Good day, and thank you for standing by. Welcome to the Q1 2024 Evergy, Inc. Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Pete Flynn, Director of Investor Relations. Please go ahead.

Thank you, Brianna. Good morning, everyone. Welcome to Evergy's First Quarter 2024 Earnings Conference Call. Our webcast slides and supplemental financial information are available on our Investor Relations website at investors.evergy.com. Today's discussion will include forward-looking information. Slide 2 and the disclosures in our SEC filings contain a list of some of the factors that could cause future results to differ materially from our expectations. They also include additional information on our non-GAAP financial measures. Joining us on today's call are David Campbell, Chairman and Chief Executive Officer; and Kirk Andrews, Executive Vice President and Chief Financial Officer. David will cover first quarter highlights, our updated integrated resource plan, and provide an update on our regulatory and legislative priorities. Kirk will cover in more detail our first quarter results, retail sales trends, and our financial outlook for 2024. Other members of management are with us and will be available during the Q&A portion of the call. I'll now turn the call over to David.

Thank you, Pete, and good morning, everyone. I'll begin on Slide 5. This morning, we reported first quarter adjusted earnings of $0.54 per share compared to $0.59 per share a year ago. Relative to last year, this quarter's results were driven by higher operations and maintenance expense, depreciation and amortization expense, and interest expense, partially offset by new retail rates and transmission margins. Unseasonably warm weather was also a factor. Heating degree days were 11% below normal for the quarter, negatively impacting our results by an approximate $0.07 per share. Kirk will discuss these earnings drivers in more detail in his remarks. In terms of reliability, we've experienced a good start to the year through March, our average outage duration and frequency measured by SAIDI and SAIFI are trending favorably relative to our targets, demonstrating the benefits of our continued grid modernization investment and the hard work of our transmission and distribution teams. I'm also pleased to report that we're nearing completion of our 26 Wolf Creek nuclear refueling outage, consistent with our plans. Wolf Creek generates around 1,200 megawatts of non-carbon emitting energy, enough to power more than 800,000 homes. The plant employs over 700 people, and that number effectively doubles during outages. I'd like to thank everyone involved for their hard work and focus on sustaining the excellent operational performance of the plant. Our team's execution has enabled a solid start to the year despite the mild weather, and we are reaffirming our 2024 adjusted EPS guidance range of $3.73 to $3.93 per share as well as our target long-term annual adjusted EPS growth target of 4% to 6% from 2023 to 2026. Slide 6 highlights our triennial Integrated Resource Plan, or IRP, which was filed on April 1 in Missouri and will be filed on May 17 in Kansas. This year's IRP reflects the impact of updating our long-term expected load growth, including the addition of the recently announced Google data center in Missouri as well as other important inputs such as resource adequacy requirements of the Southwest Power Pool, construction cost estimates, and commodity price forecasts. I'd like to briefly touch on the new rules recently issued by the Environmental Protection Agency. Our IRP process includes consideration of environmental rules, SVP rules, and other regulatory requirements. So the EPA's newly issued rules will play a role in our resource planning going forward. Our overarching goal in the IRP process is to identify the most cost-effective and resilient plan that reliably serves our customers across uncertain future scenarios. We believe that renewable and natural gas additions, as shown in our IRP, are being planned in a manner that will allow Evergy to reduce carbon emissions, take advantage of best-in-class efficiency, and support economic development in our service territory while striving to minimize the impact on affordability and ensuring that we can provide reliable electric service. We are assessing the potential impact of the new EPA rules from an affordability and reliability perspective as the rules would likely require significant incremental investment relative to what is currently in our IRP. For example, carbon capture and storage is an important element in the new greenhouse gas rule. At present, carbon capture and storage technology is not commercially demonstrated at scale on existing plants, along with costly and as yet unproven retrofitted control equipment. It requires pipeline and storage infrastructure, which are not in place in our region. The EPA rules are expected to face legal challenges, and we will monitor those developments closely. As a reminder, in 2023, nearly half of the energy that we generated for retail customers came from carbon-free resources, reflecting the contributions of our Wolf Creek nuclear plant and the 4,600-megawatt portfolio of renewable resources that we either own or contract through long-term power purchase agreements. Evergy has invested significantly to enable our fossil units to meet existing environmental standards, operate reliably, and be available to support our customers when called upon. We continue to take a balanced forward view of generation needs as shown through our IRP, which includes significant new solar, wind, and natural gas balanced against the pace retirements of our coal fleet. In aggregate, the 2024 preferred plan includes 5,800 megawatts of resource additions through 2033, representing an increase of 1,500 megawatts over the next 10 years, when compared to the 2023 preferred plan. As our generation fleet evolves, we are focused on achieving a responsible balance between renewables, which are non-emitting and have low or negative marginal costs but are intermittent, and both new and existing thermal resources, which have higher marginal costs for fuel and O&M, but can be dispatched to meet customer demand when they are needed most. The ultimate goal of this balance is to ensure reliability and affordability for our customers as we advance a responsible transition of our generation fleet. This transition will require sustained investment over the coming years and will incorporate the most recent IRP and its higher levels of new generation when we provide an update to our capital plan in the third quarter earnings call later this year. On Slide 7, we highlight details about 3 customers, Google, Panasonic, and Meta, which represent