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GREAT PLAINS ENERGY ANNOUNCES THIRD QUARTER FINANCIAL RESULTS
Earnings Benefited from Stronger Retail Sales at both KCP&L and Strategic Energy
Kansas City, MO, October 30, 2007– Great Plains Energy Incorporated (NYSE:GXP) today announced third quarter 2007 earnings of $61.8 million or $0.72 per share on more shares outstanding, compared to $55.4 million or $0.69 per share in the third quarter of 2006. Core earnings were $76.9 million or $0.90 per share on more shares outstanding, compared to third quarter 2006 core earnings of $57.5 million or $0.72 per share. Reported earnings are reconciled to core earnings in attachments B and C.
“Both KCP&L and Strategic Energy generated strong results for the third quarter,” said Chairman and CEO Mike Chesser. “Increased retail sales, higher wholesale sales and implementation of new rate tariffs this year drove earnings at KCP&L. At Strategic Energy both deliveries and margins were stronger in the quarter. We also achieved a positive settlement in our Kansas rate case and passed significant Aquila acquisition milestones with shareholder approval from both companies and FERC merger approval,” continued Chesser.
Compared to the third quarter a year ago, KCP&L’s core earnings in the third quarter of 2007 were higher principally due to favorable weather, increased wholesale revenues, new retail rates and customer usage growth. These items more than offset higher purchased power costs and modestly higher operating expenses. Strategic Energy had stronger delivered volumes and higher margins in the third quarter of 2007 compared to the same quarter a year ago, which more than offset higher bad debt expense. Dilution from the FELINE PRIDES issuance in February 2007 reduced Great Plains Energy’s core earnings per share by $0.06 compared to the third quarter last year.
For the first nine months of 2007, reported earnings were $109.9 million or $1.29 per share on more shares outstanding, compared to $91.9 million or $1.19 per share for the same period last year. Core earnings for the first nine months were $102.2 million or $1.20 per share on more shares outstanding, compared to $125.4 million or $1.62 per share last year. The decrease in year to date core earnings was driven by plant outages at KCP&L and increased bad debt expense and a resettlement charge at Strategic Energy.
Great Plains Energy is adjusting its 2007 core earnings guidance to narrow the range based on year to date results and also to update segment ranges due to a shift in interest expenses from the holding company to KCP&L. Overall 2007 core earnings guidance is adjusted to $1.60 to $1.70 per share compared to $1.60 to $1.75 per share previously. Revised segment guidance can be viewed in table G.
Kansas City Power & Light
KCP&L reported earnings of $76.5 million or $0.89 per share in the third quarter of 2007, compared to $70.7 million or $0.88 per share last year. Core earnings were $74.1 million or $0.87 per share, compared to third quarter 2006 core earnings of $57.1 million or $0.71 per share. The increase in core earnings compared to the third quarter last year was attributable to favorable weather, increased wholesale revenues, new retail rates and customer usage growth. These items more than offset higher purchased power costs and modestly higher operating expenses.
Revenues for the third quarter of 2007 were $416.0 million, compared to $359.3 million for the third quarter last year. Retail revenue increased by $40.5 million to $351.9 million compared to $311.4 million last year due to weather that was 8% warmer than the third quarter of 2006, new retail rates, and higher customer usage. Wholesale revenues in the third quarter 2007 also increased to $59.3 million, up $15.6 million compared to the third quarter last year. Better plant performance contributed to a 36% increase in wholesale volumes. Coal baseload availability of 89% and capacity factor of 86% were very strong in the quarter compared to 88% and 82% in the same quarter last year. Wholesale prices were also 11% higher than the same period last year.
During the third quarter, purchased power expense was significantly higher than last year due to increased peak power purchases as lower natural gas prices allowed KCP&L to purchase power more cheaply than running peaking generation. In addition, Hawthorn No. 5 litigation proceeds reduced purchased power expense by $10.8 million in the third quarter of 2006. Operating expenses in the third quarter were also higher than last year due to increased depreciation and amortization expenses and the increased level of pension costs in KCP&L’s rates effective January 1, 2007.
Year to date September 30, 2007, KCP&L’s reported earnings were $115.1 million or $1.35 per share, compared to $120.3 million or $1.55 per share for the same quarter in 2006. Core earnings year to date were $112.7 million or $1.33 per share, compared to $115.6 million or $1.49 per share last year. The year-over-year change in core earnings was primarily driven by outages at baseload generating units during the first half of 2007 and higher operating expenses.
