Great Plains Energy's (GXP) CEO Terry Bassham on Q1 2014 Results - Earnings Call Transcript

May. 9.14 | About: Great Plains (GXP)

Great Plain Energy, Inc. (NYSE:GXP)

Q1 2014 Results Earnings Conference Call

May 09, 2014 09:00 AM ET

Executives

Kevin Bryant - VP of IR and Strategic Planning and Treasurer

Terry Bassham - Chairman and CEO

Jim Shay - SVP and Chief Financial Officer

Scott Heidtbrink - EVP and COO of KCP&L

Analysts

Ali Agha - SunTrust

Paul Ridzon - KeyBanc

Michael Lapides - Goldman Sachs

Brian Russo - Ladenburg Thalmann

Charles Fishman - Morningstar

Mike Bates - Wunderlich Securities

Sarah Akers - Wells Fargo

Michael Goldenberg - Luminus Management

Paul Patterson - Glenrock Associates

David Paz - Wolfe Research

Operator

Good day, ladies and gentlemen, and welcome to the Great Plains Energy Q1 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, today's conference is being recorded.

I would now like to introduce host for today's conference call Mr. Kevin Bryant, Vice President of Investor Relations and Strategic Planning and Treasurer. You may begin, sir.

Kevin Bryant

Thanks Kevin. Good morning, everyone. And thank you for joining us for our first quarter 2014 earnings conference call. Let me begin by introducing the members of the Great Plains Energy management team, who are here with me this morning. We have Terry Bassham, Chairman 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 our first quarter 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 Q&A 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 on our SEC filings contains 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 first quarter 2014 10-Q after the market close yesterday. These items are available, along with today's webcast slides and supplemental financial information regarding the quarter on the main page of our website.

With that, I'll now hand the call to Terry.

Terry Bassham

Thanks Kevin and I appreciate everybody joining us this morning. Yesterday, we announced first quarter earnings of $23.4 million or $0.15 per share compared to $25.6 million or $0.17 per share last year. With one quarter behind us, we're well positioned to deliver earnings at the middle to upper half of our guidance range as we discuss.

As a result, we're reaffirming our 2014 EPS range of $1.60 to $1.75 and Jim will discuss in more detail on the quarter in his comments.

We remain confident in the return of growth to our service territory, we had a solid quarter of weather normalized demand growth with 1.7% increase compared to the first quarter of 2013. And then this industrial segment was up 6% and is the strongest we've seen in nearly four years.

Sport motor companies in Kansas City assembly plant was a driver for the industrial segment growth and production of the transit van is underway with expectations that a second shift will be added later this year. For competitive rates in our central location, we see continued economic development opportunities especially in the auto supplier, railroad and the data center sectors. In the residential segment March year-to-date single and multifamily housing permits were up over 70% compared to 2013. As we discussed on the year-end 2013 earnings call, we’re confident in the growth prospects in our service territory with the strong first quarter weather normalized demand result. We remain confident in our 0.5% to 1% growth assumption for the full year.

At Wolf Creek, the mid-cycle maintenance outage is nearly completion and we expect the unit to return to service within a week. As a reminder, the unit’s next refueling outage is scheduled to begin in the first quarter of 2015. In addition to the planned outages at Wolf Creek during the quarter, we also had coal unit outages. Given the extremely cold weather, these outages contributed to increase O&M and likely caused us to miss some margin opportunities. Although we were not able to take advantage of those in the short-term, we believe our fleet is in a good shape and well prepared for the balance of the year.

On the regulatory front, a unanimous stipulation and agreement has been filed in our Kansas abbreviated rate case to add construction work in progress to rate base for the environmental upgrade at our La Cygne Generating Station. The agreement is subject to commission approval and includes the revenue increase of $11.5 million and the possible implementation of new rates earlier than originally expected on the August timeline. Construction on the project remains on budget and on schedule for completion in mid 2015.

