Q3 2022 Evergy Inc Earnings Call

November 4, 2022

Yeah.

Good day and thank you for standing by welcome to the third quarter 2022 ever G earnings Conference call.

At this time all participants are in a listen only mode.

After the Speakers' presentation, there'll be a question and answer session.

To ask a question during the session you will need to press star one one on your telephone.

Please be advised that today's conference is being recorded.

I would now like to hand, the conference over to your Speaker today, Lori Wright, Vice President of Investor Relations and Treasurer. Please go ahead.

Thank you Elizabeth good morning, everyone and welcome to <unk> third quarter call. Thank you for joining us this morning.

Days discussion will include forward looking information slide two and the disclosure in our SEC filings contain a list of some of the factors that could cause future results to differ materially from our expectations and include additional information on non-GAAP financial measures. The releases 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 thought ever G Dot com.

On the call today, we have David Campbell, <unk>, President and Chief Executive Officer, and Kirk Andrews Executive Vice President and Chief Financial Officer, David will cover our third quarter highlights provide an update on ongoing and upcoming regulatory proceedings and our recent sales trends as well as an update on our resource planning.

And the inflation reduction that Kirk will cover in more detail the third quarter and year to date results and our financial outlook for the remainder of the year. 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.

Thanks, Lori and good morning, everyone.

I'll begin on slide five and I am pleased to report that we had another solid quarter.

We delivered adjusted earnings of $2 <unk> per share compared to $1 97 per share in 2021.

The increase in adjusted earnings over last year was driven primarily by favorable demand above normal weather.

And higher transmission margins, partially offset by higher D&A and interest expense.

Our year to date September 30th adjusted earnings were $3 43 per share compared to $3 35 per share a year ago.

With these strong results, we are raising the midpoint of our guidance.

From $3 53 per share to $3 58 per share.

And revising our adjusted EPS guidance range to $3 53 to $3 63 per share.

$3 43 to $3 63 per share.

Eric will detail the drivers of our third quarter performance and upward guidance revision.

I would also like to call out and complement the strong work of the entire <unk> team and providing safe and reliable power to our customers and communities through a hot summer and early fall and.

In particular I'll call out our teams strong safety performance with a 66, 66% reduction in dart events, and a 62% reduction in Osha recordable as compared to the first nine months of 2021.

On August nine we announced an agreement to acquire for <unk> Creek Wind farm, a 199 megawatt operating wind farm in Western Oklahoma for $250 million. This.

This investment satisfies two thirds of our planned 300 megawatts of renewable additions in 2024.

<unk> Creek will deliver low cost power to our Missouri west customers subject to approval from the Missouri Public Service Commission and supports our carbon reduction and net zero emission targets.

We also announced a 7% increase in our quarterly dividend to <unk> 61, and a quarter cents per share or $2 45 per share on an annualized basis.

This increase is consistent with our recent growth trajectory and long term targets.

We remain laser focused on executing our plan and advancing our strategic objectives of affordability reliability and sustainability in the context of historically volatile economic conditions and inflation.

We remain confident in our long term plan and we are reaffirming our target annual EPS growth rate of 6% to 8% from 2021 to 2025.

Now moving to slide six in Missouri, we are pleased to reach partial stipulations and agreements with our stakeholders and the pending metro in Missouri West rate cases.

Which we expect will provide a balanced outcome for customers and shareholders.

We approved agreements call for $67 5 million revenue increase across our jurisdictions.

Not all of the relevant details are public and the black Black box settlement, but I'll highlight the eight 5% pretax rate of return for plant in service accounting or Pisa as a helpful. Data point. This will apply to go forward investments while the settlement resolved most of the key economic issues. There are several items that the Missouri Commission.

In the coming weeks.

<unk> rates will go into effect on December six.

We're pleased that we were able to find common ground with our stakeholders in these settlements.

We continue to view, Missouri is a very attractive jurisdiction to invest in <unk>.

As evidenced by the rate case, and the constructive extension and changes to the piece of legislation that were enacted earlier this year.

Okay.

Turning to slide seven I'll provide a summary of other key regulatory and legislative milestones and ongoing constructive developments in both Kansas and Missouri.

