Q2 2020 Evergy Inc Earnings and Sustainability Transformation Plan Call
Conference call at this time, all participants are in they listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assistance. During the conference. Please press star zero on your Touchtone telephone as a reminder, this conference is being re.
<unk> I would now like Dan the conference over to your host Ms. Lori Wright.
Thank you good morning, everyone welcome to energy second quarter call. Thank you for joining US. This morning. Today's discussion will include forward looking information like too and it just come join our EFI finally, competing with some of the factors that could cause future results could differ materially for me where expectations.
And it could additional information on non-GAAP financial measures. The release issued this morning, along with today's webcast slides and supplemental financial information for the quarter are available on the main HR web site at investors dot ever Jeep dotcom.
On the call today, we have carried bassam Energy's, President and Chief Executive Officer, and Tony Somma, Executive Vice President and Chief Financial Officer. Other members of management, a witness and will be available. During the question to answer portion of the call I'll now turn the call over Kerry.
Thanks, Laurie and good morning, everybody.
We've got a lot of positive news to discuss today, including our new sustainability transformation plan.
And a solid second quarter results.
So our new plan sets the stage for significant value creation in a strong future forever GE and our stakeholders.
Well begin todays call with a deeper dive into the STP and its benefits then due to the quarter and your questions.
Turning first to slide four.
As you know earlier this year the board established a new strategic review and operations committee to evaluate and recommend ways to enhance value for shareholders and all the company's stakeholders.
Among the options considered wore a potential strategic combination and a modified improved standalone operating plan and strategy.
Both the committee and the board as a whole we're well advised to these efforts with each returning independent financial advisors and consultants to assist in their review.
The work over the past four months has been extensive.
The committee in our financial advisors engaged with a number of third parties, who may have been interested in a combination.
Also took a fresh look at each element of our operating plan, including our investment priorities are opportunities for cost savings and operating efficiencies and how and where we allocate capital.
Throughout the review we were focused on three core objectives.
Maximizing long term value for our shareholders, serving the best interests of all ever do stakeholders, including our customers employees and communities.
And continuing to advance our work to successfully create a forward thinking.
Tangible energy company.
The plan, we're announcing today delivers on all of these objectives.
Accordingly, the committee unanimously recommended and the board unanimously approved pursuing our sustainability transformation plan that we are excited to announce today.
Turning to slide five.
Our plan creates a compelling value proposition for shareholders.
Under our plan, we will meaningfully increase our earnings growth to 6% to 8% through 2024.
Compared to our previous guidance of 5% to 7%.
This increase growth rate places ever GE and the top quartile of all U.S. electric companies together with our growing dividend or do you will have a compelling shareholder return profile.
This growth will be enabled by increased capital investment as well as continued operational cost efficiencies to minimize the impact on customer rates.
Under our new plan, we expect approximately 8.9 billion of capital investments through 2024, and infrastructure upgrades grid modernization technology, and clean energy initiatives across Kansas and Missouri.
The incremental 1.4 billion in capital investments compared to our part plan, which we announced in March of this year is expected to support an estimated 5% to 6% compound annual rate base growth through 2024.
I want to point out that there are additional opportunities related to de carbonization and renewables deployment that are not included in our STP, which could support further investment depending on outcomes from our stakeholder engagement process.
This process is underway as we update our long term energy plan.
We believe these potential incremental investment opportunities a realistic and achievable given the support for clean energy at the state local level in Kansas, and Missouri and from our customers.
As you know through the realization of the benefits associated with our prior merger, we have enhanced our planning processes that support system investment.
Also demonstrated our ability to execute on our identified cost management initiatives.
With the quantity and timing of merger savings well ahead of our initial targets.
This execution drives our confidence in achieving continued cost reductions and the growth outlined here under a range of scenarios.
Slide six how lots the growth opportunity in our earnings in rate base that I, just discussed and shows the 25% reduction and no one ever expenses, we expect achieved through 2024.
Let me just got cheese discuss each of these in greater detail starting on slide seven.
