Q2 2021 Evergy Inc Earnings Call
Financing was not considered in the analysis relating to our respective integrated resource plans. However.
However, having the law in place in both states will factor into our ongoing analysis of the preferred plan for the future evolution of our generation portfolio and the approach that will optimize affordability reliability and sustainability.
Securitization is particularly helpful with respect to optimizing the affordability aspect of our ongoing generation fleet transition.
Along with enabling the cost effective handling of extraordinary costs and underappreciated values for.
The securitization law on Kansas also includes pre determination features.
This will allow us to collaborate with regulators on the topic of removing coal from rate base and replacing at renewables in advance of implementing any actions.
Within the next few months, we plan to file for pre determination of our latest plans for the retirement of coal at Lawrence Energy Center and the upcoming solar edition in Kansas.
The Missouri legislation shares many features in common but there are distinguishing elements for example in Kansas, a redetermination is required before retiring coal with the securitization financing order.
The Missouri Decisional Prudence process is similar to pre determination, though.
So on Missouri, It is optional rather than mandatory and Missouri approach contemplates contemplates an asset retirement plan that can be brought on in nature.
The Missouri law also refers explicitly to evaluating the retention of coal and rate base for reliability purposes, even if capacity factors remain relatively low for example, due to such factors as seasonal coal operations are low SPP energy prices is more renewables come online.
In addition, the Missouri legislation provides for new investment and replacement assets up to an amount equal to the securitized assets.
In both states. These features will help to enable a well planned and predictable process as we advance our fleet transition.
I will turn out for winter storm Yuri costs.
On Kansas, we've been granted authority to defer these costs and we filed an application seeking recovery and return of storm storm impacts through fuel adjustment mechanisms starting April 2022.
The net impact for Kansas Central would result in approximately $115 million of costs recovered from customers over a 2 year period.
At Kansas Metro during winter storm, Yuri we experienced higher than normal off system sales.
Sales exceeded the fuel and purchase power cost during the event.
As a result, the increased margin will benefit Kansas Metro customers by an estimated $35 million, which we pass through the fuel clause over 1 year period, beginning in April 2022.
In Missouri, we have requested similar.
Deferral treatment for the winter weather costs and expect a commission order on this process.
For this year.
Metro customers on the Missouri side will receive their allocated portion of the higher off system sales margins, which we currently estimate is around $25 million and customer benefit, which we are asked to deliver through the fuel adjustment mechanism over 1 year period.
Conversely, Missouri West customers were subject to higher fuel and purchase power costs during the winter weather event.
Given the amount of these higher costs upon receipt of deferral authority, we intend to utilize the recently signed securitization legislation for Quest Commission approval to securitize, the excess costs and recover them over an extended period.
Specifically, we expect to request securitization of approximately $295 million.
With recovery over 15 year period, which would minimize and smoothed the impact for our customers.
Slide 7 highlights topics that we expect to cover during our upcoming Investor day, which will be held virtually on September 21.
At the event, we expect to focus on our strategy, our strategic business objectives, and overall priorities for the business.
Along with an update on STP execution through 2024, we expect to comment on 2021 and provide a first look at the company's 2022 earnings outlook.
We will describe however, G is driving operational excellence across our business, including reliability customer service generation availability and cost.
We will discuss our capital deployment and infrastructure investment plans will also profile our ongoing focus on regional rate competitiveness, which is a key priority for our team as it is for our customers and our regulators.
Our objective as a company it's become recognized for driving operational excellence and delivering excellent service for our customers at reasonably competitive rates, we aspire to be clear in our objectives and consistent in our execution, so that our regulators investors and all of our stakeholders know what to expect and know that and know that we will.
Deliver.
We will also discuss our long term growth drivers and objectives, including those relating to our ESG profile and generation fleet transition.
Investor Day will give Kirk and I, along with our colleagues the chance to expand on the significant value potential we see it every day.
Along these.
<unk> slide 8 summarizes average investment thesis.