major economic development wins in 3 of our 4 jurisdictions. In aggregate, demand from these 3 customers represents approximately 750 megawatts of load and each will be the largest customer in their respective jurisdiction by a wide margin. The overall economic development pipeline continues to show promise in both Kansas and Missouri with more than $10 billion of projects considering locating in our service territories. We are very excited to work with these potential customers as they consider our region. As part of the exercise alongside the economic development rates that are in place in both Kansas and Missouri, we are looking at rate design elements to ensure that there is appropriate and adequate recovery associated with large new loads. More broadly, our strategic focus on affordability and regional rate competitiveness is an important contributor to this large pipeline and provides a foundation for our support of the tremendous economic potential in our states. As shown on Slide 8, when factoring in economic development in these large new loads, including the recently announced Google Data Center, we are extending our weather-normalized demand growth forecast of 2% to 3% to 2028 off of the 2023 base, which previously ran through 2026. Moving to Slide 9, I'll provide an update on our regulatory and legislative priorities in both Kansas and Missouri. I'm very pleased to start by discussing House Bill 2527 in Kansas, which becomes effective on July 1 of this year. The passage of HB 2527 signals the support of Kansas legislators, regulators, and stakeholders for infrastructure investment in support of economic development and the importance of a competitive and constructive regulatory framework for that infrastructure investment. It is an exciting time in the region as reflected by the significantly higher sales growth forecast relative to the recent history of the business. In terms of financial impact, the provisions in HB 2527 served to mitigate regulatory lag between rate cases, very similar to how it works in Missouri. The construction work in progress provisions that apply to new natural gas units also demonstrate Kansas' support for our plans to invest in new natural gas-fired generation. For our current capital expenditure plan, many of you have asked to quantify the financial impact relative to not having HB 2527 in place and how it helps to reduce the gap between realized returns and actual realized returns. Under the provisions of the new law, in the first year following a rate case at our current investment levels, the impact is roughly $0.03 to $0.04 per share. If we go 2 full years between rate cases, the impact is roughly $0.10 in the second year. And as we've described, we expect our cadence of rate cases going forward to be roughly every other year, though that won't be true for every jurisdiction. Of course, that estimated impact is a stand-alone view of a single item and does not factor in any other potential drivers, such as changes in interest rates or changes to the capital plan. Overall, the most important aspect of the passage of HB 2527 is the alignment that it reflects in Kansas about a competitive framework for investment as we respond to historic economic development opportunities. I'd like to thank legislative leaders, Kansas Corporation Commission staff, representatives from CURB, industrial stakeholders, the Governor's office, and many other stakeholders as well as the Evergy Public Affairs team for their participation and engagement in getting this legislation passed. I also want to highlight the passage of Senate Bill 410, which provides a 10-year property tax exemption for newly constructed natural gas units. The benefits of this exemption will be shared with our customers. This bill further reflects Kansas' support for our planned natural gas investments, which are a crucial aspect of our long-term resource planning to meet the demands of our growing customer base and ensure reliability. On May 17, we will file our 2024 IRP with the Kansas Corporation Commission. We bid our outlook for Kansas Central, similar to what we provided in our Missouri IRP filing. Now pivoting to Missouri, we continue to work our way through our pending general rate case in Missouri West. On June 27, staff and other interveners will file their direct testimony and rebuttal testimony is due by August 6. During the subsequent weeks, parties will file true-up and additional testimony followed by a settlement conference around September 23. Hearings will occur in late September through early October and revised rates in Missouri West will go into effect January 2025. We look forward to working collaboratively with the Missouri Public Service Commission staff and our stakeholders to achieve a constructive outcome for our Missouri West customers. Regarding Missouri legislative initiatives, language to amend the provisions of the statute has passed the house and awaits further action in the Senate. Key provisions would amend the statute to include new natural gas units and a 90% deferral and extend the provisions sunset to 2035. Discussions around the topic and the need for new gas generation have been positive, reflecting broad support. However, given the schedule and overall session dynamics, it will be hard to get any new legislation passed in the short time remaining for the 2024 session. This initiative is no exception. I'll conclude my remarks on Slide 10, which highlights the core tenets of our strategy: affordability, reliability, and sustainability. Our efforts to enhance affordability have yielded significant progress in improving regional rate competitiveness over the past few years. Our strategic plan is designed to sustain this positive trajectory. By prioritizing affordability, we contribute to the robust economic development pipeline ahead of us and support the substantial economic potential within our states. Ensuring reliability is also a core element of our strategy as reflected by SAIDI, SAIFI, grid resiliency, and public safety. This also includes a focus on metrics relating to customer service, the commercial availability of our fleet, and safety in all elements of our operations, including infrastructure investments. With respect to sustainability, we continue to advance the cost-effective transition of our generation fleet. Since 2005, we have reduced carbon emissions by 53% and reduced sulfur dioxide and NOx emissions by 98% and 90%, respectively. We look forward to ongoing progress along this path. Our mission is to empower a better future, and our vision is to lead the responsible energy transition in our region, always with an eye on affordability, reliability, and sustainability. I will now turn the call over to Kirk.

