Great Plains Energy Inc GXP
Q4 2012 Earnings Call Transcript
Transcript Call Date 03/01/2013

Operator: Good morning, my name is Darla and I will be your conference operator today. At this time, I would like to welcome everyone to the 2012 Fourth Quarter Year-End Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and answer-session. Thank you.

I would now like to turn the call over Mr. Kevin Bryant, Vice President of Investor Relations and Treasurer.

Kevin Bryant - VP, IR and Treasurer: Thank you very much Darla. Good morning everyone and thank you for joining us for our year-end 2012 earnings conference call. Let me begin as always by introducing the members of the Great Plains Energy's management team who are here with me today. We have Terry Bassham, President and Chief Executive Officer; and Jim Shay, Senior Vice President and Chief Financial Officer, who in a few moments will both provide an overview of the year's results. Scott Heidtbrink, Executive Vice President and Chief Operating Officer of KCP&L is also with us this morning and will be available during the question-and-answer portion of today's call.

Before we begin, I must remind you of the inherent uncertainties in any forward-looking statements in our discussion this morning. Slide 2 and the disclosure in our SEC filings contain a list of some of the factors that could cause future results to differ materially from our expectations.

I also want to remind everyone that we issued our earnings release and 2012 10-K after the market closed yesterday. These items are available along with today's webcast slides and supplemental financial information regarding the quarter and the full year 2012 on the main page of our website.

With that very important step out of the way. I'll now hand the call to Mr. Bassham.

Terry Bassham - President and CEO: Thanks Kevin and good morning to everybody. Appreciate you joining us this morning. 2012 was an important year for us on many fronts, which included executing on the commitments that we made at our Analyst Day back in August 2011. While Jim will review our financial results in detail in a moment, as many of you saw in our earnings release yesterday we reported earnings per share of $1.35 for 2012. This compares to $1.25 per share in 2011, and although at the bottom end of the range is within the original guidance range we provided at Analyst Day

We've achieved many of the strategic objectives we laid out in August of 2011 and believe we laid the foundation for improved total shareholder returns. Achievements include the following. First, we committed to file and complete rate cases in Kansas and Missouri and pursue riders and trackers where appropriate. We concluded the last of our cases and we'll have new rates and a number of cost recovery mechanisms in both jurisdictions in 2013.

Second, we committed to reduce regulatory lag by tightly managing the business in a challenging economic environment. In the face of two consecutive years of soft customer demand, we tightly managed our operations, reduced our O&M in 2012 compared to 2011. This was done while we maintained our track record of operational excellence and continued delivery of dependable customer service.

Third, we're committed to improve our free cash profile in support of the increased dividends and strengthen credit profile. Our combined dividend increases in 2011 and 2012 represent the total increase of 5% over that time period and on the credit front our profile has strengthened with our funds from operations to debt increasing by approximately 350 basis points to nearly 16% in 2012. By executing on these objectives, we strengthened our Company and firmly believe the steps taken to reduce regulatory lag position us for improved financial performance.

Turning to Slide 5, our 2012 earnings per share of a $1.35 represents 8% growth compared to 2011. Weather was a factor in our results as the year started off unfavorably warm during the first quarter, but this warm transitioned into a hot summer, including the warmest July on record. The strong cost management in 2012 will reduce total operating and maintenance expense by $11 million, despite the fact that Wolf Creek O&M increased $13 million. A favorable weather and reduced O&M were partially offset by soft demand and weaker off system sales.

Turning to 2013, we believe we will deliver improved earnings benefiting from the new retail rates and recovery mechanisms and by maintaining our focus on cost management and operational excellence. Our 2013 earnings guidance range of $1.44 to $1.64 per share represents 50 to 150 basis points of regulatory lag off of our authorized rate of return.

Jim will provide more detail on our 2013 guidance in his comments.

Turning to Slide 6, our weather normalized megawatt hour sales declined 1.3% in 2012. We believe the extremely hot summer impacted the weather normalization process during the third quarter making it difficult to determine our sales trend with certainty. In addition, to weather, we believe the economy, energy efficiency and greater customer bill awareness contributed to the decline for the year. We do not believe that the level of reduced demand is indicative of the long-term state of our service territory. For 2013, we are projecting a weather normalized growth range of flat to 1%. We see signs that the underlying economy in Kansas City region is improving and we expect that trend to continue. The region has experienced 27 consecutive months of job gains and the unemployment rate of 6.4% remains below the national average of 7.6%. with approximately 40% of our retail megawatt hour sales coming from the residential sector the health of the housing market remains the key indicator of economic growth in our region. Single-family new housing permits rebounded significantly in 2012 reaching the highest level in five years. Although we have ways to go to return to pre-recession levels these numbers suggest that Kansas City’s housing market is recovering.

