Washington, D.C. 20549
|
| | | |
818 South Kansas Avenue, Topeka, Kansas 66612TABLE OF CONTENTS |
| | (785) 575-6300 | Page Number |
(Address, including Zip code and telephone number, including area code, of registrant’s principal executive offices) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company (as defined in Rule 12b-2 of the Act).
Large accelerated filer X Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No X
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
| | | | Common Stock, par value $5.00 per share | | 142,094,176 shares | (Class) | | (Outstanding at October 25, 2017) |
TABLE OF CONTENTS
| | | | | | | | | Page | | Item 1. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Note 1: | | | | | Note 2: | | | | | | | | | | | | Note 3: | | | | Note 4: | | | | Note 5: | | | | Note 6: | | | | Note 7: | | | | Note 8: | | | | Note 9: | | | | Note 10: | | | | Note 11: | | | | Note 12: | | | | Note 13: | | | | Item 2. | | | | Item 3. | | | | Item 4. | | | | | | | | | | | | | | Item 1. | | | | Item 1A. | | | | Item 2. | | | | Item 3. | | | | Item 4. | | | | Item 5. | | | | Item 6. | | | | | | | | | | |
CAUTIONARY STATEMENTS REGARDING CERTAIN FORWARD-LOOKING INFORMATION Statements made in this report that are not based on historical facts are forward-looking, may involve risks and uncertainties, and are intended to be as of the date when made. Forward-looking statements include, but are not limited to, statements relating to the expected financial and operational benefits of the merger of Great Plains Energy Incorporated (Great Plains Energy) and Westar Energy that resulted in the creation of Evergy (including cost savings, operational efficiencies and the impact of the merger on earnings per share), cost estimates of capital projects, dividend growth, share repurchases, balance sheet and credit ratings, rebates to customers, the outcome of regulatory and legal proceedings, employee issues and other matters affecting future operations. In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the Evergy Companies are providing a number of important factors that could cause actual results to differ materially from the provided forward-looking information. These important factors include: future economic conditions and any related impact on sales, prices and costs; prices and availability of electricity in wholesale markets; market perception of the energy industry and the Evergy Companies; changes in business strategy or operations; the impact of unpredictable federal, state and local political, legislative, judicial and regulatory actions or developments, including deregulation, re-regulation and restructuring of the electric utility industry; decisions of regulators regarding rates that Westar Energy and KCP&L (or other regulated subsidiaries of Evergy) can charge for electricity; changes in applicable laws, regulations, rules, principles or practices, or the interpretations thereof, governing tax, accounting and environmental matters, including air and water quality and waste management and disposal; changes in the energy trading markets in which the Evergy Companies participate, including retroactive repricing of transactions by regional transmission organizations (RTO) and independent system operators; the impact of climate change, including reduced demand for coal-based energy because of actual or perceived climate impacts and the development of alternate energy sources; financial market conditions and performance, including changes in interest rates and credit spreads and in availability and cost of capital and the effects on derivatives and hedges, nuclear decommissioning trust and pension plan assets and costs; impairments of long-lived assets or goodwill; credit ratings; inflation rates; effectiveness of risk management policies and procedures and the ability of counterparties to satisfy their contractual commitments; impact of terrorist acts, including cyber terrorism; ability to carry out marketing and sales plans; weather conditions, including weather-related damage and the impact on sales, prices and costs; cost, availability, quality and timely provision of equipment, supplies, labor and fuel; the inherent uncertainties in estimating the effects of weather, economic conditions, climate change and other factors on customer consumption and financial results; ability to achieve generation goals and the occurrence and duration of planned and unplanned generation outages; delays in the anticipated in-service dates and cost increases of generation, transmission, distribution or other projects; the Evergy Companies' ability to successfully manage their transmission and distribution development plans and transmission joint ventures; the inherent risks associated with the ownership and operation of a nuclear facility, including environmental, health, safety, regulatory and financial risks; workforce risks, including increased costs of retirement, health care and other benefits; the possibility that the expected value creation from the merger will not be realized, or will not be realized within the expected time period; difficulties related to the integration of the two companies; disruption from the merger making it more difficult to maintain relationships with customers, employees, regulators or suppliers; the diversion of management time; and other risks and uncertainties. This list of factors is not all-inclusive because it is not possible to predict all factors. Part II, Item 1A, Risk Factors included in this report, together with the risk factors included in the Evergy Companies' combined 2018 Form 10-K under Part I, Item 1A, should be carefully read for further understanding of potential risks for the Evergy Companies. Other sections of this report and other periodic reports filed by the Evergy Companies with the Securities and Exchange Commission (SEC) should also be read for more information regarding risk factors. Each forward-looking statement speaks only as of the date of the particular statement. The Evergy Companies undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
GLOSSARY OF TERMS The following is a glossary of frequently used abbreviations or acronyms that are found throughout this report. | | | | | Abbreviation or Acronym | | Definition | 2016 Form 10-K | | Annual Report on Form 10-K for the year ended December 31, 2016 | | ACE | | Affordable Clean Energy | | AEP | | American Electric Power Company, Inc. | | AFUDC | | Allowance for funds used during constructionFunds Used During Construction | | Amended Merger Agreement | | Amended and Restated Agreement and Plan of Merger, dated as of July 9, 2017, by and among Great Plains Energy, Westar Energy, Monarch Energy Holding, Inc. and King Energy, Inc. | | ARO | | Asset retirement obligationRetirement Obligation | | ASC | | Accounting Standards Codification | | ASR | | Accelerated share repurchase | | ASU | | Accounting Standards Update | | BSER | | Best system of emission reduction | | CCRs | | Coal combustion residuals | | CAA | | Clean Air Act | CCR | | Coal combustion residual Amendments of 1990 | CO2 | | Carbon dioxide | | COLI | | Corporate-owned life insurance | | CPP | | Clean Power Plan | | CWA | | Clean Water Act | DOED.C. Circuit | | DepartmentU.S. Court of EnergyAppeals for the D.C. Circuit | | EGU | | Electric utility generating unit | | ELG | | Effluent limitations guidelines | | EPA | | Environmental Protection Agency | | EPS | | Earnings per common share | | ERISA | | Employee Retirement Income Security Act of 1974, as amended | | ERSP | | Earnings Review and Sharing Plan | | Evergy | | Evergy, Inc. and its consolidated subsidiaries | | Evergy Board | | Evergy Board of Directors | | Evergy Companies | | Evergy, Westar Energy, and KCP&L, collectively, which are individual registrants within the Evergy consolidated group | | Exchange Act | | The Securities Exchange Act of 1934, as amended | | FASB | | Financial Accounting Standards Board | | FERC | | The Federal Energy Regulatory Commission | FMBsGAAP | | First mortgage bondsGenerally Accepted Accounting Principles | | GHG | | Greenhouse gas | | GMO | | KCP&L Greater Missouri Operations Company, a wholly-owned subsidiary of Evergy | | GPETHC | | GPE Transmission Holding Company LLC, a wholly-owned subsidiary of Evergy | | Great Plains Energy | | Great Plains Energy Incorporated | HSR ActKCC | | Hart-Scott-Rodino Antitrust Improvements ActThe State Corporation Commission of the State of Kansas | JEC | | Jeffrey Energy Center | KCCKCP&L | | Kansas Corporation CommissionCity Power & Light Company, a wholly-owned subsidiary of Evergy, and its consolidated subsidiaries | | KCP&L Mortgage Indenture | | KCP&L General Mortgage Indenture and Deed of Trust dated as of December 1, 1986, as supplemented | | KDHE | | Kansas Department of Health & Environment | | KGE | | Kansas Gas and Electric Company, a wholly-owned subsidiary of Westar Energy |
| La Cygne | | | | Abbreviation or Acronym | | La Cygne Generating StationDefinition | MergerKing Energy | | Pending mergerKing Energy, Inc., a wholly-owned subsidiary of equals between WestarEvergy | | MDNR | | Missouri Department of Natural Resources | | MECG | | Midwest Energy Inc. and Great PlainsConsumers Group | | MEEIA | | Missouri Energy IncorporatedEfficiency Investment Act | | Monarch Energy | | Monarch Energy Holding, Inc. | | MPSC | | Missouri Public Service Commission of the State of Missouri | NAAQSMW | | Megawatt | | MWh | | Megawatt hour | | NAAQs | | National Ambient Air Quality Standards | | NAV | | Net Asset Value | NDT | | Nuclear Decommissioning Trust | NOxNO2 | | Nitrogen oxidesdioxide | | NRC | | Nuclear Regulatory Commission | NSPSNSR | | New Source Performance Standardsource review | | OPC | | Office of the Public Counsel | | PISA | | Plant-in service accounting | | PM | | Particulate matter | RECAPrairie Wind | | Retail energy cost adjustmentPrairie Wind Transmission, LLC, 50% owned by Westar Energy | | RSU | | Restricted share unit | | RTO | | Regional transmission organization | | SEC | | Securities and Exchange Commission | SO2 | | Sulfur dioxide | | SPP | | Southwest Power Pool, Inc. | | TCJA | | Tax Cuts and Jobs Act | | TFR | | Transmission formula rate | | Transource | | Transource Energy, LLC and its subsidiaries, 13.5% owned by GPETHC | | VIE | | Variable interest entity | | Westar Energy | | Westar Energy, Inc., a wholly-owned subsidiary of Evergy, and its consolidated subsidiaries | | WIIN | | Water Infrastructure Improvements for the Nation | | Wolf Creek | | Wolf Creek Generating Station | | WOTUS | | Waters of the United States |
FORWARD-LOOKING STATEMENTS6
Certain matters discussed in this Form 10-Q are “forward-looking statements.” The Private Securities Litigation Reform Act of 1995 has established that these statements qualify for safe harbors from liability. Forward-looking statements may include words like we “believe,” “anticipate,” “target,” “expect,” “estimate,” “intend” and words of similar meaning. Forward-looking statements describe our future plans, objectives, expectations or goals. Such statements address future events and conditions concerning matters such as, but not limited to:
| | - | the pending merger of equals (merger) between Westar Energy, Inc. and Great Plains Energy Incorporated (Great Plains Energy), including the expected timing of closing the merger and costs expected to be incurred in connection with the merger, |
| | - | amount, type and timing of capital expenditures, |
| | - | liquidity and capital resources, |
| | - | compliance with debt and other restrictive covenants, |
| | - | interest rates and dividends, |
| | - | the overall economy of our service area and its impact on our customers’ demand for electricity and their ability to pay for service. |
What happens in each case could vary materially from what we expect because of such things as:
| | - | risks related to operating in a heavily regulated industry that is subject to unpredictable political, legislative, judicial and regulatory developments, which can impact our operations, results of operations, and financial condition, |
| | - | the difficulty of predicting the magnitude and timing of changes in demand for electricity, including with respect to emerging competing services and technologies and conservation and energy efficiency measures, |
| | - | the impact of weather conditions, including as it relates to sales of electricity and prices of energy commodities, |
| | - | equipment damage from storms and extreme weather, |
| | - | economic and capital market conditions, including the impact of inflation or deflation, changes in interest rates, the cost and availability of capital and the market for trading wholesale energy, |
| | - | the impact of changes in market conditions on employee benefit liability calculations and funding obligations, as well as actual and assumed investment returns on invested plan assets, |
| | - | the impact of changes in estimates regarding our Wolf Creek Generating Station (Wolf Creek) decommissioning obligation, |
| | - | the existence or introduction of competition into markets in which we operate, |
| | - | the impact of changing laws and regulations relating to air and greenhouse gas (GHG) emissions, water emissions, waste management and other environmental matters, |
| | - | risks associated with execution of our planned capital expenditure program, including timing and receipt of regulatory approvals necessary for planned construction and expansion projects as well as the ability to complete planned construction projects within the terms and time frames anticipated, |
| | - | cost, availability and timely provision of equipment, supplies, labor and fuel we need to operate our business, |
| | - | availability of generating capacity and the performance of our generating plants, |
| | - | changes in regulation of nuclear generating facilities and nuclear materials and fuel, including possible shutdown or required modification of nuclear generating facilities, |
| | - | uncertainties with respect to procurement of nuclear fuel and related services, which are dependent on a single supplier, |
| | - | additional regulation due to the Nuclear Regulatory Commission (NRC) oversight to ensure the safe operation of Wolf Creek, either related to Wolf Creek’s performance, or potentially relating to events or performance at a nuclear plant anywhere in the world, |
| | - | uncertainty regarding the establishment of interim or permanent sites for spent nuclear fuel storage and disposal, |
| | - | homeland security and information and operating systems security considerations, |
| | - | our inability to fully utilize expected tax credits, |
| | - | changes in accounting requirements and other accounting matters, |
| | - | changes in the energy markets in which we participate such as the development and implementation of real time and next day trading markets, and the effect of the retroactive repricing of transactions in such markets following execution because of changes or adjustments in market pricing mechanisms by regional transmission organizations (RTOs) and independent system operators, |
| | - | reduced demand for coal-based energy because of actual or perceived climate impacts and the development of alternate energy sources, |
| | - | current and future litigation, regulatory investigations, proceedings or inquiries, |
| | - | cost of fuel used in generation and wholesale electricity prices, |
| | - | certain risks and uncertainties associated with the merger, including, without limitation, those related to: |
| | - | receipt of approval from our shareholders and shareholders of Great Plains Energy, |
| | - | the timing of, and the conditions imposed by, regulatory approvals required for the merger, |
| | - | the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement or could otherwise cause the failure of the merger to close, |
| | - | the outcome of any legal proceedings, regulatory proceedings or enforcement matters that have been or may be instituted in connection with the merger, |
| | - | the receipt of an unsolicited offer from another party to acquire our assets or capital stock (or those of Great Plains Energy) that could interfere with the proposed merger, |
| | - | the timing to consummate the proposed merger, |
| | - | disruption from the proposed merger making it more difficult to maintain relationships with customers, employees, regulators or suppliers, |
| | - | the diversion of management time and attention on the merger, |
| | - | the amount of costs, fees, expenses and charges related to the merger, |
| | - | the possibility that the expected value creation from the merger will not be realized, or will not be realized within the expected time period, |
| | - | difficulties related to the integration of the two companies, |
| | - | the credit ratings of the combined company following the merger, and |
| | - | the effect and timing of changes in laws or in governmental regulations (including environmental laws and regulations) that could adversely affect our participation in the merger, and |
| | - | other factors discussed elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2016 (2016 Form 10-K), including in “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in other reports we file from time to time with the SEC. |
These lists are not all-inclusive because it is not possible to predict all factors. This report should be read in its entirety and in conjunction with our 2016 Form 10-K and the other reports we file from time to time with the SEC. No one section of this report deals with all aspects of the subject matter and additional information on some matters that could impact our condensed consolidated financial results may be included in our 2016 Form 10-K and the other reports we file from time to time with the SEC. The reader should not place undue reliance on any forward-looking statement, as forward-looking statements speak only as of the date such statements were made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement was made.
PART I.I - FINANCIAL INFORMATION ITEM I. CONDENSED CONSOLIDATED1. FINANCIAL STATEMENTS
WESTAR ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Par Values)
(Unaudited)
| | | | | | | | | | | As of | | As of | | | September 30, 2017 | | December 31, 2016 | | ASSETS | | | | | CURRENT ASSETS: | | | | | Cash and cash equivalents | $ | 3,388 |
| | $ | 3,066 |
| | Accounts receivable, net of allowance for doubtful accounts of $4,658 and $6,667, respectively | 308,275 |
| | 288,579 |
| | Fuel inventory and supplies | 285,074 |
| | 300,125 |
| | Taxes receivable | — |
| | 13,000 |
| | Prepaid expenses | 15,781 |
| | 16,528 |
| | Regulatory assets | 94,777 |
| | 117,383 |
| | Other | 25,754 |
| | 29,701 |
| | Total Current Assets | 733,049 |
| | 768,382 |
| | PROPERTY, PLANT AND EQUIPMENT, NET | 9,494,023 |
| | 9,248,359 |
| | PROPERTY, PLANT AND EQUIPMENT OF VARIABLE INTEREST ENTITIES, NET | 178,058 |
| | 257,904 |
| | OTHER ASSETS: | | | | | Regulatory assets | 748,934 |
| | 762,479 |
| | Nuclear decommissioning trust | 229,927 |
| | 200,122 |
| | Other | 241,384 |
| | 249,828 |
| | Total Other Assets | 1,220,245 |
| | 1,212,429 |
| | TOTAL ASSETS | $ | 11,625,375 |
| | $ | 11,487,074 |
| | LIABILITIES AND EQUITY | | | | | CURRENT LIABILITIES: | | | | | Current maturities of long-term debt | $ | — |
| | $ | 125,000 |
| | Current maturities of long-term debt of variable interest entities | 28,534 |
| | 26,842 |
| | Short-term debt | 189,100 |
| | 366,700 |
| | Accounts payable | 147,933 |
| | 220,522 |
| | Accrued dividends | 53,770 |
| | 52,885 |
| | Accrued taxes | 114,317 |
| | 85,729 |
| | Accrued interest | 64,851 |
| | 72,519 |
| | Regulatory liabilities | 14,068 |
| | 15,760 |
| | Other | 74,273 |
| | 81,236 |
| | Total Current Liabilities | 686,846 |
| | 1,047,193 |
| | LONG-TERM LIABILITIES: | | | | | Long-term debt, net | 3,686,852 |
| | 3,388,670 |
| | Long-term debt of variable interest entities, net | 81,433 |
| | 111,209 |
| | Deferred income taxes | 1,866,583 |
| | 1,752,776 |
| | Unamortized investment tax credits | 208,597 |
| | 210,654 |
| | Regulatory liabilities | 237,065 |
| | 223,693 |
| | Accrued employee benefits | 497,298 |
| | 512,412 |
| | Asset retirement obligations | 397,505 |
| | 323,951 |
| | Other | 84,296 |
| | 83,326 |
| | Total Long-Term Liabilities | 7,059,629 |
| | 6,606,691 |
| | COMMITMENTS AND CONTINGENCIES (See Notes 11 and 13) |
|
| |
|
| | EQUITY: | | | | | Westar Energy, Inc. Shareholders’ Equity: | | | | | Common stock, par value $5 per share; authorized 275,000,000 shares; issued and outstanding 142,094,176 shares and 141,791,153 shares, respective to each date | 710,471 |
| | 708,956 |
| | Paid-in capital | 2,022,072 |
| | 2,018,317 |
| | Retained earnings | 1,196,460 |
| | 1,078,602 |
| | Total Westar Energy, Inc. Shareholders’ Equity | 3,929,003 |
| | 3,805,875 |
| | Noncontrolling Interests | (50,103 | ) | | 27,315 |
| | Total Equity | 3,878,900 |
| | 3,833,190 |
| | TOTAL LIABILITIES AND EQUITY | $ | 11,625,375 |
| | $ | 11,487,074 |
|
| | | | | | | | | | | | | | EVERGY, INC. | | Consolidated Balance Sheets | | (Unaudited) | | | | | | | | March 31 | | December 31 | | | 2019 | | 2018 | | ASSETS | (millions, except share amounts) | | CURRENT ASSETS: | | | | | | | | | Cash and cash equivalents | | $ | 133.6 |
| | | | $ | 160.3 |
| | | Restricted cash | | 414.3 |
| | | | — |
| | | Receivables, net | | 164.8 |
| | | | 193.7 |
| | | Accounts receivable pledged as collateral | | 359.0 |
| | | | 365.0 |
| | | Fuel inventory and supplies | | 466.5 |
| | | | 511.0 |
| | | Income taxes receivable | | 56.7 |
| | | | 68.0 |
| | | Regulatory assets | | 266.5 |
| | | | 303.9 |
| | | Prepaid expenses and other assets | | 66.2 |
| | | | 79.1 |
| | | Total Current Assets | | 1,927.6 |
| | | | 1,681.0 |
| | | PROPERTY, PLANT AND EQUIPMENT, NET | | 18,838.1 |
| | | | 18,782.5 |
| | | PROPERTY, PLANT AND EQUIPMENT OF VARIABLE INTEREST ENTITIES, NET | | 171.1 |
| | | | 169.2 |
| | | OTHER ASSETS: | | |
| | | | |
| | | Regulatory assets | | 1,731.6 |
| | | | 1,757.9 |
| | | Nuclear decommissioning trust fund | | 518.3 |
| | | | 472.1 |
| | | Goodwill | | 2,338.9 |
| | | | 2,338.9 |
| | | Other | | 535.1 |
| | | | 396.5 |
| | | Total Other Assets | | 5,123.9 |
| | | | 4,965.4 |
| | | TOTAL ASSETS | | $ | 26,060.7 |
| | | | $ | 25,598.1 |
| |
The accompanying notesNotes to Unaudited Consolidated Financial Statements are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
| | | | | | | | | | | Three Months Ended September 30, | | | 2017 | | 2016 | | REVENUES | $ | 794,327 |
| | $ | 764,654 |
| | OPERATING EXPENSES: | | | | | Fuel and purchased power | 189,804 |
| | 155,673 |
| | SPP network transmission costs | 62,578 |
| | 57,939 |
| | Operating and maintenance | 79,856 |
| | 86,758 |
| | Depreciation and amortization | 94,668 |
| | 84,972 |
| | Selling, general and administrative | 65,630 |
| | 60,582 |
| | Taxes other than income tax | 41,815 |
| | 48,154 |
| | Total Operating Expenses | 534,351 |
| | 494,078 |
| | INCOME FROM OPERATIONS | 259,976 |
| | 270,576 |
| | OTHER INCOME (EXPENSE): | | | | | Investment earnings | 2,593 |
| | 2,619 |
| | Other income | 3,849 |
| | 13,353 |
| | Other expense | (6,493 | ) | | (5,887 | ) | | Total Other (Expense) Income | (51 | ) | | 10,085 |
| | Interest expense | 43,458 |
| | 40,897 |
| | INCOME BEFORE INCOME TAXES | 216,467 |
| | 239,764 |
| | Income tax expense | 55,743 |
| | 81,211 |
| | NET INCOME | 160,724 |
| | 158,553 |
| | Less: Net income attributable to noncontrolling interests | 2,418 |
| | 3,833 |
| | NET INCOME ATTRIBUTABLE TO WESTAR ENERGY, INC. | $ | 158,306 |
| | $ | 154,720 |
| | BASIC AND DILUTED EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING ATTRIBUTABLE TO WESTAR ENERGY, INC. (See Note 2): | | | | | Basic earnings per common share | $ | 1.11 |
| | $ | 1.09 |
| | Diluted earnings per common share | $ | 1.11 |
| | $ | 1.08 |
| | AVERAGE EQUIVALENT COMMON SHARES OUTSTANDING: | | | | | Basic | 142,472,987 |
| | 142,090,706 |
| | Diluted | 142,516,049 |
| | 142,577,945 |
| | DIVIDENDS DECLARED PER COMMON SHARE | $ | 0.40 |
| | $ | 0.38 |
|
| | | | | | | | | | | | | | EVERGY, INC. | | Consolidated Balance Sheets | | (Unaudited) | | | | | | March 31 | | December 31 | | | 2019 | | 2018 | | LIABILITIES AND EQUITY | (millions, except share amounts) | | CURRENT LIABILITIES: | | | | | | | | | Current maturities of long-term debt | | $ | 701.1 |
| | | | $ | 705.4 |
| | | Current maturities of long-term debt of variable interest entities | | 32.3 |
| | | | 30.3 |
| | | Notes payable and commercial paper | | 1,311.0 |
| | | | 738.6 |
| | | Collateralized note payable | | 359.0 |
| | | | 365.0 |
| | | Accounts payable | | 293.7 |
| | | | 451.5 |
| | | Accrued taxes | | 222.5 |
| | | | 133.6 |
| | | Accrued interest | | 150.2 |
| | | | 110.9 |
| | | Regulatory liabilities | | 34.5 |
| | | | 110.2 |
| | | Asset retirement obligations | | 52.6 |
| | | | 49.8 |
| | | Other | | 178.5 |
| | | | 171.9 |
| | | Total Current Liabilities | | 3,335.4 |
| | | | 2,867.2 |
| | | LONG-TERM LIABILITIES: | | |
| | | | |
| | | Long-term debt, net | | 7,125.9 |
| | | | 6,636.3 |
| | | Long-term debt of variable interest entities, net | | 18.8 |
| | | | 51.1 |
| | | Deferred income taxes | | 1,603.8 |
| | | | 1,599.2 |
| | | Unamortized investment tax credits | | 372.4 |
| | | | 373.2 |
| | | Regulatory liabilities | | 2,249.2 |
| | | | 2,218.8 |
| | | Pension and post-retirement liability | | 994.3 |
| | | | 987.6 |
| | | Asset retirement obligations | | 645.8 |
| | | | 637.3 |
| | | Other | | 323.4 |
| | | | 236.7 |
| | | Total Long-Term Liabilities | | 13,333.6 |
| | | | 12,740.2 |
| | | Commitments and Contingencies (Note 9) | |
|
| | | |
|
| | | EQUITY: | | | | | | | | | Evergy, Inc. Shareholders' Equity: | | | | | | | | Common stock - 600,000,000 shares authorized, without par value
244,838,786 and 255,326,252 shares issued, stated value | | 8,110.4 |
| | | | 8,685.2 |
| | | Retained earnings | | 1,325.7 |
| | | | 1,346.0 |
| | | Accumulated other comprehensive loss | | (13.2 | ) | | | | (3.0 | ) | | | Total Evergy, Inc. Shareholders' Equity | | 9,422.9 |
| | | | 10,028.2 |
| | | Noncontrolling Interests | | (31.2 | ) | | | | (37.5 | ) | | | Total Equity | | 9,391.7 |
| | | | 9,990.7 |
| | | TOTAL LIABILITIES AND EQUITY | | $ | 26,060.7 |
| | | | $ | 25,598.1 |
| |
The accompanying notesNotes to Unaudited Consolidated Financial Statements are an integral part of these condensed consolidated financial statements.
WESTAR ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
| | | EVERGY, INC. | | EVERGY, INC. | | Consolidated Statements of Comprehensive Income | | Consolidated Statements of Comprehensive Income | | (Unaudited) | | (Unaudited) | | | Nine Months Ended September 30, | | | | Three Months Ended March 31 | | | 2019 | | 2018 | | | 2017 | | 2016 | | (millions, except per share amounts) | | REVENUES | $ | 1,976,222 |
| | $ | 1,955,552 |
| | | OPERATING REVENUES | | | $ | 1,216.9 |
| | $ | 600.2 |
| | OPERATING EXPENSES: | | | | | | | | | Fuel and purchased power | 415,449 |
| | 374,361 |
| | 330.0 |
| | 135.5 |
| | SPP network transmission costs | 185,015 |
| | 173,925 |
| | 63.5 |
| | 67.6 |
| | Operating and maintenance | 248,211 |
| | 250,135 |
| | 306.9 |
| | 140.1 |
| | Depreciation and amortization | 277,322 |
| | 252,838 |
| | 213.6 |
| | 89.6 |
| | Selling, general and administrative | 182,367 |
| | 192,762 |
| | | Taxes other than income tax | 126,421 |
| | 145,529 |
| | 93.3 |
| | 43.9 |
| | Total Operating Expenses | 1,434,785 |
| | 1,389,550 |
| | 1,007.3 |
| | 476.7 |
| | INCOME FROM OPERATIONS | 541,437 |
| | 566,002 |
| | 209.6 |
| | 123.5 |
| | OTHER INCOME (EXPENSE): | | | | | | | | | Investment earnings | 8,384 |
| | 6,916 |
| | | Investment earnings (loss) | | | 3.2 |
| | (0.4 | ) | | Other income | 5,672 |
| | 26,212 |
| | 8.2 |
| | 2.0 |
| | Other expense | (14,457 | ) | | (14,338 | ) | | (19.4 | ) | | (10.6 | ) | | Total Other (Expense) Income | (401 | ) |
| 18,790 |
| | | Total Other Income (Expense), Net | | | (8.0 | ) | | (9.0 | ) | | Interest expense | 128,232 |
| | 121,011 |
| | 91.1 |
| | 43.8 |
| | INCOME BEFORE INCOME TAXES | 412,804 |
| | 463,781 |
| | 110.5 |
| | 70.7 |
| | Income tax expense | 112,559 |
| | 160,376 |
| | 9.3 |
| | 9.2 |
| | Equity in earnings of equity method investees, net of income taxes | | | 2.2 |
| | 1.4 |
| | NET INCOME | 300,245 |
| | 303,405 |
| | 103.4 |
| | 62.9 |
| | Less: Net income attributable to noncontrolling interests | 10,213 |
| | 10,760 |
| | 3.9 |
| | 2.4 |
| | NET INCOME ATTRIBUTABLE TO WESTAR ENERGY, INC. | $ | 290,032 |
| | $ | 292,645 |
| | | BASIC AND DILUTED EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING ATTRIBUTABLE TO WESTAR ENERGY, INC. (See Note 2): | | | | | | NET INCOME ATTRIBUTABLE TO EVERGY, INC. | | | $ | 99.5 |
| | $ | 60.5 |
| | BASIC AND DILUTED EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING ATTRIBUTABLE TO EVERGY (see Note 1) | | | | | | | Basic earnings per common share | $ | 2.03 |
| | $ | 2.06 |
| | $ | 0.39 |
| | $ | 0.42 |
| | Diluted earnings per common share | $ | 2.03 |
| | $ | 2.05 |
| | $ | 0.39 |
| | $ | 0.42 |
| | AVERAGE EQUIVALENT COMMON SHARES OUTSTANDING: | | | | | | AVERAGE COMMON SHARES OUTSTANDING | | | | | | | Basic | 142,458,586 |
| | 142,039,320 |
| | 252.8 |
| | 142.6 |
| | Diluted | 142,495,896 |
| | 142,413,189 |
| | 253.0 |
| | 142.7 |
| | DIVIDENDS DECLARED PER COMMON SHARE | $ | 1.20 |
| | $ | 1.14 |
| | | COMPREHENSIVE INCOME | | | | | | | NET INCOME | | | $ | 103.4 |
| | $ | 62.9 |
| | Derivative hedging activity | | | | | | | Loss on derivative hedging instruments | | | (13.8 | ) | | — |
| | Income tax benefit | | | 3.6 |
| | — |
| | Net loss on derivative hedging instruments | | | (10.2 | ) | | — |
| | Derivative hedging activity, net of tax | | | (10.2 | ) | | — |
| | Total other comprehensive loss | | | (10.2 | ) | | — |
| | Comprehensive income | | | 93.2 |
| | 62.9 |
| | Less: comprehensive income attributable to noncontrolling interest | | | 3.9 |
| | 2.4 |
| | COMPREHENSIVE INCOME ATTRIBUTABLE TO EVERGY, INC. | | | $ | 89.3 |
| | $ | 60.5 |
|
The accompanying notesNotes to Unaudited Consolidated Financial Statements are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Dollars in Thousands)
(Unaudited)
| | | EVERGY, INC. | | EVERGY, INC. | | Consolidated Statements of Cash Flows | | Consolidated Statements of Cash Flows | | (Unaudited) | | (Unaudited) | | | Nine Months Ended September 30, | | | | | | 2017 | | 2016 | | | Three Months Ended March 31 | | 2019 | | 2018 | | CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: | | | | (millions) | | Net income | $ | 300,245 |
| | $ | 303,405 |
| $ | 103.4 |
| | $ | 62.9 |
| | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | Adjustments to reconcile income to net cash from operating activities: | | | | | | Depreciation and amortization | 277,322 |
| | 252,838 |
| 213.6 |
| | 89.6 |
| | Amortization of nuclear fuel | 24,150 |
| | 22,518 |
| 14.6 |
| | 7.7 |
| | Amortization of deferred regulatory gain from sale leaseback | (4,121 | ) | | (4,121 | ) | | | Gain on lease modification | (3,500 | ) | | — |
| | | Amortization of deferred refueling outage | | 6.5 |
| | 4.0 |
| | Amortization of corporate-owned life insurance | 15,744 |
| | 13,779 |
| 6.6 |
| | 5.5 |
| | Non-cash compensation | 6,777 |
| | 7,025 |
| 5.4 |
| | 2.5 |
| | Net deferred income taxes and credits | 126,986 |
| | 160,429 |
| (2.0 | ) | | 3.8 |
| | Allowance for equity funds used during construction | (1,094 | ) | | (7,894 | ) | (0.2 | ) | | (1.1 | ) | | Payments for asset retirement obligations | | (1.2 | ) | | (1.9 | ) | | Equity in earnings of equity method investees, net of income taxes | | (2.2 | ) | | (1.4 | ) | | Income from corporate-owned life insurance | | (9.9 | ) | | (0.7 | ) | | Other | | (1.3 | ) | | (1.4 | ) | | Changes in working capital items: | | | | | | | | Accounts receivable | (19,696 | ) | | (64,100 | ) | 26.6 |
| | 46.2 |
| | Accounts receivable pledged as collateral | | 6.0 |
| | — |
| | Fuel inventory and supplies | 15,515 |
| | 11,680 |
| 44.6 |
| | 6.9 |
| | Prepaid expenses and other current assets | 61,287 |
| | (385 | ) | 35.5 |
| | (0.1 | ) | | Accounts payable | (10,044 | ) | | 9,736 |
| (119.4 | ) | | (24.2 | ) | | Accrued taxes | 35,631 |
| | 40,711 |
| 100.2 |
| | 48.7 |
| | Other current liabilities | (108,503 | ) | | (61,879 | ) | (74.7 | ) | | (11.8 | ) | | Changes in other assets | 20,085 |
| | (4,377 | ) | 12.8 |
| | 0.7 |
| | Changes in other liabilities | 5,538 |
| | 13,208 |
| (2.8 | ) | | 23.7 |
| | Cash Flows from Operating Activities | 742,322 |
| | 692,573 |
| 362.1 |
| | 259.6 |
| | CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: | | | | |
| | |
| | Additions to property, plant and equipment | (564,622 | ) | | (821,936 | ) | (309.0 | ) | | (174.8 | ) | | Purchase of securities - trusts | (15,262 | ) | | (43,252 | ) | (17.9 | ) | | (85.4 | ) | | Sale of securities - trusts | 15,896 |
| | 44,326 |
| 15.4 |
| | 86.1 |
| | Investment in corporate-owned life insurance | (13,875 | ) | | (14,648 | ) | (2.1 | ) | | (1.0 | ) | | Proceeds from investment in corporate-owned life insurance | 265 |
| | 24,242 |
| 40.9 |
| | 2.6 |
| | Investment in affiliated company | — |
| | (655 | ) | | | Other investing activities | (3,411 | ) | | (3,095 | ) | 1.3 |
| | (1.6 | ) | | Cash Flows used in Investing Activities | (581,009 | ) | | (815,018 | ) | (271.4 | ) | | (174.1 | ) | | CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: | | | | |
| | |
| | Short-term debt, net | (177,732 | ) | | (67,402 | ) | | | Short term debt, net | | 572.4 |
| | 14.1 |
| | Collateralized short-term borrowings, net | | (6.0 | ) | | — |
| | Proceeds from long-term debt | 296,215 |
| | 396,472 |
| 494.0 |
| | — |
| | Proceeds from long-term debt of variable interest entities | — |
| | 162,048 |
| | | Retirements of long-term debt | (125,000 | ) | | (50,000 | ) | (1.1 | ) | | — |
| | Retirements of long-term debt of variable interest entities | (26,840 | ) | | (190,357 | ) | (30.3 | ) | | (28.5 | ) | | Repayment of capital leases | (2,592 | ) | | (2,327 | ) | | | Borrowings against cash surrender value of corporate-owned life insurance | 53,422 |
| | 55,952 |
| 0.6 |
| | 0.7 |
| | Repayment of borrowings against cash surrender value of corporate-owned life insurance | — |
| | (22,921 | ) | (30.1 | ) | | (1.7 | ) | | Issuance of common stock | 659 |
| | 2,003 |
| | | Distributions to shareholders of noncontrolling interests | (5,760 | ) | | (2,551 | ) | | | Cash dividends paid | (166,340 | ) | | (152,787 | ) | (119.8 | ) | | (57.4 | ) | | Repurchase of common stock under repurchase plan | | (578.3 | ) | | — |
| | Other financing activities | (7,023 | ) | | (4,979 | ) | (4.5 | ) | | (4.9 | ) | | Cash Flows (used in) from Financing Activities | (160,991 | ) | | 123,151 |
| | | NET INCREASE IN CASH AND CASH EQUIVALENTS | 322 |
| | 706 |
| | | CASH AND CASH EQUIVALENTS: | | | | | | Beginning of period | 3,066 |
| | 3,231 |
| | | End of period | $ | 3,388 |
| | $ | 3,937 |
| | | Cash Flows from (used in) Financing Activities | | 296.9 |
| | (77.7 | ) | | NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | | 387.6 |
| | 7.8 |
| | CASH, CASH EQUIVALENTS AND RESTRICTED CASH: | | | | | | Beginning of period, including restricted cash of $0.0 and $0.1, respectively | | 160.3 |
| | 3.5 |
| | End of period, including restricted cash of $414.3 and $0.1, respectively | | $ | 547.9 |
| | $ | 11.3 |
|
The accompanying notesNotes to Unaudited Consolidated Financial Statements are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | Westar Energy, Inc. Shareholders | | | | | | Common stock shares | | Common stock | | Paid-in capital | | Retained earnings | | Non-controlling interests | | Total equity | | Balance as of December 31, 2015 | 141,353,426 |
| | $ | 706,767 |
| | $ | 2,004,124 |
| | $ | 945,830 |
| | $ | 15,242 |
| | $ | 3,671,963 |
| | Net income | — |
| | — |
| | — |
| | 292,645 |
| | 10,760 |
| | 303,405 |
| | Issuance of stock | 40,441 |
| | 202 |
| | 1,801 |
| | — |
| | — |
| | 2,003 |
| | Issuance of stock for compensation and reinvested dividends | 350,016 |
| | 1,750 |
| | 5,565 |
| | — |
| | — |
| | 7,315 |
| | Tax withholding related to stock compensation | — |
| | — |
| | (4,979 | ) | | — |
| | — |
| | (4,979 | ) | Dividends declared on common stock ($1.14 per share) | — |
| | — |
| | — |
| | (163,002 | ) | | — |
| | (163,002 | ) | | Stock compensation expense | — |
| | — |
| | 6,938 |
| | — |
| | — |
| | 6,938 |
| | Distributions to shareholders of noncontrolling interests | — |
| | — |
| | — |
| | — |
| | (2,551 | ) | | (2,551 | ) | | Cumulative effect of accounting change - stock compensation | — |
| | — |
| | — |
| | 3,326 |
| | — |
| | 3,326 |
| | Balance as of September 30, 2016 | 141,743,883 |
| | $ | 708,719 |
| | $ | 2,013,449 |
| | $ | 1,078,799 |
| | $ | 23,451 |
| | $ | 3,824,418 |
| | | | | | | | | | | | | | | Balance as of December 31, 2016 | 141,791,153 |
| | $ | 708,956 |
| | $ | 2,018,317 |
| | $ | 1,078,602 |
| | $ | 27,315 |
| | $ | 3,833,190 |
| | Net income | — |
| | — |
| | — |
| | 290,032 |
| | 10,213 |
| | 300,245 |
| | Issuance of stock | 12,131 |
| | 61 |
| | 598 |
| | — |
| | — |
| | 659 |
| | Issuance of stock for compensation and reinvested dividends | 290,892 |
| | 1,454 |
| | 3,490 |
| | — |
| | — |
| | 4,944 |
| | Tax withholding related to stock compensation | — |
| | — |
| | (7,023 | ) | | — |
| | — |
| | (7,023 | ) | Dividends declared on common stock ($1.20 per share) | — |
| | — |
| | — |
| | (172,174 | ) | | — |
| | (172,174 | ) | | Stock compensation expense | — |
| | — |
| | 6,690 |
| | — |
| | — |
| | 6,690 |
| Deconsolidation of noncontrolling interests | — |
| | — |
| | — |
| | — |
| | (81,871 | ) | | (81,871 | ) | | Distribution to shareholders of noncontrolling interests | — |
| | — |
| | — |
| | — |
| | (5,760 | ) | | (5,760 | ) | | Balance as of September 30, 2017 | 142,094,176 |
| | $ | 710,471 |
| | $ | 2,022,072 |
| | $ | 1,196,460 |
| | $ | (50,103 | ) | | $ | 3,878,900 |
|
| | | | | | | | | | | | | | | | | | | | EVERGY, INC. | | Consolidated Statements of Changes in Equity | | (Unaudited) | | | | | | | | | | | Evergy, Inc. Shareholders | | | | | Common stock shares | Common stock | Retained earnings | AOCI | Non-controlling interests | Total equity | | | (millions, except share amounts) | | Balance as of December 31, 2017 | 142,094,275 |
| $ | 2,734.8 |
| $ | 1,173.3 |
| $ | — |
| $ | (47.7 | ) | $ | 3,860.4 |
| | Net income | — |
| — |
| 60.5 |
| — |
| 2.4 |
| 62.9 |
| | Issuance of stock for compensation and reinvested dividends, net of tax withholding | 138,828 |
| (3.7 | ) | — |
| — |
| — |
| (3.7 | ) | | Dividends declared on common stock ($0.40 per share) | — |
| — |
| (57.7 | ) | — |
| — |
| (57.7 | ) | | Stock compensation expense | — |
| 2.5 |
| — |
| — |
| — |
| 2.5 |
| | Balance as of March 31, 2018 | 142,233,103 |
| $ | 2,733.6 |
| $ | 1,176.1 |
| $ | — |
| $ | (45.3 | ) | $ | 3,864.4 |
| | | | | | | | | | Balance as of December 31, 2018 | 255,326,252 |
| $ | 8,685.2 |
| $ | 1,346.0 |
| $ | (3.0 | ) | $ | (37.5 | ) | $ | 9,990.7 |
| | Net income | — |
| — |
| 99.5 |
| — |
| 3.9 |
| 103.4 |
| | Issuance of stock for compensation and reinvested dividends, net of tax withholding | 60,594 |
| (1.6 | ) | — |
| — |
| — |
| (1.6 | ) | | Dividends declared on common stock ($0.475 per share) | — |
| — |
| (119.8 | ) | — |
| — |
| (119.8 | ) | | Stock compensation expense | — |
| 5.4 |
| — |
| — |
| — |
| 5.4 |
| | Repurchase of common stock under repurchase plan | (10,548,060 | ) | (578.3 | ) | — |
| — |
| — |
| (578.3 | ) | | Consolidation of noncontrolling interests | — |
| — |
| — |
| — |
| 3.8 |
| 3.8 |
| | Distributions to shareholders of noncontrolling interests | — |
| — |
| — |
| — |
| (1.4 | ) | (1.4 | ) | | Derivative hedging activity, net of tax | — |
| — |
| — |
| (10.2 | ) | — |
| (10.2 | ) | | Other | — |
| (0.3 | ) | — |
| — |
| — |
| (0.3 | ) | | Balance as of March 31, 2019 | 244,838,786 |
| $ | 8,110.4 |
| $ | 1,325.7 |
| $ | (13.2 | ) | $ | (31.2 | ) | $ | 9,391.7 |
|
The accompanying notesNotes to Unaudited Consolidated Financial Statements are an integral part of these condensed consolidated financial statements.
