Evergy - Earnings Call - Q3 2019
November 7, 2019
Transcript
Speaker 0
Ladies and gentlemen, thank you for standing by and welcome to the Third Quarter twenty nineteen Evergy Incorporated Earnings Conference Call. At this time all participant lines are in a listen only mode. After the speakers' presentation there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the call over to your speaker today Lori Wright.
Thank you and please go ahead, ma'am.
Speaker 1
Thank you, Lauren. Good morning, everyone, and welcome to Evergy's third quarter call. Thank you for joining us this morning. Today's discussion will include forward looking information. Slide two in the disclosure in our SEC filings contain a list of some of the factors that could cause future results to differ materially from our expectations and include additional information on non GAAP financial measures.
We issued our third quarter twenty nineteen earnings release and 10 Q after market close yesterday. These items are available along with today's webcast slides and supplemental financial information for the quarter on the main page of our website at evergyinc.com. On the call today, we have Teri Bassam, President and Chief Executive Officer and Tony Soma, Executive Vice President and Chief Financial Officer. Other members of management are with us and will be available during the question and answer portion of the call. As summarized on Slide three, Teri will recap the quarter and provide a business update.
Tony will update you on the details of our latest financial results. With that, I'll hand the call to Terry.
Speaker 2
Thanks, Lori, and good morning, everybody. I'll begin on Slide five. So last night, we reported third quarter GAAP earnings of $1.56 per share compared to $1.32 per share earned in the third quarter of twenty eighteen. Adjusted earnings per share were $1.57 in the 2019 compared to $1.38 per share in the same period a year ago. Third quarter results were driven by favorable weather, fewer shares outstanding and rate case outcomes, partially offset by higher depreciation.
Year to date, GAAP earnings per share were $2.49 compared to $2.61 in the same period last year. Adjusted EPS were $2.55 this year compared to $2.36 a year ago, largely driven by significant cost reduction efforts and fewer shares outstanding, partially offset by unfavorable weather. It's important to recognize that within results year to date, we have been able to manage cost impacts of two unfavorable regulatory outcomes and still remain on pace for the year. Our ability to overcome these headwinds and deliver another solid quarter enables us to confirm our 19 adjusted EPS guidance of $2.8 to $3 Consistent with our call in August, we're making good progress executing our strategic priorities and continue to be confident with our plan. Last night, we increased our dividend to an indicated annualized rate of $2.2 per share.
This represents a 6.3% increase from our previous dividend rate and reflects the Board's confidence in our business plan as well as our commitment to deliver on it. Today I'd like to provide two additional updates on key parts of our plan. First on merger savings. As of the end of the third quarter, our merger savings continue to track above our initial targets. As you will recall, we've been targeting cumulative $110,000,000 of annual merger savings for 2019, which equates to an incremental $80,000,000 above the 2018 savings target.
Our success in the merger savings front is a testament to our team's solid execution. For example, we're realizing additional savings in supply chain and support services as we leverage the scale of our larger company. In the third quarter, we also retired over 7,500,000.0 shares, dollar cost averaging consistent with our plan. As of the September, we were roughly 73% complete with the share repurchase program, which we previously established to rebalance the company's capital structure and effectively deploy cash in connection with our merger announcement in July. Tony will further discuss our latest financial activity including share repurchases.
Before I move on to Slide six, let me update you on a couple of other recent events. First, we spent the summer advertising our new Evergy brand to customers. We officially rebranded our operating utilities in October. It's exciting that the communities we serve now know us all as Evergy. There's an appendix slide that details the name changes for each of our utility subsidiaries.
Lastly, our nuclear facility Wolf Creek is wrapping up its planned refueling outage. When the breaker opened in September, it marked Wolf Creek's second consecutive breaker to breaker run. This was the first time in plant history to have back to back breaker to breaker operating runs. During this most recent stretch, the unit ran for four hundred and ninety one straight days, the third longest cycle since operations began in the mid nineteen eighties. I'm extremely proud of the team and their accomplishments.
This is only achieved through a long term vision that includes a keen focus on human performance and equipment reliability. Now moving on to slide six, I'll provide the latest on regulatory and legislative proceedings. In October, the Missouri PSC issued an accounting authority order requiring Evergy Missouri West, previously known as GMO, to defer revenues associated with the retired Sibley plant to a regulatory liability. This was contrary to past regulatory precedent and settled law. We are extremely disappointed with the outcome of this case.
From the beginning, we and the commission staff opposed the AEO request as a cherry picking of our twenty eighteen rate case settlement and undermining the utility framework in Missouri. The commission has denied our request for rehearing, and now we expect to appeal the order. The annual impact of this order will be approximately 9,000,000 or $03 a share. However, as I mentioned earlier, we are continuing to execute our plan and will work to offset the impacts of the order in the future. Now moving to Kansas.
In September, the KCC denied our request, which was supported by KCC staff, to place into rates the 8% of Jeffrey Energy Center we negotiated and purchased upon our lease expiration earlier this year. We viewed this purchase and request as part of wrapping up a long term position associated with this 8% of the plant, which delivered millions of dollars of value to customers over more than a decade. The Commission ruled the purchase was not prudent and denied our request. We recorded the year to date impact of this decision in our third quarter results, which includes the cost of operating the plant and the lease extension, totaling around $9,000,000 of operating expense or $03 of EPS. The ongoing annual impact of the Jeffrey order will be about $03 a share unless offset by off system sales.
