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Evergy Q1 2023 Earnings Call Transcript


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Participants

Corporate Executives

  • Peter Flynn
    Director, Investor Relations
  • David Campbell
    President and Chief Executive Officer
  • Kirkland Andrews
    EVP and Chief Financial Officer

Analysts

Presentation

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 session. [Operator Instructions] 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. You may go ahead.

Peter Flynn
Director, Investor Relations at Evergy

Thank you, Lisa, and good morning, everyone. Welcome to Evergy's first quarter 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. 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, President and Chief Executive Officer; and Kirk Andrews, Executive Vice President and Chief Financial Officer. David will cover our first quarter highlights, provide regulatory and legislative updates and discuss our ESG progress. Kirk will cover in more detail the first-quarter results, retail sales trend and our financial outlook for the year. 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.

David Campbell
President and Chief Executive Officer at Evergy

Thanks, Pete, and good morning, everyone. I'll begin on slide five. 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&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 the 2022 results to the first quarter this year. These improvements are a testament to the work of the entire Evergy team. I'd like to thank my fellow employees for their unwavering commitment to safety.

With the solid start to the year, we are reaffirming our 2023 adjusted EPS guidance range of $3.55 to $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 six and seven, I'll discuss our recently filed Kansas rate reviews, beginning with Kansas Central on slide six. On April 25th, we filed an application requesting a $204 million revenue increase premised on a 10.25% return-on-equity, a 52% equity ratio and a projected $6 billion rate base, as of the proposed June 30, 2023 true update.

As shown on slide seven in Kansas Metro, we requested a $14 million revenue increase premised on 10.25% return-on-equity, a 52% equity ratio and a projected $2.6 billion rate base as of the proposed June 30th true update. We believe these rate requests are straightforward and reflect the communications we've had with our Kansas regulators and stakeholders, and 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 onto our customers the benefits of the substantial cost-savings we've a peeved since the merger that formed Evergy 5 years ago.

Across our two Kansas jurisdictions, these cost-savings reduce the combined revenue increase request by 31st 37%. We are pleased that the hard work of the Evergy team resulted in cost savings that are significantly higher than projected during the merger approval process. 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 eight-months schedule, so new rates will go into effect by year-end 2023. We'll provide an updated timeline when a procedural schedule had 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.

Moving on to slide eight, I'll provide an update on our other regulatory and legislative priorities. In Kansas, Governor Kelly's signed House Bill 2025 into law in April, and will become effective in 2024. The bill includes provision that matches the return-on-equity for our locally planned FERC transmission projects, so the return-on-equity established by the state for our other infrastructure investments. This law. specifically to current and future transmission projects that are not subject to notice that notifications to construct from the, southwest Power Pool.

HB 2025 keeps our transmission delivery charge rider mechanism or TDC, unchanged and fully intact. This bill provides savings to customers and was a product of constructive dialog with Kansas regulators, legislators and other stakeholders.

In Missouri, the order of approving our request to securitize extraordinary costs from winter storm Yuri is in the state appellate process. We believe the Commission's decision and 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 issued the debt. We anticipate resolution later this year.

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 and our next Missouri rate case. The bill has passed out of 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 enhance state oversight of transmission and improve the consistency of transmission operations and planning, referred to in short-hand as Right of First Refusal Legislation, continues to be an area of focus.

The benefits of this legislation are reflected by similar laws that are in effect in the majority of states across our region. However, as Missouri legislative session is scheduled to adjourn on May 12th, 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 eight, 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 in 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 nine, I'll profile another element of our corporate strategy relating to environmental, social and governance measures. We continue to enhance our ESG practices and disclosures. And our efforts have been recognized and reflected in significant improvements in third-party ESG ratings for Evergy.

For example, slide nine 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 first 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 risks. Over-time, we expect this effort to support the optimization of our grid investment priorities, utilizing a common framework around cost-benefit analysis, risk mitigation and adaptation strategies.

Finally, we continue to integrate climate-related risks into our enterprise risk management system. 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 tenants 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. 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 in reliability, customer service in 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 in 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 life. We recognize the responsibility that comes with our role and we embrace the challenge of delivering power, the cost and service-level that our customers expect and demand.

With respect to sustainability, we continue to advance the transition of our generation fleet, a process that has been underway for two decades. Since 2005, we 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 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.

And with that, I will now turn the call over to Kirk.

Kirkland Andrews
EVP and Chief Financial Officer at Evergy

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 2023, Evergy delivered adjusted earnings of $136 million or $0.59 per share, and that's compared to $130 million or $0.56 per share in the first quarter of 2022.