| | | | | | | | | | | | | | WESTAR ENERGY, INC. | | Consolidated Balance Sheets | | (Unaudited) | | | | | | | | March 31 | | December 31 | | | 2019 | | 2018 | | ASSETS | (millions, except share amounts) | | CURRENT ASSETS: | | | | | | | | | Cash and cash equivalents | | $ | 3.0 |
| | | | $ | 44.5 |
| | | Receivables, net | | 90.4 |
| | | | 84.3 |
| | | Related party receivables | | 2.5 |
| | | | 2.6 |
| | | Accounts receivable pledged as collateral | | 185.0 |
| | | | 185.0 |
| | | Fuel inventory and supplies | | 255.0 |
| | | | 276.8 |
| | | Income taxes receivable | | 32.0 |
| | | | 42.7 |
| | | Regulatory assets | | 85.2 |
| | | | 97.1 |
| | | Prepaid expenses and other assets | | 25.6 |
| | | | 35.0 |
| | | Total Current Assets | | 678.7 |
| | | | 768.0 |
| | | PROPERTY, PLANT AND EQUIPMENT, NET | | 9,726.4 |
| | | | 9,718.3 |
| | | PROPERTY, PLANT AND EQUIPMENT OF VARIABLE INTEREST ENTITIES, NET | | 171.1 |
| | | | 169.2 |
| | | OTHER ASSETS: | | |
| | | | |
| | | Regulatory assets | | 696.4 |
| | | | 700.4 |
| | | Nuclear decommissioning trust fund | | 248.4 |
| | | | 227.5 |
| | | Other | | 291.9 |
| | | | 233.4 |
| | | Total Other Assets | | 1,236.7 |
| | | | 1,161.3 |
| | | TOTAL ASSETS | | $ | 11,812.9 |
| | | | $ | 11,816.8 |
| |
The disclosures regarding Westar Energy included in the accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of these statements.
| | | | | | | | | | | | | | WESTAR ENERGY, INC. | | Consolidated Balance Sheets | | (Unaudited) | | | | | | March 31 | | December 31 | | | 2019 | | 2018 | | LIABILITIES AND EQUITY | (millions, except share amounts) | | CURRENT LIABILITIES: | | | | | | | | | Current maturities of long-term debt | | $ | 300.0 |
| | | | $ | 300.0 |
| | | Current maturities of long-term debt of variable interest entities | | 32.3 |
| | | | 30.3 |
| | | Notes payable and commercial paper | | 413.8 |
| | | | 411.7 |
| | | Collateralized note payable | | 185.0 |
| | | | 185.0 |
| | | Accounts payable | | 129.5 |
| | | | 154.4 |
| | | Related party payables | | 8.8 |
| | | | 14.9 |
| | | Accrued taxes | | 137.4 |
| | | | 88.6 |
| | | Accrued interest | | 93.2 |
| | | | 74.4 |
| | | Regulatory liabilities | | 15.3 |
| | | | 19.5 |
| | | Asset retirement obligations | | 17.1 |
| | | | 17.1 |
| | | Other | | 71.2 |
| | | | 83.0 |
| | | Total Current Liabilities | | 1,403.6 |
| | | | 1,378.9 |
| | | LONG-TERM LIABILITIES: | | |
| | | | |
| | | Long-term debt, net | | 3,390.0 |
| | | | 3,389.8 |
| | | Long-term debt of variable interest entities, net | | 18.8 |
| | | | 51.1 |
| | | Deferred income taxes | | 813.7 |
| | | | 815.4 |
| | | Unamortized investment tax credits | | 249.2 |
| | | | 249.7 |
| | | Regulatory liabilities | | 1,118.5 |
| | | | 1,101.8 |
| | | Pension and post-retirement liability | | 473.6 |
| | | | 474.7 |
| | | Asset retirement obligations | | 268.2 |
| | | | 264.0 |
| | | Other | | 155.9 |
| | | | 130.7 |
| | | Total Long-Term Liabilities | | 6,487.9 |
| | | | 6,477.2 |
| | | Commitments and Contingencies (Note 9) | |
|
| | | |
|
| | | EQUITY: | | |
| | | | | | | Westar Energy, Inc. Shareholder's Equity: | | |
| | | | |
| | | Common stock - 1,000 shares authorized, $0.01 par value, 1 share issued | | 2,737.6 |
| | | | 2,737.6 |
| | | Retained earnings | | 1,215.0 |
| | | | 1,260.6 |
| | | Total Westar Energy, Inc. Shareholder's Equity | | 3,952.6 |
| | | | 3,998.2 |
| | | Noncontrolling Interests | | (31.2 | ) | | | | (37.5 | ) | | | Total Equity | | 3,921.4 |
| | | | 3,960.7 |
| | | TOTAL LIABILITIES AND EQUITY | | $ | 11,812.9 |
| | | | $ | 11,816.8 |
| |
The disclosures regarding Westar Energy included in the accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of these statements.
| | | | | | | | | | | WESTAR ENERGY, INC. | | Consolidated Statements of Income | | (Unaudited) | | | | | | | | Three Months Ended March 31 | | 2019 | | 2018 | | | (millions) | | OPERATING REVENUES | | $ | 596.8 |
| | $ | 600.2 |
| | OPERATING EXPENSES: | | | | | | Fuel and purchased power | | 122.7 |
| | 135.5 |
| | SPP network transmission costs | | 63.5 |
| | 67.6 |
| | Operating and maintenance | | 128.6 |
| | 140.1 |
| | Depreciation and amortization | | 109.8 |
| | 89.6 |
| | Taxes other than income tax | | 47.9 |
| | 43.9 |
| | Total Operating Expenses | | 472.5 |
| | 476.7 |
| | INCOME FROM OPERATIONS | | 124.3 |
| | 123.5 |
| | OTHER INCOME (EXPENSE): | | | | | | Investment earnings (loss) | | 1.5 |
| | (0.4 | ) | | Other income | | 7.3 |
| | 2.0 |
| | Other expense | | (10.6 | ) | | (10.6 | ) | | Total Other Income (Expense), Net | | (1.8 | ) | | (9.0 | ) | | Interest expense | | 44.9 |
| | 43.8 |
| | INCOME BEFORE INCOME TAXES | | 77.6 |
| | 70.7 |
| | Income tax expense | | 10.5 |
| | 9.2 |
| | Equity in earnings of equity method investees, net of income taxes | | 1.2 |
| | 1.4 |
| | NET INCOME | | 68.3 |
| | 62.9 |
| | Less: Net income attributable to noncontrolling interests | | 3.9 |
| | 2.4 |
| | NET INCOME ATTRIBUTABLE TO WESTAR ENERGY, INC. | | $ | 64.4 |
| | $ | 60.5 |
|
The disclosures regarding Westar Energy included in the accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of these statements.
| | | | | | | | | | WESTAR ENERGY, INC. | | Consolidated Statements of Cash Flows | | (Unaudited) | | | | Three Months Ended March 31 | 2019 | | 2018 | | CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: | (millions) | | Net income | $ | 68.3 |
| | $ | 62.9 |
| | Adjustments to reconcile income to net cash from operating activities: | | | | | Depreciation and amortization | 109.8 |
| | 89.6 |
| | Amortization of nuclear fuel | 7.3 |
| | 7.7 |
| | Amortization of deferred refueling outage | 3.2 |
| | 4.0 |
| | Amortization of corporate-owned life insurance | 6.6 |
| | 5.5 |
| | Non-cash compensation | — |
| | 2.5 |
| | Net deferred income taxes and credits | (0.3 | ) | | 3.8 |
| | Allowance for equity funds used during construction | — |
| | (1.1 | ) | | Payments for asset retirement obligations | (0.3 | ) | | (1.9 | ) | | Equity in earnings of equity method investees, net of income taxes | (1.2 | ) | | (1.4 | ) | | Income from corporate-owned life insurance | (9.3 | ) | | (0.7 | ) | | Other | (1.4 | ) | | (1.4 | ) | | Changes in working capital items: | | | | | Accounts receivable | (7.9 | ) | | 46.2 |
| | Fuel inventory and supplies | 21.9 |
| | 6.9 |
| | Prepaid expenses and other current assets | 14.8 |
| | (0.1 | ) | | Accounts payable | (7.2 | ) | | (24.2 | ) | | Accrued taxes | 59.5 |
| | 48.7 |
| | Other current liabilities | (18.9 | ) | | (11.8 | ) | | Changes in other assets | 4.6 |
| | 0.7 |
| | Changes in other liabilities | (7.0 | ) | | 23.7 |
| | Cash Flows from Operating Activities | 242.5 |
| | 259.6 |
| | CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: | |
| | |
| | Additions to property, plant and equipment | (151.7 | ) | | (174.8 | ) | | Purchase of securities - trusts | (7.5 | ) | | (85.4 | ) | | Sale of securities - trusts | 7.2 |
| | 86.1 |
| | Investment in corporate-owned life insurance | (2.1 | ) | | (1.0 | ) | | Proceeds from investment in corporate-owned life insurance | 40.3 |
| | 2.6 |
| | Other investing activities | (0.1 | ) | | (1.6 | ) | | Cash Flows used in Investing Activities | (113.9 | ) | | (174.1 | ) | | CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: | |
| | |
| | Short term debt, net | 2.1 |
| | 14.1 |
| | Retirements of long-term debt of variable interest entities | (30.3 | ) | | (28.5 | ) | | Borrowings against cash surrender value of corporate-owned life insurance | 0.6 |
| | 0.7 |
| | Repayment of borrowings against cash surrender value of corporate-owned life insurance | (30.1 | ) | | (1.7 | ) | | Cash dividends paid | (110.0 | ) | | (57.4 | ) | | Other financing activities | (2.4 | ) | | (4.9 | ) | | Cash Flows used in Financing Activities | (170.1 | ) | | (77.7 | ) | | NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | (41.5 | ) | | 7.8 |
| | CASH, CASH EQUIVALENTS AND RESTRICTED CASH: | | | | | Beginning of period, including restricted cash of $0.0 and $0.1, respectively | 44.5 |
| | 3.5 |
| | End of period, including restricted cash of $0.0 and $0.1, respectively | $ | 3.0 |
| | $ | 11.3 |
|
The disclosures regarding Westar Energy included in the accompanying Unaudited Notes to Consolidated Financial Statements are an integral part of these statements.
| | | | | | | | | | | | | | | | | WESTAR ENERGY, INC. | | Consolidated Statements of Changes in Equity | | (Unaudited) | | | | | | | | | | Westar Energy, Inc. Shareholders | | | | | Common stock shares | Common stock | Retained earnings | Non-controlling interests | Total equity | | | (millions, except share amounts) | | Balance as of December 31, 2017 | 142,094,275 |
| $ | 2,734.8 |
| $ | 1,173.3 |
| $ | (47.7 | ) | $ | 3,860.4 |
| | Net income | — |
| — |
| 60.5 |
| 2.4 |
| 62.9 |
| | Issuance of stock for compensation and reinvested dividends, net of tax withholding | 138,828 |
| (3.7 | ) | — |
| — |
| (3.7 | ) | | Dividends declared on common stock | — |
| — |
| (57.7 | ) | — |
| (57.7 | ) | | Stock compensation expense | — |
| 2.5 |
| — |
| — |
| 2.5 |
| | Balance as of March 31, 2018 | 142,233,103 |
| $ | 2,733.6 |
| $ | 1,176.1 |
| $ | (45.3 | ) | $ | 3,864.4 |
| | | | | | | | | Balance as of December 31, 2018 | 1 |
| $ | 2,737.6 |
| $ | 1,260.6 |
| $ | (37.5 | ) | $ | 3,960.7 |
| | Net income | — |
| — |
| 64.4 |
| 3.9 |
| 68.3 |
| | Dividends declared on common stock | — |
| — |
| (110.0 | ) | — |
| (110.0 | ) | | Consolidation of noncontrolling interests | — |
| — |
| — |
| 3.8 |
| 3.8 |
| | Distributions to shareholders of noncontrolling interests | — |
| — |
| — |
| (1.4 | ) | (1.4 | ) | | Balance as of March 31, 2019 | 1 |
| $ | 2,737.6 |
| $ | 1,215.0 |
| $ | (31.2 | ) | $ | 3,921.4 |
|
The disclosures regarding Westar Energy included in the accompanying Unaudited Notes to Consolidated Financial Statements are an integral part of these statements.
| | | | | | | | | | | | | | KANSAS CITY POWER & LIGHT COMPANY | | Consolidated Balance Sheets | | (Unaudited) | | | | | | | | March 31 | | December 31 | | | 2019 | | 2018 | | ASSETS | (millions, except share amounts) | | CURRENT ASSETS: | | | | | | | | | Cash and cash equivalents | | $ | 2.8 |
| | | | $ | 2.6 |
| | | Restricted cash | | 414.3 |
| | | | — |
| | | Receivables, net | | 41.8 |
| | | | 62.7 |
| | | Related party receivables | | 81.2 |
| | | | 101.8 |
| | | Accounts receivable pledged as collateral | | 124.0 |
| | | | 130.0 |
| | | Fuel inventory and supplies | | 159.3 |
| | | | 177.6 |
| | | Regulatory assets | | 111.4 |
| | | | 130.9 |
| | | Prepaid expenses and other assets | | 35.0 |
| | | | 36.9 |
| | | Total Current Assets | | 969.8 |
| | | | 642.5 |
| | | PROPERTY, PLANT AND EQUIPMENT, NET | | 6,714.1 |
| | | | 6,688.1 |
| | | OTHER ASSETS: | | |
| | | | |
| | | Regulatory assets | | 471.2 |
| | | | 495.2 |
| | | Nuclear decommissioning trust fund | | 269.9 |
| | | | 244.6 |
| | | Other | | 140.1 |
| | | | 50.1 |
| | | Total Other Assets | | 881.2 |
| | | | 789.9 |
| | | TOTAL ASSETS | | $ | 8,565.1 |
| | | | $ | 8,120.5 |
| |
The disclosures regarding KCP&L included in the accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of these statements.
| | | | | | | | | | | | | | KANSAS CITY POWER & LIGHT COMPANY | | Consolidated Balance Sheets | | (Unaudited) | | | | | | March 31 | | December 31 | | | 2019 | | 2018 | | LIABILITIES AND EQUITY | (millions, except share amounts) | | CURRENT LIABILITIES: | | | | | | | | | Current maturities of long-term debt | | $ | 400.0 |
| | | | $ | 400.0 |
| | | Notes payable and commercial paper | | 176.0 |
| | | | 176.9 |
| | | Collateralized note payable | | 124.0 |
| | | | 130.0 |
| | | Accounts payable | | 131.2 |
| | | | 211.1 |
| | | Accrued taxes | | 77.1 |
| | | | 39.7 |
| | | Accrued interest | | 41.1 |
| | | | 28.9 |
| | | Regulatory liabilities | | 8.1 |
| | | | 52.8 |
| | | Asset retirement obligations | | 29.7 |
| | | | 29.2 |
| | | Other | | 75.6 |
| | | | 69.7 |
| | | Total Current Liabilities | | 1,062.8 |
| | | | 1,138.3 |
| | | LONG-TERM LIABILITIES: | | |
| | | | |
| | | Long-term debt, net | | 2,524.6 |
| | | | 2,130.1 |
| | | Deferred income taxes | | 636.4 |
| | | | 631.8 |
| | | Unamortized investment tax credits | | 120.4 |
| | | | 120.7 |
| | | Regulatory liabilities | | 809.9 |
| | | | 794.3 |
| | | Pension and post-retirement liability | | 500.1 |
| | | | 491.9 |
| | | Asset retirement obligations | | 237.7 |
| | | | 231.8 |
| | | Other | | 156.5 |
| | | | 81.8 |
| | | Total Long-Term Liabilities | | 4,985.6 |
| | | | 4,482.4 |
| | | Commitments and Contingencies (Note 9) | |
|
| | | |
|
| | | EQUITY: | | |
| | | | |
| | | Common stock - 1,000 shares authorized, without par value, 1 share issued, stated value | | 1,563.1 |
| | | | 1,563.1 |
| | | Retained earnings | | 948.6 |
| | | | 932.6 |
| | | Accumulated other comprehensive income | | 5.0 |
| | | | 4.1 |
| | | Total Equity | | 2,516.7 |
| | | | 2,499.8 |
| | | TOTAL LIABILITIES AND EQUITY | | $ | 8,565.1 |
| | | | $ | 8,120.5 |
| |
The disclosures regarding KCP&L included in the accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of these statements.
| | | | | | | | | | | KANSAS CITY POWER & LIGHT COMPANY | | Consolidated Statements of Comprehensive Income | | (Unaudited) | | | | | | Three Months Ended March 31 | | 2019 | | 2018 | | | (millions) | | OPERATING REVENUES | | $ | 425.4 |
| | $ | 397.1 |
| | OPERATING EXPENSES: | | |
| | |
| | Fuel and purchased power | | 134.9 |
| | 117.5 |
| | Operating and maintenance | | 122.0 |
| | 122.7 |
| | Depreciation and amortization | | 78.9 |
| | 66.9 |
| | Taxes other than income tax | | 32.7 |
| | 29.0 |
| | Total Operating Expenses | | 368.5 |
| | 336.1 |
| | INCOME FROM OPERATIONS | | 56.9 |
| | 61.0 |
| | OTHER INCOME (EXPENSE): | | | | | | Investment earnings | | 0.8 |
| | 0.6 |
| | Other income | | 0.8 |
| | 3.0 |
| | Other expense | | (5.0 | ) | | (7.9 | ) | | Total Other Income (Expense), Net | | (3.4 | ) | | (4.3 | ) | | Interest expense | | 33.8 |
| | 33.0 |
| | INCOME BEFORE INCOME TAXES | | 19.7 |
| | 23.7 |
| | Income tax expense | | 3.7 |
| | 3.5 |
| | NET INCOME | | $ | 16.0 |
| | $ | 20.2 |
| | COMPREHENSIVE INCOME | | | | | | NET INCOME | | $ | 16.0 |
| | $ | 20.2 |
| | OTHER COMPREHENSIVE INCOME: | | | | | | Derivative hedging activity | | | | | | Reclassification to expenses, net of tax: | | 0.9 |
| | 0.9 |
| | Derivative hedging activity, net of tax | | 0.9 |
| | 0.9 |
| | Total Other Comprehensive Income | | 0.9 |
| | 0.9 |
| | COMPREHENSIVE INCOME | | $ | 16.9 |
| | $ | 21.1 |
|
The disclosures regarding KCP&L included in the accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of these statements.
| | | | | | | | | | KANSAS CITY POWER & LIGHT COMPANY | | Consolidated Statements of Cash Flows | | (Unaudited) | | | | | | | Three Months Ended March 31 | 2019 | | 2018 | | CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: | (millions) | | Net income | $ | 16.0 |
| | $ | 20.2 |
| | Adjustments to reconcile income to net cash from operating activities: | | | | | Depreciation and amortization | 78.9 |
| | 66.9 |
| | Amortization of nuclear fuel | 7.4 |
| | 7.7 |
| | Amortization of deferred refueling outage | 3.2 |
| | 3.9 |
| | Net deferred income taxes and credits | (5.0 | ) | | 5.3 |
| | Allowance for equity funds used during construction | (0.2 | ) | | (1.4 | ) | | Payments for asset retirement obligations | (0.8 | ) | | (3.6 | ) | | Other | 0.6 |
| | 0.2 |
| | Changes in working capital items: | | | | | Accounts receivable | 41.9 |
| | 47.9 |
| | Accounts receivable pledged as collateral | 6.0 |
| | — |
| | Fuel inventory and supplies | 18.3 |
| | (2.8 | ) | | Prepaid expenses and other current assets | 19.2 |
| | (2.5 | ) | | Accounts payable | (66.8 | ) | | (90.0 | ) | | Accrued taxes | 37.4 |
| | 25.0 |
| | Other current liabilities | (31.9 | ) | | (1.8 | ) | | Changes in other assets | 8.9 |
| | 16.5 |
| | Changes in other liabilities | 9.2 |
| | 13.5 |
| | Cash Flows from Operating Activities | 142.3 |
| | 105.0 |
| | CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: | |
| | |
| | Additions to property, plant and equipment | (114.7 | ) | | (100.6 | ) | | Purchase of securities - trusts | (10.3 | ) | | (12.1 | ) | | Sale of securities - trusts | 8.2 |
| | 11.3 |
| | Other investing activities | 1.9 |
| | 0.6 |
| | Cash Flows used in Investing Activities | (114.9 | ) | | (100.8 | ) | | CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: | |
| | |
| | Short term debt, net | (0.9 | ) | | 120.8 |
| | Collateralized short-term debt, net | (6.0 | ) | | — |
| | Proceeds from long-term debt | 394.0 |
| | 296.6 |
| | Retirements of long-term debt | — |
| | (350.0 | ) | | Cash dividends paid | — |
| | (60.0 | ) | | Cash Flows from Financing Activities | 387.1 |
| | 7.4 |
| | NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 414.5 |
| | 11.6 |
| | CASH, CASH EQUIVALENTS AND RESTRICTED CASH: | | | | | Beginning of period, including restricted cash of $0.0 and $0.0, respectively | 2.6 |
| | 2.2 |
| | End of period, including restricted cash of $414.3 and $0.0, respectively | $ | 417.1 |
| | $ | 13.8 |
|
The disclosures regarding KCP&L included in the accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of these statements.
| | | | | | | | | | | | | | | | | | | | | KANSAS CITY POWER & LIGHT COMPANY | | Consolidated Statements of Changes in Equity | | (Unaudited) | | | | | | | | | | | | | | Common stock shares | | Common stock | | Retained earnings | | AOCI - Net gains (losses) on cash flow hedges | | Total equity | | | (millions, except share amounts) | | Balance as of December 31, 2017 | 1 |
| | $ | 1,563.1 |
| | $ | 949.7 |
| | $ | 0.4 |
| | $ | 2,513.2 |
| | Net income | — |
| | — |
| | 20.2 |
| | — |
| | 20.2 |
| | Dividends declared on common stock | — |
| | — |
| | (60.0 | ) | | — |
| | (60.0 | ) | | Derivative hedging activity, net of tax | — |
| | — |
| | — |
| | 0.9 |
| | 0.9 |
| | Balance as of March 31, 2018 | 1 |
| | $ | 1,563.1 |
| | $ | 909.9 |
| | $ | 1.3 |
| | $ | 2,474.3 |
| | | | | | | | | | | | | Balance as of December 31, 2018 | 1 |
| | $ | 1,563.1 |
| | $ | 932.6 |
| | $ | 4.1 |
| | $ | 2,499.8 |
| | Net income | — |
| | — |
| | 16.0 |
| | — |
| | 16.0 |
| | Derivative hedging activity, net of tax | — |
| | — |
| | — |
| | 0.9 |
| | 0.9 |
| | Balance as of March 31, 2019 | 1 |
| | $ | 1,563.1 |
| | $ | 948.6 |
| | $ | 5.0 |
| | $ | 2,516.7 |
|
The disclosures regarding KCP&L included in the accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of these statements.
EVERGY, INC. WESTAR ENERGY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSKANSAS CITY POWER & LIGHT COMPANY
(Unaudited)Combined Notes to Unaudited Consolidated Financial Statements
1. DESCRIPTION OF BUSINESS
WeThe notes to unaudited consolidated financial statements that follow are the largest electric utility in Kansas. Unless the contexta combined presentation for Evergy, Inc., Westar Energy, Inc. and Kansas City Power & Light Company, all registrants under this filing. The terms "Evergy," "Westar Energy," "KCP&L" and "Evergy Companies" are used throughout this report. "Evergy" refers to Evergy, Inc. and its consolidated subsidiaries, unless otherwise indicates, all references in this Quarterly Report on Form 10-Q to “the Company,” “we,” “us,” “our” and similar words areindicated. "Westar Energy" refers to Westar Energy, Inc. and its consolidated subsidiaries. The term “Westar Energy”subsidiaries, unless otherwise indicated. "KCP&L" refers to Kansas City Power & Light Company and its consolidated subsidiaries, unless otherwise indicated. "Evergy Companies" refers to Evergy, Westar Energy, Inc.,and KCP&L, collectively, which are individual registrants within the Evergy consolidated group. The Evergy Companies' interim financial statements reflect all adjustments (which include normal, recurring adjustments) that are necessary, in the opinion of management, for a Kansas corporationfair presentation of the results for the interim periods presented.
1. ORGANIZATION AND BASIS OF PRESENTATION Organization Evergy is a public utility holding company incorporated in 1924, alone2017 and not together with its consolidated subsidiaries.headquartered in Kansas City, Missouri. Evergy operates primarily through the following wholly-owned direct subsidiaries:
We provideWestar Energy is an integrated, regulated electric generation, transmission and distribution servicesutility that provides electricity to approximately 707,000 customers in the state of Kansas. Westar Energy provides these services in central and northeastern Kansas, including the cities of Topeka, Lawrence, Manhattan, Salina and Hutchinson.has one active wholly-owned subsidiary with significant operations, Kansas Gas and Electric Company (KGE).
KCP&L is an integrated, regulated electric utility that provides electricity to customers in the states of Missouri and Kansas. KCP&L Greater Missouri Operations Company (GMO) is an integrated, regulated electric utility that provides electricity to customers in the state of Missouri. GPE Transmission Holding Company, LLC (GPETHC) owns 13.5% of Transource Energy, LLC (Transource) with the remaining 86.5% owned by AEP Transmission Holding Company, LLC, a subsidiary of American Electric Power Company, Inc. (AEP). Transource is focused on the development of competitive electric transmission projects. GPETHC accounts for its investment in Transource under the equity method. Westar Energy also owns a 50% interest in Prairie Wind Transmission, LLC (Prairie Wind), which is a joint venture between Westar Energy’s wholly owned subsidiary,Energy and affiliates of AEP and Berkshire Hathaway Energy Company. Prairie Wind owns a 108-mile, 345 kV double-circuit transmission line that provides these servicestransmission service in south-central and southeastern Kansas, including the city of Wichita. Both Southwest Power Pool, Inc. (SPP). Westar Energy accounts for its investment in Prairie Wind under the equity method.
Westar Energy and KGE conduct business in their respective service territories using the name Westar Energy. Our corporate headquarters is located at 818 SouthKCP&L and GMO conduct business in their respective service territories using the name KCP&L. Collectively, the Evergy Companies have approximately 14,500 MWs of owned generating capacity and renewable purchased power agreements and engage in the generation, transmission, distribution and sale of electricity to approximately 1.6 million customers in the states of Kansas Avenue, Topeka, Kansas 66612.and Missouri. Evergy was incorporated in 2017 as Monarch Energy Holding, Inc. (Monarch Energy), a wholly-owned subsidiary of Great Plains Energy Incorporated (Great Plains Energy). Prior to the closing of the merger transactions, Monarch Energy changed its name to Evergy and did not conduct any business activities other than those required for its formation and matters contemplated by the Amended and Restated Agreement and Plan of Merger, dated as of July 9, 2017, by and among Great Plains Energy, Westar Energy, Monarch Energy and King Energy, Inc. (King Energy), a wholly-owned subsidiary of Monarch Energy (Amended Merger Agreement). On June 4, 2018, in accordance with the Amended Merger Agreement, Great Plains Energy merged into Evergy, with Evergy surviving the merger and King Energy merged into Westar Energy, with Westar Energy surviving the merger. These merger transactions
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
resulted in Evergy becoming the parent entity of Westar Energy and the direct subsidiaries of Great Plains Energy, including KCP&L and GMO. As a result of the closing of the merger transactions, each outstanding share of Great Plains Energy common stock was converted into 0.5981 shares of Evergy common stock, resulting in the issuance of 128.9 million shares. Additionally, each outstanding share of Westar Energy common stock was converted into 1 share of Evergy common stock.
Principles of Consolidation
We prepare our unaudited condensedWestar Energy was determined to be the accounting acquirer in the merger and thus, the predecessor of Evergy. Therefore, Evergy's consolidated financial statements in accordancereflect the results of operations of Westar Energy for the three months ended March 31, 2018. Evergy had separate operations for the period beginning with the instructionsquarter ended June 30, 2018, and references to Form 10-Q and Article 10amounts for periods after the closing of Regulation S-X. Accordingly, certain information and footnote disclosures normallythe merger relate to Evergy. The results of Great Plains Energy's direct subsidiaries have been included in financial statements presented in accordance with generally accepted accounting principles (GAAP) forEvergy's results of operations from the United Statesdate of America have been condensed or omitted. Our condensedthe closing of the merger and thereafter.
Each of Evergy's, Westar Energy's and KCP&L's consolidated financial statements include all operating divisions, majority ownedincludes the accounts of their subsidiaries and variable interest entities (VIEs) of which we maintain a controlling interest orthey are the primary beneficiary reported as a single reportable segment.beneficiary. Undivided interests in jointly-owned generation facilities are included on a proportionate basis. Intercompany accounts and transactions have been eliminatedeliminated. The Evergy Companies assess financial performance and allocate resources on a consolidated basis (i.e., operate in consolidation. In our opinion, all adjustments, consistingone segment). Certain changes in classification and corresponding reclassification of normal recurring adjustments considered necessaryprior period data were made in Evergy's, Westar Energy's and KCP&L's unaudited consolidated statements of income and comprehensive income and unaudited statements of cash flows for a fair presentationcomparative purposes. Evergy reflects the classifications of Westar Energy as the condensed consolidated financial statements, have been included.accounting acquirer in the merger. These reclassifications did not affect Evergy's, Westar Energy's or KCP&L's net income or Evergy's, Westar Energy's or KCP&L's cash flows from operations, investing or financing.
The accompanying condensedtable below summarizes KCP&L's reclassifications related to operating and investing activities for its consolidated financial statements and notes should be read in conjunction withstatement of cash flows for the three months ended March 31, 2018. | | | | | | | | | | | | | | | | As Previously Filed | | As Recast | | | CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: | | | (millions) | | | Adjustments to reconcile income to net cash from operating activities: | | | | | | | | Amortization of other | | | $ | 6.6 |
| | $ | — |
| | | Amortization of deferred refueling outage | | | — |
| | 3.9 |
| | | Deferred income taxes, net | | | 5.6 |
| | — |
| | | Investment tax credit amortization | | | (0.3 | ) | | — |
| | | Net deferred income taxes and credits | | | — |
| | 5.3 |
| | Other(a) | | | 3.8 |
| | 0.2 |
| | | Changes in working capital items: | | | | | | | | Fuel inventory and supplies | | | — |
| | (2.8 | ) | | Fuel inventories(a) | | | (1.0 | ) | | — |
| | Materials and supplies(a) | | | (1.8 | ) | | — |
| | | Prepaid expenses and other current assets | | | — |
| | (2.5 | ) | | Accrued interest(a) | | | 8.3 |
| | — |
| | | Other current liabilities | | | — |
| | (1.8 | ) | | | Changes in other assets | | | — |
| | 16.5 |
| | | Changes in other liabilities | | | — |
| | 13.5 |
| | Deferred refueling outage costs(a) | | | 0.9 |
| | — |
| | Pension and post-retirement benefit obligations(a) | | | 9.0 |
| | — |
| | Fuel recovery mechanisms(a) | | | 1.2 |
| | — |
| | | Total reclassifications | | | $ | 32.3 |
| | $ | 32.3 |
| | | CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: | | | | | | | | Additions to property, plant and equipment | | | $ | — |
| | $ | (100.6 | ) | | | Utility capital expenditures | | | (93.5 | ) | | — |
| | | Allowance for borrowed funds used during construction | | | (2.0 | ) | | — |
| | | Other investing activities | | | (4.5 | ) | | 0.6 |
| | | Total reclassifications | | | $ | (100.0 | ) | | $ | (100.0 | ) | |
(a)Previously reported within Note 4 to the consolidated financial statements of the Great Plains Energy and notes includedKCP&L combined First Quarter 2018 Quarterly Report on Form 10-Q. Restricted Cash As of March 31, 2019, Evergy and KCP&L had restricted cash balances of $414.3 million as a result of the net proceeds from KCP&L's issuance of $400.0 million of 4.125% Mortgage Bonds in our 2016 Form 10-K.March 2019 that were irrevocably deposited with a bond trustee along with accrued interest, in order to retire KCP&L's 7.15% Mortgage Bonds, which matured in April 2019. See Note 7 for additional details.
