between athe ~~change~~SPE inand ~~rates on May 1, 2005, based on a test year consisting of~~ the 12third-party ~~months ending December 31, 2004~~conduit. These ~~Prior~~amounts toare ~~May~~provided 1,for ~~2005,~~cash ~~Westar~~flow ~~Energy~~purposes and wemay ~~will~~ not ~~make~~be areflective ~~filing~~of toaccrual ~~increase~~accounting. ~~our~~These ~~Kansas~~items ~~jurisdictional~~are ~~electric~~recorded ~~rates~~on ~~and~~ the ~~other~~consolidated ~~parties~~statements toof ~~the~~cash ~~Stipulation~~flows ~~will~~in ~~not~~the ~~file~~“Accounts areceivable, ~~rate~~net” ~~complaint~~line orof ~~motion~~cash ~~for~~flows ~~Westar~~from ~~Energy and us to show cause why Westar Energy’s and our rates should not be reduced~~operating activities.

• Westar Energy and we will pay to our Kansas jurisdictional customers rebates of $10.5 million on May 1, 2005 and $10 million on January 1, 2006. Westar Energy and we will also pay a rebate to customers of any amounts Westar Energy may recover from David C. Wittig, Westar Energy’s former president, chief executive officer and chairman, and Douglas T. Lake, Westar Energy’s former executive vice president and chief strategic officer, for compensation totaling approximately $2.3 million paid to them that was included in electric rates during calendar years 1998 through 2002, net of costs Westar Energy incurs to recover the funds. See Note 10 for more information about Westar Energy’s effort to recover compensation from Mr. Wittig and Mr. Lake.


	Six Months Ended June 30,
	2004		2003
	(In Thousands)
Proceeds from the sale of an undivided interest from the third-party conduit	$	—	$	—
Repayments to the conduit for net collection of its receivable		—		(10,000	)

SPE proceeds and repayments, net	$	—	$	(10,000	)

~~• Westar Industries was required to transfer to Westar Energy all of its stock in ONEOK, Inc~~5. ~~(ONEOK)~~INCOME ~~and~~TAXES ~~all of its cash in excess of $2 million within 30 days of the date of the order.~~

~~The~~We ~~Debt~~recorded ~~Reduction~~income ~~Plan~~tax ~~and~~expense ~~certain~~ of approximately $11.1 million for the three months ended June 30, 2004 as compared to $5.8 million for the ~~related~~same ~~KCC~~period ~~orders~~of ~~discussed~~2003. ~~above~~We ~~are~~recorded ~~discussed~~income intax ~~further~~expense ~~detail~~of inapproximately ~~our~~$12.0 ~~2002~~million ~~Form~~for the six months ended June 30, 2004 as compared to expense of approximately $10.9 million for the same period of 2003. Under the effective tax rate method, we compute the tax related to year-Kto-date income, except for significant, unusual or extraordinary items, at an estimated annual effective tax rate. We individually compute and recognize, when the transaction occurs, income tax expense related to significant, unusual or extraordinary items.

~~Current~~6. ~~Status~~COMMITMENTS ofAND ~~the~~CONTINGENCIES ~~Debt~~— ~~Reduction~~EPA ~~Plan~~NEW SOURCE REVIEW

~~Westar~~The ~~Energy~~United ~~has~~States ~~reduced~~Environmental ~~its~~Protection ~~total~~Agency ~~debt~~(EPA) byis ~~$613.4~~conducting ~~million~~investigations ~~since~~nationwide ~~December~~to ~~31,~~determine ~~2002.~~whether ~~The~~modifications ~~total~~at ~~reduction~~coal-fired ~~includes~~power plants ~~the~~are ~~decrease~~subject ~~of utility debt by $554.7 million~~ to ~~$2.7~~New ~~billion~~Source atReview ~~September~~requirements ~~30,~~or ~~2003~~New ~~from~~Source ~~$3.2~~Performance ~~billion at~~Standards ~~December~~under ~~31,~~Section ~~2002.~~114(a) ~~This~~of ~~reduction~~the ~~resulted~~Clean ~~principally~~Air ~~from~~Act ~~using~~(Section ~~the~~114). ~~proceeds~~These ~~from~~investigations ~~the~~focus ~~sale~~on ofwhether ~~Westar~~projects ~~Energy’s~~at ~~ONEOK~~coal-fired ~~stock.~~plants ~~The~~were ~~remainder~~routine ofmaintenance or whether the ~~$613.4~~projects ~~million~~were ~~decrease~~substantial ~~results~~modifications ~~from~~that acould ~~$58.7~~have ~~million~~reasonably ~~decrease~~been ~~that~~expected isto ~~included~~result in ~~the~~a ~~results of~~significant ~~discontinued~~net ~~operations~~increase onin ~~Westar~~emissions. ~~Energy’s~~The ~~consolidated~~Clean ~~financial~~Air ~~statements.~~Act ~~Westar~~requires ~~Energy~~companies ~~may~~to ~~have~~obtain topermits ~~issue~~and, ~~equity~~if tonecessary, ~~achieve~~install ~~its~~control ~~commitment~~equipment to ~~have~~remove emissions ~~debt~~when ~~consistent~~making ~~with~~a ~~investment~~major ~~grade~~modification ~~bond~~or ~~ratings~~a ~~and~~change ain ~~capital~~operation ~~structure~~if ~~consisting~~either ~~of at~~is ~~least~~expected ~~40%~~to ~~common~~cause ~~equity~~a atsignificant ~~December~~net ~~31,~~increase ~~2004~~in emissions.

InThe ~~August 2003,~~EPA ~~Westar~~has ~~Energy~~requested ~~and~~information wefrom ~~began~~Westar ~~recognizing~~Energy ~~the~~under ~~effect~~Section of114 ~~the~~regarding ~~rebates~~projects ~~that will be paid to customers in 2005~~ and ~~2006.~~maintenance ~~Accordingly,~~activities asthat ~~of September 30, 2003, we~~ have ~~recorded~~been aconducted ~~liability~~since of1980 at ~~$0.7~~the ~~million~~three ~~for~~coal-fired ~~revenue~~plants toit ~~be refunded~~operates. WeOn ~~will~~January ~~record~~22, ~~a liability~~2004, ofthe ~~$1.0~~EPA ~~million~~notified ~~for~~Westar ~~revenue~~Energy tothat becertain ~~refunded~~projects ~~each~~completed ~~quarter~~at ~~through~~Jeffrey ~~December~~Energy ~~31,~~Center ~~2005.~~violated ~~The~~pre-construction ~~amounts~~permitting ~~recorded~~requirements ~~are~~of ~~reported~~the asClean aAir ~~reduction to revenues~~Act.

~~Also~~Westar Energy is in ~~August~~discussions ~~2003,~~with ~~Westar~~the ~~Industries~~EPA ~~transferred~~concerning this matter in an attempt to reach a settlement agreement. We expect that any settlement with the EPA could require Westar Energy ~~all~~and ofus ~~its~~to ~~stock~~update inor ~~ONEOK~~install ~~and~~emissions ~~all~~controls ofat ~~its~~Jeffrey ~~cash~~Energy inCenter ~~excess~~over ofan $2agreed ~~million~~upon number of years. Additionally, Westar Energy ~~has~~might ~~continued~~be required to ~~transfer~~update ~~cash~~or ininstall ~~excess~~emissions ofcontrols $2at ~~million~~its inother ~~subsequent~~coal-fired ~~months~~plants, pay fines or penalties, or take other remedial action. ~~These~~Together, ~~transfers~~these ~~were~~costs ~~intercompany~~could ~~transactions~~be ~~and~~material. ~~did~~The ~~not~~EPA ~~result~~may inrefer ~~any~~the ~~change~~matter to the ~~amounts~~United ~~reported~~States onDepartment ~~Westar~~of Justice ~~Energy’s~~for ~~consolidated~~it ~~financial~~to ~~statements~~consider whether to pursue an enforcement action. ~~In addition,~~We inbelieve ~~accordance~~that ~~with~~costs arelated ~~KCC~~to ~~order,~~updating or installing emissions controls would qualify for recovery through rates. If Westar Energy ~~reclassified~~is anassessed ~~intercompany~~a ~~receivable~~penalty inas ~~the~~a ~~amount~~result of ~~$710.5~~the EPA’s ~~million~~allegation, ~~from~~the ~~Westar~~penalty ~~Industries~~could asbe anmaterial ~~investment~~and inmay ~~Westar~~not ~~Industries~~be recovered in rates. ~~This~~We ~~intercompany~~anticipate ~~transaction~~that isa ~~eliminated~~portion ~~in consolidation~~of ~~and,~~any ~~therefore,~~of ~~has~~these nopotential ~~impact~~costs onwould ~~Westar~~be ~~Energy’s~~allocated ~~debt~~to ~~reduction~~us.

4. INCOME TAXES

We record income tax expense using the effective tax rate method. Under this method, we compute the tax related to year-to-date income at an estimated annual effective tax rate, excluding significant, unusual or extraordinary items. For the significant, unusual or extraordinary items, we individually compute and recognize income tax expense when the transaction occurs. For the three months ended September 30, 2003, our effective income tax rate was 26.5% compared to 35.9% for the same period of 2002. For the nine months ended September 30, 2003, our effective income tax rate was 25.7% compared to 21.6% for the same period of 2002.

