Q4 2022 Evergy Inc Earnings Call

Okay.

Thank you for standing by and welcome to averages fourth quarter 2022 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.

I need to press Star one one on your telephone.

Now I'd like to hand, the call over to Peter Flynn Director of Investor Relations. Please go ahead.

Thank you Latif and good morning, everyone.

Welcome to <unk> fourth quarter 2022 earnings conference call.

A webcast slides and supplemental financial information are available on our Investor Relations website at investors Dot <unk> dot.

Dot com.

Today's discussion will include forward looking information.

<unk> and the disclosures in our SEC filings contain a list of some of the factors that could cause future results to differ materially from our expectations.

They also include additional information on our non-GAAP financial measures.

Joining us on today's call are David Campbell, President and Chief Executive Officer.

Kirk Andrews Executive Vice President and Chief Financial Officer.

David will cover 2022 highlights provide upcoming regulatory and legislative updates and discuss our upcoming integrated resource plan.

Kirk will cover our fourth quarter and full year results retail sales trends as well as our financial outlook for 2023.

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, Pete and good morning, everyone.

Would be remiss, if I did not start with the recognition of the Kansas City Chiefs and their victory in Super Bowl 57 for football fans, who have never been to Arrowhead Stadium definitely added to your list Chief Kingdom is quite something to behold.

I'll begin on slide five and I'll start by thanking our employees, who work tirelessly throughout the year to advance our strategic objectives of affordability reliability and sustainability.

Good and honored to lead to average team.

With respect to 2022 results I am pleased to report that we had another solid year we.

We delivered adjusted earnings of $3 71 per share compared to $3 46 per share in 2021.

These results reflect another year of strong execution relative to our objectives.

We entered 2022 with a guidance range of $3 43 per share to $3 63 per share and our results came in <unk> <unk> higher than the top end of the range.

Kirk will discuss the drivers of our 2022 results in more detail.

Last year, we executed on our capital plan to further improve reliability and resiliency investing $2 $2 billion in infrastructure to modernize our grid and replace aging equipment.

I'd like to recognize the hard work of our regulatory staff as we completed our first two Missouri rate cases since the merger in 2018.

We reached partial settlements on key economic issues at both Metro and Missouri, West delivering significant O&M savings back to our customers.

These rate cases underscore our continued progress in maintaining affordability for our customers and increasing our regional rate competitiveness.

Through November 2022, we've limited cumulative rate increases to two 7% since 2017.

Well below the rate of increase for our regional peers and the prevailing rate of inflation over the five year period.

Slide six profiles the significant improvement that we've made in customer satisfaction as measured by J D powers annual survey of utility customers.

Since 2018, we've climbed 10 spots in J D Power's Midwest large utilities category coming in.

At fifth out of 15 companies in 2022 cusp.

Customer satisfaction remains at the forefront of our strategy.

Safety tops, our list of core values and slide seven highlights the considerable progress we've made in limiting safety related events.

Both Osha recordable and dark cases have declined by over 50% since 2018.

Promoting a culture of safety and focusing on every employee going home safely every day are paramount to our success as a company.

On slide eight we introduced our 2023 GAAP and adjusted EPS guidance of.

<unk> $3 55 per share to $3 75 per share.

We know the importance of consistent execution, and we recognize that 2023 falls short of the midpoint relative to our long term targets, reflecting regulatory lag in our Kansas jurisdiction and our commitment to a five year rate case stay out as part of the merger.

But we remain confident in our ability to deliver annual 6% to 8% adjusted EPS growth.

Through 2025 off of the 2000 22021 baseline and.

And we are reaffirming that target today.

Okay.

Moving to our five year capital plan on slide nine we have updated and extended our forecast through 2027.

Our new five year investment plan totals $111 6 billion for 2023 to 2027.

Which represents a $900 million increase relative to our 2022 to 2026 forecast or 9%.

Nearly 60% of our planned investment is targeted toward transmission and distribution projects as we continue to modernize our grid to improve reliability and enhanced resiliency for our customers.

By replacing aging equipment and investing in smart grid technologies will also enable further efficiency gains and serving our customers, which has been a hallmark of <unk> strategy over the last five years.

Slide 10 profiles, our progress in driving cost savings despite.

Astoria high inflation in 2022, we held adjusted O&M flat relative to 2021, representing $232 million in cumulative savings since 2018 or.

Our 18%.

The work is not done yet and we remain laser focused on our target of an additional 11% reduction in adjusted O&M through 2025.

As part of this effort the company implemented a voluntary retirement program in the fall of 2022.

Which combined with ordinary course retirements and attrition resulted in an eight 5% reduction in the size of the organization by year end.

I can't say enough about the hard work of the <unk> team in delivering against and exceeding the savings for customers that were promised as part of the merger that formed our company.