Gains in the housing sector generally translate into increased customer confidence which will be good news for the commercial sector. Commercial vacancy rates have remained flat for an extended period of time but we are getting to see some positive movement. For the industrial sector as a whole we expect improvement.

Ford Motor company’s Claycomo facility began shutting down its Escape vehicle line in the second quarter of 2012. This shutdown was the primary driver of our overall decrease in industrial demand in 2012. Ford shut down the Escape line to prepare the plant for production of the new Transit commercial van. Production of the new van is expected to begin by the fourth quarter of 2013. This is part of a $1.1 billion investment in the facility, which is estimated to add an additional 1,600 jobs along with the second shift for the F-150 truck line. When the update is complete, we expect overall demand at the plant will increase by approximately 25%.

In addition, General Motors recently announced a $600 million investment near our service territory and we expect growth in the region as other local manufacturers expand our operations to support the local Ford and GM plants.

Turning to Slide 7, we've provided a summary of our rate cases. The completion of the cases in Kansas and Missouri was a significant accomplishment for our company. Though we were disappointed with certain aspects of the rate case orders, we executed on our commitment and achieved positive outcomes which we believe position us to maintain reliable service to our customers and reduce regulatory lag.

Total annual revenue increase is nearly $150 million with a weighted return on equity of 9.6%. Outside of an abbreviated rate case in Kansas for construction work in progress, on the La Cygne environmental upgrade we expect to avoid filing general rate cases until we seek recovery of La Cygne project once it's completed by mid-2015.

Although these cases are now behind us, we continue to advance strategic initiatives on both the regulatory and legislative fronts. In Missouri we expect to receive regulatory approval in the third quarter this year to (renovate) our Southwest Power Pool regional projects to Transource. Transource, Missouri's FERC case a settlement on the base ROE was filed earlier this week.

The settlement subject to commission approval includes a base ROE of 9.8% with a 55% cap on equity component of the post construction capital structure. As a reminder last fall FERC approved certain incentive rate components including a regional transmission organization adder and ROE risk adder and QUIP.

Including the incentive rate components the weighted average all-in rate for the two projects would be 11.15%. On legislative front we're working with other Missouri utilities to support legislation, which would provide electric utilities and mechanism for the recovery of new infrastructure upgrades and certain cost of service expenses between rate cases.

Gas utilities in Missouri have had this type of mechanism since 2003 we believe that this is a smart and fair way to ensure electric utilities of additional tools to create economic development and jobs. We will keep you updated on this bill as it progresses.

On Slide 8, I'll provide an update on Wolf Creek. The unit began its planned re-fuelling outage in early February and is expected to return to service in April. Several major plant modifications will take place during the outage including the installation of additional diesel generator, improved reactor cooler pump seals, and a forked auxiliary feedwater pump that will provide the station with increased safety margin with several important plant systems. The O&M cost associated with the refueling outage will be deferred and amortized over approximately 18 months as usual.

As we indicated during our third quarter call, we anticipate increased Wolf Creek O&M cost compared to Watson rates. When comparing year-over-year expenses, Wolf Creek O&M cost for '13 should be generally in line with '12. The recent escalation in cost increases as the result of increased NRC oversight combined with efforts to comply with new industry wide regulations following the Fukushima nuclear power plant incident in 2011.

We're continuing the progress on the RFP that we initiated in the fall of last year along with our co-owners we are reviewing all options to improve the unit's performance. We're evaluating responses to the RFP and expect to have an update later this year on what if any changes might be made we'll keep you updated on further developments.

Turning to Slide 9, we look at 2013. This year we remained focus on execution. In addition to reducing regulatory lag our priorities include diligently managing O&M and capital expenditures, improving our long-term cash flow generation and credit profile, providing reliable customer service, keeping the environmental upgrade La Cygne on schedule and on budget and successfully novating our two regional SPP projects with Transource Missouri.

As we look beyond '13 upon the completion of the upgrade of La Cygne, all of our large base load coal units are expected to be in compliance with existing proposed environmental rules and regulations. As a result, approximately 72% of our coal fleet being scrubbed provides us great flexibility around our remaining units. In addition, once La Cygne is complete, we expect our capital needs to return to more normalized level providing us more cash flow flexibility.