I'm happy to report the Missouri Commission issued a financing order in October that approved our request to recover and securitize approximately $300 million of winter storm Yuri costs at our Missouri West jurisdiction.

We expect to go to market in the first half of 2023 to complete this financing.

For the Persimmon Creek acquisition, we filed for a certificate of convenience and necessity or CCN.

In August we expect this investment to qualify for piece of treatment at our Missouri West jurisdiction.

Missouri Commission staff will issue its recommendation by November 18th and we requested approval by year end.

On the other side of the Stateline, The Kansas Corporation Commission issued an order in mid September that determined our 2022 capital investment plan meets the requirements of the capital investment plan framework.

Distant with prior years. The commission also requested average year tend to workshop to explain the impact of the proposed capital spending and to answer questions for the commissioners to <unk> staff and the citizens utility Ratepayer board or curb.

The workshop will take place on December 13th we look forward to the opportunity to highlight the benefits of our planned transmission and distribution investments in our system with a lot of older infrastructure.

The addition of renewables consistent with our integrated resource plan.

Benefits of which are now further enhanced by the federal subsidies and the IRR as.

As well as upgrades to technology and customer service platforms that will help us to serve customers more effectively and efficiently.

In addition, we'll cover our ongoing progress in advancing the regional rate competitiveness.

<unk> system, which is a core element of our strategic focus on affordability.

Also in Kansas preparation is underway for our 2023 rate cases, which we will file in late April .

This will be our first requests requests for new base rates in Kansas since we formed averaging in 2018.

Key drivers of the case will include return on equity capital structure review of our reliability and efficiency focused distribution customer and technology infrastructure investments since our last rate case.

As well as passing on the significant O&M savings we've generated for customers since the completion of the merger.

We look forward to working constructively with our regulators and stakeholders just as we have in multiple forms of the past few years and candidates to advance the 2023 rate cases, and deliver against our strategic objectives of ensuring affordability reliability and sustainability for our Kansas customers and communities.

Turning to slide eight.

I'll review our demand growth.

And comment on economic trends and developments.

For the third quarter.

Total weather normalized retail demand increased by approximately one 7% driven.

Driven by a robust increase in industrial demand for the chemical and oil and gas sectors.

Year to date weather normalized demand is up approximately 2%.

Total demand is up two 4% for the quarter and approximately 3% for the year.

While 2021 was warmer than average temperatures were even higher in the third quarter of 2022.

Our regional economy has remained healthy as the unemployment rate in both Kansas and Missouri continues to track below the national average.

We are also excited by the ongoing growth that we've seen as reflected in the numbers I just shared as well as the large project announcements such as metals datacenter and Panasonic, New electric vehicle battery manufacturing plant.

I'll conclude my remarks with a few comments on the inflation reduction act or <unk> on slide nine.

There's no question that the IRA has a very consequential piece of legislation.

We are assessing the key impacts of the IRS through the economic and customer affordability lenses as the bill provides longer term certainty and visibility for significant renewable energy tax credits and emerging technologies.

This economic support will further enhance our ability to take advantage of the abundant renewable potential of our region and deliver savings to our customers by replacing energy produced from resources with higher fuel and O&M costs.

We also expect the Wolf Creek nuclear plant to be eligible for the Iras nuclear production tax credits, which will have a beneficial impact for customer bills in years with low realized prices for Wolf Creek.

We expect to provide an update on our future renewable generation plans by mid 2023, when we file our revised annual integrated resource plans in Kansas and Missouri.

This update will incorporate the impacts of the IRA updated commodity projections and higher capacity requirements in the southwest power pool. We are excited to advance a program that will further enhance our affordability reliability and sustainability goals.

I will now turn the call over to Kirk.

Thanks, David and good morning, everyone I'll start with the results for the quarter on slide 11, but before I turn to the drivers behind our third quarter adjusted EPS I'd like to summarize one item in our GAAP results for the quarter related to the deferral of certain revenues from our retired Sibley coal plant in Missouri.

Although rate treatment for civil is among the items the Missouri Public Service Commission will resolve in the coming weeks.

A decision by the commission issued in August related to a plant retirement by another Missouri utility established a regulatory precedent, which led us to change the accounting for Sibley.

Since retiring simply in 2018, we've collected approximately $3 1 million in revenues each quarter associated with the return on the simply rate base.

