Earnings Call Transcript
Evergy, Inc. (EVRG)
Earnings Call Transcript - EVRG Q4 2025
Operator, Operator
Good day, and thank you for standing by. Welcome to Evergy's Fourth Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Peter Flynn, Senior Director, Investor Relations and Insurance. Please go ahead.
Peter Flynn, Senior Director, Investor Relations and Insurance
Thank you, Liz, and good morning, everyone. Welcome to Evergy's Fourth Quarter 2025 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 Bryan Buckler, Executive Vice President and Chief Financial Officer. David will cover our 2025 highlights and recent economic development activities. Bryan will cover our full year results, electric load growth potential and our financial outlook. Other members of management are with us and will be available during the Q&A portion of the call. I will now turn the call over to David.
David Campbell, Chairman and CEO
Thanks, Pete, and good morning, everyone. I'll begin on Slide 5 by first thanking our employees who worked tirelessly throughout the year to advance our strategic objectives of affordability, reliability and sustainability. The team's hard work and execution laid the foundation for the transformative growth opportunity before us. Today, we are raising our long-term adjusted EPS growth target to 6% to 8% plus through 2030 off of our 2026 guidance midpoint of $4.24 per share. We expect EPS growth to exceed 8% annually beginning in 2028 and through 2030. Our updated growth outlook is bolstered by the recent execution of electric service agreements for 4 data center projects that I will discuss shortly. With respect to 2025, we executed on our capital investment plan to improve reliability and resiliency, investing $2.8 billion in infrastructure to modernize our grid and replace aging equipment. Our financial results in 2025 were negatively impacted by weather and weak industrial demand throughout the year. Despite meaningful results and cost mitigation actions, we were unable to fully offset these impacts. While the negative drivers were outside of our control, we fully understand that consistent financial performance is a hallmark of long-term value creation. We have confidence in our updated financial outlook, which has been tested against a range of outcomes, and we are committed to delivering against our objective of sound financial execution. Bryan will discuss earnings drivers in more detail later in his remarks. In 2025, we made significant progress in advancing economic development opportunities, growing our pipeline to over 15 gigawatts. A major milestone involved approval of new large load power service tariffs, the LLPS, in both Kansas and Missouri last November. These tariffs established a framework under which new large customers will pay a premium demand rate to locate in our service territories while adequately paying their fair share of existing and new system costs. This, in turn, will drive affordability benefits for existing customers and support economic growth in Kansas and Missouri. In Missouri, the passage of Senate Bill 4 in 2025 marked another successful legislative outcome that signaled strong support for infrastructure investment and growth. Among other features, SB 4 includes provisions that enhance our ability to invest in and timely recover costs associated with new natural gas generation while also extending the PISA sunset provision of 2035. SB 4 reflected the support and combined efforts of the Missouri Public Service Commission, legislative leadership, the Governor's office, commission staff, and many other key stakeholders, and we appreciate their leadership and collaboration. In Kansas, we are pleased to reach a unanimous settlement agreement in our Kansas Central rate review. The settlement provided a balanced outcome for our customers and communities and reflects broad alignment around our infrastructure investments while ensuring we continue to provide reliable and affordable electric service. We also received approvals from the KCC and MPSC to construct 3 new natural gas facilities and 3 solar farms totaling nearly 2,200 megawatts. These projects further advance our all of the above generation strategy to support rising customer demand. Safety is at the core of everything we do, and I'd like to thank our generation, transmission, and distribution teams for their commitment to safety and a significant reduction in the injury rate last year. Reliability performance also improved as we achieved the strongest results in the company's history for SAIDI, with reductions in both average outage duration and frequency. Our infrastructure investments and the hard work of our operations teams continue to drive benefits and enable us to deliver affordable and reliable power to customers no matter the conditions or the weather. In November, we raised our dividend 4% to an annualized $2.78. As our dividend continues to grow, we expect the payout ratio to decline over time to a revised target of 50% to 60%. As Bryan will discuss, this target is part of our financing plan as we enter a period of elevated growth and investment and is similar to the approach of many peer utilities. Moving to Slide 6. I'm very pleased to announce new electric service agreements for 4 major data center projects. This includes 2 new data centers and significant expansions of 2 existing projects. In aggregate, these 4 projects represent 1.9 gigawatts of steady-state peak demand. Taken together, these projects alone amount to nearly a 20% increase in our total peak system demand and an even higher level of usage growth given high expected load factors. As these customers ramp up, we'll be able to deliver affordability benefits for our customers and communities to the strong LLPS tariffs. Of course, these facilities will take time to construct and reach their maximum megawatts. We've included 1,300 megawatts in our retail load growth forecast in 2030, with the remainder ramping up after that year. This outlook reflects our expected case, which is informed by the specific load ramps as outlined as part of each customer ESA. And finally, we're making strong progress with several additional large customers and expect at least 1 more executed ESA in 2026. This upside is not captured in either financial outlook or sales forecast we're sharing with you today. These commitments solidify Missouri and Kansas as premier