GREAT PLAINS ENERGY ANNOUNCES SECOND QUARTER FINANCIAL RESULTS
Increasing 2006 Core Earnings Guidance
Kansas City, MO, August 2, 2006 - Great Plains Energy Incorporated (NYSE:GXP) today announced core earnings of $41.7 million or $0.54 per share in the second quarter of 2006, compared to $23.6 million or $0.32 per share in the second quarter of 2005. Reported earnings were $37.2 million or $0.48 per share, compared to second quarter 2005 earnings of $21.5 million or $0.29 per share. Core earnings exclude net mark-to-market gains and losses on energy contracts and other items. Reported earnings are reconciled to core earnings in attachments B and C.
Strategic Energy’s core earnings in the second quarter of 2006 were higher than last year, with improved gross margins more than offsetting lower delivered volumes. Higher core earnings in the second quarter of 2006 compared to the same quarter last year were also driven by weather-driven retail revenue, higher wholesale prices and lower purchased power expense that more than offset higher fuel costs at Kansas City Power & Light (KCP&L).
For the first six months of 2006, core earnings were $66.1 million or $0.87 per share, compared to $40.5 million or $0.54 per share for the same period last year. Reported earnings for the first six months were $34.7 million or $0.46 per share, compared to $41.3 million or $0.55 per share for same period last year. Year to date core earnings growth was largely driven by the same factors that drove increased earnings in the second quarter, including gross margin improvements at Strategic Energy, and favorable weather, higher wholesale prices and lower purchased power expense at KCP&L.
“Great Plains Energy’s operating performance in the first half of 2006, particularly at Strategic Energy, has led to an increase in our core earning guidance for the year by $0.10 cents per share,” said Chairman Mike Chesser. Chesser continued, “KCP&L has experienced new winter and summer peaks in the last few quarters, underscoring the growing demand for electricity and need for our Comprehensive Energy Plan.”
Great Plains Energy is increasing 2006 core earnings guidance to a range of $1.85 to $2.10, compared to the previous range of $1.75 to $2.00 (see table G). The company is increasing Strategic Energy’s segment guidance to $0.26 to $0.32 per share, compared to the previous guidance range of $0.16 to $0.22.
Kansas City Power & Light
KCP&L core earnings were $38.9 million or $0.51 per share in the second quarter of 2006, compared to $29.1 million or $0.39 per share last year. Reported earnings were $35.8 million or $0.47 per share, compared to second quarter 2005 reported earnings of $29.1 million or $0.39 per share.
Revenues for the second quarter of 2006 were $290.9 million, compared to $272.1 million for the second quarter last year. Retail revenue increased by $9.9 million to $241.8 compared to last year due primarily to 53% warmer than normal weather. Wholesale revenues in the second quarter 2006 also increased to $46.2 million, up $8.9 million compared to the second quarter last year. The increase in wholesale revenues was driven by a 23% increase in average wholesale prices. Wholesale volumes rose slightly as the absence of last year’s Wolf Creek refueling outage was largely offset by higher retail usage and coal conservation measures, as well as planned and unplanned outages. Included among these outages was the planned installation of the new Hawthorn 5 transformer in late June, which returned the unit to its full 563MW net capacity.
Higher fuel prices, increased fuel usage and an unfavorable fuel mix compared to last year led to a 25% increase in fuel costs in the second quarter of 2006. The higher fuel costs more than offset the benefit of lower purchased power expense. The regulatory accounting treatment of pension costs, which was implemented retroactively in the third quarter of 2005, positively impacted earnings, excluding the pension settlement charges related to the skill set realignment, by $1.6 million for the three months ended June 30, 2006 compared to the same period last year.
Year to date June 30, 2006, KCP&L’s core earnings were $56.7 million, compared to $39.9 million in the first half of 2005. Reported year to date earnings were $47.8 million, compared to $39.9 million last year. The increase in core earnings during the first half of 2006 was largely attributable to the same factors that drove the core earnings increase in the second quarter, as well as the absence of costs resulting from the 2005 ice storm.
During the second quarter of 2006, progress on KCP&L’s Comprehensive Energy Plan projects continued. The remaining permits required for construction of Iatan 2 were issued, and the co-owners signed the co-ownership agreement. Construction is anticipated to begin later this year. The 100MW wind facility is currently under construction and remains on schedule for completion in Fall 2006. The LaCygne 1 environmental retrofit project is on track for completion in the first half of 2007.
Strategic Energy
Strategic Energy core earnings, which exclude net mark-to-market gains and losses on energy contracts, were $5.4 million or $0.07 per share in the second quarter, compared to $2.2 million or $0.03 per share in the same period last year. Reported earnings were $4.2 million or $0.05 per share, compared to earnings of $3.7 million or $0.05 per share in the second quarter of 2005. The increase in core earnings was driven by improved average retail gross margins, primarily due to the absence of transitional SECA charges, which more than offset lower delivered volumes compared to the second quarter last year. Strategic Energy’s delivered volumes decreased to 3.9 million MWhs during the second quarter, compared to 5.2 million MWhs last year, reflecting the challenging sales environment experienced during much of 2004 and 2005.
