Evergy, Inc. — 2024 Q1

It's a great question. We won't get ahead of the capital expenditure update that we're doing in the third quarter, but I will describe that. You're right, our current expectation rate base growth through 2028 is 6%. So that was the capital expenditure plan we put out on our Q4 call. It is at the low end of all of our peers, significantly below the average of our peers and part of why HB 2527 was so important was because we do see a historic economic development opportunity and pipeline in our territory and investing to take advantage of that opportunity is a lot more difficult when the returns you can offer capital are not competitive.

Sure Nick, it's Kirk. I'll focus on the Moody's metric, which we updated on our fourth quarter call. Due to a few items, most notably, the changes in the -- we were still waiting, obviously, to securitize the Missouri West [ Weaver ] Murray -- cost, which we successfully did subsequent to the year-end. Pro forma for that other items going into 2024, we're about 15%, which is that threshold.

Shar, it really does vary depending on where the location is. Typically, there are incremental investments for very large loads. They're system investments, so it's always a little difficult. If you pegged the last bit of investment and it's all tied to that single customer. But when you have loads in the hundreds of megawatts given the size of our system and as you think of the share of our overall transition base, there's certainly some loads that will have investments around that level if you get to a significant size.

So the rates are subject to [indiscernible] agreements. I don't discuss rates. Generally, when you bring in large new loads, they're typically eligible for economic development rates. But as I described in my comments in the script, we're actively working on rate design elements to ensure that large new loads we -- the incremental considered.

Thanks, Shar. It's a great question. The IRP that we just issued in Missouri and it's an overall corporate IRP also we'll file in Kansas one here in a couple of weeks. But that IRP does not include the EPA's recently issued rules. It just came out too late to be included in the process. There's a ton of analysis that goes into it. So the new rules will be factored into our IRPs going forward.

How I describe it [indiscernible] what HB 2527 does is it just helps to reduce the gap between the authorized return and you realize return. So it helps to mitigate regulatory lag. It gives us a better opportunity to get to approximate, to get closer to earning our authorized return.

Yes, it's a lot of like how it works in Missouri. I mean slightly different provision. It's a 90% deferral versus 85%. But for example, if you look at our realized returns in Kansas Central in '21 to '22 to '23, you saw those realized returns got lower and lower, much lower than an authorized level because we were in a 5-year stay out. So the regulatory lag impacts as we continue to invest in our system got higher and higher. So that's why you see the -- further you go out from a rate case the bigger the impact.

Sure. I'll start and ask Kirk to wane. I think last year, if you break down the demand trends, residential and commercial were up 23.8% and 1%, respectively. I mean it was industrial that was down other industrial margins tend to be lower, as you know, and we can really trace the industrial demand being down to 2023 to a few customers that had unique circumstances.

I agree. I mean our residential and commercial growth assumptions are roughly consistent with what we saw in the actuals in 2023. It's really just buoyed by that expectation of industrial recovery, both sort of cycling through some of those temporary events that I talked about before and then supplemented by some of those you talked about the new economic development customers coming on later this year on the industrial side. So, I agree with that.

Our work is never done. No, just -- we certainly are working with our stakeholders on a series of issues in both states, really just looking for I think the most important thing is how do we respond to the economic development opportunities that are before us and ensure the best frameworks are in place to take advantage of those. So the discussion in Kansas, look, we HB 2527, I can't upsize enough that it's not only important in terms of provisions reducing lag, but also important as a reflection of the broad-based consensus and support for investments to take advantage of economic development opportunities and having a constructive framework for those investments.

Regulatory -- and we expect to have that later this year, admin schedule, but we're alignment parties, and we'll work with parties to find the right time to do it. I would expect it later this year, later this summer or fall.

As I said earlier, we won't get ahead of the CapEx plan. We certainly won't get ahead of any earnings forecast. I think that when you look at our financial plan overall, we have the lowest rate base growth. And as a consequence of that, we have a relatively lower earnings growth trajectory. Those 2 are generally in sync, the rate base growth and the earnings growth targets, typically the earnings growth target lags some level, was a little lower than the rate base growth target because of the drag from finance.

