Great Plains Energy Inc (GXP)

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Great Plains Energy Incorporated (GXP)

Q4 2012 Earnings Call

March 01, 2013 9:00 am ET

Executives

Kevin E. Bryant - Vice President of Investor Relations and Treasurer

Terry D. Bassham - Chief Executive Officer, President, Chief Operating Officer of KCP&L, Chief Operating Officer, President of KCP&L and Director

James C. Shay - Chief Financial Officer and Senior Vice President of Finance & Strategic Development

Analysts

Paul Patterson - Glenrock Associates LLC

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Charles J. Fishman - Morningstar Inc., Research Division

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

Christopher Turnure - JP Morgan Chase & Co, Research Division

Sarah Akers - Wells Fargo Securities, LLC, Research Division

Adam Muro - Goldman Sachs Group Inc., Research Division

Presentation

Operator

Good morning. My name is Darla, and I will be your conference operator today. At this time, I would like to welcome everyone to the 2012 Fourth Quarter Year-End Earnings Call. [Operator Instructions] I would now like to turn the call over to Mr. Kevin Bryant, Vice President of Investor Relations and Strategic Planning and Treasurer.

Kevin E. Bryant

Thank you very much, Darla. Good morning, everyone, and thank you for joining us for our year-end 2012 earnings conference call. Let me begin, as always, by introducing the members of the Great Plains Energy management team who are here with me today. We have Terry Bassham, President and Chief Executive Officer; and Jim Shay, Senior Vice President and Chief Financial Officer, who in a few moments will both provide an overview of the year's results. Scott Heidtbrink, Executive Vice President and Chief Operating Officer of KCP&L, is also with us this morning and will be available during the question-and-answer portion of today's call.

Before we begin, I must remind you of the inherent uncertainties in any forward-looking statements in our discussion this morning. Slide 2 and the disclosure in our SEC filings contain a list of some of the factors that could cause future results to differ materially from our expectations. I also want to remind everyone that we issued our earnings release and 2012 10-K after the market closed yesterday. These items are available, along with today's webcast slides and supplemental financial information regarding the quarter and the full year 2012 on the main page of our website.

With that very important stuff out of the way, I'll now hand the call to Mr. Bassham.

Terry D. Bassham

Thanks, Kevin, and good morning to everybody. I appreciate you joining us this morning. 2012 was an important year for us on many fronts, which included executing on the commitments that we made at our Analyst Day back in August of 2011. And while Jim will review our financial results in detail in a moment, as many of you saw in our earnings release yesterday, we reported earnings per share of $1.35 for 2012. This compares to $1.25 per share in 2011, although at the bottom end of the range is within the original guidance range we provided at Analyst Day. We've achieved many of the strategic objectives we laid out in August of 2011, and believe we've laid the foundation for improved total shareholder returns. The achievements include the following: First, we committed to file and complete rate cases in Kansas and Missouri and to pursue riders and trackers were appropriate. We concluded the last of our cases and will have new rates in a number of cost recovery mechanisms in both jurisdictions in 2013.

Second, we committed to reduce regulatory lag by tightly managing the business in a challenging economic environment. In the face of 2 consecutive years of soft customer demand, we tightly managed our operations, reduced our O&M in 2012 compared to 2011. This was done while we maintained our track record of operational excellence and continued delivery of dependable customer service.

Third, we committed to improve our free cash flow profile in support of increased dividends and strengthened credit profile. Our combined dividend increases in 2011 and 2012 represent the total increase of 5% over that time period. And on the credit front, our profile has strengthened with our funds from operations to debt, increasing by approximately 350 basis points to nearly 16% in 2012. By executing on these objectives, we strengthened our company and firmly believe the steps taken to reduce regulatory lag and position us for improved financial performance.

Turning to Slide 5. Our 2012 earnings per share of $1.35 represents 8% growth compared to 2011. Weather was a factor in our results as the year started up unfavorably warm during the first quarter, but this warmth transition into a hot summer, including the warmest July on record. With strong cost management in 2012, we reduced total operating and maintenance expense by $11 million despite the fact that Wolf Creek O&M increased $13 million. Favorable weather and reduced O&M were partially offset by soft demand and weaker off-system sales.

Turning to 2013, we believe we will deliver improved earnings benefiting from the new retail rates and recovery mechanisms, and by maintaining our focus on cost management and operational excellence. Our 2013 earnings guidance range of $1.44 to $1.64 per share represents 50 to 150 basis points of regulatory lag off of our authorized rate of return. Jim will provide more detail on our 2013 guidance in his comments.

Turning to Slide 6, our weather-normalized megawatt hour sales declined 1.3% in 2012. We believe the extremely hot summer impacted the weather normalization process during the third quarter, making it difficult to determine our sales trend with certainty. In addition to weather, we believe the economy, energy efficiency and greater customer bill awareness contributed to the decline for the year. We do not believe that the level of reduced demand is indicative of a long-term state of our service territory.

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