EVERGY, INC. The following combined Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the consolidated financial statements and accompanying notes in this combined Quarterly Report on Form 10-Q and the Evergy Companies' combined 2021 Form 10-K. None of the registrants make any representation as to information related solely toEvergy ,Evergy Kansas Central orEvergy Metro other than itself.EVERGY, INC.
EXECUTIVE SUMMARY
•Evergy Kansas Central is an integrated, regulated electric utility that
provides electricity to customers in the state of
•Evergy Metro is an integrated, regulated electric utility that provides
electricity to customers in the states of
•Evergy Missouri West is an integrated, regulated electric utility that provides
electricity to customers in the state of
•Evergy Transmission Company owns 13.5% ofTransource with the remaining 86.5% owned byAEP Transmission Holding Company, LLC , a subsidiary of AEP.Transource is focused on the development of competitive electric transmission projects.Evergy Transmission Company accounts for its investment inTransource under the equity method.Evergy Kansas Central also owns a 50% interest in Prairie Wind, which is a joint venture betweenEvergy Kansas Central and subsidiaries ofAEP andBerkshire Hathaway Energy Company . Prairie Wind owns a 108-mile, 345 kV double-circuit transmission line that provides transmission service in the SPP. Evergy Kansas Central accounts for its investment in Prairie Wind under the equity method. 54 -------------------------------------------------------------------------------- Table of ContentsEvergy Kansas Central ,Evergy Kansas South ,Evergy Metro andEvergy Missouri West conduct business in their respective service territories using the nameEvergy . Collectively, the Evergy Companies have approximately 15,400 MWs of owned generating capacity and renewable power purchase agreements and engage in the generation, transmission, distribution and sale of electricity to approximately 1.7 million customers in the states ofKansas andMissouri . The Evergy Companies assess financial performance and allocate resources on a consolidated basis (i.e., operate in one segment).Sibley Station Evergy Missouri West retired itsSibley Station in 2018 and the retirement of Sibley Unit 3 met the criteria to be considered an abandonment.Evergy has classified the remaining net book value of Sibley Unit 3 as retired generation facilities within regulatory assets on its consolidated balance sheet and as ofDecember 31, 2021 , this amount was$123.4 million .Evergy Missouri West collects a full return of and on its investment inSibley Station in current customer rates and has requested the continued return of and on its unrecovered investment inSibley Station as part of its current rate case with the MPSC which was filed inJanuary 2022 . InOctober 2019 , the MPSC issued an AAO requiringEvergy Missouri West to defer to a regulatory liability 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 withSibley Station following its retirement inNovember 2018 to be considered inEvergy Missouri West's current rate case. Subsequent to the MPSC order in 2019,Evergy recorded a regulatory liability for the estimated amount of revenues thatEvergy Missouri West had collected from customers forSibley Station sinceDecember 2018 thatEvergy had determined was probable of refund. This regulatory liability did not include revenues collected related to the return on investment inSibley Station asEvergy determined that they were not probable of refund based on the relevant facts and circumstances. As ofDecember 31, 2021 , this Sibley AAO regulatory liability was$29.3 million . In the third quarter of 2022,Evergy determined that the refund of revenues collected sinceDecember 2018 for return on investment inSibley Station was now probable based on regulatory precedent from anAugust 2022 MPSC decision in a similar proceeding for an unaffiliated utility and the MPSC staff's position inEvergy Missouri West's current rate case. As a result of this determination,Evergy recorded a$47.5 million decrease to operating revenues on its consolidated statements of comprehensive income for the three months ended and year to dateSeptember 30, 2022 , for the deferral to its Sibley AAO regulatory liability of revenues collected from customers for return on investment inSibley Station sinceDecember 2018 . The Sibley AAO regulatory liability had a total value as ofSeptember 30, 2022 of$84.7 million . Based on the recent MPSC regulatory precedent,Evergy believes it is probable that the Sibley AAO regulatory liability will be offset for recovery purposes against its unrecovered investment in Sibley Unit 3 in its current rate case and as a result, has netted its Sibley AAO regulatory liability against its retired generation facilities regulatory asset for Sibley Unit 3 on its consolidated balance sheets as ofSeptember 30, 2022 . Year to dateSeptember 30, 2022 , the retired generation facilities regulatory asset has also been reduced by$7.1 million , primarily consisting of amortization expense equal to the depreciation expense for the asset reflected in retail rates.Evergy also recorded a$6.0 million estimated impairment loss on Sibley Unit 3 on its consolidated statements of comprehensive income for the three months ended and year to dateSeptember 30, 2022 , as it no longer