Q4 2020 Evergy Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter 2020 average you incorporated earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session you will need to press Star then one on your telephone.
Please be advised for today's call is being recorded.
It required just for system you May Press Star, then zero switched and operator I would now like to hand, the call over to Lori Wright. Please go ahead.
Thank you Michele good morning, everyone and welcome to average fourth quarter call. Thank you for joining US. This morning. Today's discussion will include forward looking information slide too and it gets quota share on our SEC filings contain a list of some other factors that could cause future results to differ materially from our expectations.
And include additional information on non-GAAP financial measures.
Release was issued this morning, along with today's webcast slides and supplemental financial information for the quarter are available on the main page of our website at investors day ever G Dot com.
On the call today, we have David Campbell Energy's, President and Chief Executive Officer, and Kirk Andrews Executive Vice President and Chief Financial Officer. Other members of management are with us and will be available. During the question and answer portion of the call I will now turn the call over to David.
Thanks, Lori and good morning, everyone. It is my pleasure to join you on my first earnings call as CEO. This is an exciting time for our company. We delivered strong financial performance in 2020 and have a tremendous opportunity to maintain our momentum and accompanying sustainability transformation plan our S E T.
Before I jump into our results, let me touch on some observations in my new role as.
You know I joined on January for just under two months ago Acclimating to a new company is quite different in this COVID-19 environment, even though I am not able to meet as many people in person as I would like I still enjoy enjoyed engaging with the teams remotely to get up to speed.
And I've enjoyed hosting various introductory meetings with important stakeholders, including our regulators in Kansas and Missouri and many of you listening in today I look forward to building deeper relationships as we move forward.
When I first began discussions with the board about joining the company I've spent time examining the F T P and the objectives it aims to achieve.
I was attracted by the many value creating opportunities and a strong fit with my skills and industry experience.
As CEO I've been able to gain more visibility into the plan and I believe the value opportunities for both our customers and our shareholders are just beginning to be appreciated by the street.
Ultimately my role is to optimize the plan and accelerate the pace of execution as possible and appropriate.
As we advance down the path I'm confident that evergreen can become one of the best highest performing all electric utility.
An important part of our journey will be our fleet transformation opportunities customers and communities want reliable affordable and sustainable energy.
Our geographic footprint is ideally suited for wind and well positioned for solar which allow for a path to transform relatively high cost fossil fuels into modern low cost renewables, all while we're ensuring reliability.
We view this position is a competitive advantage one that provides a true win win win as we think about shareholders customers and the environment.
Our current plan, which is comprised mainly of straightforward highly executable efficiency improvements and utility investment.
As the foundation by preparing grid and enabling this compelling fleet transformation pieces over the next decade and beyond.
I've had the opportunity to make my first hire Kirk Andrews joined US on Monday of this week as our executive Vice President and Chief Financial Officer.
You'll hear from Kirk for the first time in a bit this track record of leadership and execution as the CFO his relationships and credibility with the capital markets and his wealth of knowledge and experience will be a tremendous value for our team.
Kirk has been on the average board for the past year and played an integral part in the formation of our C. P. I.
I'm thrilled to have him as a member of the executive team.
Today, we're also announcing further support for our company as a result of agreements with Blue Scape Energy partners and Elliott management.
John Wilder, who has an outstanding reputation for impact in driving value will join our board as a chair of the Finance Committee.
In addition, Senator Mary Landrieu, former three term U S Center for Louisiana and share of the Senate Energy. The Energy Committee will join our board and bring a distinctive knowledge and experience in energy and national policy issues.
Both will help us to execute the SPP and enhance our ability to drive industry, leading performance across our business loose.
Whose gaping Elliott have also committed to standstill and other customary for business.
I will circle back for those agreements later.
Those agreements that we signed today and for our New Board members at the conclusion of my remarks.
Turning now to slide five this morning, we reported full year GAAP earnings of $2 for 72 per share compared to $2 79 per share earned in 2019 adjusted.
Adjusted earnings per share for $3.10 in 2020 compared to $2 89 per share in the prior year.
Ability to overcome the unprecedented challenges for 2020 and deliver at the top end of our adjusted EPS guidance range of $2 95 to 310 per share is a testament to the disciplined execution of our team.
Overall 2020 was a strong year.
We achieved 7% year over year adjusted EPS growth.
We adjust we reduce adjusted O&M by over $120 million or 10% in 2020 compared to 2019.
So for the two full calendar years since creating average age we have reduced adjusted O&M over $250 million nearly 20% delivering the cost reduction opportunity that our team envisioned and well ahead of our merger commitments.
