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Executives

Kevin E. Bryant - Vice President of Investor Relations and Treasurer

Michael J. Chesser - Chairman, Chief Executive Officer, Chairman of Executive Committee, Chairman of Kansas City Power & Light, Chairman of GMO, Chief Executive Officer of GMO and Chief Executive Officer of Kansas City Power & Light

Terry Bassham - President, Chief Operating officer, Director, President of Kcp&L and Chief Operating officer of Kcp&L

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

Analysts

Shahriar Pourreza - Citigroup Inc, Research Division

Unknown Analyst

James L. Dobson - Wunderlich Securities Inc., Research Division

Andrew Levi

Paul Patterson - Glenrock Associates LLC

Timothy Yee - KeyBanc Capital Markets Inc., Research Division

Great Plains Energy Incorporated (GXP) Q1 2012 Earnings Call May 4, 2012 9:00 AM ET

Operator

Good morning. My name is Brooke, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Great Plains Energy First Quarter 2012 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Kevin Bryant, Vice President of Investor Relations and Treasurer of Great Plains Energy. Thank you, Mr. Bryant, you may begin your conference.

Kevin E. Bryant

Thank you, Brooke, and good morning, everyone. Welcome to Great Plains Energy's First Quarter 2012 Earnings Conference Call.

Joining me this morning to present our results are Mike Chesser, Chairman and Chief Executive Officer; Terry Bassham, President and Chief Operating Officer; and Jim Shay, Senior Vice President and Chief Financial Officer.

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 first quarter 2012 10-Q after the market closed yesterday. These items are available along with today's slides and supplemental financial information regarding the quarter on the main page of our website at www.greatplainsenergy.com. With that, I'll now turn the call over the Mike Chesser.

Michael J. Chesser

Thanks, Kevin, and good morning, everyone. We appreciate you joining us this morning. I know it's a busy time. I hope you had an opportunity to read the earnings release we issued yesterday. We announced a loss of $9.5 million or $0.07 per share compared with an earnings of $2 million or $0.01 per share last year. Weather during the quarter had a significant impact on our earnings. Heating degree days were down 34% versus last year and down 27% versus normal. In fact, it was the first -- warmest first quarter for the Kansas City region in more than 80 years. We were also negatively impacted by an unplanned outage at Wolf Creek. As we disclosed during our 2011 year-end webcast, a breaker failure in a substation located at Wolf Creek led to an unplanned outage in January. The plant remained offline to address the interruption and implement necessary corrective actions before returning to service in late March.

The unit has performed well since returning to service, and particularly, as we head into the peak summer season. Despite these challenges in the first quarter, we believe we are positioned to deliver earnings within our guidance range. As a result, we are affirming our 2012 earnings guidance range of $1.20 to $1.40 per share. As a reminder, the current guidance range was updated in late February when we had a directional view of the first quarter. Jim will provide more detail on the quarter in his comments.

We remain focused on executing our 2013 target to reduce regulatory lag to 50 basis points of allowed ROE. Last month, we filed a general rate case in Kansas with a requested increase in rates of approximately $64 million. We recognize these are difficult economic times and asking for a rate increase is not something we take lightly. We are seeking recovery to maintain a reliable electric system and make renewable energy and environmental investments needed to meet future state and federal renewable energy and emission control mandates. Terry will provide more details around the rate case filings in his comments.

Last month was an active month for us as we also announced the formation of Transource Energy, a joint venture with American Electric Power. Transource will pursue competitive transmission projects that fall within the scope of FERC Order 1000. The order facilitates competition, and will foster a national perspective of the market. The initial focus of Transource, of which we own 13.5% share, will be on new projects in the Southwest Power Pool, Midwest Independent Transmission System Operator and PJM Interconnection, with expansion to other regional transmission organizations, or RTOs, as markets mature.

In addition to exclusively agreeing to pursue new FERC Order 1000 projects, we will also seek regulatory approval to novate 2 of our Southwest Power Pool regional projects to Transource. We believe that by partnering with AEP, a recognized leader in the transmission business, Great Plains Energy will be well positioned to compete in the emerging competitive transmission market, while very importantly, further diversifying our earnings and footprint.

So with that, I'd like to introduce Terry, who will provide an update on regulatory and operational activities.