destinations for data center customers, now the product of strong partnerships with world-class customers in Google, Meta, and Beale. We'd like to thank them for their investments in Kansas and Missouri. As customers complete construction, they are responsible to pay their fair share of costs incurred to serve them, including the LLPS premium pricing. As an additional protection, if their actual usage falls short of annual expectations, they are subject to minimum bill provisions, which provide strong visibility to our 6% to 8% plus EPS growth outlook and the affordability benefits we can expect to provide our current customers. Slide 7 summarizes the progress we've made in converting our Tier 1 large customer pipeline to signed agreements. Starting in the top row, the 2.4 gigawatts includes the 4 ESAs announced today and the large customers that have already commenced operations. This Tier 1 demand enables a transformative growth opportunity for Evergy, supporting our expected retail load growth of 6% annually through 2030, well above the historical 0.5% to 1%. Moving to the section shaded in green. We remain in advanced discussions with multiple customers whose load represents a 2 gigawatt to 3.5 gigawatt opportunity. We expect to execute at least 1 more large customer ESA in 2026 from this group. In aggregate, these potential customers have executed various service agreements, posted financial commitments, and otherwise demonstrated their significant interest in locating in our service areas. The remainder of our pipeline totaling over 10 additional gigawatts highlights the robust activity and sustained interest in our region. The opportunity to serve this load will require creative solutions. The ongoing dialogue also underscores the readiness of customers to step in, should others exit the queue. The announcements we've made today serve as clear proof of concept that Evergy is well positioned to capitalize on this historic opportunity, reflecting the geographic advantages of our region, support of business and energy policies, and a shared approach among our many stakeholders to capitalize on economic growth. On Slide 8, we summarized key customer and shareholder protections as provided by our LLPS tariffs. Early last year, we set out on a cross-functional effort to address a key opportunity and challenge: how can Evergy serve new large loads while supporting affordability for existing customers and fairly addressing cost allocation related to new infrastructure investment to serve these large loads? The follow-up work culminated in the approval of settlement agreements in both Kansas and Missouri on a tariff that addresses this challenge. It reflects significant collaboration with commission staff, consumer advocates, industrial groups, the data center coalition, Google, Meta, and others and ultimately garnered strong support, as reflected by the approvals of both the Missouri and Kansas commissions. As outlined in the tariff, new large customers are committed to minimum term lengths and minimum monthly bills regardless of usage shortfalls that cover no less than 80% of their contracted capacity at a premium demand rate. Additionally, customers must meet creditworthiness standards and collateral requirements. Termination fees are required should the customer decide to cancel a project or leave early, and these fees would cover the remaining minimum monthly bills for the term of the contract. All told, these tariffs establish the framework through which new large customers will pay their fair share for capital investment while bringing massive new projects to Kansas and Missouri. Slide 9 is illustrative and expands upon how the provisions of the LLPS tariffs will work in practice and critically, mitigate impacts on existing customers. Customers taking service under the LLPS tariff will pay a premium demand rate 15% to 20% higher than the rate for existing industrial customers, as well as all the direct costs to serve them. This premium in the revenue is driven by the customers' high load factors which will generate significant benefits for existing residential, commercial, and industrial customers. As laid out in the flow chart, our future rate requests will be reduced by the revenues generated from LLPS customers. As the higher load from these customers is factored into our requests, system costs are then spread over a higher base, which in turn puts downward pressure on future rate requests. This is a critical aspect of our affordability proposition, as over time, we will be investing at higher levels to serve growing demand. Our existing customers will share in all the benefits of a modernized grid and new best-in-class generation technology without encountering the same level of costs they otherwise would have faced without large new customers. In short, we have a unique opportunity to upgrade the grid and replace aging infrastructure much more affordably than we could without this robust level of load growth. Moving to Slide 10, we highlight a few of the expected benefits of data centers. It's important to recognize that these projects deliver substantial long-lasting value to the communities we serve. Beyond the benefits and protections of the LLPS tariffs, these projects generate tax revenues typically far in excess of the local services needed to serve them. These tax revenues in turn support local budgets for education, infrastructure, parks, and other community services. Data centers also strengthen the economic ecosystem, given the growing importance of automation and low latency. These attributes will likely feature more prominently in sectors such as health care, finance, transportation, logistics, and advanced manufacturing. By enabling leading applications in these industries, data centers will help to attract and support high-quality job creation. These data center projects also represent multibillion-dollar capital investments, with construction job growth often sustained by ongoing equipment upgrades. They drive the need for new and updated fiber optic infrastructure, which can then create a virtuous cycle for additional data-focused industries. In summary, data centers are major investments that can also serve as powerful engines for economic development. They support affordability, generate long-term tax revenue, expand industries, support job creation, and catalyze infrastructure investment. This