Fitch Rates Westar Energy's CP Program 'F2'; Affirms Westar's and KGE's Other Ratings; Outlook Stable

Fitch Ratings has assigned an 'F2' rating on Westar Energy, Inc.'s (Westar) $1 billion commercial paper program. In addition, Fitch has affirmed the long-term Issuer Default Rating (IDR) on Westar and its utility subsidiary Kansas Gas and Electric Company (KGE) at 'BBB'. A full list of rating actions is shown at the end of this release.

The Rating Outlook for both entities is Stable.

These rating actions affect $1.975 billion of first mortgage bonds, approximately $250 million of secured variable interest entity debt, $50 million of secured pollution control revenue bonds, and $21.4 million of preferred stock.

Key rating factors include the following strengths:

--A constructive regulatory environment in Kansas that has improved in recent years;
--Management's focus on core utility operations and transmission projects.

These strengths are tempered by the following concern:

--A moderately large capital spending program that includes a significant amount of required environmental upgrades at the utilities' coal-fired power plants.

Credit quality benefits from a constructive regulatory environment in Kansas, management's focus on core utility operations and transmission projects, and improving economic conditions.

Low Rates and Constructive Regulation:

Westar and KGE's low rates for customers should mitigate impediments to continued balanced general rate case (GRC) outcomes from the KCC. Fitch expects the utilities to receive reasonable recovery in the ongoing GRC, which would become effective in May 2012, at levels sufficient to maintain current credit metrics.

Cost Recovery Mechanisms:

The Kansas Corporation Commission (KCC) and the Federal Energy Regulatory Commission (FERC) allow Westar and KGE to use cost-recovery mechanisms for certain expenditures, which decreases regulatory lag and provides stability to the financial profile. Of particular importance are environmental and transmission capex cost-recovery riders, which are expected to cover roughly 23% and 22%, respectively, of consolidated capex during
2011 - 2013.

The KCC ruled against the ECRR being used for environmental capex over the next few years at the La Cygne Generating Station, due to it being jointly-owned by and solely operated by Kansas City Power & Light, a subsidiary of Great Plains Energy Inc. (not rated by Fitch). However, Westar and KGE would be able to file an abbreviated rate case up to 12 months following a GRC order, which could enable the utilities to wait as late as April 2013 to start recovering these environmental compliance costs. Fitch expects full recovery to be likely.

Other cost recovery mechanisms authorized by the KCC include a retail energy cost adjustment (RECA) and a pension and other post-employment benefits expense tracker.

Focus on Utility Operations:

Management remains focused on Westar and KGE's core utility operations and has taken efforts to strengthen the balance sheet. Generation, transmission, and environmental projects have been funded with a balanced mix of debt and equity, and the company's capital expenditure budget has been structured prudently and spread out over many years so as to not harm financial performance. In addition, the local economy has improved since the trough of the recession, as evidenced by a 6% increase in industrial sales during 2010.

Fitch expects Westar's consolidated financial metrics to remain adequate, supported by constructive regulatory cost recovery mechanisms and a stable operating environment. Fitch anticipates Westar's EBITDA interest coverage to average around 4.0 times (x) and its funds from operations (FFO) to debt around 18% over the next three years.

Ample Liquidity:

Westar and KGE have a solid liquidity position, and Westar's new commercial paper program should enable the utilities to access the short-term debt markets at attractive rates. The commercial paper is supported by a $730 million revolving credit facility that matures on Sept. 29, 2016 and a $270 million revolving credit facility that matures on Feb. 18, 2015.

Subject to lender participation, each of these revolving credit facilities can be extended up to two years and has an accordion feature that would allow for up to $400 million in aggregate of additional borrowing capacity. Ample availability under these facilities, along with the utilities' history of being able to access public equity and debt even during turbulent markets, should give Westar and KGE sufficient financial flexibility in carrying out their construction projects.

Rating Linkage Between Westar and KGE:

The credit ratings for Westar and KGE are the same, reflecting centralized operations and treasury functions and a consolidated capital structure used for ratemaking. Westar and KGE conduct business under the Westar Energy brand name and have functionally integrated utility operations. KGE relies on Westar for its short-term cash needs, and Westar's revolving credit facilities are collateralized by KGE's first mortgage bond indenture. Furthermore, no regulatory or corporate structures exist to restrict the migration of cash between the two entities.

Company Profile:

Westar is the largest electric utility company in Kansas, providing electric generation, transmission, and distribution services to approximately 687,000 customers in the state. Westar directly provides these services to 369,000 customers in central and northeastern Kansas. KGE, Westar's wholly owned utility subsidiary, provides these services to 318,000 customers in south-central and southeastern Kansas.

The company has approximately 6,900 megawatts in aggregate of electric generation capacity, fueled primarily by coal and natural gas, as well as by KGE's 47% interest in the Wolf Creek nuclear power plant located near Burlington, Kansas. Westar owns and operates 6,300 miles of electric transmission lines.

Fitch has withdrawn KGE's 'F2' commercial paper rating.

Fitch has affirmed the following ratings with a Stable Outlook:

Westar
--Long-term IDR at 'BBB';
--Senior secured debt at 'A-';
--Senior unsecured debt at 'BBB+';
--Preferred stock at 'BBB-';
--Short-term IDR and commercial paper at 'F2'.

KGE
--Long-term IDR at 'BBB';
--Senior secured debt at 'A-';
--Pollution control revenue bonds at 'A-';
--Short-term IDR at 'F2'.

Fitch has withdrawn the following ratings:

KGE
--Commercial paper 'F2'

Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 12, 2011);
--'Rating North American Utilities, Power, Gas, and Water Companies' (May 16, 2011).

Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229
Rating North American Utilities, Power, Gas, and Water Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=625129

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Contacts:

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Director
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New York, NY 10004
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Senior Director
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