Q4 2021 Evergy Inc Earnings Call
Thank you for standing by and welcome to Enbridge, Inc. 's fourth quarter 2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Please be advised this today's call is being recorded should you require any further assistance. Please press star zero I would now like to hand, the call over to Lori Wright, Vice President of Investor Relations and Treasurer. Please go ahead.
Thank you Latif and good morning, everyone.
And welcome to <unk> fourth quarter call. Thank you for joining US. This morning. Today's discussion will include forward looking information slide two and then disclosure in our SEC filings contain it lists some of the factors that could cause future results to differ materially from our expectations and include additional information on our non-GAAP .
These closures.
Releases issued today, along with today's webcast slides and supplemental financial information for the quarter and full year are available on the main page of our website at investors not ever be dotcom.
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, David will cover our 2021 highlight an overview of our recently filed Missouri rate cases, along with other regulatory and legislative priority Kirk.
We will cover in more detail the fourth quarter and full year financial results information on sales trends and provide an outlook of our 2022 objectives.
Other members of our 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.
Thanks, Lori and good morning, everyone I'll begin on slide five this morning, we reported full year 2021 GAAP earnings.
383 per share compared to $2 72 per share in 2020.
Adjusted earnings per share were $3 54 in 2021 compared to $3.10 in 2020.
These results reflect strong execution relative to our objectives for the year.
We entered 2021 with the midpoint guidance of $3 30 per share in line with our 6% to 8% target growth rate range.
We were able to deliver $3 54 per share representing a 14% increase over 2020, and a 7% increase over our initial guidance midpoint.
Kirk will discuss the drivers of this year's results as part of his remarks.
A critical part of the company's five year sustainability transformation plan involves a comprehensive program to modernize our grid and invest in infrastructure.
We advance this capital plan in 2021 to point to point O 5 billion or 100 million higher than our Investor day estimate to replace aging equipment and improved reliability resiliency and security.
We also maintained our focus on advancing affordability and regional rate competitiveness.
Since 2017, we have delivered a four 2% overall average rate reduction to our customers at.
At the same time, we have reduced our total operating and maintenance expenses by 18% since 2018.
Enabling us to pass on these cost savings in our upcoming Missouri, and Kansas rate cases.
In 2021, our total <unk> emissions were 46% below 22005 levels, reflecting strong progress relative to our long term emissions reduction targets.
And last but certainly not least we continue to prioritize constructive interactions with our key regulatory and legislative stakeholders.
In 2021, we wrapped up the STP dockets in both Missouri and Kansas.
And securitization legislation was enacted in both states.
We expect that securitization will serve as a helpful tool in managing the Companys ongoing fleet transition in the coming years.
On slide six you'll see our recent earnings and dividend growth trends.
As we've emphasized over the past year consistent execution.
<unk> at the forefront of everything we do.
The $3, 53% midpoint of our 2022 adjusted EPS guidance tracks with a 7% compound annual growth rate from 2019, which was <unk> first full year as a company.
This is squarely in line with our targeted long term annual earnings growth of six 8%.
Alongside the earnings you'll see the attractive dividend growth that is tracked within our 60% to 70% dividend payout policy.
I'd like to thank my fellow averaging employees for their continued focus and teamwork and driving these results overcoming the challenges of another an unprecedented year, including extreme weather during winter storm Yuri.
The ongoing pandemic we.
We look forward to working together to further advance this track record of execution.
As noted on slide seven we've made significant progress on emissions reductions as we transition our generation fleet over the last decade and a half.
Since 2005, we've reduced carbon emissions by nearly half, while reducing sulfur dioxide and nox emissions by 98% and 88% respectively.
Our renewable energy portfolio was approaching four five gigawatts and we've responsibly retired nearly two five gigawatts of fossil generation over the last 15 years.
Our updated integrated resource plans, which were filed last spring outlined our intention to add nearly four gigawatts of renewable generation and retire nearly two gigawatts of coal over the next decade.
In 2021, nearly half of the electricity, we provided a customers came from carbon free sources.
And we are on pace to reach our goal of a 70% reduction in C. O. Two emissions from 'twenty from 2005 levels by 2030 with a long term objective of net zero carbon by 2045.
Yeah.
Slide eight summarizes our five year capital expenditure plan, which totaled $10 7 billion from 2022 to 26.
On a comparative basis. The current 2021 to 25 plan is in line with what we presented at our Investor Day last September with some timing shifts reflected in higher base Capex in 2021, and 2023 and slight reductions in the other years, netting to a roughly $100 million increase overall.
With the addition of 2026, the rolling five year capital expenditure plan is 235 million higher than the 2021 to 25 plan.
The largest portion of our infrastructure investment is targeted towards transmission and distributions.
The program is focused on replacing aging equipment and modernizing the grid driving benefits for our customers by improving reliability, enhancing resiliency and the ability to withstand extreme weather upgrading customer systems, and our customer experience and increasing security.
As we advanced the use of smart grid technologies and transition towards a lower cost lower emissions generation fleet. Our investments will also enable us to reduce cost to serve customers, which helps to create a virtuous circle as we pass on these savings.
Yes.
Slide nine summarizes our progress in driving cost savings and capturing efficiencies and how we work.
Enabled by the 2018 merger and a comprehensive program across the business, we have reduced costs by $233 million or 18% since 2018.
We're laser focused on operational excellence as we leverage investments in technology to operate more effectively and efficiently.
We're also building more and more flexibility into our generation operating model and the southwest power pool market, which continues to see an increasing penetration of renewables generation.
And we're not done and we are targeting a further 11% reduction in total O&M by 2025 as part of our five year plan.
Thus far we've been able to manage the impacts of inflation on our O&M costs and we have developed plans to capture the vast majority of our targeted savings.
The back half of 2021 brought increasing pressures on fuel and purchase power costs as has been seen across the country typically at higher levels elsewhere than what we've seen in our jurisdictions.
And it appears that those trends may continue in the current macro environment and geopolitical context.
Affordability and improving regional rate competitiveness are core elements of beverages strategy.
As shown on slide 10, since 2017 average he has been able to reduce rates by an average of four 2%.