57. ~~COMMITMENTS~~LEGAL ~~AND~~PROCEEDINGS ~~CONTINGENCIES~~

~~EPA~~We ~~New~~are ~~Source~~involved ~~Review~~in various legal, environmental and regulatory proceedings. We believe adequate provisions have been made and accordingly believe that the ultimate disposition of such matters will not have a material adverse effect on our consolidated financial position or results of operations. See also Note 6 for a discussion of alleged violations of the Clean Air Act.

The Environmental Protection Agency (EPA) is conducting an enforcement initiative to determine whether modifications at a number of coal-fired power plants owned by Westar Energy and us and other utilities are subject to New Source Review requirements or New Source Performance Standards under Section 114(a) of the Clean Air Act (Section 114)8. ~~Jeffrey~~RELATED ~~Energy~~PARTY ~~Center,~~TRANSACTIONS which is 20% owned by us, is included in this initiative. This initiative focuses on whether expenditures at the plants were for routine maintenance or whether the expenditures were for substantial modifications or resulted in improved operations. The Clean Air Act requires enhancement of emission controls when plant expenditures result in substantial modifications or improved operations.

~~The~~Our ~~EPA~~cash ~~requested~~management ~~information~~function, ~~from~~including ~~Westar~~cash ~~Energy~~receipts ~~under Section 114 regarding projects~~ and ~~maintenance~~disbursements, ~~activities that have been conducted at its~~is ~~coal-fired~~performed ~~plants~~by ~~(including~~Westar ~~Jeffrey~~ Energy ~~Center) since 1980~~. ~~The~~An ~~EPA~~intercompany ~~may~~account ~~assert~~is ~~that~~used ~~some~~to ofrecord ~~these~~receipts ~~projects violated the New Source Performance Standard~~ and ~~New~~disbursements ~~Source~~between ~~Review requirements of the Clean Air Act.~~ Westar Energy ~~filed~~and ~~its~~us ~~response~~and ~~to the~~between ~~initial~~WR ~~information~~Receivables ~~requests~~Corporation ~~from the EPA on April 30, 2003~~ and ~~submitted additional requested information June 16, 2003~~us. ~~Westar~~The ~~Energy~~net isamount ~~cooperating~~payable ~~with this review but is unable~~ to ~~predict~~affiliates ~~the~~was ~~outcome~~approximately $83.7 Ifmillion ~~the EPA requires us to update our emission controls~~ at ~~Jeffrey Energy Center~~June 30, ~~the~~2004 ~~costs~~and ~~could~~approximately ~~be material~~$81.4 ~~Westar~~million ~~Energy~~at ~~and~~December ~~we believe these costs would qualify for recovery through rates~~31, ~~although~~2003 weas ~~can~~reflected ~~give~~on noour ~~assurance~~consolidated ~~that~~balance ~~the KCC would allow full recovery~~sheets.

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

~~The~~We ~~KCC~~declared ~~issued~~and anpaid ~~order~~dividends onto ~~April~~Westar ~~16,~~Energy ~~2003~~for ~~approving~~ the ~~August~~three ~~2002~~months ended ~~decommissioning~~June ~~study~~30, ~~for~~2003 ~~Wolf~~of ~~Creek~~$25.0 asmillion. ~~discussed~~No individends ~~our~~were ~~2002~~paid ~~Form~~during ~~10-K.~~the Onthree months ended June 230, ~~2003,~~2004. weWe ~~filed~~declared aand ~~funding~~paid ~~schedule~~dividends ~~with~~to ~~the~~Westar ~~KCC~~Energy tofor ~~reflect~~ the ~~KCC’s~~six ~~April~~months 16ended June 30, ~~2003~~2004 ~~order~~of $25.0 Onmillion ~~October~~and ~~13,~~for ~~2003,~~ the ~~KCC~~six ~~approved~~months ~~the~~ended ~~funding~~June ~~schedule~~30, ~~as filed~~2003, ~~without~~we ~~any~~paid ~~change~~dividends toof ~~our~~$50.0 ~~funding obligation~~million.

69. ~~ASSET~~REFINANCING ~~RETIREMENT OBLIGATIONS~~AND REDEMPTION OF DEBT

In June 2001, FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 provides accounting requirements for the recognition and measurement of liabilities associated with the retirement of tangible longLong-~~lived~~term ~~assets.~~Debt Under the standard, these liabilities are recognized at fair value as incurred and capitalized and depreciated over the appropriate period as part of the cost of the related tangible long-lived assets. The adoption of SFAS No. 143 does not impact income. Any income effects are offset by a regulatory asset created pursuant to SFAS No. 71, “Accounting for the Effects of Certain Types of Regulation.” Retirement obligations associated with long-lived assets included within the scope of SFAS No. 143 are those for which a legal obligation exists under enacted laws, statutes, written or oral contracts, including obligations arising under the doctrine of promissory estoppel.

We ~~adopted~~refinanced ~~SFAS~~a ~~No.~~portion ~~143 on January 1, 2003, which required us to recognize and estimate the liability for our 47% share~~ of ~~the~~ estimated cost to decommission Wolf Creek. SFAS No. 143 requires the recognition of the present value of the asset retirement obligation we incurred at the time Wolf Creek was placed in service in 1985. On January 1, 2003, we recorded an asset retirement obligation of $74.7 million. In addition, we increased our ~~property~~debt ~~and~~as ~~equipment~~follows: balance, net of accumulated depreciation, by $10.7 million. We also established a regulatory asset for $64.0 million, which represents the accretion of the liability since 1985 and the increased depreciation expense associated with the increase in plant.


Long-term Debt Refinancing:	Balance as of December 31, 2003		Securities Redeemed			Securities Issued		Balance as of June 30, 2004
	(In Thousands)
Pollution control bond series:
7.00% due 2031 (a)	$	327,500	$	(327,500	)	$	—	$	—
5.30% due 2031 (b)		—		—			108,600		108,600
2.65% due 2031 and putable 2006 (b)		—		—			100,000		100,000
5.30% due 2031 (b)		—		—			18,900		18,900
Variable due 2031 (b)		—		—			100,000		100,000

Total	$	327,500	$	(327,500	)	$	327,500	$	327,500

(a)	Redeemed on June 10, 2004

(b)	Issued on June 10, 2004

Short-term Debt

On March 12, 2004, Westar Energy entered into a new revolving credit facility. The new revolving credit facility replaced a $150.0 million revolving credit facility Westar Energy entered into in 2002. The new credit facility matures on March 12, 2007 and will be used as a source of short-term liquidity. It allows Westar Energy borrowings up to an aggregate limit of $300.0 million, including letters of credit up to a maximum aggregate amount of $50 million. At June 30, 2004, Westar Energy had no outstanding borrowings and $4.7 million of letters of credit outstanding under the revolving credit facility. Prior to the closing of the new facility, Westar Energy repaid, with cash on hand, $1.0 million outstanding under the prior credit facility. All borrowings under the revolving credit facility are secured by our first mortgage bonds.

~~The~~10. ~~following~~INTERIM isPENSION aDISCLOSURE ~~reconciliation of the asset retirement obligation, which is included in our consolidated balance sheet in other long-term liabilities:~~

	As of September 30, 2003
	(In Thousands)
Beginning asset retirement obligation	$	—
Transition liability		74,745
Liabilities settled		—
Accretion expense		4,462
Estimated cash flows revisions		—
Ending asset retirement obligation	$	79,207

The following table summarizes the net periodic costs for our 47% interest of the WCNOC pension and post-retirement plans.

The following presents pro forma asset retirement obligation information as if SFAS No. 143 had been adopted at January 1, 2002:


	Pension Benefits						Post-retirement Benefits
Three Months Ended June 30,	2004			2003			2004		2003
	(In Thousands)
Components of Net Periodic Cost:
Service cost	$	643		$	621		$	58	$	56
Interest cost		824			714			88		74
Expected return on plan assets		(695	)		(601	)		—		—
Amortization of:
Transition obligation, net		14			14			15		15
Prior service costs		8			8			—		—
Loss		201			147			35		25

Net periodic cost	$	995		$	903		$	196	$	170


	Pension Benefits						Post-retirement Benefits
Six Months Ended June 30,	2004			2003			2004		2003
	(In Thousands)
Components of Net Periodic Cost:
Service cost	$	1,263		$	1,269		$	120	$	109
Interest cost		1,619			1,459			175		145
Expected return on plan assets		(1,365	)		(1,228	)		—		—
Amortization of:
Transition obligation, net		28			29			30		29
Prior service costs		15			16			—		—
Loss		396			300			71		49

Net periodic cost	$	1,956		$	1,845		$	396	$	332

	As of September 30, 2003		As of December 31, 2002
	(In Thousands)
Liabilities incurred:
Reported	$	79,207	$	—
Pro forma		79,207		74,745

7. LEGAL PROCEEDINGS

We are involved in various legal, environmental and regulatory proceedings. We believe adequate provisions have been made and accordingly believe that the ultimate disposition of such matters will not have a material adverse effect on our overall financial position or results of operations. See also Note 3 for discussion of KCC regulatory proceedings, Note 8 for discussion of the special committee investigation and Note 10 for information about potential liabilities to Mr. Wittig and Mr. Lake.

