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Westar Energy, Inc. (NYSE:WR)

2012 Annual Shareholder Meeting

May 17, 2012, 11:00 a.m. ET

Executives

Charles Chandler – Director, Westar Board

Mark Ruelle – CEO

Analysts

Unidentified Analyst

Charles Chandler

Good morning. If I could ask everybody to take their seat. It’s kind of tough today to come in from outside. It’s nice out there, so it just makes you want to stay. Well, I’m Charley Chandler and I’m the Chairman of the Westar Energy board. On behalf of the directors, welcome to the 2012 annual meeting of the shareholders of Westar Energy. We appreciate both your investment and your interest by joining us here at the meeting.

With me on the stage is Mark Ruelle, our President and Chief Executive Officer, and also the only member of management who also serves as a member of the board. I’d also like to introduce the other members of the board, all of whom are seated right down here in the front row today, and it looks like quite a lineup. From left to right in the photo: Sandra Lawrence of Leawood; Richard Hawley of Bellevue, Washington; Art Krause of Leawood; Jerry Farley of Topeka; myself; Tony Isaac of Wichita; Mark Ruelle; Carl Soderstrom Jr. of Longwood, Florida; Molly Carter of Salina; R. A. Edwards of Hutchinson; and Mike Morrissey of Leawood.

Rick is the newest member of our board, who you see the second from the last there. Joining us last October, he brings to the board 39 years of business experience that encompasses work as a partner in an international accounting firm, and more than a decade of experience as a Chief Financial Officer in the regulated utility industry, both in natural gas and electric companies. We look forward to him sharing his broad range of knowledge and experience in the areas of finance, operations and regulatory affairs, in addition to his experience as a director of another public company. So welcome, Rick, and we’re glad to have you join us.

Our executive team is also seated in the front of the room with our directors, and I’m not going to introduce everybody but I’ll acknowledge that they’re here. Also joining us today is Michael Contreras, the Engagement Partner, and his colleagues from Deloitte & Touche, our independent accounting firm. And they’re right back here in the third row. In addition, Matt Sunseri, President and Chief Executive Officer of Wolf Creek, is here today as well, I believe. There’s Matt in the second row as well. Glad to have you here, Matt.

So, let’s begin our business meeting then, and vote on the proposals outlined in the proxy statement. Following the business portion of the meeting, Mark will make a few comments and then respond to your questions. Our business meeting, therefore, is now called to order.

I’ve been provided an affidavit attesting to the proper mailing of the proxy and proxy statement to common and preferred shareholders of record as of March 19th, 2012, and that a quorum is present. Now, most of you have already voted. If this is the case, you don’t need to do anything. You don’t need to cast a ballot during the meeting this morning unless you wish to change your vote. If you have not yet voted or you wish to change your vote, please raise your hand and a ballot will be provided to you. Those ballots will then be collected after all business matters have been considered. So, does anybody need a ballot this morning? Okay. Anybody else? Okay, right here. Everybody have one now that needs one? Very good.

We engaged Corporate Election Services to act as the independent proxy tabulator for this meeting, and Mr. Chuck Roberts of Corporate Election Services has been appointed to serve as judge of the election and is present at the meeting, there at the back of the room. The purpose of the meeting is to elect four class one directors for a term of three years, to provide an advisory vote on executive compensation, to ratify and confirm the appointment of Deloitte & Touche as our independent registered public accounting firm for 2012.

The first business matter, proposal one, is the election of four class one directors. The board nominees are myself, R. A. Edwards III, Sandra Lawrence and Michael Morrissey. Information about each director is contained in the proxy statement that each of you would’ve received. Our company’s articles of incorporation allow shareholders to make nominations from the floor at the annual meeting, provided prior written notice is made to our corporate secretary. No such notice was received, therefore there being no other nominations I declare that the nominations are closed. The board has recommended that you vote for all four of the nominees.

The next matter, proposal two, is an advisory vote on executive compensation. It was described again in the proxy statement, and the board has also recommended that you vote for this proposal.

The last business matter to consider, proposal three, is the ratification and confirmation of the appointment of Deloitte & Touche as our independent registered public accounting firm for 2012. Again, the board has recommended that you vote for this proposal.

If you haven’t already voted, please mark your ballots now and vote on all proposals. After you complete marking your ballot, please fold it in half and hand it to one of the ushers. Are there still ballots to be collected? Okay. Are there any other ballots to be collected? If not, I declare the polls closed for each matter voted upon at this meeting. I will pause for a few moments while Mr. Roberts reviews the ballots.