As shown on slide 11, <unk> has been able to limit cumulative rate increases to two 7% since 2017 based on the latest available data from the EIA, which runs through November 2022.

This compares favorably to a regional peer states and the prevailing rate of inflation over the same timeframe.

Advancing an improving regional rate competitiveness, our priorities and our long term plan and are front of mind for many of our stakeholders and that's exactly what we've accomplished over the past five years.

Moving to slide 12, I'll provide an update on regulatory and legislative priorities, beginning with our rate case filings in Kansas.

In mid April will file our first rate cases at Kansas Central and Kansas Metro since completion of the averaging merger in 2018.

We believe these rate reviews will be relatively straightforward requesting recovery and return on.

Our grid modernization infrastructure investments over the past five years and passing on the benefits of the cost savings we've achieved to our customers.

We look forward to working with our regulators and stakeholders to achieve a constructive outcome for our Kansas customers and communities.

In Missouri. This year, we anticipate acquired religious legislative session relative to last year, which saw the extension and amendment of Pizza further supporting the constructive regulatory environment in the state.

On the regulatory front, we have open dockets for the approval of an operating certificate of convenience and necessity for acquisition. The Persimmon Creek wind farm as well as the securitization from winter storm Yuri costs incurred at Missouri West.

Initial post hearing briefs are due on March 6th in the Persimmon Creek docket with an order requested by April six.

We firmly believe for <unk> Creek is the lowest cost solution to serve Missouri west customers consistent with the IOP preferred plan and.

And we'll continue to work collaboratively collaboratively with our regulators to secure the necessary approvals.

The Missouri public service Commission's approval of our request to securitize extraordinary costs from Winter Storm Youri was appealed to the Missouri Court of Appeals by the office of public public counsel in early January .

<unk> initial briefs are due by early April 90 days following the appeal there.

We believe the commission's decision to approve our request is well supported by the record.

While we cannot complete our securitization financing until the appeal plays out incremental carrying costs incurred prior to approval, we will ultimately be recovered when we issued the debt.

The last item on the regulatory agenda that I'll reference is the expected June filing of our annual integrated resource plan updates in both Kansas and Missouri.

Which I'll cover more as you turn to slide 13.

The planning process for IRB filings is well underway as we continue to assess the beneficial impact of the inflation reduction act on our generation resource planning.

The longer term certainty the IRA provides.

Around renewable energy tax credits.

To enhance our ability to tap the abundant renewables potential in our region and.

And deliver savings to our customers by replacing higher cost energy.

We expect our Wolf Creek nuclear plant to be eligible for the Iras nuclear production tax credit.

The benefits of which will accrue to our customers in years with low realized prices for Wolf Creek.

In addition to these IRR tailwind will be incorporating updated commodity projections construction costs and higher capacity requirements in the southwest power pool into the annual update.

We are excited to advance our integrated resource plans to deliver additional benefits to our customers.

I'll conclude my remarks on slide 14, 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.

Ported by stakeholder collaboration sustainable investment and financial and operational excellence.

Right hand side features what we believe are particularly attractive and distinctive features forever G. Given our business mix and geographic location.

We are excited about the opportunities for our company and we are committed to sustained effort required to deliver against our high performance objectives.

I'll now turn the call over to Kirk.

Thanks, David Good morning, everyone I'll start with the results for the quarter on slide 16.

For the fourth quarter of 2022 average delivered adjusted earnings of $68 6 million or <unk> 30 per share compared to $32 9 million or <unk> 14 per share in the fourth quarter of 2021.

As shown on the slide the year over year increase in fourth quarter EPS was driven by the following first an increase in heating degree days, partially offset by lower demand drove a net eight increase in EPS compared to the fourth quarter of 2021.

Higher transmission margins, resulting for both our ongoing investments to enhance our transmission infrastructure and higher volumes drove a <unk> increase.

A decrease in O&M versus the fourth quarter of 2021 drove an 8% increase in adjusted EPS for the quarter.

These positive drivers were partially offset by three pennies of higher D&A expense and <unk> <unk> from the combination of higher interest expense and lower <unk> equity.

Income tax related items, including increased wind and other tax credits and the timing of the use of tax credits compared to the prior year drove <unk> <unk> of higher EPS in the quarter.

And finally other items, both positive and negative.

Drove a net two pennies of year over year increase these items consist of higher coli proceeds and other margin, which were partially offset by <unk> <unk> from the Kansas earnings sharing program, which was one of our merger commitments, which expired in 2022.

Warmer weather through the summer and into the fall drove our earned ROE at Kansas Metro above our current authorized nine 3% requiring us to refund half of that excess back to customers alter.

I'll turn next to year to date results, which you'll find on slide 17.

For the full year 2022, adjusted earnings were $853 8 million or $3 71 per share, which compares to $795 2 million or $3 46 per share in 2021.