Thanks, David, and good morning, everyone. Turning to Slide 12. I'll start with a review of our results for the quarter. For the first quarter of 2024, Evergy delivered adjusted earnings of $124.7 million or $0.54 per share compared to $136.1 million or $0.59 per share in the first quarter of 2023. As shown on the slide from left to right, the year-over-year decrease in first quarter adjusted EPS was driven by the following: First, similar to the first quarter of 2023, we saw milder-than-normal weather, particularly in the months of February and March this year. And while the year-over-year adjusted EPS impact was flat, compared to normal, weather was an estimated $0.07 unfavorable. Next, compared to the strong demand recovery we saw in the first quarter of 2023, weather-normalized retail sales declined by 0.5%, primarily driven by lower commercial and industrial demand that remained neutral to EPS. New retail rates in Kansas contributed $0.05 to the quarter. Higher transmission margins resulting from our ongoing investments to enhance our transmission infrastructure drove a $0.04 increase, and O&M drove a $0.06 negative variance for the quarter. This was driven by significantly lower O&M in the first quarter of 2023, which resulted from the implementation of an early retirement program as well as the timing of expenditures in '24. Overall, our O&M outlook is flat for the balance of the year versus 2023. Next, higher depreciation and amortization expense due to increased infrastructure investment drove $0.04 decrease. Higher interest expense drove a $0.03 decrease, and based on our expected capital investments and the current outlook for interest rates, our expectation for interest expense for the full year remains on target. And finally, other items drove a $0.01 decrease. Turning next to Slide 13. I'll provide a brief update on our recent sales trends. On the left side of the screen, you'll see weather-normalized retail sales decreased by 0.5% over the first quarter of 2023, driven primarily by decreases in both commercial and industrial usage. While we did see further recovery from our largest refining customers in industrial, we also continued to see lower demand for other industrial customers. This was driven in part by plant retooling and expansion projects being undertaken by our customers in the food processing and additive sector, which began in late 2023. As these events are expected to be temporary, with demand from these customers recovering thereafter, we expect industrial demand to recover as we move through 2024. This will be further augmented by the expected uptick as large customers from our recent economic development wins begin to come online later this season. We expect a more notable pickup from these new customers beyond 2024 as we expect Panasonic, Meta, and Google to fully ramp their usage to full run rates in 2026, 2027, and 2028, respectively. As David noted in his remarks, in total, we are extending our weather-normalized demand growth forecast of 2% to 3% now through 2028. Our demand projections continue to be supported by a strong local labor market as Kansas and Kansas City metro area unemployment rates remain below the national average. And finally, on Slide 14, I'll wrap up with an overview of our long-term financial expectations. We are reaffirming both our adjusted EPS guidance range for 2024 as well as our long-term adjusted EPS growth target of 4% to 6% through 2026 based on the original 2023 adjusted EPS guidance midpoint of $3.65 and continue to expect to achieve this growth without the need for new equity. Our recently updated capital investment plan, which includes $12.5 billion in infrastructure investment, does not yet reflect and incorporate the impact of changes that were reflected in our 2024 IRP. As David mentioned earlier, we will provide you an update on our capital plan on our third quarter earnings call. In addition to allowing us to achieve our financial targets, executing on our investment plan advances our key objectives of ensuring affordability, reliability, and sustainability over the long term. And with that, I'm happy to open the call for questions.