Does the judge have a report on the vote?

Chuck Roberts

Yes, Mr. Chandler, I have a preliminary report for each proposal. On proposal one, each of the nominees received at least 97% of the votes cast in favor of their election. Proposal two, 90% of the votes cast approved the compensation of the named executive officers. And proposal three, 99% of the votes were cast to ratify and confirm the appointment of Deloitte & Touche as the company’s independent registered public accounting firm for 2012.

Charles Chandler

Thank you. Based on the reported results, I declare that Mr. Chandler, Mr. Edwards, Ms. Lawrence and Mr. Morrissey have been elected class one directors of the company, and that the other proposals, as outlined by Mr. Roberts, have been approved by a vote of the shareholders as recommended by the board. The final voting results will be filed with the Securities and Exchange Commission by the close of business on Friday. This concludes, then, the business portion of the 2012 annual meeting, and it will stand adjourned.

Before I hand things over to our President and CEO Mark Ruelle, I want to take a few minutes to talk about the transition of leadership over the past year. You may recall that at last year’s annual meeting it was announced that Bill Moore would retire and that Mark Ruelle, who had then been serving as our Chief Financial Officer, would take over as President and Chief Executive Officer.

As a board, it’s our job to preside over these changes in executive leadership, and it makes our job easier when we can promote qualified individuals from within the ranks of Westar into key leadership positions, with great confidence that they have the ability to provide continuity and strong leadership going forward. Succession planning was a part of Bill Moore’s legacy. He placed high value on developing leaders at all levels within the company. That legacy continues today under Mark’s leadership. Mark has been instrumental in developing and executing Westar’s business strategy, of which succession planning and finding efficiencies are integral. An example of this, today we have fewer executives than we did a year ago.

As folks move around or plan to retire, the executive team is looking at ways to reorganize work to reduce costs and streamline operations, all without sacrificing safety or productivity. Sometimes, change is good. These evolutions ensure Westar remains a solid investment for you and a trusted business partner to its customers. With that, I’m pleased to introduce our President and CEO, Mark Ruelle, to tell you more about the progress of our company in 2011 and some of our plans for 2012. Mark?

Mark Ruelle

Good morning and welcome. Thank you for coming. After working at Westar for about 20 years on two separate occasions, with experience at another utility in between, it’s now my responsibility and pleasure to lead Westar. As a shareholder, you’re behind the power when nearly half of all Kansans flip a switch or turn on a piece of equipment. You own a great company. It makes our homes safer and more convenient and comfortable, and it makes our businesses and our community more productive. And our success is impossible without your continued trust and commitment, so thank you.

Because Westar is subject to all the regulations of being a public company, and we’re here to talk about your investment, before I continue please review this forward-looking statement that basically says that when we talk about things that might happen in the future, it might turn out differently. That’s just kind of the nature of forecasts.

As our industry continues to change, we remain true to our roots, providing Kansas with safe, reliable electricity. That’s all we do. Our employees take pride in doing what it takes to keep our state’s electrical infrastructure strong, and reliable energy is a prerequisite for a strong economy. We’re humbled by our responsibilities. We also work hard to keep it affordable, but making wise investments and managing our expenses. As a result, the prices our customers pay are significantly lower than what most pay elsewhere, about 20% below the national average and lower than any other major utility in our state.

In 2011, we produced earnings of $1.95 per share. That was up about 8% from 2010. These solid results allowed the board of directors again this spring to increase the dividend to an indicated annual rate of $1.32 per share. In 2011, shareholders again earned a very strong return through both dividends and stock price appreciation, although it was about in-line with our peers because the truth is, most basic utilities like Westar did well last year. The year before, we also did well. So for the two-year period, Westar did very well, and even better than our peers. We take great pride in delivering solid financial results for investors, some 20,000 of whom are Kansans, our friends and our neighbors, even our customers. You’ve entrusted us with some of your retirement savings or perhaps your children’s educational or grandchildren’s educational savings, and we take that responsibility and that confidence very seriously.

Electricity is so fundamental to our way of life, it’s almost impossible to imagine doing life without it. So just take a moment and consider the many ways, just this morning, that you used electricity. Alarm clocks, lights, hair dryer, maybe even your toothbrush, coffee maker, cold milk, even the traffic lights that got you here safely this morning, and the lights in this room. And that’s not even considering what institutions and businesses of every type and every kind uses our products for this morning and every morning. These and all the new electronic gizmos, they make life safe, more interesting, more connected, more fun and most of all, really fast. It’s obvious customers value these things, or Apple wouldn’t be the most valuable company in the world, with its stock worth more than the stock of all the utilities like Westar added together. But without electricity to charge and power these devices, they’d be just expensive paperweights. Yet, most customers don’t always stop and think about the always-on electricity it takes to enjoy these and countless other conveniences every day, or that most of them get this daily convenience for a lot less than they might think.

