ML22116A261
| ML22116A261 | |
| Person / Time | |
|---|---|
| Site: | Wolf Creek  |
| Issue date: | 04/26/2022 |
| From: | Benham R Wolf Creek |
| To: | Document Control Desk, Office of Nuclear Reactor Regulation |
| References | |
| RA 22-0032 | |
| Download: ML22116A261 (230) | |
Text
Ron Benham Director Nuclear and Regulatory Affairs April 26, 2022 RA 22-0032 U. S. Nuclear Regulatory Commission ATTN: Document Control Desk Washington, DC 20555-0001
Subject:
Docket No. 50-482: Transmittal of 2021 Annual Financial Reports Commissioners and Staff:
Wolf Creek Nuclear Operating Corporation (WCNOC) is transmitting one copy each of the enclosed 2021 annual reports, including financial statements, for its owners: Evergy Metro, Inc.
(formerly Kansas City Power & Light Company), Every Kansas South, Inc. (formerly Kansas Gas & Electric Company), and Kansas Electric Power Cooperative, Inc. (KEPCo).
Enclosure I provides the Evergy 2021 Annual Report, which contains the information for Evergy, Inc. and all its consolidated subsidiaries and Enclosure II provides the KEPCo Annual Report.
This information is being submitted in accordance with 10 CFR 50.71(b).
This letter contains no commitments. If you have any questions concerning this matter, please contact me at (620) 364-4204.
Sincerely, Ron Benham RDB/rlt
Enclosures:
I Evergy 2021 Annual Report II Kansas Electric Power Cooperative, Inc. 2021 Annual Report cc: S. S. Lee (NRC), w/e S. A. Morris (NRC), w/e G. E. Werner (NRC), w/e Senior Resident Inspector (NRC), w/e P.O. Box 411 l Burlington, KS 66839 l 620-364-8831
Enclosure I to RA 22-0032 Evergy 2021 Annual Report (189 pages including this page)
2021 Annual Report You think you know us.
Think again.
Through successful business execution we are transforming our company. We have advanced sustainability, improved reliability, become more affordable, and increased our value. We met our financial goals and our continuous focus on fleet transition, cost competitiveness, grid modernization and customer experience improvement set us on a course to even greater progress.
Flat Ridge Wind Farm, located southwest of Wichita, Kansas
2021 Statistics 28%
Total Shareholder Return 7%
Dividend Increase in Fourth Quarter 2021 14%
Adjusted EPS Growth
$1.4B Transmission and Distribution (year-over-year) Investment 4.4GW -46%
Renewable Generation Reduction in CO2 Emissions Added Since 2005 from 2005 Levels
-4.2%
Reduction in Average Retail 11%
Total Spend Sourced from Energy Rates Since 2017 Diverse Suppliers
28%
2021 Total Shareholder Return
Perhaps the most clear-cut definition of successful business execution-and the one that describes our focus at Evergy-is the effective implementation of a plan to achieve company goals and meet the needs of stakeholders.
In short, it means doing what we said we would do.
At Evergy in 2021, we continued to establish Our employees, who we count on to give a track record for consistently delivering us their best efforts day-in and day-out, effective business execution. We met or continued to show incredible dedication as David A. Campbell exceeded our annual financial targets and they met this past years unique challenges President & Chief Executive Officer extended our long-term objectives through brought on by the COVID-19 pandemic and 2025, while in parallel advancing our key extreme weather events like Winter Storm Uri.
operational initiatives and focusing our They have my special thanks and gratitude strategy on affordability, reliability and for all theyve done and continue to do to sustainability. ensure we provide safe and reliable power to our customers in these extraordinary times.
This success builds on a foundation that had its beginnings back in 2018 when Evergy was Delivering on Our Business Plan formed, resulting in a new company, not only Our business plan sets high standards for structurally and organizationally, but also with operational excellence and continuous respect to our focus on disciplined execution.
improvement, and we are executing it The new company created a tremendous effectively and hitting our milestones.
opportunity for us to serve our customers and our communities more efficiently, while In 2021, we achieved 14 percent year-over-delivering consistent and superior returns year growth in adjusted earnings per share*,
to shareholders. exceeding our earnings growth target of 6 percent to 8 percent per year and ranking In addition to hitting our financial and in the top tier of our industry. We raised our operational targets, our successful business dividend by 7 percent to an indicated annual execution also enables the innovation that rate of $2.29 per share.
helps drive continual improvements in affordability, reliability and sustainability Creating Value for Shareholders that are vital to meeting the needs of our Our financial targets and goals are aimed at stakeholders: our 1.6 million customers who creating value for shareholders by delivering depend upon us every time they flip a switch consistent and superior total returns.
or press the power-on button or recharge their phones and-in an increasing number We continue to target a high-performing of cases-their cars; the communities we 6 percent to 8 percent annual growth rate serve and in which we make our homes; and in adjusted earnings per share* and have our investors who show confidence in the extended that goal through 2025. Our dividend direction were headed and the progress policy remains solid with a target payout ratio were making. of 60 percent to 70 percent of earnings.
02 l 2021 Evergy Annual Report
14.2% 6.3%
Annualized Growth Annualized Growth 3.54 2.18 2.05 3.10 7%
Dividend Increase 20 Adjusted EPS*
21 20 21 Dividends Per Share (In 4Q21) (In Dollars) (In Dollars)
We have a strong balance sheet and do not and affordability goals. We view our earnings replacing coal with low-cost renewables-project a need for additional equity offerings growth objective as only being truly achieved a win-win for affordability and sustainability.
through 2025. if it comes as a result of improving the As an all-electric utility, we benefit from the quality and reliability of our service and the Sustainability long-term move toward electrification and resiliency of the grid, while keeping our rates renewables as trends in transportation, Were making energy cleaner and greener. competitive and affordable for our customers.
heating buildings, and industrial and Our sustainability focus - including our Reliability commercial applications all point toward environmental, social and governance an increasing share for electricity over time.
strategies- achieved significant progress, Reliability is fundamental to meeting our Our geographic advantage gives us an edge and we continue to allocate capital to drive customers energy needs, and it is a direct as we participate in the renewables and sustainable and diverse energy solutions. result of our disciplined operational execution.
transmission build-out that will occur as In 2021, nearly half of the electricity we Our ongoing efforts to improve reliability part of the national transition to a clean provided to our customers came from and resiliency involve a systematic and energy economy.
carbon-free sources, and our long-term comprehensive program to invest in the Our focus on ensuring affordability, reliability, objective, assuming enabling technologies electric grid. We are addressing outage and sustainability has no end date. We will and supportive policies are in place, is to causes by upgrading aging infrastructure continue to innovate and adapt as our achieve net zero carbon emissions by 2045. and deploying smart grid technologies that communities and the world around us evolve will increase system resiliency, flexibility Our proximity to world-class wind resources and change in ways that can be both and responsiveness and help minimize the provides tremendous opportunity. Kansas anticipated and unforeseen. A key part of number and impact of events that negatively is one of the best wind resource corridors in our success will be a diverse, equitable and impact our customers. Those efforts include the United States. Evergy is well positioned inclusive culture that promotes productivity replacing outdated equipment, expanding to participate in the long-term clean energy and innovation and engages the talented predictive maintenance capabilities, and buildout as an all-electric utility in a world- people who power our company. Importantly, leveraging data to better target vegetation class renewables region. we have initiated actions geared toward management based on risk.
deepening and broadening our talent pool of Affordability Taking an overall systematic approach to diverse and underrepresented employees.
Driving operational excellence will continue improving our resiliency has reaped benefits This is an extraordinary time to be in the to improve our cost competitiveness and help in handling the monumental challenges energy business as our industry and nation ensure long-term, regionally competitive rates. presented by Winter Storm Uri and the work toward a cleaner and greener future.
ongoing, ever-evolving challenges of the We are targeting to save $345 million in We are very excited about the opportunities COVID-19 pandemic.
annual operating and maintenance expense by for our company to create value and a better 2025 relative to a 2018 baseline of adjusted Moving Energy Forward future for our customers and stakeholders, operating and maintenance expense*. Those and we are committed to the sustained effort In 2021, Evergy demonstrated the effective efficiency gains are directly reflected in our and disciplined execution required to deliver business execution that achieves results current and upcoming rate cases in Missouri against our high performance objectives.
and enables us to be well positioned for and Kansas and contribute to our rate the future. We have delivered significant Thank you for your continued confidence requests being below the rate of inflation.
benefits to our customers since the merger in our company.
Effective execution on cost management has and we will capture further opportunities been and will continue to be vital to achieving through operational excellence, performance our financial targets and results, but earnings management and sustained execution. We growth alone is not sufficient unless it results have significant opportunities ahead with the David A. Campbell from having first achieved our operational ongoing transition of our generation portfolio, President and Chief Executive Officer
- A djusted EPS and adjusted operating and maintenance expense are a non-GAAP financial measure.
See 10-K Item 7 under the heading Non-GAAP Measures for reconciliation to most comparable GAAP information. 2021 Evergy Annual Report l 03
Think Disciplined All of these efforts are driven by our ongoing ability to continue our track record of executing our business plan effectively.
Execution Serving Our Key Stakeholders Meeting the needs of our customers, communities and investors is enabled by our business plan execution and guided by our environmental, social and governance strategies.
Transitioning to a future- We strive to best serve our customers by forward electric utility offering affordable, regionally competitive rates and by delivering Tier 1 quality and requires disciplined service. Our efforts include creating a more execution along with the modern, more personalized customer experience with digital self-service portals, flexibility to innovate and rate options and energy management tools.
-18%
adapt to the changing needs Included in our environmental efforts are of the energy marketplace. increasing access to renewables through additional solar and wind offerings and Over the next 10 years, our Integrated expanding the electric vehicle charging Adjusted operating and maintenance* Resource Plan includes the addition of nearly infrastructure within our service territories.
reduction since 2018 4,000 megawatts of renewables, a mix between wind and solar. Our efforts to date Being a good corporate citizen benefits have included supplying some of our largest the communities we serve and where we commercial and industrial customers with live by fostering economic development,
$230M more than 430 megawatts of renewable ensuring open and transparent regulatory energy- clean and green energy that helps and stakeholder relationships, and being them meet their own sustainability goals. good stewards of our resources.
Our strategic and operational emphasis Our employees supported the local Annual adjusted operating and on cost competitiveness is aimed at communities we serve by spending more maintenance* savings since 2018 ensuring long-term, affordable and regionally than 20,000 volunteer hours with our competitive rates for our customers. non-profit community partners, and as a company, Evergy provided $7.5 million Modernizing our transmission and in philanthropic support.
distribution system into what can be described as the Grid of the Future - Providing Strong Corporate Governance strengthening its resiliency and making the necessary infrastructure investments- We have strong corporate governance with is vital to having the grid better prepared robust, independent oversight provided to handle extreme weather, renewable by the Evergy Board of Directors. It is a generation, power coming from distributed diverse, experienced, independent board resources, and the continued expansion of of directors - 38 percent of our directors electrification in the marketplace. are diverse or female, 50 percent of the committee chairs are diverse or female, and We have a commitment to serving our 85 percent of our directors are independent.
customers as their trusted energy provider.
That means continuing to become more customer-centric, and we are working to use innovation and technology to provide an overall customer experience that demonstrates our commitment.
- A
djusted operating and maintenance expense are a non-GAAP financial measure. See 10-K Item 7 under the heading 04 l 2021 Evergy Annual Report Non-GAAP Measures and page 12 of this report for reconciliation to most comparable GAAP information.
2021 Evergy Annual Report l 05 4.4GW 2.4GW 3.8GW Renewable generation added since 2005 Fossil generation retired since 2005 Planned increase in renewables over the next 10 years 06 l 2021 Evergy Annual Report
Think Better Valuing Diversity, Equity and Inclusion We value, embrace and advance diversity, Future equity and inclusion within our workforce, communities and suppliers, and throughout the many decisions we make and actions we take every day. The importance of continuing to make progress in these areas is reinforced by the diversity, equity and inclusion goals that are tied into Evergys Our successful business executive compensation.
Evergy is home to one of the largest utility-execution has enabled our Diversity, equity and inclusion is part of owned electric vehicle charging networks our corporate culture, which encourages sustainability focus-guided in the United States employee engagement, interaction, training by our environmental, social and advancement.
and governance strategies-In addition, we have initiated actions to achieve significant progress geared toward deepening and broadening the and put us well on the way to talent pool of diverse and underrepresented -46%
employees. Our business resource groups contributing even more to a focus on fostering a diverse, equitable and cleaner and greener future. inclusive workplace, developing future Reduction in carbon emissions leaders, connecting employees throughout from 2005 levels In 2021, almost half of the electricity our entire service territory, and strengthening we provided to our customers came our company culture.
from carbon-free sources. Since 2005, weve cut our carbon emissions by around We also value diversity among our suppliers 50 percent. Over that same time period, we have added more than 4,400 megawatts of and vendors. Weve had an active supplier diversity initiative for more than 30 years. In
-94%
renewable generation and retired more than 2021, we spent $156 million with more than 2,400 megawatts of fossil generation. 150 diverse suppliers and were recognized Reduction in average SO2 and NOX by the Edison Electric Institute with its 2021 emissions from 2005 levels Our generation transition plan projects Innovation Award for Supplier Diversity.
coal-as a share of our rate base-to decline significantly from 2021 to 2025, and for We strive to be a great place to work for our that decline to accelerate with planned coal employees. Our safety-first culture includes plant retirements early next decade. While our coal generation has served our region emphasizing human and organizational performance, underscoring expectations 38%
well for decades, our goal is to transition our and prevention, driving proactive reporting, generation portfolio to achieve 70 percent and leveraging technology to stay safe.
Board Directors who are carbon reduction by 2030 and net zero carbon diverse or female emissions by 2045.
Transitioning to owning and operating more of the renewable energy we provide and depending less upon purchased power agreements with other entities is a key part 50%
of our business plan. Having more control over renewable assets will enable us to Board Committee Chairs who better improve affordability and reliability.
are diverse or female 2021 Evergy Annual Report l 07
Think Greater Optimizing our fleet availability requires innovative flexibility. Our focus has advanced from traditional baseload operations with our Affordability coal generation to having the units available and running when they are profitable. In short, that means making our coal plants more flexible, allowing us to increasingly run them more as backup generation sources in order to balance power supply when renewables are low or when customer demand is high. Our objective with our Since 2017, our retail rates renewable assets is similar- ensure high have decreased while the rates reliability when the wind is blowing and the sun is shining.
charged by our regional peer The planned opportunity to switch fuel utilities have remained from coal to natural gas at our Lawrence relatively flat and inflation Energy Center unit 5, while retiring the plants
-4.2%
remaining coal units, is an example of our has increased.
preserving backup generation that we can Ensuring long-term affordable and dispatch as needed to support and maintain regionally competitive rates reliability during periods of stress on our system, especially during extreme weather Reduction in average retail energy We are targeting to save $345 million in rates since 2017 events or other unexpected periods when annual operating and maintenance expense energy demand exceeds availability. Fuel by 2025 relative to a 2018 baseline of diversity and duel fuel capabilities helped adjusted operating and maintenance us meet the challenges brought by Winter
$345M expense*. These savings directly contribute Storm Uri, the worst winter storm to hit our to our ability to keep rates affordable and service territory in over a decade.
regionally competitive and to make the capital investments needed to continue At our Wolf Creek nuclear plant, we are improving reliability and sustainability. targeting market-driven flexible operations Targeted annual operating and maintenance and optimizing outage schedules to better savings by 2025 relative to 2018 adjusted Our successful business execution is reflected align with market dynamics. With our natural operating and maintenance expense* in the detailed rate review we submitted in gas and oil generation, we are expanding January 2022 as required to the Missouri condition-based maintenance to continue Public Service Commission. The ongoing its near-perfect commercial availability savings since our 2018 merger reduced and ongoing excellence in market-driven the rate increase request by more than half start reliability.
and keeps the requested price increases in Missouri below the annual rate of inflation, as they have been for the past decade. We also expect to file a rate review in Kansas in 2023 with the annualized impact on rates expected to compare favorably relative to the rate of inflation.
Optimizing Our Fleet Availability Integral to cost control is optimizing our fleet availability. We are evolving our operations to focus on commercial availability that aligns with market dynamics and minimizes fuel costs for customers.
- A
djusted operating and maintenance expense is a non-GAAP financial measure. See 10-K Item 7 08 l 2021 Evergy Annual Report under the heading Non-GAAP Measures for reconciliation to most comparable GAAP information.
2021 Evergy Annual Report l 09 10 l 2021 Evergy Annual Report Think We are working toward having a more modern, technically-advanced grid -
a more reliable, more resilient grid that Improved is also prepared for the changes and technology breakthroughs that are transforming the energy industry.
An Evolving Focus Reliability Technology has evolved our focus from traditional baseload operations with fossil generating plants running as much as possible to resource diversity and running our various types of generation more aligned with availability and demand.
Our customers rely on us to In addition, technology using advanced analytics and predictive modeling has deliver the energy they need, enabled us to implement an innovative when and where they need it. vegetation management program that better With increased dependence targets our tree trimming activities based on risk and that will help reduce outage on electricity for our every- frequency and cost while also improving day lives, system reliability is service restoration time.
$1.4B increasingly important and Being Our Customers Trusted Energy Provider depends on our disciplined, effective business execution. Reliability for our customers involves more than just keeping the lights on. Its also Amount spent to enhance We are targeting top-tier performance in meeting customers where they are and when customer reliability and resiliency both system reliability and in customer they need us. Its offering options and choices experience. when it comes to rates, pricing structures, and managing usage. And its providing Improving System Reliability and
~14,000 automated outage communications and Increasing Flexibility expanded digital communications, transac-Key to improving system reliability is tions, and customer self-service options.
advancing and ensuring the resilience of our We are working to become more customer-more than 10,000 miles of transmission lines centric, modernizing our rate structures Distribution line transformers replaced and 60,000 miles of distribution lines that to offer options tailored to our residential span across the higher vegetation regions customers various needs and choices, of the Kansas City metro areas through the implementing new customer platforms and rural grasslands on the Kansas plains. online tools, and developing energy solutions
~3,000 To do that, we are modernizing our grid, to meet increasing demand for energy leveraging technology, and implementing an efficiency, renewables and electric vehicles.
innovative vegetation management program. Our goal is to best serve our customers Our capital investments in replacing aged as their trusted energy provider, and we will Smart devices deployed to infrastructure, in enabling grid automation, continue to use innovation and technology improve reliability to provide an overall customer experience data handling and analytics capabilities, and in building advanced communications that demonstrates our commitment.
infrastructure are all aimed at improving overall grid reliability and resiliency.
Proactive grid modernization efforts and smart grid technologies will better enable our grid to support diverse generation. The installation and implementation of advanced communicating devices will help reduce restoration times.
2021 Evergy Annual Report l 11
Think Increased Value Year Ended December 31 2021 2020 2019 (Dollars in millions except per share amounts)
EVERGY Operating Revenues 5,587 4,913 5,148 Net Income 892 630 686 Net Income Attributable To Evergy, Inc 880 618 670 Basic Earnings Per Common Share $3.84 $2.72 $2.80 Diluted Earnings Per Common Share $3.83 $2.72 $2.79 Total Assets At Year End 28,521 27,115 25,976 Total Long-Term Obligations At Year End (1) 9,818 9,785 9,200 Cash Dividends Per Common Share $2.178 $2.05 $1.93 (1)
Includes long-term debt, current maturities of long-term debt, finance leases, operating leases, long-term debt of VIEs and current maturities of long-term debt of VIEs.
30%
20%
2021 Stock Price Movement 10%
n EVRG n UTY Index n S&P 500 0%
-10%
12/31 1/29 2/26 3/31 4/30 5/28 6/30 7/30 8/31 9/30 10/29 11/30 12/31 GAAP to Non-GAAP O&M Reconciliation (Dollars in millions) 2021 GAAP O&M $1,108)
Non-regulated energy marketing costs related to February 2021 winter weather event (8)
Executive transition expense (11)
Severance expense (3)
Advisor expense (12)
Covid-19 vaccine incentive (1) 2021 Adjusted O&M (Non-GAAP) $1,073 12 l 2021 Evergy Annual Report
Directors & Officers BOARD OF DIRECTORS Mark A. Ruelle B. Anthony Isaac Ann D. Murtlow Chairman of the Board, former President Former Senior Vice President and Head President and Chief Executive Officer and Chief Executive Officer of Westar Energy of Select Service Strategy and Development of the United Way of Central Indiana of Hyatt Hotels Corporation David A. Campbell Sandra J. Price President and Chief Executive Officer Paul M. Keglevic Former Senior Vice President of Evergy Former Chief Executive Officer of Human Resources of Sprint Corporation Energy Future Holdings Mollie Hale Carter S. Carl Soderstrom Jr.
Chairman, Chief Executive Officer Senator Mary L. Landrieu Former Senior Vice President and and President of FirstSun Capital Bancorp; Senior Policy Advisor of Van Ness Feldman Chief Financial Officer of ArvinMeritor Chairman of Sunflower Bank LLP and Former U.S. Senator from Louisiana John Arthur Stall Thomas D. Hyde Sandra A.J. Lawrence Former President of NextEra Energy, Inc.-
Former Executive Vice President Legal, Former Executive Vice President and Nuclear Division Compliance, Ethics and Corporate Secretary Chief Administrative Officer of Childrens of Wal-Mart Stores, Inc. Mercy Hospital C. John Wilder Executive Chairman of Bluescape Resources OFFICERS David Campbell Heather Humphrey Darrin Ives President and Chief Executive Officer Senior Vice President, General Counsel Vice President, Regulatory Affairs and Corporate Secretary Kirkland Andrews Geoff Ley Executive Vice President, Charles King Vice President, Financial Planning Chief Financial Officer Senior Vice President, and Analysis Chief Technology Officer Kevin Bryant Jeff Martin Executive Vice President, Bruce Akin Vice President, Customer and Chief Operating Officer Vice President, Transmission Community Operations and Distribution Greg Greenwood Cleve Reasoner Executive Vice President and John Bridson Vice President, Chief Nuclear Officer Chief Strategy Officer Vice President, Generation Lori Wright Chuck Caisley Steve Busser Vice President, Investor Relations Senior Vice President, Public Affairs Vice President, Chief Accounting Officer and Treasurer and Chief Customer Officer Ellen Fairchild Lesley Elwell Vice President, Chief Compliance Officer Senior Vice President, Chief Human Resouces Officer 2021 Evergy Annual Report l 13
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______to_______
Exact name of registrant as specified in its charter, Commission state of incorporation, address of principal I.R.S. Employer File Number executive offices and telephone number Identification Number 001-38515 EVERGY, INC. 82-2733395 (a Missouri corporation) 1200 Main Street Kansas City, Missouri 64105 (816) 556-2200 001-03523 EVERGY KANSAS CENTRAL, INC. 48-0290150 (a Kansas corporation) 818 South Kansas Avenue Topeka, Kansas 66612 (785) 575-6300 000-51873 EVERGY METRO, INC. 44-0308720 (a Missouri corporation) 1200 Main Street Kansas City, Missouri 64105 (816) 556-2200 Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on Title of each class Trading Symbol(s) which registered Evergy, Inc. common stock EVRG New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Evergy Kansas Central, Inc. Common Stock $0.01 par value and Evergy Metro, Inc. Common Stock without par value.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Evergy, Inc. Yes No Evergy Kansas Central, Inc. Yes No Evergy Metro, Inc. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Evergy, Inc. Yes No Evergy Kansas Central, Inc. Yes No Evergy Metro, Inc. Yes No 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.
Evergy, Inc. Yes No Evergy Kansas Central, Inc. Yes No Evergy Metro, Inc. Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Evergy, Inc. Yes No Evergy Kansas Central, Inc. Yes No Evergy Metro, Inc. Yes No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company,"
and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Evergy, Inc. Large Non- Smaller Emerging Accelerated Accelerated accelerated Reporting Growth Filer Filer Filer Company Company Evergy Kansas Central, Inc. Large Non- Smaller Emerging Accelerated Accelerated accelerated Reporting Growth Filer Filer Filer Company Company Evergy Metro, Inc. Large Non- Smaller Emerging Accelerated Accelerated accelerated Reporting Growth Filer Filer Filer Company Company Indicate by check mark whether the registrant has filed a report on and attestation to its managements assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Evergy, Inc. Yes No Evergy Kansas Central, Inc. Yes No Evergy Metro, Inc. Yes No 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 Exchange Act.
Evergy, Inc.
Evergy Kansas Central, Inc.
Evergy Metro, Inc.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Evergy, Inc. Yes No Evergy Kansas Central, Inc. Yes No Evergy Metro, Inc. Yes No The aggregate market value of the voting and non-voting common equity held by non-affiliates of Evergy, Inc. (based on the closing price of its common stock on the New York Stock Exchange on June 30, 2021) was approximately $13,704,717,320. All of the common equity of Evergy Kansas Central, Inc. and Evergy Metro, Inc. is held by Evergy, Inc.
On February 18, 2022, Evergy, Inc. had 229,311,689 shares of common stock outstanding.
On February 18, 2022, Evergy Kansas Central, Inc. and Evergy Metro, Inc. each had one share of common stock outstanding and held by Evergy, Inc.
Evergy Kansas Central, Inc. and Evergy Metro, Inc. meet the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K and are therefore filing this Form 10-K with the reduced disclosure format.
Documents Incorporated by Reference Portions of the 2022 annual meeting proxy statement of Evergy, Inc. to be filed with the Securities and Exchange Commission are incorporated by reference in Part III of this report.
This combined annual report on Form 10-K is provided by the following registrants: Evergy, Inc. (Evergy), Evergy Kansas Central, Inc. (Evergy Kansas Central) and Evergy Metro, Inc. (Evergy Metro) (collectively, the Evergy Companies). Information relating to any individual registrant is filed by such registrant solely on its own behalf.
Each registrant makes no representation as to information relating exclusively to the other registrants.
TABLE OF CONTENTS Page Number Cautionary Statements Regarding Certain Forward-Looking Information 3 Glossary of Terms 5 PART I Item 1. Business 7 Item 1A. Risk Factors 16 Item 1B. Unresolved Staff Comments 28 Item 2. Properties 29 Item 3. Legal Proceedings 32 Item 4. Mine Safety Disclosures 32 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer 33 Purchases of Equity Securities Item 6. Selected Financial Data 32 Item 7. Management's Discussion and Analysis of Financial Condition and Results of 34 Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk 59 Item 8. Financial Statements and Supplementary Data 62 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial 153 Disclosure Item 9A. Controls and Procedures 153 Item 9B. Other Information 157 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 157 PART III Item 10. Directors, Executive Officers and Corporate Governance 157 Item 11. Executive Compensation 158 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related 158 Stockholder Matters Item 13. Certain Relationships and Related Transactions, and Director Independence 159 Item 14. Principal Accounting Fees and Services 159 PART IV Item 15. Exhibits and Financial Statement Schedules ##
Signatures 168 2
CAUTIONARY STATEMENTS REGARDING CERTAIN FORWARD-LOOKING INFORMATION Statements made in this document 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 Evergy's strategic plan, including, without limitation, those related to earnings per share, dividend, operating and maintenance expense and capital investment goals; the outcome of legislative efforts and regulatory and legal proceedings; future energy demand; future power prices; plans with respect to existing and potential future generation resources; the availability and cost of generation resources and energy storage; target emissions reductions; and other matters relating to expected financial performance or affecting future operations.
Forward-looking statements are often accompanied by forward-looking words such as "anticipates," "believes,"
"expects," "estimates," "forecasts," "should," "could," "may," "seeks," "intends," "proposed," "projects," "planned,"
"target," "outlook," "remain confident," "goal," "will" or other words of similar meaning. Forward-looking statements involve risks, uncertainties and other factors that could cause actual results to differ materially from the forward-looking information.
In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the Evergy Companies are providing a number of risks, uncertainties and other factors that could cause actual results to differ from the forward-looking information. These risks, uncertainties and other factors include, but are not limited to:
economic and weather conditions and any impact on sales, prices and costs; changes in business strategy or operations; the impact of federal, state and local political, legislative, judicial and regulatory actions or developments, including deregulation, re-regulation, securitization and restructuring of the electric utility industry; decisions of regulators regarding, among other things, customer rates and the prudency of operational decisions such as capital expenditures and asset retirements; 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; the impact of climate change, including increased frequency and severity of significant weather events and the extent to which counterparties are willing to do business with, finance the operations of or purchase energy from the Evergy Companies due to the fact that the Evergy Companies operate coal-fired generation; prices and availability of electricity in wholesale markets; market perception of the energy industry and the Evergy Companies; the impact of the Coronavirus (COVID-19) pandemic on, among other things, sales, results of operations, financial condition, liquidity and cash flows, and also on operational issues, such as supply chain issues and the availability and ability of the Evergy Companies' employees and suppliers to perform the functions that are necessary to operate the Evergy Companies; 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; 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; the transition to a replacement for the London Interbank Offered Rate (LIBOR) benchmark interest rate; effectiveness of risk management policies and procedures and the ability of counterparties to satisfy their contractual commitments; impact of physical and cybersecurity breaches, criminal activity, terrorist attacks and other disruptions to the Evergy Companies' facilities or information technology infrastructure or the facilities and infrastructure of third-party service providers on which the Evergy Companies rely; ability to carry out marketing and sales plans; cost, availability, quality and timely provision of equipment, supplies, labor and fuel; ability to achieve generation goals and the occurrence and duration of planned and unplanned generation outages; delays and cost increases of generation, transmission, distribution or other projects; the Evergy Companies' ability to 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 those related to the Evergy Companies' ability to attract and retain qualified personnel, maintain satisfactory relationships with their labor unions and manage costs of, or changes in, retirement, health care and other benefits; disruption, costs and uncertainties caused by or related to the actions of individuals or entities, such as activist shareholders or special interest groups, that seek to influence Evergy's strategic plan, financial results or operations; the possibility that strategic initiatives, including mergers, acquisitions and divestitures, and long-term financial plans, may not create the value that they are expected to achieve in a timely manner or at all; difficulties in maintaining relationships with customers, employees, regulators or suppliers; and other risks and uncertainties.
This list of factors is not all-inclusive because it is not possible to predict all factors. You should also carefully consider the information contained in our other filings with the Securities and Exchange Commission (SEC).
Additional risks and uncertainties are discussed in Part I, Item 1A - Risk Factors in this annual report on Form 10-K, and from time to time in current reports on Form 8-K and quarterly reports on Form 10-Q filed by the Evergy 3
Companies with the SEC. 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, except as required by law.
AVAILABLE INFORMATION The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at sec.gov. Additionally, information about the Evergy Companies, including their combined annual reports on Form 10-K, combined quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed with the SEC, is also available through the Evergy Companies' website, http://investors.evergy.com. Such reports are accessible at no charge and are made available as soon as reasonably practical after such material is filed with or furnished to the SEC.
Investors should note that the Evergy Companies announce material financial information in SEC filings, press releases and public conference calls. In accordance with SEC guidelines, the Evergy Companies also use the Investor Relations section of their website, http://investors.evergy.com, to communicate with investors. It is possible that the financial and other information posted there could be deemed to be material information. The information on the Evergy Companies' website is not part of this document.
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GLOSSARY OF TERMS The following is a glossary of frequently used abbreviations or acronyms that are found throughout this report.
Abbreviation or Acronym Definition AAO Accounting authority order ACE Affordable Clean Energy AEP American Electric Power Company, Inc.
AFUDC Allowance for funds used during construction AMT Alternative Minimum Tax AOCI Accumulated other comprehensive income AROs Asset retirement obligations ASU Accounting Standards Update Bluescape Bluescape Energy Partners, LLC BSER Best system of emission reduction CAA Clean Air Act Amendments of 1990 CCRs Coal combustion residuals CO2 Carbon dioxide COLI Corporate-owned life insurance COVID-19 Coronavirus CPP Clean Power Plan CSAPR Cross-State Air Pollution CWA Clean Water Act EIRR Environmental Improvement Revenue Refunding 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, Evergy Kansas Central, and Evergy Metro, collectively, which are individual registrants within the Evergy consolidated group Evergy Kansas Central Evergy Kansas Central, Inc., a wholly-owned subsidiary of Evergy, and its consolidated subsidiaries Evergy Kansas South Evergy Kansas South, Inc., a wholly-owned subsidiary of Evergy Kansas Central Evergy Metro Evergy Metro, Inc., a wholly-owned subsidiary of Evergy, and its consolidated subsidiaries Evergy Missouri West Evergy Missouri West, Inc., a wholly-owned subsidiary of Evergy Evergy Transmission Company Evergy Transmission Company, LLC Exchange Act The Securities Exchange Act of 1934, as amended FASB Financial Accounting Standards Board February 2021 winter weather Significant winter weather event in February 2021 that resulted in extremely event cold temperatures over a multi-day period across much of the central and southern United States FERC Federal Energy Regulatory Commission FMBs First Mortgage Bonds 5
Abbreviation or Acronym Definition GAAP Generally Accepted Accounting Principles GHG Greenhouse gas Great Plains Energy Great Plains Energy Incorporated JEC Jeffrey Energy Center KCC State Corporation Commission of the State of Kansas KDHE Kansas Department of Health & Environment KEEIA Kansas Energy Efficiency Investment Act kV Kilovolt kWh Kilowatt hour LEC Lawrence Energy Center MDNR Missouri Department of Natural Resources MECG Midwest Energy Consumers Group MEEIA Missouri Energy Efficiency Investment Act MPSC Public Service Commission of the State of Missouri MW Megawatt MWh Megawatt hour NAAQS National Ambient Air Quality Standards NAV Net asset value NOL Net operating loss NRC Nuclear Regulatory Commission OCI Other comprehensive income OPC Office of the Public Counsel Prairie Wind Prairie Wind Transmission, LLC, 50% owned by Evergy Kansas Central RSU Restricted share unit RTO Regional transmission organization SEC Securities and Exchange Commission SIP State implementation plan SPP Southwest Power Pool, Inc.
TDC Transmission delivery charge TFR Transmission formula rate Transource Transource Energy, LLC and its subsidiaries, 13.5% owned by Evergy Transmission Company UFSA Utility Financing and Securitization Act VIE Variable interest entity Wolf Creek Wolf Creek Generating Station 6
PART I ITEM 1. BUSINESS General Evergy, Inc., Evergy Kansas Central, Inc. and Evergy Metro, Inc. are separate registrants filing this combined annual report on Form 10-K. The terms "Evergy," "Evergy Kansas Central," "Evergy Metro" and "Evergy Companies" are used throughout this report. "Evergy" refers to Evergy, Inc. and its consolidated subsidiaries, unless otherwise indicated. "Evergy Kansas Central" refers to Evergy Kansas Central, Inc. and its consolidated subsidiaries, unless otherwise indicated. "Evergy Metro" refers to Evergy Metro, Inc. and its consolidated subsidiaries, unless otherwise indicated. "Evergy Companies" refers to Evergy, Evergy Kansas Central, and Evergy Metro, collectively, which are individual registrants within the Evergy consolidated group.
Information in other Items of this report as to which reference is made in this Item 1 is hereby incorporated by reference in this Item 1. The use of terms such as "see" or "refer to" shall be deemed to incorporate into this Item 1 the information to which such reference is made.
EVERGY, INC.
Evergy 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 listed below.
- Evergy Kansas Central, Inc. (Evergy Kansas Central) is an integrated, regulated electric utility that provides electricity to customers in the state of Kansas. Evergy Kansas Central has one active wholly-owned subsidiary with significant operations, Evergy Kansas South, Inc. (Evergy Kansas South).
- Evergy Metro, Inc. (Evergy Metro) is an integrated, regulated electric utility that provides electricity to customers in the states of Missouri and Kansas.
- Evergy Missouri West, Inc. (Evergy Missouri West) is an integrated, regulated electric utility that provides electricity to customers in the state of Missouri.
- Evergy Transmission Company, LLC (Evergy Transmission Company) 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. Evergy Transmission Company accounts for its investment in Transource under the equity method.
Evergy Kansas Central also owns a 50% interest in Prairie Wind Transmission, LLC (Prairie Wind), which is a joint venture between Evergy Kansas Central and subsidiaries of AEP and Berkshire Hathaway Energy Company.
Prairie Wind owns a 108-mile, 345 kilovolt (kV) double-circuit transmission line that provides transmission service in the Southwest Power Pool, Inc. (SPP). Evergy Kansas Central accounts for its investment in Prairie Wind under the equity method.
Evergy Kansas Central, Evergy Kansas South, Evergy Metro, and Evergy Missouri West conduct business in their respective service territories using the name Evergy. The Evergy Companies assess financial performance and allocate resources on a consolidated basis (i.e., operate in one segment). Evergy serves approximately 1,640,800 customers located in Kansas and Missouri. Customers include approximately 1,433,500 residences, 199,400 commercial firms and 7,900 industrials, municipalities and other electric utilities. Evergy is significantly impacted by seasonality with approximately one-third of its retail revenues recorded in the third quarter.
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Evergy expects to continue operating its integrated utilities within the currently existing regulatory frameworks and is focused on empowering a better future for its customers, communities, employees and shareholders. The core tenets of Evergy's strategy are as follows:
- Affordability - working to keep rates affordable and improve regional rate competitiveness;
- Reliability - targeting top-tier performance in reliability, customer service and generation; and
- Sustainability - advancing ongoing CO2 emissions reductions and generation fleet transition.
See Item 7, Management's Discussion and Analysis of Financial Operations (MD&A) - Executive Summary -
Strategy, for additional information.
The table below summarizes the percentage of Evergy's revenues by customer classification.
2021 2020 2019 Residential 34% 39% 37%
Commercial 30% 33% 35%
Industrial 11% 12% 12%
Wholesale 13% 5% 7%
Transmission 6% 6% 6%
Other 6% 5% 3%
Total 100% 100% 100%
The table below summarizes the percentage of Evergy's retail electricity sales by customer class.
2021 2020 2019 Residential 37% 38% 36%
Commercial 42% 42% 43%
Industrial 21% 20% 21%
Total 100% 100% 100%
Regulation Evergy Kansas Central's and Evergy Metro's Kansas operations are regulated by the State Corporation Commission of the State of Kansas (KCC) and Evergy Metro's Missouri operations and Evergy Missouri West are regulated by the Public Service Commission of the State of Missouri (MPSC), in each case with respect to retail rates, certain accounting matters, standards of service and, in certain cases, the issuance of securities, certification of facilities and service territories. The Evergy Companies are also subject to regulation by the Federal Energy Regulatory Commission (FERC) with respect to transmission, wholesale sales and rates, the issuance of securities in certain cases and other matters. Evergy has an indirect 94% ownership interest in Wolf Creek Generating Station (Wolf Creek), which is subject to regulation by the Nuclear Regulatory Commission (NRC) with respect to licensing, operations and safety-related requirements.
The table below summarizes the rate orders in effect for Evergy Kansas Central's, Evergy Metro's and Evergy Missouri West's retail rate jurisdictions.
Allowed Return Rate-Making Regulator on Equity Equity Ratio Effective Date Evergy Kansas Central (a) KCC 9.3% 51.46% September 2018 Evergy Metro - Kansas KCC 9.3% 49.09% December 2018 Evergy Metro - Missouri MPSC (b) (b) December 2018 Evergy Missouri West MPSC (b) (b) December 2018 (a)
The KCC establishes rates for Evergy Kansas Central and Evergy Kansas South on a consolidated basis.
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(b)
Evergy Metro's and Evergy Missouri West's current MPSC rate orders do not contain an allowed return on equity or rate-making equity ratio.
Evergy expects its 2022 Kansas and Missouri jurisdictional retail revenues to be approximately 60% and 40%,
respectively, based on historical averages of Evergy Kansas Central's, Evergy Metro's and Evergy Missouri West's total retail revenues.
See Item 7 MD&A, Critical Accounting Policies section, and Note 4 to the consolidated financial statements for additional information concerning regulatory matters.
Competition Missouri and Kansas continue to operate on the fully integrated and regulated retail utility model. As a result, the Evergy Companies do not compete with others to supply and deliver electricity in their franchised service territories in exchange for agreeing to have their terms of service regulated by state regulatory bodies. If Missouri or Kansas were to pass and implement legislation authorizing or mandating retail choice, Evergy may no longer be able to apply regulated utility accounting principles to deregulated portions of its operations, which may require a surcharge to recover certain costs from legacy customers or could lead to a write-off of certain regulatory assets and liabilities.
Evergy competes in the wholesale market to sell power in circumstances when the power it generates is not required for retail customers in its service territory. This competition primarily occurs within the SPP Integrated Marketplace, in which Evergy Kansas Central, Evergy Metro and Evergy Missouri West are participants. This marketplace determines which generating units among market participants should run, within the operating constraints of a unit, at any given time for maximum regional cost-effectiveness.
The SPP Integrated Marketplace is similar to other Regional Transmission Organization (RTO) or Independent System Operator (ISO) markets currently operating in other regions of the United States.
Power Supply Evergy has approximately 15,400 megawatts (MWs) of owned generating capacity and renewable power purchase agreements. Evergy's owned generation and power purchases from others, as a percentage of total megawatt hours (MWhs) generated and purchased, was approximately 70% and 30%, respectively, over the last three years. Evergy purchases power to meet its customers' needs, to satisfy firm power commitments or to meet renewable energy standards. Management believes Evergy will be able to meet its future power purchase needs due to the coordination of planning and operations in the SPP region and existing power purchase agreements; however, price and availability of power purchases may be impacted during periods of high demand or reduced supply.
Evergy's total capacity by fuel type, including both owned generating capacity and power purchase agreements, is detailed in the table below.
Estimated 2022 Percent of Total Fuel Type MW Capacity Capacity Coal 5,913 38 %
Wind (a) 4,326 28 Natural gas and oil 3,971 26 Uranium 1,108 7 Solar, landfill gas and hydroelectric (b) 78 1 Total capacity 15,396 100 %
(a)
MWs are based on nameplate capacity of the wind facility. Includes owned generating capacity of 579 MWs and long-term power purchase agreements of approximately 3,747 MWs of wind generation that expire from 2028 through 2048. See Item 2, Properties, for additional information.
(b)
Includes a long-term power purchase agreement for approximately 66 MWs of hydroelectric generation that expires in 2023.
Evergy's projected peak summer demand for 2022 is approximately 10,200 MWs. Evergy expects to meet its projected capacity requirements for 2022 with its existing generation assets and power purchases. See 9
"Transitioning Evergy's Generation Fleet" below for further information regarding Evergy's long-term strategy with regards to its generating assets and power purchases.
Evergy Kansas Central, Evergy Metro and Evergy Missouri West are members of the SPP. The SPP is a FERC-approved RTO with the responsibility to ensure reliable power supply, adequate transmission infrastructure and competitive wholesale electricity prices in the region. As SPP members, Evergy Kansas Central, Evergy Metro and Evergy Missouri West are required to maintain a minimum reserve margin of 12%. This net positive supply of capacity is maintained through generation asset ownership, capacity agreements, power purchase agreements and peak demand reduction programs. The reserve margin is designed to support reliability of the region's electric supply.
Environmental Matters The Evergy Companies are subject to extensive and evolving federal, state and local environmental laws, regulations and permit requirements relating to air and water quality, waste management and hazardous substance disposal, protected natural resources (such as wetlands, endangered species and other protected wildlife) and health and safety. For example, Evergy Kansas Central, Evergy Metro and Evergy Missouri West combust large amounts of fossil fuels in the production of electricity, which results in significant emissions of carbon dioxide (CO2) and other greenhouse gases (GHG). Federal legislation regulates the emission of GHGs and numerous states and regions have adopted programs to stabilize or reduce GHG emissions. The Environmental Protection Agency (EPA), the Kansas Department of Health and Environment (KDHE) and the Missouri Department of Natural Resources (MDNR) regulate emissions under the Clean Air Act Amendments of 1990 (CAA), water under the Clean Water Act (CWA) and waste management under the Resource Conservation and Recovery Act (RCRA),
among other laws and regulations. See Note 14 to the consolidated financial statements for additional information.
There have been, and management believes there will continue to be, policy, legal and regulatory efforts to influence climate change, such as efforts to reduce GHG emissions, impose a tax on emissions and create incentives for low-carbon generation and energy efficiency. These efforts, and climate change itself, have the potential to adversely affect the Evergy Companies' results of operations, financial position and cash flows. See Part I, Item 1A, Risk Factors, for additional information.
The Evergy Companies have taken, and will continue to take, proactive measures to mitigate the impact of climate change on its businesses. For example, the Evergy Companies regularly conduct preparedness exercises for a variety of disruptive events, including storms, which may become more frequent or intense due to climate change.
In addition, the Evergy Companies have invested, and will continue to invest, in grid resiliency. Much of the Evergy Companies' infrastructure is aged, and grid resiliency efforts include building additional transmission and distribution lines, replacing aged infrastructure and proactively managing the vegetation that can damage systems during severe weather. The Evergy Companies also monitor water conditions at their generating facilities and focus on water conservation at these facilities to address resource depletion.
Transitioning Evergy's Generation Fleet The Evergy Companies are committed to a long-term strategy to reduce CO2 emissions in a cost-effective and reliable manner. In 2021, Evergy achieved a reduction of CO2 emissions by about half from 2005 levels. Evergy has a goal to achieve net-zero CO2 emissions by 2045, which includes an interim goal of a 70% reduction of CO2 emissions from 2005 levels by 2030. The trajectory and timing of reaching Evergy's net-zero CO2 emissions goal are dependent on enabling technology developments, the reliability of the power grid, and supportive energy policies and regulations and could also be impacted by political, legal and regulatory actions.
Public attention is currently focused on transitioning to a low carbon future, including reducing GHG emissions and closing coal-fired generating units. Diversity of fuel supply has historically provided cost and reliability benefits.
For example, because renewable generation is intermittent, diversity of baseload generation, including a mix of coal and natural gas, has helped to maintain a consistent availability of power. In addition, the Evergy Companies must prudently utilize the generation assets that regulators have allowed the Evergy Companies to include in rates. The Evergy Companies use a triennial integrated resource plan, which is a detailed analysis that estimates factors that influence the future supply and demand for electricity, to inform the manner in which they supply electricity. The integrated resource plan considers forecasts of future electricity demand, fuel prices, transmission improvements, 10
new generating capacity, cost of environmental compliance, integration of renewables, energy storage, energy efficiency and demand response initiatives. Strategies that the Evergy Companies are pursuing to reduce emissions include:
- retiring fossil fuel generation;
- developing renewable energy facilities;
- collaborating with regulators to offer customers the opportunity to procure electricity produced with renewable resources; and
- investing in customer energy efficiency programs.
Since 2005, the Evergy Companies have added over 4,400 MWs of renewable generation, while retiring more than 2,400 MWs of fossil generation. See Item 2, Properties, for additional information regarding the Evergy Companies' renewable generation resources. The Evergy Companies are also committed to transparency. On its website, http://investors.evergy.com, Evergy provides quantitative and qualitative data regarding various environmental, social and governance matters, including information related to emissions, waste and water. The contents of the website, including reports and documents contained therein, are not incorporated into this filing.
See Note 14 to the consolidated financial statements for information regarding environmental matters.
Fuel The fuel sources for Evergy's owned generation and power purchase agreements are coal, wind and other renewable sources, uranium and natural gas and oil. The actual 2021 fuel mix and fuel cost in cents per net kilowatt hour (kWh) delivered are outlined in the following table.
Fuel cost in cents per (a)
Fuel Mix net kWh delivered (b)
Actual Actual Fuel 2021 2021 Coal 50 % 1.94¢ Wind, hydroelectric, landfill gas and solar 30 2.06 Uranium 16 0.64 Natural gas and oil 4 11.72 Total 100 % 2.12 (a)
Fuel mix based on percent of net MWhs generated by owned resources and delivered under renewable power purchase agreements.
(b)
Fuel cost in cents per net kWh delivered includes costs associated with renewable power purchase agreements.
Coal During 2022, Evergy's generating units, including jointly-owned units, are projected to use approximately 19 million tons of coal. Evergy Kansas Central, Evergy Metro and Evergy Missouri West have entered into coal-purchase contracts with various suppliers in Wyoming's Powder River Basin (PRB), the nation's principal supply region of low-sulfur coal, and with local suppliers. The coal to be provided under these contracts is expected to satisfy approximately 85% of the projected coal requirements for 2022 and approximately 10% for each of 2023 and 2024. The remainder of the coal requirements is expected to be fulfilled through entering into additional contracts or spot market purchases.
Evergy Kansas Central, Evergy Metro and Evergy Missouri West have also entered into rail transportation contracts with various railroads to transport coal from the PRB and local suppliers to their generating units.
The transportation services to be provided under these contracts are expected to satisfy almost all of the projected transportation requirements for 2022, 2023 and 2024. The contract rates adjust for changes in railroad costs.
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Nuclear Fuel Evergy Kansas South and Evergy Metro each owns 47% of Wolf Creek, which is Evergy's only nuclear generating unit. Wolf Creek purchases uranium and has it processed for use as fuel in its reactor. This process involves conversion of uranium concentrates to uranium hexafluoride, enrichment of uranium hexafluoride and fabrication of nuclear fuel assemblies. The owners of Wolf Creek have on hand or under contract all the uranium, uranium enrichment and conversion services needed to operate Wolf Creek through the first quarter of 2030. The owners also have under contract all the uranium fabrication services required to operate Wolf Creek through 2045.
Natural Gas Evergy purchases natural gas for use in its generating units primarily through spot market purchases. From time to time, Evergy also may enter into contracts, including the use of derivatives, in an effort to manage the cost of natural gas. For additional information about Evergy's exposure to commodity price risks, see Item 7A., Quantitative and Qualitative Disclosures About Market Risk.
Evergy Kansas Central maintains natural gas transportation arrangements with Southern Star Central Gas Pipeline, Inc. The Southern Star Central Gas Pipeline, Inc. arrangement expires based on the generating unit being served with expiration dates from 2022 to 2030.
Customer Energy Efficiency Programs The Evergy Companies have implemented, and continue to offer, energy efficiency programs to help customers with their energy efficiency needs and to help manage energy costs. Both Missouri and Kansas have passed legislation promoting the implementation of cost-effective demand-side management programs and allowing for the recovery of these program costs from customers, along with the potential to earn performance incentives based upon certain criteria.
In Missouri, Evergy Metro and Evergy Missouri West currently offer a suite of energy efficiency programs for customers under the Missouri Energy Efficiency Investment Act (MEEIA). The current portfolio of programs was approved by the MPSC in 2019 and provides for the recovery of program costs, throughput disincentive and the opportunity to earn a performance incentive based upon demand and energy savings achieved. The costs of the programs are recovered from customers through a rider mechanism. Evergy Metro's and Evergy Missouri West's current MEEIA programs as authorized by the MPSC expire at the end of 2022 and Evergy Metro and Evergy Missouri West currently anticipate requesting an extension of these programs.
In Kansas, Evergy Kansas Central and Evergy Metro requested KCC authorization in December 2021 for a suite of energy efficiency programs for customers under the Kansas Energy Efficiency Investment Act (KEEIA). The requested portfolio of programs would provide for the recovery of program costs, throughput disincentive and the opportunity to earn a performance incentive based upon demand and energy savings achieved. The costs of the program would be recovered from customers through a rider mechanism. Evergy Kansas Central's and Evergy Metro's proposed programs would be effective in 2023 and would expire in 2026. The KCC's decision on Evergy Kansas Central's and Evergy Metro's KEEIA request is expected in the second half of 2022.
Human Capital Resources At December 31, 2021, the Evergy Companies had 4,930 employees, including 2,632 represented by five local unions of the International Brotherhood of Electrical Workers (IBEW) and one local union of the United Government Security Officers of America (UGSOA). The Evergy Companies currently have three labor agreements that expire in 2024 and three labor agreements currently under negotiation that have expired and are operating under an extension. The Evergy Companies employ 1,750 generation employees, 1,452 transmission and distribution employees and 1,728 support employees that work primarily in the states of Kansas and Missouri.
Evergy's mission is to empower a better future and a key component of this mission is maintaining a culture that emphasizes safety, integrity, ownership and adaptability.
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Safety is a crucial part of Evergy's values. The components of Evergy's safety program include a strong management commitment to a safety-conscious work environment, hazard recognition and control, worksite analysis, contractor safety management and training. Evergy also conducts regular safety audits and assessments.
During the COVID-19 pandemic, Evergy has prioritized the safety of its employees while continuing to serve its customers and community by providing appropriate personal protective equipment, establishing additional training and protocols and directing employees to work remotely when possible.
Evergy is also working to build a more diverse and inclusive workforce through recruiting and hiring practices, performance management, training and data analysis and reporting initiatives. As of December 31, 2021, Evergy's workforce was 77% male and 23% female, and women represented 24% of Evergy's officer team. The ethnicity of Evergy's workforce was 85% White, 5% Black, 4% Hispanic and 6% other.
Evergy offers a competitive package of compensation and benefits to attract and retain talented employees, including market-competitive pay, healthcare and retirement benefits, paid time off, family leave and tuition reimbursement. Evergy also allows employees to participate in a comprehensive well-being program that includes health and wellness-related activities and incentives, business resource groups, gym membership reimbursement, paid volunteer hours, charitable donation match and free access to an employee assistance program.
Information About Evergy's Executive Officers Set forth below is information relating to the executive officers of Evergy, Inc. Each executive officer holds the same position with each of Evergy Kansas Central, Inc., Evergy Metro, Inc., Evergy Kansas South, Inc. and Evergy Missouri West, Inc. as the executive officer holds with Evergy, Inc. Executive officers serve at the pleasure of the board of directors. There are no family relationships among any of the executive officers, nor any arrangements or understandings between any executive officer and other persons pursuant to which he or she was appointed as an executive officer.
Year First Assumed an Officer Name Age Current Position(s) Position David A. Campbell (a) 53 President and Chief Executive Officer 2021 Kirkland B. Andrews(b) 54 Executive Vice President and Chief Financial Officer 2021 Kevin E. Bryant (c) 46 Executive Vice President and Chief Operating Officer 2006 Gregory A. Greenwood (d) 56 Executive Vice President and Chief Strategy Officer 2003 Lesley L. Elwell (e) 51 Senior Vice President and Chief Human Resources Officer 2021 Charles A. Caisley (f) 48 Senior Vice President, Public Affairs and Chief Customer Officer 2011 Heather A. Humphrey (g) 51 Senior Vice President, General Counsel and Corporate Secretary 2010 Charles L. King (h) 57 Senior Vice President and Chief Technology Officer 2013 Steven P. Busser (i) 53 Vice President and Chief Accounting Officer 2014 (a) Mr. Campbell was appointed President and Chief Executive Officer of Evergy, Inc. in January 2021. Mr. Campbell previously served as Executive Vice President and Chief Financial Officer of Vistra Energy Corp. (2019-2020), as President and Chief Executive Officer of InfraREIT, Inc. and President of Hunt Utility Services (2014-2019), as President and Chief Executive Officer of Sharyland Utilities (2016-2019), as President and Chief Operating Officer of Bluescape Resources (2013-2014) and in various roles with TXU Corp. and its affiliated entities after joining the firm in 2004.
(b) Mr. Andrews was appointed Executive Vice President and Chief Financial Officer of Evergy, Inc. in February 2021. Mr.
Andrews previously served as Executive Vice President and Chief Financial Officer of NRG Energy, Inc. (2011-2021) and as Executive Vice President, Chief Financial Officer of Clearway Energy, Inc. (2012-2016). Mr. Andrews also served as Managing Director and Co-Head Investment Banking, Power and Utilities - Americas at Deutsche Bank Securities (2009-2011), and in several capacities at Citigroup Global Markets Inc., including Managing Director, Group Head, North American Power (2007-2009) and Head of Power M&A, Mergers and Acquisitions (2005-2007).
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(c) Mr. Bryant was appointed Executive Vice President and Chief Operating Officer of Evergy, Inc. in June 2018. Mr. Bryant previously served as Senior Vice President - Finance and Strategy and Chief Financial Officer of Great Plains Energy, Evergy Metro and Evergy Missouri West (2015-2018). He previously served as Vice President - Strategic Planning of Great Plains Energy, Evergy Metro and Evergy Missouri West (2014). He served as Vice President - Investor Relations and Strategic Planning and Treasurer of Great Plains Energy Incorporated (Great Plains Energy), Evergy Metro and Evergy Missouri West (2013). He served as Vice President - Investor Relations and Treasurer of Great Plains Energy, Evergy Metro and Evergy Missouri West (2011-2013). He was Vice President - Strategy and Risk Management of Evergy Metro and Evergy Missouri West (2011) and Vice President - Energy Solutions of Evergy Metro (2006-2011) and Evergy Missouri West (2008-2011).
(d) Mr. Greenwood was appointed Executive Vice President and Chief Strategy Officer of Evergy, Inc. in August 2021. He previously served as Executive Vice President, Strategy and Chief Administrative Officer of Evergy, Inc. (2018-2021).
Mr. Greenwood previously served in the following officer roles for Evergy Kansas Central: Senior Vice President, Strategy (2011-2018); Vice President, Major Construction Projects (2006-2011); and Treasurer (2003-2006). Mr. Greenwood also served in the following roles for Evergy Kansas Central: Executive/Senior Director, Corporate Finance (1999-2003);
Director, Financial Strategy and Acting Director, Internal Audit (1999-2000); and Director, Financial Strategy (1998-1999). Mr. Greenwood joined Evergy Kansas Central in 1993. Mr. Greenwood intends to retire in the middle of 2022 and transition to an advisory role thereafter through 2024.
(e) Ms. Elwell was appointed Senior Vice President and Chief Human Resources Officer of Evergy, Inc. in September 2021.
Ms. Elwell previously served as Chief People Officer at JE Dunn (2017-2021), as Vice President People Strategy / HR Business Partner of Walmart Corporation (2016-2017), as Vice President HR Business Partner Operations at DIRECTV (2012-2015), and in various roles of increasing responsibility, including as Vice President, with Sprint (1997-2012; 2015-2016).
(f) Mr. Caisley was appointed Senior Vice President, Public Affairs and Chief Customer Officer of Evergy, Inc. in August 2021. He previously served as Senior Vice President, Marketing and Public Affairs and Chief Customer Officer of Evergy, Inc. (2018-2021). Mr. Caisley served as Vice President - Marketing and Public Affairs of Great Plains Energy, Evergy Metro and Evergy Missouri West (2011-2018). He was Senior Director of Public Affairs (2008-2011) and Director of Governmental Affairs of Evergy Metro (2007-2008).
(g) Ms. Humphrey was appointed Senior Vice President, General Counsel and Corporate Secretary of Evergy, Inc. in June 2018. Ms. Humphrey previously served as Senior Vice President - Corporate Services and General Counsel of Great Plains Energy, Evergy Metro and Evergy Missouri West (2016-2018). She previously served as General Counsel (2010-2016) and Senior Vice President - Human Resources of Great Plains Energy, Evergy Metro and Evergy Missouri West (2012-2016). She served as Vice President - Human Resources of Great Plains Energy, Evergy Metro and Evergy Missouri West (2010-2012). She was Senior Director of Human Resources and Interim General Counsel of Great Plains Energy, Evergy Metro and Evergy Missouri West (2010) and Managing Attorney of Evergy Metro (2007-2010).
(h) Mr. King was appointed Senior Vice President and Chief Technology Officer of Evergy, Inc. in February 2020. He previously served as Senior Vice President, Information Technology and Chief Information Officer (2019) and Vice President, Information Technology and Chief Information Officer (2018-2019) of Evergy, Inc. Prior to that, he served as Vice President - Information Technology (2013-2018), as Senior Director of Information Technology Applications and Delivery (2013) and Director of Information Technology Applications (2011-2013) of Evergy Metro and Evergy Missouri West. Mr. King also served in various roles, including leadership roles, with Dish Network, CenturyLink, Sprint and Accenture.
(i) Mr. Busser was appointed Vice President and Chief Accounting Officer of Evergy, Inc. in February 2022. He previously served as Vice President - Risk Management and Controller of Evergy, Inc. (2018-2022). Mr. Busser was appointed Vice President - Risk Management and Controller of Great Plains Energy, Evergy Metro and Evergy Missouri West in 2016. He previously served as Vice President - Business Planning and Controller of Great Plains Energy, Evergy Metro and Evergy Missouri West (2014-2016). He served as Vice President - Treasurer of El Paso Electric Company (2011-2014). Prior to that, he served as Vice President - Treasurer and Chief Risk Officer (2006-2011) and Vice President - Regulatory Affairs and Treasurer (2004-2006) of El Paso Electric Company.