Based on the regulatory precedent in the third quarter, we deferred the cumulative amount of these revenues collected in rates since the plant retirement totaling $47 5 million to a regulatory liability with a corresponding reduction to operating revenues quarter.

In order to allow our adjusted EPS to reflect the impact of the accounting change and the periods in which revenues were collected.

Excluded the amount of the deferral associated with the revenues collected prior to the third quarter and prior to 2022 from our third quarter and year to date adjusted EPS respectively.

As a result within the quarter and year to date, the net impact of the change in simply accounting reflected in our adjusted EPS was.

It was approximately one penny for the quarter <unk> year to date.

For comparative purposes, we have also recast the adjusted EPS for 2021 to reflect the one penny per quarter impact.

Notwithstanding this change in accounting, we remain confident that the retirement of Sibley was prudent as reflected in the commission order in the Missouri, West securitization proceeding, which address the prudence as.

As such we continue to believe the inclusion of ongoing return on rate base for simply in our general rate case filing was appropriate.

Although the ultimate rate treatment is simply including the ongoing return on rate base remains to be decided upon by the commission and this decision may have an impact on future revenues.

The third quarter deferral of revenues in and of itself does not impact our expected earnings going forward.

For the third quarter of 2022 average delivered adjusted earnings of $462 million or $2 <unk> per share compared to $452 million or $1 97 per share in the third quarter of 2021.

The year over year increase in third quarter EPS was driven by the following <unk>.

First a 3% increase in cooling degree days drove a three <unk> increase in EPS compared to third quarter 'twenty one.

Adjusting for the warmer than normal weather experienced in the third quarter of 'twenty. One however, the third quarter of this year also saw 15 of EPS versus normal weather assumed in our original plan.

As David mentioned earlier, we also saw a one 7% increase in weather normalized demand this past quarter, which drove <unk> <unk> per share.

Higher transmission revenues, resulting from our ongoing investments to enhance our transmission infrastructure and higher volumes drove about a penny increase.

These positive drivers were partially offset during the quarter by higher operation and maintenance expense as well as increased depreciation expense, which impacted our EPS by one penny and <unk> <unk> per share respectively.

Additionally, we incurred <unk> <unk> of higher interest expense due to increased debt outstanding at higher rates.

Ill turn next to year to date results, which you'll find on slide 12.

For the nine months ended September 30th.

Adjusted earnings were $790 million or $3 43 per share compared to $768 million or $3 35 per share for the same period last year.

Again, moving from left to right.

Our year to date EPS drivers versus 21 include the following when combined with above normal weather in the first two quarters our year to date results now reflect a <unk> <unk> benefit from weather versus last year.

When compared to normal weather.

Whether this year contributed 26 year to date.

Weather normalized demand increased about 2% year to date driving approximately 15 cents of EPS.

Higher transmission revenues driven by ongoing investments combined with an increase in transmission delivery charge revenues due to higher volumes led to <unk> year to date increase versus 'twenty one.

These items were partially offset by increased O&M expense due to higher generation maintenance driven by weather and outages as well as increased vegetation management.

Leading to approximately <unk> <unk> per share.

<unk> <unk> of higher depreciation expense due to increased infrastructure industrial <unk>.

<unk> of increased interest expense lower AFDC equity again, primarily driven by higher debt outstanding at higher interest rates.

<unk> <unk> of income tax smoothing driven by timing differences within the year and finally, we had <unk> of other items, primarily from lower coli proceeds and higher property taxes incurred prior to the implementation of the new Missouri property tax tracker in late August .

Turning to slide 13, I'll provide greater details on the drivers of our increased midpoint and narrowed guidance range for 2022.

Starting with our previous guidance range on the left of the slide and again moving from left to right.

First we incorporate the 26 tenths of weather impact year to date, assuming normal weather for the fourth quarter.

Higher transmission revenues driven by an increase in PTC revenues due to higher volumes drive a 9% increase versus original expectations.

These items are partially offset by <unk> <unk> per share increase in O&M, driven by increased generation maintenance to maximize fleet availability due to higher than expected demand and power prices year to date and higher vegetation management stack.

<unk> per share from coli driven by immaterial coli proceeds year to date and assuming no further coli proceeds in the fourth quarter.

