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spk11: Good day and thank you for standing by. Welcome to the Q1 2024 Evergy, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Pete Flynn, Director of Investor Relations. Please go ahead.
spk04: Thank you, Brianna. Good morning, everyone. Welcome to Evergy's first quarter 2024 earnings conference call. Our webcast slides and supplemental financial information are available on our investor relations website at investors.evergy.com. Today's discussion will include forward-looking information. Slide two 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, Chairman and Chief Executive Officer and Kirk Andrews, Executive Vice President and Chief Financial Officer. David will cover first quarter highlights, our updated integrated resource plan, and provide an update on our regulatory and legislative priorities. Kirk will cover in more detail our first quarter results, retail sales trends, and our financial outlook for 2024. Other members of management are with us and will be available during the Q&A portion of the call. I'll now turn the call over to David.
spk07: Thank you, Pete, and good morning, everyone. I'll begin on slide five. This morning we reported first quarter adjusted earnings of 54 cents per share compared to 59 cents per share a year ago. Relative to last year, this quarter's results were driven by higher operations and maintenance expense, depreciation and amortization expense, and interest expense, partially offset by new retail rates and transmission margin. Unseasonably warm weather was also a factor. Heating degree days were 11% below normal for the quarter, negatively impacting our results by an approximate $0.07 per share. Kirk will discuss these earnings drivers in more detail in his remarks. In terms of reliability, we've experienced a good start to the year through March. Our average added duration and frequency, measured by SADIE and SAFE, are trending favorably relative to our targets, demonstrating the benefits of our continued grid modernization investment and the hard work of our transmission and distribution teams. I'm also pleased to report that we're nearing completion of the 26th Wolf Creek nuclear refueling outage, consistent with our plans. Wolf Creek generates around 1,200 megawatts of non-carbon emitting energy, enough to power more than 800,000 homes. The plan employs over 700 people, and that number effectively doubles during outages. I'd like to thank everyone involved for their hard work and focus on sustaining the excellent operational performance of the plant. Our team's execution has enabled a solid start to the year despite the mild weather, and we are reaffirming our 2024 adjusted EPS guidance range of $3.73 to $3.93 per share, as well as our target long-term annual adjusted EPS growth target of 4% to 6% from 2023 to 2026. Slide 6 highlights our Triennial Integrated Resource Plan, or IRP, which was filed on April 1st in Missouri and will be filed on May 17th in Kansas. This year's IRP reflects the impacts of updating our long-term expected load growth, including the addition of the recently announced Google Data Center in Missouri, as well as other important inputs, such as resource adequacy requirements of the Southwest Power Pool, construction cost estimates, and commodity price forecasts. I'd like to briefly touch on the new rules recently issued by the Environmental Protection Agency. Our IRP process includes consideration of environmental rules, SPP rules, and other regulatory requirements, so the EPA's newly issued rules will play a role in our resource planning going forward. Our overarching goal in the IRP process is to identify the most cost-effective and resilient plan that reliably serves our customers across uncertain future scenarios. And natural gas additions, as shown in our IRP, are being planned in a manner that will allow Evergy to reduce carbon emissions, take advantage of best-in-class efficiency, and support economic development in our service territory, while striving to minimize the impact on affordability and ensuring that we can provide reliable electric service. We are assessing the potential impact of the new EPA rules from an affordability and reliability perspective. as the rules would likely require significant incremental investment relative to what is currently in our IRP. For example, carbon capture and storage is an important element in the new greenhouse gas rule. At present, carbon capture and storage technology is not commercially demonstrated at scale on existing plants. Along with costly and as yet unproven retrofitted control equipment, it would require pipeline and storage infrastructure, which are not in place in our region. The EPA rules are expected to face legal challenges, and we will monitor those developments closely. As a reminder, in 2023, nearly half of the energy that we generated for retail customers came from carbon-free resources, reflecting the contributions of our Wolf Creek nuclear plant and the 4,600-megawatt portfolio of renewable resources that we either own or contract through long-term power purchase agreements. Evergy has invested significantly to enable our fossil units to meet existing environmental standards, operate reliably, and be available to support our customers when called upon. We continue to take a balanced forward view of generation needs as shown through our IRP, which includes significant new solar, wind, and natural gas, balanced against the paced retirements of our coal fleet. In aggregate, the 2024 preferred plan includes 5,800 megawatts of resource additions through 2033, representing an increase of 1,500 megawatts over the next 10 years when compared to the 2023 preferred plan. As our generation fleet evolves, we are focused on achieving a responsible balance between renewables, which are non-emitting and have low or negative marginal costs but are intermittent, and both new and existing thermal resources, which have higher marginal costs for fuel and O&M, but can be dispatched to meet customer demand when they are needed most. The ultimate goal of this balance is to ensure reliability and affordability for our customers as we advance a responsible transition of our generation fleet. This transition will require sustained investment over the coming years and will incorporate the most recent IRP and its higher levels of new generation when we provide an update to our capital plan in the third quarter earnings call later this year. On slide seven, we highlight details about three customers, Google, Panasonic, and Meta, which represent major economic development wins in three of our four jurisdictions. In aggregate, demand from these three customers