Again, moving from left to right our full year EPS drivers versus 21 include the following.

Weather contributed 21 versus 2021.

Relative to normal weather drove an estimated 29 of favorability in 2022.

Weather normalized demand was one 1% higher than 2021, driving an 11% increase.

Higher transmission margins from increased investment as well as higher volumes drove a 15% year over year increase in.

And lower O&M drove adjusted EPS, <unk> <unk> higher versus 2021.

These positive drivers were partially offset by <unk> 11 of DNA and 14th of increased interest expense and lower <unk> equity with higher interest expense accounting for 11, 14% decrease in adjusted EPS.

Finally, other items drove a net penny of favorability, consisting primarily of <unk> from the expiry of merger Bill credits.

From tax credits and a penny of other items.

Which were partially offset by <unk> <unk> from the earnings sharing program or our SP at Kansas Metro, which I mentioned earlier and by fourth quarter remarks.

Turning to slide 18, I'll provide a brief update on our recent sales trends on the left hand side of the slide you'll see the total retail sales increased three 5% in 2022, driven primarily by a strong increase in residential usage and supported by healthy commercial and industrial growth.

Looking to the right hand side of the slide after adjusting for the estimated impact of weather retail sales increased one 1% for the full year.

These results were bolstered by strong industrial demand for the oil and chemical refining sectors.

But one 7% increase in weather normalized commercial demand was driven by customer growth.

<unk> returned to normal post COVID-19.

Underlying the continued growth in residential and commercial customers as a strong labor market highlighted by Kansas in the Kansas City Metro area unemployment rates of two 9% and two 4% respectively. As of year end. These remained below the national average of three 4%.

Overall in 2022, we saw continued recovery following the pandemic at our economy is well positioned to extend that positive track.

As a result, adjusting for 30 year weather.

We expect an approximate one 6% increase in weather normalized demand in 2023, which I will discuss as part of our 2023, EPS guidance, which you'll find on slide 19.

Starting on the left side of that slide and beginning with 2022 adjusted EPS of $3 71.

We expect an 11% decline from demand or just under 1% decrease in total demand.

This 11% decrease is the net impact of removing the estimated 29% impact in 'twenty two from weather, partially offset by an 18% increase in weather normalized demand.

Removing the largely weather driven impact of the earning sharing program or ER SP at Kansas Metro in 2022 results in a 6% increase.

We expect an approximately $60 million reduction in pretax O&M deliver a 'twenty EPS increase as we continued to execute our cost savings programs as part of our focus on and commitment to affordability and operational excellence.

Higher transmission margins are expected to add <unk> 13 in 2023, as we continue to make investments to improve our transmission infrastructure.

The pending acquisition of the percent of Creek Wind farm is expected to drive five of EPS.

These positive drivers are expected to be partially offset by the following.

Increased D&A of 16, as we continue to invest in infrastructure and execute our capital plan.

Increased interest expense of 21 due to higher debt balances at higher rates.

<unk> <unk> of other items, primarily driven by lower year over year earnings from a combination of the expiry of a wholesale contract in Kansas and the one time true up of youri carrying costs in 2022, which were partially offset by higher expected coli proceeds.

Turning next to slide 20, our strong results in 2020 to reflect our ongoing focus on continuing to build a track record of consistent execution as David mentioned earlier, we're reaffirming our long term compound annual EPS growth rate target of 6% to 8% from 2021 to 2020.

Five as we remain confident in achieving that trajectory.

And as we continue to progress on that path. We also remain committed to returning capital to our shareholders.

And target dividend growth in line with earnings growth with that dividend payout ratio of 60% to 70%.

Our updated five year Capex plan from 2023 to 2027 totaled $11 6 billion and implies rate base growth of approximately 6% from 2022 to 2000 and twice out of it.

We've included some additional disclosures in the appendix of today's presentation, including a breakdown of planned expenditures by category and by utility, which we hope you will find helpful.

In addition to allowing us to achieve these financial targets executing on this investment plan also advances our key objective to advance affordability reliability and sustainability over the long term.

I'll conclude by reviewing some specific 2023 objectives as you turn to slide 21.

Building on the positive momentum from our strong results over the past two years, we remain focused on meeting or exceeding our financial targets in 2023.

This year, we'll be working collaboratively with our Kansas regulators and stakeholders to achieve a constructive outcome in our first Kansas Central in Metro rate cases, since the merger in 2018.

As a key factor in achieving our goal of affordability, we look forward to providing our Kansas customers with the benefits of significant O&M savings we've achieved over the last five years.

Consistent with the needs identified in our integrated resource plan. We are focused on closing the acquisition of the 200 megawatt Persimmon Creek wind farm. This year, which is Pisa eligible will serve our Missouri west customers with clean low cost energy.