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Evergy Kansas Central, Inc.
Evergy Kansas Central, a Kansas corporation incorporated in 1924 and headquartered in Topeka, Kansas, is an integrated, regulated electric utility that engages in the generation, transmission, distribution and sale of electricity.
Evergy Kansas Central serves approximately 730,800 customers located in central and eastern Kansas. Customers include approximately 631,300 residences, 94,000 commercial firms, and 5,500 industrials, municipalities and other electric utilities. Evergy Kansas Central's retail revenues averaged approximately 74% of its total operating revenues over the last three years. Wholesale firm power, bulk power sales, transmission and miscellaneous electric revenues accounted for the remainder of Evergy Kansas Central's revenues. Evergy Kansas Central is significantly impacted by seasonality with approximately one-third of its retail revenues recorded in the third quarter.
Evergy Metro, Inc.
Evergy Metro, a Missouri corporation incorporated in 1922 and headquartered in Kansas City, Missouri, is an integrated, regulated electric utility that engages in the generation, transmission, distribution and sale of electricity.
Evergy Metro serves approximately 571,500 customers located in western Missouri and eastern Kansas. Customers include approximately 505,000 residences, 64,600 commercial firms, and 1,900 industrials, municipalities and other electric utilities. Evergy Metro's retail revenues averaged approximately 88% of its total operating revenues over the last three years. Wholesale firm power, bulk power sales and miscellaneous electric revenues accounted for the remainder of Evergy Metro's revenues. Evergy Metro is significantly impacted by seasonality with approximately one-third of its retail revenues recorded in the third quarter. Missouri and Kansas jurisdictional retail revenues for Evergy Metro averaged approximately 55% and 45%, respectively, of total retail revenues over the last three years.
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ITEM 1A. RISK FACTORS Utility Regulatory Risks:
Prices are established by regulators and may not be sufficient to recover costs or provide for a return on investment.
The prices that the FERC, KCC and MPSC authorize the utility subsidiaries of Evergy to charge significantly influence the Evergy Companies' results of operations, financial position and cash flows.
In general, utilities are allowed to recover in customer rates costs that were prudently incurred to provide utility service, plus a reasonable return on invested capital. There can be no assurance, however, that regulators will determine costs to have been prudently incurred. Further, the amounts approved by the regulators may not be sufficient to allow for a recovery of costs or provide for an adequate return on and of capital investments. Also, amounts that were approved by regulators may be appealed, modified, limited or eliminated by subsequent regulatory or legislative actions. A failure to recover costs or earn a reasonable return on invested capital could have a material adverse effect on the results of operations, financial position and cash flows of Evergy and its utility subsidiaries.
The Evergy Companies are also exposed to cost-recovery shortfalls due to the inherent "regulatory lag" in the rate-setting process. This is because utility rates are generally based on historical information and, except for certain situations where regulators allow for recovery of expenses through use of a formula that tracks costs, are not subject to adjustment between rate cases. Evergy Kansas Central and Evergy Metro agreed to a five-year base rate moratorium in Kansas beginning in December 2018. In addition, Evergy Metro and Evergy Missouri West utilize a plant-in service accounting (PISA) legislative mechanism in Missouri, which requires each company to keep base rates constant for three years following Evergy Metro's and Evergy Missouri West's last general rate case and limits the extent to which prices can increase thereafter to approximately 3% on an annualized basis. Evergy Metro and Evergy Missouri West are currently operating under PISA constraints. Each filed general rate cases in 2022 and will be subject to PISA constraints for three years following conclusion of the general rate cases. The rate cases are expected to conclude by December 2022. These and other factors may result in under-recovery of costs or failure to earn the authorized return on investment, or both.
Furthermore, while inflation has been relatively muted in recent years, during 2021, the United States' economy experienced a substantial rise in the inflation rate. While the Federal Reserve Bank has announced certain measures to combat rising inflation, there is increased uncertainty in the near-term outlook as to whether inflation will continue. Increases in inflation raise the Evergy Companies' costs for labor, materials and services. A failure to recover increased capital costs could result in under-recovery of costs.
Failure to timely recover the full investment costs of capital projects, the impact of renewable energy and energy efficiency programs, other utility costs and expenses due to regulatory disallowances, regulatory lag or other factors could lead to lowered credit ratings, reduced access to capital markets, increased financing costs, lower flexibility due to constrained financial resources and increased collateral security requirements or reductions or delays in planned capital expenditures. In response to competitive, economic, political, legislative, public perception and regulatory pressures, Evergy's utility subsidiaries may be subject to rate moratoriums, rate refunds, limits on rate increases, lower allowed returns on investments or rate reductions, including phase-in plans designed to spread the impact of rate increases over an extended period for the benefit of customers. In addition, Transource, which Evergy owns a 13.5% interest, is focused on the development of competitive electric transmission projects across the United States and faces similar risks with respect to projects located in regulatory jurisdictions outside of Kansas and Missouri. Any of these results could have a material adverse effect on the results of operations, financial condition and cash flows of the Evergy Companies.
Legislative and regulatory requirements may increase costs and result in compliance penalties.
FERC, the North American Electric Reliability Corporation (NERC) and SPP have implemented and enforce an extensive set of transmission system reliability, cybersecurity and critical infrastructure protection standards that 16
apply to public utilities. The MPSC and KCC have the authority to implement utility operational standards and requirements, such as vegetation management standards, facilities inspection requirements and quality of service standards. In addition, Evergy is also subject to health, safety and other requirements enacted by the Occupational Safety and Health Administration, the Department of Transportation, the Department of Labor and other federal and state agencies. As discussed more fully below, the Evergy Companies are also subject to numerous environmental laws and regulations, as well as laws and regulations related to nuclear power generation. The costs of complying with existing, new or modified regulations, standards and other requirements could have a material adverse effect on the results of operations, financial position and cash flows of the Evergy Companies. Furthermore, regulatory changes could result in operational changes that increase costs or adversely impact the Evergy Companies' prospects. In addition, failure to meet quality of service, reliability, cybersecurity, critical infrastructure protection, operational or other standards and requirements could expose the Evergy Companies to penalties, additional compliance costs or adverse rate consequences, any of which could have a material adverse impact on their results of operations, financial position and cash flows.
Environmental Risks:
Costs to comply with environmental laws and regulations, including those relating to air and water quality, waste management and hazardous substance disposal, protected natural resources and health and safety, are significant and may adversely impact operations and financial results.
The Evergy Companies are subject to extensive and evolving federal, state and local environmental laws, regulations and permit requirements relating to air and water quality, waste management and hazardous substance disposal, protected natural resources (such as wetlands, endangered species and other protected wildlife) and health and safety. See Item 1. Business - Environmental Matters and Note 14 to the consolidated financial statements for additional information. In general, over time these laws and regulations have become and continue to become increasingly stringent and compliance with these laws and regulations require an increasing share of capital and operating resources, which may reduce the amount of resources available for other business objectives, including capital investments.
Compliance with these laws, regulations and requirements requires significant capital and operating resources.
Regulators may also disagree with the Evergy Companies' interpretation or application of these laws, regulations and requirements. The failure to comply with these laws, regulations and requirements could result in substantial fines, injunctive relief and other sanctions. For example, Evergy Kansas Central recently decommissioned the Tecumseh Energy Center and removed all coal combustion residuals (CCRs) from a surface impoundment in a manner it believed complied with federal law, but the EPA has recently commenced an evaluation of whether Evergy Kansas Central should have taken additional or alternative actions, even though the facility is closed.
The EPA has begun issuing CCR Part A rule extension application determinations for companies that applied for approval to operate unlined or clay-lined impoundments past April 2021. The Evergy Companies did not apply for an extension, however, these proposed determinations include extensive CCR rule interpretations and compliance expectations that may impact all owners of CCR units. The new interpretations could require modified compliance plans such as different methods of CCR unit closure. Additionally, more stringent remediation requirements for units that are in corrective action or forced to go into corrective action could result in substantial costs or operational impacts.
In January 2022, the EPA announced changes following a tour by the EPA administrator conducted in the second half of 2021 to address issues in communities that are marginalized, underserved and overburdened by pollution.
These changes will include additional unannounced inspections of suspected non-compliant facilities, deploying new assets to monitor air pollution and a general increase in overall monitoring and oversight. The EPA's announcement focused on industries in Louisiana, Mississippi and Texas but includes similar agency-wide action in parallel. The Evergy Companies have multiple power plants located in communities that would be considered a higher priority by the EPA based on existing demographics. These sites could be subject to additional monitoring and unannounced inspections in the future.
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Environmental permits are subject to periodic renewal, which may result in more stringent permit conditions and limits. New facilities, or modifications of existing facilities, may require new environmental permits or amendments to existing permits. Delays in the environmental permitting process, public opposition and challenges, denials of permit applications, limits or conditions imposed in permits and the associated uncertainty may materially adversely affect the cost and timing of projects, and thus materially adversely affect the results of operations, financial position and cash flows of the Evergy Companies. In addition, compliance with environmental laws, regulations and requirements could alter the way assets are managed, which in turn could result in retiring assets earlier than expected, recording asset retirement obligations (AROs) or having a regulator disallow recovery of costs that had been prudently incurred in connection with those assets. There is also a risk of lawsuits alleging violations of environmental laws, regulations or requirements, claiming creation of a public nuisance or other matters, and seeking injunctions or monetary damages or other relief.
Costs of compliance with environmental laws, regulations and requirements, or fines, penalties or negative lawsuit outcomes, if not recovered in rates from customers, could have a material adverse effect on the results of operations, financial position and cash flows of the Evergy Companies.
Financial Risks:
Financial market disruptions or declines in the Evergy Companies' credit ratings may increase financing costs and limit access to the credit markets, which may adversely affect liquidity and financial results.
The Evergy Companies rely on funds from operations and access to the capital and credit markets to fund capital expenditures and for working capital and liquidity. Disruption in capital or credit markets, increases in interest rates, deterioration in the financial condition of the financial institutions on which the Evergy Companies rely, credit rating downgrades, a decrease in the market price of Evergy's common stock or a decrease or disappearance in the demand for debt securities issued by the Evergy Companies or subsidiaries could have material adverse effects on the Evergy Companies. These effects could include, among others: reduced access to capital and increased cost of borrowed funds and collateral requirements; dilution resulting from equity issuances at reduced prices; increased nuclear decommissioning trust and pension and other post-retirement benefit plan funding requirements; reduced ability to pay dividends; rate case disallowance of costs of capital; reductions in or delays of capital expenditures; and limitations in the ability of Evergy to provide credit support for its subsidiaries.
The Evergy Companies plan to make significant capital investments in renewable generation and to enhance the customer experience, improve reliability and resiliency and improve efficiency, which are expected to be funded with cash flows from operations and debt. If cash flows from operations are lower than expected or the costs of these capital investments are higher than expected, additional debt will be required to fund the investments, which, in turn, may create pressure on the Evergy Companies' credit ratings or result in a ratings downgrade and increase their cost of capital. In 2021, a credit ratings agency assigned the Evergy Companies a negative outlook, while affirming ratings, due to perceived risk related to increased capital expenditures and the ability to earn a return of and on those investments through upcoming rate cases. Further, Evergy Kansas Central and Evergy Metro have outstanding tax-exempt bonds that may be put back to the respective issuer at the option of the holders, which could adversely impact liquidity. In addition, market disruption and volatility could have an adverse impact on Evergy's lenders, suppliers and other counterparties or customers, causing them to fail to meet their obligations.
Evergy is a holding company and relies on the earnings of its subsidiaries to meet its financial obligations.
Evergy is a holding company with no significant operations of its own. The primary source of funds for payment of dividends to its shareholders and its other financial obligations is dividends paid to it by its direct subsidiaries, particularly Evergy Kansas Central, Evergy Metro and Evergy Missouri West. Evergy's subsidiaries are separate legal entities and have no obligation to provide Evergy with funds. The ability of Evergy's subsidiaries to pay dividends or make other distributions, and accordingly, Evergy's ability to pay dividends on its common stock and meet its financial obligations, principally depends on the earnings and cash flows, capital requirements and general financial position of its subsidiaries, as well as regulatory factors, financial covenants, general business conditions and other matters.
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In addition, the Evergy Companies are subject to certain corporate and regulatory restrictions and financial covenants that could affect their ability to pay dividends. Under the Federal Power Act, Evergy Kansas Central, Evergy Metro and Evergy Missouri West generally can pay dividends only out of retained earnings. Each of Evergy Metro and Evergy Missouri West has committed to Missouri regulators to not pay dividends to Evergy if its credit rating falls below BBB- for S&P Global Ratings or Baa3 for Moody's Investor Services. Each of Evergy Kansas Central and Evergy Metro has committed to Kansas regulators to not pay dividends to Evergy if (i) the payment would result in an increase in the utility's debt level (excluding short-term debt and debt due within one year) above 60 percent of its total capitalization, absent approval from the KCC or (ii) if its credit rating falls below BBB- for S&P Global Ratings or Baa3 for Moody's Investor Services. Under various debt agreements, the Evergy Companies are also required to maintain a consolidated indebtedness to consolidated total capitalization ratio of not more than 0.65 to 1.00, which could restrict the amount of dividends the Evergy Companies are permitted to pay.
Evergy cannot guarantee dividends will be paid in the future or that, if paid, dividends will satisfy announced targets or investor expectations or be paid with the same frequency as in the past.
In addition, from time to time Evergy has in the past and may in the future guarantee debt obligations of its subsidiaries. Under the financing agreements to which Evergy is a party, a guarantee of debt may be considered indebtedness for purposes of complying with financial covenants that dictate the extent to which Evergy can borrow money, and any guarantee payments could adversely affect Evergy's liquidity and ability to service its own debt obligations.
Increasing costs associated with defined benefit retirement and postretirement plans, health care plans and other employee benefits could adversely affect Evergy's financial position and liquidity.
Evergy maintains defined benefit retirement and other post-retirement employee benefit plans for certain current and former employees. The costs of these plans depend on a number of factors, including the rates of return on plan assets, the level and nature of the provided benefits, discount rates, the interest rates used to measure required minimum funding levels, changes in benefit design, changes in laws or regulations and the amount of any required or voluntary contributions to the plans. The Evergy Companies have substantial unfunded liabilities under these plans. Also, if the rate of retirements exceeds planned levels, these plans experience adverse market returns on investments or interest rates fall, required or voluntary contributions to the plans could be material. In addition, changes in accounting rules and assumptions related to future costs, returns on investments, interest rates and other actuarial assumptions, including projected retirements, could have a significant adverse impact on the results of operations, financial position and cash flows of the Evergy Companies.
The costs of providing health care benefits to employees and retirees have increased in recent years and may continue to rise in the future. Future legislative changes related to health care could also cause significant changes to benefit programs and costs. The increasing costs associated with health care plans could have a significant adverse impact on the results of operations, financial position and cash flows of the Evergy Companies.
The Evergy Companies are subject to commodity and other risks associated with energy markets.
The Evergy Companies are required to maintain generation capacity that satisfies regulatory mandates and are obligated to provide power when required by the SPP or pursuant to contractual obligations. Although the Evergy Companies generally have regulatory mechanisms that allow them to recover the cost of fuel and purchased power necessary to satisfy these requirements, regulatory or legislative actions could limit, eliminate or delay recovery of these expenses after the expenses have been incurred.
The Evergy Companies engage in the wholesale and retail sale of electricity and the wholesale purchase of electricity as part of their regulated electric operations in addition to limited energy marketing activities and the management of third-party generation facilities. These activities expose the Evergy Companies to risks associated with the price of electricity and other energy-related products, as well credit exposure to their counterparties.
Exposure to these risks is affected by a number of factors, including the availability and cost of fuel and power that the Evergy Companies purchase on the wholesale markets to serve customer load or to satisfy their regulatory or contractual obligations, the ability or effectiveness of strategies utilized by the Evergy Companies to hedge these risks, the extent to which the Evergy Companies may be required to post collateral for the benefit of third parties and the risk that counterparties fail to fulfill their obligations to the Evergy Companies. Market volatility can 19
increase or create unanticipated risks. Regional transmission organizations and independent system operators may also retroactively reprice transactions following execution.
Subject to certain regulatory constraints, the Evergy Companies use derivative instruments, such as transmission congestion rights (TCRs), swaps, options, futures and forwards, to manage commodity and financial risks. Losses could be recognized as a result of volatility in the market values of these contracts, if a counterparty fails to perform or if the underlying transactions, which the derivative instruments are intended to hedge, fail to materialize. The valuation of these financial instruments can involve managements judgment or the use of estimates. As a result, changes in the underlying assumptions or use of alternative valuation methods could affect the reported fair value of these contracts. The Evergy Companies cannot assure that their risk management practices will be effective or will mitigate all risks.
The results of operations, financial position and liquidity of the Evergy Companies could be materially adversely affected if the Evergy Companies fail to recover, or experience a delay in the recovery of, fuel and purchased power expenses; if the Evergy Companies fail to adequately hedge or mitigate commodity or energy market risks; if the Evergy Companies are required to provide collateral in amounts greater than planned; if energy marketing transactions are retroactively repriced; or if counterparties fail to fulfill obligations to the Evergy Companies.
Tax legislation and an inability to utilize tax credits could adversely impact results of operations, financial position and liquidity.
Tax laws and regulations can adversely affect, among other things, financial results, liquidity, credit ratings and the valuation of assets, such as deferred income tax assets. The Evergy Companies regularly assess their ability to utilize tax benefits, including those in the form of net operating loss (NOL), tax credit and other tax carryforwards, that are recorded as deferred income tax assets on its balance sheets to determine whether a valuation allowance is necessary. A reduction in, or disallowance of, these tax benefits could have an adverse impact on the financial results and liquidity of the Evergy Companies.
Additionally, changes in corporate tax rates or policy changes, as well as any inability to generate enough taxable income in the future to utilize all tax benefits before they expire, could have an adverse impact on the results of operations, financial position and liquidity of the Evergy Companies. In addition, the Evergy Companies construct and operate renewable energy facilities that generate tax credits that reduce federal income tax obligations. The amount of tax credits is dependent on several factors, including the amount of electricity produced and the applicable tax credit rate. A variety of factors, including transmission constraints, the ability to timely complete construction of renewable energy facilities, adverse weather conditions and breakdown or failure of equipment, could significantly reduce these tax credits, which could have an adverse impact on the results of operations and financial position of the Evergy Companies.
The anticipated benefits of the Evergy Companies' strategy may not be realized.
The Evergy Companies' strategy includes significant planned reductions in operating and maintenance expense and significant planned increases in capital investments. The Evergy Companies' strategy also includes a different mix of capital investments than has been pursued in the past, including significant capital investments in renewable generation. The Evergy Companies' strategy also includes the planned retirement of coal-fired generation resources. If regulators determine that the retirement of coal generation facilities was not prudent, they could prohibit the Evergy Companies from recovering, or earning a return on, the investments in those facilities that were prudent when the investments were originally made. This concept is known as a "stranded asset," and generation retirements outside of those contemplated in the integrated resource plan increase the risk that regulators will disallow the recovery of otherwise prudent investments. In addition, the Evergy Companies may utilize legislative mechanisms known as securitization to facilitate the retirement of coal-fired generation, which will eliminate future returns on the investment that was originally made by the Evergy Companies in those coal-fired generating facilities and reduce the Evergy's Companies results of operations and financial position.
No assurance can be given that the Evergy Companies will be successful in implementing their strategy in a timely manner or at all, and a failure to do so could have a material adverse effect on the results of operations, financial 20
position and cash flows of the Evergy Companies and have an adverse impact on the price of Evergys common stock.
The price of Evergy common stock may experience volatility.
The price of Evergy common stock may be volatile. Some of the factors that could affect the price of Evergy common stock are Evergy's earnings; the ability of the Evergy Companies to implement their strategic plan; the ability of Evergy to deploy capital; actions by regulators; and statements in the press or investment community about the Evergy Companies' strategy, earnings per share or growth prospects, financial condition or results of operations. Negative perceptions or publicity from increasing scrutiny of environmental, social and governance practices could also adversely impact Evergy's stock price. Also, individuals or entities, such as activist shareholders and special interest groups, may seek to influence the Evergy Companies' strategic plan or take other actions that could disrupt the Evergy Companies' business, financial results or operations and could adversely impact Evergy's stock price. In addition, the Evergy Companies operate almost exclusively in Kansas and Missouri and this concentration may increase exposure to risks arising from unique local or regional factors. Furthermore, general market conditions and U.S. economic factors and political events unrelated to the performance of Evergy (including the COVID-19 pandemic) may also affect Evergy's stock price. For these reasons, shareholders should not rely on historical trends in the price of Evergy common stock to predict the future price of Evergy's common stock.
Evergy has recorded goodwill that could become impaired and adversely affect financial results.
As required by generally accepted accounting principles (GAAP), Evergy recorded a significant amount of goodwill on its balance sheet in connection with completion of the merger that resulted in the formation of Evergy. Evergy assesses goodwill for impairment on an annual basis or whenever events or circumstances occur that would indicate a potential for impairment. If goodwill is deemed to be impaired, Evergy may be required to incur non-cash charges that could materially adversely affect its results of operations.
Customer and Weather-Related Risks:
Changes in electricity consumption could have a material adverse effect on Evergy's results of operations, financial position and cash flows.
Change in customer behaviors in response to energy efficiency programs, changing conditions and preferences or changes in the adoption of technologies could affect the consumption of energy by customers. Federal and state programs exist to influence the way customers use energy and regulators have mandates to promote energy efficiency. Conservation programs and customers' level of participation in the programs could have a material adverse effect on the results of operations, financial position and cash flows of the Evergy Companies.
Technological advances, energy efficiency and other energy conservation measures have reduced and will continue to reduce customer electricity consumption. The Evergy Companies generate electricity at central station power plants to achieve economies of scale and produce electricity at a competitive cost. Self-generation and distributed generation technologies, including microturbines, wind turbines, fuel cells and solar cells, as well as those related to the storage of energy produced by these systems, have become economically competitive with the manner and price at which the Evergy Companies sell electricity. There is also a perception that generating or storing electricity through these technologies is more environmentally friendly than generating electricity with fossil fuels. Increased adoption of these technologies could reduce electricity demand and the pool of customers from whom fixed costs are recovered, resulting in under recovery of the fixed costs of the Evergy Companies. Increased self-generation and the related use of net energy metering, which allows self-generating customers to receive bill credits for surplus power, could put upward price pressure on remaining customers. If the Evergy Companies are unable to adjust to reduced electricity demand and increased self-generation and net energy metering, their financial condition and results of operations could be adversely affected.
Changes in customer electricity consumption due to sustained financial market disruptions, downturns or sluggishness in the economy or other factors may also adversely affect the results of operations, financial position and cash flows of the Evergy Companies.
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Weather is a major driver of the results of operations, financial position and cash flows of the Evergy Companies and the Evergy Companies are subject to risks associated with climate change.
Weather conditions directly influence the demand for and price of electricity. The Evergy Companies are significantly impacted by seasonality, and, due to energy demand created by air conditioning load, highest revenues are typically recorded in the third quarter. Unusually mild winter or summer weather can adversely affect sales. In addition, severe weather and events, including tornados, snow, fire, rain, flooding, drought and ice storms, can be destructive and cause outages and property damage that can result in increased expenses, lower revenues and additional restoration costs. Storm reserves established by the Evergy Companies may be insufficient and rates may not be adjusted in a timely manner, or at all, to recover these costs. Additionally, because many of the Evergy Companies' generating stations utilize water for cooling, low water and flow levels can increase maintenance costs at these stations, result in limited power production and require modifications to plant operations. High water conditions can also impair planned deliveries of fuel to generating stations or otherwise adversely impact the ability of the Evergy Companies to operate these stations. Climate change may produce more frequent or severe weather events, such as storms, droughts or floods and could also impact the economic health of the Evergy Companies' service territories. An increase in the frequency or severity of extreme weather events or a deterioration in the economic health of Evergy's service territories could have a material adverse effect on the results of operations, financial position and cash flows of the Evergy Companies.
In addition, policy, legal and regulatory efforts to influence climate change, such as efforts to reduce GHG emissions, impose a tax on emissions and create incentives for low-carbon generation and energy efficiency, could result in reduced sales and require significant costs to respond to such efforts. These efforts could also result in the early retirement of generation facilities, which could result in stranded costs if regulators disallow recovery of investments that were prudent when originally made and included in rates. The Evergy Companies have a goal to achieve net-zero CO2 emissions by 2045 with an interim goal of a 70% reduction of CO2 emissions from 2005 levels by 2030. The trajectory and timing of reaching the goal could be impacted by many external factors, including enabling technology developments, the reliability of the power grid, availability of transmission capacity, and supportive energy policies and regulations, and other factors. Any of the foregoing could adversely affect the results of operations, financial position and cash flows of the Evergy Companies and the market prices of Evergy's common stock.
Operational Risks:
Operational risks may adversely affect the Evergy Companies.
The operation of electric generation, transmission, distribution and information systems involves many risks, including breakdown or failure of equipment; aging infrastructure; employee error or contractor or subcontractor failure; problems that delay or increase the cost of returning facilities to service after outages; limitations that may be imposed by equipment conditions or environmental, safety or other regulatory requirements; fuel supply or fuel transportation reductions or interruptions; labor disputes; difficulties with the implementation or operation of information systems; transmission scheduling constraints; and catastrophic events such as fires, floods, droughts, explosions, terrorism or acts of war, severe weather, pandemics or other similar occurrences. Many of the Evergy Companies' generation, transmission and distribution resources are aged, which increases the risk of unplanned outages, reduced generation output and higher maintenance expense. Any equipment or system outage or constraint can, among other things, reduce sales, increase costs and affect the ability to meet regulatory service metrics, customer expectations and regulatory reliability and security requirements.
The Evergy Companies have general liability and property insurance to cover a portion of their facilities, but such policies do not cover transmission or distribution systems, are subject to certain limits and deductibles and do not include business interruption coverage. Insurance coverage may not be available in the future at reasonable costs or on commercially reasonable terms, and the insurance proceeds received for any loss of, or any damage to, any facilities may not be sufficient to restore the loss or damage. Certain insurers are also choosing to limit their exposure to companies with coal-fired generation, which may result in increased premiums and reduced scope of coverage. These and other operating events may reduce revenues or increase costs, or both, and may materially affect the results of operations, financial position and cash flows of the Evergy Companies.
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Physical and cybersecurity breaches, criminal activity, terrorist attacks, acts of war and other disruptions to facilities or information technology infrastructure could interfere with operations, expose the Evergy Companies or their customers or employees to a risk of loss, expose the Evergy Companies to legal or regulatory liability and cause reputational and other harm.
The Evergy Companies rely upon information technology networks and systems to process, transmit and store electronic information, and to manage or support a variety of business processes and activities, including the generation, transmission and distribution of electricity, supply chain functions and the invoicing and collection of payments from customers. The Evergy Companies also use information technology networks and systems to record, process and summarize financial information and results of operations for internal reporting purposes and to comply with financial reporting, legal and tax requirements. These networks and systems are in some cases owned or managed by third-party service providers. In the ordinary course of business, the Evergy Companies collect, store and transmit sensitive data including operating information, proprietary business information and personal information belonging to customers and employees.
The Evergy Companies' information technology networks and infrastructure, as well as the networks and infrastructure belonging to third-party service providers, are vulnerable to damage, disruptions or shutdowns due to attacks or breaches by hackers or other unauthorized third parties; error or malfeasance by employees, contractors or service providers; unintended consequences related to software or hardware upgrades, additions or replacements; malicious software code; vulnerabilities in third-party software code; telecommunication failures; the lack of availability of qualified employees and contractors; natural disasters or other catastrophic events; or criminal activity, terrorist attacks or acts of war. Driven in part by the COVID-19 pandemic, the Evergy Companies have increased the use of technology to enable remote-working arrangements, which may increase or expose previously unknown vulnerabilities. Public reports have indicated an increase in cyberattacks in general since the start of the pandemic due, in part, to the increase in the number of employees working remotely and the proliferation of the different ways in which people interact with their information technology infrastructure.
The occurrence of any of these events could, among other things, impact the reliability or safety of the Evergy Companies' generation, transmission and distribution systems and information systems; result in the erasure of data or render the Evergy Companies' equipment, or the equipment of third-party service providers, unusable; impact the Evergy Companies' ability to conduct business in the ordinary course; reduce sales; expose the Evergy Companies and their customers, employees and vendors to a risk of loss or misuse of information; result in legal claims or proceedings, liability or regulatory penalties; damage the Evergy Companies' reputation; or otherwise harm the Evergy Companies' results of operations, financial position and cash flows. The Evergy Companies can provide no assurance that they will be able to identify and remediate all security or system vulnerabilities or that unauthorized access or error will be identified and remediated.
The Evergy Companies are subject to laws and rules issued by multiple government agencies concerning cybersecurity and safeguarding their customer and business information. For example, NERC has issued comprehensive regulations and standards surrounding the security of the bulk power system, including both physical and cybersecurity, and continually evaluates the necessity for updates and new requirements with which the Evergy Companies must comply. The Evergy Companies are subject to recurring, independent, third-party audits with respect to adherence to these regulations and standards. The NRC also has issued regulations and standards related to the protection of critical digital assets at nuclear power plants. Compliance with NERC and NRC rules and standards, and rules and standards promulgated by other regulatory agencies from time to time or future legislation, will increase the Evergy Companies' compliance costs and their exposure to the potential risk of violations of these rules, standards or future legislation, which includes potential financial penalties. Furthermore, the non-compliance by other utilities subject to similar regulations or the occurrence of a serious security event at other utilities could result in increased regulation or oversight, both of which could increase the Evergy Companies' costs and adversely impact their financial results.
Additionally, the Evergy Companies cannot predict the impact that any future information technology or malicious attack may have on the energy industry in general. The electric utility industry, both within the United States and internationally, has experienced physical and cybersecurity attacks on energy infrastructure such as power plants, substations and related assets in the past, and there will likely be more attacks in the future. Geopolitical matters, 23
including terrorist attacks and acts of war, may increase the likelihood of such attacks. The Evergy Companies have been subject to attempted cyber attacks from time to time, and will likely continue to be subject to such attempted attacks, but these prior attacks have not had a material impact on their operations. However, because technology is increasingly complex and cyber-attacks are increasingly sophisticated and more frequent, there can be no assurance that such incidents will not have a material adverse effect on the Evergy Companies in the future. The Evergy Companies' facilities and systems could be direct targets or indirect casualties of such attacks. The effects of such attacks could include disruption to the Evergy Companies' generation, transmission and distribution, and information systems or to the electrical grid in general, reduced sales and could increase the cost of insurance coverage. Furthermore, although the Evergy Companies maintain information security risk insurance coverage, such insurance may not be adequate to cover any associated losses. Any of the foregoing could have a material adverse impact on the Evergy Companies' results of operations, financial position and cash flows.
The cost and schedule of capital projects may materially change and expected performance may not be achieved.
The Evergy Companies' business is capital intensive and includes significant construction projects. The risks of any capital project include: actual costs may exceed estimated costs; regulators may disallow, limit or delay the recovery of all or part of the cost of, or a return on, a capital project; increased inflation may render previously estimated costs to be inaccurate; risks associated with the capital and credit markets to fund projects; delays in receiving, or failure to receive, necessary permits, approvals and other regulatory authorizations; unforeseen engineering problems or changes in project design or scope; the failure of suppliers and contractors to perform as required under their contracts; inadequate availability or increased cost of labor or materials, including commodities such as steel, copper and aluminum that may be subject to uncertain or increased tariffs; inclement weather; new or changed laws, regulations and requirements, including environmental and health and safety laws, regulations and requirements; and other events beyond the Evergy Companies' control may occur that may materially affect the schedule, cost and performance of these projects.
The Evergy Companies' strategy includes a significant amount of planned capital investments. The Evergy Companies' ability to implement these investments depend, in part, on the availability of adequate internal and external resources, such as employees and qualified contractors and the availability of materials. In this regard, the global COVID-19 pandemic has caused and continues to cause disruptions to the global supply chain and the availability of qualified labor, which, in turn, has increased inflationary pressures.
These and other risks could cause the Evergy Companies to defer or limit capital expenditures, materially increase the costs of capital projects, delay the in-service dates of projects, adversely affect the performance of the projects and require the purchase of electricity on the wholesale market, at potentially more expensive prices, until the projects are completed. These risks may significantly affect the Evergy Companies' results of operations, financial position and cash flows.
Failure to attract and retain an appropriately qualified workforce or to maintain satisfactory collective bargaining agreements could negatively impact the Evergy Companies' business and operations and adversely impact the Evergy Companies' results of operations, financial position and cash flows.
The Evergy Companies' workforce includes professional, managerial and technical employees. Failure to attract and retain qualified talent, successfully transition retirements with adequate replacements, or source qualified contractors could impede the Evergy Companies' strategy and/or adversely impact the Evergy Companies' ability to execute on their strategy. For example, certain skills, such as those related to construction, maintenance and repair of transmission and distribution systems are in high demand and have a limited supply. Evergy competes for qualified employees with these skills on a national level.
In addition, COVID-19 vaccination and testing mandates could result in employee or contractor labor disruptions and complying with any mandates and managing any related labor disruptions could have a significant adverse impact on the Evergy Companies' results of operations, financial position and cash flows.
A significant portion of the Evergy Companies' workforce is represented by five local unions of the IBEW and one local union of the UGSOA. The Evergy Companies currently have three labor agreements that expire in 2024 and three labor agreements currently under negotiation that have expired and are operating under an extension. A 24
failure to successfully negotiate these collective bargaining agreements could result in labor disruptions and have a significant adverse impact on the Evergy Companies' results of operations, financial position and cash flows.
The Evergy Companies' strategic plan includes enhanced technology and transmission and distribution investments and a reduction in reliance on coal-fired generation. The Evergy Companies will need to attract and retain personnel that are qualified to implement the Evergy Companies' strategy and may need to retrain or reskill certain employees to support the Evergy Companies' long-term objectives. A failure to attract and retain qualified employees, retrain or reskill existing employees and maintain satisfactory collective bargaining agreements could have a significant adverse impact on the results of operations, financial position and cash flows of the Evergy Companies.
The Evergy Companies are exposed to risks associated with the ownership and operation of a nuclear generating unit, which could adversely impact the Evergy Companies' business and financial results.
Evergy indirectly owns 94% of Wolf Creek, with Evergy Kansas South and Evergy Metro each owning 47% of the nuclear plant. The NRC has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generation facilities, including Wolf Creek. In the event of non-compliance, the NRC has the authority to impose fines, shut down the facilities, or both, depending upon its assessment of the severity of the situation, until compliance is achieved. Additionally, the non-compliance of other nuclear facility operators with applicable regulations or the occurrence of a serious nuclear incident anywhere in the world could result in increased regulation of the nuclear industry. Such events could increase Wolf Creek's costs and impact the financial results of the Evergy Companies or result in a shutdown of Wolf Creek.
An extended outage of Wolf Creek, whether resulting from NRC action, an incident at the plant or otherwise, could have a material adverse effect on the results of operations, financial position and cash flows of the Evergy Companies in the event replacement power and other costs are not recovered through rates or insurance. If a long-term outage occurred, the state regulatory commissions could reduce rates by excluding the Wolf Creek investment from rate base. Wolf Creek commenced operations in 1985 and the age of Wolf Creek increases the risk of unplanned outages and results in higher maintenance costs.
On an annual basis, Evergy Kansas South and Evergy Metro are required to contribute money to tax-qualified trusts that were established to pay for decommissioning costs at the end of the unit's life. The amount of contributions varies depending on estimates of decommissioning expenses and projected return on trust assets. If the actual return on trust assets is below the projected level or actual decommissioning costs are higher than estimated, Evergy Kansas South and Evergy Metro could be responsible for the balance of funds required and may not be allowed to recover the balance through rates.
The Evergy Companies are also exposed to other risks associated with the ownership and operation of a nuclear generating unit, including, but not limited to, (i) potential liability associated with the potential harmful effects on the environment and human health resulting from the operation of a nuclear generating unit, (ii) the storage, handling, disposal and potential release (by accident, through third-party actions or otherwise) of radioactive materials and (iii) uncertainties with respect to contingencies and assessments if insurance coverage is inadequate. Under the structure for insurance among owners of nuclear generating units, Evergy Kansas South and Evergy Metro are also liable for potential retrospective premium assessments (subject to a cap) per incident at any commercial reactor in the country and losses in excess of insurance coverage.
In addition, Wolf Creek is reliant on a sole supplier for fuel and related services. The supplier has in the past been the subject of Chapter 11 reorganization proceedings, and an extended outage of Wolf Creek could occur if the supplier is not able to perform under its contracts with Wolf Creek. Switching to another supplier could take an extended amount of time and would require NRC approval. An extended outage at Wolf Creek could affect the amount of Wolf Creek investment included in customer rates and could have a material impact on the Evergy Companies' financial results.
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The structure of the regional power market in which the Evergy Companies operate could have an adverse effect on their results of operations, financial position and cash flows.
Evergy Kansas Central, Evergy Metro and Evergy Missouri West are members of the SPP regional transmission organization, and each has transferred operational authority (but not ownership) of their transmission facilities to the SPP. The SPP's Integrated Marketplace determines which generating units among market participants should run, within the operating constraints of a unit, at any given time. The SPP's rules are primarily designed to provide for maximum cost-effectiveness, but in certain respects the rules also provide preferential treatment for certain resources based on public policy initiatives, such as increasing the deployment of renewable generation. If Evergy Kansas Central's, Evergy Metro's or Evergy Missouri West's generating resources are not dispatched, each could experience decreased levels of wholesale electricity sales.
The Evergy Companies' strategic plan includes adding a significant amount of renewable generation. Transmission constraints and delays in the transmission planning and construction processes could impair the ability of the Evergy Companies to sell and transmit electricity generated by these renewable generation facilities, which could have an adverse impact on the results of operations and financial position of the Evergy Companies.
In addition, the rules governing the various regional power markets, including the SPP, may change from time to time and such changes could impact the costs and revenues of the Evergy Companies.
Litigation Risks:
The outcome of legal proceedings cannot be predicted. An adverse finding could have a material adverse effect on the Evergy Companies' results of operations, financial position and cash flows.
The Evergy Companies are parties to various lawsuits and regulatory proceedings in the ordinary course of their respective businesses. The outcome of these matters cannot be determined, nor, in many cases, can the liability that could potentially result from each case be reasonably estimated. The liability that the Evergy Companies may incur with respect to any of these cases may be in excess of amounts currently accrued and insured against with respect to such matters and could adversely impact the financial results for the Evergy Companies.
COVID-19 Risks:
The spread of COVID-19 and resulting impact on business and economic conditions could continue to negatively affect the Evergy Companies' business and operations.
The COVID-19 pandemic has had, and may continue to have, a significant impact on the way that the Evergy Companies conduct their operations and could adversely impact their results of operations, financial condition and cash flows. Further, the spread of COVID-19 has resulted in efforts to contain the virus, such as quarantines, restrictions on travel, closures and reduced operations of businesses, governmental agencies and other institutions.
The pandemic, along with the efforts to contain the virus, has caused and could continue to cause an economic slowdown or recession, result in significant disruptions or reductions in various public, commercial or industrial activities, cause employee absences and contractor or third party service provider disruptions, which could interfere with the Evergy Companies' operations or the operations of their customers.
The COVID-19 pandemic has altered electricity usage patterns, including an overall reduction in demand and shifting usage away from customers with relatively higher load requirements, such as industrial and commercial customers, toward customers with relatively lower load requirements, such as residential customers. These changes in electricity usage patterns and the extent to which some of these shifts could become long-term or permanent could result in a significant decrease in the Evergy Companies' sales of electricity.
The Evergy Companies have also incurred, and will continue to incur, expenses related to monitoring the COVID-19 pandemic and modifying operations in response to the pandemic. In July 2020, the KCC authorized Evergy Kansas Central and Evergy Metro to record to a regulatory asset all net incremental costs incurred with respect to their Kansas operations associated with the COVID-19 pandemic for consideration in their next Kansas rate cases, which are expected to be completed no later than the end of 2023. Additionally, the KCC order stated 26
that the KCC will also consider granting the recovery of Evergy Kansas Central's and Evergy Metro's lost revenues associated with the COVID-19 pandemic as part of their next Kansas rate cases. In January 2021, the MPSC authorized Evergy Metro and Evergy Missouri West to defer to a regulatory asset certain net incremental costs incurred between March 1, 2020 and March 31, 2021, associated with the COVID-19 pandemic for consideration in their next rate cases. Evergy Metro and Evergy Missouri West can petition the MPSC to extend the period subject to the Accounting Authority Order (AAO). Notwithstanding the foregoing, regulators might not allow for recovery of these amounts in a timely manner, or at all. In addition, Evergy Metro and Evergy Missouri West utilize PISA in Missouri, which requires each company to keep base rates constant for three years following Evergy Metro's and Evergy Missouri West's last general rate case. These and other factors may result in under-recovery of costs or failure to earn the authorized return on investment, or both.
The Evergy Companies have also temporarily implemented policies, and in the future may implement additional policies, that are intended to ease the financial burden of the pandemic on customers, such as temporarily extending payment options and offering incentives for customer payments on overdue balances as well as the elimination of late payment fees and disconnections for non-payment. There is also the possibility that legislation or regulations could be enacted at the federal or state level that would further restrict the Evergy Companies' ability to discontinue service to customers in the event of non-payment or to collect amounts owed from customers for service provided.
These measures could result in an overall increase in customer non-payment or delay in the timely receipt of customer payments, which could result in a significant increase in the Evergy Companies' credit loss expense or significant decrease in operating cash flows.
Evergy Kansas Central, Evergy Metro and Evergy Missouri West sell retail electric accounts receivable to independent outside investors as a source of liquidity. These arrangements include covenants that limit the extent to which accounts receivable can be delinquent or unpaid. A decrease in the amount of, or a delay in receiving, customer collections due to the COVID-19 pandemic or otherwise could, absent a waiver or amendment, result in a breach of these accounts receivable financing arrangements and require the Evergy Companies to repay any outstanding loans. To the extent that the Evergy Companies experience lower electric sales, they may not have sufficient eligible receivables to maximize their borrowing capacity under their receivables sales facilities or could be required to repay additional portions of their borrowings under the facilities.
The Evergy Companies are planning to make significant capital expenditures and they regularly conduct maintenance on their facilities. The pandemic could disrupt the supply chains that provide services and equipment to the Evergy Companies as part of their capital expenditures or maintenance efforts. If the Evergy Companies' supply chains are disrupted, the Evergy Companies may be unable to perform necessary maintenance, which could result in increased costs as the Evergy Companies implement contingency plans to allow them to continue to operate. Supply chain interruptions may also exacerbate inflationary pressures, increase the cost of maintenance and capital expenditures or result in the delay or cancellation of planned projects, any of which could have a material adverse impact on the Evergy Companies' results of operations.
The Evergy Companies also have a significant amount of NOLs, tax credits and other tax carryforwards that are recorded as deferred income tax assets on their balance sheets. These tax benefits have various expiration dates and other limitations on the extent to which the benefits can be realized. The Evergy Companies regularly assess their future ability to utilize tax benefits to determine whether a valuation allowance is necessary. A significant reduction in the Evergy Companies' taxable income due to the impacts of the COVID-19 pandemic or otherwise could require the Evergy Companies to record a valuation allowance against a portion of those tax assets, which in turn reduces earnings, and the Evergy Companies may in general not be able to utilize these tax benefits.
In addition, the COVID-19 pandemic has changed the way the Evergy Companies operate and has increased the use of technology to enable remote-working arrangements, which may increase or expose previously unknown vulnerabilities. Public reports have also indicated an increase in cyberattacks in general since the start of the pandemic due, in part, to the increase in the number of employees working remotely and the proliferation of the different ways in which employees and third parties interact with the Evergy Companies' information technology infrastructure. A successful attack against the Evergy Companies or cyberattacks to interconnected utilities, municipalities, others or widespread attacks to the utility industry could result in disruption to the Evergy 27
Companies' generation, transmission and distribution and information systems or to the electrical grid in general, reduce sales and could increase the cost of insurance coverage or result in a decline in the U.S. economy.
Furthermore, insurance may not be adequate to cover any associated losses.
Any of these circumstances, or other impacts of the COVID-19 pandemic, could adversely affect customer demand or revenues, impact the ability of the Evergy Companies' suppliers, vendors or contractors to perform, or cause other unpredictable events, which could have a significant adverse impact on the results of operations, financial position and cash flows of the Evergy Companies.
ITEM 1B. UNRESOLVED STAFF COMMENTS None.
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ITEM 2. PROPERTIES Generation Resources Unit Capability (MW) By Owner(a)
Total Generation and Evergy Evergy Total Renewable Renewable Year Kansas Evergy Missouri Company Purchased Purchased Station Unit No. Location Completed Fuel Central Metro West Generation Power Power Renewable Generation:
Central Plains Kansas 2009 Wind 99 99 99 Flat Ridge Kansas 2009 Wind 50 50 44 (b) 94 Flat Ridge 3 Kansas 2021 Wind 128 (b) 128 Western Plains Kansas 2017 Wind 281 281 281 Meridian Way Kansas 2008 Wind 96 (b) 96 Ironwood Kansas 2012 Wind 168 (b) 168 Post Rock Kansas 2012 Wind 201 (b) 201 Cedar Bluff Kansas 2015 Wind 199 (b) 199 Kay Wind Oklahoma 2015 Wind 200 (b) 200 Soldier Creek Kansas 2020 Wind 300 (b) 300 Ninnescah Kansas 2016 Wind 208 (b) 208 Kingman 1 Kansas 2016 Wind 37 (b) 37 Kingman 2 Kansas 2016 Wind 103 (b) 103 Landfill Rolling Meadows Kansas 2010 Gas 6 (b) 6 Hutch Solar Kansas 2017 Solar 1 (b) 1 Ponderosa Oklahoma 2020 Wind 178 (c) 178 Cimarron II Kansas 2012 Wind 131 (d) 131 Cimarron Bend III Kansas 2020 Wind 150 (e) 150 Spearville 1 Kansas 2006 Wind 101 101 101 Spearville 2 Kansas 2010 Wind 48 48 48 Spearville 3 Kansas 2012 Wind 101 (d) 101 Gray County Kansas 2001 Wind 110 (f) 110 Ensign Kansas 2012 Wind 99 (f) 99 Waverly Kansas 2016 Wind 200 (d) 200 Slate Creek Kansas 2015 Wind 150 (d) 150 Rock Creek Missouri 2017 Wind 300 (g) 300 Osborn Missouri 2016 Wind 201 (g) 201 Pratt Kansas 2018 Wind 243 (g) 243 Greenwood Solar Missouri 2016 Solar 3 3 3 Prairie Queen Kansas 2019 Wind 200 (g) 200 CNPPID (NE) -
Hydro Nebraska 1941 Hydro 66 (d) 66 Landfill St Joseph Landfill Missouri 2012 Gas 2 2 2 Total Renewable Generation: 430 149 5 584 3,820 4,404 29
Unit Capability (MW) By Owner(a)
Total Generation and Evergy Evergy Total Renewable Renewable Year Kansas Evergy Missouri Company Purchased Purchased Station Unit No. Location Completed Fuel Central Metro West Generation Power Power Nuclear:
Wolf Creek 1 (h) Kansas 1985 Uranium 554 554 1,108 1,108 Total Nuclear: 554 554 1,108 1,108 Coal:
Jeffrey Energy Center Kansas 1978, 1980 Steam Turbines 1-3 (h) &1983 Coal 2,016 175 2,191 2,191 Lawrence Energy Center Kansas Steam Turbines 4&5 (i) 1960, 1971 Coal 485 485 485 La Cygne Kansas Steam Turbines 1&2 (h)(j) 1973, 1977 Coal 713 713 1,426 1,426 Iatan Missouri Steam Turbines 1&2 (h) 1980, 2010 Coal 974 284 1,258 1,258 Hawthorn Missouri Steam Turbines 5 (k) 1969 Coal 553 553 553 Total Coal: 3,214 2,240 459 5,913 5,913 Gas and Oil:
Emporia Energy Center Kansas Combustion Natural Turbines 1-7 2008 - 2009 Gas 654 654 654 Gordon Evans Energy Center Kansas Combustion Natural Turbines 1-3 2000 - 2001 Gas 294 294 294 Hutchinson Energy Center Kansas Combustion Natural Turbines 1-3 1974 Gas 166 166 166 4 1975 Oil 74 74 74 Spring Creek Energy Center Oklahoma Combustion Natural Turbines 1-4 2001 Gas 269 269 269 State Line Missouri 2-1, 2-2 Natural Combined Cycle & 2-3 (h) 2001 Gas 200 200 200 Hawthorn Missouri Natural Combined Cycle 6/9 2000 Gas 221 221 221 Combustion Natural Turbines 7&8 2000 Gas 154 154 154 30
Unit Capability (MW) By Owner(a)
Total Generation and Evergy Evergy Total Renewable Renewable Year Kansas Evergy Missouri Company Purchased Purchased Station Unit No. Location Completed Fuel Central Metro West Generation Power Power Gas and Oil (continued):
West Gardner Kansas Combustion Natural Turbines 1-4 2003 Gas 309 309 309 Osawatomie Kansas Combustion Natural Turbines 1 2003 Gas 75 75 75 Ralph Green Missouri Combustion Natural Turbines 3 1981 Gas 69 69 69 Nevada Missouri Combustion Turbines 1 1974 Oil 16 16 16 Lake Road Missouri Combustion 1951, 1958 Natural Turbines 1-3 & 1962 Gas 49 49 49 1974, 1989 5-7 & 1990 Oil 89 89 89 Natural Steam Turbines 4 1967 Gas 95 95 95 Northeast Missouri Combustion Turbines 11 - 18 1972 - 1977 Oil 380 380 380 South Harper Missouri Combustion Natural Turbines 1-3 2005 Gas 311 311 311 Greenwood Energy Center Missouri Combustion Natural Turbines 1-4 1975 - 1979 Gas 251 251 251 Crossroads Energy Center Mississippi Combustion Natural Turbines 1-4 2002 Gas 295 295 295 Total Gas and Oil 1,657 1,139 1,175 3,971 3,971 Total 5,855 4,082 1,639 11,576 3,820 15,396 (a)
Capability (except for wind generating facilities) represents estimated 2022 net generating capacity. Capability for wind generating facilities represents the nameplate capacity. Due to the intermittent nature of wind generation, these facilities are associated with a total of 1,788 MW of accredited generating capacity pursuant to SPP reliability standards.
(b)
Evergy Kansas Central renewable power purchase agreement.
(c)
Evergy Kansas Central and Evergy Metro renewable power purchase agreement.
(d)
Evergy Metro renewable power purchase agreement.
(e)
Evergy Kansas Central and Evergy Missouri West renewable power purchase agreement.
(f)
Evergy Missouri West renewable power purchase agreement.
(g)
Evergy Metro and Evergy Missouri West renewable power purchase agreement.
(h)
Share of a jointly owned unit.
(i)
See Note 4 to the consolidated financial statements for more information regarding the planned retirement of Lawrence Energy Center (LEC) Unit 4 which is expected to occur between December 2023 and the first half of 2024.
(j)
In 1987, Evergy Kansas South entered into a sale-leaseback transaction involving its 50% interest in the La Cygne Unit 2. Evergy and Evergy Kansas Central consolidate the leasing entity as a variable interest entity (VIE). See Note 18 to the consolidated financial statements for more information.
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(k)
Although the plant was completed in 1969, a new boiler, air quality control equipment and an uprated turbine were placed in service at the Hawthorn Generating Station in 2001.
Transmission and Distribution Resources Evergy's electric transmission system interconnects with systems of other utilities for reliability and to permit wholesale transactions with other electricity suppliers. Evergy has approximately 10,200 circuit miles of transmission lines, 44,900 circuit miles of overhead distribution lines and 15,500 circuit miles of underground distribution lines in Missouri and Kansas. Evergy has all material franchise rights necessary to sell electricity within its retail service territory. Evergy's transmission and distribution systems are routinely monitored for adequacy to meet customer needs. Management believes the current system has adequate capacity to serve customers.
General Evergy's generating plants are located on property owned (or co-owned) by the Evergy Companies, except for certain facilities that are located on easements or are contractually controlled. Evergy's headquarters, service centers, electric substations and a portion of its transmission and distribution systems are located on property owned or leased by Evergy. Evergy's transmission and distribution systems are for the most part located above or underneath highways, streets, other public places or property owned by others. Evergy believes that it has satisfactory rights to use those places or properties in the form of permits, grants, easements, licenses or franchise rights; however, it has not necessarily undertaken efforts to examine the underlying title to the land upon which the rights rest.
Substantially all of the fixed property and franchises of the Evergy Companies, which consist principally of electric generating stations, electric transmission and distribution lines and systems, and buildings (subject to exceptions, reservations and releases), are subject to mortgage indentures pursuant to which bonds have been issued and are outstanding. See Note 12 to the consolidated financial statements for more information.
ITEM 3. LEGAL PROCEEDINGS The Evergy Companies are parties to various lawsuits and regulatory proceedings in the ordinary course of their respective businesses. For information regarding material lawsuits and proceedings, see Notes 4 and 14 to the consolidated financial statements. Such information is incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable.
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PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES EVERGY, INC.
Evergy's common stock is listed on the New York Stock Exchange under the symbol "EVRG." At February 18, 2022, Evergy's common stock was held by 18,297 shareholders of record.
Performance Graph The following graph compares the performance of Evergy's common stock during the period that began on June 5, 2018 (the first day that Evergy's common stock traded), and ended on December 31, 2021, to the performance of the Standard & Poor's 500 Index (S&P 500) and the Standard & Poor's Electric Utility Index (S&P 500 Electric Utilities). The graph assumes a $100 investment in Evergy's common stock and in each of the indices at the beginning of the period and a reinvestment of dividends paid on such investments throughout the period.
CUMULATIVE TOTAL RETURN Based on an initial investment of $100 on June 5, 2018, with dividends reinvested
$200
$180
$160
$140
$120
$100
$80 06/05/18 12/31/18 12/31/19 12/31/20 12/31/21 Evergy, Inc. S&P 500 Index S&P 500 Electric Utilities 33
Purchases of Equity Securities 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 December 31, 2021.
Issuer Purchases of Equity Securities Total Number of Maximum Shares (or Units) Number of Purchased as Shares (or Units)
Total Number of Average Price Part of Publicly that May Yet Be Shares (or Units) Paid per Share Announced Plans Purchased Under the Month Purchased(a) (or Unit) or Programs Plans or Programs October 1 - 31 November 1 - 30 680 $64.92 December 1 - 31 8,495 $68.56 Total 9,175 $68.29 (a)
Represents shares Evergy purchased for withholding taxes related to the vesting of restricted stock or restricted stock units.
Dividend Restrictions For information regarding dividend restrictions, see Note 17 to the consolidated financial statements.
ITEM 6. SELECTED FINANCIAL DATA Not applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following combined MD&A should be read in conjunction with the consolidated financial statements and accompanying notes in this combined annual report on Form 10-K. None of the registrants make any representation as to information related solely to Evergy, Evergy Kansas Central or Evergy Metro other than itself.
The following MD&A generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 can be found in MD&A in Part II, Item 7, of the Evergy Companies' combined annual report on Form 10-K for the fiscal year ended December 31, 2020.
EVERGY, INC.
EXECUTIVE
SUMMARY
Evergy 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 listed below.
- Evergy Kansas Central is an integrated, regulated electric utility that provides electricity to customers in the state of Kansas. Evergy Kansas Central has one active wholly-owned subsidiary with significant operations, Evergy Kansas South.
- Evergy Metro is an integrated, regulated electric utility that provides electricity to customers in the states of Missouri and Kansas.
- Evergy Missouri West is an integrated, regulated electric utility that provides electricity to customers in the state of Missouri.
- Evergy Transmission Company 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 34
competitive electric transmission projects. Evergy Transmission Company accounts for its investment in Transource under the equity method.
Evergy Kansas Central also owns a 50% interest in Prairie Wind, which is a joint venture between Evergy Kansas Central and subsidiaries 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. Evergy Kansas Central accounts for its investment in Prairie Wind under the equity method.
Evergy Kansas Central, Evergy Kansas South, Evergy Metro and Evergy Missouri West conduct business in their respective service territories using the name Evergy. 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 1.6 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).
Strategy Evergy expects to continue operating its integrated utilities within the currently existing regulatory frameworks and is focused on empowering a better future for its customers, communities, employees and shareholders. The core tenets of Evergy's strategy are as follows:
- Affordability - working to keep rates affordable and improve regional rate competitiveness;
- Reliability - targeting top-tier performance in reliability, customer service and generation; and
- Sustainability - advancing ongoing CO2 emissions reductions and generation fleet transition.
Significant elements of Evergy's plan to achieve its strategic objectives include:
- targeting an annual reduction of approximately $345 million of operating and maintenance expense by 2025 from 2018 adjusted operating and maintenance expense (non-GAAP) (see "Non-GAAP Measures" within this Executive Summary for a reconciliation of this non-GAAP measure to the most directly comparable GAAP measure);
- targeting approximately $10.7 billion of expected base capital investments through 2026 including approximately $2.0 billion in renewable generation. See "Liquidity and Capital Resources; Capital Expenditures", for further information regarding Evergy's projected capital expenditures through 2026; and
- targeting a 70% reduction of CO2 emissions by 2030 (from 2005 levels) and net-zero by 2045 through the continued growth of Evergy's renewable energy portfolio and the retirement of older and less efficient fossil fuel plants. See "Transitioning Evergy's Generation Fleet" in Part I, Item 1., Business, for additional information.
See "Cautionary Statements Regarding Certain Forward-Looking Information" and Part I, Item 1A, Risk Factors, for additional information.
Regulatory Proceedings In January 2022, Evergy Metro and Evergy Missouri West filed applications with the MPSC to request increases to their retail electric revenues of $43.9 million and $27.7 million, respectively, before rebasing fuel and purchased power expense, with a return on equity of 10%. The requests reflect increases related to higher property taxes and the recovery of infrastructure investments made to improve reliability and enhance customer service and were also partially offset by significant customer savings and cost reductions created since the Great Plains Energy and Evergy Kansas Central merger in 2018. Evergy Metro and Evergy Missouri West are also requesting the implementation of tracking mechanisms for both property tax expense and credit loss expense and the creation of a storm reserve as part of their requests with the MPSC.
See Note 4 to the consolidated financial statements for further information regarding the Missouri rate cases in addition to information on other regulatory proceedings.
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Evergy Equity Investment From time to time, Evergy makes limited equity investments in early-stage energy solution companies. These investments have historically not had a significant impact on Evergy's results of operations. In October 2021, an equity investment in which Evergy held a minority stake through an initial investment of $3.7 million was acquired through a transaction involving a special purpose acquisition company (SPAC). As a result of its equity investment in the company that was acquired in the SPAC transaction, Evergy received shares of the resulting public company upon the closing of the transaction, which are subject to a restriction on sale for 150 days. Evergy recorded a $27.7 million unrealized gain in the fourth quarter of 2021 for the conversion of its shares into the newly formed public company and based on the closing share price as of December 31, 2021 adjusted to reflect the restriction on the sale of the shares. The fair value of Evergy's investment is largely dependent on the performance of the new public company's stock, which is subject to significant market volatility and also affected by the restriction on sale of the shares until March 2022, when the restriction expires. Evergy uses adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP) to evaluate earnings and EPS without the gains or losses related to equity investments which are subject to a restriction on sale that can create period to period volatility. See "Non-GAAP Measures" within this Executive Summary for additional information.
