Combined Notes to Unaudited Consolidated Financial Statements
The notes to unaudited 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. ORGANIZATION AND BASIS OF PRESENTATION
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 1.7 million customers in the states of Kansas and Missouri.
Basis of Presentation
These unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, these unaudited consolidated financial statements do not include all of the information and notes required by GAAP for annual financial statements and should be read in conjunction with the consolidated financial statements in the Evergy Companies' combined 2022 Form 10-K.
These unaudited consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary to fairly present the unaudited consolidated financial statements for each of the Evergy Companies for these interim periods. In preparing financial statements that conform to GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
Principles of Consolidation
Each of Evergy's, Evergy Kansas Central's and Evergy Metro's unaudited 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).
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.
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| | March 31 2023 | | | December 31 2022 | |
Evergy | | (millions) | |
Fuel inventory | | $ | 224.3 | | | | $ | 180.7 | | |
Supplies | | 499.8 | | | | 492.2 | | |
Fuel inventory and supplies | | $ | 724.1 | | | | $ | 672.9 | | |
Evergy Kansas Central | | | | | | |
Fuel inventory | | $ | 111.1 | | | | $ | 97.2 | | |
Supplies | | 258.7 | | | | 252.3 | | |
Fuel inventory and supplies | | $ | 369.8 | | | | $ | 349.5 | | |
Evergy Metro | | | | | | |
Fuel inventory | | $ | 78.9 | | | | $ | 59.0 | | |
Supplies | | 179.2 | | | | 181.6 | | |
Fuel inventory and supplies | | $ | 258.1 | | | | $ | 240.6 | | |
Property, Plant and Equipment
The following tables summarize the property, plant and equipment of Evergy, Evergy Kansas Central and Evergy Metro.
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March 31, 2023 | | Evergy | | Evergy Kansas Central | | Evergy Metro |
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Electric plant in service | | | $ | 32,372.1 | | | | | $ | 15,472.7 | | | | | $ | 12,456.5 | | |
Electric plant acquisition adjustment | | | 724.3 | | | | | 724.3 | | | | | — | | |
Accumulated depreciation | | | (12,389.3) | | | | | (5,901.6) | | | | | (5,157.6) | | |
Plant in service, net | | | 20,707.1 | | | | | 10,295.4 | | | | | 7,298.9 | | |
Construction work in progress | | | 1,458.3 | | | | | 804.3 | | | | | 516.9 | | |
Nuclear fuel, net | | | 162.8 | | | | | 80.8 | | | | | 82.0 | | |
Plant to be retired, net(a) | | | 0.8 | | | | | 0.8 | | | | | — | | |
Property, plant and equipment, net | | | $ | 22,329.0 | | | | | $ | 11,181.3 | | | | | $ | 7,897.8 | | |
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December 31, 2022 | | Evergy | | Evergy Kansas Central | | Evergy Metro |
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Electric plant in service | | | $ | 32,129.3 | | | | | $ | 15,376.9 | | | | | $ | 12,343.3 | | |
Electric plant acquisition adjustment | | | 724.3 | | | | | 724.3 | | | | | — | | |
Accumulated depreciation | | | (12,304.9) | | | | | (5,922.9) | | | | | (5,065.3) | | |
Plant in service, net | | | 20,548.7 | | | | | 10,178.3 | | | | | 7,278.0 | | |
Construction work in progress | | | 1,421.2 | | | | | 819.5 | | | | | 482.6 | | |
Nuclear fuel, net | | | 165.8 | | | | | 82.2 | | | | | 83.6 | | |
Plant to be retired, net(a) | | | 0.8 | | | | | 0.8 | | | | | — | | |
Property, plant and equipment, net | | | $ | 22,136.5 | | | | | $ | 11,080.8 | | | | | $ | 7,844.2 | | |
(a) As of March 31, 2023 and December 31, 2022, represents the planned retirement of Evergy Kansas Central analog meters prior to the end of their remaining useful lives.
Other Income (Expense), Net
For the three months ended March 31, 2022, Evergy's investment earnings (loss) included a pre-tax loss of $14.2 million related to Evergy's equity investment in an early-stage energy solutions company.
The table below shows the detail of other expense for each of the Evergy Companies.
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Three Months Ended March 31 | | | | | 2023 | | 2022 |
Evergy | | | | (millions) |
Non-service cost component of net benefit cost | | | | | $ | (14.8) | | | $ | (18.4) | |
Other | | | | | (6.5) | | | (6.5) | |
Other expense | | | | | $ | (21.3) | | | $ | (24.9) | |
Evergy Kansas Central | | | | | | | |
Non-service cost component of net benefit cost | | | | | $ | (4.0) | | | $ | (4.6) | |
Other | | | | | (5.9) | | | (5.6) | |
Other expense | | | | | $ | (9.9) | | | $ | (10.2) | |
Evergy Metro | | | | | | | |
Non-service cost component of net benefit cost | | | | | $ | (8.7) | | | $ | (10.0) | |
Other | | | | | (0.3) | | | (0.5) | |
Other expense | | | | | $ | (9.0) | | | $ | (10.5) | |
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.
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Three Months Ended March 31 | | | | | 2023 | | 2022 |
Income | | | | (millions, except per share amounts) |
Net income | | | | | $ | 145.7 | | | $ | 125.6 | |
Less: net income attributable to noncontrolling interests | | | | | 3.1 | | | 3.1 | |
Net income attributable to Evergy, Inc. | | | | | $ | 142.6 | | | $ | 122.5 | |
Common Shares Outstanding | | | | | | | |
Weighted average number of common shares outstanding - basic | | | | | 230.0 | | | 229.8 | |
Add: effect of dilutive securities | | | | | 0.3 | | | 0.4 | |
Diluted average number of common shares outstanding | | | | | 230.3 | | | 230.2 | |
Basic and Diluted EPS | | | | | $ | 0.62 | | | $ | 0.53 | |
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Anti-dilutive securities excluded from the computation of diluted EPS for the three months ended March 31, 2023 and 2022 were 3,950,000 common shares issuable pursuant to a warrant.
Dividends Declared
In May 2023, Evergy's Board of Directors (Evergy Board) declared a quarterly dividend of $0.6125 per share on Evergy's common stock. The common dividend is payable on June 20, 2023, to shareholders of record as of May 19, 2023.
In May 2023, Evergy Metro's Board of Directors declared a cash dividend to Evergy of up to $150.0 million, payable on June 16, 2023, or such other date as determined necessary, proper, or advisable.
Supplemental Cash Flow Information
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Evergy | | | | |
Three Months Ended March 31 | | 2023 | | 2022 |
Cash paid for (received from): | | (millions) |
Interest, net of amount capitalized | | $ | 133.0 | | | $ | 76.7 | |
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Income taxes, net of refunds | | (0.5) | | | (0.1) | |
Right-of-use assets obtained in exchange for new operating lease liabilities | | 6.2 | | | 1.6 | |
Right-of-use assets obtained in exchange for new finance lease liabilities | | — | | | 2.4 | |
Non-cash investing transactions: | | | | |
Property, plant and equipment additions | | 112.1 | | | 122.6 | |
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Non-cash financing transactions: | | | | |
Issuance of stock for compensation and reinvested dividends | | — | | | 0.2 | |
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Evergy Kansas Central | | | | |
Three Months Ended March 31 | | 2023 | | 2022 |
Cash paid for (received from): | | (millions) |
Interest, net of amount capitalized | | $ | 56.3 | | | $ | 32.1 | |
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Income taxes, net of refunds | | (0.2) | | | — | |
Right-of-use assets obtained in exchange for new operating lease liabilities | | 2.7 | | | 1.6 | |
Right-of-use assets obtained in exchange for new finance lease liabilities | | — | | | 2.4 | |
Non-cash investing transactions: | | | | |
Property, plant and equipment additions | | 54.8 | | | 42.0 | |
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Evergy Metro | | | | |
Three Months Ended March 31 | | 2023 | | 2022 |
Cash paid for (received from): | | (millions) |
Interest, net of amount capitalized | | $ | 31.1 | | | $ | 15.6 | |
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Right-of-use assets obtained in exchange for new operating lease liabilities | | 3.5 | | | — | |
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Non-cash investing transactions: | | | | |
Property, plant and equipment additions | | 41.0 | | | 38.5 | |
Renewable Generation Investment
In August 2022, Evergy Missouri West entered into an agreement with a renewable energy development company to purchase for approximately $250 million an operational wind farm located in the state of Oklahoma with a generating capacity of approximately 199 MW. Pursuant to the agreement, Evergy Missouri West is permitted to assign its right to purchase the wind farm to another entity, including to other Evergy affiliated companies.
Evergy Missouri West's purchase is subject to regulatory approvals and closing conditions, including the granting of a Certificate of Convenience and Necessity (CCN) by the Public Service Commission of the State of Missouri (MPSC). In April 2023, the MPSC issued a final order granting the CCN pursuant to certain conditions related to the sharing of operational costs between ratepayers and shareholders.
Evergy Missouri West is currently evaluating the assignment of its right to purchase the wind farm to Evergy Kansas Central, which has included the purchase of the wind farm in its rate case application to the State Corporation Commission of the State of Kansas (KCC) which was filed in April 2023. See Note 4 for additional information on Evergy Kansas Central's rate case proceeding. The purchase of the wind farm is expected to close in the second quarter of 2023.
2. REVENUE
Evergy's, Evergy Kansas Central's and Evergy Metro's revenues disaggregated by customer class are summarized in the following tables.