Finally, we've recently launched a new renewables RFP focused on sourcing the balance of our 2020 for renewables as well as our 2025 and 2026th investment objectives.

We will look to complete this process later this year to begin executing agreements to achieve those objectives.

We will also update our integrated resource plans in both states in June which will for the first time incorporate the benefits of the deflation reduction Act.

With that we'll be happy to take your questions.

As a reminder to ask a question you will need to press star one on your telephone again that star one on your telephone to ask a question. Please.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Michael Sullivan of Wolfe Research. Your question. Please Michael.

Hey, everyone. Good morning.

Good morning.

Hey, David maybe just wanted to start with.

The reaffirmation of the 6% to 8% CAGR through 2025 can you maybe just at a high level talk through maybe some of the drivers that get that back on track.

From 2023 of the guidance you gave today.

You bet. Thanks, Michael So we.

Technology as I noted in my remarks that the we.

We had some headwinds in 2023.

<unk> three and we are short of the midpoint, but we are reaffirming our belief, we mean that back in that 6% to 8% range.

The main driver.

I would say two factors, but the biggest driver is.

We're in our peak regulatory lag year, which impacts Kansas Central in particular.

As you know there are some elements of lagging in our Kansas jurisdiction and it's been five years since our last rate case, so as we <unk>.

Advanced rate case, this year and rates go into effect at year end that will help.

Address the underwriting that we're having on the many investments that we've made over the past five years and Thats. The biggest factor that helps get us back on track, we're sort of in the peak.

Lag year this year and we've been taking good steps to overcome that lag in 'twenty. One 'twenty. Two so we're pleased with the results we were able to offset it we had some interest rate headwinds and some impacts in Missouri that we.

Didn't fully offset for this year, but we.

<unk> gone through our model of detail and we absolutely are reaffirming our commitment 2425, the second factor is well known and <unk> ongoing.

Advancement of cost savings, we're going to be delivering significant cost savings in this rate case.

The cumulative impacts of savings in 2018, but we have ongoing opportunities ahead of us in.

Between those two levers primarily is how we're going to.

Staying on track with respect, our 6% to 8% annual earnings growth.

Okay. That's.

That's very helpful. Maybe just on that that you mentioned the regulatory lag.

The Metro side I think this was alluded to in the marks remarks, but the fact that you.

I'll hit the sharing this year.

I take it that was.

Mostly weather.

Was that under earning to maybe adjusted for weather and just give us appeal for when.

There were metros add.

Into this into this rate filing.

Yes, partly relates to the nature of the jurisdiction Metro has actually its higher prices, but it's got to the level of investment.

It's a much more dense urban system.

We've been doing a lot of systematic replacement across our much bigger and broader Kansas Central service territory. The biggest factor in Metro was weather.

Any impacts in 2022, and obviously reflects the relative level of investments even in a normalized weather were close to earning our authorized return in metro.

But we're well short of it and in central So it has different characteristics of those two jurisdictions central is also a lot bigger overall, so a bigger impact on our results, but the earnings sharing was a reflection of weather impacts in particular in 2022 on the metro jurisdiction.

Okay, Great and then just last one for me can you maybe just give us a sense of where things are at and where you expect them to go in terms of some of the bills pending at the Kansas Legislature looking at things like appointed Commission commissions and such.

Sure. So there are multiple bills in flight in Kansas is pretty active session with respect to utility bills.

On the one that was passed out of.

Committee, but it's been well I don't want to get into too much process detailed study.

The expectation.

Yes.

Our expectation is that there'll be robust discussion around potential election of commissioners, we don't think that makes sense.

As a policy approach and that probably has less broad support. So we don't think that thats, an advance but that we continue to be good discussion around that.

There have been.

<unk> advanced.

Relating to a right of first refusal for.

Transmission projects, which I think could really benefit customers in terms of predictability regulatory oversight.

And consistency of approach and process. There is a bill that has been advanced related to our transmission delivery charge.

On that subject ongoing discussion was passed out of committee, but it was the process term is called blessed by the speaker. So it has not been voted on by the full house.

In discussions around that and if it does end up going into this fall out then of course it would go over to the Senate. So I think there'll be.

Ongoing discussions in Kansas unclear Celgene will ultimately pass this year, but we're working closely with our stakeholders.

We think those discussions are going constructively.

Great. Thanks, Thanks for all the color.

You bet. Thank you Michael.

Thank you.

Our next question.

Comes from the line of Shar.

Of Guggenheim. Please go ahead shar.

Hey, good morning, guys.

Good morning Shar.

Just on the cases.

Kansas, which I guess will be followed between now and next update.

So you've got the Kansas Central fuel balance to recover starting in April for two years, you've got I guess, some O&M give back since the last case and the merger I guess, how should we think about the holistic targets here for rate increases with all the puts and takes at play.

