Evergy Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 5, 2023

There are 8 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Q1 2023 Evergy Conference Call Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference call is being recorded. I would now like to turn the conference over to your speaker for today, Peter Flynn.

Operator

You may go ahead.

Speaker 1

Thank you, Lisa, and good morning, everyone. Welcome to Evergy's Q1 2023 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.

Speaker 1

Slide 2 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 and Kirk Andrews, Executive Vice President and Chief Financial Officer. David will cover our Q1 highlights, provide regulatory and legislative updates and discuss our ESG progress. Kirk will cover in more detail the Q1 results, retail sales trends and our financial outlook for the year.

Speaker 1

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.

Speaker 2

Thanks, Pete, and good morning, everyone. I'll begin on Slide 5, and I'm pleased to report that Evergy had a solid first quarter as we delivered adjusted earnings of $0.59 per share compared to $0.56 per share a year ago. The increase was driven by weather normalized sales growth, transmission margin and lower O and M expenses, partially offset by the impact of a mild winter, an increase in depreciation and amortization and higher interest expense. Kirk will discuss these earnings drivers in more detail in a few minutes. In 2022, we achieved our historically best safety year, and I'm pleased to report that our OSHA recordables And days away and restricted time events are trending favorably relative to those 'twenty two results through the Q1 of this year.

Speaker 2

These improvements are a testament to the work of the entire Evergy team. I would like to thank my fellow employees for their unwavering commitment to safety. With a solid start to the year, we are reaffirming our 2023 adjusted EPS guidance range of $3.55 The $3.75 per share as well as our target long term annual adjusted EPS growth target of 6% to 8% from 2021 to 2025. On Slide 6 and 7, I'll discuss our recently filed Kansas rate reviews, beginning with Kansas Central on Slide 6. On April 25, we filed an application requesting A $204,000,000 revenue increase premised on a 10.25 percent return on equity, a 52% equity ratio and a projected $6,000,000,000 rate base as of the proposed June 30, 2023 true update.

Speaker 2

As shown on Slide 7, in Kansas Metro, we requested a $14,000,000 revenue increase premised on a 10.25% return on equity, A 52 percent equity ratio and a projected $2,600,000 rate base as of the proposed June 30 true update. We believe these rate requests are straightforward and reflect the communications we've had with our Kansas regulators and stakeholders in workshops and other settings over the past few years. The principal items include recovery and return on our grid modernization and infrastructure investments since our last rate reviews in 2018, as well as passing on to our customers the benefits of the substantial cost savings we've achieved since the merger that formed Evergy 5 years ago. Across our 2 Kansas jurisdictions, these cost savings reduce the combined revenue increase request by 37%. We are pleased that the hard work of the Evergy team resulted in cost savings that are significantly higher and projected during the merger approval process.

Speaker 2

These efforts have been a major contributor to successfully advancing our regional rate competitiveness. Since the end of 2017, our rates in Kansas have remained virtually flat, while our regional peers have on average increased their rates by double digits and cumulative inflation has been over 20%. As a reminder, Kansas rate cases run on an 8 month Schedule, so new rates will go into effect by year end 2023. We'll provide an updated timeline when a procedural schedule has been issued. We look forward to working with our regulators and stakeholders over the coming months to achieve a constructive outcome for our Kansas customers and communities.

Speaker 2

Moving on to Slide 8, I'll provide an update on our other regulatory and legislative priorities. In Kansas, Governor Kelly signed House Bill 2,225 into law in April and will become effective in 2024. The bill includes a provision that matches the return on equity for our locally planned FERC transition projects to the return on equity established by the state for our other infrastructure investments. This law applies specifically to current and future transmission projects that are not subject to notification to construct from the Southwest Power Pool. HB 2,225 keeps our transmission delivery charge Rider mechanism or TDC, unchanged and fully intact.

Speaker 2

This bill provides savings to customers And was a product of constructive dialogue with Kansas regulators, legislators and other stakeholders. In Missouri, the order approving our request To securitize extraordinary costs from Winter Storm Yuri is in the state appellate process. We believe the Commission's decision in support of securitization is well supported by the record. As a reminder, we will complete the securitization financing after the appeal plays out, but incremental carrying costs incurred prior to approval will ultimately be recovered when we issue the debt. We anticipate resolution later this year.