When we prepare our condensed consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates on an ongoing basis, including those related to depreciation, unbilled revenue, valuation of investments, forecasted fuel costs included in our retail energy cost adjustment (RECA) billed to customers, income taxes, pension and post-retirement benefits, our asset retirement obligations (AROs) including the decommissioning of Wolf Creek, environmental issues, VIEs, contingencies and litigation. Actual results may differ from those estimates under different assumptions or conditions. The results of operations for the three and nine months ended September 30, 2017, are not necessarily indicative of the results to be expected for the full year.
Fuel Inventory and Supplies
We stateThe Evergy Companies record fuel inventory and supplies at average cost. Following areThe following table separately states the balances for fuel inventory and supplies stated separately.supplies.
| | | | As of | | As of | March 31 | December 31 | | | September 30, 2017 | | December 31, 2016 | | 2019 | | 2018 | | | | (In Thousands) | | | Evergy | | | (millions) | | | Fuel inventory | $ | 87,429 |
| | $ | 107,086 |
| | $ | 132.2 |
| | $ | 168.9 |
| | | Supplies | 197,645 |
| | 193,039 |
| | 334.3 |
| | 342.1 |
| | | Fuel inventory and supplies | $ | 285,074 |
| | $ | 300,125 |
| | $ | 466.5 |
| | $ | 511.0 |
| | | Westar Energy | | | | | | Fuel inventory | | | $ | 74.2 |
| | $ | 87.8 |
| | | Supplies | | | 180.8 |
| | 189.0 |
| | | Fuel inventory and supplies | | | $ | 255.0 |
| | $ | 276.8 |
| | | KCP&L | | | |
| | |
| | | Fuel inventory | | | $ | 39.2 |
| | $ | 57.8 |
| | | Supplies | | | 120.1 |
| | 119.8 |
| | | Fuel inventory and supplies | | | $ | 159.3 |
| | $ | 177.6 |
| |
Property, Plant and Equipment
Allowance for Funds Used During Construction
Allowance for funds used during construction (AFUDC) representsThe following tables summarize the allowed costproperty, plant and equipment of capital used to finance utility construction activity. We compute AFUDC by applying a composite rate to qualified construction work in progress. We credit other income (for equity funds)Evergy, Westar Energy and interest expense (for borrowed funds) for the amount of AFUDC capitalized as construction cost on the accompanying condensed consolidated statements of income as follows.KCP&L.
| | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | 2017 | | 2016 | | 2017 | | 2016 | | | (Dollars In Thousands) | | Borrowed funds | $ | 1,210 |
| | $ | 2,537 |
| | $ | 3,958 |
| | $ | 6,884 |
| | Equity funds | 321 |
| | 2,647 |
| | 1,094 |
| | 7,894 |
| | Total | $ | 1,531 |
| | $ | 5,184 |
| | $ | 5,052 |
| | $ | 14,778 |
| | Average AFUDC Rates | 2.2 | % | | 3.6 | % | | 2.0 | % | | 4.2 | % |
| | | | | | | | | | | | | | | March 31, 2019 | | Evergy | | Westar Energy | | KCP&L | | | | (millions) | | Electric plant in service | | $ | 27,161.1 |
| | $ | 13,263.5 |
| | $ | 10,546.0 |
| | Electric plant acquisition adjustment | | 740.6 |
| | 740.6 |
| | — |
| | Accumulated depreciation | | (9,856.2 | ) | | (4,721.2 | ) | | (4,083.5 | ) | | Plant in service | | 18,045.5 |
| | 9,282.9 |
| | 6,462.5 |
| | Construction work in progress | | 635.7 |
| | 365.0 |
| | 173.2 |
| | Nuclear fuel, net | | 155.9 |
| | 77.5 |
| | 78.4 |
| Plant to be retired, net(a) | | 1.0 |
| | 1.0 |
| | — |
| | Property, plant and equipment, net | | $ | 18,838.1 |
| | $ | 9,726.4 |
| | $ | 6,714.1 |
| | | | | | | | | | December 31, 2018 | | Evergy | | Westar Energy | | KCP&L | | | | (millions) | | Electric plant in service | | $ | 26,916.7 |
| | $ | 13,176.7 |
| | $ | 10,439.1 |
| | Electric plant acquisition adjustment | | 740.6 |
| | 740.6 |
| | — |
| | Accumulated depreciation | | (9,694.1 | ) | | (4,642.8 | ) | | (4,022.4 | ) | | Plant in service | | 17,963.2 |
| | 9,274.5 |
| | 6,416.7 |
| | Construction work in progress | | 685.2 |
| | 376.7 |
| | 204.4 |
| | Nuclear fuel, net | | 133.1 |
| | 66.1 |
| | 67.0 |
| Plant to be retired, net(a) | | 1.0 |
| | 1.0 |
| | — |
| | Property, plant and equipment, net | | $ | 18,782.5 |
| | $ | 9,718.3 |
| | $ | 6,688.1 |
|
(a) As of March 31, 2019 and December 31, 2018, represents the planned retirement of Westar Energy analog meters prior to the end of their remaining useful lives.
Other Income (Expense), Net The table below shows the detail of other expense for each of the Evergy Companies. | | | | | | | | | | Three Months Ended March 31 | 2019 | | 2018 | | Evergy | (millions) | | Non-service cost component of net benefit cost | $ | (13.1 | ) | | $ | (5.7 | ) | | Other | (6.3 | ) | | (4.9 | ) | | Other expense | $ | (19.4 | ) | | $ | (10.6 | ) | | Westar Energy | | | | | Non-service cost component of net benefit cost | $ | (4.4 | ) | | $ | (5.7 | ) | | Other | (6.2 | ) | | (4.9 | ) | | Other expense | $ | (10.6 | ) | | $ | (10.6 | ) | KCP&L(a) | | | | | Non-service cost component of net benefit cost | $ | (5.1 | ) | | $ | (6.7 | ) | | Other | 0.1 |
| | (1.2 | ) | | Other expense | $ | (5.0 | ) | | $ | (7.9 | ) |
Earnings Per Share
We have participating securities in the form of unvested restricted share units (RSUs) with nonforfeitable rights to dividend equivalents that receive dividends on an equal basis with dividends declared on common shares. As a result, we apply the two-class method of computingTo compute basic and diluted earnings per share (EPS).
To compute basic EPS, we divide the earnings allocated, Evergy divides net income attributable to common stockEvergy, Inc. by the weighted average number of common shares outstanding. Diluted EPS includes the effect of issuable common shares resulting from our RSUs with forfeitable rights to dividend equivalents. We computerestricted share units (RSUs), performance shares and restricted stock. Evergy computes the dilutive effecteffects of potential issuances of common shares using the treasury stock method.
The following table reconciles ourEvergy's basic and diluted EPS from net income.EPS. | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | 2017 | | 2016 | | 2017 | | 2016 | | | (Dollars In Thousands, Except Per Share Amounts) | | Net income | $ | 160,724 |
| | $ | 158,553 |
| | $ | 300,245 |
| | $ | 303,405 |
| | Less: Net income attributable to noncontrolling interests | 2,418 |
| | 3,833 |
| | 10,213 |
| | 10,760 |
| | Net income attributable to Westar Energy, Inc. | 158,306 |
| | 154,720 |
| | 290,032 |
| | 292,645 |
| | Less: Net income allocated to RSUs | 289 |
| | 325 |
| | 515 |
| | 605 |
| | Net income allocated to common stock | $ | 158,017 |
| | $ | 154,395 |
| | $ | 289,517 |
| | $ | 292,040 |
| | | | | | | | | | | Weighted average equivalent common shares outstanding – basic | 142,472,987 |
| | 142,090,706 |
| | 142,458,586 |
| | 142,039,320 |
| | Effect of dilutive securities: | | | | | | | | | RSUs | 43,062 |
| | 487,239 |
| | 37,310 |
| | 373,869 |
| | Weighted average equivalent common shares outstanding – diluted (a) | 142,516,049 |
| | 142,577,945 |
| | 142,495,896 |
| | 142,413,189 |
| | | | | | | | | | | Earnings per common share, basic | $ | 1.11 |
| | $ | 1.09 |
| | $ | 2.03 |
| | $ | 2.06 |
| | Earnings per common share, diluted | $ | 1.11 |
| | $ | 1.08 |
| | $ | 2.03 |
| | $ | 2.05 |
|
| | | | | | | | | | Three Months Ended March 31 | 2019 | | 2018 | | Income | (millions, except per share amounts) | | Net income | $ | 103.4 |
| | $ | 62.9 |
| | Less: net income attributable to noncontrolling interests | 3.9 |
| | 2.4 |
| | Net income attributable to Evergy, Inc. | 99.5 |
| | 60.5 |
| | Common Shares Outstanding | |
| | |
| | Weighted average number of common shares outstanding - basic | 252.8 |
| | 142.6 |
| | Add: effect of dilutive securities | 0.2 |
| | 0.1 |
| | Weighted average number of common shares outstanding - dilutive | 253.0 |
| | 142.7 |
| | Basic and Diluted EPS | $ | 0.39 |
| | $ | 0.42 |
|
_______________
(a) We hadThere were no antidilutiveanti-dilutive securities excluded from the computation of diluted EPS for the three and nine months ended March 31, 2019 and 2018.
Dividends Declared In May 2019, Evergy's Board of Directors (Evergy Board) declared a quarterly dividend of $0.475 per share on Evergy's common stock. The common dividend is payable SeptemberJune 20, 2019, to shareholders of record as of May 30, 20172019 and 2016.. In May 2019, KCP&L's Board of Directors declared a cash dividend payable to Evergy of $65.0 million, payable no later than June 19, 2019.
Supplemental Cash Flow Information | | | | | | | | | | | Nine Months Ended September 30, | | | 2017 | | 2016 | | | (In Thousands) | | CASH PAID FOR (RECEIVED FROM): | | | | | Interest on financing activities, net of amount capitalized | $ | 108,965 |
| | $ | 100,828 |
| | Interest on financing activities of VIEs | 3,061 |
| | 5,846 |
| | Income taxes, net of refunds | (12,645 | ) | | 13,004 |
| | NON-CASH INVESTING TRANSACTIONS: | | | | | Property, plant and equipment additions | 112,493 |
| | 94,007 |
| | Deconsolidation of property, plant and equipment of VIE | (72,901 | ) | | — |
| | NON-CASH FINANCING TRANSACTIONS: | | | | | Issuance of stock for compensation and reinvested dividends | 4,944 |
| | 7,315 |
| | Deconsolidation of VIE | (83,096 | ) | | — |
| | Assets acquired through capital leases | 4,611 |
| | 1,310 |
|
| | | | | | | | | | | Three Months Ended March 31 | | 2019 | | 2018 | | Evergy | | (millions) | | Cash paid for (received from): | | | | | | Interest, net of amounts capitalized | | $ | 59.3 |
| | $ | 33.0 |
| | Interest of VIEs | | 1.0 |
| | 1.3 |
| | Income taxes, net of refunds | | (0.1 | ) | | (0.2 | ) | | Non-cash investing transactions: | | | | | | Property, plant and equipment additions | | 47.1 |
| | 29.8 |
| | Non-cash financing transactions: | | | | | | Issuance of stock for compensation and reinvested dividends | | 0.5 |
| | 0.1 |
| | Westar Energy | | | | Cash paid for (received from): | | | | | | Interest, net of amounts capitalized | | $ | 32.6 |
| | $ | 33.0 |
| | Interest of VIEs | | 1.0 |
| | 1.3 |
| | Income taxes, net of refunds | | — |
| | (0.2 | ) | | Non-cash investing transactions: | | | | | | Property, plant and equipment additions | | 27.1 |
| | 29.8 |
| | Non-cash financing transactions: | | | | | | Issuance of stock for compensation and reinvested dividends | | — |
| | 0.1 |
| KCP&L(a) | | | | Cash paid for (received from): | | | | | | Interest, net of amounts capitalized | | $ | 19.6 |
| | $ | 22.7 |
| | Non-cash investing transactions: | | | | | | Property, plant and equipment additions | | 15.9 |
| | 20.9 |
|
(a) KCP&L amounts are not included in consolidated Evergy for the three months ended March 31, 2018.
See Note 13 for supplemental cash flow information regarding the Evergy Companies' leases.
New Accounting PronouncementsStandards
Intangibles - Internal-Use Software
We prepare our condensed consolidated financial statements in accordance with GAAP for the United States of America. To address current issues in accounting,In August 2018, the Financial Accounting Standards Board (FASB) issued the following new accounting pronouncements that may affect our accounting and/or disclosure.
Compensation - Retirement Benefits
In March 2017, the FASB issued Accounting StandardStandards Update (ASU) No. 2017-07,2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which requires employersaligns the requirements for recording implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to disaggregate thedevelop or obtain internal-use software. An entity in a hosting arrangement that is a service cost component from other components of net periodic benefit costs andcontract will need to disclose the amounts of net periodic benefit costs that are included in each income statement line item. The standard requires employers to report the service cost componentdetermine which project stage (that is, preliminary project stage, application development stage or post-implementation stage) an implementation activity relates. Costs for implementation activities in the same line item as other compensation costs and to report the other components of net periodic benefit costs (which include interest costs, expected return on plan assets, amortization of prior service cost or credits and actuarial gains and losses) separately and outside a subtotal of operating income. Of the components of net periodic benefit cost, only the service cost component will be eligible for capitalization as property, plant and equipment, which is to be applied prospectively. The other components of net periodic benefit costs thatapplication development stage are no longer eligible for capitalization as property, plant and equipment will be recorded as a regulatory asset. The guidance changingprepaid asset depending on the presentation innature of the statements of income iscosts, while costs incurred during the preliminary project and post-implementation stages are expensed as the activities occur. Costs that are recorded to a prepaid asset are to be applied on a retrospective basis.expensed over the term of the hosting arrangement. The new standardguidance is effective for annual periods beginning after December 15, 2017. We are evaluating2019 and interim periods within those fiscal years. The new guidance can be applied either retrospectively or prospectively to all implementation costs incurred after the guidance and dodate of adoption. Early adoption is permitted. The Evergy Companies early adopted ASU No. 2018-15 prospectively as of January 1, 2019. The adoption of ASU No. 2018-15 did not expect it to have a material impact on our condensed consolidated financial statements. the Evergy Companies.
Revenue Recognition
Leases
In May 2014,February 2016, the FASB issued ASU No. 2014-09,2016-02, Leases, which addresses revenue from contractsrequires an entity that is a lessee to record a right-of-use asset and a lease liability for lease payments on the balance sheet for all leases with customers. Subsequent ASUs have been released providing modifications and clarifications toterms longer than
12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Lessor accounting remains largely unchanged. In January 2018, the FASB issued ASU No. 2014-09. The objective2018-01, Leases: Land Easement Practical Expedient for Transition to Topic 842, which permits entities to elect an optional transition practical expedient to not evaluate, under Topic 842, land easements that exist or expired before the entity's adoption of Topic 842 and that were not previously accounted for as leases under Topic 840. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which updates narrow aspects of the new guidance issued in ASU No. 2016-02. Also in July 2018, the FASB issued ASU No. 2018-11, Leases: Targeted Improvements, which provides an optional transition method that allows entities to initially apply Topic 842 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without restating prior periods. In December 2018, the FASB issued ASU No. 2018-20, Leases: Narrow-Scope Improvements for Lessors, which is expected to establish principles to report useful information to users of financial statements aboutreduce a lessor's implementation and ongoing costs associated with applying ASU No. 2016-02. In March 2019, the nature, amount, timingFASB issued ASU No. 2019-01, Leases: Codification Improvements, which clarifies certain lessor accounting and uncertainty of revenue from contracts with customers. Underinterim reporting requirements. ASU No. 2016-02 and the new standard, an entity must identify the performance obligations in a contract, determine the transaction price and allocate the price to specific performance obligations to recognize the revenue when the obligation is completed. This guidance issubsequent amendments are effective for fiscal yearsinterim and annual periods beginning after December 15, 2017. Early application of the standard is2018, with early adoption permitted, for fiscal years beginning after December 15, 2016. The standard permits the use of either the retrospective application orand requires a modified retrospective method. We will usetransition approach with an option to either adjust or not adjust comparative periods. The Evergy Companies adopted the modified retrospectivenew guidance on January 1, 2019, without adjusting comparative periods for all leases existing as of January 1, 2019, by electing the optional transition method permitted by ASU No. 2018-11. As a result, Evergy, Westar Energy and KCP&L recorded an increase to assets and liabilities of approximately $110 million, $40 million and $80 million, respectively, as of January 1, 2019. Westar Energy and KCP&L have certain lease transactions between them for which requiresthe related assets and liabilities are eliminated at consolidated Evergy. The adoption of Topic 842 did not have a material impact on the Evergy Companies' consolidated statements of income and comprehensive income and there was no cumulative-effect adjustment recorded to be recorded on the opening balance sheetof retained earnings. The Evergy Companies also elected a practical expedient to forgo reassessing existing or expired contracts as leases to determine whether each is in scope of Topic 842 and to forgo reassessing lease classification for existing and expired leases. See Note 13 for additional disclosures about the beginningEvergy Companies' leases. Merger Pro Forma Financial Information The following unaudited pro forma financial information reflects the consolidated results of 2018, if applicable,operations of Evergy as if the standardmerger transactions had alwaystaken place on January 1, 2017. The unaudited pro forma information was calculated after applying Evergy's accounting policies and adjusting Great Plains Energy's results to reflect purchase accounting adjustments. The unaudited pro forma financial information has been in effect. We have analyzedpresented for illustrative purposes only and documented the impactis not necessarily indicative of the new revenue standard and related ASU’s for our significant revenue streams including retail, transmission and wholesale, as well as other less significant revenue streams. We also continue to monitor unresolved industry issues, including items related to contributions in aidconsolidated results of construction, collectability and alternative revenue programs, and will analyzeoperations that would have been achieved or the related impacts to revenue recognition. We are finalizing our analysisfuture consolidated results of revenue-related controls and developmentoperations of revenue-related disclosure with an overarching emphasis on effective internal controls over financial reporting. Based upon our completed assessments, we do not expect the impact on our condensed consolidated financial statements to be material.Evergy. | | | | | | Three Months Ended March 31, 2018 | | | | (millions, except per share amounts) | | Operating revenues | $ | 1,184.1 |
| | Net income attributable to Evergy, Inc. | 91.9 |
| | Basic earnings per common share | $ | 0.34 |
| | Diluted earnings per common share | $ | 0.34 |
|
3. PENDING MERGER
On May 29, 2016, we entered into an agreement and plan of merger with Great Plains Energy that provided for the acquisition of us by Great Plains Energy. On April 19, 2017, the Kansas Corporation Commission (KCC) denied our and Great Plains Energy’s merger application.
On July 9, 2017, we entered into an amended and restated agreement and plan of merger with Great Plains Energy that provides for a merger of equals between the two companies. Upon closing, each issued and outstanding share of our common stock will be converted into one share of common stock of a new holding company with a final name still to be determined. Upon closing, each issued and outstanding share of Great Plains Energy common stock will be converted into 0.5981 shares of common stock of the new holding company. Following completion of the merger, our shareholders are expected to own approximately 52.5% of the new holding company and Great Plains Energy’s shareholders are expected to own approximately 47.5% of the new holding company.
The closing of the merger is subject to conditions including, among others, approval of our shareholders representing a majority of the outstanding shares of our common stock; approval of Great Plains Energy’s shareholders representing two-thirds of the outstanding shares of Great Plains Energy common stock; clearance under the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act); receipt of all required regulatory approvals from, among others, the Federal Energy Regulatory Commission (FERC), the NRC, the KCC, and the Missouri Public Service Commission (MPSC) (provided that such approvals
do not result in a material adverse effect on Great Plains Energy or us, after giving effect to the merger, measured on the size and scale ofEvergy, Westar Energy and its subsidiaries, taken as a whole); effectiveness of the registration statement for the shares of the new holding company’s common stock to be issued to our shareholders and Great Plains Energy’s shareholders upon consummation of the merger and approval of the listing of such shares on the New York Stock Exchange; the receipt of tax opinions by us and Great Plains Energy thatincurred non-recurring costs and a gain directly related to the merger will be treated as a non-taxable event for U.S. federal income tax purposes; there being no shares of Great Plainsthat have been excluded in the pro forma earnings presented above in accordance with generally accepted accounting principles (GAAP). On an after-tax basis, these non-recurring merger-related costs and gain incurred by Evergy, Westar Energy preference stock outstanding; and Great Plains Energy having not less than $1.25 billion inincluded $5.2 million for the three months ended March 31, 2018,
of after-tax mark-to-market gains on interest rate swaps for which cash or cash equivalents on its balance sheet. The closingsettlement was contingent upon the consummation of the merger is also subjectmerger. 2. REVENUE Evergy's, Westar Energy's and KCP&L's revenues disaggregated by customer class are summarized in the following tables. | | | | | | | | | | | | | | Three Months Ended March 31, 2019 | Evergy | | Westar Energy | | KCP&L | | Revenues | (millions) | | Residential | $ | 451.7 |
| | $ | 192.3 |
| | $ | 164.2 |
| | Commercial | 413.5 |
| | 164.3 |
| | 183.8 |
| | Industrial | 147.0 |
| | 98.4 |
| | 29.7 |
| | Other retail | 9.8 |
| | 5.1 |
| | 2.6 |
| | Total electric retail | $ | 1,022.0 |
| | $ | 460.1 |
| | $ | 380.3 |
| | Wholesale | 83.1 |
| | 61.3 |
| | 18.1 |
| | Transmission | 76.7 |
| | 69.2 |
| | 3.1 |
| | Industrial steam and other | 3.3 |
| | 1.7 |
| | 1.4 |
| | Total revenue from contracts with customers | $ | 1,185.1 |
| | $ | 592.3 |
| | $ | 402.9 |
| | Other | 31.8 |
| | 4.5 |
| | 22.5 |
| | Operating revenues | $ | 1,216.9 |
| | $ | 596.8 |
| | $ | 425.4 |
|
| | | | | | | | | | | | | | Three Months Ended March 31, 2018 | Evergy | | Westar Energy | | KCP&L(a) | | Revenues | (millions) | | Residential | $ | 180.3 |
| | $ | 180.3 |
| | $ | 154.9 |
| | Commercial | 155.4 |
| | 155.4 |
| | 181.8 |
| | Industrial | 93.5 |
| | 93.5 |
| | 32.2 |
| | Other retail | 4.2 |
| | 4.2 |
| | 2.7 |
| | Total electric retail | $ | 433.4 |
| | $ | 433.4 |
| | $ | 371.6 |
| | Wholesale | 94.2 |
| | 94.2 |
| | 3.1 |
| | Transmission | 71.9 |
| | 71.9 |
| | 3.3 |
| | Other | 1.8 |
| | 1.8 |
| | — |
| | Total revenue from contracts with customers | $ | 601.3 |
| | $ | 601.3 |
| | $ | 378.0 |
| | Other | (1.1 | ) | | (1.1 | ) | | 19.1 |
| | Operating revenues | $ | 600.2 |
| | $ | 600.2 |
| | $ | 397.1 |
|
(a)KCP&L amounts are not included in consolidated Evergy for the three months ended March 31, 2018.
3. RECEIVABLES The Evergy Companies' receivables are detailed in the following table. | | | | | | | | | | | | | | March 31 | December 31 | | | | 2019 | | | 2018 | | | Evergy | | (millions) | | | Customer accounts receivable - billed | | $ | 15.0 |
| | | $ | 16.7 |
| | | Customer accounts receivable - unbilled | | 82.1 |
| | | 91.2 |
| | | Other receivables | | 77.5 |
| | | 95.0 |
| | | Allowance for doubtful accounts | | (9.8 | ) | | | (9.2 | ) | | | Total | | $ | 164.8 |
| | | $ | 193.7 |
| | | Westar Energy | | | | | Customer accounts receivable - billed | | $ | — |
| | | $ | — |
| | | Customer accounts receivable - unbilled | | 33.4 |
| | | 16.6 |
| | | Other receivables | | 61.2 |
| | | 71.6 |
| | | Allowance for doubtful accounts | | (4.2 | ) | | | (3.9 | ) | | | Total | | $ | 90.4 |
| | | $ | 84.3 |
| | | KCP&L | | |
| | | |
| | | Customer accounts receivable - billed | | $ | 8.0 |
| | | $ | 7.8 |
| | | Customer accounts receivable - unbilled | | 25.9 |
| | | 42.9 |
| | | Other receivables | | 11.9 |
| | | 15.8 |
| | | Allowance for doubtful accounts | | (4.0 | ) | | | (3.8 | ) | | | Total | | $ | 41.8 |
| | | $ | 62.7 |
| |
Evergy's, Westar Energy's and KCP&L's other receivables at March 31, 2019 and December 31, 2018, consisted primarily of receivables from partners in jointly-owned electric utility plants and wholesale sales receivables. As of March 31, 2019, other receivables for Evergy, Westar Energy and KCP&L included receivables from contracts with customers of $39.6 million, $36.8 million and $1.0 million, respectively. As of December 31, 2018, other receivables for Evergy, Westar Energy and KCP&L included receivables from contracts with customers of $65.8 million, $55.9 million and $5.5 million, respectively. The Evergy Companies recorded bad debt expense related to contracts with customers as summarized in the following table. | | | | | | | | | | | Three Months Ended March 31 | | 2019 | | 2018 | | | (millions) | | Evergy | | $ | 4.0 |
| | $ | 4.0 |
| | Westar Energy | | (0.3 | ) | | 4.0 |
| KCP&L (a) | | 2.8 |
| | 1.7 |
|
(a) KCP&L amounts are not included in consolidated Evergy for the three months ended March 31, 2018. Sale of Accounts Receivable Westar Energy, KCP&L and GMO sell an undivided percentage ownership interest in their retail electric and certain other standard conditions, suchaccounts receivable to independent outside investors. These sales of the undivided percentage ownership interests in accounts receivable to independent outside investors are accounted for as accuracy of representationssecured borrowings with accounts receivable pledged as collateral and warranties, compliance with covenantsa corresponding short-term collateralized note payable recognized on the balance sheets. At March 31, 2019 and December 31, 2018, Evergy's accounts receivable pledged as collateral and the absencecorresponding short-term collateralized note payable were $359.0 million and $365.0 million, respectively. At March 31, 2019 and December 31, 2018, Westar Energy's accounts receivable pledged as collateral and the corresponding short-term collateralized note payable were $185.0 million. At March 31, 2019 and December 31,
Either party may terminate
2018, KCP&L's accounts receivable pledged as collateral and the amendedcorresponding short-term collateralized note payable were $124.0 million and restated merger agreement if$130.0 million, respectively. Westar Energy's receivable sale facility expires in September 2019 and allows for $185.0 million in aggregate outstanding principal amount of borrowings from mid-December through mid-January, $125.0 million from mid- January through mid-February, $185.0 million from mid-February to mid-July and then $200.0 million from mid-July through the merger is not consummated by July 10, 2018, subject to an extension of up to six months. Either party may also terminate the agreement if our shareholders or Great Plains Energy’s shareholders do not approve the merger or an order that prohibits the merger becomes final and non-appealable. There are also termination rights for both parties in certain cases if the other party’s board of directors changes its recommendation to its shareholders regarding approvalexpiration date of the merger, orfacility. KCP&L's receivable sale facility expires in September 2019 and allows for $130.0 million in aggregate outstanding principal amount of borrowings at any time. GMO's receivable sale facility expires in September 2019 and allows for $50.0 million in aggregate outstanding principal amount of borrowings from mid-November through mid-June and then $65.0 million from mid-June through the other party accepts an alternative, superior offer. On August 25, 2017, we and Great Plains Energy filed a joint application with the KCC requesting approvalexpiration date of the merger. On August 31, 2017, we and Great Plains Energy applied for approval of the merger from the MPSC. On September 1, 2017, we and Great Plains Energy filed a joint application for approval of the merger with FERC. On September 5, 2017, Wolf Creek filed a request with the NRC to approve an indirect transfer of control of Wolf Creek’s operating license. We and Great Plains Energy each scheduled special meetings for our respective shareholders on November 21, 2017 to vote on the proposed merger.facility.
The amended and restated merger agreement provides that Great Plains Energy may be required to pay us a termination fee of $190.0 million if the agreement is terminated due to (i) failure to receive regulatory approval prior to July 10, 2018, subject to an extension of up to six months, (ii) a non-appealable regulatory order enjoining the merger or (iii) Great Plains Energy’s failure to close after all conditions precedent to closing have been satisfied. In addition, we may be required to pay Great Plains Energy a termination fee of $190.0 million if the agreement is terminated by us under certain circumstances, such as entering into a definitive acquisition agreement with respect to a superior proposal or by Great Plains Energy as a result of our board of directors changing its recommendation of the merger prior to our shareholder approval having been obtained. Similarly, Great Plains Energy may be required to pay us a termination fee of $190.0 million if the agreement is terminated by Great Plains Energy under certain circumstances, such as entering into a definitive acquisition agreement with respect to a superior proposal or by us as a result of Great Plains Energy’s board of directors changing its recommendation of the merger prior to its shareholder approval having been obtained. Additionally, if the agreement is terminated by either Great Plains Energy or us as a result of Great Plains Energy’s shareholders not approving the agreement, Great Plains Energy may be required to pay us a termination fee of $80.0 million.
In connection with the merger, we have incurred, and expect to incur additional, merger-related expenses. These expenses are included in our selling, general, and administrative expenses. During 2016, we incurred approximately $10.2 million of merger-related expenses. During the three and nine months ended September 30, 2017, we incurred approximately $7.8 million and $8.6 million, respectively, of merger-related expenses. In the event that the merger is consummated, we expect total merger-related expenses will be approximately $45.0 million.
See also Note 13, “Legal Proceedings,” for more information on litigation related to the merger.
4. RATE MATTERS AND REGULATION
KCC Proceedings
Westar Energy 2019 Transmission Delivery Charge
In October 2016, we filed an abbreviated rate review with the KCC to update our prices to include capital costs related to La Cygne Generating Station (La Cygne) environmental upgrades, investment to extend the life of Wolf Creek, costs related to programs to improve grid resiliency and costs associated with investments in other environmental projects during 2015. In May 2017, we entered into a settlement agreement with the major parties to the rate review. In June 2017, the agreement was approved by the KCC. The new prices were effective June 2017 and are expected to increase our annual retail revenues by approximately $16.4 million.
In March 2017,2019, the KCCState Corporation Commission of the State of Kansas (KCC) issued an order allowing us to adjust ouradjusting Westar Energy's retail prices to include updated transmission costs as reflected in the Federal Energy Regulatory Commission (FERC) transmission formula rate (TFR). The new prices were effective in April 20172019 and are expected to increase ourdecrease Westar Energy's annual retail revenues by approximately $12.7$7.7 million.
KCP&L 2019 Transmission Delivery Charge
In December 2016,April 2019, the KCC approvedissued an order allowing us to adjust ouradjusting KCP&L's retail prices to include updated transmission costs incurred for property taxes.as reflected in the FERC TFR. The new prices were effective in January 2017May 2019 and are expected to decrease ourKCP&L's annual retail revenues by approximately $26.8$8.3 million. Westar Energy and KCP&L Earnings Review and Sharing Plan (ERSP) As part of their merger settlement agreement with the KCC, Westar Energy and KCP&L agreed to participate in an ERSP for the years 2019 through 2022. Under the ERSP, Westar Energy and KCP&L's Kansas jurisdiction are required to refund to customers 50% of annual earnings in excess of their authorized return on equity of 9.3% to the extent the excess earnings exceed the amount of Westar Energy's and KCP&L's annual merger bill credits for the year being measured. As of March 31, 2019, Westar Energy and KCP&L estimate their 2019 annual earnings will not result in a refund obligation. Westar Energy and KCP&L will file their 2019 earnings calculations with the KCC in March 2020. The final refund obligation, if any, will be decided by the KCC and could vary from the current estimate. MPSC Proceedings GMO Other Proceedings In December 2018, the Office of the Public Counsel (OPC) and the Midwest Energy Consumers Group (MECG) filed a petition with the Public Service Commission of the State of Missouri (MPSC) requesting an accounting authority order that would require GMO to record a regulatory liability for all revenues collected from customers for return on investment, non-fuel operations and maintenance costs, taxes including accumulated deferred income taxes, and all other costs associated with Sibley Station following the station’s retirement in November 2018. GMO already records depreciation expense to a regulatory liability for Sibley Station following its retirement pursuant to GMO’s rate order from its 2018 Missouri rate case. GMO opposes OPC’s and MECG’s petition on various grounds, including the value of costs that OPC and MECG allege are no longer existent due to the retirement of Sibley Station and the fact that the retirement of Sibley Station was a long-planned event that was contemplated as part of the stipulations and agreements in GMO’s 2018 Missouri rate case. The MPSC issued an order in March 2019 adopting a procedural schedule to resolve OPC’s and MECG’s petition. A hearing in the case is scheduled for July 2019 with an order expected in the second half of 2019.
FERC Proceedings
Westar Energy TFR
OurWestar Energy's TFR, thateffective in January 2019, includes projected 20182019 transmission capital expenditures and operating costs will become effective in January 2018 and is expected to increase ourdecrease annual transmission revenues by approximately $26.1 million.
Our TFR that includes projected 2017 transmission capital expenditures and operating costs was effective in January 2017 and is expected$11.2 million when compared to increase our annual transmission revenues by approximately $29.6 million.2018. This updated rate provided the basis for ourWestar Energy's request with the KCC to adjust ourits retail prices to include updated transmission costs as discussed above.
KCP&L TFR KCP&L's TFR, effective in January 2019, includes projected 2019 transmission capital expenditures and operating costs and is expected to decrease annual transmission revenues by $2.8 million when compared to 2018. This updated rate provided the basis for KCP&L's request with the KCC to adjust its retail prices to include updated transmission costs as discussed above. 5. PENSION PLANS AND POST-RETIREMENT BENEFITS Evergy and certain of its subsidiaries maintain, and Westar Energy and KCP&L participate in, qualified non-contributory defined benefit pension plans covering the majority of Westar Energy's and KCP&L's employees as well as certain non-qualified plans covering certain active and retired officers. Evergy is also responsible for its 94% ownership share of Wolf Creek Generating Station's (Wolf Creek) defined benefit plans, consisting of Westar Energy's and KCP&L's respective 47% ownership shares. For the majority of employees, pension benefits under these plans reflect the employees' compensation, years of service and age at retirement. However, for the plan covering Westar Energy's employees, the benefits for non-union employees hired between 2002 and the second quarter of 2018 and union employees hired beginning in 2012 are derived from a cash balance account formula. The plan was closed to future non-union employees in 2018. For the plans covering KCP&L's employees, the benefits for union employees hired beginning in 2014 are derived from a cash balance account formula and the plans were closed to future non-union employees in 2014. Evergy and its subsidiaries also provide certain post-retirement health care and life insurance benefits for substantially all retired employees of Westar Energy and KCP&L and their respective shares of Wolf Creek's post-retirement benefit plans. The Evergy Companies record pension and post-retirement expense in accordance with rate orders from the KCC and MPSC that allow the difference between pension and post-retirement costs under GAAP and costs for ratemaking to be recognized as a regulatory asset or liability. This difference between financial and regulatory accounting methods is due to timing and will be eliminated over the life of the plans. The following tables provide the components of net periodic benefit costs prior to the effects of capitalization and sharing with joint owners of power plants. | | | | | | | | | | | | | | | | | | | | | | | | | | | Pension Benefits | | Post-Retirement Benefits | | Three Months Ended March 31, 2019 | Evergy | | Westar Energy | | KCP&L | | Evergy | | Westar Energy | | KCP&L | | Components of net periodic benefit costs | (millions) | | Service cost | $ | 19.1 |
| | $ | 7.3 |
| | $ | 11.8 |
| | $ | 0.6 |
| | $ | 0.3 |
| | $ | 0.3 |
| | Interest cost | 27.5 |
| | 13.4 |
| | 14.1 |
| | 2.6 |
| | 1.4 |
| | 1.2 |
| | Expected return on plan assets | (27.1 | ) | | (13.7 | ) | | (12.3 | ) | | (2.4 | ) | | (1.7 | ) | | (0.7 | ) | | Prior service cost | 0.5 |
| | 0.4 |
| | 0.2 |
| | 0.1 |
| | 0.1 |
| | — |
| | Recognized net actuarial (gain)/loss | 6.9 |
| | 6.4 |
| | 12.2 |
| | (0.3 | ) | | (0.1 | ) | | (0.4 | ) | | Net periodic benefit costs before regulatory adjustment and intercompany allocations | 26.9 |
| | 13.8 |
| | 26.0 |
| | 0.6 |
| | — |
| | 0.4 |
| | Regulatory adjustment | (0.1 | ) | | 0.5 |
| | (0.6 | ) | | (0.7 | ) | | (0.8 | ) | | 0.1 |
| | Intercompany allocations | — |
| | — |
| | (6.9 | ) | | — |
| | — |
| | (0.1 | ) | | Net periodic benefit costs | $ | 26.8 |
| | $ | 14.3 |
| | $ | 18.5 |
| | $ | (0.1 | ) | | $ | (0.8 | ) | | $ | 0.4 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | Pension Benefits | | Post-Retirement Benefits | | Three Months Ended March 31, 2018 | Evergy | | Westar Energy | | KCP&L(a) | | Evergy | | Westar Energy | | KCP&L(a) | | Components of net periodic benefit costs | (millions) | | Service cost | $ | 8.0 |
| | $ | 8.0 |
| | $ | 12.2 |
| | $ | 0.3 |
| | $ | 0.3 |
| | $ | 0.5 |
| | Interest cost | 12.7 |
| | 12.7 |
| | 12.7 |
| | 1.2 |
| | 1.2 |
| | 1.2 |
| | Expected return on plan assets | (14.0 | ) | | (14.0 | ) | | (13.9 | ) | | (1.7 | ) | | (1.7 | ) | | (0.7 | ) | | Prior service cost | 0.2 |
| | 0.2 |
| | 0.2 |
| | 0.1 |
| | 0.1 |
| | — |
| | Recognized net actuarial (gain)/loss | 8.2 |
| | 8.2 |
| | 11.4 |
| | (0.1 | ) | | (0.1 | ) | | — |
| | Net periodic benefit costs before regulatory adjustment and intercompany allocations | 15.1 |
| | 15.1 |
| | 22.6 |
| | (0.2 | ) | | (0.2 | ) | | 1.0 |
| | Regulatory adjustment | 2.8 |
| | 2.8 |
| | 0.4 |
| | (0.4 | ) | | (0.4 | ) | | (0.1 | ) | | Intercompany allocations | — |
| | — |
| | (5.5 | ) | | — |
| | — |
| | (0.3 | ) | | Net periodic benefit costs | $ | 17.9 |
| | $ | 17.9 |
| | $ | 17.5 |
| | $ | (0.6 | ) | | $ | (0.6 | ) | | $ | 0.6 |
|
(a) KCP&L amounts are not included in consolidated Evergy for the three months ended March 31, 2018. The components of net periodic benefit costs other than the service cost component are included in other expense on the Evergy Companies' consolidated statements of income and comprehensive income. See Note 1 for additional details. For the three months ended March 31, 2019, Evergy, Westar Energy and KCP&L made pension contributions of $12.3 million, $7.1 million and $5.2 million, respectively. Evergy expects to make additional pension contributions of $103.2 million in 2019 to satisfy the Employee Retirement Income Security Act of 1974, as amended (ERISA) funding requirements and KCC and MPSC rate orders, of which $29.9 million is expected to be paid by Westar Energy and $73.3 million is expected to be paid by KCP&L. Also in 2019, Evergy, Westar Energy and KCP&L expect to make contributions of $2.8 million, $0.7 million and $2.1 million, respectively, to the post-retirement benefit plans.
