2012 Earnings Overview
Great Plains Energy's 2012 earnings available for common shareholders increased to $198.3 million or $1.35 per share from $172.8 million or $1.25 per share in 2011 driven by:
• new retail rates in Missouri effective May 4, 2011, for KCP&L and June 25, 2011, for GMO;

• favorable weather, with a 15% increase in cooling degree days partially offset by the impact of unfavorable weather during the first quarter of 2012; and

• 2011 included:

•            the impact from flooding along the Missouri River, which decreased
             gross margin by an estimated $16 million due to coal conservation
             and increased other operating expenses $3.3 million;


•            an estimated $11 million decrease in gross margin from an extended
             refueling outage at Wolf Creek;

• $12.7 million of expense relating to a voluntary separation program; and

•            a $2.3 million loss relating to the impact of disallowed
             construction costs for the Iatan No. 1 environmental project and
             Iatan No. 2 and $3.9 million of expenses related to other accounting
             effects of the KCP&L and GMO 2011 MPSC rate orders.

These increases were partially offset by:
• a decrease in weather-normalized retail demand;

• decreased gross margin from lower KCP&L Missouri wholesale sales margin along with increased fuel and transmission expense, partially offset by favorable purchased power expense at KCP&L in Missouri, where there is no fuel recovery mechanism; and

• an estimated $17 million impact at Wolf Creek due to an unplanned outage in the first quarter of 2012, increased amortization from the 2011 extended refueling outage and increased other operating expenses.

In addition, a higher number of shares outstanding due to the issuance of 17.1 million shares in connection with the June 2012 settlement of the purchase contracts underlying the Equity Units diluted earnings per share by $0.07. Gross margin is a financial measure that is not calculated in accordance with Generally Accepted Accounting Principles (GAAP). See the explanation of gross margin and the reconciliation to GAAP operating revenues under Great Plains Energy's Results of Operations for further information. Wolf Creek Regulation and Operating Costs On January 13, 2012, Wolf Creek experienced a loss of off-site power resulting in an unplanned shutdown of the unit. Wolf Creek returned to service on March 27, 2012. The NRC conducted an investigation and increased its oversight of Wolf Creek following the loss of off-site power. Operating costs at Wolf Creek increased during 2012 due to the unplanned outage. Great Plains Energy is expecting operating costs at Wolf Creek during 2013 to remain at these increased levels due to increased NRC oversight and efforts to comply with new industry-wide regulations adopted by the NRC in 2012 after a review of U.S. nuclear power plant safety prompted by Japan's Fukushima Daiichi nuclear power plant event in 2011.
Wolf Creek began a refueling outage on February 4, 2013, and the station is expected to return to service in April 2013. KCP&L Kansas Rate Case Proceedings
In April 2012, KCP&L filed an application with KCC to request an increase to its retail revenues of $63.6 million (subsequently adjusted to $56.4 million), with a return on equity of 10.4% (subsequently adjusted to 10.3%) and a rate-making equity ratio of 51.8%. The request included recovery of costs related to significant upgrades at its generating facilities, including environmental upgrades at the La Cygne Station; investments in additional wind generation; and increased investments in electrical infrastructure. KCP&L also requested that KCC approve a

change to depreciation rates to reflect the increase in plant in service as well as a change to the current method of allocating costs between its Kansas and Missouri jurisdictions to better reflect KCP&L's summer peaking business.