Terry Bassham

Thanks, Mike, and good morning, everyone. Turning to Slide 6. I will spend a few minutes here discussing our rate case filings, performance at our plants and customer consumption. As Mike indicated in April, we filed a rate case in Kansas requesting an increase of approximately $64 million, reflecting an ROE of 10.4%. The test during the case is a 12-month period ending December 31, 2011, with certain non-immeasurable changes projected through June 30, 2012. New rates are anticipated to be effective January 1, 2013. Equity ratio of approximately 51.8% is slightly lower than the ratio in our Missouri rate cases, reflecting a different true-up date. The rate base included in this filing is approximately $40 million higher than at the conclusion of the last rate case, reflecting an increase of approximately 2%. This increase includes approximately $66 million for construction work in progress, or CWIP, on La Cygne environmental upgrade and approximately $51 million for the Kansas jurisdictional share of our 48 megawatts Spearville 2 Wind Facility. Additions to rate base were partially offset by an increased in accumulated deferred income tax as a result of bonus depreciation.

Other factors impacting the Kansas rate case are requests to update the appreciation rates supplied to capital investments, due in part to the large increase in plant investments we've made in the last 4 years. We're also requesting what we believe is a more appropriate method for the allocation of capacity-related costs between KCP&L's Kansas and Missouri jurisdictions. Kansas case also includes request to file an abbreviated rate case for additional La Cygne environmental CWIP following the conclusion of this case. While we continue to manage costs to minimize the amount of impact of any rate increases on our customers, the costs associated with generating and delivering clean, safe and reliable electricity continue to increase. Our investments in additional renewable energy and environmental upgrades in our existing facilities are important steps to building a balanced generation portfolio and ensuring that we are doing our part to improve regional air quality. Timely and adequate recovery of our costs of service and capital investments is essential to continue providing the quality reliable service that customers expect.

Next turning to Slide 8. As a reminder, in February, we filed rate cases in our Missouri jurisdictions requesting an increase of approximately $189 million for KCP&L and GMO. The requested ROE is 10.4% and the equity ratio is approximately 52.5%. Procedural schedule has been set for these cases with staff and intervenor direct testimony scheduled to be filed in early August and evidentiary hearing scheduled to begin October 17. There is no date for the commission to issue an order, we anticipate new rates will be effective in late January 2013. As always, we'll keep you updated on the rate cases as they proceed.

And one additional item on the regulatory front. On our year end call, we discussed the Accounting Authority Order, or AAO, that KCP&L and GMO filed, requesting the authority to defer the costs, to comply with solar rebate requirements in Missouri's renewable energy standard. Recently, the MPSC approved the stipulation and agreement that will allow both companies to defer these costs and to address the issue of cost recovery in the current Missouri rate cases. We expect costs to comply with these requirements will increase and that defer approximately $6 million as a regulatory asset to the end of the first quarter. These AAOs are part of our continued effort to minimize the impact of regulatory lags.

As depicted on Slide 9, our fleet equivalent availability factor, or EAF, for the quarter was 79% compared to 75% for the same period last year. The increase was driven by our coal fleet where Iatan 1 and 2 and La Cygne 1 had planned outages in the first quarter 2011 and they were available during the first quarter 2012.

As Mike mentioned, Wolf Creek's unplanned outage caused the unit to be down most of the quarter resulting in a lower EAF compared to last year. As a result of the unplanned outage and the extended refueling outage that occurred in 2011, we are delaying the start of the next refueling outage for the third quarter 2012 to the first quarter of 2013.

Next on to Slide 10. I will conclude my section with comments on retail customer consumption. Compared to the 2011 first quarter, total retail megawatt hour sales decreased approximately 8.5%, primarily due to the extremely warm weather. Compared to normal, the negative gross margin impact of the warm weather during the quarter was approximately $14 million pretax or about $0.06 per share. On a weather-normalized basis, retail megawatt hour sales increased 0.2%.

On Slide 11, we highlight weather-normalized megawatt hour sales by customer segment. Sales increased an estimated 0.9% and 1.5%, respectively, in our commercial and industrial customer segments, while the residential segment decreased about 0.8%. As we look ahead, the regional economy appears to be improving. The U.S. Bureau of Labor Statistics recently reported that Kansas City metropolitan area has the largest unemployment rate decline from January '11 to January 2012 among the 372 metro areas tracked by the Bureau. The regional jobless rate during this period dropped from 9.3% to 7.2% over this time frame.