8. SPECIAL COMMITTEE INVESTIGATION

In September 2002, Westar Energy’s board of directors appointed a special committee of directors to investigate management matters and matters that are the subject of a grand jury investigation and a Securities and Exchange Commission inquiry. The special committee retained counsel and other advisors. The special committee completed its investigation and issued a report to Westar Energy’s board of directors on May 7, 2003 concerning the conclusions and recommendations reached as a result of the investigation. The investigation did not result in adjustments to Westar Energy’s or our previously filed financial statements.

9. RELATED PARTY TRANSACTIONS

Our cash management function, including cash receipts and disbursements, is performed by Westar Energy. An intercompany account is used to record net receipts and disbursements between KGE and Westar Energy and between KGE and WR Receivables Corporation. The net amount payable to affiliates was approximately $20.6 million at September 30, 2003 and $24.1 million at December 31, 2002 as reflected in our consolidated balance sheets.

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

We have declared and paid dividends to Westar Energy for the three and nine months ended September 30, 2003 of $25.0 million and $75.0 million, respectively.

10. POTENTIAL LIABILITIES TO DAVID C. WITTIG AND DOUGLAS T. LAKE

On June 13, 2003, Westar Energy filed a demand for arbitration with the American Arbitration Association asserting claims against Mr. Wittig and Mr. Lake arising out of their previous employment with Westar Energy. Among other things, Westar Energy is seeking to recover compensation and benefits previously paid to Mr. Wittig and Mr. Lake and to avoid compensation and other benefits Mr. Wittig and Mr. Lake claim to be owed to them as a result of their previous employment with Westar Energy. See Note 19 of the Notes to Consolidated Financial Statements in our 2002 Form 10-K, “Potential Liabilities to David C. Wittig and Douglas T. Lake,” for additional information about Westar Energy’s potential liabilities to Mr. Wittig and Mr. Lake. Westar Energy is unable to predict the outcome of the arbitration.

We reported in Note 19 of the Notes to Consolidated Financial Statements, “Potential Liabilities to David C. Wittig and Douglas T. Lake,” in our 2002 Form 10-K that Westar Energy would be required to record additional compensation expense of approximately $4.4 million to Mr. Wittig and Mr. Lake if stock performance requirements for some restricted share unit awards were to be satisfied. These stock performance requirements will be satisfied if the closing share price of Westar Energy’s common stock remains at or above $19.78 for any period of 20 consecutive trading days. The closing price of Westar Energy’s common stock was $19.86 per share on October 27, 2003 and has continued to close above $19.78 per share through November 7, 2003. In addition, the amount of Westar Energy’s obligation to Mr. Wittig related to a split dollar life insurance agreement is adjusted at the end of each quarter based on the total return to Westar Energy’s shareholders from the date of that agreement. The total return considers the change in stock price and accumulated dividends. Westar Energy would be required to accrue an additional expense related to the split dollar life insurance agreement if the closing price of its common stock exceeds $20.87 at December 31, 2003.

11. SALE OF ACCOUNTS RECEIVABLE

On July 28, 2000, Westar Energy and we entered into an agreement to sell all of our accounts receivable arising from the sale of electricity to WR Receivables Corporation, a special purpose entity. The agreement is annually renewable upon agreement by all parties. On July 23, 2003, the term of the agreement was extended through July 21, 2004. For additional information, see Note 4 of the Notes to Consolidated Financial Statements in our 2002 Form 10-K, “Accounts Receivable.”

KANSAS GAS AND ELECTRIC COMPANY

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

~~The~~We ~~following~~are ~~Management’s~~a ~~Discussion~~regulated ~~and~~electric ~~Analysis~~utility ofin ~~Financial Condition~~Kansas and ~~Results~~a wholly owned subsidiary of ~~Operations~~Westar ~~updates~~Energy. We provide rate-regulated electric service, together with the ~~information~~electric ~~provided~~utility inoperations ~~our~~of ~~2002~~Westar ~~Form~~Energy, ~~10-K~~using the name Westar Energy. We produce, transmit and ~~should~~sell beelectricity ~~read~~at retail in ~~conjunction~~Kansas ~~with~~under ~~that~~the ~~report.~~regulation Inof ~~this~~the ~~section,~~KCC weand ~~discuss~~at ~~our~~wholesale ~~general~~in ~~financial~~a ~~condition,~~multi-state ~~significant~~region ~~changes~~in ~~and~~the ~~operating~~central ~~results.~~United States and Weunder ~~explain:~~the regulation of the Federal Energy Regulatory Commission (FERC).

•Our ~~what~~goals ~~factors~~are ~~impact~~to improve our business by improving customer service, continuing to expand our wholesale sales, improving credit quality and improving our relationships with regulators, employees and other interested parties.

•Key ~~what~~factors affecting our ~~earnings~~business ~~and~~in ~~costs~~any ~~were~~given period ~~for~~include the ~~three~~weather, ~~and~~the ~~nine~~economic ~~months~~well-being ~~ended~~of ~~September~~our 30service territory, ~~2003~~performance of our physical plant, conditions in the markets for fuel and ~~2002~~wholesale electricity, impacts of regulation and the effects of public policy initiatives.

•As ~~why~~you ~~these~~read ~~earnings~~Management’s Discussion and ~~costs~~Analysis, ~~differ~~please refer ~~from~~to ~~period~~our tocondensed ~~period~~consolidated financial statements and the accompanying notes, which contain our operating results.

•CRITICAL ~~how~~ACCOUNTING ~~our~~ESTIMATES ~~earnings and costs affect our overall financial condition, and~~

•Our ~~any~~discussion ~~other~~and ~~items~~analysis ~~that~~of ~~particularly~~financial ~~affect~~conditions and results of operations are based on our condensed consolidated financial ~~condition~~statements, which have been prepared in conformity with GAAP. Note 2 of the Notes to Consolidated Financial Statements, “Summary of Significant Accounting Policies,” contains a summary of our significant accounting policies, many of which require the use of estimates and assumptions by management. The policies highlighted in our 2003 Form 10-K have an impact on our reported results that may be material due to the levels of judgment and subjectivity necessary to account for uncertain matters or susceptibility ~~earnings~~of matters subject to change.

~~SUMMARY~~Since OFDecember 31, ~~SIGNIFICANT~~2003, ~~ITEMS~~we have not experienced any significant changes in our critical accounting estimates. For additional information on our critical accounting estimates, see our 2003 Form 10-K.

~~KCC~~OPERATING ~~Orders~~RESULTS ~~and Westar Energy’s Debt Reduction and Restructuring Plan~~

OnWe ~~November~~evaluate 8,operating ~~2002,~~results ~~the~~based ~~KCC~~on ~~issued~~income anfrom ~~order~~operations. ~~directing~~We ~~Westar~~have ~~Energy~~various toclassifications ~~file a financial plan and to address additional concerns regarding Westar Energy’s level~~ of ~~debt and the structure of Westar Energy. The KCC issued an order on December 23~~sales, ~~2002~~defined ~~providing~~as ~~further~~follows: ~~direction in these matters. These orders led Westar Energy to file a Debt Reduction and Restructuring Plan (the Debt Reduction Plan) with the KCC on February 6, 2003.~~

OnRetail: ~~February~~Sales ~~10, 2003, the KCC issued an order granting limited reconsideration~~ of ~~its~~energy ~~December~~made ~~23, 2002 order. The KCC also stated that the Debt Reduction Plan appears~~ to ~~make~~customers afor ~~good-faith~~ultimate ~~effort to address the~~consumption, ~~concerns~~as ~~expressed~~defined in ~~the~~our ~~KCC’s~~retail ~~prior~~tariffs. ~~orders~~Retail ~~and~~sales ~~that~~include ~~the~~our ~~KCC~~residential, ~~needed~~commercial ~~additional~~and ~~time~~industrial ~~to review the Debt Reduction Plan before addressing other issues raised in Westar Energy’s petition for reconsideration of the December 23, 2002 order~~customers.

OnOther ~~July~~retail: ~~21,~~Includes ~~2003,~~public ~~Westar~~street ~~Energy~~ and ~~Westar~~highway ~~Industries~~lighting ~~entered into~~net ~~the~~of ~~Stipulation~~revenues ~~with~~reserved ~~the~~for ~~KCC~~rebates ~~staff and certain other intervenors in the docket considering the Debt Reduction Plan. In the Stipulation, the parties~~ to ~~the~~be ~~Stipulation~~paid ~~asked the KCC~~ to ~~issue~~customers anin ~~order~~2005 ~~approving the Debt Reduction Plan, subject to the terms~~ and ~~conditions of the Stipulation~~2006. ~~The KCC issued an order approving the Stipulation on July 25, 2003. The principal terms of the Stipulation are as follows:~~

•Tariff-based ~~Westar~~wholesale: ~~Energy~~Includes ~~agrees~~the tosales ~~fully~~of electricity ~~implement~~to ~~the~~electric ~~Debt~~cooperatives, ~~Reduction~~municipalities ~~Plan~~and byother ~~December~~electric 31utilities, ~~2004,~~the ~~unless~~rate ~~prevented~~for bywhich ~~events~~is ~~beyond~~generally ~~its~~based ~~control,~~on incost ~~which~~as ~~case~~prescribed ~~the~~by ~~KCC~~FERC ~~may~~tariffs ~~extend~~and ~~the~~changes ~~deadline~~in ~~for~~valuations ~~implementation~~of ~~upon~~contracts athat ~~proper~~have ~~showing~~yet byto ~~Westar Energy~~settle.