Speaker 2

On the legislative side, we're tracking the progress of Senate Bill 275 in Missouri, which would create a state And local sales tax exemption for the production of electricity. If signed into law, these savings will be passed on to customers in our next Missouri rate case. The bill has passed out of the Senate and currently awaits debate on the House floor. Other bills relating to the energy sector may also receive attention this month. For example, a bill that enhances state oversight of transmission and improves the consistency of transmission operations in Planning, referred to in shorthand as right of first refusal legislation continues to be an area of focus.

Speaker 2

The benefits of this legislation are reflected by similar that are in effect in the majority of states across our region. However, as the Missouri legislative session is scheduled to adjourn on May 12, timing is tight And we expect that the discussion of ROFR and other energy related bills may continue into next year. As a final note on Slide 8, we remain on track to file our annual integrated resource plan updates in both Kansas and Missouri by mid June. This year's IRP updates will include significant changes and assumptions, most notably updated cost estimates for new generation, as well as substantial subsidies in the Federal Inflation Reduction Act for carbon free resources. Moving to Slide 9, I'll profile another element of our corporate strategy relating to environmental, social and governance measures.

Speaker 2

We continue to enhance our ESG practices and disclosures and For example, Slide 9 profiles the comprehensive progress that we've made in the ESG ratings provided by ISS and by S&P Global's Corporate Sustainability Assessment. From a disclosure perspective, 2022 marked the 1st year Evergy completed full CDP Climate and Water Security Questionnaires as well as the Global Reporting Initiative Report. We've also joined the Electric Power Research Institute's Climate Ready Initiative Research Partnership aimed at developing a collective approach to identifying and managing physical climate risk. Over time, we expect this effort to support the optimization of our grid investment priorities, utilizing a common framework around Cost benefit analyses, risk mitigation and adaptation strategies. Finally, we continue to integrate climate related risks into our enterprise risk management system.

Speaker 2

This is a best practice which will allow us to identify and mitigate the impact of current and future risks on our business, enhancing our ability to provide safe, reliable and Affordable Power. I'll conclude my remarks with Slide 10, which highlights the core tenets of our strategy, Affordability, reliability and sustainability. On affordability front, advancing regional rate competitiveness is one of our primary objectives. Since 2017, we have reduced rates by 0.8% across our service territories, while regional rates have risen by double digits and inflation rose 20% over the same time period. The impact of these efforts is reflected by ongoing wins in our region and economic development.

Speaker 2

And while we're pleased by our progress in improving regional rate competitiveness and keeping our rate trajectory far below the rate of inflation, Affordability will always be an area of focus. We target top tier performance and reliability, customer service and generation Through modernization of our transmission and distribution lines, investing in smart grid technology and developing systems capabilities that meet customer needs and enable the increasingly active customer engagement with their electric service. Reliability also encompasses operational excellence in our generation fleet, Leveraging the skills and capabilities of our high performing team and important assets like our Wolf Creek Nuclear Plant. Reliability is all the more important given the increasingly central role that electricity plays in so many aspects of daily lives. We recognize responsibility that comes with our role and we embrace the challenge of delivering power at the cost and service level that our customers expect and demand.

Speaker 2

With respect to sustainability, we continue to advance the transition of our generation fleet, a process that has been underway for 2 decades. Since 2005, we've reduced carbon emissions by nearly half, while reducing sulfur dioxide and NOx emissions by 98% and 88%, respectively. Additionally, nearly half of the energy that we generated for our retail customers came from Carbon Free Resources in 2022. Our mission is to empower a better future and our vision is to lead the And with that, I will now turn the call over to Kirk.