LEC Unit 4 Securitization In April 2021, the state of Kansas passed the Utility Financing and Securitization Act (UFSA) which allows certain public utilities, including Evergy Kansas Central and Evergy Metro, to securitize utility assets in order to recover energy transition costs relating to the early retirement of certain generating assets. To recover the energy transition costs through securitization as allowed in the UFSA, a public utility must obtain a predetermination order from the KCC finding that the retirement of the subject generation facility is reasonable. Upon the receipt of a successful predetermination order, the public utility must then file an application with the KCC for a financing order to issue securitized bonds to recover the energy transition costs. The UFSA also allows the pursuit of securitization to help finance qualified extraordinary expenses, such as fuel costs incurred during extreme weather events.
In September 2021, Evergy Kansas Central filed a predetermination request with the KCC for the ratemaking principles and treatment related to its planned investment in approximately 190 MW of solar generation and the planned retirement of coal-fired LEC Unit 4 and related coal-handling facilities for LEC Units 4 and 5, both of which are expected to occur between December 2023 and the first half of 2024. In February 2022, Evergy Kansas Central withdrew its predetermination request with the KCC in order to finalize definitive documentation associated with the solar investment and to develop additional information to enable the KCC to evaluate its predetermination request. Evergy Kansas Central anticipates refiling its predetermination request, including this additional information, later in 2022.
If the KCC finds that Evergy Kansas Central's planned retirement of LEC Unit 4 and investment in 190 MW of solar generation is prudent as part of a predetermination request, Evergy Kansas Central then plans to file an application with the KCC for a financing order authorizing the issuance of securitized bonds to recover energy transition costs associated with the retirement of LEC Unit 4 and the related coal-handling facilities for LEC Units 4 and 5.
February 2021 Winter Weather Event In February 2021, much of the central and southern United States, including the service territories of the Evergy Companies, experienced a significant winter weather event that resulted in extremely cold temperatures over a multi-day period (February 2021 winter weather event). The February 2021 winter weather event resulted in an increase in the demand for natural gas used by the Evergy Companies for generating electricity and also contributed to the limited availability of other generation resources, including coal and renewables, within the SPP Integrated Marketplace. As part of the February 2021 winter weather event, Evergy incurred natural gas and purchased power costs, net of wholesale revenues, of $365.5 million. This $365.5 million of net fuel and purchased power costs was primarily driven by $296.4 million of costs at Evergy Missouri West and $133.9 million of costs at Evergy Kansas Central, partially offset by $64.8 million of net wholesale revenues at Evergy Metro. The amount of purchased power costs incurred by the Evergy Companies during the February 2021 winter weather event is subject to resettlement activity and further review by the SPP. This review and any subsequent resettlement activity could 36
result in increases or decreases to the final amount of purchased power costs incurred by the Evergy Companies during the February 2021 winter weather event and these changes could be material.
As of December 31, 2021, the Evergy Companies have deferred substantially all of the fuel and purchased power costs, net of wholesale revenues, related to the February 2021 winter weather event to a regulatory asset or liability pursuant to their fuel recovery mechanisms and an emergency AAO issued by the KCC in February 2021. Further, in June 2021, Evergy Metro and Evergy Missouri West filed a joint request for an AAO with the MPSC regarding the deferral and subsequent recovery or refund of the February 2021 winter weather event amounts. While the Evergy Companies expect to recover substantially all of any increased fuel and purchased power costs related to the February 2021 winter weather event from customers, the timing of the cost recovery could be delayed or spread over a longer than typical recovery timeframe by the KCC or the MPSC to help moderate monthly customer bill impacts given the extraordinary nature of the February 2021 winter weather event.
The Evergy Companies also engage in limited non-regulated energy marketing activities in various regional power markets that have historically not had a significant impact on the Evergy Companies' results of operations. These energy marketing margins are recorded net in operating revenues on the Evergy Companies' statements of income and comprehensive income. As a result of the elevated market prices experienced in regional power markets across the central and southern United States driven by the February 2021 winter weather event discussed above, Evergy and Evergy Kansas Central recorded $94.5 million of energy marketing margins in 2021 related to the February 2021 winter weather event, primarily driven by activities in the Electric Reliability Council of Texas (ERCOT).
See Notes 1 and 4 to the consolidated financial statements for additional information regarding the February 2021 winter weather event and related AAOs.
Bluescape Energy Partners, LLC (Bluescape) Securities Purchase Agreement See Note 17 to the consolidated financial statements for information regarding Evergy's securities purchase agreement with an affiliate of Bluescape to purchase Evergy's common stock and a warrant that was completed in April 2021.
Impact of COVID-19 See Part I, Item 1A, Risk Factors for information regarding the impact of COVID-19 on the Evergy Companies.
Earnings Overview The following table summarizes Evergy's net income and diluted earnings per share (EPS).
2021 Change 2020 (millions, except per share amounts)
Net income attributable to Evergy, Inc. $ 879.7 $ 261.4 $ 618.3 Earnings per common share, diluted 3.83 1.11 2.72 Net income attributable to Evergy, Inc. increased in 2021, compared to 2020, primarily due to non-regulated energy marketing margins related to the February 2021 winter weather event, higher retail sales driven by favorable weather and demand, lower operating and maintenance expenses, higher equity allowance for funds used during construction (AFUDC), higher investment earnings and lower interest expense; partially offset by higher property taxes, higher depreciation expense and higher income tax expense.
Diluted EPS increased in 2021, compared to 2020, primarily due to the increase in 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.
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Non-GAAP Measures Adjusted Earnings (non-GAAP) and Adjusted EPS (non-GAAP)
Evergy's adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP) for 2021 were $812.6 million or $3.54 per share, respectively. For 2020, Evergy's adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP) were $705.5 million or $3.10 per share, respectively. In addition to net income attributable to Evergy, Inc. and diluted EPS, Evergy's management uses adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP) to evaluate earnings and EPS without the income or costs resulting from non-regulated energy marketing margins from the February 2021 winter weather event and gains or losses related to equity investments which are subject to a restriction on sale that can create period to period volatility, as well as costs resulting from executive transition, severance, advisor expenses, COVID-19 vaccine incentives and the revaluation of deferred tax assets and liabilities from the Kansas corporate income tax rate change.
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 evaluating Evergy's operations across periods because it excludes certain items that management does not believe are indicative of Evergy's ongoing performance.
Adjusted earnings (non-GAAP) and adjusted EPS (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 EPS (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. and diluted EPS as determined in accordance with GAAP and adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP).
Earnings Earnings (Loss) per (Loss) per Earnings Diluted Earnings Diluted (Loss) Share (Loss) Share 2021 2020 (millions, except per share amounts)
Net income attributable to Evergy, Inc. $ 879.7 $ 3.83 $ 618.3 $ 2.72 Non-GAAP reconciling items:
Non-regulated energy marketing margin related to February 2021 winter weather event, pre-tax(a) (94.5) (0.41)
Non-regulated energy marketing costs related to February 2021 winter weather event, pre-tax(b) 7.9 0.03 (c)
Executive transition costs, pre-tax 10.8 0.05 (d)
Severance costs, pre-tax 2.8 0.01 66.3 0.29 (e)
Advisor expenses, pre-tax 11.6 0.05 32.3 0.14 (f)
COVID-19 vaccine incentive, pre-tax 1.2 0.01 (g)
Restricted equity investment gains, pre-tax (27.7) (0.12)
(h)
Income tax expense (benefit) 20.8 0.09 (25.2) (0.11)
(i)
Kansas corporate income tax change 13.8 0.06 Adjusted earnings (non-GAAP) $ 812.6 $ 3.54 $ 705.5 $ 3.10 (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 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.
(c)
Reflects costs associated with executive transition including inducement bonuses, severance agreements and other transition expenses of which $10.5 million is included in operating and maintenance expense and $0.3 million is included in other expense in 2021 on the consolidated statements of comprehensive income.
(d)
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.
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(e)
Reflects advisor expenses incurred associated with strategic planning and are included in operating and maintenance expense on the consolidated statements of comprehensive income.
(f)
Reflects incentive compensation costs incurred associated with employees becoming fully vaccinated against COVID-19 and are included in operating and maintenance expense on the consolidated statements of comprehensive income.
(g)
Reflects gains related to equity investments which are subject to a restriction on sale and are included in investment earnings on the consolidated statements of comprehensive income.
(h)
Reflects an income tax effect calculated at a statutory rate of approximately 22% in 2021 and 26% in 2020, with the exception of certain non-deductible items.
(i)
Reflects the revaluation of Evergy Kansas Central's, Evergy Metro's and Evergy Missouri West's deferred income tax assets and liabilities from the Kansas corporate income tax rate change and are included in income tax expense on the consolidated statements of comprehensive income.
2018 Adjusted Operating and Maintenance Expense The following table provides a reconciliation between 2018 operating and maintenance expense and 2018 pro forma operating and maintenance expense as determined in accordance with GAAP and 2018 adjusted operating and maintenance expense (non-GAAP). Evergy's 2018 adjusted operating and maintenance expense (non-GAAP) is used as the base for Evergy's targeted operating and maintenance expense reductions by 2025.
(millions) 2018 Operating and maintenance expense $ 1,115.8 Pro forma adjustments(a):
Great Plains Energy operating and maintenance expense prior to the merger 317.9 Non-recurring merger costs and other (101.3) 2018 Pro forma operating and maintenance expense $ 1,332.4 Non-GAAP reconciling items:
Voluntary severance costs(b) (23.5)
Deferral of merger transition costs(c) 28.5 Inventory write-offs at retiring generating units(d) (31.0) 2018 Adjusted operating and maintenance expense (non-GAAP) $ 1,306.4 (a)
Reflects pro forma adjustments made in accordance with Article 11 of Regulation S-X and ASC 805 - Business Combinations. See Note 2 to the consolidated financial statements in the Evergy Companies' combined 2018 Annual Report on Form 10-K for further information regarding these adjustments.
(b)
Reflects severance costs incurred associated with certain voluntary severance programs at the Evergy Companies and are included in operating and maintenance expense on the 2018 consolidated statements of comprehensive income in the Evergy Companies' combined 2018 Annual Report on Form 10-K.
(c)
Reflects the portion of the $47.8 million deferral of merger transition costs to a regulatory asset in June 2018 that related to costs incurred prior to 2018. The remaining merger transition costs included within the $47.8 million deferral were both incurred and deferred in 2018 and did not impact earnings. This item is included in operating and maintenance expense on the 2018 consolidated statements of comprehensive income in the Evergy Companies' combined 2018 Annual Report on Form 10-K.
(d)
Reflects obsolete inventory write-offs for Evergy Kansas Central's Unit 7 at Tecumseh Energy Center, Units 3 and 4 at Murray Gill Energy Center, Units 1 and 2 at Gordon Evans Energy Center, Evergy Metro's Montrose Station and Evergy Missouri West's Sibley Station and are included in operating and maintenance expense on the 2018 consolidated statements of comprehensive income in the Evergy Companies' combined 2018 Annual Report on Form 10-K.
Wolf Creek Refueling Outage Wolf Creek's most recent refueling outage began in March 2021 and the unit returned to service in May 2021. Wolf Creek's next refueling outage is planned to begin in the third quarter of 2022.
ENVIRONMENTAL MATTERS See Note 14 to the consolidated financial statements for information regarding environmental matters.
RELATED PARTY TRANSACTIONS See Note 16 to the consolidated financial statements for information regarding related party transactions.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. Management considers an accounting estimate to be critical if it requires assumptions to be made that were uncertain at the time the estimate was made and changes in the estimate, or different estimates that could have been used, could have a material impact on Evergy's results of operations and financial position. Management has identified the following accounting policies as critical to the understanding of Evergy's results of operations and financial position. Management has discussed the development and selection of these critical accounting policies with the Audit Committee of the Evergy Board.
Pensions Evergy incurs significant costs in providing non-contributory defined pension benefits. The costs are measured using actuarial valuations that are dependent upon numerous factors derived from actual plan experience and assumptions of future plan experience.
Pension costs are impacted by actual employee demographics (including age, life expectancies, compensation levels and employment periods), earnings on plan assets, the level of contributions made to the plan, and plan amendments. In addition, pension costs are also affected by changes in key actuarial assumptions, including anticipated rates of return on plan assets and the discount rates used in determining the projected benefit obligation and pension costs.
The assumed rate of return on plan assets was developed based on the weighted-average of long-term returns forecast for the expected portfolio mix of investments held by the plan. The assumed discount rate was selected based on the prevailing market rate of fixed income debt instruments with maturities matching the expected timing of the benefit obligation. These assumptions, updated annually at the measurement date, are based on management's best estimates and judgment; however, material changes may occur if these assumptions differ from actual events. See Note 9 to the consolidated financial statements for information regarding the assumptions used to determine benefit obligations and net costs.
The following table reflects the sensitivities associated with a 0.5% increase or a 0.5% decrease in key actuarial assumptions for Evergy's qualified pension plans. Each sensitivity reflects the impact of the change based on a change in that assumption only.
Impact on Impact on Projected 2022 Change in Benefit Pension Actuarial assumption Assumption Obligation Expense (millions)
Discount rate 0.5 % increase $ (193.6) $ (18.5)
Rate of return on plan assets 0.5 % increase (7.9)
Rate of compensation 0.5 % increase 50.7 9.4 Discount rate 0.5 % decrease 219.6 20.7 Rate of return on plan assets 0.5 % decrease 7.9 Rate of compensation 0.5 % decrease (47.3) (8.8)
Pension expense for Evergy Kansas Central, Evergy Metro and Evergy Missouri West is recorded in accordance with rate orders from the KCC and MPSC. The orders allow the difference between pension costs under GAAP and pension costs for ratemaking to be recorded as a regulatory asset or liability with future ratemaking recovery or refunds, as appropriate.
In 2021, Evergy's pension expense was $153.7 million under GAAP and $171.0 million for ratemaking. The impact on 2022 pension expense in the table above reflects the impact on GAAP pension costs. Under the Evergy Companies' rate agreements, any increase or decrease in GAAP pension expense is deferred to a regulatory asset or 40
liability for future ratemaking treatment. See Note 9 to the consolidated financial statements for additional information regarding the accounting for pensions.
Market conditions and interest rates significantly affect the future assets and liabilities of the plan. It is difficult to predict future pension costs, changes in pension liability and cash funding requirements due to the inherent uncertainty of market conditions.
Revenue Recognition Evergy recognizes revenue on the sale of electricity to customers over time as the service is provided in the amount it has the right to invoice. Revenues recorded include electric services provided but not yet billed by Evergy.
Unbilled revenues are recorded for kWh usage in the period following the customers' billing cycle to the end of the month. This estimate is based on net system kWh usage less actual billed kWhs. Evergy's estimated unbilled kWhs are allocated and priced by regulatory jurisdiction across the rate classes based on actual billing rates. Evergy's unbilled revenue estimate is affected by factors including fluctuations in energy demand, weather, line losses and changes in the composition of customer classes. See Note 3 to the consolidated financial statements for the balance of unbilled receivables for Evergy as of December 31, 2021 and 2020.
Regulatory Assets and Liabilities Evergy has recorded assets and liabilities on its consolidated balance sheets resulting from the effects of the ratemaking process, which would not otherwise be recorded under GAAP. Regulatory assets represent incurred costs that are probable of recovery from future revenues. Regulatory liabilities represent future reductions in revenues or refunds to customers.
Management regularly assesses whether regulatory assets and liabilities are probable of future recovery or refund by considering factors such as decisions by the MPSC, KCC or FERC in Evergy's rate case filings; decisions in other regulatory proceedings, including decisions related to other companies that establish precedent on matters applicable to Evergy; and changes in laws and regulations. If recovery or refund of regulatory assets or liabilities is not approved by regulators or is no longer deemed probable, these regulatory assets or liabilities are recognized in the current period results of operations. Evergy's continued ability to meet the criteria for recording regulatory assets and liabilities may be affected in the future by restructuring and deregulation in the electric industry or changes in accounting rules. In the event that the criteria no longer applied to all or a portion of Evergy's operations, the related regulatory assets and liabilities would be written off unless an appropriate regulatory recovery mechanism were provided. Additionally, these factors could result in an impairment on utility plant assets.
See Note 4 to the consolidated financial statements for additional information.
Impairments of Assets and Goodwill Long-lived assets are required to be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable as prescribed under GAAP.
Accounting rules require goodwill to be tested for impairment annually and when an event occurs indicating the possibility that an impairment exists. The goodwill impairment test consists of comparing the fair value of a reporting unit to its carrying amount, including goodwill, to identify potential impairment. In the event that the carrying amount exceeds the fair value of the reporting unit, an impairment loss is recognized for the difference between the carrying amount of the reporting unit and its fair value. Evergy's consolidated operations are considered one reporting unit for assessment of impairment, as management assesses financial performance and allocates resources on a consolidated basis. The annual impairment test for the $2,336.6 million of goodwill from the Great Plains Energy and Evergy Kansas Central merger was conducted as of May 1, 2021. The fair value of the reporting unit substantially exceeded the carrying amount, including goodwill. As a result, there was no impairment of goodwill.
The determination of fair value for the reporting unit consisted of two valuation techniques: an income approach consisting of a discounted cash flow analysis and a market approach consisting of a determination of reporting unit invested capital using a market multiple derived from the historical earnings before interest, income taxes, depreciation and amortization and market prices of the stock of peer companies. The results of the two techniques 41
were evaluated and weighted to determine a point within the range that management considered representative of fair value for the reporting unit, which involves a significant amount of management judgment.
The discounted cash flow analysis is most significantly impacted by two assumptions: estimated future cash flows and the discount rate applied to those cash flows. Management determines the appropriate discount rate to be based on the reporting unit's weighted average cost of capital (WACC). The WACC takes into account both the return on equity authorized by the KCC and MPSC and after-tax cost of debt. Estimated future cash flows are based on Evergy's internal business plan, which assumes the occurrence of certain events in the future, such as the outcome of future rate filings, future approved rates of return on equity, anticipated returns of and earnings on future capital investments, continued recovery of cost of service and the renewal of certain contracts. Management also makes assumptions regarding the run rate of operations, maintenance and general and administrative costs based on the expected outcome of the aforementioned events. Should the actual outcome of some or all of these assumptions differ significantly from the current assumptions, revisions to current cash flow assumptions could cause the fair value of the Evergy reporting unit under the income approach to be significantly different in future periods and could result in a future impairment charge to goodwill.
The market approach analysis is most significantly impacted by management's selection of relevant peer companies as well as the determination of an appropriate control premium to be added to the calculated invested capital of the reporting unit, as control premiums associated with a controlling interest are not reflected in the quoted market price of a single share of stock. Management determines an appropriate control premium by using an average of control premiums for recent acquisitions in the industry. Changes in results of peer companies, selection of different peer companies and future acquisitions with significantly different control premiums could result in a significantly different fair value of the Evergy reporting unit.
Income Taxes Income taxes are accounted for using the asset/liability approach. Deferred tax assets and liabilities are determined based on the temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted statutory tax rates in effect for the year in which the differences are expected to reverse. Deferred investment tax credits are amortized ratably over the life of the related property. Deferred tax assets are also recorded for net operating losses, capital losses and tax credit carryforwards. Evergy is required to estimate the amount of taxes payable or refundable for the current year and the deferred tax liabilities and assets for future tax consequences of events reflected in Evergy's consolidated financial statements or tax returns. Actual results could differ from these estimates for a variety of reasons including changes in income tax laws, enacted tax rates and results of audits by taxing authorities. This process also requires management to make assessments regarding the timing and probability of the ultimate tax impact from which actual results may differ. Evergy records valuation allowances on deferred tax assets if it is determined that it is more likely than not that the asset will not be realized.
See Note 19 to the consolidated financial statements for additional information.
Asset Retirement Obligations Evergy has recognized legal obligations associated with the disposal of long-lived assets that result from the acquisition, construction, development or normal operation of such assets. Concurrent with the recognition of the liability, the estimated cost of the ARO incurred at the time the related long-lived assets were either acquired, placed in service or when regulations establishing the obligation became effective is also recorded to property, plant and equipment, net on the consolidated balance sheets. The recording of AROs for regulated operations has no income statement impact due to the deferral of the adjustments through the establishment of a regulatory asset or an offset to a regulatory liability.
Evergy initially recorded AROs at fair value for the estimated cost to decommission Wolf Creek (94% indirect share), retire wind generating facilities, dispose of asbestos insulating material at its power plants, remediate ash disposal ponds and close ash landfills, among other items. ARO refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement may be conditional on a future event that may or may not be within the control of the entity. In determining Evergy's AROs, assumptions are made regarding probable future disposal costs and the timing of their occurrence. The results of these assumptions are discounted using credit-adjusted risk-free rates (CARFR). The CARFR is determined as the current U.S. Treasury bonds rates 42
corresponding to the period of expected settlement activities and is adjusted for the associated bond rates Evergy would be charged to borrow for the specific time period. Any change in these assumptions could have a significant impact on Evergy's AROs reflected on its consolidated balance sheets.
As of December 31, 2021 and 2020, Evergy had recorded AROs of $960.1 million and $941.9 million, respectively.
See Note 6 to the consolidated financial statements for more information regarding Evergy's AROs.
EVERGY RESULTS OF OPERATIONS Evergy's results of operations and financial position are affected by a variety of factors including rate regulation, fuel costs, weather, customer behavior and demand, the economy and competitive forces.
Substantially all of Evergy's revenues are subject to state or federal regulation. This regulation has a significant impact on the price the Evergy Companies charge for electric service. Evergy's results of operations and financial position are affected by its ability to align overall spending, both operating and capital, within the frameworks established by its regulators.
Wholesale revenues are impacted by, among other factors, demand, cost and availability of fuel and purchased power, price volatility, available generation capacity, transmission availability and weather.
The Evergy Companies use coal, uranium and gas for the generation of electricity for their customers and also purchase power through renewable power purchase agreements or on the open market. The prices for fuel used in generation or the market price of power purchases can fluctuate significantly due to a variety of factors including supply, demand, weather and the broader economic environment. Evergy Kansas Central, Evergy Metro and Evergy Missouri West have fuel recovery mechanisms in their Kansas and Missouri jurisdictions, as applicable, that allow them to defer and subsequently recover or refund, through customer rates, substantially all of the variance in net energy costs from the amount set in base rates without a general rate case proceeding.
Weather significantly affects the amount of electricity that Evergy's customers use as electricity sales are seasonal.
As summer peaking utilities, the third quarter typically accounts for the greatest electricity sales by the Evergy Companies. 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.
Energy efficiency investments by customers and the Evergy Companies also can affect the demand for electric service. Through MEEIA, Evergy Metro and Evergy Missouri West offer energy efficiency and demand side management programs to their Missouri retail customers and recover program costs, throughput disincentive, and as applicable, certain earnings opportunities in retail rates through a rider mechanism.
The Evergy Companies' taxes other than income taxes, of which property taxes are a significant component, can fluctuate significantly due to a variety of factors, including changes in taxable values and property tax rates. Evergy Kansas Central and Evergy Metro's Kansas jurisdiction have property tax surcharges that allow them to defer and subsequently recover or refund, through customer rates, substantially all of the variance in property tax costs from the amounts set in base rates without a general rate case proceeding.
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The following table summarizes Evergy's comparative results of operations.
2021 Change 2020 (millions)
Operating revenues $ 5,586.7 $ 673.3 $ 4,913.4 Fuel and purchased power 1,557.0 458.0 1,099.0 SPP network transmission costs 290.4 27.2 263.2 Operating and maintenance 1,107.5 (55.5) 1,163.0 Depreciation and amortization 896.4 16.3 880.1 Taxes other than income tax 380.5 16.3 364.2 Income from operations 1,354.9 211.0 1,143.9 Other income (expense), net 18.8 54.9 (36.1)
Interest expense 372.6 (11.3) 383.9 Income tax expense 117.4 15.2 102.2 Equity in earnings of equity method investees, net of income taxes 8.2 (0.1) 8.3 Net income 891.9 261.9 630.0 Less: Net income attributable to noncontrolling interests 12.2 0.5 11.7 Net income attributable to Evergy, Inc. $ 879.7 $ 261.4 $ 618.3 Evergy Utility Gross Margin and MWh Sales Utility gross margin is a financial measure that is not calculated in accordance with GAAP. Utility gross margin, as used by the Evergy 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 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. See Note 2 to the consolidated financial statements for additional information regarding the manner in which the Evergy Companies' reflect SPP revenues and expenses.
Management believes that utility gross margin provides a meaningful basis for evaluating the Evergy Companies' operations across periods because utility gross margin excludes the revenue effect of fluctuations in these expenses. Utility gross margin is used internally to measure performance against budget and in reports for management and the Evergy Board. Utility gross margin should be viewed as a supplement to, and not a substitute for, income from operations, which is the most directly comparable financial measure prepared in accordance with GAAP. The Evergy Companies' definition of utility gross margin may differ from similar terms used by other companies.
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The following table summarizes Evergy's utility gross margin and MWhs sold.
Revenues and Expenses MWhs Sold Utility Gross Margin 2021 Change 2020 2021 Change 2020 Retail revenues (millions) (thousands)
Residential $ 1,918.3 $ 9.1 $ 1,909.2 15,715 232 15,483 Commercial 1,681.3 39.6 1,641.7 17,659 664 16,995 Industrial 597.0 8.3 588.7 8,608 365 8,243 Other retail revenues 33.1 (5.4) 38.5 131 (1) 132 Total electric retail 4,229.7 51.6 4,178.1 42,113 1,260 40,853 Wholesale revenues 717.2 453.2 264.0 15,916 1,056 14,860 Transmission revenues 356.8 38.3 318.5 N/A N/A N/A Other revenues 283.0 130.2 152.8 N/A N/A N/A Operating revenues 5,586.7 673.3 4,913.4 58,029 2,316 55,713 Fuel and purchased power (1,557.0) (458.0) (1,099.0)
SPP network transmission costs (290.4) (27.2) (263.2)
Utility gross margin (a) 3,739.3 188.1 3,551.2 Operating and maintenance (1,107.5) 55.5 (1,163.0)
Depreciation and amortization (896.4) (16.3) (880.1)
Taxes other than income tax (380.5) (16.3) (364.2)
Income from operations $ 1,354.9 $ 211.0 $ 1,143.9 (a)
Utility gross margin is a non-GAAP financial measure. See explanation of utility gross margin above.
Evergy's utility gross margin increased $188.1 million in 2021, compared to 2020, driven by:
- $94.5 million of non-regulated energy marketing margins recognized at Evergy Kansas Central related to the February 2021 winter weather event;
- an $84.1 million increase primarily due to higher retail sales driven by favorable weather (cooling degree days increased 13%, partially offset by a 5% decrease in heating degree days) and an increase in weather-normalized commercial and industrial demand partially offset by a decrease in weather-normalized residential demand;
- a $38.3 million increase in transmission revenue primarily due to updated transmission costs reflected in Evergy Kansas Central's FERC transmission formula rate (TFR) effective in January 2021; and
- a $1.4 million net increase due to other impacts from the February 2021 winter weather event driven by:
a $33.8 million increase at Evergy Kansas Central driven by higher utility gross margin at its non-regulated 8% ownership share of Jeffrey Energy Center (JEC) due to higher wholesale sales prices and MWhs sold in February 2021; partially offset by a $21.0 million decrease at Evergy Missouri West driven by $14.8 million of increased fuel and purchased power costs in February 2021 that are not currently recoverable from customers through its fuel recovery mechanism and a $6.2 million decrease related to a special requirements contract with an industrial customer; and an $11.4 million decrease at Evergy Metro primarily driven by jurisdictional allocation differences currently present between its fuel recovery mechanisms in Missouri and Kansas regarding its refund to customers for the net increase in wholesale revenues in February 2021; partially offset by
- a $30.2 million decrease in revenues at Evergy Kansas Central and Evergy Metro due to rate reductions beginning January 1, 2021, in Kansas to reflect their exemption from Kansas corporate income taxes.
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Operating and Maintenance Evergy's operating and maintenance expense decreased $55.5 million in 2021, compared to 2020, primarily driven by:
- a $63.5 million decrease in voluntary severance expenses due to a $55.9 million decrease at Evergy Kansas Central, Evergy Metro and Evergy Missouri West related to Evergy voluntary exit programs in 2020 and a
$7.6 million decrease in voluntary severance expenses incurred at Evergy Kansas Central and Evergy Metro related to Wolf Creek voluntary exit programs in 2020;
- a $20.7 million decrease in advisor expenses incurred in 2021 associated with strategic planning; and
- an $8.8 million decrease in various transmission and distribution operating and maintenance expenses primarily due to lower labor and contractor costs primarily driven by a higher mix of transmission capital projects in 2021; partially offset by
- $10.5 million of costs associated with executive transition in 2021, including inducement bonuses, severance agreements and other transition expenses;
- $7.9 million of costs at Evergy Kansas Central related to non-regulated energy marketing margins recognized during the February 2021 winter weather event;
- a $6.7 million increase in plant operating and maintenance expense at fossil-fuel generating units primarily due to a $6.3 million increase at Evergy Kansas Central primarily driven by a major maintenance outage at JEC in 2021 and higher material and supplies costs; and
- a $2.7 million increase in property insurance expense due to a lower annual refund of nuclear insurance premiums received by Evergy Kansas Central and Evergy Metro in 2021 related to their ownership interests in Wolf Creek.
Depreciation and Amortization Evergy's depreciation and amortization increased $16.3 million in 2021, compared to 2020, primarily driven by higher capital additions at Evergy Kansas Central in 2021.
Taxes Other Than Income Tax Evergy's taxes other than income tax increased $16.3 million in 2021, compared to 2020, driven by an increase in property taxes in Missouri and Kansas primarily due to higher assessed property tax values.
Other Income (Expense), Net Evergy's other expense, net in 2020 became other income, net, in 2021 as a result of a $54.9 million increase in net other income items, primarily driven by:
- $49.1 million of higher investment earnings primarily driven by a $27.7 million unrealized gain in the fourth quarter of 2021 due to the change in fair value related to Evergy's investment in an early-stage energy solutions company and $14.0 million in realized gains from the sale of various equity investments in 2021;
- $12.2 million of higher Evergy Kansas Central and Evergy Metro equity AFUDC primarily driven by higher construction work in progress balances at Evergy Kansas Central and Evergy Metro and lower short-term debt balances at Evergy Metro in 2021; and
- $6.1 million of other income recorded in 2021 related to contract termination fees; partially offset by
- $4.8 million of lower Evergy Kansas Central corporate-owned life insurance (COLI) benefits in 2021.
Interest Expense Evergy's interest expense decreased $11.3 million in 2021, compared to 2020, primarily driven by:
- a $12.7 million decrease due to the redemption of Evergy's $350.0 million of 4.85% Senior Notes in April 2021; 46
- a $10.2 million decrease in interest expense on short-term borrowings primarily due to lower weighted-average interest rates for the Evergy Companies in 2021; and
- a $2.2 million net decrease due to the redemption of Evergy Kansas Central's $250.0 million of 5.10% first mortgage bonds (FMBs) in May 2020, which decreased interest expense by $6.8 million, partially offset by a $4.6 million increase due to the issuance of Evergy Kansas Central's $500.0 million of 3.45% FMBs in April 2020; partially offset by
- a $10.3 million increase due to the issuance in a private placement of Evergy Missouri West's $500.0 million of Series A, B and C Senior Notes in April 2021; and
- a $3.6 million increase due to the issuance of Evergy Metro's $400.0 million of 2.25% Mortgage Bonds in May 2020.
Income Tax Expense Evergy's income tax expense increased $15.2 million in 2021, compared to 2020, primarily driven by:
- a $72.5 million increase due to higher Evergy Kansas Central and Evergy Metro pre-tax income in 2021;
- a $6.6 million increase due to lower wind and other income tax credits in 2021, primarily driven by the expiration of production tax credits at Evergy Metro's Spearville 2 wind facility in the fourth quarter of 2020 and lower research and development tax credits in 2021;
- a $5.5 million increase due to lower expected COLI proceeds for 2021; and
- a $4.0 million increase due to higher non-deductible officer compensation in 2021; partially offset by
- a $43.9 million decrease as a result of the state of Kansas exempting certain public utilities, including Evergy Kansas Central and Evergy Metro, from Kansas corporate income tax beginning in January 2021;
- a $15.6 million decrease due to flow-through items primarily driven by higher amortization of excess deferred income taxes at Evergy Kansas Central; and
- a $13.8 million decrease related to the revaluation of deferred income tax assets and liabilities in 2020 due to the change in Kansas corporate income tax rate.
See Note 19 to the consolidated financial statements for more information regarding the change in the Kansas corporate income tax rate.
EVERGY SIGNIFICANT BALANCE SHEET CHANGES (December 31, 2021 compared to December 31, 2020)
- Evergy's cash and cash equivalents decreased $118.7 million primarily due to the use of funds for capital expenditures at Evergy Kansas Central, Evergy Metro and Evergy Missouri West, the repayment of certain short-term borrowings and other general corporate purposes.
- Evergy's receivables, net decreased $52.3 million primarily driven by a $21.5 million decrease in retail electric accounts receivable driven by lower sales in December 2021 due to unfavorable weather and a
$13.6 million increase in the allowance for credit losses primarily driven by higher credit loss expense recognized in 2021 largely due to the economic impact of the COVID-19 pandemic and a lower level of actual write-offs incurred primarily due to timing as a result of customer support measures taken by Evergy during 2021 including disconnection moratoriums and payment plans.
- Evergy's accounts receivable pledged as collateral decreased $41.0 million primarily driven by Evergy's decrease in retail electric accounts receivable balances in December 2021, resulting in a lower level of retail electric receivables available for sale through Evergy's receivable sales facilities.
- Evergy's fuel and supplies inventory increased $62.2 million primarily driven by a $46.3 million increase in materials and supply inventory primarily due to an increase in transmission and distribution capital projects related to grid resiliency and other infrastructure improvement in addition to maintaining higher overall levels of inventory to mitigate longer supply chain lead times.
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- Evergy's income taxes receivable decreased by $34.9 million primarily due to Evergy's receipt of a $46.0 million federal alternative minimum tax (AMT) tax credit refund in the fourth quarter of 2021.
- Evergy's regulatory assets - current increased $217.9 million primarily driven by a $161.1 million increase at Evergy Kansas Central due to a $119.6 million increase related to Evergy Kansas Central's fuel recovery mechanism as a result of net under-collections and a $45.6 million increase related to deferred fuel and purchased power costs expected to be recovered in the next 12 months related to the February 2021 winter weather event; and a $54.6 million increase at Evergy Missouri West related to its fuel recovery mechanism as a result of net-under-collections.
- Evergy's other assets - current increased $51.7 million primarily due to a $31.4 million investment in an early-stage energy solutions company. See "Evergy Equity Investment" in Note 1 to the consolidated financial statements for additional information.
- Evergy's nuclear decommissioning trust funds increased $116.6 million primarily driven by realized and unrealized gains on investments at Evergy Kansas Central's and Evergy Metro's nuclear decommissioning trusts.
- Evergy's collateralized note payable decreased $41.0 million primarily driven by Evergy's decrease in retail electric accounts receivable balances in December 2021, resulting in a lower level of retail electric receivables available for sale through Evergy's receivable sales facilities.
- Evergy's notes payable and commercial paper increased $844.3 million due to a $158.0 million increase at Evergy, Inc., a $356.0 million increase at Evergy Kansas Central and a $330.3 million increase at Evergy Missouri West primarily due to borrowings for capital expenditures, costs related to the February 2021 winter weather event and for general corporate purposes.
- Evergy's regulatory liabilities - current increased $44.6 million primarily due to $34.0 million of deferred wholesale revenues at Evergy Metro expected to be refunded to customers in the next 12 months related to the February 2021 winter weather event.
- Evergy's pension and post-retirement liability decreased $270.3 million primarily due to a decrease in benefit obligations driven by $284.0 million of pension settlements in 2021 as a result of accelerated pension distributions as a result of employee retirements and annuity purchases for certain plan participants.
LIQUIDITY AND CAPITAL RESOURCES Evergy relies primarily upon cash from operations, short-term borrowings, 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 dividends to shareholders.
Capital Sources Cash Flows from Operations Evergy's cash flows from operations are driven by the regulated sale of electricity. These cash flows are relatively stable but the timing and level of these cash flows can vary based on weather and economic conditions, future regulatory proceedings, the timing of cash payments made for costs recoverable under regulatory mechanisms and the time such costs are recovered, and unanticipated expenses such as unplanned plant outages and storms. Evergy's cash flows from operations were $1,351.7 million, $1,753.8 million and $1,749.0 million in 2021, 2020 and 2019, respectively.
Short-Term Borrowings As of December 31, 2021, 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 $341.3 million for Evergy, Inc.,
$343.9 million for Evergy Kansas Central, $350.0 million for Evergy Metro and $304.7 million for Evergy Missouri West. The Evergy Companies' borrowing capacity under the master credit facility also supports their issuance of 48
commercial paper. See Note 11 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.
Long-Term Debt and Equity Issuances From time to time, Evergy issues long-term debt and equity to repay short-term debt, refinance maturing long-term debt and finance growth. As of December 31, 2021 and 2020, Evergys capital structure, excluding short-term debt, was as follows:
December 31 2021 2020 Common equity 49% 47%
Long-term debt, including VIEs 51% 53%
Under stipulations with the MPSC and KCC, Evergy, Evergy Kansas Central and Evergy Metro are required to maintain common equity at not less than 35%, 40% and 40%, respectively, of total capitalization. The master credit facility and certain debt instruments of the Evergy Companies also contain restrictions that require the maintenance of certain capitalization and leverage ratios. As of December 31, 2021, the Evergy Companies were in compliance with these covenants.
Significant Debt Issuances See Note 12 to the consolidated financial statements for information regarding significant debt issuances.
Equity Issuance See Note 17 to the consolidated financial statements for information regarding Evergy's securities purchase agreement with Bluescape to purchase Evergy's common stock in 2021.
Credit Ratings The ratings of the Evergy Companies' debt securities by the credit rating agencies impact the Evergy Companies' liquidity, including the cost of borrowings under their master credit facility and in the capital markets. The Evergy Companies view maintenance of strong credit ratings as vital to their access to and cost of debt financing and, to that end, maintain an active and ongoing dialogue with the agencies with respect to results of operations, financial position and future prospects. While a decrease in these credit ratings would not cause any acceleration of the Evergy Companies' debt, it could increase interest charges under the master credit facility. A decrease in credit ratings could also have, among other things, an adverse impact, which could be material, on the Evergy Companies' access to capital, the cost of funds, the ability to recover actual interest costs in state regulatory proceedings, the type and amounts of collateral required under supply agreements and Evergy's ability to provide credit support for its subsidiaries.
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As of February 24, 2022, the major credit rating agencies rated the Evergy Companies' securities as detailed in the following table.
Moody's S&P Global Investors Service(a) Ratings(a)
Evergy Outlook Stable Negative Corporate Credit Rating -- A-Senior Unsecured Debt Baa2 BBB+
Short-Term Rating P-2 A-2 Evergy Kansas Central Outlook Stable Negative Corporate Credit Rating Baa1 A-Senior Secured Debt A2 A Commercial Paper P-2 A-2 Evergy Kansas South Outlook Stable Negative Corporate Credit Rating Baa1 A-Senior Secured Debt A2 A Short-Term Rating P-2 A-2 Evergy Metro Outlook Stable Negative Corporate Credit Rating Baa1 A Senior Secured Debt A2 A+
Senior Unsecured Debt -- A Commercial Paper P-2 A-1 Evergy Missouri West Outlook Stable Negative Corporate Credit Rating Baa2 A-Senior Unsecured Debt Baa2 A-Commercial Paper P-2 --
(a)
A securities rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency.
Shelf Registration Statements and Regulatory Authorizations Evergy In September 2021, Evergy filed an automatic shelf registration statement providing for the sale of unlimited amounts of securities with the SEC, which expires in September 2024.
Evergy Kansas Central In September 2021, Evergy Kansas Central filed an automatic shelf registration statement providing for the sale of unlimited amounts of unsecured debt securities and FMBs with the SEC, which expires in September 2024.
Evergy Metro In September 2021, Evergy Metro filed an automatic shelf registration statement providing for the sale of unlimited amounts of unsecured notes and mortgage bonds with the SEC, which expires in September 2024.
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The following table summarizes the regulatory short-term and long-term debt financing authorizations for Evergy Kansas Central, Evergy Kansas South, Evergy Metro and Evergy Missouri West and the remaining amount available under these authorizations as of December 31, 2021.
Authorization Available Under Type of Authorization Commission Expiration Date Amount Authorization Evergy Kansas Central &
Evergy Kansas South (in millions)
Short-Term Debt FERC December 2022 $ 1,250.0 $ 844.0 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 $ 199.7 Long-Term Debt FERC February 2023 $ 1,000.0 $ 500.0 In addition to the above regulatory authorizations, the Evergy Kansas Central, Evergy Kansas South and Evergy Metro mortgages each contain provisions restricting the amount of FMBs or mortgage bonds, as applicable, that can be issued by each entity. Evergy Kansas Central, Evergy Kansas South and Evergy Metro must comply with these restrictions prior to the issuance of additional FMBs, mortgage bonds or other secured indebtedness.
Under the Evergy Kansas Central mortgage, the issuance of FMBs is subject to limitations based on the amount of bondable property additions. In addition, so long as any bonds issued prior to January 1, 1997, remain outstanding, the mortgage prohibits additional FMBs from being issued, except in connection with certain refundings, unless Evergy Kansas Centrals unconsolidated net earnings available for interest, depreciation and property retirement (which, as defined, does not include earnings or losses attributable to the ownership of securities of subsidiaries), for a period of 12 consecutive months within 15 months preceding the issuance, are not less than the greater of twice the annual interest charges on or 10% of the principal amount of all FMBs outstanding after giving effect to the proposed issuance. As of December 31, 2021, $998.9 million principal amount of additional FMBs could be issued under the most restrictive provisions in the mortgage, except in connection with certain refundings.
Under the Evergy Kansas South mortgage, the amount of FMBs authorized is limited to a maximum of $3.5 billion and the issuance of FMBs is subject to limitations based on the amount of bondable property additions. In addition, the mortgage prohibits additional FMBs from being issued, except in connection with certain refundings, unless Evergy Kansas South's net earnings before income taxes and before provision for retirement and depreciation of property for a period of 12 consecutive months within 15 months preceding the issuance are not less than either two and one-half times the annual interest charges on or 10% of the principal amount of all Evergy Kansas South FMBs outstanding after giving effect to the proposed issuance. As of December 31, 2021, approximately $2,828.6 million principal amount of additional Evergy Kansas South FMBs could be issued under the most restrictive provisions in the mortgage, except in connection with certain refundings.
Under the General Mortgage Indenture and Deed of Trust dated as of December 1, 1986, as supplemented (Evergy Metro Mortgage Indenture), additional Evergy Metro mortgage bonds may be issued on the basis of 75% of property additions or retired bonds. As of December 31, 2021, approximately $5,075.8 million principal amount of additional Evergy Metro mortgage bonds could be issued under the most restrictive provisions in the mortgage.
Cash and Cash Equivalents At December 31, 2021, Evergy had approximately $26.2 million of cash and cash equivalents on hand.
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Capital Requirements Capital Expenditures Evergy requires significant capital investments and expects to need cash for its long-term strategy of transitioning its generation fleet to be more sustainable by reducing CO2 emissions as well as executing other utility construction programs designed to improve reliability and expand facilities related to providing electric service, which include, but are not limited to, expenditures to develop new transmission lines and improvements to power plants, transmission and distribution lines and equipment. See "Executive Summary - Strategy", above for further information regarding Evergy's strategy. Evergy's capital expenditures were $1,972.5 million, $1,560.3 million and
$1,210.1 million in 2021, 2020 and 2019, respectively.
Capital expenditures projected for the next five years, excluding AFUDC and including costs of removal, are detailed in the following table. This capital expenditure plan is subject to continual review and change. See Part I, Item 1A, Risk Factors for information regarding potential risks to Evergy's capital expenditure plan.
2022 2023 2024 2025 2026 (millions)
Generating facilities - new renewable generation $ $ 258.0 $ 450.0 $ 750.0 $ 500.0 Generating facilities - other 331.0 337.0 223.0 250.0 216.0 Transmission facilities 626.0 600.0 591.0 592.0 679.0 Distribution facilities 655.0 652.0 549.0 595.0 632.0 General facilities 364.0 270.0 194.0 182.0 173.0 Total capital expenditures $1,976.0 $2,117.0 $2,007.0 $2,369.0 $2,200.0 Significant Contractual Obligations and Other Commitments In the course of its business activities, the Evergy Companies enter into a variety of contracts and commercial commitments. Some of these result in direct obligations reflected on Evergy's consolidated balance sheets while others are commitments, some firm and some based on uncertainties, not reflected in Evergy's underlying consolidated financial statements.
The information in the following table is provided to summarize Evergy's significant cash obligations and commercial commitments.
Payment due by period 2022 2023 2024 2025 2026 After 2026 Total Long-term debt (millions)
Principal $ 387.5 $ 439.5 $ 800.0 $ 636.0 $ 350.0 $ 7,056.8 $ 9,669.8 Interest 340.3 323.1 311.4 291.6 271.0 3,741.2 5,278.6 Pension and other post-retirement plans (a) 95.1 95.1 95.1 95.1 95.1 (a) 475.5 Purchase commitments Fuel 403.1 183.5 130.2 100.4 106.7 221.1 1,145.0 Power 63.0 63.6 58.0 58.4 58.4 294.2 595.6 (a)
Evergy expects to make contributions to the pension and other post-retirement plans beyond 2026 but the amounts are not yet determined.
Long-term debt includes current maturities. Long-term debt principal excludes $80.5 million of unamortized net discounts and debt issuance costs and a $97.9 million fair value adjustment recorded in connection with purchase accounting for the Great Plains Energy and Evergy Kansas Central merger that was completed in 2018. Variable rate interest obligations are based on rates as of December 31, 2021.
Evergy expects to contribute $95.1 million to the pension and other post-retirement plans in 2022, of which the majority is expected to be paid by Evergy Kansas Central and Evergy Metro. Additional contributions to the plans are expected beyond 2026 in amounts at least sufficient to meet the greater of Employee Retirement Income Security Act of 1974, as amended (ERISA) or regulatory funding requirements; however, these amounts have not yet been determined. Amounts for years after 2022 are estimates based on information available in determining the 52
amount for 2022. Actual amounts for years after 2022 could be significantly different than the estimated amounts in the table above.
Fuel commitments consist of commitments for nuclear fuel, coal and coal transportation costs. Power commitments consist of certain commitments for renewable energy under power purchase agreements, capacity purchases and firm transmission service.
At December 31, 2021, Evergy has other insignificant commitments as well as other insignificant long-term liabilities recorded on its consolidated balance sheet, which are not included in the table above.
Common Stock Dividends The amount and timing of dividends payable on Evergy's common stock are within the sole discretion of the Evergy Board. The amount and timing of dividends declared by the Evergy Board will be dependent on considerations such as Evergy's earnings, financial position, cash flows, capitalization ratios, regulation, reinvestment opportunities and debt covenants. Evergy targets a long-term dividend payout ratio of 60% to 70% of earnings. See Note 1 to the consolidated financial statements for information on the common stock dividend declared by the Evergy Board in February 2022.
The Evergy Companies also have certain restrictions stemming from statutory requirements, corporate organizational documents, covenants and other conditions that could affect dividend levels. See Note 17 to the consolidated financial statements for further discussion of restrictions on dividend payments.
Cash Flows The following table presents Evergy's cash flows from operating, investing and financing activities.
2021 2020 (millions)
Cash flows from operating activities $ 1,351.7 $ 1,753.8 Cash flows used in investing activities (1,913.8) (1,533.7)
Cash flows from (used in) financing activities 443.4 (98.4)
Cash Flows from Operating Activities Evergy's cash flows from operating activities decreased $402.1 million in 2021, compared to 2020, primarily driven by:
- $365.5 million of cash payments for net fuel and purchased power costs during the February 2021 winter weather event;
- a $182.3 million increase in cash payments in 2021 primarily due to the timing of payments made to taxing authorities for property tax payments as well as various suppliers and service providers for goods and services purchased in the ordinary course of business; and
- $35.4 million in payments made for a Wolf Creek refueling outage in 2021; partially offset by
- a $194.9 million increase in cash receipts for retail electric sales in 2021 primarily driven by favorable weather and an increase in weather-normalized commercial and industrial demand; and
- $89.9 million of cash receipts related to non-regulated energy marketing margins earned during the February 2021 winter weather event.
Cash Flows used in Investing Activities Evergy's cash flows used in investing activities increased $380.1 million in 2021, compared to 2020, primarily driven by:
- a $412.2 million increase in additions to property, plant and equipment due to increases at Evergy Kansas Central, Evergy Metro and Evergy Missouri West of $116.7 million, $117.5 million and $176.6 million, 53
respectively, primarily due to increased spending for a variety of capital projects including transmission and distribution projects related to grid resiliency and other infrastructure improvements; partially offset by
- an increase of $11.1 million in proceeds from COLI investments at Evergy Kansas Central due to a higher number of policy settlements in 2021.
Cash Flows from (used in) Financing Activities Evergy's cash flows from (used in) financing activities increased $541.8 million in 2021, compared to 2020, primarily driven by:
- a $1,087.4 million increase in short-term debt borrowings primarily driven by:
a $553.2 million increase at Evergy Kansas Central primarily due to the repayment of $199.2 million of commercial paper in 2020 and increased borrowing in 2021 driven by $133.9 million of fuel and purchased power costs related to the February 2021 winter weather event and higher cash capital expenditures in 2021; and a $357.8 million increase at Evergy Missouri West primarily due to $296.4 million of fuel and purchased power costs related to the February 2021 winter weather event, the repayment of $80.9 million of Evergy Missouri West's 8.27% Senior Notes in November 2021 and higher cash capital expenditures in 2021; and
- $112.5 million of Evergy common stock issued in April 2021 pursuant to a securities purchase agreement with an affiliate of Bluescape; partially offset by
- a $391.5 million decrease in proceeds from long-term debt, net due to Evergy Kansas Central's issuance of
$500.0 million of 3.45% FMBs in April 2020 and Evergy Metro's issuance of $400.0 million of 2.25%
Mortgage Bonds in May 2020; partially offset by Evergy Missouri West's issuance of $500.0 million of Series A, B and C Senior Notes in April 2021;
- a $180.9 million increase in retirements of long-term debt, net due to Evergy's repayment of $350.0 million of 4.85% Senior Notes in April 2021 and Evergy Missouri West's repayment of $80.9 million of 8.27%
Senior Notes in November 2021; partially offset by Evergy Kansas Central's repayment of $250.0 million of 5.10% FMBs in May 2020; and
- a $7.5 million increase in the repayment of borrowings against cash surrender value of corporate-owned life insurance primarily due to a higher number of policy settlements in 2021.
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EVERGY KANSAS CENTRAL, INC.
MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS The below results of operations and related discussion for Evergy Kansas Central is presented in a reduced disclosure format in accordance with General Instruction (I)(2)(a) to Form 10-K.
The following table summarizes Evergy Kansas Central's comparative results of operations.
2021 Change 2020 (millions)
Operating revenues $ 2,847.3 $ 429.2 $ 2,418.1 Fuel and purchased power 638.7 211.1 427.6 SPP network transmission costs 290.4 27.2 263.2 Operating and maintenance 530.8 17.2 513.6 Depreciation and amortization 467.2 14.1 453.1 Taxes other than income tax 203.9 10.6 193.3 Income from operations 716.3 149.0 567.3 Other expense, net (7.6) 5.1 (12.7)
Interest expense 160.3 (7.3) 167.6 Income tax expense 51.7 (104.1) 155.8 Equity in earnings of equity method investees, net of income taxes 4.0 (0.6) 4.6 Net income 500.7 264.9 235.8 Less: Net income attributable to noncontrolling interests 12.2 0.5 11.7 Net income attributable to Evergy Kansas Central, Inc. $ 488.5 $ 264.4 $ 224.1 Evergy Kansas Central Utility Gross Margin and MWh Sales The following table summarizes Evergy Kansas Central's utility gross margin and MWhs sold.
Revenues and Expenses MWhs Sold 2021 Change 2020 2021 Change 2020 Retail revenues (millions) (thousands)
Residential $ 824.1 $ 22.9 $ 801.2 6,565 74 6,491 Commercial 694.1 28.5 665.6 7,112 237 6,875 Industrial 391.7 11.8 379.9 5,533 291 5,242 Other retail revenues 17.1 (0.6) 17.7 40 (1) 41 Total electric retail 1,927.0 62.6 1,864.4 19,250 601 18,649 Wholesale revenues 453.1 237.7 215.4 10,175 2,324 7,851 Transmission revenues 322.9 35.6 287.3 N/A N/A N/A Other revenues 144.3 93.3 51.0 N/A N/A N/A Operating revenues 2,847.3 429.2 2,418.1 29,425 2,925 26,500 Fuel and purchased power (638.7) (211.1) (427.6)
SPP network transmission costs (290.4) (27.2) (263.2)
Utility gross margin (a) 1,918.2 190.9 1,727.3 Operating and maintenance (530.8) (17.2) (513.6)
Depreciation and amortization (467.2) (14.1) (453.1)
Taxes other than income tax (203.9) (10.6) (193.3)
Income from operations $ 716.3 $ 149.0 $ 567.3 (a)
Utility gross margin is a non-GAAP financial measure. See explanation of utility gross margin under Evergy's Results of Operations.
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Evergy Kansas Central's utility gross margin increased $190.9 million in 2021, compared to 2020, driven by:
- $94.5 million of non-regulated energy marketing margins recognized during the February 2021 winter weather event;
- a $42.9 million increase primarily due to higher retail sales driven by favorable weather (cooling degree days increased by 5%, partially offset by a 3% decrease in heating degree days) and an increase in weather-normalized commercial and industrial demand;
- a $35.6 million increase in transmission revenue primarily due to updated transmission costs reflected in Evergy Kansas Central's FERC TFR effective in January 2021;
- a $33.8 million increase due to other impacts from the February 2021 winter weather event driven by higher utility gross margin at Evergy Kansas Central's non-regulated 8% ownership share of JEC due to higher wholesale sales prices and MWhs sold in February 2021; and
- a $21.6 million decrease in revenues due to rate reductions beginning January 1, 2021, in Kansas to reflect the exemption of Evergy Kansas Central from Kansas corporate income taxes.
Evergy Kansas Central Operating and Maintenance Evergy Kansas Central's operating and maintenance expense increased $17.2 million in 2021, compared to 2020, primarily driven by:
- a $22.9 million increase in various administrative and general operating and maintenance expenses driven by an increase in costs billed for common use assets from Evergy Metro in 2021 primarily related to software assets placed into service in the third quarter of 2020;
- $7.9 million of costs related to non-regulated energy marketing margins recognized during the February 2021 winter weather event;
- $7.6 million of costs associated with executive transition in 2021, including inducement bonuses, severance agreements and other transition expenses;
- a $6.3 million increase in plant operating and maintenance expense at fossil-fuel generating units primarily driven by a major maintenance outage at JEC in 2021 and higher material and supplies costs;
- a $3.5 million increase in advisor expenses incurred in 2021 associated with strategic planning; and
- a $1.4 million increase in property insurance expense due to a lower annual refund of nuclear insurance premiums received by Evergy Kansas Central in 2021 related to its ownership interest in Wolf Creek; partially offset by
- a $31.2 million decrease in voluntary severance expenses due to a $27.4 million decrease related to Evergy voluntary exit programs in 2020 and $3.8 million decrease in voluntary severance expenses related to Wolf Creek voluntary exit programs in 2020; and
- a $4.8 million decrease in various transmission and distribution operating and maintenance expenses primarily due to lower labor and contractor costs primarily driven by a higher mix of transmission capital projects in 2021.
Evergy Kansas Central Depreciation and Amortization Evergy Kansas Central's depreciation and amortization expense increased $14.1 million in 2021, compared to 2020, primarily driven by higher capital additions in 2021.
Evergy Kansas Central Other Expense, Net Evergy Kansas Central's other expense, net decreased $5.1 million in 2021, compared to 2020, primarily driven by:
- a $5.8 million decrease due to higher equity AFUDC primarily driven by higher construction work in progress balances in 2021; and 56
- $2.8 million of other income recorded in 2021 related to contract termination fees; partially offset by
- $4.8 million of lower COLI benefits in 2021.
Evergy Kansas Central Interest Expense Evergy Kansas Central's interest expense decreased $7.3 million in 2021, compared to 2020, primarily driven by:
- a $6.4 million decrease in interest expense on short-term borrowings primarily due to lower weighted-average interest rates in 2021; and
- a $2.2 million net decrease due to the redemption of Evergy Kansas Central's $250.0 million of 5.10%
FMBs in May 2020, which decreased interest expense by $6.8 million, partially offset by a $4.6 million increase due to the issuance of Evergy Kansas Central's $500.0 million of 3.45% FMBs in April 2020.
Evergy Kansas Central Income Tax Expense Evergy Kansas Central's income tax expense decreased $104.1 million in 2021, compared to 2020, primarily driven by:
- a $109.0 million net decrease due to the revaluation of deferred income tax assets and liabilities in the second quarter of 2020 due to the change in the Kansas corporate income tax rate;
- a $30.2 million decrease as a result of the state of Kansas exempting certain public utilities, including Evergy Kansas Central, from Kansas corporate income tax beginning in January 2021; and
- a $15.7 million decrease due to flow-through items primarily driven by higher amortization of excess deferred income taxes; partially offset by
- a $42.7 million increase due to higher pre-tax income in 2021;
- a $5.1 million increase due to lower expected COLI proceeds for 2021; and
- a $1.5 million increase due to lower wind and other income tax credits in 2021.
See Note 19 to the consolidated financial statements for more information regarding the change in the Kansas corporate income tax rate.
EVERGY METRO, INC.
MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS The below results of operations and related discussion for Evergy Metro is presented in a reduced disclosure format in accordance with General Instruction (I)(2)(a) to Form 10-K.
The following table summarizes Evergy Metro's comparative results of operations.
2021 Change 2020 (millions)
Operating revenues $ 1,913.7 $ 208.1 $ 1,705.6 Fuel and purchased power 613.5 197.4 416.1 Operating and maintenance 365.4 (42.1) 407.5 Depreciation and amortization 321.0 (5.1) 326.1 Taxes other than income tax 126.2 4.6 121.6 Income from operations 487.6 53.3 434.3 Other expense, net (13.1) 1.8 (14.9)
Interest expense 109.8 (3.8) 113.6 Income tax expense 52.4 45.3 7.1 Net income $ 312.3 $ 13.6 $ 298.7 57
Evergy Metro Utility Gross Margin and MWh Sales The following table summarizes Evergy Metro's utility gross margin and MWhs sold.
Revenues and Expenses MWhs Sold 2021 Change 2020 2021 Change 2020 Retail revenues (millions) (thousands)
Residential $ 691.9 (22.8) $ 714.7 5,517 87 5,430 Commercial 713.3 (3.8) 717.1 7,286 258 7,028 Industrial 122.0 (6.8) 128.8 1,669 (26) 1,695 Other retail revenues 9.2 (2.5) 11.7 70 (1) 71 Total electric retail 1,536.4 (35.9) 1,572.3 14,542 318 14,224 Wholesale revenues 242.6 207.6 35.0 5,523 (434) 5,957 Transmission revenues 17.1 3.2 13.9 N/A N/A N/A Other revenues 117.6 33.2 84.4 N/A N/A N/A Operating revenues 1,913.7 208.1 1,705.6 20,065 (116) 20,181 Fuel and purchased power (613.5) (197.4) (416.1)
Utility gross margin (a) 1,300.2 10.7 1,289.5 Operating and maintenance (365.4) 42.1 (407.5)
Depreciation and amortization (321.0) 5.1 (326.1)
Taxes other than income tax (126.2) (4.6) (121.6)
Income from operations $ 487.6 $ 42.6 $ 434.3 (a)
Utility gross margin is a non-GAAP financial measure. See explanation of utility gross margin under Evergy's Results of Operations.