•13 Westar Energy commits to reduce its debt to a level consistent with investment grade bond ratings and to have a capital structure containing at least 40% common equity by December 31, 2004. This commitment replaces a requirement imposed in a previous KCC order that Westar Energy reduce utility debt to $1.67 billion by August 1, 2003.

•Table Westar Energy and we will file requests for a change in rates on May 1, 2005, based on a test year consisting of the 12 months ending December 31, 2004. Prior to May 1, 2005, Westar Energy and we will not make a filing to increase our Kansas jurisdictional electric rates and the other parties to the Stipulation will not file a rate complaint or motion for Westar Energy and us to show cause why Westar Energy’s and our rates should not be reduced.Contents

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

Energy marketing: Includes (1) market-based energy transactions unrelated to our generation or the needs of our regulated customers; (2) financially settled products and physical transactions sourced outside our control area; and (3) changes in valuations for contracts that have yet to settle that may not be recorded either in cost of fuel or tariff- or market-based wholesale revenues.

Network integration: Reflects a regional transmission organization network transmission tariff with the Southwest Power Pool (SPP) as described in more detail in our 2003 Form 10-K.

Other: Includes miscellaneous electric revenues.

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

Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003: Below we discuss our operating results for the three months ended June 30, 2004 as compared to the results for the three months ended June 30, 2003. Changes in results of operations are as follows:


	Three Months Ended June 30,
	2004			2003		Change			% Change
	(In Thousands)
SALES:
Residential	$	49,951		$	47,231	$	2,720		5.8
Commercial		44,854			42,537		2,317		5.4
Industrial		39,349			38,787		562		1.4
Other retail		231			1,220		(989	)	(81.1	)

Total Retail Sales		134,385			129,775		4,610		3.6
Tariff-based wholesale		5,043			4,312		731		17.0
Market-based wholesale		28,760			23,945		4,815		20.1
Energy marketing		(288	)		1,832		(2,120	)	(115.7	)
Network integration (a)		7,732			7,413		319		4.3
Other		4,703			4,888		(185	)	(3.8	)

Total Sales		180,335			172,165		8,170		4.7

OPERATING EXPENSES:
Fuel used for generation (b)		33,051			35,982		(2,931	)	(8.1	)
Purchased power (c)		6,684			5,209		1,475		28.3
Operating and maintenance		58,402			56,260		2,142		3.8
Depreciation and amortization		22,894			22,989		(95	)	(0.4	)
Selling, general and administrative		16,334			16,737		(403	)	(2.4	)

Total Operating Expenses		137,365			137,177		188		0.1

INCOME FROM OPERATIONS	$	42,970		$	34,988	$	7,982		22.8

(a)

Network integration corresponding expense: For the three months ended June 30, 2004, our transmission costs were approximately $8.4 million. This amount, less approximately $0.6 million that was retained by the SPP as administration cost, was returned to us as revenues. For the three months ended June 30, 2003, our transmission costs were approximately $8.0 million with an administration cost of approximately $0.6 million retained by the SPP.

(b)	Fuel used for generation: Includes cost of fuel burned, changes in fair value of fuel contracts and allocated net dispatch costs, which are net changes or benefits related to energy transactions allocated to us by our parent.

(c)	Purchased power: Includes cost of purchased power and changes in fair value of purchased power contracts.

•The ~~Westar~~following ~~Energy~~table ~~and~~reflects wechanges ~~will~~in ~~pay~~electric tosales ~~our~~volumes, ~~Kansas~~as ~~jurisdictional~~measured ~~customers~~by ~~rebates~~thousands of ~~$10.5~~megawatt hours ~~million~~(MWh) ~~on May 1, 2005 and $10 million on January 1, 2006. Westar Energy may and we will also pay a rebate to customers~~ of ~~any amounts Westar Energy may recover from David C~~electricity. ~~Wittig,~~No ~~Westar~~sales ~~Energy’s~~volumes ~~former~~are ~~president,~~shown ~~chief~~for ~~executive~~energy ~~officer~~marketing ~~and~~or ~~chairman,~~network ~~and Douglas T~~integration. ~~Lake, Westar~~ Energy’s ~~former~~marketing ~~executive~~activities ~~vice~~are ~~president~~unrelated ~~and chief strategic officer, for compensation totaling approximately $2.3 million paid~~ to ~~them that was included in electric rates during calendar years 1998 through 2002, net of costs Westar Energy incurs to recover~~ the ~~funds.~~electricity ~~See~~we ~~Note 10 for more information about Westar Energy’s effort to recover compensation from Mr~~generate. ~~Wittig and Mr. Lake.~~

• Westar Industries was required to transfer to Westar Energy all of its stock in ONEOK, Inc. (ONEOK) and all of its cash in excess of $2 million within 30 days of the date of the order.


	Three Months Ended June 30,
	2004	2003	Change		% Change
	(Thousands of MWh)
Residential	648	604	44		7.3
Commercial	716	672	44		6.5
Industrial	896	869	27		3.1
Other retail	11	11	—		—

Total Retail	2,271	2,156	115		5.3
Tariff-based wholesale	104	96	8		8.3
Market-based wholesale	855	786	69		8.8
Other	12	39	(27	)	(69.2	)

Total	3,242	3,077	165		5.4

~~The~~Residential ~~Debt~~and commercial ~~Reduction~~sales ~~Plan~~ and ~~certain~~sales of volumes increased due to warmer weather in May 2004 as compared to May 2003. Total retail sales increased correspondingly but were partially offset by the ~~related~~accrual ~~KCC~~during ~~orders~~the ~~discussed~~three ~~above~~months ended June 30, 2004 of rebates totaling $1.0 million. The rebates are ~~discussed~~to inbe ~~further~~paid ~~detail~~to customers in ~~our~~2005 ~~2002~~and ~~Form~~2006 ~~10-K~~pursuant to the July 25, 2003 KCC order.

~~Current~~Market-based ~~Status~~wholesale sales and sales volumes increased due primarily to favorable market opportunities. Energy marketing sales decreased in the three months ended June 30, 2004 as compared to the same period of 2003 due to favorable changes in 2003 as compared to 2004 in the ~~Debt~~values ~~Reduction~~of ~~Plan~~positions receiving mark-to-market accounting treatment in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS Nos. 137, 138 and 149 (collectively, SFAS No. 133).

~~Westar~~Two ~~Energy~~components ~~has~~comprise ~~reduced~~our ~~its~~fuel ~~total~~cost: ~~debt~~actual byfuel ~~$613.4~~burned ~~million~~at ~~since~~the ~~December~~generating 31units we own and allocated net dispatch costs, ~~2002~~which are costs allocated to us by Westar Energy. The ~~total~~expense ~~reduction~~for ~~includes~~actual ~~the~~fuel ~~decrease~~burned ofat ~~utility~~our ~~debt~~generating byunits increased $~~554~~2.70 million. toIncreases ~~$2.7~~in ~~billion~~the atunit ~~September~~cost ~~30,~~of ~~2003~~fuel ~~from~~caused ~~$3.2~~69% ~~billion at~~of ~~December~~the ~~31,~~increase ~~2002.~~in ~~This~~fuel ~~reduction~~expense ~~resulted~~due ~~principally~~primarily ~~from~~to ~~using~~an increase in the ~~proceeds~~average ~~from~~price of oil. Increases in the ~~sale~~quantity of ~~Westar~~fuel ~~Energy’s~~we ~~ONEOK~~used ~~stock.~~account ~~The~~for the remainder of the ~~$613~~increase in fuel expense.4 ~~million~~This ~~decrease~~was ~~results~~due ~~from~~primarily ato ~~$58.7~~an ~~million~~increase ~~decrease~~in ~~that~~the isamount ~~included~~of coal we used in ~~the~~one ~~results~~ of ~~discontinued~~our ~~operations~~base onload ~~Westar~~coal ~~Energy’s~~units ~~consolidated~~reflecting ~~financial~~the ~~statements.~~timing ~~Westar~~of ~~Energy~~scheduled ~~may~~maintenance ~~have~~activities between tothe ~~issue~~two ~~equity~~periods. toThe ~~achieve~~decline ~~its~~in ~~commitment~~the toallocated ~~have~~net ~~debt~~dispatch ~~consistent~~costs ~~with~~more ~~investment~~than ~~grade~~offset ~~bond~~the ~~ratings~~increase in the cost of fuel and acaused ~~capital~~the ~~structure~~net ~~consisting~~decrease ~~of at~~for ~~least~~fuel ~~40%~~used ~~common~~for ~~equity~~generation atreported ~~December~~in ~~31,~~the ~~2004~~table above.

InPurchased ~~August 2003,~~power ~~Westar~~expense ~~Energy~~increased ~~and~~due weto ~~began~~higher ~~recognizing~~average ~~the~~market ~~effect~~prices of during the ~~rebates~~three ~~that~~months ~~will~~ended beJune ~~paid to customers in 2005 and 2006. Accordingly, as of September~~ 30, ~~2003, we have recorded a liability of $0~~2004.7 ~~million~~The ~~for~~average ~~revenue~~market toprice beincreased ~~refunded.~~approximately We32% ~~will~~compared ~~record a liability of $1.0 million for revenue~~ to bethe ~~refunded~~2003 ~~each~~period ~~quarter~~while ~~through~~the ~~December~~actual ~~31,~~volume ~~2005.~~of ~~The~~purchases ~~amounts~~decreased ~~recorded are reported as a reduction to revenues~~slightly.

