Great Plains Energy, Inc. Q2 2008 Earnings Call Transcript

Great Plains Energy (GXP)

Q2 FY08 Earnings Call

August 7, 2008, 9:00 AM ET

Executives

Michael Cline - VP of Investors Relations and Treasurer

Michael J. Chesser - Chairman and CEO

Terry Bassham - EVP - Finance and Strategic Development and CFO

William Downey - President and COO

Analysts

Kathleen Vuchetich - W.H. Reaves Asset Management

Michael Lapides - Goldman Sachs

Steven Gambuzza - Longbow Capital

Leon Dubov - Catapult Capital Management

Paul Ridzon - KeyBanc Capital Markets

Michael Goldenberg - Luminous Management

Presentation

Operator

Good morning, ladies and gentlemen and thank you for standing by. Welcome to the Great Plains Energy Second Quarter 2008 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. [Operator Instructions]. This conference is being recorded today Thursday, August 7th, 2008.

I would now like to turn the conference over Michael Cline, Vice President of Investors Relations and Treasurer. Go ahead, sir.

Michael Cline - Vice President of Investors Relations and Treasurer

Thank you, operator and good morning. Welcome to Great Plains Energy second quarter 2008 earnings conference call.

Joining me on the call this morning are Mike Chesser, Chairman and CEO of Great Plains Energy, who will provide a strategic overview and highlights of the first few weeks of the KCP&L and Aquila integration; Bill Downey, President and COO of Great Plains Energy and CEO of Kansas City Power & Light, who'll discuss KCP&L operations and provide an update on the Iatan construction projects.

Bill will also brief you on our progress in integrating the KCP&L and Aquila operations; Terry Bassham, Executive Vice President and CFO of Great Plains Energy, who'll provide details on Great Plains Energy second quarter and year-to-date financial results and comment on key financial drivers for the remainder of 2008 and 2009.

Since some of our remarks will be forward-looking, I must remind of the uncertainties inherent in such comments. The second slide included in this webcast as well as disclosure is our SEC filings contain a list of some of the factors that could cause future results to differ materially from our expectations.

I would now like to introduce my Mike Chesser, Chairman and CEO of Great Plains Energy.

Michael J. Chesser - Chairman and Chief Executive Officer

Thanks, Michael and good morning, everyone and thanks for joining us here today. I would like to start the call with just a couple of comments on the financial results of the quarter. As I'm sure you noted in our press release, our core earnings for the quarter were $0.25 per share, which was $0.07 below the consensus estimate.

A significant portion of that difference or about $0.04 was due to the extended refueling outage at Wolf Creek, which started in March 20th and concluded on May 14th. The outage was 20 days longer than expected.

Most of the extension related to work scope changes that were identified after the outage started. The longer outage required KCP&L and had to purchase more power than we originally planned at higher prices than expected. Also that was not part of the $0.04 impact I mentioned. The outage reduced KCP&L's ability to sell wholesale power into the spot market, which normally would have provided an earnings benefit during the quarter. This short-term impact aside, Wolf Creek's operational performance, both historically and since the recent outage concluded, has been good with close to 100% availability and capacity factors between refuelings. And we expect that to continue.

Our coal fleet's performance was better than last year, but below what we expected for 2008 as a whole. Long term, our objective is to move from middle of the pack performance to tier 1 performance and we plan to strategically invest capital and O&M dollars to drive toward that, as we discussed in our first quarter earnings call. Bill will expand on this in his section today.

Bill and Terry will talk more about financial and operational issues in their comments. Therefore, I'd like to switch gears to focus on some very noteworthy events that have occurred in the past few months, events that have truly transformed our company.

This slide is one that we've shown you many times. We're pleased that we're able to do so this quarter with check marks, next to not one but two significant milestones on our path to growth, specifically the closing of the sale of Strategic Energy and the completion of our acquisition of Aquila. These transactions position us as a strong, focused, regional electric utility, well situated to deliver reliable service and affordable energy to our customers and earnings and dividend growth to our shareholders.

The value we build at Strategic Energy was recognized when we sold the business on June 2nd. Similar C&I businesses in recent years had sold for a roughly 6 to 8 times trailing EBITDA, and we received approximately 13 times trailing EBITDA for Strategic.

The sale generated significant cash which helps us with our financing requirements but more importantly, it improves our business risk profile and allows us to now have a dedicated focus on our vertically integrated electric operations in Missouri and Kansas.

With regard to Aquila, we received our last approval from Missouri regulators on July 1st and moved quickly to close the transaction on July 14th. It was a long process, but we couldn't be more positive about having completed the transaction or more passionate about the benefits it will create for our customers, our shareholders, our employees and the communities in our region. We are poised now to begin effectively integrating the Aquila and KCP&L operations so we can begin to deliver these benefits, particularly the synergies we've been talking to you about, as quickly as possible.

Bill is going to cover integration in his section, so I'll keep my comments brief but I would be remiss not to mention how pleased I'm with the success of the earlier stages. The hard work and advanced planning of many integration teams comprised of hundreds of Aquila KCP&L employees who have been active for over a year, have really paid off in the first three weeks of integrated operations.

This slide shows a couple of examples of work done following the closing of the deal to re-brand our company. These efforts are an important part of making new employees and customers immediately feel a part of the new KCP&L.

From integration perspective, as Bill will describe in detail, key systems have been integrated, customers bills have been generated, customer questions and concerns are being addressed and payments are being processed accurately which is very important.

With three entities involved, KCP&L, Aquila and Black Hills, the degree of complexity was heightened but our teams have demonstrated our focus on planning, execution and creative problem solving that has enabled us to achieve great results to date.