6. SHORT-TERM BORROWINGS AND SHORT-TERM BANK LINES OF CREDIT Evergy's $2.5 billion master credit facility expires in 2023. Evergy, Westar Energy, KCP&L and GMO have borrowing capacity under the master credit facility with specific sublimits for each borrower. These sublimits can be unilaterally adjusted by Evergy for each borrower provided the sublimits remain within minimum and maximum sublimits as specified in the facility. A default by any borrower under the facility or one of their significant subsidiaries on other indebtedness totaling more than $100.0 million constitutes a default under the facility. Under the terms of this facility, each of Evergy, Westar Energy, KCP&L and GMO is required to maintain a total indebtedness to total capitalization ratio, as defined in the facility, of not greater than 0.65 to 1.00 at all times. As of March 31, 2019, Evergy, Westar Energy, KCP&L and GMO were in compliance with this covenant. The following table summarizes the committed credit facilities (excluding receivable sale facilities discussed in Note 3 and Evergy's term loan credit agreement discussed below) available to the Evergy Companies as of March 31, 2019 and December 31, 2018. | | | | | | | | | | | | | | | | | | | | | | Amounts Drawn | | | | | | Credit Facility | Commercial Paper | Letters of Credit | Cash Borrowings | Available Borrowings | | Weighted Average Interest Rate on Short-Term Borrowings | | March 31, 2019 | (millions) | | | | Evergy, Inc. | $ | 450.0 |
| n/a | $ | 1.0 |
| $ | 100.0 |
| $ | 349.0 |
| | 3.73% | | Westar Energy | 1,000.0 |
| 413.8 |
| 18.3 |
| — |
| 567.9 |
| | 2.77% | | KCP&L | 600.0 |
| 176.0 |
| 2.7 |
| — |
| 421.3 |
| | 2.89% | | GMO | 450.0 |
| 121.2 |
| 2.1 |
| — |
| 326.7 |
| | 2.75% | | Evergy | $ | 2,500.0 |
| $ | 711.0 |
| $ | 24.1 |
| $ | 100.0 |
| $ | 1,664.9 |
| | | | | | | | | | | | | December 31, 2018 | | | | | | | | | Evergy, Inc. | $ | 450.0 |
| n/a | $ | 1.0 |
| $ | — |
| $ | 449.0 |
| | —% | | Westar Energy | 1,000.0 |
| 411.7 |
| 18.3 |
| — |
| 570.0 |
| | 3.08% | | KCP&L | 600.0 |
| 176.9 |
| 2.7 |
| — |
| 420.4 |
| | 2.95% | | GMO | 450.0 |
| 150.0 |
| 2.1 |
| — |
| 297.9 |
| | 3.00% | | Evergy | $ | 2,500.0 |
| $ | 738.6 |
| $ | 24.1 |
| $ | — |
| $ | 1,737.3 |
| |
|
In March 2019, Evergy entered into a $1.0 billion, 6-month term loan credit agreement with a group of banks to provide short-term financing for its common stock repurchase program. The agreement allows for two term loans during the 6-month term of the agreement, in an aggregate principal amount not to exceed the credit limit of the agreement. At closing, Evergy borrowed $500.0 million under the agreement, allowing for one additional term loan borrowing in a principal amount up to $500.0 million. At March 31, 2019, Evergy had $500.0 million of outstanding cash borrowings under the agreement at a weighted-average interest rate of 3.03%. Evergy anticipates repaying borrowings under the term loan credit agreement with proceeds from an expected long-term debt issuance in the second half of 2019. 5. FINANCIAL INSTRUMENTS AND TRADING SECURITIES7. LONG-TERM DEBT
Mortgage Bonds In March 2019, KCP&L issued collateral mortgage bonds secured by the General Mortgage Indenture and Deed of Trust dated as of December 1, 1986, as supplemented (KCP&L Mortgage Indenture) to serve as collateral for KCP&L's obligations under the following outstanding unsecured senior notes: $300.0 million of 3.15% Series, maturing in 2023; $350.0 million of 3.65% Series, maturing in 2025; $250.0 million of 6.05% Series, maturing in 2035;
$400.0 million of 5.30% Series, maturing in 2041; $300.0 million of 4.20% Series, maturing in 2047; and $300.0 million of 4.20% Series, maturing in 2048. The collateral mortgage bonds were issued to the trustee for the unsecured senior notes, are only payable if KCP&L defaults on the underlying unsecured senior notes and do not increase the amount of outstanding debt for KCP&L. As a result of the above transactions, KCP&L's outstanding senior notes have effectively become secured by the mortgage lien of the KCP&L Mortgage Indenture and will rank equally and ratably with all of KCP&L's mortgage bonds, regardless of series, from time to time issued and outstanding under the KCP&L Mortgage Indenture. Also in March 2019, KCP&L issued, at a discount, $400.0 million of 4.125% Mortgage Bonds, maturing in 2049. KCP&L also repaid its $400.0 million of 7.15% Mortgage Bonds at maturity in April 2019. Senior Notes In March 2019, GMO issued $100.0 million of 3.74% Senior Notes, maturing in 2022, under a note purchase agreement. 8. FAIR VALUE MEASUREMENTS Values of Financial Instruments
GAAP establishes a hierarchical framework for disclosing the transparency of the inputs utilized in measuring assets and liabilities at fair value. OurManagement's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the classification of assets and liabilities within the fair value hierarchy levels. In addition, wethe Evergy Companies measure certain investments that do not have a readily determinable fair value at net asset value (NAV), which are not included in the fair value hierarchy. Further explanation of these levels and NAV is summarized below.
Level 1 -– Quoted prices are available in active markets for identical assets or liabilities. The types of assets and liabilities included in levelLevel 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed on public exchanges.
Level 2 -– Pricing inputs are not quoted prices in active markets, but are either directly or indirectly observable. The types of assets and liabilities included in levelLevel 2 are typically liquid investments in funds that have a readily determinable fair value calculated using daily NAVs, othercertain marketable debt securities, financial instruments that are comparable to actively traded securities or contracts, such as treasury securities with pricing interpolated from recent trades of similar securities,in less than active markets or other financial instruments priced with models using highly observable inputs.
Level 3 -– Significant inputs to pricing have little or no transparency. The types of assets and liabilities included in levelLevel 3 are those with inputs requiring significant management judgment or estimation.
Net Asset ValueNAV - Investments that do not have a readily determinable fair value are measured at NAV. These investments do not consider the observability of inputs and, therefore, they are not included within the fair value hierarchy. WeThe Evergy Companies include in this category investments in private equity, real estate and alternative investment funds that do not have a readily determinable fair value. The underlying alternative investments include collateralized debt obligations, mezzanine debt and a variety of other investments.
WeThe Evergy Companies record cash and cash equivalents, accounts receivable and short-term borrowings and variable-rate debt on our condensedtheir consolidated balance sheets at cost, which approximates fair value. Wevalue due to the short-term nature of these instruments.
Interest Rate Derivatives The Evergy Companies are exposed to market risks arising from changes in interest rates and may use derivative instruments to manage these risks. From time to time, this may include entering into interest rate swap agreements to protect against unfavorable interest rate changes relating to forecasted debt transactions. These interest rate swap agreements can be designated as cash flow hedges, in which case gains and losses on the interest rate swaps are deferred in other comprehensive income to be recognized as an adjustment to interest expense over the same period that the hedged interest payments affect earnings.
In December 2018, Evergy entered into an interest rate swap agreement with a notional amount of $500.0 million that has been designated as a cash flow hedge of interest payments from a forecasted debt issuance in 2019. As of March 31, 2019 and December 31, 2018, the interest rate swap had a fair value of $(19.2) million and $(5.4) million, respectively, and was recorded within other current liabilities on Evergy's consolidated balance sheet. For the three months ended March 31, 2019, Evergy recorded a $13.8 million pre-tax loss in other comprehensive loss on Evergy's consolidated statements of comprehensive income. Fair Value of Long-Term Debt The Evergy Companies measure the fair value of fixed-ratelong-term debt a levelusing Level 2 measurement, based on quoted market prices for the same or similar issues or on the current rates offered for instruments of the same remaining maturities and redemption provisions. The recorded amount of accounts receivable and other current financial instruments approximates fair value.
We measure fair value based on informationmeasurements available as of the measurement date. The book value and fair value of the Evergy Companies' long-term debt and long-term debt of variable interest entities is summarized in the following table provides the carrying values and measured fair values of our fixed-rate debt.table.
| | | | | | | | | | | | | | | | | | | As of September 30, 2017 | | As of December 31, 2016 | | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | | (In Thousands) | | Fixed-rate debt | $ | 3,605,000 |
| | $ | 3,857,763 |
| | $ | 3,430,000 |
| | $ | 3,597,441 |
| | Fixed-rate debt of VIEs | 109,967 |
| | 110,586 |
| | 137,962 |
| | 139,733 |
|
| | | | | | | | | | | | | | | | | | | | | March 31, 2019 | | December 31, 2018 | | | | Book Value | | Fair Value | | Book Value | | Fair Value | Long-term debt(a) | | (millions) | Evergy(b) | | $ | 7,827.0 |
| | $ | 8,130.5 |
| | $ | 7,341.7 |
| | $ | 7,412.1 |
| | Westar Energy | | 3,690.0 |
| | 3,884.4 |
| | 3,689.8 |
| | 3,771.3 |
| | KCP&L | | 2,924.6 |
| | 3,130.2 |
| | 2,530.1 |
| | 2,637.5 |
| Long-term debt of variable interest entities(a) | | | | | | | | | | Evergy | | $ | 51.1 |
| | $ | 50.9 |
| | $ | 81.4 |
| | $ | 81.3 |
| | Westar Energy | | 51.1 |
| | 50.9 |
| | 81.4 |
| | 81.3 |
|
(a) Includes current maturities. (b) Book value as of March 31, 2019 and December 31, 2018, includes $136.8 million and $144.8 million, respectively, of fair value adjustments recorded in connection with purchase accounting for the Great Plains Energy and Westar Energy merger, which are not part of future principal payments and will amortize over the remaining life of the associated debt instrument.
Recurring Fair Value Measurements
The following table providestables include the amountsEvergy Companies' balances of financial assets and their corresponding level of hierarchy for our assets that areliabilities measured at fair value.value on a recurring basis. | | | As of September 30, 2017 | | Level 1 | | Level 2 | | Level 3 | | NAV | | Total | | | | | (In Thousands) | | | Nuclear Decommissioning Trust: | | | | | | | | | | | | | Description | | March 31, 2019 | | Level 1 | | Level 2 | Level 3 | NAV | | Westar Energy | | | (millions) | | Assets | | | | | | | | | | | | | Nuclear decommissioning trust(a) | | | | | | | | | | | | | | Domestic equity funds | | $ | — |
| | $ | 64,855 |
| | $ | — |
| | $ | 5,139 |
| | $ | 69,994 |
| | $ | 80.1 |
| | $ | 73.6 |
| | $ | — |
| | $ | — |
| | $ | 6.5 |
| | | International equity funds | | — |
| | 46,020 |
| | — |
| | — |
| | 46,020 |
| | 46.5 |
| | 46.5 |
| | — |
| | — |
| | — |
| | | Core bond fund | | — |
| | 32,914 |
| | — |
| | — |
| | 32,914 |
| | 34.6 |
| | 34.6 |
| | — |
| | — |
| | — |
| | | High-yield bond fund | | — |
| | 17,866 |
| | — |
| | — |
| | 17,866 |
| | 20.6 |
| | 20.6 |
| | — |
| | — |
| | — |
| | | Emerging markets bond fund | | — |
| | 17,617 |
| | — |
| | — |
| | 17,617 |
| | 16.4 |
| | 16.4 |
| | — |
| | — |
| | — |
| | | Combination debt/equity/other fund | | — |
| | 13,688 |
| | — |
| | — |
| | 13,688 |
| | 14.7 |
| | 14.7 |
| | — |
| | — |
| | — |
| | | Alternative investments fund | | — |
| | — |
| | — |
| | 21,063 |
| | 21,063 |
| | 23.3 |
| | — |
| | — |
| | — |
| | 23.3 |
| | | Real estate securities fund | | — |
| | — |
| | — |
| | 10,594 |
| | 10,594 |
| | 12.0 |
| | — |
| | — |
| | — |
| | 12.0 |
| | | Cash equivalents | | 171 |
| | — |
| | — |
| | — |
| | 171 |
| | 0.2 |
| | 0.2 |
| | — |
| | — |
| | — |
| | | Total Nuclear Decommissioning Trust | | 171 |
| | 192,960 |
| | — |
| | 36,796 |
| | 229,927 |
| | | Trading Securities: | | | | | | | | | | | | | Domestic equity funds | | — |
| | 17,883 |
| | — |
| | — |
| | 17,883 |
| | | International equity fund | | — |
| | 4,491 |
| | — |
| | — |
| | 4,491 |
| | | Total nuclear decommissioning trust | | | 248.4 |
| | 206.6 |
| | — |
| | — |
| | 41.8 |
| | | Rabbi trust | | | | | | | | | | | | | | Core bond fund | | — |
| | 11,789 |
| | — |
| | — |
| | 11,789 |
| | 24.7 |
| | — |
| | — |
| | — |
| | 24.7 |
| | | Total Trading Securities | | — |
| | 34,163 |
| | — |
| | — |
| | 34,163 |
| | | Total Assets Measured at Fair Value | | $ | 171 |
| | $ | 227,123 |
| | $ | — |
| | $ | 36,796 |
| | $ | 264,090 |
| | | | | | | | | | | | | | | | As of December 31, 2016 | | Level 1 | | Level 2 | | Level 3 | | NAV | | Total | | | | | (In Thousands) | | | Nuclear Decommissioning Trust: | | | | | | | | | | | | | Domestic equity funds | | $ | — |
| | $ | 56,312 |
| | $ | — |
| | $ | 5,056 |
| | $ | 61,368 |
| | | International equity funds | | — |
| | 35,944 |
| | — |
| | — |
| | 35,944 |
| | | Core bond fund | | — |
| | 27,423 |
| | — |
| | — |
| | 27,423 |
| | | High-yield bond fund | | — |
| | 18,188 |
| | — |
| | — |
| | 18,188 |
| | | Emerging markets bond fund | | — |
| | 14,738 |
| | — |
| | — |
| | 14,738 |
| | | Combination debt/equity/other fund | | — |
| | 13,484 |
| | — |
| | — |
| | 13,484 |
| | 6.2 |
| | — |
| | — |
| | — |
| | 6.2 |
| | | Alternative investments fund | | — |
| | — |
| | — |
| | 18,958 |
| | 18,958 |
| | | Real estate securities fund | | — |
| | — |
| | — |
| | 9,946 |
| | 9,946 |
| | | Cash equivalents | | 73 |
| | — |
| | — |
| | — |
| | 73 |
| | 0.2 |
| | 0.2 |
| | — |
| | — |
| | — |
| | | Total Nuclear Decommissioning Trust | | 73 |
| | 166,089 |
| | — |
| | 33,960 |
| | 200,122 |
| | | Trading Securities: | | | | | | | | | | | | | Domestic equity funds | | — |
| | 18,364 |
| | — |
| | — |
| | 18,364 |
| | | International equity fund | | — |
| | 4,467 |
| | — |
| | — |
| | 4,467 |
| | | Core bond fund | | — |
| | 11,504 |
| | — |
| | — |
| | 11,504 |
| | | Total rabbi trust | | | 31.1 |
| | 0.2 |
| | — |
| | — |
| | 30.9 |
| | | Total | | | $ | 279.5 |
| | $ | 206.8 |
| | $ | — |
| | $ | — |
| | $ | 72.7 |
| | | KCP&L | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | Nuclear decommissioning trust(a) | | | | | | | | | | | | | | Equity securities | | | $ | 188.3 |
| | $ | 188.3 |
| | $ | — |
| | $ | — |
| | $ | — |
| | | Debt securities | | |
|
| | | | | | | | | | | U.S. Treasury | | | 46.0 |
| | 46.0 |
| | — |
| | — |
| | — |
| | | U.S. Agency | | | 0.4 |
| | — |
| | 0.4 |
| | — |
| | — |
| | | State and local obligations | | | 2.1 |
| | — |
| | 2.1 |
| | — |
| | — |
| | | Corporate bonds | | | 30.6 |
| | — |
| | 30.6 |
| | — |
| | — |
| | | Foreign governments | | | 0.1 |
| | — |
| | 0.1 |
| | — |
| | — |
| | | Cash equivalents | | 156 |
| | — |
| | — |
| | — |
| | 156 |
| | 2.9 |
| | 2.9 |
| | — |
| | — |
| | — |
| | | Total Trading Securities | | 156 |
| | 34,335 |
| | — |
| | — |
| | 34,491 |
| | | Total Assets Measured at Fair Value | | $ | 229 |
| | $ | 200,424 |
| | $ | — |
| | $ | 33,960 |
| | $ | 234,613 |
| | | Other | | | (0.5 | ) | | — |
| | (0.5 | ) | | — |
| | — |
| | | Total nuclear decommissioning trust | | | 269.9 |
| | 237.2 |
| | 32.7 |
| | — |
| | — |
| | Self-insured health plan trust(b) | | | | | | | | | | | | | | Equity securities | | | 0.5 |
| | 0.5 |
| | — |
| | — |
| | — |
| | | Debt securities | | | 4.3 |
| | 0.4 |
| | 3.9 |
| | — |
| | — |
| | | Cash and cash equivalents | | | 6.7 |
| | 6.7 |
| | — |
| | — |
| | — |
| | | Other | | | 1.1 |
| | — |
| | 1.1 |
| | — |
| | — |
| | | Total self-insured health plan trust | | | 12.6 |
| | 7.6 |
| | 5.0 |
| | — |
| | — |
| | | Total | | | $ | 282.5 |
| | $ | 244.8 |
| | $ | 37.7 |
| | $ | — |
| | $ | — |
| | | Other Evergy | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | Rabbi trusts | | | | | | | | | | | | | | Fixed income fund | | | $ | 13.1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 13.1 |
| | | Cash and cash equivalents | | | 0.4 |
| | 0.4 |
| | — |
| | — |
| | — |
| | | Total rabbi trusts | | | $ | 13.5 |
| | $ | 0.4 |
| | $ | — |
| | $ | — |
| | $ | 13.1 |
| | | Liabilities | | | | | | | | | | | | | Interest rate swaps(c) | | | $ | 19.2 |
| | $ | — |
| | $ | 19.2 |
| | $ | — |
| | $ | — |
| | | Total | | | $ | 19.2 |
| | $ | — |
| | $ | 19.2 |
| | $ | — |
| | $ | — |
| | | Evergy | | | |
| | |
| | |
| | |
| | | | | Assets | | | |
| | |
| | |
| | |
| | | | Nuclear decommissioning trust(a) | | | $ | 518.3 |
| | $ | 443.8 |
| | $ | 32.7 |
| | $ | — |
| | $ | 41.8 |
| | | Rabbi trusts | | | 44.6 |
| | 0.6 |
| | — |
| | — |
| | 44.0 |
| | Self-insured health plan trust(b) | | | 12.6 |
| | 7.6 |
| | 5.0 |
| | — |
| | — |
| | | Total | | | $ | 575.5 |
| | $ | 452.0 |
| | $ | 37.7 |
| | $ | — |
| | $ | 85.8 |
| | | Liabilities | | | | | | | | | | | | | Interest rate swaps(c) | | | $ | 19.2 |
| | $ | — |
| | $ | 19.2 |
| | $ | — |
| | $ | — |
| | | Total | | | $ | 19.2 |
| | $ | — |
| | $ | 19.2 |
| | $ | — |
| | $ | — |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Description | December 31, 2018 | Level 1 | Level 2 | Level 3 | NAV | | Westar Energy | | (millions) | | Assets | | | | | | | | | | | | | | | | Nuclear decommissioning trust(a) | | | | | | | | | | | | | | | | | Domestic equity funds | | $ | 70.6 |
| | | $ | 63.9 |
| | | $ | — |
| | | $ | — |
| | | $ | 6.7 |
| | | International equity funds | | 36.2 |
| | | 36.2 |
| | | — |
| | | — |
| | | — |
| | | Core bond fund | | 37.5 |
| | | 37.5 |
| | | — |
| | | — |
| | | — |
| | | High-yield bond fund | | 18.9 |
| | | 18.9 |
| | | — |
| | | — |
| | | — |
| | | Emerging markets bond fund | | 15.4 |
| | | 15.4 |
| | | — |
| | | — |
| | | — |
| | | Combination debt/equity/other fund | | 12.9 |
| | | 12.9 |
| | | — |
| | | — |
| | | — |
| | | Alternative investments fund | | 24.1 |
| | | — |
| | | — |
| | | — |
| | | 24.1 |
| | | Real estate securities fund | | 11.8 |
| | | — |
| | | — |
| | | — |
| | | 11.8 |
| | | Cash equivalents | | 0.1 |
| | | 0.1 |
| | | — |
| | | — |
| | | — |
| | | Total nuclear decommissioning trust | | 227.5 |
| | | 184.9 |
| | | — |
| | | — |
| | | 42.6 |
| | | Rabbi trust | | | | | | | | | | | | | | | | | Core bond fund | | 24.8 |
| | | — |
| | | — |
| | | — |
| | | 24.8 |
| | | Combination debt/equity/other fund | | 5.6 |
| | | — |
| | | — |
| | | — |
| | | 5.6 |
| | | Cash equivalents | | 0.2 |
| | | 0.2 |
| | | — |
| | | — |
| | | — |
| | | Total rabbi trust | | 30.6 |
| | | 0.2 |
| | | — |
| | | — |
| | | 30.4 |
| | | Total | | $ | 258.1 |
| | | $ | 185.1 |
| | | $ | — |
| | | $ | — |
| | | $ | 73.0 |
| | | KCP&L | | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | Nuclear decommissioning trust(a) | | | | | | | | | | | | | | | | | Equity securities | | $ | 166.6 |
| | | $ | 166.6 |
| | | $ | — |
| | | $ | — |
| | | $ | — |
| | | Debt securities | | |
| | | |
| | | |
| | | |
| | | |
| | | U.S. Treasury | | 42.1 |
| | | 42.1 |
| | | — |
| | | — |
| | | — |
| | | U.S. Agency | | 0.4 |
| | | — |
| | | 0.4 |
| | | — |
| | | — |
| | | State and local obligations | | 2.1 |
| | | — |
| | | 2.1 |
| | | — |
| | | — |
| | | Corporate bonds | | 30.9 |
| | | — |
| | | 30.9 |
| | | — |
| | | — |
| | | Foreign governments | | 0.1 |
| | | — |
| | | 0.1 |
| | | — |
| | | — |
| | | Cash equivalents | | 1.7 |
| | | 1.7 |
| | | — |
| | | — |
| | | — |
| | | Other | | 0.7 |
| | | 0.7 |
| | | — |
| | | — |
| | | — |
| | | Total nuclear decommissioning trust | | 244.6 |
| | | 211.1 |
| | | 33.5 |
| | | — |
| | | — |
| | Self-insured health plan trust(b) | | | | | | | | | | | | | | | | | Equity securities | | 0.5 |
| | | 0.5 |
| | | — |
| | | — |
| | | — |
| | | Debt securities | | 3.9 |
| | | 0.3 |
| | | 3.6 |
| | | — |
| | | — |
| | | Cash and cash equivalents | | 8.0 |
| | | 8.0 |
| | | — |
| | | — |
| | | — |
| | | Total self-insured health plan trust | | 12.4 |
| | | 8.8 |
| | | 3.6 |
| | | — |
| | | — |
| | | Total | | $ | 257.0 |
| | | $ | 219.9 |
| | | $ | 37.1 |
| | | $ | — |
| | | $ | — |
| | | Other Evergy | | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | Rabbi trusts | | | | | | | | | | | | | | | | | Fixed income fund | | $ | 13.2 |
| | | $ | — |
| | | $ | — |
| | | $ | — |
| | | $ | 13.2 |
| | | Total rabbi trusts | | $ | 13.2 |
| | | $ | — |
| | | $ | — |
| | | $ | — |
| | | $ | 13.2 |
| | | Liabilities | | | | | | | | | | | | | | | | Interest rate swaps(c) | | $ | 5.4 |
| | | $ | — |
| | | $ | 5.4 |
| | | $ | — |
| | | $ | — |
| | | Total | | $ | 5.4 |
| | | $ | — |
| | | $ | 5.4 |
| | | $ | — |
| | | $ | — |
| | | Evergy | | |
| | | |
| | | |
| | | |
| | | | | | Assets | | |
| | | |
| | | |
| | | |
| | | | | Nuclear decommissioning trust(a) | | $ | 472.1 |
| | | $ | 396.0 |
| | | $ | 33.5 |
| | | $ | — |
| | | $ | 42.6 |
| | | Rabbi trust | | 43.8 |
| | | 0.2 |
| | | — |
|
|
| — |
| | | 43.6 |
| | Self-insured health plan trust(b) | | 12.4 |
| | | 8.8 |
| | | 3.6 |
| | | — |
| | | — |
| | | Total | | $ | 528.3 |
| | | $ | 405.0 |
| | | $ | 37.1 |
| | | $ | — |
| | | $ | 86.2 |
| | | Liabilities | | | | | | | | | | | | | | | | Interest rate swaps(c) | | $ | 5.4 |
| | | $ | — |
| | | $ | 5.4 |
| | | $ | — |
| | | $ | — |
| | | Total | | $ | 5.4 |
| | | $ | — |
| | | $ | 5.4 |
| | | $ | — |
| | | $ | — |
| |
| | (a) | Fair value is based on quoted market prices of the investments held by the trust and/or valuation models. |
| | (b) | Fair value is based on quoted market prices of the investments held by the trust. Debt securities classified as Level 1 are comprised of U.S. Treasury securities. Debt securities classified as Level 2 are comprised of corporate bonds, U.S. Agency, state and local obligations, and other asset-backed securities. |
| | (c) | The fair value of interest rate swaps are determined by calculating the net present value of expected payments and receipts under the interest rate swaps using observable market inputs including interest rates and LIBOR swap rates. |
Certain Evergy and Westar Energy investments included in the Nuclear Decommissioning Trust (NDT)table above are measured at NAV andas they do not have readily determinable fair values. These investments are either with investment companies or companies that follow accounting guidance consistent with investment companies. In certain situations, these investments may have redemption restrictions. The following table provides additional information on these Evergy and Westar Energy investments. | | | | | | | | | | | | | | | | | | | | | | | As of September 30, 2017 | | As of December 31, 2016 | | As of September 30, 2017 | | | Fair Value | | Unfunded Commitments | | Fair Value | | Unfunded Commitments | | Redemption Frequency | | Length of Settlement | | | (In Thousands) | | | | | | Nuclear Decommissioning Trust: | | | | | | | | | | | | | Domestic equity funds | $ | 5,139 |
|
| $ | 2,929 |
| | $ | 5,056 |
| | $ | 3,529 |
| | (a) | | (a) | | Alternative investments fund (b) | 21,063 |
| | — |
| | 18,958 |
| | — |
| | Quarterly | | 65 days | | Real estate securities fund (b) | 10,594 |
|
| — |
| | 9,946 |
| | — |
| | Quarterly | | 65 days | | Total | $ | 36,796 |
| | $ | 2,929 |
| | $ | 33,960 |
| | $ | 3,529 |
| | | | |
_______________ | | | | | | | | | | | | | | | | | | | | | | | March 31, 2019 | | December 31, 2018 | | March 31, 2019 | | | Fair | | Unfunded | | Fair | | Unfunded | | Redemption | | Length of | | | Value | | Commitments | | Value | | Commitments | | Frequency | | Settlement | | Westar Energy | (millions) | | | | | | Nuclear decommissioning trust: | | | | | | | Domestic equity funds | $ | 6.5 |
| | $ | 4.0 |
| | $ | 6.7 |
| | $ | 4.3 |
| | (a) | | (a) | Alternative investments fund(b) | 23.3 |
| | — |
| | 24.1 |
| | — |
| | Quarterly | | 65 days | Real estate securities fund(b) | 12.0 |
| | — |
| | 11.8 |
| | — |
| | Quarterly | | 65 days | | Total | $ | 41.8 |
| | $ | 4.0 |
| | $ | 42.6 |
| | $ | 4.3 |
| | | | | | Rabbi trust: | | | | | | | | | | | | | Core bond fund | $ | 24.7 |
| | $ | — |
| | $ | 24.8 |
| | $ | — |
| | (c) | | (c) | | Combination debt/equity/other fund | 6.2 |
| | — |
| | 5.6 |
| | — |
| | (c) | | (c) | | Total | $ | 30.9 |
| | $ | — |
| | $ | 30.4 |
| | $ | — |
| | | | | | Other Evergy | | | | | | | | | | | | | Rabbi trusts: | | | | | | | | | | | | | Fixed income fund | $ | 13.1 |
| | $ | — |
| | $ | 13.2 |
| | $ | — |
| | (c) | | (c) | | Total Evergy investments at NAV | $ | 85.8 |
| | $ | 4.0 |
| | $ | 86.2 |
| | $ | 4.3 |
| | | | |
| | (a) | This investment is in fourfive long-term private equity funds that do not permit early withdrawal. Our investmentsInvestments in these funds cannot be distributed until the underlying investments have been liquidated, which may take years from the date of initial liquidation. TwoThree funds have begun to make distributions. OurThe initial investment in the third fund occurred in 2013. Our initial investment in the fourth and fifth fund occurred in the second quarter of 2016.2016 and first quarter of 2018, respectively. The term of the third and fourth fundfund's term is 15 years, subject to the general partner’spartner's right to extend the term for up to three additional one-year periods. The fifth fund's term will be 15 years after the initial closing date, subject to additional extensions approved by the Advisory Committee to provide for an orderly liquidation of fund investments and dissolution of the fund. |
| | (b) | There is a holdback on final redemptions. |
| | (c) | This investment can be redeemed immediately and is not subject to any restrictions on redemptions. |
We use various types of fuel, including coal, natural gas, uranium and diesel to operate our plants and also purchase power to meet customer demand. Our prices and condensed consolidated financial results are exposed to market risks from commodity price changes for electricity and other energy-related products as well as from interest rates. Volatility in these markets impacts our costs of purchased power, costs of fuel for our generating plants and our participation in energy markets. We strive to manage our customers’ and our exposure to market risks through regulatory, operating and financing activities and, when we deem appropriate, we economically hedge a portion of these risks through the use of derivative financial instruments for non-trading purposes.
Interest Rate Risk
We have entered into numerous fixed and variable rate debt obligations. We manage our interest rate risk related to these debt obligations by limiting our exposure to variable interest rate debt, diversifying maturity dates and entering into treasury yield hedge transactions. We may also use other financial derivative instruments such as interest rate swaps.
6. FINANCIAL INVESTMENTS
We report our investments in equity and debt securities at fair value and use the specific identification method to determine their realized gains and losses. We classify these investments as either trading securities or available-for-sale securities as described below.
Trading Securities
WeThe Evergy Companies hold equity and debt investments that we classifyclassified as trading securities in a trust used to fund certain retirement benefit obligations. As of September 30, 2017, and December 31, 2016, we measured the fair value of trust assets at $34.2 million and $34.5 million, respectively. We include unrealized gains or losses on these securities in investment earnings on our condensed consolidated statements of income. For the three and nine months ended September 30, 2017, we recorded an unrealized gain of $1.0 million and $3.5 million, respectively, on assets still held in the trust. For the three and nine months ended September 30, 2016, we recorded an unrealized gain of $1.0 million and $2.2 million, respectively, on assets still held in the trust.
Available-for-Sale Securities
We hold investments in a trustvarious trusts including for the purposepurposes of funding the decommissioning of Wolf Creek. We have classified these investments as available-for-saleCreek and have recorded all such investments at their fair market value as of September 30, 2017, and December 31, 2016.
Using the specific identification method to determine cost, we realized no gains or losses during the three months ended September 30, 2017, and a gain of $0.1 million during the nine months ended September 30, 2017. We realized no gains or losses during the three months ended September 30, 2016, and a loss of $1.5 million for the nine months ended September 30, 2016. Webenefit of certain retired executive officers of Westar Energy. The Evergy Companies record net realized and unrealized gains and losses on the nuclear decommissioning trusts in regulatory liabilities on our condensedtheir consolidated balance sheets. This reporting is consistent with the method we use to account for the decommissioning costs we recover in our prices. Gains or losses on assets in the trust fund are recorded as increases or decreases, respectively, to regulatory liabilitiessheets and could result in lower or higher funding requirements for decommissioning costs, which we believe would be reflected in the prices paid by our customers.
The following table presents the cost, grossrecord net realized and unrealized gains and losses fair value and allocation of investmentson Westar Energy's rabbi trust in the NDT fund asconsolidated statements of September 30, 2017,income and December 31, 2016.comprehensive income.
The following table summarizes the net unrealized gains (losses) for the Evergy Companies' nuclear decommissioning trusts and rabbi trusts. | | | | | | | | | | | | | | | | | | | | | | | | | | Gross Unrealized | | | | | | Security Type | | Cost | | Gain | | Loss | | Fair Value | | Allocation | | | | (Dollars In Thousands) | | | | As of September 30, 2017: | | | | | | | | | | | | Domestic equity funds | | $ | 55,387 |
| | $ | 15,227 |
| | $ | (620 | ) | | $ | 69,994 |
| | 30 | % | | International equity funds | | 35,937 |
| | 10,083 |
| | — |
| | 46,020 |
| | 20 | % | | Core bond fund | | 32,980 |
| | — |
| | (66 | ) | | 32,914 |
| | 14 | % | | High-yield bond fund | | 17,450 |
| | 416 |
| | — |
| | 17,866 |
| | 8 | % | | Emerging markets bond fund | | 17,186 |
| | 431 |
| | — |
| | 17,617 |
| | 8 | % | | Combination debt/equity/other fund | | 8,068 |
| | 5,620 |
| | — |
| | 13,688 |
| | 6 | % | | Alternative investments fund | | 15,000 |
| | 6,063 |
| | — |
| | 21,063 |
| | 9 | % | | Real estate securities fund | | 9,500 |
| | 1,094 |
| | — |
| | 10,594 |
| | 5 | % | | Cash equivalents | | 171 |
| | — |
| | — |
| | 171 |
| | <1% |
| | Total | | $ | 191,679 |
| | $ | 38,934 |
| | $ | (686 | ) | | $ | 229,927 |
| | 100 | % | | | | | | | | | | | | | | As of December 31, 2016: | | | | | | | | | | | | Domestic equity funds | | $ | 53,192 |
| | $ | 8,295 |
| | $ | (119 | ) | | $ | 61,368 |
| | 31 | % | | International equity funds | | 34,502 |
| | 2,075 |
| | (633 | ) | | 35,944 |
| | 18 | % | | Core bond fund | | 27,952 |
| | — |
| | (529 | ) | | 27,423 |
| | 14 | % | | High-yield bond fund | | 18,358 |
| | — |
| | (170 | ) | | 18,188 |
| | 9 | % | | Emerging markets bond fund | | 16,397 |
| | — |
| | (1,659 | ) | | 14,738 |
| | 7 | % | | Combination debt/equity/other fund | | 9,171 |
| | 4,313 |
| | — |
| | 13,484 |
| | 7 | % | | Alternative investments fund | | 15,000 |
| | 3,958 |
| | — |
| | 18,958 |
| | 9 | % | | Real estate securities fund | | 9,500 |
| | 446 |
| | — |
| | 9,946 |
| | 5 | % | | Cash equivalents | | 73 |
| | — |
| | — |
| | 73 |
| | <1% |
| | Total | | $ | 184,145 |
| | $ | 19,087 |
| | $ | (3,110 | ) | | $ | 200,122 |
| | 100 | % |
| | | | | | | | | | | | Three Months Ended March 31 | | 2019 | | 2018 | | | Westar Energy | | (millions) | | | Nuclear decommissioning trust - equity securities | | $ | 17.2 |
| | $ | (11.7 | ) | | | Rabbi trust | | 1.3 |
| | (0.5 | ) | | | Total | | $ | 18.5 |
| | $ | (12.2 | ) | | KCP&L(a) | | | | | | | Nuclear decommissioning trust - equity securities | | $ | 20.7 |
| | $ | (3.6 | ) | | | Nuclear decommissioning trust - debt securities | | 2.1 |
| | (1.6 | ) | | | Total | | $ | 22.8 |
| | $ | (5.2 | ) | | | Evergy | | | | | | | Nuclear decommissioning trust - equity securities | | $ | 37.9 |
| | $ | (11.7 | ) | | | Nuclear decommissioning trust - debt securities | | 2.1 |
| | — |
| | | Rabbi trusts | | 0.5 |
| | (0.5 | ) | | | Total | | $ | 40.5 |
| | $ | (12.2 | ) | |
The following table presents(a) KCP&L amounts are not included in consolidated Evergy for the fair value and the gross unrealized losses of the available-for-sale securities held in the NDT fund aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2017, and Decemberthree months ended March 31, 20162018..
| | | | | | | | | | | | | | | | | | | | | | | | | | | Less than 12 Months | | 12 Months or Greater | | Total | | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | | (In Thousands) | | As of September 30, 2017: | | | | | | | | | | | | | Domestic equity funds | $ | 1,809 |
| | $ | (337 | ) | | $ | 1,904 |
| | $ | (283 | ) | | $ | 3,713 |
| | $ | (620 | ) | | Core bond fund | 32,914 |
| | (66 | ) | | — |
| | — |
| | 32,914 |
| | (66 | ) | | Total | $ | 34,723 |
| | $ | (403 | ) | | $ | 1,904 |
| | $ | (283 | ) | | $ | 36,627 |
| | $ | (686 | ) | | | | | | | | | | | | | | | As of December 31, 2016: | | | | | | | | | | | | | Domestic equity funds | $ | 1,788 |
| | $ | (119 | ) | | $ | — |
| | $ | — |
| | $ | 1,788 |
| | $ | (119 | ) | | International equity funds | — |
| | — |
| | 7,489 |
| | (633 | ) | | 7,489 |
| | (633 | ) | | Core bond fund | 27,423 |
| | (529 | ) | | — |
| | — |
| | 27,423 |
| | (529 | ) | | High-yield bond fund | — |
| | — |
| | 18,188 |
| | (170 | ) | | 18,188 |
| | (170 | ) | | Emerging markets bond fund | — |
| | — |
| | 14,738 |
| | (1,659 | ) | | 14,738 |
| | (1,659 | ) | | Total | $ | 29,211 |
| | $ | (648 | ) | | $ | 40,415 |
| | $ | (2,462 | ) | | $ | 69,626 |
| | $ | (3,110 | ) |
7. DEBT FINANCING
In January 2017, Westar Energy retired $125.0 million in principal amount of first mortgage bonds (FMBs) bearing a stated interest at 5.15% maturing January 2017.
