10-K 1 gxp-12312016x10k.htm 10-K Document

 
 
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

or
  
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from _______to_______

 
 
Exact name of registrant as specified in its charter,
 
 
Commission
 
state of incorporation, address of principal
 
I.R.S. Employer
File Number
 
executive offices and telephone number
 
Identification Number
 
 
 
 
 
001-32206
 
GREAT PLAINS ENERGY INCORPORATED
 
43-1916803
 
 
(A Missouri Corporation)
 
 
 
 
1200 Main Street
 
 
 
 
Kansas City, Missouri  64105
 
 
 
 
(816) 556-2200
 
 
 
 
 
 
 
000-51873
 
KANSAS CITY POWER & LIGHT COMPANY
 
44-0308720
 
 
(A Missouri Corporation)
 
 
 
 
1200 Main Street
 
 
 
 
Kansas City, Missouri  64105
 
 
 
 
(816) 556-2200
 
 
Each of the following classes or series of securities registered pursuant to Section 12(b) of the Act is registered on the New York Stock Exchange:
 
 
 
 
 
 
 
Registrant
 
Title of each class
 
 
 
 
Great Plains Energy Incorporated
 
Common Stock, without par value
 
 
 
Depositary Shares Each Representing a 1/20th Interest in a Share of 7.00% Series B Mandatory Convertible Preferred Stock
 
 
 
 
 
 
 
 
 
 
 
Securities registered pursuant to Section 12(g) of the Act: Kansas City Power & Light Company Common Stock without par value.
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Great Plains Energy Incorporated
Yes
X
No
_
 
Kansas City Power & Light Company
Yes
_
No
X
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Great Plains Energy Incorporated
Yes
_
No
X
 
Kansas City Power & Light Company
Yes
_
No
X
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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.
Great Plains Energy Incorporated
Yes
X
No
_
 
Kansas City Power & Light Company
Yes
X
No
_
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Great Plains Energy Incorporated
Yes
X
No
_
 
Kansas City Power & Light Company
Yes
X
No
_
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K.
Great Plains Energy Incorporated
X
 
 
 
 
Kansas City Power & Light Company
X
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Great Plains Energy Incorporated
 
Large accelerated filer
X
Accelerated filer
_
 
 
 
 
 
 
Non-accelerated filer
_
Smaller reporting company
_
 
 
 
 
Kansas City Power & Light Company
 
Large accelerated filer
_
Accelerated filer
_
 
 
 
 
 
 
Non-accelerated filer
X
Smaller reporting company
_
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Great Plains Energy Incorporated
Yes
_
No
X
 
Kansas City Power & Light Company
Yes
_
No
X
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The aggregate market value of the voting and non-voting common equity held by non-affiliates of Great Plains Energy Incorporated (based on the closing price of its common stock on the New York Stock Exchange on June 30, 2016) was approximately $4,700,571,576. All of the common equity of Kansas City Power & Light Company is held by Great Plains Energy Incorporated, an affiliate of Kansas City Power & Light Company.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
On February 21, 2017, Great Plains Energy Incorporated had 215,384,601 shares of common stock outstanding. 
On February 21, 2017, Kansas City Power & Light Company had one share of common stock outstanding and held by Great Plains Energy Incorporated.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Kansas City Power & Light Company meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Documents Incorporated by Reference
Portions of the 2017 annual meeting proxy statement of Great Plains Energy Incorporated to be filed with the Securities and Exchange Commission are incorporated by reference in Part III of this report.





TABLE OF CONTENTS
 
 
Page
Number
 
 
 
 
 
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
 
 
 
 


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This combined annual report on Form 10-K is being filed by Great Plains Energy Incorporated (Great Plains Energy) and Kansas City Power & Light Company (KCP&L). KCP&L is a wholly owned subsidiary of Great Plains Energy and represents a significant portion of its assets, liabilities, revenues, expenses and operations. Thus, all information contained in this report relates to, and where required is filed by, Great Plains Energy. Information that is specifically identified in this report as relating solely to Great Plains Energy, such as its financial statements and all information relating to Great Plains Energy's other operations, businesses and subsidiaries, including KCP&L Greater Missouri Operations Company (GMO), does not relate to, and is not filed by, KCP&L. KCP&L makes no representation as to that information. Neither Great Plains Energy nor its other subsidiaries have any obligation in respect of KCP&L's debt securities and holders of such securities should not consider Great Plains Energy's or its other subsidiaries' financial resources or results of operations in making a decision with respect to KCP&L's debt securities. Similarly, KCP&L has no obligation in respect of securities of Great Plains Energy or its other subsidiaries.
CAUTIONARY STATEMENTS REGARDING CERTAIN FORWARD-LOOKING INFORMATION
Statements made in this report that are not based on historical facts are forward-looking, may involve risks and uncertainties, and are intended to be as of the date when made. Forward-looking statements include, but are not limited to, statements relating to Great Plains Energy's proposed acquisition of Westar Energy, Inc. (Westar), the outcome of regulatory proceedings, cost estimates of capital projects and other matters affecting future operations. In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Great Plains Energy and KCP&L are providing a number of important factors that could cause actual results to differ materially from the provided forward-looking information. These important factors include: future economic conditions in regional, national and international markets and their effects on sales, prices and costs; prices and availability of electricity in regional and national wholesale markets; market perception of the energy industry, Great Plains Energy and KCP&L; changes in business strategy, operations or development plans; the outcome of contract negotiations for goods and services; effects of current or proposed state and federal legislative and regulatory actions or developments, including, but not limited to, deregulation, re-regulation and restructuring of the electric utility industry; decisions of regulators regarding rates the Companies can charge for electricity; adverse changes in applicable laws, regulations, rules, principles or practices governing tax, accounting and environmental matters including, but not limited to, air and water quality; financial market conditions and performance including, but not limited to, changes in interest rates and credit spreads and in availability and cost of capital and the effects on derivatives and hedges, nuclear decommissioning trust and pension plan assets and costs; impairments of long-lived assets or goodwill; credit ratings; inflation rates; effectiveness of risk management policies and procedures and the ability of counterparties to satisfy their contractual commitments; impact of terrorist acts, including, but not limited to, cyber terrorism; ability to carry out marketing and sales plans; weather conditions including, but not limited to, weather-related damage and their effects on sales, prices and costs; cost, availability, quality and deliverability of fuel; the inherent uncertainties in estimating the effects of weather, economic conditions and other factors on customer consumption and financial results; ability to achieve generation goals and the occurrence and duration of planned and unplanned generation outages; delays in the anticipated in-service dates and cost increases of generation, transmission, distribution or other projects; Great Plains Energy's ability to successfully manage its transmission joint ventures or to integrate or restructure the transmission joint ventures of Westar; the inherent risks associated with the ownership and operation of a nuclear facility including, but not limited to, environmental, health, safety, regulatory and financial risks; workforce risks, including, but not limited to, increased costs of retirement, health care and other benefits; the ability of Great Plains Energy to obtain the regulatory approvals necessary to complete the anticipated acquisition of Westar and the terms of those approvals; the risk that a condition to the closing of the anticipated acquisition of Westar or the committed debt or equity financing may not be satisfied or that the anticipated acquisition may fail to close; the failure to obtain, or to obtain on favorable terms, any financings necessary to complete or permanently finance the anticipated acquisition of Westar and the costs of such financing; the outcome of any legal proceedings, regulatory proceedings or enforcement matters that may be instituted relating to the anticipated acquisition of Westar; the costs incurred to consummate the anticipated acquisition of Westar; the possibility that the expected value creation from the anticipated acquisition of Westar will not be realized, or will not be realized within the expected time period; the credit ratings of Great Plains Energy following the anticipated acquisition of Westar; disruption from the anticipated acquisition of Westar making it

3


more difficult to maintain relationships with customers, employees, regulators or suppliers and the diversion of management time and attention on the proposed transactions; and other risks and uncertainties.
This list of factors is not all-inclusive because it is not possible to predict all factors. Part I Item 1A Risk Factors included in this report should be carefully read for further understanding of potential risks for each of Great Plains Energy and KCP&L. Other sections of this report and other periodic reports filed by each of Great Plains Energy and KCP&L with the Securities and Exchange Commission (SEC) should also be read for more information regarding risk factors. Each forward-looking statement speaks only as of the date of the particular statement. Great Plains Energy and KCP&L undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.


4


GLOSSARY OF TERMS 
The following is a glossary of frequently used abbreviations or acronyms that are found throughout this report.
Abbreviation or Acronym
 
Definition
 
 
 
AEPTHC
 
AEP Transmission Holding Company, LLC, a wholly owned subsidiary of American Electric Power Company, Inc.
AFUDC
 
Allowance for Funds Used During Construction
ARO
 
Asset Retirement Obligation
ASU
 
Accounting Standards Update
CCRs
 
Coal combustion residuals
Clean Air Act
 
Clean Air Act Amendments of 1990
CO2
 
Carbon dioxide
Company
 
Great Plains Energy Incorporated and its consolidated subsidiaries
Companies
 
Great Plains Energy Incorporated and its consolidated subsidiaries and KCP&L and its consolidated subsidiaries
DOE
 
Department of Energy
EBITDA
 
Earnings before interest, income taxes, depreciation and amortization
ECA
 
Energy Cost Adjustment
EIRR
 
Environmental Improvement Revenue Refunding
EPA
 
Environmental Protection Agency
EPS
 
Earnings per common share
ERISA
 
Employee Retirement Income Security Act of 1974, as amended
FASB
 
Financial Accounting Standards Board
FERC
 
The Federal Energy Regulatory Commission
FCC
 
The Federal Communications Commission
FTC
 
Federal Trade Commission
GAAP
 
Generally Accepted Accounting Principles
GMO
 
KCP&L Greater Missouri Operations Company, a wholly owned subsidiary of Great Plains Energy
GPETHC
 
GPE Transmission Holding Company LLC, a wholly owned subsidiary of Great Plains Energy
Great Plains Energy
 
Great Plains Energy Incorporated and its consolidated subsidiaries
Great Plains Energy Board
 
Great Plains Energy Board of Directors
HSR
 
Hart-Scott-Rodino
KCC
 
The State Corporation Commission of the State of Kansas
KCP&L
 
Kansas City Power & Light Company, a wholly owned subsidiary of Great Plains Energy, and its consolidated subsidiaries
KCP&L Receivables Company
 
Kansas City Power & Light Receivables Company, a wholly owned subsidiary of KCP&L
kWh
 
Kilowatt hour
MD&A
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
MDNR
 
Missouri Department of Natural Resources
MECG
 
Midwest Energy Consumers Group
MEEIA
 
Missouri Energy Efficiency Investment Act

5


Abbreviation or Acronym
 
Definition
 
 
 
Merger Agreement
 
Agreement and Plan of Merger dated as of May 29, 2016, by and among Great Plains Energy, Westar and Merger Sub
Merger Sub
 
GP Star, Inc., a Kansas corporation that will be merged with and into Westar, pursuant to the Merger Agreement
MGP
 
Manufactured gas plant
MPS Merchant
 
MPS Merchant Services, Inc., a wholly owned subsidiary of GMO
MPSC
 
Public Service Commission of the State of Missouri
MW
 
Megawatt
MWh
 
Megawatt hour
NAV
 
Net Asset Value
NERC
 
North American Electric Reliability Corporation
NEIL
 
Nuclear Electric Insurance Limited
NOL
 
Net operating loss
NOx
 
Nitrogen oxide
NPNS
 
Normal purchases and normal sales
NRC
 
Nuclear Regulatory Commission
OCI
 
Other Comprehensive Income
OMERS
 
OCM Credit Portfolio LP
PRB
 
Powder River Basin
QCA
 
Quarterly Cost Adjustment
RCRA
 
Resource Conservation and Recovery Act
RESRAM
 
Renewable Energy Standard Rate Adjustment Mechanism
RTO
 
Regional Transmission Organization
SEC
 
Securities and Exchange Commission
SERP
 
Supplemental Executive Retirement Plan
SO2
 
Sulfur dioxide
SPP
 
Southwest Power Pool, Inc.
TCR
 
Transmission Congestion Right
TDC
 
Transmission Delivery Charge
Transource
 
Transource Energy, LLC and its subsidiaries, 13.5% owned by GPETHC
WCNOC
 
Wolf Creek Nuclear Operating Corporation
Westar
 
Westar Energy, Inc.
Westar Board
 
Westar Board of Directors
Wolf Creek
 
Wolf Creek Generating Station


6


PART I
ITEM 1. BUSINESS
General
Great Plains Energy Incorporated and Kansas City Power & Light Company are separate registrants filing this combined annual report on Form 10-K. The terms "Great Plains Energy," "Company," "KCP&L" and "Companies" are used throughout this report. "Great Plains Energy" and the "Company" refer to Great Plains Energy Incorporated and its consolidated subsidiaries, unless otherwise indicated. "KCP&L" refers to Kansas City Power & Light Company and its consolidated subsidiaries. "Companies" refers to Great Plains Energy Incorporated and its consolidated subsidiaries and KCP&L and its consolidated subsidiaries.
Information in other Items of this report as to which reference is made in this Item 1 is hereby incorporated by reference in this Item 1. The use of terms such as "see" or "refer to" shall be deemed to incorporate into this Item 1 the information to which such reference is made.
GREAT PLAINS ENERGY INCORPORATED
Great Plains Energy, a Missouri corporation incorporated in 2001 and headquartered in Kansas City, Missouri, is a public utility holding company and does not own or operate any significant assets other than the stock of its subsidiaries and cash and cash equivalents and a time deposit to be used to fund a portion of the cash consideration for the anticipated acquisition of Westar Energy, Inc. (Westar). Great Plains Energy's wholly owned direct subsidiaries with significant operations are as follows:
KCP&L is an integrated, regulated electric utility that provides electricity to customers primarily in the states of Missouri and Kansas. KCP&L has one active wholly owned subsidiary, Kansas City Power & Light Receivables Company (KCP&L Receivables Company).
GMO is an integrated, regulated electric utility that provides electricity to customers in the state of Missouri. GMO also provides regulated steam service to certain customers in the St. Joseph, Missouri area. GMO has two active wholly owned subsidiaries, GMO Receivables Company and MPS Merchant Services, Inc. (MPS Merchant).  MPS Merchant has certain long-term natural gas contracts remaining from its former non-regulated trading operations.
Great Plains Energy also wholly owns GPE Transmission Holding Company, LLC (GPETHC). GPETHC owns 13.5% of Transource Energy, LLC (Transource) with the remaining 86.5% owned by AEP Transmission Holding Company, LLC (AEPTHC), a subsidiary of American Electric Power Company, Inc. GPETHC accounts for its investment in Transource under the equity method. Transource is focused on the development of competitive electric transmission projects.
On May 29, 2016, Great Plains Energy entered into an Agreement and Plan of Merger (Merger Agreement) by and among Great Plains Energy, Westar, and, from and after its accession to the Merger Agreement, GP Star, Inc., a wholly owned subsidiary of Great Plains Energy in the State of Kansas (Merger Sub). Pursuant to the Merger Agreement, subject to the satisfaction or waiver of certain conditions, Merger Sub will merge with and into Westar, with Westar continuing as the surviving corporation. Upon closing, pursuant to the Merger Agreement, Great Plains Energy will acquire Westar for (i) $51.00 in cash and (ii) a number, rounded to the nearest 1/10,000 of a share, of shares of Great Plains Energy common stock, equal to an exchange ratio that may vary between 0.2709 and 0.3148, based upon the volume-weighted average price per share of Great Plains Energy common stock during a 20 consecutive full trading day period ending on (and including) the third trading day immediately prior to the closing date of the merger, for each share of Westar common stock issued and outstanding immediately prior to the effective time of the merger, with Westar becoming a wholly owned subsidiary of Great Plains Energy. See Note 2 to the consolidated financial statements for additional information concerning the anticipated acquisition of Westar.
Great Plains Energy's sole reportable business segment is electric utility. For information regarding the revenues, income and assets attributable to the electric utility business segment, see Note 23 to the consolidated financial

7


statements. Comparative financial information and discussion regarding the electric utility business segment can be found in Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A).
The electric utility segment consists of KCP&L, a regulated utility, GMO's regulated utility operations and GMO Receivables Company. Electric utility serves approximately 855,700 customers located in western Missouri and eastern Kansas. Customers include approximately 753,500 residences, 99,700 commercial firms and 2,500 industrials, municipalities and other electric utilities. Electric utility's retail revenues averaged approximately 91% of its total operating revenues over the last three years. Wholesale firm power, bulk power sales and miscellaneous electric revenues accounted for the remainder of electric utility's revenues. Electric utility is significantly impacted by seasonality with approximately one-third of its retail revenues recorded in the third quarter. Electric utility's total electric revenues were 100% of Great Plains Energy's revenues over the last three years. Electric utility's net income accounted for approximately 101%, 105% and 100% of Great Plains Energy's net income in 2016, 2015 and 2014, respectively.
Regulation
KCP&L and GMO are regulated by the Public Service Commission of the State of Missouri (MPSC) and KCP&L is also regulated by The State Corporation Commission of the State of Kansas (KCC) with respect to retail rates, certain accounting matters, standards of service and, in certain cases, the issuance of securities, certification of facilities and service territories. KCP&L and GMO are also subject to regulation by The Federal Energy Regulatory Commission (FERC) with respect to transmission, wholesale sales and rates, and other matters. KCP&L has a 47% ownership interest in Wolf Creek Generating Station (Wolf Creek), which is subject to regulation by the Nuclear Regulatory Commission (NRC) with respect to licensing, operations and safety-related requirements.
The table below summarizes the rate orders in effect for KCP&L's and GMO's retail rate jurisdictions.
 
Regulator
Allowed Return on Equity
Rate-Making Equity Ratio
Rate Base (in billions)
Effective Date
KCP&L Missouri
MPSC
9.5%
50.09%
$2.6
September 2015
KCP&L Kansas
KCC
9.3%
50.48%
$2.1
October 2015
GMO
MPSC
9.5% - 9.75%(a)
(a)
(a)
February 2017
(a) GMO's current rate order reflects a global settlement with an implied return on equity range of 9.5% - 9.75% and does not contain an agreed upon rate-making equity ratio or rate base.
Missouri and Kansas jurisdictional retail revenues averaged approximately 70% and 30%, respectively, of electric utility's total retail revenues over the last three years.
See Item 7 MD&A, Critical Accounting Policies section, and Note 6 to the consolidated financial statements for additional information concerning regulatory matters.
Competition
Missouri and Kansas continue on the fully integrated retail utility model. As a result, electric utility does not compete with others to supply and deliver electricity in its franchised service territory, although other sources of energy can provide alternatives to retail electric utility customers. If Missouri or Kansas were to pass and implement legislation authorizing or mandating retail choice, electric utility may no longer be able to apply regulated utility accounting principles to deregulated portions of its operations and may be required to write off certain regulatory assets and liabilities.
Electric utility competes in the wholesale market to sell power in circumstances when the power it generates is not required for customers in its service territory. This competition primarily occurs within the SPP Integrated Marketplace, in which KCP&L and GMO are participants. Similar to other Regional Transmission Organization (RTO) or Independent System Operator (ISO) markets currently operating, this marketplace determines which generating units among market participants should run, within the operating constraints of a unit, at any given time for maximum cost-effectiveness.