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Evergy | | | |
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Three Months Ended March 31 | | | | 2023 | | 2022 | | |
Revenues | | | | (millions) |
Residential | | | | $ | 458.6 | | | $ | 451.8 | | | |
Commercial | | | | 430.0 | | | 403.1 | | | |
Industrial | | | | 159.1 | | | 150.3 | | | |
Other retail | | | | 11.3 | | | 9.0 | | | |
Total electric retail | | | | $ | 1,059.0 | | | $ | 1,014.2 | | | |
Wholesale | | | | 70.4 | | | 51.9 | | | |
Transmission | | | | 105.8 | | | 98.0 | | | |
Industrial steam and other | | | | 11.7 | | | 3.3 | | | |
Total revenue from contracts with customers | | | | 1,246.9 | | | 1,167.4 | | | |
Other | | | | 49.9 | | | 56.5 | | | |
Operating revenues | | | | $ | 1,296.8 | | | $ | 1,223.9 | | | |
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Evergy Kansas Central | | | | | | | | |
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Three Months Ended March 31 | | | | 2023 | | 2022 | | |
Revenues | | | | (millions) |
Residential | | | | $ | 192.1 | | | $ | 196.1 | | | |
Commercial | | | | 178.1 | | | 165.2 | | | |
Industrial | | | | 108.5 | | | 100.8 | | | |
Other retail | | | | 4.3 | | | 4.1 | | | |
Total electric retail | | | | $ | 483.0 | | | $ | 466.2 | | | |
Wholesale | | | | 67.6 | | | 50.1 | | | |
Transmission | | | | 100.6 | | | 87.5 | | | |
Other | | | | 1.7 | | | 0.6 | | | |
Total revenue from contracts with customers | | | | $ | 652.9 | | | $ | 604.4 | | | |
Other | | | | 25.7 | | | 9.5 | | | |
Operating revenues | | | | $ | 678.6 | | | $ | 613.9 | | | |
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Evergy Metro | | | | | | | | |
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Three Months Ended March 31 | | | | 2023 | | 2022 | | |
Revenues | | | | (millions) | | |
Residential | | | | $ | 158.0 | | | $ | 159.9 | | | |
Commercial | | | | 175.9 | | | 173.6 | | | |
Industrial | | | | 28.4 | | | 28.8 | | | |
Other retail | | | | 2.7 | | | 2.6 | | | |
Total electric retail | | | | $ | 365.0 | | | $ | 364.9 | | | |
Wholesale | | | | 11.4 | | | 7.7 | | | |
Transmission | | | | 3.8 | | | 5.4 | | | |
Other | | | | 2.4 | | | (1.8) | | | |
Total revenue from contracts with customers | | | | $ | 382.6 | | | $ | 376.2 | | | |
Other | | | | 23.8 | | | 46.3 | | | |
Operating revenues | | | | $ | 406.4 | | | $ | 422.5 | | | |
3. RECEIVABLES
The Evergy Companies' receivables are detailed in the following table.
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| | March 31 | | December 31 |
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| | 2023 | | 2022 |
Evergy | | (millions) |
Customer accounts receivable - billed | | $ | 4.7 | | | $ | 8.9 | |
Customer accounts receivable - unbilled | | 82.1 | | | 136.9 | |
Other receivables | | 143.4 | | | 200.9 | |
Allowance for credit losses | | (22.9) | | | (31.4) | |
Total | | $ | 207.3 | | | $ | 315.3 | |
Evergy Kansas Central | | | | |
Customer accounts receivable - billed | | $ | — | | | $ | — | |
Customer accounts receivable - unbilled | | 40.1 | | | 71.4 | |
Other receivables | | 125.3 | | | 194.9 | |
Allowance for credit losses | | (12.1) | | | (16.9) | |
Total | | $ | 153.3 | | | $ | 249.4 | |
Evergy Metro | | | | |
Customer accounts receivable - billed | | $ | — | | | $ | — | |
Customer accounts receivable - unbilled | | 6.8 | | | 25.5 | |
Other receivables | | 30.4 | | | 21.6 | |
Allowance for credit losses | | (7.0) | | | (9.3) | |
Total | | $ | 30.2 | | | $ | 37.8 | |
The Evergy Companies' other receivables at March 31, 2023 and December 31, 2022, 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.
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| March 31 | | December 31 | | | | | | |
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| 2023 | | 2022 | | | | |
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Evergy | $ | 48.3 | | | $ | 113.0 | | | | | | | |
Evergy Kansas Central | 44.3 | | | 110.8 | | | | | | | |
Evergy Metro | 2.7 | | | 1.3 | | | | | | | |
The change in the Evergy Companies' allowance for credit losses is summarized in the following table.
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Evergy | (millions) |
Beginning balance January 1 | $ | 31.4 | | | $ | 32.9 | |
Credit loss expense (income) | (3.3) | | | (4.1) | |
Write-offs | (8.3) | | | (7.9) | |
Recoveries of prior write-offs | 3.1 | | | 3.5 | |
Ending balance March 31 | $ | 22.9 | | | $ | 24.4 | |
Evergy Kansas Central | | | |
Beginning balance January 1 | $ | 16.9 | | | $ | 13.0 | |
Credit loss expense (income) | (1.8) | | | (0.6) | |
Write-offs | (4.3) | | | (3.6) | |
Recoveries of prior write-offs | 1.3 | | | 1.3 | |
Ending balance March 31 | $ | 12.1 | | | $ | 10.1 | |
Evergy Metro | | | |
Beginning balance January 1 | $ | 9.3 | | | $ | 13.3 | |
Credit loss expense (income) | (0.8) | | | (2.4) | |
Write-offs | (2.7) | | | (2.9) | |
Recoveries of prior write-offs | 1.2 | | | 1.5 | |
Ending balance March 31 | $ | 7.0 | | | $ | 9.5 | |
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.
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| March 31 | | December 31 | | | | | | |
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| 2023 | | 2022 | | | | |
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Evergy | $ | 365.0 | | | $ | 359.0 | | | | | | | |
Evergy Kansas Central | 185.0 | | | 185.0 | | | | | | | |
Evergy Metro | 130.0 | | | 124.0 | | | | | | | |
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's and Evergy Metro's 2023 Rate Case Proceeding
In April 2023, Evergy Kansas Central and Evergy Metro filed applications with the Kansas Corporation Commission (KCC) to request increases to their retail revenues of approximately $204 million and $14 million, respectively. Evergy Kansas Central's request reflects a return on equity of 10.25% (with a capital structure composed of 52% equity) and increases related to the recovery of infrastructure investments made to improve reliability and enhance customer service, the inclusion of Evergy Kansas Central's non-regulated 8% of Jeffrey Energy Center (JEC) in rate base and the management of the previously established end to a corporate-owned life insurance program. Evergy Kansas Central is also requesting, upon the closing of the transaction, the inclusion of the cost of an approximately $250 million operational wind farm located in the state of Oklahoma with a generating capacity of approximately 199 MW. The cost of this wind farm is not included in Evergy Kansas Central's approximately $204 million increase to retail revenue requested in the case but if approved by the KCC, the cost of this wind farm would result in an additional $24.4 million increase to Evergy Kansas Central's retail revenues. Evergy Metro's request reflects a return on equity of 10.25% (with a capital structure composed of 52% equity) and increases related to recovery of infrastructure investments made to improve reliability and enhance customer service. Requests for increases in retail revenues in both proceedings are partially offset by significant customer savings and cost reductions. New rates are expected to be effective in December 2023.
Evergy Kansas Central 2023 Transmission Delivery Charge (TDC)
In April 2023, the KCC issued an order adjusting Evergy Kansas Central's retail prices to include updated transmission costs as reflected in the Federal Energy Regulatory Commission (FERC) transmission formula rate (TFR). The new prices are effective in May 2023 and include the adjustments to the 2023 TFR described under "Evergy Kansas Central TFR Formal Challenge" within this Note 4. The new prices are expected to decrease Evergy Kansas Central's annual retail revenues by $22.3 million when compared to 2022.
Evergy Metro 2023 TDC
In April 2023, 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 are effective in May 2023 and are expected to increase Evergy Metro's annual retail revenues by $4.0 million when compared to 2022.
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 estimates its 2022 annual earnings did not result in a refund obligation. As of December 31, 2022, Evergy Metro estimated that its 2022 annual earnings resulted in a $16.7 million refund obligation, which was recorded in the fourth quarter of 2022. Evergy Kansas Central and Evergy Metro filed their 2022 ERSP calculations with the KCC in March 2023. As part of these filings, Evergy Metro filed for a lower refund obligation for 2022 of approximately $6 million (compared with its $16.7 million refund obligation estimate) as a result of certain intercompany billings to Evergy Kansas Central. The final refund obligations for 2022 will be decided by the KCC and could vary from the current estimates.
MPSC Proceedings
Evergy Missouri West February 2021 Winter Weather Event Securitization
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).
In November 2022, the MPSC issued a revised financing order authorizing Evergy Missouri West to issue securitized bonds to recover its extraordinary fuel and purchased power costs incurred as part of the February 2021 winter weather event. As part of the order, the MPSC found that Evergy Missouri West's costs were prudently incurred, that it should only be allowed to recover 95% of its extraordinary fuel and purchased power costs consistent with the 5% sharing provision of its fuel recovery mechanism, that it should be allowed to recover carrying costs incurred since February 2021 at Evergy Missouri West's long-term debt rate of 5.06% and approved a 15 year repayment period for the bonds with a 17 year legal maturity. As of March 31, 2023 and December 31, 2022, the value of Evergy Missouri West's February 2021 winter weather event regulatory asset was $313.0 million and $309.0 million, respectively. Evergy Missouri West will continue to record carrying charges on its February 2021 winter weather event regulatory asset until it issues the securitized bonds.
In January 2023, the Office of the Public Counsel (OPC) filed an appeal with the Missouri Court of Appeals, Western District, challenging the financing order regarding the treatment of income tax deductions, carrying costs and discount rates related to the financing of the extraordinary fuel and purchased power costs incurred as part of the February 2021 winter weather event. A final nonappealable financing order is required prior to the issuance of securitized bonds. A decision by the Missouri Court of Appeals, Western District, is currently expected in the second half of 2023, though the timeline for the decision is uncertain.
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 Annual Update
In the most recent two years, the updated TFR was expected to adjust Evergy Kansas Central's annual transmission revenues by approximately:
•$21.7 million decrease effective in March 2023; and
•$33.2 million increase effective in January 2022.
See "Evergy Kansas Central TFR Formal Challenge" within this Note 4 for more information regarding the March 2023 adjustment.
Evergy Kansas Central TFR Formal Challenge
In March 2022, certain Evergy Kansas Central TFR customers submitted a formal challenge regarding the implementation of Evergy Kansas Central's TFR, specifically with regards to how Evergy Kansas Central's capital structure was calculated as part of determining the Annual Transmission Revenue Requirement (ATRR). As part of this challenge, the customers requested that Evergy Kansas Central make refunds for over-collections in rate years 2018, 2019, 2020, 2021 and 2022 as a result of the calculation of its capital structure included in the TFR. Evergy Kansas Central disputed that any refunds for 2018 - 2022 were required as Evergy Kansas Central was following its approved TFR formula.