On the legislative front, the Missouri session ends a week from today and it’s uncertain as to whether the legislative efforts we’re supporting to reduce lag will be passed or not. While our Senate Bill made progress, the environment around utility legislation remains unclear. We continue to advance our message that reinforces our view around the importance of these measures and will continue through next week.

Regardless of those outcomes though, we are excited about growth that continues in our service territory and our compliment, our ability to manage cost and deliver strong results in line with data for the year.

Now I’ll turn it over to Jim for our first quarter results.

Jim Shay

Thank you, Terry and good morning everyone. I will begin with slide 6, which provides the comparison of the 2014 first quarter to 2013. As Terry indicated, our first quarter 2014 earnings were $0.15 per share compared with $0.17 per share last year. Favorable year-over-year variances consisted of colder weather, new retail rates in Missouri and an increase in weather normalized demand. The favorable variances were more than offset by planned increases in O&M, including Wolf Creek, general taxes and other items.

Approximately half of $0.04 Wolf Creek O&M variance is due to the planned mid-cycle outage with the unit returning to service. Within the week, we will see O&M impact of the outage continuing into the second quarter. The first quarter year-over-year O&M variance of Wolf Creek also included the impact of increased amortization from the planned refueling outage that began in the first quarter of 2013 where cost is deferred and amortized.

O&M expense increased $0.05 including increased operating and maintenance cost to coal units primarily due to outages and increase in Missouri energy efficiency investment cost which are included retail rates. As we indicated on the 2013 earnings call and consistent with our guidance assumption, we expect 2014 O&M to increase approximately 3% or 4% over 2013.

We had planned increases in the first quarter and we expect that O&M for the rest of the year in total to be flat as compared to the prior year with some fluctuations between quarters.

Turning to slide 7, for the first quarter, total retail megawatt hour sales increased 6.6% compared to last year. Heating degree days for the quarter were up approximately 15% compared to last year and 20% compared to normal. Compared to normal weather, first quarter pretax gross margin was favorable by approximately $15 million or about $0.06 per share.

Included in the appendix of this presentation are details on customer consumption. As Terry mentioned, on a weather normalized basis, demand was up 1.7% compared to the same period last year, which was in line with our expectations for the quarter. Of particular note, I would like to highlight that we have seen 5 consecutive quarters of positive residential growth.

Increasing property taxes and transmission costs that are under recovered in Missouri remain an area of focus. For 2013 under recovered costs related to these items caused approximately 50 basis points of regulatory lag. As we established our EPS guidance range for 2014, we anticipated that these costs would increase further and that we plan to manage the business for strong financial performance for the current year considering that multiple regulatory and legislative outcomes were possible.

Turning to our financing consideration, Standard & Poor’s recently raised the senior unsecured debt ratings at Great Plains Energy, KCP&L and GMO, citing the regulated utility business model with supportive cost recovery, referencing the construction of the environmental upgrade at La Cygne as an example. We have no plans to issue equity for 2016 and we anticipate terming out some short term debt at KCP&L in 2015.

As a reminder with our net operating loss carry-forwards, primarily from the Aquila acquisition, we do not anticipate paying significant cash income taxes through the end of 2020.

As Terry mentioned earlier, we are affirming our $1.60 to $1.75 EPS guidance range for 2014 which assumes normal weather for the remainder of the year and our confidence that we are well positioned to deliver strong financial results.

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

Question-and-Answer Session

Operator

(Operator Instructions). Our first next question comes from Ali Agha with SunTrust.

Ali Agha - SunTrust

Good morning.

Terry Bassham

Good morning.

Jim Shay

Good morning.

Ali Agha - SunTrust

Terry, can you remind us -- the Missouri Commission decide not to tranche you the accounting deferral orders. Was that assumed to be granted to you in your guidance and if so, what is the financial impact for not getting it?