We expect Transource to develop future transmission projects on national basis, providing us with an opportunity to diversify and grow earnings outside of our retail rate regulated business. The completion of the Comprehensive Energy Plan, positive outcomes from our recent cases in the La Cygne environmental upgrade position us to provide long-term reliable power without additional generation needs for several years.

In summary, we believe we are in an excellent position to reduce regulatory lag and improve cash flow which provides flexibility to provide competitive total shareholder returns. We are prepared to respond to the challenge facing our industry which we believe bodes well for our customers and investors as we focus on delivering approved results in the future. I am excited about our prospects in 2013 and look forward to your continued interest.

Now with more details on the full year '12 and our outlook for '13, I will turn the call over to Jim.

Jim Shay - SVP, Finance and Strategic Planning and CFO: Thank you, Terry. Good morning everyone. I will begin with Slide 11 which provides a current year earnings per share reconciliation to the prior year. As Terry indicated, our 2012 earnings per share were $1.35 compared with a $1.25 in 2011. The primary drivers behind the $0.10 per share increase were increased earnings of $0.19 per share due to new retail rates in Missouri that became effective in May and June 2011 for KCP&L and GMO respectively, and the impact of $0.22 per share from events in 2011 that did not reoccur in 2012.

These events are outlined in more detail in the earnings release we issued yesterday. The increase was also due to an estimated impact of $0.03 per share from favorable weather. The increases were partially offset by lower weather normalized demand of $0.09 per share and higher expenses at Wolf Creek of $0.08 per share, which includes the unplanned outage in the first quarter of 2012. The offset also includes the impact of dilution of $0.07 per share relating to the issuance of common shares in June 2012 to settle our obligations under the company's equity units, about a $0.06 per share decrease in other margin and an estimated $0.04 per share from a variety of other factors including increased expenses from non-regulated activities and increased interest expense.

For the fourth quarter 2012, the company's consolidated earnings were $0.03 per share compared to $0.01 in 2011. The primary drivers impacting the $0.02 increase was a $0.05 per share decrease in interest expense, primarily due to the maturity of the $500 million high-coupon GMO senior notes in mid-2012 and the lower interest rate on the refinanced debt that was underlying the equity units. This was partially offset by an estimated $0.03 per share decrease in margin.

Our full-year 2012 and fourth quarter 2012 earnings for the Electric Utility segment and other category can be found in the appendix and in the earnings release we issued yesterday.

Turning to Slide 12, we are targeting a meaningful uptick in 2013 with earnings guidance of $1.44 to $1.64. Our 2013 regulatory earnings potential is $1.86 per share determined using a rate base of approximately $5.7 billion and ROE of 9.6% and a common equity ratio of 52%.

Our earnings per share guidance assumes reduced lag off our regulatory potential which is all detailed in the appendix.

On our third quarter 2012 earnings call we discussed additional risks beyond our original goals relating to demand and cost issues. The actions we are taking increase our confidence to improve to achieve solid performance within our guidance range.

One of the risks we identified was demand you recall that we had negative lower growth during the third quarter of 2012 driven by a number of factors including extreme weather. Given the magnitude of the third quarter decline and the positive drivers in our service territory, we believe we'll see lowered growth in 2013 accordingly we believe flat to 1% lowered growth is an appropriate assumption for the year.

The other area of offsets to the risk identified relates to cost management; starting with 2012 our cost management efforts have been solid as we were able to manage O&M down $11 million despite $13 million in Wolf Creek cost increases.

We were able to manage our O&M down primarily due to first the impact of a full year of the organization realignment and voluntary separation program. Second tightly managing administrative O&M. Third fewer plant outage days with reduced over time in 2012 compared to 2011 finally cost from events in 2011 that didn't reoccur in 2012.

For 2013 we expect O&M to include increases of approximately $28 million due to regulatory amortization, pension costs, and the Missouri Energy Efficiency Investment Act. As a reminder these costs are recovered in our new retail rates.

For 2013 we will balance O&M and other cost of service not recovered in rates in line with our view of demand. We will continue to proactively manage costs through a number of efforts that include headcount reductions through attrition, ongoing comprehensive cost reviews that target O&M amounts below those included in the rates, reduced over time during planned plant outages and the diligent management of contractor usage. Ongoing supply chain transformation activities to streamline our procurement cost and lower rail cost through contract negotiations.