In December 2022, FERC issued an order upholding in part, and denying in part, the formal challenge of Evergy Kansas Central's TFR by certain customers. As a result of this order, Evergy and Evergy Kansas Central recorded a $32.8 million regulatory liability on their consolidated balance sheets as of December 31, 2022 for the estimated refund of TFR revenue over-collections related to the calculation of Evergy Kansas Central's capital structure for rate years 2018 - 2022. In March 2023, Evergy Kansas Central refiled its annual update to include the refund of the
2020, 2021 and 2022 over-collections as part of its 2023 TFR effective in March 2023. In February 2023, certain Evergy Kansas Central TFR customers submitted a formal challenge requesting the refund of over-collections related to the 2018 and 2019 over-collections. A decision from FERC regarding this challenge is expected later in 2023.
Evergy Metro TFR Annual Update
In the most recent two years, the updated TFR was expected to adjust Evergy Metro's annual transmission revenues by approximately:
•$8.6 million increase effective in January 2023; and
•$18.1 million increase effective in January 2022.
5. 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 Generating Station's (Wolf Creek) 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 the three months ended March 31, 2023, Evergy, Evergy Kansas Central and Evergy Metro recorded pension settlement benefits (costs) of ($15.9) million, $0.4 million and ($16.3) million, respectively. These settlement charges were the result of accelerated distributions as a result of employee retirements for certain plan participants. Evergy, Evergy Kansas Central and Evergy Metro deferred substantially all of the charges to regulatory assets or regulatory liabilities and expect to recover these amounts over future periods pursuant to regulatory agreements. For the three months ended March 31, 2022, Evergy, Evergy Kansas Central and Evergy Metro recorded no pension settlement charges.
The following tables provide the components of net periodic benefit costs prior to the effects of capitalization and sharing with joint owners of power plants.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Post-Retirement Benefits |
Three Months Ended March 31, 2023 | Evergy | | Evergy Kansas Central | | Evergy Metro | | Evergy | | Evergy Kansas Central | | Evergy Metro |
Components of net periodic benefit costs | (millions) |
Service cost | $ | 11.2 | | | $ | 4.6 | | | $ | 6.6 | | | $ | 0.4 | | | $ | 0.2 | | | $ | 0.2 | |
Interest cost | 22.4 | | | 11.4 | | | 10.8 | | | 2.8 | | | 1.4 | | | 1.3 | |
Expected return on plan assets | (21.8) | | | (11.0) | | | (10.8) | | | (3.0) | | | (1.5) | | | (1.4) | |
Prior service cost | 0.5 | | | 0.5 | | | — | | | — | | | — | | | (0.1) | |
| | | | | | | | | | | |
Recognized net actuarial gain | (5.6) | | | (0.8) | | | (4.6) | | | (1.0) | | | (0.5) | | | (0.5) | |
Settlement benefits (costs) | (15.9) | | | 0.4 | | | (16.3) | | | — | | | — | | | — | |
Net periodic benefit costs before regulatory adjustment and intercompany allocations | (9.2) | | | 5.1 | | | (14.3) | | | (0.8) | | | (0.4) | | | (0.5) | |
Regulatory adjustment | 33.5 | | | 7.4 | | | 25.9 | | | (0.1) | | | (0.6) | | | 0.6 | |
Intercompany allocations | — | | | (0.5) | | | (0.2) | | | — | | | 0.1 | | | — | |
Net periodic benefit costs (income) | $ | 24.3 | | | $ | 12.0 | | | $ | 11.4 | | | $ | (0.9) | | | $ | (0.9) | | | $ | 0.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Post-Retirement Benefits |
Three Months Ended March 31, 2022 | Evergy | | Evergy Kansas Central | | Evergy Metro | | Evergy | | Evergy Kansas Central | | Evergy Metro |
Components of net periodic benefit costs | (millions) |
Service cost | $ | 19.9 | | | $ | 7.7 | | | $ | 12.2 | | | $ | 0.8 | | | $ | 0.4 | | | $ | 0.4 | |
Interest cost | 19.8 | | | 9.7 | | | 9.9 | | | 2.0 | | | 1.0 | | | 1.0 | |
Expected return on plan assets | (26.0) | | | (12.8) | | | (14.1) | | | (2.5) | | | (1.6) | | | (0.9) | |
Prior service cost | 0.5 | | | 0.5 | | | — | | | 0.1 | | | 0.1 | | | (0.4) | |
Recognized net actuarial (gain)/loss | 8.7 | | | 6.4 | | | 9.7 | | | (0.1) | | | (0.1) | | | (0.2) | |
| | | | | | | | | | | |
Net periodic benefit costs before regulatory adjustment and intercompany allocations | 22.9 | | | 11.5 | | | 17.7 | | | 0.3 | | | (0.2) | | | (0.1) | |
Regulatory adjustment | 15.9 | | | 2.9 | | | 6.5 | | | (0.6) | | | (0.7) | | | 0.6 | |
Intercompany allocations | — | | | 0.5 | | | (4.5) | | | — | | | 0.1 | | | (0.1) | |
Net periodic benefit costs (income) | $ | 38.8 | | | $ | 14.9 | | | $ | 19.7 | | | $ | (0.3) | | | $ | (0.8) | | | $ | 0.4 | |
The components of net periodic benefit costs other than the service cost component are included in other expense on the Evergy Companies' consolidated statements of income and comprehensive income.
For the three months ended March 31, 2023, Evergy, Evergy Kansas Central and Evergy Metro made pension contributions of $16.4 million, $11.8 million and $4.6 million, respectively. Evergy expects to make additional pension contributions of $22.0 million in 2023 to satisfy the Employee Retirement Income Security Act of 1974, as amended (ERISA) funding requirements and KCC and MPSC rate orders, of which $14.4 million is expected to be paid by Evergy Kansas Central and $7.6 million is expected to be paid by Evergy Metro.
For the three months ended March 31, 2023, Evergy, Evergy Kansas Central and Evergy Metro made post-retirement benefit contributions of $0.2 million, $0.1 million and $0.1 million, respectively. Evergy, Evergy Kansas Central and Evergy Metro expect to make additional contributions in 2023 of $1.6 million, $0.5 million and $1.1 million, respectively, to the post-retirement benefit plans.
6. SHORT-TERM BORROWINGS AND SHORT-TERM BANK LINES OF CREDIT
Evergy's $2.5 billion master credit facility expires in 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. The applicable interest rates and commitment fees of the facility are subject to upward or downward adjustments, within 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 March 31, 2023, 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 March 31, 2023 and December 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | |
| | Amounts Drawn | | | |
| Master Credit Facility | Commercial Paper | Letters of Credit | Cash Borrowings | Available Borrowings | | Weighted Average Interest Rate on Short-Term Borrowings |
March 31, 2023 | (millions) | | |
Evergy, Inc. | $ | 300.0 | | $ | 147.0 | | $ | 0.7 | | $ | — | | $ | 152.3 | | | 5.41% |
Evergy Kansas Central | 800.0 | | 323.0 | | — | | — | | 477.0 | | | 5.46% |
Evergy Metro (a) | 700.0 | | 471.0 | | — | | — | | 229.0 | | | 5.51% |
Evergy Missouri West | 700.0 | | 605.5 | | — | | — | | 94.5 | | | 5.42% |
Evergy (a) | $ | 2,500.0 | | $ | 1,546.5 | | $ | 0.7 | | $ | — | | $ | 952.8 | | | |
| | | | | | | |
December 31, 2022 | | | | | | | |
Evergy, Inc. | $ | 450.0 | | $ | — | | $ | 0.7 | | $ | — | | $ | 449.3 | | | —% |
Evergy Kansas Central | 1,000.0 | | 772.1 | | — | | — | | 227.9 | | | 4.91% |
Evergy Metro | 350.0 | | 111.0 | | — | | — | | 239.0 | | | 5.02% |
Evergy Missouri West | 700.0 | | 449.2 | | — | | — | | 250.8 | | | 4.84% |
Evergy | $ | 2,500.0 | | $ | 1,332.3 | | $ | 0.7 | | $ | — | | $ | 1,167.0 | | | |
(a) As of March 31, 2023, $297.7 million of Evergy Metro's commercial paper balances were classified as long-term debt on Evergy's and Evergy Metro's consolidated balance sheets. See Note 7 for additional information.
In February 2023, Evergy, Inc. amended a $500.0 million unsecured Term Loan Credit Agreement (Term Loan Facility) that originally expired in February 2023 to extend the expiration date to February 2024. As a result of the amendment, Evergy, Inc. demonstrated its intent and ability to refinance the Term Loan Facility and reflected this $500.0 million borrowing within long-term debt, net, on Evergy's consolidated balance sheet as of December 31, 2022. As of March 31, 2023, Evergy had borrowed $500.0 million under the Term Loan Facility that is reflected within notes payable and commercial paper on Evergy's consolidated balance sheet. Evergy's borrowings under the Term Loan Facility were used for, among other things, working capital, capital expenditures and general corporate purposes.
The weighted average interest rate for borrowings under the Term Loan Facility as of March 31, 2023, was 5.93%. The Term Loan Facility contains customary covenants, including one that sets the ratio of maximum allowed total indebtedness to total capitalization of not greater than 0.65 to 1.00, for Evergy and its subsidiaries on a consolidated basis. As of March 31, 2023, Evergy was in compliance with this covenant.
7. LONG-TERM DEBT
Mortgage Bonds
In March 2023, Evergy Kansas Central issued, at a discount, $400.0 million of 5.70% First Mortgage Bonds (FMBs), maturing in 2053. The proceeds of the issuance were used to repay commercial paper borrowings and for general corporate purposes.
In April 2023, Evergy Metro issued, at a discount, $300.0 million of 4.95% Mortgage Bonds, maturing April 2033. The proceeds of the issuance were used to repay Evergy Metro's commercial paper borrowings which were incurred to repay the $300.0 million principal amount of Evergy Metro's 3.15% Senior Notes that matured in March 2023. As a result of this issuance, Evergy and Evergy Metro demonstrated their intent and ability to refinance the commercial paper and reflected the net proceeds of $297.7 million for this borrowing within long-term debt, net, on Evergy's and Evergy Metro's consolidated balance sheets as of March 31, 2023.
Senior Notes
In March 2023, Evergy Metro repaid its $300.0 million of 3.15% Senior Notes at maturity.