Integration efforts will continue for a number of weeks, months and in some cases, years as we combine the operations and ultimately the organizations themselves. We will keep you posted on our progress.

The chart that you see here from a recent issue of Business Week reflects utility rates across the country. Rates in our two states are among the lowest in the nation. Since 2000 rates in Kansas have increased only minimally and the Missouri rates have actually declined at a time when average rate station wide increased 24%.

As many of you know, we are planning to file five rate cases for KCP&L and equivalent Missouri and for KCP&L and Kansas a little later in the summer. In these cases we'll save recovery of cost and the addition of the Iatan 1 and simply environmental equipment as well as across its peaking unit in the rate bids.

The Business Week chart provides a constructive backdrop for these upcoming cases. As we grow our rate base through the right environmental and generation investments to serve the needs of our customers, as we deal with operating cost increases that are affecting the industry as a whole, our customers' rates are fairly going to increase.

However, we will continue to manage our business in a manner that maintains a significant rate advantage for our customers, compared to other parts of the country, by creating a shareholder value in the process.

Delivering on synergies generated by combining the operations of KCP&L and Aquila is one key example of how we will be accomplishing this.

While I am on the topic of favorable comparisons, I also wanted to say how proud I am of the recent J.D. Power's results. They rank KCP&L as a top tier in customer service as benchmark against our peer group. Bill will cover this further in his remarks.

We had some significant achievements this quarter but we don't plan to rest in our laurels. You've seen this graphic before but it's worth repeating. As we look to 2009 and beyond, we still have much to accomplish. We are investing on a number of significant projects, including the environmental air quality control system at our Iatan 1 unit, it will be completed and placed in service in early 2009 and a new Iatan 2 coal plant that will be completed in 2010.

We also continue to evaluate means to meet our commitment under KCP&L's collaboration agreement with Sierra Club to add a 100 megawatts of wind by 2010 and an additional 300 megawatts by 2012.

Only this week, KCP&L filed its integrated resource plan with the Missouri Public Service Commission. The preferred plan, outlined in the IRP is consistent with our current plan in terms of focus on additional investments in energy efficiency and renewable resources.

The IRP will also serve as the foundation for our sustainable resource strategy, which will involve, as we have in the past, collaborative discussions with regulators and stakeholders in developing our long term plan around generation, environmental spending, energy efficiency, and renewable energy. We've accomplished much over the past three years, but much lies ahead, and I'm looking forward to keeping you updated as we move forward on these endeavors.

Finally, before Terry begins his comments, I want to take a moment to reiterate our commitment to our dividend. We understand the value that it provides our shareholders in this period of slower earnings as we build customer and shareholder value through the completion of our Comprehensive Energy Plan.

We believe we were building a company that will be able to provide steady, annual earnings growth that will ultimately support dividend growth. In the meantime, we have both the intent and it were with all [ph], to sustain the dividend through the CapEx demands or the Comprehensive Energy Plan.

Now I'll ask Terry to provide more detail on second quarter financial results.

Terry Bassham - Executive Vice President - Finance and Strategic Development and Chief Financial Officer

Thanks, Mike and good morning, everyone. I'm going to focus my remarks today primarily on core earnings for the second quarter. As you know, we believe core earnings to be a more representative measure of our performance. However since core earnings are a non-GAAP measure, I want to start by providing you with a breakdown by segment of both our reported and core earnings per share as shown on this slide.

In the appendix to our press release and this webcast, we have a reconciliation of GAAP earnings to non-GAAP core earnings. There are a number of items in this reconciliation, but the two largest items relate to the discontinued operations of Strategic Energy. One relates to the increase in the composite corporate tax rate as a result of the sale of Strategic and the related impact on KCP&L in Great Plains Energy.

The second relates to the book loss incurred in Great Plains Energy on the sale of Strategic. This is due to primarily to the mark-to-market gains on Strategic Energy's derivative contracts at the time of the sale which increased the book value of Strategic Energy. We've included two additional schedules in the Appendix. One that reflects how the loss on disposal was calculated and one that describes the calculation of the reported loss from discontinued operations for the second quarter and a gain for the first six months.

For the second quarter 2008, consolidated revenue at Great Plains Energy increased to $335 million, a 5% increase year-over-year. Note that these revenues do not reflect revenues from Strategic Energy, which is listed in discontinued operations.

Core earnings were $21.2 million or $0.25 per share compared to $32.7 million and $0.38 per share in the second quarter of 2007. With the sale of Strategic Energy, the major drivers for the quarter comprised mainly of items related to KCP&L. As a result, I don't want to be repetitive, so I'll go into the details of the quarter when I discuss KCP&L results.

For the first six months of 2008, consolidated revenue at Great Plains Energy increased 10% year-over-year to $632.6 million. Core earnings were $29 million or $0.34 per share, which is basically flat compared to the same period 2007.

Now going to a little detail to give you a better feel for the drivers for the quarter and year-to-date results. Turning first to Kansas City Power & Light, second quarter revenues were $335 million compared to $319.1 million in the second quarter of 2007. Retail revenues increased $19.5 million to $276.3 million for the three months ended June 30 compared to the same period last year. Increase in revenue was primarily driven by new retail rates that went into place in January this year that included an additional $5.5 million of regulatory amortization.

All these factors helped us on the revenue side. Retail demand continues to reflect a sluggish economy in that area. Our gigawatt hour sales, which reflect both customer growth and usage per customer flat for the quarter adjusted for weather.