Turning to the next slide, beyond 2013 we expect earnings growth in 2014 and 2015 will moderate as there are fewer drivers of earnings growth in between rate cases. This is especially true during periods where there is less certainty around load growth. Listed on the slide are a few factors to consider for those periods. For 2014 we'll realize the benefit of one additional month of new Missouri retail rates and earn AFUDC on our La Cygne environmental upgrade. We are also in the process of negotiating new coal transportation contracts.

For 2015 we'll pick up the full year benefit of the La Cygne abbreviated case in Kansas, our current plans are to file general rate cases after the La Cygne upgrade is completed and to include the request for a fuel clause in the KCP&L Missouri filing. We project that our rate base will increase approximately 14% from $5.7 billion to $6.5 billion during that period. Although not linear, this implies 4% to 5% annual growth. During this period it will be important for us to continue to manage O&M in line with our view of demand growth.

From a capital planning standpoint, our 2012 to 2014 capital expenditures are approximately $180 million less compared to the amounts we forecasted last year. This includes the impact of successful novation of our transmission project to Transource. It is also important to note that we do not plan on being a cash taxpayer until approximately 2018 due to the combination of net operating loss utilization and bonus depreciation. Accordingly, our goal would be to complete the construction of La Cygne with no plans to issue equity.

Next turning to Slide 14, we view a competitive and sustainable dividend as a key part of our strategy to deliver improved total shareholder returns. We've increased the dividend 2% in both 2011 and 2012. Our goals include maintaining our current credit rating with a FFO to debt at 15% or greater. Accordingly, we are targeting future dividend growth consistent with past practices and in line with our targeted payout ratio. As Terry mentioned, following the conclusion of our La Cygne upgrade project, we expect our capital needs to return to a more normalized level giving us more cash flow flexibility and providing among other possibilities common dividend stock growth opportunities for our shareholders.

Turning to Slide 15 in closing, our target is to provide improving total shareholder returns. As outlined in our presentation, we expect to achieve our target through the combination of solid earnings growth and a competitive dividend.

Thank you for your time this morning. Terry, Scott and I would now be happy to answer any questions you have.

Transcript Call Date 03/01/2013

Operator: (Paul Patterson, Glenrock Associates).

Paul Patterson - Glenrock Associates: On Slide 22 and you mentioned in your prepared remarks that there was a 100 basis points ROE risk adder and you mentioned the settlement. And when I looked at the settlement, I didn't see that. I mean, I may have missed it. I mean, we've got all of that, it's been very busy. But it looked to me, I saw the 50 basis points for the RTO and I see this 100 basis point for the Sibley. Is that part of the settlement, or is that something that was agreed to before? Could you just elaborate a little bit on that?

Terry Bassham - President and CEO: Yes, that was part of what was done in the fall. So the settlement here was really focused around the base ROE.

Paul Patterson - Glenrock Associates: But they've mentioned a 10.3% FRP, formula rate plan. So that's not inclusive of this ROE adder, is that right?

Terry Bassham - President and CEO: It includes the RTO but not the other.

Paul Patterson - Glenrock Associates: But the 100 basis point will apply to that as well?

Terry Bassham - President and CEO: Yes.

Paul Patterson - Glenrock Associates: But for some reason it wasn't in there. Now that's just with KCC, right? Was there any other reason why the other – none of the other parties were part of this, is it just because they weren't part – I mean, in other words, is it just procedural or was there – were they actually actively opposing it?

Terry Bassham - President and CEO: We didn't know. We didn't have any other parties that have intervened but we're active. So although there were some other interveners, KCC was the only active one on this issue.

Paul Patterson - Glenrock Associates: And the Sibley is still then $380 million is that right?

Terry Bassham - President and CEO: Sibley is – say again?

Paul Patterson - Glenrock Associates: Is about $380 million in CapEx?

Terry Bassham - President and CEO: Our future – I'm not sure which...

Paul Patterson - Glenrock Associates: My understanding is that the full cost of the Sibley project was about $380 million?

Terry Bassham - President and CEO: Yes.

Paul Patterson - Glenrock Associates: Is that still the case?

Terry Bassham - President and CEO: Yes. I'm sorry. Yes.

Paul Patterson - Glenrock Associates: Okay. And then on the weather normalized growth, it looks like you had $0.01 positive on Slide 11, if I understood that right, in the fourth quarter. And yet it looks like sales growth was down, is that some rate design issue?

Terry Bassham - President and CEO: Point to me that again just for one minute.