8. DERIVATIVE INSTRUMENTS
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 market risks associated with the price of electricity, natural gas and other energy-related products. Management has established risk management policies and strategies to reduce the potentially adverse effects that the volatility of the markets may have on the Evergy Companies' operating results. The Evergy Companies' commodity risk management activities, which are subject to the management, direction and control of an internal risk management committee, utilize derivative instruments to reduce the effects of fluctuations in wholesale sales and fuel and purchased power expense caused by commodity price volatility.
The Evergy Companies are also exposed to market risks arising from changes in interest rates and may use derivative instruments to manage these risks. The Evergy Companies' interest rate risk management activities have included using derivative instruments to hedge against future interest rate fluctuations on anticipated debt issuances.
The Evergy Companies also engage in non-regulated energy marketing activity for trading purposes, primarily at Evergy Kansas Central, which focuses on seizing market opportunities to create value driven by expected changes in the market prices of commodities, primarily electricity and natural gas.
The Evergy Companies consider various qualitative factors, such as contract and marketplace attributes, in designating derivative instruments at inception. The Evergy Companies may elect the normal purchases and normal sales (NPNS) exception, which requires the effects of the derivative to be recorded when the underlying contract settles under accrual accounting. The Evergy Companies account for derivative instruments that are not designated as NPNS primarily as either economic hedges or trading contracts (non-hedging derivatives) which are recorded as assets or liabilities on the consolidated balance sheets at fair value. See Note 9 for additional information on the Evergy Companies' methods for assessing the fair value of derivative instruments. Changes in the fair value of non-hedging derivatives that are related to the Evergy Companies' regulated operations are deferred to a regulatory asset or regulatory liability when determined to be probable of future recovery or refund from customers. Recovery of the actual costs incurred by regulated activities will not impact earnings but will impact cash flows due to the timing of the recovery mechanism. Cash flows for all derivative instruments are classified as operating activities on the Evergy Companies' statements of cash flows, with the exception of cash flows for interest rate swap agreements accounted for as cash flows hedges of forecasted debt transactions, which are recorded as financing activities. Changes in the fair value of non-hedging derivatives that are not related to the Evergy Companies' regulated operations are recorded in operating revenues on the Evergy Companies' statements of income and comprehensive income.
The Evergy Companies offset fair value amounts recognized for derivative instruments under master netting arrangements, which include rights to reclaim cash collateral (a receivable), or the obligation to return cash collateral (a payable).
The gross notional contract amount by commodity type for derivative instruments is summarized in the following table.
| | | | | | | | | | | | | | |
| | March 31 | | December 31 |
| | |
Non-hedging derivatives | Notional volume unit of measure | 2023 | | 2022 |
Evergy | | (millions) |
Commodity contracts | | | | |
Power | MWhs | 26.0 | | | 67.2 | |
Natural gas | MMBtu | 367.6 | | | 772.7 | |
Evergy Kansas Central | | | | |
Commodity contracts | | | | |
Power | MWhs | 15.7 | | | 41.6 | |
Natural gas | MMBtu | 361.2 | | | 769.6 | |
Evergy Metro | | | | |
Commodity contracts | | | | |
Power | MWhs | 7.3 | | | 18.2 | |
| | | | |
The fair values of Evergy's open derivative positions and balance sheet classifications are summarized in the following tables. The fair values below are gross values before netting agreements and netting of cash collateral.
| | | | | | | | | | | | | | |
| | March 31 | | December 31 |
| | |
Evergy | | 2023 | | 2022 |
Non-hedging derivatives | Balance sheet location | |
Commodity contracts | | (millions) |
Power | Other assets - current | $ | 31.3 | | | $ | 41.6 | |
| Other assets - long-term | 45.4 | | | 65.6 | |
Natural gas | Other assets - current | 112.0 | | | 221.0 | |
| Other assets - long-term | 1.1 | | | 1.6 | |
Total derivative assets | | $ | 189.8 | | | $ | 329.8 | |
Commodity contracts | | | | |
Power | Other liabilities - current | $ | 25.9 | | | $ | 41.0 | |
| Other liabilities - long-term | 42.1 | | | 61.5 | |
Natural gas | Other liabilities - current | 107.1 | | | 218.8 | |
| Other liabilities - long-term | 1.1 | | | 1.6 | |
Total derivative liabilities | | $ | 176.2 | | | $ | 322.9 | |
| | | | | | | | | | | | | | |
| | March 31 | | December 31 |
| | |
Evergy Kansas Central | | 2023 | | 2022 |
Non-hedging derivatives | Balance sheet location | |
Commodity contracts | | (millions) |
Power | Other assets - current | $ | 27.7 | | | $ | 36.7 | |
| Other assets - long-term | 45.4 | | | 65.6 | |
Natural gas | Other assets - current | 112.0 | | | 221.0 | |
| Other assets - long-term | 1.1 | | | 1.6 | |
Total derivative assets | | $ | 186.2 | | | $ | 324.9 | |
Commodity contracts | | | | |
Power | Other liabilities - current | $ | 16.9 | | | $ | 35.6 | |
| Other liabilities - long-term | 42.1 | | | 61.5 | |
Natural gas | Other liabilities - current | 104.4 | | | 215.1 | |
| Other liabilities - long-term | 1.1 | | | 1.6 | |
Total derivative liabilities | | $ | 164.5 | | | $ | 313.8 | |
| | | | | | | | | | | | | | |
| | March 31 | | December 31 |
| | |
Evergy Metro | | 2023 | | 2022 |
Non-hedging derivatives | Balance sheet location | |
Commodity contracts | | (millions) |
Power | Other assets - current | $ | 2.2 | | | $ | 3.5 | |
| | | | |
| | | | |
| | | | |
Total derivative assets | | $ | 2.2 | | | $ | 3.5 | |
Commodity contracts | | | | |
Power | Other liabilities - current | $ | 5.8 | | | $ | 4.1 | |
| | | | |
| | | | |
| | | | |
Total derivative liabilities | | $ | 5.8 | | | $ | 4.1 | |
The following tables present the line items on the Evergy Companies' consolidated balance sheets where derivative assets and liabilities are reported. The gross amounts offset in the tables below show the effect of master netting arrangements and include collateral posted to offset the net position.
| | | | | | | | | | | |
March 31, 2023 | Evergy | Evergy Kansas Central | Evergy Metro |
Derivative Assets | (millions) |
Current | | | |
Gross amounts recognized | $ | 143.3 | | $ | 139.7 | | $ | 2.2 | |
Gross amounts offset | (112.9) | | (109.3) | | (2.2) | |
Net amounts presented in other assets - current | $ | 30.4 | | $ | 30.4 | | $ | — | |
Long-Term | | | |
Gross amounts recognized | $ | 46.5 | | $ | 46.5 | | $ | — | |
Gross amounts offset | (17.9) | | (17.9) | | — | |
Net amounts presented in other assets - long-term | $ | 28.6 | | $ | 28.6 | | $ | — | |
Derivative Liabilities | | | |
Current | | | |
Gross amounts recognized | $ | 133.0 | | $ | 121.3 | | $ | 5.8 | |
Gross amounts offset | (111.3) | | (107.7) | | (2.2) | |
Net amounts presented in other liabilities - current | $ | 21.7 | | $ | 13.6 | | $ | 3.6 | |
Long-Term | | | |
Gross amounts recognized | $ | 43.2 | | $ | 43.2 | | $ | — | |
Gross amounts offset | (11.2) | | (11.2) | | — | |
Net amounts presented in other liabilities - long-term | $ | 32.0 | | $ | 32.0 | | $ | — | |
| | | | | | | | | | | |
December 31, 2022 | Evergy | Evergy Kansas Central | Evergy Metro |
| |
Derivative Assets | (millions) |
Current | | | |
Gross amounts recognized | $ | 262.6 | | $ | 257.7 | | $ | 3.5 | |
Gross amounts offset | (237.4) | | (232.9) | | (3.5) | |
Net amounts presented in other assets - current | $ | 25.2 | | $ | 24.8 | | $ | — | |
Long-Term | | | |
Gross amounts recognized | $ | 67.2 | | $ | 67.2 | | $ | — | |
Gross amounts offset | (42.1) | | (42.1) | | — | |
Net amounts presented in other assets - long-term | $ | 25.1 | | $ | 25.1 | | $ | — | |
Derivative Liabilities | | | |
Current | | | |
Gross amounts recognized | $ | 259.8 | | $ | 250.7 | | $ | 4.1 | |
Gross amounts offset | (234.0) | | (229.4) | | (3.5) | |
Net amounts presented in other liabilities - current | $ | 25.8 | | $ | 21.3 | | $ | 0.6 | |
Long-Term | | | |
Gross amounts recognized | $ | 63.1 | | $ | 63.1 | | $ | — | |
Gross amounts offset | (36.4) | | (36.4) | | — | |
Net amounts presented in other liabilities - long-term | $ | 26.7 | | $ | 26.7 | | $ | — | |
The following table summarizes the amounts of gain (loss) recognized in income for the change in fair value of derivatives not designated as hedging instruments for the Evergy Companies.
| | | | | | | | | | | | | | |
| | | | |
Three Months Ended March 31 | | | | 2023 | 2022 | |
Location of gain (loss) | Contract type | | | | | |
Evergy | | | | (millions) |
Operating revenues | Commodity | | | $ | 14.9 | | $ | 7.9 | | |
Total | | | | $ | 14.9 | | $ | 7.9 | | |
Evergy Kansas Central | | | | | | |
Operating revenues | Commodity | | | $ | 14.9 | | $ | 7.9 | | |
Total | | | | $ | 14.9 | | $ | 7.9 | | |
| | | | | | |
| | | | | | |
| | | | | | |
Credit risk of the Evergy Companies' derivative instruments relates to the potential adverse financial impact resulting from non-performance by a counterparty of its contractual obligations. The Evergy Companies maintain credit policies and employ credit risk mitigation, such as collateral requirements or letters of credit, when necessary to minimize their overall credit risk and monitor exposure. Substantially all of the Evergy Companies' counterparty credit risk associated with derivative instruments relates to Evergy Kansas Central's non-regulated energy marketing activities. As of March 31, 2023, if counterparty groups completely failed to perform on contracts, Evergy's and Evergy Kansas Central's maximum exposure related to derivative assets was $50.3 million. As of March 31, 2023, the potential loss after the consideration of applicable master netting arrangements and collateral received for Evergy and Evergy Kansas Central was $37.5 million.