As the chart indicates, we had 355 cooling degree days in the second quarter of 2008 which was 13% cooler than last year. Overall, we estimate that weather reduced retail revenue by about $2.7 million compared to the second quarter of last year.

Also, revenues decreased $3.8 million for the second quarter. Also, volume was down about 16% compared to last year primarily due to Wolf Creek outage that Mike mentioned earlier.

The decrease in wholesale volume was particularly offset by an increase in the average market price per megawatt hour to $51.43, which is 19% higher than a year ago. The primary driver of the increase was higher natural gas price.

Second quarter core earnings of $29.5 million or $0.34 per share were lower than 2007 second quarter of $36.5 million or $0.43 per share. The decline in core earnings from the same quarter a year ago was due primarily to Wolf Creek outage, which drove increased purchased power and reduced wholesale sales as I just noted.

Purchased power expenses increased 15.5 million or 68% for the quarter compared to the same period in 2007. The increase was due to a 37% increase in the average price per megawatt hour due to higher natural gas prices. Additional megawatt hours purchased increased 31%.

Also impacting the quarter was increased depreciation and amortization resulting from primarily from regulatory amortization authorized in our 2007 rate cases in Kansas and Missouri. Regulatory amortization is neutral from an earnings perspective since we get an offsetting revenue increase to retail rates. But since it's a large expenses item, we wanted to bring that to your attention.

KCP&L's year-to-date revenues were $632.6 million compared to $574.8 million for the same period 2007. Year-to-date core earnings of $44.6 million or $0.52 per share were higher than 2007 for six months earnings, up $38.6 million or $0.46 per share.

Improvement in core earnings from the same period a year ago was driven primarily by an 11% increase in retail revenues mainly from new retail rates. Weather was basically flat for the six months period compared to last year. Customer growth and usage for the normalized basis is measured by gigawatt hour sales was also flat.

Wholesale revenue was $5.1 million year-to-date compared to the same period in 2007. This resulted primary from a 17% increase in the average market price per megawatt hour primarily due to higher natural gas prices as well.

The effect of this price increase was somewhat offset by a 7% decrease in wholesale megawatt hour volume. Purchased power expense increased $29.9 million or 76% for the year-to-date compared to 2007 period. This was due to a 68% increase in the megawatt purchases related primarily again to the Wolf Creek outage. Additionally the average price per or megawatt purchased increased 18%.

In our Other segment which mainly includes un-allocated corporate charges and labor associated with the Aquila transaction, core results for the second quarter 2008 were a loss of $8.3 million or $0.09 per share, compared to a loss of $3.8 million or $0.05 per share in the second quarter of 2007.

The lower core results for the second quarter are primarily attributable to two factors. First, increased interest expense, primarily from Great Plains Energy's issuance of $100 million of long term debt in September 2007. This impact was about $1.8 million in the quarter And second, labor-related cost associated with the Aquila transaction, that otherwise would have been reflected in the KCP&L segment. This amount was $0.9 million for the quarter.

As you know, historically the Other segment has been a positive contribution from affordable housing credits. This impact has steadily reduced as the credits have rolled off. This quarter, the effect was negligible, and we expect that to be the case going forward.

This slide depicts core results for the Other segment for the first six months of 2008 compared to last year. The drivers behind the lower numbers for this year are the same as I mentioned for the quarter.

Now I'd like to spend a couple of minutes of our... on our credit and liquidity position following the completion of the Aquila transaction.

As most of you know, there was a lot of discussion during the Aquila merger hearings in Missouri on the topic of credit. We were very pleased to see the rating agencies take positive action, quickly following the closing of the deal, as it served to validate the assertions related to credit that we had consistently made in our testimony throughout the process.

Various actions taken by S&P and Moody's are listed above. I won't go through them all, but the most significant of course is that both agencies upgraded the Aquila's investment grade. That's already generating synergies. As a result there had been a reduction in the interest rates of two of Aquila's debt issuances. The combined pre-tax savings will be about $18 million per year.

One of the key considerations for Moody's in upgrading Aquila's investment grade was a formal guarantee of Aquila's debt by Great Plains Energy. We put those guarantees in place shortly after closing. The total Aquila debt assumed in the transaction was about $1.1 billion, of that around $1 billion was long-term debt. We do not have any plans to refinance any portion of that portfolio at this time.

The financial markets remain volatile which continues to highlight the need for the strong liquidity. This slide gives you a sense of where Great Plains Energy and KCP&L stood with respect to access to short-term credit as of the end of the quarter.

We have also outlined here what we already have done to or expect to do with Aquila's various lines of credit, in particular we will putting a new revolving credit facility in place to replace all but one of the remaining lines. This is another area where we expect to see benefits from the recent upgrades by the rating agencies, both in terms of costs and also on reduced capacity needed for credit support purposes.

This slide lists a few other key financial drivers for 2008 and 2009. As we mentioned on our last two calls, the difficulties in the broader economy have impacted our service territory as well. Approximately 80% of KCP&L's and Aquila's annual retail revenues are derived from the residential and commercial segments.

We continue to see a slowdown in weather normalized customer growth and usage in KCP&L service territory and the same trends are affecting their Aquila service territory. As Mike mentioned, we will be gearing up to file rate cases for KCP&L in Missouri and Kansas and for Aquila in Missouri late in the summer.

A key element of the KCP&L and Aquila cases will be to bring that Iatan 1 Air Quality Control System into rate base. In addition, Aquila will be filing to include Selective Catalytic Reduction Systems, SCR System at LaCygne unit and the Crossroads peaking unit into rate base. Our financing plans also remain on track with what we've told previously.