expects to earn a return on its unrecovered investment in Sibley Unit 3 based on the regulatory precedent discussed above. As ofSeptember 30, 2022 , and following the netting of the Sibley AAO regulatory liability, amortization expense and the estimated impairment loss recorded in the third quarter of 2022,Evergy's retired generation facilities regulatory asset for Sibley Unit 3 was$25.6 million . The final value ofEvergy's retired generation facilities regulatory asset for Sibley Unit 3 and any impairment loss will be determined by the MPSC in its rate order inEvergy Missouri West's current rate case, which is currently expected inNovember 2022 , and could differ significantly from the amounts currently recorded. See "Abandoned Plant" in Note 1 and "Evergy Missouri West Other Proceedings" in Note 4 to the consolidated financial statements for additional information. 55 -------------------------------------------------------------------------------- Table of ContentsEvergy Missouri West February 2021 Winter Weather Event Securitization InMarch 2022 ,Evergy Missouri West filed a petition for a financing order with the MPSC requesting authorization to finance its extraordinary fuel and purchased power costs incurred as part of theFebruary 2021 winter weather event, including carrying costs, through the issuance of securitized bonds.Evergy Missouri West requested to repay the securitized bonds and collect the related amounts from customers over a period of approximately 15 years from the date of issuance of the securitized bonds. InOctober 2022 , the MPSC issued a financing order authorizingEvergy Missouri West to issue securitized bonds to recover its extraordinary fuel and purchased power costs incurred as part of theFebruary 2021 winter weather event. As part of the order, the MPSC found thatEvergy Missouri West's costs were prudently incurred, that it should only be allowed to recover 95% of its extraordinary fuel and purchased power costs consistent with the 5% sharing provision of its fuel recovery mechanism, that it should be allowed to recover carrying costs incurred sinceFebruary 2021 atEvergy Missouri West's long-term debt rate of 5.06% and approved a 15 year repayment period for the bonds with a 17 year legal maturity. In the third quarter of 2022,Evergy Missouri West recorded an increase of$15.0 million to itsFebruary 2021 winter weather event regulatory asset for the recovery of carrying charges granted in the MPSC's financing order. As ofSeptember 30, 2022 , the value ofEvergy Missouri West's February 2021 winter weather event regulatory asset was$303.1 million .Evergy Missouri West will continue to record carrying charges on itsFebruary 2021 winter weather event regulatory asset until it issues the securitized bonds authorized by the MPSC's financing order, which is currently expected in the first half of 2023. Inflation Reduction Act InAugust 2022 , the Inflation Reduction Act of 2022 (IRA) was signed into law byPresident Biden . The IRA extends tax credits for renewable energy technologies intended to reduce the impacts of climate change. The Production Tax Credit (PTC) and Investment Tax Credit (ITC) have been extended or reinstated for certain renewable energy projects beginning beforeJanuary 1, 2025 . The definition of property eligible for the ITC has been expanded to include standalone energy storage with a capacity of at least 5kWh. Both tax credits make a bonus credit available if certain prevailing wage, apprenticeship and domestic content requirements are met. The IRA modified and extended the Alternative Fuel Refueling Property Credit to include property placed in service beforeDecember 31, 2032 and it also removes the limitation per location. The IRA created a Nuclear Power Production Tax Credit for taxable years beginning on or afterJanuary 1, 2024 throughDecember 31, 2032 . For taxable years beginning afterDecember 31, 2022 , certain renewable energy tax credits may be transferred to third parties. The IRA also implemented a new 15% corporate minimum tax based on modified GAAP net income and a 1% excise tax on stock buybacks. The Evergy Companies anticipate utilizing the PTC and ITC for future renewable generation projects and are evaluating the Nuclear Power Production Tax Credit in connection with operations at Wolf Creek. The new corporate minimum tax and excise tax on stock buybacks are not expected to have a material impact on the Evergy Companies' operations or consolidated financial results and theEvergy Companies continue to evaluate the remaining IRA provisions for the effect on their future financial results. Missouri Property Tax Tracker InJune 2022 ,Missouri Senate Bill (S.B.) 745 was signed into law by the Governor ofMissouri and became effective inAugust 2022 . Among other items, S.B. 745 includes a provision requiringMissouri electric utilities to defer to a regulatory asset or regulatory liability, as appropriate, any difference between state or local property tax expenses incurred and the amounts included in rates. Any amounts deferred to a regulatory asset or liability under this provision would be included in the electric utility's revenue requirement in subsequent rate cases and recovered over a reasonable period of time to be determined by the MPSC.Evergy Metro andEvergy Missouri West began deferring the amounts associated with S.B. 745 in the third quarter of 2022. 