Great Plains Energy Benefits from Better Rates in 2012, Sees Missouri Economy Improving in 2013

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Researched by Industrial Info Resources (Sugar Land, Texas)--Great Plains Energy (NYSE:GXP) (Kansas City, Missouri), the holding company for Kansas City Power & Light Company (KPC&L) and KPC&L Greater Missouri Operations Company, which are two of the top electricity providers in the U.S. Midwest, saw strong gains in earnings in fourth-quarter and full-year 2012, as favorable weather and new retail rates offset an increase in some regular expenses. Net income was reported to be at $4.7 million for the quarter, compared with $2.1 million in fourth-quarter 2011, and $199.9 million for the year, a 14.62% increase from 2011.

Total operating revenues stood at $480.4 million for the quarter, a 1.21% decrease from the same period in 2011, and $2.31 billion for the year, basically unchanged from 2011. New retail rates at Kansas City Power & Light Company (KCP&L), which became effective in May 2011, and KCP&L Greater Missouri Operations Company, which became effective in June 2011, boosted pre-tax gross margin by about $46 million. Favorable weather added about $6 million, and lower interest expenses also proved beneficial. However, weather-normalized demand was lower, as were wholesale sales margins at KCP&L Missouri. Fuel and purchased power expenses at KCP&L Missouri were generally higher.

Capital expenditures on utilities totaled $610.2 million for 2012, compared with $456.6 in 2011. Coal generation fleet availability was favorable when compared with 2011, when Great Plains incurred planned outages at three major units. Nuclear availability was negatively affected by an unplanned outage at the Wolf Creek plant in the first quarter, which hit 2012 earnings by about $4 million.

Industrial Info is tracking $1.2 billion in projects involving Great Plains Energy, including $270 million in planned upgrades at a power station in La Cygne, Kansas. The project involves retrofitting a coal cyclone-fired Babcock & Wilcox wet bottom supercritical boiler by upgrading an existing boiler with Hitachi wet flue gas desulfurization scrubber unit and installing a fabric filter baghouse to further reduce emissions.

"Weather was a factor in our results, as the year started off unfavorably warm during the first quarter, but this warmth transitioned into a hot summer, including the warmest July on record," said Terry Bassham, the president and chief executive officer of Great Plains, in a conference call. "With strong cost management in 2012, we reduced total operating and maintenance expense by $11 million, despite the fact that Wolf Creek O&M [operations and maintenance] increased $13 million. The favorable weather and reduced O&M were partially offset by soft demand and weaker off-system sales."

The major Great Plains Retail businesses saw revenues that mostly ranged from slightly lower to slightly higher when compared with fourth-quarter and full-year 2011. The total number of megawatt-hours sold was slightly lower than in both periods:

• Retail revenues were reported to be $284 million for the quarter, basically unchanged from fourth-quarter 2011. For the full year, revenues were $1.39 billion, basically unchanged from 2011.
• Residential revenues were reported to be $108.3 million for the quarter, a 3.04% decrease from the same period last year. For the full year, revenues were $594 million, basically unchanged from 2011.
• Commercial revenues were reported to be $149.2 million for the quarter, basically unchanged from fourth-quarter 2011. For the full year, revenues were $652.6 million, a 2.32% increase from 2011.
• Industrial revenues were reported to be $26.4 million for the quarter, an 11.41% decrease from the same period last year. For the full year, revenues were $117 million, a 4.02% decrease from 2011.
• All other Retail revenues were reported to be a total of $3.1 million for the quarter, a 3.13% decrease from fourth-quarter 2011. For the full year, revenues were $12.5 million, basically unchanged from 2011.
• Wholesale revenues were reported to be $47.6 million for the quarter, a 4.61% decrease from the same period last year. For the full year, revenues were $174.5 million, a 9.47% increase from 2011.
• All other revenues were reported to be $4.2 million for the quarter, a 2.44% increase from fourth-quarter 2011. For the full year, revenues were $18.3 million, basically unchanged from 2011.

A unit at Wolf Creek began its planned refueling outage in early February and is expected to return to service in April. Bassham and other Great Plains executives were optimistic that an improving Missouri economy would boost the company's bottom line in 2013.

"We see signs that the underlying economy in Kansas City region is improving, and we expect that trend to continue," Bassham said in the conference call. "The region has experienced 27 consecutive months of job gains, and the unemployment rate of 6.4% remains below the natural average of 7.6%. With approximately 40% of our retail megawatt hour sales coming from the residential sector, the health of the housing market remains a key indicator of economic growth in our region. Single-family new housing permits rebounded significantly in 2012, reaching the highest level in five years. Although we have a ways to go to return to pre-recession levels, these numbers suggest that Kansas City's housing market is recovering."

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