As shown on the slide from left to right, the year-over-year increase in first quarter adjusted EPS was driven by the following. First, mild winter weather resulted in approximate 11% decrease in heating degree days compared to last year, driving an $0.08 decrease in EPS. Strong weather-normalized demand of 2.1%, 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 million decrease in O&M drove a positive $0.12 variance year-over-year. This was partially the result of timing of O&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.

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 roll-through the year, consistent with the assumptions in our guidance. And finally, other items, both positive 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 this slide, you'll see that total retail sales increased 2.1% over the first quarter of 2022, driven primarily by increases in both residential and commercial uses.

The decrease in industrial demand is primarily attributable to two 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 strong local labor market, with Kansas and Kansas City Metro area unemployment rates of 2.7% and 2.9% respectively, which remain below the national average of 3.6%.

I'll conclude my remarks to slide 14. Our focus remains on continuing to demonstrate a strong track record of execution. As David mentioned earlier, based on solid first quarter 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.

Questions and Answers

Operator

Thank you. [Operator Instructions] First question is coming from Shahriar Pourreza of Guggenheim. Your line is open.

Shahriar Pourreza
Analyst at Guggenheim Securities

Hey guys, good morning.

David Campbell
President and Chief Executive Officer at Evergy

Good morning, Shah.

Shahriar Pourreza
Analyst at Guggenheim Securities

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

David Campbell
President and Chief Executive Officer at Evergy

So, I'll start off and ask Kirk to supplement. We think the Persimmon Creek asset is a great asset, given the overall cost and its size. It's we think the best value. It's 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 continue 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 RP. We think it's a great resource for our customers. So as noted, it was included in our filing on April 25th. It will go through the process. And so, we'll -- along with our other infrastructure investments that we've included.

The -- your question on EPS, given that it's rolling through the Kansas jurisdiction, which doesn't have the same piece of requirements, we won't see the earnings contribution in 2023. We'll have a very similar profile in the following years.

Shahriar Pourreza
Analyst at Guggenheim Securities

Got it.

David Campbell
President and Chief Executive Officer at Evergy

And again, we think it's a great asset.

Shahriar Pourreza
Analyst at Guggenheim Securities

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

David Campbell
President and Chief Executive Officer at Evergy

So, Shahr, that's a question we get from many investors. As you can guess, if we filed it on April 25th, probably the -- 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. There are many major generation retirements. 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 dialogs. This certainly 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 three years.

Starting with the STP workshops, as you noted, in 2020 and continuing even to the capital workshop that we had in December. And those were multi-hour workshops attended by all three commissioners the whole time, and it included forward projections on rates. And what we filed is in line with what we laid out in those proceedings.

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 we certainly hope that we have a constructive dialog that enables the settlement as we advance through the year. Eight month timeline, as I mentioned, so that rates will go into effect in December and a lot of the crescendo happens in the fall time frame.

Shahriar Pourreza
Analyst at Guggenheim Securities

Got it, perfect. And then just real quick lastly from me, it's just the ROE tweak from the TDC bill that passed in Kansas, it 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? I appreciate it.

David Campbell
President and Chief Executive Officer at Evergy

So, it is a pretty modest impact, Shahr, 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 reflecting a constructive dialog. The initial proposal that was issued was to remove the TDC mechanism. But there are concerns by some of why have a different mechanism in place and a lower level of state oversight.

So, we're able to get an accommodation that enhance date oversight of transmission, there is [Phonetic] equivalence in the return on equity for different sites, infrastructure investments, but keeps TDC mechanism in place. So, we thought it was constructive outcome overall and one that's very manageable. And as -- it was a sensible approach as we head into 2023 in the rate case here and we are glad we're able to work with parties to get to that outcome.

Shahriar Pourreza
Analyst at Guggenheim Securities

Fantastic, guys. I appreciate it, very clear-cut. Thank you.

David Campbell
President and Chief Executive Officer at Evergy

Thanks, Shahr.

Operator

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

Michael Sullivan
Analyst at Wolfe Research

Hey, good morning.

David Campbell
President and Chief Executive Officer at Evergy

Good morning, Michael.

Michael Sullivan
Analyst at Wolfe Research

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

David Campbell
President and Chief Executive Officer at Evergy

So, actually Kirk, you want to take that one? They've been hearing from me for a bit. You want to build it?

Kirkland Andrews
EVP and Chief Financial Officer at Evergy

Sure. Michael, good morning. Look, it's early in the year. We had a strong start to the quarter. We've re-evaluated and kind of reset our expectations for the year, including net impact of at least the depth delay, albeit really -- relatively mild delay in terms of realization [Indecipherable] Persimmon Creek. We feel confident we've got means at our disposal to offset that through a number of means.

Obviously, we're pleased with the performance on O&M year-to-date. I mentioned earlier, some of that is 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.