Terry Bassham

So we don't have an order on the AAO yet. They’ve had one; I’m not really hearing that meeting on it. But we don't really have an order yet. But to answer your question, certainly what we talked about at the beginning of the year is that if received the AAO, it would help us move to the top end of our range. But we've always planned to manage within our guidance whether we got the AAO or not.

Ali Agha - SunTrust

Okay.

Terry Bassham

Yes.

Ali Agha - SunTrust

Also on the O&M expense; I just wanted to be clear, the coal outages that you refer to, were those planned or unplanned? Is sounded like they are unplanned and if that’s the case, [Technical Difficulty] are you planning; how do you offset that to keep you on track for the year?

Terry Bassham

You are correct now just a little, but I think I have got you just as a question, there were combination of planned and unplanned and to the extent that we had some that were scheduled, we always look for ways and we have ways to manage around that in our future outages. So, sometimes, we have and unplanned and we do some work that allows us not to have to have another outage later that we would have expected to have.

So, we fully expect to manage around that and net-net not have a real impact on the year.

Ali Agha - SunTrust

I see. And my last question on the weather normalized sales calculation, I know it's weather normalized, but it's more art than science in many cases, given the extreme weather that we saw. Is your sense that some of that may also creep into this weather normalized calculations or how do you look at that plus 1.7% number?

Terry Bassham

Well, we certainly would agree with you that, agree to art to this weather process and we have seen situations, where it was the most extreme that it makes it even more so in that regard.

So, that certainly, we're not suggesting that those numbers are exact from that perspective, but we think they are reliable, very reliable. But remember, I would say in part that industrial number is a return of a line at board that 6% is certainly what we expected maybe even a little quicker than we expected, but not a long term growth number for industrial as we see forward continue to move forward, we'll continue to see growth there, but that is a bit off -- it's a bit lumpy if you will on the industrial side.

Otherwise, I think again the 1.7 is consistent with kind of expectation in supportive of the half percent to percent we have talked about.

Ali Agha - SunTrust

Thank you.

Terry Bassham

You bet.

Operator

Our next question comes from Paul Ridzon with KeyBanc.

Paul Ridzon - KeyBanc

Residential permits were up 70%?

Terry Bassham

And so Paul you kind of came in with half question.

Paul Ridzon - KeyBanc

Did you say building permits were up 70%?

Terry Bassham

Right.

Paul Ridzon - KeyBanc

Is that just a lot small number or is there just as phenomenon?

Terry Bassham

Little of both. I mean certainly again we’re working off small numbers because of the way the market has been. But what we’re seeing and have seen is that continued growth in the residential sector both absorbing houses that were not lived in and building planning and building of new housing. So it’s a little of both but it’s certainly good indication of continued support for those residential growth numbers.

Paul Ridzon - KeyBanc

What you read on the positive legislation passing?

Terry Bassham

Well as everyday you get closer to next Friday, but the odds are little suffer we’re certainly positioned well to continue to communicated and have an opportunity. We’ve had bills passed in the last week for legislature. So providing percentage best with legislative activities are pretty dangerous thing. I’d say we’ve got good communication, and we have support from our bill leaders. And we continue to communicate about it. As the week goes on it will be tougher because they’ve got a lot of bills they are trying to pass in the last week.

Paul Ridzon - KeyBanc

And then just when do you expect resolution on the accounting order?

Terry Bassham

Actually, probably the next meeting or two the commission we actually expect an order pretty quickly.

Paul Ridzon - KeyBanc

And what’s the feedback then?

Terry Bassham

Well, I’d say that the commission certainly have, the commission [nerves] certainly have some concerns about the AAO prior to this expense. So we’ll see where it goes and if it doesn’t obviously we’ll get it trued up in the rate case. And then in the meantime we’ll prepare to offset those costs through O&M management.

Paul Ridzon - KeyBanc

And this is just for transmission this is not property tax, correct?

Terry Bassham

Right, this was specific to transmission rather than property tax.