Since completing our merger we have regularly reviewed our capital investment plans to ensure that we are investing at levels and in areas that drive the greatest benefits for customers and the greatest value for our shareholders.
Over time, we have adjusted our investment planning accordingly.
Work conducted by the strategic review and operations Committee helped identify additional investment opportunities across our transmission distribution and generation infrastructure as well as our customer focused investments.
The Stps incremental 1.4 billion a capex to bring the five year totaled approximately 8.9 billion results, an estimated 5% to 6%.
Annual rate base growth.
Looking to slide eight.
Our capital plan is focused on additional investments to accelerate de carbonization and grid modernization.
Continuing to be cost conscious financially strong and people first culture fundamentals that are core to average use foundation.
The result is greener more reliable.
Portable energy for our customers and line of sight to continued earnings growth and value creation for ever do shareholders.
Over the next five years, we expect to invest 4.8 billion in upgrades to transmission and distribution infrastructure and customer facing platforms to improve reliability provide further access to renewable energy and enhance the customer experience.
Or do you plan also contemplates approximately 500 million of assets hardening grid automation and technology investments through 2024 to create the grid of the future.
This includes expediting the evolution to a smarter more reliable and more efficient grid.
Increasing our renewable footprint as a priority that we have discussed and that we have acted on.
Since 2005, everybody has retired more than 2400 megawatts of fossil generation and added our contracted for over 4600 megawatts of renewables.
Making Kansas number two in the nation for wind generation as a percentage of total generation.
Our new plan has the potential to X without steel to emission reductions.
By pursuing constructive regulatory mechanisms economically retire coal fired generation and expand averages wind and solar footprint.
Through these actions, we can drive lower fuel and purchase power costs as well as though an m. savings, which helped keep our customers bills competitive in the region.
Well, we're still targeting 80% reduction and CEO to emissions about 2050 compare to 2005 levels under this plan, we have the potential to reduce sale to emissions as much as 85% about 2030.
Material improvement in our CFO to footprint over the next 10 years.
The types of this reduction will ultimately be to find in collaboration with stakeholders as we seek to find the most beneficial economic path forward for our customers.
We are excited about the opportunities ahead, and we are already well on our way to meet our goals.
They have to power to homes and businesses. We serve comes from emission free Wars resources.
And our clean charge network includes over 1080 charging station and continues to expand.
Slide nine maintaining a solid financial foundation has always been front and center for us.
As reviewed on slide nine our plan requires no equity issuances and average you will continue to have a strong credit profile.
Well I will review, our liquidity and financial activities in greater detail in his remarks.
When we announced our review we affirmed our commitment to serving the best interest all ever do you stakeholders, including average use employees customers and communities.
This commitment is unwavering and our plan delivers on.
Slide 11 reviews, our new growth plan as contrasted against our prior expectations, including growth in our capital investments right base and earnings as well as continued growth and averages dividends.
Result, as an attractive investment outlook and meaningful shareholder value creation.
To sum up on slide 12, we are confident in this plan and the opportunities it creates to drive significant value for our shareholders and stakeholders like.
It allows us to target top quartile shareholder returns.
Deliver on regulatory and merger commitments invest in critical infrastructure and accelerate our transition to providing more affordable and cleaner energy and project jobs, while enhancing economic development opportunities.
We look forward to continuing to engage with our regulators as we execute on this plan.
Now, let's turn to the quarter, where we delivered solid results in our outlook for the year.
We reported second quarter GAAP earnings of 59 cents per share compared to 57 shoot a share earned in second quarter of 2019.
Adjusted earnings per share were 68 in the second quarter of 2020 compared to adjusted 58 cents per share and the same period a year ago.
On a period over period basis. These results were driven by favorable weather.
Cost reduction efforts and lower shares outstanding partially offset by the negative sales impact of cobot 19, and a noncash income tax adjustment due to a new Kansas law that will eliminate state income taxes for electric utilities.