8


In this regard, electric utility competes with owners of other generating stations and other power suppliers, principally other utilities within the Southwest Power Pool, Inc. (SPP) Integrated Marketplace, on the basis of availability and price. Electric utility's wholesale revenues averaged approximately 7% of its total revenues over the last three years.
Power Supply
Electric utility has approximately 6,500 MWs of owned generating capacity and also purchases power to meet its customers' needs, to satisfy firm power commitments or to meet renewable energy standards. Electric utility's purchased power from others, as a percentage of MWh requirements, averaged approximately 24% over the last three years. Management believes electric utility will be able to obtain enough power to meet its future demands due to the coordination of planning and operations in the SPP region and existing power purchase agreements; however, price and availability of power purchases may be impacted during periods of high demand.
Electric utility's total capacity by fuel type, including both owned generating capacity and power purchase agreements, is detailed in the table below.
Fuel Type
Estimated 2017 MW Capacity
Percent of Total Capacity
Coal
3,474

46

%
Nuclear
549

7

 
Natural gas and oil
2,352

31

 
Wind (a)
1,089

15

 
Solar and hydroelectric (b)
65

1

 
Total capacity
7,529

100

%
(a) MWs are based on nameplate capacity of the wind facility. Includes owned generating capacity of 149 MWs and long-term power purchase agreements of approximately 940 MWs of wind generation which expire in 2032 through 2037. Power purchase agreements for approximately 300 MWs of wind generation to begin in late 2017 and expire in 2037 are not included in the table above.
(b) Includes a long-term power purchase agreement for approximately 60 MWs of hydroelectric generation which expires in 2023.
Electric utility's projected peak summer demand for 2017 is approximately 5,800 MWs. Electric utility expects to meet its projected capacity requirements for the foreseeable future with its generation assets and power and capacity purchases.
KCP&L and GMO are members of the SPP. The SPP is an RTO mandated by FERC to ensure reliable supply of power, adequate transmission infrastructure and competitive wholesale prices of electricity. As members of the SPP, KCP&L and GMO are required to maintain a capacity margin of at least 12%. This net positive supply of capacity and energy is maintained through their generation assets, capacity agreements, power purchase agreements and peak demand reduction programs. The capacity margin is designed to ensure the reliability of electric energy in the SPP region in the event of operational failure of power generating units utilized by the members of the SPP.

9


Fuel
The principal fuel sources for electric utility's owned generation are coal and nuclear fuel. It is expected, with normal weather, that approximately 97% of 2017 owned generation will come from these sources with the remainder provided by wind, natural gas and oil. The actual 2016 and estimated 2017 fuel mix and delivered cost in cents per net kilowatt hour (kWh) generated are outlined in the following table.
 
 
 
 
 
 
 
Fuel cost in cents per
 
Fuel Mix (a)
 
net kWh generated
 
Estimated
 
Actual
 
Estimated
Actual
Fuel
2017
 
2016
 
 
2017
 
2016
Coal
76

%
 
79
%
 
 
1.79

 
1.84

Nuclear
21

 
 
17
 
 
 
0.64

 
0.69

Natural gas and oil
<1

 
 
2
 
 
 
7.30

 
13.65

Wind
3

 
 
2
 
 
 

 

   Total owned generation
100

%
 
100
%
 
 
1.45

 
1.46

(a) Fuel mix based on percent of net MWhs generated.
Coal
During 2017, electric utility's generating units, including jointly owned units, are projected to burn approximately 12 million tons of coal. KCP&L and GMO have entered into coal-purchase contracts with various suppliers in Wyoming's Powder River Basin (PRB), the nation's principal supply region of low-sulfur coal, and with local suppliers. The coal to be provided under these contracts is expected to satisfy approximately 100% of the projected coal requirements for 2017 and approximately 48% for 2018. The remainder of the coal requirements is expected to be fulfilled through additional contracts or spot market purchases. KCP&L and GMO have entered into coal contracts over time at higher average prices affecting coal costs for 2017 and beyond.
KCP&L and GMO have also entered into rail transportation contracts with various railroads to transport coal from the PRB to their generating units. The transportation services to be provided under these contracts are expected to satisfy almost all of the projected transportation requirements for 2017 and approximately 39% for 2018. The contract rates adjust for changes in railroad costs.
Nuclear Fuel
KCP&L owns 47% of Wolf Creek Nuclear Operating Corporation (WCNOC), the operating company for Wolf Creek, which is electric utility's only nuclear generating unit. Wolf Creek purchases uranium and has it processed for use as fuel in its reactor. This process involves conversion of uranium concentrates to uranium hexafluoride, enrichment of uranium hexafluoride and fabrication of nuclear fuel assemblies. The owners of Wolf Creek have on hand or under contract all of the uranium and conversion services needed to operate Wolf Creek through March 2027. The owners also have under contract 97% of the uranium enrichment and all of the fabrication required to operate Wolf Creek through March 2027 and September 2025, respectively.
See Note 5 to the consolidated financial statements for additional information regarding nuclear plant.
Environmental Matters
See Note 15 to the consolidated financial statements for information regarding environmental matters.
KANSAS CITY POWER & LIGHT COMPANY
KCP&L, a Missouri corporation incorporated in 1922 and headquartered in Kansas City, Missouri, is an integrated, regulated electric utility that engages in the generation, transmission, distribution and sale of electricity. KCP&L serves approximately 534,400 customers located in western Missouri and eastern Kansas. Customers include

10


approximately 471,900 residences, 60,500 commercial firms, and 2,000 industrials, municipalities and other electric utilities. KCP&L's retail revenues averaged approximately 90% of its total operating revenues over the last three years. Wholesale firm power, bulk power sales and miscellaneous electric revenues accounted for the remainder of KCP&L's revenues. KCP&L is significantly impacted by seasonality with approximately one-third of its retail revenues recorded in the third quarter. Missouri and Kansas jurisdictional retail revenues averaged approximately 56% and 44%, respectively, of total retail revenues over the last three years.
Great Plains Energy and KCP&L Employees
At December 31, 2016, Great Plains Energy and KCP&L had 2,865 employees, including 1,750 represented by three local unions of the International Brotherhood of Electrical Workers (IBEW). KCP&L has labor agreements with Local 1613, representing clerical employees (expires March 31, 2018), with Local 1464, representing transmission and distribution workers (expires January 31, 2018), and with Local 412, representing power plant workers (expires February 28, 2018).
Executive Officers
All of the individuals in the following table have been officers or employees in the responsible positions with the Company noted below for the past five years unless otherwise indicated in the footnotes.  The executive officers were reappointed to the indicated positions by the respective boards of directors, effective January 1, 2017, to hold such positions until their resignation, removal or the appointment of their successors. There are no family relationships between any of the executive officers, nor any arrangement or understanding between any executive officer and any other person involved in officer selection.  Each executive officer holds the same position with GMO as he or she does with KCP&L.
Name
Age
Current Position(s)
Year First Assumed an Officer Position
Terry Bassham (a)
56
Chairman of the Board, President and Chief Executive Officer - Great Plains Energy and KCP&L
2005
Scott H. Heidtbrink (b)
55
Executive Vice President and Chief Operating Officer - KCP&L
2008
Kevin E. Bryant (c)
41
Senior Vice President - Finance and Strategy and Chief Financial Officer - Great Plains Energy and KCP&L
2006
Steven P. Busser (d)
48
Vice President - Risk Management and Controller - Great Plains Energy and KCP&L
2014
Charles A. Caisley (e)
44
Vice President - Marketing and Public Affairs - Great Plains Energy and KCP&L
2011
Ellen E. Fairchild (f) 
55
Vice President, Chief Compliance Officer and Corporate Secretary - Great Plains Energy and KCP&L
2010
Heather A. Humphrey (g) 
46
Senior Vice President - Corporate Services and General Counsel - Great Plains Energy and KCP&L
2010
Darrin R. Ives (h)
47
Vice President - Regulatory Affairs - KCP&L
2013
Lori A. Wright (i) 
54
Vice President - Corporate Planning, Investor Relations and Treasurer - Great Plains Energy and KCP&L
2002
(a) 
Mr. Bassham was appointed Chairman of the Board in May 2013 and has served as Chief Executive Officer of Great Plains Energy, KCP&L and GMO since 2012. He has served as President of each company since 2011. He previously served as President and Chief Operating Officer of Great Plains Energy, KCP&L and GMO (2011-2012) and as Executive Vice President - Utility Operations of KCP&L and GMO (2010-2011).  He was Executive Vice President - Finance and Strategic Development and Chief Financial Officer of Great Plains Energy (2005-2010) and of KCP&L and GMO (2009-2010).  

(b) 
Mr. Heidtbrink was appointed Executive Vice President and Chief Operating Officer of KCP&L and GMO in 2012. He previously served as Senior Vice President - Supply of KCP&L and GMO (2009-2012).  He was Senior Vice President - Corporate Services of KCP&L and GMO (2008), and Vice President - Power Generation & Energy Resources (2006-2008) of GMO.

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(c) 
Mr. Bryant was appointed Vice President - Finance and Strategy and Chief Financial Officer of Great Plains Energy, KCP&L and GMO in 2015. He previously served as Vice President - Strategic Planning of Great Plains Energy, KCP&L and GMO (2014). He served as Vice President - Investor Relations and Strategic Planning and Treasurer of Great Plains Energy, KCP&L and GMO (2013). He served as Vice President - Investor Relations and Treasurer of Great Plains Energy, KCP&L and GMO (2011-2013). He was Vice President - Strategy and Risk Management of KCP&L and GMO (2011) and Vice President - Energy Solutions (2006-2011) of KCP&L and GMO.

(d) 
Mr. Busser was appointed Vice President - Risk Management and Controller of Great Plains Energy, KCP&L and GMO in 2016. He previously served as Vice President - Business Planning and Controller of Great Plains Energy, KCP&L and GMO (2014-2016). He served as Vice President - Treasurer of El Paso Electric Company (2011-2014). Prior to that, he served as Vice President - Treasurer and Chief Risk Officer (2006-2011) and Vice President - Regulatory Affairs and Treasurer (2004-2006) of El Paso Electric Company.

(e) 
Mr. Caisley was appointed Vice President - Marketing and Public Affairs of Great Plains Energy, KCP&L and GMO in 2011. He was Senior Director of Public Affairs (2008-2011) and Director of Governmental Affairs of KCP&L (2007-2008).

(f) 
Ms. Fairchild was appointed Vice President, Chief Compliance Officer and Corporate Secretary of Great Plains Energy, KCP&L and GMO in 2010.  She was Senior Director of Investor Relations and Assistant Secretary (2010) and Director of Investor Relations (2008-2010) of Great Plains Energy, KCP&L and GMO.  

(g) 
Ms. Humphrey was appointed Senior Vice President - Corporate Services and General Counsel of Great Plains Energy, KCP&L and GMO in 2016. She previously served as General Counsel (2010-2016) and Senior Vice President - Human Resources of Great Plains Energy, KCP&L and GMO (2012-2016).  She served as Vice President - Human Resources of Great Plains Energy, KCP&L and GMO (2010-2012). She was Senior Director of Human Resources and Interim General Counsel of Great Plains Energy, KCP&L and GMO (2010) and Managing Attorney of KCP&L (2007-2010).

(h) 
Mr. Ives was appointed Vice President - Regulatory Affairs of KCP&L and GMO in 2013. He previously served as Senior Director - Regulatory Affairs of KCP&L and GMO (2011-2013). He was Assistant Controller of Great Plains Energy, KCP&L and GMO (2008 - 2011).

(i) 
Ms. Wright was appointed Vice President - Corporate Planning, Investor Relations and Treasurer of Great Plains Energy, KCP&L and GMO in 2016. She previously served as Vice President - Investor Relations and Treasurer of Great Plains Energy, KCP&L and GMO (2014-2016). She served as Vice President - Business Planning and Controller of Great Plains Energy, KCP&L and GMO (2009-2014).  She was Controller of Great Plains Energy and KCP&L (2002-2008) and GMO (2008).

Available Information
Great Plains Energy's website is www.greatplainsenergy.com and KCP&L's website is www.kcpl.com. Information contained on these websites is not incorporated herein. The Companies make available, free of charge, on or through their websites, their annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after the companies electronically file such material with, or furnish it to, the SEC. In addition, the Companies make available on or through their websites all other reports, notifications and certifications filed electronically with the SEC.
The public may read and copy any materials that the Companies file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. For information on the operation of the Public Reference Room, please call the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site at http://www.sec.gov that contains reports, proxy statements and other information regarding the Companies.
Investors should note that the Companies announce material financial information in SEC filings, press releases and public conference calls.  Based on guidance from the SEC, the Companies may use the Investor Relations section of Great Plains Energy's website (www.greatplainsenergy.com) to communicate with investors about Great Plains Energy and KCP&L.  It is possible that the financial and other information posted there could be deemed to be material information.  The information on Great Plains Energy's website is not part of this document.

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ITEM 1A. RISK FACTORS
Actual results in future periods for Great Plains Energy and KCP&L could differ materially from historical results and the forward-looking statements contained in this report.  The Companies' business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond their control.  Additional risks and uncertainties not presently known or that the Companies' management currently believes to be immaterial may also adversely affect the Companies.  This information, as well as the other information included in this report and in the other documents filed with the SEC, should be carefully considered before making an investment in the securities of Great Plains Energy or KCP&L.  Risk factors of KCP&L are also risk factors of Great Plains Energy.
Risks Relating to the Anticipated Acquisition of Westar:
The ability of Great Plains Energy and Westar to complete the merger is subject to various closing conditions, including the receipt of consents and approvals from governmental authorities, which may impose conditions that could adversely affect Great Plains Energy or cause the merger to be abandoned.
To complete the merger, each of Great Plains Energy and Westar must make certain filings with and obtain certain consents and approvals from various governmental and regulatory authorities.

Great Plains Energy and Westar have not yet obtained all of the regulatory consents and approvals required to complete the merger. Governmental or regulatory agencies could seek to block or challenge the merger or could impose restrictions they deem necessary or desirable in the public interest as a condition to approving the merger. Great Plains Energy and Westar will be unable to complete the merger until the necessary consents and approvals are received from FERC, the NRC, KCC, and the MPSC (collectively referred to as the required governmental approvals). The Merger Agreement may require Great Plains Energy and/or Westar to accept conditions from these regulators that could adversely impact the combined company. If the required governmental approvals are not received, or they are not received on terms that satisfy the conditions set forth in the Merger Agreement, then neither Great Plains Energy nor Westar will be obligated to complete the merger.

In addition, governmental authorities could seek to block or challenge the merger, including after closing, as they deem necessary or desirable in the public interest. In some jurisdictions, a private party could initiate an action under the antitrust laws challenging or seeking to enjoin the merger, before or after it is completed. Great Plains Energy or Westar may not prevail and may incur significant costs in defending or settling any action under the antitrust laws.

FERC Commissioner Norman Bay's resignation, effective February 3, 2017, left FERC with two sitting commissioners and the inability to convene a quorum. Without a quorum, FERC cannot issue certain orders on contested cases, including Great Plains Energy's and Westar's merger application. If a replacement commissioner is not appointed and confirmed in a timely fashion, the closing of the merger could be delayed until such time that a replacement commissioner is approved by the Senate.

The September 2016 special meetings at which the Great Plains Energy shareholders and the Westar shareholders approved the transactions contemplated by the Merger Agreement have taken place before all required approvals have been obtained and, in certain cases, before the terms of any conditions to obtain such required approvals are known. As a result, Great Plains Energy and Westar may make decisions after the special meetings to waive a condition or approve certain actions required to obtain necessary approvals without seeking further shareholder approval. Such actions could have an adverse effect on the combined company.

In addition, the Merger Agreement contains other customary conditions to the closing of the merger, each of which must be satisfied or waived in order to complete the merger.

If Great Plains Energy and Westar are unable to complete the merger, Great Plains Energy would be subject to a number of risks, including the following:


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Great Plains Energy would not realize the anticipated benefits of the merger, including, among other things, increased operating efficiencies and future cost savings;
the attention of management of Great Plains Energy may have been diverted to the merger rather than to its own operations and the pursuit of other opportunities that could have been beneficial to the Company;
the potential loss of key personnel during the pendency of the merger as employees may experience uncertainty about their future roles with the combined company; and
the trading price of Great Plains Energy common stock may decline to the extent that the current market prices reflect a market assumption that the merger will be completed.
Great Plains Energy will be required to pay Westar a termination fee of $380 million if the Merger Agreement is terminated due to a failure to receive the required governmental approvals or a failure to receive them on terms and conditions that would not result in a material adverse effect on Great Plains Energy and its subsidiaries, after giving effect to the merger.

We can provide no assurance that the various closing conditions will be satisfied and that the required governmental approvals will be obtained, or that any required conditions will not materially adversely affect the combined company following the merger. In addition, we can provide no assurance that these conditions will not result in the abandonment or delay of the merger. The occurrence of any of these events individually or in combination could have a material adverse effect on Great Plains Energy's results of operations and the trading price of Great Plains Energy common stock.

The Merger Agreement contains provisions that limit Great Plains Energy's or Westar's ability to pursue alternatives to the merger, could discourage a potential competing acquirer of either Great Plains Energy or Westar from making a favorable alternative transaction proposal and, in certain circumstances, could require Westar or Great Plains Energy to pay a termination fee to the other party.
Under the Merger Agreement, Westar and Great Plains Energy each are restricted from entering into alternative merger or acquisition transactions. Unless and until the Merger Agreement is terminated, subject to specified exceptions, each party is restricted from soliciting, initiating or knowingly encouraging, inducing or facilitating, or participating in any discussions or negotiations with any person regarding, or cooperating in any way with any person with respect to, any alternative proposal or any inquiry or proposal that would reasonably be expected to lead to an alternative proposal. Under certain circumstances either Westar or Great Plains Energy may be required to pay a termination fee to the other if they were to enter into an alternative transaction within twelve months of a termination of the Merger Agreement. These provisions could discourage a third party that may have an interest in acquiring all or a significant part of Westar or Great Plains Energy from considering or proposing that acquisition, including under circumstances in which the Merger Agreement would be terminated on a separate basis, even if such third party were prepared to pay consideration with a higher per share cash or market value than the market value proposed to be received or realized in the merger. As a result of these restrictions, neither Westar nor Great Plains Energy may be able to enter into an agreement with respect to a more favorable alternative transaction without incurring potentially significant liability to the other.