Paul Patterson - Glenrock Associates: When I look at Slide 11, I look at the fourth quarter, and it looks like that WM sales growth I think it is, right. WM demand, excuse me. And it looks to me like it was for the fourth quarter 2012 a positive $0.01. On that Slide and yet it looks to me like you guys actually had negative sales weather normalized sales growth for the fourth quarter? Wondering why it was positive in the earnings, but negative in terms of sales growth?

Terry Bassham - President and CEO: For the fourth quarter we had $0.02 of unfavorable compared to normal, which created and we had negative demand in the prior year of a penny so the net impact was a penny.

Jim Shay - SVP, Finance and Strategic Planning and CFO: So it's in '11 versus '12 versus normalized.

Paul Patterson - Glenrock Associates: I'll follow-up with you guys afterwards I think I understand, I think I see what you guys might be doing but let me check on later with you? Just in terms of weather normalized growth here it's been difficult for you guys to predict this, I understand that and you guys have been. You guys have been, optimistic in the past and it hasn’t worked out, in terms of what you guys have been seeing. What makes you guys more optimistic now and why do you feel that your forecast now is more likely to be accurate in terms of sales growth than you have in the past? For a couple of years you guys have expected more than what you actually have gotten and you guys are aware of this obviously. So what is it now that you guys feel more confident about in terms of achieving the sales growth given the recent record?

Terry Bassham - President and CEO: Well, certainly I think it's been more difficult to judge demand going forward given the recession and I think we've done a fairly good job up until probably the third quarter. I mean if you looked at where we were through the first two quarters of last year, we were pretty much on track as well. The third quarter was an outlier for sure. So we said at the time that we thought extreme heat, things going on in economy that it was difficult to kind of figure through what was happening that was weather normalized demand versus weather and other impacts. Moving forward, I think, number one I think we're being fairly conservative in the sense that we're flat to positive only a percent. I think that's consistent with what you've probably seen across the country for our industry, and I would say that the details we've provided around what's happening specifically in Kansas City region support that as well and that is, again, with 40% of our load based on housing we've got very strong improvement in housing numbers and so we think given those estimates that we believe a flat to 1% is a solid number.

Paul Patterson - Glenrock Associates: Can you give us an idea what the sensitivity would be if you guys ended up being negative or just what it would be for every 0.5% or so?

Jim Shay - SVP, Finance and Strategic Planning and CFO: Yeah. 1% is about 10% or $0.10 in earnings per share.

Paul Patterson - Glenrock Associates: Then finally on the coal contract negotiations, could you give us little bit of a flavor. You mentioned 2014 and 2013 you guys – you just have your drivers, what we're potentially seeing there in terms of how it might impact earnings, just give us a little more flavor in terms of your – what we should be thinking about with respect to 2014 and what have you with respect to these negotiations that you guys are entering into and how might they impact earnings?

Jim Shay - SVP, Finance and Strategic Planning and CFO: Sure. A couple of factors around the edges. One, the contracts actually run out at the end of the year. So we will certainly see the impact in '14 going forward. We might have an opportunity as we continue negotiations to have some impact on '13 but we don't really have anything at this point to point to. In terms of structure, remember that those expenses are part of coal expense, our fuel expense and would flow through our fuel factors everywhere except Kansas City Power & Light in MO. So the uptick we are talking about there, the upside, the opportunity we are talking about there is related to Kansas City Power & Light in MO, although that is our largest individual percentage of load. So those are kind of the aspects of it. So again I think we are hopeful to be able to do something maybe in '13 to help '13 some, but really it's more of a '14 and forward focus probably.

Paul Patterson - Glenrock Associates: Just in terms of the sort of the magnitude of what we are – I mean, could you just give a flavors in terms of what these contracts are versus what the market is, just roughly speaking about we might be thinking about?

Jim Shay - SVP, Finance and Strategic Planning and CFO: Well, probably not really. I would tell you we've talked before the transportation is about half of our total cost, so that gives kind of a sense of what kind of magnitude we are talking about there. In terms of where we are at, I would say that in general, prices have softened a little bit here and we're expecting them to improve on what our pricing is. We are currently in negotiations though and so I don't really have an ability to tell you what we – or we think we'll come out on that.

Operator: Ali Agha, SunTrust Robinson Humphrey.

Ali Agha - SunTrust Robinson Humphrey: Terry, and Jim, when I look at your '13 guidance, the $0.20 range that you put out, I understand that you've got the 0% to 1% load growth assumption, so that's about a $0.10 swing there. What would you attribute the other $0.10 swing that's embedded in your guidance?