In addition, in March 2012, there were 8,300 more non-farm jobs in the metro area than there were in March 2011. We're also seeing positive trends in the housing market. For the full year 2011, new residential housing permits increased 6% compared to 2010. In addition, in the first quarter of this year, single-family housing starts were the strongest that we've seen in 4 years. For existing homes, sales in March were up more than 14% compared to last year with the average sales price up of 3%. These data points provide encouraging signs for our region. Consistent with our guidance for the year, we anticipate that weather-normalized demand will improve as the regional economy continues to build momentum. You will recall that our expectations are 4.5% of weather-normalized demand growth in 2012, and we continue to hold this view. We will monitor the coming closely for developing trends, and keep you informed. I'll now turn the call over to Jim.

James C. Shay

Thank you, Terry, and good morning, everyone. I'll begin with Slide 13, which provides a comparison of the 2012 first quarter to 2011. For the quarter, the company's consolidated loss was $0.07 per share, compared with earnings of $0.01 per share in 2011. The $0.08 per share decline is due to, first, the decrease of about $0.11 per share from weather. Second, an estimated negative impact of $0.07 per share at Wolf Creek, with $0.06 per share resulting from the unplanned outage during the first quarter 2012 and an increase in amortization of $0.01 per share from the extended refueling outage that began in late March 2011 and concluded in early June 2011. Third, approximately $0.10 per share from an increase in interest expense, primarily due to the absence of Iatan 2 carrying cost of $0.06 per share and the early recognition of the remaining interest obligation of the subordinating debt underlying Great Plains Energy equity units of about $0.03 per share resulting from the successful remarketing of the notes this March. These factors were partially offset by approximately $0.13 per share resulting from new retail rates in Missouri that became effective in May and June 2011 for KCP&L and GMO, respectively.

You'll also note that 2012 has a favorable comparison to 2011 of $0.07 per share relating to last year's special factors from our organizational realignment and voluntary separation program and KCP&L and GMO's combined share of the impact of disallowed construction costs for the Iatan 1 environmental retrofit and Iatan 2 projects, as well as other costs as a result of the April 2011 Missouri Public Service Commission order in KCP&L's rate case.

As shown on Slide 14, Great Plains Energy had a loss of $9.5 million or $0.07 per share for the quarter compared with 2011 first quarter earnings of $2 million or $0.01 per share. Electric utility segment had a decline in earnings of $0.03 per share from $0.05 per share in 2011. The other category had a loss of $0.10 per share from $0.04 per share in 2011. The decline in these segments are primarily attributable to the factors I just discussed.

Turning to Slide 15. As previously referenced, we successfully completed the early remarketing of the debt component of our $287.5 million of equity units in March. The remarketing resulted in the issuance of 10-year senior unsecured notes with a coupon of approximately 5.3%. The proceeds will be used to fulfill the equity unitholders' obligation to purchase common stock this June. As noted earlier, timing of the remarketed debt led to the early recognition of interest expense of about $0.03 per share in the quarter instead of the second quarter 2012. Proceeds from the June conversion of the equity units will be used to refinance a portion of GMO's $500 million 11.78% senior notes that mature this July. As a reminder, the conversion of the equity units in June of this year will increase common stock outstanding by 17.1 million shares.

Given our 2012 and 2013 maturity schedule, we continue to evaluate a number of refinancing alternatives, but expect to refinance the remaining portion of this maturity with an issuance of long-term debt by early 2013. While we previously discussed the potential to issue equity to finance ownership of one of the 100-megawatt purchase power agreements that we secured in late 2011, we do not plan on pursuing ownership at this time. Further, as Mike mentioned, with our partnership in Transource, we believe we will be well-positioned to compete in the emergency -- in the emerging competitive transmission market space. Transource also provides the benefit of diversifying earnings, and the partnership has the added benefit of potentially reducing medium-term capital expenditure requirements and external financing needs. We continue to project that we won't need to issue equity for 2013.

Our liquidity position remains strong, with approximately $815 million of available capacity on our credit line. Finally, I wanted to wrap up with a few comments on the reaffirmation of our 2012 EPS guidance and our 2013 target. We have not changed our views about 2012, and as Mike indicated earlier, we are affirming our guidance of $1.20 to $1.40 per share. We had some visibility into the potential impacts of warm weather through the first 2 months of the first quarter at the time we revised our 2012 earnings guidance in late February. We are assuming normal weather for the remainder of the year, and as Terry mentioned, have no change to our full-year weather-normalized demand growth expectations of 50 basis points. Although we were not in a position to fully quantify at the time, we had anticipated an impact of the unplanned Wolf Creek outage when we revised our 2012 earnings guidance.