Outpacing regional peers and at a level well below inflation.
On the slide we lay out how we've been able to deliver these savings across each of our four jurisdictions from 2017 to 2021.
This topic remains at the forefront for our customers and stakeholders and going forward maintaining affordable rates will continue to be features as a priority objective and our five year plan.
Turning to slide 11, I'll give an update on our ongoing Missouri rate reviews, which we filed in January .
On the left hand side with Missouri Metro we have requested a 44 million rate increase including the Rebase of excuse me, excluding the rebase of fuels based on a 10% return on equity a 51, 2% common equity ratio and a projected $3 1 billion rate base as of the proposed May 31, 2022, who update.
The primary drivers of the rate request include our increased infrastructure investments, which improve reliability enhance customer service and enable the company's transition to cleaner energy resources.
Updated depreciation rates that better align with the estimated remaining lives our assets and.
And increased property taxes.
These increases are significantly offset by roughly $55 million of lower annual operating cost savings that are we are pleased to be able to pass on to customers.
Moving on to Missouri, West, we requested a 28 million rate increase excluding the rebase of fuel and based on a 10% return on equity of 51, 8% common equity ratio and a projected $2 5 billion rate base as of the proposed to update.
Missouri West rate request drivers are similar and include an increase from infrastructure investments updated depreciation rates and increased property taxes, partially offset by ongoing customer savings and cost reductions are roughly $57 million per year.
Savings effectively lowered the rate increase request by more than 60%.
The Missouri West case also includes the handling of our previously retired Sibley power plant.
We've been deferring the revenues associated with the foregone O&M, resulting from the plants retirement.
In 2018.
As part of this case, we have offered to return these revenues back to customers over the next four years, which would reduce annual revenues by roughly $10 million.
No impact on earnings.
To summarize we believe that the pending Missouri rate reviews, a relatively typical and straightforward with two main elements first passing on the benefits of cost savings and second adding infrastructure and grid monetization investments that are consistent with and advance the objectives of Missouri policymakers and stakeholders.
We're excited about the benefits of these investments will deliver to our Missouri customers.
Now the procedural schedule is not yet final, but on the bottom of slide 11, Youll see our estimated timeline from here, we expect staff and intervenor testimony will be filed in June with rebuttal testimony in July potential hearings in early September and finally commission orders in November .
If approved as filed excluding fuel the rate request would represent an increase of five 2% from Missouri Metro customers.
And a three 8% increase from Missouri West customers, both of which are well below the rate of inflation, we've seen since our last rate cases.
Moving to slide 12, I'll provide an update on other regulatory and legislative priorities, beginning with our pre determination docket in Kansas.
As a reminder, last September we initiated a proceeding to approve the elimination of coal at the Lawrence Energy Center.
Retirement of Laurent unit, four with recovery through securitization and the addition of 190 megawatts of solar generation in Kansas.
Later in the year last year, we filed a request to temporarily suspend the procedural schedule to allow time to develop more clarity on solar tariffs potential for tax incentives to improve customer economics, and the resolution of supply chain and customs issues that could impact pricing and availability.
Given the lingering uncertainty around those issues rather than keeping this docket on hold we have withdrawn the filing and plan to file a new application once definitive agreements are reached with a solar developer.
The elements of the plan are unchanged and we still expect to see pre determination approval for the cessation of coal for <unk>.
Fireman of Lawrence for and the addition of 190 990 megawatts of solar.
While this may impact the timing of the solar Farm addition, it does not have a meaningful impact on our earnings expectations as the structure for the new solar farm.
It is expected to contribute less than a penny to annual adjusted EPS in both 2024 and 2025.
This is due to the market base rate construct that was pursued in this case.
Under which the earnings profile is tied to the time that average you can monetize the value of the ITC tax benefits of the project in the back half of this decade.
In parallel we are in the process of evaluating competitive proposals for up to one gigawatt of new owned wind resources that would come online and the.
2024 to 25 time frame.
Kirk and his team are overseeing our renewables efforts and he will highlight our priorities in his remarks.
Other regulatory items include recovery of costs incurred during winter storm Yuri.
In Missouri, we are awaiting commission approval of our request to defer approximately $300 million and Missouri West.
With plans to securitize it costs, a smoothing impact on customers over multiple years.
We are also seeking approval to defer and return approximately $25 million of net benefits to Missouri Metro customers.
We expect to reach resolution on the deferral request in the second or third quarter and a commission decision on the securitization of the Missouri West cost by the end of the year.
In Kansas last month. The case, you see staff filed its recommendation to approve our recovery plan of approximately $115 million of Erie costs in Kansas Central and a return of approximately $35 million of benefits in Kansas Metro. We're working closely with all parties and we expect to finalize the details of the path forward in the first half of this year.
Sure.
In 2021, we filed our integrated resource plans in Missouri, and Kansas, providing an updated 20 year roadmap for our generation fleet transition in conjunction with our announcement of our long term emissions reduction targets.
We will file our annual update to the IOP in both states by July one.
I'll wrap up this slide with a legislative update focusing on Missouri bills have been introduced to extend an update legislation that was passed in 2018 widely referred to as plant in service accounting or Pisa.
We have been utilizing this legislation for 2019 supporting our investments in grid modernization and improved reliability.
We believe that the bill is good policy and enjoys wide support.
Whether it ultimately advances this year will depend.
It's likely an unrelated issues that may receive the bulk of legislative attention.
We are focused on working with key stakeholders to advance the piece of extension this spring, but given the provisions of the currently existing piece of legislation.
This is an initiative that we would also be able to pursue next year.
In addition in Missouri, we are pursuing mechanisms to enable the efficient recovery of costs outside of our control, notably property taxes.
Before handing it over to Kirk I'll wrap up on slide 13, which summarizes the average value proposition.
The left side of the page covers a core tenants of our strategy to advance affordability reliability and sustainability.
Through a relentless focus on our customers supported by stakeholder collaboration sustainable investment and financial and operational excellence.
The right hand side of Slide 13, Slide 13 features what we believe are particularly attractive and distinctive features for <unk>, given our business mix and geographic location.