Evergy Metro's utility gross margin increased $10.7 million in 2021, compared to 2020, driven by:
- a $30.7 million increase primarily due to higher retail sales driven by favorable weather (cooling degree days increased 20%, partially offset by a 5% decrease in heating degree days), partially offset by a decrease in weather-normalized residential and industrial demand; partially offset by
- an $11.4 million decrease due to impacts from the February 2021 winter weather event primarily driven by jurisdictional allocation differences currently present between Evergy Metro's fuel recovery mechanisms in Missouri and Kansas regarding its refund to customers for the net increase in wholesale revenues in February 2021; and
- an $8.6 million decrease in revenues due to a rate reduction beginning January 1, 2021, in Kansas to reflect Evergy Metro's exemption from Kansas corporate income taxes.
Evergy Metro Operating and Maintenance Evergy Metro's operating and maintenance expense decreased $42.1 million in 2021, compared to 2020, primarily driven by:
- a $23.5 million decrease in voluntary severance expenses due to a $19.7 million decrease related to Evergy voluntary exit programs in 2020 and a $3.8 million decrease in voluntary severance expenses related to Wolf Creek voluntary exit programs in 2020; and
- a $20.6 million decrease in various administrative and general operating and maintenance expenses driven by an increase in costs billed for common use assets to Evergy Kansas Central in 2021 primarily related to software assets placed into service in the third quarter of 2020; partially offset by
- $2.1 million of costs associated with executive transition in 2021, including inducement bonuses, severance agreements and other transition expenses; and
- a $1.3 million increase in property insurance expense due to a lower annual refund of nuclear insurance premiums received in 2021 by Evergy Metro related to its ownership interest in Wolf Creek.
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Evergy Metro Interest Expense Evergy Metro's interest expense decreased $3.8 million in 2021, compared to 2020, primarily due to lower interest expense on short-term borrowings driven by lower weighted-average interest rates and lower commercial paper balances in 2021.
Evergy Metro Income Tax Expense Evergy Metro's income tax expense increased $45.3 million in 2021, compared to 2020, primarily driven by:
- a $32.2 million increase related to the revaluation of deferred income tax assets and liabilities in the second quarter of 2020 due to the change in the Kansas corporate income tax rate;
- a $15.1 million increase due to higher pre-tax income in 2021;
- a $5.0 million increase due to lower wind and other income tax credits in 2021, primarily driven by the expiration of production tax credits at the Spearville 2 wind facility in the fourth quarter of 2020 and lower research and development tax credits in 2021; and
- a $2.8 million increase due to higher non-deductible officer compensation in 2021; partially offset by
- a $14.1 million decrease as a result of the state of Kansas exempting certain public utilities, including Evergy Metro from Kansas corporate income tax beginning in January 2021.
See Note 19 to the consolidated financial statements for more information regarding the change in the Kansas corporate income tax rate.
ITEM 7A. 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 not represented in the following analysis.
See Part I, Item 1A, Risk Factors and Part II, Item 7, MD&A for further discussion of risk factors.
The Evergy Companies are exposed to market risks associated with commodity price and supply, interest rates and security prices. Commodity price risk is the potential adverse price impact related to the purchase or sale of electricity and energy-related products. Credit risk is the potential adverse financial impact resulting from non-performance by a counterparty of its contractual obligations. Interest rate risk is the potential adverse financial impact related to changes in interest rates. In addition, Evergy's investments in trusts to fund nuclear plant decommissioning and non-qualified retirement benefits, as well as limited equity investments in early-stage energy solution companies, give rise to security price risk.
Management has established risk management policies and strategies to reduce the potentially adverse effects that the volatility of the markets may have on Evergy's operating results. During the ordinary course of business, the Evergy Companies' hedging strategies are reviewed to determine the hedging approach deemed appropriate based upon the circumstances of each situation. Though management believes its risk management practices are effective, it is not possible to identify and eliminate all risk. Evergy could experience losses, which could have a material adverse effect on its results of operations or financial position, due to many factors, including unexpectedly large or rapid movements or disruptions in the energy markets, regulatory-driven market rule changes and/or bankruptcy or non-performance of customers or counterparties, and/or failure of underlying transactions that have been hedged to materialize.
Hedging Strategies From time to time, Evergy utilizes derivative instruments to execute risk management and hedging strategies.
Derivative instruments, such as futures, forward contracts, swaps or options, derive their value from underlying assets, indices, reference rates or a combination of these factors. These derivative instruments include negotiated contracts, which are referred to as over-the-counter derivatives, and instruments listed and traded on an exchange.
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Commodity Price Risk The Evergy Companies engage in the wholesale and retail sale of electricity as part of their regulated electric operations in addition to limited non-regulated energy marketing activities. These activities expose the Evergy Companies to risks associated with the price of electricity and other energy-related products. Exposure to these risks is affected by a number of factors including the quantity and availability of fuel used for generation and the quantity of electricity customers consume, as well as the wholesale market prices received by the Evergy Companies' generation resources and the wholesale market prices paid to procure power to serve customer load or satisfy regulatory or contractual obligations. Customers' electricity usage could also vary from year to year based on the weather or other factors. Quantities of fossil fuel used for generation vary from year to year based on the availability, price and deliverability of a given fuel type as well as planned and unplanned outages at facilities that use fossil fuels. Evergy's exposure to fluctuations in these factors is limited by the cost-based regulation of its regulated operations in Kansas and Missouri as these operations are typically allowed to recover substantially all of these costs through fuel recovery mechanisms. While there may be a delay in timing between when these costs are incurred and when they are recovered through rates, changes from year to year generally do not have a material impact on operating results.
Interest Rate Risk Evergy manages interest rate risk and short- and long-term liquidity by limiting its exposure to variable interest rate debt to a percentage of total debt, diversifying maturity dates and, from time to time, entering into interest rate hedging transactions. At December 31, 2021, 2.8% of Evergy's long-term debt was variable rate debt, short-term borrowings and current maturities of fixed rate debt that were exposed to interest rate risk. Evergy computes and presents information regarding the sensitivity to changes in interest rates for variable rate debt, short-term borrowings and current maturities of fixed rate debt by assuming a 100-basis-point change in the current interest rates applicable to such debt over the remaining time the debt is outstanding.
At December 31, 2021, Evergy had $1,815.3 million of variable rate debt, short-term borrowings and current maturities of fixed rate debt. A 100-basis-point change in interest rates applicable to this debt would impact Evergy's income before income taxes on an annualized basis by approximately $16.1 million.
Credit Risk Evergy is exposed to counterparty credit risk largely in the form of accounts receivable from its retail and wholesale electric customers and through executory contracts with market risk exposure. The credit risk associated with accounts receivable from retail and wholesale customers is largely mitigated by Evergy's large number of individual customers spread across diverse customer classes and the ability to recover bad debt expense in customer rates. The Evergy Companies maintain credit policies and employ credit risk control mechanisms, such as letters of credit, when necessary to minimize their overall credit risk and monitor exposure.
Investment Risk Evergy maintains trust funds, as required by the NRC, to fund its 94% share of decommissioning the Wolf Creek nuclear power plant and also maintains trusts to fund pension benefits as well as certain non-qualified retirement benefits. As of December 31, 2021, these funds were primarily invested in a diversified mix of equity and debt securities and reflected at fair value on Evergy's balance sheet. The equity securities in the trusts are exposed to price fluctuations in equity markets and the value of debt securities are exposed to changes in interest rates and other market factors.
As nuclear decommissioning costs are currently recovered in customer rates, Evergy defers both realized and unrealized gains and losses for these securities as an offset to its regulatory liability for decommissioning Wolf Creek and as such, fluctuations in the value of these securities do not impact earnings. A significant decline in the value of pension or non-qualified retirement assets could require Evergy to increase funding of its pension plans in future periods, which could adversely affect cash flows in those periods. In addition, a decline in the fair value of these plan assets, in the absence of additional cash contributions to the plans by Evergy, could increase the amount of pension cost required to be recorded in future periods by Evergy.
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In addition to Evergy's investments in debt and equity securities in its nuclear decommissioning and pension trusts, Evergy also makes limited equity investments in early-stage energy solution companies. These limited equity investments are often in privately-owned companies that do not have reasonably determinable fair values.
However, from time to time, these investments could have changes in fair value as a result of acquisitions, mergers, initial public offerings, or observable market transactions for similar investments. Evergy typically seeks to liquidate its position in these companies as soon as practicable following the occurrence of an exit event such as an acquisition or initial public offering (including after the expiration of any related lock-up provisions), which serves to largely mitigate any ongoing market risk related to the investments. At December 31, 2021, Evergy had a $31.4 million investment, including a $27.7 million unrealized gain, in an early-stage energy solution company that was acquired and became a publicly traded company through a transaction involving a SPAC in the fourth quarter of 2021. This investment is currently subject to a lock-up provision on its sale until March 2022 and is exposed to significant equity price risk. A 50% decline in the stock price of this investment would impact Evergy's income before income taxes by approximately $14 million. Evergy uses adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP) to evaluate earnings and EPS without the gains or losses related to equity investments which are subject to a restriction on sale that can create period to period volatility. See "Non-GAAP Measures" within Part II, Item 7, MD&A - Executive Summary for additional information.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm Evergy, Inc. 63 Evergy Kansas Central, Inc. 66 Evergy Metro, Inc. 69 Evergy, Inc.
Consolidated Statements of Comprehensive Income 72 Consolidated Balance Sheets 73 Consolidated Statements of Cash Flows 75 Consolidated Statements of Changes in Equity 76 Evergy Kansas Central, Inc.
Consolidated Statements of Income 77 Consolidated Balance Sheets 78 Consolidated Statements of Cash Flows 80 Consolidated Statements of Changes in Equity 81 Evergy Metro, Inc.
Consolidated Statements of Comprehensive Income 82 Consolidated Balance Sheets 83 Consolidated Statements of Cash Flows 85 Consolidated Statements of Changes in Equity 86 Combined Notes to Consolidated Financial Statements Note 1: Summary of Significant Accounting Policies 87 Note 2: Revenue 93 Note 3: Receivables 99 Note 4: Rate Matters and Regulation 100 Note 5: Goodwill 109 Note 6: Asset Retirement Obligations 109 Note 7: Property, Plant & Equipment 110 Note 8: Jointly-Owned Electric Utility Plants 111 Note 9: Pension Plans and Post-Retirement Benefits 112 Note 10: Equity Compensation 125 Note 11: Short-Term Borrowings and Short-Term Bank Lines of Credit 126 Note 12: Long-Term Debt 128 Note 13: Fair Value Measurements 131 Note 14: Commitments and Contingencies 136 Note 15: Guarantees 140 Note 16: Related Party Transactions and Relationships 141 Note 17: Shareholders' Equity 142 Note 18: Variable Interest Entities 143 Note 19: Taxes 144 Note 20: Leases 150 62
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Evergy, Inc.
Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Evergy, Inc. and subsidiaries (the "Company")
as of December 31, 2021 and 2020, the related consolidated statements of comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and the financial statement schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Rate Matters and Regulation - Impact of Rate Regulation on the Financial Statements - Refer to Notes 1 and 4 to the financial statements Critical Audit Matter Description The Company is subject to rate regulation by the Kansas Corporation Commission and by the Missouri Public Service Commission (collectively the "Commissions"), which has jurisdiction with respect to the rates of electric distribution companies in Kansas and Missouri, respectively. Management has determined it meets the requirements under accounting principles generally accepted in the United States of America to prepare its financial statements applying the specialized rules to account for the effects of cost-based rate regulation. Accounting for the 63
economics of rate regulation impacts multiple financial statement line items and disclosures, such as property, plant, and equipment, including asset retirements and abandonments; regulatory assets and liabilities; operating revenues; operating and maintenance expense; and depreciation expense.
The Company's rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates are determined and approved in regulatory proceedings based on an analysis of the Company's costs to provide utility service and a return on, and recovery of, the Company's investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment, and the timing and amount of assets to be recovered by rates. The Commissions' regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. Decisions to be made by the Commissions in the future will impact the accounting for regulated operations, including decisions about the amount of allowable costs and return on invested capital included in rates and any refunds that may be required. While the Company has indicated it expects to recover costs from customers through regulated rates, there is a risk that the Commissions will not approve (1) full recovery of the costs of providing utility service or (2) full recovery of all amounts invested in the utility business and a reasonable return on that investment.
When the Company retires a regulated plant, the Company must assess the probability of recovery of the regulated plant, which is dependent upon amounts that may be recovered through regulated rates, including any return.
Pending receipt of regulatory approval for the retirement and/or recovery of the affected plants, accounting for early retirements of regulated plants involves judgment related to the nature of the early retirement and the likelihood that the Company will recover its remaining investment in these retired generating plants with a return. Auditing the judgments related to the nature and likelihood of the retirement and the probability of recovering the generating plant investment with a return involves especially subjective and complex judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management to support its assertions about impacted account balances and disclosures and the high degree of subjectivity involved in assessing the impact of future regulatory orders on the financial statements. Management judgments include assessing the likelihood of (1) recovery in future rates of incurred costs, (2) probability of potential charges related to the abandonment of regulated plants, and (3) a refund to customers. Given that management's accounting judgments are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the rate setting process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the uncertainty of future decisions by the Commissions included the following, among others:
- We tested the effectiveness of management's controls over the evaluation of the likelihood of (1) the recovery in future rates of costs incurred as property, plant, and equipment and deferred as regulatory assets and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities.
- We tested the effectiveness of management's controls over the initial recognition of amounts as property, plant, and equipment; regulatory assets or liabilities; and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates, including Company management's determination of the likelihood of recovery of the full investment of certain regulated plants and probability of refunding amounts previously collected from customers related to certain regulated plants.
- We evaluated the Company's disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
- We evaluated external information and compared it to management's recorded regulatory asset and liability balances for completeness. Such external information included relevant regulatory orders issued by the Commissions for the Company and other public utilities in Kansas and Missouri, regulatory statutes, interpretations, procedural memorandums, filings made by intervenors, and other publicly available 64
information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the Commissions' treatment of similar costs under similar circumstances.
- For regulatory matters in process, including those that could impact the early retirement of regulated plants, we inspected the Company's filings with the Commissions and the filings with the Commissions by intervenors that may impact the Company's future rates, for any evidence that might contradict management's assertions.
- We evaluated the reasonableness of management's judgments for potential indicators of abandonment by performing the following:
We inquired of management about property, plant, and equipment that may be abandoned.
We inspected the capital projects budget and construction-in-process listings and inquired of management to identify projects that are designed to replace assets that may be retired prior to the end of the useful life.
We inspected minutes of the board of directors and regulatory orders and other filings with the Commissions to identify any evidence that may contradict management's assertion regarding probability of an abandonment.
- We compared actual spend for projects that have been capitalized to property, plant, and equipment to budget. We evaluated regulatory filings for any evidence that intervenors are challenging full recovery of the cost of any capital projects. For significant projects that were over budget or if full recovery of project costs is being challenged by intervenors, we evaluated management's assessment of the probability of a disallowance. We tested selected costs included in the capitalized project costs for completeness and accuracy.
- We evaluated management's analysis, and letters from internal and external legal counsel, as appropriate, regarding probability of recovery for regulatory assets or refund or future reduction in rates for regulatory liabilities not yet addressed in a regulatory order to assess management's assertion that amounts are probable of recovery or a future reduction in rates.
- We evaluated management's conclusions for the probable recovery of the retired regulated plant investment with a return. We evaluated management's conclusions regarding the accounting for the abandonment of certain regulated plants and the impact of recent rate orders on the accounting.
/s/ DELOITTE & TOUCHE LLP Kansas City, Missouri February 24, 2022 We have served as the Company's auditor since 2002.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholder and the Board of Directors of Evergy Kansas Central, Inc.
Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Evergy Kansas Central, Inc. and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes and the financial statement schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Rate Matters and Regulation - Impact of Rate Regulation on the Financial Statements - Refer to Notes 1 and 4 to the financial statements Critical Audit Matter Description The Company is subject to rate regulation by the Kansas Corporation Commission (the "Commission"), which has jurisdiction with respect to the rates of electric distribution companies in Kansas. Management has determined it meets the requirements under accounting principles generally accepted in the United States of America to prepare its financial statements applying the specialized rules to account for the effects of cost-based rate regulation.
Accounting for the economics of rate regulation impacts multiple financial statement line items and disclosures, 66
such as property, plant, and equipment, including asset retirements and abandonments; regulatory assets and liabilities; operating revenues; operating and maintenance expense; and depreciation expense.
The Company's rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates are determined and approved in regulatory proceedings based on an analysis of the Company's costs to provide utility service and a return on, and recovery of, the Company's investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment, and the timing and amount of assets to be recovered by rates. The Commission's regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. While the Company has indicated it expects to recover costs from customers through regulated rates, there is a risk that the Commission will not approve (1) full recovery of the costs of providing utility service or (2) recovery of all amounts invested in the utility business and a reasonable return on that investment.
When the Company retires a regulated plant, the Company must assess the probability of recovery of the regulated plant, which is dependent upon amounts that may be recovered through regulated rates, including any return.
Pending receipt of regulatory approval for the retirement and/or recovery of the affected plants, accounting for early retirements of regulated plants involves judgment related to the nature of the early retirement and the likelihood that the Company will recover its remaining investment in these retired generating plants with a return. Auditing the judgments related to the nature and likelihood of the retirement and the probability of recovering the generating plant investment with a return involves especially subjective and complex judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management to support its assertions about impacted account balances and disclosures and the high degree of subjectivity involved in assessing the impact of future regulatory orders on the financial statements. Management judgments include assessing the likelihood of (1) recovery in future rates of incurred costs, (2) probability of potential charges related to the abandonment of regulated plants, and (3) a refund to customers. Given that management's accounting judgments are based on assumptions about the outcome of future decisions by the Commission, auditing these judgments required specialized knowledge of accounting for rate regulation and the rate setting process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the uncertainty of future decisions by the Commission included the following, among others:
- We tested the effectiveness of management's controls over the evaluation of the likelihood of (1) the recovery in future rates of costs incurred as property, plant, and equipment and deferred as regulatory assets and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities.
- We tested the effectiveness of management's controls over the initial recognition of amounts as property, plant, and equipment; regulatory assets or liabilities; and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.
- We evaluated the Company's disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
- We evaluated external information and compared it to management's recorded regulatory asset and liability balances for completeness. Such external information included relevant regulatory orders issued by the Commission for the Company and other public utilities in Kansas, regulatory statutes, interpretations, procedural memorandums, filings made by intervenors, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the Commission's treatment of similar costs under similar circumstances.
- For regulatory matters in process, we inspected the Companys filings with the Commission and the filings with the Commission by intervenors that may impact the Companys future rates, for any evidence that might contradict managements assertions.
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- We evaluated the reasonableness of management's judgments for potential indicators of abandonment by performing the following:
We inquired of management about property, plant, and equipment that may be abandoned.
We inspected the capital projects budget and construction-in-process listings and inquired of management to identify projects that are designed to replace assets that may be retired prior to the end of the useful life.
We inspected minutes of the board of directors and regulatory orders and other filings with the Commission to identify any evidence that may contradict management's assertion regarding probability of an abandonment.
- We compared actual spend for projects that have been capitalized to property, plant, and equipment to budget. We evaluated regulatory filings for any evidence that intervenors are challenging full recovery of the cost of any capital projects. For significant projects that were over budget or if full recovery of project costs is being challenged by intervenors, we evaluated management's assessment of the probability of a disallowance. We tested selected costs included in the capitalized project costs for completeness and accuracy.
- We evaluated management's analysis, and letters from internal and external legal counsel, as appropriate, regarding probability of recovery for regulatory assets or refund or future reduction in rates for regulatory liabilities not yet addressed in a regulatory order to assess management's assertion that amounts are probable of recovery or a future reduction in rates.
/s/ DELOITTE & TOUCHE LLP Kansas City, Missouri February 24, 2022 We have served as the Company's auditor since 2002.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholder and the Board of Directors of Evergy Metro, Inc.
Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Evergy Metro, Inc. and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes and the financial statement schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Rate Matters and Regulation - Impact of Rate Regulation on the Financial Statements - Refer to Notes 1 and 4 to the financial statements Critical Audit Matter Description The Company is subject to rate regulation by the Kansas Corporation Commission and by the Missouri Public Service Commission (collectively the "Commissions"), which has jurisdiction with respect to the rates of electric distribution companies in Kansas and Missouri, respectively. Management has determined it meets the requirements under accounting principles generally accepted in the United States of America to prepare its financial statements applying the specialized rules to account for the effects of cost-based rate regulation. Accounting for the economics of rate regulation impacts multiple financial statement line items and disclosures, such as property, plant, 69
and equipment, including asset retirements and abandonments; regulatory assets and liabilities; operating revenues; operating and maintenance expense; and depreciation expense.
The Company's rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates are determined and approved in regulatory proceedings based on an analysis of the Company's costs to provide utility service and a return on, and recovery of, the Company's investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment, and the timing and amount of assets to be recovered by rates. The Commissions' regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. While the Company has indicated it expects to recover costs from customers through regulated rates, there is a risk that the Commissions will not approve (1) full recovery of the costs of providing utility service or (2) full recovery of all amounts invested in the utility business and a reasonable return on that investment.
When the Company retires a regulated plant, the Company must assess the probability of recovery of the regulated plant, which is dependent upon amounts that may be recovered through regulated rates, including any return.
Pending receipt of regulatory approval for the retirement and/or recovery of the affected plants, accounting for early retirements of regulated plants involves judgment related to the nature of the early retirement and the likelihood that the Company will recover its remaining investment in these retired generating plants with a return. Auditing the judgments related to the nature and likelihood of the retirement and the probability of recovering the generating plant investment with a return involves especially subjective and complex judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management to support its assertions about impacted account balances and disclosures and the high degree of subjectivity involved in assessing the impact of future regulatory orders on the financial statements. Management judgments include assessing the likelihood of (1) recovery in future rates of incurred costs, (2) probability of potential charges related to the abandonment of regulated plants, and (3) a refund to customers. Given that management's accounting judgments are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the rate setting process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the uncertainty of future decisions by the Commissions included the following, among others:
- We tested the effectiveness of management's controls over the evaluation of the likelihood of (1) the recovery in future rates of costs incurred as property, plant, and equipment and deferred as regulatory assets and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities.
- We tested the effectiveness of management's controls over the initial recognition of amounts as property, plant, and equipment; regulatory assets or liabilities; and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.
- We evaluated the Company's disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
- We evaluated external information and compared it to management's recorded regulatory asset and liability balances for completeness. Such external information included relevant regulatory orders issued by the Commissions for the Company and other public utilities in Kansas and Missouri, regulatory statutes, interpretations, procedural memorandums, filings made by intervenors, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the Commissions' treatment of similar costs under similar circumstances.
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- For regulatory matters in process, we inspected the Companys filings with the Commissions and the filings with the Commissions by intervenors that may impact the Companys future rates, for any evidence that might contradict managements assertions.
- We evaluated the reasonableness of management's judgments for potential indicators of abandonment by performing the following:
We inquired of management about property, plant, and equipment that may be abandoned.
We inspected the capital projects budget and construction-in-process listings and inquired of management to identify projects that are designed to replace assets that may be retired prior to the end of the useful life.
We inspected minutes of the board of directors and regulatory orders and other filings with the Commissions to identify any evidence that may contradict management's assertion regarding probability of an abandonment.
- We compared actual spend for projects that have been capitalized to property, plant, and equipment to budget. We evaluated regulatory filings for any evidence that intervenors are challenging full recovery of the cost of any capital projects. For significant projects that were over budget or if full recovery of project costs is being challenged by intervenors, we evaluated management's assessment of the probability of a disallowance. We tested selected costs included in the capitalized project costs for completeness and accuracy.
- We evaluated management's analysis, and letters from internal and external legal counsel, as appropriate, regarding probability of recovery for regulatory assets or refund or future reduction in rates for regulatory liabilities not yet addressed in a regulatory order to assess management's assertion that amounts are probable of recovery or a future reduction in rates.
/s/ DELOITTE & TOUCHE LLP Kansas City, Missouri February 24, 2022 We have served as the Company's auditor since 2002.
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EVERGY, INC.
Consolidated Statements of Comprehensive Income Year Ended December 31 2021 2020 2019 (millions, except per share amounts)
OPERATING REVENUES $ 5,586.7 $ 4,913.4 $ 5,147.8 OPERATING EXPENSES:
Fuel and purchased power 1,557.0 1,099.0 1,265.0 SPP network transmission costs 290.4 263.2 251.3 Operating and maintenance 1,107.5 1,163.0 1,218.5 Depreciation and amortization 896.4 880.1 861.7 Taxes other than income tax 380.5 364.2 365.5 Total Operating Expenses 4,231.8 3,769.5 3,962.0 INCOME FROM OPERATIONS 1,354.9 1,143.9 1,185.8 OTHER INCOME (EXPENSE):
Investment earnings 59.9 10.8 11.0 Other income 46.3 31.3 26.9 Other expense (87.4) (78.2) (76.9)
Total Other Income (Expense), Net 18.8 (36.1) (39.0)
Interest expense 372.6 383.9 374.0 INCOME BEFORE INCOME TAXES 1,001.1 723.9 772.8 Income tax expense 117.4 102.2 97.0 Equity in earnings of equity method investees, net of income taxes 8.2 8.3 9.8 NET INCOME 891.9 630.0 685.6 Less: Net income attributable to noncontrolling interests 12.2 11.7 15.7 NET INCOME ATTRIBUTABLE TO EVERGY, INC. $ 879.7 $ 618.3 $ 669.9 BASIC AND DILUTED EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING ATTRIBUTABLE TO EVERGY, INC. (see Note 1)
Basic earnings per common share $ 3.84 $ 2.72 $ 2.80 Diluted earnings per common share $ 3.83 $ 2.72 $ 2.79 AVERAGE COMMON SHARES OUTSTANDING Basic 229.0 227.2 239.5 Diluted 229.6 227.5 239.9 COMPREHENSIVE INCOME NET INCOME $ 891.9 $ 630.0 $ 685.6 Derivative hedging activity Loss on derivative hedging instruments (64.4)
Income tax benefit 16.5 Net loss on derivative hedging instruments (47.9)
Reclassification to expenses, net of tax 5.5 3.0 1.5 Derivative hedging activity, net of tax 5.5 3.0 (46.4)
Defined benefit pension plans Net loss arising during period (0.1) (3.0) (0.8)
Income tax benefit 0.7 0.2 Net loss arising during period, net of tax (0.1) (2.3) (0.6)
Amortization of net losses included in net periodic benefit costs, net of tax (0.1)
Change in unrecognized pension expense, net of tax (0.1) (2.4) (0.6)
Total other comprehensive income (loss) 5.4 0.6 (47.0)
COMPREHENSIVE INCOME 897.3 630.6 638.6 Less: comprehensive income attributable to noncontrolling interest 12.2 11.7 15.7 COMPREHENSIVE INCOME ATTRIBUTABLE TO EVERGY, INC. $ 885.1 $ 618.9 $ 622.9 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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EVERGY, INC.
Consolidated Balance Sheets December 31 2021 2020 ASSETS (millions, except share amounts)
CURRENT ASSETS:
Cash and cash equivalents $ 26.2 $ 144.9 Receivables, net of allowance for credit losses of $32.9 and $19.3, respectively 221.6 273.9 Accounts receivable pledged as collateral 319.0 360.0 Fuel inventory and supplies 566.7 504.5 Income taxes receivable 28.0 62.9 Regulatory assets 424.1 206.2 Prepaid expenses 49.3 48.2 Other assets 75.4 23.7 Total Current Assets 1,710.3 1,624.3 PROPERTY, PLANT AND EQUIPMENT, NET 21,002.6 19,951.0 PROPERTY, PLANT AND EQUIPMENT OF VARIABLE INTEREST ENTITIES, NET 147.8 154.9 OTHER ASSETS:
Regulatory assets 1,991.1 1,868.2 Nuclear decommissioning trust fund 768.7 652.1 Goodwill 2,336.6 2,336.6 Other 563.4 527.7 Total Other Assets 5,659.8 5,384.6 TOTAL ASSETS $ 28,520.5 $ 27,114.8 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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EVERGY, INC.
Consolidated Balance Sheets December 31 2021 2020 LIABILITIES AND EQUITY (millions, except share amounts)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 389.3 $ 436.4 Current maturities of long-term debt of variable interest entities 18.8 Notes payable and commercial paper 1,159.3 315.0 Collateralized note payable 319.0 360.0 Accounts payable 639.7 654.0 Accrued taxes 150.4 143.8 Accrued interest 118.8 123.4 Regulatory liabilities 70.7 26.1 Asset retirement obligations 19.5 40.2 Accrued compensation and benefits 51.6 55.5 Other 184.6 182.6 Total Current Liabilities 3,102.9 2,355.8 LONG-TERM LIABILITIES:
Long-term debt, net 9,297.9 9,190.9 Deferred income taxes 1,861.9 1,664.8 Unamortized investment tax credits 181.4 186.7 Regulatory liabilities 2,705.0 2,638.8 Pension and post-retirement liability 879.1 1,149.4 Asset retirement obligations 940.6 901.7 Other 310.0 308.2 Total Long-Term Liabilities 16,175.9 16,040.5 Commitments and Contingencies (Note 14)
EQUITY:
Evergy, Inc. Shareholders' Equity:
Common stock - 600,000,000 shares authorized, without par value 229,299,900 and 226,836,670 shares issued, stated value 7,205.5 7,080.0 Retained earnings 2,082.9 1,702.8 Accumulated other comprehensive loss (44.0) (49.4)
Total Evergy, Inc. Shareholders' Equity 9,244.4 8,733.4 Noncontrolling Interests (2.7) (14.9)
Total Equity 9,241.7 8,718.5 TOTAL LIABILITIES AND EQUITY $ 28,520.5 $ 27,114.8 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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EVERGY, INC.
Consolidated Statements of Cash Flows Year Ended December 31 2021 2020 2019 CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: (millions)
Net income $ 891.9 $ 630.0 $ 685.6 Adjustments to reconcile income to net cash from operating activities:
Depreciation and amortization 896.4 880.1 861.7 Amortization of nuclear fuel 51.4 58.3 51.4 Amortization of deferred refueling outage 25.1 25.4 25.5 Amortization of corporate-owned life insurance 24.1 20.1 19.8 Non-cash compensation 15.6 16.0 16.3 Net deferred income taxes and credits 102.2 126.9 121.5 Allowance for equity funds used during construction (29.4) (17.2) (2.2)
Payments for asset retirement obligations (22.6) (18.4) (17.8)
Equity in earnings of equity method investees, net of income taxes (8.2) (8.3) (9.8)
Income from corporate-owned life insurance (14.2) (8.2) (29.6)
Other (13.8) 0.8 (3.2)
Changes in working capital items:
Accounts receivable 69.9 (4.9) (23.1)
Accounts receivable pledged as collateral 41.0 (21.0) 26.0 Fuel inventory and supplies (61.6) (22.3) 29.9 Prepaid expenses and other current assets (299.8) 16.9 43.4 Accounts payable (55.1) 134.3 16.9 Accrued taxes 41.4 6.7 (8.2)
Other current liabilities (19.4) (98.9) (59.4)
Changes in other assets (251.5) 119.5 79.8 Changes in other liabilities (31.7) (82.0) (75.5)
Cash Flows from Operating Activities 1,351.7 1,753.8 1,749.0 CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,972.5) (1,560.3) (1,210.1)
Purchase of securities - trusts (158.2) (65.6) (55.8)
Sale of securities - trusts 115.7 56.5 47.3 Investment in corporate-owned life insurance (14.2) (19.1) (18.3)
Proceeds from investment in corporate-owned life insurance 77.0 65.9 161.7 Other investing activities 38.4 (11.1) (5.1)
Cash Flows used in Investing Activities (1,913.8) (1,533.7) (1,080.3)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Short-term debt, net 840.5 (246.9) (176.7)
Proceeds from term loan facility 1,000.0 Repayment of term loan facility (1,000.0)
Collateralized short-term borrowings, net (41.0) 21.0 (26.0)
Issuance of common stock 112.5 Proceeds from long-term debt 497.3 888.8 2,372.7 Retirements of long-term debt (432.0) (251.1) (701.1)
Retirements of long-term debt of variable interest entities (18.8) (32.3) (30.3)
Payment for settlement of interest rate swap accounted for as a cash flow hedge (69.8)
Borrowings against cash surrender value of corporate-owned life insurance 54.4 55.5 59.4 Repayment of borrowings against cash surrender value of corporate-owned life insurance (62.3) (54.8) (127.5)
Cash dividends paid (497.9) (465.0) (462.5)
Repurchase of common stock under repurchase plan (1,628.7)
Distributions to shareholders of noncontrolling interests (8.6)
Other financing activities (9.3) (13.6) (6.7)
Cash Flows from (used in) Financing Activities 443.4 (98.4) (805.8)
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (118.7) 121.7 (137.1)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
Beginning of period 144.9 23.2 160.3 End of period $ 26.2 $ 144.9 $ 23.2 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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EVERGY, INC.
Consolidated Statements of Changes in Equity Evergy, Inc. Shareholders Non-Common Common Retained controlling Total stock shares stock earnings AOCI interests equity (millions, except share amounts)
Balance as of December 31, 2018 255,326,252 $ 8,685.2 $ 1,346.0 $ (3.0) $ (37.5) $ 9,990.7 Net income 669.9 15.7 685.6 Issuance of stock compensation and reinvested dividends, net of tax withholding 111,849 (2.4) (2.4)
Dividends declared on common stock ($1.93 per share) (462.5) (462.5)
Dividend equivalents declared (1.9) (1.9)
Stock compensation expense 16.3 16.3 Repurchase of common stock under repurchase plan (28,796,658) (1,628.7) (1,628.7)
Consolidation of noncontrolling interests 3.8 3.8 Distributions to shareholders of noncontrolling interests (8.6) (8.6)
Derivative hedging activity, net of tax (46.4) (46.4)
Change in unrecognized pension expense, net of tax (0.6) (0.6)
Balance as of December 31, 2019 226,641,443 7,070.4 1,551.5 (50.0) (26.6) 8,545.3 Net income 618.3 11.7 630.0 Issuance of stock compensation and reinvested dividends, net of tax withholding 195,227 (5.9) (5.9)
Dividends declared on common stock ($2.05 per share) (465.0) (465.0)
Dividend equivalents declared (2.0) (2.0)
Stock compensation expense 16.0 16.0 Derivative hedging activity, net of tax 3.0 3.0 Change in unrecognized pension expense, net of tax (2.4) (2.4)
Other (0.5) (0.5)
Balance as of December 31, 2020 226,836,670 7,080.0 1,702.8 (49.4) (14.9) 8,718.5 Net income 879.7 12.2 891.9 Issuance of stock, net of issuance costs 2,269,447 112.5 112.5 Issuance of stock compensation and reinvested dividends, net of tax withholding 139,729 (2.4) (2.4)
Issuance of restricted common stock 54,054 2.9 2.9 Dividends declared on common stock ($2.178 per share) (497.9) (497.9)
Dividend equivalents declared (1.7) (1.7)
Stock compensation expense 13.8 13.8 Unearned compensation Issuance of restricted common stock (2.9) (2.9)
Compensation expense recognized 1.8 1.8 Derivative hedging activity, net of tax 5.5 5.5 Change in unrecognized pension expense, net of tax (0.1) (0.1)
Other (0.2) (0.2)
Balance as of December 31, 2021 229,299,900 $ 7,205.5 $ 2,082.9 $ (44.0) $ (2.7) $ 9,241.7 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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EVERGY KANSAS CENTRAL, INC.
Consolidated Statements of Income Year Ended December 31 2021 2020 2019 (millions)
OPERATING REVENUES $ 2,847.3 $ 2,418.1 $ 2,507.4 OPERATING EXPENSES:
Fuel and purchased power 638.7 427.6 493.0 SPP network transmission costs 290.4 263.2 251.3 Operating and maintenance 530.8 513.6 530.5 Depreciation and amortization 467.2 453.1 443.8 Taxes other than income tax 203.9 193.3 192.3 Total Operating Expenses 2,131.0 1,850.8 1,910.9 INCOME FROM OPERATIONS 716.3 567.3 596.5 OTHER INCOME (EXPENSE):
Investment earnings 1.3 4.8 4.1 Other income 27.0 21.4 23.1 Other expense (35.9) (38.9) (40.1)
Total Other Expense, Net (7.6) (12.7) (12.9)
Interest expense 160.3 167.6 177.0 INCOME BEFORE INCOME TAXES 548.4 387.0 406.6 Income tax expense 51.7 155.8 52.1 Equity in earnings of equity method investees, net of income taxes 4.0 4.6 4.6 NET INCOME 500.7 235.8 359.1 Less: Net income attributable to noncontrolling interests 12.2 11.7 15.7 NET INCOME ATTRIBUTABLE TO EVERGY KANSAS CENTRAL, INC. $ 488.5 $ 224.1 $ 343.4 The disclosures regarding Evergy Kansas Central included in the accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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EVERGY KANSAS CENTRAL, INC.
Consolidated Balance Sheets December 31 2021 2020 ASSETS (millions, except share amounts)
CURRENT ASSETS:
Cash and cash equivalents $ 3.1 $ 28.7 Receivables, net of allowance for credit losses of $13.0 and $7.5, respectively 201.6 218.9 Related party receivables 21.2 6.7 Accounts receivable pledged as collateral 153.0 180.0 Fuel inventory and supplies 283.2 276.4 Income taxes receivable 9.6 25.3 Regulatory assets 257.3 96.2 Prepaid expenses and other assets 41.0 27.4 Total Current Assets 970.0 859.6 PROPERTY, PLANT AND EQUIPMENT, NET 10,548.9 10,193.6 PROPERTY, PLANT AND EQUIPMENT OF VARIABLE INTEREST ENTITIES, NET 147.8 154.9 OTHER ASSETS:
Regulatory assets 753.6 800.1 Nuclear decommissioning trust fund 368.4 309.8 Other 286.9 271.1 Total Other Assets 1,408.9 1,381.0 TOTAL ASSETS $ 13,075.6 $ 12,589.1 The disclosures regarding Evergy Kansas Central included in the accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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EVERGY KANSAS CENTRAL, INC.
Consolidated Balance Sheets December 31 2021 2020 LIABILITIES AND EQUITY (millions, except share amounts)
CURRENT LIABILITIES:
Current maturities of long-term debt of variable interest entities $ $ 18.8 Notes payable and commercial paper 406.0 50.0 Collateralized note payable 153.0 180.0 Accounts payable 232.2 280.1 Related party payables 27.5 21.7 Accrued taxes 106.1 101.5 Accrued interest 71.5 72.8 Regulatory liabilities 12.8 11.9 Asset retirement obligations 7.3 11.2 Accrued compensation and benefits 13.8 11.1 Other 126.3 133.5 Total Current Liabilities 1,156.5 892.6 LONG-TERM LIABILITIES:
Long-term debt, net 3,934.2 3,931.5 Deferred income taxes 867.9 824.5 Unamortized investment tax credits 61.7 65.7 Regulatory liabilities 1,469.4 1,461.0 Pension and post-retirement liability 435.6 560.3 Asset retirement obligations 436.6 416.0 Other 172.2 156.7 Total Long-Term Liabilities 7,377.6 7,415.7 Commitments and Contingencies (Note 14)
EQUITY:
Evergy Kansas Central, 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 1,806.6 1,558.1 Total Evergy Kansas Central, Inc. Shareholder's Equity 4,544.2 4,295.7 Noncontrolling Interests (2.7) (14.9)
Total Equity 4,541.5 4,280.8 TOTAL LIABILITIES AND EQUITY $ 13,075.6 $ 12,589.1 The disclosures regarding Evergy Kansas Central included in the accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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EVERGY KANSAS CENTRAL, INC.
Consolidated Statements of Cash Flows Year Ended December 31 2021 2020 2019 CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: (millions)
Net income $ 500.7 $ 235.8 $ 359.1 Adjustments to reconcile income to net cash from operating activities:
Depreciation and amortization 467.2 453.1 443.8 Amortization of nuclear fuel 25.6 28.8 25.6 Amortization of deferred refueling outage 12.6 12.7 12.8 Amortization of corporate-owned life insurance 24.1 20.1 19.8 Net deferred income taxes and credits (1.4) 146.6 11.6 Allowance for equity funds used during construction (14.9) (9.1)
Payments for asset retirement obligations (6.2) (2.2) (14.8)
Equity in earnings of equity method investees, net of income taxes (4.0) (4.6) (4.6)
Income from corporate-owned life insurance (14.2) (8.2) (29.0)
Other (5.5) (5.5) (5.5)
Changes in working capital items:
Accounts receivable 23.5 (33.8) (65.9)
Accounts receivable pledged as collateral 27.0 (9.0) 14.0 Fuel inventory and supplies (6.2) (9.4) 10.9 Prepaid expenses and other current assets (196.1) 10.0 (11.7)
Accounts payable (39.1) 111.6 6.9 Accrued taxes 20.3 (6.7) 20.2 Other current liabilities (55.0) (95.5) 12.1 Changes in other assets (48.3) 42.9 47.0 Changes in other liabilities (10.0) (30.2) (29.5)
Cash Flows from Operating Activities 700.1 847.4 822.8 CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Additions to property, plant and equipment (835.7) (719.0) (596.1)
Purchase of securities - trusts (129.9) (20.2) (21.8)
Sale of securities - trusts 97.5 18.6 21.6 Investment in corporate-owned life insurance (14.2) (18.3) (17.6)
Proceeds from investment in corporate-owned life insurance 77.0 63.8 158.9 Other investing activities 26.5 (2.2) (3.2)
Cash Flows used in Investing Activities (778.8) (677.3) (458.2)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Short-term debt, net 354.0 (199.2) (162.5)
Collateralized short-term debt, net (27.0) 9.0 (14.0)
Proceeds from long-term debt 492.7 294.7 Retirements of long-term debt (250.0) (300.0)
Retirements of long-term debt of variable interest entities (18.8) (32.3) (30.3)
Borrowings against cash surrender value of corporate-owned life insurance 51.4 52.7 56.5 Repayment of borrowings against cash surrender value of corporate-owned life insurance (62.3) (53.7) (125.4)
Cash dividends paid (240.0) (160.0) (110.0)
Distributions to shareholders of noncontrolling interests (8.6)
Other financing activities (4.2) (5.8) (4.3)
Cash Flows from (used in) Financing Activities 53.1 (146.6) (403.9)
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (25.6) 23.5 (39.3)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
Beginning of period 28.7 5.2 44.5 End of period $ 3.1 $ 28.7 $ 5.2 The disclosures regarding Evergy Kansas Central included in the accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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EVERGY KANSAS CENTRAL, INC.
Consolidated Statements of Changes in Equity Evergy Kansas Central, Inc.
Shareholder Non-Common Common Retained controlling Total stock shares stock earnings interests equity (millions, except share amounts)
Balance as of December 31, 2018 1 $ 2,737.6 $ 1,260.6 $ (37.5) $ 3,960.7 Net income 343.4 15.7 359.1 Dividends declared on common stock (110.0) (110.0)
Consolidation of noncontrolling interests 3.8 3.8 Distributions to shareholders of noncontrolling interests (8.6) (8.6)
Balance as of December 31, 2019 1 2,737.6 1,494.0 (26.6) 4,205.0 Net income 224.1 11.7 235.8 Dividends declared on common stock (160.0) (160.0)
Balance as of December 31, 2020 1 2,737.6 1,558.1 (14.9) 4,280.8 Net income 488.5 12.2 500.7 Dividends declared on common stock (240.0) (240.0)
Balance as of December 31, 2021 1 $ 2,737.6 $ 1,806.6 $ (2.7) $ 4,541.5 The disclosures regarding Evergy Kansas Central included in the accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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EVERGY METRO, INC.
Consolidated Statements of Comprehensive Income Year Ended December 31 2021 2020 2019 (millions)
OPERATING REVENUES $ 1,913.7 $ 1,705.6 $ 1,806.5 OPERATING EXPENSES:
Fuel and purchased power 613.5 416.1 482.1 Operating and maintenance 365.4 407.5 451.9 Depreciation and amortization 321.0 326.1 318.4 Taxes other than income tax 126.2 121.6 127.6 Total Operating Expenses 1,426.1 1,271.3 1,380.0 INCOME FROM OPERATIONS 487.6 434.3 426.5 OTHER INCOME (EXPENSE):
Investment earnings 0.2 1.4 2.4 Other income 16.1 9.2 3.2 Other expense (29.4) (25.5) (21.4)
Total Other Expense, Net (13.1) (14.9) (15.8)
Interest expense 109.8 113.6 119.8 INCOME BEFORE INCOME TAXES 364.7 305.8 290.9 Income tax expense 52.4 7.1 35.7 NET INCOME $ 312.3 $ 298.7 $ 255.2 COMPREHENSIVE INCOME NET INCOME $ 312.3 $ 298.7 $ 255.2 OTHER COMPREHENSIVE INCOME:
Derivative hedging activity Reclassification to expenses, net of tax (0.3) (0.2) 0.7 Derivative hedging activity, net of tax (0.3) (0.2) 0.7 Total other comprehensive income (loss) (0.3) (0.2) 0.7 COMPREHENSIVE INCOME $ 312.0 $ 298.5 $ 255.9 The disclosures regarding Evergy Metro included in the accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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EVERGY METRO, INC.
Consolidated Balance Sheets December 31 2021 2020 ASSETS (millions, except share amounts)
CURRENT ASSETS:
Cash and cash equivalents $ 2.1 $ 71.6 Receivables, net of allowance for credit losses of $13.3 and $8.1, respectively 31.0 45.0 Related party receivables 277.8 225.6 Accounts receivable pledged as collateral 116.0 130.0 Fuel inventory and supplies 211.0 170.4 Income taxes receivable 3.2 Regulatory assets 86.3 82.0 Prepaid expenses 22.6 22.9 Other assets 19.7 14.2 Total Current Assets 766.5 764.9 PROPERTY, PLANT AND EQUIPMENT, NET 7,474.9 7,141.2 OTHER ASSETS:
Regulatory assets 410.7 533.5 Nuclear decommissioning trust fund 400.3 342.3 Other 104.4 133.9 Total Other Assets 915.4 1,009.7 TOTAL ASSETS $ 9,156.8 $ 8,915.8 The disclosures regarding Evergy Metro included in the accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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EVERGY METRO, INC.
Consolidated Balance Sheets December 31 2021 2020 LIABILITIES AND EQUITY (millions, except share amounts)
CURRENT LIABILITIES:
Collateralized note payable $ 116.0 $ 130.0 Accounts payable 305.2 280.1 Related party payables 0.1 0.1 Accrued taxes 38.6 34.9 Accrued interest 26.4 30.0 Regulatory liabilities 54.6 8.0 Asset retirement obligations 11.0 21.2 Accrued compensation and benefits 37.8 44.4 Other 48.8 37.3 Total Current Liabilities 638.5 586.0 LONG-TERM LIABILITIES:
Long-term debt, net 2,925.0 2,923.0 Deferred income taxes 606.1 558.8 Unamortized investment tax credits 117.2 118.5 Regulatory liabilities 954.2 899.4 Pension and post-retirement liability 420.9 565.1 Asset retirement obligations 370.0 357.7 Other 103.7 148.1 Total Long-Term Liabilities 5,497.1 5,570.6 Commitments and Contingencies (Note 14)
EQUITY:
Common stock - 1,000 shares authorized, without par value, 1 share issued, stated value 1,563.1 1,563.1 Retained earnings 1,453.8 1,191.5 Accumulated other comprehensive income 4.3 4.6 Total Equity 3,021.2 2,759.2 TOTAL LIABILITIES AND EQUITY $ 9,156.8 $ 8,915.8 The disclosures regarding Evergy Metro included in the accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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EVERGY METRO, INC.
Consolidated Statements of Cash Flows Year Ended December 31 2021 2020 2019 CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: (millions)
Net income $ 312.3 $ 298.7 $ 255.2 Adjustments to reconcile income to net cash from operating activities:
Depreciation and amortization 321.0 326.1 318.4 Amortization of nuclear fuel 25.8 29.5 25.9 Amortization of deferred refueling outage 12.6 12.7 12.8 Net deferred income taxes and credits 10.0 (3.5) (30.6)
Allowance for equity funds used during construction (12.6) (8.0) (2.2)
Payments for asset retirement obligations (7.4) (7.5) (2.5)
Other (0.4) (0.4) 0.3 Changes in working capital items:
Accounts receivable 43.2 (13.2) 37.0 Accounts receivable pledged as collateral 14.0 (12.0) 12.0 Fuel inventory and supplies (40.6) (7.4) 14.6 Prepaid expenses and other current assets (16.3) (7.9) 28.0 Accounts payable (1.1) 24.6 9.1 Accrued taxes 6.9 1.6 (9.6)
Other current liabilities 44.0 2.4 (53.2)
Changes in other assets 61.5 59.1 33.7 Changes in other liabilities (38.7) (47.3) (34.7)
Cash Flows from Operating Activities 734.2 647.5 614.2 CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Additions to property, plant and equipment (682.9) (565.4) (445.0)
Purchase of securities - trusts (28.3) (45.4) (34.0)
Sale of securities - trusts 18.2 37.9 25.7 Net money pool lending (55.0) (100.0)
Other investing activities 6.8 4.6 9.0 Cash Flows used in Investing Activities (741.2) (668.3) (444.3)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Short-term debt, net (199.3) 22.4 Collateralized short-term debt, net (14.0) 12.0 (12.0)
Proceeds from long-term debt 396.2 393.2 Retirements of long-term debt (400.0)
Cash dividends paid (50.0) (120.0) (175.0)
Other financing activities 1.5 1.5 0.9 Cash Flows from (used in) Financing Activities (62.5) 90.4 (170.5)
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (69.5) 69.6 (0.6)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
Beginning of period 71.6 2.0 2.6 End of period $ 2.1 $ 71.6 $ 2.0 The disclosures regarding Evergy Metro included in the accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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EVERGY METRO, INC Consolidated Statements of Changes in Equity AOCI - Net gains Common (losses) on stock Common Retained cash flow Total shares Stock earnings hedges Equity (millions, except share amounts)
Balance as of December 31, 2018 1 $ 1,563.1 $ 932.6 $ 4.1 $ 2,499.8 Net income 255.2 255.2 Dividends declared on common stock (175.0) (175.0)
Derivative hedging activity, net of tax 0.7 0.7 Balance as of December 31, 2019 1 1,563.1 1,012.8 4.8 2,580.7 Net income 298.7 298.7 Dividends declared on common stock (120.0) (120.0)
Derivative hedging activity, net of tax (0.2) (0.2)
Balance as of December 31, 2020 1 1,563.1 1,191.5 4.6 2,759.2 Net income 312.3 312.3 Dividends declared on common stock (50.0) (50.0)
Derivative hedging activity, net of tax (0.3) (0.3)
Balance as of December 31, 2021 1 $ 1,563.1 $ 1,453.8 $ 4.3 $ 3,021.2 The disclosures regarding Evergy Metro included in the accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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EVERGY, INC.
EVERGY KANSAS CENTRAL, INC.
EVERGY METRO, INC.
Combined Notes to Consolidated Financial Statements The notes to consolidated financial statements that follow are a combined presentation for Evergy, Inc., Evergy Kansas Central, Inc. and Evergy Metro, Inc., all registrants under this filing. The terms "Evergy," "Evergy Kansas Central," "Evergy Metro" and "Evergy Companies" are used throughout this report. "Evergy" refers to Evergy, Inc.
and its consolidated subsidiaries, unless otherwise indicated. "Evergy Kansas Central" refers to Evergy Kansas Central, Inc. and its consolidated subsidiaries, unless otherwise indicated. "Evergy Metro" refers to Evergy Metro, Inc. and its consolidated subsidiaries, unless otherwise indicated. "Evergy Companies" refers to Evergy, Evergy Kansas Central and Evergy Metro, collectively, which are individual registrants within the Evergy consolidated group.
- 1.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES Organization Evergy 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 listed below.
- Evergy Kansas Central, Inc. (Evergy Kansas Central) is an integrated, regulated electric utility that provides electricity to customers in the state of Kansas. Evergy Kansas Central has one active wholly-owned subsidiary with significant operations, Evergy Kansas South, Inc. (Evergy Kansas South).
- Evergy Metro, Inc. (Evergy Metro) is an integrated, regulated electric utility that provides electricity to customers in the states of Missouri and Kansas.
- Evergy Missouri West, Inc. (Evergy Missouri West) is an integrated, regulated electric utility that provides electricity to customers in the state of Missouri.
- Evergy Transmission Company, LLC (Evergy Transmission Company) 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. Evergy Transmission Company accounts for its investment in Transource under the equity method.
Evergy Kansas Central also owns a 50% interest in Prairie Wind Transmission, LLC (Prairie Wind), which is a joint venture between Evergy Kansas Central and subsidiaries 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 Southwest Power Pool, Inc. (SPP). Evergy Kansas Central accounts for its investment in Prairie Wind under the equity method.
Evergy Kansas Central, Evergy Kansas South, Evergy Metro and Evergy Missouri West conduct business in their respective service territories using the name Evergy. 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 1.6 million customers in the states of Kansas and Missouri.
Principles of Consolidation Each of Evergy's, Evergy Kansas Central's and Evergy Metro's consolidated financial statements includes the accounts of their subsidiaries and variable interest entities (VIEs) of which they are the primary beneficiary.
Undivided interests in jointly-owned generation facilities are included on a proportionate basis. Intercompany transactions have been eliminated. The Evergy Companies assess financial performance and allocate resources on a consolidated basis (i.e., operate in one segment).
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Evergy Metro elected not to apply "push-down accounting" related to the Great Plains Energy Incorporated (Great Plains Energy) and Evergy Kansas Central merger in 2018, whereby the adjustments of assets and liabilities to fair value and the resulting goodwill would be recorded on the financial statements of the acquired subsidiary. These adjustments for Evergy Metro, as well as those related to the acquired assets and liabilities of Great Plains Energy and its other direct subsidiaries, are only reflected on Evergy's consolidated financial statements.
Use of Estimates The process of preparing financial statements in conformity with generally accepted accounting principles (GAAP) requires the use of estimates and assumptions that affect the reported amounts of certain types of assets, liabilities, revenues and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.
Cash and Cash Equivalents Cash equivalents consist of highly liquid investments with original maturities of three months or less at acquisition.
Fuel Inventory and Supplies The Evergy Companies record fuel inventory and supplies at average cost. The following table separately states the balances for fuel inventory and supplies.
December 31 2021 2020 Evergy (millions)
Fuel inventory $ 160.9 $ 145.0 Supplies 405.8 359.5 Fuel inventory and supplies $ 566.7 $ 504.5 Evergy Kansas Central Fuel inventory $ 74.3 $ 79.3 Supplies 208.9 197.1 Fuel inventory and supplies $ 283.2 $ 276.4 Evergy Metro Fuel inventory $ 62.0 $ 44.9 Supplies 149.0 125.5 Fuel inventory and supplies $ 211.0 $ 170.4 Property, Plant and Equipment The Evergy Companies record the value of property, plant and equipment, including that of VIEs, at cost. For plant, cost includes contracted services, direct labor and materials, indirect charges for engineering and supervision and an allowance for funds used during construction (AFUDC). AFUDC represents the allowed cost of capital used to finance utility construction activity. AFUDC equity funds are included as a non-cash item in other income and AFUDC borrowed funds are a reduction of interest expense. AFUDC is computed by applying a composite rate to qualified construction work in progress. The rates used to compute gross AFUDC are compounded semi-annually.
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The amounts of the Evergy Companies' AFUDC for borrowed and equity funds are detailed in the following table.
2021 2020 2019 Evergy (millions)
AFUDC borrowed funds $ 14.7 $ 16.5 $ 14.5 AFUDC equity funds 29.4 17.2 2.2 Total $ 44.1 $ 33.7 $ 16.7 Evergy Kansas Central AFUDC borrowed funds $ 7.1 $ 8.5 $ 7.5 AFUDC equity funds 14.9 9.1 Total $ 22.0 $ 17.6 $ 7.5 Evergy Metro AFUDC borrowed funds $ 6.0 $ 6.0 $ 4.3 AFUDC equity funds 12.6 8.0 2.2 Total $ 18.6 $ 14.0 $ 6.5 The average rates used in the calculation of AFUDC are detailed in the following table.
2021 2020 2019 Evergy Kansas Central 4.9% 4.7% 3.0%
Evergy Metro 5.6% 5.2% 4.6%
Evergy Missouri West 2.6% 3.5% 3.7%
When property units are retired or otherwise disposed, the original cost, net of salvage, is charged to accumulated depreciation. Repair of property and replacement of items not considered to be units of property are expensed as incurred, except for planned refueling and maintenance outages at Wolf Creek Generating Station (Wolf Creek). As authorized by regulators, the incremental maintenance cost incurred for such outages is deferred and amortized to expense ratably over the period between planned outages.
Depreciation and Amortization Depreciation and amortization of utility plant other than nuclear fuel is computed using the straight-line method over the estimated lives of depreciable property based on rates approved by state regulatory authorities. Annual depreciation rates average approximately 3%. See Note 7 for more details. Nuclear fuel is amortized to fuel expense based on the quantity of heat produced during the generation of electricity.
The depreciable lives of Evergy's, Evergy Kansas Central's and Evergy Metro's property, plant and equipment are detailed in the following table.
Evergy Evergy Kansas Central Evergy Metro (years)
Generating facilities 8 to 87 8 to 87 20 to 60 Transmission facilities 15 to 94 36 to 94 15 to 70 Distribution facilities 8 to 73 19 to 73 8 to 55 Other 5 to 84 7 to 84 5 to 50 Plant to be Retired, Net When the Evergy Companies retire utility plant, the original cost, net of salvage, is charged to accumulated depreciation. However, when it becomes probable an asset will be retired significantly in advance of its original expected useful life and in the near term, the cost of the asset and related accumulated depreciation is recognized as a separate asset and a probable abandonment. If the asset is still in service, the net amount is classified as plant to 89
be retired, net on the consolidated balance sheets. If the asset is no longer in service, the net amount is classified as a regulatory asset on the consolidated balance sheets.
The Evergy Companies must also assess the probability of full recovery of the remaining net book value of the abandonment. The net book value that may be retained as an asset on the balance sheet for the abandonment is dependent upon amounts that may be recovered through regulated rates, including any return. An impairment charge, if any, would equal the difference between the remaining net book value of the asset and the present value of the future revenues expected from the asset.
Evergy Missouri West has determined that its November 2018 retirement of Sibley No. 3 Unit meets the criteria to be considered an abandonment. As of December 31, 2021, Evergy has classified the remaining Sibley No. 3 Unit net book value of $123.4 million as retired generation facilities within regulatory assets on its consolidated balance sheet. This regulatory asset is reduced by approximately $9 million of annual amortization expense, which is an amount equal to the annual depreciation expense for the asset reflected in retail rates.
In October 2019, the Missouri Public Service Commission (MPSC) granted the request of certain intervenors for an Accounting Authority Order (AAO) that requires Evergy Missouri West 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 for consideration in Evergy Missouri West's current rate case, which was filed in January 2022. See Note 4 for additional information regarding the AAO and Evergy Missouri West's current rate case.
Evergy Missouri West expects that the MPSC's decision in its current rate case regarding the AAO could impact the valuation of its regulatory asset for retired generation facilities but as of December 31, 2021, has concluded that no impairment is required based on the relevant facts and circumstances.
Nuclear Plant Decommissioning Costs Nuclear plant decommissioning cost estimates are based on either the immediate dismantlement method or the deferred dismantling method as determined by the State Corporation Commission of the State of Kansas (KCC) and MPSC and include the costs of decontamination, dismantlement and site restoration. Based on these cost estimates, Evergy Kansas Central and Evergy Metro each contribute to a tax-qualified trust fund to be used to decommission Wolf Creek. Related liabilities for decommissioning are included on Evergy's, Evergy Kansas Central's and Evergy Metro's consolidated balance sheets in asset retirement obligations (AROs).
As a result of the authorized regulatory treatment and related regulatory accounting, differences between the fair value of the assets held in the nuclear decommissioning trust and the amounts recorded for the accumulated accretion and depreciation expense associated with the decommissioning ARO are recorded as a regulatory liability on Evergy's, Evergy Kansas Central's and Evergy Metro's consolidated balance sheets. See Note 6 for discussion of AROs including those associated with nuclear plant decommissioning costs.