Speaker 3

Thanks, David, and good morning, everyone. Turning to Slide 12, I'll start with a review of our results for the quarter. The Q1 of 2023, Evergy delivered adjusted earnings of $136,000,000 or $0.59 per share And that's compared to $130,000,000 or $0.56 per share in the Q1 of 2022. As shown on the slide from left to right, the year over year increase in Q1 adjusted EPS was driven by the following. 1st mild winter weather resulted in approximate 11% decrease in heating degree days compared to last year, driving an $0.08 decrease in EPS.

Speaker 3

Strong weather normalized demand of 2.1 percent driven by the residential and commercial sectors contributed $0.04 per share. Higher transmission margin resulting from our ongoing investments to enhance our transmission infrastructure drove a $0.02 increase. A $36,000,000 decrease in O and M drove a positive $0.12 variance year over year. This was partially the result of timing of O and M expenditures within 2023. The net impact of higher depreciation and amortization was $0.07 for the quarter, which includes the offsetting impact of new retail rates.

Speaker 3

Proceeds from company owned life insurance contributed $0.04 during the quarter and the combination of higher interest expense and lower AFUDC drove a $0.13 decrease with interest expense representing $0.11 of that variance. The increase in interest expense Reflects the lower rate environment in early 2022 and we expect rate driven variances to decrease in magnitude as we move through the year consistent with the assumptions in our guidance. And finally, other items both positive and negative drove a net increase of $0.09 which was primarily driven by other income and income tax related items. Turning to Slide 13, I'll provide a brief update on our recent sales trends. On the left side of the Slide, you'll see that total retail sales increased 2.1% over the Q1 of 2022, driven primarily by increases in both residential and Commercial usage.

Speaker 3

The decrease in industrial demand is primarily attributable to 2 refining customers, one of which experienced a high demand a year ago and the other offline this past quarter due to a planned outage. Excluding these two customers, however, remaining industrial weather normalized demand increased. Demand growth continues to be supported by a strong local labor market with Kansas and Kansas City Metro Our area unemployment rates of 2.7% and 2.9%, respectively, which remained below the national average of 3.6%. I'll conclude my remarks with Slide 14. Our focus remains on continuing to demonstrate a strong track record of execution.

Speaker 3

As David mentioned earlier, based on solid Q1 results combined with our outlook for the remainder of the year, we are reaffirming Both our adjusted EPS guidance range for 2023 as well as our long term compound annual EPS growth rate target of 6% to 8% from 2021 to 2025 based on the midpoint of our original 2021 EPS guidance of $3.30 We also remain committed to returning capital to our shareholders and target dividend growth in line with earnings growth with a dividend payout ratio between 60% to 70%. In addition to allowing us to achieve these financial targets, executing on this investment plan advances our key objectives of ensuring affordability, Reliability and Sustainability over the long term. And with that, we'll open the call up for questions.

Operator

Thank you. One moment while we compile the Q and A roster. First question is coming from Saul Peraza of Guggenheim. Your line is open.

Speaker 3

Hey guys, good morning. Good morning, Saul.

Speaker 4

Good morning. Maybe we just start with the Persimmon Creek project. Obviously, you pivoted from Missouri to Kansas And included in the latest cases there. Where is the pathway forward if you're unable to roll the project into rates there? Does it stay at the parent?

Speaker 4

And also any color on how to think about the earnings impact if that were the case versus the $0.05 you originally had in plan? Thanks.

Speaker 2

So I'll start off and ask Kirk to supplement. We think the Persimmon Creek asset is a great asset given the overall cost It's SARS. It's we think the best value is supported by integrated resource plan in terms of both capacity and energy needs. It's well situated from a transmission perspective, and we think it fits well with the needs that we're going to have in Our Kansas jurisdiction, which continues to see ongoing growth in demand and across service territory with new customers like Panasonic. So we like The asset, it fits in well with the RFP.

Speaker 2

We think it's a great resource for our customers. So as noted, it was included in our filing on April 25. It will go through the process and so we'll along with our other infrastructure investments that we've included. Your question on EPS, given that it's rolling to the Kansas jurisdiction, which doesn't have the same PISA requirements, We won't see the earnings contribution in 2023, but we have a very similar profile in the following years. Got it.