Also we initiated our 2020 EPS guidance.
On a GAAP basis is $2.66 to to 86 and on the adjusted non-GAAP basis.
$2.90 to $3.10.
Tony give you more details on the outlook and drivers of this guy.
I'm very proud of our team has executed during these trying times.
Delivering solid results during extenuating circumstances underscores our teams continued focus on safety customer service and operational performance.
As a response the pandemic has evolved we are seeing economy, starting to open up back overtime.
Well some of our larger manufacturing companies, maybe working at slightly reduced up glitter shifts by enlarge their operating at a much higher level then in April and May.
Our electric set electric sales are down year over year, but we saw an increase in demand towards the end of the quarter.
I'll, let Tony give you more specifics on sales.
Well, a pandemic precautions altered the legislative sessions in our states.
Our two components of the recently passed Kansas House, Bill 25, 85 relevant average.
The first provides for specialty economic development rates in Kansas.
Similar to what is allowed in Missouri.
Provision give the KCC authority to approve right contracts outside of a general proceeding.
Based on utilities incremental cost of service for customers that meet certain criteria.
It allows for rate incentives that could attract businesses to kansas or encourage expansion of existing customers.
But otherwise may not be possible.
Second portion of the Bill eliminates the Kansas State income tax Republic electric utilities.
Becomes effective on January one 2021.
Both of these are very positive for our customers and our communities.
In July and inline with expectations part two of the Kansas rate study was filed.
Like part one which was filed in January the study provided thoughtful analysis of multiple issues impacting Kansas electric rates and how they compare to our regional states.
Much of the focus on the second Kansas Right study is on the competitiveness of rights, which is very much in line with the thesis underpinning our merger.
Study demonstrates our strategy is working and since closing the merger in 2018, our rates have declined at a faster pace than our neighboring states.
Additionally, the study supports our investment in modernizing and expanding the transmission grid that serves Kansas, which improves electric reliability and increases access to electricity generated from Kansas wind farms.
Now moving to the regulatory front, we've continued to work closely and collaboratively with our regulators to ensure we are representing all stakeholders as we adapt to dealing with the impacts of cold 19.
We suspended disconnects through mid July and we'll continue to weigh late fees for our customers in both Kansas and Missouri.
Additionally, with commission approval, we've introduced additional payment plans to allow businesses additional payment flexibility.
And to provide residential customers with extended payment plan options.
Kansas Corporation Commission approved our request for an accounting authority order that allows us to track expenses lost revenue at any cost offsets associated with Tobin 19 to be considered for recovery in our next rate cases.
We have a similar request for an accounting authority order pending in Missouri.
The MPSV has set a procedural schedule schedule and we expect a ruling by the end of the year.
In June the KCC approved in order to review, our strategic review and operations committed.
Also approved a joint motion filing by the company, along with the KCC staff, which and to provide detail around certain timing confidential adults you concerns.
Now that our board has made a final determination and our process. We're working to submit a report back to the KCC inline with the requirements of the order.
I'll now turn the call over to Tom.
Thanks, Terry Good morning, everyone ill start with slide 17.
We reported second quarter 2020, GAAP earnings of 59 cents per share compared to 57 cents per share in the second quarter of 2019.
The increase in EPS is primarily due to warmer weather lower operation and maintenance expense from fewer shares outstanding partially offset by the negative impacts of Cowen 19.
Income tax legislation in Kansas.
As Terry mentioned effective January 120, 21 public electric utilities in Kansas will become income tax exempt.
As a result in June we booked 13.8 million of income tax expense from the impact a revaluation.
Deferred income tax assets and liabilities not recovered and rates from nonregulated operations and from the difference in the statutory tax rates recovered through rates and the consolidated income tax rate.
Well, we plan to file for change in income tax expense, reflecting the rates effective January 120, 21, the new law allows for Kansas utilities to recover in a regulatory account and you are under collection of income tax expense as result of a change in state for federal law.