The 2012 earnings per share impact of the outage will also be mitigated with the shift of the next refueling outage to 2013 and diligent cost management programs at the unit. We remain focused on our 2013 targets of 50 basis points of lag in our regulated operations. The Missouri and Kansas rate cases will be key drivers in the ability to reach our 2013 target. That concludes my comments. Thank you for your participation, and I will now turn the call back to Mike.

Michael J. Chesser

Thanks, Jim. So as I'm sure most of you know, I am retiring as CEO of Great Plains Energy at the end of this month, although I'll be continuing on as Chairman of the Board. And among other things, that means this will be the last opportunity I had to talk with you all on these quarterly earnings calls. As I reflect back over the last 9 years, I believe that we have laid a solid foundation to anticipate and meet the changing demands and expectations of our stakeholders and to prepare Great Plains Energy for the future. In just under a decade, we added baseload capacity with the addition of Iatan 2 to our fleet; lived up to our environmental responsibilities by retrofitting a significant portion of our coal fleet ahead of federal regulations, improving regional air quality and giving us a competitive advantage in years to come; we created a more balanced portfolio by investing in renewable energy and being a leading advocate for energy efficiency; we have company-owned assets and commitments in place that will increase our renewable portfolio to approximately 600 megawatts of wind and hydroelectric generated power; and we are hopeful we will have a permanent recovery mechanism for energy efficiency investments in Missouri, allowing us to further invest in our customers and build on a portfolio of programs that are already the equivalent of 2 peaker power plants; and of course, we fully embraced the communities with the spirit of collaboration; and we significantly expanded our regulated utility business with the acquisition of the higher growth areas of Aquila.

So as we look forward, Great Plains Energy's management team will be anchored by a strong leader in Terry. I have 100% confidence in Terry and the team, and look forward to continuing to work with them as Chairman. The management team, and our engaged and extremely talented employees, has a vision and commitment to deliver tier 1 customer service, solid financial performance and long-term growth. And most importantly, we remain focused on executing our plan to deliver improved shareholder returns. This truly has been for me a remarkable place to work, and I'd like to thank all of you for your support, and I've enjoyed working with each of you. So thank you again for your attention this morning. And Terry, Jim and I would now be happy to take any questions that you may have.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Shahriar Pourreza with Citigroup.

Shahriar Pourreza - Citigroup Inc, Research Division

When I look at your quarter, you lost $0.07, right? If we exclude the weather impact, your loss comes to closer to about $0.01. And if we exclude the unplanned outage at Wolf Creek, you actually earned about $0.05 for the quarter. The question is really on Wolf Creek. I think it was determined that the problems at the plant was really stemmed from a contractor error. What are you guys doing to recoup the additional purchase power cost and O&M increases from the plant, are you going after the contractor?

Terry Bassham

This is Terry. The initial cause of the outage wasn't a contractor, it was a breaker failure then a subsequent issue that occurred, and we did find in the process that the contractor could have and should have worked a little more diligently on some outage work. Typically those contracts don't allow for consequential damages, but we have certainly dealt with the issues around that to ensure that in future work, not only do we get better performance, but we are managing that work as well to provide insurance that our overview checks off on that as well. So we are working to make sure that in the future, we don't have this kind of issues.

Shahriar Pourreza - Citigroup Inc, Research Division

And then just let me ask you just something else is some news came out of FERC yesterday. They essentially agreed to hear some challenges on the allowed ROE, but then-- from complainants in the New England region. Is there like any potential spillover to the SPP region? Or how close you guys are monitoring this?

Terry Bassham

Well, we're obviously -- it's Terry again. We're obviously monitoring it very closely. It's brand-new. And the ROEs at the FERC level have been discussed for quite a while and will continue to be, and so we'll follow it. I don't expect there to be anything that we would know today other than what you've read to be helpful. But as we follow along, we'll be attentive in managing that. We continue to expect fair and full returns from FERC assets, and we're comfortable with that.

Michael J. Chesser

And just keep in mind, the other positive thing for us from a transmission investment standpoint is the construction work in progress. So that's not something we have available to us in Missouri. So even with a normal ROE, these are very attractive investments.