Staying in Kansas, Senate Bill 69, which calls for a two part study of electric rates, is moving along as planned. About a month ago, initial meetings kicked off with stakeholders and the vendor selected for part one of the study, which is focused on the effectiveness of rate making practices and options to maintain competitive rates going forward. We expect for Part one to be delivered in early January twenty twenty. The RFP finalist for Part two, which is due in July 2020, was selected earlier this week. Moving now to Slide seven, let me update you on the outlook of our strategic priorities.
As mentioned on our last call, we've been evaluating the flexibility in our capital deployment plans to ensure that our capital is directed to the greatest return opportunities and to identify additional investments that may be available. As we studied scenarios to further optimize our long term spending plan primarily through Missouri Plant and Service Accounting or PISA, we identified the maximum of an estimated $1,000,000,000 cap opportunity within that framework. First steps toward executing against that cap was announced on our second quarter call when we shared plans to shift $150,000,000 of investment from Kansas to Missouri over the twenty twenty to twenty twenty two timeframe. This shift in spending did not increase our previously announced five year CapEx spending target, but moved CapEx to the state which provides the best earning opportunity. During the third quarter, we continued our focus towards identifying opportunities within the PISA framework that would be incremental to our current spending plan.
The process we used for that evaluation included three primary criteria. First, identify projects that qualify for PISA that can be executed prior to our expected rate case true up period and benefit customers by lowering future costs or increasing reliability. Second, while operating within the allowed PISA rate caps, also consider the potential total impact on customers of the multiyear period spend. And lastly, find the right balance of additional infrastructure investment, financial and credit support and long term earnings growth. We are focused on delivering on our merger commitment structure to deliver on our EPS targets and to enhance the long term earnings profile of the company.
Our potential incremental PISA opportunity is not an eitheror scenario with respect to the share repurchases. We plan to balance the two, continuing the share repurchase program and spending additional capital in Missouri. To that end, we've identified an additional $150,000,000 a piece investment on top of the $150,000,000 we shifted from Kansas to Missouri. This infrastructure investment will add $150,000,000 of additional capex totaling $300,000,000 increase in Missouri PISA investment embedded in our plan laid out in February. For perspective, this $300,000,000 would be added to a Missouri rate base, which was about $4,500,000,000 at the end of last year.
In addition to this near term piece of spend, we continue to work on our long term plan through 2024, which we will be discussing on our year end call. We studied a range of opportunities and are confident in our ability to execute on our buyback plan and additional PISA investment. While we see the opportunity for significant additional infrastructure investment in Missouri, it's unlikely, however, that we'll invest at the top end of the identified PISA cap given the need to deliver on our EPS targets, balance our credit metrics and the size of our next rate request. Nevertheless, we have high confidence in the incremental investment that we've identified so far and expect to provide guidance around additional incremental investment opportunities when we outline our 2020 earnings guidance and capital spend plans in February. Now before I turn things over to Tony, let me update you on our plan for achieving carbon reductions over the next thirty years.
Looking at slide eight, since 02/2005, Evergy has added over 3,500 megawatts of renewables while retiring more than 2,400 megawatts of fossil generation. Transition of our generation fleet has allowed us to reach almost 40% of carbon emission reductions since 02/2005. Today, we're looking further into the future and announce our new 2050 carbon reduction target of 80% from 2005 levels. The trajectory and timing of reaching our goal could be impacted by local and federal clean energy policies, but we continue to work with policymakers at all levels to ensure we can minimize our impact on the environment in a cost effective way. As we complete our next integrated resource plan, we'll be able to provide more details around our long term energy plan and a path toward reaching our carbon reduction goals.
With that, I'll now turn the call over to Tony.
Speaker 3
Thanks, Terry, good morning, everyone. I'll start with results on Slide 10 of the presentation. Last night, we reported third quarter twenty nineteen GAAP earnings of $367,000,000 or $1.56 per share compared to $355,000,000 or $1.32 per share in the third quarter of twenty eighteen. The increase in earnings is primarily due to higher gross margin and lower O and M, partially offset by higher depreciation expense. Adjusted non GAAP earnings were $370,000,000 or $1.57 per share compared to $371,000,000 or $1.38 per share in the same period a year ago.
As shown in the chart on Slide 10, adjusted EPS were driven primarily by fewer shares outstanding, new retail rates, favorable weather and partially offset by higher depreciation and impacts from unfavorable regulatory outcomes in both the Jeffrey 8% and Sibley dockets. O and M net of merger related costs was slightly higher, which includes around $9,000,000 of costs from the negative KCC order, the Jeffrey lease and is partially offset by cost reduction efforts across our utilities. Depreciation expense was $22,000,000 higher primarily from new depreciation rates that are reflected in our retail prices and higher plant balances. For the quarter, residential sales were up 2% while commercial and industrial sales were flat. We had favorable weather for the quarter, which we estimate helped by roughly $03 compared to last year and about $09 when compared to normal.
Overall, customer count growth continued, marking the thirty fourth straight quarter of growth for our company. On Slide 11, I'll touch on year to date results. For the year, GAAP earnings were $6.00 $6,000,000 or $2.49 per share compared to $517,000,000 or $2.61 per share for the same period last year. Year to date 2018 GAAP results do not include Evergy Metro, formerly KCPL, and Evergy Missouri West results prior to June, which is the primary driver of the earnings variance for the period. Adjusted earnings were $621,000,000 or $2.55 per share compared to year to date 2018 adjusted earnings of $642,000,000 or $2.36 per share.
