Evergy, Inc. — Q3 2022 Form 10-Q
Business context and reporting period. This combined, unaudited filing covers the quarter and nine months ended September 30, 2022, for Evergy, Inc. and its utility subsidiaries Evergy Kansas Central and Evergy Metro. Evergy serves approximately 1.7 million customers in Kansas and Missouri through regulated electric generation, transmission and distribution operations. Unless noted, figures below are for consolidated Evergy and in millions of dollars.
Financial performance
| Metric | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 |
|---|---|---|---|---|
| Operating revenue | $1,909.1 | $1,616.5 | $4,579.5 | $4,464.6 |
| Operating income | $578.4 | $600.7 | $1,167.0 | $1,213.7 |
| Net income attributable to Evergy | $428.2 | $449.4 | $745.2 | $826.3 |
| Diluted EPS | $1.86 | $1.95 | $3.23 | $3.60 |
| Utility gross margin (non-GAAP) | $1,184.5 | $1,187.1 | $2,971.4 | $2,972.8 |
Q3 revenue rose 18.1%, while net income attributable to Evergy fell 4.7%. Revenue growth reflected higher retail sales, wholesale revenue and transmission revenue; reported revenue also includes fuel and other amounts substantially affected by recovery mechanisms. Utility gross margin, management’s non-GAAP measure, was nearly flat in both periods. YTD diluted EPS and net income declined notably versus 2021.
- Cash flow: YTD operating cash flow was $1,477.7, versus $1,036.0. Capital expenditures were $1,614.6, up from $1,394.7; operating cash flow less those additions was negative $136.9. Financing cash flow was $145.9. Cash and cash equivalents were $24.7 at quarter-end.
- Debt and liquidity: At September 30, long-term debt, including current maturities, had a book value of $9,546.7. Notes payable and commercial paper were $1,722.3, and collateralized short-term borrowings were $395.0. Evergy reported $1,276.9 of available capacity under its $2.5 billion master credit facility and had drawn $500.0 under a term loan due February 2023. The companies reported compliance with applicable debt covenants.
- Margins and costs: Q3 fuel and purchased-power expense increased $287.2 year over year; YTD it increased $91.3. Management said these costs are largely recovered through customer mechanisms. Higher depreciation, property taxes and interest expense weighed on results. The YTD effective income tax rate was 9.9%, compared with 10.7% in 2021.
Material changes, outlook and risks
- Sibley Station: Based on regulatory developments and the Missouri staff’s position, Evergy judged a refund of previously collected return on the retired Sibley Station to be probable. It deferred $47.5 of revenue in Q3, taking the related regulatory liability to $84.7, and recorded a $6.0 impairment charge. The remaining Sibley regulatory asset was $25.6 after offsets and other adjustments. The final treatment depended on the Missouri rate-case order and could differ significantly from recorded amounts.
- February 2021 winter weather costs: In October 2022, after quarter-end, the Missouri commission authorized Evergy Missouri West to securitize eligible costs. The order allows recovery of 95% of extraordinary costs, carrying charges at 5.06%, and repayment over 15 years, with 17-year legal maturity. The related regulatory asset was $303.1 at September 30; bond issuance was expected in the first half of 2023.
- Rate proceedings: Partial stipulations approved in September provided for proposed revenue increases, after fuel rebasing, of $25.0 for Evergy Metro and $42.5 for Evergy Missouri West, subject to unresolved issues and final orders then expected in November 2022. New rates were expected in December. Kansas transmission delivery charge updates were expected to increase annual revenue by $20.4 for Evergy Kansas Central and $7.9 for Evergy Metro versus 2021.
- Investment and operations: Evergy Missouri West agreed to buy an operating Oklahoma wind farm of approximately 199 MW for about $250, subject to approvals, with closing expected in the first half of 2023. Wolf Creek’s refueling outage began in October 2022, with return to service expected in November.
- Dividends: In November 2022, Evergy declared a quarterly dividend of $0.6125 per share, payable December 20, 2022. The filing also describes subsidiary dividends payable to Evergy.
- Environmental and other risks: Potential future air, greenhouse-gas, water and coal-ash requirements could have material compliance costs, which the company said it could not reliably estimate. Management reported no material changes to previously disclosed risk factors and no material change in market-risk exposure. No specific updated full-year earnings guidance is stated in the provided filing text.
Management’s adjusted earnings and adjusted EPS are non-GAAP measures that exclude selected items, including Sibley effects, the Sibley impairment, certain investment losses and other specified costs. Adjusted EPS was $2.01 for Q3 and $3.43 YTD, versus recast $1.97 and $3.35, respectively, in 2021; these figures should not be treated as substitutes for GAAP results.
Important facts for investors to verify
- Final Missouri rate-case treatment of Sibley, including the refund obligation, recoverability of the remaining asset and any further impairment.
- Actual securitization proceeds, timing, financing terms and customer bill impacts for the 2021 winter-weather costs.
- Final rate orders and whether the proposed revenue increases and transmission updates are implemented as expected.
- Funding needs and refinancing plans for the $500.0 term loan due February 2023, alongside rising short-term borrowing costs and planned capital spending.
- Wind-farm purchase approvals, closing conditions and total investment; and the timing and operating impact of Wolf Creek’s return from outage.
- Potential costs from environmental regulation and coal-combustion-residual obligations, which could be material but are not quantified clearly in the filing.