Paul Ridzon - KeyBanc

I know you think O&M will be flat to the balance of the year but two different uptick in 2Q because of the Wolf Creek outage?

Terry Bassham

Well, its certainly all other things been equal that is additional number in the second quarter. We will have to offset, so that that will be in there, but again our expectation would be to manage for the year flat, that was our plan to start with, and we are right on plan.

Paul Ridzon - KeyBanc

Okay. Thank you very much.

Terry Bassham

You bet.

Operator

Our next question comes from Michael Lapides with Goldman Sachs.

Michael Lapides - Goldman Sachs

Hey, Jim. Thank you for taking my call. Just when looking at the headline numbers on both O&M and general taxes. Can you walk us through really kind of three buckets for both. One bucket is what do you think is recurring and what is recovered in rates of the year-over-year change. The other is what is recurring but not recovered in rates. And then finally what is really not recurring like it’s from first quarter of 2015, you would actually see a positive meaning the decline in either O&M or general taxes because what happened in the first quarter of ‘14 was abnormal?

Jim Shay

Well, in terms of general taxes the $0.02 that is highlighted on slide 6, half of that is covered with the revenue offset through the Kansas property tax writers. So that pieces of the story is pretty straight forward. On the O&M side Wolf Creek moving into next year would not have the mid cycle outage as a recurring expense, so that would be a favorable comparison moving into next year.

In terms of the overall O&M, it is up the $25 million which was in line with our plan and as Terry indicated we would expect that to be kind of flattish throughout the rest of the year. Both kind of set the whole thing back in terms of a context as we indicated at the beginning of the year when you look at the level of O&M that we have for 2014 and you compare that to what we had in 2011, you back out the one-time impact $10 million related to the Wolf Creek mid-cycle outage. Of the $10 million, everything else is really covered in rates either through EMEA legislation or it relates to regulatory amortizations, pensions and other costs. So really flat were continuing to remain flat on recurring O&M.

Michael Lapides - Goldman Sachs

Okay. So, I mean if I just look trying to think about it very, very high level on a year-over-year basis, what you are basically saying is expect for the Wolf Creek piece and the coal outage piece I assume you wouldn’t expect to incur the coal outage piece in the first quarter of ‘15 everything else is either non-recurring or covered in rates?

Scott Heidtbrink

Yes.

Michael Lapides - Goldman Sachs

Okay. Thanks Scott.

Scott Heidtbrink

Thank you.

Operator

Our next question comes from Brian Russo with Ladenburg Thalmann.

Brian Russo - Ladenburg Thalmann

Good morning, Scott

Scott Heidtbrink

Hey Brian.

Brian Russo - Ladenburg Thalmann

Can you just remind us what the EPS impacts were 100 basis points of load growth?

Jim Shay

It depends on the time of the year; it could be $0.05 to $0.10 there is about 1%.

Brian Russo - Ladenburg Thalmann

Okay, great. And what’s the allowed ROE in the midpoint of your guidance, your earned ROE excuse me.

Jim Shay

It would be about 40 to 50 basis points to the midpoint.

Brian Russo - Ladenburg Thalmann

Of lag, okay.

Jim Shay

Yes, of lag.

Brian Russo - Ladenburg Thalmann

Got it. And can you remind us, KCP&L Missouri doesn't have a legal cause yet, I'm sure you will file for it in your next rate case. But can you just remind us about the mechanics and how that’s laid out in the first quarter; was it a positive or a negative variance?

Scott Heidtbrink

So it would have been slightly negative to the extent that our expected fuel cost was higher, expected fuel cost was lower than incurred and that was kind of, I mentioned that if we had -- no arguments, we’re very efficient in low costs. So if we have a unit that’s out, we run a different unit maybe a little more expensive we’ll adapt somehow. So that would be a negative.

And then on the off-system sales portion we have kind of an agreement about what that number is. And our point was to the extent that we missed an opportunity for off-system sales that was not really in the numbers here, but a missed opportunity and that would have flowed through to the bottom-line as well over the course of the year. Is that makes sense?