As detailed on the slide, primary drivers compared to last year include an $86,000,000 reduction in O and M, which includes around $9,000,000 of expense related to the Jeffrey 8% lease, new retail rates and fewer shares outstanding. Gross margin declined $37,000,000 reflecting the impact of less favorable weather and depreciation increased around $75,000,000 Due largely to the weather swing, pro form a year to date residential and commercial sales were down 4.61.9% respectively. We estimate weather cost us $0.18 when compared to last year and was a benefit of about $0.11 when compared to normal. Pro form a industrial sales were down 80 basis points compared to the same period last year due primarily to a large customer in the chemical sector that saw decreased demand at their plant earlier this year. Moving on to slide 12, let me touch on our latest financing activities.
In August, Kansas Central, which is formerly Westar, issued $300,000,000 of thirty year first mortgage bonds at three and a quarter percent replacing $300,000,000 maturity at Kansas South, formerly KG and E. In September, we issued $1,600,000,000 of long term holding company debt through two tranches, $800,000,000 of five year notes at 2.45, and $800,000,000 of ten year notes at 2.9%. The financing plan paid off our $1,000,000,000 term loan that expired in early September and allowed us to continue our share repurchase program. Since closing the merger, Evergy has returned nearly 3,300,000,000 of capital to our shareholders, comprised of about $600,000,000 in the form of dividends and $2,700,000,000 through share repurchases. We're now 73% complete on our targeted share repurchases.
We have an open $500,000,000 ASR that was entered into early September and will be closed out by the December. Recall with our regulatory stayouts, it makes financial sense to return capital to our shareholders in the form of share repurchases, which help increase EPS during this stay out period until we can put capital work for us at the conclusion of this stay out period in the form of infrastructure investment. The ultimate number and timing of our share repurchases depends on market factors and the financial outlook of the company. Now wrapping up on Slide 13. As Terry said, we've studied our capital allocation opportunities over the last few months.
We're announcing another $150,000,000 of PISA spend today and we expect more to come when we announce our year end results in February. We remain committed to our share repurchase program and we'll continue to look to layer in incremental capital investment on top of it. I want to emphasize that our priority is to balance both, continuing the share repurchase program and spending additional capital in Missouri. Leading up to our year end call in February, we'll provide a more holistic view across all our jurisdictions to ensure that we are investing adequate amounts to ensure continued reliability for our customers and support additional shareholder returns. As mentioned, we expect this review yield incremental spending opportunities.
Increased infrastructure investment will enhance group reliability and provide rate based growth to supplement the back end of our EPS forecast period and long term earnings outlook. The results so far this year are proving the merits of our merger and the business plan that we laid out. As Terry stated previously, despite the recent negative regulatory orders, which we think will cost us about $06 per share for the year, as well as numerous storms and flooding from earlier this year, we reaffirmed 2019 guidance and are 5% to 7% EPS CAGR from 2019 through 2023. We're pleased with our results and prospects for the future. With that, I'll turn the call back over to Teri.
Speaker 2
All right. With that, we'll take questions.
Speaker 0
Thank you. Our first question comes from with Bank of America. Your line is open.
Speaker 4
Hi, this is Darius Loudley on for I just wanted to briefly ask about your capital allocation in terms of the remaining repurchase and incremental PISA spend. I know you said there may be more on top of the 150,000,000 that you announced today. Can you just talk about your thought process there and the commitment towards completing the additional towards the $60,000,000 goal of share repurchase?
Speaker 2
Yes. Well, I think we said that in our prepared remarks. We've always had the share repurchase as part of the central part of our plan over the time period. But we also see opportunity under PISA to make additional investments that we've discussed today with the three particular criteria we talked about. But obviously, we're also committed to our interim EPS goals, which stock buyback is part of.
So we're committed to all those, and we think we see a clear path towards delivering on those that plan.
Speaker 4
Okay. And just to clear, the incremental CapEx potentially would not require additional equity?
Speaker 2
Yeah. It's what we were talking about when we said we didn't think we would be able to invest at the top end of that range because of just those factors, credit metrics, those kind of issues.
Speaker 4
Okay, great. Thank you very much.
Speaker 2
Thank you.
Speaker 0
Thank you. Our next question comes from Greg Gordon with Evercore. Your line is open.
Speaker 5
Thanks. Good morning. A couple of questions for you guys. First is on Sibley. You said that the impact of that decision is going to annualize at $9,000,000 a year.
Is that correct? And can you talk us through how you've come up with that's the amount that you have to reserve under the AAO?
Speaker 3
That's correct, Greg. It's about $9,000,000 Can
Speaker 5
you walk us through how you came up with that number and that'll be what you're booking going forward? Can you just talk us through how you came up with that number? Obviously lower than what the consumer advocate opined you were saving when you shut down the plant. Yeah.
Speaker 3
The $9,000,000 represents, the o and m cost for Sibley. And and, there's a note in our 10 q states, we estimate that's what's probable that will have to be be booked. And we booked in accordance with accounting rules that which is probable. And that differs from what obviously the interveners think.
Speaker 5
Right, and that'll all get dealt with in the next rate case, right?
Speaker 3
Yes, that's correct.
Speaker 5
Right, and what about the return portion of the plant? How is that being dealt with?
Speaker 3
So that is not being booked and that will be handled within the next rate case.
Speaker 5
Got you. Moving on to the next question. Terry, I apologize. I was multitasking when you mentioned this. But can you talk through again how you're doing relative to the base case on synergies and overall cost cuts relative to the merger base case?