For just a penny, our customers can brew a fresh cup of coffee in the morning. For less than a dime, he or she can catch both the national and the local news, see who got cut from American Idol and even watch a ballgame in big screen and high definition. For less than what it takes to coax a gumball out of a machine these days, you can power your refrigerator for a whole day.

Keeping electricity such a value requires that we balance our customers’ needs with making sure that you as investors get a fair return, all while keeping it safe and reliable. It’s never pleasant to ask customers to pay more for a product, but costs continue to rise, driven in large part by stringent environmental requirements. We can’t let our prices fall too far behind our costs, or become short-sighted, cut corners and sacrifice reliability. Imagine what that would do, if you flipped the switch and nothing happened.

So last year, we approached the Kansas Corporation Commission to adjust our base rate. We reached a compromise earlier this year for just over half of what we requested, and the Commission approved that just a few weeks ago. Now, $50 million, the amount of the increase, is a lot of money, but in the context of an electrical system that takes more than three-quarters of a billion dollars each year just to keep it running, and that doesn’t even include the fuel for our power plants, so you can see that it doesn’t go that far. And in addition to the operating expenses, we’re making ongoing investments in new plants and equipment in amounts well above the cash flow that our business produces. So if we’re to be able to continue to attract new capital by selling our shares, issuing bonds on good, fair terms, we need to keep our prices and our costs aligned.

Let me share with you just a few of the things that this money funds. Last year, we made progress on a number of reliability initiatives. We expanded our Reliabilitree Program beyond Wichita and into Lawrence. This preventive maintenance program improves reliability by addressing the leading cause of power outages – trees in our lines. Of all the things we do to assure that the lights stay on, this is the most effective program we’ve ever undertaken. I’m pleased to say that our regulators, the Kansas Corporation Commission, appreciated too, and authorized additional funding for it.

It’s easy to get caught up in the fads and the trends and the temporary cycles with each type of power plant – coal, natural gas, nuclear, renewables – seemingly coming in and out of favor, as commodity prices change and as government mandates change and regulations change. The fact is, we can’t predict the future, and nor can anyone else. And that’s what proves the merit of a diversified energy portfolio like ours that includes all of these things, all types of energy. So as a result, we continue to make substantial investments in our coal plants, to make them cleaner and to keep them reliable and efficient for decades to come.

At Lawrence Energy Center, we’re nearly complete with a $300 million project to update the plant with state-of-the-art emission controls. This isn’t the first time, maybe not the last time. Lawrence has some of the first sophisticated air quality controls ever installed in our industry, anywhere in the world, but some as far back as 1960, so we have to update and improve them with the latest technology. I’m pleased to report that our employees and our contractors are doing a great job on this project. It’s on schedule and it’s $40 million under budget. You don’t hear that very often. It’s a good thing.

At Jeffrey Energy Center, we’re installing equipment much like a catalytic converter on your car, but a lot more complicated and about the size of this room. It should be complete by 2014, but at a cost of almost a quarter of a billion dollars.

Last fall, we started making environmental upgrades at La Cygne. La Cygne is a power plant that we own half of with another utility. Virtually everything having to do with air quality is being replaced or improved to keep this plant cleaner and reliable for decades to come. Just our half of the improvements in this plant is an investment of more than $600 million.

We’re increasing our commitment to renewable energy as well, something we have to do to comply with the law. Construction is underway on two more Kansas wind farms that, when added to the three we already have, put us ahead of the curve and at a reliable cost, excuse me, at a favorable cost.

We’re also bringing renewable energy awareness to students in a partnership with Topeka schools. If you drove in on I-70 from the west, you might have noticed the new wind turbine, just south of the interstate. It stands high on the district’s Education and Science Park, and Westar is including a number of features to educate Topeka students about the science of electricity.

Of course, a generator isn’t much use if you can’t get the power to where the customers are. So, we continue to make improvements in our transmission system as well. In fact, just last week we cut the ribbon on a new high-voltage line to Oklahoma. We completed it $20 million under budget and ahead of schedule.