Jim Shay - SVP, Finance and Strategic Planning and CFO: It could relate to O&M expenses, it relates to our ability to manage our overall capital structure and ability to take advantage of any opportunities from either Wolf Creek or the rail contracts on the upside or weather top initiatives. So if you had demand on the lower end, you had some really soft weather. We certainly be working to offset those to stay again within the midpoint of that range, but those things would drive the numbers kind of up and down from that midpoint.

Ali Agha - SunTrust Robinson Humphrey: But generally it's fair to say that I mean you would start off assuming normalized weather when you are putting your guidance and budget together?

Jim Shay - SVP, Finance and Strategic Planning and CFO: Yes, absolutely, but as the year goes you see how demand goes, you try to work through your O&M and manage cost up and down maybe based on whether you have growth, and then if you have good weather obviously that can add to it. If you have really soft weather that could obviously affect it to some degree, but you would expect again to manage O&M around those aspects of it.

Terry Bassham - President and CEO: Our practice has been the last two years to star the year with a $0.20 guidance range and we have been, our pattern has been to narrow it to a $0.10 after we get the third quarter in which is the majority of our sales. So, that’s just consistent with our past practice.

Ali Agha - SunTrust Robinson Humphrey: Given that as you pointed out, you are not going to have another major rate case while until mid-15, so rates really an effect in '16 onwards So when you look at the happening going forward, are you guys confident you can maintain your earned ROE in '14 and ’15 as well keep it flat or should we assume that maybe downward pressure on those ROEs just looking at the timing.

Jim Shay - SVP, Finance and Strategic Planning and CFO: I think what we signaled here is that our opportunity for growth over that period is a little bit muted till we get that case we have AFUDC and we'll have the effects of the partial case or abbreviated case in Kansas on La Cygne, but until we start seeing more growth than our management around our cost is critical and no I don't think, from pressure perspective we feel '14 and '15 is any different maybe in '13. One of the things that we've outlined here is that in addition to what we just achieved in our rate cases around both increased O&M and trackers and rider themes. We're also talking to the legislature in Missouri about opportunities to even improve upon the outcome we just got in those cases. So there certainly could be pressure, but we expect to manage it and manage it positively.

Ali Agha - SunTrust Robinson Humphrey: And then lastly I mean putting it in some context, you mentioned your CapEx will support maybe a 4% to 5% annual growth in rate base over the next couple of years given that you are not planning to issue any equity and if I'm hearing you right, you'll manage your costs, so that your ROEs don’t hold much from here, is it fair to say that EPS growth should pretty much drag that rate based growth over those next couple of years?

Jim Shay - SVP, Finance and Strategic Planning and CFO: I would say that if your question was will our earnings track rate base growth. There will not all of the CapEx that we have will earn AFUDC or will we able to get into the Kansas abbreviated case. So we could see earnings growth during that period being below rate base due to some capital lag in between rate cases.

Operator: Charles Fishman, Morningstar.

Charles Fishman - Morningstar: I just want to make sure I understand this right. The third quarter of last year, 4.2% demand drop, what you are saying is maybe that was a modeling anomaly and may be more that was weather related and less of it was really weather normalized demand loss?

Jim Shay - SVP, Finance and Strategic Planning and CFO: Yeah, there's couple of factors. If you go back at the year-over-year comparison, and an increase or uptake in demand in the third quarter the year before, when you then compare what happened in '12 to that, that provides a bit of an anomaly. On top of that we clearly had the hottest July and a very hottest June and an extremely hot May that clearly affected folks response to those bills coming through. So, yeah, I don't think there's any doubt that we think that the calculation of weather normalized demand as we traditionally done that probably wasn't exactly indicative or definitely difficult to say was indicative of a natural weather normalized demand number. So if you look at the trends before that quarter in that year and the trend in the fourth quarter they do not line up with those numbers and so we think that was an anomaly quarter for sure.

Charles Fishman - Morningstar: Senate Bill 207 went to the senate floor last week. Does that still include generation or is it being trimmed down to just distribution only?

Jim Shay - SVP, Finance and Strategic Planning and CFO: Current version of the bill does include generation opportunities there. So, we're certainly a long way from knowing what the final bill looks like, but currently it still does. It was in front of or actually earlier this week. So we continue to make progress there and we are hopeful of a reasonable outcome.

Charles Fishman - Morningstar: So some version of this has gone to the house too?

Jim Shay - SVP, Finance and Strategic Planning and CFO: It has.

Charles Fishman - Morningstar: If you were to get that, and included generation, would the Missouri jurisdiction of La Cygne get addressed in that?