Great Plains Energy and Westar will be subject to various uncertainties while the merger is pending that may cause disruption and may make it more difficult to maintain relationships with employees, suppliers, or customers.
Uncertainty about the effect of the merger on employees, suppliers and customers may have an adverse effect on Great Plains Energy and Westar. Although Great Plains Energy and Westar intend to take steps designed to reduce any adverse effects, these uncertainties may impair the ability of Great Plains Energy or Westar to attract, retain and motivate key personnel until the merger is completed and for a period of time thereafter, and could cause customers, suppliers and others that deal with Great Plains Energy or Westar to seek to change or terminate existing business relationships with Great Plains Energy or Westar or not enter into new relationships or transactions.


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Employee retention and recruitment may be particularly challenging prior to the completion of the merger, as employees and prospective employees may experience uncertainty about their future roles with the combined company. If, despite Great Plains Energy's and Westar's retention and recruiting efforts, key employees depart or fail to continue employment with either company because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the combined company, Great Plains Energy's and/or Westar's financial results could be adversely affected. Furthermore, the combined company's operational and financial performance following the merger could be adversely affected if it is unable to retain key employees and skilled workers of Great Plains Energy and Westar. The loss of the services of key employees and skilled workers and their experience and knowledge regarding Great Plains Energy's and Westar's businesses could adversely affect the combined company's future operating results and the successful ongoing operation of its businesses.
Failure to successfully combine the businesses of Great Plains Energy and Westar in the expected time frame may adversely affect the future results of the combined company, and, consequently, the value of Great Plains Energy common stock.
The success of the merger will depend, in part, on the ability of Great Plains Energy to realize the anticipated benefits and efficiencies from combining the businesses of Great Plains Energy and Westar. To realize these anticipated benefits, the businesses must be successfully combined. If the combined company is not able to achieve these objectives, or is not able to achieve these objectives on a timely basis, the anticipated benefits of the transactions may not be realized fully or at all. In addition, the actual integration may result in additional and unforeseen expenses, which could reduce the anticipated benefits of the merger. These integration difficulties could result in a decline in the market value of Great Plains Energy common stock.

Failure to complete the merger, or significant delays in completing the merger, could negatively affect the trading prices of Great Plains Energy common stock and the future business and financial results of Great Plains Energy.
Completion of the merger is not assured and is subject to risks, including the risk that approval of the merger by governmental agencies is not obtained or that other closing conditions are not satisfied. If the merger is not completed, or if there are significant delays in completing the merger, it could negatively affect the trading price of Great Plains Energy common stock and the future business and financial results of Great Plains Energy. Great Plains Energy also will be subject to several risks, including the following:

Great Plains Energy may be liable for damages to Westar under the terms and conditions of the Merger Agreement;
negative reactions from the financial markets, including declines in the price of Great Plains Energy common stock due to the fact that current prices may reflect a market assumption that the merger will be completed;
having to pay certain significant costs relating to the merger, including, in certain circumstances, a termination fee; and
the attention of Great Plains Energy will have been diverted to the merger rather than Great Plains Energy's own operations and pursuit of other opportunities that could have been beneficial to Great Plains Energy.
Each of Great Plains Energy and Westar will incur significant transaction and merger-related costs in connection with the merger.
Great Plains Energy and Westar have incurred, and expect to continue to incur, costs associated with combining the operations of the two companies, as well as transaction fees and other costs related to the merger. Additional unanticipated costs may be incurred in the integration of the businesses of Great Plains Energy and Westar. Although Great Plains Energy and Westar expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may offset incremental transaction, merger-related and restructuring costs over time, any net benefit may not be achieved in the near term, or at all.


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Great Plains Energy may be unable to obtain the anticipated combination of financing or the necessary amount of financing to pay the cash portion of the merger consideration.
Great Plains Energy intends to finance the cash portion of the merger consideration with a combination of cash on hand and the proceeds from the issuance of a combination of common stock, mandatory convertible preferred stock and debt securities. In October 2016, Great Plains Energy completed registered public offerings of 60.5 million shares of common stock for total net proceeds of $1.55 billion and 17.3 million depositary shares each representing a 1/20th interest in a share of Great Plains Energy's 7.00% Series B Mandatory Convertible Preferred Stock (Series B Preferred Stock) for total net proceeds of $836.2 million.

To the extent the proceeds from Great Plains Energy's remaining expected securities issuances are not available on or before the closing date of the merger, or are in insufficient amounts, Great Plains Energy may use borrowings under its bridge term loan facility to fund the remaining portion of the cash consideration for the merger. However, the availability of funds under the bridge term loan facility is subject to certain conditions including, among others, the absence of a material adverse effect with respect to Westar and its subsidiaries, taken as a whole, the accuracy of certain representations and warranties and the absence of certain defaults with respect to indebtedness of Great Plains Energy and its subsidiaries.

If Great Plains Energy is required to obtain more debt financing than anticipated, whether through the issuance of debt securities or borrowings under the bridge term loan facility, the required regulatory approvals to complete the merger may be more difficult to obtain and the combined company's credit ratings and ability to service its debt could be adversely affected.

Current Great Plains Energy shareholders will have a reduced ownership and voting interest after the merger and will exercise less influence over management of the combined company.
Great Plains Energy has already issued approximately 60.5 million shares of common stock in order to raise proceeds to fund a portion of the cash consideration for the merger. Furthermore, Great Plains Energy issued in October 2016 and also expects to issue at the time of the merger, shares of mandatorily convertible preferred stock, which shall ultimately convert into common stock. In connection with the completion of the merger, Great Plains Energy will also issue up to approximately 45 million shares of Great Plains Energy common stock to Westar shareholders in connection with the transactions contemplated by the merger agreement.

Great Plains Energy shareholders currently have the right to vote for the Company's board of directors and on other matters affecting Great Plains Energy. When the merger occurs, each Westar shareholder that receives shares of Great Plains Energy common stock will become a shareholder of Great Plains Energy with a percentage ownership of the combined company that is significantly smaller than the shareholder's percentage ownership in Westar. Correspondingly, each Great Plains Energy shareholder will remain a shareholder of Great Plains Energy with a percentage ownership of the combined company that is smaller than the shareholder's percentage ownership of Great Plains Energy prior to the merger.

As a result of these securities issuances and reduced ownership percentages, current Great Plains Energy shareholders will have less influence on the management and policies of the combined company than they now have with respect to Great Plains Energy.

The market price of Great Plains Energy common stock after the merger may be affected by factors different from those affecting the shares of Great Plains Energy or Westar currently.
Upon completion of the merger, the businesses of the combined company will differ from those of Great Plains Energy and Westar prior to the merger in important respects and, accordingly, the results of operations of the combined company and the market price of Great Plains Energy's shares of common stock following the merger may be affected by factors different from those currently affecting the independent results of operations of Great Plains Energy and Westar.


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There are risks associated with the mandatory convertible preferred stock Great Plains Energy expects to issue pursuant to its stock purchase agreement with OMERS to finance a portion of the merger consideration.
In connection with the Merger Agreement, Great Plains Energy entered into a stock purchase agreement with OCM Credit Portfolio LP (OMERS) pursuant to which Great Plains Energy will issue and sell to OMERS $750 million of 7.25% Mandatory Convertible Preferred Stock, Series A (Series A Preferred Stock) upon the consummation of the merger. Upon entering into the stock purchase agreement, Great Plains Energy paid OMERS $15 million, which is not refundable in the event the merger is not consummated. The terms of the Series A Preferred Stock will provide that if Great Plains Energy misses two quarterly dividend payments, Great Plains Energy would be required to appoint two representatives designated by OMERS to the Great Plains Energy Board. In addition, OMERS' non-U.S. based ownership could potentially complicate obtaining the required regulatory approvals for the merger.

The combined company's indebtedness following the merger will be greater than Great Plains Energy's existing indebtedness. As a result, it may be more difficult for the combined company to pay or refinance its debts or take other actions, and the combined company may need to divert its cash flow from operations to debt service payments.
In connection with the merger, Great Plains Energy will incur additional debt to pay the cash portion of the merger consideration and transaction expenses and the indebtedness of the combined company will include Westar's outstanding debt. The combined company's debt service obligations with respect to this increased indebtedness could have an adverse impact on its earnings and cash flows, which after the merger would include the earnings and cash flows of Westar, for as long as the indebtedness is outstanding.

The combined company's increased indebtedness could also have important consequences to holders of Great Plains Energy securities. For example, it could:

make it more difficult for the combined company to pay or refinance its debts as they become due during adverse economic and industry conditions because any decrease in revenues could cause the combined company to not have sufficient cash flows from operations to make its scheduled debt payments;
limit the combined company's flexibility to pursue other strategic opportunities or react to changes in its business and the industry in which it operates and, consequently, place the combined company at a competitive disadvantage to its competitors with less debt;
require a substantial portion of the combined company's cash flows from operations to be used for debt service payments, thereby reducing the availability of its cash flow to fund working capital, capital expenditures, acquisitions, dividend payments and other general corporate purposes;
result in a downgrade in the rating of the combined company's indebtedness, which could limit its ability to borrow additional funds or increase the interest rates applicable to its indebtedness (after the announcement of the merger, Moody's Investors Service placed its long-term ratings of Great Plains Energy on review for downgrade and Standard & Poor's Ratings Services revised the outlook of Great Plains Energy, KCP&L and GMO from stable to negative);
result in higher interest expense in the event of increases in interest rates since some of Great Plains Energy's borrowings are, and will continue to be, at variable rates of interest; or
require that additional terms, conditions or covenants be placed on Great Plains Energy.
Based upon current levels of operations, Great Plains Energy expects to be able to generate sufficient cash on a consolidated basis to make all of the principal and interest payments when such payments are due under Great Plains Energy's and its current subsidiaries' existing credit facilities, indentures and other instruments governing their outstanding indebtedness, and under the indebtedness of Westar and its subsidiaries that may remain outstanding after the merger; but there can be no assurance that the combined company will be able to repay or refinance such borrowings and obligations.


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Great Plains Energy is committed to maintaining its credit ratings. In order to maintain these credit ratings, Great Plains Energy may consider it appropriate to reduce the amount of indebtedness outstanding following the merger. This may be accomplished in several ways, including issuing additional shares of common stock or securities convertible into shares of common stock, reducing discretionary uses of cash or a combination of these and other measures. Issuances of additional shares of common stock or securities convertible into shares of common stock would have the effect of diluting the ownership percentage that current Great Plains Energy shareholders and former Westar shareholders hold in the combined company and might reduce the reported earnings per share. Any potential issuances could be adversely impacted by movements in the overall equity markets or the utility sector of the market and ultimately impact any offering price. The specific measures that Great Plains Energy may ultimately decide to use to maintain or improve its credit ratings and their timing will depend upon a number of factors, including market conditions and forecasts at the time those decisions are made.

The combined company will record goodwill that could become impaired and adversely affect the combined company's operating results.
The merger will be accounted for as an acquisition by Great Plains Energy in accordance with Generally Accepted Accounting Principles (GAAP). Under the acquisition method of accounting, the assets and liabilities of Westar will be recorded, as of completion, at their respective fair values and added to those of Great Plains Energy. The reported financial condition and results of operations of Great Plains Energy issued after completion of the merger will reflect Westar balances and results after completion of the merger, but will not be restated retroactively to reflect the historical financial position or results of operations of Westar for periods prior to the merger.

Under the acquisition method of accounting, the total purchase price will be allocated to Westar's tangible assets and liabilities and identifiable intangible assets based on their fair values as of the date of completion of the merger. The fair value of Westar's tangible and intangible assets and liabilities subject to the rate setting practices of their regulators approximate their carrying values. The excess of the purchase price over those fair values will be recorded as goodwill. Great Plains Energy expects that the merger will result in the creation of goodwill based upon the application of the acquisition method of accounting. To the extent the value of goodwill or intangibles becomes impaired, the combined company may be required to incur material charges relating to such impairment. Such a potential impairment charge could have a material impact on the combined company's operating results.

The anticipated benefits of combining Great Plains Energy and Westar may not be realized.
Great Plains Energy and Westar entered into the Merger Agreement with the expectation that the merger would result in various benefits, including, among other things, increased operating efficiencies. Although Great Plains Energy and Westar expect to achieve the anticipated benefits of the merger, achieving them is subject to a number of uncertainties, including:

whether United States federal and state public utility, antitrust and other regulatory authorities whose approval is required to complete the merger impose conditions on the merger, which may have an adverse effect on the combined company, including its ability to achieve the anticipated benefits of the merger;
the ability of the two companies to combine certain of their operations or take advantage of expected growth opportunities;
general market and economic conditions;
general competitive factors in the marketplace; and
higher than expected costs required to achieve the anticipated benefits of the merger.
No assurance can be given that these benefits will be achieved or, if achieved, the timing of their achievement. Failure to achieve these anticipated benefits could result in increased costs and decreases in the amount of expected revenues or net income of the combined company.


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The merger may not be accretive to earnings and may cause dilution to Great Plains Energy's earnings per share, which may negatively affect the market price of Great Plains Energy common stock.
Great Plains Energy currently anticipates that the merger will be neutral to Great Plains Energy's forecasted earnings per share on a stand-alone basis in the first full calendar year after closing increasing to approximately a 10 percent accretion in the third full calendar year after closing. This expectation is based on preliminary estimates, which may materially change. Great Plains Energy may encounter additional transaction and integration-related costs, may fail to realize all of the benefits anticipated in the merger or be subject to other factors that affect preliminary estimates or its ability to realize operational efficiencies. Any of these factors could cause a decrease in Great Plains Energy's earnings per share or decrease or delay the expected accretive effect of the merger and contribute to a decrease in the price of Great Plains Energy's common stock.

The merger will combine two companies that are currently affected by developments in the electric utility industry, including changes in regulation and increased competition. A failure to adapt to the changing regulatory environment after the merger could adversely affect the stability of the combined company's earnings and could result in the erosion of its market positions, revenues and profits.
Because Great Plains Energy, Westar and their respective subsidiaries are regulated in the U.S. at the federal level and in several states, the two companies have been and will continue to be affected by legislative and regulatory developments. After the merger, the combined company and/or its subsidiaries will be subject in the U.S. to extensive federal regulation as well as to state regulation in Missouri and Kansas. Each of these jurisdictions has implemented, is in the process of implementing or possibly will implement changes to the regulatory and legislative framework applicable to the electric utility industry. These changes could have a material adverse effect on the combined company.

The costs and burdens associated with complying with these regulatory jurisdictions may have a material adverse effect on the combined company. Moreover, potential legislative changes, regulatory changes or otherwise may create greater risks to the stability of utility earnings generally. If the combined company is not responsive to these changes, it could suffer erosion in market position, revenues and profits as competitors gain access to the service territories of its utility subsidiaries.

The market value of Great Plains Energy common stock could decline if large amounts of its common stock are sold in anticipation of or following the merger.
Following the merger, shareholders of Great Plains Energy and former shareholders of Westar will own interests in a combined company operating an expanded business with more assets and a different mix of liabilities. Current shareholders of Great Plains Energy and Westar may not wish to continue to invest in the combined company, or may wish to reduce their investment in the combined company, in order to comply with institutional investing guidelines, to increase diversification or to track any rebalancing of stock indices in which Great Plains Energy or Westar common stock is or was included. If, before or following the merger, large amounts of Great Plains Energy common stock are sold, the price of its common stock could decline.
Utility Regulatory Risks:
Complex utility regulation could adversely affect the Companies' results of operations, financial position and cash flows.
The Companies are subject to, or affected by, extensive federal and state utility regulation, including regulation by the MPSC, KCC, FERC, NRC, North American Electric Reliability Corporation (NERC) and SPP.  The Companies must address in their business planning and management of operations the effects of existing and proposed laws and regulations and potential changes in the regulatory framework, including initiatives by federal and state legislatures, RTOs, utility regulators and taxing authorities.  Failure of the Companies to obtain adequate rates or regulatory approvals in a timely manner, new or changed laws, regulations, standards, interpretations or other legal requirements, deterioration of the Companies' relationship with regulators and increased compliance costs and potential non-compliance consequences may materially affect the Companies' results of operations, financial position and cash flows.  Additionally, regulators may impose burdensome restrictions and conditions on the

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Companies' transactions and ventures, rendering them less attractive from a financial or operational perspective. Certain of these risks are addressed in greater detail below.
The outcome of retail rate proceedings could have a material impact on the business and is largely outside the Companies' control.
The rates that KCP&L and GMO are allowed to charge their customers significantly influence the Companies' results of operations, financial position and cash flows.  These rates are subject to the determination, in large part, of governmental entities outside of the Companies' control, including the MPSC, KCC and FERC.  
The utility rate-setting principle generally applicable to KCP&L and GMO is that rates should provide a reasonable opportunity to recover expenses and investments prudently incurred to provide utility service plus a reasonable return on such investments.  Various expenses incurred by KCP&L and GMO have been excluded from rates by the MPSC and KCC in past rate cases as not being prudently incurred or not providing utility customer benefit, and there is a risk that certain expenses incurred in the future may not be recovered in rates. Third-parties often intervene in the utilities' rate cases and argue that certain costs have not been prudently incurred or are otherwise not recoverable in rates.  The MPSC and KCC also have in the past and may in the future exclude from rates all or a portion of investments in various facilities as not being prudently incurred or not being useful in providing utility service.  
As discussed in the "Environmental Risks" and "Financial Risks" sections below, the Companies' capital expenditures are expected to be substantial over the next several years and there is a risk that a portion of the capital costs could be excluded from rates in future rate cases.
The Companies are also exposed to cost-recovery shortfalls due to the inherent "regulatory lag" in the rate-setting process, especially during periods of significant cost inflation or declining retail usage, as KCP&L's and GMO's utility rates are generally based on historical information and are not subject to adjustment between rate cases, other than principally for fuel, purchased power, transmission and property taxes for KCP&L in Kansas; fuel, purchased power, certain transmission costs and demand-side investments for KCP&L in Missouri; and fuel, purchased power, certain transmission costs, demand-side investments and renewable energy (solar rebates) for GMO.  These and other factors may result in under-recovery of costs, failure to earn the authorized return on investment, or both.
Failure to timely recover the full investment costs of capital projects, the impact of renewable energy and energy efficiency programs, other utility costs and expenses due to regulatory disallowances, regulatory lag or other factors could lead to lowered credit ratings, reduced access to capital markets, increased financing costs, lower flexibility due to constrained financial resources and increased collateral security requirements, or reductions or delays in planned capital expenditures.  In response to competitive, economic, political, legislative, public perception (including, but not limited to, the Companies' environmental reputation) and regulatory pressures, the Companies may be subject to rate moratoriums, rate refunds, limits on rate increases, lower allowed returns on investments or rate reductions, including phase-in plans designed to spread the impact of rate increases over an extended period of time for the benefit of customers.  
Regulatory requirements regarding utility operations may increase costs and may expose the Companies to compliance penalties or adverse rate consequences.
The FERC, NERC and SPP have implemented and enforce an extensive set of transmission system reliability, cybersecurity and critical infrastructure protection standards that apply to public utilities, including KCP&L and GMO.  The MPSC and KCC have the authority to implement utility operational standards and requirements, such as vegetation management standards, facilities inspection requirements and quality of service standards.  In addition, the Companies are also subject to health, safety and other requirements enacted by the Occupational Safety and Health Administration, the Department of Transportation, the Department of Labor and other federal and state agencies.  As discussed more fully under "Operational Risks," the NRC extensively regulates nuclear power plants, including Wolf Creek. The costs of existing, new or modified regulations, standards and other requirements could have an adverse