We're excited about the opportunities for our company and we are committed to the sustained effort required to deliver against our high performance objectives.
I'll now turn the call over to Kirk.
Thanks, David and good morning, everyone I'll start with results for the quarter on slide 15.
For the fourth quarter of 2021 average delivered adjusted earnings of $37 million or <unk> 16 per share compared to 64 million or <unk> 28 per share in the fourth quarter of 2020.
Fourth quarter adjusted EPS was driven by the following items as shown on the chart from left to right.
First we had unseasonably warm weather across the ended the quarter, particularly in December resulting in significantly fewer heating degree days as compared to the fourth quarter of 2020 and.
And driving <unk> <unk> of unfavorable contribution from weather.
When compared to normal weather.
Soon than our original plan the mild weather negatively impacted our results by <unk> 10 cents.
The unfavorable weather was offset by a 4% increase in weather normalized demand.
<unk> eight per share realm.
Relative to our expectations for the quarter weather normalized demand was approximately <unk> <unk> favorable as we began to see demand recovery, which we previously forecasted to be delayed into 2022.
Stronger performance than our average debentures power marketing businesses drove <unk> <unk> of EPS versus the fourth quarter of 2020, which offset <unk> <unk> of lower EPS from coli as we did not receive proceeds during the fourth quarter of 2021, while the prior fourth quarter included the majority of our coli proceeds.
In 2020.
Income tax related items drove a net decrease of <unk> <unk> per share. This was primarily due to the impact of the Kansas income tax rate exemption, which led to a lower tax shield in the fourth quarter as well as the expiry of certain tax credits in November of 2020.
Finally shown in the final two bars adjusted EPS for the quarter was <unk> <unk> lower due to the expected timing and phasing of certain cost items.
<unk> of this variance was due to the realization of higher O&M, including bad debt expense during the fourth quarter, resulting from timing shifts within the year.
The remaining three.
As shown in the final bar was the result of pulling forward certain cost items from future years.
Of note, our fourth quarter and adjusted EPS for the full year excludes the mark to market impact of one of our averaging ventures' investments, which went public during the quarter via a spec acquisition.
We continue to expect to monetize this investment when the lockup restrictions expires later this quarter.
And have elected to adjust the gains and losses related to investments, which are subject to a temporary sales restriction such as this one.
I'll turn next to full year results, which you'll find on slide 16.
For 2021, adjusted earnings were $813 million or $3 54 per share compared to $716 million or $3 10 per share in 2020.
As shown on the slide from left to right. The key drivers of this 14% year over year increase include the following.
Favorable weather, which benefited us through the first three quarters of the year was partially offset by the warmer than normal fourth quarter and drove a 17.
Higher EPS in 2021 versus 2020.
Weather was <unk> <unk> favorable compared to normal weather assumed in our original 2021 plan.
Weather normalized demand increased about one 6% and contributed seven versus 2020.
As expected revenues from higher FERC transmission investment resulted in a 13th increase.
Favorable income tax related items of seven were primarily driven by the impact of the Kansas income tax exemption and higher amortization of excess deferred income taxes, partially offset by lower tax credits.
Yeah.
As shown in the next three gray bars, higher depreciation and an increase in property taxes.
Lower year over year coli proceeds and a slight year over year increase in share count combined led to a 12 year over year decrease.
And finally stronger year over year performance and power marketing and ever debentures, partially offset by the pull forward of costs from future years I mentioned during my fourth quarter comments combined to drive EPS 12 points higher.
While the net effect of these items helped us drive our strong year over year results into 2021, we don't expect this outperformance to be recurring and our guidance for 2022 reflects a more typical earnings contribution from these areas.
Turning to slide 17, I'll provide a brief update on our recent sales and customer trends.
On the left hand side of this slide youll see that partially aided by weather our retail sales increased three 1% in 2021 with all three sectors experiencing year over year increases led by a more robust increases in particular in commercial and industrial.
Looking to the right side of the slide after adjusting out the effects of weather retail sales increased one 6% for the full year the.
The industrial sector, which is least weather sensitive saw the largest increase primarily driven by the oil and petrochemical industry.
Commercial demand also increased nearly 3% year over year as both employees and customers returns.
Weather normalized residential sales decreased in 2021 as some employees return to in person office work.
The overall, one 6% demand increase was below our original expectation of 2%, which assumed a more accelerated pace of return to pre COVID-19 conditions in particular in the commercial sector.
Underlying the continued growth in residential and commercial customers as a strong labor market highlighted by Kansas, and Kansas City Metro unemployment rates of two 2% and two 5% respectively, beating the national unemployment rate of three 7%.
Manufacturing and logistics industries in particular has seen strong employment growth that continued.
Two a solid economic recovery.
Although as I mentioned last quarter, the Ford plant in our jurisdiction has been experiencing headwinds from chip shortages. The plant has begun to ship its all new electric E Transit cargo van produced right here in Kansas City.
Overall, we experienced a positive bounce back in the second year of the pandemic and our economy is well positioned to continue the trend back towards pre pandemic levels.
As a result, we expect about a 1% increase in weather normalized demand in 2022, which is part of the bridge to our reaffirmed 2022, adjusted EPS guidance of $3 43 to $3 63.
Well sure I'll review next on Slide 18.
Starting on the left side of the slide 18, and beginning with 2021 adjusted EPS of $3.54.
We removed the <unk> impact of weather compared to normal from our 2021 results as well as the <unk> impact from the outperformance of our power marketing and average ventures businesses again net of the costs that we've pulled forward into 2021.
Although we expect these businesses to continue to contribute earnings going forward. This adjustment is merely associated with the outperformance in 2021, leaving their expected contribution in our 2022 guidance.
After adjusting for these items the drivers to our 2022 guidance midpoint include.
<unk> have increased retail demand and overall again this represents about 1% increase in year over year weather normalized demand.
About half of this increase reflects the realization of more normal demand in 2022, which we had originally expected to occur in 'twenty. One. This shift is due to the observed away and returning to a normal demand mix due to lingering COVID-19 effects in.
In the past year, the remaining portion reflects normal year over year load growth into 2022.