Moving onto adjusted non-GAAP earnings, which were 68 cents per share compared to 50 is for Schick 58 cents per share in the same period a year ago.
As shown in the chart on Slide 16, adjusted EPS was driven higher primarily due to favorable weather lower on one of them and fewer shares outstanding.
And was partially offset by lower weather normalized sales.
Primarily due to cope with 19, which we estimate cost us about eight cents.
Turning to weather compared to last year, we estimate whether favorably impacted earnings by 10 cents in the quarter and compared to normal we estimate earnings were helped by about six cents.
Moving on to slide 18, I'll touch on year to date results.
Year to date GAAP earnings were $202 million or 89 cents per share compared to $239 million were 96 cents per share in the same period last year.
Adjusted earnings were $248 million or a dollar nine per share compared to year today 2019, adjusted earnings at $251 million or dollar one per share.
Primary drivers compared to last year include lower sales, primarily due to cope with 19, which we estimate cost us about nine cents higher depreciation expense and an increase in interest expense, partially offset by lower I want them expense and fewer shares outstanding.
Our team continues its focus on operational efficiency to lower operating costs and exceed our savings targets in the second quarter, we reduced our adjusted own them by $25 million, that's through the first half of the year by $62 million.
That equates to more than a 10% reduction adjusted operating costs for the first six months of operations in 2020 as compared to last year.
As far as merger savings goal. We remain ahead of schedule expect to exceed our initial 2020 merger savings target.
These savings regain without sacrificing operating capabilities and we recently announced another voluntary exit program for our employees.
As for weather compared to last year, we estimate weather was two cents unfavorable year to date and compared to normal we estimate earnings were flat.
Slide 19, I'll give you some details on the sales impact from Cobot 19.
Commercial industrial sales decline reached a trough in April and started to improve in May and June all the while being partially offset by increased residential usage driven by folks staying at home.
These trends are consistent with what we observed as businesses started to reopen throughout the quarter.
For the second quarter and compared to the same period last year, our estimated weather normal as total real to retail sales were about 7% lower.
Residential sales were up about 5% for our commercial industrial sales declined 13% and 12% respectively.
We remain optimistic in terms of our local economy slowly reopening however, it's hard for us to predict if the situation will continue to improve or take a step back depending on the future impacts of the virus.
Moving on to slide 20 in our latest financing activities and liquidity.
As you May recall, we announced on April 2nd that average you, Kansas Central issued 500 million a 30 year first mortgage bonds at 3.54% proceeds were used to redeem 250 million of 5.1% bonds.
Matured mid year.
In May as you Metro issued 400 million of 10 year mortgage bonds at 2.25%. This financing activity allowed us pay downs short term debt at very attractive long term rates and further bolster our liquidity position.
Women June with total liquidity of approximately $2 billion and do not expect new issuances or refinancing activity throughout the remainder of the year as Terry discussed we are able to fund our new plan without any new equity issuances and maintaining a solid investment grade profile.
Now wrapping up on slide 21 for reasons, we stated on our year end call. We did not issue annual earnings guidance for 2020.
Accordingly, now, reaching 2020, GAAP EPS guidance of $2.66 to $2, an 86 cents adjusted EPS guidance of $2.90 to $3 and 10, we're still expecting declining year over year weather normalized sales outlook assumes a slow and steady recovery throughout the third and fourth quarter some of the additional drive.
This would include a reduction of 8%, 11% adjusted own them expense compared to 2019.
Depreciation expense around 20% $30 million higher than last year.
Coli proceeds of $20 million and we've received roughly about for my answer to the end of June and then effective tax rate of 13% to 15%.
Ill now turn the call back to Terry.
Hi, Thank you Tony.
Now we will be happy to take your questions.
Ladies and gentlemen, if you have a question at this time. Please press Star then the number one on your Touchtone telephone. If you have a question that has been answered or you wish to remove yourself from the Q. Please press the pound key.
Your first question comes from Shar Pourreza from Guggenheim Partners.
Good morning, our Terry and Tony.
Good morning good.