In March 2017, Westar Energy issued $300.0 million in principal amount of FMBs bearing a stated interest at 3.10% and maturing April 2027.
8. TAXES
We recorded income tax expense of $55.7 million with an effective income tax rate of 26% for the three months endedSeptember 30, 2017, and income tax expense of $81.2 million with an effective income tax rate of 34% for the same period of 2016. We recorded income tax expense of $112.6 million with an effective income tax rate of 27% for the nine months ended September 30, 2017, and income tax expense of $160.4 million with an effective income tax rate of 35% for the same period of 2016. The decrease in the effective income tax rate for the three and nine months ended September 30, 2017, was due primarily to lower income before income taxes, an increase in tax benefits from production tax credits, largely from placing the Western Plains Wind Farm in service, and a favorable deferred tax true-up related to plant differences.
As of September 30, 2017, and December 31, 2016, our unrecognized income tax benefits totaled $1.6 million and $2.8 million, respectively. We do not expect significant changes in our unrecognized income tax benefits in the next 12 months.
As of September 30, 2017, we had $0.1 million accrued for interest related to our unrecognized income tax benefits compared to no amount as of December 31, 2016. We accrued no penalties at either September 30, 2017, or December 31, 2016.
As of September 30, 2017, and December 31, 2016, we had recorded $0.2 million and $1.5 million, respectively, for probable assessments of taxes other than income taxes.
9. PENSION AND POST-RETIREMENT BENEFIT PLANS
The following tables summarize the net periodic costs for our pension and post-retirement benefit plans prior to the effects of capitalization.
| | | | | | | | | | | | | | | | | | | | | Pension Benefits | | Post-retirement Benefits | | Three Months Ended September 30, | | 2017 | | 2016 | | 2017 | | 2016 | | | | (In Thousands) | | Components of Net Periodic Cost (Benefit): | | | | | | | | | | Service cost | | $ | 5,218 |
| | $ | 4,633 |
| | $ | 271 |
| | $ | 271 |
| | Interest cost | | 10,621 |
| | 10,922 |
| | 1,314 |
| | 1,392 |
| | Expected return on plan assets | | (10,760 | ) | | (10,664 | ) | | (1,718 | ) | | (1,708 | ) | | Amortization of unrecognized: | | | | | | | | | | Prior service costs | | 171 |
| | 174 |
| | 114 |
| | 113 |
| | Actuarial loss (gain), net | | 5,489 |
| | 5,146 |
| | (195 | ) | | (279 | ) | | Net periodic cost (benefit) before regulatory adjustment | | 10,739 |
| | 10,211 |
| | (214 | ) | | (211 | ) | | Regulatory adjustment (a) | | 3,288 |
| | 3,306 |
| | (478 | ) | | (486 | ) | | Net periodic cost (benefit) | | $ | 14,027 |
| | $ | 13,517 |
| | $ | (692 | ) | | $ | (697 | ) |
_______________
| | (a) | The regulatory adjustment represents the difference between current period pension or post-retirement benefit expense and the amount of such expense recognized in setting our prices. |
| | | | | | | | | | | | | | | | | | | | | Pension Benefits | | Post-retirement Benefits | | Nine Months Ended September 30, | | 2017 | | 2016 | | 2017 | | 2016 | | | | (In Thousands) | | Components of Net Periodic Cost (Benefit): | | | | | | | | | | Service cost | | $ | 15,655 |
| | $ | 13,930 |
| | $ | 813 |
| | $ | 813 |
| | Interest cost | | 31,862 |
| | 32,802 |
| | 3,941 |
| | 4,178 |
| | Expected return on plan assets | | (32,280 | ) | | (31,990 | ) | | (5,154 | ) | | (5,125 | ) | | Amortization of unrecognized: | | | | | | | | | | Prior service costs | | 512 |
| | 594 |
| | 341 |
| | 341 |
| | Actuarial loss (gain), net | | 16,467 |
| | 15,680 |
| | (585 | ) | | (839 | ) | | Net periodic cost (benefit) before regulatory adjustment | | 32,216 |
| | 31,016 |
| | (644 | ) | | (632 | ) | | Regulatory adjustment (a) | | 9,864 |
| | 9,919 |
| | (1,434 | ) | | (1,458 | ) | | Net periodic cost (benefit) | | $ | 42,080 |
| | $ | 40,935 |
| | $ | (2,078 | ) | | $ | (2,090 | ) |
_______________
| | (a) | The regulatory adjustment represents the difference between current period pension or post-retirement benefit expense and the amount of such expense recognized in setting our prices. |
During the nine months ended September 30, 2017 and 2016, we contributed $20.6 million and $15.7 million, respectively, to the Westar Energy pension trust.
10. WOLF CREEK PENSION AND POST-RETIREMENT BENEFIT PLANS
As a co-owner of Wolf Creek, KGE is indirectly responsible for 47% of the liabilities and expenses associated with the Wolf Creek pension and post-retirement benefit plans. The following tables summarize the net periodic costs for KGE’s 47% share of the Wolf Creek pension and post-retirement benefit plans prior to the effects of capitalization.
| | | | | | | | | | | | | | | | | | | | | Pension Benefits | | Post-retirement Benefits | | Three Months Ended September 30, | | 2017 | | 2016 | | 2017 | | 2016 | | | | (In Thousands) | | Components of Net Periodic Cost (Benefit): | | | | | | | | | | Service cost | | $ | 1,950 |
| | $ | 1,687 |
| | $ | 37 |
| | $ | 31 |
| | Interest cost | | 2,475 |
| | 2,413 |
| | 70 |
| | 81 |
| | Expected return on plan assets | | (2,643 | ) | | (2,431 | ) | | — |
| | — |
| | Amortization of unrecognized: | | | | | | | | | | Prior service costs | | 14 |
| | 14 |
| | — |
| | — |
| | Actuarial loss (gain), net | | 1,245 |
| | 1,090 |
| | (13 | ) | | (3 | ) | | Net periodic cost before regulatory adjustment | | 3,041 |
| | 2,773 |
| | 94 |
| | 109 |
| | Regulatory adjustment (a) | | 247 |
| | 483 |
| | — |
| | — |
| | Net periodic cost | | $ | 3,288 |
| | $ | 3,256 |
| | $ | 94 |
| | $ | 109 |
|
_______________
| | (a) | The regulatory adjustment represents the difference between current period pension or post-retirement benefit expense and the amount of such expense recognized in setting our prices. |
| | | | | | | | | | | | | | | | | | | | | Pension Benefits | | Post-retirement Benefits | | Nine Months Ended September 30, | | 2017 | | 2016 | | 2017 | | 2016 | | | | (In Thousands) | | Components of Net Periodic Cost (Benefit): | | | | | | | | | | Service cost | | $ | 5,850 |
| | $ | 5,061 |
| | $ | 110 |
| | $ | 95 |
| | Interest cost | | 7,425 |
| | 7,241 |
| | 210 |
| | 244 |
| | Expected return on plan assets | | (7,928 | ) | | (7,292 | ) | | — |
| | — |
| | Amortization of unrecognized: | | | | | | | | | | Prior service costs | | 41 |
| | 42 |
| | — |
| | — |
| | Actuarial loss (gain), net | | 3,734 |
| | 3,268 |
| | (38 | ) | | (11 | ) | | Net periodic cost before regulatory adjustment | | 9,122 |
| | 8,320 |
| | 282 |
| | 328 |
| | Regulatory adjustment (a) | | 740 |
| | 1,449 |
| | — |
| | — |
| | Net periodic cost | | $ | 9,862 |
| | $ | 9,769 |
| | $ | 282 |
| | $ | 328 |
|
_______________
| | (a) | The regulatory adjustment represents the difference between current period pension or post-retirement benefit expense and the amount of such expense recognized in setting our prices. |
During the nine months ended September 30, 2017 and 2016, we funded $12.0 million and $14.6 million, respectively, of Wolf Creek’s pension plan contributions.
11. COMMITMENTS AND CONTINGENCIES
Environmental Matters
Set forth below are descriptions of contingencies related to environmental matters that may impact usthe Evergy Companies' operations or ourtheir financial results. OurManagement's assessment of these contingencies, which are based on federal and state statutes and regulations, and regulatory agency and judicial interpretations and actions, has evolved over time. There are a variety of final and proposed laws and regulations that could have a material adverse effect on ourthe Evergy Companies' operations and condensed consolidated financial results. Due in part to the complex nature of environmental laws and regulations, wethe Evergy Companies are unable to assess the impact of potential changes that may develop with respect to the environmental contingencies described below.
Cross-State Air Pollution Update Rule
In September 2016, the Environmental Protection Agency (EPA) finalized the Cross-State Air Pollution Update Rule.Rule (CSAPR). The final rule addresses interstate transport of nitrogen oxide (NOx)oxides emissions in 22 states including Kansas, Missouri and Oklahoma during the ozone season and the impact from the formation of ozone on downwind states with respect to the 2008 ozone National Ambient Air Quality Standards (NAAQS). Starting with the 2017 ozone season, the final rule will reviserevised the existing ozone season allowance budgets for Missouri and Oklahoma and established an ozone season budget for Kansas. In December 2018, the EPA finalized the CSAPR Close-Out Rule, which determined that the existing CSAPR Update Rule fully addresses applicable states' interstate pollution transport obligations for the 2008 ozone NAAQS. Therefore, the EPA is proposing no additional reduction in the current ozone season allowance budgets in order to address obligations for the 2008 ozone NAAQS. Various states and others are challenging the rule in the U.S. Court of Appeals for the D.C. Circuit. We doCircuit (D.C. Circuit), but the rule remains in effect. It is not believeexpected that this rule will have a material impact on ourthe Evergy Companies' operations and condensed consolidated financial results.
National Ambient Air Quality Standards
Under the federal Clean Air Act Amendments of 1990 (CAA), the EPA setsset NAAQS for certain emissions known as the “criteria pollutants”"criteria pollutants" considered harmful to public health and the environment, including two classes of particulate matter (PM), ozone, NOxnitrogen dioxide (NO2) (a precursor to ozone), carbon monoxide and sulfur dioxide (SO2), which result from fossil fuel combustion. Areas meeting the NAAQS are designated attainment areas while those that do not meet the NAAQS are considered nonattainment areas. Each state must develop a plan to bring nonattainment areas into compliance with the NAAQS. NAAQS must be reviewed by the EPA at five-year intervals.
In October 2015, the EPA strengthened the ozone NAAQS by lowering the standards from 75 ppb to 70 ppb. In September 2016, the Kansas Department of Health & Environment (KDHE) recommended toNovember 2017, the EPA that they designate eightdesignated all counties in the stateState of Kansas as well as the Missouri counties in attainment with the standard,KCP&L's and each remaining county in KansasGMO's service territories as attainment/unclassifiable. The EPA was required to make attainment/nonattainment designations for the revised standards by October 2017, with an option to extend this deadline by one year. However, the EPA failed to issue these designations by the October 2017 deadline. If the EPA agrees with the recommended designations for the state of Kansas, we doIt is not believeexpected that this will have a material impact on our condensedthe Evergy Companies' consolidated financial results.
Various states and others are challenging the revised 2015 ozone NAAQS in the D.C. Circuit. In April 2017, at the request of the EPA, the court issued an order holding the case in abeyance because the new administration is planning to review the 2015 ozone NAAQS and will determine whether to reconsider all or a portion of the rule. In October 2017, environmental groups sent a notice to the EPA of their intent to sue for failure to make the required area designations by the October 2017 deadline.
In December 2012, the EPA strengthened an existing NAAQS for one class of PM. In December 2014, the EPA designated the entire state of Kansas as attainment/unclassifiable with the standard. We do not believe this will have a material impact on our operations or condensed consolidated financial results.
In 2010, the EPA revised the NAAQS for SO2. In March 2015, a federal court approved a consent decree between the EPA and environmental groups. The decree includes specific SO2 emissions criteria for certain electric generating plants that, if met, required the EPA to promulgate attainment/nonattainment designations for areas surrounding these plants. Tecumseh Energy Center is our only generating station that meets this criteria. In June 2016, the EPA accepted the State of Kansas recommendation to designate theIf areas surrounding the facility as unclassifiable. In addition, in January 2017, KDHE formally recommended to the EPA a 2,000 ton per year limit for Tecumseh Energy Center Unit 7 in order to satisfy the requirements of the 1-hour SO2 Data Requirements Rule that governs the next round of the designations. Also in January 2017, KDHE recommended the EPA change the designation of the area surrounding the facility from unclassifiable to attainment/unclassifiable. In August 2017, the EPA indicated they would address this area redesignation request in a separate action. By agreeing to the 2,000 ton per year limitation, no further characterization of the area surrounding the plant is required.
We continue to communicate with our regulatory agencies regarding these standards and evaluate what impact the revised NAAQS could have on our operations and condensed consolidated financial results. If areas surrounding ourEvergy Companies' facilities are designated in the future as nonattainment and/or we areit is required to install additional equipment to control emissions at our facilities of the Evergy Companies, it could have a material impact on ourthe operations and condensed consolidated financial results.results of the Evergy Companies.
Greenhouse Gases
Burning coal and other fossil fuels releases carbon dioxide (CO2) and other gases referred to as GHG.greenhouse gases (GHG). Various regulations under the federal CAA limit CO2 and other GHG emissions, and in addition, other measures are being imposed or offered by individual states, municipalities and regional agreements with the goal of reducing GHG emissions.
In October 2015, the EPA published a rule establishing new source performance standards (NSPS) for GHGs that limit CO2 emissions for new, modified and reconstructed coal and natural gas fueled electric generating units to various levels per MWh depending on various characteristics of the units. Legal challenges to the GHG NSPS have been filed in the D.C. Circuit by various states and industry members. Also in October 2015, the EPA published a rule establishing guidelines for states to regulate CO2 emissions from existing power plants. The standards for existing plants are known as the Clean Power Plan (CPP). Under the CPP, interim emissions performance rates must be achieved beginning in 2022 and final emissions performance rates must be achieved by 2030. Legal challenges to the CPP were filed by groups of states and industry members, including us,Westar Energy, in the D.C. Circuit. InThe CPP was stayed by the Supreme Court in February 2016 afterand, accordingly, is not currently being implemented by the U.S. Court of Appeals for the D.C. Circuit denied requests to stay the CPP, the U.S. Supreme Court issued an order granting a stay of the rule pending resolution of the legal challenges. In September 2016, oral arguments were heard before an en banc panel of D.C. Circuit judges and a decision on the legal challenges is pending.states.
In March 2017, President Trump signed an Executive Order instructing the EPA to immediately review the CPP and GHG NSPS, and “if appropriate . . . as soon as practicable . . . publish for notice and comment proposed rules suspending, revising or rescinding those rules.” On the same day the Executive Order was signed, the EPA filed motions with the D.C. Circuit asking the court to hold the challenges to the CPP and the GHG NSPS in abeyance while the EPA completes its administrative review of the rules and issues any forthcoming rulemakings. In April 2017, the court issued orders to hold the cases in abeyance for 60 days and requested briefing on whether the cases should be remanded to the EPA or continue to be held in abeyance. In May 2017, all parties in the case filed supplemental briefs stating their positions regarding remanding the rule back to the EPA or continuing to hold the case in abeyance.
Also in April 2017, the EPA published in the Federal Register a notice of withdrawal of the proposed CPP federal plan, proposed model trading rules and proposed Clean Energy Incentive Program design details, in light of the Executive Order and the agency’s review of the CPP.details. Also in April 2017, the EPA published a notice in the Federal Register that it iswas initiating administrative reviews of the CPP and the GHG NSPS in light of the Executive Order.NSPS.
In October 2017, the EPA issued a proposed rule to repeal the CPP. The proposed rule indicates the CPP exceeds the EPA’s authority and the EPA has not determined whether or not they will issue a replacement rule. The EPA is solicitingsolicited comments on the legal interpretations contained in this rulemaking. Comments on the proposed rule are due in In December 2017. On the same day2017, the EPA issued its proposalan advance notice of proposed rulemaking to repealsolicit feedback on specific areas of the CPP that could be changed. In August 2018, the EPA filed a motionpublished in the D.C. CircuitFederal Register proposed regulations, which contained (1) emission guidelines for GHG emissions from existing electric utility generating units (EGUs), (2) revisions to extendemission guideline implementing regulations and (3) revisions to the abeyance periodnew source review (NSR) program. The proposed emission guidelines are better known as the Affordable Clean Energy (ACE) Rule. The ACE Rule would establish emission guidelines for states to use in the development of plans to reduce GHG emissions from existing coal-fired EGUs. The ACE Rule is also the replacement rule for the rulemaking challenges untilCPP. The ACE rule proposes to determine the conclusion"best system of the new rulemaking. Certain states and environmental groups have opposed the EPA’s motion and asked the court to issue its ruling on the CPP.emission reduction" (BSER) for GHG emissions from existing coal-fired EGUs as on-site, heat-rate
efficiency improvements. The proposed rule also provides states with a list of candidate technologies that can be used to establish standards of performance and incorporate these performance standards into state plans. In order for the states to be able to effectively implement the proposed emission guidelines contained in the ACE Rule, the EPA is proposing new regulations under 111(d) of the CAA to help clarify this process. In addition, the EPA is proposing revisions to the NSR program that will reduce the likelihood of triggering NSR for proposed heat-rate efficiency improvement projects at existing coal-fired EGUs. The public comment period for these proposed regulatory changes closed on October 31, 2018. In December 2018, the EPA released a proposed rule to revise the existing GHG NSPS for new, modified and reconstructed fossil fuel-fired EGUs, which was issued in October 2015. This proposed rule would determine that BSER for new EGUs is "the most efficient demonstrated steam cycle (e.g. supercritical steam conditions for large units and subcritical steam conditions for small units) in combination with the best operating practices." This replaces the current determination that BSER for these units is the use of partial carbon capture and sequestration technology. The EPA is also proposing to address, in potential future rule making, existing operational limitations imposed by the rule on aero-derivative simple cycle combustion turbines. Due to the future uncertainty of the CPP weand ACE Rule, the Evergy Companies cannot determine the impact on ourtheir operations or condensed consolidated financial results, but we believe the cost to comply with the CPP, should it be upheld and implemented in its current or a substantially similar form, or ACE in its current or a substantially similar form, could be material.
Water
WeWater
The Evergy Companies discharge some of the water used in ourgeneration and other operations. This water may contain substances deemed to be pollutants. Revised rules governing such discharges from coal-fired power plants were issued inA November 2015. The final2015 EPA rule establishes effluent limitations guidelines (ELGs)(ELG) and standards for wastewater discharges, including limits on the amount of toxic metals and other pollutants that can be discharged. Implementation timelines for these requirements vary from 2018 to 2023. In April 2017, the EPA announced it is reconsidering the ELG rule and court challenges have been placed in abeyance pending the EPA’s review.rule. In September 2017, the EPA finalized a rule to postpone the compliance dates for the new, more stringent, effluent limitations and pretreatment standards for bottom ash transport water and flue gas desulfurization wastewater. These compliance dates have been postponed for two years while the EPA completes its administrative reconsideration of the ELG rule. WeIn April 2019, the U.S. Court of Appeals for the 5th Circuit (5th Circuit) issued a ruling that vacates and remands portions of the ELG rule. The 5th Circuit ruled in favor of environmental groups who argued that EPA did not set appropriate limits for the best available technology economically achievable for legacy waste water and leachate. The Evergy Companies are evaluating the final5th Circuit ruling, the existing ELG rule and related developments and cannot predict the resulting
impact on ourtheir operations or condensed consolidated financial results, but believe costs to comply could be material if the rule is implemented in its current or substantially similar form.
In October 2014, the EPA’sEPA's final standards for cooling intake structures at power plants to protect aquatic life took effect. The standards, based on Section 316(b) of the federal Clean Water Act (CWA), require subject facilities to choose among seven best available technology options to reduce fish impingement. In addition, some facilities must conduct studies to assist permitting authorities to determine whether and what site-specific controls, if any, would be required to reduce entrainment of aquatic organisms. OurThe Evergy Companies' current analysis indicates this rule will not have a significant impact on ourtheir coal plants that employ cooling towers or cooling lakes that can be classified as closed cycle cooling. Wecooling and do not expect the impact from this rule to be material. Plants without closed cycle cooling are under evaluation for compliance with these standards and may require additional controls that could be material. KCP&L holds a permit from the Missouri Department of Natural Resources (MDNR) covering water discharge from its Hawthorn Station. The permit authorizes KCP&L to, among other things, withdraw water from the Missouri River for cooling purposes and return the heated water to the Missouri River. KCP&L has applied for a renewal of this permit and the EPA has submitted an interim objection letter regarding the allowable amount of heat that can be contained in the returned water. Until this matter is resolved, KCP&L continues to operate under its current permit. Evergy and KCP&L cannot predict the outcome of this matter; however, while less significant outcomes are possible, this matter may require a reduction in generation, installation of cooling towers or other
technology to cool the water, or both, any of which could have a material impact on Evergy's and KCP&L's operations and consolidated financial results. In June 2015, the EPA along with the U.S. Army Corps of Engineers issued a final rule, effective August 2015, defining the Waters of the United States (WOTUS) for purposes of the CWA. This rulemaking has the potential to impact all programs under the CWA. Expansion of regulated waterways is possible under the rule depending on regulating authority interpretation, which could impact several permitting programs. Various states and others have filed lawsuits challenging the WOTUS rule in district courtsrule. In February 2018, the EPA and courts of appeals across the country. The appellate court challenges have been consolidated in the U.S. CourtArmy Corps of Appeals forEngineers finalized a rule adding an applicability date to the Sixth Circuit and, in October 2015 rule, which makes the Sixth Circuit issued an order that temporarily stays implementation date of the WOTUS rule nationwide pending the outcome of the various legal challenges.February 2020. In July 2017,December 2018, the EPA and the U.S. Army Corps of Engineers published in the Federal Register a proposed rule that would, if implemented, reinstatetitled "Revised Definition of Waters of the definitionUnited States." This proposed rule narrows the extent of WOTUS that existed priorthe CWA jurisdiction as compared to the June 2015 expansion of the definition. Werule. The Evergy Companies are currently evaluating the WOTUS rule and related developments. Wedevelopments, but do not believe the rule, if upheld and implemented in its current or substantially similar form, will have a material impact on ourthe Evergy Companies' operations or condensed consolidated financial results.
Regulation of Coal Combustion Residuals
In the course of operating ourtheir coal generation plants, wethe Evergy Companies produce coal combustion residuals (CCRs), including fly ash, gypsum and bottom ash. We recycle someSome of ourthis ash production is recycled, principally by selling to the aggregate industry. The EPA published a rule to regulate CCRs in April 2015, which we believe will require additional CCR handling, processing and storage equipment and closure of certain ash disposal ponds. Impacts to operations will be dependent on the development of groundwater monitoring of CCR units being completed in 2017 and 2018.units. The Water Infrastructure Improvements for the Nation (WIIN) Act allows states to achieve delegated authority for CCR rules from the EPA. This has the potential to impact compliance options. Electric generation industry participants requestedIn July 2018, the Kansas Department of Health and Environment (KDHE) submitted a CCR permit program application to the EPA under authority of the WIIN Act. In November 2018, KDHE received notice from the EPA that its application is deficient and requested additional clarifying information. KDHE has granteddecided it is not going to move forward with additional submittals at this time and will wait until current legal action associated with the CCR rule is final along with planned upcoming modifications to the CCR rule. In February 2019, MDNR issued a requestproposed CCR rule. The public comment period for this proposed rule closed in March 2019. Once a final state rule is promulgated, then MDNR will submit a WIIN Act application to reconsiderthe EPA to gain authority over the federal CCR program. Similar to the process in Kansas, this would allow Missouri state regulators to gain control of the CCR program. It will take up to one year from submittal of the Missouri application for the EPA to take final action and grant authority to the state, if such authority is granted. EPA submitted comments during the recent public comment period which included concerns around this proposed rule not being as protective as the federal CCR rule. On July 30, 2018, the EPA published in the Federal Register a final rule called the Phase I, Part I CCR Remand Rule to modify portions of the final2015 rulemaking. The Phase I, Part I rule provides a timeline extension for unlined impoundments and landfills that must close due to groundwater impacts or location restrictions. The rule also sets risk-based limits for certain groundwater constituents where a maximum contaminant level did not previously exist. These rule modifications add flexibility when assessing compliance. On August 21, 2018, the D.C. Circuit issued a ruling in the CCR regulation. Werule litigation between the Utility Solid Waste Activities Group, the EPA and environmental organizations. Portions of the rule were vacated and were remanded back to the EPA for potential modification. Potential revisions to remanded sections will force all unlined surface impoundments to close regardless of groundwater conditions. Any changes to the rule based on this court decision will require additional rulemaking from the EPA. In October 2018, a coalition of environmental groups (including Sierra Club) filed a petition for review in the D.C. Circuit challenging the Phase I, Part I revisions to the CCR Rule. In November 2018, this coalition requested the EPA to stay the October 31, 2020 deadline extension for initiating closure for unlined impoundments and landfills that must close due to groundwater impacts or location restrictions. The EPA has rejected this request and the coalition has filed a petition with the D.C. Circuit for a similar stay. In response, the EPA filed a motion with the D.C. Circuit to voluntarily remand without vacatur the Part I, Phase I rule. In March 2019, the D.C. Circuit issued a ruling to grant EPA's motion to remand the rule without vacatur. This ruling maintains the current October 31, 2020 deadline extension. As EPA works on a rule modification, it is possible that this October 31, 2020 deadline will be modified. If the date is moved up then some CCR units in the
Evergy Companies' fleet could have to initiate closure on an earlier timeline than currently planned, the results of which could be material. The Evergy Companies have recorded an AROasset retirement obligations (AROs) for ourtheir current estimateestimates for the closure of ash disposal ponds, but wethe revision of these AROs may be required to record additional AROs in the future due to changes in existing CCR regulations, the results of groundwater monitoring of CCR units or changes in interpretation of existing CCR regulations or changes in the timing or cost to close ash disposal ponds. If additionalrevisions to these AROs are necessary, we believe the impact on ourthe Evergy Companies' operations or condensed consolidated financial results could be material. SPP Revenue Crediting10. RELATED PARTY TRANSACTIONS AND RELATIONSHIPS
In the normal course of business, Westar Energy, KCP&L and GMO engage in related party transactions with one another. A summary of these transactions and the amounts associated with them is provided below. Transactions between Westar Energy and either KCP&L or GMO for the three months ended March 31, 2018 are not reflected below as they occurred prior to the merger. Jointly-Owned Plants and Shared Services KCP&L employees manage GMO's business and operate its facilities at cost, including GMO's 18% ownership interest in KCP&L's Iatan Nos. 1 and 2. The operating expenses and capital costs billed from KCP&L to GMO were $42.0 million and $46.4 million for the three months ended March 31, 2019 and 2018, respectively. Westar Energy employees manage Jeffrey Energy Center and operate its facilities at cost, including GMO's 8% ownership interest in Jeffrey Energy Center. The operating expenses and capital costs billed from Westar Energy to GMO for Jeffrey Energy Center and other various business activities were $6.3 million for the three months ended March 31, 2019. KCP&L employees manage La Cygne Station and operate its facilities at cost, including Westar Energy's 50% ownership interest in La Cygne Station. KCP&L and Westar Energy employees also provide one another with shared service support, including costs related to human resources, information technology, accounting and legal services. The operating expenses and capital costs billed from KCP&L to Westar Energy were $31.5 million for the three months ended March 31, 2019. The operating and capital costs billed from Westar Energy to KCP&L were $7.4 million for the three months ended March 31, 2019. Money Pool KCP&L and GMO are also authorized to participate in the Evergy, Inc. money pool, an internal financing arrangement in which funds may be lent on a short-term basis to KCP&L and GMO from Evergy, Inc. and between KCP&L and GMO. At March 31, 2019 and December 31, 2018, KCP&L had no outstanding receivables or payables under the money pool. Related Party Net Receivables and Payables The following table summarizes Westar Energy's and KCP&L's related party net receivables and payables. | | | | | | | | | | | | | | | March 31 | | | December 31 | | | | | 2019 | | | 2018 | | | Westar Energy | | (millions) | | | Net receivable from GMO | | $ | 2.5 |
| | | $ | 2.6 |
| | | Net payable to KCP&L | | (8.3 | ) | | | (13.5 | ) | | | Net payable to Evergy | | (0.5 | ) | | | (1.4 | ) | | | | | | | | | | | KCP&L | | | | | | | | Net receivable from GMO | | $ | 53.6 |
| | | $ | 72.6 |
| | | Net receivable from Westar Energy | | 8.3 |
| | | 13.5 |
| | | Net receivable from Evergy | | 19.3 |
| | | 15.7 |
| |
Tax Allocation Agreement Evergy files a consolidated federal income tax return as well as unitary and combined income tax returns in several state jurisdictions with Kansas and Missouri being the most significant. Income taxes for consolidated or combined subsidiaries are allocated to the subsidiaries based on separate company computations of income or loss. As of March 31, 2019 and December 31, 2018, Westar Energy had income taxes receivable from Evergy of $32.0 million and $42.7 million, respectively. As of March 31, 2019 and December 31, 2018, KCP&L had income taxes payable to Evergy of $10.6 million and $2.0 million, respectively. Leases KCP&L leases certain transmission equipment from Westar Energy. This lease was entered into prior to the merger in an arms-length transaction and is accounted for as an operating lease. As of March 31, 2019, KCP&L had a memberright-of-use asset of $30.0 million recorded within other long-term assets, $0.6 million of lease liability recorded in other current liabilities and $29.4 million of lease liability recorded in other long-term liabilities on its consolidated balance sheet related to this lease. 11. SHAREHOLDERS' EQUITY Common Stock Repurchase Program In July 2018, the Evergy Board authorized the repurchase of up to 60 million shares of Evergy's common stock. Although this repurchase authorization has no expiration date, Evergy expects to repurchase approximately 60 million shares by mid-2020. Evergy plans to utilize various methods to effectuate the share repurchase program, including but not limited to, a series of transactions that may include accelerated share repurchases (ASRs), open market transactions or other means, subject to market conditions and applicable legal requirements. The repurchase program may be suspended, discontinued or resumed at any time. For the three months ended March 31, 2019, Evergy had total repurchases of common stock of $578.3 million and had repurchased 10.5 million shares under the repurchase program. Since its inception, Evergy has made total repurchases of common stock of approximately $1.6 billion and has repurchased 26.9 million shares under the repurchase program. These repurchase totals include shares repurchased under an ASR agreement that had not reached final settlement as of March 31, 2019, and is discussed further below. In November 2018, Evergy entered into an ASR agreement with a financial institution to purchase $475.0 million of Evergy common stock. In December 2018, the financial institution delivered to Evergy 6.4 million shares of common stock, representing a partial settlement of the Southwest Power Pool, Inc. (SPP) RTO, which coordinatescontract, based on then-current market prices and Evergy paid a total of $475.0 million. The ASR agreement reached final settlement in February 2019 and resulted in the operationdelivery of an additional 1.9 million shares to Evergy based on the average daily volume weighted-average price of Evergy common stock during the term of the ASR agreement, less a multi-state interconnected transmission system. negotiated discount. In 2016,March 2019, Evergy entered into an ASR agreement with a financial institution to purchase $450.0 million of Evergy common stock. In March 2019, the SPP completedfinancial institution delivered to Evergy 6.3 million shares of common stock, representing a processpartial settlement of allocating revenue credits underthe contract, based on then-current market prices and Evergy paid a total of $450.0 million. The final number of shares of Evergy common stock that Evergy may receive or be required to remit upon settlement of the ASR agreement will be based on the average daily volume weighted-average price of Evergy common stock during the term of the ASR agreement, less a negotiated discount. Final settlement of the ASR agreement will occur by June 2019, but may occur earlier at the option of the financial institution. Evergy expects that the final settlement of the ASR agreement will result in the delivery of additional shares of common stock to Evergy at no additional cost. Evergy reflects ASRs as a repurchase of common stock in the period the shares are delivered for purposes of calculating earnings per share and as forward contracts indexed to its Open Access Transmission Tariff to sponsorsown common stock. Evergy's ASRs have met all of certain transmission system upgrades. Qualifying upgradesthe applicable criteria for equity classification and therefore are generation interconnection or transmission service projects that benefit SPP members and that are paidnot accounted for directly by a sponsor without customer support. The SPP determined sponsors are entitled to revenue credits for previously completed upgrades, and members are obligatedas derivative instruments.
Dividend Restrictions Evergy depends on its subsidiaries to pay for revenue credits attributabledividends on its common stock. The Evergy Companies have certain restrictions stemming from statutory requirements, corporate organizational documents, covenants and other conditions that could affect dividend levels or the ability to these historical upgrades. Aspay dividends. The KCC order authorizing the merger transaction requires Evergy to maintain consolidated common equity of at least 35% of total consolidated capitalization. Under the Federal Power Act, Westar Energy, KCP&L and GMO generally can pay dividends only out of retained earnings. Certain conditions in the MPSC and KCC orders authorizing the merger transaction also require Westar Energy and KCP&L to maintain consolidated common equity of at least 40% of total capitalization. Other conditions in the MPSC and KCC merger orders require Westar Energy, KCP&L and GMO to maintain credit ratings of at least investment grade. If Westar Energy's, KCP&L's or GMO's credit ratings are downgraded below the investment grade level as a result in November 2016 we paidof their affiliation with Evergy or any of Evergy's affiliates, the SPP $7.6 million relatedimpacted utility shall not pay a dividend to revenue credits attributableEvergy without KCC or MPSC approval or until the impacted utility's investment grade credit rating has been restored. The master credit facility of Evergy, Westar Energy, KCP&L and GMO, the term loan agreement of Evergy and the note purchase agreements for certain GMO senior notes contain covenants requiring the respective company to historical upgrades frommaintain a consolidated indebtedness to consolidated total capitalization ratio of not more than 0.65 to 1.00 at all times. As of March 200831, 2019, all of Evergy's and Westar Energy's retained earnings and net income were free of restrictions and KCP&L had a retained earnings restriction of $471.2 million. Evergy's subsidiaries had restricted net assets of approximately $5.4 billion as of March 31, 2019. These restrictions are not expected to August 2016. In October 2017,affect the SPP issued revised allocations and we believe we will receive a small refund.
Storage of Spent Nuclear Fuel
In 2010,Evergy Companies' ability to pay dividends at the Department of Energy (DOE) filed a motion with the NRC to withdraw its then pending application to construct a national repositorycurrent level for the disposal of spent nuclear fuel and high-level radioactive waste at Yucca Mountain, Nevada. An NRC board denied the DOE’s motion to withdraw its application and the DOE appealed that decision to the full NRC. In 2011, the NRC issued an evenly split decision on the appeal and also ordered the licensing board to close out its work on the DOE’s application by the end of 2011 due to a lack of funding. These agency actions prompted the states of Washington and South Carolina, and a county in South Carolina, to file a lawsuit in a federal Court of Appeals asking the court to compel the NRC to resume its license review and to issue a decision on the license application. In August 2013, the court ordered the NRC to resume its review of the DOE’s application. The NRC has not yet issued its decision.