David Campbell
President and Chief Executive Officer at Evergy

Yeah, Michael, I'd just note that we had a very mild winter, you saw it across the Midwest. And we're fortunate that we're able to offset that. We're pleased with the solid quarter. I know it -- 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 be -- that's something to manage over the course of the year. We -- the team did a real nice job managing it in the context of the quarter. So, we feel good about the year and reaffirming our guidance range.

Michael Sullivan
Analyst at Wolfe Research

Okay, great. And on the IRP, I know that's 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?

David Campbell
President and Chief Executive Officer at Evergy

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, because the combination of -- we didn't include the kind of renewables incentives you see in the IRA in their last RFP update, that law was in effect. So, that's the 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 some offsets there.

So, beneath the surface there are significant changes in assumptions or 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 it -- hey, there's potential volatility in natural gas.

So there are lot of different factors, but when you -- so to run them through the modeling process which is still ongoing, it reinforces the value of renewables over-time and a lot of it comes down to availability of 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 it absolutely remains -- in the near-term it's about supply-chain, what's that impact in terms of resources that are available sooner rather than later.

Now, some elements that will change in the future, there's a number of different EPA bills. Our EPA rules that are in the mix right now, a couple -- close of an issue, others have been press reports around, so I would not expect this IRP to reflect the greenhouse gas, those all 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, I expect, a relative value of adding lower-cost resource in the system. I think it will also further reinforce the importance of capacity. The one thing from last year that has changed is -- and there the benefits of having capacity are even higher. We've also seen increases in-demand.

So long-winded way -- I'm not giving you new numbers, but the dynamics that support the value to customers of adding renewables, the system are there may be 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 -- when we issued the IRP.

Michael Sullivan
Analyst at Wolfe Research

Okay, that's very helpful. Yeah, the -- and 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 proving 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 foremost?

David Campbell
President and Chief Executive Officer at Evergy

Yeah, we look at the lowest overall cost in terms of net present value, 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-year to 30-year model, so it's complicated. Our 15-year to 20-year model, so there's a lot of it, but that's what it comes down to, is what's going to deliver the best value for our customers while ensuring reliability.

Michael Sullivan
Analyst at Wolfe Research

Great, thanks a lot.

David Campbell
President and Chief Executive Officer at Evergy

Thank you.

Operator

Thank you. One moment while we prepare for the next question. And again, please wait for your name to be announced before you proceed with your question. And the next question is coming from Durgesh Chopra of Evercore ISI. Your line is open.

Durgesh Chopra
Analyst at Evercore ISI

Hey, good morning, team. It's 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? If not, I'll just follow-up with Pete. Thank you.

David Campbell
President and Chief Executive Officer at Evergy

Yeah, I guess it was a few $100 million by which we exceeded, several $100 million overall. Now, that's a core -- across the corporate enterprise and it's a tremendous result that was achieved by our employees. We can get to the exact number, several $100 million in excess to what was initially predicted if you look at the cumulative savings over the 5 years.

Durgesh Chopra
Analyst at Evercore ISI

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.

Dariusz Lozny
Analyst at Bank of America Merrill Lynch

Hey guys, good morning. It's Dariusz on for Julien. 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 any learning/takeaways or maybe modifications to your approach that -- from the Missouri processes that you think are applicable as you head into the Kansas process?

David Campbell
President and Chief Executive Officer at Evergy

Good morning, Dariusz. Hey, you're going to have to make sure you're name leads offer. I keep sees Dariusz on behalf of Julien. Julien has got to share the light. It's great question. I think there are some distinguishing elements between Missouri and Kansas, but there's always things you can learn. In Missouri, we had 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 plant in-service accounting rules, which had a cost cap that had a commodity price surge, had impact in Missouri West. So, some pretty complicated legacy issues that were impacted. No, we don't face it in Kansas.

In Missouri, we reached a constructive settlement on key economic issues in our metro jurisdiction, which is the bigger of our two jurisdictions in Missouri, simply in the piece of legislation had the biggest impact in Missouri West. So, the settlement that we reached in Metro is a good template for what we're going to be seeking in Kansas. And in Kansas, we have the benefit of even more extensive dialogs There are STP workshop in both states but the ones in Kansas were -- you probably listened to them, they were more -- quite in-depth and thorough and involved Commissioner, staff, CURB and other stakeholders.

So a rate case in Kansas is even more well-situated in terms of the constructive dialog. It's pretty straightforward in settlements. But we strive for trying to get to common ground in the settlements where we can. And I think Missouri Metro is good template for that. And this setup is also more amenable for -- than that we have little less complexity. It has been 5 years. But again, the range of things that we're bringing is little more straightforward.

And as a reminder, in Kansas transmission the rate case is 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 dialog. We think the case setup is one that will enable a good constructive dialog with the key participants.