Regulatory Accounting Accounting standards are applied that recognize the economic effects of rate regulation. Accordingly, regulatory assets and liabilities have been recorded when required by a regulatory order or based on regulatory precedent. See Note 4 for additional information concerning regulatory matters.
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Cash Surrender Value of Life Insurance Amounts related to corporate-owned life insurance (COLI) are recorded on the consolidated balance sheets in other long-term assets and are detailed in the following table for Evergy. Substantially all of Evergy's COLI-related balances relate to Evergy Kansas Central's COLI activity.
December 31 2021 2020 Evergy (millions)
Cash surrender value of policies $ 1,363.0 $ 1,369.6 Borrowings against policies (1,232.3) (1,237.6)
Corporate-owned life insurance, net $ 130.7 $ 132.0 Increases in cash surrender value and death benefits are recorded in other income in the Evergy Companies' consolidated statements of income and comprehensive income. Interest expense incurred on policy loans is offset against the policy income. Income from death benefits is highly variable from period to period.
Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of the following financial instruments for which it was practicable to estimate that value.
Nuclear decommissioning trust fund - The Evergy Companies' nuclear decommissioning trust fund assets are recorded at fair value based on quoted market prices of the investments held by the fund and/or valuation models.
Pension plans - For financial reporting purposes, the market value of plan assets is the fair value based on quoted market prices of the investments held by the fund and/or valuation models.
Revenue Recognition The Evergy Companies recognize revenue on the sale of electricity to customers over time as the service is provided in the amount they have the right to invoice. Revenues recorded include electric services provided but not yet billed by the Evergy Companies. Unbilled revenues are recorded for kWh usage in the period following the customers' billing cycle to the end of the month. This estimate is based on net system kWh usage less actual billed kWhs. The Evergy Companies' estimated unbilled kWhs are allocated and priced by regulatory jurisdiction across the rate classes based on actual billing rates. The Evergy Companies' unbilled revenue estimate is affected by factors including fluctuations in energy demand, weather, line losses and changes in the composition of customer classes.
See Note 3 for the balance of unbilled receivables for each of Evergy, Evergy Kansas Central and Evergy Metro as of December 31, 2021 and 2020.
The Evergy Companies also collect sales taxes and franchise fees from customers concurrent with revenue-producing activities that are levied by state and local governments. These items are excluded from revenue, and thus are not reflected on the consolidated statements of income and comprehensive income for Evergy, Evergy Kansas Central and Evergy Metro.
See Note 2 for additional details regarding revenue recognition from sales of electricity by the Evergy Companies.
Allowance for Credit Losses Historical loss information generally provides the basis for the Evergy Companies' assessment of expected credit losses. The Evergy Companies use an aging of accounts receivable method to assess historical loss information.
When historical experience may not fully reflect the Evergy Companies' expectations about the future, the Evergy Companies will adjust historical loss information, as necessary, to reflect the current conditions and reasonable and supportable forecasts not already reflected in the historical loss information.
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Receivables are charged off when they are deemed uncollectible, which is based on a number of factors including specific facts surrounding an account and management's judgment.
Asset Impairments Long-lived assets and finite-lived intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the undiscounted expected future cash flows from an asset to be held and used is less than the carrying value of the asset, an asset impairment must be recognized in the financial statements. The amount of impairment recognized is the excess of the carrying value of the asset over its fair value.
Goodwill and indefinite lived intangible assets are tested for impairment annually and when an event occurs indicating the possibility that an impairment exists. The annual test must be performed at the same time each year.
The goodwill impairment test consists of comparing the fair value of a reporting unit to its carrying amount, including goodwill, to identify potential impairment. In the event that the carrying amount exceeds the fair value of the reporting unit, an impairment loss is recognized for the difference between the carrying amount of the reporting unit and its fair value. See Note 5 for additional details on goodwill.
Income Taxes Income taxes are accounted for using the asset/liability approach. Deferred tax assets and liabilities are determined based on the temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted statutory tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized.
The Evergy Companies recognize tax benefits based on a "more-likely-than-not" recognition threshold. In addition, the Evergy Companies recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
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. Evergy Kansas Central's and Evergy Metro's income tax provisions include taxes allocated based on their separate company's income or loss.
The Evergy Companies have established a net regulatory liability for future refunds to be made to customers for amounts collected from customers in excess of income taxes in current rates. Tax credits are recognized in the year generated except for certain Evergy Kansas Central, Evergy Metro and Evergy Missouri West investment tax credits that have been deferred and amortized over the remaining service lives of the related properties.
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Other Income (Expense), Net In 2021, Evergy's investment earnings included a $27.7 million unrealized gain related to Evergys investment in an early-stage energy solutions company. See Evergy Equity Investment in this Note 1 for further information.
The Evergy Companies other income includes income from AFUDC equity funds. See Property, Plant and Equipment in this Note 1 for these amounts for 2021, 2020 and 2019.
The table below shows the detail of other expense for each of the Evergy Companies.
2021 2020 2019 Evergy (millions)
Non-service cost component of net benefit cost $ (55.6) $ (58.6) $ (55.6)
Other (31.8) (19.6) (21.3)
Other expense $ (87.4) $ (78.2) $ (76.9)
Evergy Kansas Central Non-service cost component of net benefit cost $ (15.6) $ (21.2) $ (20.1)
Other (20.3) (17.7) (20.0)
Other expense $ (35.9) $ (38.9) $ (40.1)
Evergy Metro Non-service cost component of net benefit cost $ (26.7) $ (24.2) $ (20.9)
Other (2.7) (1.3) (0.5)
Other expense $ (29.4) $ (25.5) $ (21.4)
Earnings Per Share To compute basic earnings per share (EPS), Evergy divides net income attributable to Evergy, Inc. by the weighted average number of common shares outstanding. Diluted EPS includes the effect of issuable common shares resulting from restricted share units (RSUs), restricted stock and a warrant. Evergy computes the dilutive effects of potential issuances of common shares using the treasury stock method or the contingently issuable share method, as applicable.
The following table reconciles Evergy's basic and diluted EPS.
2021 2020 2019 Income (millions, except per share amounts)
Net income $ 891.9 $ 630.0 $ 685.6 Less: Net income attributable to noncontrolling interests 12.2 11.7 15.7 Net income attributable to Evergy, Inc. $ 879.7 $ 618.3 $ 669.9 Common Shares Outstanding Weighted average number of common shares outstanding - basic 229.0 227.2 239.5 Add: effect of dilutive securities 0.6 0.3 0.4 Diluted average number of common shares outstanding 229.6 227.5 239.9 Basic EPS $ 3.84 $ 2.72 $ 2.80 Diluted EPS $ 3.83 $ 2.72 $ 2.79 There were no anti-dilutive securities excluded from the computation of diluted EPS for 2021. Anti-dilutive shares excluded from the computation of diluted EPS for 2020 and 2019 were 127,884 RSUs and 785 RSUs, respectively.
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Supplemental Cash Flow Information Year Ended December 31 2021 2020 2019 Evergy (millions)
Cash paid for (received from):
Interest, net of amount capitalized $ 356.9 $ 367.6 $ 329.5 Interest of VIEs 0.2 0.8 1.6 Income taxes, net of refunds (19.6) (46.5) (5.2)
Non-cash investing transactions:
Property, plant and equipment additions 269.3 463.3 186.0 Non-cash financing transactions:
Issuance of stock for compensation and reinvested dividends 0.7 0.9 (0.3)
Year Ended December 31 2021 2020 2019 Evergy Kansas Central (millions)
Cash paid for (received from):
Interest, net of amount capitalized $ 149.3 $ 157.5 $ 143.0 Interest of VIEs 0.2 0.8 1.6 Income taxes, net of refunds 37.5 4.7 29.9 Non-cash investing transactions:
Property, plant and equipment additions 101.9 235.4 92.1 Year Ended December 31 2021 2020 2019 Evergy Metro (millions)
Cash paid for (received from):
Interest, net of amount capitalized $ 110.8 $ 109.9 $ 118.4 Income taxes, net of refunds 36.6 4.8 77.0 Non-cash investing transactions:
Property, plant and equipment additions 102.2 192.5 80.7 Non-cash property, plant and equipment additions in 2020 for Evergy, Evergy Kansas Central and Evergy Metro include a non-cash addition related to the revision in estimate of the Wolf Creek ARO liability in the third quarter of 2020. See Note 6 for more details.
Dividends Declared In February 2022, Evergy's Board of Directors (Evergy Board) declared a quarterly dividend of $0.5725 per share on Evergy's common stock. The common dividend is payable March 21, 2022, to shareholders of record as of March 7, 2022.
In February 2022, Evergy Kansas Central's Board of Directors declared a cash dividend to Evergy of up to
$25.0 million, payable on March 18, 2022.
February 2021 Winter Weather Event In February 2021, much of the central and southern United States, including the service territories of the Evergy Companies, experienced a significant winter weather event that resulted in extremely cold temperatures over a multi-day period (February 2021 winter weather event). The February 2021 winter weather event resulted in an increase in the demand for natural gas used by the Evergy Companies for generating electricity and also contributed to the limited availability of other generation resources, including coal and renewables, within the SPP Integrated Marketplace. The Evergy Companies are members of the SPP and, as a result, principally sell and purchase power for the Evergy Companies' retail electric customers through the SPP Integrated Marketplace. These circumstances 94
resulted in higher than normal market prices for both natural gas and power for the duration of the February 2021 winter weather event. These higher than normal market prices also included make-whole payments calculated by the SPP to compensate natural gas generators within the SPP Integrated Marketplace for costs incurred in excess of revenues. As part of the February 2021 winter weather event and inclusive of the aforementioned items, Evergy incurred natural gas and purchased power costs, net of wholesale revenues, of $365.5 million. This $365.5 million of net fuel and purchased power costs was primarily driven by $296.4 million of costs at Evergy Missouri West and
$133.9 million of costs at Evergy Kansas Central, partially offset by $64.8 million of net wholesale revenues at Evergy Metro. The amount of purchased power costs incurred by the Evergy Companies during the February 2021 winter weather event is subject to resettlement activity and further review by the SPP. This review and any subsequent resettlement activity could result in increases or decreases to the final amount of purchased power costs incurred by the Evergy Companies during the February 2021 winter weather event and these changes could be material.
The Evergy Companies have fuel recovery mechanisms in their Kansas and Missouri jurisdictions, as applicable, that allow them to defer substantially all of any increased fuel and purchased power costs, net of wholesale revenues, to a regulatory asset or liability for future recovery from or refund to customers. Further, in February 2021, the KCC issued an emergency AAO that allowed Evergy Kansas Central and Evergy Metro's Kansas jurisdiction to defer to a regulatory asset any extraordinary costs, including carrying costs, incurred to provide electric service during the February 2021 winter weather event for consideration in future rate proceedings.
Additionally, in June 2021, Evergy Metro and Evergy Missouri West filed a joint request for an AAO with the MPSC that would allow for the extraordinary costs and revenues to provide service during the February 2021 winter weather event, including carrying costs, to be deferred to a regulatory asset or a regulatory liability for consideration in future proceedings. See Note 4 for additional information regarding the AAOs.
As of December 31, 2021, the Evergy Companies have deferred substantially all of the fuel and purchased power costs, net of wholesale revenues, related to the February 2021 winter weather event to a regulatory asset or liability pursuant to the mechanisms discussed above. While the Evergy Companies expect to recover substantially all of any increased fuel and purchased power costs related to the February 2021 winter weather event from customers, the timing of the cost recovery could be delayed or spread over a longer than typical recovery timeframe by the KCC or the MPSC to help moderate monthly customer bill impacts given the extraordinary nature of the February 2021 winter weather event.
The Evergy Companies also engage in limited non-regulated energy marketing activities in various regional power markets that have historically not had a significant impact on the Evergy Companies' results of operations. These energy marketing margins are recorded net in operating revenues on the Evergy Companies' statements of income and comprehensive income. As a result of the elevated market prices experienced in regional power markets across the central and southern United States driven by the February 2021 winter weather event discussed above, Evergy and Evergy Kansas Central recorded $94.5 million of energy marketing margins in 2021 related to the February 2021 winter weather event, primarily driven by activities in the Electric Reliability Council of Texas (ERCOT).
Evergy Equity Investment From time to time, Evergy makes limited equity investments in early-stage energy solution companies. These investments have historically not had a significant impact on Evergy's results of operations. In October 2021, an equity investment in which Evergy held a minority stake through an initial investment of $3.7 million was acquired through a transaction involving a special purpose acquisition company (SPAC). As a result of its equity investment in the company that was acquired in the SPAC transaction, Evergy received shares of the resulting public company upon the closing of the transaction, which are subject to a restriction on sale of up for 150 days. Evergy recorded a
$27.7 million unrealized gain in the fourth quarter of 2021 for the conversion of its shares into the newly formed public company and based on the closing share price as of December 31, 2021 adjusted to reflect the restriction on the sale of the shares. The fair value of Evergy's investment is largely dependent on the performance of the new public company's stock, which is subject to significant market volatility and is also affected by the restriction on sale of the shares until March 2022, when the restriction expires.
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- 2. REVENUE Evergy's, Evergy Kansas Central's and Evergy Metro's revenues disaggregated by customer class are summarized in the following tables.
Evergy 2021 2020 2019 Revenues (millions)
Residential $ 1,918.3 $ 1,909.2 $ 1,908.1 Commercial 1,681.3 1,641.7 1,781.6 Industrial 597.0 588.7 621.6 Other retail 33.1 38.5 47.1 Total electric retail $ 4,229.7 $ 4,178.1 $ 4,358.4 Wholesale 717.2 264.0 327.5 Transmission 356.8 318.5 309.2 Industrial steam and other 25.4 21.0 24.5 Total revenue from contracts with customers $ 5,329.1 $ 4,781.6 $ 5,019.6 Other 257.6 131.8 128.2 Operating revenues $ 5,586.7 $ 4,913.4 $ 5,147.8 Evergy Kansas Central 2021 2020 2019 Revenues (millions)
Residential $ 824.1 $ 801.2 $ 793.9 Commercial 694.1 665.6 709.1 Industrial 391.7 379.9 401.3 Other retail 17.1 17.7 21.0 Total electric retail $ 1,927.0 $ 1,864.4 $ 1,925.3 Wholesale 453.1 215.4 239.9 Transmission 322.9 287.3 273.3 Other 2.2 2.3 5.8 Total revenue from contracts with customers $ 2,705.2 $ 2,369.4 $ 2,444.3 Other 142.1 48.7 63.1 Operating revenues $ 2,847.3 $ 2,418.1 $ 2,507.4 96
Evergy Metro 2021 2020 2019 Revenues (millions)
Residential $ 691.9 $ 714.7 $ 712.4 Commercial 713.3 717.1 786.1 Industrial 122.0 128.8 136.9 Other retail 9.2 11.7 16.3 Total electric retail $ 1,536.4 $ 1,572.3 $ 1,651.7 Wholesale 242.6 35.0 70.9 Transmission 17.1 13.9 17.5 Other 3.6 2.6 2.8 Total revenue from contracts with customers $ 1,799.7 $ 1,623.8 $ 1,742.9 Other 114.0 81.8 63.6 Operating revenues $ 1,913.7 $ 1,705.6 $ 1,806.5 Retail Revenues The Evergy Companies' retail revenues are generated by the regulated sale of electricity to their residential, commercial and industrial customers within their franchised service territories. The Evergy Companies recognize revenue on the sale of electricity to their customers over time as the service is provided in the amount they have a right to invoice. Retail customers are billed monthly at the tariff rates approved by the KCC and MPSC based on customer kWh usage.
Revenues recorded include electric services provided but not yet billed by the Evergy Companies. Unbilled revenues are recorded for kWh usage in the period following the customers' billing cycle to the end of the month.
This estimate is based on net system kWh usage less actual billed kWhs. The Evergy Companies' estimated unbilled kWhs are allocated and priced by regulatory jurisdiction across the rate classes based on actual billing rates.
The Evergy Companies also collect sales taxes and franchise fees from customers concurrent with revenue-producing activities that are levied by state and local governments. These items are excluded from revenue, and thus not reflected on the statements of income and comprehensive income, for Evergy, Evergy Kansas Central and Evergy Metro.
Wholesale Revenues The Evergy Companies' wholesale revenues are generated by the sale of wholesale power and capacity in circumstances when the power that the Evergy Companies generate is not required for customers in their service territory. These sales primarily occur within the SPP Integrated Marketplace. The Evergy Companies also purchase power from the SPP Integrated Marketplace and record sale and purchase activity on a net basis in wholesale revenue or fuel and purchased power expense. In addition, the Evergy Companies sell wholesale power and capacity through bilateral contracts to other counterparties, such as electric cooperatives, municipalities and other electric utilities.
For both wholesale sales to the SPP Integrated Marketplace and through bilateral contracts, the Evergy Companies recognize revenue on the sale of wholesale electricity to their customers over time as the service is provided in the amount they have a right to invoice.
Wholesale sales within the SPP Integrated Marketplace are billed weekly based on the fixed transaction price determined by the market at the time of the sale and the MWh quantity purchased. Wholesale sales from bilateral contracts are billed monthly based on the contractually determined transaction price and the kWh quantity purchased.
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Transmission Revenues The Evergy Companies' transmission revenues are generated by the use of their transmission networks by the SPP.
To enable optimal use of the diverse generating resources in the SPP region, the Evergy Companies, as well as other transmission owners, allow the SPP to access and operate their transmission networks. As new transmission lines are constructed, they are included in the transmission network available to the SPP. In exchange for providing access, the SPP pays the Evergy Companies consideration determined by formula rates approved by the Federal Energy Regulatory Commission (FERC), which include the cost to construct and maintain the transmission lines and a return on investment. The price for access to the Evergy Companies' transmission networks are updated annually based on projected costs. Projections are updated to actual costs and the difference is included in subsequent year's prices.
The Evergy Companies have different treatment for their legacy transmission facilities within the SPP, which results in different levels of transmission revenue being received from the SPP. Evergy Kansas Central's transmission revenues from SPP include amounts that Evergy Kansas Central pays to the SPP on behalf of its retail electric customers for the use of Evergy Kansas Central's legacy transmission facilities. These transmission revenues are mostly offset by SPP network transmission cost expense that Evergy Kansas Central pays on behalf of its retail customers. Evergy Metro and Evergy Missouri West do not pay the SPP for their retail customers use of the Evergy Metro and Evergy Missouri West legacy transmission facilities and correspondingly, their transmission revenues also do not reflect the associated transmission revenue from the SPP.
The Evergy Companies recognize revenue on the sale of transmission service to their customers over time as the service is provided in the amount they have a right to invoice. Transmission service to the SPP is billed monthly based on a fixed transaction price determined by FERC formula transmission rates along with other SPP-specific charges and the MW quantity purchased.
Industrial Steam and Other Revenues Evergy's industrial steam and other revenues are primarily generated by the regulated sale of industrial steam to Evergy Missouri West's steam customers. Evergy recognizes revenue on the sale of industrial steam to its customers over time as the service is provided in the amount that it has the right to invoice. Steam customers are billed on a monthly basis at the tariff rate approved by the MPSC based on customer MMBtu usage.
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- 3. RECEIVABLES The Evergy Companies' receivables are detailed in the following table.
December 31 2021 2020 Evergy (millions)
Customer accounts receivable - billed $ 13.7 $ 5.3 Customer accounts receivable - unbilled 80.1 110.0 Other receivables 160.7 177.9 Allowance for credit losses (32.9) (19.3)
Total $ 221.6 $ 273.9 Evergy Kansas Central Customer accounts receivable - billed $ 9.7 $
Customer accounts receivable - unbilled 26.4 50.7 Other receivables 178.5 175.7 Allowance for credit losses (13.0) (7.5)
Total $ 201.6 $ 218.9 Evergy Metro Customer accounts receivable - billed $ 2.7 $ 3.3 Customer accounts receivable - unbilled 25.9 27.9 Other receivables 15.7 21.9 Allowance for credit losses (13.3) (8.1)
Total $ 31.0 $ 45.0 The Evergy Companies' other receivables at December 31, 2021 and 2020, consisted primarily of receivables from partners in jointly-owned electric utility plants, wholesale sales receivables and receivables related to alternative revenue programs. The Evergy Companies' other receivables also included receivables from contracts with customers as summarized in the following table.
December 31 2021 2020 (millions)
Evergy $ 63.7 $ 57.5 Evergy Kansas Central 62.6 49.9 Evergy Metro 0.5 6.9 99
The change in the Evergy Companies' allowance for credit losses is summarized in the following table.
2021 2020 Evergy (millions)
Beginning balance January 1 $ 19.3 $ 10.5 Credit loss expense 28.0 24.9 Write-offs (26.4) (28.6)
Recoveries of prior write-offs 12.0 12.5 Ending balance December 31 $ 32.9 $ 19.3 Evergy Kansas Central Beginning balance January 1 $ 7.5 $ 3.8 Credit loss expense 12.0 11.1 Write-offs (11.0) (10.0)
Recoveries of prior write-offs 4.5 2.6 Ending balance December 31 $ 13.0 $ 7.5 Evergy Metro Beginning balance January 1 $ 8.1 $ 4.6 Credit loss expense 10.5 9.0 Write-offs (10.6) (12.4)
Recoveries of prior write-offs 5.3 6.9 Ending balance December 31 $ 13.3 $ 8.1 Sale of Accounts Receivable Evergy Kansas Central, Evergy Metro and Evergy Missouri West sell an undivided percentage ownership interest in their retail electric accounts receivable to independent outside investors. These sales are accounted for as secured borrowings with accounts receivable pledged as collateral and a corresponding short-term collateralized note payable recognized on the balance sheets. The Evergy Companies' accounts receivable pledged as collateral and the corresponding short-term collateralized note payable are summarized in the following table.
December 31 2021 2020 (millions)
Evergy $ 319.0 $ 360.0 Evergy Kansas Central 153.0 180.0 Evergy Metro 116.0 130.0 Each receivable sale facility expires in 2024. Evergy Kansas Central's facility allows for $185.0 million in aggregate outstanding principal amount of borrowings from mid-October through mid-June and then $200.0 million from mid-June through mid-October. Evergy Metro's facility allows for $130.0 million in aggregate outstanding principal amount of borrowings at any time. Evergy Missouri West's facility 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 mid-November.
- 4. RATE MATTERS AND REGULATION KCC Proceedings Evergy Kansas Central 2021 Transmission Delivery Charge (TDC)
In April 2021, the KCC issued an order adjusting Evergy Kansas Central's retail prices to include updated transmission costs as reflected in the FERC transmission formula rate (TFR). The new prices were effective in April 2021 and are expected to increase Evergy Kansas Central's annual retail revenues by $37.9 million when compared to 2020.
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Evergy Metro 2021 TDC In April 2021, the KCC issued an order adjusting Evergy Metro's retail prices to include updated transmission costs as reflected in the FERC TFR. The new prices were effective in May 2021 and are expected to decrease Evergy Metro's annual retail revenues by $2.4 million when compared to 2020.
Evergy Kansas Central and Evergy Metro Earnings Review and Sharing Plan (ERSP)
As part of their merger settlement agreement with the KCC, Evergy Kansas Central and Evergy Metro agreed to participate in an ERSP for the years 2019 through 2022. Under the ERSP, Evergy Kansas Central's and Evergy Metro'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 annual bill credits that Evergy Kansas Central and Evergy Metro agreed to provide in connection with the merger that resulted in the formation of Evergy.
Evergy Kansas Central's and Evergy Metro's 2020 calculations of annual earnings did not result in a significant refund obligation. As of December 31, 2021, Evergy Kansas Central estimates its 2021 annual earnings will not result in a refund obligation. As of December 31, 2021, Evergy Metro estimates its 2021 annual earnings will result in a $2.0 million refund obligation. The final refund obligations for 2021 will be decided by the KCC and could vary from the current estimates.
Evergy Kansas Central and Evergy Metro February 2021 Winter Weather Event AAO In February 2021, the KCC issued an emergency AAO directing all Kansas-jurisdictional natural gas and electric utilities, including Evergy Kansas Central and Evergy Metro, to defer to a regulatory asset or regulatory liability any extraordinary costs or revenues, including carrying costs, to provide electric service during the February 2021 winter weather event for consideration in future rate proceedings.
As of December 31, 2021, Evergy Kansas Central had recognized a regulatory asset pursuant to the AAO of $121.5 million related to its costs incurred during the February 2021 winter weather event, primarily consisting of increased fuel and purchased power costs. As of December 31, 2021, Evergy Metro's Kansas jurisdiction had recognized a regulatory liability of $39.5 million related to its increased wholesale revenues during the February 2021 winter weather event.
In July 2021, Evergy Kansas Central and Evergy Metro made a joint filing with the KCC regarding the timing and method of recovery or refund for costs and revenues deferred pursuant to the February 2021 winter weather event AAO. In the filing, Evergy Kansas Central and Evergy Metro requested to recover or refund, as appropriate, their deferred February 2021 winter weather event amounts to customers through their fuel recovery mechanisms over two years and one year, respectively, beginning in April 2022. As part of the filing, Evergy Metro also requested an approximately $6 million decrease to its February 2021 winter weather event refund to Kansas customers, which is not currently reflected in its regulatory liability for the February 2021 winter weather event, for jurisdictional allocation differences in its Kansas and Missouri fuel recovery mechanisms.
In January 2022, KCC staff filed their report and recommendation regarding the February 2021 winter weather event and the related costs and revenues deferred by Evergy Kansas Central and Evergy Metro as a result of the AAO granted by the KCC in February 2021. The report concluded that the costs incurred and revenues earned by Evergy Kansas Central and Evergy Metro during the February 2021 winter weather event were prudent. The KCC staff also recommended the following: (1) that Evergy Metro extend the time period of its refund to customers from one year to two years; (2) that the KCC reject the approximately $6 million reduction in refund to customers requested by Evergy Metro due to jurisdictional allocation differences in its Kansas and Missouri fuel recovery mechanisms and (3) that Evergy Metro and the other active parties in the case work to determine the appropriate level of carrying charges that should apply to the amounts deferred related to the February 2021 winter weather event.
A decision by the KCC regarding Evergy Kansas Centrals and Evergy Metros joint filing is expected in the first half of 2022.
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Lawrence Energy Center (LEC) Unit 4 Securitization In April 2021, the state of Kansas passed the Utility Financing and Securitization Act (UFSA) which allows certain public utilities, including Evergy Kansas Central and Evergy Metro, to securitize utility assets in order to recover energy transition costs relating to the early retirement of certain generating assets. To recover the energy transition costs through securitization as allowed in the UFSA, a public utility must obtain a predetermination order from the KCC finding that the retirement of the subject generation facility is reasonable. Upon the receipt of a successful predetermination order, the public utility must then file an application with the KCC for a financing order to issue securitized bonds to recover the energy transition costs. The UFSA also allows the pursuit of securitization to help finance qualified extraordinary expenses, such as fuel costs incurred during extreme weather events.
In September 2021, Evergy Kansas Central filed a predetermination request with the KCC for the ratemaking principles and treatment related to its planned investment in approximately 190 MW of solar generation and the planned retirement of coal-fired LEC Unit 4 and related coal-handling facilities for LEC Units 4 and 5, both of which are expected to occur between December 2023 and the first half of 2024. In February 2022, Evergy Kansas Central withdrew its predetermination request with the KCC in order to finalize definitive documentation associated with the solar investment and to develop additional information to enable the KCC to evaluate its predetermination request. Evergy Kansas Central anticipates refiling its predetermination request, including this additional information, later in 2022.
If the KCC finds that Evergy Kansas Central's planned retirement of LEC Unit 4 and investment in 190 MW of solar generation is prudent as part of a predetermination request, Evergy Kansas Central then plans to file an application with the KCC for a financing order authorizing the issuance of securitized bonds to recover energy transition costs associated with the retirement of LEC Unit 4 and the related coal-handling facilities for LEC Units 4 and 5.
MPSC Proceedings Evergy Metro 2022 Rate Case Proceeding In January 2022, Evergy Metro filed an application with the MPSC to request an increase to its retail revenues of
$43.9 million before rebasing fuel and purchased power expense, with a return on equity of 10% and a rate-making equity ratio of 51.19%. The request reflects increases related to higher property taxes and the recovery of infrastructure investments made to improve reliability and enhance customer service and were also partially offset by significant customer savings and cost reductions created since the Great Plains Energy and Evergy Kansas Central merger in 2018. Evergy Metro also requested an additional $3.8 million increase associated with rebasing fuel and purchased power expense as well as the implementation of tracking mechanisms for both property tax expense and credit loss expense and the creation of a storm reserve as part of its application with the MPSC.
An evidentiary hearing in the case is expected to occur in September 2022 and new rates are expected to be effective in December 2022.
Evergy Missouri West 2022 Rate Case Proceeding In January 2022, Evergy Missouri West filed an application with the MPSC to request an increase to its retail revenues of $27.7 million before rebasing fuel and purchased power expense, with a return on equity of 10% and a rate-making equity ratio of 51.81%. The request reflects increases related to higher property taxes and the recovery of infrastructure investments made to improve reliability and enhance customer service and were also partially offset by significant customer savings and cost reductions created since the Great Plains Energy and Evergy Kansas Central merger in 2018. Evergy Missouri West also requested an additional $32.1 million increase associated with rebasing fuel and purchased power expense, the implementation of tracking mechanisms for both property tax expense and credit loss expense, the creation of a storm reserve, and the full return of and return on its unrecovered investment related to the 2018 retirement of Sibley Station as part of its application with the MPSC.
An evidentiary hearing in the case is expected to occur in September 2022 and new rates are expected to be effective in December 2022.
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Evergy Missouri West Other Proceedings In December 2018, the Office of the Public Counsel (OPC) and the Midwest Energy Consumers Group (MECG) filed a petition with the MPSC requesting an AAO that would require Evergy Missouri West 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 stations retirement in November 2018.
In October 2019, the MPSC granted OPC's and MECG's request for an AAO and required Evergy Missouri West to record a regulatory liability for the revenues discussed above for consideration in Evergy Missouri West's current rate case. Depending on the MPSC's decision in the current rate case, Evergy Missouri West could be required to refund to customers all or a portion of amounts collected in revenue for Sibley Station since December 2018 or, alternatively, could be required to make no refunds. As part of its current rate case, Evergy Missouri West is proposing to refund to customers the revenues collected from customers for non-fuel operations and maintenance costs and other costs associated with Sibley Station following the station's retirement but not the return on investment.
As a result of the MPSC order, Evergy has recorded a regulatory liability of $29.3 million as of December 31, 2021 for the estimated amount of revenues that Evergy Missouri West has collected from customers for Sibley Station since December 2018 that Evergy has determined is probable of refund. Evergy expects that it will continue to defer such amounts as collected from customers until new rates become effective in Evergy Missouri West's current rate case.
The accrual for this estimated amount does not include certain revenues collected related to Sibley Station that Evergy has determined to not be probable of refund in the current rate case based on the relevant facts and circumstances. Although Evergy has determined these additional revenues to not be probable of refund, the ultimate resolution of this matter in Evergy Missouri West's current rate case is uncertain and could result in an estimated loss of approximately $50 million when new rates are expected to become effective in December 2022.
Evergy's regulatory liability for probable refunds as of December 31, 2021 and estimated loss in excess of the amount accrued represent estimates that could change significantly based on ongoing developments including decisions in other regulatory proceedings that establish precedent applicable to this matter and positions of parties on this issue in Evergy Missouri West's 2022 rate case.
Evergy Metro and Evergy Missouri West February 2021 Winter Weather Event AAO In June 2021, Evergy Metro and Evergy Missouri West filed a joint request for an AAO with the MPSC that would allow Evergy Metro and Evergy Missouri West to defer to a regulatory asset or regulatory liability any extraordinary costs or revenues, including carrying costs, to provide electric service during the February 2021 winter weather event for consideration in future proceedings.
Evergy Metro and Evergy Missouri West have currently deferred substantially all of their fuel and purchased power costs, net of wholesale revenues, related to the February 2021 winter weather event to a regulatory asset or liability pursuant to their ability to recover or refund these amounts through their fuel recovery mechanisms, which allow for the recovery or refund of 95% of increases in fuel and purchased power costs, net of wholesale revenues, above the amount included in base rates to customers. This AAO request is intended to address the recovery or refund of the February 2021 winter weather event amounts separate from the normal fuel recovery mechanism process given the extraordinary nature of the February 2021 winter weather event and to help moderate customer bill impacts. As of December 31, 2021, Evergy Metro's Missouri jurisdiction had recognized a regulatory liability of $25.6 million related to its increased wholesale revenues during the February 2021 winter weather event. As of December 31, 2021, Evergy Missouri West had recognized a regulatory asset of $281.6 million related to its costs incurred during the February 2021 winter weather event, primarily consisting of increased fuel and purchased power costs.
In the AAO filing, Evergy Metro requested to refund its deferred February 2021 winter weather event amounts to customers through its fuel recovery mechanism over one year, beginning in April 2022. In the same AAO filing, Evergy Missouri West requested to exclude its deferred February 2021 winter weather event amounts from recovery through its fuel recovery mechanism and indicated its intent to recover them through issuing securitized bonds 103
pursuant to the securitization legislation signed into law in Missouri in July 2021. As part of the filing, Evergy Metro also requested an approximately $5 million decrease to its February 2021 winter weather refund to Missouri customers, which is not currently reflected in its regulatory liability for the February 2021 winter weather event, for jurisdictional allocation differences in its Kansas and Missouri fuel recovery mechanisms and for the portion of net wholesale revenues not traditionally refundable because of the 5% sharing provision of its fuel recovery mechanism.
Evergy Missouri West requested an approximately $15 million increase to its February 2021 winter weather event recovery from Missouri customers, which is not currently reflected in its regulatory asset for the February 2021 winter weather event, for the portion of net fuel and purchased power costs not traditionally recoverable because of the 5% sharing provision of its fuel recovery mechanism.
In September 2021, MPSC staff filed their recommendation regarding the February 2021 winter weather event and the related costs and revenues deferred by Evergy Metro and Evergy Missouri West. The MPSC staff recommended that the MPSC reject Evergy Metros AAO request, including the approximately $5 million reduction in refund to customers requested by Evergy Metro due to jurisdictional allocation differences in its Kansas and Missouri fuel recovery mechanisms, and refund the excess wholesale revenues from the February 2021 winter weather event to customers through its normal fuel recovery mechanism process. The MPSC staff recommended that the MPSC approve Evergy Missouri Wests AAO request, including the approximately $15 million of additional recovery requested related to the 5% sharing provision of its fuel recovery mechanism, but that the AAO deferral should not include carrying costs as they should be determined in a future ratemaking proceeding.
A decision by the MPSC regarding Evergy Metros and Evergy Missouri Wests joint request is expected in the first half of 2022.
FERC Proceedings In October of each year, Evergy Kansas Central and Evergy Metro post an updated TFR that includes projected transmission capital expenditures and operating costs for the following year. This rate is the most significant component in the retail rate calculation for Evergy Kansas Central's and Evergy Metro's annual request with the KCC to adjust retail prices to include updated transmission costs through the TDC.
Evergy Kansas Central TFR In the most recent three years, the updated TFR was expected to adjust Evergy Kansas Central's annual transmission revenues by approximately:
- $33.2 million increase effective in January 2022;
- $32.4 million increase effective in January 2021; and
- $6.8 million increase effective in January 2020.
Evergy Metro TFR In the most recent three years, the updated TFR was expected to adjust Evergy Metro's annual transmission revenues by approximately:
- $18.1 million increase effective in January 2022;
- $3.9 million decrease effective in January 2021; and
- $1.7 million decrease effective in January 2020.
Regulatory Assets and Liabilities The Evergy Companies have recorded assets and liabilities on their consolidated balance sheets resulting from the effects of the ratemaking process, which would not otherwise be recorded if they were not regulated. Regulatory assets represent incurred costs that are probable of recovery from future revenues. Regulatory liabilities represent future reductions in revenues or refunds to customers.
Management regularly assesses whether regulatory assets and liabilities are probable of future recovery or refund by considering factors such as decisions by the MPSC, KCC or FERC in Evergy Kansas Central's, Evergy Metro's and 104
Evergy Missouri West's rate case filings; decisions in other regulatory proceedings, including decisions related to other companies that establish precedent on matters applicable to the Evergy Companies; and changes in laws and regulations. If recovery or refund of regulatory assets or liabilities is not approved by regulators or is no longer deemed probable, these regulatory assets or liabilities are recognized in the current period results of operations. The Evergy Companies continued ability to meet the criteria for recording regulatory assets and liabilities may be affected in the future by restructuring and deregulation in the electric industry or changes in accounting rules. In the event that the criteria no longer applied to any or all of the Evergy Companies' operations, the related regulatory assets and liabilities would be written off unless an appropriate regulatory recovery mechanism were provided.
Additionally, these factors could result in an impairment on utility plant assets.
The Evergy Companies' regulatory assets and liabilities are detailed in the following tables.
December 31 2021 2020 Evergy Evergy Kansas Evergy Kansas Evergy Evergy Central Metro Evergy Central Metro Regulatory Assets (millions)
Pension and post-retirement costs $ 567.2 $ 265.6 $ 213.3 $ 867.8 $ 412.9 $ 359.9 Debt reacquisition costs 94.4 86.7 6.7 98.9 91.3 6.8 Debt fair value adjustment 96.5 104.0 Asset retirement obligations fair value adjustment 117.9 116.2 Depreciation 98.5 50.1 27.0 70.0 52.7 9.4 Cost of removal 257.5 141.0 90.2 183.4 125.7 57.7 Asset retirement obligations 119.3 52.3 49.1 170.8 55.0 84.0 Analog meter unrecovered investment 18.4 18.4 24.1 24.1 Treasury yield hedges 20.4 20.4 21.5 21.5 Iatan No. 1 and common facilities 6.5 2.7 6.9 2.8 Iatan No. 2 construction accounting costs 24.7 12.4 25.4 12.7 Kansas property tax surcharge 39.6 31.6 8.0 28.9 23.7 5.2 Disallowed plant costs 14.2 14.2 14.5 14.5 La Cygne environmental costs 11.2 9.0 2.2 12.4 10.1 2.3 Deferred customer programs 18.7 6.4 7.8 16.3 5.7 8.6 Fuel recovery mechanisms 202.5 120.8 19.8 26.2 1.2 17.7 February 2021 winter weather event 403.1 121.5 Solar rebates 20.2 25.9 1.5 Wolf Creek outage 20.4 10.2 10.2 10.0 5.0 5.0 Pension and other post-retirement benefit non-service costs 65.6 23.0 29.6 49.8 12.8 23.4 Retired generation facilities 123.4 128.4 Merger transition costs 32.7 15.6 12.1 37.6 18.0 13.9 Other regulatory assets 42.3 24.1 5.9 35.4 22.1 4.6 Total 2,415.2 1,010.9 497.0 2,074.4 896.3 615.5 Less: current portion (424.1) (257.3) (86.3) (206.2) (96.2) (82.0)
Total noncurrent regulatory assets $ 1,991.1 $ 753.6 $ 410.7 $ 1,868.2 $ 800.1 $ 533.5 105
December 31 2021 2020 Evergy Evergy Kansas Evergy Kansas Evergy Evergy Central Metro Evergy Central Metro Regulatory Liabilities (millions)
Taxes refundable through future rates $ 1,969.5 $ 1,143.7 $ 616.1 $ 2,055.7 $ 1,184.5 $ 650.2 Deferred regulatory gain from sale leaseback 42.6 42.6 48.1 48.1 Emission allowances 42.1 42.1 46.1 46.1 Nuclear decommissioning 400.1 175.7 224.4 319.7 138.2 181.5 Pension and post-retirement costs 44.4 23.2 15.9 50.8 31.4 13.1 Jurisdictional allowance for funds used during construction 27.5 25.8 1.7 28.7 27.0 1.7 La Cygne leasehold dismantling costs 29.6 29.6 29.6 29.6 Cost of removal 4.4 Kansas tax credits 16.7 16.7 Purchase power agreement 5.8 5.8 6.3 6.3 Fuel recovery mechanisms 6.5 6.5 1.3 February 2021 winter weather event 65.1 65.1 Sibley AAO 29.3 18.4 Other regulatory liabilities 96.5 19.1 37.0 55.8 7.8 14.8 Total 2,775.7 1,482.2 1,008.8 2,664.9 1,472.9 907.4 Less: current portion (70.7) (12.8) (54.6) (26.1) (11.9) (8.0)
Total noncurrent regulatory liabilities $ 2,705.0 $ 1,469.4 $ 954.2 $ 2,638.8 $ 1,461.0 $ 899.4 The following summarizes the nature and period of recovery for each of the regulatory assets listed in the table above.
Pension and post-retirement costs: Represents unrecognized gains and losses and prior service costs that will be recognized in future net periodic pension and post-retirement costs, pension settlements amortized over various periods and financial and regulatory accounting method differences that will be eliminated over the life of the pension plans. Of these amounts, $494.6 million, $265.6 million and $179.0 million for Evergy, Evergy Kansas Central and Evergy Metro, respectively, are not included in rate base and are amortized over various periods.
Additionally, $219.7 million, $(11.6) million and $123.3 million for Evergy, Evergy Kansas Central and Evergy Metro, respectively, represent differences between pension and post-retirement costs under GAAP and pension and post-retirement costs for ratemaking that will be recovered or refunded in future rates and differences in accumulated unrecognized gains and losses and prior service costs between Evergy and Evergy Metro due to Evergy Metro electing not to apply "push-down accounting" related to the Great Plains Energy and Evergy Kansas Central merger.
Debt reacquisition costs: Includes costs incurred to reacquire and refinance debt. These costs are amortized over the term of the new debt or the remaining lives of the old debt issuances if no new debt was issued and are not included in rate base.
Debt fair value adjustment: Represents purchase accounting adjustments recorded to state the carrying value of Evergy Metro and Evergy Missouri West long-term debt at fair value in connection with the Great Plains Energy and Evergy Kansas Central merger. Amount is amortized over the life of the related debt and is not included in rate base.
Asset retirement obligations fair value adjustment: Represents purchase accounting adjustments recorded to state the carrying value of Evergy Metro and Evergy Missouri West AROs at fair value in connection with the Great 106
Plains Energy and Evergy Kansas Central merger. Amount is amortized over the life of the related plant and is not included in rate base.
Depreciation: Represents the difference between regulatory depreciation expense and depreciation expense recorded for financial reporting purposes. These assets are included in rate base and the difference is amortized over the life of the related plant.
Cost of removal: Represents amounts spent, but not yet collected, to dispose of plant assets. This asset will decrease as removal costs are collected in rates and is included in rate base.
Asset retirement obligations: Represents amounts associated with AROs as discussed further in Note 6. These amounts are recovered over the life of the related plant and are not included in rate base.
Analog meter unrecovered investment: Represents the deferral of unrecovered investment of retired analog meters. Of this amount, $10.1 million is not included in rate base for Evergy and Evergy Kansas Central and is being amortized over a five-year period.
Treasury yield hedges: Represents the effective portion of treasury yield hedge transactions. Amortization of this amount will be included in interest expense over the term of the related debt and is not included in rate base.
Iatan No. 1 and common facilities: Represents depreciation and carrying costs related to Iatan No. 1 and common facilities. These costs are included in rate base and amortized over various periods.
Iatan No. 2 construction accounting costs: Represents the construction accounting costs related to Iatan No. 2.
These costs are included in rate base and amortized through 2059.
Kansas property tax surcharge: Represents actual costs incurred for property taxes in excess of amounts collected in revenues. These costs are expected to be recovered over a one-year period and are not included in rate base.
Disallowed plant costs: The KCC originally disallowed certain costs related to the Wolf Creek plant. In 1987, the KCC revised its original conclusion and provided for recovery of an indirect disallowance with no return on investment. This regulatory asset represents the present value of the future expected revenues to be provided to recover these costs, net of the amounts amortized.
La Cygne environmental costs: Represents the deferral of depreciation and amortization expense and associated carrying charges related to the La Cygne Station environmental project. This amount will be amortized over the life of the related asset and is included in rate base.
Deferred customer programs: Represents costs related to various energy efficiency programs that have been accumulated and deferred for future recovery. Of these amounts, $12.3 million for Evergy and $7.8 million for Evergy Metro are not included in rate base and are amortized over various periods.
Fuel recovery mechanisms: Represents the actual cost of fuel consumed in producing electricity and the cost of purchased power in excess of the amounts collected from customers. This difference is expected to be recovered over a one-year period and is not included in rate base.
February 2021 winter weather event: Represents deferred extraordinary fuel and purchased power costs incurred to provide electric service as a result of the February 2021 winter weather event. These amounts are not included in rate base.
Solar rebates: Represents costs associated with solar rebates provided to retail electric customers. These amounts are not included in rate base and are amortized over various periods.
Wolf Creek outage: Represents deferred expenses associated with Wolf Creek's scheduled refueling and maintenance outages. These expenses are amortized during the period between planned outages and are not included in rate base.
Pension and other post-retirement benefit non-service costs: Represents the non-service component of pension and post-retirement net benefit costs that are capitalized as authorized by regulators. The amounts are included in rate base and are recovered over the life of the related asset.
Retired generation facilities: Represents amounts to be recovered for facilities that have been retired and are probable of recovery.
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Merger transition costs: Represents recoverable transition costs related to the merger. The amounts are not included in rate base and are recovered from retail customers through 2028.
Other regulatory assets: Includes various regulatory assets that individually are small in relation to the total regulatory asset balance. These amounts have various recovery periods and are not included in rate base.
The following summarizes the nature and period of amortization for each of the regulatory liabilities listed in the table above.
Taxes refundable through future rates: Represents the obligation to return to customers income taxes recovered in earlier periods when corporate income tax rates were higher than current income tax rates. A large portion of this amount is related to depreciation and will be returned to customers over the life of the applicable property.
Deferred regulatory gain from sale leaseback: Represents the gain Evergy Kansas South recorded on the 1987 sale and leaseback of its 50% interest in La Cygne Unit 2. The gain is amortized over the term of the lease.
Emission allowances: Represents deferred gains related to the sale of emission allowances to be returned to customers.
Nuclear decommissioning: Represents the difference between the fair value of the assets held in the nuclear decommissioning trust and the amount recorded for the accumulated accretion and depreciation expense associated with the asset retirement obligation related to Wolf Creek.
Pension and post-retirement costs: Includes pension and post-retirement benefit obligations and expense recognized in setting prices in excess of actual pension and post-retirement expense.
Jurisdictional allowance for funds used during construction: Represents AFUDC that is accrued subsequent to the time the associated construction charges are included in prices and prior to the time the related assets are placed in service. The AFUDC is amortized to depreciation expense over the useful life of the asset that is placed in service.
La Cygne leasehold dismantling costs: Represents amounts collected but not yet spent on the contractual obligation to dismantle a portion of La Cygne Unit 2. The obligation will be discharged as the unit is dismantled.
Cost of removal: Represents amount collected, but not yet spent, to dispose of plant assets. This liability will be discharged as removal costs are incurred.
Kansas tax credits: Represents Kansas tax credits on investment in utility plant. Amounts will be credited to customers subsequent to the realization of the credits over the remaining lives of the utility plant giving rise to the tax credits.
Purchase power agreement: Represents the amount included in retail electric rates from customers in excess of costs incurred under purchase power agreements. Amounts are amortized over a five-year period.
Fuel recovery mechanisms: Represents the amount collected from customers in excess of the actual cost of fuel consumed in producing electricity and the cost of purchased power. This difference is expected to be refunded over a one-year period and is not included in rate base.
February 2021 winter weather event: Represents the deferral of increased wholesale revenues earned during the February 2021 winter weather event.
Sibley AAO: Represents the estimated amount of revenues that Evergy Missouri West has collected from customers for Sibley Station that Evergy has determined is probable of refund. These amounts were recorded in connection with an AAO granted by the MPSC in October 2019 and deferred amounts will be considered by the MPSC in Evergy Missouri West's 2022 rate case.
Other regulatory liabilities: Includes various regulatory liabilities that individually are relatively small in relation to the total regulatory liability balance. These amounts will be credited over various periods.
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- 5. GOODWILL GAAP requires goodwill to be tested for impairment annually and when an event occurs indicating the possibility that an impairment exists. Evergy's impairment test for the $2,336.6 million of goodwill that was recorded as a result of the Great Plains Energy and Evergy Kansas Central merger was conducted as of May 1, 2021. The goodwill impairment test consists of comparing the fair value of a reporting unit to its carrying amount, including goodwill, to identify potential impairment. In the event that the carrying amount exceeds the fair value of the reporting unit, an impairment loss is recognized for the difference between the carrying amount of the reporting unit and its fair value. Evergy's consolidated operations are considered one reporting unit for assessment of impairment, as management assesses financial performance and allocates resources on a consolidated basis. The determination of fair value of the reporting unit consisted of two valuation techniques: an income approach consisting of a discounted cash flow analysis and a market approach consisting of a determination of reporting unit invested capital using a market multiple derived from the historical earnings before interest, income taxes, depreciation and amortization and market prices of the stock of peer companies. The results of the two techniques were evaluated and weighted to determine a point within the range that management considered representative of fair value for the reporting unit. The fair value of the reporting unit exceeded the carrying amount, including goodwill. As a result, there was no impairment of goodwill.
- 6. ASSET RETIREMENT OBLIGATIONS AROs associated with tangible long-lived assets are legal obligations that exist under enacted laws, statutes and written or oral contracts, including obligations arising under the doctrine of promissory estoppel. These liabilities are recognized at estimated fair value as incurred with a corresponding amount capitalized as part of the cost of the related long-lived assets and depreciated over their useful lives. Accretion of the liabilities due to the passage of time is recorded to a regulatory asset and/or liability. Changes in the estimated fair values of the liabilities are recognized when known.
Evergy Kansas Central, Evergy Metro and Evergy Missouri West have AROs related to asbestos abatement and the closure and post-closure care of ponds and landfills containing coal combustion residuals (CCRs). In addition, Evergy Kansas Central and Evergy Metro have AROs related to decommissioning Wolf Creek and the retirement of wind generation facilities.
The MPSC and KCC require the owners of Wolf Creek, including Evergy Kansas South and Evergy Metro with their respective 47% ownership shares, to submit an updated decommissioning cost study every three years. The most recent study was submitted to the MPSC and KCC in September 2020. As a result of changes in estimates related to the study, Evergy, Evergy Kansas Central and Evergy Metro recorded increases to their AROs to decommission Wolf Creek of $259.1 million, $140.7 million and $118.4 million, respectively, in 2020.
The following table summarizes the change in the Evergy Companies' AROs for the periods ending December 31, 2021 and 2020.
Evergy Kansas Evergy Central Evergy Metro 2021 2020 2021 2020 2021 2020 (millions)
Beginning balance January 1 $ 941.9 $ 674.1 $ 427.2 $ 272.9 $ 378.9 $ 253.6 Revision in timing and/or estimates 13.5 249.3 3.8 136.8 9.5 118.4 Settlements (38.7) (18.4) (10.6) (2.2) (24.4) (7.5)
Accretion 43.4 36.9 23.5 19.7 17.0 14.4 Ending balance $ 960.1 $ 941.9 $ 443.9 $ 427.2 $ 381.0 $ 378.9 Less: current portion (19.5) (40.2) (7.3) (11.2) (11.0) (21.2)
Total noncurrent asset retirement obligation $ 940.6 $ 901.7 $ 436.6 $ 416.0 $ 370.0 $ 357.7 109
- 7. PROPERTY, PLANT AND EQUIPMENT The following tables summarize the property, plant and equipment of Evergy, Evergy Kansas Central and Evergy Metro.
December 31, 2021 Evergy Evergy Kansas Central Evergy Metro (millions)
Electric plant in service $ 30,289.9 $ 14,686.3 $ 11,656.9 Electric plant acquisition adjustment 724.3 724.3 Accumulated depreciation (11,515.5) (5,590.8) (4,733.7)
Plant in service 19,498.7 9,819.8 6,923.2 Construction work in progress 1,350.6 652.2 475.3 Nuclear fuel, net 152.5 76.1 76.4 Plant to be retired, net (a) 0.8 0.8 Net property, plant and equipment $ 21,002.6 $ 10,548.9 $ 7,474.9 December 31, 2020 Evergy Evergy Kansas Central Evergy Metro (millions)
Electric plant in service $ 28,914.8 $ 14,095.1 $ 11,161.8 Electric plant acquisition adjustment 724.3 724.3 Accumulated depreciation (10,998.4) (5,293.5) (4,532.7)
Plant in service 18,640.7 9,525.9 6,629.1 Construction work in progress 1,153.5 589.1 433.9 Nuclear fuel, net 155.9 77.7 78.2 Plant to be retired, net (a) 0.9 0.9 Net property, plant and equipment $ 19,951.0 $ 10,193.6 $ 7,141.2 (a)
As of December 31, 2021 and 2020, represents the planned retirement of Evergy Kansas Central analog meters prior to the end of their remaining useful lives.
The following table summarizes the property, plant and equipment of VIEs for Evergy and Evergy Kansas Central.
December 31 2021 2020 (millions)
Electric plant of VIEs $ 392.1 $ 392.1 Accumulated depreciation of VIEs (244.3) (237.2)
Net property, plant and equipment of VIEs $ 147.8 $ 154.9 Depreciation Expense The Evergy Companies' depreciation expense is detailed in the following table.
2021 2020 2019 (millions)
(a)
Evergy $ 813.6 $ 804.7 $ 786.3 Evergy Kansas Central (a) 450.3 435.1 425.8 Evergy Metro 255.9 269.5 262.7 (a)
Approximately $7.1 million of depreciation expense in each of 2021, 2020 and 2019 was attributable to property, plant and equipment of VIEs.
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- 8. JOINTLY-OWNED ELECTRIC UTILITY PLANTS Evergy's, Evergy Kansas Central's and Evergy Metro's share of jointly-owned electric utility plants at December 31, 2021, are detailed in the following tables.
Evergy Jeffrey Wolf Creek La Cygne Iatan No. 1 Iatan No. 2 Iatan Energy State Unit Units (a) Unit Unit Common Center Line (millions, except MW amounts)
Evergy's share 94% 100% 88% 73% 79% 100% 40%
Electric plant in service $ 4,078.7 $ 2,219.1 $ 765.7 $ 1,405.9 $ 503.6 $ 2,521.1 $ 115.0 Accumulated depreciation 2,040.2 816.0 251.9 480.3 122.2 1,036.7 85.2 Nuclear fuel, net 152.5 Construction work in progress 187.4 52.6 4.4 8.1 7.4 48.7 25.5 2022 accredited capacity-MWs 1,108 1,426 618 640 n/a 2,191 200 (a)
The VIE consolidated by Evergy and Evergy Kansas Central holds its 50% leasehold interest in La Cygne Unit 2. This 50% leasehold interest in La Cygne Unit 2 is reflected in the information provided above. See Note 18 for additional information.
Evergy Kansas Central Jeffrey Wolf Creek La Cygne Energy State Unit Units (a) Center Line (millions, except MW amounts)
Evergy Kansas Central's share 47% 50% 92% 40%
Electric plant in service $ 2,019.8 $ 1,047.4 $ 2,307.6 $ 115.0 Accumulated depreciation 992.2 475.2 944.5 85.2 Nuclear fuel, net 76.1 Construction work in progress 83.6 29.0 44.9 25.5 2022 accredited capacity-MWs 554 713 2,016 200 (a)
The VIE consolidated by Evergy and Evergy Kansas Central holds its 50% leasehold interest in La Cygne Unit 2. This 50% leasehold interest in La Cygne Unit 2 is reflected in the information provided above. See Note 18 for additional information.
Evergy Metro Wolf Creek La Cygne Iatan No. 1 Iatan No. 2 Iatan Unit Units Unit Unit Common (millions, except MW amounts)
Evergy Metro's share 47% 50% 70% 55% 61%
Electric plant in service $ 2,058.9 $ 1,171.7 $ 594.8 $ 1,066.4 $ 399.6 Accumulated depreciation 1,048.0 340.8 205.3 412.5 103.3 Nuclear fuel, net 76.4 Construction work in progress 103.8 23.6 3.6 6.1 5.5 2022 accredited capacity-MWs 554 713 492 482 NA Each owner must fund its own portion of the plant's operating expenses and capital expenditures. The Evergy Companies' share of direct expenses are included in the appropriate operating expense classifications in Evergy's, Evergy Kansas Central's and Evergy Metro's consolidated financial statements.
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- 9. PENSION PLANS AND POST-RETIREMENT BENEFITS Evergy and certain of its subsidiaries maintain, and Evergy Kansas Central and Evergy Metro participate in, qualified non-contributory defined benefit pension plans covering the majority of Evergy Kansas Central's and Evergy Metro's employees as well as certain non-qualified plans covering certain active and retired officers. Evergy is also responsible for its indirect 94% ownership share of Wolf Creek's defined benefit plans, consisting of Evergy Kansas South's and Evergy Metro'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 Evergy Kansas Central'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 Evergy Metro'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 Evergy Kansas Central and Evergy Metro 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.
For 2021, Evergy, Evergy Kansas Central and Evergy Metro recorded pension settlement charges of $34.3 million,
$25.6 million and $13.7 million, respectively. For 2020, Evergy and Evergy Metro recorded pension settlement charges of $11.2 million and $14.3 million, respectively. For 2019, Evergy and Evergy Metro recorded pension settlement charges of $15.6 million and $23.0 million, respectively. These settlement charges were the result of accelerated pension distributions as a result of employee retirements and annuity purchases for certain plan participants in 2021. Evergy, Evergy Kansas Central and Evergy Metro deferred substantially all of the charges to a regulatory asset and expect to recover these amounts over future periods pursuant to regulatory agreements.
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The following pension benefits tables provide information relating to the funded status of all defined benefit pension plans on an aggregate basis as well as the components of net periodic benefit costs. For financial reporting purposes, the market value of plan assets is the fair value. Net periodic benefit costs reflect total plan benefit costs prior to the effects of capitalization and sharing with joint owners of power plants.
