In the second quarter of 2023, Evergy reported adjusted earnings of $0.81 per share, down from $0.84 per share in the same period the year prior. The decrease was attributed to less favorable weather, higher depreciation and amortization, and higher interest expense, partially offset by growth in weather-normalized sales, transmission margin, and lower O&M expenses. Pete Flynn welcomed everyone to the call and introduced David Campbell, President and CEO, and Kirk Andrews, Executive Vice President and CFO, who would be discussing the second quarter highlights, integrated resource plan, and regulatory and legislative priorities, and financial outlook for the year.

Evergy experienced its most impactful storm in recent history on July 14, resulting in nearly 200,000 customers without power and 500 power poles damaged or destroyed. 3,500 Evergy employees, contractors, and personnel from neighboring utilities worked 16-hour shifts to make repairs and restore power, and customer teams worked overtime to field calls and support customers. Despite the storm, Evergy is reaffirming its 2023 adjusted EPS guidance range of $3.55 to $3.75 per share and its long-term annual adjusted EPS growth of 6% to 8% from 2021 to 2025. The company also recently filed its annual integrated resource plan updates in Kansas and Missouri.

The 2023 Preferred Plan includes 4,800 megawatts of new resource additions through 2032, an increase of 1,200 megawatts compared to the 2022 Integrated Resource Plan. This plan takes into account the impacts of the Inflation Reduction Act, revised load forecast, increased Southwest Power Pool capacity margin requirements, potential changes to environmental regulations, updated commodity price forecasts, and global supply chain challenges. The plan includes the introduction of hydrogen-capable combined cycle gas turbines in the latter half of the decade, and the ceasing of coal operations in Lawrence Units 4 and 5, with Unit 5 being converted to natural gas in 2028. The goal is to achieve a balance between non-carbon emitting inter-median resources with low or negative marginal costs and firm dispatchable generation with higher marginal costs, while ensuring reliability and affordability for customers and communities.

The company is looking forward to investment opportunities and is currently awaiting intervenor testimony in Kansas, while they are in the state of pellet process in Missouri. They plan to complete the securitization financing after the appeal plays out and anticipate resolution later this year. Their strategy focuses on affordability, reliability, and sustainability, which is reflected in the EIA data and ongoing wins in economic development.

Evergy reported adjusted earnings of $186.1 million or $0.81 per share for the second quarter of 2023, down from $194.5 million or $0.84 per share in the second quarter of 2022. The company is focused on improving regional rate competitiveness and keeping rate trajectory below inflation, as well as reliability and customer service metrics. In addition, they are transitioning their generation fleet to reduce carbon emissions and other pollutants, and are looking forward to continuing the progress of the last two decades.

The year-over-year increase in the second quarter adjusted EPS was driven by a 13% decrease in cooling degree days, favorable weather compared to normal, 1.1% growth in weather-normalized demand, higher transmission margins, a $53 million decrease in adjusted O&M, higher depreciation and amortization, higher interest expense, and other items. For the first 6 months of 2023, adjusted earnings were $322 million or $1.40 per share compared to $324 million or $1.41 per share for the same period last year, with the drivers being a decrease in heating and cooling degree days and mild winter weather.

In the first half of 2023, weather-normalized demand increased 1.6%, driven by residential and commercial sectors, while industrial demand decreased due to two refining customers. Higher transmission margins, decreased O&M, company-owned life insurance, higher interest expense, and other items drove a net increase of $0.08. In the second quarter, weather-normalized retail sales increased 1.1%, driven by residential and commercial usage. Excluding two customers, industrial weather-normalized demand would have increased.

Kansas and Kansas City Metro area unemployment rates of 2.8% are below the national average of 3.6%, which is supporting demand growth. The company is reaffirming their adjusted EPS guidance range of $3.55 to $3.75 for 2023 and their long-term compounded annual EPS growth rate target of 6% to 8% from 2021 to 2025. The $11.6 billion 5-year capital plan through 2027 is focused on new infrastructure investment, but there is a mix shift in the plan that has not been published yet.