Wolf Creek is currently evaluating alternatives for expanding its existing on-site spent nuclear fuel storage to provide additional capacity prior to 2025. Wolf Creek has finalized a settlement agreement through 2019 with the DOE for reimbursement of costs to construct this facility that would not have otherwise been incurred had the DOE began accepting spent nuclear fuel. As a co-owner of Wolf Creek, we received $0.8 million of the settlement representing reimbursement of costs incurred through 2015 for project planning. Wolf Creek submitted a settlement claim to the DOE in August 2017 for costs incurred between January 2016 and June 2017, with our share of the claim being approximately $0.5 million. We cannot predict when, or if, an off-site storage site or alternative disposal site will be available to receive Wolf Creek’s spent nuclear fuel and will continue to monitor this activity.
foreseeable future.
12. ASSET RETIREMENT OBLIGATIONSTAXES Components of income tax expense are detailed in the following tables. | | | | | | | | | | Evergy | | | Three Months Ended March 31 | 2019 | | 2018 | | Current income taxes | (millions) | | Federal | $ | 11.9 |
| | $ | 0.2 |
| | State | (0.6 | ) | | — |
| | Total | 11.3 |
| | 0.2 |
| | Deferred income taxes | | | | | Federal | (7.3 | ) | | 5.9 |
| | State | 6.3 |
| | 3.7 |
| | Total | (1.0 | ) | | 9.6 |
| | Investment tax credit amortization | (1.0 | ) | | (0.6 | ) | | Income tax expense | $ | 9.3 |
| | $ | 9.2 |
|
In 2017, Wolf Creek filed a nuclear decommissioning cost study with46
| | | | | | | | | | Westar Energy | | | | | Three Months Ended March 31 | 2019 | | 2018 | | Current income taxes | (millions) | | Federal | $ | 10.4 |
| | $ | 0.2 |
| | State | 0.4 |
| | — |
| | Total | 10.8 |
| | 0.2 |
| | Deferred income taxes | | | | | Federal | (3.2 | ) | | 5.9 |
| | State | 3.6 |
| | 3.7 |
| | Total | 0.4 |
| | 9.6 |
| | Investment tax credit amortization | (0.7 | ) | | (0.6 | ) | | Income tax expense | $ | 10.5 |
| | $ | 9.2 |
|
| | | | | | | | | KCP&L(a) | | | Three Months Ended March 31 | 2019 | | 2018 | | Current income taxes | (millions) | | Federal | $ | 7.9 |
| | $ | (1.3 | ) | | State | 0.8 |
| | (0.5 | ) | | Total | 8.7 |
| | (1.8 | ) | | Deferred income taxes | |
| | |
| | Federal | (5.2 | ) | | 3.6 |
| | State | 0.4 |
| | 2.0 |
| | Total | (4.8 | ) | | 5.6 |
| | Investment tax credit amortization | (0.2 | ) | | (0.3 | ) | | Income tax expense | $ | 3.7 |
| | $ | 3.5 |
|
(a)KCP&L amounts are not included in consolidated Evergy for the KCC. As a resultthree months ended March 31, 2018. Effective Income Tax Rates Effective income tax rates reflected in the financial statements and the reasons for their differences from the statutory federal rates are detailed in the following tables. | | | | | | | | Evergy | | | | | Three Months Ended March 31 | 2019 | | 2018 | | Federal statutory income tax rate | 21.0 | % | | 21.0 | % | | Effect of: | | | | | COLI policies | (1.8 | ) | | (3.1 | ) | | State income taxes | 4.6 |
| | 4.2 |
| | Flow through depreciation for plant-related differences | (4.4 | ) | | 0.9 |
| | Federal tax credits | (3.9 | ) | | (9.5 | ) | | Non-controlling interest | (0.3 | ) | | (0.5 | ) | | AFUDC equity | — |
| | (0.2 | ) | | Amortization of federal investment tax credits | (0.5 | ) | | (0.6 | ) | | Valuation allowance | (7.0 | ) | | 2.1 |
| | Stock compensation | 0.1 |
| | (1.1 | ) | | Officer compensation limitation | 0.2 |
| | — |
| | Other | 0.2 |
| | (0.5 | ) | | Effective income tax rate | 8.2 | % | | 12.7 | % |
| | | | | | | | Westar Energy | | | | | Three Months Ended March 31 | 2019 | | 2018 | | Federal statutory income tax rate | 21.0 | % | | 21.0 | % | | Effect of: | | | | | COLI policies | (3.2 | ) | | (3.1 | ) | | State income taxes | 5.0 |
| | 4.2 |
| | Flow through depreciation for plant-related differences | (0.1 | ) | | 0.9 |
| | Federal tax credits | (6.1 | ) | | (9.5 | ) | | Non-controlling interest | (0.6 | ) | | (0.5 | ) | | AFUDC equity | (0.1 | ) | | (0.2 | ) | | Amortization of federal investment tax credits | (0.7 | ) | | (0.6 | ) | | Valuation allowance | (2.1 | ) | | 2.1 |
| | Stock compensation | (0.1 | ) | | (1.1 | ) | | Other | 0.3 |
| | (0.5 | ) | | Effective income tax rate | 13.3 | % | | 12.7 | % |
| | | | | | | | KCP&L | | | | | Three Months Ended March 31 | 2019 | | 2018 | | Federal statutory income tax rate | 21.0 | % | | 21.0 | % | | Effect of: | | | | | COLI policies | (0.1 | ) | | — |
| | State income taxes | 4.9 |
| | 5.1 |
| | Flow through depreciation for plant-related differences | (7.2 | ) | | (6.9 | ) | | Federal tax credits | (1.5 | ) | | (2.0 | ) | | AFUDC equity | — |
| | (0.3 | ) | | Amortization of federal investment tax credits | (0.3 | ) | | (0.4 | ) | | Stock compensation | 1.0 |
| | (0.2 | ) | | Officer compensation limitation | 0.3 |
| | — |
| | Other | 0.3 |
| | (1.4 | ) | | Effective income tax rate | 18.4 | % | | 14.9 | % |
13. LEASES The Evergy Companies lease office buildings, computer equipment, vehicles, rail cars, generating plant and other property and equipment, including rail cars to serve jointly-owned generating units where Westar Energy or KCP&L is the managing partner and is reimbursed by other joint-owners for its proportionate share of the study, we recordedcosts. A contract is or contains a $19.4 million increaselease if the contract conveys the right to control the use of identified property, plant or equipment for a period of time in our AROexchange for consideration. The Evergy Companies assess a contract as being or containing a lease if the contract identifies property, plant and equipment, provides the lessee the right to reflect revisionsobtain substantially all of the economic benefits from use of the property, plant and equipment and provides the lessee the right to direct the use of the property, plant and equipment. The Evergy Companies have entered several agreements to purchase energy through renewable purchase power agreements accounted for as leases that commenced prior to the estimated costsapplication of Topic 842.Due to decommission Wolf Creek.the intermittent nature of renewable generation, these leases have significant variable lease payments not included in the initial and subsequent measurement of the lease liability. Variable lease payments are expensed as incurred. In addition, we revisedcertain other AROscontracts contain payment for activity that transfers a separate good or service such as utilities or common area maintenance. The Evergy Companies have elected a practical expedient permitted by $40.8 million relatingGAAP to asbestos removal, CCRnot separate such components of the lease from other lease components for all leases.
The Evergy, Westar Energy and windfarms other than Western Plains Wind Farm. We recorded a new AROKCP&L leases have remaining terms ranging from 1 to 20 years, 1 to 20 years and 2 to 27 years, respectively. Leases that have original lease terms of twelve months or less are not recognized on the Evergy Companies’ balance sheets. Some leases have options to renew the lease or terminate early at the election of the Evergy Companies. Judgment is applied at lease commencement to determine the reasonably certain lease term based on then-current assumptions about use of the leased asset, market conditions and terms in the contract. The judgment applied to determine the lease term can significantly impact the measurement of the lease liability and right-of-use asset and lease classification. The Evergy Companies typically discount lease payments over the term of approximately $13.5 million correspondingthe lease using their incremental borrowing rates at lease commencement to placing Western Plains Wind Farm in service. See Note 11, “Commitmentsmeasure its initial and Contingencies - Regulationsubsequent lease liability. For leases that existed at the initial application of Coal Combustion Residuals,” for additional information relatedTopic 842, the Evergy Companies used the incremental borrowing rates that corresponded to the CCR rule.remaining lease term as of January 1, 2019. Leases may be classified as either operating leases or finance leases. The lease classification is based on assumptions of the lease term and discount rate, as discussed above, and the fair market value and economic life of the leased asset. Operating leases recognize a consistent expense each period over the lease term, while finance leases will result in the separate presentation of interest expense on the lease liability and amortization of the right-of-use asset. Finance leases are treated as operating leases for rate-making purposes and as such, the Evergy Companies defer to a regulatory asset or liability any material differences between expense recognition and the timing of payments in order to match what is being recovered in customer rates. The change in the balance of our ARO liability from December 31, 2016, through September 30, 2017,Evergy Companies’ lease expense is summarizeddetailed in the following table. | | | | | | | (In Thousands) |
| | Balance as of December 31, 2016 | $ | 323,951 |
| | Increase in ARO liabilities | 13,471 |
| | Liabilities settled | (1,928 | ) | | Accretion expense | 12,353 |
| | Revision to nuclear decommissioning ARO liability | 19,377 |
| | Revisions in estimated cash flows | 40,829 |
| | Balance as of September 30, 2017 | 408,053 |
| | Balance included in other current liabilities | (10,548 | ) | | Long-term AROs | $ | 397,505 |
|
| | | | | | | | | | | | | | | Three Months Ended March 31, 2019 | | Evergy | | Westar Energy | | KCP&L | | Finance lease costs | | (millions) | | Amortization of right-of-use assets | | $ | 1.1 |
| | $ | 1.0 |
| | $ | — |
| | Interest on lease liabilities | | 0.7 |
| | 0.6 |
| | — |
| | Operating lease costs | | 6.4 |
| | 3.8 |
| | 2.3 |
| | Short-term lease costs | | 0.8 |
| | 0.1 |
| | 0.7 |
| | Variable lease costs for renewable purchase power agreements | | 73.9 |
| | 32.2 |
| | 29.1 |
| | Total lease costs | | $ | 82.9 |
| | $ | 37.7 |
| | $ | 32.1 |
|
Supplemental cash flow information related to the Evergy Companies' leases is detailed in the following table. | | | | | | | | | | | | | | Three Months Ended March 31, 2019 | Evergy | | Westar Energy | | KCP&L | | Cash paid for amounts included in the measurement of lease liabilities: | (millions) | | Operating cash flows from operating leases | $ | 5.8 |
| | $ | 3.4 |
| | $ | 2.4 |
| | Operating cash flows from finance leases | 0.7 |
| | 0.6 |
| | — |
| | Financing cash flows from finance leases | 1.1 |
| | 1.1 |
| | — |
| | Right-of-use assets obtained in exchange for new operating lease liabilities | 2.2 |
| | — |
| | 2.2 |
| | Right-of-use assets obtained in exchange for new finance lease liabilities | 2.3 |
| | 2.3 |
| | — |
|
Finance Leases Right-of-use assets for finance leases are included in property, plant and equipment on the Evergy Companies’ balance sheets. Lease liabilities for finance leases are included in other current and other long-term liabilities.Payments for finance leases as of March 31, 2019 are detailed in the following table. | | | | | | | | | | | | | | | | | Evergy | | Westar Energy | | KCP&L | | | | (millions) | | April 2019 through December 2019 | | $ | 5.4 |
| | $ | 5.1 |
| | $ | 0.2 |
| | 2020 | | 7.0 |
| | 6.6 |
| | 0.2 |
| | 2021 | | 6.5 |
| | 6.0 |
| | 0.2 |
| | 2022 | | 5.7 |
| | 5.2 |
| | 0.2 |
| | 2023 | | 4.8 |
| | 4.4 |
| | 0.2 |
| | After 2023 | | 48.4 |
| | 46.4 |
| | 1.0 |
| | Total finance lease payments | | 77.8 |
| | 73.7 |
| | 2.0 |
| | Amounts representing imputed interest | | (27.6 | ) | | (26.4 | ) | | (0.6 | ) | | Present value of lease payments | | 50.2 |
| | 47.3 |
| | 1.4 |
| | Less: current portion | | (4.2 | ) | | (4.0 | ) | | (0.1 | ) | | Total long-term obligations under finance leases | | $ | 46.0 |
| | $ | 43.3 |
| | $ | 1.3 |
| | | | | | | | | | Weighted-average lease term (years) | | 15.4 |
| | 15.8 |
| | 9.4 |
| | Weighted-average discount rate | | 5.7 | % | | 5.6 | % | | 7.6 | % |
Estimated future commitments under finance leases as of December 31, 2018 are detailed in the following table. | | | | | | | | | | | | | | | | | Evergy | | Westar Energy | | KCP&L | | | | (millions) | | 2019 | | $ | 6.4 |
| | $ | 6.0 |
| | $ | 0.2 |
| | 2020 | | 5.8 |
| | 5.4 |
| | 0.2 |
| | 2021 | | 5.3 |
| | 4.9 |
| | 0.2 |
| | 2022 | | 4.7 |
| | 4.3 |
| | 0.2 |
| | 2023 | | 4.0 |
| | 3.6 |
| | 0.2 |
| | After 2023 | | 48.6 |
| | 46.4 |
| | 1.1 |
| | Total finance lease payments | | 74.8 |
| | 70.6 |
| | 2.1 |
| | Amounts representing imputed interest | | (25.8 | ) | | (24.6 | ) | | (0.6 | ) | | Present value of net minimum lease payments under finance leases | | 49.0 |
| | 46.0 |
| | 1.5 |
| | Less: current portion | | (3.9 | ) | | (3.7 | ) | | (0.1 | ) | | Total long-term obligations under finance leases | | $ | 45.1 |
| | $ | 42.3 |
| | $ | 1.4 |
|
WeOperating Leases
Right-of-use assets for operating leases are included in other long-term assets on the Evergy Companies’ balance sheets. Lease liabilities for operating leases are included in other current and our subsidiariesother long-term liabilities.Lease payments for operating leases as of March 31, 2019 are involved in various legal, environmental and regulatory proceedings. We believe that adequate provisions have been made and accordingly believe that the ultimate disposition of such matters will not have a material effect on our condensed consolidated financial results. See Note 4, “Rate Matters and Regulation,” and Note 11, “Commitments and Contingencies,” for additional information.
Pending Merger
Following the announcement of the original merger agreement in May 2016, two putative class action petitions (which were consolidated and superseded by a consolidated class action petition) and one putative derivative petition challenging the original merger were fileddetailed in the District Court of Shawnee County, Kansas. In September 2016, the plaintiffs in both actions agreed in principle to dismiss the actions in exchange for our agreement to make supplemental disclosures to shareholders in connection with the original merger agreement and grant waivers of the prohibition on requesting a waiver of the standstill provisions in the confidentiality and standstill agreements executed by the bidders that participated in a sale process that was conducted as part of the original merger agreement. As described below, since the announcement of the revised merger agreement, the plaintiffs in the consolidated putative class action has moved to amend their petition, and the plaintiff in the putative derivative case has refiled his petition.
The consolidated putative class action petition, originally filed July 25, 2016, is captioned In re Westar Energy, Inc. Stockholder Litigation, Case No. 2016-CV-000457. This petition named as defendants Westar Energy, the members of our board of directors and Great Plains Energy.
On September 25, 2017, the lead plaintiff filed a motion for leave to amend her class action petition and attached an amended petition. The proposed petition now includes an additional plaintiff. The petition challenges the revised proposed merger and alleges a claim of breach of fiduciary duty against our board of directors and a claim of aiding and abetting that alleged breach against us and Great Plains Energy. The lawsuit seeks injunctive relief declaring the action maintainable as a class action and certifying that the plaintiffs are the class representatives; preliminarily and permanently enjoining the defendants from closing the merger unless we implement a procedure to obtain a merger agreement providing fair and reasonable terms and consideration to the plaintiffs and the class; rescinding the merger agreement or granting the plaintiffs and the class rescissory damages; directing our board of directors to account to the plaintiffs and the class for damages suffered as a result of the alleged breach of fiduciary duty; awarding the plaintiffs reasonable costs and disbursements of the action, including reasonable attorneys’ fees and expert fees; and granting other equitable relief as the court deems proper. The proposed amended petition alleges inadequacies in our joint proxy statement concerning the revised proposed transaction and the degree to which our board of directors solicited or considered offers from prior bidders after the proposed original merger was denied by the KCC, and claims that the consideration our stockholders stand to receive in connection with the revised proposed transaction is unfair. Plaintiffs have added two new defendants, Monarch Energy Holding, Inc. and King Energy, Inc., whom they allege aided and abetted our board of directors in breaching their fiduciary duties.
On October 18, 2017, the putative derivative petition, captioned Braunstein v. Chandler et al., Case No. 2017-CV-000692, was re-filed in the District Court of Shawnee County, Kansas. This putative derivative action names as defendants the members of our board of directors, Great Plains Energy, and subsidiaries of Great Plains Energy, with Westar Energy named as a nominal defendant. The petition asserts that the members of our board of directors breached their fiduciary duties to our shareholders in connection with actions taken after the KCC rejected the proposed original merger. It also asserts that Great Plains Energy and subsidiaries of Great Plains Energy aided and abetted such breaches of fiduciary duties. The petition alleges, among other things, that the members of our board of directors failed to obtain the best possible price for our shareholders because of a flawed process that discouraged third parties from submitting potentially superior proposals, and that members of our board of directors committed waste by not collecting termination fees that may have been payable following the KCC’s rejection of the original merger agreement. The petition seeks, among other remedies, an order enjoining the merger on the terms proposed and directing that the director defendants exercise their fiduciary duties to obtain a transaction which is in the best interests of us and our shareholders, a declaration that the proposed merger was entered into in breach of the fiduciary duties of the defendants and is therefore unlawful and unenforceable, rescission of the merger agreement if consummated, the imposition of a constructive trust in favor of the plaintiff, on behalf of us, upon any benefits improperly received by the named defendants as a result of their wrongful conduct, and an award for costs, including attorneys’ fees and experts’ fees.
In addition, on September 21, 2017, a putative class action lawsuit was filed in the United States District Court for the District of Kansas. The federal class action complaint challenges the merger and alleges violations of sections 14(a) and 20(a) of the Securities Exchange Act of 1934, as amended (Exchange Act). The complaint seeks an order declaring that the action is maintainable as a class action and certifying that the plaintiff is the class representative; preliminarily and permanently enjoining defendants from consummating the mergers or, if consummated, setting them aside and awarding rescissory damages; directing the defendants to file a registration statement on Form S-4 that corrects alleged misstatements; directing our board of directors to account to plaintiff and the class for their damages; awarding reasonable costs and disbursements of the action, including reasonable attorneys’ fees and expert fees; and granting other further relief as the court deems proper. The case is captioned David Pill v. Westar Energy, Inc. et al, Civil Action No. 17-4086.
On October 6, 2017, another putative class action lawsuit was filed in the United States District Court for the District of Kansas. This federal class action complaint challenges the proposed merger and alleges violations of sections 14(a) and 20(a) of the Exchange Act. The complaint seeks an order enjoining the board and other parties from proceeding with, consummating, or closing the merger or, if consummated, setting it aside and awarding rescissory damages; directing the board to disseminate a registration statement that corrects alleged misstatements and includes all material facts the plaintiff asserts are missing; declaring that the defendants violated sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9; awarding reasonable costs and disbursements of the action, including reasonable attorneys’ fees and expert fees; and granting other equitable relief as the court deems proper. The case is captioned Robert L. Reese v. Westar Energy, Inc. et al, Civil Action No. 2:17-cv-02584.
14. VARIABLE INTEREST ENTITIES
In determining the primary beneficiary of a VIE, we assess the entity’s purpose and design, including the nature of the entity’s activities and the risks that the entity was designed to create and pass through to its variable interest holders. A reporting enterprise is deemed to be the primary beneficiary of a VIE if it has (a) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses or right to receive benefits from the VIE that could potentially be significant to the VIE. The primary beneficiary of a VIE is required to consolidate the VIE. The trust holding our 50% interest in La Cygne unit 2 is a VIE. The trust holding our 8% interest in Jeffrey Energy Center (JEC) was a VIE until the expiration of a purchase option in July 2017. We remain the primary beneficiary of the trust holding our 50% interest in La Cygne unit 2.
We assess all entities with which we become involved to determine whether such entities are VIEs and, if so, whether or not we are the primary beneficiary of the entities. We also continuously assess whether we are the primary beneficiary of the VIE with which we are involved. Prospective changes in facts and circumstances may cause us to reconsider our determination as it relates to the identification of the primary beneficiary.
8% Interest in Jeffrey Energy Center
Under an agreement that expires in table.January 2019, we lease an 8% interest in JEC from a trust. The trust was financed with an equity contribution from an owner participant and debt issued by the trust. The trust was created specifically to purchase the 8% interest in JEC and lease it to a third party, and does not hold any other assets. We met the requirements to be considered the primary beneficiary of the trust until July 2017, when a contractual option to purchase the 8% interest in the plant covered by the lease expired. Accordingly, we deconsolidated the trust in the third quarter of 2017.
In determining the primary beneficiary of the trust, we concluded at the inception of the lease that the activities of the trust that most significantly impacted its economic performance and that we had the power to direct included (1) the operation and maintenance of the 8% interest in JEC, (2) our ability to exercise an option that expired in July 2017 to purchase the plant at the end of the agreement at the lesser of fair value or a fixed amount and (3) our option to require refinancing of the trust’s debt. We had the potential to receive benefits from the trust that could potentially be significant if the fair value of the 8% interest in JEC at the end of the agreement was greater than the fixed amount. The possibility of lower interest rates upon refinancing the debt also created the potential for us to receive significant benefits.
50% Interest in La Cygne Unit 2
Under an agreement that expires in September 2029, KGE entered into a sale-leaseback transaction with a trust under which the trust purchased KGE’s 50% interest in La Cygne unit 2 and subsequently leased it back to KGE. The trust was financed with an equity contribution from an owner participant and debt issued by the trust. The trust was created specifically to purchase the 50% interest in La Cygne unit 2 and lease it back to KGE, and does not hold any other assets. We meet the requirements to be considered the primary beneficiary of the trust. In determining the primary beneficiary of the trust, we concluded that the activities of the trust that most significantly impact its economic performance and that we have the power to direct include (1) the operation and maintenance of the 50% interest in La Cygne unit 2 and (2) our ability to exercise a purchase option at the end of the agreement at the lesser of fair value or a fixed amount. We have the potential to receive benefits from the trust that could potentially be significant if the fair value of the 50% interest in La Cygne unit 2 at the end of the agreement is greater than the fixed amount.
Financial Statement Impact
We have recorded the following assets and liabilities on our condensed consolidated balance sheets related to the VIEs described above.
| | | | | | | | | | | As of | | As of | | | September 30, 2017 | | December 31, 2016 | | | (In Thousands) | | Assets: | | | | | Property, plant and equipment of variable interest entities, net | $ | 178,058 |
| | $ | 257,904 |
| | Regulatory assets (a) | — |
| | 10,396 |
| | | | | | | Liabilities: | | | | | Current maturities of long-term debt of variable interest entities | $ | 28,534 |
| | $ | 26,842 |
| | Accrued interest (b) | — |
| | 867 |
| | Long-term debt of variable interest entities, net | 81,433 |
| | 111,209 |
|
| | | | | | | | | | | | | | | | | Evergy | | Westar Energy | | KCP&L | | | | (millions) | | April 2019 through December 2019 | | $ | 15.6 |
| | $ | 9.5 |
| | $ | 7.6 |
| | 2020 | | 18.7 |
| | 10.2 |
| | 10.6 |
| | 2021 | | 15.3 |
| | 7.3 |
| | 10.1 |
| | 2022 | | 12.4 |
| | 5.1 |
| | 9.3 |
| | 2023 | | 9.4 |
| | 2.6 |
| | 8.8 |
| | After 2023 | | 52.4 |
| | 2.8 |
| | 91.3 |
| | Total operating lease payments | | 123.8 |
| | 37.5 |
| | 137.7 |
| | Amounts representing imputed interest | | (20.8 | ) | | (2.7 | ) | | (38.4 | ) | | Present value of lease payments | | 103.0 |
| | 34.8 |
| | 99.3 |
| | Less: current portion | | (16.1 | ) | | (10.5 | ) | | (6.3 | ) | | Total long-term obligations under operating leases | | $ | 86.9 |
| | $ | 24.3 |
| | $ | 93.0 |
| | | | | | | | | | Weighted-average lease term (years) | | 9.3 |
| | 4.2 |
| | 16.2 |
| | Weighted-average discount rate | | 3.9 | % | | 3.4 | % | | 4.1 | % |
_______________
(a) Included in long-term regulatory assets on our condensed consolidated balance sheets.
(b) Included in accrued interest on our condensed consolidated balance sheets.
AllEstimated future commitments under operating leases as of the liabilities notedDecember 31, 2018 are detailed in the table above relate to the purchase of the property, plant and equipment. The assets of the VIEs can be used only to settle obligations of the VIEs and the VIEs’ debt holders have no recourse to our general credit. We have not provided financial or other support to the VIEs and are not required to provide such support. We did not record any gain or loss upon initial consolidation of the VIEs.following table.
| | | | | | | | | | | | | | | | | Evergy | | Westar Energy | | KCP&L | | | | (millions) | | 2019 | | $ | 24.2 |
| | $ | 14.0 |
| | $ | 10.2 |
| | 2020 | | 20.7 |
| | 10.1 |
| | 10.6 |
| | 2021 | | 18.4 |
| | 8.1 |
| | 10.3 |
| | 2022 | | 15.2 |
| | 5.2 |
| | 10.0 |
| | 2023 | | 12.4 |
| | 2.8 |
| | 9.6 |
| | After 2023 | | 95.0 |
| | 3.1 |
| | 91.8 |
| | Total operating lease payments | | $ | 185.9 |
| | $ | 43.3 |
| | $ | 142.5 |
|
ITEM 2. MANAGEMENT’SMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain matters discussed in Management’s Discussion and Analysis are “forward-looking statements.” The Private Securities Litigation Reform Act of 1995 has established that these statements qualify for safe harbors from liability. Forward-looking statements may include words like we “believe,” “anticipate,” “target,” “expect,” “estimate,” “intend” and words of similar meaning. Forward-looking statements describe our future plans, objectives, expectations or goals.
INTRODUCTION
We are the largest electric utility in Kansas. We produce, transmit and sell electricity at retail to customers in Kansas under the regulation of the KCC. We also supply electric energy at wholesale to municipalities and electric cooperatives in Kansas under the regulation of FERC. We have contracts for the sale or purchase of wholesale electricity with other utilities.
In Management’s Discussion and Analysis, we discuss our operating results for the three and nine months ended September 30, 2017, compared to the same periods of 2016, our general financial condition and significant changes that occurred during 2017. As you read Management’s Discussion and Analysis, please refer to our condensed consolidated financial statements and the accompanying notes, which contain our operating results.
SUMMARY OF SIGNIFICANT ITEMS
Proposed Merger with Great Plains Energy
On July 9, 2017, we entered into an amended and restated agreement and plan of merger with Great Plains Energy that provides for a merger of equals between the two companies. Upon closing, each issued and outstanding share of our common stock will be converted into one share of common stock of a new holding company with a final name still to be determined. Upon closing, each issued and outstanding share of Great Plains Energy common stock will be converted into 0.5981 shares of common stock of the new holding company. Following completion of the merger, our shareholders are expected to own approximately 52.5% of the new holding company and Great Plains Energy’s shareholders are expected to own approximately 47.5% of the new holding company. We currently expect to close the transaction in the first half of 2018. For more information, see Notes 3 and 13 of the Notes to Condensed Consolidated Financial Statements, “Pending Merger” and “Legal Proceedings,” respectively, and Item “1A. Risk Factors.”
In July 2017, we announced that we intend to retire Unit 7 at Tecumseh Energy Center, Units 3 and 4 at Murray Gill Energy Center, and units 1 and 2 at Gordon Evans Energy Center in 2018, subject to the completion of the merger. The decision was based in part on lower demand for energy from the plants. The depreciable lives of the assets have been, and continue to be, based upon us operating as a stand-alone entity. Retiring these units or any other assets identified as part of integration planning could result in the write-down of obsolete inventory or the retirement of assets prior to the end of their estimated useful lives.
Earnings Per Share
Following is a summary of our net income and basic EPS. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change | | | | (Dollars In Thousands, Except Per Share Amounts) | | Net income attributable to Westar Energy, Inc. | | $ | 158,306 |
| | $ | 154,720 |
| | $ | 3,586 |
| | $ | 290,032 |
| | $ | 292,645 |
| | $ | (2,613 | ) | | Earnings per common share, basic | | 1.11 |
| | 1.09 |
| | 0.02 |
| | 2.03 |
| | 2.06 |
| | (0.03 | ) |
Net income and basic EPS increased for the three months ended September 30, 2017, compared to the same period in 2016, due primarily to lower income tax expense of $25.5 million. Partially offsetting the lower income tax expense were lower retail sales attributable principally to milder weather, recording $10.1 million less in corporate-owned life insurance (COLI) benefits, and recording $9.7 million more in depreciation due in part to placing Western Plains Wind Farm in service.
Net income and basic EPS decreased for the nine months ended September 30, 2017, compared to the same period in 2016, due primarily to lower retail sales. The lower retail sales were attributable principally to milder weather. We also recorded $16.7 million less in corporate-owned life insurance (COLI) benefits and $24.5 million more in depreciation due in part to placing Western Plains Wind Farm in service. Partially offsetting these decreases to net income and basic EPS was a decrease in income tax expense of $47.8 million. Refer to Note 8 of the Notes to Condensed Consolidated Financial Statements, “Taxes,” for additional information on income tax expense.
Current Trends
The following is an update to and is to be read in conjunction with “Item 7. Management’scombined Management's Discussion and Analysis of Financial Condition and Results of Operations”Operations (MD&A) should be read in our 2016conjunction with the consolidated financial statements and accompanying notes in this combined Quarterly Report on Form 10-Q and the Evergy Companies' combined 2018 Form 10-K. None of the registrants make any representation as to information related solely to Evergy, Westar Energy or KCP&L other than itself.
EVERGY, INC. EXECUTIVE SUMMARY Evergy, Inc. is a public utility holding company incorporated in 2017 and headquartered in Kansas City, Missouri. Evergy operates primarily through the following wholly-owned direct subsidiaries: Westar Energy is an integrated, regulated electric utility that provides electricity to customers in the state of Kansas. Westar Energy has one active wholly-owned subsidiary with significant operations, KGE. KCP&L is an integrated, regulated electric utility that provides electricity to customers in the states of Missouri and Kansas. GMO is an integrated, regulated electric utility that provides electricity to customers in the state of Missouri. GPETHC owns 13.5% of Transource with the remaining 86.5% owned by AEP Transmission Holding Company, LLC, a subsidiary of AEP. Transource is focused on the development of competitive electric transmission projects. GPETHC accounts for its investment in Transource under the equity method. Westar Energy also owns a 50% interest in Prairie Wind, which is a joint venture between Westar Energy and affiliates of AEP and Berkshire Hathaway Energy Company. Prairie Wind owns a 108-mile, 345 kV double-circuit transmission line that provides transmission service in the SPP. Westar Energy accounts for its investment in Prairie Wind under the equity method. Westar Energy and KGE conduct business in their respective service territories using the name Westar Energy. KCP&L and GMO conduct business in their respective service territories using the name KCP&L. Collectively, the Evergy Companies have approximately 14,500 MWs of owned generating capacity and renewable purchased power agreements and engage in the generation, transmission, distribution and sale of electricity to approximately 1.6 million customers in the states of Kansas and Missouri. The Evergy Companies assess financial performance and allocate resources on a consolidated basis (i.e., operate in one segment). Great Plains Energy and Westar Energy Merger Evergy was incorporated in 2017 as Monarch Energy, a wholly-owned subsidiary of Great Plains Energy. Prior to the closing of the merger transactions, Monarch Energy changed its name to Evergy and did not conduct any business activities other than those required for its formation and matters contemplated by the Amended Merger Agreement. On June 4, 2018, in accordance with the Amended Merger Agreement, Great Plains Energy merged into Evergy, with Evergy surviving the merger and King Energy merged into Westar Energy, with Westar Energy surviving the merger. These merger transactions resulted in Evergy becoming the parent entity of Westar Energy and the direct subsidiaries of Great Plains Energy, including KCP&L and GMO. As a result of the closing of the merger transactions, each outstanding share of Great Plains Energy common stock was converted into 0.5981 shares of Evergy common stock, resulting in the issuance of 128.9 million shares. Additionally, each outstanding share of Westar Energy common stock was converted into 1 share of Evergy common stock. Westar Energy was determined to be the accounting acquirer and thus, the predecessor of Evergy. Therefore, Evergy's accompanying consolidated financial statements reflect the results of operations of Westar Energy for the three months ended March 31, 2018. Evergy had separate operations for the period beginning with the quarter ended June 30, 2018, and references to amounts for periods after the closing of the merger relate to Evergy. The results of Great Plains Energy's direct subsidiaries have been included in Evergy's results of operations from the date of the closing of the merger and thereafter. Common Stock Repurchase Program In July 2018, the Evergy Board authorized the repurchase of up to 60 million shares of Evergy's common stock. Although this repurchase authorization has no expiration date, Evergy expects to repurchase approximately 60 million shares by mid-2020. Evergy plans to utilize various methods to effectuate the share repurchase program,
including but not limited to a series of transactions that may include ASRs, open market transactions or other means, subject to market conditions and applicable legal requirements. The repurchase program may be suspended, discontinued or resumed at any time. For the three months ended March 31, 2019, Evergy had total repurchases of common stock of $578.3 million and had repurchased 10.5 million shares under the repurchase program. Since its inception, Evergy has made total repurchases of common stock of approximately $1.6 billion and has repurchased 26.9 million shares under the repurchase program. See Note11 to the consolidated financial statements for more information regarding Evergy's common stock repurchase program. Regulatory Proceedings See Note 4 to the consolidated financial statements for information regarding regulatory proceedings. Earnings Overview The following table summarizes Evergy's net income and diluted earnings per common share (EPS). | | | | | | | | | | | | | | Three Months Ended March 31 | 2019 | | 2018 | | Change | | | (millions, except per share amounts) | | Net income attributable to Evergy, Inc. | $ | 99.5 |
| | $ | 60.5 |
| | $ | 39.0 |
| | Earnings per common share, diluted | 0.39 |
| | 0.42 |
| | (0.03 | ) |
Net income attributable to Evergy, Inc. increased for the three months ended March 31, 2019, compared to the same period in 2018, primarily due to the inclusion of KCP&L's and GMO's earnings in 2019, higher Westar Energy retail sales driven by colder weather and lower Westar Energy operating and maintenance expense, partially offset by higher Westar Energy depreciation expense. Diluted EPS decreased by $0.03 for the three months ended March 31, 2019, compared to the same period in 2018, primarily due to a higher number of diluted weighted average common shares outstanding in 2019 due to the issuance of common shares to Great Plains Energy shareholders as a result of the merger which diluted EPS by $0.30, partially offset by the increase to net income attributable to Evergy, Inc. discussed above. For additional information regarding the change in net income, refer to the Evergy Results of Operations section within this MD&A. Adjusted Earnings (non-GAAP) and Adjusted Earnings Per Share (non-GAAP) Evergy's adjusted earnings (non-GAAP) and adjusted earnings per share (non-GAAP) for the three months ended March 31, 2019 were $111.1 million or $0.44 per share, respectively. For the three months ended March 31, 2018, Evergy's adjusted earnings (non-GAAP) and adjusted earnings per share (non-GAAP) were $91.9 million and $0.34 per share, respectively. In addition to net income attributable to Evergy, Inc., diluted earnings per common share, pro forma net income attributable to Evergy, Inc. and pro forma diluted earnings per common share as prepared in accordance with GAAP, Evergy's management uses adjusted earnings (non-GAAP) and adjusted earnings per share (non-GAAP) to evaluate earnings and earnings per share without the non-recurring costs resulting from rebranding and voluntary severance. Adjusted earnings (non-GAAP) and adjusted earnings per share (non-GAAP) exclude certain costs resulting from rebranding and voluntary severance. This information is intended to enhance an investor's overall understanding of results. Adjusted earnings (non-GAAP) and adjusted earnings per share (non-GAAP) are used internally to measure performance against budget and in reports for management and the Evergy Board. Adjusted earnings (non-GAAP) and adjusted earnings per share (non-GAAP) are financial measures that are not calculated in accordance with GAAP and may not be comparable to other companies' presentations or more useful than the GAAP information provided elsewhere in this report.