56 -------------------------------------------------------------------------------- Table of ContentsRenewable Generation Investment InAugust 2022 ,Evergy Missouri West entered into an agreement with a renewable energy development company to purchase for approximately$250 million an operational wind farm located in the state ofOklahoma with a generating capacity of approximately 199 MW. Subject to customary regulatory approvals and closing conditions, this transaction is expected to close in the first half of 2023. Regulatory Proceedings See Note 4 to the consolidated financial statements for information regarding regulatory proceedings. Wolf Creek Refueling Outage Wolf Creek's most recent refueling outage began inOctober 2022 and the unit is expected to return to service inNovember 2022 . Earnings Overview The following table summarizesEvergy's net income and diluted EPS. Three Months Ended Year to Date September 30 September 30 2022 Change 2021 2022 Change 2021 (millions, except per share amounts) Net income attributable to Evergy, Inc.$ 428.2 $ (21.2) $ 449.4
1.86 (0.09) 1.95 3.23 (0.37) 3.60
Net income attributable to Evergy, Inc. decreased for the three months ended
September 30, 2022 , compared to the same period in 2021, primarily due to the
expected refund of amounts collected from customers for the return on investment
of Sibley Station , higher depreciation expense, higher unrealized losses from
various equity investments and higher interest expense; partially offset by
higher retail sales in the third quarter of 2022 driven by higher
weather-normalized demand and favorable weather, higher transmission revenue,
higher interest and dividend income and lower income tax expense.
Diluted EPS decreased for the three months ended
Net income attributable toEvergy, Inc. decreased year to dateSeptember 30, 2022 , compared to the same period in 2021, primarily due to non-regulated energy marketing margins recognized in 2021 related to theFebruary 2021 winter weather event, the expected refund of amounts collected from customers for the return on investment ofSibley Station , higher depreciation expense, higher property taxes, higher realized and unrealized losses from various equity investments and higher interest expense; partially offset by higher retail sales in 2022 driven by higher weather-normalized demand and favorable weather, higher transmission revenue, higher interest and dividend income and lower income tax expense.
Diluted EPS decreased year to date
For additional information regarding the change in net income, refer to the Evergy Results of Operations section within this MD&A.
Non-GAAP Measures Evergy Utility Gross Margin (non-GAAP) Utility gross margin (non-GAAP) is a financial measure that is not calculated in accordance with GAAP. Utility gross margin (non-GAAP), as used by theEvergy Companies , is defined as operating revenues less fuel and purchased power costs and amounts billed by the SPP for network transmission costs. Expenses for fuel and purchased power costs, offset by wholesale sales margin, are subject to recovery through cost adjustment mechanisms. As a result, changes in fuel and purchased power costs are offset in operating revenues with minimal 57 -------------------------------------------------------------------------------- Table of Contents impact on net income. In addition, SPP network transmission costs fluctuate primarily due to investments by SPP members for upgrades to the transmission grid within the SPP RTO. As with fuel and purchased power costs, changes in SPP network transmission costs are mostly reflected in the prices charged to customers with minimal impact on net income. The Evergy Companies' definition of utility gross margin (non-GAAP) may differ from similar terms used by other companies. Utility gross margin (non-GAAP) is intended to enhance an investor's overall understanding of results. Management believes that utility gross margin (non-GAAP) provides a meaningful basis for evaluating the Evergy Companies' operations across periods because utility gross margin (non-GAAP) excludes the revenue effect of fluctuations in fuel and purchased power costs and SPP network transmission costs. Utility gross margin (non-GAAP) is used internally to measure performance against budget and in reports for management and theEvergy Board. Utility gross margin (non-GAAP) should be viewed as a supplement to, and not a substitute for, gross margin, which is the most directly comparable financial measure prepared in accordance with GAAP. Gross margin under GAAP is defined as the excess of sales over cost of goods sold. Utility gross margin (non-GAAP) differs from the GAAP definition of gross margin due to the exclusion of operating and maintenance expenses determined to be directly attributable to revenue-producing activities, depreciation and amortization and taxes other than income tax. See the Evergy Companies' Results of Operations for a reconciliation of utility gross margin (non-GAAP) to gross margin, the most comparable GAAP measure. Adjusted Earnings (non-GAAP) and Adjusted EPS (non-GAAP) Effective in the third quarter of 2022, the calculation of adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP) excludes the revenues collected from customers for the return on investment of the retiredSibley