So a couple of questions here first it's obviously a very robust plan you put out there has there even been any partial vetting with Missouri and Kansas.
And you sort of conversations with the commissions. Obviously, you know you have a five year base rate freeze in Kansas and conversations we've had with both commissions in the past seems to center on them wanting your fully embedded regulatory process in place before enacting plans like that so what's the right podium to seek recovery the timing of when.
You think you'll seek recovery when what sort of gives you. This since the plan is going to be palatable for them and any sense on the bill impact on this plan.
Yes, so first of all sharp.
Yes, we have been talking to our regulators recall in particular on the on the Kansas side that the.
Investigation, if you will but the request by the staff to set up the docket.
Was.
Specifically addressing these issues and if you recall, we actually supported.
Confidential sharing of information with the staff only but we we have been talking to them along with this kind of dialogue for several weeks and in fact, they made it clear that they don't have a preference for strategic versus.
Standalone plan to evaluate both.
And in general and going through the materials that have obviously been worked on by the Srlc in and the board.
They've made it clear that their filing was addressing.
The original filing was addressing the concerned over the public information.
That was in the Elliot letter and outline their concerns there.
We are.
Very confident that the STP was prepared with those.
Points in mine and that.
We will have then involved in whats.
Expected to be a very good stakeholder process to discuss all these issues, we think STP will meet each of their concerns going forward.
The process looked like we've talked about stakeholder process that would involve the kind of things you mentioned the regulators might want which is long term energy plan as a base for that conversation, but now obviously, we have the STP as well to discuss.
Were excited about the opportunity that it provides us for not only additional on m. activity to drive cost, but also investment in things that will drive better reliability and more certainty for customers and also provide us with ability to move forward with our de carbonization efforts.
And that stakeholder process will provide us with a lot of support when we go to work on regulatory and legislative support for that.
Finally, I think you're less your last question with Bill impact.
I think we we believe that as the bill impact will be.
It will be very low and in fact in Kansas in particular less than.
Relation.
Could be slightly higher in Missouri simply because of the pizza piece of it but it would be again.
Lesser as well. We're this is Tony start were under the Pizza cap, yes, certainly under the piece of caps.
Got it perfect Thats helpful. And then just into this is going to take some time for you guys to go through this process can you just maybe talk a little bit about the profile that six to eight should we assume it's a little bit more back end loaded as we seek recoveries I mean are ease the increase in that growth rate driven by the back half with 24 and then just.
On top of that the seven 700 million of the capital growth opportunities is kind of predicated on bell type spending which may or may not transpire. So.
Do you still feel that.
Kind of with the plan you have you have enough levers in place to sort of hit that 6% to 8% if the l. TEP spending doesn't really transpire.
Hey sharp.
So as far as the profile filed the 6% to 8%, it's not going to be perfectly linear as you mentioned, we have a little bit of.
Back in lifts just from the rate cases going into effect, Missouri race.
Would go under.
Starting probably January one of 23, Kansas year after that so it's not going to be perfectly linear.
As far as as far as the L. tipped spending goes if we're not able to effectuate spending on those assets, we have plenty in the in the.
In the future that we could pull forward that we can spend money on of other investment opportunities whether it be good monetization and good hardening et cetera.
Sure we've talked about before having up having a backlog there, but certainly of the process. We've been through over the course, the last three or four months has given us a lot more.
Visual if you will to a 10 year plan of.
Again, modernizing the grid and upgrading for reliability technology and customer focus.
Programs.
Got it terrific guys I'll jump back in the queue and allowed us to asked thanks guys.
Your next question comes from Durgesh Chopra from Evercore.
Hi.
Hey, good morning team. Thanks for taking my question.
Good morning.
Maybe to the extent that you can comment on this can you maybe provide us a little bit more color on to the strategic review process.
Did you actually receive offers.
Of combination and if you did then ultimately you decided to go ahead with the Standalone plan I don't know I'm not sure. If you can actually comment on that or not but just any color on that process would be appreciated.