In December 2012, KCC issued an order for KCP&L authorizing an increase in annual revenues of $33.2 million, a return on equity of 9.5% and a rate-making equity ratio of 51.8%. The rates established by the order took effect on January 1, 2013, and are effective unless and until modified by KCC or stayed by a court.
KCP&L Missouri Rate Case Proceedings
In February 2012, KCP&L filed an application with the MPSC to request an increase to its retail revenues of $105.7 million, with a return on equity of 10.4% (subsequently adjusted to 10.3%) and a rate-making equity ratio of 52.5%. The request included recovery of costs related to improving and maintaining infrastructure to continue to be able to provide reliable electric service and also included a lower annual offset to the revenue requirement for the Missouri jurisdictional portion of KCP&L's annual non-firm wholesale electric sales margin (wholesale margin offset).
In January 2013, the MPSC issued an order for KCP&L authorizing an increase in annual revenues of $67.4 million, a return on equity of 9.7% and a rate-making equity ratio of 52.6% (or approximately 52.3% after including other comprehensive income). The rates established by the order took effect on January 26, 2013, and are effective unless and until modified by the MPSC or stayed by a court.
GMO Missouri Rate Case Proceedings
In February 2012, GMO filed an application with the MPSC to request an increase to its retail revenues of $58.3 million for its Missouri Public Service division and $25.2 million for its L&P division, with a return on equity of 10.4% (subsequently adjusted to 10.3%) and a rate-making equity ratio of 52.5%. The requests included recovery of costs related to improving and maintaining infrastructure to continue to be able to provide reliable electric service, costs related to energy efficiency and demand side management programs, and increased fuel costs.
In January 2013, the MPSC issued an order for GMO authorizing an increase in annual revenues of $26.2 million for its Missouri Public Service division and $21.7 million for its L&P division, a return on equity of 9.7% and a rate-making equity ratio of 52.6% (or approximately 52.3% after including other comprehensive income). Included in the increase is recovery of costs for new and enhanced energy efficiency and demand side management programs under the Missouri Energy Efficiency Investment Act (MEEIA). The rates established by the order took effect on January 26, 2013, and are effective unless and until modified by the MPSC or stayed by a court. Transmission Investment Opportunities
In April 2012, Great Plains Energy announced that GPE Transmission Holding Company LLC (GPETHC), a newly-formed wholly owned subsidiary of Great Plains Energy, and AEP Transmission Holding Company, LLC (AEPTHC) formed a new company to exclusively pursue, develop, construct, own and operate competitive electric transmission projects. The new company, Transource Energy, LLC (Transource), is 86.5% owned by AEPTHC, a subsidiary of American Electric Power Company, Inc., and 13.5% owned by GPETHC. Transource plans to initially pursue competitive regional transmission projects in the PJM Interconnection, SPP and Midwest Independent Transmission System Operator transmission regions with plans to pursue competitive electric transmission projects in additional regions as they mature.
GMO has an SPP-approved regional transmission project for the Missouri portion of an approximately 175-mile, 345kV transmission line from Sibley, Missouri to Nebraska City, Nebraska with an estimated cost of $380 million for GMO's portion of the line and an expected 2017 in-service date. KCP&L and GMO jointly have an SPP-approved regional transmission project for an approximately 30-mile, 345kV transmission line, with estimated construction costs of $65 million and an expected 2015 in-service date, from KCP&L's and GMO's Iatan generating station to KCP&L's Nashua substation.
On August 31, 2012, KCP&L and GMO filed a request with the MPSC to authorize the transfer at cost of certain transmission property related to the two SPP-approved regional transmission projects to Transource Missouri, LLC (Transource Missouri), a wholly owned subsidiary of Transource. On August 31, 2012, Transource Missouri filed a

request with the MPSC seeking a Certificate of Convenience and Necessity (CCN) to construct, finance, own, operate and maintain the projects. An MPSC order is anticipated in the third quarter of 2013. Also on August 31, 2012, Transource Missouri filed a request with FERC seeking incentive rate treatment and acceptance of a formula transmission rate to recover the cost of current and future projects. In October 2012, FERC issued an order approving certain incentive rate treatments and conditionally accepting the formula transmission rate for Transource Missouri, subject to the outcome of an administrative hearing or settlement expected during 2013. On February 27, 2013, Transource Missouri and another party to the case filed a settlement with FERC that includes a base return on equity of 9.8% for the formula transmission rate. The settlement is subject to FERC approval. Following approvals from FERC and the MPSC, KCP&L and GMO must also seek approval from the SPP to novate the projects to Transource Missouri. The SPP will then submit its approval of the novation to FERC for final approval. Great Plains Energy expects that final approval will be obtained so that the projects can be transferred within three to six months following the MPSC order.
ENVIRONMENTAL MATTERS
See Note 14 to the consolidated financial statements for information regarding environmental matters.
RELATED PARTY TRANSACTIONS
See Note 17 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 (Board). Pensions
Great Plains Energy and KCP&L incur 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 8 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        2012
                                Change in       Benefit        Pension
Actuarial assumption            Assumption     Obligation      Expense
                                                      (millions)
Discount rate                 0.5 % increase    $ (75.5 )      $ (5.7 )