represents approximately 750 megawatts of load, and each will be the largest customer in their respective jurisdiction by a wide margin. The overall economic development pipeline continues to show promise in both Kansas and Missouri with more than $10 billion of projects considering locating in our service territories. We are very excited to work with these potential customers as they consider our region. As part of the exercise alongside the economic development rates that are in place in both Kansas and Missouri, we are looking at rate design elements to ensure that there is appropriate and adequate recovery associated with large new loads. More broadly, our strategic focus on affordability and regional rate competitiveness is an important contributor to this large pipeline and provides a foundation for our support of the tremendous economic potential in our states. As shown on slide eight, when factoring in economic development and these large new loads, including the recently announced Google data center, we are extending our weather normalized demand growth forecast of 2% to 3% to 2028 off of the 2023 base. which previously ran through 2026. Moving to slide nine, I'll provide an update on our regulatory and legislative priorities in both Kansas and Missouri. I'm very pleased to start by discussing House Bill 2527 in Kansas, which becomes effective on July 1st of this year. The passage of HB 2527 signals the support of Kansas legislators, regulators, and stakeholders for infrastructure investment in support of economic development and the importance of a competitive and constructive regulatory framework for that infrastructure investment. It is an exciting time in our region, as reflected by the significantly higher sales growth forecast relative to recent history that is described. In terms of financial impact, the piece of provisions in HB 2527 serve to mitigate regulatory lag between rate cases very similar to how it works in Missouri. The construction work in progress provisions that apply to new natural gas units also demonstrate Kansas' support for our plans to invest in new gas-fired generation. For our current capital expenditure plan, many of you have asked to quantify the financial impact relative to not having HB 2527 in place and how it helps to reduce the gap between allowed returns and actual realized returns. Under the provisions of the new law, in the first year following a rate case, at our current investment levels, the impact is roughly three to four cents per share. If we go two full years between rate cases, the impact is roughly 10 cents in the second year. And as we've described, we expect our cadence of rate cases going forward to be roughly every other year, though that won't be true for every jurisdiction. Of course, that estimated impact is a standalone view of a single item and does not factor in does not factor in any other potential drivers, such as changes in interest rates or changes to the capital plan, just to cite two examples. Overall, the most important aspect of the passage of HB 2527 is the alignment that it reflects in Kansas about a competitive framework for investment as we respond to historic economic development opportunities. I'd like to thank legislative leaders, Kansas Corporation Commission staff, representatives from CURB, industrial stakeholders, the governor's office, and many other stakeholders, as well as the Evergy public affairs team, for their participation and engagement in getting this legislation passed. I also want to highlight the passage of Senate Bill 410, which provides a 10-year property tax exemption for newly constructed natural gas units. The benefits of this exemption will be shared with our customers. This bill further reflects Kansas' support for our planned natural gas investments, which are a crucial aspect of our long-term resource planning to meet the demands of our growing customer base and ensure reliability. On May 17th, we will file our 2024 IRP with the Kansas Corporation Commission, provide our outlook for Kansas Central similar to what we provided in our Missouri IRP filing. Now, pivoting to Missouri, we continue to work our way through our pending general rate case in Missouri West. On June 27th, staff and other interveners will file their direct testimonies. and rebuttal testimony is due by August 6th. During the subsequent weeks, parties will file true-up and true-rebuttal testimony, followed by a settlement conference around September 23rd. Hearings will occur in late September through early October, and revised rates in Missouri West will go into effect in January 2025. We look forward to working collaboratively with the Missouri Public Service Commission staff and our stakeholders to achieve a constructive outcome for our Missouri West customers. Regarding Missouri legislative initiatives, language to amend the PISA statute has passed the House and awaits further action in the Senate. Key provisions would amend the PISA statute to include new natural gas units at a 90% deferral and extend the PISA sunset to 2035. Discussions around the topic and the need for new gas generation have been positive, reflecting broad support. However, given the schedule and overall session dynamics, it will be hard to get any new legislation passed in the short time remaining for the 2024 session. This initiative is no exception. I'll conclude my remarks with slide 10, which highlights the core tenets of our strategy, affordability, reliability, and sustainability. Our efforts to enhance affordability have yielded significant progress in improving regional rate competitiveness over the past few years. Our strategic plan is designed to sustain this positive trajectory. By prioritizing affordability, we contribute the robust economic development pipeline ahead of us, and support the substantial economic potential within our states. Ensuring reliability is also a core element of our strategy as reflected by SADI safety, grid resiliency, and public safety. This also includes a focus on metrics relating to customer service, the commercial availability of our fleet, safety in all elements of our operations, including infrastructure investments. With respect to sustainability, We continue to advance the cost-effective transition of our generation fleet. Since 2005, we have reduced carbon emissions by 53% and reduced sulfur dioxide and NOx emissions by 98% and 90%, respectively. We look forward to ongoing progress along this path. Our mission is to empower a better future, and our vision is to lead the responsible energy transition in our region, always with an eye on affordability and reliability, as well as sustainability. I will now turn the call over to Kirk.
