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Great Plains Energy Incorporated (NYSE:GXP)

Q2 2014 Earnings Call

August 08, 2014 9:00 am ET

Executives

Anthony Carreno - Director of Investor Relations

Terry D. Bassham - Chairman of The Board, Chief Executive Officer, President, Chairman of Executive Committee, Chairman of The Board At GMO, Chief Executive Officer of GMO, President of GMO, Chairman of The Board At KCP&L, Chief Executive Officer of KCP&L, President of KCP&L

James C. Shay - Chief Financial Officer, Senior Vice President of Finance and Strategic Development and Treasurer

Analysts

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Charles J. Fishman - Morningstar Inc., Research Division

Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

Andrew Levi

Shahriar Pourreza - Citigroup Inc, Research Division

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Great Plains Energy's Second Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference call, Director of Investor Relations, Tony Carreno. You may begin.

Anthony Carreno

Thank you, Nicole, and good morning. Welcome to Great Plains Energy's Second Quarter 2014 Earnings Conference Call. Let me begin by introducing the members of the Great Plains Energy management team who are here with me today. We have Terry Bassham, Chairman and Chief Executive Officer; and Jim Shay, Senior Vice President of Finance, Treasurer and Chief Financial Officer, who, in a few moments, will both provide an overview of our second 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 question-and-answer portion of today's call.

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 second quarter 2014 10-Q after the market closed 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 at www.greatplainsenergy.com.

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

Terry D. Bassham

Thanks, Tony, and good morning, everybody. In yesterday's press release, we reaffirmed our $1.60 to $1.75 earnings per share guidance range for the year, and on today's call, we plan to discuss our second quarter and year-to-date results. We'll also be commenting on some of the positive demand trends we continue to see in our service territory, and touch on the impacts of recent cooler weather trends.

Our O&M expenses for the first half of the year have run higher, but we expect to hit our overall O&M target for the year. We'll also discuss our major construction projects at La Cygne, which is on track, and provide an update on upcoming regulatory strategies, which include the acceleration of general rate cases in Kansas and Missouri. We remain confident in our near- and long-term strategies to drive shareholder value, and we'll close with a few comments on that topic.

So first, let's turn to Page 4 of the presentation. Yesterday, we announced second quarter earnings of $0.34 per share compared with $0.41 per share last year. Year-to-date earnings through June were $0.49 per share compared to $0.58 per share in the prior year. A key positive factor for the quarter is the economy in our service territory, which continues to improve. As of June, our year-to-date demand growth is 1.2%. This is in line with our full year expectation of 0.5% to 1%. In addition, we experienced a favorable weather impact during the second quarter. However, these factors were more than offset by increased operations and maintenance expense.

Consistent with our expectations, the first half of 2014 O&M was greater than O&M a year ago. Our track record of managing O&M has been solid and we expect total year O&M to be in line with our guidance. As a reminder, 2014 O&M is expected to be flat with 2011, other than the Wolf Creek mid-cycle outage, and items that have a direct revenue offset.

As I mentioned, we are encouraged by continued demand growth in our service territory as the economy continues to improve. With 45 consecutive months of seasonally adjusted job growth, employment levels are at the highest since 2008. We believe the momentum in job growth is a contributor to overall weather normalized demand, which is up 0.7% for the second quarter and has been positive for 4 consecutive quarters.

The industrial segment saw an increase in demand of 2.8%, led by Ford Motor Company's Kansas City Assembly Plant, where production of the new transit band is now underway. In the residential segment, year-to-date single and multifamily housing permits are up nearly 19% compared to the same period in 2013, and demand in the residential segment was up 1.7% in the second quarter. This marks the sixth consecutive quarter of growth.

Demand in the commercial segment was down 0.5% for the quarter, but remained slightly positive year-to-date. Gains in the housing sector generally translate into increased consumer confidence, which would be good news for the commercial segment going forward.