Speaker 2
Yes, we're over performing. We've talked before about us being as much as maybe 20%, 25% above our current estimates and we continue to find additional synergy opportunities. Certainly last year or this year and next year were two of the big years. We continue to look for additional opportunities on the merger itself and look for additional O and M opportunities overall as we continue to work to offset the regulatory effects of these two orders.
Speaker 5
Right. What was the second one that contributed to the $06 total this year? Sorry, I missed that.
Speaker 2
Well, we've got both Jeffrey and Sibley. Got you, Jeffrey. On this morning. That's right.
Speaker 5
Okay. So you're doing well enough on the overall cost profile of the business to overcome those and stay on track to hit your earnings targets?
Speaker 2
Both currently and as we work for our future estimates or future plans.
Speaker 6
Got
Speaker 5
you. Okay. With regard IRP, to you talked about how you're gonna give us a little bit more of a sense how you get to your, 80% carbon reduction by 02/1950. It would seem not an insurmountable task, but a pretty significant lift given that you do have a of older coal plants. Iatan is obviously new, but most of your other plants are relatively old.
But you did put emissions controls equipment recently on many of them. So when is that IRP going to come out? And how do we think about what that means in terms post early to mid to late 2020s capital spending?
Speaker 2
Yes, so our rhythm for an IRP planning process would be a spring reporting time period. But what I would tell you at a very high level is we've retired almost all of our fossil generation which is not what we have retired and it's not compliant. And so what we've got is either a new unit like ITAN-two or we have other units as you mentioned which have been retrofitted in some way or had spent expenses for making them compliant. And what I would say at a very high level you're going to see is our ability to work through the normal depreciable lives of those assets over this time period so that, we've minimized, if you will, the risk of recovery on the back end of those plans, and can still hit the, 80% reduction by the 2050 time period.
Speaker 5
Okay. So there wouldn't be a presumed early retirement slash stranded cost recovery scenario here. You would amortize down the remaining value of the pollution control equipment and then transition.
Speaker 2
That'd be the current plan. Obviously, laws can change. Things can change to require differently. But that's the basis for the 80% we've talked about. Obviously, with what we've just experienced in Missouri, It's an important thing for us to be very careful about, and I think that drives a large part of what we were planning to talk about, but certainly helps support that conservative nature of that plan as Will described.
Speaker 5
Okay, thank you guys. Take care. Thank you Greg. Thank
Speaker 0
you. Our next question comes from Shar Pourreza with Guggenheim Partners. Your line is open.
Speaker 7
Hey, good morning guys.
Speaker 2
Good Just
Speaker 7
real quick on just to follow-up on Greg's question on Sibley and the $9,000,000 annualized. Teri, on your prepared remarks, you talked about mitigation measures. And it doesn't seem like it's a very large number to mitigate. But maybe you could just talk a little bit on sort of the drivers that we should think about that you could use in the mitigation, I. E, is it on the merger savings, fuel, purchase power on the O and M side?
And then I'm curious, like if you were to refile, when is the earliest you can refile just given the limits around the PISA legislation?
Speaker 2
Yes. Let me hit those one at a time. You know, what we what we see is about 3¢ on Sibley and about 3¢ on Jeffrey that are kind of an ongoing Mhmm. Numbers we're gonna need to manage, and we are going to manage them. Certainly as we continue to see merger opportunities, we think we have some help there.
We also will see some operating efficiencies through some of the CapEx that we're spending that we've talked about. But to be honest with you, we're gonna need to be aggressive and will be aggressive on O and M expense. You know, one of the things that we're gonna go after, you know, is headcount, things like that. We we always wanna avoid a layoff, but we certainly can manage hiring practices. And one of the side effects of of something like the orders we've gotten is we're gonna have to be very careful about any hiring we do as we
So it'd be all of those O and M kinds of things that we look at every year, but we're committed to our targets going forward. And we're gonna probably be a little more aggressive this year.
Speaker 7
Okay. And then just one question on the PISA and the incremental 150. It's obviously highlighted that there's going to be incremental to that, right? And you're still formulating your plan. But maybe you could just highlight as we think about sort of zero to eight fifty where we can kind of potentially land, especially given that you do have a little bit of a tight timeframe to find spending, and try to make it before sort of that test period in the next sort of GRC year.
So I'm kind of curious as we think about the top end, the midpoint, kind of where you kind of see everything kind of shaking out, especially given the tight timeframe that you guys have before the next rate case?
Speaker 2
Well, I don't really have a target for you. One of the reasons we gave you the additional 150 is that we thought it would be important to reflect what we're very comfortable with, which would be 300 on the PISA cap. And then we thought it was also important to reflect that at the top end, that's probably pretty tough from a
Speaker 8
metric
Speaker 2
perspective, and like you said, an execution perspective. So it is in between there somewhere, but really it would be unfair for me to target a shot at a number while we're finishing our work. We want to be cautious about not giving guidance that later turns out to be off. We want to be very specific about that and we've got some additional work to do before our final presentation at the end of the year.
Speaker 7
Got it. But so I guess as you guys are formulating your plan, we shouldn't have any kind of direct read with some of the negative impacts, I guess, a regulatory construct standpoint we're seeing in Missouri versus how much capital you actually wanna deploy in Missouri. So I guess I guess I'm asking okay. Is
Speaker 2
Yeah. No. What I would tell you is it's extremely disappointing what happened in the Sibley order given precedent and what is pretty clear, we think, regulatory law on the issue. But we'll manage around it. What's probably affected a little bit more as a result of that is how we deal with these these plant shutdowns going forward
Speaker 6
Right.