Operator

Your next question comes from Ashar Jahan [ph] with Vivium [ph].

Unknown Analyst

Terry, I guess one thing, as you take over the reins, and Mike, thanks for shepherding the company. How should we, I guess, one thing which we have been a little bit frustrated as investors has been improved returns on the stock, and I think so that's got something to do with, I guess, this regulatory lag issue, but is there a timeframe that you look forward in terms of your plan that how you can progressively improve returns to your shareholders and we can get out of the cycle of just filing rate cases every year and year and year because the regulatory lag just doesn't keep disappearing? Could you just elaborate, as you take over, how do you improve your shareholder returns?

Terry Bassham

Absolutely. We laid out a plan in August, detailed-- details around the plan and a strategic vision around the plan to do exactly as you said. As we got into the rate cases to be filed, we obviously saw the economy and gas prices and other things affect our off-system sales, which impacts our rate case ask and our current lag that forced us to reduce guidance earlier in the year. But I think as you've seen here, even though we had weather and other things, which you know you have to deal with, we didn't reduce our guidance further. And our plan is to do still what we said in August, which is to manage our costs such that when we have things that affect us, we manage around them. But we have to get the structure right. And we have a structural issue around regulatory lag that these cases we've just filed, we believe, will address that. A big driver of that in Kansas City Power & Light Mo is the off-system sales, which that credit is buried in base rates. We believe that the filing in this case will reset that at a level which is manageable. And then we have writers and trackers that we've asked for as well as just cost of service adjustments for the last of the CEP cleanup, if you will, such that we believe we, in '13, can manage within our 50 basis points we've talked, with reasonable results from our rate cases this year. And from there on, we would expect to file rate cases, primarily, will be the plan when we have asset additions. You can't say for sure, but with the economy hopefully beginning to stabilize and grow some, we would expect not to have to file another rate case until we had an asset addition or some other major adjustment on marketplace and not be in a cycle of having to file for rate cases every year. Our customers and we are in a situation where we think we're going to able to manage over the next several years without that annual cycle.

Unknown Analyst

That is to me very important is that like other companies like NV and all that, they come to the end of a plan, and it's time to kind of harvest and improve our cash flows and not file rate cases and add assets. I think, so I hope you have -- I'm hearing the same priority as to get rid of the regulatory lag and not to get into another cycle of cases with lag additions.

Terry Bassham

I think that's exactly what you see from us, that was our plan, originally. I don't think it's really difficult to see the recession that we had and the $2 gas that's now affected our off-system sales pieces. But that's exactly where we're at. That's exactly why we didn't purchase the last couple of hundred megawatts of wind to preserve capital. That's one of the reasons we entered into Transource to help be careful with capital. So we absolutely understand that we have EPA regulations and things that need to be done. We've got those built in, and we're being very cautious with additional capital needs to move forward so we can have as much flexibility as possible to avoid that up-and-down in rate case requirements on a more regular basis.

Operator

Our next question comes from Jay Dobson with Wunderlich Securities.

James L. Dobson - Wunderlich Securities Inc., Research Division

Jim, can we go back to the Wolf Creek outage and really what I'm trying to look at is the cost of the outage relative to the refueling outage you would have had later this year, and maybe the way to look at it is what was the cost of the last refueling outage. Are these roughly equal, I guess, is what I'm trying to get to.

James C. Shay

The last refueling outage was about $30 million in total costs that we're currently amortizing. So a way to think about the impacts of the current extended outage, you saw from the release that there was a $7 million cost impact relating to O&Ms specific to the outage. So the mitigation plan is RF-18, the prior refuel outage 18, the prior, that will actually get amortized over a longer period of time, plus the amortization of refuel-19 will not start until next year. So you do get some benefits to offset that along with some other plans to work with the unit to reduce other costs to maintain their original goals.

James L. Dobson - Wunderlich Securities Inc., Research Division

Got you. But since you levelized the cost of the nuclear outage, it's really not going to be one-for-one, so you still will see a negative impact in '12 relative to '13 or '11, for that matter.

James C. Shay

No, I wouldn't characterize it that way. I think we should be able to cover that $7 million through the net impact of what goes on with their refueling amortization -- the amortization refueling outages, plus other cost measures. We expect it to be neutral and to be able to cover it.