As an all electric Midwestern utility well positioned geographically to capitalize on cost effective renewables options.
We strive for consistency in performance and being known for execution and delivering results.
Customers are at the forefront as affordable and reliable service our Paramount objectives.
Operating operational excellence is a critical enabler to achieving these objectives and we are committed to a continuous improvement path and reliability customer service.
Transmission and distribution services and fleet operations.
Stakeholder collaboration and constructive relationships with our regulators and other key partners in Kansas and Missouri are also foundational.
The passage of secured debt securitization legislation in both states was a great example of that collaborative process in action and we look forward to an open and constructive dialogue with stakeholders throughout the years ahead.
As we've described infrastructure improvements are featured in our sustainability transformation plan.
Investments in grid modernization and the ongoing transformation of our generation fleet.
It will enable us to better leverage technology, improve resiliency and efficiency and help us to optimize across the objectives affordability reliability and sustainability.
Disciplined cost management and rigorous performance benchmarking, our necessary complements to our investment program in order to ensure that our service and rates remain cost competitive and affordable.
The company has established a strong track record in cost management since the merger and we see ongoing opportunities to maintain that trajectory.
The final element of our investment thesis that I'll highlight is financial excellence, including a strong balance sheet and an attractive total shareholder return.
Driven by our targeted 6% to 8% annual EPS growth from 2019 through 2024, plus our dividend yield.
In summary, we are very excited about the opportunities for our company. During this period of change in our industry.
And we are committed to the sustained effort that will be required to deliver against our high performance objectives.
We look forward to discussing our strategy and investment thesis and greater depth next month.
I will now turn the call over to Kirk.
Thanks, David and good morning, everyone.
I'll start with results for the quarter on slide 10.
For the second quarter of 2021 average delivered adjusted earnings of $195 million or <unk> 85 per share compared to $154 million or <unk> 68 per share in the second quarter of 2020.
The 25% increase in second quarter adjusted EPS was driven by the following items as shown on the chart from left to right.
First although cooling degree days were relatively consistent versus the second quarter of 2020.
We saw fewer heating degree days this past quarter, resulting in a <unk> <unk> per share unfavorable contribution from weather versus 2020.
This weather variance was more than offset by the following.
A 3.4% increase in weather normalized demand or approximately <unk> <unk> per share.
Transmission revenue drove about <unk> <unk> per share, resulting from our ongoing investments in transmission.
O&M expense was approximately $11 million lower or for per share due to lower bad debt expense during the quarter as collections from aging receivables improved.
Other income increased <unk> <unk> per share driven by a $4 million increase in equity AFDC.
$5 million of higher investment earnings, resulting from unrealized gains on equity investments.
And 2 million of higher coli proceeds.
Finally, we realized higher income tax benefits due to increased amortization of excess deferred income taxes for Egypt and.
And the timing of tax credit recognition to maintain our projected annual effective tax rate.
Adding to our first quarter results to these numbers I'll turn next to year to date results, which you'll find on slide 11.
For the 6 months ended June 32021, adjusted earnings were $320 million or $1.40 per share compared to 248 million for $1.9 per share for the same period last year.
Again, moving from left to right our year to date adjusted EPS drivers versus 2020 include the following.
The colder winter weather during the first quarter more than offset fewer heating degree days in the second quarter, leading to <unk> <unk> per share favorable contribution from weather year to date versus 2020.
As weather overall during the first half of 2020 was near normal. This <unk> <unk> per share also represents the EPS contribution versus normal weather.
Weather normalized demand increased just over 2% year to date driving approximately <unk> of EPS.
As expected higher transmission revenues helped drive a 6% increase versus 2020.
Year to date, we've also realized approximately 8 increased earnings from lower tax expense driven by higher amortization of excess deferred income taxes as well as accelerated timing within the year of tax credit recognition.
As you May recall from my remarks during the first quarter. This latter item primarily resulted from the increase in earnings during the first quarter as our recognition of benefits from tax credit is driven by the shape of pretax earnings during the year.