Brian Russo - Ladenburg Thalmann

Yes, it does. I guess off-system sales at higher prices may have offset the less capacity you had to actually sell?

Scott Heidtbrink

Yes, at higher margin there if you will and it could have been off-system purchases or it could have been running another unit which was more extensive on the margin.

Brian Russo - Ladenburg Thalmann

Okay. And just remind us in terms of Missouri legislation, what should we be focusing on; I know the Senate Bill 702. What are the other bills that have, that are at committee or have been pushed out of committee?

Terry Bassham

Yes. Everyone is related to audit would be Bill 909, which is a similar build in the (inaudible).

Brian Russo - Ladenburg Thalmann

Okay, great. Thank you.

Terry Bassham

Thank you.

Operator

Our next question comes from Charles Fishman with Morningstar.

Charles Fishman - Morningstar

You said 40 to 50 basis points lag on regulatory lag. Remind me roughly another 100 basis points for non-regulatory cost?

Jim Shay

That's correct.

Charles Fishman - Morningstar

Okay. And then with Missouri Bill 909, is the main opposition of that still a little bit of aluminum small turn in Southern Missouri?

Scott Heidtbrink

Yes. I mean I don't know that they identified themselves as a single customer, but commercial customers as a group are the main opposition to that Bill, that’s correct.

Charles Fishman - Morningstar

Okay. Thank you.

Scott Heidtbrink

You bet.

Operator

Our next question comes from [Ashley Kahn] with (inaudible).

Terry Bassham

Good morning.

Unidentified Analyst

Good morning. My questions have been answered. Thanks.

Terry Bassham

Thank you.

Operator

Our next question comes from Mike Bates with Wunderlich Securities.

Terry Bassham

Good morning.

Mike Bates - Wunderlich Securities

Most of mine have been answered as well. Just to be clear though with Wolf Creek, I had been under the impression on your year-end call that cost for that outage were expected to be right around $9 million or $10 million for the full year. Can you give us an idea of what the impact might be in the second quarter?

Terry Bassham

So, there is two pieces there, remember we also have some amortization related to Wolf Creek in the first quarter from the last refueling. And so that $9 million to $10 million we talked about is still the number for the mid-cycle, but it will be split a little bit, it will be split about half between first quarter and second quarter. So you could see $4 million to $5 million over in the second quarter that we'll be dealing with.

Mike Bates - Wunderlich Securities

All right. And then the unscheduled coal outages, have those plants been brought back online yet or did they carry into the second quarter as well?

Terry Bassham

No, no. Let me be clear. We want to be clear about what our opportunity was that we spent a lot of capital in our units, we had our best availability factor last summer we’ve had in the five years. We just from a timing perspective as cold as it was when you have an unscheduled outage you could have a missed opportunity there. Our units are in good shape, they’re all running. We’re ready for our summer peak.

Mike Bates - Wunderlich Securities

Thank you very much.

Terry Bassham

You bet. Thank you.

Operator

The next question comes from Sarah Akers with Wells Fargo.

Sarah Akers - Wells Fargo

Hi.

Terry Bassham

Good morning, Sarah.

Sarah Akers - Wells Fargo

Just a question on transmission expense; I know Ameren has MISO cost included in there, fuel adjustment cost. Is it something you plan to request for GMOs FAC and then the new KCP&L you acquired in next year’s rate case? And as a follow-up to that, is there anything unique about Ameren that would support a different outcome for GMO and KCP&L there?

Terry Bassham

Yes and no. So yes, we would ask for those and no there shouldn’t be anything different. This would be typical cost that was included in that factor.

Sarah Akers - Wells Fargo

Okay. So even if they have legislative and regulatory initiatives don’t go forward this year by 2016, you expect those MISO transmission cost to be included in the FAC?

Terry Bassham

Yes. The commission filing in the legislation was actually intended to deal with the fact that they’re not currently included. Once we were able to get that in place, those will flow through to those factors.