It's Kirk. The decrease in labor capitalization is really a function, but we had a little bit of a change in our transformer labor capitalization approaches in the first quarter. There's a little bit of a catch-up there. So now what you're seeing is just the ongoing effects of that as we move forward.

Paul, you get the product for both in-depth reading and materials.

We'll have to -- I have to get back to you offline on that. Paul will be happy to do that.

Yes, it does.

I think, Paul, yes, you heard me right. We've had the PISA provisions, PISA language and changes to PISA relating to natural gas investments to 90% and extending the date past of the house. There's very good discussion around it. There's broad-based support. It's just hard -- given the tight time line in the session, overall session dynamics. It's going to be hard to get anything past. So we think this is no different. Wouldn't rule it out, we certainly think it will be beneficial, but the session dynamics is the time line on the real constraint, not support for the provisions. We think it's broad-based support.

Sorry, Paul, that transformer labor just to come back to you is about $0.02 year-over-year.

The 17th, I think, is when it formally ends. Paul?

Well, Paul, it's a great question and one that is going to take a lot of work on our part and a lot of work with our stakeholders because the affordability and reliability impacts of the rules are ones that were really all have to dig into. And there are some provisions in the rules that give some potential outs on those, relatively short term in nature. But to your point, we'll have to assess carbon capture and sequestration is required for any unit that's operating beyond 2038 but does that apply if that technology is not commercially proven today.

Sure. So the -- it's -- you won't be surprised here. It's data centers, but also advanced in large manufacturing that can range from semiconductor, auto, food, products, food service industries are all pretty big presence in our space. So we, like others, we've got a pretty big presence in data centers already with Meta and Google, and there's a number of those are data centers, but there's also a lot of advanced manufacturing. And we're excited about all of them.

I mean, I think for all of us, all utilities and for us, when you look as far as our system, adding the 3 customers I mentioned today, we said approximately 750 megawatts of load. That's a nearly -- between a 5% or 10% increase in our overall demand peak. So you add several hundred megawatts in a location, you're going to run into where the valuation is on transmission and distribution infrastructure. So what do you have adequate transmission, you've adequate substation infrastructure in place. And with Southwest Power Pool requirements getting tighter, there's certainly capacity issues as well.

Yes. I think that the -- I think the EPA rules are structured. The new efficient gas turbines can meet the requirements, so there will be capacity factor rotations. Our team's evaluation of new gas sites that we've not announced where the new gas sites are certainly taking into consideration existing gas and grid infrastructure. So we think we'll be able to work through those. There's always a permitting an interconnection process. So it takes years to get these things done, and that's a reflection of why the big gas plants are appearing in the years. They appear that really reflects the lead time that we expect to be required to work through all those various issues. But we do think we'll be able to get it done.

So it's welcome to 2024, same as 2023 because we had a mild start to 2023 as well. Like we look across various levels of our business, but the important part of that, obviously, is cost management. We mentioned that the new legislation in Kansas in the first year following rate case provides a benefit. So obviously, we're in the first year following a rate case. So we've got a relatively large enterprise. We got a range of levers that we typically work through. It's -- it's not -- the first quarter is not our biggest quarter. So we'll be watching to see how second and third quarter go in particular.

It's a good question, Mike. You'll see that we've also got some incremental. If you look at -- I anticipate our CapEx refresh will be through '28. We probably won't introduce '29 until February, but Kirk and the planning team may decide that they -- I'll leave it to them and where we approach that. Because we've got a lot of gas that's coming in the '28 to '30 time frame, that will lead to some earlier spend. A lot of renewable spend, you can time a little more closely to when the online date is, but the gas plants will have an earlier spend trajectory.

Thank you, Brie, and thank you, everyone, for your interest in Evergy. Be safe and have a great day. This now concludes our call.