This item represents approximately <unk> of positive EPS year to date and is merely the result of this intra year timing.
Consequently, we do not expect this <unk> <unk> per share to result in a variance to our full year results.
Finally, <unk> of the year to date EPS increase was the result of higher equity AFDC.
Higher unrealized gains on equity investments.
And higher coli proceeds.
Coli proceeds represent a year over year increase versus 2020, where the majority of our earnings from this item came late in the year our year to day contribution from quarterly in 2021 is nonetheless modestly below expectations.
Turning to slide 12, I'll provide a brief update on recent sales from customer trends.
Weather normalized retail sales increased 3.4% during the second quarter compared to last year.
This was primarily driven by the partial recovery of the commercial industrial sector from the initial shutdowns from COVID-19 in 2020.
Residential sales decreased compared to last year when expense extensive lockdowns kept individuals' at home.
While these shifts indicate a continued trend toward more.
We don't expect to see similar savings that you've seen year over year relative to the first half of 'twenty 1.
No.
And that would that would align with our current our expectation which continues to be relatively flat year on year overall and O&M.
Got it thanks.
You bet.
Our next question comes from Julien Dumoulin Smith of Bank of America. Your line is open.
Hey, good morning, and various on for Julian.
And just wanted to ask about the retail customer count that you guys highlighted on 1 of your slides it's pretty impressive.
Over 1% year to date and just curious if you could talk a little bit about the composition of that and perhaps how it compares against your expectations for the year and perhaps how and how that might look on a prospective basis as well.
So sure it's Kirk.
Our customer growth while.
And certainly a good indicator year over year the.
And the mix I can't quote you that off the top of the head, but largely in line with our expectations. However, as I also indicated despite the fact, we've got an increase and customer account, our overall utilization for our customer.
Is down year over year, that's in line with our expectations because we expected.
The impact of stay from home, which was most acute and second quarter of last year to abate as people kind of return to work that level of abatement has been a slower pace right. So the stay at home home effect on a utilization perspective, notwithstanding the fact, we did see nice year on year over year increase and customers has been elevated relevant relative to our ex.
Vacations and Thats certainly understand what you expect that to continue a little longer now that we've got the impact of the delta on the stay at home.
But overall despite the fact that we're certainly pleased with the overall increase in customer accounts.
As we expected the utilization rates for customer comparable year over year is down again due to that COVID-19 effect.
Great. Thank you and 1 more if I can on.
On your 25 Capex you've had.
Potential for $250 million increase and.
Your last couple of slide deck, just curious if you could maybe discuss the puts and takes as far as what is driving for what will drive that decision.
As far as when to formally include that and the plan.
So thank.
And thanks for the question and.
We're glad to clarify that so we plan to lay that out as part of our Investor day, and just be more specific around it. So we work through our annual planning process with our operating team. We also consider of course.
Renewables plans that we have and we're going to plan on giving you.
Given the street and more firm view of that as part of our Investor Day is rolling forward into the next year.
Okay, Great I'll leave it there. Thank you very much thank.
Thank you.
And again to ask a question. Please press Star then 1.
And no further question I'd like to turn the call back over to David Campbell for any closing remarks.
Okay, great. So I'll close with a comment on 2021.
And sort of implicit and some other questions. We receive just so I'll go ahead and hit it is.
As I mentioned and as Kirk noted, we're maintaining our guidance range. There are some items and the first half and as a general matter Q3 is our biggest quarter.
There is some timing on into the first half Q3 is our biggest quarter coli has some uncertainty will of course continue to monitor the impact of the pandemic, but all that said given where we are now we would be disappointed if our.
Our results in 2021, known and up and the top half for the full year.
We will plan to provide an update on 2020.1 as part of our analyst day in September, but we're pleased with our solid start and we appreciate your time with US today and we wish you a good day. Thank you.
Yes.
This does conclude the program you may all disconnect everyone have a great day.
Okay.
Yes.
Okay.
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