We expect approximately <unk> of additional earnings from transmission revenue as we continue to make investments to improve transmission infrastructure.
Finally, additional O&M savings and the expiry of merger related Bill credits contribute in <unk> and <unk>, respectively, and when combined served to offset the impact of higher depreciation expense not yet reflected in rates.
While other items, both positive and negative drivers of remaining <unk> the year over year increase.
Turning next to slide 19, our strong results in 2021 reflect our ongoing focus on continuing to build a track record of consistent execution.
We've reaffirmed our adjusted EPS guidance of $3 43 to $3 63 in 2022 as well as our long term compounded annual EPS growth rate of 6% to 8% from 2021 to 2025, which is based on the midpoint of our original 2021 guidance.
As David mentioned earlier, our updated five year Capex plan from 2022 to 2026 totaled $10 7 billion and is consistent with a targeted rate base growth of 5% to 6% from 2021 to 2026.
These financial targets enable us to achieve our overarching objective to improve affordability enhance reliability and customer service, while advancing our sustainability and transitioning our generation fleet in order to realize these objectives over the multi year plan. We are focused on achieving our key goals in 2022, which I'll summarize on slide 20.
Building on the positive momentum from our strong 2021 results that exceeded our original guidance, we remain focused on continuing to meet or exceed our financial targets, including our reaffirmed 2022 guidance range, while driving operational efficiencies and maintaining our balance sheet strength.
Over the last few years, we've worked hard to invest in our utilities to improve reliability and enhanced customer service our successful efforts in driving efficiencies to reduce operating costs. Since the merger now allow us to pass approximately $110 million of annual savings back to our customers in Missouri.
<unk> set a significant portion of the rate request allow.
Allowing us to deliver the benefits of those needed investments, while keeping rates affordable for customers. This.
This year, we look forward to a constructive outcome in the Missouri rate cases, as the next important step in achieving our objectives for the benefit of all stakeholders.
On the renewables front as David mentioned earlier, we've recently withdrawn our pre determination filing in Kansas, which included the addition of 190 megawatts of solar.
We're actively working with the developer to resolve remaining issues to finalize the definitive agreement for this project and file a new application with the KC later this year.
Since our initial filing last fall we've completed much of the documentation associated with the project the only significant items, which remain relate to issues arising from global supply chain uncertainty and customs enforcement, leading to importation delays. We are focused on resolving the remaining issues, while ensuring certainty of schedule at affordable cost for <unk>.
The benefit of our Kansas customers.
And should the expansion of tax incentives for solar.
<unk>, the PTC and direct pay ultimately see passage this could serve to improve project economics for our customers as well.
Turning to wind in the fourth quarter of 2020, we launched a request for proposal process for up to one gigawatt of new wind in order to achieve our targeted 300 megawatts in 2024 and 500 megawatts in 2025.
We saw robust participation and have since shortlisted, our initial bids to a select group of projects, which when combined represent a multiple of our targeted 800 megawatts.
The proposals received provides us the opportunity to select the projects that offer the best balance of risk and price for our customers.
We are targeting completing due diligence and negotiating definitive agreements through mid 'twenty, two we're going to get with it notification to proceed on construction issues of developers in the first half of 2023.
And finally since we introduced the concept of potential PPA buy ins on Investor Day, We've made progress in engaging with project owners and continue to believe that there is a path to make this opportunity a win win win for our customers shareholders and Counterparties.
While we saw the viability of this strategy is being enhanced by potential federal renewable tax reform and the proposed refresh of the 100% PTC.
We believe there is potential for this opportunity even if tax reform does not see passage.
Currently involved in active discussions with multiple counterparties with the objective of executing at least one buying this year.
That I will hand, the call back to David.
Thank you Kirk.
So for those on the call. We appreciate your time today and we'd like to open it up to questions.
As a reminder to ask a question. Please press star one on your Touchtone telephone to withdraw your question press the pound key.
Thats Star one on your Touchtone telephone to ask a question. Please standby, while we compile the Q&A roster.
Our first question comes from the line of Shar <unk> Guggenheim Your line is open.
Hey, good morning, guys.
Good morning Shar.
David Kansas seems like it's been a little bit noisy or maybe even somewhat hostile to actually both human and the KCP.
We saw one Republican obviously devoted from our committee because of an op Ed He wrote.
There was obviously recently legislation floating around for a price cap. Some lawmakers had been really honed in on that on the <unk> I guess can we just get any color on your conversations in recent weeks, there and any efforts to sort of pivot. The conversation. It's just been a little bit more noisier than we're used to.
Charles Good question.
In the legislative session, which is always active.
Look I think in Kansas, There is an active dialogue and we appreciate that it's part of why you see US feature the rate reductions that we've been able to deliver in our improving rate competitiveness and I would describe it as a lively conversation, but theres balanced input.
From all sides.
A presentation for example that Casey staff gave.
And one of the committees and the <unk>.
Senate Committee that highlighted how are rates over the last 10 years in Kansas Central had been flat to declining over 10 years, so well below the rate of inflation and that was certainly noted and of course, you recall, how securitization legislation was passed last year.
With overwhelming majorities in both houses so.
We're very focused on regional rate competitiveness, we know how important that is there are some stakeholders in the state and as a variety of opinions around renewables and others is reflected in a variety of opinions around our country, but we think it's a constructive dialogue overall and we're certainly in the middle of it and we're very focused on the same priorities that our key stakeholders have in the state.
Got it. Thank you for that and then just lastly, maybe for Kirk.
Just maybe just on the buy in how does that interact with the IRB update process, and just remind us or any buying in the capex plan or is this sort of an opportunity that's incremental.
Sure sure. So the first answer the second part of that question is.
None of those buys are included in our capital expenditure forecast that would be flex that'd be flex up if you will.
In terms of the in terms of the overall process around the IRB.
As the as the Ppas that underpin those buy ins already support our renewables and our ability to serve load. This was sip would simply be a shift in perspective of how we deliver that in the near term. If you will right. So we'd be replacing an existing resource that we avail ourselves through a PPA with an owned resource for the same number.
Megawatts.
It's really the it's the really repowering on the back end of that and the extension potential for it which is obviously.