Now turning to an operations and regulatory update on Slide 5. During the second quarter, our cold fleet ran as expected and our system responded well to a number of storms. In addition, we successfully completed the Wolf Creek mid-cycle outage and the plant [ph] is running well. During the second quarter, we continue to make progress on the environmental upgrades in our La Cygne generating station. The project remains within budget and on schedule for completion by June 2015. This investment provides significant customer benefits in the form of clean and reliable power, and as a key driver of rate base and earnings growth.

On the regulatory front, we're proactively addressing the lag crated in Missouri by increasing property tax and transmission expense. We have moved up the timing of our rate case in KCP&L Missouri. By moving up our rate case timeline, we will seek to accelerate recovery of the increased property tax expense and obtain a fuel adjustment clause in KCP&L Missouri, which will also allow for recovery of transmission expense. In addition, moving up our KCP&L Missouri and Kansas cases proactively minimizes regulatory lag between La Cygne's in-service date and the effective date of new rates. This accelerated rate case schedule will target new retail rates for both Kansas and KCP&L Missouri in the late third quarter or fourth quarter of 2015.

In the appendix, we provided a look at the preliminary rate case schedules for KCP&L in Kansas and Missouri, along with the key milestones left to complete La Cygne. We've also seen other parts of regulatory and legislative outcomes. First, we successfully settled and received an order in our Arkansas abbreviated rate case for La Cygne construction work in progress. As a result, new retail rates were effective in late July, a couple of weeks ahead of anticipated timeline.

In addition, we recently reached an agreement to expand our energy efficiency programs authorized under the Missouri Energy Efficiency Act through a rider. Next year, we expect to seek approval to offer similar programs to our customers in Kansas through the Kansas Energy Efficiency Investment Act, which was signed into law earlier this quarter. These programs complement the proactive investments we have made over the last decade to reduce emissions and transition to a more balanced and customer-friendly focused energy portfolio.

Energy efficiency is one of the building blocks to comply with the EPA's proposed Clean Power Plan, and this could be a key strategy to eventually meet the target. While there are many uncertainties surrounding EPA-proposed rule, having a positive regulatory and policy framework in both Kansas and Missouri that encourages greater investment in energy efficiency is important as we continue to transition to a cleaner and more diversed energy future.

Now with more details in the second quarter, let me turn the call over to Jim.

James C. Shay

Thanks Terry, and good morning, everyone. I'll begin with Slide 7, which provides comparison of 2014 to 2013.

As Terry indicated, our second quarter 2014 earnings were $0.34 per share compared to $0.41 per share last year. For the year-to-date period, earnings were $0.49 per share compared to $0.58 per share last year.

Turning to Slide 8. We are reaffirming our 2014 earnings per share guidance of $1.60 to $1.75. This range assumes normal weather for the second half of the year, which may be impacted by the significantly cooler-than-normal July. If this continues through the remainder of the summer, it could push us to the lower end of our 2014 earnings guidance range.

The EPS guidance range also assumes weather normalized demand growth of 0.5% to 1% for the year. During the second half of the year, we will also benefit from new retail rates in Kansas from the La Cygne abbreviated rate case and a lower effective income tax rate.

Consistent with our initial guidance, we expect total year O&M, exclusive of KCP&L Missouri Energy Efficiency, to increase 3.4% this year compared to 2013. Our 2014 first half O&M increase exceeded this level due to the Wolf Creek mid-cycle outage and coal plant outages. During the first half of the year, we also saw increases in transmission and distribution expenses in incremental Energy Efficiency costs and GMO that have direct revenue offsets.

For the second half of the year, O&M expenses will be lower. The primary drivers for the decrease will be lower expenses of Wolf Creek, reduced costs associated with the timing of planned outages at coal plants, and lower administrative expenses. These decreases maybe offset in part by higher O&M for the newly approved KCP&L Missouri energy efficiency programs, for which there are direct revenue offsets.