Pension Benefits Post-Retirement Benefits Evergy Evergy Kansas Evergy Kansas Evergy Evergy Central Metro Evergy Central Metro Change in projected benefit obligation (PBO) (millions)
PBO at January 1, 2021 $ 2,901.1 $ 1,429.6 $ 1,446.5 $ 280.4 $ 146.8 $ 133.6 Service cost 82.6 29.1 53.5 3.3 1.7 1.6 Interest cost 84.2 41.0 42.5 7.8 4.0 3.8 Contribution by participants 9.0 1.4 7.6 Actuarial gain (119.0) (50.0) (68.3) (17.2) (9.4) (7.8)
Benefits paid (93.5) (54.8) (37.5) (24.9) (10.6) (14.3)
Settlements (284.0) (126.2) (157.8)
Other (9.7) (4.3) (5.4)
PBO at December 31, 2021 $ 2,561.7 $ 1,264.4 $ 1,273.5 $ 258.4 $ 133.9 $ 124.5 Change in plan assets Fair value of plan assets at January 1, 2021 $ 1,799.1 $ 887.0 $ 912.1 $ 248.3 $ 125.8 $ 122.5 Actual return on plan assets 145.5 83.4 62.1 5.2 6.5 (1.3)
Contributions by employer and participants 148.7 46.5 102.2 11.8 1.7 10.1 Benefits paid (89.4) (52.3) (37.1) (23.0) (10.0) (13.0)
Settlements (279.5) (124.6) (154.9)
Other (9.7) (4.3) (5.4)
Fair value of plan assets at December 31, 2021 $ 1,714.7 $ 835.7 $ 879.0 $ 242.3 $ 124.0 $ 118.3 Funded status at December 31, 2021 $ (847.0) $ (428.7) $ (394.5) $ (16.1) $ (9.9) $ (6.2)
Pension Benefits Post-Retirement Benefits Evergy Evergy Kansas Evergy Kansas Evergy Evergy Central Metro Evergy Central Metro Amounts recognized in the consolidated balance sheets (millions)
Non-current asset $ $ $ $ 21.5 $ $ 21.5 Current pension and other post-retirement liability (4.4) (2.4) (0.7) (1.1) (0.6) (0.6)
Noncurrent pension liability and other post-retirement liability (842.6) (426.3) (393.8) (36.5) (9.3) (27.1)
Net amount recognized before regulatory treatment (847.0) (428.7) (394.5) (16.1) (9.9) (6.2)
Accumulated OCI or regulatory asset/liability 317.2 263.6 84.6 (11.4) (9.6) (10.5)
Net amount recognized at December 31, 2021 $ (529.8) $ (165.1) $ (309.9) $ (27.5) $ (19.5) $ (16.7)
Amounts in accumulated OCI or regulatory asset/
liability not yet recognized as a component of net periodic benefit cost:
Actuarial (gain) loss $ 302.4 $ 246.6 $ 86.4 $ (12.6) $ (10.5) $ (3.8)
Prior service cost 14.8 17.0 (1.8) 1.2 0.9 (6.7)
Net amount recognized at December 31, 2021 $ 317.2 $ 263.6 $ 84.6 $ (11.4) $ (9.6) $ (10.5) 113
Pension Benefits Post-Retirement Benefits Evergy Evergy Kansas Evergy Kansas Evergy Evergy Central Metro Evergy Central Metro Change in projected benefit obligation (PBO) (millions)
PBO at January 1, 2020 $ 2,718.2 $ 1,323.4 $ 1,371.4 $ 264.3 $ 138.7 $ 125.6 Service cost 78.9 27.1 51.8 2.7 1.1 1.6 Interest cost 96.8 47.0 49.1 9.2 4.8 4.4 Contribution by participants 9.3 1.8 7.5 Plan amendments 4.2 8.1 (3.9) 1.0 0.5 0.5 Actuarial loss 273.9 127.0 144.8 19.6 11.0 8.6 Benefits paid (202.5) (102.3) (99.0) (25.7) (11.1) (14.6)
Settlements (62.9) (62.9)
Other (5.5) (0.7) (4.8)
PBO at December 31, 2020 $ 2,901.1 $ 1,429.6 $ 1,446.5 $ 280.4 $ 146.8 $ 133.6 Change in plan assets Fair value of plan assets at January 1, 2020 $ 1,732.8 $ 842.1 $ 890.7 $ 239.9 $ 120.5 $ 119.4 Actual return on plan assets 209.9 99.7 110.2 20.7 13.7 7.0 Contributions by employer and participants 123.4 45.8 77.6 11.7 2.1 9.6 Benefits paid (198.6) (99.9) (98.7) (24.0) (10.5) (13.5)
Settlements (62.9) (62.9)
Other (5.5) (0.7) (4.8)
Fair value of plan assets at December 31, 2020 $ 1,799.1 $ 887.0 $ 912.1 $ 248.3 $ 125.8 $ 122.5 Funded status at December 31, 2020 $(1,102.0) $ (542.6) $ (534.4) $ (32.1) $ (21.0) $ (11.1)
Pension Benefits Post-Retirement Benefits Evergy Evergy Kansas Evergy Kansas Evergy Evergy Central Metro Evergy Central Metro Amounts recognized in the consolidated balance sheets (millions)
Non-current asset $ $ $ $ 21.3 $ $ 21.3 Current pension and other post-retirement liability (4.4) (2.5) (0.8) (1.6) (0.8) (0.9)
Noncurrent pension liability and other post-retirement liability (1,097.6) (540.1) (533.6) (51.8) (20.2) (31.5)
Net amount recognized before regulatory treatment (1,102.0) (542.6) (534.4) (32.1) (21.0) (11.1)
Accumulated OCI or regulatory asset/liability 566.9 408.0 216.9 4.0 1.0 (7.7)
Net amount recognized at December 31, 2020 $ (535.1) $ (134.6) $ (317.5) $ (28.1) $ (20.0) $ (18.8)
Amounts in accumulated OCI or regulatory asset/
liability not yet recognized as a component of net periodic benefit cost:
Actuarial (gain) loss $ 551.8 $ 388.9 $ 218.6 $ 2.2 $ (0.3) $
Prior service cost 15.1 19.1 (1.7) 1.8 1.3 (7.7)
Net amount recognized at December 31, 2020 $ 566.9 $ 408.0 $ 216.9 $ 4.0 $ 1.0 $ (7.7)
Actuarial gains for the Evergy Companies' pension benefit plans for 2021 were primarily driven by an increase in the discount rate used to measure the benefit obligation as a result of higher market interest rates. See the weighted average assumptions used to determine the benefit obligations in this Note 9 for further information. Actuarial losses for the Evergy Companies' pension benefit plans for 2020 were primarily driven by a decrease in the discount rate used to measure the benefit obligation of approximately 70 basis points as a result of lower market interest rates.
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As of December 31, 2021 and 2020, Evergy's pension benefits include non-qualified benefit obligations of $49.2 million and $52.1 million, respectively, which are funded by trusts containing assets of $44.2 million and $46.3 million, respectively. As of December 31, 2021 and 2020, Evergy Kansas Central's pension benefits include non-qualified benefit obligations of $25.4 million and $27.0 million, respectively, which are funded by trusts containing assets of $31.7 million and $32.7 million, respectively. The assets in the aforementioned trusts are not included in the table above. See Note 13 for more information on these amounts.
Pension Benefits Post-Retirement Benefits Evergy Evergy Kansas Evergy Kansas Evergy Year Ended December 31, 2021 Evergy Central Metro Evergy Central Metro Components of net periodic benefit costs (millions)
Service cost $ 82.6 $ 29.1 $ 53.5 $ 3.3 $ 1.7 $ 1.6 Interest cost 84.2 41.0 42.5 7.8 4.0 3.8 Expected return on plan assets (103.5) (52.8) (55.7) (8.9) (6.3) (2.6)
Prior service cost 2.0 2.1 0.5 0.5 (1.0)
Recognized net actuarial (gain) loss 54.1 36.0 43.8 1.4 0.6 (0.1)
Settlement and special termination benefits 34.3 25.6 13.7 Net periodic benefit costs before regulatory adjustment and intercompany allocations 153.7 81.0 97.8 4.1 0.5 1.7 Regulatory adjustment 17.3 (13.1) 4.2 (4.8) (3.3) 0.4 Intercompany allocations n/a 3.2 (25.9) n/a (0.4)
Net periodic benefit costs (income) 171.0 71.1 76.1 (0.7) (2.8) 1.7 Other changes in plan assets and benefit obligations recognized in OCI or regulatory assets/liabilities Current year net gain (195.3) (106.3) (88.4) (13.6) (9.6) (3.9)
Amortization of gain (loss) (52.4) (36.0) (43.9) (1.3) (0.5) 0.1 Amortization of prior service cost (2.0) (2.1) (0.5) (0.5) 1.0 Total recognized in OCI or regulatory asset/liability (249.7) (144.4) (132.3) (15.4) (10.6) (2.8)
Total recognized in net periodic benefit costs and OCI or regulatory asset/liability $ (78.7) $ (73.3) $ (56.2) $ (16.1) $ (13.4) $ (1.1) 115
Pension Benefits Post-Retirement Benefits Evergy Evergy Kansas Evergy Kansas Evergy Year Ended December 31, 2020 Evergy Central Metro Evergy Central Metro Components of net periodic benefit costs (millions)
Service cost $ 78.9 $ 27.1 $ 51.8 $ 2.7 $ 1.1 $ 1.6 Interest cost 96.8 47.0 49.1 9.2 4.8 4.4 Expected return on plan assets (105.6) (53.1) (54.7) (9.3) (6.6) (2.7)
Prior service cost 1.8 1.6 0.8 0.5 0.5 Recognized net actuarial loss 46.4 33.9 45.7 0.2 (0.6)
Settlement and special termination benefits 11.2 14.3 Net periodic benefit costs before regulatory adjustment and intercompany allocations 129.5 56.5 107.0 3.3 (0.2) 2.7 Regulatory adjustment 29.6 5.9 (11.6) (4.0) (3.0) (0.2)
Intercompany allocations n/a (0.2) (22.6) n/a 0.1 (0.3)
Net periodic benefit costs (income) 159.1 62.2 72.8 (0.7) (3.1) 2.2 Other changes in plan assets and benefit obligations recognized in OCI or regulatory assets/liabilities Current year net loss 169.7 80.4 89.3 8.2 3.9 4.3 Amortization of gain (loss) (59.2) (33.8) (60.0) (0.2) 0.6 Prior service cost 4.1 8.1 (3.9) 0.9 0.5 0.4 Amortization of prior service cost (1.8) (1.6) (0.8) (0.5) (0.5)
Total recognized in OCI or regulatory asset/liability 112.8 53.1 24.6 8.4 3.9 5.3 Total recognized in net periodic benefit costs and OCI or regulatory asset/liability $ 271.9 $ 115.3 $ 97.4 $ 7.7 $ 0.8 $ 7.5 Pension Benefits Post-Retirement Benefits Evergy Evergy Kansas Evergy Kansas Evergy Year Ended December 31, 2019 Evergy Central Metro Evergy Central Metro Components of net periodic benefit costs (millions)
Service cost $ 79.1 $ 29.0 $ 50.1 $ 2.5 $ 1.1 $ 1.4 Interest cost 108.0 53.7 53.3 10.5 5.6 4.9 Expected return on plan assets (106.3) (54.8) (48.9) (10.0) (6.7) (3.3)
Prior service cost 1.9 1.7 0.9 0.5 0.5 Recognized net actuarial (gain) loss 33.0 25.5 49.8 (1.2) (0.6) (1.4)
Settlement and special termination benefits 15.6 23.0 Net periodic benefit costs before regulatory adjustment and intercompany allocations 131.3 55.1 128.2 2.3 (0.1) 1.6 Regulatory adjustment 37.4 3.0 (19.2) (3.4) (3.0) 0.4 Intercompany allocations n/a (34.4) n/a (0.4)
Net periodic benefit costs (income) 168.7 58.1 74.6 (1.1) (3.1) 1.6 Other changes in plan assets and benefit obligations recognized in OCI or regulatory assets/liabilities Current year net (gain) loss 84.7 44.6 35.9 0.9 (3.8) 4.7 Amortization of gain (loss) (48.6) (25.5) (72.8) 1.2 0.6 1.4 Amortization of prior service cost (1.9) (1.7) (0.9) (0.5) (0.5)
Total recognized in OCI or regulatory asset/liability 34.2 17.4 (37.8) 1.6 (3.7) 6.1 Total recognized in net periodic benefit costs and OCI or regulatory asset/liability $ 202.9 $ 75.5 $ 36.8 $ 0.5 $ (6.8) $ 7.7 116
For financial reporting purposes, the estimated prior service cost and net actuarial (gain) loss for the defined benefit plans are amortized from accumulated other comprehensive income (OCI) or a regulatory asset into net periodic benefit cost. The Evergy Companies amortize prior service cost on a straight-line basis over the average future service of the active employees (plan participants) benefiting under the plan. Evergy and Evergy Kansas Central amortize the net actuarial (gain) loss on a straight-line basis over the average future service of active plan participants benefiting under the plan without application of an amortization corridor. Evergy Metro amortizes the net actuarial (gain) loss on a rolling five-year average basis.
Pension and other post-retirement benefit plans with the PBO, accumulated benefit obligation (ABO) or accumulated other post-retirement benefit obligation (APBO) in excess of the fair value of plan assets at year-end are detailed in the following tables.
Evergy Kansas Evergy December 31, 2021 Evergy Central Metro (millions)
ABO for all defined benefit pension plans $ 2,229.1 $ 1,124.2 $ 1,081.1 Pension plans with the PBO in excess of plan assets Projected benefit obligation $ 2,561.7 $ 1,264.4 $ 1,273.5 Fair value of plan assets 1,714.7 835.7 879.0 Pension plans with the ABO in excess of plan assets Accumulated benefit obligation $ 2,229.1 $ 1,124.2 $ 1,081.1 Fair value of plan assets 1,714.7 835.7 879.0 Other post-retirement benefit plans with the APBO in excess of plan assets Accumulated other post-retirement benefit obligation $ 258.4 $ 133.9 $ 124.5 Fair value of plan assets 242.3 124.0 118.3 Evergy Kansas Evergy December 31, 2020 Evergy Central Metro (millions)
ABO for all defined benefit pension plans $ 2,534.1 $ 1,281.6 $ 1,227.4 Pension plans with the PBO in excess of plan assets Projected benefit obligation $ 2,901.1 $ 1,429.6 $ 1,446.5 Fair value of plan assets 1,799.1 887.0 912.1 Pension plans with the ABO in excess of plan assets Accumulated benefit obligation $ 2,534.1 $ 1,281.6 $ 1,227.4 Fair value of plan assets 1,799.1 887.0 912.1 Other post-retirement benefit plans with the APBO in excess of plan assets Accumulated other post-retirement benefit obligation $ 280.4 $ 146.8 $ 133.6 Fair value of plan assets 248.3 125.8 122.5 The expected long-term rate of return on plan assets represents the Evergy Companies' estimate of the long-term return on plan assets and is based on historical and projected rates of return for current and planned asset classes in the plans' investment portfolios. Assumed projected rates of return for each asset class were selected after analyzing historical experience and future expectations of the returns of various asset classes. Based on the target asset allocation for each asset class, the overall expected rate of return for the portfolios was developed and adjusted for the effect of projected benefits paid from plan assets and future plan contributions.
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The following tables provide the weighted-average assumptions used to determine benefit obligations and net costs for the Evergy Companies' pension and post-retirement benefit plans.
Pension Benefits Post-Retirement Benefits Evergy Evergy Weighted-average assumptions used to determine Kansas Evergy Kansas Evergy the benefit obligation at December 31, 2021 Evergy Central Metro Evergy Central Metro Discount rate 3.10 % 3.10 % 3.11 % 3.12 % 3.11 % 3.13 %
Rate of compensation increase 3.75 % 3.77 % 3.71 % 3.75 % n/a 3.75 %
Interest crediting rate for cash balance plans 4.13 % 4.00 % 4.45 % n/a n/a n/a Pension Benefits Post-Retirement Benefits Evergy Evergy Weighted-average assumptions used to determine Kansas Evergy Kansas Evergy the benefit obligation at December 31, 2020 Evergy Central Metro Evergy Central Metro Discount rate 2.95 % 2.93 % 2.97 % 2.84 % 2.80 % 2.88 %
Rate of compensation increase 3.71 % 3.76 % 3.71 % 3.75 % n/a 3.75 %
Interest crediting rate for cash balance plans 4.12 % 4.00 % 4.46 % n/a n/a n/a Pension Benefits Post-Retirement Benefits Evergy Evergy Weighted-average assumptions used to determine Kansas Evergy Kansas Evergy net costs for the year ended December 31, 2021 Evergy Central Metro Evergy Central Metro Discount rate 2.95 % 2.93 % 2.97 % 2.84 % 2.80 % 2.88 %
Expected long-term return on plan assets 6.63 % 6.70 % 6.57 % 3.93 % 5.55 % 2.27 %
Rate of compensation increase 3.71 % 3.78 % 3.71 % 3.75 % n/a 3.75 %
Interest crediting rate for cash balance plans 4.12 % 4.00 % 4.46 % n/a n/a n/a Pension Benefits Post-Retirement Benefits Evergy Evergy Weighted-average assumptions used to determine Kansas Evergy Kansas Evergy net costs for the year ended December 31, 2020 Evergy Central Metro Evergy Central Metro Discount rate 3.62 % 3.61 % 3.64 % 3.56 % 3.54 % 3.58 %
Expected long-term return on plan assets 6.63 % 6.70 % 6.56 % 4.19 % 6.00 % 2.37 %
Rate of compensation increase 3.74 % 3.75 % 3.71 % 3.75 % n/a 3.75 %
Interest crediting rate for cash balance plans 4.32 % 4.21 % 4.50 % n/a n/a n/a Evergy expects to contribute $92.9 million to the pension plans in 2022 to meet Employee Retirement Income Security Act of 1974, as amended (ERISA) funding requirements and regulatory orders, of which $30.6 million is expected to be paid by Evergy Kansas Central and $62.3 million is expected to be paid by Evergy Metro. The Evergy Companies' funding policy is to contribute amounts sufficient to meet the ERISA funding requirements and MPSC and KCC rate orders plus additional amounts as considered appropriate; therefore, actual contributions may differ from expected contributions. Also in 2022, Evergy expects to contribute $2.2 million to the post-retirement benefit plans, of which $0.5 million is expected to be paid by Evergy Kansas Central and $1.7 million is expected to be paid by Evergy Metro.
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The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid through 2031.
Pension Benefits Post-Retirement Benefits Evergy Evergy Kansas Evergy Kansas Evergy Evergy Central Metro Evergy Central Metro (millions) 2022 $ 159.5 $ 80.8 $ 77.5 $ 16.1 $ 9.2 $ 6.9 2023 160.4 79.6 79.5 15.6 9.0 6.7 2024 163.8 80.6 81.7 15.1 8.5 6.6 2025 168.1 81.3 85.3 14.7 8.2 6.5 2026 173.5 83.2 88.8 14.3 8.0 6.4 2027-2031 862.9 399.5 455.7 68.5 37.2 31.2 As of December 31, 2021, Evergy Kansas Central and Evergy Metro maintained a master trust for their non-union and Evergy Kansas Central's union pension benefits and a separate trust for Evergy Metro's union pension benefits.
Evergy Kansas Central and Evergy Metro maintained separate trusts for their post-retirement benefits as of December 31,2021. These plans are managed in accordance with prudent investor guidelines contained in the ERISA requirements.
The primary objective of Evergy Kansas Central's and Evergy Metro's pension plans is to provide a source of retirement income for its participants and beneficiaries, and the primary financial objectives of the plans are to minimize funding deficiencies and maintain the plans' ability to pay all benefit and expense obligations when due.
The primary objective of Evergy Kansas Central's and Evergy Metro's post-retirement benefit plans is to preserve capital, maintain sufficient liquidity and earn a consistent rate of return.
The investment strategies of both the Evergy Kansas Central and Evergy Metro pension and post-retirement plans support the above objectives of the plans. The portfolios are invested, and periodically rebalanced, to achieve the targeted allocations detailed below. The following table provides the target asset allocations by asset class for the Evergy Kansas Central and Evergy Metro pension and other post-retirement plan assets.
Pension Benefits Post-Retirement Benefits Evergy Kansas Evergy Kansas Central Evergy Metro Central Evergy Metro Domestic equities 26% 26% 26% 15%
International equities 20% 19% 18% 8%
Bonds 39% 37% 51% 68%
Mortgage & asset backed securities % % % 6%
Real estate investments 4% 7% % %
Other investments 11% 11% 5% 3%
Fair Value Measurements Evergy classifies recurring and non-recurring fair value measurements based on the fair value hierarchy as discussed in Note 13. The following are descriptions of the valuation methods of the primary fair value measurements disclosed below.
Domestic equities - consist of individually held domestic equity securities and domestic equity mutual funds.
Securities and funds, which are publicly quoted, are valued based on quoted prices in active markets and are categorized as Level 1. Funds that are valued by fund administrators using the net asset value (NAV) per fund share, derived from the quoted prices in active markets of the underlying securities are not classified within the fair value hierarchy.
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International equities - consist of individually held international equity securities and international equity mutual funds. Securities and funds, which are publicly quoted, are valued based on quoted prices in active markets and are categorized as Level 1. Funds that are valued by fund administrators using the NAV per fund share, derived from the quoted prices in active markets of the underlying securities are not classified within the fair value hierarchy.
Bond funds - consist of funds maintained by investment companies that invest in various types of fixed income securities consistent with the funds' stated objectives. Securities and funds, which are publicly quoted, are valued based on quoted prices in active markets and are categorized as Level 1. Funds that are valued by fund administrators using the NAV per fund share, derived from the quoted prices in active markets of the underlying securities, are not classified within the fair value hierarchy.
Corporate bonds - consists of individually held, primarily domestic, corporate bonds that are traded in less than active markets or priced with models using highly observable inputs that are categorized as Level 2.
U.S. Treasury and agency bonds - consists of individually held U.S. Treasury securities and U.S. agency bonds.
U.S. Treasury securities, which are publicly quoted, are valued based on quoted prices in active markets and are categorized as a Level 1. U.S. agency bonds, which are publicly quoted, are traded in less than active markets or priced with models using highly observable inputs and are categorized as Level 2.
Mortgage and asset backed securities - consists of individually held securities that are traded in less than active markets or valued with models using highly observable inputs that are categorized as Level 2.
Real estate investments - consists of traded real estate investment trusts valued at the closing price reported on the major market on which the trusts are traded and are categorized as Level 1 and institutional trust funds valued at NAV per fund share and are not categorized in the fair value hierarchy.
Combination debt/equity/other fund - consists of a fund that invests in various types of debt, equity and other asset classes consistent with the fund's stated objectives. The fund, which is publicly quoted, is valued based on quoted prices in active markets and is categorized as Level 1.
Alternative investments - consists of investments in institutional trust and hedge funds that are valued by fund administrators using the NAV per fund share, derived from the underlying investments of the fund, and are not classified within the fair value hierarchy.
Short-term investments - consists of fund investments in high-quality, short-term, U.S. dollar-denominated instruments with an average maturity of 60 days that are valued at NAV per fund share and are not categorized in the fair value hierarchy.
Cash and cash equivalents - consists of investments with original maturities of three months or less when purchased that are traded in active markets and are categorized as Level 1.
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The fair values of the Evergy Companies' pension plan assets at December 31, 2021 and 2020, by asset category are in the following tables.
Fair Value Measurements Using Assets December 31 measured Description 2021 Level 1 Level 2 Level 3 at NAV (millions)
Evergy Kansas Central Pension Plans Domestic equities $ 209.9 $ 177.3 $ $ $ 32.6 International equities 167.4 167.4 Bond funds 330.4 330.4 Real estate investments 28.1 28.1 Combination debt/equity/other fund 42.7 42.7 Alternative investment funds 44.1 44.1 Short-term investments 13.1 13.1 Total $ 835.7 $ 717.8 $ $ $ 117.9 Evergy Metro Pension Plans Domestic equities $ 203.0 $ 179.5 $ $ $ 23.5 International equities 193.1 193.1 Bond funds 260.6 260.6 Corporate bonds 27.1 27.1 U.S. Treasury and agency bonds 14.5 4.7 9.8 Mortgage and asset backed securities 4.3 4.3 Real estate investments 55.9 55.9 Combination debt/equity/other fund 46.2 46.2 Alternative investment funds 47.5 47.5 Cash and cash equivalents 14.1 14.1 Short-term investments 9.5 9.5 Other 3.2 3.2 Total $ 879.0 $ 698.2 $ 44.4 $ $ 136.4 121
Fair Value Measurements Using Assets December 31 measured at Description 2020 Level 1 Level 2 Level 3 NAV (millions)
Evergy Kansas Central Pension Plans Domestic equities $ 248.5 $ 151.3 $ $ $ 97.2 International equities 171.2 103.8 67.4 Bond funds 281.2 230.7 50.5 Real estate investments 46.7 46.7 Combination debt/equity/other fund 30.4 30.4 Alternative investment funds 83.6 83.6 Short-term investments 25.4 25.4 Total $ 887.0 $ 516.2 $ $ $ 370.8 Evergy Metro Pension Plans Domestic equities $ 247.4 $ 191.9 $ $ $ 55.5 International equities 220.8 153.4 67.4 Bond funds 78.1 21.1 57.0 Corporate bonds 133.6 133.6 U.S. Treasury and agency bonds 73.8 61.5 12.3 Mortgage and asset backed securities 5.0 5.0 Real estate investments 40.2 1.6 38.6 Combination debt/equity/other fund 15.6 15.6 Alternative investment funds 39.7 39.7 Cash and cash equivalents 57.3 57.3 Short-term investments 1.4 1.4 Other (0.8) (0.8)
Total $ 912.1 $ 502.4 $ 150.1 $ $ 259.6 122
The fair values of the Evergy Companies' post-retirement plan assets at December 31, 2021 and 2020, by asset category are in the following tables.
Fair Value Measurements Using Assets December 31 measured Description 2021 Level 1 Level 2 Level 3 at NAV (millions)
Evergy Kansas Central Post-Retirement Benefit Plans Domestic equities $ 32.5 $ 32.5 $ $ $
International equities 22.1 22.1 Bond funds 62.3 62.3 Combination debt/equity/other fund 6.1 6.1 Short-term investments 1.0 1.0 Total $ 124.0 $ 123.0 $ $ $ 1.0 Evergy Metro Post-Retirement Benefit Plans Domestic equities $ 20.0 $ 20.0 $ $ $
International equities 12.3 12.3 Bond funds 50.2 50.2 Corporate bonds 18.1 18.1 U.S. Treasury and agency bonds 12.1 6.1 6.0 Mortgage and asset backed securities 0.8 0.8 Combination debt/equity/other fund 3.9 3.9 Cash and cash equivalents 0.5 0.5 Short-term investments 0.1 0.1 Other 0.3 0.3 Total $ 118.3 $ 93.0 $ 25.2 $ $ 0.1 123
Fair Value Measurements Using Assets December 31 measured Description 2020 Level 1 Level 2 Level 3 at NAV (millions)
Evergy Kansas Central Post-Retirement Benefit Plans Domestic equities $ 41.9 $ $ $ $ 41.9 International equities 27.7 27.7 Bond funds 55.5 55.5 Cash and cash equivalents 0.7 0.7 Total $ 125.8 $ 0.7 $ $ $ 125.1 Evergy Metro Post-Retirement Benefit Plans Domestic equities $ 4.6 $ 4.6 $ $ $
International equities 1.2 1.2 Bond funds 79.0 0.2 78.8 Corporate bonds 17.9 17.9 U.S. Treasury and agency bonds 13.6 5.7 7.9 Mortgage and asset backed securities 0.5 0.5 Cash and cash equivalents 5.4 5.4 Other 0.3 0.3 Total $ 122.5 $ 17.1 $ 26.6 $ $ 78.8 Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. The cost trend assumptions are detailed in the following tables.
Evergy Kansas Evergy Assumed annual health care cost growth rates as of December 31, 2021 Evergy Central Metro Health care cost trend rate assumed for next year 6.0 % 6.0 % 6.0 %
Rate to which the cost trend is assumed to decline (the ultimate trend rate) 4.5 % 4.5 % 4.5 %
Year that rate reaches ultimate trend 2030 2030 2030 Evergy Kansas Evergy Assumed annual health care cost growth rates as of December 31, 2020 Evergy Central Metro Health care cost trend rate assumed for next year 6.0 % 6.0 % 6.0 %
Rate to which the cost trend is assumed to decline (the ultimate trend rate) 4.5 % 4.5 % 4.5 %
Year that rate reaches ultimate trend 2027 2027 2027 Employee Savings Plans Evergy has defined contribution savings plans (401(k)) that cover substantially all employees. Evergy matches employee contributions, subject to limits. The annual costs of the plans are detailed in the following table.
2021 2020 2019 (millions)
Evergy $ 25.6 $ 17.4 $ 17.6 Evergy Kansas Central 11.7 9.6 9.6 Evergy Metro 13.9 7.8 8.0 124
- 10. EQUITY COMPENSATION Evergy's Long-Term Incentive Plan is an equity compensation plan approved by Evergy shareholders. The Long-Term Incentive Plan permits the grant of restricted stock, restricted stock units, bonus shares, stock options, stock appreciation rights, limited stock appreciation rights, director shares, director deferred share units and performance shares to directors, officers and other employees of Evergy. Common stock shares delivered by Evergy under the Long-Term Incentive Plan may be authorized but unissued, held in the treasury or purchased on the open market (including private purchases) in accordance with applicable securities laws. Evergy has a policy of delivering newly issued shares and does not expect to repurchase common shares during 2022 to satisfy equity compensation payments and director deferred share unit conversion. Forfeiture rates are based on historical forfeitures and future expectations and are reevaluated annually.
The following table summarizes the Evergy Companies' equity compensation expense and the associated income tax benefit.
2021 2020 2019 Evergy (millions)
Equity compensation expense $ 15.6 $ 15.5 $ 15.5 Income tax (expense) benefit (0.1) 2.2 3.0 Evergy Kansas Central Equity compensation expense 6.9 7.6 6.7 Income tax (expense) benefit (0.2) 1.6 1.9 Evergy Metro Equity compensation expense 5.1 5.7 5.7 Income tax (expense) benefit (0.6) 0.2 0.3 Restricted Share Units Evergy utilizes RSUs for new grants of stock-based compensation awards. RSU awards are grants that entitle the holder to receive shares of common stock as the awards vest. These RSU awards are defined as nonvested shares and do not include restrictions once the awards have vested. These RSUs either take the form of RSUs with performance measures that vest upon the achievement of specific performance goals or RSUs with only service requirements that vest solely upon the passage of time.
RSUs with Performance Measures The payment of RSUs with performance measures is contingent upon achievement of specific performance goals over a stated period of time as approved by the Compensation and Leadership Development Committee of the Board. The numbers of RSUs with performances measures ultimately paid can vary from the numbers of RSUs with performance measures initially granted depending on Evergy's performance over the stated performance periods. Compensation expense for RSUs with performance measures is calculated by recognizing the portion of the fair value for each reporting period for which the requisite service has been rendered. Dividends are accrued over the vesting period and paid in cash based on the number of RSUs with performance measures ultimately paid.
The fair value of RSUs with performance measures is estimated using the market value of Evergy's stock at the valuation date and a Monte Carlo simulation technique that incorporates assumptions for inputs of expected volatilities, dividend yield and risk-free rates. Expected volatility is based on daily stock price change during a historical period commensurate with the remaining term of the performance period of the grant. The risk-free rate is based upon the rate at the time of the evaluation for zero-coupon government bonds with a maturity consistent with the remaining performance period of the grant. The dividend yield is based on the most recent dividends paid and the actual closing stock price on the valuation date. For shares granted in 2021, inputs for expected volatility, dividend yield and the risk-free rate were 32%, 3.99% and 0.24%, respectively.
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RSU activity for awards with performance measures for 2021 is summarized in the following table.
Nonvested Restricted Grant Date Share Units Fair Value*
Beginning balance January 1, 2021 347,964 $ 61.57 Granted 270,277 57.21 Forfeited (104,526) 64.85 Ending balance December 31, 2021 513,715 58.79
- weighted-average At December 31, 2021, the remaining weighted-average contractual term related to RSU awards with performance measures was 1.4 years. The weighted-average grant-date fair value of RSUs granted with performance measures was $57.21, $87.98 and $37.87 in 2021, 2020 and 2019, respectively. At December 31, 2021, there was $15.3 million of unrecognized compensation expense related to unvested RSUs with performance measures. No RSUs with performance measures vested in 2021, 2020 and 2019.
RSUs with Only Service Requirements Evergy measures the fair value of RSUs with only service requirements based on the fair market value of the underlying common stock as of the grant date. RSU awards with only service conditions recognize compensation expense by multiplying shares by the grant-date fair value related to the RSU and recognizing it on a straight-line basis over the requisite service period for the entire award. Dividends are accrued over the vesting period and are invested in additional RSU's subject to the same service conditions.
RSU activity for awards with only service requirements for 2021 is summarized in the following table.
Nonvested Restricted Grant Date Share Units Fair Value*
Beginning balance January 1, 2021 160,742 $ 59.42 Granted 171,363 55.30 Vested (43,785) 54.61 Forfeited (35,274) 59.24 Ending balance December 31, 2021 253,046 57.18
- weighted-average At December 31, 2021, the remaining weighted-average contractual term related to RSU awards with only service requirements was 1.4 years. The weighted-average grant-date fair value of RSUs granted with only service requirements was $55.30, $68.92 and $54.47 in 2021, 2020 and 2019, respectively. At December 31, 2021, there was $7.0 million of unrecognized compensation expense related to unvested RSUs. The total fair value of RSUs with only service requirements that vested was $2.4 million, $6.5 million and $2.6 million in 2021, 2020 and 2019, respectively.
In addition to RSU's, Evergy also had 36,012 shares and 108,010 shares of restricted stock and performance shares, respectively, that vested in 2021 related to Great Plains Energy equity compensation awards that converted to equivalent Evergy awards at the closing of the Great Plains Energy and Evergy Kansas Central merger in 2018.
- 11. SHORT-TERM BORROWINGS AND SHORT-TERM BANK LINES OF CREDIT In August 2021, Evergy amended its $2.5 billion master credit facility and extended the maturity until 2026.
Evergy, Evergy Kansas Central, Evergy Metro and Evergy Missouri West 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. Evergy adjusted these sublimits in the first quarter of 2021 as further detailed in the table below. The applicable interest rates and commitment fees of the facility are subject to upward or downward adjustments, within 126
certain limitations, if Evergy achieves, or fails to achieve, certain sustainability-linked targets based on two key performance indicator metrics: (i) Non-Emitting Generation Capacity and (ii) Diverse Supplier Spend (as defined in the facility).
A default by any borrower under the facility or one of its significant subsidiaries on other indebtedness totaling more than $100.0 million constitutes a default by that borrower under the facility. Under the terms of this facility, each of Evergy, Evergy Kansas Central, Evergy Metro and Evergy Missouri West 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 December 31, 2021, Evergy, Evergy Kansas Central, Evergy Metro and Evergy Missouri West were in compliance with this covenant.
The following table summarizes the committed credit facilities (excluding receivable sale facilities discussed in Note 3) available to the Evergy Companies as of December 31, 2021 and 2020.
Amounts Drawn Weighted Average Master Interest Rate on Credit Commercial Letters of Cash Available Short-Term Facility Paper Credit Borrowings Borrowings Borrowings December 31, 2021 (millions)
Evergy, Inc. $ 700.0 $ 358.0 $ 0.7 $ $ 341.3 0.34%
Evergy Kansas Central 750.0 406.0 0.1 343.9 0.41%
Evergy Metro 350.0 350.0 %
Evergy Missouri West 700.0 395.3 304.7 0.40%
Evergy $ 2,500.0 $ 1,159.3 $ 0.8 $ $ 1,339.9 December 31, 2020 Evergy, Inc. $ 450.0 n/a $ 0.7 $ 200.0 $ 249.3 1.40%
Evergy Kansas Central 1,000.0 50.0 17.0 933.0 0.23%
Evergy Metro 600.0 600.0 %
Evergy Missouri West 450.0 65.0 2.0 383.0 0.36%
Evergy $ 2,500.0 $ 115.0 $ 19.7 $ 200.0 $ 2,165.3 In May 2021, Evergy, Inc. established a commercial paper program supported by its borrowing capacity under the master credit facility.
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- 12. LONG-TERM DEBT The Evergy Companies' long-term debt is detailed in the following tables.
Year Evergy Kansas Evergy December 31, 2021 Issuing Entity Due Evergy Central Metro Mortgage Bonds (millions) 3.25% Series Evergy Kansas Central, Inc. 2025 250.0 250.0 2.55% Series Evergy Kansas Central, Inc. 2026 350.0 350.0 3.10% Series Evergy Kansas Central, Inc. 2027 300.0 300.0 4.125% Series Evergy Kansas Central, Inc. 2042 550.0 550.0 4.10% Series Evergy Kansas Central, Inc. 2043 430.0 430.0 4.625% Series Evergy Kansas Central, Inc. 2043 250.0 250.0 4.25% Series Evergy Kansas Central, Inc. 2045 300.0 300.0 3.25% Series Evergy Kansas Central, Inc. 2049 300.0 300.0 3.45% Series Evergy Kansas Central, Inc. 2050 500.0 500.0 6.15% Series Evergy Kansas South, Inc. 2023 50.0 50.0 6.53% Series Evergy Kansas South, Inc. 2037 175.0 175.0 6.64% Series Evergy Kansas South, Inc. 2038 100.0 100.0 4.30% Series Evergy Kansas South, Inc. 2044 250.0 250.0 2.95% EIRR bonds Evergy Metro, Inc. 2023 79.5 79.5 4.125% Series Evergy Metro, Inc. 2049 400.0 400.0 2.25% Series Evergy Metro, Inc. 2030 400.0 400.0 Pollution Control Bonds 0.132% Series(b) Evergy Kansas Central, Inc. 2032 45.0 45.0 0.132% Series(b) Evergy Kansas Central, Inc. 2032 30.5 30.5 0.132% Series(b) Evergy Kansas South, Inc. 2027 21.9 21.9 2.50% Series Evergy Kansas South, Inc. 2031 50.0 50.0 0.132% Series(b) Evergy Kansas South, Inc. 2032 14.5 14.5 0.132% Series(b) Evergy Kansas South, Inc. 2032 10.0 10.0 0.167% Series 2007A and 2007B(b) Evergy Metro, Inc. 2035 146.5 146.5 2.75% Series 2008 Evergy Metro, Inc. 2038 23.4 23.4 Senior Notes 3.15% Series(g) Evergy Metro, Inc. 2023 300.0 300.0 3.65% Series(g) Evergy Metro, Inc. 2025 350.0 350.0 6.05% Series (5.78% rate)(a)(g) Evergy Metro, Inc. 2035 250.0 250.0 5.30% Series(g) Evergy Metro, Inc. 2041 400.0 400.0 4.20% Series(g) Evergy Metro, Inc. 2047 300.0 300.0 4.20% Series(g) Evergy Metro, Inc. 2048 300.0 300.0 3.49% Series A(h) Evergy Missouri West, Inc. 2025 36.0 4.06% Series B(h) Evergy Missouri West, Inc. 2033 60.0 4.74% Series C(h) Evergy Missouri West, Inc. 2043 150.0 3.74% Series(h) Evergy Missouri West, Inc. 2022 100.0 2.86% Series A(h) Evergy Missouri West, Inc. 2031 350.0 3.01% Series B(h) Evergy Missouri West, Inc. 2033 75.0 3.21% Series C(h) Evergy Missouri West, Inc. 2036 75.0 5.292% Series Evergy, Inc.(f) 2022 287.5 2.45% Series Evergy, Inc. 2024 800.0 2.90% Series (3.77% rate)(a) Evergy, Inc. 2029 800.0 Medium Term Notes 7.33% Series(h) Evergy Missouri West, Inc. 2023 3.0 7.17% Series(h) Evergy Missouri West, Inc. 2023 7.0 Fair value adjustment(e) 97.9 Current maturities(c) (389.3)
Unamortized debt discount and debt issuance costs (80.5) (42.7) (24.4)
Total excluding current maturities(d) $ 9,297.9 $ 3,934.2 $ 2,925.0 128
Year Evergy Kansas Evergy December 31, 2020 Issuing Entity Due Evergy Central Metro Mortgage Bonds (millions) 3.25% Series Evergy Kansas Central, Inc. 2025 $ 250.0 $ 250.0 $
2.55% Series Evergy Kansas Central, Inc. 2026 350.0 350.0 3.10% Series Evergy Kansas Central, Inc. 2027 300.0 300.0 4.125% Series Evergy Kansas Central, Inc. 2042 550.0 550.0 4.10% Series Evergy Kansas Central, Inc. 2043 430.0 430.0 4.625% Series Evergy Kansas Central, Inc. 2043 250.0 250.0 4.25% Series Evergy Kansas Central, Inc. 2045 300.0 300.0 3.25% Series Evergy Kansas Central, Inc. 2049 300.0 300.0 3.45% Series Evergy Kansas Central, Inc. 2050 500.0 500.0 6.15% Series Evergy Kansas South, Inc. 2023 50.0 50.0 6.53% Series Evergy Kansas South, Inc. 2037 175.0 175.0 6.64% Series Evergy Kansas South, Inc. 2038 100.0 100.0 4.30% Series Evergy Kansas South, Inc. 2044 250.0 250.0 2.95% EIRR bonds Evergy Metro, Inc. 2023 79.5 79.5 4.125% Series Evergy Metro, Inc. 2049 400.0 400.0 2.25% Series Evergy Metro, Inc. 2030 400.0 400.0 9.44% Series(h) Evergy Missouri West, Inc. 2021 1.1 Pollution Control Bonds 0.18% Series(b) Evergy Kansas Central, Inc. 2032 45.0 45.0 0.18% Series(b) Evergy Kansas Central, Inc. 2032 30.5 30.5 0.18% Series(b) Evergy Kansas South, Inc. 2027 21.9 21.9 2.50% Series Evergy Kansas South, Inc. 2031 50.0 50.0 0.18% Series(b) Evergy Kansas South, Inc. 2032 14.5 14.5 0.18% Series(b) Evergy Kansas South, Inc. 2032 10.0 10.0 0.20% Series 2007A and 2007B(b) Evergy Metro, Inc. 2035 146.5 146.5 2.75% Series 2008 Evergy Metro, Inc. 2038 23.4 23.4 Senior Notes 3.15% Series(g) Evergy Metro, Inc. 2023 300.0 300.0 3.65% Series(g) Evergy Metro, Inc. 2025 350.0 350.0 6.05% Series (5.78% rate)(a)(g) Evergy Metro, Inc. 2035 250.0 250.0 5.30% Series(g) Evergy Metro, Inc. 2041 400.0 400.0 4.20% Series(g) Evergy Metro, Inc. 2047 300.0 300.0 4.20% Series(g) Evergy Metro, Inc. 2048 300.0 300.0 8.27% Series(h) Evergy Missouri West, Inc. 2021 80.9 3.49% Series A Evergy Missouri West, Inc. 2025 36.0 4.06% Series B Evergy Missouri West, Inc. 2033 60.0 4.74% Series C Evergy Missouri West, Inc. 2043 150.0 3.74% Series Evergy Missouri West, Inc. 2022 100.0 4.85% Series Evergy, Inc.(f) 2021 350.0 5.292% Series Evergy, Inc.(f) 2022 287.5 2.45% Series Evergy, Inc. 2024 800.0 2.90% Series (3.77% rate)(a) Evergy, Inc. 2029 800.0 Medium Term Notes 7.33% Series(h) Evergy Missouri West, Inc. 2023 3.0 7.17% Series(h) Evergy Missouri West, Inc. 2023 7.0 Fair value adjustment(e) 110.4 Current maturities(c) (436.4)
Unamortized debt discount and debt issuance costs (84.9) (45.4) (26.4)
Total excluding current maturities(d) $ 9,190.9 $ 3,931.5 $ 2,923.0 (a)
Rate after amortizing gains/losses recognized in OCI on settlements of interest rate hedging instruments.
(b)
Variable rate.
(c)
Evergy's current maturities total as of December 31, 2021 and 2020, includes $1.8 million and $4.4 million, respectively, of fair value adjustments recorded in connection with purchase accounting for the Great Plains Energy and Evergy Kansas Central merger.
(d)
At December 31, 2021 and 2020, does not include $50.0 million and $21.9 million of secured Series 2005 Environmental Improvement Revenue Refunding (EIRR) bonds because the bonds were repurchased in September 2015 and are held by Evergy Metro.
(e)
Represents the fair value adjustments recorded at Evergy consolidated related to the long-term debt of Great Plains Energy, Evergy Metro and Evergy Missouri West in connection with purchase accounting for the Great Plains Energy and Evergy Kansas Central merger. This amount is not part of future principal payments and will amortize over the remaining life of the associated debt instruments.
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(f)
Originally issued by Great Plains Energy but assumed by Evergy, Inc. as part of the Great Plains Energy and Evergy Kansas Central merger.
(g)
Effectively secured pursuant to the General Mortgage Indenture and Deed of Trust dated as of December 1, 1986, as supplemented (Evergy Metro Mortgage Indenture) through the issuance of collateral mortgage bonds to the trustee in 2019.
(h)
Unconditionally guaranteed by Evergy, Inc.
Mortgage Bonds The Evergy Kansas Central and Evergy Kansas South mortgages each contain provisions restricting the amount of first mortgage bonds (FMBs) that could be issued by each entity. Evergy Kansas Central and Evergy Kansas South must be in compliance with such restrictions prior to the issuance of additional first mortgage bonds or other secured indebtedness. The amount of Evergy Kansas Central FMBs authorized by its Mortgage and Deed of Trust, dated July 1, 1939, as supplemented, is subject to certain limitations as described below. The amount of Evergy Kansas South FMBs authorized by the Evergy Kansas South Mortgage and Deed of Trust, dated April 1, 1940, as supplemented and amended, is limited to a maximum of $3.5 billion, unless amended further. FMBs are secured by utility assets. Amounts of additional FMBs that may be issued are subject to property, earnings and certain restrictive provisions, except in connection with certain refundings, of each mortgage. As of December 31, 2021, approximately $998.9 million and $2,828.6 million principal amounts of additional Evergy Kansas Central FMBs or Evergy Kansas South FMBs, respectively, could be issued under the most restrictive provisions of their mortgages.
Evergy Metro has issued mortgage bonds under the Evergy Metro Mortgage Indenture, which creates a mortgage lien on substantially all Evergy Metro's utility plant. Additional Evergy Metro bonds may be issued on the basis of 75% of property additions or retired bonds. As of December 31, 2021, approximately $5,075.8 million principal amount of additional Evergy Metro mortgage bonds could be issued under the most restrictive provisions in the mortgage.
Senior Notes Under the terms of the note purchase agreements for certain Evergy Missouri West senior notes, Evergy Missouri West is required to maintain a consolidated indebtedness to consolidated capitalization ratio, as defined in the agreements, not greater than 0.65 to 1.00. In addition, Evergy Missouri West's priority debt, as defined in the agreements, cannot exceed 15% of consolidated tangible net worth, as defined in the agreements. At December 31, 2021, Evergy Missouri West was in compliance with these covenants.
In April 2021, Evergy Missouri West issued in a private placement $350.0 million of 2.86% Series A Senior Notes, maturing in 2031, $75.0 million of 3.01% Series B Senior Notes, maturing in 2033, and $75.0 million of 3.21%
Series C Senior Notes, maturing in 2036, pursuant to a note purchase agreement. In connection with the issuance, Evergy entered into an agreement to provide an unconditional guaranty of the Series A, B and C Senior Notes, and as required by certain existing note purchase agreements, also agreed to provide unconditional guaranty of the following series of outstanding Evergy Missouri West unsecured senior notes:
- $36.0 million of 3.49% Series A, maturing in 2025;
- $60.0 million of 4.06% Series B, maturing in 2033;
- $150.0 million of 4.74% Series C, maturing in 2043; and
- $100.0 million of 3.74% Series, maturing in 2022.
In April 2021, Evergy redeemed its $350.0 million of 4.85% Senior Notes, which had a maturity date of June 2021.
In November 2021, Evergy Missouri West repaid its $80.9 million of 8.27% Senior Notes at maturity.
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Scheduled Maturities Evergy's, Evergy Kansas Central's and Evergy Metro's long-term debt maturities for the next five years are detailed in the following table.
2022 2023 2024 2025 2026 (millions)
Evergy $ 387.5 $ 439.5 $ 800.0 $ 636.0 $ 350.0 Evergy Kansas Central 50.0 250.0 350.0 Evergy Metro 379.5 350.0
- 13. 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. Management'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, the 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 Level 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 Level 2 are certain marketable debt securities, financial instruments traded 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 Level 3 are those with inputs requiring significant management judgment or estimation.
NAV - 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. The 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.
The Evergy Companies record cash and cash equivalents, accounts receivable and short-term borrowings on their consolidated balance sheets at cost, which approximates fair value 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, risk management activities 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. The Evergy Companies classify all cash inflows and outflows for interest rate swap agreements accounted for as cash flow hedges of forecasted debt transactions as financing activities on their consolidated statements of cash flows.
In September 2019, Evergy issued $800.0 million of 2.90% Senior Notes maturing in 2029 and paid $69.8 million to settle an interest rate swap agreement with a notional amount of $500.0 million that was designated as a cash flow hedge of interest payments on the debt issuance. The $69.8 million pre-tax loss was recorded in accumulated other comprehensive loss on Evergy's consolidated balance sheet and is being reclassified into interest expense over 131
the ten-year term of the debt. For 2021, 2020 and 2019, $7.0 million, $7.0 million and $2.0 million, respectively, were reclassified from accumulated other comprehensive loss to interest expense on Evergy's consolidated statements of comprehensive income. For 2021, 2020 and 2019, $(1.5) million, $(4.0) million and $(0.5) million, respectively, were reclassified from accumulated other comprehensive loss to income tax expense on Evergy's consolidated statements of comprehensive income. As of December 31, 2021, Evergy expects to amortize $5.4 million to earnings from accumulated other comprehensive loss over the next twelve months.
Fair Value of Long-Term Debt The Evergy Companies measure the fair value of long-term debt using Level 2 measurements 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.
December 31, 2021 December 31, 2020 Book Value Fair Value Book Value Fair Value Long-term debt(a) (millions)
Evergy(b) $ 9,687.2 $ 10,758.5 $ 9,627.3 $ 11,274.2 Evergy Kansas Central 3,934.2 4,522.5 3,931.5 4,801.7 Evergy Metro 2,925.0 3,400.8 2,923.0 3,591.2 Long-term debt of variable interest entities(a)
Evergy $ $ $ 18.8 $ 19.1 Evergy Kansas Central 18.8 19.1 (a)
Includes current maturities.
(b)
Book value as of December 31, 2021 and 2020, includes $97.9 million and $110.4 million, respectively, of fair value adjustments recorded in connection with purchase accounting for the Great Plains Energy and Evergy Kansas Central merger, which are not part of future principal payments and will amortize over the remaining life of the associated debt instrument.
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Recurring Fair Value Measurements The following tables include the Evergy Companies' balances of financial assets and liabilities measured at fair value on a recurring basis.
Description December 31, 2021 Level 1 Level 2 Level 3 NAV Evergy Kansas Central (millions)
Assets Nuclear decommissioning trust(a)
Domestic equity funds $ 140.4 $ 126.5 $ $ $ 13.9 International equity funds 74.0 74.0 Core bond fund 58.1 58.1 High-yield bond fund 29.6 29.6 Emerging markets bond fund 18.0 18.0 Alternative investments fund 32.7 32.7 Real estate securities fund 15.2 15.2 Cash equivalents 0.4 0.4 Total nuclear decommissioning trust 368.4 306.6 61.8 Rabbi trust Fixed income funds 19.6 19.6 Equity funds 9.5 9.5 Combination debt/equity/other fund 2.4 2.4 Cash equivalents 0.2 0.2 Total rabbi trust 31.7 31.7 Total $ 400.1 $ 338.3 $ $ $ 61.8 Evergy Metro Assets Nuclear decommissioning trust(a)
Equity securities $ 299.2 $ 299.2 $ $ $
Debt securities U.S. Treasury 46.1 46.1 U.S. Agency 0.4 0.4 State and local obligations 4.0 4.0 Corporate bonds 43.7 43.7 Foreign governments 0.1 0.1 Cash equivalents 6.8 6.8 Other Total nuclear decommissioning trust 400.3 352.1 48.2 Self-insured health plan trust(b)
Equity securities 2.0 2.0 Debt securities 8.7 2.7 6.0 Cash and cash equivalents 1.8 1.8 Total self-insured health plan trust 12.5 6.5 6.0 Total $ 412.8 $ 358.6 $ 54.2 $ $
Other Evergy Other Evergy investments Equity securities(c) $ 31.4 $ $ 31.4 $ $
Total other Evergy investments 31.4 31.4 Rabbi trusts Core bond fund 12.5 12.5 Total rabbi trusts 12.5 12.5 Total $ 43.9 $ 12.5 $ 31.4 $ $
Evergy Assets Nuclear decommissioning trust(a) $ 768.7 $ 658.7 $ 48.2 $ $ 61.8 Rabbi trusts 44.2 44.2 Self-insured health plan trust(b) 12.5 6.5 6.0 Other Evergy investments(c) 31.4 31.4 Total $ 856.8 $ 709.4 $ 85.6 $ $ 61.8 133
Description December 31, 2020 Level 1 Level 2 Level 3 NAV Evergy Kansas Central (millions)
Assets Nuclear decommissioning trust(a)
Domestic equity funds $ 102.7 $ 95.1 $ $ $ 7.6 International equity funds 63.8 63.8 Core bond fund 40.6 40.6 High-yield bond fund 25.0 25.0 Emerging markets bond fund 21.0 21.0 Combination debt/equity/other fund 20.1 20.1 Alternative investments fund 23.2 23.2 Real estate securities fund 12.9 12.9 Cash equivalents 0.5 0.5 Total nuclear decommissioning trust 309.8 266.1 43.7 Rabbi trust Core bond fund 25.6 25.6 Combination debt/equity/other fund 7.1 7.1 Total rabbi trust 32.7 32.7 Total $ 342.5 $ 266.1 $ $ $ 76.4 Evergy Metro Assets Nuclear decommissioning trust(a)
Equity securities $ 243.1 $ 243.1 $ $ $
Debt securities U.S. Treasury 47.7 47.7 U.S. Agency 0.5 0.5 State and local obligations 4.1 4.1 Corporate bonds 43.1 43.1 Foreign governments 0.1 0.1 Cash equivalents 3.2 3.2 Other 0.5 0.5 Total nuclear decommissioning trust 342.3 294.5 47.8 Self-insured health plan trust(b)
Equity securities 1.7 1.7 Debt securities 8.0 2.8 5.2 Cash and cash equivalents 3.5 3.5 Total self-insured health plan trust 13.2 8.0 5.2 Total $ 355.5 $ 302.5 $ 53.0 $ $
Other Evergy Assets Rabbi trusts Fixed income fund $ 13.1 $ $ $ $ 13.1 Cash and cash equivalents 0.5 0.5 Total rabbi trusts $ 13.6 $ 0.5 $ $ $ 13.1 Evergy Assets Nuclear decommissioning trust(a) $ 652.1 $ 560.6 $ 47.8 $ $ 43.7 Rabbi trust 46.3 0.5 45.8 Self-insured health plan trust(b) 13.2 8.0 5.2 Total $ 711.6 $ 569.1 $ 53.0 $ $ 89.5 (a)
With the exception of investments measured at NAV, 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)
Fair value is based on quoted market prices adjusted for a discount for lack of marketability based on a valuation model due to a restriction on the sale of the stock.
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Certain Evergy and Evergy Kansas Central investments included in the table above are measured at NAV as they do not have readily determinable fair values. In certain situations, these investments may have redemption restrictions.
The following table provides additional information on these Evergy and Evergy Kansas Central investments.
December 31, 2021 December 31, 2020 December 31, 2021 Fair Unfunded Fair Unfunded Redemption Length of Value Commitments Value Commitments Frequency Settlement Evergy Kansas Central (millions)
Nuclear decommissioning trust:
Domestic equity funds $ 13.9 $ 1.7 $ 7.6 $ 2.2 (a) (a)
Alternative investments fund(b) 32.7 23.2 Quarterly 65 days Real estate securities fund(b) 15.2 12.9 Quarterly 65 days Total $ 61.8 $ 1.7 $ 43.7 $ 2.2 Rabbi trust:
Core bond fund $ $ $ 25.6 $ (c) (c)
Combination debt/equity/other fund 7.1 (c) (c)
Total $ $ $ 32.7 $
Other Evergy Rabbi trust:
Fixed income fund $ $ $ 13.1 $ (c) (c)
Total Evergy investments at NAV $ 61.8 $ 1.7 $ 89.5 $ 2.2 (a)
This investment is in five long-term private equity funds that do not permit early withdrawal. Investments in these funds cannot be distributed until the underlying investments have been liquidated, which may take years from the date of initial liquidation. Three funds have begun to make distributions. The initial investment in the fourth and fifth funds occurred in 2016 and 2018, respectively. The fourth fund's term is 15 years, subject to the general partner's right to extend the term for up to three additional one-year periods. The fifth fund's term is 15 years, subject to additional extensions approved by a fund 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.
The Evergy Companies hold equity and debt investments classified as securities in various trusts including for the purposes of funding the decommissioning of Wolf Creek and for the benefit of certain retired executive officers of Evergy Kansas Central. The Evergy Companies record net realized and unrealized gains and losses on the nuclear decommissioning trusts in regulatory liabilities on their consolidated balance sheets and record net realized and unrealized gains and losses on the Evergy Companies' rabbi trusts in the consolidated statements of income and comprehensive income.
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The following table summarizes the net unrealized gains (losses) for the Evergy Companies' nuclear decommissioning trusts and rabbi trusts.
2021 2020 2019 Evergy (millions)
Nuclear decommissioning trust - equity securities $ 101.8 $ 45.5 74.0 Nuclear decommissioning trust - debt securities (4.5) 5.3 5.1 Rabbi trusts - equity securities (1.8) (5.6) 3.1 Total $ 95.5 $ 45.2 $ 82.2 Evergy Kansas Central Nuclear decommissioning trust - equity securities $ 50.5 $ 21.9 33.3 Rabbi trust - equity securities (1.4) (6.1) 3.2 Total $ 49.1 $ 15.8 $ 36.5 Evergy Metro Nuclear decommissioning trust - equity securities $ 51.3 $ 23.6 40.7 Nuclear decommissioning trust - debt securities (4.5) 5.3 5.1 Total $ 46.8 $ 28.9 $ 45.8
- 14. COMMITMENTS AND CONTINGENCIES Environmental Matters Set forth below are descriptions of contingencies related to environmental matters that may impact the Evergy Companies' operations or their financial results. Management'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. These laws, regulations, interpretations and actions can also change, restrict or otherwise impact the Evergy Companies' operations or financial results. The failure to comply with these laws, regulations, interpretations and actions could result in the assessment of administrative, civil and criminal penalties and the imposition of remedial requirements. The Evergy Companies believe that all their operations are in substantial compliance with current federal, state and local environmental standards.
There are a variety of final and proposed laws and regulations that could have a material adverse effect on the Evergy Companies' operations and consolidated financial results. Due in part to the complex nature of environmental laws and regulations, the Evergy Companies are unable to assess the impact of potential changes that may develop with respect to the environmental contingencies described below.
Clean Air Act - Startup, Shutdown and Malfunction (SSM) Regulation In 2015, the EPA issued a final rule addressing how state implementation plans (SIPs) can treat excess emissions during SSM events. This rule was referred to as the 2015 SIP Call Rule. The rule required 36 states to submit SIP revisions by November 2016 to remove certain exemptions and other discretionary enforcement provisions that apply to excess emissions during SSM events. Legal challenges ensued and the case was eventually placed in abeyance. In December 2021, the U.S. Court of Appeals for the D.C. Circuit (D.C. Circuit) restarted the 2015 SIP Call Rule litigation. The outcome of this case could result in required SIP revisions in Oklahoma, Kansas and Missouri which could have a material impact on the Evergy Companies.
Ozone Interstate Transport State Implementation Plans In 2015, the EPA lowered the Ozone National Ambient Air Quality Standards (NAAQS) from 75 ppb to 70 ppb.
Impacted states were required to submit Interstate Transport State Implementation Plans (ITSIPs) in 2018 to comply with the good neighbor provisions of the Clean Air Act. The EPA did not act on these ITSIP submissions and was challenged in a court filing in May 2021 to address them. In January 2022, the U.S. District Court for the Northern District of California entered a final consent decree between the EPA and various environmental groups requiring the EPA to approve or disapprove, in whole or in part, by February 28, 2022, the ITSIPs for the 2015 Ozone NAAQS, for twenty-one states including Kansas, Missouri and Oklahoma. For any ITSIP fully or partially 136
disapproved by the EPA along with a corresponding federal implementation plan (FIP) proposed by February 28, 2022, the consent decree requires the EPA to sign a final action on the ITSIP for the affected state by December 15, 2022. On January 25, 2022, the EPA transmitted a proposed FIP to the Office of Management and Budget for review. On February 8, 2022, the EPA published a proposed approval of the Kansas ITSIP in the Federal Register.
On February 22, 2022, the EPA published proposed disapprovals of ITSIPs for nineteen states including Missouri and Oklahoma. The EPA is also in the process of reconsidering the 2020 Ozone NAAQS and the 2020 PM2.5 NAAQS. Due to uncertainty regarding the disposition of these 2015 Ozone NAAQS ITSIPs for Kansas, Missouri and Oklahoma, along with potential lowering of the 2020 NAAQS, the Evergy Companies cannot determine the impacts on their operations or consolidated financial results, but the cost to comply with a FIP or a lower future NAAQS could be material.
