Westar Energy Inc. last Thursday filed a comprehensive plan with the Kansas Corporation Commission (KCC) outlining how the company intends to reduce debt and become exclusively an electric utility. The plan calls for Westar to sell its non-utility and non-core assets, reduce its common dividend and refocus the company solely on its electric utility operations.

Westar said that when it is fully implemented, the plan will reduce the company’s debt to the level appropriate for Westar’s utility operations in accordance with previous KCC orders. Westar is filing the plan to comply with an order issued by the KCC in late 2002.

The KCC issued an order in November requiring Westar to execute financial and corporate restructuring. The following month, the KCC said that Westar would have to transfer certain of its utility operations to a utility-only subsidiary by the start of August 2003. The decision also required that the consolidated debt of all of the company’s utility businesses not exceed $1.67 billion.

The target date for completing Westar’s plan is year-end 2004. The plan was filed publicly. Only commercially sensitive information related to pricing and negotiating strategy for divesting non-utility investments was filed confidentially.

“When the plan is fully implemented, Westar Energy will be a pure electric utility company with a sound capital structure and investment-grade credit quality, providing safe, adequate, reliable and affordable electric service to our Kansas customers,” said James Haines, Westar CEO.

Westar noted in its filing that since November 2002, it has identified and has begun eliminating 12 organizational entities to simplify the company’s structure. Also, it has terminated or reversed agreements that might prevent or impede returning to being solely an electric utility.

Westar also told the KCC that it has raised $300 million for debt reduction through a sale of ONEOK stock to ONEOK on Feb. 5. In addition, the board of directors has established a dividend policy that will lower the common dividend by 37% to an indicated annual rate of $0.76 per share from the current indicated rate of $1.20 per share. Savings will be used to reduce debt.

Westar’s move to lower its dividend follows on the heels of this week’s announcement by El Paso Corp. that it is slashing its dividend 82% as it struggles to right its financial ship. El Paso also plans to sell off $2.9 billion in assets, the company disclosed on Wednesday.

Other power companies that have reduced or suspended their dividend payouts over the past year include: CMS Energy, Allegheny Energy, Alliant Energy, Aquila, TXU, Xcel Energy, Dynegy, Williams, Puget Energy and Centerpoint.

Westar said that the planned dividend reduction and the sale of ONEOK stock that closed Wednesday accomplish almost one-fifth of the targeted debt reduction. It plans to sell all of its remaining shares of ONEOK stock in late 2003 and 2004.

Meanwhile, the company is in the process of selling Protection One Europe and is exploring strategic options for divesting its investment in Protection One North America. Westar and Protection One have retained financial advisers to develop strategic alternatives for Protection One, including the possible sale of the company.

More broadly, Westar said that “orderly and deliberate implementation” of the plan will allow the company to maximize proceeds from non-utility asset dispositions to reduce debt. If necessary to reach debt reduction targets, Westar will issue new equity following the sale of its non-utility assets.

Westar will make periodic reports to the KCC to demonstrate progress and “show that electric utility customers are being protected from risks associated with non-utility investments until these investments are divested.” The company expects that a first quarter dividend of $0.19 per share will be declared later this month.

Shares of Westar rallied in the wake of Thursday’s news. The stock finished up more than 5% to $11.42, bucking losses seen in the broader markets. It was an indication Wall Street may be seeing last week’s filing at the KCC as a turning point away from what has otherwise been a string of depressing headlines related to Westar over the past several months.

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