Speaker 2
Because of because of what happened as opposed to necessarily concerns around current investment. If that makes sense.
Speaker 7
No, it does. It does. That's helpful. Thanks guys. I'll jump back.
Speaker 2
You bet.
Speaker 0
Thank you. Our next question comes from Steve Fleishman with Wolfe Research. Your line is open.
Speaker 9
Yes, hi. Good morning. So I guess I think I understand the messaging is that you're kind of committed to completing your buyback and, you know, balancing that with the additional capital opportunities. So I thought that was pretty clear. Maybe just you did, I guess, change a little wording on the buyback in terms of being kind of opportunistic share repurchases, where so far, I think you've been mainly kind of just doing it almost like dollar cost averaging.
Is that was that to suggest anything or is that No. Just to state maybe
Speaker 2
Yes, that's I think we're always trying to be optimistic opportunistic based on pricing and other opportunities, but that was not intended to change the color on what we've been doing executing on the plan now for over a year.
Speaker 9
Okay, great. And then the other I think you also mentioned you're focused on meeting your interim targets in the Q and A. So I know the 5% to 7% growth was a little bit weighted more toward the front end than the back end. Is that still is that what you meant there?
Speaker 2
Yes.
Speaker 9
Great. And then I think that was it. Great. Thank you.
Speaker 2
Thank you, Steve. Thank you.
Speaker 0
Thank you. Our next question comes from Michael Lapides with Goldman Sachs. Your line is open.
Speaker 10
Hey guys. Thanks for taking my questions and for hosting the call. These may be more Tony oriented because they're a little bit of housekeeping. Want to make sure I understand something. Can you I've read it in the queue, the pretax amounts taken this quarter, so third quarter for both Jeffrey and Sibley?
And then whether that should be backed out of future periods or whether like I'm trying to think about the what actually happened this quarter pretax versus what you're kind of guiding to, to what will be the run rate for future periods.
Speaker 3
Okay. So let's see if I can handle this. I think Sibley through the quarter was roughly $7,000,000 $8,000,000 pretax and that will continue. Jeffrey was a little more complicated, as we had leased costs that was written off and at leased costs will not continue. I think the total Jeffrey costs were around $9,000,000 for the quarter and that lease cost was about $4,500,000 $4,700,000 something like that.
So Jeffrey ongoing will hurt us probably to the tune of $7,000,000 or so.
Speaker 10
Okay. And so I want to make sure I think about this. When I look at fourth quarter twenty nineteen, are you saying that there's a the Sibley $7,500,000 will be a headwind to fourth quarter twenty nineteen O and M just like it was for third quarter twenty nineteen O and M?
Speaker 3
No. Sibley is a deferral of revenues. Jeffrey is O and M. And as Terry said, we're going to look at we're looking at ways to offset that.
Speaker 10
Okay. But the Sibley deferral will meaning it'll when I do the bridge year over year fourth quarter twenty eighteen to fourth quarter twenty nineteen, it'll also be a $7,500,000 deferral in the fourth quarter 'nineteen. So the annualized amount would be closer to $30,000,000 Am I thinking about that right?
Speaker 3
No. The annual number is closer to $7.5 $8,000,000 not $30,000,000 just had to do a catch up in this quarter because we had part of it deferred in 2018.
Speaker 10
Got it. Okay. So you've recognized the annualized amount in this quarter. So in next year, I'll back it out of this quarter, but I'll smooth it out over the other quarters.
Speaker 3
So we recognize on Sibley all of this year to date through the third quarter. And I believe there was a piece of it that went back into 2018, and we recognize that. Ongoing, the Sibley O and M will be probably about 8 and a half, $8,000,000 or so going forward, the deferral of the revenue annually.
Speaker 10
Well, I thought Sibley was an O and M and Jeffrey was deferral of revenue?
Speaker 3
Other way around.
Speaker 10
Okay. Got it. Fine. Fine. Okay.
Very cool. I'll follow-up offline. Just one other thing totally unrelated to this. Terry, given the order out of Missouri, given the docket open in or the proceeding the legislature mandated in Kansas, given the order out of Kansas, is there a thought that maybe this isn't the right time to do any increases in any capital spend at all, use the capital entirely for the balance sheet and wait till kind of the jurisdictions a little bit before starting to invest incremental capital there? Any either one.
Speaker 2
Well, I think what we've said is it's a balance. We have said that the entire strategy around the merger and the time period for our stay out where we harvest the synergies from the merger and we continue to become more efficient that we're not increasing cost to our customers. And our pace of growth is a little less than maybe it would be otherwise because at the end of this time period we're trying to address the fact that our current rates are a little over the national average because of a ten year spin by both companies. So it certainly fits with the theory of our merger which is we want to use this time to continue to strengthen and be prepared. But at the same time, we do want to continue to modernize our grid and continue to be in a position to provide high reliability at all times.
And so we will continue to spend. And PISA, which is a little different because PISA provides a very clear statutory process for spending infrastructure in Missouri that says they want additional and we want to spend additional in Missouri with a mechanism to do that in a better way than there's historically been available. So there's a balance there, but certainly one of the whole strategies around the merger was to provide a period here of rate relief for customers as we harvest the benefits of synergies.
Speaker 10
Got it. Thank you, Terry. Tony, one follow-up, just want to make sure. So versus normal, weather for the third quarter was $09 better, but for the year to date, if I used a consolidated company for the year to date was significantly worse versus normal?
Speaker 3
No. Go ahead. It was worse versus last year. Last year was better weather for us through the first nine months.