Beyond the scope of our at least our five year plan that would have that impact that makes sense.
Got it no that's helpful very clear cut quarter. Thanks, guys I appreciate it.
Thanks Shar.
Our next question comes from Douglas show breadth of Evercore ISI. Your line is open.
Yeah.
Hey, good morning team. Thank you for taking my question.
Just just following up on the on the PPA buyout opportunity.
In terms of like basically as I understand it right. This is basically a PPA converted into a rate base.
Am I thinking about that correctly, and then do you need to sort of get regulatory approvals.
For it to be uneconomic.
Ultimately earnings accretive and what does the timeline look like.
Well the timeline as I've said, we are currently actively involved in discussions with multiple PPA counterparties about a potential buy in which is why as I indicated we feel comfortable at least targeting one of those to occur. This year, obviously, it's a two party negotiation.
So we've obviously got to get to closure on that in terms of the regulatory process Directionally speaking.
I think the way you described it is correct, we're basically taking a PPA pass through and converting that to capital ultimately with the focus being for the benefit of the customer I E. The target and the first step of that is if we can buy in that PPA at an attractive overall capital price so that the associated impact on rates with them.
If you will rate based investment provides.
<unk> provides customer savings that's the most important step in terms of how that gets adjudicated.
It would go through a similar process as really any rate base investment right. If that was in Kansas. We'd go through pre determination is in Missouri, we would absolutely pursue that through different means and in ordinary rate case.
Text <unk>.
Combining that with our Repowering, it's just an increase in the overall capital if you will or an extension of that timeline, albeit rather than a pass through it would be a rate based investment within all in savings right I think about that almost like a blend and extend type approach if you will.
That makes sense. Thank you for explaining that Kirk and so essentially I mean the.
The earnings accretion comes from.
Wade basis did the investment going through future rate cases, if you will.
Just maybe shifting gears can you just talk about the you know the.
O&M savings.
And it sort of <unk>.
Impressive execution on that front, how you're thinking about sort of inflation pressures.
Supply chain constraints are those hurdles.
For you to achieve your target for 2022 and beyond and how you're tackling those thank you.
So it's a good question, thus far and obviously the <unk>.
Macro environment that continues to be dynamic so one more highly attentive to.
As is everyone. Thus far we've been able to manage the inflationary pressures on the O&M side.
It has some impact despite changes should have some impact on our cost and building on the capital side, but we've also been able to work through those as well.
And we're confident that we can continue to manage it.
In our 2022 plan as you may have seen in the waterfall that Kirk walk through from 'twenty, one to 'twenty two.
It's a it's an overall <unk> uplift in O&M. So we have some cost savings. This year. We also had some.
Impacts last year from the outperformance of the unusual outperformance at our unregulated business did have some impact on our O&M costs modest, but that's part of the uplift we see going into next year, but it's an ongoing effort that we're going to drive 'twenty three 'twenty four and 'twenty five.
So we have.
As part of our five year plan, we already have teams in place that have identified.
The bulk of those savings and how we're going to achieve them.
We will be in execution mode in the back half of this year and in the upcoming years. So it has got to take sustained effort. It's been a comprehensive program across our whole company, Kevin Brian Our Chief operating officer is coordinating that effort on our behalf, but the company has got a great track record in this area, we know how to do it.
It's going to take sustained execution, so we don't want to.
We certainly acknowledge that we have the tools and I think the plans in place to make it happen.
Got it. Thank you for taking my questions I appreciate it guys.
Thank you. Our next question comes from Michael Lapides of Goldman Sachs. Please go ahead.
Hey, guys. Thank you for taking my question and congrats to a strong year.
I wanted to talk about the PPA buy ins as well as.
Any building trains for logs.
Congress, obviously hasn't been able to get anything across the finish line, we'll see if they try to do something in the lame duck session at the end of this year. It doesn't look like anything is happening before the midterms. Just curious do you think about pulling forward.
All of your renewable plantains.
Capture what could be the safe harboring benefit that some of the developers.
Hulu, who themselves may be thinking about repowering or.
Thinking about building new solar.
Going forward, the safe Harbor provision benefit that would happen because they've got a safe harbored at last year or two years ago.
P level versus what eight years or next year it would be.
Sure. It's a good question I mean, certainly we've thought about that at least in the context of the buy ins and repowering around that safe Harbor.
That would obviously require us to.
Make a capital outlay to obviously safe safe harbor that component of it.
We'd certainly be mindful of doing that but we'd also be reasonably cautious about that.
The context of having line of sight of our certainty of our ability to get that PPA buying and Repowering negotiated.
But that's certainly something that we're looking at at.
At the same time, we're we're hopeful that ultimately obviously in the current political environment. There is a lot of distraction and chaos, but if ultimately those provisions of build back better ultimately do get passed that obviously gives us greater flexibility, but we're certainly mindful of availing ourselves of that option in the current context from a from a safe Harbor.
Standpoint.
And Michael I'd add is the yes, the from a David.
From the perspective of the integrated resource plan and our multi year capital expenditure plan.
We're we look at the overall level of capital, we're expanding we look at the overall rate impact and affordability. We do think that bring on renewables is a win win because it's typically lower costs as well as lower emissions, but we arent going to track with the program with respect to the ERP part of the rationale for why there were some <unk>.
And the shift when relative to solar was in consideration of some of those factors around safe Harbor.
The category of truly new development that we're sensitive to all of those various factors and balancing them and of course, we have an ERP update that we'll do this year and it's a dynamic market.
We're going to be responsible we see the pulp the ppas are a little bit different the buy ins and repowering and that that's as Curt describe an existing set of resources. So that's.
That's more complicated for you to negotiate with the initial set of Counterparties, obviously, but for.
For those.
If we have opportunities that are sooner, we will certainly look for that but its subject to what you can accomplish with the counterparties, though of course those are all basically win so.
How about the BBA repowering, so it's really on the wind side, but the safe Harbor point that you made.
As relevant and we will seek to do as many of those as we can but within the constraints of the flip the counterparties will do with us.
Got it and then when we think about the buy in and Repowering can you just remind us how rate, making that woodworth, meaning if you bought the asset.