~~Also~~Operating inand ~~August~~maintenance ~~2003,~~expenses ~~Westar~~increased ~~Industries~~primarily ~~transferred~~as toa ~~Westar~~result ~~Energy~~of ~~all~~the timing of ~~its~~maintenance ~~stock~~outages inat ~~ONEOK~~various generating units and ~~all~~increased ofcustomer ~~its~~service ~~cash~~expense inassociated ~~excess~~with maintenance of $2our ~~million~~distribution system. ~~Westar~~While ~~Energy has~~generating ~~continued~~units totypically ~~transfer~~have ~~cash~~planned inmaintenance ~~excess~~outages, the timing of $2outages ~~million~~varies infrom ~~subsequent~~year ~~months~~to year. ~~These~~This ~~transfers~~can ~~were~~cause maintenance ~~intercompany~~expense ~~transactions~~to ~~and~~vary ~~did~~during ~~not~~a ~~result~~three inmonth ~~any~~period ~~change~~as compared to the ~~amounts~~same ~~reported~~period onin ~~Westar~~the ~~Energy’s~~prior ~~consolidated financial statements~~year. ~~In addition,~~During inthe ~~accordance~~three ~~with~~months aended ~~KCC~~June ~~order~~30, ~~Westar~~2004, ~~Energy~~increased ~~reclassified~~maintenance anof ~~intercompany~~our ~~receivable~~generating inunits ~~the~~accounted ~~amount~~for 65% of ~~$710~~the increase in operating and maintenance expenses.5 ~~million~~The ~~from~~increase ~~Westar~~in ~~Industries~~customer asservice anexpenses ~~investment~~accounted for 30% of the increase in ~~Westar~~total ~~Industries~~operating and maintenance expenses. ~~This~~Customer ~~intercompany~~service ~~transaction~~expenses isincreased ~~eliminated~~due ~~in consolidation~~primarily to increased staffing levels and, ~~therefore~~higher costs associated with the termination of portions of the ONEOK shared services agreement as discussed in Note 18, ~~has~~“Related noParty ~~impact~~Transactions on– ~~Westar~~Termination ~~Energy’s~~of ~~debt~~Shared ~~reduction~~Services Agreement” in our 2003 Form 10-K.

CRITICAL ACCOUNTING POLICIES

Since December 31, 2002, no significant changes have occurred in our critical accounting policies. For additional information on our critical accounting policies, see our 2002 Form 10-K.

~~OPERATING~~Six ~~RESULTS~~Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003: Below we discuss our operating results for the six months ended June 30, 2004 as compared to the results for the six months ended June 30, 2003. Changes in results of operations are as follows:

Three Months Ended September 30, 2003 Compared to Three Months Ended September 30, 2002: Significant changes in specific line items comprising the results of operations are as follows:


	Six Months Ended June 30,
	2004		2003		Change			% Change
	(In Thousands)
SALES:
Residential	$	97,484	$	94,128	$	3,356		3.6
Commercial		82,166		79,058		3,108		3.9
Industrial		76,286		75,109		1,177		1.6
Other retail		481		2,433		(1,952	)	(80.2	)

Total Retail Sales		256,417		250,728		5,689		2.3
Tariff-based wholesale		9,842		9,096		746		8.2
Market-based wholesale		50,673		58,269		(7,596	)	(13.0	)
Energy marketing		684		2,107		(1,423	)	(67.5	)
Network integration (a)		15,519		14,868		651		4.4
Other		9,291		9,767		(476	)	(4.9	)

Total Sales		342,426		344,835		(2,409	)	(0.7	)

OPERATING EXPENSES:
Fuel used for generation (b)		78,361		75,201		3,160		4.2
Purchased power (c)		16,415		8,915		7,500		84.1
Operating and maintenance		113,366		111,695		1,671		1.5
Depreciation and amortization		45,647		45,335		312		0.7
Selling, general and administrative		34,077		32,337		1,740		5.4

Total Operating Expenses		287,866		273,483		14,383		5.3

INCOME FROM OPERATIONS	$	54,560	$	71,352	$	(16,792	)	(23.5	)

	Three Months Ended September 30,
	2003		2002		% Change
	(Dollars in Thousands)
SALES:
Residential	$	83,583	$	86,884	(3.8	)
Commercial		50,957		53,132	(4.1	)
Industrial		40,937		42,041	(2.6	)
Subtotal		175,477		182,057	(3.6	)
Network Integration (a)		7,480		7,591	(1.5	)
Other (b)		4,985		5,388	(7.5	)
Total retail		187,942		195,036	(3.6	)
Wholesale and Interchange		19,319		22,571	(14.4	)
Total Sales		207,261		217,607	(4.8	)
FUEL AND PURCHASED POWER:
Fuel used for generation		43,671		41,513	5.2
Purchased power		7,504		3,882	93.3
Dispatch expense to parent		323		1,696	(81.0	)
Total Fuel and Purchased Power		51,498		47,091	9.4
GROSS PROFIT		155,763		170,516	(8.7	)
OPERATING EXPENSES:
Operating and maintenance		56,007		54,428	2.9
Depreciation and amortization		22,601		22,260	1.5
Selling, general and administrative		19,086		17,191	11.0
Total Operating Expenses		97,694		93,879	4.1
INCOME FROM OPERATIONS	$	58,069	$	76,637	(24.2	)

(a)

Network integration corresponding expense: For the six months ended June 30, 2004, our transmission costs were approximately $16.7 million. This amount, less approximately $1.2 million that was retained by the SPP as administration cost, was returned to us as revenues. For the six months ended June 30, 2003, our transmission costs were approximately $16.1 million with an administration cost of approximately $1.3 million retained by the SPP.

(ab) ~~Network~~Fuel ~~Integration:~~used ~~Reflects~~for ageneration: ~~network~~Includes ~~transmission~~cost ~~tariff~~of ~~that~~fuel ~~requires~~burned, uschanges toin ~~pay~~fair tovalue ~~the~~of ~~Southwest~~fuel ~~Power~~contracts ~~Pool~~and ~~(SPP)~~allocated ~~all~~net ~~expenses~~dispatch ~~associated with transporting power. The expense for the three months ended September 30~~costs, ~~2003~~which ~~and~~are ~~2002~~net ~~was~~changes ~~$8.5~~or ~~million.~~benefits ~~The~~related ~~SPP~~to ~~then~~energy ~~pays~~transactions usallocated ~~for transmitting power~~ to ~~the~~us ~~point~~by ~~of delivery into~~ our ~~retail distribution system~~parent. ~~These receipts from the SPP are reflected in revenues in the network integration classification.~~

(bc) ~~Other~~Purchased power: Includes ~~public~~cost ~~street~~of ~~and~~purchased ~~highway~~power ~~lighting,~~and ~~miscellaneous~~changes ~~electric~~in ~~revenues~~fair ~~and~~value ~~revenues~~of topurchased bepower ~~refunded~~contracts.

The following table reflects changes in electric sales volumes, as measured by thousands of MWh of electricity. No sales volumes are shown for energy marketing or network integration. Energy marketing activities are unrelated to the electricity we generate.


	Six Months Ended June 30,
	2004	2003	Change		% Change
	(Thousands of MWh)
Residential	1,298	1,249	49		3.9
Commercial	1,316	1,258	58		4.6
Industrial	1,741	1,695	46		2.7
Other retail	22	22	—		—

Total Retail	4,377	4,224	153		3.6
Tariff-based wholesale	204	208	(4	)	(1.9	)
Market-based wholesale	1,575	1,713	(138	)	(8.1	)
Other	26	98	(72	)	(73.5	)

Total	6,182	6,243	(61	)	(1.0	)

Residential and commercial sales and sales volumes increased due to warmer weather in May 2004 as compared to May 2003. Total retail sales increased correspondingly but were partially offset by the accrual during the six months ended June 30, 2004 of rebates totaling $2.0 million that are to be paid to customers in 2005 and 2006 pursuant to the July 25, 2003 KCC order.

Market-based wholesale sales decreased due primarily to less favorable market opportunities. Energy marketing sales decreased in the six months ended June 30, 2004 as compared to the same period of 2003 due to favorable changes in 2003 in the values of positions receiving mark-to-market accounting treatment in accordance with SFAS No. 133.

The ~~following~~expense ~~table~~for ~~reflects~~actual ~~changes~~fuel burned at our generating units increased $10.5 million. Increases in ~~electric~~the ~~sales~~unit cost ~~volumes,~~of asfuel ~~measured~~caused by65% ~~thousands~~of the increase in fuel expense due primarily to an increase in the average price of ~~megawatt~~oil. Increases in the quantity of fuel we used account for the remaining 35% of the increase in fuel expense. This was due primarily to an ~~hours~~increase ~~(MWh)~~in the amount of ~~electricity~~coal we used at one of our base load coal units and because we used more oil during the 2004 period than we did during the 2003. We experienced unplanned outages or reduced operating capability at various times throughout the six months ended June 30, 2004 at Jeffrey Energy Center. The average availability factor for Jeffrey Energy Center was 82% during the ~~three~~six months ended ~~September~~June 30, 2004 compared to 91% during the six months ended June 30, 2003. This decreased the coal use at Jeffrey Energy Center and ~~2002~~consequently reduced the cost of coal used. NoHowever, ~~sales~~we ~~volumes~~consumed ~~are~~more ~~shown~~coal and oil at other generating facilities to compensate for ~~network~~the ~~integration~~loss ~~because~~of ~~this~~energy ~~activity~~from isJeffrey ~~unrelated~~Energy Center. While the average cost of coal remained relatively constant from period to ~~electricity~~period, wethe ~~generate~~average cost of oil was substantially higher. The decline in the allocated net dispatch costs partially offset the increase in the cost of fuel.