From our flat performance perspective, there are a couple of elements, first as Mike mentioned earlier the refueling outage at Wolf Creek began on March 20th and ended on May 14th. We estimate the EPS impact of the extension at $0.04 for the quarter and for the year-to-date which includes the effect of a brief forced outage at Wolf Creek immediately prior to start of the refueling outage. The impact was approximately $0.06 per share. As Mike said earlier, going forward, we expect excellent operating performance from Wolf Creek unit as we've seen historically.

For our fossil fleet availability [ph] and building capacity for the first half of the year were 76% and 72% respectively. While both were better in the first half of 2007 we do not consider them representing the performance for the full year 2008. We believe our actual availability and capacity factors for the full year would be 80% and 76% respectively representing a reasonable proxy for 2008.

Regulatory lag is a factor for any utility operating in rising cost environment we find ourselves, even to companies filing rate cases on a regular basis as we have done. In addition, to being in for regular rate case we are taking steps to mitigate rising costs.

In particular, prior to January 1 this year, less than 1% of KCP&L rates contained automatic fuel adjustment cost or FAC. KCP&L now has a fuel clause in Kansas and Aquila, as fuel clause they cover the majority of the fuel expenses. And we still have exposure around the fuel costs approximately 65% of consolidated toward revenues we derive from customers subject to an FAC.

That concludes my comments and I'd now like to pass the call over to Bill for his remarks.

William Downey - President and Chief Operating Officer

Thank you, Terry and good morning, everyone. Consistent with the past several quarters, it has been a great deal of happening at KCP&L and there is much to talk about. I would like to cover a number of things in my remarks. First, highlights of the Aquila integration. Mike touched on this earlier and it is indeed very exciting to finally see the best of both organizations come together and begin to execute our plans for growth.

Second, as previously mentioned, we had some challenges with plant performance, primarily Wolf Creek during its scheduled refueling, that I'll cover, as well as less than anticipated performance from our coal fleet during the quarter.

Third, I'll discuss the steady progress KCP&L is making on its Comprehensive Energy Plan, including the environmental work on Iatan 1 and the construction of Iatan 2. And finally, I'll discuss the recent results of the J.D. Power Customer Satisfaction Survey.

As Mike mentioned, the first few weeks of our integration effort have progressed well. Before I discuss some of the specific initiatives, let me first remind you of the scope and scale of the integration.

Our integration efforts focused on bringing together over 800,000 customers across 47 counties and coordinating the operations of nearly 32,000 employees, 30% of which are new to KCP&L. And they're in 30 offices and service centers, and 9 generating plants and 10 peaking facilities, and ensuring reliable services across our expanded network of 33,000 miles of transmission, 24,000 miles of distribution, and 322 sub-stations. Adding to the challenge was the need to migrate as seamlessly as possible, 800,000 former Aquila customers in four states to Black Hills Corporation.

Now I'll discuss a few of the specific highlights. After intensive integration planning for over a year, we were able to hit the ground running once we received the approval. As Mike mentioned, we quickly re-branded the combined service territories with the new KCP&L logo to unify operations under one brand.

We've consolidated the two Aquila unions into the existing KCP&L unions under common work rules. We've taken two separate company platforms for billing, accounting, HR systems, telecom and network infrastructure and combine them to now have one KCP&L platform for each function. We kept a vigilant focus on customer service, few significant issues have arisen and we have responded quickly to those that have.

We've had many successes over the past three or so weeks. But obviously there is much work to be done. This slide lists a number of key initiatives we will be focusing on over the next year and longer term. Executing on each of these is critical to ensure we deliver the customer and shareholder benefits of the transaction.

Next on our radar screen in the coming weeks is the filing of rate cases in the Aquila's jurisdiction, as Mike and Terry mentioned. We have an opportunity to talk more with you about the specifics in those cases and those we'll be making concurrently for KCP&L shortly following the filings. I'm looking forward to keeping you apprise of our progress as we continue to combine the best of both organizations.

With that, I'd next like to make a few comments on KCP&L's operations. First as Mike and Terry mentioned, reduced availability at Wolf Creek impacted our second quarter results. This is a chart I typically talk about on these calls but in the past we've shown only coal plant availability and capacity factors.

Since Wolf Creek is a significant asset in our fleet we've added it to the chart and we'll keep you posted on both coal fleet and nuclear performance on an ongoing basis going forward.

As you can see the equivalent availability and capacity factors for Wolf Creek has, in recent history, been 100% when the unit hasn't been down for refueling, which occurs every 18 months.

With the outage that begin in mid-March and continued until May 14 the availability and less capacity for the quarter and year-to-date drops significantly and impacted our financial results as Terry described.

I'm pleased to report that tensive [ph] was brought back online on May 14. Wolf Creek has resumed its outstanding pre-outage performance with availability and capacity both at a 100%.

In the fossil fleet, we experienced the better first half this year than in 2007 in terms of performance. Like 2007, we expect to see improvement in the second half of the year and are anticipating that availability and capacity factors for the full year will be in the range of 80% and 76% respectively. This includes the impact of longer than normal outage at Iatan 1 in the fourth quarter, tying the AQCS project to the environmental equipment.

As Mike mentioned, we have an objective to improve the operations of our fossil fleet and long term are targeting tier one performance. To achieve this we are taking a number of steps including the following: first of all, focusing our current and projected capital and O&M dollars on the areas of greatest potential risk, also increasing training for plant operators and utilizing an outage management team to centralized planning and outage oversight.