It's a great question Shar because there are a number of elements that will go through the rate case, a number of elements that will not so for example, the.

You referenced the Yuri fuel cost recovery, that's about $125 million that will recover over two years.

<unk> central is well insulated from our year end cost relative to most.

Jurisdictions in our region, because it's not as gas heavy.

So pretty modest amount in total, though still enough to recover that has already been approved through regulatory process thats not going to be addressed in the rate cases.

So the rate cases, we will focus on.

The investments that we've made.

Since our last piece of that will be distribution generation general plant.

Transmission.

Ken Central is reviewed.

FERC so it will not be in the rate case, but of course, our O&M savings will be part of the rate case, and we put out.

Estimates as part of our various workshops with the commission with the rate impacts will be now our estimates of rate impacts were through 2024, and then in a workshop in December were through 2026, because it was about five year plan, but in general we've always described that were.

Targeting rate increases that are.

In line with or below the annual rate of inflation.

Five years since the last rate case.

So it's gonna be accumulative increase, but we will but our stakeholders well understand that that will be.

Reflecting our cumulative investments over that time frame and given the very high inflation in 2022, we're obviously optimistic we'll be able to be under.

Well in our inflation given how high it was broadly in the economy. So we've been able to describe our investment plans as well as our cost reduction programs and a lot of detail.

So it's not going to be a lot of surprises because we had those workshops about our capital plans in 2020 and then.

Through may of 'twenty, one and again in December of last year. So it will still be a lively cases. They always are the first one five years, but we do think it's pretty straightforward focused on reviewing our investments the categories I mentioned and the cost savings that we've delivered and there'll be the usual discussion around ROE of course.

Elements like that got it hopefully that covers your question sharp.

No. It does it does that's helpful. Thank you for that and then just I wanted to just slightly tweak the prior caller's question here and it's good to see the Capex roll to 2007, but I'm just sort of thinking about.

Even directionally the profile of the EPS growth beyond the 25 guide right. So the latest Capex gets you to around 6% implied rate base growth.

Is there more to squeeze on the O&M side or is more dependent on the Kansas case, and the IRB update I guess put differently. What are the drivers that would push you in and out of your current <unk> guidance. We look ahead.

So it's a great question Shar, we're in we're not introducing 2026 or.

Beyond guidance today as you know so the but the drivers are as you note.

Over time, we're going to be fundamentally related to.

Rate base growth, how we fund that and we've got a.

Strong balance sheet.

To support our are investments and of course, our ongoing cost savings now.

We've consistently really since the.

The SDP was first introduced have laid out cost targets consistent with what we've shown through 2025.

We've got a good system and our employees do a terrific job driving efficiency in our business.

The kind of step function changes in costs that we have are are not going to be sustainable over the long term, but annual productivity gains and seeking to.

Drive those are certainly going to be important.

So.

You've noted it it's going to be rate based growth.

We funded in the O&M cost savings.

Update RFP this year.

That's going to have some impacts on our plans with respect to renewables.

As I mentioned.

The southwest power pool is getting tighter both because of incremental demand, but also because of a change in how the reserve margins are calculated and an increase in reserve margin requirements. So capacity needs are higher.

And demand trends have been strong we will start seeing impacts from electrification as well as we get to later parts of the decade. So a lot of moving parts, but like other utilities a lot of it comes out of the fundamental drivers of rate base growth demand growth. How you fund it in Indonesia. So we feel good about those drivers in our service territory and we look forward to providing.

Update once we've gotten through the ERP update as well as our rate cases.

So I guess just.

Not to paraphrase, what you're saying, but put all that together you feel okay about tightening up that delta between rate base growth and EPS growth in time.

We'd like to drivers in our service territory and we know those.

We're certainly confident in our range through $2025 to 68%.

And the long term drivers, we'd like to we'd like to set up in our territory and we look forward to going through 2026 and beyond.

When we have those details to share.

Okay, great. Thank you guys I appreciate it thanks.

Thanks sure.

Thank you.

Our next question comes from the line of Nicholas Campanella of Credit Suisse. Your question. Please Nicholas.

Hey, good morning, everyone. Thanks for taking my questions today.

So I wanted to just follow up on the on the ERP because.

Absolutely a focus here.

When you kind of think about the opportunity set in front of you and the fact that you've kind of now you are now showing a rate base CAGR of 6% out to 'twenty seven does the IOP extend that 6% or could it potentially increase it just trying to understand the magnitude of what's to come.

Thanks.

I feel like your parents selling you Nicolas.

Great question.

The RFP update is in process.

We include our expectations for new generation in.

Our forward Capex plans, we've been a slight shift in our expectations regarding the mix of Ppas and renewables, we've got a very heavy.

Waiting towards Ppas right now in our renewables.

And we think it's beneficial for customers to have a balance but in Kansas, we've shifted to a two thirds assumption of owned and one third assumption of PPA. So thats.