	Three Months Ended September 30,
	2003	2002	% Change
	(Thousands of MWh)
Residential	1,019	1,027	(0.8	)
Commercial	796	826	(3.6	)
Industrial	902	905	(0.3	)
Other	11	11	—
Total retail	2,728	2,769	(1.5	)
Wholesale and Interchange	508	667	(23.8	)
Total	3,236	3,436	(5.8	)

Purchased power expense increased due primarily to a 91% increase in volumes purchased during the six months ended June 30, 2004 as compared to the same period of 2003. We purchased more power from other sources when it was more economical to purchase power than to operate our generating units. We also purchased more power during the first quarter of 2004 due to the unplanned outages at Jeffrey Energy Center. Market prices were approximately 23% higher in the six months ended June 30, 2004 than in the same period of 2003.

~~Retail~~LIQUIDITY ~~sales~~AND ~~declined as~~CAPITAL aRESOURCES result of less favorable weather than last year and adjustments to property taxes and the billing surcharge which was implemented in 2001 and settled in 2002. Wholesale and interchange sales also declined because the availability of several of our operating units was lower in 2003 compared to 2002.

~~Purchased~~Overview power increased since we purchased more power from other sources than we did during the same period of 2002 because it was more economical to purchase power than to operate our peaking units. Partially offsetting this increase was a reduction of costs associated with the dispatching of electric power.

~~Operating~~Most ~~expenses~~of ~~increased~~our ~~due~~cash torequirements ~~higher~~consist of capital and maintenance ~~costs~~expenditures designed to improve and ~~increased~~maintain ~~selling,~~facilities that ~~general~~provide electric service and ~~administrative~~meet ~~expenses,~~future ~~which~~customer ~~was~~service ~~largely~~requirements. ~~the~~Our ~~result~~ability ofto ~~higher~~provide ~~bad~~the cash or debt ~~expense~~to fund our capital expenditures depends on many things, including available resources, Westar Energy’s and our financial condition and current market conditions.

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

Capital Resources

~~Nine~~Refinancing ~~Months Ended September 30, 2003 Compared to Nine Months Ended September 30, 2002: Significant changes in specific line items comprising the results~~ of ~~operations~~Long-term ~~are~~Debt ~~as follows:~~

	Nine Months Ended September 30,
	2003		2002		% Change
	(Dollars in Thousands)
SALES:
Residential	$	177,712	$	179,220	(0.8	)
Commercial		130,016		132,642	(2.0	)
Industrial		116,046		115,580	0.4
Subtotal		423,774		427,442	(0.9	)
Network Integration (a)		22,348		22,542	(0.9	)
Other (b)		17,182		16,177	6.2
Total retail		463,304		466,161	(0.6	)
Wholesale and Interchange		88,792		62,002	43.2
Total Sales		552,096		528,163	4.5
FUEL AND PURCHASED POWER:
Fuel used for generation		105,461		102,698	2.7
Purchased power		16,419		11,003	49.2
Dispatch expense to parent		13,735		19,100	(28.1	)
Total Fuel and Purchased Power		135,615		132,801	2.1
GROSS PROFIT		416,481		395,362	5.3
OPERATING EXPENSES:
Operating and maintenance		167,702		162,297	3.3
Depreciation and amortization		67,935		71,247	(4.7	)
Selling, general and administrative		51,423		60,540	(15.1	)
Total Operating Expenses		287,060		294,084	(2.4	)
INCOME FROM OPERATIONS	$	129,421	$	101,278	27.8

We refinanced a portion of our debt as follows:

(a) Network Integration: Reflects a network transmission tariff that requires us to pay to the Southwest Power Pool (SPP) all expenses associated with transporting power. The expense for the nine months ended September 30, 2003 was $24.6 million compared to $24.7 million for the same period of 2002. The SPP then pays us for transmitting power to the point of delivery into our retail distribution system. These receipts from the SPP are reflected in revenues in the network integration classification.


Long-term Debt Refinancing:	Balance as of December 31, 2003		Securities Redeemed			Securities Issued		Balance as of June 30, 2004
	(In Thousands)
Pollution control bond series:
7.00% due 2031 (a)	$	327,500	$	(327,500	)	$	—	$	—
5.30% due 2031 (b)		—		—			108,600		108,600
2.65% due 2031 and putable 2006 (b)		—		—			100,000		100,000
5.30% due 2031 (b)		—		—			18,900		18,900
Variable rate due 2031 (b)		—		—			100,000		100,000

Total	$	327,500	$	(327,500	)	$	327,500	$	327,500

(ba) ~~Other:~~Redeemed ~~Includes~~on ~~public~~June ~~street and highway lighting~~10, ~~miscellaneous electric revenues and revenues to be refunded.~~2004

~~The following table reflects changes in electric sales volumes, as measured by thousands of megawatt hours~~ (~~MWh~~b) ofIssued ~~electricity,~~on ~~for~~June ~~the nine months ended September 30~~10, ~~2003 and 2002. No sales volumes are shown for network integration because this activity is unrelated to electricity we generate.~~ 2004

	Nine Months Ended September 30,
	2003	2002	% Change
	(Thousands of MWh)
Residential	2,268	2,301	(1.4	)
Commercial	2,054	2,070	(0.8	)
Industrial	2,597	2,550	1.8
Other	33	33	—
Total retail	6,952	6,954	—
Wholesale and Interchange	2,429	2,539	(4.3	)
Total	9,381	9,493	(1.2	)

Credit Ratings

On July 22, 2004, Standard & Poor’s Ratings Group improved its ratings on our first mortgage bonds to BBB from BB+. On April 14, 2004, Moody’s Investors Service (Moody’s) affirmed its ratings for Westar Energy’s and our first mortgage bonds and unsecured debt and changed its outlook of our credit ratings to positive from negative. Moody’s also raised the speculative liquidity rating it assigned to Westar Energy to SGL-2 from SGL-3, reflecting its view that Westar Energy has “good” liquidity. Since March 1, 2004, Fitch Investors Service has not changed its ratings for Westar Energy’s or our first mortgage bonds or Westar Energy’s unsecured debt. For additional information on our credit ratings, see our 2003 Form 10-K, “Liquidity and Capital Resources — Credit Ratings.”

OFF-BALANCE SHEET ARRANGEMENTS — ACCOUNTS RECEIVABLE SALES PROGRAM

On July 28, 2000, Westar Energy and we entered into an agreement with WR Receivables Corporation, a wholly owned, bankruptcy-remote SPE, to sell Westar Energy’s and our accounts receivable arising from the sale of electricity to the SPE. These transfers are accounted for as sales in accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.” The SPE may sell up to $125 million of an undivided interest in our combined accounts receivable to a third-party conduit under various terms and conditions. The percentage ownership interest in receivables held by the third-party conduit will increase or decrease over time, depending on the characteristics of the SPE’s receivables, including delinquency rates and debtor concentrations. The agreement with the third-party conduit is renewable annually upon agreement by all parties. On July 21, 2004, the agreement was extended through July 19, 2005 on substantially similar terms.

The SPE receivable from WR Receivables Corporation represents our retained interests in the transferred receivables and is recorded at book value, net of allowances for bad debts. This approximates fair value due to the short-term nature of the receivable. The SPE receivable is included in accounts receivable, net, on our consolidated balance sheets. The interests that we hold are included in the table below:


	June 30, 2004		December 31, 2003
	(In Thousands)
Undivided Interest — Retained, net	$	77,436	$	71,213
Undivided Interest — Third-party conduit, net		10,680		9,186

SPE receivables, net	$	88,116	$	80,399

The outstanding balance of SPE receivables is net of $80.0 million at June 30, 2004 and December 31, 2003 in undivided ownership interests sold by the SPE to the third-party conduit.

~~Temperatures~~The infollowing ~~our~~table ~~service~~provides ~~territory~~gross ~~were~~proceeds ~~cooler~~and inrepayments ~~2003~~between ~~than~~the ~~they~~SPE ~~were~~and inthe ~~2002,~~third-party ~~which~~conduit. These ~~resulted~~amounts inare ~~a decline~~provided infor ~~retail~~cash ~~sales~~flow ~~compared~~purposes toand ~~the~~may ~~same~~not ~~period~~be inreflective ~~2002.~~of ~~Offsetting~~accrual ~~this~~accounting. ~~decline~~These ~~was~~items anare ~~increase~~recorded inon ~~wholesale~~the ~~and~~consolidated ~~interchange~~statements ~~sales.~~of ~~Higher~~cash ~~prices~~flows in the ~~wholesale~~“Accounts ~~energy~~receivable, ~~market~~net” ~~led~~line ~~directly~~of tocash ~~the~~flows ~~increase~~from ~~in total sales~~operating activities.

