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INVESTOR UPDATE – Westar Energy

Westar Energy · Jan 1, 2015 · 63 slides

Investor presentation from the Shale Experts oil & gas presentation and slide database. Every page is imaged and its text indexed for search across operators, plays, basins and time.

Slides

  1. INVESTOR UPDATE – Westar Energy – slide 1
    January 2015 Investor Update
  2. INVESTOR UPDATE – Westar Energy – slide 2
    Pure-play, vertically integrated, regulated electric utility Pure-play, vertically integrated, rate regulated electric utility 700,000 customers 7,500 MW of diversified generation Transmission 100% FERC-regulated 20% of 5.8 billion…
  3. INVESTOR UPDATE – Westar Energy – slide 3
    Approach to Creating Value Embrace uncertainty with flexibility Financial Operational Regulatory Collaborative and constructive regulation Successful execution of strategy results in Meeting customers energy needs and…
  4. INVESTOR UPDATE – Westar Energy – slide 4
    Established Record of Delivering Value Outperforming Shareholder Return Growing the Dividend 1.40 175% 1.40 1.36 1.32 150% WR 1.30 1.28 1.24 1.20 125% XLU 1.20 1.16 100% 1.10 1.08 1.00 75% 1.00 0.92 50% 0.90 25%…
  5. INVESTOR UPDATE – Westar Energy – slide 5
    Westar Provides Growth & Income Opportunities 5 year rate base growth focused on transmission and air quality Overall growth at 5.5% Transmission growing at 12% CAGR through 2018 Large air quality projects finish in 2015 5 year EPS…
  6. INVESTOR UPDATE – Westar Energy – slide 6
    Positioned for Dividend Growth Target 60% - 75% payout Midpoint of 14 guidance implies 59% payout DPS 1.40 1.40 Payout ratio 90% 1.36 1.32 60% - 75% 85% 1.30 1.28 TARGET 1.24 Annualized dividend per share PAYOUT RATIO…
  7. INVESTOR UPDATE – Westar Energy – slide 7
    Compelling Investment Thesis Traditional, regulated utility Constructive regulation Shareholder focused 10 year dividend CAGR 5% History of meeting / exceeding targets TSR of 170% since 2004 significantly exceeds XLU Tested…
  8. INVESTOR UPDATE – Westar Energy – slide 8
    Current Plans January 2015 Investor Update 9
  9. INVESTOR UPDATE – Westar Energy – slide 9
    Recent Events Adding to renewable portfolio Meets the 2020 RPS Pricing on new agreements near system dispatch cost Will represent 14% of installed generation FERC 206 Complaint set for hearing Next step -- settlement discussions…
  10. INVESTOR UPDATE – Westar Energy – slide 10
    2015 Earnings Drivers Retail MWh sales up 150 bp Normal rider price adjustments 19 million transmission margin 17 million ECRR 1% decrease in combined O&M/SGA expenses 3% increase in top line operating expenses excluding fuel and…
  11. INVESTOR UPDATE – Westar Energy – slide 11
    Planned Regulatory Calendar 2014 Transmission Delivery Charge (TDC) AAO for La Cygne retrofit Environmental Cost Recovery Rider (ECRR) Energy Efficiency Rider (EER) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2015…
  12. INVESTOR UPDATE – Westar Energy – slide 12
    2015 Established Rate Case Schedule Company Files Staff / Interveners Rebuttal Settlement Evidentiary Request File Response Testimony Conference Hearings Decision March 2 July 9 July 29 August 3-7 August 17-21 October 28 Public…
  13. INVESTOR UPDATE – Westar Energy – slide 13
    Rate Increases Driven by Energy Policy Annualized revenue changes 2013 2014 2015 (Estimated) Base rates 31 million - TBD Dec Transmission rates (a) 25 million 44 million 19 million Jan 1 Jan 1 Jan 1 Environmental 27 million 11…
  14. INVESTOR UPDATE – Westar Energy – slide 14
    Cap Ex Provides Growth Platform Method of Actual Cost 2013 2014 2015 2016 2017 2018 2014 - 2018 Recovery Generation 201.4 181.6 173.1 136.8 135.9 198.9 826.3 GRC Environmental Westar 108.3 129.3 38.2 21.9 55.3 50.5 295.2 ECRR La…
  15. INVESTOR UPDATE – Westar Energy – slide 15
    Cap Ex Continues to Provide Growth Platform 900 814 800 780 679 692 700 667 600 591 Millions 500 400 300 200 100 0 2013 2014 2015 2016 2017 2018 Transmission Air Quality - ECRR La Cygne Other Depreciation…