The following table provides a reconciliation between net income attributable to Evergy, Inc., diluted earnings per common share, pro forma net income attributable to Evergy, Inc. and pro forma diluted earnings per common share as determined in accordance with GAAP and adjusted earnings (non-GAAP) and adjusted earnings per share (non-GAAP). | | | | | | | | | | | | | | | | | | Earnings (Loss) | | Earnings (Loss) per Diluted Share | Earnings (Loss) | | Earnings (Loss) per Diluted Share | | Three Months Ended March 31 | 2019 | 2018 | | | (millions, except per share amounts) | | Net income attributable to Evergy, Inc. | $ | 99.5 |
| | $ | 0.39 |
| $ | 60.5 |
| | $ | 0.42 |
| Pro forma adjustments(a): | | | | | | | | Great Plains Energy earnings prior to merger | — |
| | — |
| 35.0 |
| | 0.13 |
| | Great Plains Energy shares prior to merger | n/a |
| | — |
| n/a |
| | (0.20 | ) | | Non-recurring merger costs and other | — |
| | — |
| (3.6 | ) | | (0.01 | ) | | Pro forma net income attributable to Evergy, Inc. | $ | 99.5 |
| | $ | 0.39 |
| $ | 91.9 |
| | $ | 0.34 |
| | Non-GAAP reconciling items: | | | | | | | Rebranding costs, pre-tax(b) | 0.2 |
| | — |
| — |
| | — |
| Voluntary severance costs, pre tax(c) | 14.8 |
| | 0.06 |
| — |
| | — |
| Income tax benefit(d) | (3.4 | ) | | (0.01 | ) | — |
| | — |
| | Adjusted earnings (non-GAAP) | $ | 111.1 |
|
| $ | 0.44 |
| $ | 91.9 |
| | $ | 0.34 |
|
| | (a) | Reflects pro forma adjustments made in accordance with Article 11 of Regulation S-X and Accounting Standards Codification (ASC) 805 - Business Combinations. See Note 1 to the consolidated financial statements for further information regarding these adjustments. |
| | (b) | Reflects external costs incurred to rebrand the legacy Westar Energy and KCP&L utility brands to Evergy and are included in operating and maintenance expense on the consolidated statements of comprehensive income. |
| | (c) | Reflects voluntary severance costs incurred associated with various severance programs at the Evergy Companies and are included in operating and maintenance expense on the consolidated statements of comprehensive income. |
| | (d) | Reflects an income tax effect calculated at a 26.1% statutory rate, with the exception of certain non-deductible items. |
Wolf Creek Refueling Outage Wolf Creek's most recent refueling outage began in March 2018 and the unit returned to service in May 2018. Wolf Creek's next refueling outage is planned to begin in the third quarter of 2019. ENVIRONMENTAL MATTERS See Note 9 to the consolidated financial statements for information regarding environmental matters. RELATED PARTY TRANSACTIONS See Note 10 to the consolidated financial statements for information regarding related party transactions.
We are subject to various federal, state and local environmental laws and regulations. Environmental laws and regulations affecting our operations are overlapping, complex, subject to changes, have generally become more stringent over time and are expensive to implement. There are a varietyEVERGY RESULTS OF OPERATIONS
The following table summarizes Evergy's comparative results of final and proposed laws and regulations that could have a material adverse effect on our operations and condensed consolidated financial results. See Note 11 of the Notes to Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for a discussion of environmental costs, laws, regulations and other contingencies.operations. | | | | | | | | | | | | | | Three Months Ended March 31 | 2019 | | Change | | 2018 | | | (millions) | | Operating revenues | $ | 1,216.9 |
| | $ | 616.7 |
| | $ | 600.2 |
| | Fuel and purchased power | 330.0 |
| | 194.5 |
| | 135.5 |
| | SPP network transmission costs | 63.5 |
| | (4.1 | ) | | 67.6 |
| | Other operating expenses | 400.2 |
| | 216.2 |
| | 184.0 |
| | Depreciation and amortization | 213.6 |
| | 124.0 |
| | 89.6 |
| | Income from operations | 209.6 |
| | 86.1 |
| | 123.5 |
| | Other income (expense), net | (8.0 | ) | | 1.0 |
| | (9.0 | ) | | Interest expense | 91.1 |
| | 47.3 |
| | 43.8 |
| | Income tax expense | 9.3 |
| | 0.1 |
| | 9.2 |
| | Equity in earnings of equity method investees, net of income taxes | 2.2 |
| | 0.8 |
| | 1.4 |
| | Net income | 103.4 |
| | 40.5 |
| | 62.9 |
| | Less: Net income attributable to noncontrolling interests | 3.9 |
| | 1.5 |
| | 2.4 |
| | Net income attributable to Evergy, Inc. | $ | 99.5 |
| | $ | 39.0 |
| | $ | 60.5 |
|
Evergy Utility Gross Margin and MWh Sales
CRITICAL ACCOUNTING ESTIMATES
Our discussion and analysis ofUtility gross margin is a financial condition and results of operations are based on our condensed consolidated financial statements, which have been preparedmeasure that is not calculated in conformityaccordance with GAAP. Utility gross margin, as used by the instructions to Form 10-Q and Article 10 of Regulation S-X. Note 2 of the Notes to Condensed Consolidated Financial Statements, “Summary of Significant Accounting Policies,” contains a summary of our significant accounting policies, many of which require the use of estimates and assumptions by management. The policies highlighted in our 2016 Form 10-K have an impact on our reported results that may be material due to the levels of judgment and subjectivity necessary to account for uncertain matters or their susceptibility to change.
From December 31, 2016, through September 30, 2017, we did not experience any significant changes in our critical accounting estimates. For additional information, see our 2016 Form 10-K.
OPERATING RESULTS
We evaluate operating results based on EPS. We have various classifications of revenues,Evergy Companies, is defined as follows:
Retail: Sales of electricity to residential, commercial and industrial customers. Classification of customers as residential, commercial or industrial requires judgment and our classifications may be different from other companies. Assignment of tariffs is not dependent on classification. Other retail sales of electricity include lighting for public streets and highways, net of revenue subject to refund.
Wholesale: Sales of electricity to electric cooperatives, municipalities and other electric utilities and RTOs, the prices for which are either based on cost or prevailing market prices as prescribed by FERC authority. Revenues from these sales are either included in the RECA or used in the determinations of base rates at the time of our next general rate review.
Transmission: Reflects transmissionoperating revenues including those based on tariffs with the SPP.
Other: Miscellaneous electric revenues including ancillary service revenues and rent from electric property leased to others. This category also includes transactions unrelated to the production of our generating assets and fees we earn for services that we provide for third parties.
Electric utility revenues are impacted by things such as rate regulation, fuel costs, technology, customer behavior, the economy and competitive forces. Changing weather also affects the amount of electricity our customers use as electricity sales are seasonal. As a summer peaking utility, the third quarter typically accounts for our greatest electricity sales. Hot summer temperatures and cold winter temperatures prompt more demand, especially among residential and commercial customers, and to a lesser extent, industrial customers. Mild weather reduces customer demand. Our wholesale revenues are impacted by, among other factors, demand, cost and availability ofless fuel and purchased power price volatility, available generation capacity,costs and amounts billed by the SPP for network transmission availability and weather.
Three and Nine Months Ended September 30, 2017, Compared to Three and Nine Months Ended September 30, 2016
Below we discuss our operating resultscosts. Expenses for the three and nine months ended September 30, 2017, compared to the results for the three and nine months ended September 30, 2016. Significant changes in results of operations shown in the table immediately below are further explained in the descriptions that follow.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | 2017 | | 2016 | | Change | | % Change | | 2017 | | 2016 | | Change | | % Change | | | (Dollars In Thousands, Except Per Share Amounts) | | REVENUES: | | | | | | | | | | | | | | | | | Residential | $ | 278,138 |
| | $ | 282,272 |
| | $ | (4,134 | ) | | (1.5 | ) | | $ | 642,449 |
| | $ | 664,400 |
| | $ | (21,951 | ) | | (3.3 | ) | | Commercial | 219,414 |
| | 218,377 |
| | 1,037 |
| | 0.5 |
| | 557,232 |
| | 572,247 |
| | (15,015 | ) | | (2.6 | ) | | Industrial | 117,721 |
| | 106,021 |
| | 11,700 |
| | 11.0 |
| | 324,227 |
| | 314,723 |
| | 9,504 |
| | 3.0 |
| | Other retail | 149 |
| | 7,883 |
| | (7,734 | ) | | (98.1 | ) | | (22,293 | ) | | (23,002 | ) | | 709 |
| | 3.1 |
| | Total Retail Revenues | 615,422 |
|
| 614,553 |
| | 869 |
| | 0.1 |
| | 1,501,615 |
| | 1,528,368 |
| | (26,753 | ) | | (1.8 | ) | | Wholesale | 102,113 |
| | 86,421 |
| | 15,692 |
| | 18.2 |
| | 242,524 |
| | 220,520 |
| | 22,004 |
| | 10.0 |
| | Transmission | 69,504 |
| | 58,462 |
| | 11,042 |
| | 18.9 |
| | 209,097 |
| | 188,996 |
| | 20,101 |
| | 10.6 |
| | Other | 7,288 |
| | 5,218 |
| | 2,070 |
| | 39.7 |
| | 22,986 |
| | 17,668 |
| | 5,318 |
| | 30.1 |
| | Total Revenues | 794,327 |
| | 764,654 |
| | 29,673 |
| | 3.9 |
| | 1,976,222 |
| | 1,955,552 |
| | 20,670 |
| | 1.1 |
| | OPERATING EXPENSES: | | | | | | | | | | | | | | | | | Fuel and purchased power | 189,804 |
| | 155,673 |
| | 34,131 |
| | 21.9 |
| | 415,449 |
| | 374,361 |
| | 41,088 |
| | 11.0 |
| | SPP network transmission costs | 62,578 |
| | 57,939 |
| | 4,639 |
| | 8.0 |
| | 185,015 |
| | 173,925 |
| | 11,090 |
| | 6.4 |
| | Operating and maintenance | 79,856 |
| | 86,758 |
| | (6,902 | ) | | (8.0 | ) | | 248,211 |
| | 250,135 |
| | (1,924 | ) | | (0.8 | ) | | Depreciation and amortization | 94,668 |
| | 84,972 |
| | 9,696 |
| | 11.4 |
| | 277,322 |
| | 252,838 |
| | 24,484 |
| | 9.7 |
| | Selling, general and administrative | 65,630 |
| | 60,582 |
| | 5,048 |
| | 8.3 |
| | 182,367 |
| | 192,762 |
| | (10,395 | ) | | (5.4 | ) | | Taxes other than income tax | 41,815 |
| | 48,154 |
| | (6,339 | ) | | (13.2 | ) | | 126,421 |
| | 145,529 |
| | (19,108 | ) | | (13.1 | ) | | Total Operating Expenses | 534,351 |
| | 494,078 |
| | 40,273 |
| | 8.2 |
| | 1,434,785 |
| | 1,389,550 |
| | 45,235 |
| | 3.3 |
| | INCOME FROM OPERATIONS | 259,976 |
| | 270,576 |
| | (10,600 | ) | | (3.9 | ) | | 541,437 |
| | 566,002 |
| | (24,565 | ) | | (4.3 | ) | | OTHER INCOME (EXPENSE): | | | | | | | | | | | | | | | | | Investment earnings | 2,593 |
| | 2,619 |
| | (26 | ) | | (1.0 | ) | | 8,384 |
| | 6,916 |
| | 1,468 |
| | 21.2 |
| | Other income | 3,849 |
| | 13,353 |
| | (9,504 | ) | | (71.2 | ) | | 5,672 |
| | 26,212 |
| | (20,540 | ) | | (78.4 | ) | | Other expense | (6,493 | ) | | (5,887 | ) | | (606 | ) | | (10.3 | ) | | (14,457 | ) | | (14,338 | ) | | (119 | ) | | (0.8 | ) | | Total Other (Expense) Income | (51 | ) | | 10,085 |
| | (10,136 | ) | | (100.5 | ) | | (401 | ) | | 18,790 |
| | (19,191 | ) | | (102.1 | ) | | Interest expense | 43,458 |
| | 40,897 |
| | 2,561 |
| | 6.3 |
| | 128,232 |
| | 121,011 |
| | 7,221 |
| | 6.0 |
| | INCOME BEFORE INCOME TAXES | 216,467 |
| | 239,764 |
| | (23,297 | ) | | (9.7 | ) | | 412,804 |
| | 463,781 |
| | (50,977 | ) | | (11.0 | ) | | Income tax expense | 55,743 |
| | 81,211 |
| | (25,468 | ) | | (31.4 | ) | | 112,559 |
| | 160,376 |
| | (47,817 | ) | | (29.8 | ) | | NET INCOME | 160,724 |
| | 158,553 |
| | 2,171 |
| | 1.4 |
| | 300,245 |
| | 303,405 |
| | (3,160 | ) | | (1.0 | ) | | Less: Net income attributable to noncontrolling interests | 2,418 |
| | 3,833 |
| | (1,415 | ) | | (36.9 | ) | | 10,213 |
| | 10,760 |
| | (547 | ) | | (5.1 | ) | | NET INCOME ATTRIBUTABLE TO WESTAR ENERGY, INC. | $ | 158,306 |
| | $ | 154,720 |
| | $ | 3,586 |
| | 2.3 |
| | $ | 290,032 |
| | $ | 292,645 |
| | $ | (2,613 | ) | | (0.9 | ) | | BASIC EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING ATTRIBUTABLE TO WESTAR ENERGY, INC. | $ | 1.11 |
| | $ | 1.09 |
| | $ | 0.02 |
| | 1.8 |
| | $ | 2.03 |
| | $ | 2.06 |
| | $ | (0.03 | ) | | (1.5 | ) | | DILUTED EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING ATTRIBUTABLE TO WESTAR ENERGY, INC. | $ | 1.11 |
| | $ | 1.08 |
| | $ | 0.03 |
| | 2.8 |
| | $ | 2.03 |
| | $ | 2.05 |
| | $ | (0.02 | ) | | (1.0 | ) |
Gross Margin
Fuelfuel and purchased power costs, fluctuate with electricityoffset by wholesale sales and unit costs. As permitted by regulators, we adjust our retail pricesmargin, are subject to reflect changes in the costs of fuel and purchased power. Fuel and purchased power costs for wholesale customers are recovered at prevailing market prices or based on a predetermined formula with a pricerecovery through cost adjustment approved by FERC.mechanisms. As a result, changes in fuel and purchased power costs are offset in operating revenues with minimal impact on net income. In addition, SPP network transmission costs fluctuate primarily due primarily to investments by us and otherSPP members of the SPP for upgrades to the transmission grid within the SPP RTO.Regional Transmission Organization (RTO). As with fuel and purchased power costs, changes in SPP network transmission costs are mostly reflected in the prices we chargecharged to customers with minimal impact on net income. For
Management believes that utility gross margin provides a meaningful basis for evaluating the Evergy Companies' operations across periods compared with operating revenues because utility gross margin excludes the revenue effect of fluctuations in these reasons, we believeexpenses. Utility gross margin is usefulused internally to measure performance against budget and in reports for understandingmanagement and analyzing changes in our operating performance from one period to the next. We calculateEvergy Board. The Evergy Companies' definition of utility gross margin a non-GAAP measure, as total revenues, including transmission revenues, less the sum of fuel and purchased power costs and amounts billedmay differ from similar terms used by the SPP for network transmission costs. Accordingly, gross margin reflects transmission revenues and costs on a net basis. The following table summarizes our gross margin for the three and nine months ended September 30, 2017 and 2016.other companies.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | 2017 | | 2016 | | Change | | % Change | | 2017 | | 2016 | | Change | | % Change | | | (Dollars In Thousands) | | Revenues | $ | 794,327 |
| | $ | 764,654 |
| | $ | 29,673 |
| | 3.9 |
| | $ | 1,976,222 |
| | $ | 1,955,552 |
| | $ | 20,670 |
| | 1.1 |
| | Less: Fuel and purchased power expense | 189,804 |
| | 155,673 |
| | 34,131 |
| | 21.9 |
| | 415,449 |
| | 374,361 |
| | 41,088 |
| | 11.0 |
| | SPP network transmission costs | 62,578 |
| | 57,939 |
| | 4,639 |
| | 8.0 |
| | 185,015 |
| | 173,925 |
| | 11,090 |
| | 6.4 |
| | Gross Margin | $ | 541,945 |
| | $ | 551,042 |
| | $ | (9,097 | ) | | (1.7 | ) | | $ | 1,375,758 |
| | $ | 1,407,266 |
| | $ | (31,508 | ) | | (2.2 | ) |
The following table reflects changes in electricity salestables summarize Evergy's utility gross margin and MWhs sold. | | | | | | | | | | | | | | | | | | | | | | | | Revenues and Expenses | | MWhs Sold | | Three Months Ended March 31 | 2019 | | Change | | 2018 | | 2019 | | Change | | 2018 | | Retail revenues | (millions) | | (thousands) | | Residential | $ | 451.7 |
| | $ | 271.4 |
| | $ | 180.3 |
| | 3,964 |
| | 2,492 |
| | 1,472 |
| | Commercial | 413.5 |
| | 258.1 |
| | 155.4 |
| | 4,424 |
| | 2,727 |
| | 1,697 |
| | Industrial | 147.0 |
| | 53.5 |
| | 93.5 |
| | 2,011 |
| | 652 |
| | 1,359 |
| | Other retail revenues | 9.8 |
| | 5.6 |
| | 4.2 |
| | 36 |
| | 22 |
| | 14 |
| | Total electric retail | 1,022.0 |
| | 588.6 |
| | 433.4 |
| | 10,435 |
| | 5,893 |
| | 4,542 |
| | Wholesale revenues | 83.1 |
| | (11.1 | ) | | 94.2 |
| | 4,029 |
| | 1,128 |
| | 2,901 |
| | Transmission revenues | 76.7 |
| | 4.8 |
| | 71.9 |
| | N/A |
| |
|
| | N/A |
| | Other revenues | 35.1 |
| | 34.4 |
| | 0.7 |
| | N/A |
| |
|
| | N/A |
| | Operating revenues | 1,216.9 |
| | 616.7 |
| | 600.2 |
| | 14,464 |
| | 7,021 |
| | 7,443 |
| | Fuel and purchased power | (330.0 | ) | | (194.5 | ) | | (135.5 | ) | | | |
|
| | | | SPP network transmission costs | (63.5 | ) | | 4.1 |
| | (67.6 | ) | | | |
|
| | | Utility gross margin (a) | $ | 823.4 |
| | $ | 426.3 |
| | $ | 397.1 |
| | | |
|
| | | (a) Utility gross margin is a non-GAAP financial measure. See explanation of utility gross margin above. |
Evergy's utility gross margin increased $426.3 million for the three and nine months ended September 30, 2017 and 2016. No electricity sales are shown for transmission or other as they are not directly related to the amount of electricity we sell. | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | 2017 | | 2016 | | Change | | % Change | | 2017 | | 2016 | | Change | | % Change | | | (Thousands of MWh) | | ELECTRICITY SALES: | | | | | | | | | | | | | | | | | Residential | 2,081 |
|
| 2,209 |
| | (128 | ) | | (5.8 | ) | | 4,828 |
| | 5,097 |
| | (269 | ) | | (5.3 | ) | | Commercial | 2,156 |
|
| 2,230 |
| | (74 | ) | | (3.3 | ) | | 5,588 |
| | 5,763 |
| | (175 | ) | | (3.0 | ) | | Industrial | 1,563 |
|
| 1,444 |
| | 119 |
| | 8.2 |
| | 4,319 |
| | 4,137 |
| | 182 |
| | 4.4 |
| | Other retail | 12 |
|
| 19 |
| | (7 | ) | | (36.8 | ) | | 56 |
| | 60 |
| | (4 | ) | | (6.7 | ) | | Total Retail | 5,812 |
| | 5,902 |
| | (90 | ) | | (1.5 | ) | | 14,791 |
| | 15,057 |
| | (266 | ) | | (1.8 | ) | | Wholesale | 3,128 |
| | 2,389 |
| | 739 |
| | 30.9 |
| | 7,612 |
| | 5,960 |
| | 1,652 |
| | 27.7 |
| | Total | 8,940 |
| | 8,291 |
| | 649 |
| | 7.8 |
| | 22,403 |
| | 21,017 |
| | 1,386 |
| | 6.6 |
|
Gross margin decreased for the three and nine months ended September 30, 2017, compared to the same periods in 2016, due primarily to lower retail sales. The lower retail sales were attributable principally to more mild weather, which particularly impacts residential and commercial customers. During the three and nine months ended September 30, 2017,March 31, 2019, compared to the same period in 2016, there were approximately 11%2018 driven by:
a $412.8 million increase due to the inclusion of KCP&L's and 12%, respectively, fewer cooling degree days. DuringGMO's utility gross margin in 2019; an $11.8 million increase primarily due to higher Westar Energy retail sales driven by colder winter weather. For the ninethree months ended September 30, 2017,March 31, 2019, compared to the same period in 2016, there were approximately 7% fewer2018, heating degree days. Partially offsettingdays increased 10%; and a $3.9 million increase from new Westar Energy retail rates effective in September 2018, net of a $15.1 million provision for rate refund recorded at Westar Energy in the impactfirst quarter of less favorable weather2018 for both periods was improved sales to industrial customers duethe change in corporate income tax rate caused by the Tax Cuts and Jobs Act (TCJA); partially to offset by a few of our larger, lower margin chemical and oil customers who experienced improved global demand$2.2 million reduction in revenue recorded at Westar Energy for their products as well as improved sales to the construction segment taking advantage of the more mild weather.
Income from operations, which is calculated and presented in accordance with GAAP in our condensed consolidated statements of income, is the most directly comparable measure to our presentation of gross margin. Our presentation of gross margin should not be considered in isolation orannual bill credits as a substitute for income from operations. Additionally, our presentationresult of gross margin may not be comparable to similarly titled measures reported by other companies. The following table reconciles income from operations with gross margin forconditions in the three and nine months ended September 30, 2017 and 2016.KCC merger order.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | 2017 | | 2016 | | Change | | % Change | | 2017 | | 2016 | | Change | | % Change | | | (Dollars In Thousands) | | Income from operations | $ | 259,976 |
| | $ | 270,576 |
| | $ | (10,600 | ) | | (3.9 | ) | | $ | 541,437 |
| | $ | 566,002 |
| | $ | (24,565 | ) | | (4.3 | ) | | Plus: Operating and maintenance expense | 79,856 |
| | 86,758 |
| | (6,902 | ) | | (8.0 | ) | | 248,211 |
| | 250,135 |
| | (1,924 | ) | | (0.8 | ) | | Depreciation and amortization expense | 94,668 |
| | 84,972 |
| | 9,696 |
| | 11.4 |
| | 277,322 |
| | 252,838 |
| | 24,484 |
| | 9.7 |
| | Selling, general and administrative expense | 65,630 |
| | 60,582 |
| | 5,048 |
| | 8.3 |
| | 182,367 |
| | 192,762 |
| | (10,395 | ) | | (5.4 | ) | | Taxes other than income tax | 41,815 |
| | 48,154 |
| | (6,339 | ) | | (13.2 | ) | | 126,421 |
| | 145,529 |
| | (19,108 | ) | | (13.1 | ) | | Gross margin | $ | 541,945 |
| | $ | 551,042 |
| | $ | (9,097 | ) | | (1.7 | ) | | $ | 1,375,758 |
| | $ | 1,407,266 |
| | $ | (31,508 | ) | | (2.2 | ) |
Other Operating Expenses and Other Income and Expense Items
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | 2017 | | 2016 | | Change | | % Change | | 2017 | | 2016 | | Change | | % Change | | | (Dollars in Thousands) | | Operating and maintenance expense | $ | 79,856 |
| | $ | 86,758 |
| | $ | (6,902 | ) | | (8.0 | ) | | $ | 248,211 |
| | $ | 250,135 |
| | $ | (1,924 | ) | | (0.8 | ) |
Operating(including operating and maintenance expense decreasedand taxes other than income tax)
Evergy's other operating expenses increased $216.2 million for the three months ended September 30, 2017,March 31, 2019, compared to the same period in 2016, due2018 primarily to:
driven by:
a $5.5$175.3 million decreaseincrease in distribution operationsoperating and maintenance expense due primarily to executing our vegetation management strategy earlierthe inclusion of KCP&L's and GMO's operating and maintenance expenses in 2017;2019; a $1.7$45.3 million increase in taxes other than income taxes due to the inclusion of KCP&L and GMO amounts in 2019; and $7.4 million of Westar Energy voluntary severance expenses incurred in the first quarter of 2019; partially offset by a $3.9 million decrease in nuclearWestar Energy's 47% ownership share of Wolf Creek operating and maintenance expense due to a $3.1 million decrease primarily driven by lower employee labor and benefit costs as a result of fewer employees in 2019 and a $0.8 million decrease in the amortization of deferred refueling outage costs; a $3.8 million decrease in Westar Energy labor and employee benefit costs due to a decrease in medical and dental expenses primarily due to lower claims in 2019; and a $1.5$3.5 million decrease in steam generationWestar Energy transmission and distribution operating and maintenance costs; however, partially offsetting these decreases was a $2.4 million increaseexpense primarily due to the starttiming of operation of our Western Plains Wind Farm in March 2017.vegetation management projects.
Depreciation and maintenance expense decreasedAmortization Evergy's depreciation and amortization increased$124.0 million for the ninethree months ended September 30, 2017,March 31, 2019, compared to the same period in 2016, due primarily to:
2018 driven by:
a $7.7 million decrease in nuclear operating and maintenance costs due primarily to receiving a legal settlement for Wolf Creek; and a $1.8 million decrease in distribution operations and maintenance expense; however,
partially offsetting these decreases was a $6.3$103.8 million increase due to the startinclusion of operation of our Western Plains Wind FarmKCP&L's and GMO's depreciation expense in March 2017;2019; and
a $1.6$20.2 million increase in steam generation operating and maintenance costs.Westar Energy's depreciation expense primarily due to a change in depreciation rates effective in September 2018 as a result of Westar Energy's 2018 rate case.
Interest Expense
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | 2017 | | 2016 | | Change | | % Change | | 2017 | | 2016 | | Change | | % Change | | | (Dollars in Thousands) | | Depreciation and amortization expense | $ | 94,668 |
| | $ | 84,972 |
| | $ | 9,696 |
| | 11.4 | | $ | 277,322 |
| | $ | 252,838 |
| | $ | 24,484 |
| | 9.7 |
Depreciation and amortizationEvergy's interest expense increased during the three and nine months ended September 30, 2017, compared to the same periods in 2016, due in part to the start of operation of our Western Plains Wind Farm in March 2017.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | 2017 | | 2016 | | Change | | % Change | | 2017 | | 2016 | | Change | | % Change | | | (Dollars in Thousands) | | Selling, general and administrative expense | $ | 65,630 |
| | $ | 60,582 |
| | $ | 5,048 |
| | 8.3 | | $ | 182,367 |
| | $ | 192,762 |
| | $ | (10,395 | ) | | (5.4 | ) |
Selling, general and administrative expense increased during$47.3 million for the three months ended September 30, 2017,March 31, 2019, compared to the same period in 2016, due2018, primarily to:driven by the inclusion of KCP&L's and GMO's interest expense in 2019.
LIQUIDITY AND CAPITAL RESOURCES Evergy relies primarily upon cash from operations, short-term borrowings, debt issuances and its existing cash and cash equivalents to fund its capital requirements. Evergy's capital requirements primarily consist of capital expenditures, payment of contractual obligations and other commitments, the payment of dividends to shareholders and the repurchase of common shares. See the Evergy Companies' combined 2018 Form 10-K for more information on Evergy's sources and uses of cash. Short-Term Borrowings As of March 31, 2019, Evergy had $1.7 billion of available borrowing capacity under its master credit facility. Westar Energy's, KCP&L's and GMO's borrowing capacity under the master credit facility also support their issuance of commercial paper. The available borrowing capacity under the master credit facility consisted of $349.0 million for Evergy, Inc., $567.9 million for Westar Energy, $421.3 million for KCP&L and $326.7 million for GMO. See Note 6 to the consolidated financial statements for more information regarding the master credit facility. Along with cash flows from operations and receivable sales facilities, Evergy generally uses borrowings under its master credit facility and the issuance of commercial paper to meet its day-to-day cash flow requirements. Evergy also has a term loan credit agreement which is discussed further below. In March 2019, Evergy entered into a $1.0 billion, 6-month term loan credit agreement with a group of banks to provide short-term financing for its common stock repurchase plan. The agreement allows for two term loans during the 6-month term of the agreement, in an aggregate principal amount not to exceed the credit limit of the agreement. At closing, Evergy borrowed $500.0 million under the agreement, allowing for one additional term loan borrowing in a principal amount up to $500.0 million. At March 31, 2019, Evergy had $500.0 million of outstanding cash borrowings under the agreement at a weighted-average interest rate of 3.03%. Evergy anticipates repaying borrowings under the term loan credit agreement with proceeds from an expected long-term debt issuance in the second half of 2019. Significant Debt Issuances See Note 7 to the consolidated financial statements for information regarding significant debt issuances. Pensions For the three months ended March 31, 2019, Evergy made pension contributions of $12.3 million. Evergy expects to make additional pension contributions of $103.2 million in 2019 to satisfy ERISA funding requirements and KCC and MPSC rate orders, of which $29.9 million is expected to be paid by Westar Energy and $73.3 million is expected to be paid by KCP&L. Also in 2019, Evergy expects to make contributions of $2.8 million to the post-retirement benefit plans. Common Stock Repurchase Program In July 2018, the Evergy Board authorized the repurchase of up to 60 million shares of Evergy's common stock. Although this repurchase authorization has no expiration date, Evergy expects to repurchase approximately 60 million shares by mid-2020. For the three months ended March 31, 2019, Evergy had total repurchases of common stock of $578.3 million and had repurchased 10.5 million shares under the repurchase program. Since its inception,
partially offsetting this increase was a decrease in outside services of $1.8 million.
Selling, generalEvergy has made total repurchases of common stock of approximately $1.6 billion and administrative expense decreased duringhas repurchased 26.9 million shares under the ninerepurchase program. These repurchase totals include shares repurchased under an ASR agreement that had not reached final settlement as of March 31, 2019. This ASR agreement was entered into in March 2019 with a financial institution and resulted in the initial delivery to Evergy of 6.3 million shares of common stock, representing a partial settlement of the contract, based on then-current market prices and Evergy paid a total of $450.0 million. Final settlement of the ASR agreement will occur by June 2019, but may occur earlier at the option of the financial institution.
See Note11 to the consolidated financial statements for more information regarding Evergy's common stock repurchase program. Debt Covenants As of March 31, 2019, Evergy was in compliance with all debt covenants under the master credit facility, the term loan agreement and certain debt instruments that contain restrictions that require the maintenance of certain capitalization and leverage ratios. See Note 6 to the consolidated financial statements for more information. Off-Balance Sheet Arrangement Evergy's off-balance sheet arrangements were reported in the Evergy Companies' combined 2018 Form 10-K. As of March 31, 2019, there have been no material changes with regards to these off-balance sheet arrangements. Cash Flows The following table presents Evergy's cash flows from operating, investing and financing activities. | | | | | | | | | Three Months Ended March 31 | 2019 | 2018 | | | (millions) | | Cash flows from operating activities | $ | 362.1 |
| $ | 259.6 |
| | Cash flows used in investing activities | (271.4 | ) | (174.1 | ) | | Cash flows from (used in) financing activities | 296.9 |
| (77.7 | ) |
Cash Flows from Operating Activities Evergy's cash flows from operating activities increased $102.5 million for the three months ended September 30, 2017,March 31, 2019, compared to the same period in 2016,2018, primarily driven by a $114.5 million increase due primarily to:
•a decrease in outside services of $5.0 million;
•a decrease in employee benefit costs of $2.0 million attributable partially to our having fewer employees; and
•a decrease of merger-related expenses of $1.2 million.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | 2017 | | 2016 | | Change | | % Change | | 2017 | | 2016 | | Change | | % Change | | | (Dollars in Thousands) | | Taxes other than income tax | $ | 41,815 |
| | $ | 48,154 |
| | $ | (6,339 | ) | | (13.2 | ) | | $ | 126,421 |
| | $ | 145,529 |
| | $ | (19,108 | ) | | (13.1 | ) |
Taxes other than income tax decreased for the three and nine months ended September 30, 2017, compared to the same periods in 2016, due primarily to a decreaseinclusion of $6.3 millionKCP&L's and $18.9 million, respectively, in property tax expense amortization. This represents the amortization of the regulatory asset comprised of actual costs incurred for property taxes in the prior year in excess of amounts collected in our prices in the prior year. These decreases are mostly offset in retail revenues.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | 2017 | | 2016 | | Change | | % Change | | 2017 | | 2016 | | Change | | % Change | | | (Dollars in Thousands) | | Other income | $ | 3,849 |
| | $ | 13,353 |
| | $ | (9,504 | ) | | (71.2 | ) | | $ | 5,672 |
| | $ | 26,212 |
| | $ | (20,540 | ) | | (78.4 | ) |
Other income decreased for the three and nine months ended September 30, 2017, compared to the same periods in 2016, due primarily to:
•our having recorded $10.1 million and $16.7 million, respectively, less in COLI benefits; and
•a decrease in equity AFUDC of $2.3 million and $6.8 million, respectively, however,
partially offsetting these decreases was an increase of $3.5 million related to the deconsolidation of the trust holding our 8% interest in JEC.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | 2017 | | 2016 | | Change | | % Change | | 2017 | | 2016 | | Change | | % Change | | | (Dollars in Thousands) | | Interest expense | $ | 43,458 |
| | $ | 40,897 |
| | $ | 2,561 |
| | 6.3 | | $ | 128,232 |
| | $ | 121,011 |
| | $ | 7,221 |
| | 6.0 |
Interest expense increased for the three months ended September 30, 2017, compared to the same period in 2016, due primarily to a decrease in debt AFUDC of $1.3 million. Interest expense increased for the nine months ended September 30, 2017, compared to the same period in 2016, due primarily to an increase in interest expense on long-term debt of $5.1 million primarily as a result of the issuance of FMBs during March 2017 and a decrease in debt AFUDC of $2.9 million.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | 2017 | | 2016 | | Change | | % Change | | 2017 | | 2016 | | Change | | % Change | | | (Dollars in Thousands) | | Income tax expense | $ | 55,743 |
| | $ | 81,211 |
| | $ | (25,468 | ) | | (31.4 | ) | | $ | 112,559 |
| | $ | 160,376 |
| | $ | (47,817 | ) | | (29.8 | ) |
Income tax expense decreased for the three and nine months ended September 30, 2017, compared to the same periods in 2016, due primarily to:
a reduction in income tax expense of $9.2 million and $20.1 million, respectively, from lower income before income taxes;
an increase of $5.1 million and $16.6 million, respectively, in tax benefits from production tax credits, largely from placing the Western Plains Wind Farm in service; and
a favorable deferred tax true-up of $7.6 million related to plant differences.
FINANCIAL CONDITION
A number of factors affected amounts recorded on our balance sheet as of September 30, 2017, compared to December 31, 2016.
| | | | | | | | | | | | | | | | | | As of | | As of | | | | | | | September 30, 2017 | | December 31, 2016 | | Change | | % Change | | | (Dollars in Thousands) | | Property, plant and equipment of variable interest entities, net | $ | 178,058 |
| | $ | 257,904 |
| | $ | (79,846 | ) | | (31.0 | ) |
Property, plant and equipment of variable interest entities, net decreased due primarily to deconsolidating the trust holding our 8% interest in JEC. See Note 14 of the Notes to Condensed Consolidated Financial Statements, “Variable Interest Entities” for additional information.
| | | | | | | | | | | | | | | | | | As of | | As of | | | | | | | September 30, 2017 | | December 31, 2016 | | Change | | % Change | | | (Dollars in Thousands) | | Regulatory assets | $ | 843,711 |
| | $ | 879,862 |
| | $ | (36,151 | ) | | (4.1 | ) | | Regulatory liabilities | 251,133 |
| | 239,453 |
| | 11,680 |
| | 4.9 |
| | Net regulatory assets | $ | 592,578 |
| | $ | 640,409 |
| | $ | (47,831 | ) | | (7.5 | ) |
Total regulatory assets decreased due primarily to the following items:
a $25.7 million decrease in deferred employee benefit costs;
a $12.2 million decrease in amounts collected from our customers for the deferred cost of fuel and purchased power;
a $11.2 million decrease in amounts due from customers for future income taxes; and
a $10.5 million decrease in amounts deferred for Wolf Creek refueling and maintenance outages; however,
partially offsetting these decreases was spending $20.9 million more than collected for the cost to remove retired plant assets; and
a $15.9 million increase in AROs. See Note 12 of the Notes to Condensed Consolidated Financial Statements, “Asset Retirement Obligations,” for additional information.
Total regulatory liabilities increased due primarily to a $29.8 million increase in the fair value of the NDT. This increase was partially offset by the following items:
approximately $10.0 million for accreting the Wolf Creek ARO and depreciating the capitalized Wolf Creek asset retirement cost;
spending $5.7 million more than collected for the cost to remove retired plant assets; and
amortizing $4.1 million of a deferred regulatory gain from a sale-leaseback of Unit 2 of the La Cygne generating station.
| | | | | | | | | | | | | | | | | | As of | | As of | | | | | | | September 30, 2017 | | December 31, 2016 | | Change | | % Change | | | (Dollars in Thousands) | | Short-term debt | $ | 189,100 |
| | $ | 366,700 |
| | $ | (177,600 | ) | | (48.4 | ) |
Short-term debt decreased due primarily to Westar Energy issuing $300.0 million in principal amount of FMBs, the proceeds for which were used to repay a portion of commercial paper borrowings, and us retiring $125.0 million in principal amount of FMBs. See Note 7 of the Notes to Condensed Consolidated Financial Statements, “Debt Financing” for additional information. Partially offsetting the decrease was issuances of commercial paper primarily used to fund capital expenditures.
| | | | | | | | | | | | | | | | | | As of | | As of | | | | | | | September 30, 2017 | | December 31, 2016 | | Change | | % Change | | | (Dollars in Thousands) | | Current maturities of long-term debt | $ | — |
| | $ | 125,000 |
| | $ | (125,000 | ) | | (100.0 | ) | | Long-term debt, net | 3,686,852 |
| | 3,388,670 |
| | 298,182 |
| | 8.8 |
| | Total long-term debt | $ | 3,686,852 |
| | $ | 3,513,670 |
| | $ | 173,182 |
| | 4.9 |
|
In 2017, Westar Energy issued $300.0 million in principal amount of FMBs and retired $125.0 million in principal amount of FMBs. See Note 7 of the Notes to Condensed Consolidated Financial Statements, “Debt Financing” for additional information.
| | | | | | | | | | | | | | | | | | As of | | As of | | | | | | | September 30, 2017 | | December 31, 2016 | | Change | | % Change | | | (Dollars in Thousands) | | Current maturities of long-term debt of variable interest entities | $ | 28,534 |
| | $ | 26,842 |
| | $ | 1,692 |
| | 6.3 |
| | Long-term debt of variable interest entities | 81,433 |
| | 111,209 |
| | (29,776 | ) | | (26.8 | ) | | Total long-term debt of variable interest entities | $ | 109,967 |
| | $ | 138,051 |
| | $ | (28,084 | ) | | (20.3 | ) |
Total long-term debt of VIEs decreased due primarily to the VIE that holds the La Cygne leasehold interests having made principal payments totaling $26.8 million. See Note 14 of the Notes to Condensed Consolidated Financial Statements, “Variable Interest Entities,” for additional information.
| | | | | | | | | | | | | | | | | As of | | As of | | | | | | | September 30, 2017 | | December 31, 2016 | | Change | | % Change | | | (Dollars in Thousands) | | Deferred income taxes | $ | 1,866,583 |
| | $ | 1,752,776 |
| | $ | 113,807 |
| | 6.5 |
Deferred income taxes increased due primarily to the use of bonus and accelerated depreciation methods for income tax purposes.
| | | | | | | | | | | | | | | | | As of | | As of | | | | | | | September 30, 2017 | | December 31, 2016 | | Change | | % Change | | | (Dollars in Thousands) | | Asset retirement obligations | $ | 397,505 |
| | $ | 323,951 |
| | $ | 73,554 |
| | 22.7 |
AROs increased due primarily to revisions for asbestos and nuclear decommissioning of $25.2 million and $19.4 million, respectively, and a new obligation estimated at $13.5 million related to the completion of Western Plains Wind Farm. See Note 12 of the Notes to Condensed Consolidated Financial Statements, “Asset Retirement Obligations” for additional information.