Consistent with our guidance, we raised our dividend, 6% to an indicated annual rate of $2 14 per share.
We invested more than $1 5 billion to enhance reliability customer service create jobs and invest in our communities.
We implemented pandemic response plans, resulting over 2000 employees working from home while those in critical operations functions change their way of doing business and added extra preventative measures to ensure the continued delivery of safe and reliable power.
Wave customer late fees and added payment options to help customers relieve some of the strain caused by the pandemic.
We launched our hometown economic recovery program, which donated over $2 million from our foundation to help local nonprofit customers and communities respond to and recover from the COVID-19 pandemic.
Turning to slide six as you all know we recently experienced an extreme sustained cold weather event.
The worst our region has seen in decades as a result, our regional transmission organization that the southwest power pool had to take the unprecedented step of instituting a level three emergency energy emergency alert.
This required SPP participants to execute emergency load shedding power interruptions, which impacted some of our customers.
Fortunately most of these customers without power for more than a few hours at the longest.
Greatly appreciate our customers' patience as we work through these horrendous conditions.
Coordinate these interruptions in order to prevent the larger or widespread event.
As you can see in the pictures on the slides are.
Our employees experienced those conditions firsthand.
And worked tirelessly to keep the plants and the grid up and running.
Thanks for taking my colleagues enough for their dedication and commitment and braving the elements to keep the lights on for our customers.
With respect to the financial impacts of extreme weather event from roughly February 13th of February 19th.
Evaluation is still ongoing overall, we were pleased with the performance of our generation fleet.
Natural gas availability in particular was a challenge and prices reached historic highs.
Purchase power costs are expected to be higher as well based on initial settlement information from SPP received this week.
In aggregate across our jurisdictions, we estimate that our cost to procure natural gas and purchase power through the event were approximately $300 million.
The purchase power portion of this number is expected to rise as it is not it does not yet include Friday February 19.
More broadly the purchase power costs will also be subject to ongoing review as part of the settlement process.
Over the next 30 to 45 days.
As a general matter, we expect to be able to recover the excess costs associated with the event.
The recovery is likely to occur over time to smooth the impact of customers' Kansas has already passed in order authorizing the creation of a regulatory asset for incremental costs that we and other utilities incurred during the extreme weather event.
With respect to unregulated activities, we have a small power marketing business that historically has earned between 15 and $30 million annually are less than 1% of our gross margin in a given year. After cost is typically equates for approximately <unk> to up to seven of earnings per share.
Activities typically include energy management services, optimizing transmission positions and small trading positions in our book with are closely monitored and limited bar.
The expertise and knowledge developed by the group adds value to our asset management activities in SPP.
During the extreme weather event purchases of firm transmission and a long position in ERCOT were the primary drivers of what is expected to be unusually high gross margin from this group.
Given that settlements are still underway financial analysis is ongoing.
For all the potential impacts are expected to be positive in.
And generate significantly higher results potentially in the range of three times higher relative to the high end of what we earn from power marketing and typically in a typical year. We'll report on this matter as part of our Q1 call.
Slide seven highlights the key elements of our investment thesis.
This morning, we initiated our 2021 earnings guidance with GAAP EPS of $3 14 to $3 34 per share and our adjusted EPS guidance at $3 20 per share for $3 40 per share.
This range does not include the expected positive impacts from power marketing activities during the week of extreme weather.
The $3 30 midpoint for adjusted guidance implies a 7% compound annual growth rate.
From our 2019 adjusted EPS of $2 89.
This is in line with our long term EPS growth target of 6% to 8% from 2019 through 2020 for that we reaffirm this morning, reflecting.
Reflecting the consistent progress that we've made in the initial income implementation phase of the STP.
Our EPS growth target plus current dividend yield of approximately 4%, resulting in a compelling total shareholder return profile of 10% to 12% competitive with other top performing utilities.
For the S&P to to be successful, we need to deliver benefits for all of our key stakeholders.
Our plan was formulated with precisely that objective in mind as summarized on slide eight.
Our cost reduction efforts to date have meaningfully benefited customers.
Evergreens electric rates across Kansas, and Missouri have declined since 2018, while most of our neighboring states have experienced increases over the same time period.
The plant add to this momentum through targeted capital investments that enable long term and sustainable cost reductions as well as substantial fuel and purchase power savings.
These lower operating costs will be reflected in our upcoming rate cases the.
The infrastructure investment will also enhance customer experience through better customer tools and systems, while improving reliability by focusing on grid automation digital communication.