Speaker 10
Right. But versus normal, if I were to think about a consolidated company year over year, quarter was $09 better versus normal, but the year to date, do you have that number?
Speaker 3
So weather cost us year to date $0.18 compared to last year was a benefit of about $0.11 compared to normal.
Speaker 10
Got it. On a year to date. And with most of that coming in third quarter. Okay. Very cool guys.
See you at EEI and thank you for the help today.
Speaker 0
Thank you. Thank you. Our next question comes from Ali Agha with SunTrust. Your line is open.
Speaker 11
Thank you. And I apologize I was jumping between calls. When you all initiated the 5% to 7% growth rate guidance for 2019 through 2023, I recall at that time, you'd also given us an update on your previous guidance, which was 2016 through 2021. And I think the message was, you were trending in the 6% to 7%, kind of the lower half of that growth rate. Is that still the case as we sit here today?
Speaker 2
Yes, was our message is it's a little front end loaded but at the beginning of the year we had reported that we're trending in the six to seven versus the top end of that original range.
Speaker 11
Okay. And secondly, Terry, as you're mentioning, you're still firming up the full amount of incremental CapEx you could spend, $150,000,000 obviously you've announced right now. As you look at this future growth rate, the 5% to 7%, how much of that is predicated on your ability to spend that $850,000,000 which is I think the maximum you could spend and let's say timing or otherwise you don't get there, how does that impact that 5% to 7% growth rate for you guys?
Speaker 2
Well, again, the $150,000,000 that we announced earlier was not a total increase to the overall CapEx so that wouldn't affect it. But the additional 150,000,000 is in addition to what we've provided previously and would provide some additional opportunity from a growth rate perspective. But it is a small amount compared to the overall rate base of the company. So that's why we continue to work on it. But again, that's the connectivity to what we're talking about is how it would affect and when it would affect that growth rate.
And remember that we're talking the shorter piece of term currently, we'll be updating you on our full long term plan through 2024 in the spring, which will also have additional capital dollars throughout the territory potentially.
Speaker 11
Yes. So just to clarify, that's what I was talking about, not the original 150,000,000 I think at the last call, you had mentioned that PISA limits potentially could result in about $850,000,000 of incremental CapEx, excluding the 150,000,000 that's transfer. And I guess my question was, if you end up for a variety of reasons not planning to spend or increase overall spending to $850,000,150 million you've done, so $700,000,000 theoretically to go. Let's say you don't do that extra 700,000,000 what does that mean as far as that 5% to 7% growth target you've laid out for us?
Speaker 2
Well, would mean we wouldn't have anything additive from a PISA perspective to that amount. It wouldn't be a reduction to that amount. And again, we're talking only about Missouri PISA as opposed to longer term other investments made in Kansas as well. If you're asking, would it reduce the overall path we've already given, the answer is no. This is all incremental possibilities.
Speaker 11
Right. So I guess what I'm asking is if not for higher CapEx, how else do you get your growth rate up to the targets?
Speaker 2
Above what we've already provided? We've provided the so maybe I'm not understanding, I apologize. But we've already provided the numbers that reflect the 5% to 7% we talked about and we're looking for additional opportunity within that range. So is that correct?
Speaker 11
I guess, okay. I mean, I guess I'll keep it simple. So based on the CapEx you provided us and you've given us long term CapEx, which equates to about a, I think, 3% to 4% rate base growth from the original numbers that you laid out for us going out to 2023. That CapEx and that plan with the 3% to 4% rate base growth, you believe still translates into a 5% to 7% EPS growth rate over that time period. Was that the message?
Speaker 2
Over the time period, yes.
Speaker 11
Okay. And I guess my question was, if rate base growth is 4%, what's driving the overall growth to be 5% to 7%?
Speaker 2
Well, it's additional O and M savings that we're driving through the merger synergies. That's our kind of our EPS growth as well as the stock buyback and the other pieces that we've laid out both in our short term and long term plan. And then what we've talked about is that was the interim path for earnings growth in the front end of the plan and we would look for and be able to talk to you about opportunities for additional CapEx on the back end of the plan, some of which we hope to give you on the end of your call.
Speaker 11
I got that. Okay. Thank you.
Speaker 2
Thank you.
Speaker 0
You. Our next question comes from Andrew Levy with ExodusPoint. Your line is open.
Speaker 6
Hey guys, how are you?
Speaker 2
Good, good. Good morning.
Speaker 6
I just want to make sure I understand what you're saying as far as the stock buyback versus CapEx. So if I'm not mistaken, originally, you decided to do the stock buyback, stock was about $54 and you had budgeted to buy back 60,000,000 shares at that point. Obviously, you know, which is a good thing. The stock has gone up. You've been fairly aggressive in buying back stock.
But to buy back the entire 60,000,000 shares will cost you a little over $500,000,000 more than you had budgeted, at least I think you budgeted. And that would get you to get to the number that you were going to be at as far as what you may have budgeted, that would be about $51,000,000 51,000,000 shares, I'm sorry. So could you just kind of talk about the CapEx versus the stock buyback and that $500,000,000 delta and how you finance that or how you deal with that relative to the incremental CapEx? Well, I And then I have a follow-up.
Speaker 2
Well, if I understand what you're asking, how do we look at the fact that our stock buyback is more expensive given current pricing than originally anticipated? And it's a balance, Obviously, think we've talked about our ability to finance the actual buyback itself and it is more expensive. But on a relative basis in terms of meeting both our near term and long term earnings growth and our ability to spend capital over the long term, we balance that from an overall perspective to allow shareholders to see a smoother EPS growth during this period freeze through our regulatory processes. It allows us to return dollars to shareholders without raising costs to our customers in that near term. And we're driving savings through the merger to help support that along the way as well as what I just mentioned in terms of our look at O and M for the upcoming year because of what's happened in Jeffrey.