Certain of the Evergy Companies' derivative instruments contain collateral provisions that are tied to the Evergy Companies' credit ratings and may require the posting of collateral for various reasons, including if the Evergy Companies' credit ratings were to fall below investment grade. Substantially all of these derivative instruments relate to Evergy Kansas Central's non-regulated energy marketing activities. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position as of March 31, 2023, was $39.9 million for which Evergy and Evergy Kansas Central have posted collateral of $3.9 million in the normal course of business. If the credit-risk-related contingent features underlying these agreements were triggered
as of March 31, 2023, Evergy and Evergy Kansas Central could be required to post an additional $33.4 million of collateral to their counterparties.
9. 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 or exchange-traded derivative instruments.
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, non-exchange traded derivative instruments with observable forward curves and options contracts.
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. The types of assets and liabilities included in Level 3 are non-exchange traded derivative instruments for which observable market data is not available to corroborate the valuation inputs and transmission congestion rights (TCRs) in the SPP Integrated Marketplace.
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.
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | March 31, 2023 | | December 31, 2022 |
| | Book Value | | Fair Value | | Book Value | | Fair Value |
Long-term debt(a) | | (millions) |
Evergy(b) | | $ | 10,236.6 | | | $ | 9,361.5 | | | $ | 10,344.8 | | | $ | 9,160.0 | |
Evergy Kansas Central | | 4,331.4 | | | 3,939.3 | | | 3,936.9 | | | 3,389.4 | |
Evergy Metro | | 2,924.9 | | | 2,739.9 | | | 2,926.6 | | | 2,661.7 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
(a) Includes current maturities.
(b) Book value as of March 31, 2023 and December 31, 2022, includes $91.0 million and $92.1 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.
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 | March 31, 2023 | | Netting | | Level 1 | Level 2 | Level 3 | NAV | | |
Evergy Kansas Central | | (millions) | | |
Assets | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Nuclear decommissioning trust(a) | | | | | | | | | | | | | | | | | | |
Domestic equity funds | | $ | 120.0 | | | | $ | — | | | $ | 108.1 | | | $ | — | | | | $ | — | | | | $ | 11.9 | | | | |
International equity funds | | 67.3 | | | | — | | | 67.3 | | | — | | | | — | | | | — | | | | |
Core bond fund | | 52.9 | | | | — | | | 52.9 | | | — | | | | — | | | | — | | | | |
High-yield bond fund | | 26.1 | | | | — | | | 26.1 | | | — | | | | — | | | | — | | | | |
Emerging markets bond fund | | 16.6 | | | | — | | | 16.6 | | | — | | | | — | | | | — | | | | |
| | | | | | | | | | | | | | | | | | |
Alternative investments fund | | 33.5 | | | | — | | | — | | | — | | | | — | | | | 33.5 | | | | |
Real estate securities fund | | 18.3 | | | | — | | | — | | | — | | | | — | | | | 18.3 | | | | |
Cash equivalents | | 0.4 | | | | — | | | 0.4 | | | — | | | | — | | | | — | | | | |
| | | | | | | | | | | | | | | | | | |
Total nuclear decommissioning trust | | 335.1 | | | | — | | | 271.4 | | | — | | | | — | | | | 63.7 | | | | |
Rabbi trust | | | | | | | | | | | | | | | | | | |
Fixed income funds | | 15.1 | | | | — | | | 15.1 | | | — | | | | — | | | | — | | | | |
Equity funds | | 7.4 | | | | — | | | 7.4 | | | — | | | | — | | | | — | | | | |
Combination debt/equity/other fund | | 1.8 | | | | — | | | 1.8 | | | — | | | | — | | | | — | | | | |
Cash equivalents | | 0.1 | | | | — | | | 0.1 | | | — | | | | — | | | | — | | | | |
Total rabbi trust | | 24.4 | | | | — | | | 24.4 | | | — | | | | — | | | | — | | | | |
Derivative instruments - commodity contracts(b) | | | | | | | | | | | | | | | | | | |
Power | | 48.1 | | | | (25.0) | | | 21.0 | | | 36.5 | | | | 15.6 | | | | — | | | | |
Natural gas | | 10.9 | | | | (102.2) | | | 111.9 | | | 1.2 | | | | — | | | | — | | | | |
Total derivative assets | | 59.0 | | | | (127.2) | | | 132.9 | | | 37.7 | | | | 15.6 | | | | — | | | | |
Total assets | | 418.5 | | | | (127.2) | | | 428.7 | | | 37.7 | | | | 15.6 | | | | 63.7 | | | | |
Liabilities | | | | | | | | | | | | | | | | | | |
Derivative instruments - commodity contracts(b) | | | | | | | | | | | | | | | | | | |
Power | | 42.3 | | | | (16.7) | | | 12.4 | | | 41.4 | | | | 5.2 | | | | — | | | | |
Natural gas | | 3.3 | | | | (102.2) | | | 104.4 | | | 1.1 | | | | — | | | | — | | | | |
Total derivative liabilities | | 45.6 | | | | (118.9) | | | 116.8 | | | 42.5 | | | | 5.2 | | | | — | | | | |
Total liabilities | | $ | 45.6 | | | | $ | (118.9) | | | $ | 116.8 | | | $ | 42.5 | | | | $ | 5.2 | | | | $ | — | | | | |
Evergy Metro | | | | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | | | |
Nuclear decommissioning trust(a) | | | | | | | | | | | | | | | | | | |
Equity securities | | $ | 260.6 | | | | $ | — | | | $ | 260.6 | | | $ | — | | | | $ | — | | | | $ | — | | | | |
Debt securities | | | | | | | | | | | | | | | | | | |
U.S. Treasury | | 44.5 | | | | — | | | 44.5 | | | — | | | | — | | | | — | | | | |
| | | | | | | | | | | | | | | | | | |
State and local obligations | | 4.3 | | | | — | | | — | | | 4.3 | | | | — | | | | — | | | | |
Corporate bonds | | 40.4 | | | | — | | | — | | | 40.4 | | | | — | | | | — | | | | |
Foreign governments | | 0.1 | | | | — | | | — | | | 0.1 | | | | — | | | | — | | | | |
Cash equivalents | | 4.5 | | | | — | | | 4.5 | | | — | | | | — | | | | — | | | | |
| | | | | | | | | | | | | | | | | | |
Total nuclear decommissioning trust | | 354.4 | | | | — | | | 309.6 | | | 44.8 | | | | — | | | | — | | | | |
Self-insured health plan trust(c) | | | | | | | | | | | | | | | | | | |
Equity securities | | 1.7 | | | | — | | | 1.7 | | | — | | | | — | | | | — | | | | |
Debt securities | | 6.6 | | | | — | | | 1.8 | | | 4.8 | | | | — | | | | — | | | | |
Cash and cash equivalents | | 3.7 | | | | — | | | 3.7 | | | — | | | | — | | | | — | | | | |
Total self-insured health plan trust | | 12.0 | | | | — | | | 7.2 | | | 4.8 | | | | — | | | | — | | | | |
Derivative instruments - commodity contracts(b) | | | | | | | | | | | | | | | | | | |
Power | | — | | | | (2.2) | | | — | | | — | | | | 2.2 | | | | — | | | | |
| | | | | | | | | | | | | | | | | | |
Total derivative assets | | — | | | | (2.2) | | | — | | | — | | | | 2.2 | | | | — | | | | |
Total assets | | 366.4 | | | | (2.2) | | | 316.8 | | | 49.6 | | | | 2.2 | | | | — | | | | |
Liabilities | | | | | | | | | | | | | | | | | | |
Derivative instruments - commodity contracts(b) | | | | | | | | | | | | | | | | | | |
Power | | 3.6 | | | | (2.2) | | | — | | | — | | | | 5.8 | | | | — | | | | |
| | | | | | | | | | | | | | | | | | |
Total derivative liabilities | | 3.6 | | | | (2.2) | | | — | | | — | | | | 5.8 | | | | — | | | | |
Total liabilities | | $ | 3.6 | | | | $ | (2.2) | | | $ | — | | | $ | — | | | | $ | 5.8 | | | | $ | — | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Description | March 31, 2023 | | Netting | | Level 1 | Level 2 | Level 3 | NAV | | |
Other Evergy | | | | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Rabbi trusts | | | | | | | | | | | | | | | | | | |
Core bond fund | | $ | 9.3 | | | | $ | — | | | $ | 9.3 | | | $ | — | | | | $ | — | | | | $ | — | | | | |
| | | | | | | | | | | | | | | | | | |
Total rabbi trusts | | 9.3 | | | | — | | | 9.3 | | | — | | | | — | | | | — | | | | |
Derivative instruments - commodity contracts(b) | | | | | | | | | | | | | | | | | | |
Power | | — | | | | (1.4) | | | — | | | — | | | | 1.4 | | | | — | | | | |
| | | | | | | | | | | | | | | | | | |
Total derivative assets | | — | | | | (1.4) | | | — | | | — | | | | 1.4 | | | | — | | | | |
Total assets | | 9.3 | | | | (1.4) | | | 9.3 | | | — | | | | 1.4 | | | | — | | | | |
Liabilities | | | | | | | | | | | | | | | | | | |
Derivative instruments | | | | | | | | | | | | | | | | | | |
Power | | 1.8 | | | | (1.4) | | | 1.3 | | | — | | | | 1.9 | | | | — | | | | |
Natural gas | | 2.7 | | | | — | | | — | | | 2.7 | | | | — | | | | — | | | | |
Total derivative liabilities | | 4.5 | | | | (1.4) | | | 1.3 | | | 2.7 | | | | 1.9 | | | | — | | | | |
Total liabilities | | $ | 4.5 | | | | (1.4) | | | $ | 1.3 | | | $ | 2.7 | | | | $ | 1.9 | | | | $ | — | | | | |
Evergy | | | | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | | | |
Nuclear decommissioning trust(a) | | $ | 689.5 | | | | $ | — | | | $ | 581.0 | | | $ | 44.8 | | | | $ | — | | | | $ | 63.7 | | | | |
Rabbi trusts | | 33.7 | | | | — | | | 33.7 | | | — | | | | — | | | | — | | | | |
Self-insured health plan trust(c) | | 12.0 | | | | — | | | 7.2 | | | 4.8 | | | | — | | | | — | | | | |
| | | | | | | | | | | | | | | | | | |
Derivative instruments - commodity contracts(b) | | | | | | | | | | | | | | | | | | |
Power | | 48.1 | | | | (28.6) | | | 21.0 | | | 36.5 | | | | 19.2 | | | | — | | | | |
Natural gas | | 10.9 | | | | (102.2) | | | 111.9 | | | 1.2 | | | | — | | | | — | | | | |