And data analytics capabilities that we don't have today.
It will also contribute to local economic development efforts by creating jobs to implement grid and renewable generation projects.
More broadly a stronger smarter grid and greener energy.
The overall competitiveness of our region.
Slide nine lays out the capital expenditure plan from 2020 through 2025, including adjustments made as part of this year's planning process. The.
The total amount of projected spend from 2021 to 2024 is unchanged.
There have been some relatively minor phasing and other changes for example, the total renewable spend remains of roughly $700 million.
So we're phasing the spend to match up with the publication of the <unk> and our renewable strategy work this year.
In aggregate these changes have no impact on our view of the company's 2020 for earnings power.
Lastly, we added our estimates for 2025 and a range of $1 85 to $2 1 billion, reflecting the robust pipeline of projects that we see for the balance of the decade through 2030.
We plan to discuss 2025 and greater depth as part of our Investor Day later this year.
Slide 10 profiles, what is an increasing area of focus for our company advancing a continuous improvement culture and achieving high performance for key metrics across our business.
As mentioned earlier, we significantly reduced our non fuel operating and maintenance expenses for 2018 to 2020, and we're targeting another 8% reduction by 2024.
Resulting in an overall reduction of 25% relative to the 2018 baseline.
Our reliability performance as measured by safety and safety also improved in 2020 in each case by around 5%.
I am pleased to report that our safety performance in 2020 with some of the best in our company's history. For example, achieving a 50% improvement in the Osha incident rate relative to 2019. These.
These results are a testament to the continued dedication and commitment of our employees even in the face of the harsh pandemic conditions where per.
Out of this strong performance.
But we know that we have ongoing run day to improve.
Stay laser focused on safety execution, and the fundamentals of business performance.
Slide 11 lays out the significant progress we've made.
And our carbon reduction efforts, we've achieved a 51% reduction from 2005 levels, which is far ahead of many of our peer utilities that statistic is often overlooked as is the fact that approximately 55% of the energy that we deliver to our customers is carbon free.
Which also compares favorably to peers.
The FTP include steps to enable the ongoing transition of our generation fleet and progress towards the long term C O two emissions reduction targets.
We expect to have attractive investment opportunities for new renewable generation that diversifies, our portfolio and does so cost effectively taking advantage of the ongoing efficiency gains and the cost of building, new solar wind and storage projects.
Along with investment and economic New renewables, we will also pursue constructive legislation that could facilitate a longer term fleet transformation.
Does that and we've heard some questions around the role of legislation plays in our plan.
The securitization bills that we introduce in Kansas and Missouri. This year are not necessary to achieve the plan nor are they critical to pass this year.
Five year financial forecast does not hinge on the passage of securitization.
While the numbers that we present assume the retirement of coal plant by 'twenty 2020 for that actually contribute to a reduction in rate base of roughly $350 million.
Stepping back securitization as a potential tool that can provide value for customers and the company over time, but it is much more meaningful for our longer term fleet transformation prospects, which are more likely in the second half of this decade and beyond.
That said it can take time for legislative solutions to be passed so now is the time to move the conversation forward.
In parallel our current integrated resource plans or <unk> are well underway underway with current filing dates of April 1st in Missouri and by July one and Kansas.
We are likely to see a shortfall in Missouri in light of the extreme weather event of this month.
We've executed a stakeholder engagement process of our ERP in both states and appreciate the input received from all of our constituents.
While the <unk> reflects a 20 year plan really a set of potential 20th year scenarios. We expect it will provide a helpful roadmap for our future fleet transition advancing the goals of reliability affordability and sustainability.
Later this year, we also expect to update our interim and long term carbon reduction targets either in conjunction with the IRB filings.
Or is part of our Investor day.
We're going to stay current with the dynamics in Washington, and how they might impact our generation transition plans. The extension of the renewable tax credits in December enhancing the competitiveness of wind relative to when we did our initial work in the FTP.
Is a good example, these elements will be important as we advance forward with the renewables development strategy and STP.
We believe that we will be able to frame a compelling proposition for participating directly in to build out an ownership of renewables.
Kirk responsibilities include the leadership of our renewables development efforts and he will play a central role in ensuring that we are well positioned to do this competitively as well chief operating officer, Kevin Bryant and the broader team.
Before I turn it over to Kirk I'll cover slide 12, and discuss the agreements we announced this morning with Blue Scape and Elliot.
As I mentioned when I joined <unk> in January I did so with a firm belief that the STP is the right path forward for our company and our stakeholders.