James L. Dobson - Wunderlich Securities Inc., Research Division

Okay. Well, fair enough. And maybe that's the right next place to go. Talk a little bit about total operating costs and your expectations for 2012, and then if you can, 2013, understanding you'll be out of the rate case cycle then.

James C. Shay

Yes. Relative to 2012, we have our, with current rate case filings in our historical test years, we're really working to manage our cost structure in line with the current rate case filings. And so, as we move forward into 2013, and our goal to maintain 50 basis points of regulatory lag, we'll be balancing our view of load growth against cost growth to make sure that we can land on that target. The other piece that we have that -- the third piece of the puzzle is we have to take a look at regulated utility assets not in rates, as that's another component of lag. So we have to balance those 3 variables to achieve our 50 basis points of lag target next year, and we've got a very good handle on the variables.

James L. Dobson - Wunderlich Securities Inc., Research Division

Got you. But 2012, I mean, in light of the efforts you're taking to manage costs, given the $7 million increase for the Wolf Creek outage, if we talk about total O&M for 2012, that's declining versus '11?

James C. Shay

I would not -- we do not have a decline baked in. We're really trying to keep our O&M flat. Our overall cost flat, including the impacts of Wolf Creek, is what we're driving towards.

James L. Dobson - Wunderlich Securities Inc., Research Division

Perfect. And then I'm not sure if you covered this, but in the release you talked about $1.8 million after-tax loss from a sale of real estate property. Can you give me an idea what that was?

James C. Shay

That was an Aquila property from some of their -- it's actually located up in Omaha, related to some of their deregulated activities that we were able to sell this quarter.

James L. Dobson - Wunderlich Securities Inc., Research Division

Got you. And then last question, probably mitigated fairly by the Wolf Creek outage, but talk a little bit about where your coal stockpiles are right now.

James C. Shay

Coal stockpiles are back at the levels that we had hoped for, for the summer. Remember that last year, we had gone through the flood, and concluded that we needed to increase those stockpiles and be a little heavier headed into the summer. It doesn't look like, given snow pack up north and projected releases from the dams that we're going to have any flooding issues, but still probably carry a little more coal than we did last year. We've also had better turnaround times if you will. From the railroad, we've done a great job of restocking, and so we're headed into the summer with our kind of our peak opportunity early in place for coal inventory.

James L. Dobson - Wunderlich Securities Inc., Research Division

And what's your goal on that, Terry, is that just sort of 40, 45 days of burn.

Terry Bassham

No. It was more than 45 to 50 last year. We're going to increase that, probably I'd say 15, 20 days, probably on average among the plants to have a little heavier load on the ground. Again just a safety measure given what happened last year.

Operator

Your next question comes from Andy Levi with Avon Capital.

Andrew Levi

On Wolf Creek, can you give us a breakdown, I guess, was the $0.06 all kind of from the outage related or was it also -- does that relate to the wholesale business as well, or can you just give us an idea just in general how the wholesale business did in the course. And I apologize if you discussed that already.

James C. Shay

Yes, the $0.06 breaks down to $0.04 of higher O&M relating to the extended outage and $0.02 is higher fuel expense to the extent that we did not have that unit available as it pertains to the KCMO jurisdiction. And in terms of wholesale, we lowered our guidance for the year by $0.10, and we're still managing to that outcome and wouldn't have a quarter-by-quarter breakdown on the wholesale performance.

Andrew Levi

But, I guess, your expectation as you outlined when you took down your guidance, that kind of played out in the first quarter, is that correct?

James C. Shay

That's what we're managing to, yes.

Andrew Levi

Okay. And then just on Transource, I guess, so the main reason that you got into the partnership is to preserve capital or were...

Terry Bassham

This is Terry again. No. that wasn't the main reason. That was one of the factors, obviously, that we were looking at. The main reason was that we had 2 solid projects that were locked down. But with Order 1000, it was clear that we would have to compete even locally against larger competitors likely. And our ability practically to compete outside our territory would have been eliminated. For us to go to another jurisdiction, given our size, it's not likely. So the main reason was that it gave us an opportunity to partner with AEP who's a long time transmission entity with lots of experience, and a larger entity who could help us participate in other markets. Certainly, over the next several years, we've got mandatory EPA spend that was seen and that certainly give us the ability to have some more flexibility around capital in the next 3 to 4 years. So it was certainly something we thought was a nice fit, but the main reason was to give us the ability to compete outside of just SPP given the Order 1000 removal of a lot of FERC refusal.