Our employees know that what they do contributes to our economy, and everybody’s thinking about the economy these days. High-performing power plants, switches, transformers and networks are critical not just to our business, but to the success of our communities and everyone else’s business as well. Reliable, affordable energy helps us attract new businesses, consequently ushering in more jobs. Plus, whenever we can spread our fixed cost of all this equipment over more customers and more energy sales, that makes us more efficient and keeps our prices lower.

So we continue to encourage economic development. We work with state and local authorities, and new and expanding businesses, to show them the advantages of doing business in Kansas and with Westar. One notable gain last year, as most of you know, Topeka welcomed Mars Chocolate. It’s a company that we’re all familiar with, because of the popular M&Ms candies, my personal favorite, of which I probably eat too many.

With all that we have going on, imagine the ways that someone could get hurt in our business, at our power plants, working at our lines, constructing new equipment, or even while we put millions of miles a year on our line trucks. And I’m proud to say that our employees had their safest year ever. We’ve proven that you can keep the lights on without sacrificing safety.

Your company accomplished a lot last year, and we’re not sitting around this year either. Westar is a complicated business, and it requires us to be flexible and focused. Our ability to peer into the future is pretty limited. It demands that we keep our attention in the right places: maintaining and enhancing our reputation for integrity; developing a sustainable pool of talent, particularly when so many of our baby boomer employees are approaching retirement; satisfying our customers; operating with excellence; working safely; navigating difficult and challenging regulations; delivering the financial results that you expect; and taking good care of our environment. What we do each and every day is encapsulated in these eight points. In fact, there’s a report card that the board of directors holds management accountable for.

So thank you for your continued investment and trust in Westar. At this time, we’d be pleased to take your questions, and if I can’t answer them, I’m confident we have capable people here who can. We have microphones on each of the aisles, or if you’re kind of boxed in and you don’t think you can get there very easily, just raise your hand and we’ll get you a portable mic.

Don’t be shy.

Question-and-Answer Session

Mark Ruelle

Yes, sir, hold on, please and he’ll get you a microphone.

Unidentified Analyst

Thank you, Mr. Chairman. I would like to know, on this storm damage you have throughout the system – I know you had losses down there at Wichita and what do you – do you have a contingency fund, or do you have a fund that – you don’t pay for that out of cash flow, you have a find that you set aside, is that right?

Mark Ruelle

Well, the answer is yes and no. Of course everything has to be paid out of cash flow somewhere, but we do make a prevision for those kind of storms and damage so that we don’t get surprised by them.

Of course that’s an estimate, right, nobody can predict mother nature. So we estimate what those costs should be and take a reserve for that and it’s based on historical storms. But when we have more storms than what we have recently saw in history, that has to come out of current cash flow and it is a bit of surprise.

If you want to speak specifically about the tornado that we just had in Wichita, it was very severe, fortunately, it was very concentrated. Most of that doesn’t require a lot of maintenance and repairs – we actually had to replace new equipment, so most of that is capital expenditures, and in that storm we estimated it cost us about an incremental $5.5 or $6 million.

Yes, sir.

Unidentified Analyst

Can you talk about nuclear and Wolf Creek; how – what the life of plant is going to be and plans afterwards and what are we doing with the waste?

Mark Ruelle

Sure, and if I don’t answer your question satisfactorily, I will encourage you to visit with Matt who manages Wolf Creek, he is the CEO of Wolf Creek, and he’s probably forgotten more about this than I will ever know.

Wolf Creek is originally constructed with a license that take us to 2025. Because of the quality of that plant, how it’s been operated and run over the Nuclear Regulatory Commission for another 20 years. In fact, Wolf Creek is one of the youngest plants to get such authorization. So we now have a license life that will take us through 2045.

Now you should assume that that extra 20 years is free – it’s not. A lot of the equipment will have to be maintained and replaced over the years, and it’s more costly to maintain a plant that is 25 or 30 or 40 years old than it is to maintain and operate a plant that is young. So we’ll see increase cost for that, but it’s still a tremendous asset for Westar and for our customers. With regards to the waste, and as we all know, that when you produce power from nuclear energy, you have a lot of energy that you can’t economically use, and you have to sort [inaudible]. Today, that waste is stored on-site in pools at the plant. As we look at a life extension for that other 20 years, it’s very likely that some of that earliest waste that is now much cooler and much easier to handle will go to what’s called a dry storage on the site. That’s typically how most plants that are older than Wolfe Creek now handle it. They have the newer, younger, more energy intensive fuel spill safely in the pool indoors and the older cooler and safer pools, or fuel, they have in concrete, steel enforced – reinforced vats in secure sites on the plant site.