LIQUIDITY AND CAPITAL RESOURCES
Overview
Available sources of funds to operate our business include internally generatedGMO's cash short-term borrowings under Westar Energy’s commercial paper program and revolving credit facilities and access to capital markets. We expect to meet our day-to-day cash requirements including, among other items, fuel and purchased power, dividends, interest payments, income taxes and pension contributions, using primarily internally generated cash and short-term borrowings. To meet the cash requirements for our capital investments, we expect to use internally generated cash, short-term borrowings, and proceeds from the issuance of debt and equity securities in the capital markets. When such balances are of sufficient size and it makes economic sense to do so, we also use proceeds from the issuance of long-term debt and equity securities to repay short-term borrowings, which are principally related to investments in capital equipment and the redemption of bonds and for working capital and general corporate purposes. Uncertainties affecting our ability to meet cash requirements include, among others, factors affecting revenues described in “—Operating Results” above, economic conditions, regulatory actions, compliance with environmental regulations and conditions in the capital markets.
Short-Term Borrowings
Westar Energy maintains a commercial paper program pursuant to which it may issue commercial paper up to a maximum aggregate amount outstanding at any one time of $1.0 billion. This program is supported by and cannot exceed the capacity available under Westar Energy’s revolving credit facilities. Maturities of commercial paper issuances may not exceed 365 days from the date of issuance and proceeds from such issuances will be used to temporarily fund capital expenditures, to redeem debt on an interim basis, for working capital and/or for other general corporate purposes. As of October 25, 2017, Westar Energy had $167.2 million of commercial paper issued and outstanding.
Westar Energy has two revolving credit facilities in the amounts of $730.0 million and $270.0 million. The $730.0 million facility will expire in September 2019, $20.7 million of which expired in September 2017. The $270.0 million credit facility will expire in February 2018. As long as there is no default under the facilities, the $730.0 million and $270.0 million facilities may be extended an additional year and the aggregate amount of borrowings under the $730.0 million and $270.0 million facilities may be increased to $1.0 billion and $400.0 million, respectively, subject to lender participation. All borrowings under the facilities are secured by KGE FMBs. Total combined borrowings under the revolving credit facilities and the commercial paper program may not exceed $1.0 billion at any given time. As of October 25, 2017, no amounts were borrowed and $11.8 million in letters of credit had been issued under the $730.0 million facility. No amounts were borrowed and no letters of credit were issued under the $270.0 million facility as of the same date.
Long-Term Debt Financing
In January 2017, Westar Energy retired $125.0 million in principal amount of FMBs bearing a stated interest at 5.15% maturing January 2017.
In March 2017, Westar Energy issued $300.0 million in principal amount of FMBs bearing a stated interest at 3.10% and maturing April 2027.
Debt Covenants
We were in compliance with our debt covenants as of September 30, 2017.
Impact of Credit Ratings on Debt Financing
Moody’s and S&P are independent credit-rating agencies that rate our debt securities. These ratings indicate each agency’s assessment of our ability to pay interest and principal when due on our securities.
In general, more favorable credit ratings increase borrowing opportunities and reduce the cost of borrowing. Under Westar Energy’s revolving credit facilities and commercial paper program, our cost of borrowings is determined in part by credit ratings. However, Westar Energy’s ability to borrow under the credit facilities and commercial paper program are not conditioned on maintaining a particular credit rating. We may enter into new credit agreements that contain credit rating conditions, which could affect our liquidity and/or our borrowing costs.
Factors that impact our credit ratings include a combination of objective and subjective criteria. Objective criteria include typical financial ratios, such as funds from operations to total debt and operating cash flow to debt, among others, future capital expenditures and our access to liquidity including committed lines of credit. Subjective criteria include such items as the quality and credibility of management, the political and regulatory environment we operate in and an assessment of our governance and risk management practices.
As of October 25, 2017, our ratings with the agencies are as shown in the table below.
| | | | | | | | | | Westar
Energy
First
Mortgage
Bond
Rating
| | KGE
First
Mortgage
Bond
Rating
| | Westar Energy Commercial Paper | | Rating
Outlook
| Moody’s | A2 | | A2 | | P-2 | | Stable | S&P (a) | A | | A | | A-2 | | Positive |
_______________
| | (a) | In July 2017, following the public announcement of the amended and restated agreement and plan of merger with Great Plains Energy, S&P revised its outlook for Westar Energy and KGE to positive from negative, pending the outcome of the merger. |
Summary of Cash Flows
| | | | | | | | | | | | | | | | | | | | Nine Months Ended September 30, | | | | 2017 | | 2016 | | Change | | % Change | | | | (Dollars In Thousands) | | Cash flows from (used in): | | | | | | | | | | Operating activities | | $ | 742,322 |
| | $ | 692,573 |
| | $ | 49,749 |
| | 7.2 |
| | Investing activities | | (581,009 | ) | | (815,018 | ) | | 234,009 |
| | 28.7 |
| | Financing activities | | (160,991 | ) | | 123,151 |
| | (284,142 | ) | | (230.7 | ) | | Net change in cash and cash equivalents | | $ | 322 |
| | $ | 706 |
| | $ | (384 | ) | | (54.4 | ) |
Cash Flows from Operating Activities
Cash flows from operating activities increased due principally to our having received $39.9 million more for wholesale power sales and transmission services, receiving a $13.0 million refund for income taxes compared to paying $13.0 million for the same period in 2016, and paying $8.0 million less for coal and natural gas. Partially offsetting these increases was our paying $22.8 million more in purchased power and transmission services.2019.
Cash Flows used in Investing Activities CashEvergy's cash flows used in investing activities decreased dueincreased $97.3 million for the three months ended March 31, 2019, compared to the same period in 2018, primarily to our having invested $257.3driven by a $157.2 million lessincrease in additions to property, plant and equipment due to the inclusion of KCP&L's and GMO's additions to property, plant and equipment in 2019; partially offset by an increase of $38.3 million in proceeds primarily from Westar Energy corporate-owned life insurance (COLI) investments in 2019.
Cash Flows from (used in) Financing Activities Evergy's cash flows from financing activities increased $374.6 million for the three months ended March 31, 2019, compared to the same period in 2018, primarily driven by a $558.3 million increase in short-term debt, net primarily due to Evergy's $500.0 million of borrowings under its term loan credit facility entered into in March 2019; and a $494.0 million increase in net proceeds from long-term debt due to KCP&L's issuance of $400.0 million of 4.125% Mortgage Bonds and GMO's issuance of $100.0 million of 3.74% Senior Notes in March 2019; partially offset by the repurchase of common stock under repurchase plan of $578.3 million as a result of Evergy's share repurchase program in 2019; and an increase in cash dividends paid of $62.4 million due to an increase in outstanding shares of common stock in 2019 following the close of the merger and a $0.075 per share increase in the quarterly dividend paid in March 2019.
WESTAR ENERGY, INC. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS The below results of operations and related discussion for Westar Energy is presented in a reduced disclosure format in accordance with General Instruction (H)(2)(a) to Form 10-Q. The following table summarizes Westar Energy's comparative results of operations. | | | | | | | | | | | | | | Three Months Ended March 31 | 2019 | | Change | | 2018 | | | (millions) | | Operating revenues | $ | 596.8 |
| | $ | (3.4 | ) | | $ | 600.2 |
| | Fuel and purchased power | 122.7 |
| | (12.8 | ) | | 135.5 |
| | SPP network transmission costs | 63.5 |
| | (4.1 | ) | | 67.6 |
| | Other operating expenses | 176.5 |
| | (7.5 | ) | | 184.0 |
| | Depreciation and amortization | 109.8 |
| | 20.2 |
| | 89.6 |
| | Income from operations | 124.3 |
| | 0.8 |
| | 123.5 |
| | Other income (expense), net | (1.8 | ) | | 7.2 |
| | (9.0 | ) | | Interest expense | 44.9 |
| | 1.1 |
| | 43.8 |
| | Income tax expense | 10.5 |
| | 1.3 |
| | 9.2 |
| | Equity in earnings of equity method investees, net of income taxes | 1.2 |
| | (0.2 | ) | | 1.4 |
| | Net income | 68.3 |
|
| 5.4 |
| | 62.9 |
| | Less: Net income attributable to noncontrolling interests | 3.9 |
| | 1.5 |
| | 2.4 |
| | Net income attributable to Westar Energy, Inc. | $ | 64.4 |
|
| $ | 3.9 |
| | $ | 60.5 |
|
Westar Energy Utility Gross Margin and MWh Sales The following table summarizes Westar Energy's utility gross margin and MWhs sold. | | | | | | | | | | | | | | | | | | | | | | | | Revenues and Expenses | MWhs Sold | | Three Months Ended March 31 | 2019 | | Change | | 2018 | | 2019 | | Change | | 2018 | | Retail revenues | (millions) | (thousands) | | Residential | $ | 192.3 |
| | $ | 12.0 |
| | $ | 180.3 |
| | 1,546 |
| | 74 |
| | 1,472 |
| | Commercial | 164.3 |
| | 8.9 |
| | 155.4 |
| | 1,728 |
| | 31 |
| | 1,697 |
| | Industrial | 98.4 |
| | 4.9 |
| | 93.5 |
| | 1,342 |
| | (17 | ) | | 1,359 |
| | Other retail revenues | 5.1 |
| | 0.9 |
| | 4.2 |
| | 12 |
| | (2 | ) | | 14 |
| | Total electric retail | 460.1 |
| | 26.7 |
| | 433.4 |
| | 4,628 |
| | 86 |
| | 4,542 |
| | Wholesale revenues | 61.3 |
| | (32.9 | ) | | 94.2 |
| | 2,073 |
| | (828 | ) | | 2,901 |
| | Transmission revenues | 69.2 |
| | (2.7 | ) | | 71.9 |
| | N/A |
| | N/A |
| | N/A |
| | Other revenues | 6.2 |
| | 5.5 |
| | 0.7 |
| | N/A |
| | N/A |
| | N/A |
| | Operating revenues | 596.8 |
| | (3.4 | ) | | 600.2 |
| | 6,701 |
| | (742 | ) | | 7,443 |
| | Fuel and purchased power | (122.7 | ) | | 12.8 |
| | (135.5 | ) | | | | | | | | SPP network transmission costs | (63.5 | ) | | 4.1 |
| | (67.6 | ) | | | | | | | Utility gross margin (a) | $ | 410.6 |
| | $ | 13.5 |
| | $ | 397.1 |
| | | | | | |
| | (a) | Utility gross margin is a non-GAAP financial measure. See explanation of utility gross margin under Evergy's Results of Operations. |
Westar Energy's utility gross margin increased $13.5 million for the three months ended March 31, 2019, compared to the same period in 2018 driven by: an $11.8 million increase primarily due to higher retail sales driven by colder winter weather. For the three months ended March 31, 2019, compared to the same period in 2018, heating degree days increased 10%; and
a $3.9 million increase from new retail rates effective in September 2018, net of a $15.1 million provision for rate refund recorded in the first quarter of 2018 for the change in corporate income tax rate caused by the TCJA; partially offset by a $2.2 million reduction in revenue recorded for annual bill credits as a result of conditions in the KCC merger order. Westar Energy Other Operating Expenses (including operating and maintenance expense and taxes other than income tax) Westar Energy's other operating expenses decreased $7.5 million for the three months ended March 31, 2019, compared to the same period in 2018 primarily driven by: a $3.9 million decrease in Westar Energy's 47% ownership share of Wolf Creek operating and maintenance expense due to a $3.1 million decrease primarily driven by lower employee labor and benefit costs as a result of fewer employees in 2019 and a $0.8 million decrease in the amortization of deferred refueling outage costs; a $3.8 million decrease in labor and employee benefit costs due to a decrease in medical and dental expenses primarily due to lower claims in 2019; and a $3.5 million decrease in transmission and distribution operating and maintenance expense, primarily due to the timing of vegetation management projects; partially offset by $7.4 million of voluntary severance expenses incurred in the first quarter of 2019. Westar Energy Depreciation and Amortization Westar Energy's depreciation and amortization expense increased $20.2 million for the three months ended March 31, 2019, compared to the same period in 2018 primarily due to a change in depreciation rates effective in September 2018 as a result of Westar Energy's 2018 rate case. Westar Energy Other Income (Expense), Net Westar Energy's other expense, net decreased $7.2 million for the three months ended March 31, 2019, compared to the same period in 2018 primarily driven by a $6.2 million increase in COLI benefits. Westar Energy Interest Expense Westar Energy's interest expense increased$1.1 million for the three months ended March 31, 2019, compared to the same period in 2018 primarily driven by higher commercial paper interest rates and short-term borrowings in 2019.
KANSAS CITY POWER & LIGHT COMPANY MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS The below results of operations and related discussion for KCP&L is presented in a reduced disclosure format in accordance with General Instruction (H)(2)(a) to Form 10-Q. The following table summarizes KCP&L's comparative results of operations. | | | | | | | | | | | | | | Three Months Ended March 31 | 2019 | | Change | | 2018 | | | (millions) | | Operating revenues | $ | 425.4 |
| | $ | 28.3 |
| | $ | 397.1 |
| | Fuel and purchased power | 134.9 |
| | 17.4 |
| | 117.5 |
| | Other operating expenses | 154.7 |
| | 3.0 |
| | 151.7 |
| | Depreciation and amortization | 78.9 |
| | 12.0 |
| | 66.9 |
| | Income from operations | 56.9 |
| | (4.1 | ) |
| 61.0 |
| | Other income (expense), net | (3.4 | ) | | 0.9 |
| | (4.3 | ) | | Interest expense | 33.8 |
| | 0.8 |
| | 33.0 |
| | Income tax expense | 3.7 |
| | 0.2 |
| | 3.5 |
| | Net income | $ | 16.0 |
| | $ | (4.2 | ) |
| $ | 20.2 |
|
KCP&L Utility Gross Margin and MWh Sales The following table summarizes KCP&L's utility gross margin and MWhs sold. | | | | | | | | | | | | | | | | | | | | | | | | Revenues and Expenses | | MWhs Sold | | Three Months Ended March 31 | 2019 | | Change | | 2018 | | 2019 | | Change | | 2018 | | Retail revenues | (millions) | | (thousands) | | Residential | $ | 164.2 |
| | $ | 9.3 |
| | $ | 154.9 |
| | 1,397 |
| | 51 |
| | 1,346 |
| | Commercial | 183.8 |
| | 2.0 |
| | 181.8 |
| | 1,894 |
| | 35 |
| | 1,859 |
| | Industrial | 29.7 |
| | (2.5 | ) | | 32.2 |
| | 377 |
| | (33 | ) | | 410 |
| | Other retail revenues | 2.6 |
| | (0.1 | ) | | 2.7 |
| | 19 |
| | — |
| | 19 |
| | Total electric retail | 380.3 |
| | 8.7 |
| | 371.6 |
| | 3,687 |
| | 53 |
| | 3,634 |
| | Wholesale revenues | 18.1 |
| | 15.0 |
| | 3.1 |
| | 1,797 |
| | 417 |
| | 1,380 |
| | Transmission revenues | 3.1 |
| | (0.2 | ) | | 3.3 |
| | N/A |
| | N/A |
| | N/A |
| | Other revenues | 23.9 |
| | 4.8 |
| | 19.1 |
| | N/A |
| | N/A |
| | N/A |
| | Operating revenues | 425.4 |
| | 28.3 |
| | 397.1 |
| | 5,484 |
| | 470 |
| | 5,014 |
| | Fuel and purchased power | (134.9 | ) | | (17.4 | ) | | (117.5 | ) | | | | | | | Utility gross margin (a) | $ | 290.5 |
| | $ | 10.9 |
| | $ | 279.6 |
| |
|
| | | |
|
|
| | (a) | Utility gross margin is a non-GAAP financial measure. See explanation of utility gross margin under Evergy's Results of Operations. |
KCP&L's utility gross margin increased $10.9 million for the three months ended March 31, 2019, compared to the same period in 2018 driven by: a $10.4 million increase from new retail rates effective in December 2018, net of a $15.2 million provision for rate refund recorded in the first quarter of 2018 for the change in corporate income tax rate caused by the TCJA; a $4.1 million increase in Missouri Energy Efficiency Investment Act (MEEIA) earnings opportunity related to the completionachievement of constructioncertain energy savings levels in the second cycle of Western Plains Wind Farm;KCP&L's MEEIA program; and
a $3.7 million increase primarily due to higher retail sales driven by colder winter weather. For the three months ended March 31, 2019, compared to the same period in 2018, heating degree days increased 9%; partially offset by our having received $24.0 a $3.8 million fewer proceeds from our investmentdecrease for recovery of programs costs for energy efficiency programs under MEEIA, which have a direct offset in COLI.operating and maintenance expense; and
a $3.5 million decrease primarily due to the over-collection of KCP&L's Transmission Delivery Charge rider.
Cash Flows used in Financing ActivitiesKCP&L Other Operating Expenses (including operating and maintenance expense and taxes other than income tax)
Cash flows used in financing activitiesKCP&L's other operating expenses increased due principally to our having issued $162.0$3.0 million less in long-term debt of VIEs, issued $110.3 million less in commercial paper, issued $100.3 million less in long-term debt and redeemed $75.0 million more in long-term debt. Partially offsetting these decreases was our having redeemed $163.5 million less in long-term debt of VIEs.
Pension Contribution
Duringfor the ninethree months ended September 30, 2017, we contributed $20.6 millionMarch 31, 2019, compared to the Westar Energy pension trust. We fundedsame period in 2018 primarily driven by:
an $8.9 million increase in transmission and distribution operating and maintenance expense primarily due to costs incurred from storms that occurred in January 2019; and $5.2 million of voluntary severance expenses incurred in the first quarter of 2019; partially offset by a $4.9 million decrease in plant operating and maintenance expense at coal-fired units primarily driven by: | | | ◦ | a $3.6 million decrease primarily due to scheduled maintenance outages at KCP&L's Hawthorn No. 5 Unit and Iatan No. 2 Unit in March 2018; and |
| | | ◦ | a $1.9 million decrease due to the retirement of KCP&L's Montrose Station in December 2018. |
a $3.9 million decrease in KCP&L's 47% ownership share of Wolf Creek operating and maintenance expense due to a $3.2 million decrease primarily driven by lower employee labor and benefit costs as a result of fewer employees in 2019 and a $0.7 million decrease in the amortization of deferred refueling outage costs; and a $3.8 million decrease in program costs for energy efficiency programs under MEEIA, which have a direct offset in revenue. KCP&L Depreciation and Amortization KCP&L's depreciation and amortization increased $12.0 million of Wolf Creek’s pension plan contributions duringfor the three months ended March 31, 2019, compared to the same period.period in 2018 driven by:
a $7.2 million increase primarily due to capital additions; and
OFF-BALANCE SHEET ARRANGEMENTS
Froma $4.8 million increase due to a change in depreciation rates effective in December 31, 2016, through September 30, 2017, our off-balance sheet arrangements did not change materially. For additional information, see our 2016 Form 10-K.
2018 as a result of KCP&L's 2018 Kansas rate case.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
From December 31, 2016, through September 30, 2017, our contractual obligations and commercial commitments did not change materially outside the ordinary course of business. For additional information, see our 2016 Form 10-K.
OTHER INFORMATION
Changes in Prices
See Note 4 of the Notes to Condensed Consolidated Financial Statements, “Rate Matters and Regulation,” for information on our prices.
New Accounting Pronouncements
See Note 2 of the Notes to Condensed Consolidated Financial Statements, “Summary of Significant Accounting Policies,” for information on accounting pronouncements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the ordinary course of business, Evergy faces risks that are either non-financial or non-quantifiable. Such risks principally include business, legal, operational and credit risks and are discussed elsewhere in this document as well as in the Evergy Companies' combined 2018 Form 10-K and therefore are not represented here.
We are exposed toEvergy's interim period disclosures about market risk includingincluded in quarterly reports on Form 10-Q address material changes, if any, from the most recently filed annual report on Form 10-K. Therefore, these interim period disclosures should be read in commodity prices, counterparty credit, interest rates, and debt and equity instrument values. From December 31, 2016, to September 30, 2017, no significant changes occurred in our market risk exposure. See “Item 7A.connection with Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk”Risk included in our 2016the Evergy Companies' combined 2018 Form 10-K for additional information.10-K.
ITEM 4. CONTROLS AND PROCEDURES We maintain a setEVERGY
Disclosure Controls and Procedures Evergy carried out an evaluation of its disclosure controls and procedures designed to ensure that information required to be disclosed(as defined in reports that we file or submitRules 13a-15(e) and 15d-15(e) under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. In addition, the disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reportsAct). This evaluation was conducted under the Exchange Act is accumulatedsupervision, and communicated towith the participation, of Evergy's management, including the chief executive officer and the chief financial officer, allowing timely decisions regarding required disclosure. Asand Evergy's disclosure committee. Based upon this evaluation, the chief executive officer and chief financial officer of Evergy have concluded as of the end of the period covered by this report based onthat the disclosure controls and procedures of Evergy were effective at a reasonable assurance level. Changes in Internal Control Over Financial Reporting There has been no change in Evergy’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the quarterly period ended March 31, 2019, that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting. WESTAR ENERGY Disclosure Controls and Procedures Westar Energy carried out an evaluation carried outof its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). This evaluation was conducted under the supervision, and with the participation, of Westar Energy's management, including the chief executive officer and the chief financial officer, of the effectiveness of ourand Westar Energy's disclosure controls and procedures,committee. Based upon this evaluation, the chief executive officer and the chief financial officer of Westar Energy have concluded as of the end of the period covered by this report that ourthe disclosure controls and procedures of Westar Energy were effective.effective at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There werehas been no changeschange in ourWestar Energy's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the three monthsquarterly period ended September 30, 2017,March 31, 2019, that has materially affected, or areis reasonably likely to materially affect, ourits internal control over financial reporting. KCP&L Disclosure Controls and Procedures KCP&L carried out an evaluation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). This evaluation was conducted under the supervision, and with the participation, of KCP&L's management, including the chief executive officer and chief financial officer, and KCP&L's disclosure committee. Based upon this evaluation, the chief executive officer and chief financial officer of KCP&L have concluded as of the end of the period covered by this report that the disclosure controls and procedures of KCP&L were effective at a reasonable assurance level. Changes in Internal Control Over Financial Reporting There has been no change in KCP&L's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the quarterly period ended March 31, 2019, that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
PART II - OTHER INFORMATION PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Other Proceedings
Information on legalThe Evergy Companies are parties to various lawsuits and regulatory proceedings is set forth in the ordinary course of their respective businesses. For information regarding material lawsuits and proceedings, see Notes 114 and 13 of9 to the Notes to Condensed Consolidated Financial Statements, “Commitments and Contingencies” and “Legal Proceedings,” respectively, which areconsolidated financial statements. Such information is incorporated herein by reference.
ITEM 1A. RISK FACTORS
Our 2016 Form 10-K contains descriptionsActual results in future periods for the Evergy Companies could differ materially from historical results and the forward-looking statements contained in this report. The business of riskthe Evergy Companies is influenced by many factors relatingthat are difficult to us, as required bypredict, involve uncertainties that may materially affect actual results and are often beyond their control. Additional risks and uncertainties not presently known or that management currently believes to be immaterial may also adversely affect the Evergy Companies. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in Part I, Item 503(c) of Regulation S-K. The risk factors under the heading “Risks Relating to the Pending Merger”1A, Risk Factors included in the 20162018 Form 10-K Item 1A. Risk Factors, were replaced with the risk factors contained in Item 1A. Risk Factors in ourfor each of Evergy, KCP&L and Westar Energy, as well as Quarterly ReportReports on Form 10-Q forand Current Reports on Form 8-K filed by Evergy, KCP&L and Westar Energy. There have been no material changes with regards to those risk factors. This information, as well as the quarter ended June 30, 2017. Except as indicated below, or as otherwise describedother information included in filings we make from time to timethis report and in the other documents filed with the SEC, including our Quarterly Report on Form 10-Q forshould be carefully considered before making an investment in the quarter ended March 31, 2017, there were no material changes in oursecurities of the Evergy Companies. Risk factors of KCP&L and Westar Energy are also risk factors from December 31, 2016, through September 30, 2017.
Pending litigation against us and Great Plains Energy could result in an injunction preventing the consummation of the proposed merger or may adversely affect the combined company’s business, financial condition or results of operations following the merger.
Following the announcement of the original merger agreement, a putative derivative lawsuit was filed in the District Court of Shawnee County, Kansas against the members of our board of directors, Great Plains Energy and a subsidiary of Great Plains Energy, alleging breaches of various fiduciary duties by members of our board of directors in connection with the original proposed transaction and alleging that Great Plains Energy and a subsidiary of Great Plains Energy aided and abetted such alleged breaches of fiduciary duties. The putative derivative petition was refiled in October 2017. Also following the announcement of the original merger agreement, two putative class action lawsuits (which were consolidated and superseded by a consolidated complaint) were filed in the District Court of Shawnee County, Kansas against Westar Energy, the members of our board of directors and Great Plains Energy, alleging breaches of various fiduciary duties by the members of our board of directors in connection with the proposed merger and alleging that we and Great Plains Energy aided and abetted such alleged breaches of fiduciary duties. In September 2017, the lead plaintiffs moved to amend the class action petition with allegations similar to those made regarding the original merger agreement but focusing on the revised merger. Also in September 2017, a putative class action lawsuit was filed in the United States District Court for the District of Kansas challenging the merger and alleged disclosure violations under sections 14(a) and 20(a) of the Exchange Act. In October 2017, another putative class action lawsuit was filed in the United States District Court for the District of Kansas. This federal class action complaint challenges the merger and alleges violations of sections 14(a) and 20(a) of the Exchange Act.
Among other remedies, the plaintiffs seek to enjoin the proposed transaction, rescind the merger agreement, remedy alleged disclosure deficiencies, and unspecified damages and reimbursement of costs. The outcome of litigation is inherently uncertain, and we cannot predict how existing litigation will progress, or whether additional claims may result from the amended and restated merger agreement. The defense or settlement of any lawsuit or claim that remains unresolved at the time the merger closes may adversely affect the combined company’s business, financial condition or results of operations. See Note 13 of the Notes to Condensed Consolidated Financial Statements, “Legal Proceedings,” for additional information.
Evergy Companies.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities
None.The following table provides information regarding purchases by Evergy of its equity securities that are registered pursuant to Section 12 of the Exchange Act during the three months ended March 31, 2019.
| | | | | | | | | | | Issuer Purchases of Equity Securities | | Month | | Total Number of Shares (or Units) Purchased(a) | Average Price Paid per Share (or Unit) | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs(a) | | January 1 - 31 | | 661,295 |
| $56.36 | 661,295 |
| 42,970,342 |
| | February 1 - 28 | | 2,555,392 |
| (a) | 2,555,392 |
| 40,414,950 |
| | March 1 - 31 | | 7,363,073 |
| (b) | 7,331,373 |
| 33,083,577 |
| | Total | | 10,579,760 |
| | 10,548,060 |
| 33,083,577 |
|
(a) In February 2019, the November 2018 ASR agreement was settled, which resulted in the delivery of 1,936,994 additional shares of Evergy common stock at no additional cost. In total, 8,337,533 shares were delivered under this ASR at an average price paid per share of $56.97. In addition, Evergy repurchased 618,398 shares of common stock in the open market at an average price of $55.74. (b) In March 2019, Evergy entered into a new ASR agreement to purchase $450.0 million of Evergy common stock and through which 6,323,556 shares were delivered in March 2019. The final number of shares of Evergy common stock that will ultimately be delivered to Evergy, and therefore the average price paid per share, will be determined at the final settlement of the ASR by June 2019. In addition, Evergy repurchased 1,007,817 shares of common stock in the open market at an average price of $55.93. Evergy also purchased 31,700 shares for withholding taxes related to restricted stock and performance share vestings at an average price of $55.74.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION Investors should note that we announce material financial information in SEC filings, press releases and public conference calls.Evergy’s annual meeting of shareholders was held on May 7, 2019. In accordance with SEC guidance, we may also use the Investor Relations sectionrecommendations of our website (the Evergy Board, the shareholders (i) elected fifteen directors; (ii) approved, on an advisory and non-binding basis, the 2018 compensation of Evergy’s named executive officers; (iii) approved, on an advisory and non-binding basis, a resolution for a one-year frequency of the advisory vote on executive compensation; and (iv) ratified the appointment of Deloitte & Touche LLP as independent registered public accountants for 2019. The proposals voted upon at the annual meeting, as well as the voting results for each proposal are set forth below.
Item 1 on the Proxy Card.http://www.WestarEnergy.com The fifteen persons named below were elected, as proposed in the proxy statement, to serve as directors until Evergy’s annual meeting in 2020, and until their successors are elected and qualified. The voting regarding the election was as follows: | | | | | | | | | Number of Votes | | | For | | Withheld | | Broker Non-Votes | | Terry Bassham | 190,910,934 | | 933,232 | | 29,658,406 | | Mollie Hale Carter | 190,796,944 | | 1,047,222 | | 29,658,406 | | Charles Q. Chandler IV | 190,688,834 | | 1,155,332 | | 29,658,406 | | Gary D. Forsee | 190,687,137 | | 1,157,029 | | 29,658,406 | | Scott D. Grimes | 190,921,406 | | 922,760 | | 29,658,406 | | Richard L. Hawley | 190,823,329 | | 1,020,837 | | 29,658,406 | | Thomas D. Hyde | 190,831,247 | | 1,012,919 | | 29,658,406 | | B. Anthony Isaac | 190,675,146 | | 1,169,020 | | 29,658,406 | | Sandra A.J. Lawrence | 189,940,537 | | 1,903,629 | | 29,658,406 | | Ann D. Murtlow | 190,889,125 | | 955,041 | | 29,658,406 | | Sandra J. Price | 190,846,264 | | 997,902 | | 29,658,406 | | Mark A. Ruelle | 188,755,775 | | 3,088,391 | | 29,658,406 | | John J. Sherman | 190,791,164 | | 1,053,002 | | 29,658,406 | | S. Carl Soderstrom Jr. | 137,012,013 | | 54,832,153 | | 29,658,406 | | John Arthur Stall | 190,888,483 | | 955,683 | | 29,658,406 |
Item 2 on the Proxy Card. , under “Investors”) to communicateIn an advisory and non-binding “say on pay” vote, shareholders approved the 2018 compensation of Evergy’s named executive officers, with investors about our company. It is possible that the financialfollowing vote: | | | | | | | | | Number of Votes | | For | | Against | | Abstain | | Broker Non-Votes | | 186,075,423 | | 4,931,190 | | 837,553 | | 29,658,406 |
Item 3 on the Proxy Card. In an advisory and other information we post there could be deemed to be material information. The informationnon-binding vote, shareholders approved the option of every one year as the preferred frequency for advisory “say on our website is not partpay” votes, with the following vote: | | | | | | | | | | | Number of Votes | | One Year | | Two Years | | Three Years | | Abstain | | Broker Non-Votes | | 188,106,502 | | 399,289 | | 2,600,179 | | 738,196 | | 29,658,406 |
In accordance with the results of this document.advisory vote, Evergy will hold future advisory “say on pay” votes annually.
Item 4 on the Proxy Card. Shareholders voted for the ratification and confirmation of the appointment of Deloitte & Touche LLP as Evergy’s independent registered public accounting firm for 2019, with the following vote:
| | | | | | | | | Number of Votes | | For | | Against | | Abstain | | Broker Non-Votes | | 219,141,327 | | 1,870,723 | | 490,522 | | 0 |
ITEM 6. EXHIBITS | | | | | | Number | | Description of Document | | Registrant | | | | | | | | | | | | | | | | | 3.1 | * | Amended and Restated Merger Agreement, datedBy-laws of Kansas City Power & Light Company, as of July 9, 2017, by and among Westar Energy, Inc., Great Plains Energy Incorporated, Monarch Energy Holding, Inc., King Energy, Inc. and, solely for the purposes set forth therein, GP Star, Inc.amended March 25, 2019 (filed as Exhibit 2.13.1 to theEvergy, Inc.’s Form 8-K filed on July 10, 2017)March 25, 2019). | | Evergy
KCP&L | | | | | | | 4.1 | * | | | Evergy
KCP&L | | | | | | | 4.2 | * | | | Evergy
KCP&L | | | | | | | 4.3 | * | | | Evergy
KCP&L | | | | | | | 4.4 | * | | | Evergy
KCP&L | | | | | | | 4.5 | | | | Evergy | | | | | | | 10.1 | *+ | | | KCP&L
| | | | | | | 10.2 | *+ | | | KCP&L
| | | | | |
| | | | | | Exhibit Number | | Description of Document | | Registrant | | | | | | | | | | | | | | | | | 10.3 | *+ | | | Evergy
Westar Energy KCP&L
| | 10.4 | + | | | Evergy
Westar Energy KCP&L
| | | | | | | 10.5 | + | | | Evergy
Westar Energy KCP&L
| | 10.6 | * | Term Loan Credit Agreement, dated March 15, 2019, by and among Evergy, Inc., Wells Fargo Bank, National Association, as Administrative Agent, and the lenders referred to therein (filed as Exhibit 10.1 to Evergy, Inc.’s Form 8-K on March 15, 2019). | | Evergy | | | | | | | 31.1 | | | | Evergy | | | | | | | 31.2 | | | | Evergy | | | | | | | 31.3 | | | | KCP&L | | | | | | | 31.4 | | | | KCP&L | | | | | | | 31.5 | | | | Westar Energy | | | | | | | 31.6 | | | | Westar Energy | | | | | | | 32.1 | ** | | | Evergy | | | | | | | 32.2 | ** | | | KCP&L | | | | | | | 32.3 | ** | | | Westar Energy | | | | | | | 101.INS | | XBRL Instance DocumentDocument. | | Evergy
Westar Energy
KCP&L | | | | | | | 101.SCH | | XBRL Taxonomy Extension Schema DocumentDocument. | | Evergy
Westar Energy
KCP&L | | | | | | | 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase DocumentDocument. | | Evergy
Westar Energy
KCP&L | | | | | | | 101.DEF | | XBRL Taxonomy Extension Definition Linkbase DocumentDocument. | | Evergy
Westar Energy
KCP&L | | | | | | | 101.LAB | | XBRL Taxonomy Extension LabelLabels Linkbase Document | 101.PREDocument. | | XBRL Taxonomy Extension Presentation Linkbase Document | + The disclosure letters and related schedules to the agreement have been omitted. The registrant agrees to furnish supplementally a copy of any such schedules to the Securities and Exchange Commission upon request.Evergy
Westar Energy
KCP&L |
* Filed with the SEC as exhibits to prior SEC filings and are incorporated herein by reference and made a part hereof. The SEC filings and the exhibit number of the documents so filed, and incorporated herein by reference, are stated in parenthesis in the description of such exhibit.
** Furnished and shall not be deemed filed for the purpose of Section 18 of the Exchange Act. Such document shall not be incorporated by reference into any registration statement or other document pursuant to the Exchange Act or the Securities Act of 1933, as amended, unless otherwise indicated in such registration statement or other document. + Indicates management contract or compensatory plan or arrangement. Copies of any of the exhibits filed with the SEC in connection with this document may be obtained from Evergy, Westar Energy or KCP&L, as applicable, upon written request. The registrants agree to furnish to the SEC upon request any instrument with respect to long-term debt as to which the total amount of securities authorized does not exceed 10% of total assets of such registrant and its subsidiaries on a consolidated basis.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant hasEvergy, Inc., Westar Energy, Inc. and Kansas City Power & Light Company have duly caused this report to be signed on itstheir behalf by the undersigned, thereunto duly authorized. | | | | | | | EVERGY, INC. | | | | | | Dated: | May 8, 2019 | By: /s/ Anthony D. Somma | | | (Anthony D. Somma) | | | (Executive Vice President and Chief Financial Officer) |
| | | | | | | WESTAR ENERGY, INC. | | | | | | Dated: | May 8, 2019 | By: /s/ Anthony D. Somma | | | | (Anthony D. Somma) | | | (Executive Vice President and Chief Financial Officer) |
| | | | | | KANSAS CITY POWER & LIGHT COMPANY | | | | | Date:Dated: | May 8, 2019 | October 31, 2017 | | By: | | /s/ Anthony D. Somma | | | | | | | | (Anthony D. SommaSomma) | | | | | | | | Senior(Executive Vice President and Chief Financial Officer and TreasurerOfficer) |
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