spk06: Thanks, David, and good morning, everyone. Turning to slide 12, I'll start with a review of our results for the quarter. For the first quarter of 2024, Averagey delivered adjusted earnings of $124.7 million, or 54 cents per share, compared to $136.1 million, or 59 cents per share, in the first quarter of 2023. As shown on the slide from left to right, the year-over-year decrease in first quarter adjusted EPS was driven by the following. First, similar to the first quarter of 2023, we saw milder than normal weather, particularly in the months of February and March this year. And while the year-over-year adjusted EPS impact was flat, compared to normal, weather was an estimated 7 cents unfavorable. Next, compared to the strong demand recovery we saw in the first quarter of 2023, weather normalized retail sales declined by half a percent, primarily driven by lower commercial and industrial demand, but remained neutral to EPS. New retail rates in Kansas contributed five cents to the quarter. Higher transmission margin resulting from our ongoing investments to enhance our transmission infrastructure drove a four-set increase. and O&M drove a six cent negative variance for the quarter. This was driven by significantly lower O&M in the first quarter of 2023, which resulted from the implementation of an early retirement program, as well as timing of expenditures in 24. And overall, our O&M outlook is flat for the balance of the year versus 2023. Next, higher depreciation and amortization expense due to increased infrastructure investment drove a 4 cent decrease. Higher interest expense drove a 3 cent decrease. And based on our expected capital investments and the current outlook for interest rates, our expectation for interest expense for the full year remains on target. And finally, other items drove a penny decrease. Turning next to slide 13, I'll provide a brief update on our recent sales trends. On the left side of the screen, you'll see weather normalized retail sales decreased by half a percent over the first quarter of 2023, driven primarily by decreases in both commercial and industrial usage. While we did see further recovery from our largest refining customers in industrial, we've also continued to see lower demand for other industrial customers. This was driven in part by plant retooling and expansion projects being undertaken by our customers in the food processing and additive sector, which began in late 2023. As these events are expected to be temporary, with demand from these customers recovering thereafter, we expect industrial demand to recover as we move through 2024. This will be further augmented by the expected uptick as large customers from our recent economic development wins begin to come online later this year. And we expect a more notable pickup from these new customers beyond 2024, as we expect Panasonic, Meta, and Google will fully ramp their usage to full run rates in 2026, 2027, and 2028, respectively. As David noted in his remarks, in total, we are extending our weather normalized demand growth forecast of 2% to 3% now through 2028. Our demand projections continue to be supported by a strong local labor market as Kansas and Kansas City metro area unemployment rates remain below the national average. And finally, on slide 14, I'll wrap up with an overview of our long-term financial expectations. We are reaffirming both our adjusted EPS guidance range for 2024, as well as our long-term adjusted EPS growth target of 4% to 6% through 2026. based on the original 2023 adjusted EPS guidance midpoint of $3.65, and continue to expect to achieve this growth without the need for new equity. Our recently updated capital investment plan, which includes $12.5 billion in infrastructure investment, does not yet reflect and incorporate the impact of changes that were reflected in our 2024 IRP. And, as David mentioned earlier, we will provide you an update on our capital plan on our third quarter earnings call. In addition to allowing us to achieve our financial targets, executing on our investment plan advances our key objectives of ensuring affordability, reliability, and sustainability over the long term. And with that, I'm happy to open the call for questions.
spk11: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.
spk12: Our first question comes from the line of Nicholas Campanella from Barclays.