  16. INVESTOR UPDATE – Westar Energy – slide 16
    Major Projects on Plan Air Quality Jeffrey SCR -- 230 million In-service December 2014 On schedule, below budget La Cygne -- 600 million On schedule, on budget for in-service mid 2015 345 kV Transmission Prairie Wind -- 162…
  17. INVESTOR UPDATE – Westar Energy – slide 17
    Strong Investment Growth Coupled With Favorable Mix 7.5 7.2 6.9 6.6 6.3 1.8 Transmission 5.8 1.5 1.6 12% CAGR 1.3 1.1 0.4 1.0 0.5 0.5 0.5 0.5 0.4 Billions 2.5 4.4 4.7 4.8 4.9 5.1 5.3 0.2 2.3 2005 2013 2014 2015…
  18. INVESTOR UPDATE – Westar Energy – slide 18
    Profile January 2015 Investor Update 19
  19. INVESTOR UPDATE – Westar Energy – slide 19
    Westars All of the Above Energy Supply January 2015 Investor Update 20
  20. INVESTOR UPDATE – Westar Energy – slide 20
    Diverse Supply Benefits Customers Diverse Capacity Optimal Fuel Mix Renewable Renewable 9% 9% Gas 5% Uranium 14% Coal 47% Gas 36% Coal 72% Uranium 8% Cost of Fuel 63.00 Ave. Fuel Cost 20.30/MWh Coupled with…
  21. INVESTOR UPDATE – Westar Energy – slide 21
    Ahead on RPS Compliance Planned additions achieves 2020 RPS and moves renewables to14% of generation 1,064 MW of wind 149 MW owned 915 MW PPA 515 MW operating 400 MW under development 5 MW landfill gas PPA Compliance with…
  22. INVESTOR UPDATE – Westar Energy – slide 22
    Renewables Growing Piece of Diverse Generation Mix Current Generation Mix 2016 Planned Generation Mix 9% 14% 8% 7% 47% 46% 36% Coal 33% Gas Uranium Renewable January 2015 Investor Update 23
  23. INVESTOR UPDATE – Westar Energy – slide 23
    Diverse Customer Base Consumer manufacturing 16% Aerospace Food 16% processing 18% Residential Industrial 34% 28% 12% Other 38% Chemical & oil Other 48% General merchandise 7% Health care 8% 3% Commercial 4% Real…
  24. INVESTOR UPDATE – Westar Energy – slide 24
    Strong Local Economy Low Unemployment 8% U.S. KS 7% 6% Economy stronger than the nation State unemployment favorable to 5% nation 4% Returning growth 3% Growth across sectors Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep…
  25. INVESTOR UPDATE – Westar Energy – slide 25
    Strong Balance Sheet and Liquidity Target 50/50 capital structure Modest bond maturities ( in millions) 400 300 200 Equity Debt 100 3.3B 3.2B 0 2014 2015 2016 2017 2018 Total credit facility capacity of 1 billion Sept 14…
  26. INVESTOR UPDATE – Westar Energy – slide 26
    Disciplined Cost Management Held 13 expense growth to < 1% excluding revenue tracked items: SPP transmission Property tax Pension and tree trimming 1,000 900 Expenses covered by revenue offsets/ 800 deferred accounting…
  27. INVESTOR UPDATE – Westar Energy – slide 27
    Focused Safety Performance Generation 30 30 OSHA Recordable Injuries 25 25 23 20 18 15 15 12 11 10 9 10 8 7 5 5 5 1 0 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010…
  28. INVESTOR UPDATE – Westar Energy – slide 28
    Transmission January 2015 Investor Update 29
  29. INVESTOR UPDATE – Westar Energy – slide 29
    Transmission Remains Catalyst for Growth 250 2.0 200 1.5 Cumulative Annual (Millions) (Billions) 150 1.0 100 0.5 50 0 0.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E…
  30. INVESTOR UPDATE – Westar Energy – slide 30
    Order 1000 Proposed Timeframe Overview 2014 NT & 10-Year Needs Assessment SPP Staff Analysis NT & 10- TOs Year Final Propose Project List Projects Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2015 SPP SPP Board IEP…
  31. INVESTOR UPDATE – Westar Energy – slide 31
    Order 1000 - Project Identification Process SPP staff prepares Needs assessment Stakeholders propose projects to address needs SPP staff analyzes proposed projects and selects projects for final list SPP Board approves final project…
  32. INVESTOR UPDATE – Westar Energy – slide 32
    Order 1000 Project Categories Competitive transmission projects: Identified through the Integrated Transmission Planning (ITP) process Identified by a high priority study Identified by requests for Transmission Service Nominal…