Speaker 2

And Again, we think it's a great asset. Got it. Perfect. And then David, I know you

Speaker 4

and Kirk have been working tirelessly With the KCC, I know obviously, the capital components of the case have been really well vetted through the STP. As we kind of get the process started, realize it's obviously very early innings, but is the settlement possible here? Do you expect kind of a fully litigated case at this point?

Speaker 2

So, Charle, that's a question we get from many investors. As you can guess, since we filed it on April 25, Probably a little speculative for me to be specific as to what will occur. We do think that we have a pretty straightforward rate case. The complexity only really comes from the fact that it's been 5 years since our last general rate case, but the elements are straightforward. We don't have any major generation retirements.

Speaker 2

We don't Have complexities like some of the things that you can see after this longer time period. So we think the framing is there for a constructive set of dialogues and certainly will be our objective to drive towards settlement. Now that will be In the fall, so we're ways away. But as you noted, what's a real positive in this case is that we've had the opportunity to preview And go through our capital investment plans in a series of workshops over the last 3 years. Starting with the STP workshops, as you noted in 2020 and continuing Given to the capital workshop that we had in December and those were multi hour workshops attended by all 3 commissioners the whole time.

Speaker 2

And it included 4 projections on rates. And what we filed is in line with what we laid out in those Proceeding. So we think that sets the groundwork for a constructive set of discussions. And of course, the process will play out as it will. We've got a very Highly capable and knowledgeable staff at the KCC, so we look forward to interacting with them, with CURB and with other stakeholders through the process and Hopefully, we'll have a constructive dialogue that enables the settlement as we advance through the year.

Speaker 2

8 month timeline, as I mentioned, so the rates will go into 2nd December and A lot of the crescendo happens in the fall timeframe.

Speaker 4

Got it. Got it. Perfect. And then just real quick lastly for me, is just the ROE tweak from the TDC bill that passed in Kansas seems like it could be a modest drag in 2024 and maybe beyond. Is that the Case and how are you, I guess, thinking about potential offsets there?

Speaker 4

Appreciate it.

Speaker 2

Yes. So it is a pretty modest Impact, Shahriar, in the range of roughly $0.04 or so. We think we can absolutely manage that in the context of our business Given our size and our overall earnings power, we think the ultimate resolution was reflected a constructive dialogue. The initial proposal That was issued was to remove the TDC mechanism, but concerns by some of why you have a different mechanism in place and A lower level of state oversight, so we're able to get an accommodation that enhanced state oversight of transmission, Great in equivalents and the return on equity for different sites, infrastructure investments, but keeps the TDC mechanism in place. So we thought it was constructive Outcome overall and one that's very manageable and was a sensible approach as we headed into 2023 in a rate case year and we're Glad we're able to work with parties to get to that outcome.

Speaker 4

Fantastic guys. Appreciate it. Very clear cut. Thank you.

Speaker 2

Thanks, Shahriar.

Operator

Thank you. One moment while we prepare for the next question. Our next question is going to be coming from Michael Sullivan of Wolfe Research. Your line is open.

Speaker 3

Hey, good morning. Good morning, Michael.

Speaker 5

Hey, David. Wanted to just ask on how things are tracking on the year, just given the mild weather and then also seeming like The Persimmon Creek nickel that you had in guidance isn't going to be realized potentially until next year now where the offsets are coming from?

Speaker 2

So, actually, Kirk, you want to take that one? It's been hearing from me for a bit. You want to field it?

Speaker 3

Sure, Michael. Good morning. Look, it's early in the year. We had a strong start to the quarter. We've reevaluated and kind of reset our expectations for the year, including that impact of At least the debt delay, albeit relatively mild delay in terms of the realization of the earnings on percent of CREEP, We feel confident we've got means at our disposal to offset that through a number of means.

Speaker 3

Obviously, we're pleased with the performance on O and M year to date. I mentioned earlier, some of that's relative to timing, but gives us a lot of flexibility throughout the year to pull levers to offset. So that's Really what underpins our confidence in reaffirming that guidance for the year.