Consistent with our initial guidance for the year, we expect our effective tax rate for 2014 to be 33%. During the quarter, we will see a decrease -- during the third quarter, we will see a decrease in the effective tax rate as compared to prior year relating to the release of $6.1 million of unrecognized tax benefits primarily related to former GMO nonregulated operations.

Our financial position remains strong, and we see -- we received Moody's and S&P upgrades to our credit rating in 2014. Our financing needs are pretty straightforward. We will likely issue long-term debt at KCP&L during 2015 and we have no plans to issue equity through 2016.

Turning to Slide 9. Our continued focus is on providing competitive near- and longer-term total shareholder returns through earnings growth and a competitive dividend. Near term, our catalyst for earnings growth include rate-based investments at La Cygne and other infrastructure projects, positive load growth, prudent cost management, regulatory mechanisms to minimize La Cygne investment regulatory lag, and the acceleration of general rate cases to improve the timeliness of unrecovered costs. We have reaffirmed our 2014 guidance and continue to target 4% to 6% earnings growth for 2016. From an earnings trajectory standpoint, however, we expect the flattening in earnings from 2014 to 2015, with a subsequent step-up in 2016 driven by full year of new retail rates.

The flattening from 2014 to 2015 includes the impact of unrecovered costs, which includes property taxes and transmission expense, which will get trued up in the upcoming rate cases. We also expect to increase our cash dividend 4% to 6% during the 2014 the 2016 period. Longer term and beyond 2016, we plan to drive shareholder returns through investments in national transmission through trans source, distribution infrastructure projects and sustainability initiatives. Our financial flexibility should also increase on the back end of a major construction cycle, which should create more opportunities to drive returns through increasing cash dividends.

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 question comes from the line of Ali Agha of SunTrust.

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Just wanted to clarify a couple of points. First off, on the O&M trends in the first half, if I was hearing you folks right, the increase is all planned in terms of the timing of outages, et cetera -- was there anything unplanned that may have caused O&M in the first half to be higher than last year?

Terry D. Bassham

We discussed in the first quarter call that we did have some unplanned outages in the first quarter. The second quarter were planned for the most part.

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Were planned, okay. Got it. And then, secondly, in terms of the profile on the earnings front, you mentioned you're accelerating your rate case filings, and will in Missouri, I guess, see some, if that timing holds rate increases in the -- at least for 1 quarter, maybe slightly longer in '15. So the flattening of the earnings would still hold even with the accelerated timing from the rate case filing?

Terry D. Bassham

Well, again, when we say flattening, we haven't given guidance for '15 yet, but we're talking flat or maybe then, some of the consensus indicates the -- in general having new rates in effect is our effort to move things up as quickly as possible. But that is third and fourth quarters, which, especially late in the fourth quarter, the margins there are thinner, so it won't have as much impact than it would earlier in the year.

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

I see. And then lastly, Terry, remind us again, once the rate case process is down, should we be looking at full year 2016? Your target in terms of eating the lag, is it still 50 basis points from authorized? Is that still the way we should be thinking about in terms of [indiscernible].

Terry D. Bassham

Yes. We've talked before about operating on the top end of our earnings guidance range and post a rate case. You expect us to be able to operate in that framework given the true-up of costs that are causing lag, leading up to that case. Absolutely.

Operator

Our next question come from Charles Fishman of MorningStar.

Charles J. Fishman - Morningstar Inc., Research Division

On the decision to accelerate the rate case, anything drive that or you just felt like a -- the pieces were in place that you could do that?

Terry D. Bassham

Well, we began the year with a plan to address both through an AAO accounting order, if you will, and do legislation, an opportunity to mitigate the impact of transmission expense and property tax lag. And when that -- we didn't -- we weren't able to achieve that in the first half of the year. And one of the commissions said that's really a general rate case issue. So we decided to move as quickly as possible to get those cases filed. The La Cygne construction is a big key part of that. And again, our excellent execution on the construction allowed us to be on time and on process so that we can do that a little bit earlier.