Purchased power increased and fossil fuel costs were slightly higher. This increase was partially offset with the decrease in costs associated with the dispatching of electric power. These fluctuations were primarily the result of the scheduled Wolf Creek refueling outage in the second quarter of 2002, which caused us to use more expensive sources of generation during the 2002 period.


	Six Months Ended June 30,
	2004		2003
	(In Thousands)
Proceeds from the sale of an undivided interest from the third-party conduit	$	—	$	—
Repayments to the conduit for net collection of its receivable		—		(10,000	)

SPE proceeds and repayments, net	$	—	$	(10,000	)

~~Total~~CONTRACTUAL ~~operating~~CASH expenses decreased primarily as a result of a decrease in selling, general and administrative expenses. The 2002 selling, general and administrative expenses were higher due to the severance charges that were allocated to usOBLIGATIONS during the first quarter of 2002. Maintenance expenses increased due to longer outages at several of our generating units as compared to 2002. Depreciation and amortization expense was less because the depreciation rates decreased in April 2002 as prescribed by the KCC.

~~LIQUIDITY~~Since ~~AND~~December ~~CAPITAL~~31, ~~RESOURCES~~2003, we have not experienced any material changes in our contractual obligations. For additional information regarding our contractual obligations, see our 2003 Form 10-K.

~~Overview~~OTHER INFORMATION

~~Westar~~City ~~Energy believes it will have sufficient cash to fund future operations~~ of ~~its~~Wichita ~~business~~Franchise (including us), debt reductions, including the rebates to customers Westar Energy and we are required to make in 2005 and 2006, and the payment of Westar Energy dividends, from a combination of cash on hand, cash flow, proceeds from the sales of its non-utility and non-core assets, available borrowings under its revolving credit facility and access to capital markets. Uncertainties affecting its ability to meet these requirements include, among others, the factors affecting sales described above, economic conditions, including the impact of inflation on operating expenses, regulatory actions, Westar Energy’s ability to implement the Debt Reduction Plan and compliance with future environmental regulations.

~~Most~~On ofFebruary ~~our~~10, ~~cash~~2004, ~~requirements~~the ~~consist~~Wichita ofCity ~~capital~~Council ~~expenditures~~approved ~~and~~a ~~maintenance costs~~10-year ~~designed~~renewal toof ~~improve~~the ~~and~~franchise ~~maintain~~agreement ~~facilities~~pursuant ~~that~~to ~~provide~~which ~~electric~~we ~~service~~provide ~~and~~retail toelectric ~~meet customer~~ service ~~requirements.~~within ~~Our ability to provide~~ the ~~cash~~city orof ~~debt~~Wichita. toThe ~~fund~~new ~~our~~10-year ~~capital~~franchise ~~expenditures~~agreement ~~depends~~is on ~~many~~terms ~~things,~~that ~~including available~~we ~~resources,~~believe ~~our~~to ~~financial~~be ~~condition~~reasonably ~~and~~similar ~~current~~to ~~market~~those ~~conditions~~previously in effect.

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 unableSouthwest toPower ~~borrow~~Pool ~~under its credit facilities, we could have a short-term liquidity issue that could require us to obtain a credit facility for our short-term cash needs, which could result in higher borrowing costs.~~

~~Capital~~Since ~~Resources~~we provide electric service together with the electric utility operations of Westar Energy, using the name “Westar Energy,” we are a member of the SPP through Westar Energy’s membership and do not have a separate KGE membership. On February 10, 2004, the FERC granted SPP’s application seeking regional transmission organization (RTO) status subject to the SPP fulfilling certain specified requirements. On March 16, 2004, the SPP board of directors approved going forward with meeting the conditions listed in the order. One condition in the order requires approval from the SPP membership of modification to the SPP bylaws that would allow it to switch from a membership board of directors to an independent board of directors. This change has been approved by the SPP membership and the SPP has moved to an independent board of directors. The SPP made a compliance filing with the FERC on May 3, 2004. This filing outlines how the SPP has met the conditions listed in the FERC order and requested the FERC grant RTO status to the SPP. On July 2, 2004, the FERC replied to the SPP requesting additional actions needed to grant RTO status. The SPP has 30 days to reply or request an extension.

Westar Energy’s Debt Reduction Plan provides for a systematic disposal of its non-utility and non-core assets and the potential issuance of Westar Energy equity securities. The proceeds of these transactions will be used to reduce debt. Westar Energy may reduce its and our debt pursuant to terms stated in the debt agreements or through open market purchases or tender offers.

Cash Flows from Operating Activities

Our primary source of operating cash flows is from our electric utility operations. Cash flows from operating activities increased $88.5 million, to $141.8 million in 2003 from $53.3 million in 2002. This increase is mostly attributable to the increase in utility gross margin for 2003 compared to 2002 and the $72.3 million increase in changes in working capital items.

~~Cash~~Fair ~~Flows~~Value ~~used~~of inEnergy ~~Financing~~Marketing ~~Activities~~Contracts

~~During~~The ~~2002,~~tables webelow ~~received~~show ~~advances~~the ~~from~~fair ~~Westar~~value ~~Energy~~ of ~~$128.9~~energy ~~million,~~marketing ofcontracts ~~which~~that ~~$135.0~~were ~~million~~outstanding ~~was~~at ~~deposited~~June ~~with a trustee for the retirement of first mortgage bonds due December 15~~30, ~~2003. In 2003~~2004, wetheir ~~paid~~sources ~~$75.0~~and maturity ~~million~~periods: ~~of dividends to Westar Energy.~~

Contractual Obligations


	Fair Value of Contracts
	(In Thousands)
Net fair value of contracts outstanding at the beginning of the period	$	2,014
Less contracts realized or otherwise settled during the period		2,471
Plus fair value of new contracts entered into during the period		(674	)

Fair value of contracts outstanding at the end of the period	$	(1,131	)

~~Since~~The ~~December~~sources ~~31,~~of ~~2002,~~the fair ~~there~~values ~~have~~of ~~been~~the nofinancial ~~material~~instruments ~~changes~~related into ~~our~~these ~~contractual~~contracts ~~obligations~~are ~~for~~summarized ~~operations~~ in the ~~ordinary~~following ~~course~~table: ~~of business. For additional information on our contractual obligations, see our 2002 Form 10-K.~~

Sale of Accounts Receivable


	Fair Value of Contracts at End of Period
Sources of Fair Value	Total Fair Value			Maturity Less Than 1 Year			Maturity 1-3 Years			Maturity 4-5 Years
	(In Thousands)
Prices actively quoted (futures)	$	(512	)	$	(512	)	$	—		$	—
Prices provided by other external sources (swaps and forwards)		(743	)		(510	)		(233	)		—
Prices based on the Black Option Pricing model (options and other) (a)		124			124			—			—

Total fair value of contracts outstanding	$	(1,131	)	$	(898	)	$	(233	)	$	—

On July 28, 2000, Westar Energy and we entered into an agreement to sell all of our accounts receivable arising from the sale of electricity to WR Receivables Corporation, a special purpose entity (SPE). We account for this transfer as a sale in accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.” The agreement is annually renewable upon agreement by all parties. On July 23, 2003, the term of the agreement was extended through July 21, 2004. For additional information, see Note 4 of the Notes to Consolidated Financial Statements in our 2002 Form 10-K, “Accounts Receivable.”

We record administrative expense on the undivided interest owned by the conduit, which was $0.6 million and $1.9 million for the three and nine months ended September 30, 2003, respectively, compared to $0.4 million and $0.9 million for the same periods of 2002. These expenses are included in other income (expense) in our consolidated statements of income.

The outstanding balance of SPE receivables was $78.3 at September 30, 2003 and $48.2 million at December 31, 2002, which is net of an undivided interest of $100 million and $110 million, respectively, in receivables sold by the SPE to the conduit. Our retained interest in the SPE’s receivables is reported at fair value and is subordinate to, and provides credit enhancement for, the conduit’s ownership interest in the SPE’s receivables. Our retained interest is available to the conduit to pay any fees or expenses due to the conduit and to absorb all credit losses incurred on any of the SPE’s receivables. The retained interest is included in accounts receivable, net, in our consolidated balance sheets.

Consolidation of Variable Interest Entities

In January 2003, the FASB issued FIN 46, which provides guidance related to identifying variable interest entities (previously known generally as special purpose entities or SPEs) and determining whether such entities should be consolidated. Certain disclosures are required if it is reasonably possible that a company will consolidate or disclose information about a variable interest entity. This interpretation must be applied immediately to variable interest entities created or obtained after January 31, 2003. For those variable interest entities created or obtained on or before January 31, 2003, the provisions of FIN 46 must be applied by the fourth quarter of 2003. We are evaluating the impact this new pronouncement will have on our financial statements.

OTHER INFORMATION

Related Party Transactions

Our cash management function, including cash receipts and disbursements, is performed by Westar Energy. An intercompany account is used to record net receipts and disbursements between KGE and Westar Energy and between KGE and WR Receivables Corporation. The net amount payable to affiliates approximated $20.6 million at September 30, 2003 and $24.1 million at December 31, 2002 as reflected in our consolidated balance sheets.