Speaker 2

Yes, Michael, I just note that we had very mild winter. You saw it across the Midwest and We're fortunate that we're able to offset that. We're pleased with a solid quarter. I know that all companies have to deal with the weather piece, but for us, we're able to offset it And we're pleased with the solid quarter results as opposed to being that something to manage over the course of the year. The team did a real nice job managing it in the context of the quarter.

Speaker 2

So we feel good about the year and Reaffirming our guidance range.

Speaker 5

Okay, great. And on the IRP, I know that Coming in a couple of weeks. Can we just get sort of a high level preview there of maybe just how material changes we should be expecting in terms of New capacity need and some of the moving pieces on cost of renewables post IRA and inflation and all that.

Speaker 2

So Michael, I won't get ahead of the results in terms of the total renewables build out plans. What I'll note is that Beneath the surface of the water, there's been a ton of churn just because the combination of Yes, we didn't include the kind of renewables incentives you see in the IRA because our last IRB update, that law wasn't in effect. So that's a big change. At the same time, We have bids from our all source request for proposal that we can integrate the capital costs from that real time market information in the IRP. That's most of those costs have trended higher, so there's some offsets there.

Speaker 2

So beneath the service, there's significant changes in assumptions on commodity costs. We went through a lot of volatility in natural gas prices in the back half of the year, maybe we're back to low gas forever, but I think we're probably back to is that, hey, there's potential volatility in natural gas. So there are a lot of different factors, but When you sort of run them through the modeling process, which is still ongoing, it reinforces the value We have renewables over time and a lot of it comes down to availability, particularly supply chain challenges. So I would note that I think the Robust support for renewables as being low cost opportunity for customers In a long term resource plan, that absolutely remains in the near term, it's about supply chain and what that impacts in terms of Resources that are available sooner rather than later. Some elements that will change in the future.

Speaker 2

There's a number of different EPA bills. Our EPA rules that are in the mix right now, a couple of proposals have been issued, Others have been press reports around, so I would not expect this IRP to reflect the greenhouse gas proposed rule, for example, that hasn't been formally issued yet. We've seen a lot of reports on it. Those kind of rules only further reinforce expected relative value of adding lower cost resources to the system. I think it will also further reinforce the importance of Capacity.

Speaker 2

So one thing from last year that has changed is and there's the benefits of having capacity or even higher, we've also seen increases in demand. So along with the way, I'm not giving you new numbers, but the dynamics that support the value to customers of adding renewables The system are there, maybe some further impetus to capacity resources and then some supply chain issues in the near term work through. But we're excited about The prospects and we'll obviously have a comprehensive update when that's when we issue the IRPs. Okay.

Speaker 5

That's very helpful. Yes, the end of your response there was kind of where I wanted to follow-up. I mean, at the end of the day, in terms of Where to expect pushback? Is this really just approving lowest cost type thing as long as you can get the reliability where it needs to be? Is that kind of What stakeholders are going to be looking for most?

Speaker 2

Yes, we look at the lowest overall cost in terms of net present value of the revenue requirement. So it's a We're looking at fundamentally what's going to deliver the most value for customers in light of the various incentives. It's a 20 to 30 year model, so it's complicated. Our 15 to 20 year model, so there's a lot of input. But that's what it comes down to is what's going to deliver the best value for our customers while ensuring reliability.

Speaker 1

Great.

Speaker 2

Thanks a lot.

Speaker 1

Thank you.

Operator

Thank you. One moment while we prepare for the next question. The next question is coming from Durgesh Chopra of Evercore. Your line is open.

Speaker 6

Hey, good morning team. Straightforward and my questions have been answered. Maybe I was just curious and I can follow-up with Pete if you don't have the answer. David, in your Prepared remarks, you mentioned that the cost savings exceeded the original targets you had when the merger happened. Can you quantify what that looks like?

Speaker 6

If not, I'll just follow-up with Pete. Thank you.

Speaker 2

Yes, we got you. It was a few $100,000,000 by which we exceeded several $100,000,000 overall. Now that's across the corporate enterprise. And It's a tremendous result that was achieved by our employees. We can get you the exact number, several $100,000,000 in excess of what was initially predicted, if you look at the cumulative savings over the 5 years.