Charles J. Fishman - Morningstar Inc., Research Division

So if I have this wrong, it's my fault, not the numerous times Tony has explained it to me. The fuel pass-through for KCP&L that you don't have in Missouri, that's from the comprehensive rate agreement or comprehensive plan back -- made years ago. If that expires in 2015, so really, the -- what your anticipation is the new rates go into effect, and actually, the fuel pass-through in Missouri goes into effect in January 1, '16, would that be correct?

Terry D. Bassham

Our plan would be for the fuel factor to go in effect when rates go in effect. And if that's a little bit before January '16, we would expect that, but certainly, January 16th -- January 2016 at the latest.

Charles J. Fishman - Morningstar Inc., Research Division

Okay. And then GMO, what would be the timing for the next rate case for that?

Terry D. Bassham

We're still evaluating that. Remember that GMO doesn't own a piece of La Cygne, and La Cygne, again, is the driver for that. There is a 2016 case requirement because of the MEEIA or the energy efficiency programs. So we'll time that case in connection with lag, if any, and the MEEIA. Remember that our O&M is pretty flat, and so we don't have as much of an increase there, maybe because La Cygne is not a piece of it. So we'll evaluate the need there in connection with the filing for MEEIA, which makes it probably 2016 at the latest.

Operator

Our next question comes from the line of Paul Ridzon of KeyBanc.

Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division

Did you indicate -- did you say no equity through '16?

Terry D. Bassham

No equity through '16, that's correct.

Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division

And then just another clarification. You expect O&M, excluding riders, to be flat?

Terry D. Bassham

We were pointing out that our O&M currently, as planned, given our guidance, is flat to 2011. But for our Wolf Creek mid-cycle and other increases like energy efficiency, which have a direct pass through to rates. That make sense?

Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division

So where do you expect O&M versus '14 to be -- excuse me, versus '13 to be, excluding riders?

James C. Shay

It's going to be up 3% to 4%, consistent with our original guidance.

Operator

Our next question comes from the line of Michael Lapides of Goldman Sachs.

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

Real quick on O&M. What is -- if O&M ex trackers [ph] is up 3% to 4%, what's kind of GAAP O&M up? I'm just trying to think about the bridge of how much the O&M growth is tied to trackers.

James C. Shay

For the 2013 versus 2014?

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

Yes, Jim.

James C. Shay

Yes. About 1/3 of it would include year-over-year trackers, 1/3 of the increase and so 2/3 relates to just other O&M increases.

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

So GAAP O&M's up kind of 4 to 5 percentage range roughly?

James C. Shay

No, no, no. Total O&M is up 3% to 4%, GAAP is up 2% to 3%, and a good chunk of that is the Wolf Creek mid-cycle outage.

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

I may be missing something. How can -- so what's your -- let me quantify, how much is the revenue? How much is the O&M in dollar millions in '14 that's tied to trackers up versus '13?

James C. Shay

About $10 million.

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

Got it. Okay. I want to ask -- kind of coming longer term a little bit. I want to make sure I understand your commentary, Terry and Jim, about the dividend. Cash flow should improve based on -- unless you're changing your CapEx forecast today, cash flow, it looks like, should improve pretty significantly in 2016. Is there a thought that dividend step-up, meaning above the 4% to 6% range, would start in 2016? Meaning, for the '16 year, you'll be done with rate cases kind of all of that. Or is your anticipation that dividend step-ups, kind of material ones, wouldn't happen until after 2016?

Terry D. Bassham

No. I think what we have said clearly is that we expect through '16 to have 4% to 6% growth in both EPS and the dividend, but we then said that we would expect, because of just what you described, cash flow to show up in '16 related to the rate cases, construction being over. But our flexibility around investment in trans source, dividend increases, other investments within the utility are all in front of us. Obviously, we'd like to see the ultimate outcome of the rate cases and to be able to give you a little more firm guidance around that, but the flexibility you're describing is exactly what we expect to see happening beginning in '16.