Jim Shay - SVP, Finance and Strategic Planning and CFO: No, the real generation piece we are talking about here is new generation, I mean, it's related to – not new generation, it's related to update on kind of ongoing generation improvement. It's not really specifically addressed right now on environmental. But we are not done yet. We'll see where that goes. Right now it's mainly intended to provide for infrastructure improvement, whether the T&D or generation. But again La Cygne's a project that's already underway.

Operator: Brian Russo, Ladenburg Thalmann.

Brian Russo - Ladenburg Thalmann: Just back on the guidance in the mid-point of 154, that implies basically a 100 bps of lag, is that accurate?

Jim Shay - SVP, Finance and Strategic Planning and CFO: Yeah, that's about right.

Brian Russo - Ladenburg Thalmann: Also would it imply 0.5% load growth or something different than that?

Jim Shay - SVP, Finance and Strategic Planning and CFO: You could look at it that way. Obviously there's several factors that are going to that, but you can look at it that way.

Brian Russo - Ladenburg Thalmann: Is there any assumption made on the wholesale margins or does the midpoint assume you are flat?

Jim Shay - SVP, Finance and Strategic Planning and CFO: I'd say the midpoint assumes we hit our, kind of our target which we haven't described a number, but that was part of the settlement and that segment included an assumption around a wholesale sales expectations, updated for current gas prices and so the midpoint would assume kind of that range.

Brian Russo - Ladenburg Thalmann: Okay so they asked the question differently I guess does the midpoint assume you get full recovery of your fuel cost?

Terry Bassham - President and CEO: Yes.

Brian Russo - Ladenburg Thalmann: And I was surprised to hear you say that the Wolf Creek cost or operating expenses in ’13 are to be flat, I think previously you mentioned it as a potential headwind in ’13, I was just curious if you can elaborate as to why it's flat.

Terry Bassham - President and CEO: Yes, couple of things, I mean obviously the unit has run extremely well since our last outage and went basically breaker to breaker up to the start of our refueling outage, so that’s certainly been a positive. We have certainly been through and we continue to work with our NRC reviews and other projects that give us more comfort. One thing we did say and remember is it although we expect ’12 and ’13 to be flat, it is slightly below what’s in rates because of the timing of the test year and so you could call that a bit of a headwind although we certainly managed other cost to offset that as Jim described in his comments. So, it's a headwind to the extent that we had to manage it, we have managed it and we believe that ’13 will be flat to ’12 with some opportunity for that to improve going forward as we wrap up NRC inspections and the unit continues to run well, which we anticipate.

Brian Russo - Ladenburg Thalmann: And then also on slide 23, it looks like, if I’m reading this correctly. The non-reg cost are declining about $0.04 or $0.05 in 2013, what’s driving that?

Terry Bassham - President and CEO: Yes, a couple of factors with lower interest – the way we do the calculation with lower interest cost through some of the refinancing and what’s in rates we apply that lower interest rate and the new cap structure to the NOL and the goodwill. Plus in 2012 we had a couple of nonrecurring items if I can use that term there was the loss on the sale of the property and some expenses related to the depreciation as part of the rate order that impacted the '12 expenses. So we've got the $0.10 that you see on that chart would be a more normalized run rate and as we utilize NOLs that number will reduce to the $0.07 range kind of in the '16, '17 timeframe. $0.10 should be the number to use moving forward.

Brian Russo - Ladenburg Thalmann: $0.07 by 2016 you said?

Jim Shay - SVP, Finance and Strategic Planning and CFO: Yes.

Brian Russo - Ladenburg Thalmann: Just, your prior goal or target of managing the ROE lag to 50 basis points. I realize it's not the midpoint but rather the high-end of the range, but is that still your target I mean I guess, you are trying to run the business as profitably as possible, but just maybe get your thoughts on that.

Terry Bassham - President and CEO: There is no doubt that our goal would still be returning our 50 basis points opportunity. But we just finished our rate cases. We have more clarity around those numbers we have had some challenges around Wolf Creek and demand that have continued to develop since August of '11. But as we stand here today that’s the top end of our range we certainly want to drive to that number. But we've outlined kind of the workaround that we need to do and we think we've got an opportunity to hit the midpoint or above, that’s certainly our focus as a management team.

Operator: Christopher Turnure, JPMorgan.

Christopher Turnure - JP Morgan: Most of my questions have been answered already, but I just wanted to clarify on the O&M side. The total increase into 2013 is $28 million. You guys have given a lot of puts and takes here. I just wanted to put some numbers around it?