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effect on the Companies' results of operations, financial position and cash flows as a result of increased operations or maintenance and capital expenditures for new facilities or to repair or improve existing facilities.  In addition, failure to meet quality of service, reliability, cybersecurity, critical infrastructure protection, operational or other standards and requirements could expose the Companies to penalties, additional compliance costs, or adverse rate consequences.
Tax Reform Risk:

Changes in federal income tax policy could negatively impact the Companies.
The Companies are impacted by the U.S. federal income tax policy, including corporate income tax laws. Both the new federal administration and the Republicans in the House of Representatives have made public statements in support of comprehensive tax reform, including significant changes in the U.S. corporate income tax laws. These proposed changes include, among other things, a reduction in the corporate income tax rate, the immediate deductibility of 100% of capital expenditures, and the elimination of the interest expense deduction. The Companies are currently unable to predict whether these reform discussions will result in any significant changes to existing tax laws, or if any such changes would have a cumulative positive or negative impact on the Companies. However, it is possible that changes in the U.S. federal income tax laws could have a material adverse effect on the Companies' results of operations, financial position and cash flows.
Environmental Risks:
The Companies are subject to current and potential environmental requirements and the incurrence of environmental liabilities, any or all of which may adversely affect their business and financial results.
The Companies are subject to extensive federal, state and local environmental laws, regulations and permit requirements relating to air and water quality, waste management and disposal, natural resources and health and safety.  In addition to imposing continuing compliance obligations and remediation costs for historical and pre-existing conditions, these laws, regulations and permits authorize the imposition of substantial penalties for noncompliance, including fines, injunctive relief and other sanctions.  There is also a risk that new environmental laws and regulations, new administrative or judicial interpretations of environmental laws and regulations, or the requirements in new or renewed environmental permits could adversely affect the Companies' operations.  In addition, there is also a risk of lawsuits brought by third parties alleging violations of environmental commitments or requirements, claiming creation of a public nuisance or other matters, and seeking injunctions or monetary damages or other damages. Certain federal courts have held that state and local governments and private parties have standing to bring climate change tort suits seeking company-specific emission reductions and damages.
Environmental permits are subject to periodic renewal, which may result in more stringent permit conditions and limits.  New facilities, or modifications of existing facilities, may require new environmental permits or amendments to existing permits.  Delays in the environmental permitting process, public opposition and challenges, denials of permit applications, limits or conditions imposed in permits and the associated uncertainty may materially adversely affect the cost and timing of projects, and thus materially adversely affect the Companies' results of operations, financial position and cash flows.
KCP&L and GMO periodically seek recovery of capital costs and expenses for environmental compliance and remediation through rate increases; however, there can be no assurance that recovery of these costs would be granted.  KCP&L and GMO may be subject to material adverse rate treatment in response to competitive, economic, political, legislative or regulatory pressures and/or public perception of the Companies' environmental reputation. The costs of compliance or noncompliance with environmental requirements, remediation costs, adverse outcomes of lawsuits, or failure to timely recover environmental costs could have a material adverse effect on the Companies' results of operations, financial position and cash flows.  Certain of these matters are discussed in more detail below.  See Note 15 to the consolidated financial statements for additional information regarding certain significant environmental matters and Great Plains Energy's and KCP&L's current estimates of capital expenditures to comply with environmental regulations.

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Air and Climate Change
The Companies' current generation capacity is primarily coal-fired, and is estimated to produce about one ton of carbon dioxide (CO2) per MWh, or approximately 19 million tons and 15 million tons of CO2 per year for Great Plains Energy and KCP&L, respectively. Management believes it is possible that additional federal or relevant state or local laws or regulations could be enacted to address global climate change.  At the international level, in December 2015 the Paris Agreement was adopted by nearly 200 countries and became effective in November 2016 as the threshold of at least 55 countries representing at least 55% of global greenhouse gas emissions have joined it through ratification. The Paris Agreement does not result in any new, legally binding obligations on the United States to meet a particular greenhouse gas emissions target, but establishes a framework for international cooperation on climate change.  Other international agreements legally binding on the United States may be reached in the future.  Such new laws, regulations or treaties could mandate new or increased requirements to control or reduce the emission of greenhouse gases, such as CO2, which are created in the combustion of fossil fuels.  These requirements could include, among other things, taxes or fees on fossil fuels or emissions, cap and trade programs, emission limits and clean or renewable energy standards.  
The Environmental Protection Agency (EPA) has enacted various regulations regarding the reporting and permitting of greenhouse gases and has proposed other regulations under the existing Clean Air Act.  The EPA has established thresholds for greenhouse gas emissions, defining when Clean Air Act permits under the New Source Performance Standards, New Source Review and Title V operating permits programs would be required for new or existing industrial facilities and when the installation of best available control technology would be required.   In August 2015, the EPA finalized its Clean Power Plan which sets CO2 emission performance rates for existing affected fossil fuel-fired electric generating units.  Specifically, the EPA translated those performance rates into a state goal measured in mass and rate based on each state’s generation mix.  The states have the ability to develop their own plans for affected units to achieve either the performance rates directly or the state goals, with guidelines for the development, submittal and implementation of those plans.  In February 2016, the U.S. Supreme Court granted a stay of the Clean Power Plan putting the rule on hold pending review in the United States Court of Appeals for the District of Columbia Circuit and any subsequent review by the U.S. Supreme Court if such review is sought.  Compliance with the Clean Power Plan has the potential of having significant financial and operational impacts on Great Plains Energy and KCP&L; however, the ultimate financial and operational consequences to Great Plains Energy and KCP&L cannot be determined until the outcome of pending litigation is known and/or the state plans to implement the Clean Power Plan are known. Additional federal and/or state legislation or regulation respecting greenhouse gas emissions may be proposed or enacted in the future.  Requirements to reduce greenhouse gas emissions may cause the Companies to incur significant costs relating to their ongoing operations (such as for additional environmental control equipment, retiring and replacing existing generation, re-powering existing plants to utilize alternative fuel or selecting more costly generation alternatives), to procure emission allowance credits, or due to the imposition of taxes, fees or other governmental charges as a result of such emissions.
Water
The Clean Water Act and associated regulations enacted by the EPA form a comprehensive program to restore and preserve water quality.  All of the Companies' generating facilities, and certain of their other facilities, are subject to the Clean Water Act.
In May 2014, the EPA finalized regulations regarding protection of aquatic life from being killed or injured by cooling water intake structures. KCP&L’s generation facilities with cooling water intake structures are subject to the best technology available standards based on studies completed to comply with such standards. The rule provides flexibility to work with the states to develop the best technology available to minimize aquatic species impacted by being pinned against intake screens or drawn into cooling water systems.
KCP&L holds a permit from the Missouri Department of Natural Resources (MDNR) covering water discharge from its Hawthorn Station.  The permit authorizes KCP&L to, among other things, withdraw

22


water from the Missouri River for cooling purposes and return the heated water to the Missouri River.  KCP&L has applied for a renewal of this permit and the EPA has submitted an interim objection letter regarding the allowable amount of heat that can be contained in the returned water.  Until this matter is resolved, KCP&L continues to operate under its current permit. Future water permit renewals at KCP&L's Iatan Station and at GMO's Sibley and Lake Road Stations could also be impacted by the allowable amount of heat that can be contained in the returned water.  Great Plains Energy and KCP&L cannot predict the outcome of these matters; however, while less significant outcomes are possible, these matters may require a reduction in generation, installation of cooling towers or other technology to cool the water, or both, any of which could have a significant impact on Great Plains Energy's and KCP&L's results of operations, financial position and cash flows.  
In September 2015, the EPA finalized a revision of the technology-based effluent limitations guidelines and standards regulation to make the existing controls on discharges from steam electric power plants more stringent.  The final rule sets the first federal limits on the levels of toxic metals in wastewater that can be discharged from power plants.  The new requirements for existing power plants would be phased in between 2018 and 2023.
Further, the possible effects of climate change, including potentially increased temperatures and reduced precipitation, could make it more difficult and costly to comply with the current and final permit requirements.
Solid Waste
Solid and hazardous waste generation, storage, transportation, treatment and disposal are regulated at the federal and state levels under various laws and regulations.  In April 2015, the EPA published final regulations to regulate coal combustion residuals (CCRs) under the Resource Conservation and Recovery Act (RCRA) Subtitle D to address the risks from the disposal of CCRs generated from the combustion of coal at electric generating facilities. The Companies principally use coal in generating electricity and dispose of CCRs in both on-site facilities and facilities owned by third parties.  Current and future EPA regulations regarding the handling, disposal and remediation of CCRs could have a material adverse effect on the Companies' results of operations, financial position and cash flows.
Remediation
Under current law, the Companies are also generally responsible for any liabilities associated with the environmental condition of their properties and other properties at which the Companies arranged for the disposal or treatment of hazardous substances, including properties that they have previously owned or operated, such as manufactured gas plants (MGP), regardless of whether they were responsible for the contamination or whether the liabilities arose before, during or after the time they owned or operated the properties or arranged for the disposal or treatment of hazardous substances.
Due to all of the above, the Companies' projected capital and other expenditures for environmental compliance are subject to significant uncertainties, including the timing of implementation of any new or modified environmental requirements, the limits imposed by such requirements and the types and costs of the compliance alternatives selected by the Companies.  As a result, costs to comply with environmental requirements cannot be estimated with certainty, and actual costs could be significantly higher than projections.  New environmental laws and regulations affecting the operations of the Companies may be adopted, and new interpretations of existing laws and regulations could be adopted or become applicable to the Companies or their facilities, any of which may materially adversely affect the Companies' business, adversely affect the Companies' ability to continue operating its power plants as currently done and substantially increase environmental expenditures or liabilities in the future.

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Financial Risks:
Financial market disruptions and declines in credit ratings may increase financing costs and/or limit access to the credit markets, which may adversely affect liquidity and results.
The Companies' capital requirements are expected to be substantial over the next several years.  The Companies rely on access to short-term money markets, revolving credit facilities provided by financial institutions and long-term capital markets as significant sources of liquidity for capital requirements not satisfied by cash flows from operations.  The Companies also rely on bank-provided credit facilities for credit support, such as letters of credit, to support operations.  The amount of credit support required for operations varies and is impacted by a number of factors.  
Great Plains Energy, KCP&L, GMO and certain of their securities are rated by Moody's Investors Service and Standard & Poor's.  Following the announcement of the anticipated acquisition of Westar, Moody's Investors Service placed its long-term ratings on Great Plains Energy on review for downgrade and Standard & Poor's Ratings Services revised the outlook on Great Plains Energy, KCP&L and GMO from stable to negative. These ratings impact the Companies' cost of funds and Great Plains Energy's ability to provide credit support for its subsidiaries.  The interest rates on borrowings under the Companies' revolving credit agreements and on a portion of Great Plains Energy's debt are subject to increase as their respective credit ratings decrease.  The amount of collateral or other credit support required under power supply and certain other agreements is also dependent on credit ratings.  
Conditions in the United States capital and credit markets may deteriorate in the future for a variety of reasons, including, among others: instability in global markets, political uncertainty in the United States or abroad, fluctuations in the price of oil, geopolitical instability or other unforeseen events both in the United States and around the world. Adverse market conditions or decreases in Great Plains Energy's, KCP&L's or GMO's credit ratings could have material adverse effects on the Companies.  These effects could include, among others: reduced access to capital and increased cost of funds; dilution resulting from equity issuances at reduced prices; changes in the type and/or increases in the amount of collateral or other credit support obligations required to be posted with contractual counterparties; increased nuclear decommissioning trust and pension and other post-retirement benefit plan funding requirements; rate case disallowance of KCP&L's or GMO's costs of capital; reductions in or delays of capital expenditures; or reductions in Great Plains Energy's ability to provide credit support for its subsidiaries.  Any of these results could adversely affect the Companies' results of operations, financial position and cash flows.  In addition, market disruption and volatility could have an adverse impact on the Companies' lenders, suppliers and other counterparties or customers, causing them to fail to meet their obligations.
Great Plains Energy has guaranteed some of GMO’s long-term and short-term debt and payments under these guarantees may adversely affect Great Plains Energy's liquidity.
Great Plains Energy has issued guarantees covering $96.6 million of GMO's long-term debt. Great Plains Energy also guarantees GMO's commercial paper program. At December 31, 2016, GMO had $201.9 million of commercial paper outstanding.  The guarantees obligate Great Plains Energy to pay amounts owed by GMO directly to the holders of the guaranteed debt in the event GMO defaults on its payment obligations.  Great Plains Energy may also guarantee debt that GMO may issue in the future.  Any guarantee payments could adversely affect Great Plains Energy's liquidity.
The inability of Great Plains Energy's subsidiaries to provide sufficient dividends to Great Plains Energy, or the inability otherwise of Great Plains Energy to pay dividends to its shareholders and meet its financial obligations would have an adverse effect.
Great Plains Energy is a holding company with no significant operations of its own.  The primary source of funds for payment of dividends to its shareholders and its other financial obligations is dividends paid to it by its subsidiaries, particularly KCP&L and GMO.  The ability of Great Plains Energy's subsidiaries to pay dividends or make other distributions, and accordingly, Great Plains Energy's ability to pay dividends on its common stock and meet its financial obligations principally depends on the actual and projected earnings and cash flow, capital requirements and general financial position of its subsidiaries, as well as regulatory factors, financial covenants, general business conditions and other matters.

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In addition, Great Plains Energy, KCP&L and GMO are subject to certain corporate and regulatory restrictions and financial covenants that could affect their ability to pay dividends.  Great Plains Energy's articles of incorporation restrict the payment of common stock dividends in the event common equity is 25% or less of total capitalization. In addition, if preferred stock dividends are not declared and paid when scheduled, Great Plains Energy could not declare or pay common stock dividends or purchase any common shares.  If the unpaid preferred stock dividends are in arrears for six or more quarters, whether or not consecutive, the preferred shareholders will be entitled to name two directors to the Great Plains Energy Board of Directors. Furthermore, pursuant to settlement agreements with certain intervenors in Missouri that are pending MPSC approval with respect to the merger, Great Plains Energy agreed that in the event that KCP&L's or GMO's credit ratings are downgraded below investment grade as a result of the merger, then KCP&L and GMO would be restricted from paying a dividend to Great Plains Energy unless approved by the MPSC or until their credit ratings are restored to investment grade. Certain conditions in the MPSC and KCC orders authorizing the holding company structure require Great Plains Energy and KCP&L to maintain consolidated common equity of at least 30% and 35%, respectively, of total capitalization (including only the amount of short-term debt in excess of the amount of construction work in progress).  Under the Federal Power Act, KCP&L and GMO generally can pay dividends only out of retained earnings.  The revolving credit agreements of Great Plains Energy, KCP&L and GMO and the note purchase agreement for GMO's Series A, B and C Senior Notes contain a covenant requiring each company to maintain a consolidated indebtedness to consolidated total capitalization ratio of not more than 0.65 to 1.00, except as the ratio relates to Great Plains Energy, which was amended in June 2016. See Note 11 to the consolidated financial statements for additional information.  Great Plains Energy's Board of Directors regularly evaluates the common stock dividend policy and determines an appropriate dividend each quarter, after taking into account such factors as, among other things, earnings, financial condition and cash flows from KCP&L and GMO, as well as general economic conditions.  While the corporate and regulatory restrictions and financial covenants discussed above are not expected to affect the Companies' ability to pay dividends at the current level in the foreseeable future, Great Plains Energy cannot assure common shareholders that the dividend will be paid in the future or that, if paid, dividends will be at the same amount or with the same frequency as in the past.
Market performance, increased retirements and retirement plan regulations could significantly impact retirement plan funding requirements and associated cash needs and expenses.
Substantially all of the Companies' and WCNOC's employees participate in defined benefit retirement and other post-retirement plans.  Former employees also have accrued benefits in defined benefit retirement and other post-retirement plans.  The costs of these plans depend on a number of factors, including the rates of return on plan assets, the level and nature of the provided benefits, discount rates, the interest rates used to measure required minimum funding levels, changes in benefit design, changes in laws or regulations, and the Companies' required or voluntary contributions to the plans.  The Companies currently have substantial unfunded liabilities under these plans.  Also, if the rate of retirements exceeds planned levels, or if these plans experience adverse market returns on investments, or if interest rates materially fall, the Companies' contributions to the plans could rise substantially over historical levels.  In addition, changes in accounting rules and assumptions related to future costs, returns on investments, interest rates and other actuarial assumptions, including projected retirements, could have a significant impact on the Companies' results of operations, financial position and cash flows.
The use of derivative contracts in the normal course of business could result in losses that could negatively impact the Companies' results of operations, financial position and cash flows.
The Companies use derivative instruments, such as swaps, options, futures and forwards, to manage commodity and financial risks.  Losses could be recognized as a result of volatility in the market values of these contracts, if a counterparty fails to perform, or if the underlying transactions which the derivative instruments are intended to hedge fail to materialize.  In the absence of actively quoted market prices and pricing information from external sources, the valuation of these financial instruments can involve management's judgment or the use of estimates. As a result, changes in the underlying assumptions or use of alternative valuation methods could affect the reported fair value of these contracts.
As a service provider to GMO, KCP&L may have exposure to GMO's financial performance and operations.
GMO has no employees of its own.  KCP&L employees operate and manage GMO's properties, and KCP&L charges GMO for the cost of these services.  These arrangements may pose risks to KCP&L, including possible