Station in the current period and the subsequent deferral of the cumulative amount of revenues collected sinceDecember 2018 for expected future refunds to customers. See "Sibley Station " within this Executive Summary for additional information. Management believes that this is a more representative measure ofEvergy's recurring earnings, assists in the comparability of results and is consistent with how management reviews performance.Evergy's adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP) for the three months ended and year to dateSeptember 30, 2021 have been recast, as applicable, to conform to the current year presentation.Evergy's adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP) for the three months ended and year to dateSeptember 30, 2022 , were$462.3 million or$2.01 per share and$789.7 million or$3.43 per share, respectively. For the three months ended and year to dateSeptember 30, 2021 ,Evergy's adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP) were$452.4 million or$1.97 per share and$768.1 million or$3.35 per share, respectively. In addition to net income attributable toEvergy, Inc. and diluted EPS,Evergy's management uses adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP) to evaluate earnings and EPS without i.) the income or costs resulting from non-regulated energy marketing margins from theFebruary 2021 winter weather event; ii.) gains or losses related to equity investments subject to a restriction on sale; iii.) the revenues collected from customers for the return on investment of the retiredSibley Station in the current period and the subsequent deferral of the cumulative amount of revenues collected sinceDecember 2018 for expected future refunds to customers; iv.) the estimated impairment loss on Sibley Unit 3; v.) the mark-to-market impacts of economic hedges related toEvergy Kansas Central's non-regulated 8% ownership share of Jeffrey Energy Center; and vi.) costs resulting from executive transition, severance and advisor expenses. Adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP) are intended to enhance an investor's overall understanding of results. Management believes that adjusted earnings (non-GAAP) provides a meaningful basis for evaluatingEvergy's operations across periods because it excludes certain items that management does not believe are indicative ofEvergy's ongoing performance or that can create period to period earnings volatility. Adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP) are used internally to measure performance against budget and in reports for management and theEvergy Board. Adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP) are financial measures that are not calculated in accordance with GAAP and may not be comparable to 58 -------------------------------------------------------------------------------- Table of Contents other companies' presentations or more useful than the GAAP information provided elsewhere in this report. The following tables provide a reconciliation between net income attributable toEvergy, Inc. and diluted EPS as determined in accordance with GAAP and adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP), respectively. Earnings (Loss) Earnings (Loss) Earnings per Diluted Earnings per Diluted (Loss) Share (Loss) Share Three Months Ended September 30 2022 2021 (millions, except per share amounts) Net income attributable to Evergy, Inc.$ 428.2 $ 1.86 $ 449.4 $ 1.95 Non-GAAP reconciling items: Non-regulated energy marketing margin related toFebruary 2021 winter weather event, pre-tax(a) 2.1 0.01 - - Sibley Station return on investment, pre-tax(b) 44.4 0.19 (3.1) (0.01) Mark-to-market impact of JEC economic hedges, pre-tax(c) (10.3) (0.04) - - Non-regulated energy marketing costs related toFebruary 2021 winter weather event, pre-tax(d) 0.3 - 1.9 0.01 Executive transition costs, pre-tax(e) 0.7 - 3.3 0.02 Advisor expenses, pre-tax(g) 0.6 - 1.2 - Estimated impairment loss on Sibley Unit 3, pre-tax(h) 6.0 0.03 - - Income tax benefit(j) (9.7) (0.04) (0.3) - Adjusted earnings (non-GAAP)$ 462.3 $
2.01
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Earnings (Loss) Earnings (Loss)
Earnings per Diluted Earnings per Diluted
(Loss) Share (Loss) Share
Year to Date September 30 2022 2021
(millions, except per share amounts)
Net income attributable to Evergy, Inc. $ 745.2 $ 3.23 $ 826.3 $ 3.60
Non-GAAP reconciling items:
Non-regulated energy marketing margin related to
February 2021
winter weather event, pre-tax(a) 2.1 0.01 (95.0) (0.42)
Sibley Station return on investment, pre-tax(b) 38.2 0.17 (9.3) (0.04)
Mark-to-market impact of JEC economic hedges,
pre-tax(c) (10.3) (0.04) - -
Non-regulated energy marketing costs related to
February 2021
winter weather event, pre-tax(d) 0.9 - 5.9 0.03
Executive transition costs, pre-tax(e) 0.7 - 10.6 0.05
Severance costs, pre-tax(f) - - 2.8 0.01
Advisor expenses, pre-tax(g) 3.1 0.01 8.4 0.04
Estimated impairment loss on Sibley Unit 3,
pre-tax(h) 6.0 0.03 - -
Restricted equity investment losses, pre-tax(i) 16.3 0.07 - -
Income tax expense (benefit)(j) (12.5) (0.05) 18.4 0.08
Adjusted earnings (non-GAAP) $ 789.7 $ 3.43 $ 768.1 $ 3.35
(a)Reflects non-regulated energy marketing margins related to the February 2021
winter weather event and are included in operating revenues on the consolidated
statements of comprehensive income.