How do you get the acquisition in the rates and then if you re powering down the road how does the capital spend to Repower the asset get into rates.
Well first of all I could come in two forms right by them and Repowering can be.
A single negotiated with the counter party that we can contract with on both elements of that obviously that would be the owner of the existing asset who's our counterparties under the PPA and a potential repowering initiative almost akin to kind of build transfer expect with that same counterparty.
Negotiating those in tandem that's sort of.
My blend and extend the examples so it's sort of a single view of the capital required to buy in the remaining years of the PPA combined with the capital and the Repowering that would be an overall rate base investment and again that would need to be viewed by us, especially through the lens of affordability for our customers. It only makes sense for us to do this as a first order.
If we can substantiate that capital investment investment when combined to result in a savings to the customer relative to the PPA, that's being passed through and obviously supplemented by greater certainty of what those costs are in the long run there is the possibility that there could be a negotiating of a buy in at a later repowering that would really be up.
Bifurcation of really two capital investment considerations right.
A little bit more challenging in one sense, because you've got to substantiate the.
The affordability and the prudency of both of those two things individually.
Is why I think it's a cleaner path to do them combined but there are opportunities to do both.
That would mean, we'd go through and say here's the capital investment to replace this existing PPA pass through here's the savings around that that would be separately adjudicated and then we would approach the repowering separately.
Got it and then finally can you get them in the rates between rate cases, or do you have can you remind me I thought Kansas had a tracker or a rider we put it in but can you remind me on the Missouri as well.
Not a not a tracker on the Missouri side, if I understand what you're your question out there.
Got you just have to wait until the next trc to get it.
Correct, Yes, thats right.
Cool thanks, guys much appreciated.
Yeah, Michael again, all I'd add on that is that the you could take it to a redetermination. So you get a sense for in Kansas whether.
Whether how will be treated in the upcoming rate case.
And we've got a rate case scheduled for 2023 as you know and it following a rate case, you can do an abbreviated rate case six months into 2024. So there are a couple of different pathways you can go down.
Starting with the Redetermination as to get comfort that that will be treated and then you can do it either in the general rate case or an abbreviated rate case immediately following one that you've that you complete.
Got it thank you David but appreciate it guys.
Thank you.
Thank you. Our next question comes from Julien Dumoulin Smith of Bank of America. Your question. Please.
Excellent Hey, good good morning, Thanks team for the time, perhaps listen I don't want to hammer it too much on this this buying opportunity, but just you know you saw.
Say that you've got a few contracts at least one here, what's the order of magnitude of megawatts that we're talking about here again I'm not trying to pin you guys down just curious if you can speak to it.
Yes sure Julien.
First of all we're focusing on that subset of those those ppas that total for us about 3800 megawatts.
I think we've had that as part of our presentation.
Investor Day, there's about a little more than one about 125 gigawatts of that where the ptc's have either already expiring are approaching expiry and thats kind of a sweet spot. So we are really currently focusing on counterparties.
In that particular category.
I would say in the near term around our objective of.
At least getting one of those executed this year, which is our goal one 1% to 200 megawatts would probably be a good rule of thumb to think about.
Right effectively establishing a framework for how to scale it up to you know around that one too.
You can make it work.
I think thats, a fair way to characterize some level Jimmy view that PPA basis.
Our pipeline now to give you some of that pipelines near term and longer term, but.
We see that as a long term pipeline for us.
Absolutely Yeah, that's transparent I appreciate that and then related I mean I saw this bylaws week, if I can call it that to have a larger shareholder of 15% be able to call a meeting.
Admittedly I know we've been through a lot what drove that specific change of late here. If you can speak to it.
Sure that we thought that was just an improving our governance process Julien we didn't have the ability for our shareholder call that kind of meeting.
So we are evaluating our overall governance practices, we thought it would be viewed as an enhancement to create that ability to call. The meeting. So we looked at where the thresholds work for peer companies, where other companies are a lot of companies still don't offer that but we wanted to.
That is an additional capability shareholder friendly proposal.
But I view that as I'd put that in the category of our overall evaluation of our ESG policies and approaches trying to continue to improve on those.
Got it and then you alluded to this earlier just in brief here, Kansas spray cap legislation I mean, how much support does the proposed law that would cap increase at 1% per year have been tough.
Tough question to ask but curious if you can provide any context as to the positioning here.
We do not think that it has broad support we don't think that it's going to even get out of committee. So.
Lots of proposals get offered I've seen that over my career at all of the legislative session that I've seen in various states, but now we don't even think that will get out of committee. It's.
Had some discussion, but we don't think it's got a flight support.
Excellent thanks for clothing yeah.
You bet. Thank you everyone for joining us.
Have a great day.
Thank you.
Thank you. Our next question comes from Nicholas Campanella of Credit Suisse. Please go ahead.
Hey, good morning, Thanks for taking my question.
I was.
Just curious in light of the comments on the 190 megawatts of solar you talked about looking for more clarity on tax incentive.
Why chain pricing impacts can you just help us think about how that translates to the overall roughly 2 billion renewables Capex program that you've outlined here I know, it's fairly back end loaded but are you kind of taking a wait and see approach to this capital because it's so far out or does the capex that you have in the slides today kind of reflects the supply chain.
And pricing pressures that you're seeing thanks.
So I'll start and then hand it over to Kirk So the I would characterize the solar project in particular is pretty unique in that it's got that market based structure and that's really because of the ITC.
Benefits that are currently in place and how.
How to take advantage of those most effectively working with our counterparty.
And we're seeking a level of certainty.
In that agreement.
And Thats part of why we.
Decided to.
Withdraw the docket and will file and once we have certainty. So it's really related to supply chain issues in particular.
And we're seeking a certainty because of the importance of the affordability point that we mentioned.
But it is because of the structure of that.
Deal.
It's a minimal contributed earnings in 'twenty four 'twenty five.
Our wind additions in that we've got slated in 'twenty four 'twenty five and the end of both years.
I believe we'll be able to pursuing a more traditional way so.
There is some supply chain pressure, but obviously those are a little out further in time and does reflect our latest view in light of what we've seen in the.