Terry Bassham - President and CEO: No. The comment there was to point out that we had $28 million of increase in O&M headed into '13 that were not lag related. They were related to things that were approved in the rate case and would be included going forward and that we would collect on. So, that was what's that number was intended to show is things that were not lag and that we were collecting move forward, but were in rates and so didn't cause any pressure there.

Christopher Turnure - JP Morgan: Then outside of that we know that Wolf Creek is going to be flat. What are we looking at?

Terry Bassham - President and CEO: Yeah, it's flat to up just a little bit, but up a little bit is within the current rates. So O&M is not causing any lag at all from that perspective.

Operator: Sarah Akers, Wells Fargo

Sarah Akers - Wells Fargo: As a follow-up to Charles' question on the Missouri legislation, is this your understanding that you would be able to implement these mechanisms pretty quickly after they pass, if they pass?

Terry Bassham - President and CEO: Well, that's certainly the plan. Again the legislation has not written yet, but the typical timing would be effective around August-September. There would be some process at the PSC. What process there is and the timing around that would be in part how the legislation is written and again it's not final, but the goal of the process is certainly not to have a long period of rulemaking post legislation. I'd love to say that I hope we have some positive opportunity in '13 but practically speaking, I would focus on '14 and beyond. That's for sure.

Sarah Akers - Wells Fargo: Then again, I know it's still early, but do you have any kind of broad estimate of what portion of your CapEx would qualify for rider treatment at this point?

Terry Bassham - President and CEO: We've got some numbers we worked on. I'd be a little hesitant to provide those until we see what the wording is. But I would say that a large chunk of our CapEx spend is focused on maintaining our system because we've cut a lot of other stuff out. So I would say that this would be very helpful to help us collect, again dollars timing wise, on a more efficient way and allow us to get some projects going maybe a little faster.

Sarah Akers - Wells Fargo: Then one on Wolf Creek. Sorry if I missed this, but I know in the past, you've talked about potentially aligning with another fleet operator. Where does that process stand?

Terry Bassham - President and CEO: We went out with an (indiscernible) last fall and asked for bids or responses to request around opportunities to have someone else operate the plant. It was pretty broad. We wanted to be sure and get all the different parties and opportunities that currently, we've had those current return back to us and we are currently reviewing them. We'd expect in the next quarter to probably to have some information or decision around that, although we may not have a contract if we did that. But the options are to do something different from an operational perspective, or to continue to operate as is. Again we'll be looking for opportunities to reduce overall cost and improve performance with whichever way we go.

Operator: Adam Muro, Goldman Sachs.

Adam Muro - Goldman Sachs: It's Adam Muro subbing in for Michael Lapides here. I was looking at the mid-point of your guidance. What sort of O&M growth are we assuming versus 2012? That will be the first question. And as a follow-up, voluntary separation program, that had a meaningful impact from fourth quarter. How we should be thinking about this line item going forward?

Terry Bassham - President and CEO: What was – I’m sorry the second question, I got the O&M question, what was the other one?

Adam Muro - Goldman Sachs: So the voluntary separation program you had, that had a meaningful impact. I was wondering how we should be thinking about this going forward.

Terry Bassham - President and CEO: Yes, they kind of fit together. On an O&M we are pretty much flat again we described kind of where we are on the elements, but overall we would expect to maintain our O&M flat year-over-year slight increase maybe in certain elements but offset by others. From one of the ways we are doing that though is the line item you are talking about. Remember we had about 150 folks leave under (Orvis) year before last. We have maintained those numbers in terms of total headcount reduction, and as a result we will continue to see the benefits of that plus some as we go forward. We have also outlined moving forward that we expect in ’13 to utilize attrition to manage headcount down as well and continue to see benefits of lower employee counts.

Operator: At this time there are no further questions; gentlemen please proceed with your presentation or any closing remarks.

Terry Bassham - President and CEO: Okay. Thank you very much. I’d like to take the opportunity to thank our employees. We obviously had a good year but we've had a lot of challenges. We just a couple of snowstorms in our area and again a great set of employees dedicated to our customers and our community. I really want to thank them on them on the call today. Again our goal was to provide a review of our accomplishments and our '13 outlook. We think that our strategy to be a reliable regional utility with our employees is very achievable and we are very excited about that. So thanks for everybody calling in this morning and obviously we have additional questions. You can follow-up with our investor relations team. Thank you.

Operator: Ladies and gentlemen this concludes today's Great Plains Energy 2012 fourth quarter year-end earnings call you may now disconnect.