Our first question comes from Nicholas Campanella from Barclays.

Thank you for all the updates today. I just wanted to clarify, it's great to see the load growth extend into 2028. And I know you have the IRP coming in Kansas. Just how should we kind of think about you doing a 6% rate base CAGR right now? And does this extend your visibility to that CAGR? Or do you see that kind of pressuring higher in this new plan?

That's a great question. We won’t provide details on the capital expenditure update planned for the third quarter just yet, but I can share some information. Our current expectation for rate base growth through 2028 is 6%. This was outlined in our capital expenditure plan during our Q4 call and is at the lower end compared to our peers, significantly below their average. The passage of HB 2527 is crucial because it helps us leverage a significant economic development opportunity within our territory, and it's challenging to attract capital when the returns we can offer are not competitive. HB 2527 greatly improves that situation. We do intend to update our capital expenditure plan, reflecting several factors, including a revised IRP that projects a higher level of generation additions. We will include economic development activities and recent announcements related to our capital expenditure plan. Additionally, we are actively assessing grid modernization and other opportunities. We plan to provide a capital expenditure update in the third quarter, but we won’t reveal specifics yet. There are multiple factors that may indicate a positive trend, but we always maintain a balanced perspective. We are excited about the chance to invest in the opportunities we see for our region.

That's really helpful. And then I guess as we're kind of toggling CapEx and thinking about what could be incremental to the plan. Can you just remind us where you stand on your current credit metrics, where you're trending for 2024? And where that is relative to your minimums, and just how to think about equity needs past the time frame you've guided?

Sure Nick, it's Kirk. I'll focus on the Moody's metric, which we updated on our fourth quarter call. Due to a few items, most notably the changes, we were still waiting to securitize the Missouri West cost, which we successfully did after the year-end. Adjusted for that and other factors looking into 2024, we're around 15%, which is that benchmark. However, as we enter 2024, some elements that provide a more current and efficient return, both in earnings and cash, especially our transmission investments in Kansas and other aspects, support the fact that we continue to see a surplus relative to the 15% benchmark for Moody's. We anticipate using that surplus to help enhance our operating cash flow to finance those capital investments without needing new equity until 2026, and we will not compromise those credit ratios in the process. Thus, we are confident in that surplus and our capability to utilize it while maintaining our ratios at or above the benchmark through 2026.

Our next question comes from Shar Pourreza of Guggenheim Partners.

Obviously, you guys have mentioned economic development. It's obviously been a key part of the slide decks. Data centers have obviously been kind of front and center for a lot of calls this cycle. Do you sort of have maybe a rule of thumb at this point for the amount of maybe transmission investments you're making with these sites? We've heard some of your peers like in Pennsylvania talk about somewhere between $50 million to $150 million. Is that kind of fair to you?

It really depends on the location. Generally, there are additional investments needed for very large loads, as these are system investments and can be somewhat complex. If you focus on the most recent investments tied to a particular customer, you'll find that for loads in the hundreds of megawatts, considering the capacity of our system, some will require investments at that scale, especially when they are significant in size. The specifics vary depending on the exact location. We usually do not have excess capacity in our system for hundreds of megawatts, so adding such a load will help distribute fixed costs but will involve some additional expenses as well. We provide a general guideline, but when discussing loads of hundreds of megawatts, you will see the need for extra system investments. Most of our utilities are likely to observe similar investment ranges. Additionally, it's worth noting that both Meta and Panasonic were announced prior to our Q4 CapEx plan release, so they are included in that plan. However, Google's announcement came after, so it has not been incorporated into our CapEx plan yet.