is the kind of growth that strengthens communities for decades, and we are proud to do our part. On Slide 11, we highlight the major gains in regional rate competitiveness our company has achieved since 2017. This success directly supports the growth opportunities that we're discussing today. Since 2017, our rate trajectory has remained well below regional peers and far below inflation. The cumulative change in Evergy's all-in rates over that time is approximately 4.9% compared to our regional peer average of 19% and inflation of 29%. Holding rate increases to a 0.5% annual rate reflects the scale benefits and cost savings from the merger that created Evergy, promises we made, and promises we kept. As we enter a new era of economic development, we'll maintain our relentless focus on cost discipline, affordability, and competitiveness of our states. Slide 12 lays out our updated capital forecast. Our rolling 5-year investment plan totals approximately $21.6 billion from 2026 to 2030, equal to a $4.1 billion increase over the prior plan. The increase includes over $3 billion of new generation investment to support growing customer demand and meet higher generation reserve margin requirements in the Southwest Power Pool. Our 5-year investment program is expected to result in an 11.5% annualized rate base growth through 2030, which compares to our prior forecast of 8.5%. We'll take a flexible approach to financing our capital plan, utilizing a prudent mix of debt and equity with optionality around timing and execution, as Bryan will describe. I'll conclude my remarks on Slide 13, which highlights the core tenets of our strategy. I'll focus specifically on affordability. Keeping rates competitive and affordable has been a strategic priority since our company's formation in 2018. Evergy stands out as one of the best utilities in the country in managing customer rates and keeping rate increases well below inflation. We will continue to prioritize affordability in our long-term plan. While capital investments are higher than historical levels, so too is load growth, which will allow us to spread system costs over significantly higher kilowatt-hour sales. We expect to see customer rate increases over the next several years being in line with or below inflation for the significant majority of our residential customers. Missouri West is our smallest utility today with the lowest rates in our system and some of the lowest rates in the nation, partly because the utility is in need of infrastructure investment, in particular, new dispatchable baseload generation. As a result, as new generation plants come online to serve that jurisdiction, customers may see rate increases above inflation over the next 5 years. However, these investments will help to reduce the rate volatility that Missouri West customers have experienced as a result of utilizing more market-provided energy. In addition, as the full benefits from large load customers are realized, we are confident that we can manage residential rates to a level consistent with inflation, and Missouri West customers will benefit for decades to come. By prioritizing affordability, we contribute to the robust economic development pipeline ahead of us and support the substantial economic potential within our states. As outlined in our capital plan, we will continue to invest in grid modernization to ensure reliability, as well as grid resiliency, strong customer service, and generation availability. Our primary sustainability goal is to execute a cost-effective all-of-the-above generation strategy, as reflected by our planned investments in natural gas, storage, and solar to support our Kansas and Missouri customers. We look forward to continuing to advance a balanced mix of resources over the coming years to support growth and prosperity in our states. And with that, I'll turn the call over to Bryan.
Bryan Buckler, Executive Vice President and CFO
Thank you, David. Thank you, Pete, and good morning, everyone. Let's begin on Slide 15 with a look back at our financial results. For the full year 2025, Evergy delivered adjusted earnings of $894 million or $3.83 per share compared to $878 million or $3.81 per share for the same period last year. As shown on the slide from left to right, the year-over-year drivers are as follows: first, 0.3% growth in weather-normalized demand primarily driven by the commercial class resulted in an increase of $0.04 per share margin. These results were weaker than projected for both residential and industrial, including in the fourth quarter, which led to our final 2025 adjusted EPS results falling short of the guidance we provided on our third quarter call. Regarding residential and industrial load, early indications in 2026 are strong in comparison to 2025, and we expect to return to normal residential load growth in 2026. Secondly, recovery of and return on regulated investments, driven by new retail rates and FERC regulated infrastructure investments, contributed $0.56 in EPS in 2025 as compared to 2024. Unfavorable variances for the year included higher operation and maintenance costs and depreciation and interest expense due to increased infrastructure investments, which drove a $0.43 decrease in EPS. Other items had a negative $0.10 impact for the year. And finally, dilution from our convertible notes led to a $0.05 decrease for 2025. Let's move to Slide 16 to lay out how we expect to deliver on our 2026 EPS guidance midpoint of $4.24. Again, starting on the left side and beginning with 2025 adjusted EPS of $3.83, which modeled a reversion to normal weather in 2026, which would add approximately $0.13 per share. Next, we expect a $0.26 increase from demand growth in 2026, which reflects a forecasted 3% to 4% increase in weather-normalized retail sales. This exceptional level of load growth is driven primarily by the continued ramp of the Panasonic advanced manufacturing facility as well as the ramp-up of the data center customers with signed ESAs in our Metro and Missouri West jurisdictions. Next, updated recovery of costs and return on our regulated investments are expected to contribute $0.35 of EPS for the year, primarily related to new rates at Kansas Central that went into effect in the fourth quarter of 2025, as well as the recovery of FERC regulated infrastructure investments. Offsetting these positive drivers is an increase in O&M as well