Considerable analysis went into developing this plan and.
And meaningful progress is being made on it.
We have a strong team across the organization to help ensure we capture the many benefits plan creates the.
The addition of John Wilder and Senator Mary Landrieu to the board brings valuable experience to help the board to oversee the STP and enhance our ability to achieve top quartile and industry leading performance across the company.
John is a proven leader the track record speaks for itself, while Mary brings a wealth of public policy knowledge in areas of critical importance for our company.
I look forward to working with the board to implement the plan and ensure that we deliver on its objectives.
As you've seen Blue scape will also be investing approximately $115 million in <unk> and will have the option to purchase additional shares over the next three years.
This investment represents a clear vote of confidence in <unk>, our team and the value we can achieve through the STP.
In closing our plan is focused on driving value and benefits for all of our stakeholders for.
For 2020 results in 2021 guidance that we announced today. So strong initial momentum and we are reaffirming the 6% to 8% annual growth trajectory through 2020 for.
Over the longer term, we see equally promising opportunities to invest in infrastructure and transform our generation fleet harnessing the renewables potential in our region.
Our all electric utility franchise franchises will also benefit from the tailwind of electrification across the economy.
We look forward to spending more time with you on our investment thesis and strategy at our Investor day in the third quarter.
2020 was an unprecedented year with unprecedented challenges and our team kept our eye on the ball to deliver strong results. We look forward to building on that track record through relentless execution of the FTP in the years ahead I will now turn the call over to Kirk.
Thanks, David and good morning, everyone.
I think just begun my new role here as average you CFO a few days ago I'm pleased to have the opportunity to speak with all of you. So soon into my tenure.
Having served on the company's board as well as on the committee, which oversaw the creation of our sustainability transformation plan was already well aware of the compelling value creating opportunity for the STP represents for <unk> and its stakeholders.
I've known and respected David for many years I was even more compelled by the companys potential under his leadership.
So when he and I began our conversations about my potentially coming in as CFO. The opportunity represented an extremely compelling and natural next step for me.
We're very excited to be a part of energy <unk> bright future in my new role and I'm really looking forward to being part of the outstanding team here that will help our company realize its great potential.
On that note I am very pleased to share more details about our strong outlook for 2021, but before I do let me begin with financial review on Slide 14, with a review of the fourth quarter results.
This morning, we reported fourth quarter 2020, GAAP earnings of 22 per share compared to <unk> 28 per share in the fourth quarter of 2019.
Adjusted non-GAAP earnings were <unk> 28 per share compared to <unk> 32 per share in the same period a year ago.
And the chart EPS was driven lower due to reduced gross margin as a result of two factors.
Favorable weather and lower weather normalized demand primarily from the continued impact of the COVID-19 pandemic.
Income tax credits were also lower while depreciation expense was higher due to increased infrastructure investments.
<unk>. These items were partially offset primarily by lower O&M expense as we accelerated our cost reduction efforts.
Now on slide 15, I will touch on full year results.
For 2020, GAAP earnings were $2 72 per share compared to $2 79 per share in 2019.
Adjusted earnings in 2020 for $3 10 per share compared to 2019 adjusted earnings of $2 89 per share.
Our greater than 7% increase in adjusted EPS was largely driven by an over 10% reduction in non fuel O&M as we were able to accelerate some of our cost savings initiatives from the SPP to realize those benefits sooner.
O&M was also lower due to reduced employee costs stemming from the pandemic, which helped mitigate the gross margin impact of reduced weather normalized demand due to COVID-19.
Lower O&M and reduced share count were partially offset by lower sales, primarily due to unfavorable weather and lower in commercial and industrial sales from pandemic impacts higher depreciation expense and an increase in interest expense.
As I mentioned, we lowered and realized lower gross margin due to lower sales volumes versus 2019 due to two factors, which are shown in the first two bars on the left of the chart.
First on whether.
And we estimate milder weather cost us <unk> 19 per share when compared to 2019, when weather actually drove higher than normal demand.
In 2020, whether cost is only about 10 when compared to normal.
The second demand driver was the pandemic effect and we estimate full year weather normalized retail sales were driven roughly 2% lower leading to <unk> <unk> per share primarily due to COVID-19 compared to the prior year.
The decrease of over $120 million in O&M versus 2019 is a true testament to the continuous improvement culture and our intense focus on building on our success in realizing merger savings by turning net disappointed capturing FPP benefits more quickly.
Our team continues to push the envelope on opportunities to streamline automate digitize and enhance our processes and performance execution.