(b)Reflects revenues collected from customers for the return on investment of
the retired Sibley Station in the current period and the subsequent deferral of
the cumulative amount of revenues collected since December 2018 for expected
future refunds to customers and are included in operating revenues on the
consolidated statements of comprehensive income.
(c)Reflects mark to market gains or losses related to forward contracts for
natural gas and electricity entered into as economic hedges against fuel price
volatility related to Evergy Kansas Central's non-regulated 8% ownership share
of JEC and are included in operating revenues on the consolidated statements of
comprehensive income.
(d)Reflects non-regulated energy marketing incentive compensation costs related
to the February 2021 winter weather event and are included in operating and
maintenance expense on the consolidated statements of comprehensive income.
(e)Reflects costs associated with executive transition including inducement
bonuses, severance agreements and other transition expenses and are included in
operating and maintenance expense on the consolidated statements of
comprehensive income.
(f)Reflects severance costs incurred associated with certain voluntary severance
programs at the Evergy Companies and are included in operating and maintenance
expense on the consolidated statements of comprehensive income.
(g)Reflects advisor expenses incurred associated with strategic planning and are
included in operating and maintenance expense on the consolidated statements of
comprehensive income.
(h)Reflects the estimated impairment loss on Sibley Unit 3 and is included in
estimated impairment loss on Sibley Unit 3 on the consolidated statements of
comprehensive income.
(i)Reflects losses related to equity investments which were subject to a
restriction on sale and are included in investment earnings (loss) on the
consolidated statements of comprehensive income.
(j)Reflects an income tax effect calculated at a statutory rate of approximately
22%, with the exception of certain non-deductible items.
ENVIRONMENTAL MATTERS
See Note 10 to the consolidated financial statements for information regarding environmental matters.
RELATED PARTY TRANSACTIONS
See Note 11 to the consolidated financial statements for information regarding related party transactions.
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EVERGY RESULTS OF OPERATIONS
The following table summarizes
Three Months Ended Year to Date
September 30 September 30
2022 Change 2021 2022 Change 2021
(millions)
Operating revenues $ 1,909.1 $ 292.6
643.0 287.2 355.8 1,366.3 91.3 1,275.0
SPP network transmission costs 81.6 8.0 73.6 241.8 25.0 216.8
Operating and maintenance 266.2 1.0 265.2 801.2 0.6 800.6
Depreciation and amortization 233.2 8.2 225.0 694.3 24.8 669.5
Taxes other than income tax 100.7 4.5 96.2 302.9 13.9 289.0
Estimated impairment loss on Sibley Unit
3 6.0 6.0 - 6.0 6.0 -
Income from operations 578.4 (22.3) 600.7 1,167.0 (46.7) 1,213.7
Other income (expense), net 2.6 2.0 0.6 (41.6) (38.4) (3.2)
Interest expense 102.3 8.7 93.6 293.4 12.0 281.4
Income tax expense 49.5 (7.7) 57.2 83.1 (16.7) 99.8
Equity in earnings of equity method
investees, net of income taxes 2.0 - 2.0 5.5 (0.6) 6.1
Net income 431.2 (21.3) 452.5 754.4 (81.0) 835.4
Less: Net income attributable to
noncontrolling interests 3.0 (0.1) 3.1 9.2 0.1 9.1
Net income attributable to
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Gross Margin (GAAP) and Utility Gross Margin (non-GAAP)
The following tables summarize Evergy's gross margin (GAAP) and MWhs sold and
reconciles Evergy's gross margin (GAAP) to Evergy's utility gross margin
(non-GAAP). See "Executive Summary - Non-GAAP Measures", above for additional
information regarding gross margin (GAAP) and utility gross margin (non-GAAP).