spk11: Your line is now open.
spk03: Hey, good morning. Thanks for taking my question and for all the updates today. Good morning. Morning, morning. I just wanted to clarify, it's great to see the load growth extended to 2028. And I know you have the IRP coming in Kansas. Just how should we kind of think about you're doing a 6% rate-based CAGR right now and Does this extend your visibility to that CAGR, or do you see that kind of pressuring higher in this new plan?
spk07: That'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-based growth through 2028 is 6%, so that was the capital expenditure plan we put out in 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. HB 2527 significantly improves on that. So we've noted that we do plan to update our capital expenditure plan. And that's really to reflect several things. One is the updated IRP does have higher level of generation addition. So, we'll incorporate the 2024 IRP. We'll also incorporate economic development activities and wins we've had. For example, a Google announcement is subsequent to our capital expenditure plan. There's been a lot of other activities as well. And obviously, we're continuing to look at the other grid modernization, other opportunities that we have. So, we do plan to give a capital expenditure update in the third quarter. We won't get ahead of what's in it, but there's several factors that I think will do create an upward bias, but we always take a balanced approach. What we're excited to do is be able to invest and take advantage of the opportunities that we see for our region.
spk03: That's really helpful. And then I guess as we're kind of toggling CapEx and thinking about what could be incremental to the plan, can you just remind us where you stand on your current credit metrics, where you're trending for 24, and then where that is relative to your minimums and just how to think about equity needs past the timeframe you've guided?
spk06: 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, you know, the changes in the – we were still waiting, obviously, to securitize the Missouri West Ware Storm URI costs, which we successfully did subsequent to the year end. Pro forma for that and some of our items going into 2024 were about 15%, which is that threshold. But as we move into 2024, some of the elements where we get a more current and efficient return, both from an earnings and a cash perspective, most notably our transmission investments in Kansas and other items, help contribute to the fact that we continue to see a surplus relative to that 15% threshold for Moody's. We expect to utilize that surplus to help move supplement our operating cash flow to fund those capital investments without the need for new equity through 2026. And we won't sacrifice those credit ratios in the process. So we feel comfortable with that surplus and our ability to utilize it and sort of maintain our ratios that are above the threshold through 2026. Okay.
spk13: I appreciate it. Thank you. Thank you.
spk12: Thank you, and one moment for our next question. Our next question comes from Char Perez of Guggenheim Partners.
spk11: Your line is now open.
spk01: Hey, guys. Good morning. Morning, Char. Morning, morning. You know, obviously, you guys have mentioned economic development. It's obviously been a key part of the slide decks. Data centers have obviously been kind of front and center for a lot of calls this cycle. do you sort of have maybe a rule of thumb at this point for the amount of maybe transmission investments you're making with these sites we've heard some of your peers like in pennsylvania talk about you know somewhere between 50 to 150 million is that kind of fair to you you know char 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 you know it's
spk07: always a little difficult if you peg 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 it as share or overall transition base, there's certainly some loads that will have investments around that level if you get to a significant size. So it does vary depending on where it is and where it locates. We typically, if not, don't have a lot of spare hundreds of megawatts of capacity in our system. So if you add that much load, Obviously, that's going to help you spread your fixed costs more broadly, but there will be some incremental costs as well. We haven't given a rule of thumb, but if you're talking hundreds of megawatts, you're going to have incremental investment in the system. I think probably most of our utilities will see numbers in a similar range. Just to note, for our plan, both Meta and Panasonic had been announced before we had put out our Q4 plan. CapEx plan, so they were included in the plan that we published, but Google had not yet announced, so it has not yet been included in our CapEx plan.
spk01: Maybe just to hone in a little bit, maybe if you could just provide a little bit of directional color on the mechanics and the margin on the Google deal, because if we understand it, you're supplying the actual megawatts, but some of the press releases, including coming from the governor, were framing this as a self-supply setup 400 megawatts from Ranger and DE Shaw. So just trying to understand your exposure and obligations here. Thanks.
spk07: Yeah, so the rates are subject to competition out of agreement. So I won't describe specific rates. Generally, when you bring in large new loads, they're typically eligible for economic development rates. But as I described in my comments on the script, we're actively working on rate design elements to ensure that large new loads The incremental requirements are factored in as those are considered. There are a number of players who sign virtual PPAs. We'll still be the supplier to Google, so they'll be a customer of ours, and the megawatts they receive will be from us. Their agreement will be, in effect, a virtual PPA. They'll be an off-taker, an economic off-taker, but that asset where it's added will become another generation resource in the Southwest Power Pool.