As I have stated previously running our fleet well is very important to us and to our stakeholders. We will keep you closely apprise of the results of these efforts as we move ahead.

Now I will turn to the Iatan construction project. I am sure you heard about the tragic incident that occur at the Iatan site on May 23 on a Manitowoc 18000 Crane, one of the largest cranes in the country collapsed. Sadly one employee lost and a KCP&L contractor, which was responsible for the operation of the crane, was killed and three other contractor employees were injured. The crane was slated for use in lifting some duct work for the Iatan 1 SCR into place.

As is always the case when a serious accident occurs, we proceeded in a very thorough deliberate fashion in aftermath of the accident. We suspended the construction activity on the date of occurrence and the three more on holiday weekend dates have followed, while we took the necessary steps to secure the site, preserve all evidence and ensure employee and contractor safety.

Numerous investigation teams, including Osho [ph] are evaluating the incident and the process is expected to take an extended period of time to complete.

Loss of the crane is not expected to impact the schedule for the Iatan 1, AQCS project. As our team moved quickly to secure a replacement crane, we anticipate completing the Iatan 1 outage by year end 2008 and have the AQCS team in service from a regulatory perspective in early 2009.

We also received good news in April that the IRS approved KCP&L's application for $125 million in advanced coal investment tax credits for Iatan 2. From an income statement perspective we will recognize this credit ratably over the life of the plant, once it is in place.

We're very pleased to report that KCP&L was recently ranked among the nation's top utilities for customer service. KCP&L ranked 14th overall among the largest 120 utilities in the U.S., in J.D. Power and Associates' 2008 electric utility, residential customer satisfaction study, released in July. This was up from 23rd overall in 2007.

In the Midwest region, which this slide reflects, KCP&L ranked in top quartile in 2008, among mid-size utilities with an aggregate score of 667, compared to an industry average of 614, and a Midwest region average of 601. J.D. Powers also measured individual attributes, such as customer service performance, communications, price, billing and payment options and corporate citizenship. KCP&L achieved top-tier ranking in these areas as well. This type of news is always great to hear, because it is a confirmation that we are making a difference in our communities by providing quality service to our customers.

With that, I'll hand the callback over to Mike before we take your questions.

Michael J. Chesser - Chairman and Chief Executive Officer

Thanks very much, Bill. And at this point, I'd be happy to take any questions that you might have.

Question And Answer

Operator

Thank you, Sir. We will now begin the question-and-answer session. [Operator Instructions]. And our first question comes from Kathleen Vuchetich with W.H. Reaves Asset Management. Go ahead please.

Kathleen Vuchetich - W.H. Reaves Asset Management

Good morning, gentlemen.

Michael J. Chesser - Chairman and Chief Executive Officer

Morning, Kathleen.

Kathleen Vuchetich - W.H. Reaves Asset Management

Couple of questions. Can you give us a number for the capital expenditures for '08, please?

William Downey - President and Chief Operating Officer

You're looking for ongoing CapEx as opposed to CEP CapEx.

Kathleen Vuchetich - W.H. Reaves Asset Management

I'm not sure what CEP CapEx is but I just... I like to know the total capital expenditures do you expect to book for the year please.

William Downey - President and Chief Operating Officer

Sure our ongoing CapEx is expected to be 727.5, should be in one of our slides.

Kathleen Vuchetich - W.H. Reaves Asset Management

Okay, and forgive me if I missed it but what is the current estimate of the total cost of the new coal facility at Iatan?

William Downey - President and Chief Operating Officer

Just about $1.9 billion, Kathleen.

Kathleen Vuchetich - W.H. Reaves Asset Management

1.9 billion.

William Downey - President and Chief Operating Officer

It'sa range but it's in that, that's total, that's not our share.

Kathleen Vuchetich - W.H. Reaves Asset Management

Okay and Jim, do you know... excuse me, Bill, do you know what... do you know when you plan on having that plant come online? You mentioned '010. Is it mid-year, late in the year, do you have any guesstimate?

William Downey - President and Chief Operating Officer

We're saying summer of 2010.

Kathleen Vuchetich - W.H. Reaves Asset Management

Okay. And finally, I don't need to be rude or inappropriate but why aren't you giving guidance? You're halfway through the year and you must have some guess as to what your likely to do, and I don't mean to be rude about this but why are you declining to give guidance?

Michael J. Chesser - Chairman and Chief Executive Officer

Hey, Kathleen, this is Mike. We have pretty much said all along that we weren't going to be giving guidance for 2008, but we're going to be coming out earlier than we normally do to give guidance for 2009. So our plan is on the next call, third quarter conference call to give guidance for 2009.

Kathleen Vuchetich - W.H. Reaves Asset Management

I see. Excluding special item, couldn't we assume that the Aquila acquisition for the remainder of this year, excluding the merger costs, that will separate out, will be dilutive to the earnings of '08 to the second half?

Michael J. Chesser - Chairman and Chief Executive Officer

No, Kathleen excluding one time items, it won't be dilutive.

Kathleen Vuchetich - W.H. Reaves Asset Management

Okay. All right, thank you very much.

Michael J. Chesser - Chairman and Chief Executive Officer

Okay. Thank you.

Operator

Thank you. And our next question comes from Michael Lapides with Goldman Sachs. Go ahead please.

Michael Lapides - Goldman Sachs

Hey, guys.

Michael J. Chesser - Chairman and Chief Executive Officer

Hey, Michael.

Michael Lapides - Goldman Sachs

Couple of questions, look forward to seeing you all later this month. How should we think about the level of saving... synergy savings allowed by the commissions in the case versus now that you're starting the integration process what you think you might actually be able to realize?