Then maybe just to hone in a little bit. Just maybe if you could just provide a little bit of directional color on the mechanics and the margin on the Google deal. Because if we understand it, you're supplying the actual megawatts, but some of the press releases, including coming from the governor, were framing this as a self-supply setup 400 megawatts from Ranger and D. E. Shaw. So just trying to understand your exposure and obligations here.

The rates are influenced by general agreements, and I typically do not discuss them. When large new loads are introduced, they often qualify for economic development rates. As I mentioned earlier, we are working on rate design elements to account for these large new loads. Several parties have entered into virtual Power Purchase Agreements, and we will continue to supply Google. They will be our customer, receiving megawatts from us. Their agreement will effectively be a virtual PPA with an economic offtaker, and the asset will contribute to another generation resource in the Southwest Power Pool.

And then just lastly, on the EPA regs, I mean, obviously, this was a key part of your opening prepared, right? I mean, there's obviously been a lot of chatter this quarter on the regs and potential impacts to IRPs and gas generation plans. Does the April IRP just put out account for this, thinking specifically, for example, on the gas additions you proposed, which may not get credit for coal-firing hydrogen under the final rules, so CCUs only? I guess how are you approaching planning around this?

Thank you for your question. The Integrated Resource Plan we recently filed in Missouri, which is part of our overall corporate plan, will also be submitted in Kansas in the next couple of weeks. However, this plan does not account for the EPA's new rules as they were released too late to be incorporated. The analysis for these plans is extensive, and while we will include the new rules in future filings, I do not expect them to alter our strategy to construct new gas units. We will require new gas to ensure reliability and provide necessary capacity in the system. The upcoming regulations will influence our decisions regarding the type of gas units we add and will likely necessitate jurisdiction-specific analyses. The EPA rules establish performance thresholds for new efficient gas turbines, including limitations on the capacity factors at which they can operate. For peaking units, this capacity factor is set at 20%, while intermediate units can function at up to 40% before carbon capture and storage becomes necessary. We will consider these requirements as they will affect our resource plans, especially concerning coal obligations and retirement timelines. In summary, to operate coal units long-term, carbon capture and sequestration must be implemented, which has not been proven at scale for existing retrofits. To continue operating beyond 2038, this technology must be in place by 2032. Gas co-firing may allow operation into the mid- to late 2030s. The greenhouse gas rule will attract significant attention, along with other EPA regulations. We believe we are well-positioned to comply with the existing rules, but further analysis is required. We will closely monitor potential legal challenges. Our future Integrated Resource Plans will incorporate the effects of the EPA regulations, as gas will play a critical role in ensuring reliability and addressing the rising customer demand while maintaining affordable service.

Our next question comes from Durgesh Chopra of Evercore ISI.

Can I get some clarification on the potential benefits you mentioned regarding House Bill 2527? The $0.03 to $0.04 increase, is that expected to be a 20% upside in the first year for 2025? Since the bill takes effect in July this year, would that mean we can only anticipate about half of that $0.03 to $0.04 this year? Am I understanding that correctly?

How I describe it is what HB 2527 does is it just helps to reduce the gap between the authorized return and your realized return. So it helps to mitigate regulatory lag. It gives us a better opportunity to get to approximate, to get closer to earning our authorized return. The way I described it is in the first year following a rate case, it's $0.03 to $0.04. We are in the first year following a rate case, it's fair to think of it that way. In the second full year following a rate case, it's roughly $0.10. So it was a stand-alone item without consideration issued from anything else. That's how to think about the impact in terms of reducing regulatory lag that would otherwise occur.

And the jump from $0.04 to $0.10, I'm sorry, this is not a great question, but that's just basically capital doubling, right? Like your asset base doubling between the two.

Yes, it's quite similar to how things operate in Missouri, although with a slightly different provision, which is a 90% deferral instead of 85%. For instance, when examining our realized returns in Kansas Central from 2021 to 2023, we noticed that these returns decreased significantly, falling below the authorized level due to being in a 5-year stay out. The impact of regulatory lag increased as we continued investing in our system. This explains why the further we are from a rate case, the larger the impact becomes. If you have a more regular schedule of rate cases, you can eliminate this issue. While this may not apply universally, we generally anticipate every other year for rate cases.