Total derivative assets | | 59.0 | | | | (130.8) | | | 132.9 | | | 37.7 | | | | 19.2 | | | | — | | | | |
Total assets | | 794.2 | | | | (130.8) | | | 754.8 | | | 87.3 | | | | 19.2 | | | | 63.7 | | | | |
Liabilities | | | | | | | | | | | | | | | | | | |
Derivative instruments - commodity contracts(b) | | | | | | | | | | | | | | | | | | |
Power | | 47.7 | | | | (20.3) | | | 13.7 | | | 41.4 | | | | 12.9 | | | | — | | | | |
Natural gas | | 6.0 | | | | (102.2) | | | 104.4 | | | 3.8 | | | | — | | | | — | | | | |
Total derivative liabilities | | 53.7 | | | | (122.5) | | | 118.1 | | | 45.2 | | | | 12.9 | | | | — | | | | |
Total liabilities | | $ | 53.7 | | | | $ | (122.5) | | | $ | 118.1 | | | $ | 45.2 | | | | $ | 12.9 | | | | $ | — | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Description | December 31, 2022 | Netting | Level 1 | Level 2 | Level 3 | NAV | | |
Evergy Kansas Central | | (millions) | | |
Assets | | | | | | | | | | | | | | | | | | |
Nuclear decommissioning trust(a) | | | | | | | | | | | | | | | | | | |
Domestic equity funds | | $ | 112.5 | | | $ | — | | | $ | 100.4 | | | | $ | — | | | | $ | — | | | | $ | 12.1 | | | | |
International equity funds | | 62.9 | | | — | | | 62.9 | | | | — | | | | — | | | | — | | | | |
Core bond fund | | 51.0 | | | — | | | 51.0 | | | | — | | | | — | | | | — | | | | |
High-yield bond fund | | 25.3 | | | — | | | 25.3 | | | | — | | | | — | | | | — | | | | |
Emerging markets bond fund | | 16.0 | | | — | | | 16.0 | | | | — | | | | — | | | | — | | | | |
| | | | | | | | | | | | | | | | | | |
Alternative investments fund | | 31.8 | | | — | | | — | | | | — | | | | — | | | | 31.8 | | | | |
Real estate securities fund | | 18.9 | | | — | | | — | | | | — | | | | — | | | | 18.9 | | | | |
Cash equivalents | | 0.4 | | | — | | | 0.4 | | | | — | | | | — | | | | — | | | | |
Total nuclear decommissioning trust | | 318.8 | | | — | | | 256.0 | | | | — | | | | — | | | | 62.8 | | | | |
Rabbi trust | | | | | | | | | | | | | | | | | | |
Fixed income funds | | 15.6 | | | — | | | 15.6 | | | | — | | | | — | | | | — | | | | |
Equity funds | | 7.3 | | | — | | | 7.3 | | | | — | | | | — | | | | — | | | | |
Combination debt/equity/other fund | | 1.9 | | | — | | | 1.9 | | | | — | | | | — | | | | — | | | | |
Cash equivalents | | 0.1 | | | — | | | 0.1 | | | | — | | | | — | | | | — | | | | |
Total rabbi trust | | 24.9 | | | — | | | 24.9 | | | | — | | | | — | | | | — | | | | |
Derivative instruments - commodity contracts(b) | | | | | | | | | | | | | | | | | | |
Power | | 42.6 | | | (59.7) | | | 45.5 | | | | 46.5 | | | | 10.3 | | | | — | | | | |
Natural gas | | 7.3 | | | (215.3) | | | 222.5 | | | | 0.1 | | | | — | | | | — | | | | |
Total derivative assets | | 49.9 | | | (275.0) | | | 268.0 | | | | 46.6 | | | | 10.3 | | | | — | | | | |
Total assets | | 393.6 | | | (275.0) | | | 548.9 | | | | 46.6 | | | | 10.3 | | | | 62.8 | | | | |
Liabilities | | | | | | | | | | | | | | | | | | |
Derivative instruments - commodity contracts(b) | | | | | | | | | | | | | | | | | | |
Power | | 46.6 | | | (50.5) | | | 34.0 | | | | 55.9 | | | | 7.2 | | | | — | | | | |
Natural gas | | 1.4 | | | (215.3) | | | 216.6 | | | | 0.1 | | | | — | | | | — | | | | |
Total derivative liabilities | | 48.0 | | | (265.8) | | | 250.6 | | | | 56.0 | | | | 7.2 | | | | — | | | | |
Total liabilities | | $ | 48.0 | | | $ | (265.8) | | | $ | 250.6 | | | | $ | 56.0 | | | | $ | 7.2 | | | | $ | — | | | | |
Evergy Metro | | | | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | | | |
Nuclear decommissioning trust(a) | | | | | | | | | | | | | | | | | | |
Equity securities | | $ | 243.4 | | | $ | — | | | $ | 243.4 | | | | $ | — | | | | $ | — | | | | $ | — | | | | |
Debt securities | | | | | | | | | | | | | | | | | | |
U.S. Treasury | | 40.7 | | | — | | | 40.7 | | | | — | | | | — | | | | — | | | | |
U.S. Agency | | 0.4 | | | — | | | 0.4 | | | | — | | | | — | | | | — | | | | |
State and local obligations | | 4.2 | | | — | | | — | | | | 4.2 | | | | — | | | | — | | | | |
Corporate bonds | | 39.1 | | | — | | | — | | | | 39.1 | | | | — | | | | — | | | | |
Foreign governments | | 0.1 | | | — | | | — | | | | 0.1 | | | | — | | | | — | | | | |
Cash equivalents | | 6.6 | | | — | | | 6.6 | | | | — | | | | — | | | | — | | | | |
| | | | | | | | | | | | | | | | | | |
Total nuclear decommissioning trust | | 334.5 | | | — | | | 291.1 | | | | 43.4 | | | | — | | | | — | | | | |
Self-insured health plan trust(c) | | | | | | | | | | | | | | | | | | |
Equity securities | | 1.6 | | | — | | | 1.6 | | | | — | | | | — | | | | — | | | | |
Debt securities | | 8.0 | | | — | | | 2.5 | | | | 5.5 | | | | — | | | | — | | | | |
Cash and cash equivalents | | 1.6 | | | — | | | 1.6 | | | | — | | | | — | | | | — | | | | |
Total self-insured health plan trust | | 11.2 | | | — | | | 5.7 | | | | 5.5 | | | | — | | | | — | | | | |
Derivative instruments - commodity contracts(b) | | | | | | | | | | | | | | | | | | |
Power | | — | | | (3.5) | | | — | | | | — | | | | 3.5 | | | | — | | | | |
| | | | | | | | | | | | | | | | | | |
Total derivative assets | | — | | | (3.5) | | | — | | | | — | | | | 3.5 | | | | — | | | | |
Total assets | | 345.7 | | | (3.5) | | | 296.8 | | | | 48.9 | | | | 3.5 | | | | — | | | | |
Liabilities | | | | | | | | | | | | | | | | | | |
Derivative instruments - commodity contracts(b) | | | | | | | | | | | | | | | | | | |
Power | | 0.6 | | | (3.5) | | | — | | | | — | | | | 4.1 | | | | — | | | | |
| | | | | | | | | | | | | | | | | | |
Total derivative liabilities | | 0.6 | | | (3.5) | | | — | | | | — | | | | 4.1 | | | | — | | | | |
Total liabilities | | $ | 0.6 | | | $ | (3.5) | | | $ | — | | | | $ | — | | | | $ | 4.1 | | | | $ | — | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Description | December 31, 2022 | Netting | Level 1 | Level 2 | Level 3 | NAV | | |
Other Evergy | | (millions) | | |
Assets | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Rabbi trusts | | | | | | | | | | | | | | | | | | |
Core bond fund | | $ | 9.2 | | | $ | — | | | $ | 9.2 | | | | $ | — | | | | $ | — | | | | $ | — | | | | |
Total rabbi trusts | | 9.2 | | | — | | | 9.2 | | | | — | | | | — | | | | — | | | | |
Derivative instruments - commodity contracts(b) | | | | | | | | | | | | | | | | | | |
Power | | 0.4 | | | (1.0) | | | — | | | | — | | | | 1.4 | | | | — | | | | |
| | | | | | | | | | | | | | | | | | |
Total derivative assets | | 0.4 | | | (1.0) | | | — | | | | — | | | | 1.4 | | | | — | | | | |
Total assets | | 9.6 | | | (1.0) | | | 9.2 | | | | — | | | | 1.4 | | | | — | | | | |
Liabilities | | | | | | | | | | | | | | | | | | |
Derivative instruments - commodity contracts(b) | | | | | | | | | | | | | | | | | | |
Power | | 0.2 | | | (1.1) | | | 0.2 | | | | — | | | | 1.1 | | | | — | | | | |
Natural gas | | 3.7 | | | — | | | — | | | | 3.7 | | | | — | | | | — | | | | |
Total derivative liabilities | | 3.9 | | | (1.1) | | | 0.2 | | | | 3.7 | | | | 1.1 | | | | — | | | | |
Total liabilities | | $ | 3.9 | | | $ | (1.1) | | | $ | 0.2 | | | | $ | 3.7 | | | | $ | 1.1 | | | | $ | — | | | | |
Evergy | | | | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | | | |
Nuclear decommissioning trust(a) | | $ | 653.3 | | | $ | — | | | $ | 547.1 | | | | $ | 43.4 | | | | $ | — | | | | $ | 62.8 | | | | |
Rabbi trusts | | 34.1 | | | — | | | 34.1 | | | | — | | | | — | | | | — | | | | |
Self-insured health plan trust(c) | | 11.2 | | | — | | | 5.7 | | | | 5.5 | | | | — | | | | — | | | | |
| | | | | | | | | | | | | | | | | | |
Derivative instruments - commodity contracts(b) | | | | | | | | | | | | | | | | | | |
Power | | 43.0 | | | (64.2) | | | 45.5 | | | | 46.5 | | | | 15.2 | | | | — | | | | |
Natural gas | | 7.3 | | | (215.3) | | | 222.5 | | | | 0.1 | | | | — | | | | — | | | | |
Total derivative assets | | 50.3 | | | (279.5) | | | 268.0 | | | | 46.6 | | | | 15.2 | | | | — | | | | |
Total assets | | 748.9 | | | (279.5) | | | 854.9 | | | | 95.5 | | | | 15.2 | | | | 62.8 | | | | |
Liabilities | | | | | | | | | | | | | | | | | | |
Derivative instruments - commodity contracts(b) | | | | | | | | | | | | | | | | | | |
Power | | 47.4 | | | (55.1) | | | 34.2 | | | | 55.9 | | | | 12.4 | | | | — | | | | |
Natural gas | | 5.1 | | | (215.3) | | | 216.6 | | | | 3.8 | | | | — | | | | — | | | | |
Total derivative liabilities | | 52.5 | | | (270.4) | | | 250.8 | | | | 59.7 | | | | 12.4 | | | | — | | | | |
Total liabilities | | $ | 52.5 | | | $ | (270.4) | | | $ | 250.8 | | | | $ | 59.7 | | | | $ | 12.4 | | | | $ | — | | | | |
(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)Derivative instruments classified as Level 1 consist of exchange-traded derivative instruments with fair value based on quoted market prices. Derivative instruments classified as Level 2 consist of non-exchange traded derivative instruments with observable forward curves and option contracts priced with models using observable inputs. Derivative instruments classified as Level 3 consist of non-exchange traded derivative instruments for which observable market data is not available to corroborate the valuation inputs and TCRs valued at the most recent auction price in the SPP Integrated Marketplace.