And the RFP process that we went through we got some pretty robust bids so that continues to be our expectation.
It's the ongoing Wildcards obviously.
Macroeconomic situation, that's pretty dynamic but.
That reflects our best expectation is that yes, the only thing I'd add to that on the on the 190 megawatt Solar project is David David characterize it I agree.
Unique around some of those supply chain issues I think I think I've mentioned in my remarks.
Coming out of our initial Redetermination filing there was still some lingering uncertainty about what the administration was going to do around whether or not they were going to extended what the scope of that extension might look like when it comes to <unk>.
Tariffs and there are existing I mentioned this as well as in terms of customs and border protection. There are these withhold release orders around concerns around certain products from China and forced labor provisions, which are kind of holding things up a little bit. So those are the best two examples of the uncertainty and I think that's more unique to solar in this particular project.
<unk>, we wanted to get some clarity on that our counterparty wanted too as well.
Obviously see the bite administration give clarity around the at least around what their intentions are in terms of the tariffs.
So it gives us a better backdrop to do that.
We felt it was prudent to do so because we're very focused on this next step in our evolution of moving from what's been primarily a PPA dominated strategy to an owned renewables dominated strategy very important to us that that first four at least in the solar side, we do so with an eye towards affordability. So we didn't want to.
Too fast in negotiating this for the sake of getting it done we wanted to do it with clarity and certainty about as I said cost and schedule for the benefit of our customers.
And the reason David mentioned the unique nature of that particular project from a structural rate perspective. It is not as David indicated I think in his remarks, a major contributor in the early years of our plan due to some of the tax aspects of it. So it gives us a little bit greater flexibility to work through some of those unique issues in the near term and I'll go ahead and described.
Maybe a corollary to your questions in even in we've given earnings guidance or our target growth rate range through 2025 in.
In 2025 at a total contribution from the new renewables in our plan has less than 2% of our.
It's a factor we'll continue to watch.
We're optimistic we'll be able to make it happen and drive benefits for our customers and doing so, but it's still a relatively modest portion even in 'twenty five.
Yeah.
Got it that's very clear Super helpful.
Really appreciate that.
Just on your comments about the higher fuel cost.
Inflation and trying to translate more savings to customers. Obviously, you guys have already done a great job in the base plan today, but you're also going to be kind of filing an update to the ERP. This July and I'm. Just curious if we're kind of getting to a tipping point, where there's just an argument to kind of further accelerate some of the fossil fleet.
Youre kind of thinking about that in terms of.
The closures.
You bet. So yeah, that's a lots of intersection points inflation as a broader issue in the energy sector.
Happy that we've been able to.
Manage inflation better than certainly see across other parts of the electric space, but it is still an issue we hope that it's going to be temporary.
In terms of the implications for our generation fleet transition.
We tried to be thoughtful in our integrated resource plan will take the same approach in our update this year and beyond in terms of the pace and sequencing.
New renewables do offer some very attractive features.
In terms of relative cost and relative emissions profile.
Now, it's hard to accelerate that.
Very near term given the supply chain issues, which have had some knock on effects on pricing. So I would guess as we go through our update youre going to see a similar pacing and sequencing and our plan rather than an acceleration again cause acceleration runs into some of the you may not.
Not be able to achieve the same all the same benefits in terms of lower costs, and who knows what's going to happen in Washington, but there is momentum around some features.
In terms of additional incentives for renewables of course that would drive an incremental benefits for customers. So you can't.
<unk> and depend on something that's uncertain in Washington, and at the same time.
If there are some factors over the near term that are raising costs.
<unk> balances against rushing into things.
And the other dynamic is.
I think we will have to make sure we have a measured pace to this approach yesterday in.
In our jurisdiction there was very low wind and it was very cold weather and the reliability of the nuclear fleet and the fossil fleet was an important contributor. So we think we can manage it over time as we have nearly half of the.
Electricity that we provide our customers was from a recency resources last year between nuclear and wind. So we think we've got a great track record, we've been able to do that while maintaining reliability.
Be focusing on that balance going forward, but to your broader point I do think there is a way to drive that transition.
And with lowering costs and lowering emissions, while ensuring reliability, but it won't happen overnight, it's going to be a paced program.
That's helpful and one more if I can just.
Yeah.
I'm hearing you right the Pea.
P a buyout opportunities and upside to the capital plan and just as we think about putting more capex into the model.
What's your ability to just raised capex without additional growth equity capital.
So it's a good question.
One of our primary objectives as we've said a number of times, we have the ability and we're targeting being able to fund our capital expenditures to our five year plan without the need for new equity. We do have some degree of flexibility. Obviously there is there is not.
Unlimited from an internal generated equity capital standpoint, but I think in the context of my answer to Julians question earlier.
We have enough flexibility at least in the near term to get that that targeted leased one PPA buy in.
<unk> done within the context of our plan.
So we've got enough flexibility to do that.
But it's certainly not unlimited, but we're not planning on doing a significant order of magnitude of those at least in the near term of our five year plan. It would be additive obviously battling from a capital perspective, but also from an earnings perspective.
Really appreciate the time today. Thank you.
Thank you.
Thank you. Our next question comes from Travis Miller of Morningstar. Your line is open.
Good morning, Thank you.
Good morning.
Well I'm wondering holistically if you look at the Capex program 10 billion plus and then you think about the regulatory activity that you have going on right now in Missouri, and essentially in Kansas here coming up.
How could the outcome of those kind of near term regulatory.
Outcomes impact.
That full Capex plan and thinking about if things go well then you might upsize if things go poorly by downsize it.
What are your thoughts there in terms of sensitivity.
I think we try to be thoughtful and framing the capital expenditure plan that makes sense and drives benefits for customers and is a multi year program. So it is not.
A program that we toggle based on us.
Both of these rates.
Great reviews are pretty straightforward.
We are underway in Missouri, and we expect to be very similar in Kansas in other words, you've got a <unk>.
Set of infrastructure investments that we've had the chance to preview and review actually as part of the STP Dockets that went on last year into early this year.