as the combined impact of higher depreciation and interest expense net of AFUDC earnings and PISA deferrals, which is expected to drive a $0.20 unfavorable impact. Lastly, we assume $0.08 of drag related to dilution from convertible notes and expected common stock equity issuances, as further described in a moment. We have high confidence in this 2026 guidance, and it is bolstered by the execution of electric service agreements that we've announced today. Moving to Slide 17, we highlight our large load demand growth profile in our financial plan. Over the past 2 years, we've been hard at work to advance competitive frameworks for capital investment in Kansas and Missouri that would enable our ability to invest for growth in a way that promotes economic prosperity for our customers and communities while solidifying our region as a premier destination for advanced manufacturing and data center customers. The passage of the LLPS tariffs, our operational team's execution on transmission and generation capacity planning, as well as strong collaboration with customers and local stakeholders and legislative efforts have all culminated in what we believe is one of the most compelling growth stories in the sector. As indicated on the chart, the large load customer ramps are already underway and will continue building through 2030 and beyond, supporting our retail load growth CAGR of approximately 6% through 2030. This tells a powerful story of growth anchored by long-term contracts and clear parameters on monthly billings, providing significant visibility into our earnings growth and cash flow streams. We are able to share this level of detail with you because our teams are no longer just talking about a pipeline. Now they are also talking about the successful signing of actual electric service agreements with the high-quality customers David described earlier. To drive home this point further, the execution of these ESAs was the milestone needed to solidify Evergy's growth trajectory as a company, as these were the final binding agreements to be signed between Evergy and these customers. The numbers on Slide 17 that you see reflect our planning assumptions around the capacity demand that will drive revenue during our planning period, growing from 350 to 400 megawatts of served capacity by year-end 2026 through up to approximately 1,700 megawatts of served capacity by 2030. As a reminder, this plan reflects the contributions from customers under signed ESAs for 4 major projects. Furthermore, we are making strong progress with several additional large customers and expect at least 1 more executed ESA in 2026, whose load would represent upside to the back end of this forecast. As David described, we'll continue working in a measured fashion through our 10 gigawatt plus balance of pipeline to build on the success we're sharing with you today. Okay. So Slide 18 converts that megawatt capacity usage you see on Slide 17, along with our broader customer base, which is also expected to grow, into a view of the strong load growth profile we see ahead. In particular, it highlights generally accelerating annual load growth from 3% to 4% in 2026 to an average annual rate of 7% per year from 2027 through 2030. It also highlights the growth we're seeing across our entire system, growth that will ultimately drive affordability benefits for our customers in every jurisdiction. We believe the ranges on this page will assist analysts and investors in the modeling of our 6% load growth CAGR over the next 5 years across jurisdictions and importantly, reflects the positive momentum we expect to build in our financial results throughout the 5-year planning period. On Slide 19, I will briefly highlight our 5-year investment plan. As David referenced earlier, our $21.6 billion capital investment plan represents a $4.1 billion or 24% increase compared to the prior 5-year plan. A key feature is higher generation investment, which captures approximately $3.4 billion of the total increase and largely consists of new natural gas power plant investment needed to serve growing demand and to meet SPP reserve margin requirements. The T&D portion of our plan emphasizes strengthening system reliability through grid modernization efforts, including replacing assets that are at or near the end of their useful lives. Deploying these critical infrastructure investments to the benefit of our grid operations and for our customers and communities is expected to result in a rate base CAGR of 11.5%. Let's now turn to our updated financing plan on Slide 20. As mentioned on Slide 19, our projected capital investments over the 5 years through 2030 now stands at $21.6 billion. We'll utilize a prudent mix of debt, equity, and hybrid securities to finance our capital investments, targeting an FFO to debt ratio of approximately 14% through the forecast period, with strong annual growth in FFO that will provide the potential for even stronger metrics towards the end of the 5-year plan. Moving from left to right, we expect $13.5 billion of cash flow from operations. Our $3.6 billion dividend assumption reflects our expectations of growing the dividend throughout the period while targeting a 50% to 60% payout ratio. Recently, our dividend payout ratio has been in the 65% to 70% area, and we plan to grow the dividend annually at a rate below our EPS growth projection of 6% to 8% plus. We expect to achieve the 50% to 60% ratio in the latter half of the plan. Retaining more of our earnings and equity in the business allows us to efficiently fund our capital investments and keep the level of common equity issuances at lower levels than would otherwise be needed. Next, we forecast $8.4 billion of incremental debt and hybrid securities, net of upcoming maturities. Our plan incorporates $1 billion of equity credit from hybrids, which may assist you in your modeling. Finally, our expected common equity need across 2026 to 2030 is forecasted to be a total of approximately $3.3 billion and now incorporates the benefits of operating cash flow that comes from customers taking service under the LLPS tariff, as well as our revised nuclear PTC assumptions. Of note, we currently assume no equity issuances in our plan in 2030 as the cash flow generation of our business improves. This results in an annual need of $700 million to $900 million from 2026 to 2029. Of course, we'll continue to