This commitment to continuous improvement in cost reliability and customer service will continue to drive tremendous value for all our stakeholders.
Turning now to slide 16, we're extremely proud of our success in these key financial objectives in 2020 as.
As David mentioned earlier, we delivered adjusted EPS of $3 10.
Which was at the top end of our guidance range, representing a 7% increase from the prior year, placing us squarely in line with our long term EPS growth rate.
<unk> of 6% to 8%.
We also increased the dividend by 6% last November and maintained our payout in the middle of our 60% to 70% payout range.
We delivered year over year reduction in adjusted O&M at 10%, which again was at the top end of our target range for O&M reduction.
This was partially a result of pulling forward some of our 2021 savings initiatives.
You may recall during 2020, we raised the bar on our target O&M reduction from what was originally five 8%.
Proud to have achieved the upper end of that higher target range.
As a result, we were able to hit the 2021 stride of total O&M of full year sooner than our original SPP target.
Our credit metrics remained strong and we maintain CFO to debt in the mid teens at the holding company in the upper teens at the utilities, both of which are current above current credit rating threshold.
We continue to maintain this balance sheet strength and as.
As we execute the FTP without relying on additional equity.
Finally, turning to slide 17, I'd like to provide a bit more detail on our new 2021 guidance, including earnings drivers versus 2012.
As David mentioned earlier, our 2021 adjusted EPS guidance announced this morning was $3 20 to $3 40 per share.
It provides a walk highlighting the key drivers versus 2020 based on the midpoint of that range for $3 30 per share.
Which implies a year over year earnings growth consistent with our long term growth target of 6% to 8%.
Turning to key drivers versus 2020.
Starting on the demand side, our midpoint guidance as weather normalized implying a reversal of the $10 10 per share impact of milder than normal weather in 2020.
Beyond this we are expecting continued gradual rebound in sales and expect weather normalized sales growth of around 2% in 2021.
This rebound versus 2020 is due to two factors.
First we brought on a large low margin industrial customer in the Missouri west jurisdiction that ramped up throughout last year.
A full year of the new load contributes to our improved sales outlook in 2021.
Second, although we don't expect to return to pre Covid sales levels until the back half of the year. We do expect continued high residential demand.
Commercial industrial loans, while still lower than normal continues to pick up which when combined with the ongoing higher residential demand leads to hire a more favorable mix. If you will despite the lingering COVID-19 effects through the first half for the year.
This when combined with more normal demand conditions as Covid abates through the second half of the year also helps drive higher expected weather normalized demand versus 2012.
After significantly reducing non fuel O&M over the last two years and pulling forward opportunities last year, we expect O&M to remain relatively flat in 2021.
As we've already realized our previous 2021 total O&M objective a year earlier.
We do see some upside levers that can be pulled if we experienced lingering COVID-19 impacts on sales and importantly, we remain confident in our ability to achieve our long term target of reducing non fuel O&M by $210 million from 2019 through 2020 for and will continue to seize upon opportunities to capture these savings while.
Remaining ever focused on never compromising reliability and superior customer service.
Our planned FERC investments are reflected in our 2021 formula rate update, which we currently estimate will increase transmission revenue by around $30 million.
As expected with a larger capital plan in 2021, we also plan to see higher depreciation expense of around $30 million.
Even when considering the favorable depreciation treatment for Pisa qualified projects in Missouri.
Finally, we've included $20 million of coli proceeds for 2021, which would be about 10 million more of them that we received in 2012.
We're very confident in our ability to effectively deploy the capital outlined within our FTP, while remaining on track with our cost reduction targets to meet our long term financial objectives.
Pleased to have delivered strong growth in 2020, and we are well positioned to do the same in 2021 or.
Our compound annual earnings growth target plus our dividend yield provide a compelling total shareholder return potential that we believe compares very favorably with our peers.
And I'm very excited to be joining such a strong team during such as transformative and exciting time for our company.
With that I will turn it back to David.
We'll now welcome questions.
As a reminder to ask a question. Please press Star then one.
For your question has been answered and you'd like to moving definitely Q price per pound key.
Our first question comes from sharp for Rosa with Guggenheim Partners. Your line is open.
Hey, good morning, guys.
Good morning, Shar, we share.
So just a couple of questions here.
First just on the board appointments and Blue Scape Elliott agreement I know John mentioned in the press release just to quote.
Refine and implement the STC for the benefit of all average stakeholders can you just elaborate on what was meant by refined does that.
David kind of relate to your prepared remarks around potentially accelerating the pace of execution.