<unk> driven primarily by higher interest expense and lastly, we've incorporated the one penny per quarter impact of the Sibley deferral or <unk> for the year into our updated guidance.

And finally, turning to slide 14, having raised our midpoint guidance for 2022 and increased our dividend by seven to $2 45 per share annualized.

Reaffirming our 2021 to 2025 long term annualized EPS growth target of 6% to 8% and continued to target dividend growth in line with EPS at a 60% to 70% payout.

We will be providing 2023 adjusted EPS guidance on our fourth quarter call in February and we will be filing our Kansas rate case in late April of next year with rates effective in late December .

We continue to plan and $10 7 billion of infrastructure investments from 2022 to 2026, and we will provide an update to our Capex plan on our fourth quarter call as we maintain focus on making investments to ensure we provide affordable reliable and sustainable service to our customers and communities.

With that operator, we'd be happy to take questions.

As a reminder, if you'd like to ask a question at this time. Please press star one one on your telephone.

Our first question comes from the line of Angelique Aiello with Bank of America. Your line is now open.

Okay.

Hey, good morning. This is.

Darius on for Julien. Thank you for taking the question.

Darius.

Morning.

One is I just wanted to maybe check in on it.

Or.

Progress thus far on wind PPA buying I think earlier in the year you guide.

Expected to do at least one of those just curious if you could give us give an update or maybe any kind of updated expectations as that process moves along.

Sure I'll hand that over to.

Curt This is David and I appreciate the question Derik as you would expect the.

Evolution of the inflation reduction act and the created some uncertainty in the marketplace both around what the subsidies would be and whether they would occur and.

That has created some.

Yes, the dynamics with respect to <unk>, considering what valuation is and what the future potential could be you know we now have clarity around that of course, but folks are still settling on respective values. We think that on balance. It further enhances the value proposition what we're proposing in terms of.

The benefits to potential sellers and for us substantial buyers and what we can offer to customers, but has impacted timing of agreement I will hand, it over to Kirk who is driving that process sure I'll just add to that is that we haven't change that objective and we're still focused on getting at least one of those done.

We are still in active dialog with counterparties on that front.

I can't absolutely predict the timing obviously, we're within a couple of months of the year end, but we are laser focused on that objective and if the time extends a little beyond the year and that doesn't change that focus on at least getting one of those done and that again is incremental to our plan both from a capital and EPS perspective, and we've been pleased with Kirk and his team.

We were able to negotiate an.

The acquisition of Persimmon Creek Thats in operating wind farm, we hope to get approval on that by year end, but and have that in the certainly have that in the system next year and that's an operating.

Wind farm, that's added a portfolio earlier than what was in our ERP that was initially part of our 2024 plan.

Okay, great. Thank you very much for that clarity.

And maybe just a follow up on the <unk>.

<unk> change in accounting treatment can.

Can you, maybe just discuss a little bit sort of like <unk>.

Secondly, what is it.

<unk> and forward guidance relative to that change in accounting treatment and also.

How I.

I guess, the pending order from the PSC in Missouri.

Can affect the range of outcomes there.

Sure Derek first of all in terms of in our forward expectations as you know and as I indicated.

But part of our rate filing in Missouri included.

Ongoing return on Sibley.

Something we've discussed before so that is obviously pending in front of the commission and that's in our expectations. We've kind of talked about the order of magnitude of what that means from an EPS perspective on a go forward about three pennies.

Drawing a distinction between that and the accounting change however, as I indicated in my remarks.

Deferral to the regulatory liability, although that does change in hindsight as where we've recast our adjusted EPS by that one penny a quarter looking forward as I also indicated that does not change our expected earnings.

On a go forward basis, the accounting change does not change our expected earnings.

Yes, so the Sibley item remains open.

Would you expect the commission ruling really it could be as soon as this week or in the coming weeks certainly because our rates go into effect December six.

As Kirt described it's about <unk> <unk> of exposure going forward and you might say well gosh, if its one once that a quarter. This year why is it lower it's because of the that's the amount that was set in rates in the last rate case, that's a lower balance.

Going forward, that's under review and there are a couple of items at the Missouri Commission.

Commission will review and Sibley is one we always expected that we'll get a lot of attention the rate cases and was it a complicated situation.