Yeah, what out what I would tell you that the committee conducted a robust and comprehensive process. We had advisors for both the committee and for the company.
And yes, we did engage with a number of third parties.
And without getting into a lot of the detail in the end.
The committee and the board both agreed that based on that work and that review that our Standalone plan produced.
A better long term shareholder return profile and that that was absolutely the best way to move forward.
Understood appreciate that appreciate that and then maybe just real quick and I'll jump back into queue. You mentioned, a couple additional opportunities, including new will on their new will front outside of this current capex plan, what sort of what should we what are the timelines for those what are the milestones that we should be looking out in.
In terms of you getting approval for those those kinds of expenditures.
Yes, I'll, let I'll, let Kevin Bryant talk a minute about opportunities.
He worked on the that portion of the Srlc.
DP work, yes, so in terms of the opportunity that we ought to slide from that and the deck. The described in more detail kind of grid mine, but it's all the things you'd expect to meal updating conductors poll circuit breakers aging infrastructure. So timeline wise, we also plan to file our integrated resource plan in the first quarter of next year.
And so we also describe our long term energy plan process. The Terry mentioned, which is working with stakeholders through the balance of this year to build support and ultimately file that integrated resource plan, which will set the generation planting expectations for the foreseeable future. So that's probably the biggest most notable milestone timeline wise.
Understood. Thanks, guys I'll I'll jump back into queue. Thank you.
Thank you.
Your next question comes from Julien.
The Molen Smith.
Hey, good morning, everyone. Thanks for the time I appreciate it good morning.
Hey, Howdy.
If I, if I can jump in a little bit.
I see a lot of discussion on on distribution spending et cetera can you talk a little bit more about coal retirements.
Securitizations specifically in the context of legislation in those states and how that might eventually fit into this plan.
Both in terms of incremental opportunities as well as to what extent that is already reflected are assumed in order to make those generation renewable investments that you've identified.
Yes, I'm going to ask Jeff Keinsley, who leads our community regulatory.
Legislative process so Chuck.
Yes, I mean, the securitization has been an issue that has been filed both in Missouri and in Kansas couple last couple of years and we have been in conversation with multiple stakeholders over the last six months and believe that in the next year, so passing securitization would be some.
Nothing that is achievable and both states and in fact as recently as as this morning and yesterday, we've had conversations.
Legislative leaders, and both Missouri, and Kansas, but we believe the stakeholder coalition exists can move that forward positively obviously, when you're talking about dealing with retiring.
Coal assets.
A mechanism for recovery on something like that would be necessary precursor to to be able to effectuate that part of a plan.
Just to clarify your current plan does not assume.
Legislation slash securitization in terms of what that would lead you for the the.
The slated capex here.
So on the very back end of the plan and assumes.
A couple of year process to work through the securitization and ultimately regulatory processes. It does assume retirement.
On coal in the back end of the plan and investment in renewables.
I think it's in the 2024 time period.
Thanks for clarifying and I can just clarify further on the EPS CAGR.
How do you think about how reasonable that is against that specific target I know that there could be some lumpiness.
You, obviously have some pretty ambitious own him targets I mean.
Should we expect to see this ratably, especially in the near years or do you think that this is more back end weighted.
Hey, good morning, Julien This is Tony as I said earlier snacks to be perfectly linear there they'll be a little bit lift on the back end simply because thats when new rates are going to go into effect, an interim period, we will rely on.
Reducing our OEM that will improve our cash flows to help fund. This on this investment thesis.
Okay, all right I heard earlier, thank you very much appreciate it.
Your next question comes from Steve Fleishman.
Wolfe research.
Yeah, Hey, good morning.
The I.
I guess first question on the.
Strategic decision.
Maybe you could give some color.
From the standpoint of.
You mentioned that you think this plan and get the best value.
But how much was kind of the risk of.
Of approval of a third party plan part of the decision making.
So there is value, but there's also risk.
How much was at risk versus value.