spk01: Okay, got it. And then just lastly on the EPA regs, I mean, obviously this was a key part of your opening, you know, prepares, right? I mean, there's obviously been a lot of chatter this quarter on the regs and potential impacts to IRPs and gas generation plans. Does the April IRP just put out account for this, thinking specifically, for example, on the gas additions you proposed, which may not get credit for co-firing hydrogen under the final rules, so CCUs only? I guess, how are you approaching planning around this? Thanks.
spk07: Yeah. Thanks, Charles. Great question. The IRP that we just issued in Missouri, and it's an overall corporate IRP also. We'll file a Kansas one here in a couple weeks. But that IRP does not include the EPA's recently issued rules. They 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. I do not anticipate – well, there's still a lot of analysis to do. I don't anticipate it's going to change our plans to build new gas units. We're going to need new gas to ensure reliability. We'll need it for the capacity in the system as well. We will impact our analysis of what type of gas units are added, what makes the most sense, and that will probably be an analysis that goes down the jurisdictional level. As you know, the EPA rules set rates that new efficient gas turbines can achieve. just some limits on the capacity factors at which they can run so for uh you know peaking units in effect anything uh in a peaking unit level is a 20 capacity factor and then the intermediate uh units can run up to a 40 capacity factor before ccu carbon capture and storage is required now uh we'll be looking at this in the requirements because it is going to It will impact our resource plans, particularly with respect to the obligations for coal and the coal retirement timeline. And I won't go into all the details on this call, but basically, in a nutshell, as I mentioned in my remarks, for coal units that you're going to operate long-term, carbon capture and sequestration is required. And that's just not a technology that's been proven at scale in a retrofit context for existing units. To operate a unit past 2038, you have to have carbon capture and storage, and you have to have it in place by 2032, I think it is. You can do gas co-firing if you get on that pass and operate to the mid to late 2030s. So this rule is going to get – the greenhouse gas rule will get a lot of scrutiny and attention, as will the other rules that the EPA put out. We think we're in a pretty good position to comply with the other rules, but lots of analysis still to do. There will be legal challenges, and we'll monitor it closely. But our go-forward IRPs will reflect the impact of the EPA rule. Net-net, though, gas is going to be an important part of the equation for us to ensure reliability and meet the new customer demand we're seeing and be able to keep the lights on affordably.
spk01: Perfect. Thank you, guys. Appreciate it.
spk07: Thanks, Char.
spk12: Thank you, and one moment for our next question. Our next question comes from Durgish Chopra of Evercore ISI.
spk11: Your line is now open.
spk02: Hey, good morning, team. Thanks for giving me time. Can I just ask for... Hey, good morning, David. Can I just ask for clarification on the upside, David, that you listed from 2527, the house bill 2527? The three to four cents, is that really like a first year upside to 2025? So this year, because the bill is effective July, it's really one half of that three to four cents? Am I thinking about that correctly?
spk07: Yeah. You know, how I described regression, we, you know, why don't we stop while I describe. Really, what HB 2527 does is it just helps to reduce the gap between the authorized return and your realized return. So, it helps to mitigate regulatory lag and gives us a better opportunity to get approximate, to get closer to earning our authorized return. The way I described it is in the first year following a rate case, it's three to four cents. We are in the first-year final rate case. It's fair to think of it that way. And the second full-year final rate case, it's roughly $0.10. So it's a standalone item without consideration of anything else. That's how to think about the impact in terms of reducing regulatory lag that would otherwise occur.
spk02: Thank you. And the jump from $0.40 to $0.10, I'm sorry if this is not a great question, but that's just basically capital doubling, right? Like your asset-based doubling, you know, between the two.
spk07: Yeah, I would think about it as... Yeah, it's a lot 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 all our realized returns in Kansas Central in 21 to 22 to 23, you saw those realized returns got lower and lower, much lower than our authorized level because we were in a five-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. Now, if you have a more regular cadence of rate cases, you know, you'll eliminate that, right? So we're not in a five-year stay out, and as we described, while it won't be true in every jurisdiction, the general cadence we expect is every other year for rate cases.
spk02: Got it. That's very helpful. I understand it now. And then just quickly, can I ask you for your level of confidence in the retail sales? You know, it was flat last year, 23 over 22, and then first quarter came in a half percent below the first quarter of 24, and obviously you're projecting two to 3% at the end of the year. What gives you that level of confidence? I know you mentioned a certain significant amount of load coming online, but just maybe share a little bit more color there.