Sarah Akers - Wells Fargo

Got it. Thank you very much.

Terry Bassham

You bet. Thank you.

Operator

Our next question comes from Michael Goldenberg with Luminus Management.

Terry Bassham

Good morning Michael.

Michael Goldenberg - Luminus Management

I have a question more along the same topic of fuel adjustment cost on tracker and all that. Since late 2015 rate case, 2015 rates will be the driver for the (inaudible) all of those items, is that correct?

Terry Bassham

You’re kind of breaking up.

Michael Goldenberg - Luminus Management

I am sorry let me perhaps -- is it fair to say that judging from this conversation that the 2015 rate case for rates in 2015 most likely will be the primary vehicle of fuel adjustment cost as well as recoveries of many of the items assuming legislature about something [next year]?

Terry Bassham

Absolutely.

Michael Goldenberg - Luminus Management

Okay. Have you guys done preliminary analysis as to how much in total would the rate case -- rate increase be to recover all of those?

Terry Bassham

We certainly are in a preparation for that case and have done some work around that. We wouldn’t provide early numbers, but I would tell you that our focus is on recovery of La Cygne, our focus is on implementation of the fuel factor and in recovery of any costs that are causing lag. Certainly if we’re not allowed to track some of these interim costs; we won’t be flowing those through and that would reduce the overall [adds] and that takes a little bit. But in general, we think they’re manageable cases from a level perspective. And we expect to file those again sometime in probably ‘15 to be effective versus ‘16.

Michael Goldenberg - Luminus Management

Do you think at some point before the filing, you will give us a preview with some sense of numbers of increase or we will just have to wait until the rate -- the cases are filed?

Terry Bassham

No, as we work through these issues that involve all these costs and whether or not will allow us to get the AAO or get the legislation, as we are close, we will begin to see what kind of ranges that might have. But obviously we have a public notice requirement to filing case. And we will have to be careful about giving any specific numbers until we’re finished [then we make] a public filing. So, we certainly can talk about the sense of what kind of cost we are recovering.

Michael Goldenberg - Luminus Management

And that is going to be -- the filing has to be by [1/30/15]?

Terry Bassham

The case needs to -- we are still working on the details around that. The case needs to be sure and pick up La Cygne once it becomes in service. So when in service happens, we need to be able to true that up in the case. If we could get in service earlier, we might file earlier but we have a certainly a back end deadline for mid-summer 2015.

Michael Goldenberg - Luminus Management

That’s what the true up, not [to be at risk]. Right?

Terry Bassham

Yes, right. And then depending on the state, we would back that up to some degree, right. Remember that Missouri, about three months longer process in total in [candid].

Michael Goldenberg - Luminus Management

Yes. Thank you very much.

Terry Bassham

Thank you, Michael.

Operator

Our next question comes from Paul Patterson, Glenrock Associates.

Paul Patterson - Glenrock Associates

Thanks. Good morning. Just to circle back on a few things to make sure I understand them. Could you tell me what the customer growth expectation? I know what your sales growth expectation is but given Paul Ridzon’s question and your comments about permits, how should we think about customer growth, at least on the residential side how should we think about it?

Terry Bassham

Are you asking how do we look at growth as customer count versus customer usage?

Paul Patterson - Glenrock Associates

Yes, that’s it; you got it.

Terry Bassham

It’s a little of both actually. I know that’s a big discussion across the country right now, you know with the economy picking up that we have customer count improving but usage maybe not growing. And we’ve actually seen some usage growth and we’ve seen count as well. So, it’s a mix.

Paul Patterson - Glenrock Associates

Okay. When we look at 0.5% to 1%, how much of that is customer growth would you say?

Terry Bassham

I don’t know that I have got that breakout (inaudible) second.

Paul Patterson - Glenrock Associates

Okay.