Pension expense for KCP&L 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. The impact on 2012 pension expense in the table above reflects the impact on GAAP pension costs. Under the Companies' rate agreements, any increase or decrease would be deferred in a regulatory asset or liability for future ratemaking treatment. KCP&L recorded 2012 pension expense of $41.3 million after allocations to the other joint owners of generating facilities and capitalized amounts in accordance with the MPSC and KCC rate orders. GMO records pension expense in accordance with rate orders from the MPSC. The difference between this expense and GAAP expense is recorded as a regulatory asset or liability. See Note 8 to the consolidated financial statements for additional discussion of 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 volatile market conditions.
Regulatory Matters
Great Plains Energy and KCP&L have recorded assets and liabilities on their 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 5 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. 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, 2012. Fair value of the reporting unit 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, EBITDA, net utility asset values and market prices of stock of electric and gas company regulated peers. 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.
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 electric and gas company regulated peers 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. This process requires management to make assessments regarding the timing and probability of the ultimate tax impact. 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.
Additionally, the Company establishes reserves for uncertain tax positions based upon management's judgment regarding potential future challenges to those positions. The accounting estimates related to the liability for

uncertain tax positions require management to make judgments regarding the sustainability of each uncertain tax position based on its technical merits. If it is determined that it is more likely than not a tax position will be sustained based on its technical merits, the impact of the position is recorded in the Company's consolidated financial statements at the largest amount that is greater than fifty percent likely of being realized upon ultimate settlement. These estimates are updated at each reporting date based on the facts, circumstances and information available. Management is also required to assess at each reporting date whether it is reasonably possible that any significant increases or decreases to the unrecognized tax benefits will occur during the next twelve months. See Note 20 to the consolidated financial statements for additional information.
GREAT PLAINS ENERGY RESULTS OF OPERATIONS The following table summarizes Great Plains Energy's comparative results of operations.

                                                          2012          2011          2010
                                                                     (millions)
Operating revenues                                     $ 2,309.9     $ 2,318.0     $ 2,255.5
Fuel                                                      (539.5 )      (483.8 )      (430.7 )
Purchased power                                            (94.0 )      (203.4 )      (213.8 )
Transmission of electricity by others                      (35.4 )       (30.2 )       (27.4 )
Gross margin (a)                                         1,641.0       1,600.6       1,583.6
Other operating expenses                                  (834.1 )      (835.0 )      (779.7 )
Voluntary separation program                                 4.3         (12.7 )           -
Depreciation and amortization                             (272.3 )      (273.1 )      (331.6 )
Operating income                                           538.9         479.8         472.3
Non-operating income and expenses                          (13.2 )        (2.3 )        24.4
Interest charges                                          (220.8 )      (218.4 )      (184.8 )
Income tax expense                                        (104.6 )       (84.8 )       (99.0 )
Loss from equity investments                                (0.4 )        (0.1 )        (1.0 )
Net income                                                 199.9         174.2         211.9
Less: Net (income) loss attributable to
noncontrolling interest                                        -           0.2          (0.2 )
Net income attributable to Great Plains Energy             199.9         174.4         211.7
Preferred dividends                                         (1.6 )        (1.6 )        (1.6 )
Earnings available for common shareholders             $   198.3     $   172.8     $   210.1

(a) Gross margin is a non-GAAP financial measure. See explanation of gross margin below.

2012 Compared to 2011
Great Plains Energy's 2012 earnings available for common shareholders increased to $198.3 million or $1.35 per share from $172.8 million or $1.25 per share in 2011.
Electric utility's net income increased $16.7 million in 2012 compared to 2011 driven by:
• new retail rates in Missouri effective May 4, 2011, for KCP&L and June 25, 2011, for GMO;

• favorable weather with a 15% increase in cooling degree days partially offset by the impact of unfavorable weather during the first quarter of 2012; and

• 2011 included:

•            the impact from flooding along the Missouri River, which decreased
             gross margin by an estimated $16 million due to coal conservation
             and increased other operating expenses $3.3 million;


•            an estimated $11 million decrease in gross margin from an extended
             refueling outage at Wolf Creek;

• $12.7 million of expense relating to a voluntary separation program; and

•            a $2.3 million loss relating to the impact of disallowed
             construction costs for the Iatan No. 1 environmental project and
             Iatan No. 2 and $3.9 million of expenses related to other accounting
             effects of the KCP&L and GMO 2011 MPSC rate orders.

These increases were partially offset by:
• a decrease in weather-normalized retail demand;

. . .