David Campbell states that the Integrated Resource Plan has a higher overall total level of resource additions, but there is a drop in the near term due to supply chain constraints and product availability and costs. He reaffirms the overall capital plans due to beneficial infrastructure investments in grid modernization and grid resiliency. He also notes that there will be an uptick in capital expenditures over the 10-year time frame and additional color will be provided on the Q4 call. Regarding the Kansas rate cases, Campbell states that there is not much to share as the process plays out.

The rate case is primarily related to infrastructure investments and cost savings from the merger and is less complicated than the Missouri West case. The company is looking to engage constructively with all parties and is expecting to learn more about the rate case as they head into September and October. There may be some step function increases as the company shifts forward, but the current trajectory is status quo from a capital perspective.

David Campbell and Kirkland Andrews discussed the magnitude of capital expenditures in the fourth quarter update, which was a little over $2.1 billion. They also discussed the annual cadence of capital expenditure and how it will accumulate up to the $11.6 billion. They mentioned the possibility of a shift between the two categories of capital expenditure year-over-year. Finally, they mentioned the focus on affordability and the dialogue with the Kansas and Missouri commissioners about the old system and the wide range of beneficial projects available.

The Southwest Power Pool is not at the same stage as MISO in terms of tranches 1, 2, and 3. David Campbell states that they are advocating for the process to move forward, as the transmission grid will have to be ready for changes in the resource plan due to evolving EPA rules. He believes that the transmission expansion will be important in the 2030s as the resource plan is updated.

David Campbell explains that the integrated resource plan has a low, medium, and high demand case, typically mid-range at 0.5% rate of growth. He notes that the plan had a higher level of growth embedded in it for 2023, which is tracking with the results in the first half of the year. He suggests that this could be an upside factor for the sector and region.

Julien Dumoulin-Smith asked about long-term factors that could lead to higher growth, to which the speaker responded that electrification, reshoring of industry, and the proliferation of data centers could lead to an increase in demand and, therefore, affordability. They also noted that their portfolio transition would occur in the 2030s, which could provide a bullish outlook in the long term.

David Campbell discussed the cost management of O&M and how they manage their business in an overall perspective. He also mentioned that weather had been a headwind this year, but the team had managed costs well. He discussed how they review their business from operations to generation to distribution and customer operations. He also mentioned that they reaffirmed their annual guidance this year and are looking to manage things within their control to offset factors outside of their control. He concluded by saying they have laid out ongoing cost savings as part of their plan for 2025.

The team has worked hard to drive affordability and benefits for customers and manage the business to hit their plan. The company is sticking with their guidance for the year and will manage the business dynamically. The team is staying vigilant around their costs to offset any unknown variables, such as weather-related costs and interest rate variability. They are focused on delivering their commitments and will adjust their approach during the year to do so.

David Campbell and Kirkland Andrews from the company responded to Michael Sullivan's question about the mild July weather and the storm impact being factored into the '23 guide reaffirmation. They confirmed that the information they had available allowed them to affirm their guidance for the year, and that ongoing negotiations were the main driver as to why more information was not yet available. Paul Patterson then asked about the rate design change with time of use coming up in Missouri.

David Campbell from Missouri discusses the potential for significant changes in rate design due to a Missouri Commission order. To prepare for the transition, the company is providing customers with a lot of information and communication about the time of use rates. The change will mainly affect the hours of 4-8 pm on weekdays, and will be implemented in the fall when the weather is milder.

The team has outlined what the transition to Evergy entails, what it means, and how customers can work with it. They are working to be commissions order and will communicate with customers to ensure they select the plan that is best for them. David Campbell concluded the call by thanking everyone for their interest in Evergy and wishing them a great day.

This summary was generated with AI and may contain some inaccuracies.