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

Okay. And finally, just wanted to see an indy [ph] check, any change or update to your capital spending plan effective with today's earnings release in Q?

James C. Shay

Not today, no.

Operator

Our next question comes from the Andy Levi of Avon Capital.

Andrew Levi

Could you just repeat -- I'm not sure if I got it 100%. I think it was to Ali's question, maybe it was the question afterwards, but you were talking about obviously filing your rate case earlier. And then you were discussing, although you haven't given '15 guidance, something about consensus and...

Terry D. Bassham

Well, so Jim had pointed out that we have said before that earnings in the -- the increase in earnings from '14 to '15 would be flatter and '15 to '16 in our guidance of 4% to 6% growth. And so all we were stressing is that with the transmission and the property tax lag that, just a reminder, that it's going to be flatter over '15 and then a bump up for the rate case in '16. And so that's what I was confirming.

Andrew Levi

Okay. So flatter to your 160 to 175 range or to your kind of low end for this year?

Terry D. Bassham

Right now, it would be flatter to that range. We haven't given formal guidance for next year. I don't think we'll even do that [ph] but yes it's...

Andrew Levi

And that would even be with having rates a little bit earlier in the fourth quarter than what you had anticipated?

Terry D. Bassham

Well, again -- yes. Again, that could affect the range. Obviously, that's the reason we're filing earlier. But remember that margins and sales later in the year provide less of a bump than, say, we got an increase in August. And so...

Operator

Our next question comes from the line of Shahriar Pourreza of Citigroup.

Shahriar Pourreza - Citigroup Inc, Research Division

Just a quick -- let me ask you on the trans source. Can we get a bit of a status on how that's doing? And maybe, what's giving you some confidence that 2016 could be driven by, for the quarter, 1,000 or competitive transmission wins?

Terry D. Bassham

Well, from an EPS perspective, I wouldn't say that right now, we see necessarily EPS growing dramatically in '16. I would think that by '16, we're going to begin to see projects that have been acquired so that we can begin to talk and map out those increases. In terms of what's happening there, I think the transmission market may have moved a little slower in terms of development, but it's very active at this point. We've submitted projects to MISO, we've submitted projects to SPP. We're participating right now in PJM and other markets. And so we are very active in the front end of that process and we'd expect to begin to achieve project success over the next 12 to 24 months, which will allow us then in '16 to talk to you about EPS impacts and timing. But it's a great partnership, we're excited about the opportunities that we see, and of course, our 2 projects that we've been working on are on track and on time for a trans source earnings from the 2-week contributed to the partnership.

Shahriar Pourreza - Citigroup Inc, Research Division

Got it. And not to beat a dead horse on the flat EPS or flatter EPS from '14 to '15. But it seems like volumetric changes are trending a little bit greater than you expected, so obviously, there's a bit more of a recovery than you have embedded in your guidance. What are you assuming for load growth for -- are you still assuming load growth for 2015 about 1%? And what could load be if your -- what could the EPS profile be if you're higher than that? Because it seems like the economy is trending a little faster than you anticipated.

Terry D. Bassham

Yes. I mean, so far, that's exactly right. I mean, again, we're not -- we haven't given formal guidance around the growth, but we see the kind of the constant continued drum beat, if you will. We are going to be implementing energy efficiency programs in KCP&L MO that were just approved. And we'll see how those take effect, but we would expect some impact there. But remember, we'll recover those costs and have the opportunity to earn on that. But yes, as we see growth continue, that gives us an opportunity to be up in the range, if you will. We just wanted to be clear that, obviously, with a rate case in progress and the lag we're working to overcome with other O&M management, given transmission and property taxes, it might be -- obviously, will be flatter than the '15 to '16 bump related to rate case.