Strategic Energy continues to benefit from successful marketing efforts and a more favorable sales environment in several states. Total backlog at Strategic Energy continued to increase, growing 40% in the second quarter of 2006 compared to the same period last year to 25.7
million MWhs. New sales volume rose to 7.6 million MWhs in the second quarter of 2006, compared to 3.9 million MWhs in the same period in 2005. Delivered volume during the first six months, combined with 2006 backlog, totaled 16.1 million MWhs at the end of the second quarter, compared to 13.8 million MWhs at the end of first quarter. Average contract durations of 16 months in the second quarter of 2006 compared favorably to 14 months in the same quarter last year, but were slightly lower than the 18 months reported in the first quarter of 2006.
Average retail gross margin per MWh in the second quarter of 2006 was $5.32. Excluding $2.0 million in net mark-to-market losses on energy contracts, average retail gross margin per MWh was $5.84, compared to an average retail gross margin per MWh, excluding net mark-to-market gains on energy contracts, of $3.33 last year. The year over year difference in gross margin per MWh reflects a $2.22 net SECA impact. Average retail gross margin on new sales during the second quarter of 2006 was $3.74, which excludes potential portfolio optimization benefits.
KLT Investments and “Other”
Second quarter 2006 core earnings from KLT Investments were $1.4 million or $0.02 per share, compared to a loss of $2.5 million or $0.03 per share in the second quarter of 2005. In the first six months of 2006, core earnings were $2.1 million or $0.03 per share, compared to $0.5 million or $0.01 per share last year. For both the quarter and year to date periods, the increases are attributable to the timing of reductions in affordable housing investments partially offset by a decline in available tax credits from the investments.
In the second quarter of 2006 the “other” category loss was $4.0 million compared to a loss of $5.2 million in the same period last year on a core earnings basis. The loss per share was $0.06 in the second quarter of 2006 versus $0.07 in the second quarter of 2005. Year to date, the “other” category loss was $8.3 million or $0.11 per share on a core earnings basis, compared to $12.0 million or $0.17 per share in the first six months of 2005.
Non-GAAP Financial Measure
Great Plains Energy provides in its earnings releases descriptions of “core earnings” in addition to earnings calculated in accordance with GAAP. Great Plains Energy also provides its earnings guidance in terms of core earnings. Core earnings is a non-GAAP financial measure that differs from GAAP earnings because it excludes the effects of discontinued operations, certain unusual items and mark-to-market gains and losses on energy contracts. Core earnings for historical periods are reconciled to GAAP earnings in Attachments B and C.
The Company believes core earnings provide to investors a meaningful indicator of its results that is comparable among periods because it excludes the effects of discontinued operations, certain unusual items and mark-to-market gains and losses on energy contracts. These items are excluded from core earnings because they may not be indicative of Great Plains Energy’s prospective earnings potential. Investors should note that this non-GAAP measure involves judgments by management, including whether an item is classified as an unusual item. Core earnings is used internally to measure performance against budget and in reports for management and the Board of Directors. Great Plains Energy’s definition of core earnings may differ from similar terms used by other companies.
Great Plains Energy Incorporated (NYSE:GXP) headquartered in Kansas City, MO, is the holding company for Kansas City Power & Light Company, a
leading regulated provider of electricity in the Midwest, and Strategic Energy L.L.C., a competitive electricity supplier. The Company's web site is www.greatplainsenergy.com.
CERTAIN FORWARD-LOOKING INFORMATION -- Statements made in this release that are not based on historical facts are forward-looking, may involve risks and uncertainties, and are intended to be as of the date when made. Forward-looking statements include, but are not limited to, statements regarding projected delivered volumes and margins, the outcome of regulatory proceedings, cost estimates of the comprehensive energy plan and other matters affecting future operations. In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the Company is providing a number of important factors that could cause actual results to differ materially from the provided forward-looking information. These important factors include: future economic conditions in the regional, national and international markets, including but not limited to regional and national wholesale electricity markets; market perception of the energy industry and Great Plains Energy; changes in business strategy, operations or development plans; effects of current or proposed state and federal legislative and regulatory actions or developments, including, but not limited to, deregulation, re-regulation and restructuring of the electric utility industry; decisions of regulators regarding rates KCP&L can charge for electricity; adverse changes in applicable laws, regulations, rules, principles or practices governing tax, accounting and environmental matters including, but not limited to, air and water quality; financial market conditions and performance including, but not limited to, changes in interest rates and in availability and cost of capital and the effects on pension plan assets and costs; credit ratings; inflation rates; effectiveness of risk management policies and procedures and the ability of counterparties to satisfy their contractual commitments; impact of terrorist acts; increased competition including, but not limited to, retail choice in the electric utility industry and the entry of new competitors; ability to carry out marketing and sales plans; weather conditions including weather-related damage; cost, availability, quality and deliverability of fuel; ability to achieve generation planning goals and the occurrence and duration of unplanned generation outages; delays in the anticipated in-service dates and cost increases of additional generating capacity; nuclear operations; ability to enter new markets successfully and capitalize on growth opportunities in non-regulated businesses and the effects of competition; application of critical accounting policies, including, but not limited to, those related to derivatives and pension liabilities; workforce risks including compensation and benefits costs; performance of projects undertaken by non-regulated businesses and the success of efforts to invest in and develop new opportunities and other risks and uncertainties. Other risk factors are detailed from time to time in the Company’s most recent quarterly report on Form 10-Q or annual report on Form 10-K filed with the Securities and Exchange Commission. This list of factors is not all-inclusive because it is not possible to predict all factors.
