Evergy, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. The combined filing also covers wholly owned utilities Evergy Kansas Central and Evergy Metro. Evergy serves approximately 1.7 million customers in Kansas and Missouri and reports as one operating segment.
Key financial results
| Evergy consolidated | Q1 2023 | Q1 2022 |
|---|---|---|
| Operating revenue | $1,296.8 million | $1,223.9 million |
| Income from operations | $279.3 million | $253.1 million |
| Net income attributable to Evergy | $142.6 million | $122.5 million |
| Diluted EPS | $0.62 | $0.53 |
| Operating cash flow | $362.9 million | $265.1 million |
| Capital expenditures | $527.7 million | $524.7 million |
- Operating margin, calculated as operating income divided by revenue, was approximately 21.5%, versus 20.7% a year earlier. Evergy’s non-GAAP utility gross margin was $861.4 million, up $25.2 million.
- Cash used in investing activities was $496.9 million; financing activities provided $137.2 million. Operating cash flow less property additions was negative $164.8 million.
- At March 31, cash was $28.4 million. Notes payable and commercial paper were $1,748.8 million, collateralized notes payable were $365.0 million, and long-term debt including current maturities was approximately $10.24 billion. Available capacity under the master credit facility was $952.8 million. Evergy reported compliance with its debt covenants.
- Dividends paid during the quarter were $140.7 million. In May, the board declared a quarterly dividend of $0.6125 per share, payable June 20, 2023.
Changes versus the prior comparable period
- Revenue increased $72.9 million and net income attributable to Evergy rose $20.1 million. Management cited lower operating and maintenance costs, new rates for Evergy Metro and Evergy Missouri West, and the prior-year loss on an equity investment. Higher depreciation, interest expense, and warmer winter weather partly offset the improvement.
- Operating and maintenance expense fell $35.9 million, while depreciation and amortization increased $34.4 million and interest expense rose $31.3 million. Higher short-term borrowing balances and rates were a primary driver of the interest increase.
- Retail electricity sales volume declined 189 thousand MWh, with heating degree days down 11% year over year. Operating cash flow improved by $97.8 million, partly reflecting collection timing on receivables and new rates.
- Evergy’s adjusted earnings, a non-GAAP measure, were $136.1 million, or $0.59 per share, versus $129.9 million, or $0.56 per share. The adjustment categories include JEC hedge mark-to-market effects and other specified items; the measure is not a substitute for GAAP results.
Outlook, management commentary, and risks
- Rate cases: In April, Evergy Kansas Central and Evergy Metro requested Kansas retail revenue increases of approximately $204 million and $14 million, respectively. Requested rates reflect a 10.25% return on equity and a capital structure with 52% equity; decisions remain subject to regulatory review. New rates were expected to take effect in December 2023.
- Transmission rates: Updated Kansas Central transmission delivery charges effective May 2023 are expected to reduce annual retail revenue by $22.3 million versus 2022; Metro’s are expected to increase annual revenue by $4.0 million.
- Wind investment: Evergy Missouri West’s proposed purchase of an approximately 199 MW Oklahoma wind farm for about $250 million received a Missouri certificate in April, subject to conditions. Closing was expected in Q2 2023; Kansas Central was considering taking assignment and sought recovery in its rate case.
- Weather and operating factors: Management attributed lower retail sales partly to warmer winter weather. Wolf Creek’s next refueling outage was planned for Q1 2024. No full-year earnings guidance is stated in the provided filing text.
- Regulatory and environmental exposure: A Missouri Court of Appeals challenge to the financing order for Evergy Missouri West’s February 2021 winter-weather costs could delay securitization; the related regulatory asset was $313 million at March 31. EPA actions involving emissions, air-quality standards, wastewater, and coal-combustion residuals may require future compliance spending; the company says some potential costs could be material, though several impacts remain uncertain.
- Other notable items: Evergy recorded $15.9 million of pension settlement costs, with substantially all deferred to regulatory accounts for expected future recovery. A FERC order led to a $32.8 million regulatory liability in 2022 for estimated transmission over-collections; further customer challenges remained pending. Management stated market-risk exposure had not changed materially since year-end and disclosure controls were effective.
Important facts for investors to verify
- Progress and outcomes of the Kansas rate cases, including treatment of the proposed wind-farm investment and customer savings.
- Cash availability, short-term borrowing costs and balances, and refinancing needs, including the $500 million term loan due February 2024.
- Whether and when the Missouri winter-weather securitization order becomes final, and the resulting timing and recovery of the regulatory asset.
- Final exposure from FERC transmission refund challenges and the ERSP refund determination for Metro.
- Potential capital, operating, and regulatory costs from environmental rules and coal-ash corrective actions.