25


claims arising from actions of KCP&L employees in operating GMO's properties and providing other services to GMO.  KCP&L's claims for reimbursement for services provided to GMO are unsecured and rank equally with other unsecured obligations of GMO.  KCP&L's ability to be reimbursed for the costs incurred for the benefit of GMO depends on the financial ability of GMO to make such payments.
Customer and Weather-Related Risks:
The results of operations, financial position and cash flows of the Companies can be materially affected by changes in customer electricity consumption.
Changes in customer electricity consumption due to sustained financial market disruptions, downturns or sluggishness in the economy, technological advances, energy efficiency or other factors may adversely affect the Companies' results of operations, financial position and cash flows.  
Technological advances, energy efficiency, or other energy conservation measures could reduce customer electricity consumption. KCP&L and GMO generate electricity at central station power plants to achieve economies of scale and produce electricity at a competitive cost. There are distributed generation technologies that produce electricity, including microturbines, wind turbines, fuel cells and solar cells, that have recently become more cost competitive. If this trend continues, the Companies customer electricity consumption could be reduced. Changes in technology could also alter the channels through which the Companies’ customers purchase or use electricity, which could reduce the Companies customer electricity consumption.
Weather is a major driver of the Companies' results of operations, financial position and cash flow.
Weather conditions directly influence the demand for electricity and natural gas and affect the price of energy commodities.  Great Plains Energy and KCP&L are significantly impacted by seasonality, with approximately one-third of their retail electric revenues recorded in the third quarter. Unusually mild winter or summer weather can adversely affect sales.  In addition, severe weather, including but not limited to tornados, snow, rain, flooding and ice storms can be destructive causing outages and property damage that can potentially result in additional expenses, lower revenues and additional capital restoration costs.  KCP&L's and GMO's rates may not always be adjusted timely and adequately to reflect these increased costs. Some of the Companies' generating stations utilize water from the Missouri River for cooling purposes.  Low water and flow levels can increase maintenance costs at these stations and, if these levels were to get low enough, could require modifications to plant operations.  The possible effects of climate change (such as increased temperatures, increased occurrence of severe weather or reduced precipitation, among other possible results) could potentially increase the volatility of demand and prices for energy commodities, increase the frequency and impact of severe weather, increase the frequency of flooding or decrease water and flow levels. To the extent the frequency of extreme weather events increases, this could increase the Companies' cost in providing service.
Operational Risks:
Operational risks may adversely affect the Companies' results of operations, financial position and cash flows.
The operation of the Companies' electric generation, transmission, distribution and information systems involves many risks, including breakdown or failure of equipment, aging infrastructure, processes and personnel performance; problems that delay or increase the cost of returning facilities to service after outages; limitations that may be imposed by equipment conditions or environmental, safety or other regulatory requirements; fuel supply or fuel transportation reductions or interruptions; labor disputes; difficulties with the implementation or continued operation of information systems; transmission scheduling constraints; and catastrophic events such as fires, floods, droughts, explosions, terrorism, cyber threats, severe weather or other similar occurrences.  Furthermore, to the extent that a cyber attack was successful, customer and employee information may be stolen, equipment may be destroyed or damaged and operations may be disrupted. Any such equipment or system outage or constraint can, among other things:
in the case of generation equipment, affect operating costs, increase capital requirements and costs, increase purchased power volumes and costs and reduce wholesale sales opportunities;

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in the case of transmission equipment, affect operating costs, increase capital requirements and costs, require changes in the source of generation and affect wholesale sales opportunities and the ability to meet regulatory reliability and security requirements;
in the case of distribution systems, affect revenues and operating costs, increase capital requirements and costs, and affect the ability to meet regulatory service metrics and customer expectations; and
in the case of information systems, affect the control and operations of generation, transmission, distribution, customer information and other business operations and processes, increase operating costs, increase capital requirements and costs, and affect the ability to meet regulatory reliability and security requirements and customer expectations.
With the exception of Hawthorn No. 5, which was substantially rebuilt in 2001, and Iatan No. 2, which was completed in 2010, all of KCP&L's and GMO's coal-fired generating units and its nuclear generating unit were constructed prior to 1986.  The age of these generating units increases the risk of unplanned outages, reduced generation output and higher maintenance expense.  Training, preventive maintenance and other programs have been implemented, but there is no assurance that these programs will prevent or minimize future breakdowns or failures of the Companies' generation facilities or increased maintenance expense. Furthermore, aging transmission and distribution facilities are more prone to failure than new facilities, which results in higher maintenance expense and the need to replace these facilities with new infrastructure. The higher maintenance costs and capital expenditures for new replacement infrastructure could cause additional rate volatility for the Companies' customers, resistance by the Companies' regulators to allow customer rate increases and/or regulatory lag.
The Companies currently have general liability and property insurance in place to cover their facilities in amounts that management considers appropriate.  These policies, however, do not cover the Companies' transmission or distribution systems, and the cost of repairing damage to these systems may adversely affect the Companies' results of operations, financial position and cash flows.  Such policies are subject to certain limits and deductibles and do not include business interruption coverage.  Insurance coverage may not be available in the future at reasonable costs or on commercially reasonable terms, and the insurance proceeds received for any loss of, or any damage to, any of the Companies' facilities may not be sufficient to restore the loss or damage.
These and other operating events may reduce the Companies' revenues, increase their costs, or both, and may materially affect their results of operations, financial position and cash flows.
Cyber attacks and other disruptions to facilities could interfere with operations, expose the Companies, customers or employees to a risk of loss and could cause reputational and financial harm.
Electric utilities and other operators of critical energy infrastructure, like KCP&L and GMO, may face a heightened risk of cyber attack. The Companies' facilities could be direct targets or indirect casualties of any such cyber attacks. The Companies' business relies on information technology for the generation, transmission and distribution of electricity, their primary business, as well as in secondary operational functions, including supply chain, and invoicing and collecting payments from customers. In the ordinary course of business, the Companies collect, store and transmit sensitive data including operating information, proprietary business information belonging to the Companies and third parties and personal information belonging to customers and employees. To the extent that a cyber attack was successful, customer and employee information may be stolen, equipment may be destroyed or damaged and operations of the generation fleet and/or reliability of the transmission and distribution system may be disrupted. In such an event, the Companies may experience substantial loss of revenues, material response costs and other financial loss, including the increased cost of insurance coverage. The Companies could also be subject to litigation, increased regulation and reputational damage. Any of the foregoing could have a material adverse impact on the Companies' results of operations, financial position and cash flows.

The Companies are subject to information security risks and risks of unauthorized access to their systems.
In the course of their businesses, the Companies handle a range of system security and sensitive customer information. KCP&L and GMO are subject to laws and rules issued by different agencies concerning safeguarding and maintaining the confidentiality of this information. A security breach of the utilities' information systems such as theft or the inappropriate release of certain types of information, including confidential customer information or

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system operating information, could have a material adverse impact on the results of operations, financial position and cash flows of the Companies.
KCP&L and GMO operate in a highly regulated industry that requires the continued operation of sophisticated information technology systems and network infrastructures. Despite implementation of security measures, the technology systems are vulnerable to disability, failures, employee error or malfeasance, or unauthorized access. Such failures or breaches of the systems could impact the reliability of generation, transmission and distribution systems, result in legal claims and proceedings, damage the Companies' reputation and also subject the Companies to financial harm. If the technology systems were to fail or be breached and not recovered in a timely way, critical business functions could be impaired and sensitive confidential data could be compromised, which could have a material adverse impact on the Companies' results of operations, financial position and cash flows.
The cost and schedule of capital projects may materially change and expected performance may not be achieved.
Great Plains Energy's and KCP&L's businesses are capital intensive.  The Companies currently have significant capital projects pending and may also have significant capital projects in the future. The risks of any capital project include: that actual costs may exceed estimated costs due to inflation or other factors; risks associated with the incurrence of additional debt or the issuance of additional equity to fund such projects; delays that may occur in obtaining permits and materials; the failure of suppliers and contractors to perform as required under their contracts; inadequate availability or increased cost of equipment, materials or qualified craft labor; delays related to inclement weather; the scope, cost and timing of projects may change due to new or changed environmental requirements, health and safety laws or other factors; and other events beyond the Companies' control may occur that may materially affect the schedule, cost and performance of these projects.
These and other risks could materially increase the estimated costs of capital projects, delay the in-service dates of projects, adversely affect the performance of the projects, and/or require the Companies to purchase additional electricity to supply their respective retail customers until the projects are completed.  Thus, these risks may significantly affect the Companies' results of operations, financial position and cash flows.
Failure of one or more generation plant co-owners to pay their share of construction or operations and maintenance costs could increase the Companies' costs and capital requirements.
KCP&L owns 47% of Wolf Creek, 50% of La Cygne Station, 70% of Iatan No. 1 and 55% of Iatan No. 2.  GMO owns 18% of both Iatan units and 8% of Jeffrey Energy Center.  The remaining portions of these facilities are owned by other utilities that are contractually obligated to pay their proportionate share of capital and other costs.
While the ownership agreements provide that a defaulting co-owner's share of the electricity generated can be sold by the non-defaulting co-owners, there is no assurance that the revenues received will recover the increased costs borne by the non-defaulting co-owners.  Occurrence of these or other events could materially increase the Companies' costs and capital requirements.
KCP&L is exposed to risks associated with the ownership and operation of a nuclear generating unit, which could result in an adverse effect on the Companies' business and financial results.
KCP&L owns 47% of Wolf Creek.  The NRC has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generation facilities, including Wolf Creek.  In the event of non-compliance, the NRC has the authority to impose fines, shut down the facilities, or both, depending upon its assessment of the severity of the situation, until compliance is achieved. Additionally, the non-compliance of other nuclear facility operators with applicable regulations or the occurrence of a serious nuclear incident anywhere in the world could result in increased regulation of the nuclear industry as a whole.  Any revised safety requirements promulgated by the NRC could result in substantial capital expenditures at Wolf Creek.
Wolf Creek has the lowest fuel cost per MWh of any of KCP&L's generating units.  An extended outage of Wolf Creek, whether resulting from NRC action, an incident at the plant or otherwise, could have a material adverse effect on KCP&L's results of operations, financial position and cash flows in the event KCP&L incurs higher replacement power and other costs that are not recovered through rates or insurance.  If a long-term outage

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occurred, the state regulatory commissions could reduce rates by excluding the Wolf Creek investment from rate base.  Wolf Creek was constructed prior to 1986 and the age of Wolf Creek increases the risk of unplanned outages and results in higher maintenance costs.
Ownership and operation of a nuclear generating unit exposes KCP&L to risks regarding decommissioning costs at the end of the unit's life.  KCP&L contributes annually based on estimated decommissioning costs to a tax-qualified trust fund to be used to decommission Wolf Creek.  The funding level assumes a projected level of return on trust assets.  If the actual return on trust assets is below the projected level or actual decommissioning costs are higher than estimated, KCP&L could be responsible for the balance of funds required and may not be allowed to recover the balance through rates.
KCP&L is also exposed to other risks associated with the ownership and operation of a nuclear generating unit, including, but not limited to, (i) potential liability associated with the potential harmful effects on the environment and human health resulting from the operation of a nuclear generating unit, (ii) the storage, handling, disposal and potential release (by accident, through third-party actions or otherwise) of radioactive materials and (iii) uncertainties with respect to contingencies and assessments if insurance coverage is inadequate.  Under the structure for insurance among owners of nuclear generating units, KCP&L is also liable for potential retrospective premium assessments (subject to a cap) per incident at any commercial reactor in the country and losses in excess of insurance coverage.
The structure of the regional power market in which the Companies operate could have an adverse effect on the Companies' results of operations, financial position and cash flows.
In March 2014, the SPP launched its Integrated Marketplace. Similar to other RTO or ISO markets, this marketplace determines which generating units among market participants should run, within the operating constraints of a unit, at any given time for maximum cost-effectiveness. In the event that KCP&L's and GMO's generating units are not among the lowest cost generating units operating within the market, KCP&L and GMO could experience decreased levels of wholesale electricity sales.

A market for Transmission Congestion Rights (TCR) is also included as part of the Integrated Marketplace. TCRs are financial instruments used to hedge transmission congestion charges. Both KCP&L and GMO acquire TCRs for the purpose of hedging against transmission congestion charges. There is a risk that KCP&L and GMO could incorrectly model the amount of TCRs needed, or that the TCRs acquired could be ineffective in hedging against transmission congestion charges which could lead to increased purchased power costs.
The rules governing the various regional power markets may change from time to time and such changes could impact the Companies' costs and revenues. Because the manner in which RTO's or ISO's will evolve is unclear, the Companies are unable to assess fully the impact of these changes.
Litigation Risks:
The outcome of legal proceedings cannot be predicted.  An adverse finding could have a material adverse effect on the Companies' results of operations, financial position and cash flows.
The Companies are party to various material litigation and regulatory matters arising out of their business operations.  The ultimate outcome of these matters cannot presently be determined, nor, in many cases, can the liability that could potentially result from a negative outcome in each case be reasonably estimated.  The liability that the Companies may ultimately incur with respect to any of these cases in the event of a negative outcome may be in excess of amounts currently reserved and insured against with respect to such matters.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

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ITEM 2. PROPERTIES
Electric Utility Generation Resources
 
 
 
 
Year
 
Estimated 2017
 
Primary
 
Unit
Location
 
Completed
 
MW Capacity
 
Fuel
Base Load
Iatan No. 2
Missouri
 
2010
 
 
482

(a) 
 
Coal
 
Wolf Creek
Kansas
 
1985
 
 
549
(a) 
 
Nuclear
 
Iatan No. 1
Missouri
 
1980
 
 
490
(a) 
 
Coal
 
La Cygne Nos. 1 and 2
Kansas
 
1973, 1977
 
 
699
(a) 
 
Coal
 
Hawthorn No. 5 (b)
Missouri
 
1969
 
 
564
 
 
Coal
 
Montrose Nos. 2 and 3
Missouri
1960, 1964
 
334
 
 
Coal
Peak Load
West Gardner Nos. 1, 2, 3 and 4
Kansas
 
2003
 
 
314
 
 
Natural Gas
 
Osawatomie
Kansas
 
2003
 
 
76
 
 
Natural Gas
 
Hawthorn Nos. 6 and 9
Missouri
 
2000
 
 
235
 
 
Natural Gas
 
Hawthorn No. 8
Missouri
 
2000
 
 
79
 
 
Natural Gas
 
Hawthorn No. 7
Missouri
 
2000
 
 
78
 
 
Natural Gas
 
Northeast Black Start Unit
Missouri
 
1985
 
 
2
 
 
Oil
 
Northeast Nos. 17 and 18
Missouri
 
1977
 
 
105
 
 
Oil
 
Northeast Nos. 13 and 14
Missouri
 
1976
 
 
95
 
 
Oil
 
Northeast Nos. 15 and 16
Missouri
 
1975
 
 
106
 
 
Oil
 
Northeast Nos. 11 and 12
Missouri
 
1972
 
 
93
 
 
Oil
Wind
Spearville 2 Wind Energy Facility (c)
Kansas
 
2010
 
 
48
 
 
Wind
 
Spearville 1 Wind Energy Facility (d)
Kansas
 
2006
 
 
101
 
 
Wind
Total KCP&L
 
 
 
 
 
4,450

 
 
 
Base Load
Iatan No. 2
Missouri
 
2010
 
 
159
(a) 
 
Coal
 
Iatan No. 1
Missouri
 
1980
 
 
126
(a) 
 
Coal
 
Jeffrey Energy Center Nos. 1, 2 and 3
Kansas
1978, 1980, 1983
 
172
(a) 
 
Coal
 
Sibley Nos. 1, 2 and 3
Missouri
1960, 1962, 1969
 
448
 
 
Coal
Peak Load
Lake Road Nos. 2 and 4
Missouri
 
1957, 1967
 
 
115
 
 
Natural Gas
 
South Harper Nos. 1, 2 and 3
Missouri
 
2005
 
 
303
 
 
Natural Gas
 
Crossroads Energy Center
Mississippi
 
2002
 
 
292
 
 
Natural Gas
 
Ralph Green No. 3
Missouri
 
1981
 
 
71
 
 
Natural Gas
 
Greenwood Nos. 1, 2, 3 and 4
Missouri
 
1975-1979
 
 
242
 
 
Natural Gas/Oil
 
Lake Road No. 5
Missouri
 
1974
 
 
62
 
 
Natural Gas/Oil
 
Lake Road Nos. 1 and 3
Missouri
 
1951, 1962
 
 
24
 
 
Natural Gas/Oil
 
Lake Road Nos. 6 and 7
Missouri
 
1989, 1990
 
 
42
 
 
Oil
 
Nevada
Missouri
 
1974
 
 
18
 
 
Oil
Total GMO
 
 
 
 
 
2,074

 
 
 
Total Great Plains Energy
 
 
 
 
 
6,524

 
 
 
(a)    Share of a jointly owned unit.
(b) 
In 2001, a new boiler, air quality control equipment and an uprated turbine was placed in service at the Hawthorn Generating Station.
(c) 
Accredited capacity is 14 MW pursuant to SPP reliability standards.
(d) 
Accredited capacity is 29 MW pursuant to SPP reliability standards.

KCP&L owns 50% of La Cygne Nos. 1 and 2, 70% of Iatan No. 1, 55% of Iatan No. 2 and 47% of Wolf Creek. GMO owns 18% of each of Iatan Nos. 1 and 2 and 8% of Jeffrey Energy Center Nos. 1, 2 and 3.