Andrew Levi

Okay. And just to make sure that I kind of -- I remember when you announced, I kind of ran through some numbers on what you may have spent on transmission and kind of what you have a partnership works. So I guess a better way to put it, Transource, although, a very good long-term opportunity probably took away, again we're are not talking big dollars, but probably took away some short-term opportunities, short-term being like '14 and '15 opportunity as far as additional earnings growth beyond what you're seeing already. Is that a fair statement?

Terry Bassham

To push it out a little bit, really, our projects would have started more like '16, '17 having a material EPS. And I would say that we traded some short-term certainty for some longer-term opportunity, and maybe even some opportunities sooner than you would expect. We've got to work to those our projects were certain, because we had them locked down as opposed to our opportunity through the Transource partnership.

Andrew Levi

Okay. One last question, which we're kind of seeing all over the country, but I just kind of want to get your opinion on it. It's just on as far as your sales levels, and again, residential sales were down, commercial did pretty good on a weather-normalized basis. But if you would back out the extra day in the quarter, the leap year, what would the numbers have been? And just in general, what are you seeing as far as demand, any idea why we continue, whether it's you guys or just you can pick any state you want, continue to see a tough demand situation when it comes to residential and then in some cases commercial, too.

James C. Shay

If you back out the 1 day, it would have been a decline. We ended up at 0.2% normalized, but it would've been a decline without the 1 day. But we have that baked into our forecast when we established the target for the first quarter, and we're thinking about our overall guidance for the year of 0.5%.

Michael J. Chesser

And keep in mind the -- looking at the winter is tricky because you have a lot of phenomenon where people previously on heat pumps are converting to gas or using gas at a higher set point in their temperature. I think the real indicator will be the summer load.

Andrew Levi

And just in general, on demand in general, what are your just kind of views than what we are seeing nationally?

Michael J. Chesser

I think it's fair to say that there's a dampening effect from a transition to more efficient appliances, more efficient air conditioners are changed out, and plasma TVs are changed out to LEDs and so forth. But once the economy returns, we are used to be seeing 3% or 4% load growth, maybe we've really see something like 2% to 3% load growth. I think it will still be there in a normal economy but it won't be as robust as it has been in the past.

Terry Bassham

Before we take the next question, I would like to clarify the question that Jay Dobson had. He had a -- I made a statement relative to NFOM being flat. We do have different components of our NFOM, but we actually did forecast Wolf Creek to be up for the year. So we don't have a specific line item in NFOM forecast, but we do have that guidance variability ranges, which is intended to kind of balance the impact of changes in demand kind of offset by NFOM changes. So if I left an impression from a modeling standpoint that you should just model an NFOM flat, I just wanted to clarify that, that shouldn't just be an immediate assumption.

Operator

Your next question comes from Paul Patterson with Glenrock Associates.

Paul Patterson - Glenrock Associates LLC

Yes, I wanted to follow up on the sales growth question. Does the 0.5% have the leap year in there as well?

James C. Shay

Yes.

Paul Patterson - Glenrock Associates LLC

Okay. So and when you say the economy coming back, I mean, we're not really in a recession anymore, theoretically. I mean, I don't know exactly. But it sounds like you guys were having a substantial amount of unemployment improvements and other things, and industrial sales were up. So what are you -- I guess, what is the economic -- when you say with the economy going back and getting up to those sort of robust numbers, how should we think about what kind of economic growth we should be thinking about?

Michael J. Chesser

Well just to give you an idea, when I came here in 2003, the end of 2003, 2004, our housing starts in our area of around 10,000, 10,000 a year. Definitely, recession, it was around 1,500. We know we're near back to that 10,000 again, but the economy does cycle, and you could see at some point in the future, as you got back up in there, you could see instead of the 3% to 4% low growth we were seeing then, as I said you might see 2%.

Terry Bassham

And I think in general, what we've said is that we are seeing the start of recovery in Kansas City. I think that's what you would hear from our local and regional economists. But as with probably most places across the country, that start takes a while to reflect itself in a lot of other places. And we've got $2 gas, which affects us, and our market's an addition to that. And so you go to that process. And our company is not probably a lot different. We're being cautious in terms of our hiring because we're managing budgets. So I think people are feeling better about our region things are beginning to happen, but in terms of actual electricity growth, you'll notice from our estimates for the year that we're still cautiously optimistic about a turnaround but we're not, as Mike said, we're not projecting a return to what would be called traditional growth.