Regional Haze Rule In 1999, the EPA finalized the Regional Haze Rule which aims to restore national parks and wilderness areas to pristine conditions. The rule requires states in coordination with the EPA, the National Park Service, the U.S. Fish and Wildlife Service, the U.S. Forest Service, and other interested parties to develop and implement air quality protection plans to reduce the pollution that causes visibility impairment. There are 156 "Class I" areas across the U.S. that must be restored to pristine conditions by the year 2064. There are no Class I areas in Kansas, whereas Missouri has two: the Hercules-Glades Wilderness Area and the Mingo Wilderness Area. States must submit revisions to their Regional Haze Rule SIPs every ten years and the first round was due in 2007. For the second ten-year implementation period, the EPA issued a final rule revision in 2017 that allowed states to submit their SIP revisions by July 31, 2021. The Evergy Companies have been in contact with the Kansas Department of Health and Environmental (KDHE) and the Missouri Department of Natural Resources (MDNR) as they worked to draft their SIP revisions. The Missouri SIP revision is still being drafted. MDNR has indicated they intend to submit the Missouri SIP revision in early 2022 and that it will not require any additional reductions from the Evergy Companies' generating units in the state. The Kansas SIP revision was placed on public notice in June 2021 and requested no additional emission reductions by electric utilities based on the significant reductions that were achieved during the first implementation period. The EPA provided comments on the Kansas SIP revision in June 2021 that each state is statutorily required to conduct a "four-factor analysis" on at least two sources within the state to help determine if further emission reductions are necessary. The EPA also stated it would be difficult to approve the Kansas SIP revision if at least two four-factor analyses are not conducted on Kansas emission sources. KDHE submitted the Kansas SIP revision in July 2021. If a Kansas generating unit of the Evergy Companies is selected for analysis, the possibility exists that the state or EPA, through a FIP, could determine that additional operational or physical modifications are required on the generating unit to further reduce emissions. The overall cost of those modifications could be material to the Evergy Companies.
Greenhouse Gases Burning coal and other fossil fuels releases carbon dioxide (CO2) and other gases referred to as greenhouse gases (GHG). Various regulations under the federal Clean Air Act Amendments of 1990 (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 July 2019, the EPA published the final Affordable Clean Energy (ACE) rule in the Federal Register. This rule contained emission guidelines for GHG emissions from existing electric utility generating units (EGUs) and revisions to emission guideline implementing regulations. The rule defined the "best system of emission reduction" (BSER) for GHG emissions from existing coal-fired EGUs as on-site, heat-rate efficiency improvements.
In conjunction with the finalization of the ACE rule, the EPA repealed its previously adopted Clean Power Plan (CPP). In January 2021, the D.C. Circuit vacated and remanded the ACE rule back to the EPA. In October 2021, the Supreme Court granted petitions for certiorari to review the D.C. Circuit decision to vacate and remand the ACE rule. A ruling from the Supreme Court is expected in mid-2022.
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Due to uncertainty regarding the future of the ACE rule or other potential GHG regulations, the Evergy Companies cannot determine the impacts on their operations or consolidated financial results, but the cost to comply with the ACE rule or other potential GHG rules could be material.
Water The Evergy Companies discharge some of the water used in generation and other operations containing substances deemed to be pollutants. A November 2015 EPA rule applicable to steam-electric power generating plants establishes effluent limitations guidelines (ELG) and standards for wastewater discharges, including limits on the amount of toxic metals and other pollutants that can be discharged. Implementation timelines for this 2015 rule vary from 2018 to 2023. In April 2019, the U.S. Court of Appeals for the 5th Circuit (5th Circuit) issued a ruling that vacated and remanded portions of the original ELG rule. Due to this ruling, the EPA announced a plan in July 2021 to release a proposed rulemaking in September 2022 to address the vacated limitations for legacy wastewater and landfill leachate. Future ELG modifications for the best available technology economically achievable for the discharge of legacy wastewater and landfill leachate are likely and could be material to the Evergy Companies.
In October 2020, the EPA published the final ELG reconsideration rule. This rule adjusts numeric limits for flue gas desulfurization (FGD) wastewater and adds a 10% volumetric purge limit for bottom ash transport water. The timeline for final FGD wastewater compliance is as soon as possible on or after one year following publication of the final rule in the Federal Register but no later than December 31, 2025. In August 2021, the EPA published notice in the Federal Register that it is initiating a supplemental rulemaking to revise the ELG regulations after completing review of the reconsideration rule as a result of an executive order from President Biden. As part of the rulemaking process, the EPA will determine if more stringent limitations and standards are appropriate. The 2020 ELG reconsideration rule will remain in effect while the EPA undertakes this new rulemaking.
The Evergy Companies have reviewed the 2020 ELG reconsideration regulation, and the costs to comply with these changes are not expected to be material. However, the Evergy Companies cannot predict what revisions the EPA may make under its supplemental rulemaking to revise the ELG regulations, and compliance costs associated with any revisions could be material.
After reviewing the Navigable Waters Protection Rule as directed by President Biden's administration, the EPA and Department of the Army determined a need to revise the definition to prevent environmental degradation. In December 2021, the EPA and the Department of the Army published a proposed rule that repeals the Navigable Waters Protection Rule and revises the definition of Waters of the United States. This proposed rule restores definitions of Waters of the United States that were in place prior to 2015. The Evergy Companies are reviewing the proposed rule and the impact on their operations or consolidated financial results could be material. A second rulemaking is expected in the future which will replace the Navigable Waters Protection Rule. The cost to comply with any future rulemaking that replaces the Navigable Waters Protection Rule could be material to the Evergy Companies.
Regulation of Coal Combustion Residuals In the course of operating their coal generation plants, the Evergy Companies produce CCRs, including fly ash, gypsum and bottom ash. The EPA published a rule to regulate CCRs in April 2015 that requires additional CCR handling, processing and storage equipment and closure of certain ash disposal units.
The Evergy Companies have recorded AROs for their current estimates for the closure of ash disposal ponds and landfills, but the revision of these AROs may be required 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 and landfills. If revisions to these AROs are necessary, the impact on the Evergy Companies' operations or consolidated financial results could be material.
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Nuclear Insurance Nuclear liability, property and accidental outage insurance is maintained for Wolf Creek. These policies contain certain industry standard terms, conditions and exclusions, including, but not limited to, ordinary wear and tear and war. An industry aggregate limit of $3.2 billion for nuclear events ($1.8 billion of non-nuclear events) plus any reinsurance, indemnity or any other source recoverable by Nuclear Electric Insurance Limited (NEIL), provider of property and accidental outage insurance, exists for acts of terrorism affecting Wolf Creek or any other NEIL insured plant within 12 months from the date of the first act. In addition, participation is required in industry-wide retrospect assessment programs as discussed below.
Nuclear Liability Insurance Pursuant to the Price-Anderson Act, liability insurance includes coverage against public nuclear liability claims resulting from nuclear incidents to the required limit of public liability, which is approximately $13.6 billion. This limit of liability consists of the maximum available commercial insurance of $0.5 billion and the remaining $13.1 billion is provided through mandatory participation in an industry-wide retrospective assessment program. Under this retrospective assessment program, the owners of Wolf Creek are jointly and severally subject to an assessment of up to $137.6 million (Evergy's share is $129.4 million and each of Evergy Kansas Central's and Evergy Metro's is
$64.7 million), payable at no more than $20.5 million (Evergy's share is $19.2 million and each of Evergy Kansas Central's and Evergy Metro's is $9.6 million) per incident per year per reactor for any commercial U.S. nuclear reactor qualifying incident. Both the total and yearly assessment is subject to an inflationary adjustment based on the Consumer Price Index and applicable premium taxes. In addition, the U.S. Congress could impose additional revenue-raising measures to pay claims.
Nuclear Property and Accidental Outage Insurance The owners of Wolf Creek carry decontamination liability, nuclear property damage and premature nuclear decommissioning liability insurance for Wolf Creek totaling approximately $2.8 billion. Insurance coverage for non-nuclear property damage accidents total approximately $2.3 billion. In the event of an extraordinary nuclear accident, insurance proceeds must first be used for reactor stabilization and site decontamination in accordance with a plan mandated by the NRC. The Evergy Companies' share of any remaining proceeds can be used to pay for property damage or, if certain requirements are met, including decommissioning the plant, toward a shortfall in the nuclear decommissioning trust fund. The owners also carry additional insurance with NEIL to help cover costs of replacement power and other extra expenses incurred during a prolonged outage resulting from accidental property damage at Wolf Creek. If significant losses were incurred at any of the nuclear plants insured under the NEIL policies, the owners of Wolf Creek may be subject to retrospective assessments under the current policies of approximately $30.0 million (Evergy's share is $28.2 million and each of Evergy Kansas Central's and Evergy Metro's is $14.1 million).
Nuclear Insurance Considerations Although the Evergy Companies maintain various insurance policies to provide coverage for potential losses and liabilities resulting from an accident or an extended outage, the insurance coverage may not be adequate to cover the costs that could result from a catastrophic accident or extended outage at Wolf Creek. Any substantial losses not covered by insurance, to the extent not recoverable in prices, would have a material effect on the Evergy Companies' consolidated financial results.
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Contractual Commitments - Fuel and Power The Evergy Companies' contractual commitments for fuel and power at December 31, 2021 are detailed in the following tables. See Notes 9, 12 and 20 for information regarding pension, long-term debt and lease commitments, respectively.
Evergy 2022 2023 2024 2025 2026 After 2026 Total Purchase commitments (millions)
Fuel $ 403.1 $ 183.5 $ 130.2 $ 100.4 $ 106.7 $ 221.1 $ 1,145.0 Power 63.0 63.6 58.0 58.4 58.4 294.2 595.6 Total fuel and power commitments $ 466.1 $ 247.1 $ 188.2 $ 158.8 $ 165.1 $ 515.3 $ 1,740.6 Evergy Kansas Central 2022 2023 2024 2025 2026 After 2026 Total Purchase commitments (millions)
Fuel $ 232.4 $ 102.6 $ 83.3 $ 69.4 $ 72.6 $ 121.3 $ 681.6 Power 0.9 0.9 0.9 0.9 0.9 3.6 8.1 Total fuel and power commitments $ 233.3 $ 103.5 $ 84.2 $ 70.3 $ 73.5 $ 124.9 $ 689.7 Evergy Metro 2022 2023 2024 2025 2026 After 2026 Total Purchase commitments (millions)
Fuel $ 145.3 $ 73.7 $ 43.3 $ 28.4 $ 31.4 $ 99.8 $ 421.9 Power 35.1 35.3 29.2 29.2 29.2 166.9 324.9 Total fuel and power commitments $ 180.4 $ 109.0 $ 72.5 $ 57.6 $ 60.6 $ 266.7 $ 746.8 Fuel commitments consist of commitments for nuclear fuel, coal and coal transportation. Power commitments consist of certain commitments for renewable energy under power purchase agreements, capacity purchases and firm transmission service.
- 15. GUARANTEES In the ordinary course of business, Evergy and certain of its subsidiaries enter into various agreements providing financial or performance assurance to third parties on behalf of certain subsidiaries. Such agreements include, for example, guarantees and letters of credit. These agreements are entered into primarily to support or enhance the creditworthiness otherwise attributed to a subsidiary on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish the subsidiary's intended business purposes. The majority of these agreements guarantee Evergy's own future performance, so a liability for the fair value of the obligation is not recorded.
At December 31, 2021, Evergy has provided $904.0 million of credit support for certain of its subsidiaries as follows:
- Evergy direct guarantees to Evergy Kansas Central and Evergy Metro counterparties for certain fuel supply contracts totaling $48.0 million, which expire in 2027; and
- Evergy's guarantee of Evergy Missouri West long-term debt totaling $856.0 million, which includes debt with maturity dates ranging from 2022 to 2043.
Evergy has also guaranteed Evergy Missouri West's commercial paper program. At December 31, 2021, Evergy Missouri West had $395.3 million of commercial paper outstanding. None of the guaranteed obligations are subject to default or prepayment if Evergy Missouri West's credit ratings were downgraded.
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- 16. RELATED PARTY TRANSACTIONS AND RELATIONSHIPS In the normal course of business, Evergy Kansas Central, Evergy Metro and Evergy Missouri West engage in related party transactions with one another. A summary of these transactions and the amounts associated with them is provided below.
Jointly-Owned Plants and Shared Services Employees of Evergy Kansas Central and Evergy Metro manage Evergy Missouri West's business and operate its facilities at cost, including Evergy Missouri West's 18% ownership interest in Evergy Metro's Iatan Nos. 1 and 2.
Employees of Evergy Kansas Central manage Jeffrey Energy Center (JEC) and operate its facilities at cost, including Evergy Missouri West's 8% ownership interest in JEC. Employees of Evergy Metro manage La Cygne Station and operate its facilities at cost, including Evergy Kansas Central's 50% interest in La Cygne Station.
Employees of Evergy Metro and Evergy Kansas Central 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 for jointly-owned plants and shared services are detailed in the following table.
2021 2020 2019 (millions)
Evergy Kansas Central billings to Evergy Missouri West $ 32.5 $ 37.6 $ 24.9 Evergy Metro billings to Evergy Missouri West 142.1 168.7 172.8 Evergy Kansas Central billings to Evergy Metro 29.4 34.7 40.6 Evergy Metro billings to Evergy Kansas Central 134.7 130.8 154.9 Money Pool Evergy Kansas Central, Evergy Metro and Evergy Missouri West are authorized to participate in the Evergy, Inc.
money pool, which is an internal financing arrangement in which funds may be lent on a short-term basis between Evergy Kansas Central, Evergy Metro, Evergy Missouri West and Evergy, Inc. Evergy, Inc. can lend but not borrow under the money pool. The Evergy, Inc. money pool was amended in July 2021 to include Evergy Kansas Central as a participant.
At December 31, 2021, Evergy Metro had a $155.0 million outstanding receivable from Evergy Missouri West under the money pool. At December 31, 2020, Evergy Metro had a $100.0 million outstanding receivable from Evergy Missouri West under the money pool.
Related Party Net Receivables and Payables The following table summarizes Evergy Kansas Central's and Evergy Metro's related party net receivables and payables.
December 31 2021 2020 Evergy Kansas Central (millions)
Net receivable from (payable to) Evergy $ (2.2) $ 0.1 Net payable to Evergy Metro (14.5) (21.7)
Net receivable from Evergy Missouri West 10.4 6.6 Evergy Metro Net receivable from Evergy $ 8.7 $ 15.7 Net receivable from Evergy Kansas Central 14.5 21.7 Net receivable from Evergy Missouri West 254.5 188.1 141
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. The following table summarizes Evergy Kansas Central's and Evergy Metro's income taxes receivable from (payable to)
Evergy.
December 31 2021 2020 Evergy Kansas Central (millions)
Income taxes receivable from Evergy $ 9.6 $ 25.3 Evergy Metro Income taxes receivable from (payable to) Evergy $ (2.5) $ 3.2
- 17. SHAREHOLDERS' EQUITY Evergy's authorized capital stock consists of 600 million shares of common stock, without par value, and 12 million shares of Preference Stock, without par value.
Bluescape Energy Partners, LLC (Bluescape) Securities Purchase Agreement In February 2021, Evergy entered into a securities purchase agreement with an affiliate of Bluescape. Pursuant to the securities purchase agreement, an affiliate of Bluescape agreed to purchase 2,269,447 shares of Evergys common stock for approximately $113.2 million and to receive a warrant to purchase up to 3,950,000 additional shares of Evergys common stock. Under the terms of the warrant, Evergy will have the option to elect a net cash settlement with respect to the exercise of the warrant under certain circumstances, or to net settle in shares of Evergys common stock. The warrant expires three years from issuance and has an exercise price equal to $64.70 per share. Following the satisfaction of customary closing conditions, Evergy completed the sale of its common stock and warrant to the affiliate of Bluescape in April 2021 for $112.5 million, net of issuance costs of
$0.7 million. The Executive Chairman of Bluescape, C. John Wilder, joined the Evergy Board in March 2021.
Evergy Registration Statements In September 2021, Evergy filed an automatic registration statement providing for the sale of unlimited amounts of securities with the SEC, which expires in September 2024.
In September 2021, Evergy registered shares of its common stock with the SEC for its Dividend Reinvestment and Direct Stock Purchase Plan. Shares issued under the plan may be either newly issued shares or shares purchased on the open market.
Evergy has registered shares of its common stock with the SEC for the Evergy, Inc. 401(k) Savings Plan. Shares issued under the plan may be either newly issued shares or shares purchased on the open market.
Dividend Restrictions Evergy depends on its subsidiaries to pay dividends 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 pay 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, Evergy Kansas Central, Evergy Metro and Evergy Missouri West generally can pay dividends only out of retained earnings. Certain conditions in the MPSC and KCC orders authorizing the merger transaction also require Evergy Kansas Central and Evergy Metro to maintain consolidated common equity of at least 40% of total capitalization. Other conditions in the MPSC and KCC merger orders require Evergy Kansas 142
Central, Evergy Metro and Evergy Missouri West to maintain credit ratings of at least investment grade. If Evergy Kansas Central's, Evergy Metro's or Evergy Missouri West's credit ratings are downgraded below the investment grade level as a result of their affiliation with Evergy or any of Evergy's affiliates, the impacted utility shall not pay a dividend to Evergy without KCC or MPSC approval or until the impacted utility's investment grade credit rating has been restored.
The master credit facility of Evergy, Evergy Kansas Central, Evergy Metro and Evergy Missouri West and the note purchase agreements for certain Evergy Missouri West senior notes contain covenants requiring the respective company to maintain a consolidated indebtedness to consolidated total capitalization ratio of not more than 0.65 to 1.00 at all times.
As of December 31, 2021, all of Evergy's and Evergy Kansas Central's retained earnings and net income were free of restrictions and Evergy Metro had a retained earnings restriction of $386.9 million. As of December 31, 2021, Evergy's subsidiaries had restricted net assets of approximately $5.7 billion. These restrictions are not expected to affect the Evergy Companies' ability to pay dividends at the current level for the foreseeable future.
- 18. VARIABLE INTEREST ENTITIES In determining the primary beneficiary of a VIE, the Evergy Companies 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 an 8% interest in JEC was a VIE until the expiration of a purchase option in July 2017 and then became a VIE again during 2019 until the 8%
interest was purchased by Evergy Kansas Central in August 2019. The trust holding Evergy Kansas Central's 50%
interest in La Cygne Unit 2 is a VIE and Evergy Kansas Central remains the primary beneficiary of the trust.
All involvement with entities by the Evergy Companies is assessed to determine whether such entities are VIEs and, if so, whether or not the Evergy Companies are the primary beneficiaries of the entities. The Evergy Companies also continuously assess whether they are the primary beneficiary of the VIE with which they are involved.
Prospective changes in facts and circumstances may cause identification of the primary beneficiary to be reconsidered.
8% Interest in JEC Under an agreement that expired in August 2019, Evergy Kansas Central leased 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 did not hold any other assets. Evergy Kansas Central 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, Evergy Kansas Central deconsolidated the trust in 2017. Evergy Kansas Central then reconsolidated the trust as a VIE in the first quarter of 2019 following an agreement with the owner to purchase the 8% interest in JEC from the trust in August 2019. Evergy Kansas Central deconsolidated the trust for the final time following the closing of this purchase in August 2019.
50% Interest in La Cygne Unit 2 Under an agreement that expires in September 2029, Evergy Kansas Central entered into a sale-leaseback transaction with a trust under which the trust purchased Evergy Kansas Central's 50% interest in La Cygne Unit 2 and subsequently leased it back to Evergy Kansas Central. 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 Evergy Kansas Central and does not hold any other assets. Evergy Kansas Central meets the requirements to be considered the primary beneficiary of the trust. In determining the primary beneficiary of the trust, Evergy Kansas Central concluded that the activities of the trust that most significantly impact its economic performance and that Evergy Kansas Central has the power to direct include (1) the operation 143
and maintenance of the 50% interest in La Cygne Unit 2 and (2) Evergy Kansas Central's ability to exercise a purchase option at the end of the agreement at the lesser of fair value or a fixed amount. Evergy Kansas Central has 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.
The following table summarizes the assets and liabilities related to the VIE described above that are recorded on Evergy's and Evergy Kansas Central's consolidated balance sheets.
December 31 2021 2020 Assets: (millions)
Property, plant and equipment of variable interest entities, net $ 147.8 $ 154.9 Liabilities:
Current maturities of long-term debt of variable interest entities $ $ 18.8 Accrued interest(a) 0.1 (a)
Included in accrued interest on Evergy's and Evergy Kansas Central's consolidated balance sheets.
All of the liabilities noted in the table above relate to the purchase of the property, plant and equipment of the VIE.
The assets of the VIE can be used only to settle obligations of the VIE and the VIE's debt holders have no recourse to the general credit of Evergy and Evergy Kansas Central. Evergy and Evergy Kansas Central have not provided financial or other support to the VIE and are not required to provide such support. Evergy and Evergy Kansas Central did not record any gain or loss upon the initial consolidation of the VIE.
- 19. TAXES Components of income tax expense are detailed in the following tables.
Evergy 2021 2020 2019 Current income taxes (millions)
Federal $ 15.6 $ (26.8) $ (39.5)
State (0.4) 2.1 15.0 Total 15.2 (24.7) (24.5)
Deferred income taxes Federal 92.8 73.1 93.2 State 14.7 59.8 27.5 Total 107.5 132.9 120.7 Investment tax credit Deferral 0.4 5.2 Amortization (5.7) (6.0) (4.4)
Total (5.3) (6.0) 0.8 Income tax expense $ 117.4 $ 102.2 $ 97.0 144
Evergy Kansas Central 2021 2020 2019 Current income taxes (millions)
Federal $ 53.3 $ 14.5 $ 37.9 State (0.2) (5.3) 2.6 Total 53.1 9.2 40.5 Deferred income taxes Federal 3.8 (16.7) (8.9)
State (1.2) 168.1 18.4 Total 2.6 151.4 9.5 Investment tax credit Deferral 0.3 5.2 Amortization (4.3) (4.8) (3.1)
Total (4.0) (4.8) 2.1 Income tax expense $ 51.7 $ 155.8 $ 52.1 Evergy Metro 2021 2020 2019 Current income taxes (millions)
Federal $ 39.2 $ (0.2) $ 43.9 State 3.2 10.8 22.4 Total 42.4 10.6 66.3 Deferred income taxes Federal 6.5 29.8 (24.5)
State 4.8 (32.2) (5.0)
Total 11.3 (2.4) (29.5)
Investment tax credit Amortization (1.3) (1.1) (1.1)
Total (1.3) (1.1) (1.1)
Income tax expense $ 52.4 $ 7.1 $ 35.7 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 2021 2020 2019 Federal statutory income tax 21.0 % 21.0 % 21.0 %
COLI policies (1.0) (1.6) (1.8)
State income taxes 1.0 4.3 5.0 Flow through depreciation for plant-related differences (5.4) (5.3) (4.5)
Federal tax credits (2.8) (4.6) (4.9)
Non-controlling interest (0.3) (0.3) (0.4)
AFUDC equity (0.6) (0.5) (0.1)
Amortization of federal investment tax credits (0.4) (0.6) (0.5)
Changes in uncertain tax positions, net (0.2)
Federal or state tax rate change 1.9 Valuation allowance (0.2) (1.0)
Stock compensation (0.1) 0.1 Officer compensation limitation 0.5 0.2 0.1 Other (0.4) (0.2) (0.4)
Effective income tax rate 11.6 % 14.0 % 12.4 %
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Evergy Kansas Central 2021 2020 2019 Federal statutory income tax 21.0 % 21.0 % 21.0 %
COLI policies (1.7) (2.8) (3.3)
State income taxes (0.4) 3.8 5.3 Flow through depreciation for plant-related differences (3.0) (0.1) (0.1)
Federal tax credits (5.0) (7.1) (7.4)
Non-controlling interest (0.5) (0.6) (0.8)
AFUDC equity (0.6) (0.5) (0.1)
Amortization of federal investment tax credits (0.5) (0.7) (0.7)
Changes in uncertain tax positions, net (0.4)
Federal or state tax rate change 27.8 Valuation allowance (0.4)
Stock compensation (0.1) (0.1) (0.1)
Officer compensation limitation 0.3 Other (0.1) (0.9) (0.3)
Effective income tax rate 9.4 % 39.8 % 12.7 %
Evergy Metro 2021 2020 2019 Federal statutory income tax 21.0 % 21.0 % 21.0 %
COLI policies (0.2) (0.3) (0.2)
State income taxes 1.7 4.9 4.7 Flow through depreciation for plant-related differences (7.8) (10.0) (9.4)
Federal tax credits (0.2) (1.9) (2.5)
AFUDC equity (0.7) (0.5) (0.2)
Amortization of federal investment tax credits (0.4) (0.4) (0.4)
Federal or state tax rate change (10.5)
Stock compensation (0.4)
Officer compensation limitation 0.9 0.4 0.3 Other 0.1 (1.0)
Effective income tax rate 14.4 % 2.3 % 12.3 %
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Deferred Income Taxes The tax effects of major temporary differences resulting in deferred income tax assets (liabilities) in the consolidated balance sheets is in the following table.
December 31 2021 2020 Evergy Evergy Kansas Evergy Kansas Evergy Evergy Central Metro Evergy Central Metro Deferred tax assets: (millions)
Tax credit carryforward $ 375.2 $ 206.3 $ 162.1 $ 379.6 $ 176.5 $ 195.9 Income taxes refundable to customers, net 336.6 168.5 123.8 418.2 237.5 132.8 Deferred employee benefit costs 158.3 84.8 86.8 227.6 105.4 117.9 Net operating loss carryforward 40.2 51.0 0.2 Deferred state income taxes 146.9 101.0 38.6 145.9 101.7 37.8 Accrued liabilities 157.6 71.3 56.4 152.7 61.8 61.0 Other 200.0 100.6 59.6 181.0 91.4 44.8 Total deferred tax assets before valuation allowance 1,414.8 732.5 527.3 1,556.0 774.3 590.4 Valuation allowances (12.8) (14.4)
Total deferred tax assets, net 1,402.0 732.5 527.3 1,541.6 774.3 590.4 Deferred tax liabilities:
Plant-related (2,701.1) (1,308.7) (996.7) (2,693.7) (1,341.2) (972.1)
Deferred employee benefit costs (96.8) (52.9) (43.5) (171.4) (75.6) (76.3)
ARO regulatory assets (133.7) (53.9) (49.9) (136.7) (49.9) (54.3)
Acquisition premium (43.9) (43.9) (46.9) (46.9)
Other regulatory assets (152.1) (53.3) (20.4) (28.8) (2.8) (16.4)
Other (136.3) (87.7) (22.9) (128.9) (82.4) (30.1)
Total deferred tax liabilities (3,263.9) (1,600.4) (1,133.4) (3,206.4) (1,598.8) (1,149.2)
Net deferred income tax liabilities $ (1,861.9) $ (867.9) $ (606.1) $ (1,664.8) $ (824.5) $ (558.8)
Tax Credit Carryforwards At December 31, 2021 and 2020, Evergy had $373.6 million and $379.6 million, respectively, of federal general business income tax credit carryforwards. At December 31, 2021 and 2020, Evergy Kansas Central had $204.7 million and $176.5 million, respectively, of federal general business income tax credit carryforwards. At December 31, 2021 and 2020, Evergy Metro had $162.1 million and $195.9 million, respectively, of federal general business income tax credit carryforwards. The carryforwards for Evergy, Evergy Kansas Central and Evergy Metro relate primarily to wind production tax credits and advanced coal investment tax credits and expire in the years 2022 to 2041. Approximately $0.1 million of Evergy's credits are related to Low Income Housing credits that were acquired in Great Plains Energy's acquisition of Evergy Missouri West. Due to federal limitations on the utilization of income tax attributes acquired in the Evergy Missouri West acquisition, Evergy expects a portion of these credits to expire unutilized and has provided a valuation allowance against $0.1 million of the federal income tax benefit.
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The year of origin of Evergy's, Evergy Kansas Central's and Evergy Metro's related tax benefit amounts for federal tax credit carryforwards as of December 31, 2021 are detailed in the following table.
Amount of Benefit Evergy Kansas Year of Origin Evergy Central Evergy Metro (millions) 2004 0.1 2005 0.1 2006 0.1 2007 0.1 2009 38.2 0.2 37.9 2010 18.3 18.2 2011 13.3 13.2 2012 12.8 2.0 10.7 2013 24.3 11.3 12.9 2014 24.1 10.7 13.0 2015 24.7 10.9 13.2 2016 27.1 11.0 12.4 2017 43.9 35.1 8.2 2018 43.9 36.3 7.5 2019 37.7 30.9 6.7 2020 35.9 28.3 7.4 2021 29.0 28.0 0.8
$ 373.6 $ 204.7 $ 162.1 Net Operating Loss Carryforwards At December 31, 2021 and 2020, Evergy had $33.6 million and $42.2 million, respectively, of tax benefits related to federal net operating loss (NOL) carryforwards. Approximately $7.1 million of Evergy's tax benefits at December 31, 2021 are related to NOLs that were acquired in the Evergy Missouri West acquisition. Due to federal limitations on the utilization of income tax attributes acquired in the Evergy Missouri West acquisition, Evergy expects a portion of these federal NOL carryforwards to expire unutilized and has provided a valuation allowance against $7.1 million of the federal income tax benefit. The federal NOL carryforwards expire in years 2023 to 2024.
The year of origin of Evergy's related tax benefit amounts for federal NOL carryforwards as of December 31, 2021 are detailed in the following table.
Amount of Year of Origin Benefit (millions) 2005 $ 1.9 2006 31.7
$ 33.6 In addition, Evergy also had deferred tax benefits of $6.6 million and $8.8 million related to state NOLs as of December 31, 2021 and 2020, respectively. Evergy Metro had deferred tax benefits of $0.2 million related to state NOLs as of 2020. The state NOL carryforwards expire in years 2022 to 2038. Evergy does not expect to utilize
$5.6 million of NOLs before the expiration date of the carryforwards of NOLs in certain states. Therefore, a valuation allowance has been provided against $5.6 million of state tax benefits.
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Alternative Minimum Tax (AMT) Carryforwards At December 31, 2021, Evergy and Evergy Kansas Central had $1.6 million of federal AMT carryforwards.
Valuation Allowances Evergy is required to assess the ultimate realization of deferred tax assets using a "more likely than not" assessment threshold. This assessment takes into consideration tax planning strategies within Evergy's control. As a result of this assessment, Evergy has established a partial valuation allowance for federal and state tax NOL carryforwards and tax credit carryforwards. During 2021, $1.5 million of tax benefit was recorded in continuing operations primarily related to utilization or expiration of certain state NOL carryforwards.
Uncertain Tax Positions Evergy is considered open to U.S. federal examination for years after 2009 due to the carryforward of net operating losses and general business income tax credits. With few exceptions, Evergy is no longer subject to state and local tax examinations by tax authorities for years before 2016. As of December 31, 2021, Evergy does not have any significant income tax issues under examination.
Kansas Tax Reform In May 2020, the state of Kansas exempted certain public utilities, including Evergy Kansas Central and Evergy Metro, from Kansas corporate income tax beginning in 2021 and authorized the KCC to approve changes in rates related to increases or decreases in federal or state income tax rates.
As a result of the exemption from Kansas corporate income tax, the Evergy Companies revalued their deferred income tax assets and liabilities in May 2020. Evergy decreased its net deferred income tax liabilities by $233.8 million, primarily consisting of a $400.4 million adjustment for the revaluation of deferred income tax assets and liabilities included in rate base and a $31.7 million tax gross-up adjustment on this amount for ratemaking purposes and $13.8 million of income tax expense primarily related to the revaluation of deferred income taxes that will not be recovered from customers in future rates; partially offset by a decrease to unamortized investment tax credits of
$183.6 million due to the revaluation of certain Kansas income tax credits and a $16.9 million tax gross-up adjustment on this amount for ratemaking purposes.
Evergy Kansas Central decreased its net deferred income tax liabilities by $17.6 million, primarily consisting of a
$293.7 million adjustment for the revaluation of deferred income tax assets and liabilities included in rate base and a
$17.3 million tax gross-up adjustment on this amount for ratemaking purposes; partially offset by a decrease to unamortized investment tax credits of $183.6 million due to the revaluation of certain Kansas income tax credits and a $16.9 million tax gross-up adjustment on this amount for ratemaking purposes and $109.0 million of income tax expense primarily related to the revaluation of deferred income taxes that will not be recovered from customers in future rates.
Evergy Metro decreased its net deferred income tax liabilities by $152.9 million, primarily consisting of a $106.7 million adjustment for the revaluation of deferred income tax assets and liabilities included in rate base and a $14.4 million tax gross-up adjustment on this amount for ratemaking purposes and $32.2 million of income tax benefit primarily related to the revaluation of deferred income taxes that will not be refunded to customers in future rates.
The changes to the Evergy Companies' net deferred income tax liabilities included in rate base were offset by corresponding changes in regulatory liabilities. The net regulatory liabilities will be refunded to customers in future rates by amortizing the amounts related to plant assets over the remaining useful life of the assets, and amortizing the amounts related to other items over a period to be determined in a future rate case. The changes to the Evergy Companies' unamortized investment tax credits were related to the portion of certain Kansas income tax credits that are not expected to be used after December 31, 2020. The amounts of income tax expense (benefit) recognized by the Evergy Companies related to the revaluation of deferred income taxes that will not be recovered from or refunded to customers in future rates primarily pertain to deferred tax adjustments related to the difference between Evergy's consolidated tax rate and the statutory tax rates used for setting rates at Evergy Kansas Central, Evergy Metro and Evergy Missouri West as well as deferred income tax adjustments related to non-regulated operations.
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Prior to 2021, Evergy Kansas Central and Evergy Metro recovered the cost of Kansas corporate income taxes in rates from their customers at the statutory rate of 7%. In accordance with the provisions of the income tax exemption, Evergy Metro and Evergy Kansas Central filed a joint application with the KCC in July 2020 to reduce their retail rates to reflect their exemption from Kansas corporate income taxes beginning in 2021. In the joint application, Evergy Metro requested to implement its rate reduction in one phase, effective January 1, 2021, and Evergy Kansas Central requested to implement its rate reduction in three phases, effective January 1 in each of 2021, 2022 and 2023. In November 2020, the KCC approved Evergy Kansas Central's and Evergy Metro's joint application.
- 20. 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 Evergy Kansas Central or Evergy Metro is the managing partner and is reimbursed by other joint-owners for the other owners' proportionate share of the costs. Under GAAP, a contract is or contains a lease if the contract conveys the right to control the use of identified property, plant or equipment for a period of time in exchange 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 obtain 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 into several agreements to purchase energy through renewable purchase power agreements that are accounted for as leases that commenced prior to the application of Topic 842-Leases. Due to 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, certain other contracts 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 GAAP to not separate such components of the lease from other lease components for all leases.
The Evergy, Evergy Kansas Central and Evergy Metro leases have remaining terms ranging from 1 to 17 years, 1 to 17 years and 1 to 11 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 the lease using their incremental borrowing rates at lease commencement to measure its initial and subsequent lease liability. For leases that existed at the initial application of Topic 842, the Evergy Companies used the incremental borrowing rates that corresponded to the 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.
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The Evergy Companies lease expense is detailed in the following table.
Evergy 2021 2020 2019 Finance lease costs (millions)
Amortization of right-of-use assets $ 5.1 $ 7.7 $ 5.2 Interest on lease liabilities 2.5 3.1 2.9 Operating lease costs 21.8 22.9 23.8 Short-term lease costs 5.9 2.1 4.0 Variable lease costs for renewable purchase power agreements 280.3 296.6 313.0 Total lease costs $ 315.6 $ 332.4 $ 348.9 Evergy Kansas Central 2021 2020 2019 Finance lease costs (millions)
Amortization of right-of-use assets $ 4.5 $ 7.2 $ 5.0 Interest on lease liabilities 2.4 2.8 2.7 Operating lease costs 12.9 11.9 13.2 Short-term lease costs 1.8 0.5 1.2 Variable lease costs for renewable purchase power agreements 145.8 135.6 130.8 Total lease costs $ 167.4 $ 158.0 $ 152.9 Evergy Metro 2021 2020 2019 Finance lease costs (millions)
Amortization of right-of-use assets $ 0.4 $ 0.3 $ 0.1 Interest on lease liabilities 0.1 0.1 0.1 Operating lease costs 9.0 9.3 9.2 Short-term lease costs 3.0 1.5 2.6 Variable lease costs for renewable purchase power agreements 101.0 112.2 129.2 Total lease costs $ 113.5 $ 123.4 $ 141.2 Supplemental cash flow information related to the Evergy Companies' leases is detailed in the following table.
Evergy 2021 2020 2019 Cash paid for amounts included in the measurement of lease liabilities: (millions)
Operating cash flows from operating leases $ 20.7 $ 22.2 $ 21.7 Operating cash flows from finance leases 2.6 2.8 2.8 Financing cash flows from finance leases 5.3 5.6 5.0 Right-of-use assets obtained in exchange for new operating lease liabilities 16.4 6.9 10.4 Right-of-use assets obtained in exchange for new finance lease liabilities 1.4 5.6 8.3 Evergy Kansas Central 2021 2020 2019 Cash paid for amounts included in the measurement of lease liabilities: (millions)
Operating cash flows from operating leases $ 11.8 $ 12.9 $ 13.7 Operating cash flows from finance leases 2.4 2.5 2.6 Financing cash flows from finance leases 4.7 5.1 4.8 Right-of-use assets obtained in exchange for new operating lease liabilities 7.1 6.6 6.1 Right-of-use assets obtained in exchange for new finance lease liabilities 1.4 4.0 8.3 151
Evergy Metro 2021 2020 2019 Cash paid for amounts included in the measurement of lease liabilities: (millions)
Operating cash flows from operating leases $ 10.4 $ 10.8 $ 9.9 Operating cash flows from finance leases 0.1 0.1 0.1 Financing cash flows from finance leases 0.5 0.4 0.1 Right-of-use assets obtained in exchange for new operating lease liabilities 9.3 0.3 2.4 Right-of-use assets obtained in exchange for new finance lease liabilities 1.6 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 and other supplemental information for finance leases as of December 31, 2021, are detailed in the following table.
Evergy Kansas Evergy Evergy Central Metro (millions) 2022 $ 7.8 $ 7.1 $ 0.6 2023 6.7 5.9 0.6 2024 5.5 4.7 0.6 2025 4.7 4.2 0.3 2026 4.4 3.9 0.2 After 2026 38.5 37.8 0.3 Total finance lease payments 67.6 63.6 2.6 Amounts representing imputed interest (21.3) (20.6) (0.4)
Present value of lease payments 46.3 43.0 2.2 Less: current portion (5.4) (4.9) (0.5)
Total long-term obligations under finance leases $ 40.9 $ 38.1 $ 1.7 Right-of-use assets under finance leases included in property, plant and equipment, net on the consolidated balance sheets $ 310.3 $ 50.6 $ 2.2 Weighted-average remaining lease term (years) 13.3 13.9 5.0 Weighted-average discount rate 5.6 % 5.6 % 5.1 %
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Operating 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 other long-term liabilities. Lease payments and other supplemental information for operating leases as of December 31, 2021, are detailed in the following table.
Evergy Kansas Evergy Evergy Central Metro (millions) 2022 $ 18.8 $ 9.4 $ 9.2 2023 15.3 6.5 8.6 2024 12.5 4.3 7.9 2025 8.5 2.2 6.4 2026 5.9 0.7 5.4 After 2026 30.3 0.1 30.3 Total operating lease payments 91.3 23.2 67.8 Amounts representing imputed interest (7.3) (1.0) (6.3)
Present value of lease payments 84.0 22.2 61.5 Less: current portion (17.1) (9.0) (8.0)
Total long-term obligations under operating leases $ 66.9 $ 13.2 $ 53.5 Right-of-use assets under operating leases included in other assets on the consolidated balance sheets $ 90.7 $ 29.0 $ 46.7 Weighted-average remaining lease term (years) 7.6 3.0 9.3 Weighted-average discount rate 2.2 % 2.4 % 2.1 %
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
ITEM 9A. CONTROLS AND PROCEDURES EVERGY Disclosure Controls and Procedures Evergy 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 Evergy's management, including the chief executive officer and chief financial officer, and 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 that 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 Evergys 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 December 31, 2021, that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
Management's Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) for Evergy. Under the supervision and with the 153
participation of Evergys chief executive officer and chief financial officer, management evaluated the effectiveness of Evergys internal control over financial reporting as of December 31, 2021. Management used for this evaluation the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has concluded that, as of December 31, 2021, Evergys internal control over financial reporting is effective based on the criteria set forth in the COSO framework. Deloitte & Touche LLP, the independent registered public accounting firm that audited the financial statements included in this annual report on Form 10-K, has issued its attestation report on Evergys internal control over financial reporting, which is included below.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Evergy, Inc.
Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Evergy, Inc. and subsidiaries (the "Company") as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2021, of the Company and our report dated February 24, 2022, expressed an unqualified opinion on those financial statements and financial statement schedules.
Basis for Opinion The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/DELOITTE & TOUCHE LLP Kansas City, Missouri February 24, 2022 155
EVERGY KANSAS CENTRAL Disclosure Controls and Procedures Evergy Kansas Central 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 Evergy Kansas Central's management, including the chief executive officer and chief financial officer, and Evergy Kansas Central's disclosure committee. Based upon this evaluation, the chief executive officer and chief financial officer of Evergy Kansas Central have concluded as of the end of the period covered by this report that the disclosure controls and procedures of Evergy Kansas Central were effective at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting There has been no change in Evergy Kansas Centrals 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 December 31, 2021, that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
Management's Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) for Evergy Kansas Central. Under the supervision and with the participation of Evergy Kansas Centrals chief executive officer and chief financial officer, management evaluated the effectiveness of Evergy Kansas Centrals internal control over financial reporting as of December 31, 2021. Management used for this evaluation the framework in Internal Control - Integrated Framework (2013) issued by the COSO of the Treadway Commission.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has concluded that, as of December 31, 2021, Evergy Kansas Centrals internal control over financial reporting is effective based on the criteria set forth in the COSO framework.
EVERGY METRO Disclosure Controls and Procedures Evergy Metro 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 Evergy Metro's management, including the chief executive officer and chief financial officer, and Evergy Metro's disclosure committee. Based upon this evaluation, the chief executive officer and chief financial officer of Evergy Metro have concluded as of the end of the period covered by this report that the disclosure controls and procedures of Evergy Metro were effective at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting There has been no change in Evergy Metros 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 December 31, 2021, that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
Management's Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) for Evergy Metro. Under the supervision and with the participation of Evergy Metros chief executive officer and chief financial officer, management evaluated the effectiveness of Evergy Metros internal control over financial reporting as of December 31, 2021. Management 156
used for this evaluation the framework in Internal Control - Integrated Framework (2013) issued by the COSO of the Treadway Commission.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has concluded that, as of December 31, 2021, Evergy Metros internal control over financial reporting is effective based on the criteria set forth in the COSO framework.
ITEM 9B. OTHER INFORMATION Investors should note that the Evergy Companies announce material financial information in SEC filings, press releases and public conference calls. In accordance with SEC guidelines, the Evergy Companies also use the Investor Relations tab on their website, http://investors.evergy.com, to communicate with investors. It is possible that the financial and other information posted there could be deemed to be material information. The information on Evergy's website is not part of this document.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable.
PART III Information required by Items 10-14 of Part III of this Form 10-K with respect to Evergy will be included in an amendment to this Form 10-K, or incorporated by reference to Evergy's definitive proxy statement with respect to its 2022 Annual Meeting of Shareholders (Proxy Statement) on or before April 29, 2022.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Evergy The information required by this item will be included in an amendment to this Form 10-K or will be incorporated by reference from the following sections of the Proxy Statement:
- Information regarding the directors of Evergy will be contained in the Proxy Statement section titled "Election of Directors."
- If applicable, information regarding compliance with Section 16(a) of the Exchange Act will be contained in the Proxy Statement section titled "Security Ownership of Directors, Management and Beneficial Owners."
- Information regarding the Audit Committee of Evergy will be contained in the Proxy Statement section titled "Corporate Governance Matters - Board Structure - Audit Committee."
- Information regarding Evergy's Code of Ethics will be contained in the Proxy Statement section titled "Corporate Governance Practices - Code of Ethics."
Information required by this item regarding Evergy's executive officers is contained in this report in Part I, Item 1 in "Information About Evergy's Executive Officers."
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Evergy Kansas Central and Evergy Metro Other information required by this item regarding Evergy Kansas Central and Evergy Metro has been omitted in reliance on General Instruction (I) to Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION Evergy The information required by this item will be included in an amendment to this Form 10-K or will be incorporated by reference to the following sections of the Proxy Statement: "Proxy Statement Summary and Highlights -
Executive Compensation Highlights," "Director Compensation," "Executive Summary of Compensation Matters,"
"Compensation Discussion and Analysis," "Compensation Committee Report," "Executive Compensation Tables,"
"Director Independence" and "Other Matters - Compensation Committee Interlocks and Insider Participation."
Evergy Kansas Central and Evergy Metro Other information required by this item regarding Evergy Kansas Central and Evergy Metro has been omitted in reliance on General Instruction (I) to Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Evergy The information required by this item regarding security ownership of the directors and executive officers of Evergy will be included in an amendment to this Form 10-K or will be incorporated by reference to the "Security Ownership of Directors, Management and Beneficial Owners" section of the Proxy Statement.
Evergy Kansas Central and Evergy Metro The information required by this item regarding Evergy Kansas Central and Evergy Metro has been omitted in reliance on General Instruction (I) to Form 10-K.
Equity Compensation Plans Upon the consummation of the merger, Evergy assumed both Evergy Kansas Central's LTISA and Great Plains Energy's Amended Long-Term Incentive Plan, which was renamed the Evergy, Inc. Long-Term Incentive Plan.
The renamed Evergy Long-Term Incentive Plan permits the grant of restricted stock, restricted stock units, bonus shares, stock options, stock appreciation rights, director shares, director deferred share units, performance shares and other stock-based awards to directors, officers and other employees of Evergy.
In connection with the 2022 annual meeting of shareholders, Evergy is seeking shareholder approval to amend and restate the Evergy, Inc. Long-Term Incentive Plan, and increase the number of shares of common stock available for future issuance, among other things. Additional information required by this item can be found in "Proposal 3:
Approval of the Amended and Restated Evergy Long-Term Incentive Plan" and "Appendix C" of the Proxy Statement.
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The following table provides information, as of December 31, 2021, regarding the number of common shares to be issued upon exercise of outstanding options, warrants and rights, their weighted average exercise price, and the number of shares of common stock remaining available for future issuance. The table excludes shares issued or issuable under any defined contribution savings plans.
Number of securities Number of remaining available securities for future issuance to be issued upon Weighted-average under equity exercise of exercise price of compensation plans outstanding options, outstanding options, (excluding securities warrants and rights warrants and rights reflected in column (a))
Plan Category (a) (b) (c)
Equity compensation plans approved by security holders (3)
Evergy Long-Term Incentive Plan 930,845 (1) $ (2) 1,296,632 Equity compensation plans not approved by security holders Total 930,845 (1) $ (2) 1,296,632 (1)
Includes 253,046 RSUs with time-based requirements, 513,715 RSUs with performance measures at target performance levels, 36,036 restricted share awards and director deferred share units for 128,048 shares of Evergy common stock outstanding at December 31, 2021.
(2)
The RSUs, RSAs and director deferred share units have no exercise price and therefore are not reflected in the weighted-average exercise price.
(3)
The Evergy Kansas Central, Inc. LTISA will not be used for future awards. As of December 31, 2021, there were approximately 312,568 units outstanding that were deferred pursuant to the Evergy Kansas Central, Inc. non-employee deferred compensation program. Deferred units will continue to receive deferred dividend equivalents in the form of additional deferred units until payouts pursuant to elections begin.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Evergy The information required by this item will be included in an amendment to this Form 10-K or will be incorporated by reference to the "Director Independence" and "Other Matters - Related Party Transactions" sections of the Proxy Statement.
Evergy Kansas Central and Evergy Metro The information required by this item regarding Evergy Kansas Central and Evergy Metro has been omitted in reliance on General Instruction (I) to Form 10-K.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Evergy The information required by this item regarding the independent auditors of Evergy and its subsidiaries will be included in an amendment to this Form 10-K or will be incorporated by reference to the "Ratification of Appointment of Deloitte & Touche LLP" (PCAOB ID No. 34) section of the Proxy Statement.
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Evergy Kansas Central and Evergy Metro The Audit Committee of the Evergy Board functions as the Audit Committee of Evergy Kansas Central and Evergy Metro. The following tables set forth the aggregate fees billed by Deloitte & Touche LLP for audit services rendered in connection with the consolidated financial statements and reports for 2021 and 2020 and for other services rendered during 2021 and 2020 on behalf of Evergy Kansas Central and Evergy Metro, as well as all out-of-pocket costs incurred in connection with these services:
Evergy Kansas Central 2021 2020 Fee Category Audit Fees $ 1,852,798 $ 2,025,969 Audit-Related Fees 50,734 Tax Fees 86,098 51,385 All Other Fees Total Fees $ 1,989,630 $ 2,077,354 Evergy Metro 2021 2020 Fee Category Audit Fees $ 1,293,049 $ 1,412,546 Audit-Related Fees 50,734 Tax Fees 29,219 40,799 All Other Fees Total Fees $ 1,373,002 $ 1,453,345 Audit Fees: Consists of fees billed for professional services rendered for the audits of the annual consolidated financial statements of Evergy Kansas Central and Evergy Metro and reviews of the interim condensed consolidated financial statements included in quarterly reports. Audit fees also include: services provided by Deloitte & Touche LLP in connection with statutory and regulatory filings or engagements; audit reports on audits of the effectiveness of internal control over financial reporting and other attest services, except those not required by statute or regulation; services related to filings with the SEC, including comfort letters, consents and assistance with and review of documents filed with the SEC; and accounting research in support of the audit.
Audit-Related Fees: Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of consolidated financial statements of Evergy Kansas Central and Evergy Metro and are not reported under "Audit Fees." These services include consultation concerning financial accounting and reporting standards.
Tax Fees: Consists of fees billed for tax compliance and related support of tax returns and other tax services, including assistance with tax audits, and tax research and planning.
All Other Fees: Consists of fees for all other services other than those described above.
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services The Audit Committee has adopted policies and procedures for the pre-approval of all audit services, audit-related services, tax services and other services to be provided by the independent registered public accounting firm for Evergy Kansas Central and Evergy Metro. Under these policies and procedures, the Audit Committee may pre-approve certain types of services, up to the aggregate fee levels it sets. Any proposed service within a pre-approved type of service that would cause the applicable fee level to be exceeded cannot be provided unless the Audit Committee either amends the applicable fee level or specifically approves the proposed service. The Audit Committee, as well, may specifically approve audit, audit-related, tax or other services on a case-by-case basis. Pre-approval is generally provided for up to one year, unless the Audit Committee specifically provides for a different period. Management provides quarterly updates to the Audit Committee regarding actual fees spent with respect to 160
pre-approved services. The Chair of the Audit Committee may pre-approve audit, audit-related, tax and other services provided by the independent registered public accounting firm as required between meetings and report such pre-approval at the next Audit Committee meeting.
PART IV 161
Schedule I - Parent Company Financial Statements EVERGY, INC.
Statements of Comprehensive Income of Parent Company 2021 2020 2019 OPERATING EXPENSES: (millions)
Operating and maintenance $ 13.2 $ 39.3 $ 19.4 Total Operating Expenses 13.2 39.3 19.4 INCOME FROM OPERATIONS (13.2) (39.3) (19.4)
OTHER INCOME (EXPENSE)
Equity in earnings from subsidiaries 932.9 683.4 698.2 Investment earnings 19.2 32.1 32.7 Other expense (8.3) (0.1) (0.1)
Total Other Income, Net 943.8 715.4 730.8 Interest expense 74.3 86.3 60.7 INCOME BEFORE INCOME TAXES 856.3 589.8 650.7 Income tax benefit (16.5) (22.7) (13.7)
NET INCOME $ 872.8 $ 612.5 $ 664.4 COMPREHENSIVE INCOME NET INCOME $ 872.8 $ 612.5 $ 664.4 OTHER COMPREHENSIVE INCOME Derivative hedging activity Loss on derivative hedging instruments (64.4)
Income tax benefit 16.5 Net loss on derivative hedging instruments (47.9)
Reclassification to expenses, net of taxes 5.5 3.0 1.5 Derivative hedging activity, net of tax 5.5 3.0 (46.4)
Other comprehensive loss from subsidiaries, net (0.1) (2.4) (0.6)
Total other comprehensive income (loss) 5.4 0.6 (47.0)
COMPREHENSIVE INCOME $ 878.2 $ 613.1 $ 617.4 The accompanying Notes to Financial Statements of Parent Company are an integral part of these statements.
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EVERGY, INC.
Balance Sheets of Parent Company December 31 2021 2020 ASSETS (millions, except share amounts)
CURRENT ASSETS:
Cash and cash equivalents $ 7.5 $ 11.0 Accounts receivable from subsidiaries 72.2 54.1 Notes receivable from subsidiaries 289.5 349.4 Income taxes receivable 14.8 7.4 Prepaid expenses and other assets 2.0 1.9 Total Current Assets 386.0 423.8 OTHER ASSETS:
Investment in subsidiaries 10,992.1 10,349.2 Note receivable from subsidiaries 287.5 Deferred income taxes 19.0 20.5 Other 1.2 0.5 Total Other Assets 11,012.3 10,657.7 TOTAL ASSETS $ 11,398.3 $ 11,081.5 LIABILITIES AND EQUITY CURRENT LIABILITIES:
Current maturities of long-term debt $ 287.5 $ 350.0 Notes payable and commercial paper 358.0 200.0 Accounts payable to subsidiaries 22.3 18.4 Accrued interest 12.4 13.9 Other 8.1 11.0 Total Current Liabilities 688.3 593.3 LONG-TERM LIABILITIES:
Long-term debt, net 1,590.1 1,875.7 Other 14.9 11.7 Total Long-Term Liabilities 1,605.0 1,887.4 Commitments and Contingencies (Note 14)
EQUITY:
Evergy, Inc. Shareholders' Equity:
Common stock - 600,000,000 shares authorized, without par value, 229,299,900 and 226,836,670 shares issued 7,188.7 7,063.2 Retained earnings 1,960.3 1,587.0 Accumulated other comprehensive loss (44.0) (49.4)
Total Shareholders' Equity 9,105.0 8,600.8 TOTAL LIABILITIES AND EQUITY $ 11,398.3 11,081.5 The accompanying Notes to Financial Statements of Parent Company are an integral part of these statements.
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EVERGY, INC.
Statements of Cash Flows of Parent Company 2021 2020 2019 CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: (millions)
Net income $ 872.8 $ 612.5 $ 664.4 Adjustments to reconcile income to net cash from operating activities:
Non-cash compensation 15.6 16.0 16.3 Net deferred income taxes and credits 9.6 21.4 Equity in earnings from subsidiaries (932.9) (683.4) (698.2)
Other 7.0 7.0 2.1 Changes in working capital items:
Accounts receivable from subsidiaries (18.2) (30.0) 8.9 Income taxes receivable (7.5) 0.6 (7.8)
Prepaid expenses and other current assets 0.8 (0.1)
Accounts payable to subsidiaries 3.9 5.0 (15.0)
Accrued interest (1.4) (0.7) 12.5 Other current liabilities (3.2) 2.9 1.7 Cash dividends from subsidiaries 290.0 355.0 460.0 Changes in other assets 0.1 0.3 0.2 Changes in other liabilities 4.8 (3.7) (3.5)
Cash Flows from Operating Activities 231.0 291.9 462.9 CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Repayment of intercompany note 347.4 Cash Flows from Investing Activities 347.4 CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Short term debt, net 157.1 180.0 20.0 Proceeds from long-term debt 1,585.0 Retirements of long-term debt (350.0)
Payment for settlement of interest rate swap accounted for as a cash flow hedge (69.8)
Cash dividends paid (497.9) (465.0) (462.5)
Issuance of common stock 112.5 Repurchase of common stock (1,628.7)
Other financing activities (3.6) (7.5) (2.4)
Cash Flows used in Financing Activities (581.9) (292.5) (558.4)
NET CHANGE IN CASH AND CASH EQUIVALENTS (3.5) (0.6) (95.5)
CASH AND CASH EQUIVALENTS:
Beginning of period 11.0 11.6 107.1 End of period $ 7.5 $ 11.0 $ 11.6 The accompanying Notes to Financial Statements of Parent Company are an integral part of these statements.
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EVERGY, INC.
NOTES TO FINANCIAL STATEMENTS OF PARENT COMPANY The Evergy, Inc. Notes to Consolidated Financial Statements in Part II, Item 8 should be read in conjunction with the Evergy, Inc. Parent Company Financial Statements.
- 1. ORGANIZATION AND BASIS OF PRESENTATION The Evergy, Inc. Parent Company Financial Statements have been prepared to comply with Rule 12-04 of Regulation S-X.
Evergy, Inc. 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, Inc. 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, Inc., with Evergy, Inc. surviving the merger and King Energy merged into Evergy Kansas Central, with Evergy Kansas Central surviving the merger. These merger transactions resulted in Evergy, Inc. becoming the parent entity of Evergy Kansas Central and the direct subsidiaries of Great Plains Energy, including Evergy Metro and Evergy Missouri West.
Evergy, Inc. operates primarily through its wholly-owned direct subsidiaries. Evergy, Inc.'s investments in subsidiaries are accounted for using the equity method. Fair value adjustments and goodwill related to the acquired assets and liabilities of Great Plains Energy and its direct subsidiaries are only reflected on Evergy's consolidated financial statements and as such, are not included in Evergy, Inc.'s Parent Company Financial Statements. See Note 1 to the consolidated financial statement for additional information.
- 2. LONG-TERM DEBT See Note 12 to the consolidated financial statements for additional information on Evergy, Inc.'s long-term debt.
- 3. GUARANTEES See Note 15 to the consolidated financial statements for additional information regarding Evergy, Inc.'s guarantees.
- 4. DIVIDENDS Cash dividends paid to Evergy, Inc. by its subsidiaries were $290.0 million for the year ended December 31, 2021,
$355.0 million for the year ended December 31, 2020 and $460.0 million for the year ended December 31, 2019.
See Note 17 to the consolidated financial statements for information regarding the dividend restrictions of Evergy, Inc. and its subsidiaries.
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Schedule II - Valuation and Qualifying Accounts and Reserves Evergy, Inc.
Valuation and Qualifying Accounts Years Ended December 31, 2021, 2020 and 2019 Additions Charged Balance At To Costs Charged Balance Beginning And To Other At End Description Of Period Expenses Accounts Deductions Of Period Year Ended December 31, 2021 (millions)
(a) (b)
Allowance for uncollectible accounts $ 19.3 $ 28.0 $ 12.0 $ 26.4 $ 32.9 (c)
Tax valuation allowance 14.4 1.6 12.8 Year Ended December 31, 2020 (a) (b)
Allowance for uncollectible accounts $ 10.5 $ 24.9 $ 12.5 $ 28.6 $ 19.3 (c)
Tax valuation allowance 17.5 3.1 14.4 Year Ended December 31, 2019 (e) (b)
Allowance for uncollectible accounts $ 9.2 $ 27.2 $ 12.4 $ 38.3 $ 10.5 (d) (c)
Tax valuation allowance 27.3 0.6 10.4 17.5 (a)
Recoveries.
(b)
Uncollectible accounts charged off.
(c)
Reversal of tax valuation allowance.
Evergy Kansas Central, Inc.
Valuation and Qualifying Accounts Years Ended December 31, 2021, 2020 and 2019 Additions Charged Balance At To Costs Charged Balance Beginning And To Other At End Description Of Period Expenses Accounts Deductions Of Period Year Ended December 31, 2021 (millions)
(a) (b)
Allowance for uncollectible accounts $ 7.5 $ 12.0 $ 4.5 $ 11.0 $ 13.0 Year Ended December 31, 2020 (a) (b)
Allowance for uncollectible accounts $ 3.8 $ 11.1 $ 2.6 $ 10.0 $ 7.5 Year Ended December 31, 2019 (a) (b)
Allowance for uncollectible accounts $ 3.9 $ 7.2 $ 3.4 $ 10.7 $ 3.8 (c)
Tax valuation allowance 1.7 1.7 (a)
Recoveries.
(b)
Uncollectible accounts charged off.