Terry Bassham

In terms of the split, I would tell you that it’s a little of both though. And again we’ve got mix issues in there as well on the sector and how it’s growing.

Paul Patterson - Glenrock Associates

Sure. Okay. And then just to follow up on the SP 702; and it sounds like you guys are actually hopeful that you think 702 might pass; is that right?

Terry Bassham

Well again, we are still continuing the conversation, but we’re down to a [week]. And a lot of the work as the legislator gets done in the last three weeks but that also means that there is a quite a [tough] point trying to get as many things done as possible. So we're still doing our talking, we're in a position to have that conversation and move forward, but it's pretty hard to handicap with only a week to go.

Paul Patterson - Glenrock Associates

I haven’t seen any activity in it since February?

Terry Bassham

Yes. We got out of committee really quickly and then it really hadn’t done much since then. But again a lot of things worked that way to get out of committee and then really the last three weeks things began to shakeout. So yes, again, a lot of things will happen in the next week, it's hard to handicap [where else] following that kind of talk to.

Paul Patterson - Glenrock Associates

Okay. And then 909; what do you guys -- what are your thoughts on that?

Terry Bassham

It's the same, it's on the House side. So it's an exactly same process; obviously it’s got to move through both houses ultimately to get finished up and so.

Paul Patterson - Glenrock Associates

Okay. Just sort of like if this doesn't happen; is there any sort of a different approach to the issue, because this will be a couple of years now where you guys have been trying to get, or trying to recover, recovery all through legislation. So, how should we think, I mean just I guess, it's a little bit early to say because we've got some time left I guess. But are there any thoughts or are you guys thinking about anything different perhaps, if this doesn't happen?

Terry Bassham

Well, I’d suggest you there are two things to think about, one strategic and one execution. On a strategic side, we're likely continue to push for legislation in the State of Missouri to put in place riders and trackers and different mechanisms for us to continue to bring Missouri along in the context of what other states are doing. And so we will likely continue to do that. I would tell you from a timing perspective; these things get trued up in the rate. And so if we're not able to achieve what we're looking for here, by the time we start the process again next year, we will basically have been through another year. So on the execution side, it's our job to offset those costs and to manage our returns and lag from that perspective over that time period.

So, we'll have to execute on that through O&M and maintenance and growth and we'll have to continue to look strategically at how to bring things to the legislature and commission. So, focus wise, we'll be looking toward that rate case in ‘16 to (inaudible).

Paul Patterson - Glenrock Associates

Okay, great. Thanks a lot.

Operator

(Operator Instructions). Our next question comes from Michael Lapides with Goldman Sachs.

Michael Lapides - Goldman Sachs

Once again, thank you for taking my follow up question. I hate to get down on the weeds. Could you give us a little more -- and I'm sure, I'm not the only one on this call, little more understanding of how the nuclear amortization works? And at a high level kind of think about when did it kick in and when will we see it stop having an impact on O&M, like when will it normalize out? I think it’s the end of 2014, I'm not entirely positive on that. And then second, that means that normal nuclear refueling outages therefore won't necessarily have an impact on O&M going forward? Two items.

Terry Bassham

The mid cycle outage is the one that's getting expensed, so that's the $10 million that normally doesn't get expensed. So that is happening between the first and second quarter of this year. And then we get on to just our normal program, we continue to amortize the prior refueling outage costs, those being the actual full refueling outage from 2013, we'll amortize those through the next refueling outage cycle.

Michael Lapides - Goldman Sachs

So in other words, on the normal refueling outage cycle, we should never see a quarterly bump in O&M anymore related towards the end of refueling outage that it’s really just getting smooth out over the cycle?

Terry Bassham

Yes. It’s just when you have a mid-cycle outage like we had, you have to expense the O&M and that’s the $10 million impacting this first and second quarter of this year.

Michael Lapides - Goldman Sachs

Got it. And finally, just two things on the statements in the Q; one, commercial paper up about a $100 million in the first quarter. What’s your plan with that? And two, there was a $38 million cash inflow proceed from an asset sale, can you remind us what that was?