evaluate the appropriate level of equity funding, particularly as upside capital opportunities make their way into our plan. Now let's close on Slide 21. It's a recap of our growth outlook summary for the next 5 years. First, with the successful execution of electric service agreements with large load customers, we expect strong load growth through 2030 and beyond as the initial 1,700 megawatts will support a 6% consolidated retail load growth CAGR through 2030. This provides us with a visible runway of predictable earnings and cash flow growth into the next decade. As a reminder, this forecast includes load from 4 projects under ESAs and other non-LLPS large customers already announced. We're making strong progress with multiple additional large customers and expect at least 1 more executed ESA in 2026 that is not yet captured in our financial plan today. We continue to believe Evergy has one of the most compelling customer growth opportunities in the industry that could drive robust growth not just in our 5-year forecast, but well into the next decade, resulting in sustainable growth and affordability benefits for our customers and communities and a great long-term outlook for all of our employees. Next, I'll reiterate our capital investment and rate base growth outlook. The foundational earnings power of the company will be fortified by our $21.6 billion capital investment program. Our higher levels of infrastructure investment are in large part related to supporting economic development in Kansas and Missouri and will drive grid modernization and the addition of incremental generation capacity to support our growing customer demand and SPP reserve margin requirements. Our capital plan is expected to drive an 11.5% rate base growth through 2030, fortifying our earnings foundation. Our projections of regulatory lag and financing costs convert this 11.5% rate base growth to an earnings growth projection exceeding 8% annually beginning in 2028. We plan to file rate cases on a timeframe corresponding to the in-service states of new generation projects to ensure the financial strength of our utilities while incorporating the affordability benefits of large loads. It is critical that we deliver on our forwardability and reliability objectives for the benefit of our customers. As our capital investment plan grows, we will utilize a prudent mix of debt and equity financing to support our strong investment-grade credit rating and FFO to debt target of 14%. We will take a flexible approach and evaluate all available financing options, including the use of hybrid debt securities that receive equity credit, to meet our financing needs. We anticipate approximately $700 million to $900 million of equity annually from 2026 through 2029 and currently assume no equity needs in 2030 due to improving cash flows from operations. That being said, upside capital opportunities do exist, and we'll continue to evaluate the appropriate level of equity funding. Altogether, this plan lays the foundation for a transformative growth phase ahead as we expect annual adjusted growth of 6% to 8% plus through 2030 off of our 2026 midpoint guidance of $4.24 per share. As an additional note for the analyst community, we currently expect 2027 EPS growth in the lower half of our 6% to 8% range before accelerating to a level in excess of 8% beginning in 2028. I speak for the entire leadership team in saying that we are excited about the future at Evergy, and all of our employees are deeply committed to successfully executing our business plan and delivering results for our customers, communities, employees, and shareholders. And with that, we will open up the call for your questions.
Operator, Operator
Our first question comes from Stephen D'Ambrisi with RBC Capital Markets.
Stephen D'Ambrisi, Analyst
Thank you for the great update and for providing details on the added ESAs. One thing that caught my attention was the mention of equity issuances in 2030, indicating that there are no planned equity issuances beyond 2029. Can you elaborate on what that means for the company's steady-state equity needs? Clearly, there's potential for additional capital, but if we look ahead a year, how do equity needs appear for 2031 and 2032?
W. Buckler, Executive Vice President and CFO
Yes, that's a great question, Steve. We're very enthusiastic about our plan. Our metrics are supported by the ESAs you mentioned, which offer a level of predictability. The future revenue outlook significantly bolsters our company profile. Looking at the $21.6 billion in our 5-year plan, this represents an elevated level of CapEx compared to our past expenditures. As David pointed out, we also have a high level of load growth. During this substantial construction phase over the next few years, we anticipate a need for equity similar to many of our peers, and we're looking forward to issuing that growth equity. Currently, we see no need for equity in 2030 since our FFO is set to improve considerably each year, as illustrated in Slide 17, showing the yearly growth in megawatts of capacity served. We are confident in the potential to secure additional ESAs. A growing company typically requires more capital, so we’ll need to reassess our capital needs for 2030 as new opportunities arise. Dave and I discussed that as we enter the early 2030s and complete our full infrastructure build-out, we will have a strong FFO trajectory in our plans, resulting in an even more robust balance sheet.
David Campbell, Chairman and CEO
Yes. To build on that, we expect at least one more ESA to sign this year that is not currently in our plan. This is not included in our sales or earnings outlook as we described. There will be capital available to serve those customers. We will be in an environment with strong FFO to debt levels, but we anticipate additional capital investment opportunities. We will develop a financing strategy to accompany this, but we won't get ahead of when we provide updates about the additional ESAs. However, we are very excited about the potential benefits for our customers, communities, and the company.
Stephen D'Ambrisi, Analyst
That's very helpful. Can you provide some insight into the potential for the 2.0 to 3.5 gigawatt discussions where you anticipate one more ESA? How many customers or sites does that involve? It would be great to get an idea of the impact an additional ESA could have.