spk07: Sure, I'll start and ask Kirk to weigh in. I think last year, if you break down the demand trends, residential and commercial were up in 23.8% and 1% respectively. It was industrial that was down. The industrial margins tend to be lower, as you know. And we can really trace the industrial demand being down in 2023 to a few customers that had unique circumstances. So that, I think, is the basis for why we have the underlying confidence that we – the robustness of the residential commercial sector last year and understanding industrial trends at kind of the customer-by-customer level. And Kirk talked about that at length in the first quarter. We won't overreact too much to the first quarter. There was still some pretty strong trajectory on the residential side. It was a very mild quarter, so we'll be tracking how that goes through the year. Now, in terms of the large new customers coming online, there can always be timing issues otherwise, but if you drive out to DeSoto, Kansas, you will see a very, very large battery manufacturing plant facility well underway in terms of construction, so we feel good about that. The metadata center is under construction. Google's down the road, so it's got to run a further stop. But we feel Good about the overall growth trajectory. Kirk, any of that?
spk06: Agreed. 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 new economic development customers coming out later this year on the industrial side. So, agree with that.
spk13: Thank you so much. I appreciate it, guys. Thank you.
spk12: Thank you, and one moment for our next question. Our next question is from Travis Miller of Morningstar, Inc.
spk11: Your line is now open.
spk08: Thank you. Good morning, everyone. Good morning. Congrats on getting all the stuff done there in Kansas. Wondering, as a follow-on to that, what are you still working on? Is there a timeline? And what might be involved in getting more done in Kansas?
spk07: Our work is never done. 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, HB 25-27, I can't emphasize 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. Ongoing things that we'll look at will continue to be, for example, we plan to have a workshop later this year on capital structure and ROE. We agreed with the parties. That wouldn't be included in the legislative effort this spring, what we would talk about in a workshop this fall. So ensuring that Kansas has a competitive framework for kind of authorized returns we think continues to be important. As I mentioned, our rate-based growth is significantly lower than our peer jurisdictions, and we hear a lot from investors about the relative competitiveness of returns offered in various states. So we look forward to that dialogue in Kansas. On the Missouri side, as I mentioned, there's been a broad-based support for legislation relating to natural gas plants because we and other utilities in the Missouri side are planning to build gas. It's really going to be needed for reliability and to serve incremental load. So enhancing the provisions that are applicable to new dispatchable generation will be an important step to take over time in Missouri. But we've had a constructive dialogue with stakeholders in both states, really pleased with that constructive dialogue, and we've been working with regulators, legislators, staff, and other curb and other interveners, you know, OPC in Missouri to move forward.
spk08: Okay, perfect. That workshop would be in the legislative sessions or regulatory?
spk07: Regulatory, yeah, and we expect to have that later this year. Admin schedule, but we're aligned with 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.
spk08: Sure, okay. At a higher level on the EPS growth, you've described obviously a lot of positive things going on. Your growth rate is at or higher than other utilities. You've got the CapEx, which you've suggested might be higher in the third quarter. What pushes you at least to a 5% to 7% number, maybe not back to the 6% to 8%, but why not get to that 5% to 7% or perhaps should we anticipate that when you come out with a new CapEx plan?
spk07: 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-based growth, and as a consequence of that, we have a relatively lower earnings growth trajectory. Those two are generally in sync, the rate-based growth and the earnings growth targets. Typically, the earnings growth target lags at some level. It's a little lower than the rate-based growth target because of the drag from finance. For us, what we're looking at fundamentally is how do we invest at the right level to ensure that we can take advantage of economic development opportunities, ensure reliability, make sure our system doesn't fall behind others in terms of performance, resilience, reliability, and ability to meet new customer demand. I think that will lead to higher levels of investment, and we'll see where it goes from there. But we certainly – we start from the position of affordability, reliability, sustainability – How do we make sure that we are competitive and taking advantage of these great demand growth opportunities? I do think that will lead to more capital investment because I think that's going to be to the benefit of all of our customers and our strategic objectives. And we'll discuss over time what that means for the earnings trajectory. But we really start with affordability, reliability, sustainability. What is the capital investment plan that will best enable us to advance it?
spk08: Okay, that's great. No, I appreciate it. And figured you wouldn't answer my question by saying, yeah, five to seven. So I appreciate the details. Thanks so much. Thank you.
spk12: Thank you. And one moment for our next question.
spk11: Our next question comes from Paul Patterson of Glenrock Associates. Your line is now open.
