Evergy, Inc. — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed February 28, 2024. This is an annual report, not a standalone fourth-quarter report. Evergy is a regulated electric utility holding company serving approximately 1.7 million customers in Kansas and Missouri. The filing also includes Evergy Kansas Central and Evergy Metro as separate registrants.
Key financial results
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Operating revenue | $5.508 billion | $5.859 billion | Down $350.9 million |
| Income from operations | $1.282 billion | $1.267 billion | Up $15.2 million |
| Net income attributable to Evergy | $731.3 million | $752.7 million | Down $21.4 million |
| Diluted EPS | $3.17 | $3.27 | Down $0.10 |
| Adjusted earnings and adjusted EPS (non-GAAP) | $815.6 million; $3.54 | $853.8 million; $3.71 | Both declined |
| Operating cash flow | $1.980 billion | $1.802 billion | Up $178.3 million |
| Capital expenditures | $2.334 billion | $2.167 billion | Up $167.5 million |
Utility gross margin, a non-GAAP measure, was $3.711 billion, down $4.1 million. GAAP gross margin decreased $118.9 million to $1.726 billion. Cash from operations was below capital expenditures by approximately $354 million, before acquisitions and other investing activity.
At year-end, total assets were $30.976 billion and equity was $9.685 billion. Long-term debt, net of discounts and adjustments, was $11.053 billion, plus $800 million of current maturities. Commercial paper was $951.8 million and collateralized notes payable were $342.0 million. Cash and cash equivalents were $27.7 million. Evergy reported approximately $1.55 billion of available capacity under its $2.5 billion master credit facility and stated that cash and available borrowing capacity were sufficient for existing capital requirements. Debt represented 55% of capitalization excluding short-term debt, compared with 52% in 2022.
Changes and drivers
- Revenue fell 6.0%, with retail electricity sales down 1.171 billion kWh and wholesale sales down 1.968 billion kWh. Management attributed lower retail sales primarily to unfavorable weather; cooling degree days fell 6% and heating degree days fell 13% across the service territories.
- Lower fuel and purchased-power costs, reduced operating and maintenance expense, new rates at Evergy Metro and Evergy Missouri West, and lower income tax expense partly offset the revenue decline.
- Operating and maintenance expense decreased $140.0 million, while depreciation and amortization increased $147.1 million, primarily from rate changes and capital additions. Interest expense rose $121.8 million, including higher short-term borrowing costs and new debt.
- 2023 GAAP revenue included a $96.5 million deferral for future customer refunds related to corporate-owned life insurance rate credits. Adjusted earnings exclude this and other specified items; adjusted results are non-GAAP and not directly comparable to GAAP results without considering the company’s reconciliation.
- Evergy acquired the 199 MW Persimmon Creek wind farm for approximately $220.9 million. Its Kansas rate settlement provides for a fixed annual revenue requirement of $18.6 million for the first 20 years.
Outlook, risks and notable items
- Evergy targets approximately $12.5 billion of base capital investment through 2028, including approximately $2.9 billion for new generation expected to be primarily renewable and other generation. Annual capital spending is forecast to rise to $3.2 billion in 2028.
- Management’s strategy emphasizes affordability, reliability and sustainability. Goals include a 70% reduction in owned-generation CO2 emissions from 2005 levels by 2030 and net-zero Scope 1 and 2 CO2e emissions by 2045; achievement depends on technology, transmission, reliability and policy factors outside the company’s control.
- In February 2024, Evergy Missouri West requested a $104 million retail revenue increase, with new rates expected in January 2025. The request includes infrastructure investment and costs associated with natural gas generation.
- Evergy Missouri West issued $331.1 million of securitized bonds in February 2024 to recover eligible costs from the February 2021 winter weather event. The bonds are repaid through customer charges and are without recourse to the utility’s general credit.
- Evergy has $800 million of senior notes classified as current maturities due in 2024. Verify repayment or refinancing plans and the resulting interest costs.
- Credit rating agencies downgraded Evergy and certain subsidiaries in 2023; outlooks were stable as of February 2024. Risks include regulatory cost recovery and rate-setting delays, inflation and supply-chain constraints, weather and demand volatility, environmental compliance costs, generation and grid reliability, cybersecurity, pension funding and nuclear operations at Wolf Creek.
- The filing identifies environmental matters with potentially material but unquantified compliance costs, including proposed or evolving rules on emissions, coal combustion residuals and air quality. Evergy says its operations are in substantial compliance with current environmental standards; actual impacts of several proposed requirements remain uncertain.
- The independent auditor gave an unqualified opinion on the financial statements. Evergy management and the auditor concluded internal control over financial reporting was effective; the principal critical audit matter was the judgment involved in accounting for regulatory assets and liabilities.
Investor facts to verify
- How the $800 million 2024 maturity was repaid or refinanced, and the effect of higher interest rates on financing costs and credit metrics.
- Whether forecast capital spending, especially the generation and transmission program, remains on schedule and is recoverable in customer rates.
- Progress and final regulatory outcomes for the Missouri rate case, Dogwood and Crossroads generation plans, and unresolved transmission and environmental proceedings.
- Whether weather-normalized customer demand, operating costs and rate actions support earnings recovery after the 2023 decline; compare GAAP and management’s non-GAAP adjusted results.
- Cash generation relative to capital expenditures, dividend needs and debt issuance, including the holding company’s reliance on subsidiary dividends and applicable covenants.
- Whether emissions targets and reliability commitments remain achievable as generation resources change and environmental requirements evolve.