David Campbell, Chairman and CEO
Sure. I would say that we expect to execute at least one more ESA in 2026. Each of those words, at least and one more, is significant. We have diligently identified potential transmission and distribution solutions, as well as capacity opportunities. We believe we are on track for at least one more this year. The first four ESAs that we've signed give you an idea of the potential size of these customers. We are looking at additional sizable opportunities in that category that are not yet included in our plans. Our team is putting in a lot of effort, and our confidence is based on our evaluation of the capacity in transmission and generation, as well as the progress of our discussions with customers regarding land permits and commitments. We are optimistic about this. It's reasonable to suggest that the majority of the impact from additional ESAs will be felt after 2030, although there is some potential before that time. What excites us is that the ESAs we have announced are transformative for our company and service territory. The additional ESAs will help maintain, prolong, and broaden that opportunity into the next decade. We are enthusiastic about the pipeline and are committed to executing it. We genuinely expect to finalize at least one more substantial ESA this year.
Operator, Operator
Our next question comes from Paul Zimbardo with Jefferies.
Paul Zimbardo, Analyst
Thanks for all the disclosure. So much to ask, but I'll keep it concise. And thank you for the commentary on what '27 looks like as well. Is it fair to think you're targeting like an 8% plus CAGR as well? I know it accelerates in the back half, but should we think about better than 8% as we look 2026 to 2030 as well?
David Campbell, Chairman and CEO
I believe we have clearly outlined our expectations, and I want to emphasize them again. The overall target is a growth rate between 6% and 8%. For the years 2026 and 2027, we anticipate being in the lower half of that range. Starting in 2028, we expect to accelerate past 8% annually and continue this trend through 2030. This gives you an idea of our projected earnings power over that period. Our rate base growth is around 11.5% annually. Historically, we provided guidance of about 8.5% rate base growth while achieving a higher end of the 4% to 6% earnings growth range, resulting in about a 300 basis point gap. We now expect that gap to narrow to approximately 250 basis points over time. This gap primarily arises from the issuance of equity and regulatory delays during periods of heavy investment. Overall, we believe the target remains within the 6% to 8% range, with our earnings growth expected to accelerate starting in 2028 and beyond.
Paul Zimbardo, Analyst
I understand that part. Regarding the credit metric discussion, could you clarify whether the 14% is an average target over time? I know you mentioned that things improve in the later stages, so any insights on how to interpret the 14%—whether it's a low point or an average—would be appreciated.
W. Buckler, Executive Vice President and CFO
Yes, Paul, I see it as an average that remains quite consistent throughout the 5-year plan. We do expect it to strengthen a bit in years 4 and 5. There is a significant construction phase from 2026 to 2029, which continues into 2030. However, the level of Funds From Operations (FFO) is steadily increasing each year and becoming stronger. I want to emphasize that our cash flow projections are among the most reliable in the industry, supported by electric service agreements with high-quality counterparties, bolstered by the strength of the LLPS tariffs in Kansas and Missouri, including the minimum monthly bill provisions that David highlighted. These provisions increase over time in line with rising capacity levels, which are outlined in the ESAs we discussed. Altogether, this represents a solid and consistent plan over the 5-year period, with steady EPS growth and strong metrics throughout.
Operator, Operator
Our next question comes from Shar Pourreza with Wells Fargo.
Unknown Analyst, Analyst
It's Andrew asking for Shar. Regarding the ESAs, how prescriptive is the ramp rate? How much clarity is provided on the load you will serve year by year? Also, when do the minimum monthly bills start? Do they begin during the ramp period or only after the customer is fully ramped?
David Campbell, Chairman and CEO
So the ESAs, the great thing about the electric service agreements that we've signed is that they include a schedule, which includes annual capacity levels that are specified by year starting in the first year. And they'll be charged the levels that they use. But if they don't meet the minimum levels, then they'll be charged at that 80% level based on the schedule of contracted capacity that's laid out in the ESA. So it's a level of specificity and commitment that's laid out contractually with these counterparties. So we're really excited to reach the agreements with Google for 2 of these, 1 new and 1 expansion of a previous project. With Meta, also an expansion, and then with Beale Infrastructure, which is a Blue Owl company. So these ESAs include those ramps. They are specific. They're outlined in megawatts by year. And the LLPS provisions on minimums and on requirements are tracked directly with that schedule.
Unknown Analyst, Analyst
Great. And then just changing gears a little bit. You mentioned that weak industrial demand played a part in the results for this quarter. What gives you confidence that will turn around in 2026? How much of your overall industrial load is represented by the Panasonic project?
W. Buckler, Executive Vice President and CFO
Yes, Andrew, this is Bryan. Thank you for the question. In 2025, we faced challenges with industrial load throughout the year. In January and February, significant snowstorms in Kansas City led to closures of some of our largest businesses. Additionally, we experienced an outage at a major oil refinery early in the year. Although industrial demand increased due to Panasonic, by the end of the year, specifically the fourth quarter, industrial demand was disappointing again. This lower demand also impacted our earnings due to a price component linked to lower peak demand, creating a combined negative effect on our 2025 results. We have already incorporated this recent weakness into our 2026 projections. Our forecasting team reassessed our load numbers for 2026 and adjusted them downward, which is reflected in the guidance of $4.24 for EPS in 2026. We believe we are in a solid position. The January 2026 results we closed about ten days ago were strong, giving us a good start to the year, though it's just the first month. Regarding Panasonic, they began 2025 at a slower pace than anticipated, but recently, their load has been increasing significantly each month, and we expect their load in 2026 to align with our planning assumptions. A Panasonic executive recently announced plans to start two new production lines at their Kansas facility this year, which will help them reach 50% of their total capacity early in the year. While I can't provide specific megawatt figures for Panasonic, I cannot give detailed information about its overall percentage of our industrial load.