I understand it now. And then just quickly, can I ask you for your level of confidence in retail sales? It was flat last year, '23 over '22. And then the first quarter came in at 0.5% below the first quarter of '24 and obviously you're projecting 2% to 3% at the end of the year? And what gives you that level of confidence? I know you mentioned a significant amount of load coming online, but just maybe share a little bit more color there.

Sure. I'll start and ask Kirk to provide additional insights. Last year, the demand trends showed that residential demand increased by 23.8% and commercial demand by 1%. However, industrial demand was down, and we can attribute this decline in 2023 to a few customers facing unique circumstances. This understanding gives us confidence in the strong performance of the residential and commercial sectors last year while also considering the industrial trends at a customer level. Kirk elaborated on these points in the first quarter. We won’t react too strongly to the first quarter figures, as there was still a solid momentum in the residential segment despite a mild quarter. We will monitor the situation as the year progresses. Regarding large new customers, there may be timing considerations, but if you visit DeSoto, Kansas, you'll see that a large battery manufacturing facility is well under construction, which is encouraging. The Meta data center is also being built, and while Google is a bit further along, we remain optimistic about the overall growth trajectory. Kirk, do you agree?

I agree. I mean, our residential and commercial growth assumptions are roughly consistent with what we saw in the actuals in 2023. It's really just buoyed by that expectation of industrial recovery, both cycling through some of those temporary events that I talked about before and then supplemented by some of those you talked about, the new economic development customers coming on later this year on the industrial side. So, I agree with that.

Our next question is from Travis Miller of Morningstar, Inc.

Congrats on getting all the stuff done there in Kansas. Wondering as a follow-on to that, what are you still working on? Is there a timeline? And what might be involved in getting more done in Kansas?

Our efforts are ongoing as we collaborate with our stakeholders on various issues in both states. A key focus is how we can effectively respond to the economic development opportunities available to us and establish the best frameworks to capitalize on them. In Kansas, I want to emphasize the significance of HB 2527, not just for its provisions that reduce lag, but also as a testament to the widespread consensus on the need for investments that leverage economic development opportunities and establish a supportive framework for those investments. We have several ongoing initiatives and plan to hold a workshop later this year addressing capital structure and return on equity. We have agreed with the involved parties that this topic will not be part of the legislative agenda this spring, but rather will be discussed in the workshop this fall. Ensuring that Kansas maintains a competitive framework for authorized returns remains crucial. I have noted that our rate base growth is considerably lower than that of our peer jurisdictions, and we receive frequent feedback from investors regarding the competitiveness of returns in various states. We anticipate a fruitful dialogue in Kansas. Regarding Missouri, there is substantial support for legislation related to natural gas plants, as we and other utilities are preparing to build gas facilities that are essential for reliability and meeting increased demand. Improving the regulations for new dispatchable generation will be vital in Missouri over time. We are pleased with the constructive discussions we have had with stakeholders in both states and look forward to continuing our collaboration with regulators, legislators, and various intervenors in Missouri.

That work step would be in the legislative sessions or regulatory?

We expect to have that later this year, working with all parties to find the right time to proceed. I would anticipate it happening later this summer or fall.

And then a higher level on the EPS growth. You've described obviously a lot of positive things going on. Your growth rate is at or higher than other utilities. You got the CapEx, which you've suggested might be higher. In the third quarter, what pushes you at least to a 5% to 7% number, maybe not back to the 6% to 8%, but why not get to that 5% to 7% or should we anticipate that when you come out with a new CapEx plan?

As mentioned earlier, we will not exceed the CapEx plan or any earnings forecast. When reviewing our overall financial plan, we observe the lowest rate base growth, leading to a correspondingly lower earnings growth trajectory. Typically, rate base growth and earnings growth targets are aligned, but the earnings growth target tends to lag slightly behind the rate base growth target due to financial constraints. Our focus is on investing appropriately to seize economic development opportunities, ensure reliability, and maintain a competitive system. The goals include performance, resilience, reliability, and fulfilling new customer demands. This strategy will likely result in higher investment levels, which we will evaluate over time. Ultimately, we prioritize affordability, reliability, and sustainability, aiming to determine the best capital investment plan to support these objectives.