Well, obviously, Steve the probably the greater risk.
Part of the process would have been on the better side. So obviously they would look at their opportunity for success in making.
Bids.
In the end as you look at it always effects both.
But there's.
Certainly we think the Standalone plan as we presented today is less risky and more likely to be successful and create more value than.
Then a merger situation based on information we gathered through the the process winter.
Okay.
And then on the on the Kansas side.
The review of the information that they asked for and the like.
As you given this new Standalone plan is there any process.
That's kind of expected after you get this to them.
In terms of kind of reviewing the Standalone plan or is that just.
Are you do you expect that Theyre, they're just going to take the information encana.
Move on from that.
So what I, what I would expect is.
I'm sorry to interrupt you.
No no. Thank you.
No what I would expect is number one as part of the investigation.
We are required to provide a report once a decision is made and so we'll be filing a report.
In the coming weeks that outlines the outcome of the process. So they'll receive that and then what we expect is that the commission staff would participate with other parties and our stakeholder process.
We'll be going through this plan as well as a long term energy plant and that's where we would expect to be able to talk about that and as I've said, obviously, they've already seeing information that the board and Srlc saw so we we certainly are.
In front of them from that perspective and I.
I think based on all that we would expect to see through the fall a review and input from stakeholders one of the opportunities here that I mentioned in my comments.
Is the ability to.
Ill move up de carbonization than our fleet and although there needs to be some legislative and regulatory work done there. We've we believe based on our conversations that both states have been supportive of that conversation. So while we would continue to have that with them as well as it applies to ultimate approval of the.
Rate case, part or recovery parts of the STP.
Got it.
Then one last question and apologize to ask about that kind of ratability.
Well, if the growth again, but.
So you're one of the growth.
2020 is obviously well below the six eight.
If you look at your 2020 guidance.
Some due to covert but just as you.
Yes is it fair to say besides the your one are there the other years all generally in that six to eight range.
Yes, just you maybe give some sense of the extent of the hockey stick yeah, so to speak.
Hey, Steve This is Tony there may be maybe on the lower end of the range.
And the first couple of years, as we were ramping up spending and and on the capital side on the offset we would love to own them to help you know obviously reduce that regulatory lag and then on the back end, obviously, we're filing rate cases, and so you're going get.
Little bit of a lift for those rate cases going into effect in 2023 and twentytwenty for.
I would not I would not characterize it as a hockey stick though.
Right. Okay. So it's kind of the succeed and just maybe.
Maybe in the lower half of beginning and then upper half at the end or something like that.
Roughly.
Yep, that's that's a trajectory if you will.
Perfect Thats helpful. Thank you.
Thank you.
Your next question comes from Michael Lapidus with Goldman Sachs.
Hey, guys. Thank you for taking my question and congratulations on a good quarter.
I think an easy one which is when we think about where we're in the business for 2020 wine maybe 2022 in the biggest opportunities growing in the word gionee cost reduction or cost management are off of the level, you're going to hit 2020, I don't want to look back to 2018 that was.
A long time ago.
I want to use this year, where do you think the biggest cost reduction opportunities for year, one a year or two of this plan really lie within the business.
Hey, Good morning, Michael This is Tony.
From the from the STP plan perspective.
Roughly 30% of the savings will come on the generation side.
Another 30% on the TMD side, you have about 20% coming from the Gionee, and then 10% from IP and 10% coming from roughly customer care.
Those are kind of the approximate breakout percentages of I want to him.
Reduction.
And that's.
Over the five year that in the next year. So is that if that's okay. That's that's over the five year horizon.
Okay.
About the first couple of years five years long time away well the world's going to change 10 times in five years.
Just trying to think about what happens in the next one that too.
Well, we will be executed we will be executing on that plan and I don't know that in any particular period.
One functional areas going to ill do the other as far as cost savings goal.
But part of art will work.
Part of work over this process is that we've done a de benchmarking.
And spent time review in those areas. So it gives us a lot of clarity around where those things would come from.