Appropriate.
So sure I'm glad you asked that question. The STP is our plan, we think the board appointments today will.
Just help us to execute that plan and implement the program I think with any five year plan Youre always looking for opportunity opportunities too.
Enhance and drive performance, but it's the FTP is our plan theyre really joining to help us execute the plan.
Kirk.
Kevin and Brian and I.
And the whole team will be looking for ways to shape and implement that plan over time, and we've had discussions and some of our meetings on it you know other gaming opportunities for further cost savings or drive in that over time I think the company has done a tremendous job as shown in 2020 before our arrival of <unk>.
Moving on a great trajectory of cost reduction so I'm sure. We'll continue to focus on that but we'll just emphasize that the board appointments are to help us to implement and execute the STP, which is which is our plan and we're very excited about that plan.
Got it and then just the exercise option for additional share purchases by Blue scale over the next few years is there any constraints or limits on how much can be purchased over that timeframe.
That agreed upon price, which I guess is 20% higher than the current valuation levels.
Yes, the total size of the warrant brand is just under $4 million.
So it could be up to that amount theyre not transferable for exercise.
And.
It's just under $65 a share a three year term.
And so that's the overall set up for it.
And the mechanism short skirt allows us.
Net to net settle that.
On the basis of the.
Intrinsic value implied by us by the option at that time, so it's not from a dilution standard with New York is focused on that it's not the full $3 $95 million. So we've got that mechanism at our disposal.
Okay perfect. That's what I was trying to get at it and then just lastly for me.
David is the current sort of these winter storm fallouts changed the conversations around securitization in Missouri, and do you think it's going to sort of impact.
And to get legislation done this year I mean, it seems like some of the legislators were focused on it and hearings last week, but it also sounds like from your prepared remarks, you may be backing away from prior language of needing the securitization by 'twenty two to keep the plan on pace.
I think.
We think securitization as an important tool we think that this extreme weather event.
It's something that we're all going to the whole industry needs to step back and think about what it means but we still think of this as an important tool. It it may reflect it for some of our units.
A seasonal operation option or more limited option can be important, especially as we think about winter peaks in the winter season, we even think about how much that even fold into some of our legislative efforts over time.
So I actually think that this event if anything helps to spur interest and the overall topic. So we think we found good engagement on securitization and the different pros and cons of it.
As part of the greater awareness of the whole issue as a result for the event so.
I don't mean to imply at all that we're backing away from securitization efforts. We think it is an important legislative effort. We're just trying to highlight that as with.
We don't develop a plan that is dependent on new legislation. It's a tool that can help and we actually think the dialogue is even more constructive as a result of.
The difficult events that we've seen this month.
Got it thank you and David Congratulations on these appointments and I'm sure you guys aren't going to Miss answering anymore C. D var questions in Texas, So congrats guys.
Thanks shocked that you are.
Our next question comes from Julien Dumoulin Smith with Bank of America. Your line is open.
Hi, good morning, its various laws me on for Julian here, just wanted to ask about your 6% to 8% for long term EPS.
<unk> target I see you guys are delivering on that in 2021 I was just wondering now that you've given a look in terms of year 'twenty 'twenty five capex, how should we think about that 6% to 8% going forward, perhaps moving beyond the 2024 timeframe.
Good morning, So we affirm the growth rate range target for 2019 to 2024, So we and there was some questions. When I first started around as a management team coming in and trying to reset a rebased. The plan no. The management team is here to help execute the plan and we benefit per case that he was around on the board to help us develop the plan too.
So we do we are reaffirming the 68% for 2024, we introduced 2025, capex, but we're not yet speaking to the.
Longer term range, we're planning to cover that in the Investor day.
We expect to do that and in the third quarter. Following our IRB filings. So expect to hear more about 2025 and going out enough. Another year at that time, but right now we just wanted to make sure that everyone.
He is clearly from us that we're reaffirming that 6% to 8% target through.
Through 24, and we look forward to having any net conversation with everyone at our Investor day in the third quarter.
Okay, great. Thank you one more if I can and this is on slide nine of your presentation and apologies if I missed this but your 2025 capex it looks like Theres. Some latitude to go beyond the $1 85 billion for $2 1 billion could you just confirm what's the what that Delta represents please.
Sure.
So five years out.
We've talked about this I think in some of our discussion last quarter, we have a very robust pipeline of projects through the balance of the decade.
And that's really to signify that as we get closer to 25 and it makes sense of course will firm up that number over time, we've got a strong backlog. So we could see that number being higher but of course, we will look at that in the over balance overall balance of considerations.