And I think our plan has provided enough flexibility to manage both the increase in the stock prices and headwinds we've seen to the regulatory process to allow us to stay on plan thus far, and we think we're we'll stay on plan moving forward.
Speaker 6
But Terry, I'm sorry to interrupt you, but that's not my question. My question is fairly simple, and I had discussed this with Tony at a conference recently. So basically, the stock buyback's gonna cost you if you finish it. And I don't know, maybe you're not gonna finish it. That that's really what I'm trying to get get at, is that it's gonna cost you over $500,000,000 to finish it, to go to the the full 60.
Okay? At the same time, you're saying you're going to spend more CapEx. But looking at your kind of metrics and your cash flows, are you able to do the incremental $500,000,000 of stock buyback? And you you got this $150,000,000 so an incremental $850,000,000 of CapEx. So that's $1,000,000,000.03 $5 of incremental cash that you need to kind of do everything.
Is that possible? Or is that or mean, that's what I I just don't understand. So
Speaker 2
So I said in my initial remarks that we are comfortable with completing the stock buyback and 300,000,000, only a 150 of which is incremental so far. There's not an additional $8.50. 300 would be relative to the billion original. And in my prepared comment comments, I said we don't expect to be able to execute at the top end of that remaining $8.50 range for just the things that you mentioned. So we are comfortable with what we've disclosed today in that regard, but not on the top end of that range you're talking about.
Speaker 6
Okay. That's fair. That's what I wanted to get at, because I thought there was a little bit of confusion that you were able to do both, And it just the numbers didn't add up. And then and then I have one more one more question just relating to Sibley, and I appreciate you answering the other question clearly. So I guess you're you're complying with the order.
But I guess, what type of how can I say this? What part of the order are you complying with, I guess? Because the order says that all units in common plan and all revenues, need to be kind of returned or deferred, I should say. So what part of the order are you complying with?
Speaker 2
I'm going to let Tony finish this answer, but I'll be clear that we're complying with all parts of the order to start with. You take that kind of order and then you have accounting adjustments that would result from that, and that's what we reported out today. You have a more detailed accounting question, I'll let Tony or Laurie answer it. From a managing the business perspective, what we've said is we have shown currently and we plan in the future to be able to offset kind of the ongoing drag, which would be the 3¢ we've talked about. Does that make sense?
Speaker 6
Are you defer yes. It does. And are you deferring the return as well?
Speaker 3
This is this is Tony, Andy. No. We're not deferring the return. We're deferring what we think is probable, which is really the o and m of the plant.
Speaker 6
Didn't the order say that you had to defer the return?
Speaker 2
No. The order actually said that we would make that Yep. Determination based upon the FERC and GAAP rules of accounting, and that we would revisit it at the future rate case and that their intent was not to harm the company. That was what the boarder said.
Speaker 6
Okay. So you're not deferring the return. And is there a hearing that you need to go through? I had thought that you determined the amount, that's what the commission had ordered you to do. And then do they review what you've decided to defer or not?
Speaker 2
In the rate case. What they said in order is they would not have a follow-up hearing of some sort to review what we defer, we should defer according to GAAP accounting, and then we would have a hearing in the next rate case where they would look at everything.
Speaker 6
Okay. And again, just to be clear, the order did not say that you had to defer the return?
Speaker 2
It did not say specifically for GAAP purposes.
Speaker 6
Okay. Got it. Okay, thank you very much. I'll see you guys in a couple of days. I'll buy you a drink.
How's that? Thank you.
Speaker 2
You bet.
Speaker 0
Thank you. Our next question comes from Paul Patterson with Glenrock Associates. Your line is open.
Speaker 8
Hey, good morning guys.
Speaker 2
Good morning.
Speaker 8
So just to go over Greg's and I guess Andy's question as well, and I think you guys have clarified a lot of it. Currently the number is around $8,000,008,500,000 on an annual run rate that the Sibley AEO accounting authority is. That's correct, right? Correct. Okay.
And then on page 34 of the 10 Q, you mentioned that there's another $15,000,000 that might be at risk on an annual basis above that number, if I read that correctly. What does that represent?
Speaker 3
That would represent the return on.
Speaker 8
Okay. And then in the rehearing request that you guys made, you guys referred to it being unjust and unreasonable because of a 30 to $39,000,000 reduction in earnings that was associated with, I guess, what the complainant's estimate was, if I understood the rehearing order correctly. What's the difference between the 24,000,000 if I was to add roughly speaking $8,500,000 with the 15 and the 30 to 39,000,000. What's the delta between those two things? Do you know?
Speaker 3
Well, the interveners have different numbers than what we have. And that's maybe part the difference there. We have a different rate base number than what they have and all that's gonna have to get sorted out of the next rate case.
Speaker 8
Okay. And then I think Commissioner Hall had a concurrence and he talked a lot about securitization. And I also think during sort of the process or the discussion at the during the discussions regarding the order that the commissioners themselves discussed the issue of securitization as a way of sort of dealing with this issue in their opinion that would allow you guys the ability to get your plant back, get the cash back, deal with the return issue and everything else and deal with this issue of aging plants and sort of where they spoke favorably about it, if you follow what I'm saying. And I was wondering how securitization, a, might in theory impact this Sibley situation, and specifically if it does. And just in general, what you guys think about securitization as a means of dealing with other coal plant retirements or other plant retirements that might be coming up in a way of sort of dealing with this issue.