Operator, Operator
Our next question comes from Michael Sullivan with Wolfe.
Michael Sullivan, Analyst
I understand there are various factors at play, but could you provide some insight on how incremental load growth impacts CapEx and earnings? Additionally, how much of the incremental CapEx needs to be financed through equity? Any information you can share would be appreciated.
David Campbell, Chairman and CEO
Michael, just to clarify, are you talking about additional CapEx and load growth beyond what we're describing today?
Michael Sullivan, Analyst
That's right. Yes. So if you get another customer, that ESA, what does that do to CapEx and earnings? And then how do you finance the associated CapEx?
David Campbell, Chairman and CEO
Yes, I'll direct the financing question to Bryan regarding how we would approach it if we had an additional $1 billion in capital. Michael, the specifics of each ESA will depend on the agreements reached with customers. As I mentioned, we anticipate at least one more ESA in 2026, likely in a similar size range to the four we've disclosed today. Additionally, there may be more potential in the 2029-2030 timeframe, primarily impacting our operations in 2030 and beyond into the next decade. I see this development as enhancing our growth trajectory as we move into the 2030s. While I won't preempt any specific announcements, the detail we provided on Pages 17 and 18 incorporates specific schedules and annual growth metrics. We will share that detailed information when we finalize customer agreements. Bryan, how would you outline the general financing principles if we acquire additional capital?
W. Buckler, Executive Vice President and CFO
Yes, absolutely. And so Michael, we've kind of historically cited 50-50 on debt equity funding of incremental capital, which over the long term is a rule of thumb used by many in the industry. So I think that is fine for you to use as a rule of thumb still for us. Being mindful, of course, that the addition of more ESA customers, like David mentioned, could still benefit the very back end of the plan, '29, 2030, think of it, a potential benefit there. And the ramp rates of existing customers could also play a factor. In addition, as we move into future years beyond 2030, these ESAs will reach their peak capacity levels in the early 2030s, maybe in the mid-2030s for the next round. But these contracted cash flows will be correspondingly higher levels throughout that period of time really, in the next 10 years. So super powerful to our cash flows as we think ahead. So irrespective, we do expect this CapEx plan to grow, and it would be accretive and we'll be prudent with our mix of debt and equity in hybrids because we want to continue to create incremental value, not only for you, our investors, but also for the economic growth of our communities.
Michael Sullivan, Analyst
Okay, that's very helpful. In terms of the ramp rates you are embedding, are you assuming the minimum bill level of 80% or the full ramp? Or is the range essentially between those two?
David Campbell, Chairman and CEO
Yes, Michael, let me give you a sense of the general approach we've taken to these, and that is that we typically in the first couple of years of the ESA, we look to the 80% minimum level. And again, if the customer uses more electricity, you will only be billed the minimum. That's what you'll be billed if you use less. But typically in the first 2 years across ESAs, we model it at the 80% level to be a little more on the conservative side.
Operator, Operator
Our next question comes from Paul Fremont with Ladenburg Thalmann.
Paul Fremont, Analyst
I guess my first question is, can you tell us roughly what your industrial rate is in terms of dollars per megawatt hour?
David Campbell, Chairman and CEO
Well, so it varies by jurisdiction, Paul, and it's in a typical range. I don't know if, Chuck, do you want to comment on one of our typical industrial ranges again, with the varies by jurisdiction?
W. Buckler, Executive Vice President and CFO
Paul, I'll let these guys jump in. I'll just remind you that our LLPS rate is a premium, 15% to 20% premium on the demand charge on the rate that we're about to give you.
Charles Caisley, Executive
Our typical range is around $0.06 to $0.07 per kilowatt hour, which translates to $60 to $70 per megawatt hour when expressed in that metric.
Paul Fremont, Analyst
Perfect. And then if there's a cancellation, is that rate essentially sufficient to allow you to recoup all of the costs? Or would there be any exposure in the event of an early cancellation?
David Campbell, Chairman and CEO
The provisions of the LLPS clearly outline the consequences of a cancellation. During the agreement's term, the counterparty is accountable for the minimum bill, which is determined by the total megawatts of the contract. This offers strong protection, especially considering the size of these customers, as the LLPS rates under the large load power service tariff are 15% to 20% higher than the standard industrial rate of $0.06 to $0.07. Thus, we provide excellent safeguards for our customers. In this scenario, there will also be new infrastructure in place for existing customers, funded significantly by them. The precise calculations will vary based on individual customer size and their specific ramp-up over time, but the LLPS provisions are robust. One of our hyperscaler customers recently emphasized their strong commitment to covering any incremental costs and their high interest in our region and the capacity we can offer. We are confident about the advantages these contracts will provide to our current customers and the protections included in the LLPS terms.