But we could certainly see that capex number trending towards the high end or the midpoint of of that range and it just reflects that we've got that strong pipeline.
And it's also showing that this is something again that will be going through in our investor day.
<unk> been pleased to see is that we've got a great set of projects ahead of us in the next four years, but then the balance of the decade, we've got a very robust pipeline as well.
Okay, Great. That's all for me. Thank you very much.
Thank you.
Our next question comes from Michael Lapides with Goldman Sachs. Your line is open.
Hey, guys congratulations to both of you welcome to the new role and an exciting time.
I have a little bit of a policy question public policy question and David I'm curious.
During your first rounds of meeting all the key stakeholders in both states, but just curious given what's happened in the events over the last two weeks do you think there will be incremental concern about shifting even more and more away from solid fuels tight generation sources to more.
And sources for reliability purposes, I know environmental purposes.
Clearly cost are key and clearly coal is on the wrong side of the ledger on both environmental and cost.
But I just wonder if if we're in for somewhat of a paradigm shift does it mean fewer coal retirements doesn't mean more batteries a bigger mix of gas. How do you think from a policy perspective folks in Kansas and Missouri are going to look at what's happened there, but also south of them and think about kind of what the system should.
Look like long term for reliability.
So Michael that's a great question and good morning.
New to Kansas, and Missouri, So I look forward to engaging that dialogue with our key stakeholders here.
<unk>.
All going to learn from the event.
And in particular, what the overall planning for reliability needs to look like for winter.
Because the renewed.
Renewables profile.
Matches up extremely well with summer peaks.
It's a high correlation with solar generally with non peak times.
Good ability to.
Charge batteries.
If wind tends to run at night or other times the winter can be more of a challenge as we think about it. So if I think about that question and it's going to be a dialogue again with our stakeholders I know for me I thought about well a big chunk of what you described is can we replace energy production from fossil and from coal, which is higher cost and higher emissions and.
Replace a fair bit of that energy with ongoing renewables, but are we going to need maybe you need to think about seasonal operations or other factors, especially in peak months, where you're still reducing the energy production from fossil and from KOL pretty significantly so youre still getting a displacement, but youre not losing the reliability benefits now those plants were not designed to be peak so the non repeaters.
But at the same time, all coal units cross country has significantly increased their flexibility.
<unk> certainly seen that in my past experience and having those kind of units available for peak months winter and summer maybe a more prominent part of the mix. So you may see it.
Again. This is we're all going to have to have this dialogue and evaluate overtime, we shouldn't react in a long term business like ours to to one week, but I think we may well see where there is.
Maybe less emphasis on retirement and more emphasis on variable cost and keeping.
<unk> unit that provides very critical support of critical times.
In the system. So that's where I think the discussion might go but what can be important for us is that we participate net dialogue, we listen and I look forward to engaging with our key stakeholders in Kansas and Missouri on that because I think we all saw that.
When you have sustained outages in the winter and we're very lucky that our our outages while unprecedented were relatively brief isn't.
It's that much harder than the summer when you have those outages because.
It's so cold thats very detrimental to health and its that much harder to restart things when they're offline when it's that cold so much to learn.
I have one follow on on that when you look around at the coal fleet, meaning your coal fleet.
And you look at facilities, where given access to gas or <unk>.
<unk> or potential or their coal units that instead of retiring you might consider just converting into a higher heat rate, peaking we've seen a bunch of that in other parts of the country. I just didn't know if that was a low cost alternative that also might provide emissions benefits.
That's an insightful question, Mike we have looked at that and we'll continue to there are a couple of facilities, where there could be an option and then there are probably the balance majority of where the pipeline infrastructure is simply not there.
It would require a fair bit more than just converting but I think that that will need to be part of the discussion now as we all know.
With the winter weather event, what happened is having that inventory in a fuel file a coal pile with pretty helpful and gas is pretty hard to come by.
So the.
That I think is going to need conversion to a.
A more of a gas, peaking kind of unit where possible and it should be part of the mix, but I think will also want to think about.
Because it is generally the case in the winter peaks in particular that gas availability can become challenged or more expensive, but we have looked at that thats, an option and a couple of spots, but for many of our places you'd need a more extensive infrastructure buildout might precluded being possible.
Got it thank you David much appreciate it.
Thank you.
Our next question comes from Paul Patterson with Glen Rock Associates. Your line is open.
Hey, good morning, how are you doing.
Well good morning, Paul.
On the power marketing I know you guys are putting in as part of your guidance, but it sounds like it was a positive and I was wondering if you could.