Something that will play out in terms of what happens in the actual rfps that we run and what's going to be most competitive and what offers the most benefits for customers.

That sort of.

And element no matter whats in the ERP I do think there are some factors Nick that could drive.

More attractive opportunities for customers in ERP and those relate to we now have significant benefits from the <unk> that we didn't have modeled in the ERP last year.

Those are not only sizable but we know that theyre going to be place for a period of time that clearly AIDS the relative cost of new renewables, which are pretty cost effective in our region.

And relative to energy provided.

Fossil resources, we've got a lot of coal in the <unk>.

Traditional ability to have drive lower cost for customers by replacing high variable cost high fuel cost.

Generation with renewables is going to I think the <unk> will reflect that now wildcard is going to be what are construction costs.

My personal view is we may still be facing some bottlenecks that are driving higher cost for construction for renewables, but we've seen in the cycles over time that those do.

Those constraints are lifted and generally the supply.

Responds robustly and that helps drive down cost over time, so I think that they are.

We're going to be opportunities given the amount of energy, we still produce at relatively high variable and high fuel costs.

And the tailwind from the IRA theyre going to benefit.

We will have incremental opportunities too.

For renewables, but we'll have to see how the math plays out.

And it may be that math is more compelling once we see construction costs, where they are and where they're trending.

And the other pieces with capacity requirements tighter.

We're going to have to make sure and solar is weighted more heavily towards capacity.

Gas <unk> or potentially cct's helmet capacity with growth like what we're seeing in Panasonic with meta coming in there's also can be a growth dynamic that may help.

Drive some incremental resource needs to and that are weighted more towards capacity requirements. It's a long answer to your question hopefully that makes sense net net I do think there could be some tailwind.

And the IRB.

Okay. Thanks for that.

And then I guess just on the financing plan.

Trying to understand it.

Is it your intention to not do any equity passed the 25 timeframe because now that you have this capex plan out to 2007, just wondering how to fund that.

Hey, Greg It's Kirk we certainly as we've.

Reiterated a number of times through our 6% to 8% growth rate through 2025, there is no new equity in that particular plan.

As Youll see we came out of 2022 as David said earlier with a strong balance sheet. We're ahead of our targets. We've got strong robust free cash flow, we're not a current taxpayer so to translate net income very efficiently into operating cash flows would gives us a pretty good stable of equity to help supplement financing with debt.

This balance sheets in line certainly expect that to be the case through 2025 that will continue because we don't expect to be a tax cash payer until towards the end of the decade. So we're going to look to balance those two objectives. We will look at the ERP, obviously and the impact on the capital expenditure plan, but our goal is to successfully balance our objected.

To maintain that long term growth rate as robustly as we can.

Obviously means being prudent about issuing equity while at the same time, maintaining those balance sheet objective, but fortunately with the combination of those robust cash flows and the foundation we come out of 2022, we feel good about where those balance sheets are and will continue to focus on it and as we get through the rate case in Kansas and update the ERP will have more specifics about the financing plans.

Long term, but again robust cash flow and our tax shield as a tailwind for us we'd move forward even beyond 'twenty five.

I appreciate that color, thanks, everyone and I'll take Nick our nickel if any day.

Thanks, Nick.

Thank you art.

Next question.

Come from the line of <unk> Chopra of Evercore. Please go ahead, Sir yes.

Hey, good morning team. Thanks for taking my question.

All other questions good morning, David.

You've answered all my other questions, maybe just hit on the BPA opportunity that you've discussed in the past.

And what is the sort of the.

The opportunity set there for perhaps 2023 and then longer term.

Yeah sure Kirk are continuing to focus on that as we talked about in 'twenty towards you I in particular, we were disappointed we werent able to bring one of those over the finish line. Despite.

<unk> engagements with various counterparties that continues to be the case.

I'm sure you're well aware there have been a number of renewable portfolios out of the marketplace. There continue to be those renewable portfolios often has been the case continues to be the case going forward include some of our PPA counterparties.

So we are continuing to be involved in that process and I think with the.

The clarity that's provided by the IRS thats, given us a little bit better foundation for negotiating that I don't expect that if we get one of those done and we're certainly focused on doing and I think certainly possible in 2023.

I don't expect that to be a major driver as I said before we probably get at least one done because going back to Nick's question previously we want to maintain.

The strength of our balance sheet as well as the out of the equity markets as long as we can to maintain that growth rate, but we do have the capacity to get one of those done and I think it would be additive it's not in our capital expenditure expenditure plan, but certainly as a proof of concept of moving that forward I think those opportunities are abundant and with a lot of the renewable sales out in the market right now there are.

<unk> to participate and get that done so more updates to come can't be more definitive than that but certainly we've got a growing backlog.