Paul Patterson - Glenrock Associates LLC

Okay, I mean fair enough. Just is there a specific GDP though number when you forecast, I mean some sort of a ratio to GDP, or is there housing starts that we should be thinking about? I mean, is there any particular economic data point we should be thinking about?

Terry Bassham

Well, probably one of the most important is housing starts. We are -- remember that we are less attached to industrial growth and so housing is a big piece of our load. And so, yes, I think as Mike described, a return to a normal level of even growth, not typical levels but growth for us, in housing would certainly signal a growth for electricity usage. And then looking at commercial, what follows that and then certainly we may have some industrial opportunities with Ford and others ramping up certain of their processes here. But housing is probably pretty good one.

Paul Patterson - Glenrock Associates LLC

Okay. You said it was 10,000 prior when you first got here.

Michael J. Chesser

We'll get to you there. My memory is from 9 years ago. We'll get you the exact number.

Operator

[Operator Instructions] Your next question comes from Shahriar Pourreza with Citigroup.

Shahriar Pourreza - Citigroup Inc, Research Division

Let's assume that we get fair outcome in rate case and you get afforded the tracking mechanisms that you've asked and some of the accounting orders with flooding and stuff like that. Could you theoretically, with capital spending kind of leveling off, could you stay out of a rate case, say, to 2014, 2015 timeframe?

Terry Bassham

That's our plan. Our plan is to finish this rate case, and we know that we will likely need to file a case when La Cygne is complete, which would be the summer of 2015. That asset is large enough, we would expect to need to make a filing. So the plan is to not file in between, never say never, but that is the plan and we currently see things that make that happen. The only thing that would be in addition to that is, remember that we have asked for what's called an abbreviated case in Kansas. The intent of that would only be to continue to include CWIP as spend on La Cygne but that would not be the kind of general rate case we're talking about here, it would be very specific to the environmental add.

Michael J. Chesser

And Shahriar, just keep in mind, once that La Cygne is complete, we will have 72% of our coal capacity retrofit, which is certainly on a higher end I think from most Midwest companies, which means we may be able to stay out from rate cases and have less of a upward impact on customers rates than some others would.

Shahriar Pourreza - Citigroup Inc, Research Division

So theoretically, if you take that scenario, your cash tier could get pushed out to maybe the 2014 timeframe. So, I mean, when we think about equity needs, when you say 2013 potentially, theoretically if you get a pushing out of rate case and your test year gets pushed out, maybe we can look for you guys to access the equity markets beyond 2013, maybe 2014 timeframe.

Terry Bassham

We don't currently have any plans for the issuance of equity through that time period. Again, market conditions could change, opportunities could arise. As we've said before, wouldn't be issuing an equity unless it make good sense for our shareholders. Right now, as we sit to our plans, we don't have any equity needs that we see.

Operator

Your next question comes from Timothy Yee with KeyBanc.

Timothy Yee - KeyBanc Capital Markets Inc., Research Division

Can you talk a little bit more about how your business is impacted by the low natural gas prices? Most of your base load is coal and nuclear, and I think your CAT gas plants are all peakers. So I'm just trying to understand if there's any coal-to-gas switching, and how do you think about the business in the low gas environment commodity prices, et cetera.

Terry Bassham

Well, there are 2 primary impacts. The first is in the rate case is that those gas prices affect market prices for off-system sales, and Kansas City Power & Light Mo has built into the base rates an assumption around earned margins and off-system sales that are a credit to base rates. So the others have fuel factors, Kansas City Power & Light Mo does not. And as we described, we're not going to be able to meet that bottom line credit number for '12, so we're resetting that in our case such that in '13 we'll be set at a level we're very comfortable with. Also, remember that we have, as gas is low, you have more likelihood that residential customers during the winter are looking at that opportunity as well.

Operator

At this time, there are no further questions. I will now turn the conference back to Mike Chesser for closing remarks.

Michael J. Chesser

Okay, well again, thank you, all, very much for the questions. We look forward to continuing to share with you in this uncertain environment as the local economy evolves. But as I've said before, I think we have a plate set here for future shareholder growth that's very favorable, and as Jay Dobson said, I certainly look forward to sitting back and watching that and enjoying that with the rest of you. So thanks again, and have a great day.

Operator

Thank you this concludes the conference you may now disconnect.

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