Michael J. Chesser - Chairman and Chief Executive Officer

Well, I think it's fair to say that we believe that we're going to achieve all the savings that we're in the case. But we have potential for upside beyond that.

Michael Lapides - Goldman Sachs

Yes, can you refresh us how much you're allowed to keep versus how much you share with customers?

William Downey - President and Chief Operating Officer

Yes, Michael on the Kansas side the agreement there is based upon there the weather test your process works. Basically our case won't reflect the merger in this first case.

Michael Lapides - Goldman Sachs

Okay.

William Downey - President and Chief Operating Officer

And therefore we would keep the Kansas portion up to savings through basically the fall of 2010 when the second case, the case related to our Iatan 2 would go in effect. And the Missouri piece which is the larger piece, we would keep savings related to anything post test year true-up. So in other words from data close to the data true up we'll keep then the throughout will including savings generated to that point, and then any savings generated from that point until the troop of the next case which would again be late 2010 we would keep, we outlined in our testimony what we thought kind of those annual numbers would be.

Michael Lapides - Goldman Sachs

Okay and --

Terry Bassham - Executive Vice President - Finance and Strategic Development and Chief Financial Officer

With this, Michael, what this ultimately results in is about a 50-50 sharing of synergies between, ourselves and the customers. The other important thing here is in the upcoming rate cases, we will be able to point to synergies is helping to offset the overall level of the new rates which I think is equally as important.

Michael Lapides - Goldman Sachs

Okay so I'm just trying to make sure I understand, there is not a risk that the commission will in the 2010 timeframe, retract even your 50% of the savings?

Michael J. Chesser - Chairman and Chief Executive Officer

No, it was pretty clear in dealing with both, the parties and with the commission at the Missouri, the first fall we had an agreement basically in Kansas, then the Missouri process that's the way they flow back synergies, they will regret making process so later active rate making which is law will prohibit, go back and taking away synergies already kept. So we're very comfortable with that process.

Michael Lapides - Goldman Sachs

Got it.

Michael J. Chesser - Chairman and Chief Executive Officer

It's consistent with Missouri presence well.

Michael Lapides - Goldman Sachs

Got it, okay. And final question, I haven't seen the queue up. Are you guys going to file the historical from MoPub in St. Joe's? Meaning kind of... I'm just trying to think about the modeling of a quilt, I hate to get down in the wheat here, but the last since MoPub in St. Joe's didn't really file Form 1, I think the last filing date I had for this guys was one of their Missouri rate cases a year or so ago.

Michael J. Chesser - Chairman and Chief Executive Officer

Yes, we'll have to recast the 10-K reflecting that.

Michael Lapides - Goldman Sachs

Okay.

Michael J. Chesser - Chairman and Chief Executive Officer

And 8-K later.

Michael Lapides - Goldman Sachs

Got it. But that will come in '08?

Michael J. Chesser - Chairman and Chief Executive Officer

Yes, late '08... late, past the third quarter basically.

Michael Lapides - Goldman Sachs

Got it, okay. Thanks guys.

Michael J. Chesser - Chairman and Chief Executive Officer

You bet.

Unidentified Company Representative

Okay.

Operator

Thank you. And our next question comes from Steven Gambuzza with Longbow Capital. Go ahead, please.

Steven Gambuzza - Longbow Capital

Good morning.

Michael J. Chesser - Chairman and Chief Executive Officer

Morning.

Steven Gambuzza - Longbow Capital

Can you tell me what the timing is for the filing of the rate cases?

Terry Bassham - Executive Vice President - Finance and Strategic Development and Chief Financial Officer

We expect to file within the next few weeks.

Steven Gambuzza - Longbow Capital

Okay. And based on a normal statutory schedule, assuming a fully litigated case. When would new rates going to effect, roughly?

Terry Bassham - Executive Vice President - Finance and Strategic Development and Chief Financial Officer

Roughly, eleven months after the filing.

Steven Gambuzza - Longbow Capital

Okay.

Michael J. Chesser - Chairman and Chief Executive Officer

Mid year next year.

Steven Gambuzza - Longbow Capital

Mid year 2009. Okay. And is it still your intention to file with kind of a mid 50s equity ratio in each of these utilities somewhere in that neighborhood?

Michael J. Chesser - Chairman and Chief Executive Officer

Well, without getting into the details of a file we haven't made yet, I would say that we expect to be consistent with the CEP plan if you will, and since there we expect from a regulatory perspective, it would be in the 52 to 54 range.

Steven Gambuzza - Longbow Capital

Okay. And the CapEx number that you recorded $727 million for this year. Is that just for KCP&L?

Michael J. Chesser - Chairman and Chief Executive Officer

Yes that's for KCP&L.

Steven Gambuzza - Longbow Capital

Okay. And what did you spend in the first six months of the year?

Michael J. Chesser - Chairman and Chief Executive Officer

First six months, be roughly half, I mean on an ongoing basis obviously our spend is pretty normal. And then in terms of the CEP construction spends this is one of our biggest cheers, so.

Steven Gambuzza - Longbow Capital

Okay.

Michael J. Chesser - Chairman and Chief Executive Officer

It's probably about half.

Steven Gambuzza - Longbow Capital

And I'm just trying... I know you guys are not providing a specific guidance on how much equity you're going to sell at the end of year. But just to get somewhat of magnitude it looks like your balance sheet into the quarter was about 47% equity. And so you just think about you are not showing anymore debt for the balance of the year, so you have to kind fund your CapEx and raise your equity ratio from kind 47% to somewhere in the mid 50s?