Revenues and Expenses MWhs Sold
Three Months Ended September 30 2022 Change 2021 2022 Change 2021
Retail revenues (millions) (thousands)
Residential $ 746.6 $ 69.2 $ 677.4 5,245 110 5,135
Commercial 583.7 58.7 525.0 5,277 131 5,146
Industrial 197.2 31.2 166.0 2,357 64 2,293
Other retail revenues (39.0) (48.2) 9.2 33 1 32
Total electric retail 1,488.5 110.9 1,377.6 12,912 306 12,606
Wholesale revenues 250.6 145.6 105.0 5,591 (292) 5,883
Transmission revenues 101.3 11.0 90.3 N/A N/A N/A
Other revenues 68.7 25.1 43.6 N/A N/A N/A
Operating revenues 1,909.1 292.6 1,616.5 18,503 14 18,489
Fuel and purchased power (643.0) (287.2) (355.8)
SPP network transmission costs (81.6) (8.0) (73.6)
Operating and maintenance(a) (138.8) (4.4) (134.4)
Depreciation and amortization (233.2) (8.2) (225.0)
Taxes other than income tax (100.7) (4.5) (96.2)
Gross margin (GAAP) 711.8 (19.7) 731.5
Operating and maintenance(a) 138.8 4.4 134.4
Depreciation and amortization 233.2 8.2 225.0
Taxes other than income tax 100.7 4.5 96.2
Utility gross margin (non-GAAP) $ 1,184.5 $ (2.6)
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Revenues and Expenses MWhs Sold
Year to Date September 30 2022 Change 2021 2022 Change 2021
Retail revenues (millions) (thousands)
Residential $ 1,711.8 $ 177.9 $ 1,533.9 12,934 378 12,556
Commercial 1,452.3 158.8 1,293.5 13,921 383 13,538
Industrial 517.6 68.0 449.6 6,677 253 6,424
Other retail revenues (20.2) (46.3) 26.1 98 - 98
Total electric retail 3,661.5 358.4 3,303.1 33,630 1,014 32,616
Wholesale revenues 382.0 (280.5) 662.5 13,863 776 13,087
Transmission revenues 300.3 33.6 266.7 N/A N/A N/A
Other revenues 235.7 3.4 232.3 N/A N/A N/A
Operating revenues 4,579.5 114.9 4,464.6 47,493 1,790 45,703
Fuel and purchased power (1,366.3) (91.3) (1,275.0)
SPP network transmission costs (241.8) (25.0) (216.8)
Operating and maintenance(a) (411.2) (22.5) (388.7)
Depreciation and amortization (694.3) (24.8) (669.5)
Taxes other than income tax (302.9) (13.9) (289.0)
Gross margin (GAAP) 1,563.0 (62.6) 1,625.6
Operating and maintenance(a) 411.2 22.5 388.7 Depreciation and amortization 694.3 24.8 669.5 Taxes other than income tax 302.9 13.9 289.0 Utility gross margin (non-GAAP)$ 2,971.4 $ (1.4)
Evergy's gross margin (GAAP) decreased$19.7 million for the three months endedSeptember 30, 2022 , compared to the same period in 2021 andEvergy's utility gross margin (non-GAAP) decreased$2.6 million for the three months endedSeptember 30, 2022 , compared to the same period in 2021, both measures were driven by:
•a
•a$33.9 million increase primarily due to higher retail sales driven by higher weather-normalized demand and favorable weather (cooling degree days increased by 3%); and •an$11.0 million increase in transmission revenue primarily due to updated transmission costs reflected inEvergy Kansas Central's FERC TFR effective inJanuary 2022 .
Additionally, the decrease in
•a$4.4 million increase in operating and maintenance expenses which are determined to be directly attributable to revenue producing activities primarily driven by a$7.9 million increase in transmission and distribution operating and maintenance expenses, partially offset by a$2.1 million decrease in plant operating and maintenance expense at fossil-fuel generating units as further described below;
•an
•a
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Evergy's gross margin (GAAP) decreased $62.6 million year to date September 30,
2022 , compared to the same period in 2021 and Evergy's utility gross margin
(non-GAAP) decreased $1.4 million year to date September 30, 2022 , compared to
the same period in 2021, both measures were driven by:
•a
•a
•a
•a$33.9 million decrease atEvergy Kansas Central driven by higher wholesale sales at its non-regulated 8% ownership share of JEC due to higher wholesale sale prices and MWhs sold inFebruary 2021 ; partially offset by •a$20.9 million increase atEvergy Missouri West driven by$14.7 million of increased fuel and purchased power costs inFebruary 2021 that are not currently recoverable from customers through its fuel recovery mechanism and$6.2 million related to a special requirements contract with an industrial customer; and •an$11.4 million increase atEvergy Metro primarily driven by jurisdictional allocation differences currently present between its fuel recovery mechanisms inMissouri andKansas regarding its refund to customers for the net increase in wholesale revenues inFebruary 2021 ; partially offset by •a$111.2 million increase primarily due to higher retail sales driven by higher weather-normalized demand and favorable weather (cooling degree days increased by 7% and heating degree days increased by 2%); and •a$33.6 million increase in transmission revenue primarily due to updated transmission costs reflected inEvergy Kansas Central's FERC TFR effective inJanuary 2022 .