30


Electric Utility Transmission and Distribution Resources
Electric utility's electric transmission system interconnects with systems of other utilities for reliability and to permit wholesale transactions with other electricity suppliers. Electric utility has approximately 3,600 circuit miles of transmission lines, 15,600 circuit miles of overhead distribution lines and 7,100 circuit miles of underground distribution lines in Missouri and Kansas. Electric utility has all material franchise rights necessary to sell electricity within its retail service territory. Electric utility's transmission and distribution systems are continuously monitored for adequacy to meet customer needs. Management believes the current systems are adequate to serve customers.
Electric Utility General
Electric utility's generating plants are located on property owned (or co-owned) by KCP&L or GMO, except the Spearville Wind Energy Facilities which are located on easements, and the Crossroads Energy Center and the South Harper Facility which are contractually controlled. Electric utility's service centers, electric substations and a portion of its transmission and distribution systems are located on property owned or leased by electric utility. Electric utility's transmission and distribution systems are for the most part located above or underneath highways, streets, other public places or property owned by others. Electric utility believes that it has satisfactory rights to use those places or properties in the form of permits, grants, easements, licenses or franchise rights; however, it has not necessarily undertaken efforts to examine the underlying title to the land upon which the rights rest. Great Plains Energy's and KCP&L's headquarters are located in leased office space.
Substantially all of the fixed property and franchises of KCP&L, which consist principally of electric generating stations, electric transmission and distribution lines and systems, and buildings (subject to exceptions, reservations and releases), are subject to a General Mortgage Indenture and Deed of Trust dated as of December 1, 1986, as supplemented. Mortgage bonds totaling $510.5 million were outstanding at December 31, 2016.

A portion of the fixed property and franchises of GMO are subject to a General Mortgage Indenture and Deed of Trust dated as of April 1, 1946, as supplemented. Mortgage bonds totaling $5.7 million were outstanding at December 31, 2016.
ITEM 3.  LEGAL PROCEEDINGS
Other Proceedings
The Companies are parties to various lawsuits and regulatory proceedings in the ordinary course of their respective businesses.  For information regarding material lawsuits and proceedings, see Notes 2, 6, 15 and 16 to the consolidated financial statements.  Such information is incorporated herein by reference.
ITEM 4.  MINE SAFETY DISCLOSURES
Not applicable.

31


PART II
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
GREAT PLAINS ENERGY
Great Plains Energy's common stock is listed on the New York Stock Exchange under the symbol "GXP". At February 21, 2017, Great Plains Energy's common stock was held by 14,886 shareholders of record. Information relating to market prices and cash dividends on Great Plains Energy's common stock is set forth in the following table.
 
Common Stock Price Range (a)
 
Common Stock
 
2016
 
2015
 
Dividends Declared
Quarter
High
 
Low
 
High
 
Low
 
2017
 
 
2016
 
2015
First
$
32.26

 
$
26.34

 
$
30.06

 
$
25.80

 
$
0.275

(b) 
 
$
0.2625

 
$
0.245

Second
32.68

 
28.35

 
27.52

 
24.16

 
 
 
 
0.2625

 
0.245

Third
31.22

 
26.53

 
27.35

 
24.21

 
 
 
 
0.2625

 
0.245

Fourth
28.60

 
26.20

 
28.02

 
25.74

 
 
 
 
0.275

 
0.2625

(a)    Based on closing stock prices.
(b)    Declared February 14, 2017, and payable March 20, 2017, to shareholders of record as of February 27, 2017.
Dividend Restrictions
For information regarding dividend restrictions, see Note 13 to the consolidated financial statements.
Purchases of Equity Securities
Great Plains Energy had no purchases of its equity securities during the three months ended December 31, 2016.
KCP&L
KCP&L is a wholly owned subsidiary of Great Plains Energy, which holds the one share of issued and outstanding KCP&L common stock.
Dividend Restrictions
For information regarding dividend restrictions, see Note 13 to the consolidated financial statements.

32


ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31
 
2016
 
2015
 
2014(a)
 
2013(a)
 
2012(a)
Great Plains Energy
 
(dollars in millions except per share amounts)
Operating revenues
 
$
2,676

 
$
2,502

 
$
2,568

 
$
2,446

 
$
2,310

Net income
 
$
290

 
$
213

 
$
243

 
$
250

 
$
200

Basic earnings per common share
 
$
1.61

 
$
1.37

 
$
1.57

 
$
1.62

 
$
1.36

Diluted earnings per common share
 
$
1.61

 
$
1.37

 
$
1.57

 
$
1.62

 
$
1.35

Total assets at year end (a) 
 
$
13,570

 
$
10,739

 
$
10,453

 
$
9,770

 
$
9,626

Total redeemable preferred stock, mandatorily
 
 
 
 
 
 
 
 
 
 
redeemable preferred securities and long-
 
 
 
 
 
 
 
 
 
 
term debt (including current maturities) (a)
 
$
3,747

 
$
3,746

 
$
3,481

 
$
3,492

 
$
2,999

Cash dividends per common share
 
$
1.0625

 
$
0.9975

 
$
0.935

 
$
0.8825

 
$
0.855

SEC ratio of earnings to combined fixed charges and
 
 
 
 
 
 
 
 
 
 
preferred dividend requirements
 
2.54
 
2.58
 
2.72
 
2.75
 
2.31
 
 
 
 
 
 
 
 
 
 
 
KCP&L
 
 
 
 
 
 
 
 
 
 
Operating revenues
 
$
1,875

 
$
1,714

 
$
1,731

 
$
1,671

 
$
1,580

Net income
 
$
225

 
$
153

 
$
162

 
$
169

 
$
142

Total assets at year end (a)
 
$
8,058

 
$
7,815

 
$
7,495

 
$
6,821

 
$
6,689

Total redeemable preferred stock, mandatorily
 
 
 
 
 
 
 
 
 
 
redeemable preferred securities and long-
 
 
 
 
 
 
 
 
 
 
term debt (including current maturities) (a)
 
$
2,565

 
$
2,563

 
$
2,297

 
$
2,294

 
$
1,887

SEC ratio of earnings to fixed charges
 
3.30
 
2.57
 
2.69
 
2.76
 
2.58
(a) Adjusted for adoption of Accounting Standards Update (ASU) No. 2015-03, Simplifying the Presentation of Debt Issuance Costs.
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GREAT PLAINS ENERGY INCORPORATED
EXECUTIVE SUMMARY
Description of Business
Great Plains Energy is a public utility holding company and does not own or operate any significant assets other than the stock of its subsidiaries and cash and cash equivalents and a time deposit to be used to fund a portion of the cash consideration for the anticipated acquisition of Westar.
Great Plains Energy's sole reportable business segment is electric utility. Electric utility consists of KCP&L, a regulated utility, GMO's regulated utility operations and GMO Receivables Company.  Electric utility has approximately 6,500 MWs of owned generating capacity and engages in the generation, transmission, distribution and sale of electricity to approximately 855,700 customers in the states of Missouri and Kansas.  Electric utility's retail electricity rates are comparable to the national average of investor-owned utilities.
Great Plains Energy's corporate and other activities not included in the sole reportable business segment includes GMO activity other than its regulated utility operations, GPETHC and unallocated corporate charges including certain costs to achieve the anticipated acquisition of Westar.
Anticipated Acquisition of Westar Energy, Inc.
On May 29, 2016, Great Plains Energy entered into a Merger Agreement by and among Great Plains Energy, Westar, and, from and after its accession to the Merger Agreement, Merger Sub. Pursuant to the Merger

33


Agreement, subject to the satisfaction or waiver of certain conditions, Merger Sub will merge with and into Westar, with Westar continuing as the surviving corporation. Upon closing, pursuant to the Merger Agreement, Great Plains Energy will acquire Westar for (i) $51.00 in cash and (ii) a number, rounded to the nearest 1/10,000 of a share, of Great Plains Energy common stock equal to an exchange ratio that may vary between 0.2709 and 0.3148, based upon the volume-weighted average price per share of Great Plains Energy common stock during a 20 consecutive full trading day period ending on (and including) the third trading day immediately prior to the closing date of the merger, for each share of Westar common stock issued and outstanding immediately prior to the effective time of the merger, with Westar becoming a wholly owned subsidiary of Great Plains Energy.

Great Plains Energy's anticipated acquisition of Westar was unanimously approved by the Great Plains Energy Board and the Westar Board, has received the required approvals of each of Great Plains Energy's and Westar's shareholders and The Federal Communications Commission (FCC), and has received early termination of the waiting period under the HSR Act with respect to antitrust review. The anticipated acquisition remains subject to regulatory approvals from KCC, the MPSC, NRC and FERC; as well as other customary conditions.

On October 3, 2016, Great Plains Energy completed registered public offerings of 60.5 million shares of common stock for total net proceeds of $1.55 billion and 17.3 million depositary shares each representing a 1/20th interest in a share of Great Plains Energy's Series B Preferred Stock for total net proceeds of $836.2 million. The proceeds from these offerings will be used to fund a portion of the cash consideration for the anticipated acquisition.
See Note 2 to the consolidated financial statements for more information regarding the acquisition.
Earnings Overview
Great Plains Energy's 2016 earnings available for common shareholders increased to $273.5 million or $1.61 per share from $211.4 million or $1.37 per share in 2015 driven primarily by new retail rates and cost recovery mechanisms; warmer weather; a performance incentive for energy efficiency programs under the Missouri Energy Efficiency Investment Act (MEEIA) and a decrease in interest charges; partially offset by a decrease in weather-normalized retail demand; costs to achieve the anticipated acquisition of Westar; an increase in utility operating and maintenance expense; depreciation and amortization expense and general taxes; higher income tax expense; and increased preferred stock dividend requirements.

In addition, a higher number of average shares outstanding due to Great Plains Energy's registered public offering of 60.5 million shares of common stock in October 2016 diluted 2016 earnings per share by $0.15.
For additional information regarding the change in earnings, refer to the Great Plains Energy Results of Operations and the Electric Utility Results of Operations sections within this Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A).
Adjusted Earnings (Non-GAAP) and Adjusted Earnings Per Share (Non-GAAP)
Great Plains Energy's adjusted earnings (non-GAAP) and adjusted earnings per share (non-GAAP) for 2016 were $286.0 million and $1.85, respectively. For 2015 and 2014, adjusted earnings (non-GAAP) and adjusted earnings per share (non-GAAP) were the same as GAAP earnings and GAAP earnings per share at $211.4 million and $1.37 and $241.2 million and $1.57, respectively. In addition to earnings available for common shareholders and diluted earnings per common share, Great Plains Energy's management uses adjusted earnings (non-GAAP) and adjusted earnings per share (non-GAAP) to evaluate earnings and earnings per share without the impact of the anticipated acquisition of Westar. Adjusted earnings (non-GAAP) and adjusted earnings per share (non-GAAP) excludes certain costs, expenses, gains, losses and the per share dilutive effect of equity issuances resulting from the anticipated acquisition. This information is intended to enhance an investor's overall understanding of results. Adjusted earnings (non-GAAP) and adjusted earnings per share (non-GAAP) are used internally to measure performance against budget and in reports for management and the Great Plains Energy Board. Adjusted earnings (non-GAAP) and adjusted earnings per share (non-GAAP) are financial measures that are not calculated in accordance with GAAP and may not be comparable to other companies' presentations or more useful than the GAAP information provided elsewhere in this report.

34


The following table provides a reconciliation between earnings available for common shareholders and diluted earnings per common share as determined in accordance with GAAP and adjusted earnings (non-GAAP) and adjusted earnings per share (non-GAAP):
 
 
 
2016
Reconciliation of GAAP to Non-GAAP
 
 
 
Earnings
per
diluted
share
 
 
(millions, except per share amounts)
Earnings available for common shareholders
 
$
273.5

 
$
1.61

Costs to achieve the anticipated acquisition of Westar:
 
 
 
 
Operating expense, pre-tax (a)
 
34.2

 
0.22

Financing, pre-tax (b)
 
35.9

 
0.24

Mark-to-market impacts of interest rate swaps, pre-tax (c)
 
(79.3
)
 
(0.51
)
Interest income, pre-tax (d)
 
(3.2
)
 
(0.02
)
Income tax expense (e)
 
9.5

 
0.06

Preferred stock (f)
 
15.4

 
0.10

Dilutive impact of October 2016 share issuance (g)
 
N/A

 
0.15

Adjusted earnings (non-GAAP)
 
$
286.0

 
$
1.85

Average Shares Outstanding
 
 
 
 
Shares used in calculating diluted earnings per common share
 
169.8
Adjustment for October 2016 share issuance (g)
 
(14.9)
Shares used in calculating adjusted earnings per share (non-GAAP)
 
154.9
(a) Reflects legal, advisory and consulting fees and certain severance expenses and are included in Costs to achieve the anticipated acquisition of Westar on the consolidated statements of comprehensive income.
(b) Reflects fees incurred to finance the anticipated acquisition of Westar, including fees for a bridge term loan facility, and are included in Interest charges on the consolidated statements of comprehensive income.
(c) Reflects the mark-to-market gain on interest rate swaps entered into in connection with financing the anticipated acquisition of Westar and is included in Interest charges on the consolidated statements of comprehensive income.
(d) Reflects interest income earned on the proceeds from Great Plains Energy's October 2016 equity offerings and is included in Non-operating income on the consolidated statements of comprehensive income.
(e) Reflects an income tax effect calculated at a 38.9% statutory rate, with the exception of certain non-deductible legal and financing fees.
(f) Reflects reductions to earnings available for common shareholders related to preferred stock dividend requirements for Great Plains Energy's Series B Preferred Stock issued in October 2016 and the redemption of cumulative preferred stock in August 2016, including the redemption premium, and are included in Preferred stock dividend requirements and redemption premium on the consolidated statements of comprehensive income.
(g) Reflects the average share impact of Great Plains Energy's issuance of 60.5 million shares of common stock in October 2016.

Regulatory Proceedings
See Note 6 to the consolidated financial statements for information regarding regulatory proceedings.
Impact of Recently Issued Accounting Standards
See Note 1 to the consolidated financial statements for information regarding the impact of recently issued accounting standards.
Wolf Creek Refueling Outage
Wolf Creek's latest refueling outage began on September 10, 2016 and ended on November 21, 2016. Wolf Creek's next refueling outage is planned to begin in the first quarter of 2018.
ENVIRONMENTAL MATTERS
See Note 15 to the consolidated financial statements for information regarding environmental matters.

35


RELATED PARTY TRANSACTIONS
See Note 18 to the consolidated financial statements for information regarding related party transactions.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. Management considers an accounting estimate to be critical if it requires assumptions to be made that were uncertain at the time the estimate was made and changes in the estimate or different estimates that could have been used could have a material impact on Great Plains Energy's results of operations and financial position. Management has identified the following accounting policies as critical to the understanding of Great Plains Energy's results of operations and financial position. Management has discussed the development and selection of these critical accounting policies with the Audit Committee of the Great Plains Energy Board of Directors.
Pensions
Great Plains Energy incurs significant costs in providing non-contributory defined pension benefits. The costs are measured using actuarial valuations that are dependent upon numerous factors derived from actual plan experience and assumptions of future plan experience.
Pension costs are impacted by actual employee demographics (including age, life expectancies, compensation levels and employment periods), earnings on plan assets, the level of contributions made to the plan, and plan amendments. In addition, pension costs are also affected by changes in key actuarial assumptions, including anticipated rates of return on plan assets and the discount rates used in determining the projected benefit obligation and pension costs.
The assumed rate of return on plan assets was developed based on the weighted-average of long-term returns forecast for the expected portfolio mix of investments held by the plan. The assumed discount rate was selected based on the prevailing market rate of fixed income debt instruments with maturities matching the expected timing of the benefit obligation. These assumptions, updated annually at the measurement date, are based on management's best estimates and judgment; however, material changes may occur if these assumptions differ from actual events. See Note 9 to the consolidated financial statements for information regarding the assumptions used to determine benefit obligations and net costs.
The following table reflects the sensitivities associated with a 0.5% increase or a 0.5% decrease in key actuarial assumptions. Each sensitivity reflects the impact of the change based on a change in that assumption only.
 
 
 
Impact on
Impact on
 
 
 
Projected
2016
 
Change in
Benefit
Pension
Actuarial assumption
Assumption
Obligation
Expense
 
 
 
(millions)
Discount rate
0.5
%
increase
 
$
(86.1
)
 
 
$
(5.9
)
 
Rate of return on plan assets
0.5
%
increase
 

 
 
(3.4
)
 
Discount rate
0.5
%
decrease
 
96.9

 
 
6.1

 
Rate of return on plan assets
0.5
%
decrease
 

 
 
3.4

 
Pension expense for KCP&L and GMO is recorded in accordance with rate orders from the MPSC and KCC. The orders allow the difference between pension costs under GAAP and pension costs for ratemaking to be recorded as a regulatory asset or liability with future ratemaking recovery or refunds, as appropriate.
In 2016, Great Plains Energy's pension expense was $98.2 million under GAAP and $93.3 million for ratemaking. The impact on 2016 pension expense in the table above reflects the impact on GAAP pension costs. Under the

36


Companies' rate agreements, any increase or decrease in GAAP pension expense would be deferred in a regulatory asset or liability for future ratemaking treatment. See Note 9 to the consolidated financial statements for additional information regarding the accounting for pensions.
Market conditions and interest rates significantly affect the future assets and liabilities of the plan. It is difficult to predict future pension costs, changes in pension liability and cash funding requirements due to the inherent uncertainty of market conditions.
Regulatory Assets and Liabilities
The Company has recorded assets and liabilities on its consolidated balance sheets resulting from the effects of the ratemaking process, which would not otherwise be recorded under GAAP. Regulatory assets represent incurred costs that are probable of recovery from future revenues. Regulatory liabilities represent future reductions in revenues or refunds to customers.
Management regularly assesses whether regulatory assets and liabilities are probable of future recovery or refund by considering factors such as decisions by the MPSC, KCC or FERC in electric utility's rate case filings; decisions in other regulatory proceedings, including decisions related to other companies that establish precedent on matters applicable to electric utility; and changes in laws and regulations. If recovery or refund of regulatory assets or liabilities is not approved by regulators or is no longer deemed probable, these regulatory assets or liabilities are recognized in the current period results of operations. Electric utility's continued ability to meet the criteria for recording regulatory assets and liabilities may be affected in the future by restructuring and deregulation in the electric industry or changes in accounting rules. In the event that the criteria no longer applied to all or a portion of electric utility's operations, the related regulatory assets and liabilities would be written off unless an appropriate regulatory recovery mechanism were provided. Additionally, these factors could result in an impairment on utility plant assets. See Note 6 to the consolidated financial statements for additional information.
Impairments of Assets, Intangible Assets and Goodwill
Long-lived assets and intangible assets subject to amortization are required to be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable as prescribed under GAAP.
Accounting rules require goodwill to be tested for impairment annually and when an event occurs indicating the possibility that an impairment exists. The goodwill impairment test is a two step process. See Note 1 to the consolidated financial statements for additional information regarding the Company's plans to adopt Accounting Standards Update (ASU) No. 2017-04 for its 2017 goodwill impairment test. The first step compares the fair value of a reporting unit to its carrying amount, including goodwill, to identify potential impairment. If the carrying amount exceeds the fair value of the reporting unit, the second step of the test is performed, consisting of assignment of the reporting unit's fair value to its assets and liabilities to determine an implied fair value of goodwill, which is compared to the carrying amount of goodwill to determine the impairment loss, if any, to be recognized in the financial statements. Great Plains Energy's regulated electric utility operations are considered one reporting unit for assessment of impairment, as they are included within the same operating segment and have similar economic characteristics.
The annual impairment test for the $169.0 million of GMO acquisition goodwill was conducted on September 1, 2016. Fair value of the reporting unit substantially exceeded the carrying amount, including goodwill; therefore, there was no impairment of goodwill.
The determination of fair value of the reporting unit consisted of two valuation techniques: an income approach consisting of a discounted cash flow analysis and a market approach consisting of a determination of reporting unit invested capital using market multiples derived from the historical revenue, earnings before interest, income taxes, depreciation and amortization (EBITDA), net utility asset values and market prices of stock of peer companies. The results of the two techniques were evaluated and weighted to determine a point within the range that management considered representative of fair value for the reporting unit, which involves a significant amount of management judgment.