I figured you want to answer my question by saying, yes, 5 to 7. So appreciate the details. Thanks so much.

Our next question comes from Paul Patterson of Glenrock Associates.

Just wanted to go over just a few quick things on the quarter. First of all, the decrease in labor capitalization. Can you elaborate a little bit more on what's driving that and how that's going to impact the rest of the year?

It's Kirk. The decrease in labor capitalization is really a function, but we had a little bit of a change in our transformer labor capitalization approaches in the first quarter. There's a little bit of a catch-up there. So now what you're seeing is just the ongoing effects of that as we move forward.

Paul, you get the product for both in-depth reading and materials.

But what was that amount, I guess?

I will need to follow up with you on that. Paul will be happy to assist.

No problem. Then the sales growth numbers for the quarter, does that reflect leap year?

Yes, it does.

It seems that in Missouri, there isn't much opportunity for the House Bill related to the PISA legislation. I believe there's also a Senate Bill. I'm aware that things are coming to a close soon, but is that how you feel? Did I understand you correctly?

I think, Paul, you heard me correctly. We've seen the PISA provisions and modifications regarding natural gas investments increase to 90%, and the deadline has been extended beyond the House. There are positive discussions happening, and there is widespread support. However, given the tight timeline and the overall dynamics of the session, it will be challenging to push anything through. We believe this situation is no different. While we wouldn’t dismiss the possibility, we feel it will be advantageous; the real limitation is the session dynamics and timeline, not the support for the provisions, which we believe is broad-based.

Sorry, Paul, that transformer labor just to come back to you is about $0.02 year-over-year.

Then just on Missouri, if I'm correct, the session ends tomorrow, is that right?

The 17th, I think, is when it formally ends. Paul?

But I thought there was a floor action deadline or something. Okay. But okay, the 17th, okay. Okay.

I appreciate that. Finally, you mentioned that your next IRP will take into account the impact of the EPA rules. How do you view depreciation in relation to these EPA rules? You've also mentioned litigation and the uncertainty that comes with it. How should we consider potential changes in depreciation for certain assets given these EPA rules? When might you have to address this regulatory aspect? Overall, how are you approaching the issue of asset life depreciation in light of these rules, and how do you envision this working out? That's a great question, Paul. Addressing this will require significant effort from us and collaboration with our stakeholders, as we need to thoroughly explore the affordability and reliability implications of the rules. There are some short-term provisions that could offer some flexibility. However, we need to evaluate whether carbon capture and sequestration will be necessary for any units that are running beyond 2038, especially if that technology is not yet commercially viable. I want to be cautious not to anticipate the analysis we need to conduct or the discussions we'll have with our regulators regarding this matter. The focus on carbon capture and storage will undoubtedly lead to extensive discussions among many parties. The implications for affordability and reliability are crucial, and any alterations to depreciation schedules, along with any additional investments needed, will affect affordability. According to the provisions of the rule, our RFP suggests that without CCUS, there will be impacts in the future. We have some time for analysis and to engage with various stakeholders. You highlight an important concern: these rules have substantial consequences, and we will be systematically analyzing the affordability and reliability implications over time. We won't rush this process and will collaborate closely with our regulators and stakeholders in Kansas and Missouri during our analysis. We'll also keep a close watch on any litigation.

Our next question comes from Ryan Levine of Citi.

On the one slide, you highlight over $10 billion worth of new development projects in Kansas and Missouri. But you provide a little bit of color around what industries are most represented in that $10 billion number in which service territories is there waiting towards? And any color around the loan opportunities that may enable?

Certainly. The focus is on data centers, as well as advanced and large manufacturing, which includes sectors like semiconductors, automotive, food, and services. We have a significant presence in data centers, similar to companies like Meta and Google, and there are multiple data centers in our portfolio. Additionally, advanced manufacturing is a major focus for us. While we've quantified the potential load from this $10 billion investment, the exact megawatts are yet to be specified. This interest spans all our jurisdictions, with several parties expressing interest in the Metro region and our Missouri West area, including Meta in Missouri West, Google in the Metro area, and Panasonic plants in Kansas. The aerospace sector also plays a considerable role, particularly in central Kansas, enhancing our portfolio's appeal. We're thrilled about acquiring new large customers and see a promising mix of data centers and advanced manufacturing opportunities without exclusively concentrating on data centers. Although there’s a lot of attention on recent discussions, we value the influx of advanced manufacturing into our areas for the jobs and benefits they create. Data centers positively impact us too, albeit with fewer job opportunities. Overall, it's an exciting time regarding our project pipeline.