Could you maybe give a flavor.
What youre seeing there.
<unk>.
While you're excluding it.
Sure So as I mentioned Thats, a real small part of our business.
It's been in the business for a long time as part of the legacy Westar company and we found it to be helpful to have because it's a regulated utility we still operating in a market so having a group with the commercial functions.
Insight into markets does help and add value to our asset management activities that are part of our core business, but.
But it's historically been it's been pretty small.
And it generally takes long positions and transmission positions and relatively limited trading conditions.
Was unusual about this event.
Is that they had those they still only have a relatively small number of positions and transmission based based but they were long in ERCOT, so with prices being so high for so long in ERCOT.
Is why even if quite small business with only a couple of a few small positions generated margins in excess of what's typically the reason why we've excluded the have any excess performance. During the week is that we don't expect it to recur at that size. This is going to continue we think to be a very small part of our business.
So we're not going to.
That reflected technically in our adjusted EPS, but we're going to describe what it is make it very clear in our guidance of $3 30 that we put out was did not include.
The expected positive impacts from the weeks of that so it's a positive but it's not something that you know this business. We expect will continue to be quite modest size. So it's a it did happen and it's a reflection of the <unk>.
Sustained event that occurred in Texas.
Hey.
No I don't think it would be the big driver.
Historically, but just so this is for.
Curious as to and I apologize I got on just a little bit late.
How big of how big it might've been.
If you guys will typically in the business is.
So typically the business is about 15% to $30 million of gross margin annually. So after costs, it's been anywhere from approximately <unk> to up to seven cents a share so small.
In this quarter.
I mean, it's not this quarter, but.
For 2020 for for the Oh, Yes, so we haven't we haven't quantified it yet to the settlement process still ongoing what we estimated that the results could be.
Up to three times higher than the high end of what we might earn in a typical year.
Awesome, Okay, well that's good news.
And everything else was answered so thanks, so much.
Thank you.
Our next question comes from Charles Fishman with Morningstar. Your line is open.
Morning.
Specifically looking for more.
Slide 21.
Investment over the.
The next five years 'twenty 'twenty, one 'twenty five.
Little over 3 billion, and then I'm going back on funds.
As you invest in slide back in January.
The previous five year 'twenty to 'twenty for with 1.9 billion am I comparing apples to apples in other words on 'twenty, one is that all for jurisdiction transmission investments.
We're dealing with.
No it's not all for jurisdictional that's our total transmission.
I think they might be doing apples and oranges.
Okay, that's what I thought because its really jumping $1 nine to three and I thought I mean, I know, it's been strong but that looks like a little too much and we've added 25, but obviously that that debt. If the difference between 20 and 25 is not accounting for the difference when you're too so.
Maybe if you've got a specific slide that you're comparing to follow up with our team and we can we can cover that because I'm not sure, which slide you're looking at but we can definitely work that with you offline because the plant has had some phasing shifts and some recapitalization, but in general 'twenty to 'twenty for that work.
Major changes some phasing on renewables in particular and then we just added 25, but we have to go through that with you offline.
But the fact that rate base and look at the right side of slide 21 rate base for great things going from 12% for 17%.
A big focus of your investment over the next five years.
Yes, and that is that.
It was the case that has been the case in the Seb and will continue.
Okay great.
Let me just get you on that transmission.
Specific project Youre, depending on or is it just a lot of little stuff and I'm certainly I would think the events over the last couple of weeks are going to make that the hurdle of getting any of that requires approval a little bit easier.
So our per our plan is not dependent on any single or even several large projects. If the sum total of a lot of different projects.
Which I think is good in terms of irrigation I do think that the.
The importance of transmission was.
Clarified it magnified by the events of last week, because you can have localized issues. You can have plants go down you can have you know wind not blowing in some places and maybe blowing and others.
The resilience of the transmission system and the importance of the transmission system I think it was absolutely reflected in the.
Events of this past month, but we're not our plan does not dependent on any.
Big large projects that are a significant percentage of the overall total.
Okay, well thank you.
You are certainly, making STP look more compelling than it was a good presentation.
Thank you.
There are no further questions I'd like to turn the call back over to David Campbell for any closing remarks.
So again in my first call as CEO I am very excited to be part of the team here very strong team.
Complement their efforts during the extreme weather in their efforts to serve our customers and keep the lights on and thank you all for your interest in <unk> and have a great day stay safe. Thank you.
Ladies and gentlemen does that for the conference you may now disconnect everyone have a great day.
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