Do you follow what I'm saying from a policy perspective?
Speaker 2
Yeah, I think we shouldn't expect the discussion around possible securitization sometime in the future to have any impact on the Sibley order. That's first. In terms of what do we think about securitization, it's like everything else. I mean, what does it mean in terms of the detail that it would imply? I think some of the things we've seen around securitization are not acceptable because they don't provide full recovery for shareholders.
And so we're not in favor of a lot of the things we've heard. Now I would say this was a concurring opinion by one commissioner and some other folks made comment but there wasn't any, in my view, and I was in the room, there was not in my view any policy discussion by the commission as a whole and in the end that would really be legislative in some way as opposed to I think a commission order of some sort in either state.
Speaker 8
Okay, I appreciate that. What I meant with respect to the Sibley question would be if Sibley were to be securitized, okay, just hypothetically speaking, would that change the impact, this $8,500,000 that's what you're currently deferring? And I guess as the earnings impact is about $03 how would securitization, if in fact the Sibley plan had been securitized as opposed to this deferral thing? Do you guys have a rough idea? I know this is asking you like right on the call, so I apologize.
But do you guys have an idea about how that would impact directionally the income impact to you guys? Would it have been a positive to have had it, a negative or a neutral compared to how the Sibley situation is working out for you now with your current deferral?
Speaker 2
So first of all, let me again be clear that we believe this order and any impact that we've suffered is contrary to law and precedent of any sort across the country. So it shouldn't be different because it shouldn't have happened in our view. Now if that became the law of the land and there was a securitization discussion to address it, it would all depend on what the structure of the securitization was. So I I don't mean to be flippant about it, but some recovery is better than none. But I don't wanna I don't wanna leave this call with anybody misunderstanding.
We think this order was wrong. Okay. And that we're we're hopeful that on appeal, we we get a finding to that degree, and it was violates our regulatory compact, to be honest. Securitization would be better than nothing, but what ultimately securitization could provide will depend on the nature of the legislation related to
Speaker 8
Okay. I don't want to belabor the issue anymore. Just finally on the merger savings that you guys are doing very well, looks like how much of that is sustainable? I mean, is all this sustainable? Or is there any element of it that you're saving that you may not be able to Do you follow what I'm saying?
In other words, is this sort the run rate we should think about that you guys have accomplished here? Or is there anything unusual about sort of the savings that wouldn't necessarily be repeating?
Speaker 2
No, the numbers that we provided are all sustainable savings that build over time and stay consistent. If there's one time cost or events, we've excluded those from that discussion and we would expect to continue to maintain the level of cost created by the savings that we've raised.
Speaker 8
Okay. Thanks so much guys.
Speaker 2
Yep. Thank you.
Speaker 0
Thank you. Our next question comes from Kevin Ballon with Citadel. Your line is open.
Speaker 12
Hey guys. Just wanted to make sure I heard you right on the O and M savings. Did you say that they were running 20% to 25% above what you had originally forecast over the time period?
Speaker 2
Yes. That's what they've I think that's what we talked about last quarter as well.
Speaker 12
Okay. Okay. That's helpful. And then the Jefferies is a $9,000,000 pretax hit going forward and the Sibley is a $9,000,000 pretax hit going forward. Those are the two incremental ongoing items?
Speaker 3
So Jefferies will be 7,000,000 or $8,000,000 and Sibley is around $8,000,000 $9,000,000 or so.
Speaker 12
Okay. Okay. And just in terms of the Sibley process, you guys are going to file in the courts for rehearing, I guess, or whatever you would call it. Is that the next step for you?
Speaker 2
Yeah. We filed a motion for rehearing, which is required at the commission before we can appeal. And we would then start the appellate process.
Speaker 12
Okay. And in terms of it's the company's position if the interveners don't agree with the level of your reserve that they're basically their hands are tied until the rate case? That's the venue that they can? Or do you think that they have the option to come back to the commission?
Speaker 2
Well, I wouldn't tell you that the interveners couldn't file something if they wanted to. But in the end, we're collecting these dollars in an accounting order. And the real intention is to true up the accounting order amounts we've collected or accounted for in the next rate case. So I think that's the likely place they would oppose whatever we concluded was the right amount.
Speaker 12
Okay. And just the last thing for me is, when we're trying to project how much incremental CapEx you could possibly do in Missouri, So we assume you complete the buyback. What's the controlling metric that we should be looking at? Is it like consolidated equity ratio? Or is it FFO to debt?
Or what is it that ultimately determines how much CapEx you can do beyond the buyback?
Speaker 3
So this is Tony. As we said earlier, it's kind of a combination of factors, the overall rate impact on the customers. From a credit metric, we would look at FFO to debt and those sort of things.
Speaker 12
And is there an FFO to debt target that you guys have to kind of meet?
Speaker 3
It depends whether it's at the utility or the holding company. They're different. I think utility is probably mid teens, upper mid teens. Holding company is like 14%, 15%, something like that.
Speaker 12
Okay. That's very helpful. Thank you very much.
Speaker 3
You're welcome. Thank you.
Speaker 0
You. And this concludes today's question and answer session. I would now like to turn the conference back to Terry Bassam for any closing remarks.
Speaker 2
All right. Well, you everybody. I appreciate you joining the call. Thanks for your questions. And obviously many of you we will see next week at EEI.
So have a good one. Thank you.
Speaker 0
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.