But we were pleased to get constructive settlement of the main issues in the rate case, and we will have resolution on the remaining couple in the.

The coming weeks.

Okay excellent. Thank you for clarifying I'll pass it along here.

Great. Thank you.

That concludes today's question and answer session I would like to turn the call back to David Campbell for closing remarks.

Well that was that was efficient.

So I'll wrap up by.

Starting with a special thanks to Lori Wright.

Who will be retiring from <unk>. This year after 21 years with the company.

And its predecessors and nearly four decades in the industry.

Laurie we greatly appreciate your outstanding service and contributions.

And we know that Pete Flynn has large shoes to fill.

For everyone on the call. We appreciate your time with us today and have a great day.

This concludes today's conference call. Thank you for participating you may now disconnect.

Yeah.

The conference will begin shortly.

As Johan during Q&A, you can dial one one.

[music].

Okay.

Yes.

Okay.

Yes.

Okay.

Yeah.

Yes.

[music].

Thank you.

Sure.

Yes.

Okay.

Yes.

[music].

Good day and thank you for standing by welcome to the third quarter 2022 every earnings conference call.

At this time all participants are in a listen only mode.

The speaker's presentation there'll be a question and answer session.

I ask a question during the session you will need to press star one one on your telephone please.

Please be advised that today's conference is being recorded.

I would now like to hand, the conference over to your Speaker today, Lori Wright, Vice President of Investor Relations and Treasurer. Please go ahead.

Thank you Elizabeth good morning, everyone and welcome to <unk> third quarter call. Thank you for joining US. This morning. Today's discussion will include forward looking information slide two and the disclosure in our SEC filings contain a list of some of the factors that could cause future results to differ materially from our X.

Spectation and include additional information on non-GAAP financial measures. The release issued this morning, along with today's webcast slides and supplemental financial information for the quarter are available on the main page of our website at investors thought energy Dot com.

Thanks, Lori and good morning, everyone.

I'll begin on slide five and I am pleased to report that we had another solid quarter as we delivered adjusted earnings of $2 <unk> per share compared to $1 97 per share in 2021.

The increase in adjusted earnings over last year was driven primarily by favorable demand above normal weather.

And higher transmission margins, partially offset by higher D&A and interest expense.

Our year to date September 30th adjusted earnings were $3 43 per share compared to $3 35 per share a year ago.

With these strong results, we are raising the midpoint of our guidance.

From $3 53 per share to $3 58 per share.

And revising our adjusted EPS guidance range to $3 53 to $3 63 per share.

$3 43 to $3 63 per share.

Eric will detail the drivers of our third quarter performance and upward guidance revision.

I would also like to call out and complement the strong work of the entire averaging team and providing safe and reliable power to our customers and communities through a hot summer and early fall and.

In particular I'll call out our teams strong safety performance with a 66, 66% reduction in dart events, and a 62% reduction in Osha recordable as compared to the first nine months of 2021.

On August 9th we announced an agreement to acquire for <unk> Creek Wind farm, a 199 megawatt operating wind farm in Western Oklahoma for $250 million. This.

This investment satisfies two thirds of our planned 300 megawatts of renewable additions in 2024.

<unk> Creek will deliver low cost power to our Missouri west customers subject to approval from the Missouri Public Service Commission and supports our carbon reduction and net zero emission targets.

We also announced a 7% increase in our quarterly dividend to <unk> 61, and a quarter cents per share or $2 45 per share on an annualized basis.

This increase is consistent with our recent growth trajectory and long term targets.

We remain confident in our long term plan and we are reaffirming our target annual EPS growth rate of 6% to 8% from 2021 to 2025.

Now moving to slide six in Missouri, we are pleased to reach partial stipulations and agreements with our stakeholders and the pending metro in Missouri West rate cases, which we expect will provide a balanced outcome for customers and shareholders.

The approved agreements call for $67 5 million revenue increase across our jurisdictions.

Not all of the relevant details are public and the black Black box settlement, but I'll highlight the eight 5% pretax rate of return for plant in service accounting or pizza as a helpful. Data point. This will apply to go forward investments.

While the settlement resolved most of the key economic issues. There are several items that the Missouri Commission will resolve in the coming weeks.

Revised rates will go into effect on December six.