37


The discounted cash flow analysis is most significantly impacted by two assumptions: estimated future cash flows and the discount rate applied to those cash flows. Management determined the appropriate discount rate to be based on the reporting unit's weighted average cost of capital (WACC). The WACC takes into account both the return on equity authorized by the MPSC and KCC and after-tax cost of debt. Estimated future cash flows are based on Great Plains Energy's internal business plan, which assumes the occurrence of certain events in the future, such as the outcome of future rate filings, future approved rates of return on equity, anticipated earnings/returns related to future capital investments, continued recovery of cost of service and the renewal of certain contracts. Management also makes assumptions regarding the run rate of operations, maintenance and general and administrative costs based on the expected outcome of the aforementioned events. Should the actual outcome of some or all of these assumptions differ significantly from the current assumptions, revisions to current cash flow assumptions could cause the fair value of Great Plains Energy's reporting unit under the income approach to be significantly different in future periods and could result in a future impairment charge to goodwill.
The market approach analysis is most significantly impacted by management's selection of relevant peer companies as well as the determination of an appropriate control premium to be added to the calculated invested capital of the reporting unit, as control premiums associated with a controlling interest are not reflected in the quoted market price of a single share of stock. Management determined an appropriate control premium by using an average of control premiums for recent acquisitions in the industry. Changes in results of peer companies, selection of different peer companies and future acquisitions with significantly different control premiums could result in a significantly different fair value of Great Plains Energy's reporting unit.
Income Taxes
Income taxes are accounted for using the asset/liability approach. Deferred tax assets and liabilities are determined based on the temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted statutory tax rates in effect for the year in which the differences are expected to reverse. Deferred investment tax credits are amortized ratably over the life of the related property. Deferred tax assets are also recorded for net operating losses, capital losses and tax credit carryforwards. The Company is required to estimate the amount of taxes payable or refundable for the current year and the deferred tax liabilities and assets for future tax consequences of events reflected in the Company's consolidated financial statements or tax returns. Actual results could differ from these estimates for a variety of reasons including changes in income tax laws, enacted tax rates and results of audits by taxing authorities. This process also requires management to make assessments regarding the timing and probability of the ultimate tax impact from which actual results may differ. The Company records valuation allowances on deferred tax assets if it is determined that it is more likely than not that the asset will not be realized. See Note 22 to the consolidated financial statements for additional information.

38


GREAT PLAINS ENERGY RESULTS OF OPERATIONS 
The following table summarizes Great Plains Energy's comparative results of operations.
 
2016
 
2015
 
2014
 
(millions)
Operating revenues
$
2,676.0

 
$
2,502.2

 
$
2,568.2

Fuel and purchased power
(590.1
)
 
(608.7
)
 
(742.5
)
Transmission
(84.8
)
 
(89.1
)
 
(74.7
)
Other operating expenses
(1,003.2
)
 
(943.9
)
 
(910.5
)
Costs to achieve the anticipated acquisition of Westar
(34.2
)
 

 

Depreciation and amortization
(344.8
)
 
(330.4
)
 
(306.0
)
Operating income
618.9

 
530.1

 
534.5

Non-operating income and expenses
2.8

 
3.7

 
12.5

Interest charges
(161.5
)
 
(199.3
)
 
(188.5
)
Income tax expense
(172.2
)
 
(122.7
)
 
(115.7
)
Income from equity investments
2.0

 
1.2

 

Net income
290.0

 
213.0

 
242.8

Preferred dividends and redemption premium
(16.5
)
 
(1.6
)
 
(1.6
)
Earnings available for common shareholders
$
273.5

 
$
211.4

 
$
241.2

Reconciliation of gross margin to operating revenue:
 
 
 
 
 
Operating revenues
$
2,676.0

 
$
2,502.2

 
$
2,568.2

Fuel and purchased power
(590.1
)
 
(608.7
)
 
(742.5
)
Transmission
(84.8
)
 
(89.1
)
 
(74.7
)
Gross margin (a)
$
2,001.1

 
$
1,804.4

 
$
1,751.0

(a) 
Gross margin is a non-GAAP financial measure. See explanation of gross margin below.
2016 Compared to 2015
Electric Utility Segment
Electric utility's net income increased $68.3 million in 2016 compared to 2015 primarily due to:
a $196.7 million increase in gross margin driven by new retail rates and cost recovery mechanisms, warmer weather and an increase in the recovery of program costs and throughput disincentive as well as a performance incentive for energy efficiency programs under MEEIA, partially offset by a decrease in weather-normalized retail demand;
a $50.0 million increase in other operating expenses driven by an increase in pension expense, an increase in program costs for energy efficiency programs under MEEIA, an increase in plant operating and maintenance expenses, an increase in injuries and damages expense and an increase in general taxes driven by higher property taxes and higher gross receipts taxes due to an increase in retail revenues;
$15.9 million of operating expenses for costs to achieve the anticipated acquisition of Westar;
a $14.4 million increase in depreciation and amortization expense driven by capital additions;
a $5.2 million increase in interest charges primarily due to an increase in interest expense in 2016 related to KCP&L's issuance of $350 million of 3.65% Senior Notes in August 2015; partially offset by a decrease in interest expense due to KCP&L's purchase in lieu of redemption of its $50.0 million and $21.9 million Environmental Improvement Revenue Refunding (EIRR) Series 2005 bonds in September 2015; and
a $43.5 million increase in income tax expense driven by an increase in pre-tax income.

39


Corporate and Other Activities
Great Plains Energy's corporate and other activities loss increased $6.2 million in 2016 compared to 2015 primarily due to:
$7.5 million of other operating expenses for the settlement of litigation at MPS Merchant in 2016;
$18.3 million of operating expenses for costs to achieve the anticipated acquisition of Westar;
$35.9 million of interest charges for fees incurred for a bridge term loan facility entered into in connection with the anticipated acquisition of Westar;
a $79.3 million mark-to-market gain on interest rate swaps entered into in June 2016 to hedge against interest rate fluctuations on future issuances of long-term debt expected to be issued to finance a portion of the cash consideration for the anticipated acquisition of Westar;
$3.2 million of interest income earned on the proceeds from Great Plains Energy's October 2016 common stock and depositary share offerings;
$12.7 million of income tax expense related to these items; and
$15.4 million of reductions to earnings available for common shareholders consisting of $14.8 million of dividends on Great Plains Energy's Series B Preferred Stock issued in October 2016 and $0.6 million related to the redemption of Great Plains Energy's cumulative preferred stock in August 2016.
2015 Compared to 2014
Electric Utility Segment
Electric utility's net income decreased $19.7 million in 2015 compared to 2014 primarily due to:
a $53.4 million increase in gross margin driven by new retail rates, an increase in recovery of program costs for energy efficiency programs under MEEIA, an increase in recovery of renewable energy costs under the Renewable Energy Standard Rate Adjustment Mechanism (RESRAM), an increase in weather-normalized retail demand and an increase in other margin items, partially offset by lower wholesale margins, higher transmission expense and weather;
a $33.8 million increase in other operating expenses primarily driven by an increase in program costs for energy efficiency programs under MEEIA, an increase in amortization of deferred renewable energy costs under RESRAM and an increase in general taxes driven by higher property taxes, partially offset by a decrease in Wolf Creek operating and maintenance expenses;
a $24.4 million increase in depreciation and amortization expense due to capital additions;
an $11.8 million decrease in non-operating income and expenses driven by a $13.2 million decrease in the equity component of Allowance for Funds Used During Construction (AFUDC) primarily due to a lower average construction work in progress in 2015 due to environmental upgrades at KCP&L's La Cygne Station being placed into service;
a $7.9 million increase in interest charges primarily due to a $7.2 million decrease in the debt component of AFUDC; and
a $4.8 million decrease in income tax expense primarily driven by decreased pre-tax income.
Corporate and Other Activities
Great Plains Energy's corporate and other activities loss increased $10.1 million in 2015 compared to 2014 primarily due to the release of uncertain tax positions related to former GMO non-regulated operations in the third quarter of 2014 which resulted in:
$2.1 million lower after-tax interest expense in 2014; and
$6.1 million of income tax benefits in 2014.

40


Gross Margin
Gross margin is a financial measure that is not calculated in accordance with GAAP.  Gross margin, as used by Great Plains Energy and KCP&L, is defined as operating revenues less fuel and purchased power and transmission. Expenses for fuel and purchased power and certain transmission costs, offset by wholesale sales margin, are subject to recovery through cost adjustment mechanisms, except for KCP&L's Missouri retail operations prior to September 29, 2015, when a cost adjustment mechanism was approved.  As a result, operating revenues increase or decrease in relation to a significant portion of these expenses.  Management believes that gross margin provides a meaningful basis for evaluating electric utility's operations across periods because gross margin excludes the revenue effect of fluctuations in these expenses.  Gross margin is used internally to measure performance against budget and in reports for management and the Great Plains Energy Board.  The Companies' definition of gross margin may differ from similar terms used by other companies.
ELECTRIC UTILITY RESULTS OF OPERATIONS
The following table summarizes the electric utility segment results of operations.
 
 
2016
 
2015
 
2014
 
 
(millions)
Operating revenues
 
$
2,676.0

 
$
2,502.2

 
$
2,568.2

 
Fuel and purchased power
 
(590.1
)
 
(608.7
)
 
(742.5
)
 
Transmission
 
(84.8
)
 
(89.1
)
 
(74.7
)
 
Other operating expenses
 
(990.2
)
 
(940.2
)
 
(906.4
)
 
Costs to achieve the anticipated acquisition of Westar
 
(15.9
)
 

 

 
Depreciation and amortization
 
(344.8
)
 
(330.4
)
 
(306.0
)
 
Operating income
 
650.2

 
533.8

 
538.6

 
Non-operating income and expenses
 
2.3

 
1.7

 
13.5

 
Interest charges
 
(196.1
)
 
(190.9
)
 
(183.0
)
 
Income tax expense
 
(164.3
)
 
(120.8
)
 
(125.6
)
 
Net income
 
$
292.1

 
$
223.8

 
$
243.5

 
Reconciliation of gross margin to operating revenue:
 
 
 
 
 
 
 
Operating revenues
 
$
2,676.0

 
$
2,502.2

 
$
2,568.2

 
Fuel and purchased power
 
(590.1
)
 
(608.7
)
 
(742.5
)
 
Transmission
 
(84.8
)
 
(89.1
)
 
(74.7
)
 
Gross margin (a)
 
$
2,001.1

 
$
1,804.4

 
$
1,751.0

 
(a) 
Gross margin is a non-GAAP financial measure. See explanation of gross margin under Great Plains Energy's Results of Operations.

41


Electric Utility Gross Margin and MWh Sales
The following tables summarize electric utility's gross margin and MWhs sold.
 
 
 
%
 
 
 
%
 
 
 
Gross Margin (a)
2016
 
Change(c)
 
2015
 
Change(c)
 
2014
 
Retail revenues
(millions)
 
Residential
$
1,092.5

 
9

 
$
1,006.2

 
(2
)
 
$
1,025.5

 
Commercial
1,066.0

 
6

 
1,001.0

 
1

 
995.2

 
Industrial
229.6

 
3

 
222.3

 
(1
)
 
225.3

 
Other retail revenues
20.9

 
3

 
20.4

 

 
20.3

 
Provision for rate refund
(9.6
)
 
N/M

 

 

 

 
Energy efficiency (MEEIA)(b)
80.0

 
55

 
51.5

 
81

 
28.5

 
Total retail
2,479.4

 
8

 
2,301.4

 

 
2,294.8


Wholesale revenues
142.0

 
(3
)
 
147.1

 
(34
)
 
222.6

 
Other revenues
54.6

 
2

 
53.7

 
6

 
50.8

 
Operating revenues
2,676.0

 
7

 
2,502.2

 
(3
)
 
2,568.2


Fuel and purchased power
(590.1
)
 
(3
)
 
(608.7
)
 
(18
)
 
(742.5
)
 
Transmission
(84.8
)
 
(5
)
 
(89.1
)
 
19

 
(74.7
)
 
Gross margin
$
2,001.1

 
11

 
$
1,804.4

 
3

 
$
1,751.0


(a) 
Gross margin is a non-GAAP financial measure. See explanation of gross margin under Great Plains Energy's Results of Operations.
(b) 
Consists of recovery of program costs of $49.3 million, $42.9 million and $20.7 million for 2016, 2015 and 2014, respectively, that have a direct offset in utility operating and maintenance expenses, recovery of throughput disincentive of $15.1 million, $8.6 million and $7.8 million for 2016, 2015 and 2014, respectively, and a performance incentive of $15.6 million for 2016.
(c) 
N/M - not meaningful
 
 
 
%
 
 
 
%
 
 
 
MWh Sales
2016
 
Change
 
2015
 
Change
 
2014
 
Retail MWh sales
(thousands)
 
Residential
8,774

 
2

 
8,585

 
(4
)
 
8,971

 
Commercial
10,796

 

 
10,777

 
(1
)
 
10,827

 
Industrial
3,149

 
(1
)
 
3,191

 

 
3,200

 
Other retail MWh sales
115

 
(1
)
 
116

 
(1
)
 
117

 
Total retail
22,834

 
1

 
22,669

 
(2
)
 
23,115

 
Wholesale MWh sales
7,063

 
9

 
6,512

 
(14
)
 
7,587

 
Total MWh sales
29,897

 
3

 
29,181

 
(5
)
 
30,702

 
Electric utility's residential customers' usage is significantly affected by weather. Bulk power sales, the major component of wholesale sales, vary with system requirements, generating unit availability, transmission availability, fuel costs, and requirements of other electric systems. Electric utility's revenues contain certain recovery mechanisms as follows:
KCP&L's Kansas retail rates contain an Energy Cost Adjustment (ECA) tariff. The ECA tariff reflects the projected annual amounts of fuel, purchased power, emission allowances and asset-based off-system sales margin. These projected amounts are subject to quarterly re-forecasts. Any difference between the ECA revenue collected and the actual ECA amounts for a given year (which may be positive or negative) is recorded either as a reduction of fuel and purchased power expense (for under-recoveries) or a reduction of retail revenues (for over-recoveries) and deferred as a regulatory asset or liability to be recovered from or refunded to Kansas retail customers over twelve months beginning April 1 of the succeeding year.
KCP&L's Kansas retail rates contain a Transmission Delivery Charge (TDC) rider. The TDC tariff reflects a mixture of historical and projected costs related to transmission service, certain RTO fees, transmission rate base, and transmission operating and maintenance expense. These costs are subject to an annual true-up with a twelve month recovery period. The TDC true-up is recorded either as a reduction of transmission expense (for under-recoveries) or a reduction of retail revenues (for over-recoveries) and deferred as a

42


regulatory asset or liability to be recovered from or refunded to KCP&L's Kansas electric retail customers. The TDC became effective in conjunction with new retail rates on October 1, 2015.
KCP&L's Missouri retail rates contain a Fuel Adjustment Clause (FAC) tariff under which 95% of the difference between actual fuel cost, purchased power costs, certain transmission costs and off-system sales margin and the amount provided in base rates for these costs is passed along to KCP&L's customers. The FAC cycle consists of an accumulation period of six months beginning in January and July with FAC rate approval requested every six months for a twelve month recovery period. The FAC is recorded either as a reduction of fuel and purchased power expense (for under-recoveries) or a reduction of retail revenues (for over-recoveries) and deferred as a regulatory asset or liability to be recovered from or refunded to KCP&L's electric retail customers. The FAC became effective in conjunction with new retail rates on September 29, 2015.
GMO's electric retail rates contain a FAC tariff under which 95% of the difference between actual fuel cost, purchased power costs, certain transmission costs and off-system sales margin and the amount provided in base rates for these costs is passed along to GMO's customers. The FAC cycle consists of an accumulation period of six months beginning in June and December with FAC rate approval requested every six months for a twelve month recovery period. The FAC is recorded either as a reduction of fuel and purchased power expense (for under-recoveries) or a reduction of retail revenues (for over-recoveries) and deferred as a regulatory asset or liability to be recovered from or refunded to GMO's electric retail customers.
GMO's steam rates contain a Quarterly Cost Adjustment (QCA) under which 85% of the difference between actual fuel costs and base fuel costs is passed along to GMO's steam customers. The QCA is recorded either as a reduction of fuel and purchased power expense (for under-recoveries) or a reduction of retail revenues (for over-recoveries) and deferred as a regulatory asset or liability to be recovered from or refunded to GMO's steam customers.
Both KCP&L and GMO offer energy efficiency and demand side management programs to their Missouri retail customers under MEEIA and recover program costs, throughput disincentive and as applicable, certain performance incentives in retail rates. KCP&L and GMO recover these items through a rider mechanism. For program costs, the difference between the amount collected and actual program costs is recorded either as a reduction to utility operating and maintenance expense (for under-recoveries) or a reduction to retail revenues (for over-recoveries) and is deferred as a regulatory asset or liability to be recovered from or refunded to customers. For throughput disincentive, the difference between the amount collected and the actual throughput disincentive is recorded as an increase to or reduction of retail revenues and is deferred as a regulatory asset or liability to be recovered from or refunded to customers. The performance incentive is recorded as an increase to retail revenues and a receivable to be recovered from customers.
Electric utility's gross margin increased $196.7 million in 2016 compared to 2015 primarily driven by:
an estimated $111 million increase due to new retail rates and an estimated $37 million increase due to new cost recovery mechanisms for KCP&L in Missouri effective September 29, 2015, and in Kansas effective October 1, 2015;
an estimated $38 million increase due to warmer weather with a 16% increase in cooling degree days in 2016;
a $6.4 million increase for recovery of program costs for energy efficiency programs under MEEIA, which have a direct offset in utility operating and maintenance expense;
a $6.5 million increase in MEEIA throughput disincentive;
a $15.6 million MEEIA performance incentive recognized in 2016 related to the achievement of certain energy savings levels in the first cycle of KCP&L's and GMO's MEEIA programs; and
an estimated $9 million decrease due to a decrease in weather-normalized retail demand.