  33. INVESTOR UPDATE – Westar Energy – slide 33
    Order 1000 Qualified RFP Participant (QRP) Issuer credit rating BBB- Expertise: Transmission project development Internal safety program Transmission operations NERC compliance process and history Storm / outage response and…
  34. INVESTOR UPDATE – Westar Energy – slide 34
    Clear Path to Transmission Growth Under Construction Summit to Elm Creek 66 million Late 2016 Complete Prairie Wind 50/50 JV CWIP recovery 162 million Completed Oct 2014 Recently completed Under construction Under…
  35. INVESTOR UPDATE – Westar Energy – slide 35
    Prairie Wind Transmission Line FERC incentives Recovery of pre-commercial costs CWIP in rate base Southwest Power Pool Regional cost allocation Formula rate 125 million project financing Completed October 2014 January 2015…
  36. INVESTOR UPDATE – Westar Energy – slide 36
    Environmental January 2015 Investor Update 37
  37. INVESTOR UPDATE – Westar Energy – slide 37
    Winding Down on Air Quality Investments 400 350 2.0 300 1.5 Cumulative Annual 250 (Millions) (Billions) 200 1.0 150 100 0.5 50 0 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E…
  38. INVESTOR UPDATE – Westar Energy – slide 38
    Dramatic Improvements in Air Quality 120,000 100,000 Sulfur Dioxide 80,000 60,000 40,000 (tons) 90% 20,000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 70,000 60,000 50,000 Nitrogen Oxide 40,000 30,000 (tons)…
  39. INVESTOR UPDATE – Westar Energy – slide 39
    Status of Coal Fleet Air Quality Controls 83% of MWs currently scrubbed Unit Scrubber Precipitator Fabric Filter Low NOx SCR/SNCR ACI DSI Jeffrey 1 Yes Yes No plans Yes SCR Planned n/a Jeffrey 2 Yes Yes No plans Yes SNCR Planned n/a…
  40. INVESTOR UPDATE – Westar Energy – slide 40
    Environmental Regulation Summary SO2 National Mercury and Coal Cross-State Air Ambient Air Air Toxics Water 316(b) Combustion Pollution Rule Quality Standards Waste Standard DC Circuit Court Final Rule Final Rule Final Rule…
  41. INVESTOR UPDATE – Westar Energy – slide 41
    Air Quality Controls Air Quality Control Targeted Emission / Benefit Low NOx Burner Systems NOx Selective Non-Catalytic Reduction NOx Selective Catalytic Reduction NOx SO2 Scrubber Acid gases Small amount of mercury Particulate matter…
  42. INVESTOR UPDATE – Westar Energy – slide 42
    Rates and Regulation January 2015 Investor Update 43
  43. INVESTOR UPDATE – Westar Energy – slide 43
    Kansas Regulators Kansas Corporation Commission Three-member board appointed by governor Serve staggered four year terms Current KCC commissioners Shari Feist Albrecht (I), chair Term expires March 2016 Jay Emler (R) Term…
  44. INVESTOR UPDATE – Westar Energy – slide 44
    Constructive Regulation Formulas and riders result in lower ultimate prices Ultimately, Less frequent rate cases lower rates coupled with riders Price More frequent rate cases with no riders Time January 2015…
  45. INVESTOR UPDATE – Westar Energy – slide 45
    Solid Regulatory Construct Revenue Requirement Method of Recovery Comment 1. Fuel, purchased power and Quarterly adjustment based on Adjusts prices for actual costs, environmental consumables forecasted cost, with annual true-up…
  46. INVESTOR UPDATE – Westar Energy – slide 46
    Retail Energy Cost Adjustment (RECA) Provides timely adjustments for fuel and purchased power Fuel rates based on forecast costs Set quarterly Difference between forecast and actual deferred Annual settlement of deferred…
  47. INVESTOR UPDATE – Westar Energy – slide 47
    Pension Tracker Defer as regulatory asset shortfall between funding of GAAP pension/OPEB expense and pension/OPEB currently authorized in rates Maintain minimum funding level equal to GAAP pension/OPEB expense Recover deferred…
  48. INVESTOR UPDATE – Westar Energy – slide 48
    Environmental Cost Recovery Rider Mechanics ECRR adjusts retail rates annually to reflect capital investments in emission controls Investments as of December 31 recovered in rates subsequent June Eliminates need to file a rate case…