Terry Bassham

Yes. On the asset sale that is the completion of renovation of our existing projects to the Transource joint venture.

Michael Lapides - Goldman Sachs

Okay.

Terry Bassham

And secondly, the commercial paper as we’ve indicated we plan to term-out some short-term debt in 2015 at the KCP&L level.

Michael Lapides - Goldman Sachs

Got it. And one last thing, what was the rate base amount what was the clip amount of La Cygne that was added into your earnings power as part of your abbreviated case? And then what’s the remaining CapEx that will occur from that level to the completion of the project?

Terry Bassham

$104 million was put into rates and we’ll have $95 million that goes in, in the next general rate case on the Kansas site.

Michael Lapides - Goldman Sachs

Okay. And then the remainder in the Missouri -- all of that in the Missouri side?

Terry Bassham

Yes. Roughly 55% of the full 650 will go in on the Missouri side.

Michael Lapides - Goldman Sachs

Got it. Okay. Thanks guys. Much appreciated.

Terry Bassham

Thanks Michael.

Operator

Our next question comes from David Paz with Wolfe Research.

David Paz - Wolfe Research

Good morning.

Terry Bassham

Good morning David.

David Paz - Wolfe Research

Just going back to property taxes and the transmission expense, how much do you expect each of those items to increase this year versus last year?

Jim Shay

The run rates and property taxes are little easier year to get our arms around because those are set amounts. So that was about $0.05 of lag last year which is on track to kind of double this year. Transmission costs last year were about $0.04 and they’re currently on that run rate, they are more -- they are on a run rate to double this year. They are a little bit more challenging to forecast because we are really dealing with allocated cost from SBP, so there is going to be more volatility associated with transmission.

David Paz - Wolfe Research

Got it, okay. Thank you. And then another question just in March you filed a notice of intent to request the La Cygne accounting order, not sure whether you actually filed for [lineate]. But in light of what occurred last month with transmission expense, how should we think about the process there? And exactly, just remind me exactly is why you are filing for an accounting and/or at least you’re intending to file for an accounting order on La Cygne?

Terry Bassham

Yes. These are completely different things. Remember that we have to file a notice of what we are going to file the process point to the commission rather than accounting order for an extended, that’s been then extended last week, we talked about transmission. This is to allow us to do construction accounting on La Cygne from the time they goes in service until the time it goes into rates account that goes into rates which we have traditionally gotten in both our commissions when appropriate. So that’s really what -- that’s what La Cygne we want different.

David Paz - Wolfe Research

Of course that gives an example of the (inaudible) order?

Terry Bassham

Yes exactly.

David Paz - Wolfe Research

Great, all right. Thank you so much.

Terry Bassham

You bet. Thank you.

Operator

The next question comes from Ali Agha with SunTrust.

Ali Agha - SunTrust

One quick follow-up. I think it was in the last I think year end slide you guys had laid out some rough outlook for ‘15 and ‘16 earnings growth as well. And I just wanted to confirm that even if we don’t get the AAO and the legislation, that profile that you were suggesting still is the same or should we think if moves around with those legislation and AAO does not come true?

Terry Bassham

Those are exactly the same. We were continuing to work at every corner to deal with our regulatory lag, but we are -- our guidance that we gave around those numbers are regardless. It will affect maybe within the range or things we have to do to make sure we deliver on that but they are not dependent, they don’t change on receiving those two orders.

Ali Agha - SunTrust

Understood, thank you.

Operator

And I am not showing any further questions at this time. I would like to turn the conference back over to Terry for closing remarks.

Terry Bassham

All right. We appreciate everybody being on the call. We appreciate all your questions. Have a good weekend and have a good Mother’s Day. Thank you everybody.

Operator

Ladies and gentlemen, that concludes today’s presentation. You may now disconnect and have a wonderful day.

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