spk10: Hey, good morning. Morning, Paul. Just wanted to go over just a few quick things on the quarter. First of all, the decrease in labor capitalization. Can you elaborate a little bit more on what's driving that and how that's going to impact the rest of the year?
spk13: Oh, that's correct.
spk06: The decrease in labor capitalization is really a function of we had a little bit of a change in our transformer labor capitalization strategy. 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 prize for most in-depth reading of material. Yes, indeed. Good.
spk10: Okay. But how much was that, I guess?
spk13: I will have to get back to you offline on that, Paul. I'd be happy to do that.
spk10: Okay. No problem. The sales growth numbers for the quarter, does that reflect leap year?
spk06: Yes. Yes, it does.
spk10: Okay. And then the PISA legislation, it sounds like you guys in Missouri, I'm talking about, it sounds like you don't see much opportunity for the House bill. I think there's also a Senate bill. I mean, I know it's going to end soon, but is that pretty much how you feel? Did I hear you right, I guess?
spk07: 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. Passed out of the House. There was very good discussion around it. There's broad-based support. It's just hard to, given the tight timeline in the session, overall session dynamics, it's going to be hard to get anything passed, so we think this is no different. Wouldn't rule it out. We certainly think it would be beneficial, but it's the session dynamics and timeline of the real constraints, not support for the provisions we think is Broadway support.
spk06: Paul, I'll follow up for you. Sorry, Paul, that transformer labor, just to come back to you, is about two pennies.
spk10: Okay.
spk06: Year over year.
spk10: Okay. And then, thanks for that. And then just on the Missouri, if I'm correct, it ends... The session ends, the floor action ends tomorrow, is that right?
spk07: The 17th, I think, is when it formally ends, Paul.
spk10: Okay, but I thought there was a floor action deadline or something. Okay, but okay, it's the 17th, okay. Okay, thank you, appreciate that. And then finally, Ami, you mentioned that your next IRP will reflect the impact of the EPA rules. How do you think about depreciation with these EPA rules? You mentioned litigation and the uncertainty that's associated with it. How should we think about depreciation potentially changing with certain assets given these EPA rules and when you guys might have to deal with that regulatorily or not? Big picture, how are you thinking about the issue of asset life depreciation and these rules and how those would sort of figure out, how those would sort of pencil out, if you follow me.
spk07: Yeah, 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 we're really going to all have to dig into. And there are some provisions in the rules that give some potential outs on those, they're relatively short-term in nature, but To your point, we'll have to assess, you know, carbon capture and sequestration is required for any unit that's operating beyond 2038. What does that imply if that technology is not commercially proven today? I do not want to get ahead of the analysis we're going to do and any discussions we'd have with our regulators around it. That provision in particular is around carbon capture and storage is no doubt going to be the focus of a lot of discussion by a lot of parties. But the affordability and reliability impacts are certainly going to be at the forefront and Any change in depreciation schedules, along with any incremental investments that might be required, would have impacts on the affordability side. So under the provisions of the rule, you can look at our RRP, and it would imply absent CCS, you know, it's going to have some impacts in the out years. But we've got some time to analyze it, got some time to work through it with parties. But you're noting an important issue is that these rules are consequential, and the affordability and reliability impacts are real. and significant, and we'll be analyzing them over time. And we'll do that on a systematic basis because it's something that's important we won't rush into, and we'll absolutely be working with our regulators and stakeholders in Kansas, Missouri as we do that analysis. And we'll be tracking the litigation closely.
spk13: Awesome. Thanks so much, guys. Thank you.
spk12: Thank you, and one moment for our next question. Our next question comes from Ryan Levine of Citi.
spk11: Your line is now open.
spk05: Good morning. In the one slide, you highlight over $10 billion worth of new development projects in Kansas and Missouri. But have you ever tried a little bit of color around what industries are most represented in that $10 billion number and in which service territories are awaiting towards and any color around the load opportunities that that may enable?
spk07: Sure. So you won't be surprised here. It's data centers, but also advanced and large manufacturing. So that could range from semiconductor, auto, food, product, 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. We haven't quantified. the exact megawatts, but 10 billion obviously add up to a very material increase in potential load. And it's across, really I'd say it's across all of our jurisdictions. There are a number of those parties that are interested in the metro region and our Missouri West area. So META, for example, is in Missouri West, Google's in metro, and the Panasonic data plan is in Kansas Central. So I think you'll continue to see broad-based interest across those. I think I also left out aerospace. We've got a very large aerospace presence in the central part of Kansas, and that's also an area of high interest. So it's an exciting time, and we're glad with the big new customers we've been able to land. It's been a mix of data centers and large manufacturing. I think we continue to see that kind of mix across those, and not exclusively data centers. I know there tend to be a lot of the focus of the discussions recently, but We're big fans of advanced manufacturing coming in our territory, too, because they bring a lot of jobs and incremental benefits. Data centers are also big positive. They don't bring as much jobs, of course, but it's an exciting time in terms of the pipeline.