Paul Fremont, Analyst
And then for the contract that's in late-stage negotiations, is that a new customer? Or would that be an expansion of an existing customer?
David Campbell, Chairman and CEO
It could be either one.
Paul Fremont, Analyst
Okay. And last question for me. With respect to the ESAs, are the 4 signed contracts roughly equivalent in terms of megawatts? So should we assume like an average of 300 megawatts per ESA?
David Campbell, Chairman and CEO
We won’t disclose the breakdown by customer, but the total steady state is 1.9 gigawatts. The average of the four comes close to 500 megawatts. However, we have not provided details by individual customer since that information is confidential. The total size has been described both in aggregate and in terms of our expected annual distribution, as outlined in our slide presentation.
Operator, Operator
Our next question comes from Anthony Crowdell with Mizuho.
Anthony Crowdell, Analyst
I appreciate the detail. I wanted to follow up on Paul Zimbardo's earlier question. Could you share where you ended the year in terms of FFO to debt? Additionally, as you enter a significant CapEx cycle, do you have any thoughts on potentially adding a cushion to the downgrade threshold?
W. Buckler, Executive Vice President and CFO
Our FFO to debt ratio for 2025 was approximately 14%, despite challenges we faced with weather and industrial demand. We've discussed our 14% FFO to debt target extensively. While I realize this may be repetitive, we genuinely anticipate significant growth in cash flows from operations each year throughout our five-year plan. With our current CapEx plan, we are also planning for common equity issuances totaling $3.3 billion. This is a substantial equity issuance plan, which we believe will be favorable in the eyes of the rating agencies. Additionally, we're moderating our annual dividend increases, which allows us to retain a higher portion of earnings within equity each year. These two actions are critical steps supported by our Board that will enhance our balance sheet. Maintaining a strong balance sheet and good credit ratings is very important to us. As I mentioned earlier, we believe we have some of the most reliable cash flow projections in the industry, backed by those ESAs with high-quality partners, strong LLPS tariff protection, and inclusive of the monthly minimum bills that David referenced. These minimum bills are specified by the ESA agreements each year and increase over time, ramping up over five years followed by a 12-year contract with a steady peak. Overall, we believe we are in a better position than many peers, as our revenue stream from our ESAs is more predictable than ever with highly reliable counterparties. This perspective informed our target of a 14% FFO to debt ratio.
Operator, Operator
Our next question comes from Ryan Levine with Citi.
Ryan Levine, Analyst
Is Evergy seeking DOE energy-dominant financing capital for its transmission plan? Or any color you could share around maybe alternative subsidized forms of capital outside of capital markets?
David Campbell, Chairman and CEO
So as of today, the plan that we announced today is through the traditional financing mechanisms that are available to the utility and will be, as Bryan described, we have a prudent mix of debt and equity with some optionality around how we move things forward, but with a real commitment to a strong balance sheet. For that next tier in our pipeline, we're absolutely open to and will be considering different paths. That could be in the form of some of the creative ideas that are coming out of Washington now and presenting that. It could be participating more directly with large customers. The LLPS tariff actually is embedded within it. If customers bring their own capacity solutions, explicitly contemplated if they are amenable to man response, it could reduce the capacity requirements. That's also an embedded feature in the LLPS, that both those factors could positively impact the rate. So I think particularly getting into that next year that beyond the first 2 categories we list on Slide 7, the next 10 gigawatts, creative approaches are going to be important. We're committed to exploring those. And I think a range of different options will be there. I think the size and scale of the opportunity before our country as well as our company are such that it warrants exploring those opportunities. But I would emphasize, though, is just with the announcements we've made today, it's a transformative growth opportunity for our company, backstopped by ESAs with large customers, great customers. We really appreciate their commitment to our region. So Google and Meta and Beale. But we're excited that we think we can assign at least 1 more this year and keep moving beyond that. And as we go further and further, I think those kinds of creative options are absolutely things that we'll be open to and will continue to explore.
Ryan Levine, Analyst
And then a follow-up on that. Does that imply that you looked at the Kayak structure for the existing deals but passed on it and maybe would reconsider that on future deals? Am I reading too much into that?
David Campbell, Chairman and CEO
I understand. The LLPS tariff does not take that approach, but as I mentioned, we are open to additional opportunities in the future. Customers may bring their own generation solutions, either directly or through contracts. We are considering different methods for large loads to integrate their own generation with various products being developed, and we will collaborate with FERC on this. This could involve customers using their own generation to reduce their LLPS rate. Today, we announced something within the structure of the LLPS, supported by the generation we are providing, but some of our current customers are already contracting with potential resources. If they deliver those resources, we will enter into contracts that could help offset the rate.
Operator, Operator
That concludes today's question-and-answer session. I'd like to turn the call back to David Campbell for closing remarks.
David Campbell, Chairman and CEO
Thank you, Liz. I want to thank everyone for participating in the call today. I want to thank our customers for their commitment to our region. With that, have a great day. That concludes our call.
Operator, Operator
This concludes today's conference call. Thank you for participating. You may now disconnect.