Great Plains Energy Earnings Call Insights: Load Growth Trend and La Cygne

Great Plains Energy Inc (NYSE:GXP) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Load Growth Trend

Ali Agha – SunTrust Robinson Humphrey: I wanted to get a little more insight on the load growth trend. I know its flat year-to-date, but it was up 0.6% in the first quarter and then actually negative 0.8% in the second quarter. Can you talk a little bit more about the dynamic quarter-over-quarter there?

Terry Bassham – President and CEO: Our residential growth was a little bit stronger in the first quarter, we were up 3.5%. We did see some continued growth in the second quarter. So we are also seeing, we saw more positive trend develop in industrial with a little fallback in commercial. But sitting at basically flat through the first six months of the year and a lot of the positive indicators that we are seeing, we feel pretty good about seeing some growth in the second half of the year.

Ali Agha – SunTrust Robinson Humphrey: The slowdown of the negative numbers in the second quarter, you don’t think are cause for concern for the second half.

Terry Bassham – President and CEO: No.

Ali Agha – SunTrust Robinson Humphrey: Okay. My second question on the O&M cost front given the program that you have under way internally, how should we be thinking about O&M growth from these ’13 level should we think of them growing with inflation, flat, below inflation how should we overall be thinking about O&M from these levels?

Terry Bassham – President and CEO: Again, what we’ve talked about here is that we’ve managed basically flat for the year, down from kind of the expectations if you will. Some of that’s timing, some of it we’ve got some expense in the back half of the year that we would expect to spend, but obviously, we are managing that down as well as we can, so I wouldn’t tell you we would be flat year-over-year, but I do think we are going to be below what maybe we expected at the beginning of the year through some strong cost management…

Ali Agha – SunTrust Robinson Humphrey: From that ’13 base wherever you end up, assuming these programs are ongoing in nature, what sort of O&M growth beyond ’13 should we be thinking about for your portfolio?

Terry Bassham – President and CEO: I think we would expect some small amount of growth, but – so I couldn’t tell you that we expect to be able to stay completely flat, but we don’t expect to see a whole lot of growth. I would expect it to be inflation or better from that perspective going forward.

Ali Agha – SunTrust Robinson Humphrey: My last question, as far as regulatory lag, I mean, that’s obviously been a big focus of yours. Just looking at the timing of your rate cases presumably the next big round comes up mid-15 filing for ’16 increases, should we think about ’16 as the next year when we should see a big dent in the lag and should the next big rate case cycle be very similar to the last couple we’ve seen. Can you give us some insight on how we should be thinking about that lag going forward?

Terry Bassham – President and CEO: Sure. Let me see if I can address your question. First of all, I mean, I think, given our O&M performance on the year, it’s clear that we are managing lag very well from an O&M expense perspective. Again, with growth that’s flat to 1%, we shouldn’t have a lag related to revenue. So, those two things I think half way through the year show a great indication of us managing exactly as we said we would do. As we move forward, we’ll be following our abbreviated rate case in Kansas later this year to bring CWIP up to date on the La Cygne project and then we will be moving forward the rate case for ’15, ’16 as you described on La Cygne in service and a series of other cost related to solar and other things like that which provide us some cash lag but don’t provide earnings lag. So, again I think our plan is to be exactly as we said which is to manage that lag through the next couple of years, but as we get closer to rate case, obviously we’ll bring up to date any cost for that rate case that need to be included such that we don’t have additional lag movement forward. And I’ll also remind you that in that cast, we would also ask for a fuel factor at KCP&L to eliminate the risk around lag related to that from that perspective as well…

Ali Agha – SunTrust Robinson Humphrey: And Terry the size of that next – I know you are a couple of year away from that, but should we assume for modeling purposes similar size to what we saw last round of rate cases?

Terry Bassham – President and CEO: You know I don’t think I could say that. It’s uncertain because of factors driving the coming rate case are different than in the past. We certainly have La Cygne which will be – and however, but remain we’re talking 615 million on a much larger rate base than maybe past cases you’ve seen. And then the other drivers for that rate case are probably more likely to be some of the true-ups around solar and other things that are not in the traditional rate cases we’ve had in the past. So, as we sit here today with a 2015 filing, I don’t think I could tell you yet exactly what the range of increase would be, but obviously it will bring everything up to date current at that point.

 

La Cygne

Charles Fishman – Morningstar: If we go to Slide 5, and I am trying to compare that to, I mean that’s a similar slide to what you showed in the past. And I just want to make sure I understood what you said. The $700 million on the top bullet point that’s just La Cygne.

Terry Bassham – President and CEO: The $700 million is $615 million of La Cygne and then additional balance $85 million of additional cost related to I believe Sibley is what – there have been some miscellaneous of things that would need to be spent by that time period…

Charles Fishman – Morningstar: What happened to Montrose? The one unit at Montrose, is that down below now in the (600 to 800)?

Scott Heidtbrink – EVP and COO, KCP&L: In that balance that Terry talked about, $700 million two of the Montrose units would have some minor electrostatic precipitator rebuilds and activated carbon injections. The long term in IRP that we filed one of the Montrose units would be retired in 2016 and then the others in the early 2020.

Charles Fishman – Morningstar: So the one unit at Montrose is that getting under this plan that’s less capital that’s going in than originally planned or…

Terry Bassham – President and CEO: Let me just – so we can premise the questions. Remember that this is our current view based upon our filing in Missouri which we are required to make and given if the rules worked out exactly the way we see them today and the cost worked out the way we’d see them today. These are the changes we would see, I’ll just continue to stress the flexibility around those, and as rules get completed and costs get finalized, those could move around some, but you are right, that would suggest that we would shut down one unit which we had not planned originally as early.

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