Unidentified Analyst

About the thermostat program that you have, is that system wide, or is it from the distant peak areas, or…

Mark Ruelle

Well, I believe we’re offering them system wide, but I will ask Jim Ludwig, who is our Executive Vice President of Public Affairs and Consumer Services, to shed a little more light on that.

Jim Ludwig

Happy to. The Watt Saver program, which is what we call the thermostat program, will be available to all customer. In order to run the program cost effectively, we target certain areas so we can deploy people out into those areas and get the best return for the money, get to do it most cost effectively, but over the next few years, that program will be directed towards all of our customers. We expect by the time we’re finished to have installed about 90,000 thermostats. So, it’s been a successful program, it’s been very well received by customers, it’s been very satisfying for customers who have thermostats. If you’re waiting for your time it will come.

Unidentified Analyst

Are there any more questions? Yes, sir.

Unidentified Analyst

Each year I ask the same question, do we, or could we expect the [inaudible] to be no more nuclear plants? I still think that with the efficiency we should have another one-army drawing board like with the Japanese problem and other parts of the world that are getting away from nuclear. Do we still want to continue – and I think we should.

Mark Ruelle

Thank you for your question, and I agree, you saw that Westar thinks we should have a diversified portfolio of energy and of course we have one, and it includes nuclear – Westar is a big fan of nuclear energy. I think it’s nuclear energy is a must for our future as a nation, and the future of our world. Unfortunately, it is very expensive and it comes with concerns that make it cost prohibitive today for Westar to consider a new unit any time in the near future. In fact, there are only two power plants in the United States – two new nuclear plants under construction – both of them are in the early stages and are being pursued by companies much larger than Westar. So, as much as we might like nuclear, and appreciate it’s value, it doesn’t mean that today it would be a suitable investment for Westar, even if it’s important for our nation, there are companies that are better suited to do that than Westar.

Unidentified Executive

Important in perspective, Westar has about $8 billion in assets, it’s very likely that a single new nuclear plant could cost that much. And so, for our risk profile and diversifying your risk as investors, we don’t think it’s a wise investment for us to pursue at this time, but we agree with you that we should continue to advocate for the industry and hopefully those costs will come down, and once again, companies like Westar and place like Kansas can host such technology.

Unidentified Analyst

Are there any more questions? Thank you, there’s a microphone coming to you, Ma’am.

Unidentified Analyst

This is, oh, my goodness, this is too close that’s for sure. The thing is I don’t know exactly what were the company stands now, but when I use to work for it – I mean, I’m saying I’m not there for the physical, the exact touch, but I have put in a couple of requests, and I have not received any call backs. And I want to know why, are you short of employees, do employees not care – I really want to know what’s happening with work there – and I can better explain what those are if you would like.

Mark Ruelle

Thank you, I’ll have – is it pertaining to former employment or as a customer?

Unidentified Analyst

No, as a customer, as a citizen.

Mark Ruelle

Okay.

Unidentified Analyst

One of them was with wetlands and the other one is for the non – well, it used to be they had special rates for different entities and I – the guy I talked to said never heard of it.

Mark Ruelle

Well, thank you for your question and if I could ask you to stay around, I’ll ask Peggy Lloyd who is our Vice President of Customer Care, and she’ll come visit with you and try to address your concerns on that.

Unidentified Analyst

Okay, thank you very much.

Mark Ruelle

Thank you for your question. Are there any other questions? If not, thank you for those of you that were sharing with us with your questions.

Thanks again for coming, but before you leave, I would like to draw your attention to the table at the back of the room. We know that many of you only have time to visit with us at the annual meeting once a year, but for those of you that might be interested in more frequent contact, or even want to help advocate for Westar and your investment, we would like to give you that opportunity.

One pressing issue is if Congress fails to act – if Congress does nothing – your dividends will automatically, and sharply, see higher taxes on them at the end of the year. Many investors across the country are worried about this, and if you are concerned about this and want to know how you can get your voice heard, please stop by the back of the room and visit with those folks and they can share with you some information, or if you’re pressed for time, just go to our website at WestarEnergy.com, under the investors section.

Thank you again for joining us, we take your investment and responsibilities that you have given us very seriously. If you have additional questions, the executive team and I will remain down front after the meeting and will be happy to address any questions or concerns that you didn’t care to share with everyone. And when you exit the building, be sure to check out a couple of electric vehicles that we have out there for you to take a look at, and one of our modern line trucks – they are just outside and could someone get a little more direction, are they to the left? Just go right out front. Thank you.

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