James C. Shay

And in terms of our core planning assumption, we're thinking 0.5% to 1%. If we get an improvement to your question, clearly, that'll help us. As we discussed in the past, 1% of growth is worth $0.04 to $0.06 depending on the time of the year and mix. So clearly, it'll be something we'll be watching, but we want to have some conservative planning assumptions going into the year.

Shahriar Pourreza - Citigroup Inc, Research Division

Got it, got it. And the very last thing was just with the rate case filing happening sooner than you projected. Was the commission prepared for this? And do you still anticipate closure within the normal time frame than you've done historically?

Terry D. Bassham

Yes. I mean, we -- technically, we control the rate case timing in the sense of when we file, it starts the time clock. But we work well with our commissions, we're not going to file without having spoken to them. As, I think, we've -- you've seen we even have an agreement in Kansas, with Westar and the commission for a specific process. We will be talking to Missouri as well. So yes, I mean, we're -- we've been working with our commissions and they're not going to be surprised by the timing of our filing. In fact, in Missouri, we actually have to file a notice telling them 60 days ahead that we're doing that, and that's been done.

Operator

Our next question comes from the line of Brian Russo of Ladenburg Thalmann.

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

I'm sorry if you covered this early and I might have missed it, but what was the year-to-date impact of weather versus normal, I guess, through June? And then, what do you kind of see the impact of maybe the mild summer weather on an EPS basis?

Terry D. Bassham

The year-to-date so far is about $0.09. We had a very cool July. That in and of itself is not necessarily concerning. But obviously, if that continued through August and September, that could have an impact on revenues, given that being in our largest revenue period.

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

Okay. So year-to-date means through June?

Terry D. Bassham

Yes.

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

Okay. And that's $0.09 positive, and then, any more detail on what the negative EPS impact would've been in July that might push it towards the bottom end of the range?

Terry D. Bassham

Well, again, not really. We obviously, we see the weather days there and generate a revenue number, but that's just the revenue side and it's one piece of total results for the month. Again, 1 month is not as near as concerning for the fact that if we have that kind of weather in August or September, it would certainly affect the topline.

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

Okay. And then, just a clarification. Flattish, I guess, would be defined as a deceleration of your 4% to 6% growth rate, but not flat, correct?

Terry D. Bassham

Well, again, yes. We're trying to be sure people understand that the year before a fairly large rate increase related to a large construction project, earnings is going to grow slower. So we talked about this 4% to 6% range. We didn't want people surprised that it might be a little flatter than a year before, and there will be a step up in the next year. That's really kind of what we're saying. Obviously, we will open to give earnings guidance on '15 specific as we wrap up the year and look forward for '15 and '16 during the rate cases.

Operator

And our next question comes from the line of Charles Fishman of Morningstar.

Charles J. Fishman - Morningstar Inc., Research Division

Just one follow-up. Last few years, you and the other utilities in Missouri have tried to encourage the utility infrastructure legislation. Is there anything going on in the last few months which gives you maybe more optimism this is going to happen in next year?

Terry D. Bassham

Not over the last few months. I mean, we would expect to be in both Kansas and Missouri with legislative opportunities, if you will. We'll coordinate with our sister utilities in the states we work in to work on things that we think makes sense. Nothing's really happened over the last several months that would change that. As we get closer to the session, we'll be talking more about what's realistic for that session, given things that are going on both in the industry and in the legislature.

Operator

[Operator Instructions] Our next question comes from the line of Paul Ridzon of KeyBanc.

Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division

Just had a follow-up. Was that $0.09 weather versus normal or versus '13?

Terry D. Bassham

No, no, versus normal.

Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division

Do you have the '13 comp?

Terry D. Bassham

It was up 6. So year-over-year it would be a $0.03 difference because of weather.

Operator

And our next question comes from the line of Andy Levi of Avon Capital.

Andrew Levi

Just -- I just want to clear something up. I mean, at least -- I guess, in my eyes, you're not really saying anything different beyond the timing of the rate case because you had built in your guidance some regulatory uplift that didn't happen. And so does that get you kind of to -- the lower end of the guidance. And that, I think, what you had articulated back when you gave the guidance. Is that correct? Just for this year?