43


Electric utility's gross margin increased $53.4 million in 2015 compared to 2014 primarily driven by:
an estimated $36 million increase due to new retail rates for KCP&L in Missouri effective September 29, 2015, and in Kansas effective July 25, 2014 and October 1, 2015;
a $22.2 million increase for recovery of program costs for energy efficiency programs under MEEIA, which have a direct offset in utility operating and maintenance expense, primarily due to the implementation of KCP&L's MEEIA programs in August 2014;
a $7.2 million increase for recovery of renewable energy costs under RESRAM, which have a direct offset in utility operating and maintenance expense;
an estimated $6 million increase from weather-normalized retail demand;
an estimated $20 million increase in other margin items including a change in customer mix, lower fuel and purchased power expenses that are not included in fuel recovery mechanisms and an increase in transmission costs recovered through the transmission delivery charge rider that began in the fourth quarter of 2015;
an estimated $19 million decrease due to lower wholesale margins partially offset by an estimated $14 million due to lower fuel and purchased power expense at KCP&L in Missouri, where there was no fuel recovery mechanism prior to September 29, 2015;
an estimated $9 million decrease due to higher transmission expense; and
an estimated $24 million decrease due to weather driven by a 19% decrease in heating degree days in 2015 and a 15% decrease in cooling degree days in the second quarter of 2015 partially offset by an 18% increase in cooling degree days in the third quarter of 2015.
The following table provides cooling degree days (CDD) and heating degree days (HDD) for the last three years at the Kansas City International Airport. CDD and HDD are used to reflect the demand for energy to cool or heat homes and buildings.
 
 
 
%
 
 
 
%
 
 
 
2016
 
Change
 
2015
 
Change
 
2014
 
 
 
 
 
 
 
 
 
 
CDD
1,585
 
16
 
1,370
 
8
 
1,266
 
 
 
 
 
 
 
 
 
 
HDD
4,296
 
(6)
 
4,578
 
(19)
 
5,666
 
 
 
 
 
 
 
 
 
 
Electric Utility Other Operating Expenses (including utility operating and maintenance expenses, general taxes and other)
Electric utility's other operating expenses increased $50.0 million in 2016 compared to 2015 primarily driven by:
a $4.8 million increase in pension expense corresponding to the resetting of pension expense trackers with the effective date of new retail rates;
a $6.4 million increase in program costs for energy efficiency programs under MEEIA, which have a direct offset in revenue;
a $4.9 million increase in plant operating and maintenance expense;
a $7.9 million increase in injuries and damages expense primarily due to an increase in estimated losses from an unfavorable judgment in ongoing litigation; and
a $13.7 million increase in general taxes driven by higher property taxes and higher gross receipts taxes due to an increase in retail revenues.

44


Electric utility's other operating expenses increased $33.8 million in 2015 compared to 2014 primarily driven by:
a $22.2 million increase in program costs for energy efficiency programs under MEEIA, which have a direct offset in revenue, primarily due to the implementation of KCP&L's MEEIA programs in August 2014;
a $7.2 million increase in amortization of deferred renewable energy costs under RESRAM, which have a direct offset in revenue;
an $8.7 million increase in general taxes driven by higher property taxes; and
a $10.0 million decrease in Wolf Creek operating and maintenance expenses primarily due to decreased refueling outage amortization of $3.6 million and $8.7 million from a planned mid-cycle maintenance outage in 2014.
Electric Utility Costs to Achieve the Anticipated Acquisition of Westar
Electric utility's costs to achieve the anticipated acquisition of Westar of $15.9 million in 2016 reflects consulting fees, certain severance expenses and other transition costs related to the anticipated acquisition of Westar.
Electric Utility Depreciation and Amortization
Electric utility's depreciation and amortization expense increased $14.4 million and $24.4 million in 2016 compared to 2015 and 2015 compared to 2014, respectively, due to capital additions.
Electric Utility Non-Operating Income and Expenses
Electric utility's non-operating income and expenses decreased $11.8 million in 2015 compared to 2014 primarily due to a $13.2 million decrease in the equity component of AFUDC primarily due to a lower average construction work in progress in 2015 due to environmental upgrades at KCP&L's La Cygne Station being placed into service.

Electric Utility Interest Charges
Electric utility's interest charges increased $5.2 million in 2016 compared to 2015 primarily due to a $7.9 million increase in interest expense related to KCP&L's issuance of $350 million of 3.65% Senior Notes in August 2015; partially offset by a $2.2 million decrease in interest expense due to KCP&L's purchase in lieu of redemption of its $50.0 million and $21.9 million EIRR Series 2005 bonds in September 2015.
Electric utility's interest charges increased $7.9 million in 2015 compared to 2014 primarily due to a $7.2 million decrease in in the equity component of AFUDC primarily due to a lower average construction work in progress in 2015 due to environmental upgrades at KCP&L's La Cygne Station being placed into service.

Electric Utility Income Tax Expense
Electric utility's income tax expense increased $43.5 million in 2016 compared to 2015 due to increased pre-tax income. Electric utility's income tax expense decreased $4.8 million in 2015 compared to 2014 primarily due to decreased pre-tax income.
GREAT PLAINS ENERGY SIGNIFICANT BALANCE SHEET CHANGES
(December 31, 2016 compared to December 31, 2015)
Great Plains Energy's cash and cash equivalents increased $1,281.8 million due to a portion of the proceeds from Great Plains Energy's October 2016 common stock and depositary share offerings.
Great Plains Energy's time deposit increased $1,000.0 million due to an investment made with a portion of the proceeds from Great Plains Energy's October 2016 common stock and depositary share offerings.
Great Plains Energy's derivative instruments - current assets increased $80.7 million due to a $79.3 million mark-to-market gain on interest rate swaps entered into in June 2016 to hedge against interest rate fluctuations on future issuances of long-term debt expected to be issued to finance a portion of the cash consideration for the anticipated acquisition of Westar.

45


Great Plains Energy's commercial paper increased $110.8 million due to an increase in commercial paper of $158.2 million at GMO due to borrowings for capital expenditures and general corporate purposes partially offset by the repayment of $47.4 million of commercial paper at KCP&L with funds from operations.
Great Plains Energy's current maturities of long-term debt increased $381.0 million and long-term debt decreased $379.9 million due to the reclassification of KCP&L's $250.0 million of 5.85% Senior Notes and $31.0 million of 1.25% EIRR Series 1992 bonds and Great Plains Energy's $100.0 million of 6.875% Senior Notes from long-term to current.
Great Plains Energy's deferred income taxes increased $170.9 million primarily due to an increase in temporary differences and changes in the projected utilization of net operating loss carryforwards, primarily driven by bonus depreciation.
Great Plains Energy's asset retirement obligations increased $40.1 million primarily due to an increase in cost estimates for the closure of ponds and landfills containing coal combustion residuals (CCRs) at KCP&L electric generating facilities.
Great Plains Energy's common stock increased $1,570.3 million primarily due to $1.55 billion in net proceeds from Great Plains Energy's public offering of 60.5 million shares of common stock in October 2016.
Great Plains Energy's cumulative preferred stock $100 par value decreased $39.0 million due to the redemption of its 390,000 shares of outstanding cumulative preferred stock in August 2016.
Great Plains Energy's preference stock without par value increased $836.2 million due to the issuance of Series B Preferred Stock in conjunction with Great Plains Energy's October 2016 depositary share offering. See Note 14 to the consolidated financial statements for additional information.
CAPITAL REQUIREMENTS AND LIQUIDITY 
Great Plains Energy operates through its subsidiaries and has no material assets other than the stock of its subsidiaries and cash and cash equivalents and a time deposit to be used to fund a portion of the cash consideration for the anticipated acquisition of Westar.  Great Plains Energy's ability to make payments on its debt securities and its ability to pay dividends is dependent on its receipt of dividends or other distributions from its subsidiaries, proceeds from the issuance of its securities and borrowing under its revolving credit facility.
Great Plains Energy's capital requirements are principally comprised of debt maturities and electric utility's construction and other capital expenditures.  These items as well as additional cash and capital requirements, including the anticipated acquisition of Westar, are discussed below.
Great Plains Energy's liquid resources at December 31, 2016, consisted of $1.3 billion of cash and cash equivalents on hand, a $1.0 billion time deposit that matures in the first quarter of 2017 and $912.1 million of available borrowing capacity from unused bank lines of credit and receivable sale agreements.  The available borrowing capacity consisted of $199.0 million from Great Plains Energy's revolving credit facility, $464.3 million from KCP&L's credit facilities and $248.8 million from GMO's credit facilities.  See Notes 4 and 11 to the consolidated financial statements for more information regarding the receivable sale agreements and revolving credit facilities, respectively. Generally, Great Plains Energy uses these liquid resources to meet its day-to-day cash flow requirements, and from time to time issues equity and/or long-term debt to repay short-term debt or increase cash balances. However, the $1.3 billion of cash and cash equivalents on hand and the $1.0 billion time deposit at December 31, 2016, are primarily the result of Great Plains Energy's equity issuances in October 2016, the proceeds of which are to be used to fund a portion of the cash consideration for the anticipated acquisition of Westar.
Great Plains Energy intends to meet day-to-day cash flow requirements including interest payments, retirement of maturing debt, construction requirements, dividends and pension benefit plan funding requirements with a combination of internally generated funds and proceeds from short-term debt. From time to time, Great Plains Energy issues equity and/or long-term debt to repay short-term debt or increase cash balances. Great Plains

46


Energy's intention to meet a portion of these requirements with internally generated funds may be impacted by the effect of inflation on operating expenses, the level of MWh sales, regulatory actions, compliance with environmental regulations and the availability of generating units.  In addition, Great Plains Energy may issue equity, equity-linked securities and/or debt to finance growth. 
For a description of Great Plains Energy's financing activities and the remaining portion of its proposed financing plan with respect to the anticipated acquisition of Westar, see Note 2 to the consolidated financial statements.
Great Plains Energy also has a 364-day $5.1 billion senior unsecured bridge term loan facility to support the anticipated acquisition of Westar and provide flexibility for timing of long-term financing. See Note 11 to the consolidated financial statements for additional information.
Cash Flows from Operating Activities
Great Plains Energy generated positive cash flows from operating activities for the periods presented. The $30.9 million increase in cash flows from operating activities for Great Plains Energy in 2016 compared to 2015 was primarily driven by new retail rates for KCP&L and warmer weather. Other changes in working capital are detailed in Note 3 to the consolidated financial statements.  The individual components of working capital vary with normal business cycles and operations.
The $54.9 million increase in cash flows from operating activities for Great Plains Energy in 2015 compared to 2014 was primarily due to a $34.2 million increase driven by a decrease in solar rebates paid to customers and an increase in the recovery of costs subject to fuel recovery mechanisms of $76.0 million, partially offset by a decrease in net income of $29.8 million and a decrease driven by deferred refueling outage costs of $23.7 million.
Cash Flows from Investing Activities
Great Plains Energy's cash used for investing activities varies with the timing of utility capital expenditures and purchases of investments and nonutility property.  Investing activities are offset by proceeds from the sale of properties and insurance recoveries.
In 2016, Great Plains Energy purchased a time deposit of $1.0 billion with a portion of the proceeds from Great Plains Energy's October 2016 common stock and depositary share offerings.
Great Plains Energy's utility capital expenditures decreased $67.7 million in 2016 compared to 2015 primarily due to a decrease in cash utility capital expenditures related to infrastructure and system improvements.
Great Plains Energy's utility capital expenditures decreased $96.6 million in 2015 compared to 2014 primarily due to a decrease in cash utility capital expenditures related to environmental upgrades at KCP&L's La Cygne Station.
In January 2014, KCP&L and GMO completed the sale of two SPP-approved regional transmission projects, at cost, to Transource Missouri, LLC for cash proceeds of $37.7 million.
Cash Flows from Financing Activities
Great Plains Energy's cash flows from financing activities in 2016 reflect gross proceeds of $1.6 billion from the issuance of 60.5 million shares of common stock at a public offering price of $26.45 per share and gross proceeds of $862.5 million from the issuance of 17.3 million depositary shares each representing a 1/20th interest in a share of Great Plains Energy's Series B Preferred Stock at $50 per depositary share. Great Plains Energy paid $40.1 million for the redemption of its 390,000 shares of cumulative preferred stock and $143.6 million in issuance fees related to common stock and depositary share issuances, establishing Great Plains Energy's bridge term loan facility and a payment to OMERS pursuant to a stock purchase agreement.
Great Plains Energy's cash flows from financing activities in 2015 reflect KCP&L's issuance, at a discount, of $350.0 million of 3.65% Senior Notes that mature in 2025, with the proceeds used to purchase in lieu of redemption $71.9 million of EIRR bonds and repay short-term borrowings.


47


Great Plains Energy's cash flows from financing activities in 2014 reflect increased short-term borrowings at KCP&L primarily driven by capital expenditures and pension funding contributions.
Impact of Credit Ratings on Liquidity
The ratings of Great Plains Energy's, KCP&L's and GMO's securities by the credit rating agencies impact their liquidity, including the cost of borrowings under their revolving credit agreements and in the capital markets. After the announcement of the anticipated acquisition of Westar, Moody's Investors Service placed its long-term ratings of Great Plains Energy on review for downgrade and Standard & Poors' Ratings Services revised its outlook of Great Plains Energy, KCP&L and GMO from stable to negative. The Companies view maintenance of strong credit ratings as extremely important to their access to and cost of debt financing and to that end maintain an active and ongoing dialogue with the agencies with respect to results of operations, financial position and future prospects. While a decrease in these credit ratings would not cause any acceleration of Great Plains Energy's, KCP&L's or GMO's debt, it could increase interest charges under Great Plains Energy's 6.875% Senior Notes due 2017 or Great Plains Energy's, KCP&L's and GMO's revolving credit agreements. A decrease in credit ratings could also have, among other things, an adverse impact, which could be material, on Great Plains Energy's, KCP&L's and GMO's access to capital, the cost of funds, the ability to recover actual interest costs in state regulatory proceedings, the type and amounts of collateral required under supply agreements and Great Plains Energy's ability to provide credit support for its subsidiaries.
As of February 23, 2017, the major credit rating agencies rated Great Plains Energy's, KCP&L's and GMO's securities as detailed in the following table.
 
Moody's
 
Standard
 
Investors Service
 
& Poor's
Great Plains Energy
 
 
 
 
 
 
 
Outlook
 
Review for downgrade
 
 
 
Negative
 
Corporate Credit Rating
 
-
 
 
 
BBB+
 
Preferred Stock
 
Ba1
 
 
 
BBB-
 
Senior Unsecured Debt
 
Baa2
 
 
 
BBB
 
 
 
 
 
 
 
 
 
KCP&L
 
 
 
 
 
 
 
Outlook
 
Stable
 
 
 
Negative
 
Senior Secured Debt
 
A2
 
 
 
A
 
Senior Unsecured Debt
 
Baa1
 
 
 
BBB+
 
Commercial Paper
 
P-2
 
 
 
A-2
 
 
 
 
 
 
 
 
 
GMO
 
 
 
 
 
 
 
Outlook
 
Stable
 
 
 
Negative
 
Senior Unsecured Debt
 
Baa2
 
 
 
BBB+
 
Commercial Paper
 
P-2
 
 
 
A-2
 
A securities rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency.
Financing Authorization
Under stipulations with MPSC and KCC, Great Plains Energy and KCP&L maintain common equity at not less than 30% and 35%, respectively, of total capitalization (including only the amount of short-term debt in excess of the amount of construction work in progress).  KCP&L's long-term financing activities are subject to the authorization of the MPSC.  On June 30, 2016, KCP&L's MPSC authorization to issue long-term debt expired. KCP&L will seek new authorization if and when it is deemed necessary.

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KCP&L's and GMO's short-term financing activities are subject to the authorization of FERC. In November 2016, FERC authorized KCP&L to have outstanding at any one time up to a total of $1.0 billion in short-term debt instruments through December 2018. At December 31, 2016, there was $867.1 million available under this authorization. In February 2016, FERC authorized GMO to have outstanding at any one time up to a total of $750.0 million in short-term debt instruments through March 2018. At December 31, 2016, there was $548.1 million available under this authorization.
KCP&L and GMO are also authorized by FERC to participate in the Great Plains Energy money pool, an internal financing arrangement in which funds may be lent on a short-term basis to KCP&L and GMO.  At December 31, 2016, there were no outstanding payables under the money pool.
Significant Financing Activities
Great Plains Energy
Great Plains Energy has an effective shelf registration statement for the sale of unlimited amounts of securities with the SEC that became effective in March 2015 and expires in March 2018. In September 2016, Great Plains Energy filed a post-effective amendment to its shelf registration statement to register depositary shares and preference stock among the types of securities that Great Plains Energy may offer and sell.
In October 2016, Great Plains Energy completed a registered public offering of 60.5 million shares of common stock, without par value, at a public offering price of $26.45 per share, for total gross proceeds of approximately $1.6 billion (net proceeds of approximately $1.55 billion after issuance costs). Great Plains Energy plans to use proceeds from the offering to fund a portion of the cash consideration for the anticipated acquisition of Westar.
In October 2016, Great Plains Energy also completed a registered public offering of 17.3 million depositary shares, each representing a 1/20th interest in a share of Great Plains Energy's Series B Preferred Stock, without par value, at a public offering price of $50 per depositary share for total gross proceeds of $862.5 million (net proceeds of approximately $836.2 million after issuance costs). Great Plains Energy plans to use proceeds from the offering to fund a portion of the cash consideration for the anticipated acquisition of Westar.
KCP&L
KCP&L has an effective shelf registration statement providing for the sale of unlimited amounts of notes and general mortgage bonds with the SEC that was filed and became effective in March 2015 and expires in March 2018.
In August 2015, KCP&L issued, at a discount, $350.0 million of 3.65% unsecured Senior Notes, maturing in 2025.
Debt Agreements
See Note 11 to the consolidated financial statements for information regarding revolving credit facilities and term loan facility related to the anticipated acquisition of Westar.

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Projected Utility Capital Expenditures
Great Plains Energy's cash utility capital expenditures, excluding AFUDC to finance construction, were $609.4 million, $677.1 million and $773.7 million in 2016, 2015 an