(c)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.
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.
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| March 31, 2023 | | December 31, 2022 | | March 31, 2023 |
| Fair | | Unfunded | | Fair | | Unfunded | | Redemption | | Length of |
| Value | | Commitments | | Value | | Commitments | | Frequency | | Settlement |
Evergy Kansas Central | (millions) | | | | |
Nuclear decommissioning trust: | | | | | |
Domestic equity funds | $ | 11.9 | | | $ | 1.5 | | | $ | 12.1 | | | $ | 1.5 | | | (a) | | (a) |
Alternative investments fund(b) | 33.5 | | | — | | | 31.8 | | | — | | | Quarterly | | 65 days |
Real estate securities fund(b) | 18.3 | | | — | | | 18.9 | | | — | | | Quarterly | | 65 days |
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| | | | | | | | | | | |
Total Evergy investments at NAV | $ | 63.7 | | | $ | 1.5 | | | $ | 62.8 | | | $ | 1.5 | | | | | |
(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.
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.
The following table summarizes the net unrealized gains (losses) for the Evergy Companies' nuclear decommissioning trusts and rabbi trusts.
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Three Months Ended March 31 | | | | | | 2023 | | 2022 | | |
Evergy | | | | | | (millions) |
Nuclear decommissioning trust - equity securities | | | | | | $ | 29.5 | | | $ | (34.8) | | | |
Nuclear decommissioning trust - debt securities | | | | | | 2.1 | | | (6.5) | | | |
Rabbi trusts - equity securities | | | | | | 1.6 | | | (2.4) | | | |
Total | | | | | | $ | 33.2 | | | $ | (43.7) | | | |
Evergy Kansas Central | | | | | | | | | | |
Nuclear decommissioning trust - equity securities | | | | | | $ | 14.1 | | | $ | (16.7) | | | |
Rabbi trust - equity securities | | | | | | 1.3 | | | (1.6) | | | |
Total | | | | | | $ | 15.4 | | | $ | (18.3) | | | |
Evergy Metro | | | | | | | | | | |
Nuclear decommissioning trust - equity securities | | | | | | $ | 15.4 | | | $ | (18.1) | | | |
Nuclear decommissioning trust - debt securities | | | | | | 2.1 | | | (6.5) | | | |
Total | | | | | | $ | 17.5 | | | $ | (24.6) | | | |
10. 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 of 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 Environmental Protection Agency (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 litigation and oral arguments were held in March 2022. An additional case was also taking place in the U.S. District Court for the Northern District of California (District Court of Northern California) and in June 2022, the District Court of Northern California entered a final consent decree establishing deadlines for the EPA to take final action on SIP revisions that were submitted in response to the 2015 SIP Call Rule. Deadlines for 26 states and air districts, including Kansas, Missouri and Oklahoma, are listed in the final consent decree. Final action from the EPA could result in required SIP revisions in Oklahoma, Kansas and Missouri which could have a material impact on the Evergy Companies. If the D.C. Circuit overturns the EPA's 2015 SIP Call Rule, the final consent decree's deadlines will no longer be valid.
Mercury and Air Toxics Standards (MATS)
In April 2023, the EPA released a proposal to tighten certain aspects of the MATS rule. The EPA is proposing to lower the emission limit for particulate matter (PM), require the use of PM continuous emissions monitors (CEMS) and lower the mercury emission limit for lignite coal-fired electric generating units (EGUs). The EPA is also soliciting comment on further strengthening of the PM emission limitation. Due to uncertainty regarding final actions on the MATS rule, the Evergy Companies are unable to accurately assess the impacts of these potential EPA actions on their operations or consolidated financial results, but the cost to comply with the emission limitations as proposed do not appear to be material.
Ozone Interstate Transport State Implementation Plans (ITSIP)
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 ITSIPs in 2018 to comply with the "Good Neighbor Provision" of the Clean Air Act (CAA). The EPA did not act on these ITSIP submissions by the deadline established in the CAA and entered consent decrees establishing deadlines to take final action on various ITSIPs. In February 2022, the EPA published a proposed rule to disapprove of ITSIPs submitted by nineteen states including Missouri and Oklahoma. In April 2022, the EPA published a final approval of the Kansas ITSIP in the Federal Register. MDNR submitted a supplemental ITSIP to the EPA on November 1, 2022. In February 2023, the EPA published a final rule disapproving the ITSIPs submitted by 19 states, including the final disapproval of the Missouri and Oklahoma ITSIPs. In April 2023, the Attorneys General of Missouri and Oklahoma have filed Petitions for Review in the U.S. 8th and 10th Circuit Courts of Appeals, respectively, challenging the EPA disapproval.
Ozone Interstate Transport Federal Implementation Plans (ITFIP)
In April 2022, the EPA published in the Federal Register the proposed ITFIP to resolve outstanding "Good Neighbor" obligations with respect to the 2015 Ozone NAAQS for 26 states including Missouri and Oklahoma. This ITFIP would establish a revised Cross-State Air Pollution Rule (CSAPR) ozone season nitrogen oxide (NOx) emissions trading program for electric generating units (EGUs) beginning in 2023 and would limit ozone season NOx emissions from certain industrial stationary sources beginning in 2026. The proposed rule would also establish a new daily backstop NOx emissions rate limit for applicable coal-fired units larger than 100 MW, as well
as unit-specific NOx emission rate limits for certain industrial emission units and would feature "dynamic" adjustments of emission budgets for EGUs beginning with ozone season 2025. The proposed ITFIP includes reductions to the state ozone season NOx budgets for Missouri and Oklahoma beginning in 2023 with additional reductions in future years. The Evergy Companies provided formal comments as part of the rulemaking process. In March 2023, the EPA issued the final ITFIPs for twenty-three states, including Missouri and Oklahoma. While the Evergy Companies are continuing to evaluate the impacts of the ITFIP, there are uncertainties beginning in 2030 regarding the implementation of dynamic budgeting and reduced banking that could have an impact on their operations and the cost to comply could be material.
Particulate Matter and Ozone National Ambient Air Quality Standards
In January 2023, the EPA proposed strengthening the primary annual PM2.5 (particulate matter less than 2.5 microns in diameter) NAAQS. The EPA is proposing to lower the primary annual PM2.5 NAAQS from 12.0 µg/m3 (micrograms per cubic meter) to a level that would be between 9.0 and 10.0 µg/m3. The EPA is proposing to retain the other PM NAAQS at their current levels. The EPA is also in the process of reconsidering its December 2020 decision to retain each of the Ozone NAAQS at the level set in 2015. Due to uncertainty regarding the potential lowering of the ozone and PM2.5 NAAQS, the Evergy Companies are unable to accurately assess the impacts of these potential EPA actions on their operations or consolidated financial results, but the cost to comply with lower future ozone or PM2.5 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 Missouri SIP revision does not require any additional reductions from the Evergy Companies' generating units in the state. MDNR submitted the Missouri SIP revision to the EPA in August 2022, however, they failed to do so by the EPA's revised submittal deadline of August 15, 2022. As a result, on August 30, 2022, the EPA published "finding of failure" with respect to Missouri and fourteen other states for failing to submit their Regional Haze SIP revisions by the applicable deadline. This finding of failure established a two-year deadline for the EPA to issue a Regional Haze federal implementation plan (FIP) for each state unless the state submits and the EPA approves a revised SIP that meets all applicable requirements before the EPA issues the FIP. 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. Kansas Department Health and Environment (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 the EPA, through a revised SIP or 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. In March 2023, several environmental organizations notified the EPA of their intent to sue for failure of the EPA to timely approve or disapprove of the SIP revisions submitted by Kansas and seven other states.
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 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 January 2023, the EPA announced its intent to propose GHG regulations that would apply to new and existing EGUs by the end of the second quarter 2023.
Due to uncertainty regarding the future of the EPA's GHG regulations, the Evergy Companies cannot determine the impacts on their operations or consolidated financial results, but the cost to comply with 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 issue a proposed rule in the fall of 2022 to address the vacated limitations for legacy wastewater and landfill leachate. This proposed rule was issued in pre-publication format published in the Federal Register in March 2023. This proposed rulemaking establishes the requirement for zero liquid discharge of flue gas desulfurization (FGD) wastewater and bottom ash transport water as well as additional restrictions on coal combustion residual landfill leachate. Legacy wastewater is addressed in the proposal but referred to state regulators to enforce limitations according to the permit writers' best professional judgement. The Evergy Companies have reviewed the proposed modifications to limitations on FGD wastewater and bottom ash transport water and if the regulation is finalized as proposed, the Evergy Companies do not believe the impact to be material. Modifications for best available technology economically available for the discharge of landfill leachate could be material if the rulemaking is finalized as proposed.