As you're working through your resource planning and with the favorable legislation passed in Kansas, are there any non-financial constraints to be able to serve incremental load in your service territories, i.e. particularly on the gas generation side that we should keep in mind that may constrain your growth?

For all of us in the utility sector, when we look at our system and consider the three customers I mentioned earlier, we are adding approximately 750 megawatts of load, which represents an increase of nearly 5% to 10% in our overall peak demand. Adding several hundred megawatts in one location presents challenges regarding the valuation of our transmission and distribution infrastructure. We need to assess whether we have sufficient transmission and substation infrastructure in place. With the tightening requirements from the Southwest Power Pool, we are certainly facing capacity issues as well. When evaluating sites and opportunities for our customers, we are responding to their interests, but if they are flexible, we must navigate the constraints related to transmission, distribution, and capacity. This consideration is integral to our overall resource planning. This is why you see an increase in resources within our plan; some of that is due to rising requirements in the Southwest Power Pool, but it also reflects the growing demand. We need to address the grid and capacity constraints, which presents an opportunity for us. I believe this is not an isolated issue; it is a trend we are observing across the U.S., and we are experiencing a demand level that is higher than what we've seen in decades.

What I was trying to get at is if you're building new gas plants, are there any pipeline constraints or anything else that might be more onerous to overcome, or permitting or any other challenges that we should keep in mind?

Yes. I believe the EPA rules are established in a way that allows new efficient gas turbines to meet the requirements, resulting in capacity factor rotations. Our team's assessment of new gas sites, which we have not yet revealed, does take into account the existing gas and grid infrastructure. We are optimistic about navigating these challenges. However, there is always a lengthy permitting and interconnection process, which can take years to complete. This reflects why large gas plants appear when they do, as it indicates the lead time we anticipate is necessary to address all these various issues. Nonetheless, we are confident that we will be able to accomplish this.

Our final question comes from Michael Sullivan of Wolfe.

Just wanted to ask on the mild weather to start the year and how you're thinking about levers to offset that?

Welcome to 2024, which has started off similarly to 2023 with mild conditions. As we assess different aspects of our business, cost management stands out as crucial. The new legislation in Kansas, being the first year after a rate case, offers some advantages. Since this is our first year in that context and given the size of our enterprise, we have various strategies we can employ. The first quarter is not typically our strongest, so we are particularly focused on the performance of the second and third quarters. I consider managing this situation as part of our routine operations. While we would prefer normal weather, we have some strategies to address the current challenges and have already noticed some positive developments.

When I consider the upcoming Capital Expenditure refresh, I typically think of a five-year cycle, while the Integrated Resource Plan projects a ten-plus year perspective. I understand you're discussing potential capacity increases over ten years, but if I focus on the next five years, I believe we're in a similar situation with a different mix of generation. I wanted to clarify this as we evaluate the Capital Expenditure plan refresh and what has changed in the Integrated Resource Plan.

It's a good question, Mike. You'll notice that we have some additional information. I expect our capital expenditure refresh will extend through 2028. We likely won't introduce the plans for 2029 until February, but Kirk and the planning team may have different thoughts on that, and I'll leave it to them to decide. We have a significant amount of gas coming online between 2028 and 2030, which will require some earlier spending. Renewable expenditures can be better timed to align with their online dates, but gas plants will necessitate spending sooner. We're particularly pleased with the provisions regarding construction work in progress in the legislation for HB 2527. Considering this and the evaluations we're conducting related to economic development, along with our grid modernization efforts, there are several factors that we believe will positively affect our capital plan. However, we will detail everything when we reach the third quarter. Looking at the Integrated Resource Plan on its own, we anticipate that the gas coming online in 2029 and 2030 will necessitate incremental investments that reflect the growth in demand driven by the generation we’re adding to Meta.

This now concludes the question-and-answer session. I would now like to turn it back to David Campbell for closing remarks.

Thank you, Brie, and thank you, everyone, for your interest in Evergy. Be safe and have a great day. This now concludes our call.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.