Speaker 6

Got it. Thanks so much.

Operator

Thank you. One moment while we proceed with the next question. And the next question will be coming from Julien Smith of Bank of America. Your line is open.

Speaker 2

Hey, guys. Good morning. It's Darius on for Julian. Thanks for taking the question. Just kind of a high level one, obviously, You've had several regulatory processes in Missouri and now you're heading into this critical Kansas rate case.

Speaker 2

Any learningtakeaways or maybe modifications to your approach that from the Missouri processes that you Thanks are applicable as you head into the Kansas process. Good morning, Darius. Hey, you're going to have to make sure your name leads off. Darius on behalf of Julian. Julian has got to share a little light.

Speaker 2

It's a great question. I think there are some distinguishing elements Between Missouri and Kansas, but there's always things you can learn. Missouri, we had some More complicated legacy issues. We had the Sibley plant retirement that followed. We had the piece of legislation that had been enacted, but the case was under the Legacy plan and service accounting rules, which had a cost cap that kind of commodity price surge Head impacts Missouri West.

Speaker 2

So some pretty complicated legacy issues that were impacted. That we don't face in Kansas. In Missouri, we reached a constructive settlement on the key economic issues in our metro jurisdiction, which is a bigger of our 2 jurisdictions in Missouri. Simply in the piece of legislation, the biggest impact is Missouri West. So the settlement that we reached in Metro, What is a good template for what we're going to be seeking in?

Speaker 2

In Kansas, and in Kansas, we have the benefit of even more extensive dialogue. There was STP workshops in both states, but the ones in Kansas were, you probably listened to a number of them, were quite in-depth and thorough and involves Commissioner, staff, curve and other stakeholders. So a rate case in Kansas is even more well situated in terms of a constructive dialogue, pretty straightforward in settlements. But we strive for trying to get to common ground and settlements where we can. And I think Missouri Metro is a good template for that.

Speaker 2

And the setup is also more amenable for it and that we have a little less complexity. It has been 5 years, but Again, the range of things that we're bringing is a little more straightforward. And as a reminder, in Kansas, transmission is not part of the rate case, so it's focused on Our distribution investments, generation, customer systems, really a lot of our grid modernization and customer facing investments. So we look forward to the dialogue. We think the case setup is one that We'll enable a good constructive dialogue with the key participants.

Speaker 2

Okay, great. Thank you for the color there. Appreciate that. And apologies if you touched on this in opening remarks, I just noticed that there's a bit of a delta between resi and commercial sales and industrial in Q1. Can you maybe talk through any of the high level drivers there?

Speaker 3

Sure, Darius, it's Kirk. Good morning. I mentioned on the call, yes, we our industrial sales were a little bit down. It was largely a result of 2 refining customers, one of which had A pretty high level comp last year with higher demand. So just kind of normalizing that a little bit, that's one effect of those 2 customers.

Speaker 3

The other one had a planned outage this quarter. But for those 2 customers in the industrial sector, our industrial demand was up year over year, excluding those 2 refining customers.

Speaker 2

Overall, we're pleased with the ongoing demand trajectory, especially on the residential and commercial side. On the industrial, as Kirk mentioned, we can actually isolate it down to customers. Okay, excellent. Thank you for the color. I'll pass it along here.

Speaker 2

Great. Thank you, Darius. Thanks, Darius.

Operator

Thank you. And one moment while we prepare for the next question. And our next question will be coming from Paul Patterson of Janney Goff Associates. Your line is open.

Speaker 7

Hey, good morning guys.

Speaker 2

Good morning, Paul.

Speaker 7

So I noticed that there was a labor capitalization benefit it seemed. Could you Elaborate a little bit more on that and how it how what the impact will be sort of It's trajectory, if you follow what I'm saying. In other words, is there going to be more of a benefit going forward in the near term? And is there a flip around or just if you could Just elaborate a little bit more on that.