In August 2021, based on an order issued by the U.S. District Court for the District of Arizona, which vacated and remanded the EPA's 2020 Navigable Waters Protection Rule (NWPR), the EPA and the U.S. Army Corps of Engineers announced that they had halted implementation of the NWPR nationwide, and were interpreting "Waters of the United States" consistent with the regulatory regime that was in place prior to 2015. In December 2021, the EPA and the Department of the Army published a proposed rule that would formally repeal the NWPR and revise the definition of "Waters of the United States." In December 2022, the EPA and the Department of the Army issued a final rule establishing a definition for "Waters of the United States." The final rule was published in the federal register in January 2023 and took effect in March 2023. A case is also pending in the Supreme Court regarding the proper scope of "Waters of the United States" that could affect the final rule. The Evergy Companies are reviewing the final rulemaking and awaiting the Supreme Court's decision. The impact on the Evergy Companies' operations or consolidated financial results are not expected to be material.
Regulation of Coal Combustion Residuals
In the course of operating their coal generation plants, the Evergy Companies produce coal combustion residuals (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. In January 2022, the EPA published proposed determinations for facilities that filed closure extensions for unlined or clay-lined CCR units. These proposed determinations include various interpretations of the CCR regulations and compliance expectations that may impact all owners of CCR units. These 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 are possible. In April 2022, the Utility Solid Waste Activities Group (USWAG) and other interested parties filed similar petitions in the D.C. Circuit challenging the EPA's legal positions regarding the CCR rule determinations proposed in January 2022. Some CCR units at Lawrence Energy Center and Sibley Station have moved into corrective action. In January 2022, the EPA issued a "Notice of Potential Violation" to the Tecumseh Energy Center (TEC) suggesting a closed CCR impoundment should enter corrective action. In November 2022, Evergy agreed to a Consent Agreement and Final Order (CAFO) with the EPA Region 7 addressing the alleged potential violation. In the CAFO, Evergy agreed to re-open the TEC CCR impoundment for further assessment of groundwater. As a result of the further assessments, the TEC impoundment entered groundwater corrective actions in March 2023. It is possible that the other CCR units at other generation stations could move into corrective action based on the EPA CCR rule interpretations, enforcement actions, or execution of the Evergy Companies' CCR strategy. The cost to comply with these proposed determinations by the EPA could be material.
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. The revision of AROs for regulated operations has no income statement impact due to the deferral of the adjustments through a regulatory asset. If revisions to these AROs are necessary, the impact on the Evergy Companies' operations or consolidated financial results could be material.
11. 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 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.
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Three Months Ended March 31 | | | | | | 2023 | | 2022 | | |
| | | | | (millions) |
Evergy Kansas Central billings to Evergy Missouri West | | | | | | $ | 6.2 | | | $ | 7.4 | | | |
Evergy Metro billings to Evergy Missouri West | | | | | | 26.8 | | | 32.7 | | | |
Evergy Kansas Central billings to Evergy Metro | | | | | | 10.9 | | | 6.6 | | | |
Evergy Metro billings to Evergy Kansas Central | | | | | | 28.9 | | | 33.4 | | | |
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.
As of March 31, 2023, Evergy Metro had no outstanding receivables or payables under the money pool. As of December 31, 2022, Evergy Metro had a $31.0 million outstanding receivable from Evergy Missouri West under the money pool. As of March 31, 2023 and December 31, 2022, Evergy Kansas Central had no outstanding receivables or payables 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.
| | | | | | | | | | | | | | |
| | | | |
| | March 31 | | December 31 |
| | 2023 | | 2022 |
Evergy Kansas Central | | (millions) |
Net payable to Evergy | | $ | (12.6) | | | $ | (12.7) | |
Net payable to Evergy Metro | | (22.1) | | | (15.7) | |
Net receivable from Evergy Missouri West | | 5.9 | | | 7.4 | |
| | | | |
Evergy Metro | | | | |
Net receivable from Evergy | | $ | 17.2 | | | $ | 16.3 | |
Net receivable from Evergy Kansas Central | | 22.2 | | | 15.7 | |
Net receivable from Evergy Missouri West | | 84.5 | | | 137.5 | |
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.
| | | | | | | | | | | | | | |
| | | | |
| | March 31 | | December 31 |
| | 2023 | | 2022 |
Evergy Kansas Central | | (millions) |
Income taxes payable to Evergy | | $ | (30.7) | | | $ | (10.3) | |
| | | | |
Evergy Metro | | | | |
Income taxes receivable from Evergy | | $ | 3.7 | | | $ | 0.2 | |
12. TAXES
Components of income tax expense are detailed in the following tables.
| | | | | | | | | | | | | | | | | | | |
Evergy | | | | | | | | | |
| | | | | |
Three Months Ended March 31 | | | | | 2023 | | 2022 | | |
Current income taxes | | | | | (millions) |
Federal | | | | | $ | 5.0 | | | $ | 11.5 | | | |
State | | | | | 4.7 | | | (0.4) | | | |
Total | | | | | 9.7 | | | 11.1 | | | |
Deferred income taxes | | | | | | | | | |
Federal | | | | | 7.7 | | | (3.9) | | | |
State | | | | | (3.3) | | | 3.2 | | | |
Total | | | | | 4.4 | | | (0.7) | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Investment tax credit | | | | | | | | | |
Deferral | | | | | — | | | 2.7 | | | |
Amortization | | | | | (1.7) | | | (1.6) | | | |
Total | | | | | (1.7) | | | 1.1 | | | |
Income tax expense | | | | | $ | 12.4 | | | $ | 11.5 | | | |
| | | | | | | | | | | | | | | | | | | |
Evergy Kansas Central | | | | | | | | | |
| | | | | |
Three Months Ended March 31 | | | | | 2023 | | 2022 | | |
Current income taxes | | | | | (millions) |
Federal | | | | | $ | 18.1 | | | $ | 7.9 | | | |
State | | | | | 2.0 | | | 0.2 | | | |
Total | | | | | 20.1 | | | 8.1 | | | |
Deferred income taxes | | | | | | | | | |
Federal | | | | | (10.0) | | | (8.5) | | | |
State | | | | | (0.7) | | | 2.3 | | | |
Total | | | | | (10.7) | | | (6.2) | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Investment tax credit | | | | | | | | | |
Deferral | | | | | — | | | 2.7 | | | |
Amortization | | | | | (1.0) | | | (1.0) | | | |
Total | | | | | (1.0) | | | 1.7 | | | |
Income tax expense | | | | | $ | 8.4 | | | $ | 3.6 | | | |
| | | | | | | | | | | | | | | | | | | |
Evergy Metro | | | | | | | | | |
| | | | | |
Three Months Ended March 31 | | | | | 2023 | | 2022 | | |
Current income taxes | | | | (millions) |
Federal | | | | | $ | (5.1) | | | $ | 9.4 | | | |
State | | | | | 1.6 | | | 0.1 | | | |
Total | | | | | (3.5) | | | 9.5 | | | |
Deferred income taxes | | | | | | | | | |
Federal | | | | | 12.4 | | | (1.6) | | | |
State | | | | | (1.2) | | | 0.4 | | | |
Total | | | | | 11.2 | | | (1.2) | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Investment tax credit | | | | | | | | | |
| | | | | | | | | |
Amortization | | | | | (0.8) | | | (0.6) | | | |
Total | | | | | (0.8) | | | (0.6) | | | |
Income tax expense | | | | | $ | 6.9 | | | $ | 7.7 | | | |
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 | | | | | | | | | |
| | | | | |
Three Months Ended March 31 | | | | | 2023 | | 2022 | | |
Federal statutory income tax | | | | | 21.0 | % | | 21.0 | % | | |
COLI policies | | | | | (1.4) | | | (0.5) | | | |
State income taxes | | | | | 0.6 | | | 1.4 | | | |
Flow through depreciation for plant-related differences | | | | | (7.7) | | | (6.3) | | | |
Federal tax credits | | | | | (3.5) | | | (3.7) | | | |
Non-controlling interest | | | | | (0.3) | | | (0.3) | | | |
AFUDC equity | | | | | (0.6) | | | (0.5) | | | |
Amortization of federal investment tax credits | | | | | (0.6) | | | (0.2) | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Stock compensation | | | | | 0.1 | | | (0.9) | | | |
Officer compensation limitation | | | | | 0.2 | | | 0.3 | | | |
Other | | | | | 0.1 | | | (1.9) | | | |
Effective income tax rate | | | | | 7.9 | % | | 8.4 | % | | |
| | | | | | | | | | | | | | | | | | | |
Evergy Kansas Central | | | | | | | | | |
| | | | | |
Three Months Ended March 31 | | | | | 2023 | | 2022 | | |
Federal statutory income tax | | | | | 21.0 | % | | 21.0 | % | | |
COLI policies | | | | | (2.4) | | | (1.0) | | | |
State income taxes | | | | | 0.7 | | | 2.0 | | | |
Flow through depreciation for plant-related differences | | | | | (4.0) | | | (5.0) | | | |
Federal tax credits | | | | | (6.3) | | | (7.7) | | | |
Non-controlling interest | | | | | (0.5) | | | (0.6) | | | |
AFUDC equity | | | | | (0.5) | | | (0.7) | | | |
Amortization of federal investment tax credits | | | | | (0.4) | | | 0.1 | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Stock compensation | | | | | (0.2) | | | (0.6) | | | |
| | | | | | | | | |
Other | | | | | — | | | (2.9) | | | |
Effective income tax rate | | | | | 7.4 | % | | 4.6 | % | | |
| | | | | | | | | | | | | | | | | | | |
Evergy Metro | | | | | | | | | |
| | | | | |
Three Months Ended March 31 | | | | | 2023 | | 2022 | | |
Federal statutory income tax | | | | | 21.0 | % | | 21.0 | % | | |
COLI policies | | | | | (0.1) | | | (0.2) | | | |
State income taxes | | | | | 0.6 | | | 0.6 | | | |
Flow through depreciation for plant-related differences | | | | | (8.1) | | | (7.0) | | | |
Federal tax credits | | | | | (0.2) | | | (0.2) | | | |
AFUDC equity | | | | | (0.9) | | | (0.4) | | | |
Amortization of federal investment tax credits | | | | | (0.9) | | | (0.6) | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Stock compensation | | | | | 1.0 | | | (1.3) | | | |
Officer compensation limitation | | | | | 0.6 | | | 0.5 | | | |
Other | | | | | (0.1) | | | — | | | |
Effective income tax rate | | | | | 12.9 | % | | 12.4 | % | | |