The opportunity set to look at with that 4400 megawatts or 3800 megawatts PPA.

Got it thank you and just to be clear like the.

Excuse me the recovery process or the return on that four gigawatts worth of opportunity is that through do you have to go through weaknesses as you as you or get approval did you.

Buyout, those PPA opportunities or how does that actually work.

We would yes in certain cases, especially in Kansas, we can kind of pursue that through pre determination type process, but yet ultimately we'd have to pursue both prudency in prosecuting that into a rate case and obviously in the case of a simple by and we'd look to do that to more or less replace the pass through of what is existing PPA with a rate base.

<unk>, that's neutral if not beneficial to our rate base.

Got it thanks, so much I appreciate it.

You bet.

Thank you.

Our next question comes from the line of Andrew <unk> of Seaport.

<unk> Please angie.

Thank you just just a really quick question so.

You have 21 cents of attract and interest expense and I'm just wondering.

I'm, assuming that some of it gets.

In the upcoming Kansas rate cases so.

I look forward.

Roughly how much of it.

What persist beyond this rate case cycle.

So that's obviously a year over year increase that I think the better way to think about that 22 going into 'twenty three 'twenty two with a little bit the tale of two rates for lack of a more elegant way of putting it we saw.

Increasing rates more in the back half of the year and Thats, obviously, a full year effect year over year. You are correct, we do have a.

A number of items in that interest rate sensitivity, we said you before better at the utility. So we would expect some of that especially some of those pollution control bonds that you see there.

There is a portion of those at Kansas Central There is at least half of those at Metro.

We'd also look at some of that interest rate exposure is obviously are.

Short term interest rates and a lot of that gets taken up in our <unk> mechanism, but as we look to move from our construction work in process to plant in service. We will look at that short term rates, which are obviously higher given the backwardation curve in terms some of that out I would expect if we do that in 2023, we will.

Do that time, certainly in Kansas that will probably take place in the context of our rate case. So a lot of that will get true up at the end of the day.

Meaning that the drag.

The year over year drag.

I mean, it shouldnt be any right so that that should be actually a benefit.

Our year over year Max 20.

Right, Yes, yes, okay.

The better way to think about that is we've just rolled from a partial year to our current year. So now we're kind of at current rates in that regard. So I would not yet we don't see a step function going forward into it yet another increase in rates over time, and it's really just the increase in debt rather than increasing rate exposure at the end of the day.

About moving from 'twenty three and forward.

That's all I have thank you.

Thank you.

Next question.

It comes from the line of.

Paul Patterson of <unk> Associates. Please go ahead Paul.

Good morning, guys.

Good morning, Paul.

So.

On the Io array and Wolf Creek.

I was wondering if you could give us a flavor for what the potential quantified.

Quantification could be.

Yeah.

And it immediately goes to <unk> or if there might be some positive rate lag or how should we think about that.

So part of it is going to be fascinating as the rules come out around it first I noticed that the eligibility will start in 2024.

But it is an impact that will flow directly to our customers.

So it will not have an earnings impact now I think it.

Anything that helps with respect to customer costs is a good thing regional rate competitiveness and affordability are critically important for us.

So there is a tangible benefit that we're really excited about as well in terms of the mechanism will be interesting to see how the rules operate like presumably since it's based on.

Yearly realized prices.

That may be assessed on a monthly basis may be assessed in a back half at the end of the year maybe.

Maybe based on day ahead market.

Probably makes more sense rather than real time.

All of that is yet to be seen but the net net is if you went back a couple of years. It wouldnt have been through in 'twenty two given.

Given the high commodity prices, but if you look back at 21, 2019, and 2018, our realized prices at Wolf Creek.

We are below the thresholds.

That are laid out in the IRR for eligibility for PTC.

And it wouldn't be the full $50 a megawatt hour in all years, but depending on what the go forward pricing is.

It could be up to $50 a megawatt hour for 200 megawatt nuclear unit. So it's a sizable potential benefit for customers.

But the mechanism, we believe that's going to flow directly through the fuel clause.

Which is again very important but not at not an earnings driver, but it will be interesting to see as the rules come out and it starts in 'twenty four.

Then with respect to pursuing which you guys put a pretty strong argument for.

That does seem to be.

That's the case as you guys know I guess is there any possibility for a settlement.

Well, we had hearings this week.

And obviously, we've been in discussions with the staff in advance of hearing so I do think it is in the commission's hands at this point.

We're always is as I mentioned, we're always seeking to work constructively towards approval. We think it is clearly.

A great option well priced.

Option that drives the best overall benefits for our customers in terms of cost in our view.

And so we think we've got compelling arguments for adding it so we can't that'll be great, but it's in a commission hands given the trend line is likely to be initiated commission results.

Okay great.

<unk>.

With respect to the ROE for Bill.

You guys are familiar with the fifth circuit.