Speaker 2

Sure, Paul. And your I applaud your as always detailed review of materials. So we Like all utilities, we have a rigorous process for reviewing our capitalization rates and making sure we're getting the right It's reflecting the underlying activities. We've had a lot of capital investment and there's an appropriate amount that should be of labor that should be capitalized in a robust methodology that we Utilities follow. So we're applying that.

Speaker 2

I think you saw in our for example, in our Wolf Creek plant, there was a little bit higher capitalization rate relating to activity that was underway. Our overall trajectory in terms of O and M expenses and capital, we it's all part of our planning process. So it's reflected in Where our plans are, so I wouldn't tee up that you're going to see a major change. What you'll see is ongoing implementation of the Adherence to the rules are in place in that regard. So it's reflected in our plans and is underpinned by the rigorous application and appropriate accounting So but I think that what you noticed was in particular driven by some products at Wolf Creek, our nuclear plant.

Speaker 7

Right. So I guess what I'm wondering is that, so it sounds like it's associated with those projects. And then but going forward, does that So in other words, it's not a permanent change, I guess, if I'm gathering this correct. It's associated with a specific sort of project activity. That's

Speaker 2

right, Bob. We it did reflect the activities that are underway And the application and the relevant rules are in place.

Speaker 7

Okay.

Speaker 2

Always something that we're looking at and making sure we're following the right approach. Okay. Got you. The good thing about being in an industry like ours, Sorry, that we're well benchmarked. We got a great support from our accounting team and our external auditors.

Speaker 2

So well established approaches to take in that regard and And best practice.

Speaker 7

Yes. No, absolutely. I guess I was just wondering to sort of mechanically, does what period does that get sort of does it What period is that amortized over? I guess I'm sort of wondering, I mean, or is it just over the life of the plan? Or is it something that Is it sort of an account that gets amortized over short?

Speaker 6

I just sort of Yes,

Speaker 2

it really depends on what they're working on, related to an outage. It will be a different I mean, in other words, it gets down to every single project also probably. Okay. I got you. I won't be able to get through the 100 in this call, but it always relates to the work that's underway.

Speaker 2

And some are shorter, some are longer to put in the nature of the work.

Speaker 7

Absolutely. Okay. That's great. And then just on the rate case, the percentage seems to be allocated, I think, to the EKC As opposed to both utilities, I just was curious, is there a reason for that or is it I just is it If I was correct in reading that, is there a reason why it wasn't allocated to both, I guess?

Speaker 2

We think it's the best fit for Evergy Kansas Central. So it's really was just where it lines up well with the integrated resource plan needs and overall That makes sense. It's well placed for that customer base too. So it fits well with EKC, so that's why it's allocated there.

Speaker 7

Okay. And then finally on the depreciation rate change, was there is I'm just wondering if you I mean, I apologize. I read this a little while ago, but what was the driver again? Can you remind me about The request for a change in depreciation rates in the rate case, is that a life issue there that's specific or is it just basically just updating The depreciation rate, do you follow-up

Speaker 2

on that? I do follow. I think the so we did a Depreciation studies that typically happens in rate cases, especially if there's been a relatively long gap. So this reflects Depreciation studies that we've done, it's been 5 years since the last rate review. So pretty standard process.

Speaker 2

You bring in an outside expert, you review that work. It's I don't necessarily encourage all investors to read through the depreciation studies, but you're welcome to. It's in our publicly filed testimony. But it's a I mean, I'll get you excited. So it's a rigorous review you need to go through as part of the rate case and making sure you're getting the right level of Depreciation, the right depreciable lives for your long lived assets and that's the problem.

Speaker 7

Okay. I really appreciate it. Thanks so much.

Speaker 2

You bet. Thank you, Paul.

Operator

Thank you. That concludes the Q and A session. I will Over to David Campbell for closing remarks.

Speaker 2

Lisa, it was efficient. It's like the first round of the NFL draft, which I hope everyone enjoys in the great city of Kansas City. We appreciate all of you joining us this morning. Thank you for your interest in Evergy and have a great day. That concludes the call.

Operator

Thank you everyone for joining. You enjoy the rest of your day. Conference call has been concluded.

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Evergy Q1 2023
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