Dariusz Lozny
Analyst at Bank of America Merrill Lynch

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

Kirkland Andrews
EVP and Chief Financial Officer at Evergy

Sure, Dariusz, it's Kirk, good morning. I'd mentioned on the call, yes, we -- our industrial sales are a little bit down. It was largely result of to 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 two customers. The other one had a planned outage this quarter. But for those two customers in the industrial sector, our industrial demand was up year-over-year excluding those two refining customers.

David Campbell
President and Chief Executive Officer at Evergy

Overall, we're pleased with the ongoing demand trajectory, especially on the residential and commercial side. In the industrial, as Kirk mentioned, we can actually isolate it down to two customers.

Dariusz Lozny
Analyst at Bank of America Merrill Lynch

Okay, excellent. Thank you for the color. I'll pass it along here.

David Campbell
President and Chief Executive Officer at Evergy

Great, thank you, Dariusz.

Kirkland Andrews
EVP and Chief Financial Officer at Evergy

Thanks, Dariusz.

Operator

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

Paul Patterson
Analyst at Glenrock Associates

Hey, good morning guys.

David Campbell
President and Chief Executive Officer at Evergy

Good morning, Paul.

Paul Patterson
Analyst at Glenrock Associates

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 in this 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 it?

David Campbell
President and Chief Executive Officer at Evergy

Sure, Paul and you're -- 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 is an appropriate amount that should be -- labor that should we capitalized and a robust methodology that we know the utilities follow.

So we're applying that. I think you saw, for example, in our Wolf Creek plant there was a little bit higher capitalization rate, the latent activity that was underway. Our overall trajectory in terms of O&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 that are in place in that regard.

So, it's reflected in our plans and it's underpinned by the rigorous application and the appropriate accounting processes. So -- but I think that what you noticed was in particular driven by some projects at Wolf Creek, our nuclear plant.

Paul Patterson
Analyst at Glenrock Associates

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 that is a permanent change I guess, if I'm gathering that correct. It's associated with a specific sort of project activity.

David Campbell
President and Chief Executive Officer at Evergy

Yes, that's right.

Paul Patterson
Analyst at Glenrock Associates

And that was...

David Campbell
President and Chief Executive Officer at Evergy

Yeah, that's right, Paul. We -- it did reflect the activities that are underway and the application of the relevant rules that are in place.

Paul Patterson
Analyst at Glenrock Associates

Okay, and...

David Campbell
President and Chief Executive Officer at Evergy

We're looking at it and making sure we're following the right approach. If you think about being in an industry like ours, that we're well-benchmarked, we got a great support from our accounting team and our external auditors, so well-established approach is taken that regard and best practices.

Paul Patterson
Analyst at Glenrock Associates

No, I -- absolutely. I guess, I was just wondering that 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, is it just over the life of plan or is it something that -- is it sort of like an account that gets amortized over short -- just sort of...

David Campbell
President and Chief Executive Officer at Evergy

Yeah, it really depends on what they're -- yeah, it depends on what they're working on. It's related to an average. It will be a different -- I mean, in other words -- and it gets down to every single project. It's also probably [Speech Overlap] able to get through the hunderds in this, Paul, but it always relates to the work that's underway. And some are shorter, some are longer, it's just the nature of the work.

Paul Patterson
Analyst at Glenrock Associates

Absolutely. Okay, that's great. And then just on the rate case, Persimmon 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 what was -- if I was correct in reading that? Is there a reason why it wasn't allocated to both, I guess?

David Campbell
President and Chief Executive Officer at Evergy

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

Paul Patterson
Analyst at Glenrock Associates

Okay. And then finally, on the depreciation rate change, was there -- I was just wondering -- I mean, I apologize, I read 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 -- is there a life issue there that's specific or is it just basically just updating the depreciation rate? Do you follow [Technical Issues]?

David Campbell
President and Chief Executive Officer at Evergy

I do follow. I think the -- so we did depreciation study that typically happens in rate cases, especially if there has been a relatively long gap. So, this reflects depreciation studies that we've done, it's been 5 years since our last rate review. So, pretty standard process. You bring in an outside expert, you review that work. It's just -- I don't necessarily encourage all investors to read-through the depreciation studies, but you're welcome to it in our publicly-filed testimony, but it's -- I mean I'll keep side.

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 [Speech Overlap].

Paul Patterson
Analyst at Glenrock Associates

Okay. I really appreciate it. Thank you so much.

David Campbell
President and Chief Executive Officer at Evergy

You bet. Thank you, Paul.

Operator

Thank you. That concludes the Q&A session. I'll [Technical Issues] the call over to David Campbell for closing remarks.

David Campbell
President and Chief Executive Officer at Evergy

Thank you, Lisa. It was efficient. It's like the first round of the NFL Draft, which I hope everyone enjoyed from 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

[Operator Closing Remarks]

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