I guess dealing with the Texas law and Nextera.

I'm wondering.

Is there anything different about this low versus that or how should we think about.

About the fifth circuit ruling and I guess I'm sure will be appealed to the Supreme court or whatever but.

How should we think about.

That may or may not.

Interact with that court ruling.

So it's a good question Deane I was actually in Texas at the time, the Texas Law was passed so it has some unique elements, reflecting the unique elements of the Texas market.

There are <unk> in place a right of first refusal fuselage in place in.

Dozens of jurisdictions around the U S.

<unk>.

Stood the test of time in those markets and been beneficial in Maine in place most of our neighbors happen.

Most of the states in the SPP have them so.

We will track it may be narrow to the Texas law may not.

Theres not we don't have rougher and place in Kansas and Missouri. So.

One step at a time, but I do think the <unk> that are in place across multiple states there they've been resilient, but we'll obviously have to follow those cases go but some unique features as you noted the Texas, Texas Paul.

Okay.

And then just finally on transmission.

The number of FERC proceedings.

We've seen rather small to me, but but there are a number of them I guess.

And Theyre very tactical.

Frankly over my head.

To some degree in terms of the formulas and what have you.

Should we think about just cumulatively.

Those proceedings and.

How you feel about any potential exposure there or not there if you follow me.

I do and we've resolved.

A couple of proceedings in one was.

But ruled on by the by the FERC.

But last year, so I think that we are.

Our go forward guidance reflects our view of.

The impact of the overall regulatory framework, that's probably the easiest way to frame it.

And some of it is complicated but the probably the most.

Comp getting one that was pending because it related to.

Formula There was in the tariff that was under review and so we had to follow the tariff, but obviously, we need to get formulary related to transmission.

Delivery charge.

And the transmission formula rates at the FERC level and that was resolved last year.

And our forward guidance that we've discussed reflects the impacts of that case. So there are a lot of technical ones I guess, the easiest way to describe it is that we our view of their impact is reflected in our Portland.

Okay.

Hey, thanks, so much.

And have a great. Thank you.

You too.

Thank you. Our next question comes from the line of Vishal Archon version.

Please go ahead a shock.

Hi, David I think so all my questions have been answered, but if I can just.

I was just trying to sum up if I may So you said youre going to have another $100 million of lower savings.

Now in 2025, if I see the chart.

And if I'm right.

20th that slightly about 40 or 45% so half of them came this year if I'm right.

In 2023, because youre, showing an O&M decrease or benefit of <unk>.

So is it fair that another 2025 cents is left in the next two years.

And the other bridge is going to be of course transmission earnings and then the Kansas case next year and should we factor in the Missouri case.

That will have some impact for 2025.

I'll ask Kirk to comment on the O&M piece, but in general you can do the we've got about 230 million shares.

So you can calculate how much O&M savings we've got into next year I think it's $56 million range. So it would be the remainder of that would come through 'twenty five.

Kirk and correct me.

And we do expect rate cases.

In the every other year timeframe, so that would imply it.

Finalize our plans so that would.

You are correct that would mean to 2020 for.

Is there any rate case, so I think <unk> got a good sense for the drivers for Kirk anything you'd add on the O&M front just to clarify that you are right.

Incorporate the $60 million and Thats, roughly what that 22% to 23, a reduction in O&M equates to I think I, even mentioned that what I was going through the <unk>.

Slides.

That puts us I think we came out at 22, you can infer you can go through our disclosures about 1 billion 74 of non fuel O&M in 'twenty. Two so that means that $60 million of savings Youre at a $1 billion 2014, we put a target out there are 25 target is 960. So that gives you about $54 million between from 2023 to 25 over that period of time.

So youre right that round about 20 prospectively once you get outside of the 23 just to clarify that.

Okay, and then if I can just to end up and I don't know I don't want to front run. This because you have been meeting your objectives.

But when did you do a revised right because right now the CAGR is based on 2020.

Is that something which will happen a year from now or is that 2025 exercise.

Yes, its likely to be a year from now we're going to have the integrated resource plan update and we'll get through the Kansas rate case, So I think that thats can be most informative for investors.

Again, we think the Kansas rate case, it's pretty straightforward, but it's a lot of eyes are going beyond that rate case. So I think the most likely time frame forward is going to be ending Q4 call about a year from now.

So, which I hope to open with a celebration of another two Super Bowl.

Okay.

Correct, well real quick one.

Net.

Further to that too.

So much so kind of you have a nice weekend.

Thanks sure. Thanks Chuck.

Thank you I would now like to turn the conference back to David Campbell for closing remarks, Sir.

Alrighty, Thanks Latif.

On the call or reading later, thank you for your time this morning, and thank you for your interest in <unk>.

Great day.

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

The conference will begin shortly.

He is in lower Johan during Q&A, you can dial one one.

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