  49. INVESTOR UPDATE – Westar Energy – slide 49
    Illustrative ECRR Mechanics Clean Air Investment (1) 2011 2012 2013 2014 2015 2016 Year 1 Investment 165.2 Year 2 Investment 195.1 Year 3 Investment 113.9 Year 4 Investment 129.3 Year 5 Investment 38.2 Year 6 Investment 21.9…
  50. INVESTOR UPDATE – Westar Energy – slide 50
    Transmission Cost Recovery FERC formula transmission rate Changes in cost of service reflected in annual update of FERC tariff Update posted each October using projected test year Capital expenditures O&M Tariff based on year-end…
  51. INVESTOR UPDATE – Westar Energy – slide 51
    Transmission Formula Rate Mechanics Fixed formula with changing inputs Updated annually using Form 1 data Established protocols for updates Uses projected test year Rate base (based on 13 month average) O&M, depreciation and…
  52. INVESTOR UPDATE – Westar Energy – slide 52
    Energy Efficiency Initiatives and Digital Meters Deferred accounting for the cost of energy efficiency initiatives, such as Smart thermostats Customer educational programs Demand response programs Smart grid efforts 98,000…
  53. INVESTOR UPDATE – Westar Energy – slide 53
    Net Metering in Kansas Limited to 1% of peak demand 200 customers Represents 3,400 MWh 2014 Statute Revisions Lower maximum size of customer generating systems Pricing Net generation usage at retail rate Excess generation…
  54. INVESTOR UPDATE – Westar Energy – slide 54
    Abbreviated (Limited Scope) Rate Case (ARC) Reduces cost, complexity and regulatory lag Obtain permission from KCC to file ARC Request made in a general rate case (GRC) Identify scope of proposed ARC Must file within 12 months of…
  55. INVESTOR UPDATE – Westar Energy – slide 55
    Kansas Renewable Requirements Renewable Portfolio Standard established Installed capability standard in lieu of energy standard 10% of peak load by 2011, 15% by 2016 and 20% after 2020 If generated in Kansas, treated at 110% of…
  56. INVESTOR UPDATE – Westar Energy – slide 56
    Law Assures Predetermination and CWIP Recovery Predetermination Utilities can obtain order establishing ratemaking principles that will apply over the life of the asset Prevents second guessing after the fact Construction Work in…
  57. INVESTOR UPDATE – Westar Energy – slide 57
    Capital Structure for Ratemaking (Per Recent Orders) KCC Capitalization Cost of Weighted Cost Pre-tax Weighted Ratio Capital of Capital Cost of Capital Long-term debt 46.97% 6.65% 3.12% 3.12% Preferred 0.40 4.55 .02 .03 Common…
  58. INVESTOR UPDATE – Westar Energy – slide 58
    Background January 2015 Investor Update 59
  59. INVESTOR UPDATE – Westar Energy – slide 59
    Westar Energy Legal Structure Parent Westar Energy, Inc. (Rate regulated utility) Combined company Consolidated capital does business under structure is used for the name Westar Subsidiary ratemaking Energy Kansas Gas and…
  60. INVESTOR UPDATE – Westar Energy – slide 60
    Generating Fleet Westar's Pulverized coal MW Operator Years Installed Plant Performance Jeffrey Energy Center 1,983 Westar 1978, 1980, 1983 Lawrence Energy Center 530 Westar 1954, 1960, 1971 Tecumseh Energy Center 202 Westar 1957,…
  61. INVESTOR UPDATE – Westar Energy – slide 61
    Low-Cost Coal Fleet Embedded Cost Very low fuel cost 1,500 Delivered PRB coal currently 1,200 /KW about half the cost of natural 900 gas 600 Excellent rail 300 0 arrangements JEC JEC JEC LEC LAC LAC TEC LEC TEC LEC 3 2 1…
  62. INVESTOR UPDATE – Westar Energy – slide 62
    Coal Fleet Net Book Capacity WR Share Heat Rate Availability Value Unit (MW) (MW) Age (Btu/kWh) Factor (Millions) /KW Jeffrey 3 722 664 31 11,198 84% 327 492 Jeffrey 2 715 658 34 10,981 85% 246 374 Jeffrey 1 718 661 36 11,198 80%…
  63. INVESTOR UPDATE – Westar Energy – slide 63
    Coal Supply Westar-operated plant fuel supply (80%) JEC supply under contract through 2020 (10+ million tons/year) 70% has no market openers 30% reopened on price every 5 years Most recent re-pricing effective January 2013 All…

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