Michael J. Chesser - Chairman and Chief Executive Officer

Well, we are not talking about any plans with regard to that. Just remember that from a regulatory perspective they calculate the equity percentage differently than what you might just simply see on the balance sheet.

Steven Gambuzza - Longbow Capital

it's the short-term debt?

Michael J. Chesser - Chairman and Chief Executive Officer

Yes.

Steven Gambuzza - Longbow Capital

Okay.

Michael J. Chesser - Chairman and Chief Executive Officer

So what you described is not exactly the way that would look from a regulatory perspective.

Steven Gambuzza - Longbow Capital

So you could fund some of the CapEx with short-term debt or which we should exclude... whatever the short-term debt is we just exclude that from the calculation?

Michael J. Chesser - Chairman and Chief Executive Officer

Yes.

Steven Gambuzza - Longbow Capital

Okay, thank you very much.

Michael J. Chesser - Chairman and Chief Executive Officer

Yes, thank you Steve.

Operator

Thank you. And our next question comes from Leon Dubov with Catapult Capital Management. Go ahead please.

Leon Dubov - Catapult Capital Management

Hi, good morning.

Michael J. Chesser - Chairman and Chief Executive Officer

Good morning, Leon.

Leon Dubov - Catapult Capital Management

I just wanted to double check, in this rate case that you guys are going to be filing, is this the case where you are going to ask to put in fuel clause in Missouri?

Michael J. Chesser - Chairman and Chief Executive Officer

No, keep in mind, well yes and no.

Leon Dubov - Catapult Capital Management

Okay.

Michael J. Chesser - Chairman and Chief Executive Officer

We already have a fuel clause at Aquila.

Leon Dubov - Catapult Capital Management

Right.

Michael J. Chesser - Chairman and Chief Executive Officer

And so that will remain in place. We don't have a fuel clause for Kansas City Power and Light consistent with our overall comprehensive energy plan. And we won't be asking for one for the same reasons. So that will remain basically as it but we do have it in place both in Kansas for KCPL and for Aquila in Missouri.

Leon Dubov - Catapult Capital Management

When can you put it in for KCPL?

Michael J. Chesser - Chairman and Chief Executive Officer

Technically under the agreement with a CEP it's 2015.

Leon Dubov - Catapult Capital Management

2015, okay. And I know you guys didn't give guidance yet, but just thinking about your CapEx needs, do you imagine meeting new equity in 2009 or '10?

Michael J. Chesser - Chairman and Chief Executive Officer

Well again we have talked about in general our financing plans to keep things in same context. So yeah I mean over the time period there will be needs but we haven't talked about the exact time.

Leon Dubov - Catapult Capital Management

Okay. Thank you.

Operator

Thank you. [Operator Instructions]. And our next question comes from Paul Ridzon with KeyBanc. Go ahead please.

Paul Ridzon - KeyBanc Capital Markets

Good morning guys.

Michael J. Chesser - Chairman and Chief Executive Officer

Good morning, Paul.

Paul Ridzon - KeyBanc Capital Markets

The $125 million tax credit, that's going to flow over the life of the asset, is that 30 years?

Michael J. Chesser - Chairman and Chief Executive Officer

30, yes that's right.

Paul Ridzon - KeyBanc Capital Markets

And who's going to keep that? Is that going to float rate pairs [ph] so that shareholders enjoy some of that?

Michael J. Chesser - Chairman and Chief Executive Officer

Well we will obviously receive the benefit of the cash. So we will get that right upfront and since offsetting tax expense. But ultimately as we flow it back through earnings, it also be due cost to service to right payer. So it reduced the overall cost of plan that rate payers pay. So the benefit of shareholders will obviously be the lower financing needs but hopefully it will be flowed back. Regulatory... pre-traditionally regulatory agencies would take that credit back against the cost of plan.

Paul Ridzon - KeyBanc Capital Markets

And so you talked about some protection Missouri against fuel. Can you just kind of outline that?

Michael J. Chesser - Chairman and Chief Executive Officer

Well again what we have described before is that Aquila has the recent fuel factor which was allowed a fuel mechanism which was allowed by state law. We had in the last case put the fuel factor in place for Kansas City Power and Light, Kansas jurisdiction which is I mentioned in my comments puts of around 65% of our entity under a fuel factor protection. The Kansas City Power and Light Missouri operations under the CEP doesn't have the fuel factor, it was part of the overall agreement made back before that was a fuel factor that existed. But remember the Kansas City Power and Light has a much heavier coal base and as a result our fuel tends not to be as volatile.

Certainly we have had some increased fuel cost over the course of the last year that makes it a little more important to manage but we do feel pretty comfortable with the fuel factors in place for the other properties.

Paul Ridzon - KeyBanc Capital Markets

Can you discuss how you have hedged your component of generation that is not subject to a fuel clause?

Michael J. Chesser - Chairman and Chief Executive Officer

Well in term of hedging what we've got in place is our coal cost and coal pricing. For example, we have you know probably 75% of our coal locked down for next year. We have coal purchased at bearing levels several years into the future. And so that's the major peace of our generation portfolio and then again as we get into our newest rate case and have the cost of coal built in there that will be recovered through rates and again coal has certainly moved up recently but it's not near as volatile as gas and that's the major piece. And anixer [ph] fuel obviously as well as something that we secured and tends to be more stable although has increased as of late.

Paul Ridzon - KeyBanc Capital Markets

Thank you very much.