Got it and we don't think about plant retirements.
Do you see material plant retirements in the next call. It two to three years or is that more kind of backend loaded.
Yes.
The plant retirements, we would be talking about are obviously coal plants will that address Seo two issues.
And that fits in with the discussion around securitization and regulatory processes.
That would support.
Support that process being moved up so it would not be closures in the next couple of years.
Got it.
Thank you and one last question then it's a little just kind of detail oriented stopped.
Any plan regarding what you what the level of holding company debt versus operating company debt to look like over time, and kind of where yard today versus where you would like to be.
So Michael we're we're like this kind of stay around that 20% holding company debt.
Compared to total debt outstanding next kind of a Moody's.
Metric and were well below that today.
Got it thank you Tony I'm not sure appreciate it thanks, guys, but take your questions.
Thank you.
Again, ladies and gentlemen, if he would like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.
Your next question comes from Paul Patterson with Glenrock Associates.
Hey, good morning.
I think Paul.
Just a few quick follow ups.
What was the gating factor.
That.
Obviously, you guys have always been looking at Capex and modernizing the grid and.
And opportunities in that area and what have you but.
What was the gating factor that said Hey, we can we can do this.
An increase or earnings and everything.
What.
Was there any crucial factor I guess that sort of led you to two this or.
Could you give us a little bit more of a flavor as to what the strategic review.
Did in terms of.
Illuminating these opportunities for you.
Yes. So there was no one single factor, obviously first and foremost we we have commitments we made under the merger approvals.
In both our states and so that was a beginning spot that we were absolutely going to be sure we could.
Meat under any revised plan scenario.
Secondly, we continue to work to make our cost to customers.
More competitive.
And continue to reduce when compared to our regional peers that's through our.
Again commitment around the freeze in the merger and so those two things were extremely important. We also wanted though to be able to within that context to be able to drive additional investment, which would allow us number one to grow the business for shareholders benefit, but also began to.
Update the grid and.
Decarbonize at a quicker pace, so I know I've, given you more than a several but they all had to fit together and I think thats. What are the key is it. The work was how do we bring those together and do it in a fashion, which improves upon our ability.
To invest our growth rate, but yet doesn't raise rates for customers.
As I said above inflation in Kansas takes advantage of pizza, which was there.
As a avenue that Missouri supports.
And then when you put all that together to be able to see how that might compare to other options.
And we were very confident that this STP is.
Absolutely the better option in front office today for long term shareholder value.
Okay fair enough the inflation rate.
So we're talking about the customer impact in Kansas, We're expecting something in the neighborhood for completion is and that's why did that with the 2%, which route as it looking out or is it something else.
It's kind of this CPI, Paul I mean.
To that two and half or so.
Okay.
And then finally, the 90 day.
The information sharing agreement.
Could you elaborate a little bit them on what that's.
What the what that what that's about I guess.
Yes, if you looked at how the plan was originally put together we were moving forward with.
With both path one path to if you will as they were all but we extended the time for a review of strategic options.
When cobot occurred and so we began our work and completed our work on the STP.
Opportunity and once we came to a conclusion on the strategic opportunity we thought it best to make the announcement to shareholders.
They are still a piece of the Srlc charter, which discusses their continued work with the board.
To make recommendations around benchmarks and KBR as far tracking success of the STP and to assist and collaborate with the board on the optimal management team and so those things had not been done yet and so we agreed to with L. It around the 90 day period for that too.
Okay, great. Thanks, so much for the input.
Uh-huh. Thank you.
Hi, I'm showing no further questions at this time I would like to turn the conference back to Mr. Terry Bassham.
Thank you and thank you everybody for joining obviously.
We're excited to.
Be moving forward with the SDP, we look forward to working with our regulators and our stakeholders and we look forward to talking to each of you more as we continue to progress down our path. So thank you very much for joining look forward to talking to you in the future.
Ladies and gentlemen, this does.
Conclude today's conference call. Thank you for participating you may now disconnect.
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