Strategic Energy
Strategic Energy reported a loss of $4.1 million or $0.05 per share in the third quarter, compared to a loss of $10.9 million or $0.14 per share in the same period last year. Core earnings, which exclude net mark-to-market gains and losses on energy contracts, were $6.9 million or $0.08 per share, compared to $4.8 million or $0.06 per share in the third quarter of 2006. The increase in core earnings compared to last year was driven primarily by a 23% increase in MWhs delivered and a 5% increase in average retail gross margins per MWh compared to the third quarter last year. These increases more than offset higher bad debt expense.
Revenues for the quarter increased 25% to $576.0 million compared to the same quarter a year ago, driven by higher delivered volumes. New sales volume for the quarter was 5.7
million MWhs, compared to 7.3 million MWhs in the same period in 2006. Total backlog at the end of the quarter increased 32% to 37.4 million MWhs compared to the same period last year. Delivered volume during the first nine months of 2007, combined with 2007 backlog, totaled 20.4 million MWhs, up 23% compared to 16.5 million MWhs of combined delivered volume and 2007 backlog at the end of the third quarter of 2007.
Average retail gross margin per MWh in the third quarter of 2007 was $1.75. Excluding net mark-to-market losses on energy contracts, average retail gross margin per MWh was $5.05 in the third quarter of 2007 compared to $4.81 for the same quarter last year. Average contract duration of 15 months in the third quarter of 2007 was down slightly compared to 17 months in the same quarter last year.
Year to date September 30, 2007, Strategic Energy’s reported earnings were $16.5 million or $0.19 per share, compared to a loss of $17.6 million or $0.23 per share for the first three quarters of 2006. Core earnings year to date were $3.9 million or $0.05 per share, compared to core earnings of $20.4 million or $0.26 per share for the same period last year. The year over year decrease in core earnings was primarily attributable to lower average retail gross margins per MWh, primarily due to small customer attrition and a first quarter resettlement, and higher bad debt expense.
Other
In the third quarter of 2007, the “other” category reported a loss of $10.6 million or $0.12 per share, compared to a loss of $4.4 million or $0.05 per share last year. Core earnings were a loss of $4.1 million or $0.05 per share, compared to a loss of $4.4 million or $0.05 per share in the third quarter of 2006. Year to date September 30, 2007, the “other” category loss was $21.7 million or $0.25 per share on a reported basis and $14.4 million or $0.18 per share on a core earnings basis. This compares to a loss of $10.8 million or $0.13 per share on a reported basis and $10.6 million or $0.13 per share on a core earnings basis in the first nine months of 2006. Year to date September 30, 2007, the increased loss in core earnings in the “other” category is primarily attributable to a decline in available tax credits from affordable housing investments and overall higher expenses at the holding company, including $2.9 million of labor expenses related to the Aquila transaction that would otherwise be reflected in the KCP&L segment.
Non-GAAP Financial Measure
Core earnings is a non-GAAP financial measure that differs from GAAP earnings because it excludes the effects of certain unusual items and mark-to-market gains and losses on energy contracts. Great Plains Energy believes core earnings provides to investors a meaningful indicator of its results that is comparable among periods because it excludes the effects of items that may not be indicative of Great Plains Energy’s prospective earnings potential. Core earnings is used internally to measure performance against budget and in reports for management and the Board of Directors. Investors should note that this non-GAAP measure involves judgments by management, including whether an item is classified as an unusual item, and Great Plains Energy’s definition of core earnings may differ from similar terms used by other companies. The impact of these items could be material to operating results presented in accordance with GAAP. Great Plains Energy is unable to reconcile core earnings guidance to GAAP earnings per share because it does not predict the future impact of unusual items and mark-to-market gains or losses on energy contracts.
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.
Information Concerning Forward-Looking Statements -- 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, Great Plains Energy 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, Great Plains Energy and KCP&L; 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; 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; the ability to successfully complete merger, acquisitions or divestiture plans (including the acquisition of Aquila, Inc., and Aquila’s sale of assets to Black Hills Corporation); and other risks and uncertainties. Other risk factors are detailed from time to time in Great Plains Energy’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.