(c)
Reversal of tax valuation allowance.
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Evergy Metro, Inc.
Valuation and Qualifying Accounts Years Ended December 31, 2021, 2020 and 2019 Additions Charged Balance At To Costs Charged Balance Beginning And To Other At End Description Of Period Expenses Accounts Deductions Of Period Year Ended December 31, 2021 (millions)
(a) (b)
Allowance for uncollectible accounts $ 8.1 $ 10.5 $ 5.3 $ 10.6 $ 13.3 Year Ended December 31, 2020 (a) (b)
Allowance for uncollectible accounts $ 4.6 $ 9.0 $ 6.9 $ 12.4 $ 8.1 Year Ended December 31, 2019 (a) (b)
Allowance for uncollectible accounts $ 3.8 $ 13.7 $ 6.3 $ 19.2 $ 4.6 (a)
Recoveries.
(b)
Uncollectible accounts charged off.
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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
EVERGY, INC.
Date: February 24, 2022 By: /s/ David Campbell David Campbell President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ David Campbell Director, President and Chief Executive Officer )
David Campbell (Principal Executive Officer) )
)
/s/ Kirkland B. Andrews Executive Vice President and Chief Financial Officer )
Kirkland B. Andrews (Principal Financial Officer) )
)
/s/ Steven P. Busser Vice President and Chief Accounting Officer )
Steven P. Busser (Principal Accounting Officer) )
)
Mark A. Ruelle* Chair of the Board of Directors )
)
Mollie Hale Carter* Director )
)
Thomas D. Hyde* Director )
)
B. Anthony Isaac* Director ) February 24, 2022
)
Paul M. Keglevic* Director )
)
Mary L. Landrieu* Director )
Sandra A.J. Lawrence* Director )
)
Ann D. Murtlow* Director )
)
Sandra J. Price* Director )
)
S. Carl Soderstrom Jr.* Director )
)
John Arthur Stall* Director )
)
C. John Wilder* Director )
- By /s/ David Campbell David Campbell Attorney-in-Fact*
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Shareholder Information EVERGY, INC. FORM 10-K Evergy, Inc.s 2021 annual report on form 10-K filed with the Securities and Exchange Commission can be found in the Investor Relations section of our website, investors.evergy.com The 10-K is available at no charge upon written request to:
Corporate Secretary Evergy, Inc.
P.O. Box 418679 Kansas City, MO 64141-9679 MARKET INFORMATION Evergy, Inc. common stock is traded on the New York Stock Exchange under the ticker symbol EVRG. We had 18,412 registered shareholders of record as of December 31, 2021.
WEBSITE The Investor Relations section of our website, investors.evergy.com includes our SEC filings, news releases, stock quotes, community and environmental initiatives, and information of general interest to investors.
The websites Corporate Governance section includes Documents & Charters and Committee Compostion for the Board of Directors. These documents are available at no charge upon written request to the Corporate Secretary.
FINANCIAL COMMUNITY INQUIRIES Securities analysts and investment professionals seeking information about Evergy, Inc.
may contact Investor Relations at 785-575-8227.
COMMON STOCK DIVIDEND Quarter 2021 2020 First $0.5350 $0.5050 Second $0.5350 $0.5050 Third $0.5350 $0.5050 Fourth $0.5725 $0.5350 TWO-YEAR COMMON STOCK HISTORY
2021 2020 Quarter High Low High Low First $60.550 $51.920 $76.570 $42.010 Second $65.640 $58.970 $65.400 $50.640 Third $69.450 $60.460 $65.430 $48.610 Fourth $68.860 $61.200 $62.530 $50.190 ANNUAL MEETING OF SHAREHOLDERS Evergy, Inc.s annual meeting of shareholders will be held at 10:00 a.m., May 3, 2022 virtually, via a live audio webcast at www.virtualshareholdermeeting.com/EVRG2022.
REGISTERED SHAREHOLDER INQUIRIES & TRANSFER AGENT STOCK REGISTRANT For account information or assistance, including change of address, stock transfer, dividend payments, duplicate accounts, or to report a lost certificate, please contact our transfer agent, Computershare at:
Computershare Trust Company, N.A.
P.O. Box 505000 Louisville, KY 40233-5000 Telephone: 866-239-8177
Evergy, Inc.
P.O. Box 418679 Kansas City, Missouri 64141-9679
Enclosure II to RA 22-0032 Kansas Electric Power Cooperative, Inc. 2021 Annual Report (40 pages including this page)
Kansas Electric Power Cooperative, Inc. and Subsidiary Independent Auditors Reports and Consolidated Financial Statements December 31, 2021 and 2020
Kansas Electric Power Cooperative, Inc. and Subsidiary December 31, 2021 and 2020 Contents Independent Auditors Report ......................................................................................................... 1 Consolidated Financial Statements Balance Sheets .................................................................................................................................... 4 Statements of Margin and Comprehensive Income (Loss)................................................................. 5 Statements of Patronage Capital ......................................................................................................... 6 Statements of Cash Flows .................................................................................................................. 7 Notes to Financial Statements ............................................................................................................ 8 Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards - Independent Auditors Report ................................. 34
Independent Auditors Report Board of Trustees Kansas Electric Power Cooperative, Inc.
Topeka, Kansas Report on the Audit of the Consolidated Financial Statements Opinion We have audited the consolidated financial statements of Kansas Electric Power Cooperative, Inc. (the Cooperative) and its wholly owned subsidiary, which comprise the consolidated balance sheets as of December 31, 2021 and 2020, and the related consolidated statements of margin and comprehensive income (loss), patronage capital, and cash flows for the years then ended, and the related notes to the consolidated financial statements.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Cooperative and its wholly owned subsidiary as of December 31, 2021 and 2020, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to the financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are required to be independent of the Cooperative and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Cooperatives ability to continue as a going concern within one year after the date that these consolidated financial statements are available to be issued.
Board of Trustees Kansas Electric Power Cooperative, Inc.
Page 2 Auditors Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and, therefore, is not a guarantee that an audit conducted in accordance with GAAS and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence judgment made by a reasonable user based on the consolidated financial statements.
In performing an audit in accordance with GAAS and Government Auditing Standards, we:
- Exercise professional judgment and maintain professional skepticism throughout the audit.
- Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks.
Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.
- Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Cooperatives internal control. Accordingly, no such opinion is expressed.
- Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements.
- Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Cooperatives ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated April 18, 2022, on our consideration of the Cooperatives internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Cooperatives internal control over financial reporting or on compliance. That report
Board of Trustees Kansas Electric Power Cooperative, Inc.
Page 3 is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Cooperatives internal control over financial reporting and compliance.
Oklahoma City, Oklahoma April 18, 2022
Kansas Electric Power Cooperative, Inc. and Subsidiary Consolidated Balance Sheets December 31, 2021 and 2020 Assets 2021 2020 Utility Plant In-service $ 384,744,985 $ 367,179,511 Less allowance for depreciation (198,672,079) (190,546,232)
Net in-service 186,072,906 176,633,279 Construction work in progress 10,449,406 10,408,117 Nuclear fuel (less accumulated amortization of $27,979,188 and
$29,740,968 for 2021 and 2020, respectively) 9,643,599 9,840,540 Total utility plant 206,165,911 196,881,936 Restricted Assets Investments in NRUCFC 10,745,945 11,042,120 Decommissioning fund 40,659,529 35,564,951 Investments in other associated organizations 326,795 320,561 Total restricted assets 51,732,269 46,927,632 Current Assets Cash and cash equivalents 30,604,197 16,598,637 Short-term investments - 13,000,000 Member accounts receivable 11,463,026 13,078,522 Materials and supplies inventory 7,036,253 7,119,212 Other assets and prepaid expenses 1,237,610 949,083 Total current assets 50,341,086 50,745,454 Other Long-Term Assets Deferred charges WCNOC disallowed costs (less accumulated amortization of
$20,309,617 and $19,986,167 for 2021 and 2020, respectively) 5,675,616 5,999,066 Deferred incremental outage costs 1,158,395 506,726 Southwest Power Pool charges - 366,373 Other deferred charges (less accumulated amortization of
$181,887 and $180,942 for 2021 and 2020, respectively) 331,377 152,752 Deferred power costs 7,937,506 -
Other assets 1,396,724 1,266,040 Prepaid pension cost 153,331 284,759 Total other long-term assets 16,652,949 8,575,716 Total assets $ 324,892,215 $ 303,130,738 See Notes to Consolidated Financial Statements
Patronage Capital and Liabilities 2021 2020 Patronage Capital Memberships $ 3,200 $ 3,200 Patronage capital 86,932,641 85,864,241 Accumulated other comphrehensive loss (7,270,334) (9,407,007)
Total patronage capital 79,665,507 76,460,434 Long-Term Debt 145,619,450 148,867,073 Other Long-Term Liabilities WCNOC decommissioning regulatory liability 14,487,065 11,770,366 WCNOC decommissioning liability 33,957,829 18,123,937 WCNOC pension and postretirement benefit plans 10,355,889 12,091,282 WCNOC provision for injuries 36,830 46,689 WCNOC deferred compensation 1,465,849 1,250,433 Other deferred credits 235,743 222,274 Total other long-term liabilities 60,539,205 43,504,981 Current Liabilities Current maturities of long-term debt 8,960,589 8,698,761 Accounts payable 19,100,109 15,486,695 Payroll and payroll-related liabilities 359,240 337,757 Member investments 8,319,696 7,061,900 Accrued property taxes 867,048 824,342 Accrued interest payable 385,489 409,221 Current provision for pension and postretirement benefit plans 1,075,882 1,479,574 Total current liabilities 39,068,053 34,298,250 Total patronage capital and liabilities $ 324,892,215 $ 303,130,738 4
Kansas Electric Power Cooperative, Inc. and Subsidiary Consolidated Statements of Margin and Comprehensive Income (Loss)
Years Ended December 31, 2021 and 2020 2021 2020 Operating Revenues Sale of electric energy $ 153,916,453 $ 148,382,873 Operating Expenses Power purchased 105,075,132 101,312,388 Nuclear fuel 3,255,237 3,683,704 Plant operations 15,709,954 15,261,398 Plant maintenance 4,856,380 4,633,010 Administrative and general 6,165,510 6,159,875 Amortization of deferred charges 324,394 326,513 Depreciation and decommissioning 10,004,356 9,876,498 Total operating expenses 145,390,963 141,253,386 Net Operating Revenues 8,525,490 7,129,487 Interest and Other Deductions Interest on long-term debt 7,253,474 7,584,356 Other deductions 316,968 384,347 Total interest and other deductions 7,570,442 7,968,703 Operating Margin 955,048 (839,216)
Other Income (Expense)
Interest income 550,960 951,063 Other income 186,176 519,402 Postretirement benefit expense (623,784) (658,920)
Total other income (expense) 113,352 811,545 Net Margin 1,068,400 (27,671)
Other Comprehensive Income (Loss)
Net gain (loss) arising during the year on pension obligation 1,134,275 (1,275,966)
Plan amendments - (544,426)
Amortization of prior year service costs and actuarial gains included in net periodic benefit costs 1,002,398 881,457 Comprehensive Income (Loss) $ 3,205,073 $ (966,606)
See Notes to Consolidated Financial Statements 5
Kansas Electric Power Cooperative, Inc. and Subsidiary Consolidated Statements of Patronage Capital Years Ended December 31, 2021 and 2020 Accumulated Other Patronage Comprehensive Memberships Capital Loss Total Balance, January 1, 2020 $ 3,200 $ 86,591,026 $ (8,468,072) $ 78,126,154 Net margin - (27,671) - (27,671)
Patronage capital retirement - (699,114) - (699,114)
Defined benefit pension plans Net loss arising during the year on pension obligation - - (1,275,966) (1,275,966)
Plan amendments - - (544,426) (544,426)
Amortization of prior year service costs and actuarial gains included in net periodic benefit costs - - 881,457 881,457 Balance, December 31, 2020 3,200 85,864,241 (9,407,007) 76,460,434 Net margin - 1,068,400 - 1,068,400 Defined benefit pension plans Net gain arising during the year on pension obligation - - 1,134,275 1,134,275 Amortization of prior year service costs and actuarial gains included in net periodic benefit costs - - 1,002,398 1,002,398 Balance, December 31, 2021 $ 3,200 $ 86,932,641 $ (7,270,334) $ 79,665,507 See Notes to Consolidated Financial Statements 6
Kansas Electric Power Cooperative, Inc. and Subsidiary Consolidated Statements of Cash Flows Years Ended December 31, 2021 and 2020 2021 2020 Operating Activities Net margin $ 1,068,400 $ (27,671)
Adjustments to reconcile net margin to net cash provided by operating activities Depreciation 10,084,661 9,408,389 Amortization of nuclear fuel 3,255,237 3,679,316 Amortization of deferred charges 497,801 619,925 Amortization of deferred incremental outage costs 1,600,295 1,619,583 Net periodic benefit costs 1,641,197 1,630,862 Patronage capital credits allocated (444,830) (518,389)
Loss on sale of property and equipment 20,365 54,003 Changes in Member accounts receivable 1,615,496 (3,157,306)
Materials and supplies 82,959 (317,141)
Other long-term assets and prepaid expenses (8,285,897) 1,304,804 Accounts payable 3,613,414 3,165,387 Payroll and payroll-related liabilities 21,483 15,161 Accrued property taxes 42,706 (123,407)
Accrued interest payable (23,732) (23,038)
Other long-term liabilities (1,424,583) (1,253,612)
Net cash provided by operating activities 13,364,972 16,076,866 Investing Activities Additions to electrical plant (5,675,574) (3,962,186)
Additions to nuclear fuel (3,058,296) (5,444,350)
Purchases of investments (15,000,000) (13,000,000)
Proceeds from sales of investments 28,000,000 -
Proceeds from investments in decommissioning fund assets 2,627,889 1,399,479 Purchases of investments in decommissioning fund assets (5,260,203) (2,825,512)
Investments in associated organizations 734,771 756,788 Net cash provided by (used in) investing activities 2,368,587 (23,075,781)
Financing Activities Principal payments on long-term debt (8,775,460) (10,577,675)
Proceeds from issuance of long-term debt 2,785,478 10,183,249 Retirement of capital credits - (699,114)
Change in cushion of credit 3,004,187 158,196 Change in member investments 1,257,796 4,163,024 Net cash provided by (used in) financing activities (1,727,999) 3,227,680 See Notes to Consolidated Financial Statements
2021 2020 Increase (Decrease) in Cash and Cash Equivalents $ 14,005,560 $ (3,771,235)
Cash and Cash Equivalents, Beginning of Year 16,598,637 20,369,872 Cash and Cash Equivalents, End of Year $ 30,604,197 $ 16,598,637 Supplemental Cash Flows Information Interest paid $ 7,277,206 $ 7,607,394 Change in defined benefit pension plans - gains (losses) $ 1,134,275 $ (1,275,966)
Change in fair value of decommissioning trust $ 2,462,264 $ 3,611,702 7
Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 Note 1: Nature of Operations and Summary of Significant Accounting Policies Nature of Operations Kansas Electric Power Cooperative, Inc. and its wholly owned subsidiary (KEPCo), headquartered in Topeka, Kansas, was incorporated in 1975 as a tax-exempt generation and transmission cooperative (G&T). KEPCo was granted a limited certificate of convenience and authority by the Kansas Corporation Commission (KCC) in 1980 to act as a G&T public utility. It is KEPCos responsibility to procure an adequate and reliable power supply for its 16 distribution rural electric cooperative members pursuant to all requirements of contracts with its members. KEPCo is governed by a board of trustees representing each of its 16 members, which collectively serve approximately 200,000 rural Kansans.
System of Accounts KEPCo maintains its accounting records substantially in accordance with the Federal Energy Regulatory Commissions (FERC) uniform system of accounts as modified and adopted by the U.S. Department of Agriculture (USDA) Rural Utilities Service (RUS) and in accordance with accounting practices prescribed by the KCC.
In accordance with generally accepted accounting principles (GAAP) and FERC guidelines, KEPCo also maintains its accounts in accordance with Accounting Standards Codification (ASC) 980, Regulated Operations.
Rates Under a 2009 change in Kansas law, KEPCo has elected to be exempt from KCC regulation for most purposes, including the setting of rates. Rates are set by action of the Board of Trustees, subject only to statutory review by the KCC if requested by four or more members. KEPCos rates were last set by the KCC by an order effective September 1, 2008. KEPCos rates now include an Energy Cost Adjustment (ECA) mechanism and an annual Demand Cost Adjustment (DCA) mechanism allowing KEPCo to pass along increases and decreases in certain energy and demand costs to its member cooperatives. Additionally, KEPCo implemented a Margin Stabilization Adjustment (MSA) in 2011, which is a mechanism to refund (or collect) a portion of KEPCos margin when the total margin exceeds (or falls short of) the amount necessary to cover KEPCos financial obligations.
Principles of Consolidation The accompanying consolidated financial statements include the accounts of Kansas Electric Power Cooperative, Inc., and its wholly owned subsidiary, KEPCo Services, Inc. Undivided interests in jointly owned generation facilities are consolidated on a pro rata basis. All material intercompany accounts and transactions have been eliminated in consolidation.
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Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 Iatan 2 Iatan 2 is an 850 MW high-efficiency coal-fired power plant utilizing state-of-the-art environmental controls that became commercially operational December 31, 2010. KEPCo owns a 3.53% share of Iatan 2, or 30 MW. Iatan 2, located in Weston, Missouri, is operated and majority owned by Evergy, Inc. KEPCos undivided interest in Iatan 2 is consolidated on a pro rata basis.
KEPCo is entitled to a proportionate share of the capacity and energy from Iatan 2, which is used to supplement a portion of KEPCos members requirements. KEPCo is billed on a daily basis for 3.53% of the operations, maintenance, administrative, and general costs and cost of plant additions related to Iatan 2. Each owner is responsible for providing its own financing for all costs incurred at the plant.
KEPCos utility plant in service for its 3.53% share of Iatan 2 was approximately $83,200,000 and
$83,100,000 with an allowance for depreciation of approximately $23,600,000 and $21,400,000 and construction work in progress of approximately $600,000 at December 31, 2021 and 2020.
Wolf Creek Nuclear Operating Corporation KEPCo owns 6% of Wolf Creek Nuclear Operating Corporation (WCNOC), which is located near Burlington, Kansas. The remainder is owned by Evergy, Inc. KEPCos undivided interest in WCNOC is consolidated on a pro rata basis. KEPCo is entitled to a proportionate share of the capacity and energy from WCNOC, which is used to supplement a portion of KEPCos members requirements. KEPCo is billed on a daily basis for 6% of the operations, maintenance, administrative, and general costs and cost of plant additions related to WCNOC. Each owner is responsible for providing its own financing for all costs incurred at the plant.
KEPCos utility plant in service for its 6% share of WCNOC was approximately $274,500,000 and
$271,100,000 with an allowance for depreciation of approximately $160,700,000 and
$155,400,000 and construction work in progress of approximately $9,800,000 and $9,700,000 at December 31, 2021 and 2020, respectively.
WCNOCs operating license expires in 2045. WCNOC is regulated by the Nuclear Regulatory Commission (NRC) with respect to licensing, operations, and safety-related requirements.
WCNOC disposes of all classes of its low-level radioactive waste at existing third-party repositories. Should disposal capability become unavailable, WCNOC is able to store its low-level radioactive waste in an on-site facility for up to three years under current regulations.
Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 Utility Plant and Depreciation Utility plant is stated at cost. Costs and additions to utility plant include contractual work, direct labor, materials, and interest on funds used during construction. No interest has been capitalized in 2021 or 2020. The costs of repairs and minor replacements are charged to operating expenses as appropriate. The original cost of utility plant retired and the cost of removal less salvage are charged to accumulated depreciation.
The composite depreciation rate for electric generation plant for the years ended December 31, 2021 and 2020, is 4.91% and 4.67%, respectively.
The provision for depreciation computed on a straight-line basis for electric and other components of utility plant is as follows:
Transportation and equipment 25-33 years Office furniture and fixtures 10-20 years Leasehold improvements 20 years Transmission equipment (metering, communication, and SCADA) 10 years Long-Lived Asset Impairment KEPCo evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset are less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value.
No asset impairment was recognized during the years ended December 31, 2021 and 2020.
Nuclear Fuel The cost of nuclear fuel in the process of refinement, conversion, enrichment, and fabrication is recorded as a utility plant asset at original cost and is amortized to nuclear fuel expenses based upon the quantity of heat produced for the generation of electric power.
Nuclear Decommissioning Nuclear decommissioning is a nuclear industry term for the permanent shutdown of a nuclear power plant and the removal of radioactive components in accordance with NRC requirements.
The NRC will terminate a plants license and release the property for unrestricted use when a company has reduced the residual radioactivity of a nuclear plant to a level mandated by the NRC.
The NRC requires companies with nuclear plants to prepare formal financial plans to fund nuclear decommissioning. These plans are designed so that sufficient funds required for nuclear decommissioning will be accumulated prior to the expiration of the license of the related nuclear power plant. WCNOC files a nuclear decommissioning site study with the KCC every three years.
10
Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 The KCC reviews nuclear decommissioning plans in two phases. Phase one is the approval of the revised nuclear decommissioning study, including the estimated costs to decommission the plant.
Phase two involves the review and approval of a funding schedule prepared by the owner of the plant detailing how it plans to fund the future-year dollar amount of its pro rata share of the decommissioning costs.
In 2021, the triennial nuclear decommissioning study was revised. Based on the study, KEPCos share of decommissioning costs, including decontamination, dismantling, and site restoration, is estimated to be approximately $64,400,000. This does not compare to the prior site study estimate of $65,600,000 that was performed in 2017. Even though the total change in KEPCos estimated portion of the asset retirement obligation is minimal, the KCC approved the use of an alternative method to estimate the costs, which decreased the estimated time frame of the future cash flows to service the asset retirement obligation from ending in 2106 to ending in 2079. The site study cost estimate represents the estimate to decommission WCNOC as of the site study year. The actual nuclear decommissioning costs may vary from the estimates because of changes in regulations and technologies as well as changes in costs for labor, materials, and equipment.
KEPCo is allowed to recover nuclear decommissioning costs in its prices over a period equal to the operating license of WCNOC, which is through 2045. The NRC requires that funds sufficient to meet nuclear decommissioning obligations be held in a trust. KEPCo believes that the KCC-approved funding level will also be sufficient to meet the NRC requirement. The consolidated financial results would be materially affected if KEPCo was not allowed to recover in its prices the full amount of the funding requirement.
KEPCo recovered in its prices and deposited in an external trust fund for nuclear decommissioning approximately $550,200 and $544,000 in 2021 and 2020, respectively. KEPCo records its investment in the nuclear decommissioning trust (NDT) at fair value, which approximated
$40,660,000 and $35,565,000 at December 31, 2021 and 2020, respectively. The change in the fair value of investments in the NDT was approximately $2,462,000 and $3,612,000 for the years ended December 31, 2021 and 2020, respectively, and is included in WCNOC decommissioning regulatory liability on the accompanying consolidated balance sheets.
Asset Retirement Obligation KEPCo recognizes and estimates the legal obligation associated with the cost to decommission WCNOC. KEPCo initially recognized an asset retirement obligation at fair value for the estimated cost with a corresponding amount capitalized as part of the cost of the related long-lived asset and depreciated over the useful life.
A reconciliation of the asset retirement obligation for the years ended December 31 is as follows:
2021 2020 Balance, beginning of year $ 18,123,937 $ 17,000,455 Changes in estimates, including timing 13,809,155 -
Accretion 2,024,737 1,123,482 Balance, end of year $ 33,957,829 $ 18,123,937 11
Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 Any net margin effects are deferred in the WCNOC decommissioning regulatory liability and will be collected from or returned to members in future electric rates.
Cash and Cash Equivalents All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents and are stated at cost, which approximates fair value. At December 31, 2021 and 2020, cash equivalents consisted primarily of a repurchase agreement.
KEPCos repurchase agreement has collateral pledged by a financial institution, which are securities that are backed by the federal government.
Short-Term Investments Short-term investments are investments with an original maturity greater than three months, but less than 12 months, in select notes issued by NRUCFC maturing in April 2021, with interest at 0.4%. The select notes are exposed to credit risk. As of December 31, 2021 and 2020, KEPCo has invested $0 and $13,000,000, respectively, in short-term investments.
Accounts Receivable Accounts receivable are stated at the amount of consideration from members and customers, of which KEPCo has an unconditional right to receive. KEPCo provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information, and existing economic conditions. No allowance was recorded at December 31, 2021 or 2020.
Accounts receivable are ordinarily due 15 days after the issuance of the invoice. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the member or customer.
During the years ended December 31, 2021 and 2020, there were no impairment losses on doubtful accounts receivable where collectibility is not reasonably assured.
Materials and Supplies Inventory Materials and supplies inventory is valued at average cost.
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Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 Cash Surrender Value of Life Insurance Contracts The following amounts related to WCNOC corporate-owned life insurance contracts, primarily with one highly rated major insurance company, are included in other long-term assets in the accompanying consolidated balance sheets:
2021 2020 Cash surrender value of contracts $ 8,926,935 $ 8,536,464 Borrowings against contracts (8,623,133) (8,241,381)
$ 303,802 $ 295,083 Borrowings against contracts include a prepaid interest charge. KEPCo paid interest on these borrowings at a rate of 5.00% for the years ended December 31, 2021 and 2020.
Member Investments KEPCo has a member investment program whereby members can invest funds with KEPCo.
KEPCo pays interest on the balance of these funds. The member investments are payable back to the member upon demand or can be used to pay the balance due on the members power bill.
Revenue Recognition Revenue is recognized when control of the promised goods or services is transferred to KEPCos members or customers in an amount that reflects the consideration that it expects to be entitled to in exchange for those goods or services. The amount and timing of revenue recognition varies based on the nature of the goods or services provided and the terms and conditions of the customer contract. See Note 7 for additional information about KEPCos revenue.
Income Taxes As a tax-exempt cooperative, KEPCo is exempt from income taxes under Section 501(c)(12) of the Internal Revenue Code of 1986, as amended. Accordingly, provisions for income taxes have not been reflected in the accompanying consolidated financial statements.
KEPCo Services, Inc., a subsidiary of KEPCo, is not exempt from income taxes.
Equity Investments KEPCo measures equity securities, other than investments that qualify for the equity method of accounting, at fair value with changes recognized in net margin. Under ASC 980, KEPCo has elected to defer changes to all unrealized gains and losses of equity investments with readily determinable fair market values. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.
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Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 Equity securities and equity investments without a readily determinable fair value are measured at cost, minus impairment, if any, plus or minus changes resulting from observable price changes for the identical or a similar investment.
For equity securities and equity investments measured under the practicability exception, KEPCo performs a qualitative assessment for equity investments without readily determinable fair values considering impairment indicators to evaluate whether an impairment exists. If an impairment exists, KEPCo will recognize a loss based on the difference between carrying value and fair value.
The portion of unrealized gains and losses for the period related to equity securities still held at the reporting date is calculated as follows:
2021 2020 Net gains and losses recognized during the period on equity securities $ 3,155,841 $ 3,622,287 Less net gains and losses recognized during the period on equity securities sold during the period 693,577 10,585 Unrealized gains and losses recognized during the period on equity securities still held at the reporting date $ 2,462,264 $ 3,611,702 Investments in Associated Organizations KEPCo has equity ownership in the form of patronage capital through various lenders and other associated organizations (see Note 3). Patronage capital equity is increased as patronage is allocated to KEPCo and decreased as patronage is retired and cash received.
These investments are considered equity investments without readily determinable fair values and are accounted for at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or a similar investment. No impairment or observable price changes were recorded during 2021 and 2020.
WCNOC Disallowed Costs Effective October 1, 1985, the KCC issued a rate order relating to KEPCos investment in WCNOC, which disallowed $26,000,000 of KEPCos investment in WCNOC. A subsequent rate order, effective February 1, 1987, allows KEPCo to recover these disallowed costs and other costs related to the disallowed portion (recorded as deferred charges) for the period from September 3, 1985 through January 31, 1987, over a 27.736-year period starting February 1, 1987. Pursuant to a KCC rate order dated December 30, 1998, the disallowed portions recovery period was extended to a 37-year period. The disallowed costs are being recovered through the use of straight-line amortization over the period required by the KCC.
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Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 Comprehensive Income (Loss)
Comprehensive income (loss) consists of net margin and other comprehensive income (loss).
Other comprehensive income (loss) includes changes in the funded status of the WCNOC pension and postretirement plans (see Note 8).
Note 2: Factors that Could Affect Future Operating Results KEPCo currently applies accounting standards that recognize the economic effects of rate regulation and, accordingly, has recorded regulatory assets and liabilities related to its G&T operations in accordance with ASC 980. In the event KEPCo determines that it no longer meets the criteria of ASC 980, the accounting impact could be a noncash charge to operations in an amount that would be material. Criteria that could give rise to the discontinuance of ASC 980 include: 1) increasing competition that restricts KEPCos ability to establish prices to recover specific costs and 2) a significant change in the manner in which rates are set by regulators from a cost-based regulation to another form of regulation. KEPCo periodically reviews these criteria to ensure the continuing application of ASC 980 is appropriate. Any changes that would require KEPCo to discontinue the application of ASC 980 due to increased competition, regulatory changes, or other events may significantly impact the valuation of KEPCos investment in utility plant, WCNOC, and Iatan 2 and necessitate the write-off of regulatory assets. At this time, the effect of competition and the amount of regulatory assets that could be recovered in such an environment cannot be predicted.
The 1992 Energy Policy Act began the process of restructuring the United States electric utility industry by permitting FERC to order electric utilities to allow third parties to sell electric power to wholesale customers over their transmission systems. KEPCo has elected to deregulate its rate-making for sales to its members under recent statutory amendments.
Subject to the possibility of KCC review, KEPCos member rates are now set by action of the Board of Trustees. KEPCos ability to timely recover its costs is enhanced by this change.
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Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 Note 3: Investments in Associated Organizations At December 31, investments in associated organizations consisted of the following:
2021 2020 NRUCFC Memberships $ 1,000 $ 1,000 Capital term certificates, bearing interest of 5.0% and maturing in 2080 (A) 395,970 395,970 Patronage capital certificates 3,060,704 2,847,674 Equity term certificates, bearing interest of 3.16% to 6.0% and maturing from 2022 through 2045 (A) 7,288,271 7,797,476 Total NRUCFC 10,745,945 11,042,120 Other 326,795 320,561 Total investments in associated organizations $ 11,072,740 $ 11,362,681 (A) KEPCo is required to maintain these investments pursuant to certain loan agreements.
Note 4: Deferred Charges Deferred Incremental Outage Costs In 1991, the KCC issued an order that allowed KEPCo to defer its 6% share of the incremental operating, maintenance, and replacement power costs associated with the periodic refueling of WCNOC. Operating and maintenance costs are being amortized over the approximate 18-month operating cycle coinciding with the recognition of the related revenues. Additions to the deferred incremental outage costs were approximately $2,252,000 and $300,000 in 2021 and 2020, respectively. The current year amortization of the deferred incremental outage costs was approximately $1,600,000 for the years ended December 31, 2021 and 2020.
Southwest Power Pool Charges During 2016, KEPCo was assessed historical charges in the amount of approximately $2,442,000 from Southwest Power Pool related to a Z2 billing issue for generation system upgrades from 2008 through 2016. The total amount of historical charges was paid in October 2016 and was amortized over a five-year period ending October 2021. The balance as of December 31, 2021 and 2020, was approximately $0 and $400,000, respectively. Accumulated amortization as of December 31, 2021 and 2020, was approximately $2,442,000 and $2,100,000, respectively.
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Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 Deferred Power Costs In February 2021, the entire Southwest Power Pool region, which includes KEPCos members service territory, experienced Winter Storm Uri that resulted in record low temperatures, causing a substantial increase in energy and natural gas usage throughout the region. This high demand, coupled with strained natural gas supply and low wind generation availability, resulted in extraordinarily high natural gas and market energy prices. KEPCos Board of Trustees has elected to defer the excess costs of the winter storm and amortize them into its rates over two years, which was approved by RUS. The total power costs deferred during 2021 were approximately
$13,623,000, of which approximately $5,686,000 was amortized into revenue and expense during 2021, leaving a remaining unamortized balance of approximately $7,937,000 at December 31, 2021.
Note 5: Lines of Credit At December 31, 2021 and 2020, KEPCo had a $10,000,000 line of credit available with CoBank, ACB. There were no funds borrowed against the line of credit at December 31, 2021 or 2020.
Interest rate options, as selected by KEPCo, are a weekly quoted variable rate in which CoBank establishes a rate on the first business day of each week or a London InterBank Offered Rate (LIBOR) option at a fixed rate equal to LIBOR plus 1.6%. This line of credit expires July 2022 and is secured by substantially all of KEPCos assets.
KEPCo has two lines of credit available from the NRUCFC totaling $20,000,000, of which no funds were borrowed against at December 31, 2021 and 2020. One line is for $10,000,000 and matures March 2023. Interest varies as determined by the lender and was 2.45% at December 31, 2021 and 2020. The line requires an annual pay-down of the line or it becomes immediately callable at the discretion of the NRUCFC. The other line is for $10,000,000 and matures December 2049. Interest varies as determined by the lender and was 2.25% at December 31, 2021 and 2020. The lines are collateralized by substantially all of KEPCos assets.
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Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 Note 6: Long-Term Debt Long-term debt consists of mortgage notes payable to the United States of America acting through the Federal Financing Bank (FFB), NRUCFC, and others. Substantially all of KEPCos assets are pledged as collateral. The terms of the notes as of December 31 are as follows:
2021 2020 Mortgage notes payable to FFB at fixed rates varying from 0.759% to 4.46%, payable in quarterly installments through 2043 $ 84,449,553 $ 84,823,634 RUS cushion of credit (A) - (3,004,187)
FFB mortgage notes payable, net of cushion of credit 84,449,553 81,819,447 Note payable to CoBank at a rate of 3.03%, payable in quarterly installments through 2023 186,549 330,851 Mortgage notes payable, equity certificate loans, and member capital security notes to NRUCFC at fixed rates of 3.80% to 7.50%, payable quarterly through 2045 69,943,937 75,415,536 154,580,039 157,565,834 Less current maturities (8,960,589) (8,698,761)
$ 145,619,450 $ 148,867,073 (A) RUS cushion of credit funds are required to be applied to the debt service requirements of the FFB mortgage notes payable and are, therefore, reflected net in the related balances in the accompanying consolidated balance sheets. The RUS cushion of credit is offered by the USDA and earns interest annually at a rate approved by the USDA.
KEPCo has approximately $8,524,000 of unadvanced loan funds with FFB as of December 31, 2021.
Aggregate maturities of long-term debt are as follows:
2022 $ 8,960,589 2023 8,996,578 2024 8,080,093 2025 7,561,966 2026 6,990,796 Thereafter 113,990,017
$ 154,580,039 Restrictive covenants related to the NRUCFC and FFB debt require KEPCo to design rates that would enable it to maintain a times-interest earned ratio of at least 1.05 and debt service coverage ratio of at least 1.0, on average, in the two best years out of the three most recent calendar years.
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Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 The covenants also prohibit distribution of net patronage capital or margins until, after giving effect to any such distribution, total patronage capital equals or exceeds 20% of total assets, unless such distribution is approved by RUS or NRUCFC. KEPCo was in compliance with such restrictive covenants as of December 31, 2021 and 2020.
The RUS cushion of credit account is an interest-bearing account and is restricted for the debt service of RUS-guaranteed debt and cannot be withdrawn. During 2021 and 2020, KEPCo made principal and interest payments to FFB and RUS with funds held in the RUS cushion of credit account of $3,004,187 and $4,460,688, respectively. The balance in this account at December 31, 2021 and 2020, was $0 and $3,004,187, respectively.
Restrictive covenants related to the CoBank debt require KEPCo to design rates that would enable it to maintain a debt service coverage ratio, as defined by CoBank, of at least 1.10. KEPCo was in compliance with the restrictive covenants as of December 31, 2021 and 2020.
Note 7: Revenue from Contracts with Customers Performance Obligations - Operating Revenues The majority of KEPCos revenues are derived primarily from the sale of electric power to members. Members consist of distribution cooperatives within dedicated territories in Kansas.
Rates charged for electric power sales to members are established at least annually by the Board of Trustees. KEPCo provides energy and demand to members as one stand-ready performance obligation. Electric power revenue is recognized by KEPCo upon transfer of control of the promised services to members in an amount that reflects the consideration KEPCo expects to receive in exchange for those services. KEPCo transfers control of the electric power to members at each members meter point and the members simultaneously receive and consume the benefits of the energy provided. Electric power provided to members is accounted for as a series of performance obligations. Progress toward completion is measured using the output method. Meter readings are taken at the end of each month for billing purposes, and the quantity of energy transferred is determined after the meter readings. Customers are billed monthly and KEPCo accrues for unbilled amounts. Payments from members are received in accordance with each members contract, which is less than 30 days from the invoice date.
Revenue associated with the electric power performance obligation to members is recorded as sales of electric energy in the accompanying consolidated statements of margin and comprehensive income (loss).
KEPCo has determined that the nature, amount, timing, and uncertainty of revenue and cash flows are not materially affected by any factors, such as the geography of the service location, customer type, or service line.
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Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 The following table provides information about the Cooperatives receivables from contracts with customers:
2021 2020 Member accounts receivable, beginning of year $ 13,078,522 $ 9,921,216 Member accounts receivable, end of year $ 11,463,026 $ 13,078,522 Accounting Policies and Practical Expedients Elected KEPCo has applied an accounting policy election that allows an entity to exclude from revenue any amounts collected from customers on behalf of third parties, such as sales taxes and other similar taxes KEPCo collects concurrent with revenue-producing activities. Therefore, revenue is presented net of sales taxes and similar revenue-based taxes.
KEPCo has also elected to use the right to invoice practical expedient. This practical expedient allows an entity to recognize revenue in the amount of consideration to which the entity has the right to invoice when the amount that the entity has the right to invoice corresponds directly to the value transferred to the customer.
Note 8: Benefit Plans National Rural Electric Cooperative Association (NRECA) Retirement and Security Program KEPCo participates in the NRECA Retirement and Security Program (RS Plan) for its employees.
The NRECA RS Plan is a defined benefit pension plan qualified under Section 401 and tax-exempt under Section 501(a) of the Internal Revenue Code. It is a multi-employer plan under the accounting standards. The plan sponsors Employer Identification Number is 53-0116145 and the Plan Number is 333.
A unique characteristic of a multi-employer plan compared to a single-employer plan is that all plan assets are available to pay benefits of any plan participant. Separate asset accounts are not maintained for participating employers. This means that assets contributed by one employer may be used to provide benefits to employees of other participating employers.
KEPCos contributions to the NRECA RS Plan in 2021 and 2020 represented less than 5% of the total contributions made to the plan by all participating employers. KEPCo made contributions to the NRECA RS Plan of approximately $572,000 and $570,000 for the years ended December 31, 2021 and 2020, respectively. There have been no significant changes that affect the comparability of 2021 and 2020 contributions.
For the NRECA RS Plan, a zone status determination is not required, and thus not determined, under the Pension Protection Act (PPA) of 2006. In addition, the accumulated benefit obligations and plan assets are not determined or allocated separately by individual employer. In total, the NRECA RS Plan was more than 80% funded at January 1, 2021 and 2020, based on the PPA funding target and PPA actuarial value of assets on those dates.
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Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 Because the provisions of the PPA do not apply to the NRECA RS Plan, funding improvement plans and surcharges are not applicable. Future contribution requirements are determined each year as part of the actuarial valuation of the plan and may change as a result of plan experience.
In 2012, NRECA approved an option to allow participating cooperatives in the NRECA RS Plan to make a contribution prepayment and reduce future required contributions. The prepayment amount is a cooperatives share, as of January 1, 2013, of future contributions required to fund the NRECA RS Plans unfunded value of benefits earned to date using NRECA RS Plan actuarial valuation assumptions. The prepayment amount will typically equal approximately 2.5 times a cooperatives annual NRECA RS Plan required contribution as of January 1, 2013. After making the prepayment, for most cooperatives, the billing rate is reduced by approximately 25%, retroactive to January 1 of the year in which the amount is paid to the NRECA RS Plan. The 25% differential in billing rates is expected to continue for approximately 15 years from January 1, 2013. However, changes in interest rates, asset returns, and other plan experiences different from expected; plan assumption changes; and other factors may have an impact on the differential in billing rates and the 15-year period. KEPCo participated in the prepayment program and is amortizing $1,314,273 over a 10-year period through 2023. This balance is included in prepaid pension cost in other long-term assets on the accompanying consolidated balance sheets.
NRECA Savings 401(k) Plan All employees of KEPCo are eligible to participate in the NRECA Savings 401(k) Plan. Under the plan, KEPCo contributes an amount not to exceed 5%, dependent upon each employees level of participation and completion of one year of service, of the respective employees base pay to provide additional retirement benefits. KEPCo contributed approximately $132,000 and $135,000 to the NRECA Savings 401(k) Plan for the years ended December 31, 2021 and 2020, respectively.
WCNOC Pension and Postretirement Plans KEPCo has an obligation to the WCNOC retirement plan, supplemental retirement plan, and postretirement medical plan (collectively, the Plans) for its 6% ownership interest in WCNOC.
The Plans provide for benefits upon retirement, normally at age 65. In accordance with the Employee Retirement Income Security Act of 1974, KEPCo has satisfied its minimum funding requirements. Benefits under the Plans reflect the employees compensation, years of service, and age at retirement.
WCNOC uses a measurement date of December 31 for the Plans.
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Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 Information about KEPCos 6% share of the Plans funded status follows:
Pension Benefits Postretirement Benefits 2021 2020 2021 2020 Change in benefit obligation Beginning of year $ 39,325,329 $ 35,905,327 $ 936,464 $ 904,303 Service cost 993,670 953,320 23,743 18,622 Interest cost 1,157,508 1,299,924 25,384 29,957 Plan participants contributions - - 136,103 188,011 Plan amendments - 484,292 - 60,134 Benefits paid (1,666,596) (2,940,010) (211,805) (325,379)
Settlements (1,406,266) - - -
Actuarial (gains) losses (951,735) 3,622,476 (136,527) 60,816 End of year 37,451,910 39,325,329 773,362 936,464 Change in fair value of plan assets Beginning of year 26,739,914 24,593,562 - 51,813 Actual return on plan assets 1,360,141 3,959,744 1 -
Employer contributions 1,748,400 1,092,000 77,094 61,182 Plan participants contributions - - 105,076 159,564 Settlements (1,406,266) - - -
Benefits paid (1,628,868) (2,905,392) (165,161) (272,559)
End of year 26,813,321 26,739,914 17,010 -
Funded status, end of year $ (10,638,589) $ (12,585,415) $ (756,352) $ (936,464)
Amounts recognized in the accompanying consolidated balance sheets:
2021 2020 Other long-term liabilities WCNOC pension and postretirement benefit plans $ 10,355,889 $ 12,091,282 WCNOC provision for injuries $ 36,830 $ 46,689 Current liabilities Current provision for pension and postretirement benefit plans $ 1,075,882 $ 1,479,574 22
Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 Amounts recognized in accumulated other comprehensive loss not yet recognized as components of net periodic benefit costs consist of:
Pension Benefits Postretirement Benefits 2021 2020 2021 2020 Net loss $ (6,685,019) $ (8,616,167) $ (65,810) $ (217,160)
Prior service cost (464,032) (513,546) (55,473) (60,134)
$ (7,149,051) $ (9,129,713) $ (121,283) $ (277,294)
Information for the Plans with an accumulated benefit obligation in excess of plan assets:
Pension Benefits Postretirement Benefits 2021 2020 2021 2020 Projected benefit obligation $ 37,451,910 $ 39,325,329 $ 773,362 $ 936,464 Fair value of plan assets $ 26,813,321 $ 26,739,914 $ 17,010 $ -
Weighted-average actuarial assumptions used to determine the net periodic benefit obligation:
Pension Benefits Postretirement Benefits 2021 2020 2021 2020 Discount rate 3.15% 3.61% 2.76% 2.76%
Annual salary increase rate 3.75% 3.75% N/A N/A WCNOC uses a measurement date of December 31 for the Plans. The discount rate to determine the current year pension obligation and the following years pension expense is based on a bond selection-settlement portfolio approach. This approach develops a discount rate by selecting a portfolio of high-quality, non-callable corporate bonds that generate a sufficient cash flow to provide for the projected benefit payments of the Plans. After the bond portfolio is selected, a single interest rate is determined that equates the present value of the Plans projected benefit payments discounted at this rate with the market value of the bonds selected.
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Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 Pension Benefits Postretirement Benefits 2021 2020 2021 2020 Components of net periodic benefit costs Service cost $ 993,670 $ 953,320 $ 23,743 $ 18,622 Interest cost 1,157,508 1,299,924 25,384 29,957 Expected return on plan assets (1,561,506) (1,552,419) - -
Prior service cost amortization 49,515 6,722 4,661 -
Actuarial loss amortization 933,400 863,139 14,822 11,597 Net periodic benefit costs 1,572,587 1,570,686 68,610 60,176 Other changes in plan obligations recognized in other comprehensive income (loss)
Current year actuarial loss (997,747) 1,215,151 (136,528) 60,815 Amortization of actuarial loss (933,400) (863,138) (14,822) (11,597)
Amortization of prior service cost (49,515) (6,722) (4,661) 60,134 Total recognized in other comprehensive income (loss) (1,980,662) 345,291 (156,011) 109,352 Total recognized in net periodic benefit costs and other comprehensive income (loss) $ (408,075) $ 1,915,977 $ (87,401) $ 169,528 Weighted-average actuarial assumptions used to determine net periodic benefit costs Discount rate 3.15% 3.48% 2.76% 2.76%
Expected long-term return on plan assets 6.70% 6.70% N/A N/A Compensation rate increase 3.75% 3.75% N/A N/A 24
Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 KEPCo estimates it will amortize the following amounts into net periodic benefit costs in 2022:
Pension Postretirement Benefits Benefits Actuarial loss $ 709,633 $ 4,249 Prior service cost 49,515 4,661 Total $ 759,148 $ 8,910 The expected long-term rate of return on plan assets is based on historical and projected rates of return for current and planned asset classes in the plans investment portfolios. Assumed projected rates of return for each asset class were selected after analyzing long-term historical experience and future expectations of the volatility of the various asset classes. Based on target asset allocations for each asset class, the overall expected rate of return for the portfolios was developed, adjusted for historical and expected experience of active portfolio management results compared to benchmark returns and for the effect of expenses paid from plan assets.
For measurement purposes, the assumed annual health care cost trend rates were as follows:
2021 2020 Health care cost trend rate assumed for next year 6.00% 6.25%
Rate to which the health care cost trend rate is assumed to decline 4.50% 4.50%
Year the health care cost trend rate reaches the ultimate trend rate 2027 2027 WCNOCs pension plan investment strategy is to manage assets in a prudent manner with regard to preserving principal while providing reasonable returns. It has adopted a long-term investment horizon such that the chances and duration of investment losses are carefully weighed against the long-term potential for appreciation of assets. Part of its strategy includes managing interest rate sensitivity of plan assets relative to the associated liabilities. The primary objective of the pension plan is to provide a source of retirement income for its participants and beneficiaries, and the primary financial objective of the plan is to improve its funded status. The primary objective of the postretirement benefit plan is growth in assets and preservation of principal, while minimizing interim volatility, to meet anticipated claims of plan participants. WCNOC delegates the management of its pension benefit plan assets to independent investment advisors who hire and dismiss investment managers based upon various factors. The investment advisors are instructed to diversify investments across asset classes, sectors, and manager styles to minimize the risk of large losses, based upon objectives and risk tolerance specified by WCNOC, which include allowable and/or prohibited investment types. It measures and monitors investment risk on an ongoing basis through quarterly investment portfolio reviews and annual liability measurements.
The target allocations for WCNOCs pension plan assets are 31% to international equity securities, 25% to domestic equity securities, 25% to debt securities, 5% to commodity investments, and 14%
to other investments. The investments in both international and domestic equity include investments in large-, mid-, and small-cap companies and investment funds with underlying investments similar to those previously mentioned. The investments in debt include core and high-25
Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 yield bonds. Core bonds include funds invested in investment grade debt securities of corporate entities, obligations of U.S. and foreign governments and their agencies, and private debt securities.
High-yield bonds include a fund with underlying investments in non-investment grade debt securities of corporate entities, private placements, and bank debt. Real estate securities include funds invested in commercial and residential real estate properties while commodity investments include funds invested in commodity-related instruments.
Pension Plan Assets All of WCNOCs pension plan assets are recorded at fair value using daily net asset values as reported by the trustee.
Similar to other assets measured at fair value, GAAP establishes a hierarchal framework for disclosing the transparency of the inputs utilized in measuring pension and postretirement benefit plan assets at fair value. From time to time, the WCNOC pension trust may buy and sell investments resulting in changes within the hierarchy. Where quoted market prices are available in an active market, plan assets are classified within Level 1 of the valuation hierarchy. Level 1 plan assets include cash equivalents. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of plan assets with similar characteristics, or discounted cash flows. In certain cases where Level 1 or Level 2 inputs are not available, plan assets are classified within Level 3 of the hierarchy. Significant inputs and valuation techniques used in measuring Level 3 fair values include market discount rates, projected cash flows, and the estimated value into perpetuity. Investments that do not have a readily determinable fair value are measured at net asset value (NAV). These investments do not consider the observability of inputs; therefore, they are not included within the fair value hierarchy. WCNOC includes investments in private equity, real estate, and alternative investment funds that do not have a readily determinable fair value in this category. The underlying alternative investments include collateralized debt obligations, mezzanine debt, and a variety of other investments.
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Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 The following table provides the fair value of KEPCos 6% share of WCNOCs pension plan assets and the corresponding level within the fair value hierarchy as of December 31:
Fair Value Measurements Using Fair Value Level 1 Level 2 Level 3 NAV 2021 Cash equivalents $ 420,824 $ 420,824 $ - $ - $ -
Equity securities U.S. 6,994,394 - - - 6,994,394 International 5,372,350 - - - 5,372,350 Debt securities Core bonds 10,601,160 - - - 10,601,160 Alternative investments 3,424,593 - - - 3,424,593 Total investments $ 26,813,321 $ 420,824 $ - $ - $ 26,392,497 2020 Cash equivalents $ 182,152 $ 182,152 $ - $ - $ -
Equity securities U.S. 7,084,961 - - - 7,084,961 International 8,605,847 - - - 8,605,847 Debt securities Core bonds 3,761,131 - - - 3,761,131 Alternative investments 7,105,823 - - - 7,105,823 Total investments $ 26,739,914 $ 182,152 $ - $ - $ 26,557,762 Estimated future benefit payments as of December 31, 2021, for the Plans, which reflect expected future services, are as follows:
Other Pension Postretirement Benefits Benefits Expected contributions 2022 $ 1,008,000 $ 67,882 Expected benefit payments 2022 $ 2,001,194 $ 67,882 2023 $ 2,033,951 $ 61,095 2024 $ 2,042,522 $ 56,888 2025 $ 2,049,300 $ 50,870 2026 $ 2,126,769 $ 48,443 2027-2031 $ 10,977,463 $ 213,944 27
Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 Note 9: Commitments and Contingencies Current Economic Conditions KEPCo considers current economic conditions when planning for future power supply and liquidity needs. The current economic climate may also affect KEPCos ability to obtain financing.
Given the volatility of current economic conditions, the values of assets and liabilities recorded in the accompanying consolidated financial statements could change rapidly, resulting in material future adjustments that could negatively impact KEPCos ability to meet debt covenants or maintain sufficient liquidity. Currently under state statutes, KEPCos rate-making is deregulated and, therefore, KEPCo expects to be able to recover any economic losses through future rates.
Letter of Credit KEPCo has an irrevocable standby letter of credit with CoBank in the amount of $2,968,470 that expires in April 2027. The letter of credit is intended to provide financial security for uranium purchases.
Nuclear Liability Insurance Pursuant to the Price-Anderson Act, liability insurance includes coverage against public nuclear liability claims resulting from nuclear incidents to the required limit of public liability, which is approximately $13,600,000,000. This limit of liability consists of the maximum available commercial insurance of $500,000,000, and the remaining $13,100,000,000 is provided through mandatory participation in an industry-wide retrospective assessment program. Under this retrospective assessment program, the owners of WCNOC are jointly and severally subject to an assessment of up to $137,600,000 (KEPCos share is $8,300,000), payable at no more than
$20,500,000 (KEPCos share is $1,200,000) per incident per year per reactor for any commercial U.S. nuclear reactor qualifying incident. Both the total and yearly assessments are subject to an inflationary adjustment based on the Consumer Price Index and applicable premium taxes. In addition, Congress could impose additional revenue-raising measures to pay claims.
The owners of WCNOC carry nuclear accident decontamination liability, premature nuclear decommissioning liability, and property damage insurance for WCNOC totaling approximately
$2,800,000,000 (KEPCos share is $168,000,000). In the event of a nuclear accident, insurance proceeds must first be used for reactor stabilization and site decontamination in accordance with a plan mandated by the NRC. The owners share of any remaining proceeds can be used to pay for property damage or, if certain requirements are met, including decommissioning the plant, toward a shortfall in the NDT.
The owners also carry additional insurance with Nuclear Electric Insurance Limited (NEIL) to help cover costs of replacement power and other extra expenses incurred during a prolonged outage resulting from accidental property damage at WCNOC. If significant losses were incurred at any of the nuclear plants insured under the NEIL policies, the owners may be subject to retrospective assessments under the current policies of approximately $33,000,000 (KEPCos share is
$1,980,000).
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Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 Although KEPCo maintains various insurance policies to provide coverage for potential losses and liabilities resulting from an accident or an extended outage, KEPCos insurance coverage may not be adequate to cover the costs that could result from a catastrophic accident or extended outage at WCNOC. Any substantial losses not covered by insurance, to the extent not recoverable in KEPCos prices, would have a material effect on KEPCos consolidated financial results.
Decommissioning Insurance KEPCo carries premature decommissioning insurance that has several restrictions, one of which can only be used if WCNOC incurs an accident exceeding $500,000,000 in expenses to safely stabilize the reactor and decontaminate the reactor and reactor station site in accordance with a plan approved by the NRC and pay for on-site property damages.
Once the NRC property rule requiring insurance proceeds to be used first for stabilization and decontamination has been complied with, the premature decommissioning coverage could pay for the decommissioning fund shortfall in the event an accident at WCNOC exceeds $500,000,000 in covered damages and causes WCNOC to be prematurely decommissioned.
Nuclear Fuel Commitments KEPCo owns a 6% undivided interest in WCNOC and provides its own financing for costs incurred by WCNOC. KEPCos share of anticipated costs for ongoing nuclear fuel for WCNOC is estimated to be approximately $25,187,000 for the next five years. KEPCo has provided a letter of credit of approximately $2,969,000 in connection with nuclear fuel costs.
Coal Commitments KEPCo owns a 3.53% undivided interest in Iatan 2 and provides its own financing for costs incurred by Iatan 2. KEPCos share of anticipated costs for ongoing coal fuel for Iatan 2 is estimated to be approximately $14,100,000 for the next five years.
Purchase Power Commitments KEPCo has supply contracts with various utility companies to purchase power to supplement generation in given service areas. KEPCo has provided the Southwest Power Pool a letter of credit of $1,500,000 to help ensure power is available if needed.
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Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 Note 10: Significant Estimates and Concentrations GAAP requires disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Those matters include the following:
Litigation KEPCo is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have an adverse effect on the consolidated financial position, results of operations, and cash flows of KEPCo.
There is a provision in the WCNOC operating agreement whereby the owners treat certain claims and losses arising out of the operations of WCNOC as a cost to be borne by the owners separately (but not jointly) in proportion to their ownership shares. Each of the owners has agreed to indemnify the others in such cases.
Deferred Compensation Agreement The amount of annual expense accrued for deferred compensation is based on an estimate of the total amounts payable under the contract over the lifetimes of the beneficiaries.
Asset Retirement Obligation As described in Note 1, KEPCo has recorded a liability for its conditional asset retirement obligation related to the WCNOC plant decommissioning costs.
Pension and Other Postretirement Benefit Obligations KEPCo, through its 6% share in WCNOC, has a noncontributory defined benefit pension and postretirement medical plan whereby it agrees to provide certain postretirement benefits to eligible employees. The benefit obligation is the actuarial present value of all benefits attributed to service rendered prior to the valuation date based on the projected unit credit cost method. It is reasonably possible that events could occur that would change the estimated amount of this liability materially in the near term.
Investments KEPCo invests in various investment securities in its NDT. Investment securities are exposed to various risks, such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the accompanying consolidated balance sheets.
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Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 Note 11: Disclosures About Fair Value of Assets and Liabilities ASC 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
ASC 820 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 Quoted prices in active markets for identical assets or liabilities Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities Level 3 Unobservable inputs supported by little or no market activity and significant to the fair value of the assets or liabilities Following is a description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.
Decommissioning Fund and Short-Term Investments The decommissioning fund consists of various mutual funds where fair value is determined by quoted market prices in an active market and, as such, are classified within Level 1 of the valuation hierarchy. Short-term investments are investments with an original maturity greater than three months, but less than 12 months, in commercial paper issued by NRUCFC, and are classified within Level 2 of the valuation hierarchy.
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Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 The following table presents the fair value measurements of assets recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the ASC 820 fair value hierarchy in which the fair value measurements fall at December 31:
Fair Value Measurements Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs Fair Value (Level 1) (Level 2) (Level 3) 2021 Nuclear Decommissioning Trust Equity Securities Domestic fund $ 23,773,155 $ 23,773,155 $ - $ -
International fund 2,294,555 2,294,555 - -
Domestic bond fund 14,387,945 14,387,945 - -
Money market 203,874 203,874 - -
Total investments $ 40,659,529 $ 40,659,529 $ - $ -
2020 Nuclear Decommissioning Trust Equity Securities Domestic fund $ 20,731,690 $ 20,731,690 $ - $ -
International fund 2,195,993 2,195,993 - -
Domestic bond fund 12,458,624 12,458,624 - -
Money market 178,644 178,644 - -
Total nuclear decommissioning trust 35,564,951 35,564,951 - -
Internal Investments Short-term investments 13,000,000 - 13,000,000 -
Total investments $ 48,564,951 $ 35,564,951 $ 13,000,000 $ -
Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections, and cash flows. Such securities are classified within Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.
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Kansas Electric Power Cooperative, Inc. and Subsidiary Notes to Consolidated Financial Statements December 31, 2021 and 2020 Note 12: Patronage Capital In accordance with KEPCos bylaws, KEPCos current margins are to be allocated to members.
KEPCos current policy is to allocate to members based on revenues collected from the members as a percentage of total revenues. If KEPCos consolidated financial statements were no longer prepared under the regulatory basis of accounting as prescribed by ASC 980, total patronage capital would be substantially less. Patronage capital distributions of $0 and $699,114 were made to members in 2021 and 2020, respectively.
Note 13: Subsequent Events Subsequent events have been evaluated through April 18, 2022, which is the date the consolidated financial statements were available to be issued.
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Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditors Report Board of Trustees Kansas Electric Power Cooperative, Inc.
Topeka, Kansas We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the consolidated financial statements of Kansas Electric Power Cooperative, Inc. and its wholly owned subsidiary (KEPCo), which comprise the consolidated balance sheet as of December 31, 2021, and the related consolidated statements of margin and comprehensive income (loss), patronage capital, and cash flows for the year then ended, and the related notes to the consolidated financial statements, and have issued our report thereon dated April 18, 2022.
Report on Internal Control over Financial Reporting In planning and performing our audit of the consolidated financial statements, we considered KEPCos internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the consolidated financial statements, but not for the purpose of expressing an opinion on the effectiveness of KEPCos internal control. Accordingly, we do not express an opinion on the effectiveness of KEPCos internal control.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entitys financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
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Board of Trustees Kansas Electric Power Cooperative, Inc.
Report on Compliance and Other Matters As part of obtaining reasonable assurance about whether KEPCos consolidated financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the consolidated financial statements. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
Purpose of This Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entitys internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entitys internal control and compliance.
Accordingly, this communication is not suitable for any other purpose.