Michael J. Chesser - Chairman and Chief Executive Officer

You bet. Thank you.

Operator

Thank you. And our next question comes form Michael Goldenberg with Luminous Management. Go ahead please.

Michael Goldenberg - Luminous Management

Good morning gentlemen.

Michael J. Chesser - Chairman and Chief Executive Officer

Good morning, Michael.

Michael Goldenberg - Luminous Management

First of all congrats on closing the deal.

Michael J. Chesser - Chairman and Chief Executive Officer

Thank you.

Michael Goldenberg - Luminous Management

Wanted to ask... I wanted to follow-up on the question that was raised earlier about your equity layer. Can we just spend a little more time discussing how the 47% GAAP at the end of the quarter, how that relates to the filing equity ratio and how that's going to be different?

Michael J. Chesser - Chairman and Chief Executive Officer

Yes, it's primarily just short-term, sorry primarily just short term debt. I mean obviously when you get to the regulatory process, they take that out.

Michael Goldenberg - Luminous Management

Okay. So what would be the equity layer at the time of the filing?

Michael J. Chesser - Chairman and Chief Executive Officer

Well, again we haven't filed and we haven't given a lot details yet around that as we are finalizing the case. I couldn't give a précise number. But it's going in the 52 to 54 range as we talked about before.

Michael Goldenberg - Luminous Management

Okay. All right. And if you were to file today that's what it would be, right?

Michael J. Chesser - Chairman and Chief Executive Officer

Yes.

Michael Goldenberg - Luminous Management

Okay. Just wanted to make sure that there's no hidden. Okay. Great, thank you very much.

Michael J. Chesser - Chairman and Chief Executive Officer

Thank you.

Terry Bassham - Executive Vice President - Finance and Strategic Development and Chief Financial Officer

Thank you.

Operator

Thank you. And we have a follow-up question from Michael Lapides. Go ahead, please.

Michael Lapides - Goldman Sachs

Hey guys, my question's been asked and answered. Thank you.

Michael J. Chesser - Chairman and Chief Executive Officer

Okay, thanks Mike.

Operator

Okay. And we have another follow up question from Steven Gambuzza. Go ahead please.

Steven Gambuzza - Longbow Capital

Hi. You mentioned that there's going to be an outage at i-10 [ph] in the fourth quarter related to the environmental controls. Is that correct?

Michael J. Chesser - Chairman and Chief Executive Officer

Yes, that is.

Steven Gambuzza - Longbow Capital

And I guess based on your statements regarding your expected availability, coal availability for the rest of the year, is it fair to assume that even with that i-10 outage that as everything kind of goes according to plan that you should be fully recovering or not experiencing a drag from fuel and purchase power of everything that goes according to plan, or will that outage in and of itself result in some under recovery?

Michael J. Chesser - Chairman and Chief Executive Officer

Well the outage is... to answer your question correctly. The outage because it's in the later part of the year, and the lower usage year, we see very little downside necessarily to that issue we've got to place a little bit. But again, that's the right time to do that kind of extended outage. So again I think what we've said is based upon what we expect to be second half performance on average for the year, we're going to be around 80%.

Michael J. Chesser - Chairman and Chief Executive Officer

That a planned scheduled outage, so it was factored into our thinking and our forward look.

Steven Gambuzza - Longbow Capital

I guess the way I was thinking about it was in Kansas you have a fuel clause, right, where it's deferral accounting.

Michael J. Chesser - Chairman and Chief Executive Officer

Right.

Steven Gambuzza - Longbow Capital

So you have an outrage in a resulting higher purchase power cost? You differ that, recover it later. But in Missouri, you have a certain level of fuel and purchase power embedded into rates.

Michael J. Chesser - Chairman and Chief Executive Officer

Right.

Steven Gambuzza - Longbow Capital

And if your actual performance varies from that, then it's kind of your benefit or detriment? Or --

Michael J. Chesser - Chairman and Chief Executive Officer

Right again. Two things, number one, the built into the Missouri rates or plan would be a normalized level of outages. So it's expected to have a certain level of outage that would keep us basically whole. Some years will have less or more than that normalized amount, this might be slightly more.

Steven Gambuzza - Longbow Capital

Okay.

Michael J. Chesser - Chairman and Chief Executive Officer

But again the outages in the fall. So that number one we don't expect prices to be necessarily same they would be in the summer and be a big detriment and number two because of the lower usage during that time of the year, we don't expect to need to replace lot of that. We are planning for, we know it's going to happen and we are managing around it to be sure there is minimal effect.

Steven Gambuzza - Longbow Capital

Thank very much.

Michael J. Chesser - Chairman and Chief Executive Officer

You bet.

Operator

Thank you. [Operator Instructions]. And one moment please for our next question. And we have no further audio questions. I would like to turn the conference back over to management for any closing statements.

Michael J. Chesser - Chairman and Chief Executive Officer

Sure, just to wrap up the messaging here today. I think as you heard us say we have significant construction programs underway that are on target and on schedule. All that is going to lead of course to our growing rate base over the years to come and with that we would expect they would be able to grow earnings, often way our goal is to grow with the dividend. It's a strong regulated rate base growth story, strategic energy's no longer part of the mix, so I think it does take a lot of the uncertainty around the stock way and we look forward to continuing to tell the story and share it with you as we get out in the fall to meet with many of you one on one. Thank you very much for tuning in today and look forward to the seeing you soon.

Operator

Ladies and gentlemen, this concludes the Great Plains Energy second quarter 2008 earnings conference call. You may now disconnect and thank you for using ACT conferencing.

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