Additionally, the decrease in
•a$22.5 million increase in operating and maintenance expenses which are determined to be directly attributable to revenue producing activities primarily driven by a$13.7 million increase in transmission and distribution operating and maintenance expenses and a$9.1 million increase in plant and operating and maintenance expense at fossil-fuel generating units as further described below;
•a
•a
Operating and MaintenanceEvergy's operating and maintenance expense increased$1.0 million for the three months endedSeptember 30, 2022 , compared to the same period in 2021, primarily driven by:
•a
•a
•a
•a
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Evergy's operating and maintenance expense increased $0.6 million year to date
September 30, 2022 , compared to the same period in 2021, primarily driven by:
•a $13.7 million increase in transmission and distribution operating and
maintenance expenses at Evergy Kansas Central , Evergy Metro and Evergy Missouri
West driven by higher contractor costs and a $5.8 million increase in vegetation
management costs in 2022;
•a $9.1 million increase in plant operating and maintenance expense at
fossil-fuel generating units primarily due to a $4.5 million increase at Evergy
Kansas Central driven by major maintenance outages at JEC in 2022 and a $3.8
million increase at Evergy Metro driven by major maintenance outages at Iatan
Unit 1 and La Cygne Unit 2 in 2022;
•a
•a$2.0 million increase in injuries and damages expense primarily due to an increase in the reserves recorded atEvergy Kansas Central andEvergy Metro in 2022; partially offset by
•a
•a
•a$5.0 million decrease in costs incurred in 2022 atEvergy Kansas Central related to non-regulated energy marketing margins recognized during theFebruary 2021 winter weather event;
•a
•a$2.8 million decrease in voluntary severance expenses due to a$2.6 million decrease atEvergy Kansas Central ,Evergy Metro andEvergy Missouri West related toEvergy voluntary exit programs in 2021 and$0.2 million in voluntary severance expenses incurred atEvergy Kansas Central andEvergy Metro related to Wolf Creek voluntary exit programs. Depreciation and AmortizationEvergy's depreciation and amortization increased$8.2 million for the three months endedSeptember 30, 2022 and$24.8 million year to dateSeptember 30, 2022 , compared to the same periods in 2021, driven by higher capital additions atEvergy Kansas Central andEvergy Metro in 2022. Taxes Other Than Income TaxEvergy's taxes other than income tax increased$4.5 million for the three months endedSeptember 30, 2022 and$13.9 million year to dateSeptember 30, 2022 , compared to the same periods in 2021, driven by an increase in property taxes inMissouri andKansas primarily due to higher assessed property tax values. Estimated Impairment Loss on Sibley Unit 3Evergy's estimated impairment loss on Sibley Unit 3 increased$6.0 million for the three months ended and year to dateSeptember 30, 2022 , compared to the same periods in 2021, due to the recording of an impairment charge onEvergy Missouri West's regulatory asset for retired generation facilities related to Sibley Unit 3 in the third quarter of 2022. See "Abandoned Plant" in Note 1 of the consolidated financial statements for additional information. Other Income (Expense), NetEvergy's other income, net increased$2.0 million for the three months endedSeptember 30, 2022 , primarily driven by: •a$16.0 million increase in interest and dividend income primarily due to$15.0 million of carrying charges recorded byEvergy Missouri West in the third quarter of 2022 associated with its regulatory asset for fuel and purchased power costs related to theFebruary 2021 winter weather event, driven by an MPSC order allowing for their recovery as part ofEvergy Missouri West's securitization financing request; partially offset by 65 -------------------------------------------------------------------------------- Table of Contents •a$10.4 million decrease due to a$5.2 million realized gain from the sale of an equity investment in the third quarter of 2021 and a$5.1 million decrease due to unrealized losses from various equity investments in the third quarter of 2022; and
•$3.0 million of other income recorded in the third quarter of 2021 related to a contract termination fee.
•a$27.3 million increase due to losses from equity investments primarily driven by a$16.3 million loss related toEvergy's equity investment in an early-stage energy solutions company that was sold inMarch 2022 through a share forward agreement which was completed inJune 2022 (see "Evergy Equity Investment " in Note 1 of the consolidated financial statements for additional information), a$5.9 million increase due to lower unrealized gains from various equity investments in 2022 and a$5.2 million realized gain from the sale of an equity investment in the third quarter of 2021;
•a
•$6.1 million of other income recorded in 2021 related to contract termination fees; partially offset by
•a$16.6 million increase in interest and dividend income primarily due to$15.0 million of carrying charges recorded byEvergy Missouri West in the third quarter of 2022 associated with its regulatory asset for fuel and purchased power costs related to theFebruary 2021 winter weather event, driven by an MPSC order allowing for their recovery as part ofEvergy Missouri West's securitization financing request.