We have declared and paid dividends to Westar Energy for the three and nine months ended September 30, 2003 of $25.0 million and $75.0 million, respectively.

Termination of Shared Services Agreement

Westar Energy owns an investment in ONEOK and maintains shared services agreements with ONEOK pursuant to which Westar Energy and ONEOK provide customer service functions to each other, including meter reading, customer billing and call center operations. ONEOK gave Westar Energy notice of termination of the shared services agreement effective December 2003. We expect the termination to occur in September 2004. Following termination, Westar Energy will allocate to us our portion of the expenses for providing these services internally. We expect the termination of this agreement to increase our annual costs for these services by approximately $4 million to $5 million.

Hedging Activities

During the third quarter of 2001, Westar Energy entered into hedging relationships to manage commodity price risk associated with future natural gas purchases to protect us and our customers from adverse price fluctuations in the natural gas market. Initially, Westar Energy entered into futures and swap contracts with terms extending through July 2004 to hedge price risk for a portion of anticipated natural gas fuel requirements for generation facilities. Westar Energy designated these hedging relationships as cash flow hedges in accordance with SFAS No. 133.

In 2002, due to the increased availability of coal units and because we began burning more oil as use of oil became more economically favorable than gas, we did not burn our forecasted amount of natural gas. In September 2002, we determined that we had over-hedged approximately 8,280,000 MMBtu for the remaining period of the hedge. As a result of the discontinuance of this portion of the cash flow hedge, we recognized a gain in earnings of $2.8 million. As of September 30, 2003, we forecasted a notional volume of 2,100,000 MMBtu for the remainder of the hedged period through July 2004. Our use of hedge accounting is contingent on burning sufficient quantities of natural gas to meet our forecasts. If we fail to meet those forecasts, we could lose our ability to use hedge accounting, which could result in greater volatility to our results of operations due to fluctuating natural gas prices. We operate our system in the most economical manner and will continue to do so by using the pricing systems available to us.

The following table summarizes the effects the natural gas hedge had on our financial position and results of operations for the three and nine months ended September 30, 2003:

	Natural Gas Hedge (a)
	(Dollars in Thousands)
As of September 30, 2003:
Fair value of derivative instruments:
Current	$	1,963
Long-term		—
Total	$	1,963
Three Months Ended September 30, 2003:
Change in amounts in accumulated other comprehensive income	$	(1,261	)
Adjustment for gain included in net income		(4,255	)
Estimated income tax expense		2,194
Net Comprehensive Gain	$	(3,322	)
Nine Months Ended September 30, 2003:
Change in amounts in accumulated other comprehensive income	$	3,512
Adjustment for gain included in net income		(5,021	)
Estimated income tax expense		600
Net Comprehensive Gain	$	(909	)
Anticipated reclassifications to earnings in the next 12 months (b)	$	1,963
Duration of hedge designation as of September 30, 2003		10 months

(a) Natural gas hedge assets and liabilities are classified in the balance sheets 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 10 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.

Fair Value of Energy Trading Contracts

The tables below show fair value of energy trading contracts outstanding for the nine months ended September 30, 2003, their sources and maturity periods:

	Fair Value of Contracts
	(In Thousands)
Net fair value of contracts outstanding at the beginning of the period	$	3,467
Less contracts realized or otherwise settled during the period		3,171
Plus fair value of new contracts entered into during the period		3,391
Fair value of contracts outstanding at the end of the period	$	3,687

These contracts were valued through market exchanges and, where necessary, broker quotes and industry publications, which we believe represent the fair value of the financial instruments. The sources of the fair values of the financial instruments related to these contracts are summarized in the following table:

	Fair Value of Contracts at End of Period
Sources 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)	$	6,263		$	6,263		$	—		$	—	$	—
Prices provided by other external sources (swaps and forwards)		(1,893	)		(1,944	)		51			—		—
Prices based on the Black Option Pricing model (options and other) (a)		(683	)		(504	)		(179	)		—		—
Total fair value of contracts outstanding	$	3,687		$	3,815		$	(128	)	$	—	$	—

(a)	The Black Option Pricing model is a variant of the Black-Scholes Option Pricing model.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We ~~have~~are ~~not~~exposed ~~experienced~~to ~~any~~market ~~significant~~risk, including market changes, changes in ~~our~~commodity ~~exposure~~prices toand ~~market~~interest ~~risk~~rates. ~~since~~Since December 31, ~~2002~~2003, our variable rate debt increased $100.0 ~~For~~million. ~~additional~~A ~~information~~100 onbasis point change in each of our ~~market~~variable ~~risk~~rate debt series’ benchmark rate, ~~see~~used to set the rate for such series, would impact net income on an annualized basis by approximately $1.5 million. This represents an increase in our ~~2002~~exposure ~~Form~~to ~~10-K,~~interest ~~“Item~~rate 7Arisk on an annualized basis by approximately $1.0 ~~Quantitative~~million, ~~and~~from ~~Qualitative~~$0.5 ~~Disclosures~~million ~~About~~at ~~Market~~December ~~Risk~~31, 2003.”

For additional information on our market risk, see our 2003 Form 10-K, “Item 7A. Quantitative and Qualitative Disclosures About Market Risk.”

ITEM 4.

CONTROLS AND PROCEDURES

AsWe are a wholly owned subsidiary of ~~September~~Westar ~~30,~~Energy ~~2003~~and all evaluations of our controls and procedures were conducted in conjunction with those undertaken by Westar Energy. Under the supervision and with the participation of Westar Energy’s management, and including our ~~principal~~president ~~executive officer~~ and our principal financial and accounting officer, ~~conducted~~we anhave ~~evaluation~~evaluated of the effectiveness of the design and operation of our disclosure controls and procedures ~~pursuant~~as todefined in Rule 13a-15(e) of the Securities Exchange Act of 1934. These controls and procedures ~~were~~are designed to ensure that material information relating to the company is communicated to ~~the~~our ~~principal~~president ~~executive officer~~ and our ~~the~~ principal financial and accounting officer. Based ~~upon~~on that evaluation, our ~~principal~~president ~~executive officer~~ and our principal financial and accounting officer concluded that, as of June 30, 2004, our disclosure controls and procedures ~~were~~are effective, into ~~all~~ensure ~~material~~that information ~~respects,~~required ~~with respect~~ to ~~the~~be ~~recording,~~disclosed ~~processing,~~by ~~summarizing~~us ~~and~~in ~~reporting,~~reports ~~within~~that ~~the~~we ~~time~~file ~~periods~~or ~~specified~~submit inunder the ~~SEC’s~~Securities ~~rules~~Exchange ~~and~~Act ~~forms,~~ of ~~information~~1934 ~~required~~is torecorded, beprocessed, ~~disclosed~~summarized byand usreported inwithin the ~~reports~~time ~~that~~periods wespecified ~~file~~in orSecurities ~~submit~~and ~~under~~Exchange ~~the~~Commission ~~Exchange~~rules ~~Act~~and forms.

No20 changes in our internal controls identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 occurred during our last fiscal quarter that have materially affected or are reasonably likely to materially affect internal controls.

There were no changes in our internal controls over financial reporting during the three months ended June 30, 2004 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

KANSAS GAS AND ELECTRIC COMPANY

PART II. Other Information

ITEM 1.

LEGAL PROCEEDINGS

~~Information~~We onare ~~our~~involved in various legal, ~~proceedings~~environmental isand ~~set~~regulatory ~~forth~~proceedings. inWe ~~Notes~~believe 3,adequate 7,provisions 8have been made and 10accordingly ofbelieve that the ultimate ~~Notes~~disposition toof ~~Consolidated~~such ~~Financial~~matters ~~Statements,~~will ~~“Rate~~not ~~Matters~~have ~~and~~a ~~Regulation,”~~material ~~“Legal~~adverse ~~Proceedings,”~~effect ~~“Special~~upon ~~Committee~~our ~~Investigation” and~~consolidated ~~“Potential~~financial ~~Liabilities~~position toor ~~David~~results Cof operations. ~~Wittig~~See ~~and~~also ~~Douglas~~Note T.6 ~~Lake~~of the Notes to Consolidated Financial Statements, “Commitments and Contingencies — EPA New Source Review.” ~~respectively,~~The ~~which~~Notes to Consolidated Financial Statements are 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:

31(a)		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 certifying the quarterly report provided for the period ended September 30, 2003
31	(a)		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 certifying the quarterly report provided for the period ended June 30, 2004
31(b)		Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 certifying the quarterly report provided for the period ended September 30, 2003
31	(b)		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 certifying the quarterly report provided for the period ended June 30, 2004
32(a)		Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 certifying the quarterly report provided for the quarter ended September 30, 2003 (furnished and not to be considered filed as part of the Form 10-Q)
32			Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 certifying the quarterly report provided for the quarter ended June 30, 2004 (furnished and not to be considered filed as part of the Form 10-Q)

(b) Reports on Form 8-K filed during the three months ended ~~September~~June 30, ~~2003~~2004: None

2422

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:	~~November~~August 104, ~~2003~~2004	By:	/s/ Mark A. Ruelle
			Mark A. Ruelle, Vice President and Treasurer (Principal Financial and Accounting Officer)
			Mark A. Ruelle, Vice President and Treasurer

2523

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Filing Compare · KANSAS GAS & ELECTRIC CO /KS/