Terry D. Bassham

Yes.

Andrew Levi

Okay. And then for next year, if people were listening to you, which sometimes people don't, who write reports, that you were saying that their earnings range was going to be kind of flat. And then you were going to have the big bump in '16 and that was going to allow you to achieve your longer-term growth rate of 4% to 6%, is that correct?

Terry D. Bassham

Absolutely. We're just trying to be very transparent about the process over the next couple of years. But you're right, we're not telling anybody anything about '15 and '16 that we haven't said before. But...

Andrew Levi

Okay. Okay. Some people were trying to over the last 6 months put stuff in their numbers that maybe should not been have been there, or at the same time, or listening. But I think your message is consistent with what you said in the past, with the exception of moving up the rate cases, but doesn't really effect the '16 or '17 earnings.

Terry D. Bassham

No exactly. The real discussion around moving up the rate cases. It's just indicate that we're trying to recover those lag issues, just like we've talked about over the last 3 years, to minimize the lag, and this would help '15 and a little bit in '16 because kind of when we filed, it could've been the first month or 2 of '16. So this will make a little impact on '15 hopefully, and make sure that we have a full year of '16.

Operator

And our next question comes from the line of Michael Lapides of Goldman Sachs.

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

Terry, just want to make sure I understand the request you made in conjunction with Westar in Kansas. You're basically asking to defer the O&M and the DNA related to the La Cygne scrubber work until the new rates go into effect. Am I following that? What also happens to AFUDC related to La Cygne?

Terry D. Bassham

Yes, it's not really O&M. Not a lot of O&M going on during the tie in, but it's really the depreciation related to the delay that happens between end service and rates effective.

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

Okay. And then what happens AFUDC-wise? When the plant goes in services, that when AFUDC roll -- kind of rolls down a decent bid or does it not happen until after the new rates are put into place?

Terry D. Bassham

No. That's when it will roll down. That's why we're doing the agreement. But remember -- but remember in Kansas, the amount's smaller because we already got stuff. We've already got investment in construction work in progress in Kansas. but it's a smaller amount [indiscernible] yes.

Operator

Our next question comes the line of Ali Agha of SunTrust.

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

I wanted to ask you on a different topic altogether. We've seen some amount of consolidation going on in our space, particularly in the small midcap space. And I just wanted to hear from you your thoughts slash appetite for corporate M&A transactions. Does that make sense in the industry for you guys. Just your views on that?

Terry D. Bassham

Well, you guys have views of your own about the industry itself. For KCP&L, we think we have a great growth opportunity in our company and think we're currently undervalue. And so our opportunities to deliver shareholder value, we think, are very strong, and we're paying attention to what's happening in the market. We always want to be aware. But that's not something that we believe is necessary for our success with shareholders.

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Okay. Some management teams espouse size and critical mass, economies of scale. You don't see that per se as a strategic objective.

Terry D. Bassham

It's certainly not a strategic objective. Depending on the transaction, our industry is littered with transactions that didn't provide some of the benefits they thought. I think strategically, if there's an opportunity, it's the kind of thing you'd want to take a look at, but that's not part of our current game plan, if you will. And no, with our current upgrade to our credit ratings, we don't think we need additional balance sheet to meet EPA rules or serve our customers while delivering outstanding shareholder value.

Operator

And I'm showing no further questions at this time. I'd like to hand the call back over to Mr. Terry Bassham for any closing remarks.

Terry D. Bassham

All right. Well, thank you, everybody. We appreciate the attendance and we appreciate the interest and questions on the call. Look forward to talking to you soon. Thank you much.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Have a great day everyone.

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Source: Great Plains Energy Incorporated's (GXP) CEO Terry Bassham on Q2 2014 Results - Earnings Call Transcript
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