Interest Expense
Evergy's interest expense increased
•a$14.2 million increase in interest expense on short-term borrowings primarily due to higher short-term debt balances and weighted-average interest rates forEvergy, Inc. ,Evergy Kansas Central andEvergy Missouri West in 2022; partially offset by
•a
•a$19.9 million increase in interest expense on short-term borrowings primarily due to higher short-term debt balances and weighted-average interest rates forEvergy, Inc. ,Evergy Kansas Central andEvergy Missouri West in 2022; partially offset by
•a
Income Tax ExpenseEvergy's income tax expense decreased$7.7 million for the three months endedSeptember 30, 2022 , compared to the same period in 2021, primarily driven by lower pre-tax income in the third quarter of 2022.Evergy's income tax expense decreased$16.7 million year to dateSeptember 30, 2022 , compared to the same period in 2021, primarily driven by lower pre-tax income in 2022.
LIQUIDITY AND CAPITAL RESOURCES
Evergy relies primarily upon cash from operations, short-term borrowings, long-term debt and equity 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, and the payment of 66 -------------------------------------------------------------------------------- Table of Contents dividends to shareholders. See the Evergy Companies' combined 2021 Form 10-K for more information onEvergy's sources and uses of cash. Short-Term Borrowings As ofSeptember 30, 2022 ,Evergy had$1.3 billion of available borrowing capacity under its master credit facility. The available borrowing capacity under the master credit facility consisted of$449.3 million forEvergy, Inc. ,$361.7 million forEvergy Kansas Central ,$350.0 million forEvergy Metro and$115.9 million forEvergy Missouri West . The Evergy Companies' borrowing capacity under the master credit facility also supports their issuance of commercial paper. See Note 7 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 believes that its existing cash on hand and available borrowing capacity under its master credit facility provide sufficient liquidity for its existing capital requirements. InFebruary 2022 ,Evergy, Inc. entered into a$500.0 million unsecured Term Loan Facility that expires inFebruary 2023 . As ofSeptember 30, 2022 ,Evergy had borrowed$500.0 million under the Term Loan Facility.Evergy's borrowings under the Term Loan Facility were used for, among other things, working capital, capital expenditures and general corporate purposes. Significant Debt Issuances See Note 8 to the consolidated financial statements for information regarding significant debt issuances.
Pensions
Year to dateSeptember 30, 2022 ,Evergy made pension contributions of$29.9 million .Evergy expects to make additional pension contributions of$53.9 million in 2022 to satisfy ERISA funding requirements and KCC and MPSC rate orders, of which$8.5 million is expected to be paid byEvergy Kansas Central and$45.4 million is expected to be paid byEvergy Metro . Also in 2022,Evergy expects to make additional post-retirement benefit contributions of$1.6 million . Debt Covenants As ofSeptember 30, 2022 ,Evergy was in compliance with all debt covenants under the master credit facility, the Term Loan Facility and certain debt instruments that contain restrictions that require the maintenance of certain capitalization and leverage ratios. See Note 7 to the consolidated financial statements for more information. Regulatory Authorizations The following table summarizes the regulatory short-term and long-term debt financing authorizations forEvergy Kansas Central ,Evergy Kansas South ,Evergy Metro andEvergy Missouri West and the remaining amount available under these authorizations as ofSeptember 30, 2022 . Available Under Type of Authorization Commission Expiration Date Authorization Amount AuthorizationEvergy Kansas Central & Evergy Kansas South (in millions) Short-Term Debt FERC December 2022$ 1,250.0 $ 611.8 Evergy Metro Short-Term Debt FERC December 2022$ 1,250.0 $ 1,250.0 Evergy Missouri West Short-Term Debt FERC December 2022$ 750.0 $ 27.4 Long-Term Debt(a) FERC October 2024$ 600.0 $ 600.0
(a)In
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Table of Contents InSeptember 2022 ,Evergy Kansas Central ,Evergy Kansas South ,Evergy Metro andEvergy Missouri West filed requests withFERC to have outstanding at any one time up to$1,250.0 million (combined for bothEvergy Kansas Central andEvergy Kansas South ),$1,250.0 million and$750.0 million in short-term debt instruments, respectively, throughDecember 2024 .FERC is expected to issue an order regarding this request byNovember 15, 2022 . InSeptember 2022 ,Evergy Missouri West filed a request withFERC to issue up to a total of$600.0 million in long-term debt instruments for a two-year authorization period beginning on the date of theFERC approval.FERC approved this request inOctober 2022 .
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