You can get very consistent with public policy in Missouri is reflected in the in the legislation was enacted in 2018.
And it will drive similar benefits in Kansas.
We look at our overall program in terms of what we expect the overall rate impacts will be because we're very focused on affordability.
Our level of rate base growth is a little lower than a lot of our peer utilities, we think that will actually further help us in that regional rate competitiveness, but we still have a robust program. So we always look at it year to year in terms of.
Driving the benefits and reacting to what the market and that will be the primary lines as opposed to just reacting to what's in the rate case, but again the <unk>.
Our expectation is that the rate reviews will be pretty straightforward in light of the benefits these can deliver and.
The fact that we're offering a lot of cost savings to our customers by the rate cases I described in Missouri. So.
We were able to offset a lot of the.
Any potential increases by very sizeable and reductions in costs. So net net we've got confidence in our program. We've got a robust backlog of additional projects, we could do that.
That we believe will be beneficial we've got a pretty old.
Old set of infrastructure, even just replacing aging equipment, we've got decades of runway on those but we calibrate our overall program, what we think makes sense for customers and our overall rate trajectory.
Okay, great that makes sense.
You had answered my other question. So I appreciate the time.
Thank you.
Thank you. Our next question comes from Paul Patterson of Glen Rock Associates. Your line is open.
Good morning, guys.
Paul Good morning.
I apologize.
Mrs.
For 2022, the power ventures.
Palomar, what's the expectation for the contribution for that in 2022.
I'm sorry.
So overall, it's Kirk.
The contribution to our earnings in 2022 from I am going to say power marketing and energy ventures combined.
Probably about 10.
Okay.
And then.
And again, I'm, sorry, but the sales growth for 2022, you said was about 1% and it wasn't clear to me.
I mean hopeful I mean, it sounds like you're also still responding to COVID-19 sort of longer term no.
Non COVID-19 recovery.
Is your expectation for sales growth at this point.
Sure you bet.
<unk> year over year growth I'd characterized and what's behind that <unk>, that's about 1% year over year demand growth behind that about half of that is just the continued recovery from COVID-19 .
Most all of which we would have originally expected to occur in 2021, and if you want to think about sort of ongoing.
Normal way organic growth, it's the other half of that so call. It 50 basis points or half a percent about 1% is really the kind of a long term load growth that we foresee.
Okay, and then finally back to the Missouri piece of case piece of legislation.
<unk>.
My understanding is that.
Without legislation.
<unk> would have these.
The flexibility to go with a pizza or not.
Under the current pizza setup and I realize it's a 3% cap on the total rate in the in the two 5% 3% cover fuel or just.
Could you just give us a little bit of a flavor as to the.
What life under the current piece of the current legislation is versus.
What it would be.
Vis vis the.
The proposed legislation.
Sure. So I'll start off and we've got Chuck carefully with us.
Leaves, our public affairs and legislative efforts and he can correct me, where I go astray.
Current legislation.
As you noted it runs through 'twenty three but.
Utilities can apply to the commission.
To continue to operate under Pizza and the commission can grant up to an additional five years through 28.
And in the current legislation to 3% catheter the applicable broadly so it is inclusive of fuel.
Now the legislation that has been proposed to extend and expand.
Pizza.
Lowers the cap, but it.
Narrows it to apply to just the investments and activities related to pizza. So it's a little more.
Ties the cap or lower cap.
Two the actual investments that youre, making and asking for.
To be treated under the piece of legislation.
And the proposed legislation also does not have a sunset provision. So would continue so as I mentioned in my remarks, we are engaging with stakeholders. When it makes it's a good policy. It is consistent with the objectives that were behind the first legislation was first passed and we think it would have been advanced successfully.
And so we're having a good dialogue with stakeholders whether passes you know, it's a busy legislative session and other factors may sort of take all the oxygen in the room at the end of the day, but.
Having good discussions and we'll continue advancing as if it is not something we can accomplish this year then it will continue to be initiative next year and as.
As you noted as we discuss it as something even without new legislation can just asked.
The public service Commission.
To extend and Edison request, we could make next year.
Okay and just in terms of.
The increase in fuel places that we're seeing and everything is there a.
A significant amount of deferred fuel recovery or you're projecting potentially.
How does the outlook for fuel recovery.
Oh, you know what.
Any other I guess call Street, I mean is there a bit are there significant deferrals.
Let me ask it this way are you seeing significant levels of differed.
Expenses are accumulating here or what's the outlook for that under the current set up.
Yeah, we have seen some increase in deferrals it varies by jurisdiction for us So are met.
Metro jurisdiction, which is in both Missouri and Kansas.
Has the most significant amount of generation relative to load. So we've not seen significant deferrals in metro Metro is actually a jurisdiction also where were able to return benefits from winter storm Yuri.
And.
As a result of that position in Kansas Central.
Got a sizable base load fleet sizable wind fleet.
There are some cost pressures, particularly in the back half of the year. So we had some deferrals that will be seeking to recover this year in total our fuel and purchase power expense.
In 2021 I think.
It.
Was about $70 million higher than it was in 2020 now we actually collected less in revenue in 2021 and 2020, so our deferrals are little bit higher than that but we'll be seeking recovery for that in the normal course, as we do under the under the fuel clause and then in Missouri, Western Missouri West as a jurisdiction that is.
<unk> has a monogenic <unk> that is less than it has slowed so it has more exposure to market prices. So again in the back half of the year, we did see some fuel cost increases and Missouri West we file twice a year for recovery.
Of any deferrals and then those were covered in the over a 12 month period.
So we made a filing in Missouri West in December related to that so we did see some increased amounts again relative to others.
Other jurisdictions that have higher amounts of natural gas generation relative to the other elements of the energy complex is relatively lower but.
Youll see those deferral amounts in both two of our three jurisdictions.
Thanks, so much I appreciate it.
You bet. Thank you.
Thank you at this time I would like to turn the call back over to President and CEO , David Campbell for closing remarks, Sir.
Great. Thank you. We appreciate all of you joining us this morning, particularly as this his last day of a long earnings season, Thanks and have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
[music].
Yes.
Okay.
Yeah.
Okay.
[music].