spk05: As you're working through your resource planning and with the fair bill legislation passed in Kansas, are there any non-financial issues? constraints to be able to serve incremental load in your service territories, i.e., particularly on the gas generation side that we should keep in mind that may constrain your growth?
spk07: So, I mean, I think for all of us, all utilities, and for us, you know, when you look across our system, adding the three customers I mentioned today, we said approximately 750 megawatts of load. That's a nearly... That's between a 5% and 10% increase in our overall demand peak. So you add several hundred megawatts in any location, you're going to run into where the evaluation is on transmission and distribution infrastructure. So what? Do you have adequate transmission? Do you have adequate substation infrastructure in place? And with power pool requirements getting tighter, there's certainly capacity issues as well. So when we're looking at sites and sites that are opportunities for our customers, a lot of them We're being responsive to where they're interested, but to the extent they're flexible, then it's all about how do you work through the grid constraints, so transmission, distribution, and then capacity constraints. So it absolutely is factored into our overall resource planning. That's part of why you see more resources in our plan. Some of that is higher requirements in the Southwest Power Pool, but some of that is a reflection of higher demand. So there are grid constraints and capacity constraints you need to work through, and that's an opportunity. I think we're not unique in that. I think it's a general phenomenon across the U.S. We're seeing a higher level of demand than we've seen in decades.
spk05: What I was trying to get at is if you're building new gas plants, are there any pipeline constraints or anything else that may be more onerous to overcome or permitting or any other challenges that we should keep in mind?
spk07: Yeah, I think that the – I think the way the EPA rules are structured, the new efficient gas turbines can meet the requirements, so there'll be capacity factor limitations. 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 and interconnection process, so it takes years to get these things done, and that's a reflection of why the 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.
spk13: But we do think we'll be able to get it done. Thank you for taking my question. Thank you.
spk12: Thank you, and one moment for our next question. Our final question comes from Michael Sullivan of Wolf.
spk11: Your line is now open.
spk09: Hey, good morning. Good morning, Mike. Hey, guys. Just wanted to ask on the mild weather to start the year and how you're thinking about levers to offset that.
spk07: So it's welcome to 2024, same as 2023, because we had a mild start to 2023 as well. You know, Mike, we looked across the various levels of our business. The important part of that, obviously, is cost management. um we mentioned that the new legislation in kansas um in the first year following a rate case provides a benefit so obviously we're in the first year following a rate case so we've got you know a relatively large enterprise we got a range of levers that we typically work through it's a you know 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 but i put it i view this that's sort of in the routine category of things to manage so uh We always prefer to be normal weather, but we've got some levers that we can work on and some positives that we've seen also already manifested.
spk09: Okay, great. And then when I just think about this upcoming CapEx refresh, I think you usually do that for five years, and the IRP is kind of more like a 10-plus year outlook. And if I just – I know you're talking about capacity upside over 10 years, but if I just look at like the next five plan over plan, I think we're in a similar spot, a different mix of generation, but just wanted to try to reconcile that as we think about CapEx plan refresh and what changed in this IRP.
spk07: Yeah, 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 the day. I'll leave it to them on where we approach that. Because we've got a lot of gas that's coming in in the 28 to 30 timeframe, that will lead to some earlier spend. A lot of the renewable spend, you can time a little more closely to when the online date is, but the gas plants will have a an earlier spend trajectory, part of why we're very pleased with the construction work in progress provisions in the legislation in HB 2527. So between that, between the evaluation that we're doing relating to economic development, between other grid modernization efforts we're going to look at, there are some factors that we think create an upward bias in the capital plan. But again, we'll lay those all out when we get to the third quarter. But the IRP, just looking at it on a standalone basis, if you think about the amount of gas that we'll be bringing on in 29 and 30, we do expect there will be the IRP in and of itself will also be incremental investments, really reflecting the demand growth that we've seen in the generation we're adding to meet it.
spk13: Okay, very helpful. Thank you. Thank you, Mike.
spk11: This now concludes the question and answer session. I would now like to turn it back to David Campbell for closing remarks.
spk07: Thank you, Bree, and thank you, everyone, for your interest in Evergy. Be safe and have a great day. This now concludes our call.
spk11: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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