Westar Energy, Inc. (NYSE:WR) Annual Shareholder Meeting May 16, 2013 11:00 AM ET
Charlie Chandler – Chairman
Mark Ruelle – President and CEO
Jim Ludwig – EVP of Public Affairs and Customer Services
Michael Contrera – Deloitte & Touche
Well good morning to everybody on this beautiful, beautiful day. I am glad to see so many smiling faces. I would say that yes, I try to be accurate time wise that in trying to do that I keep my watch about 3 minutes fast. And I would like to say that makes me be on time all the time but it doesn’t. But anyway, so thank you for joining us this morning. I am Charlie Chandler and I’m the chairman of the Westar Energy board.
On behalf of the directors, I would like to welcome you to the 2013 meeting of the shareholders of Westar Energy. We certainly appreciate both your investment and your interest in joining us at the meeting here today. And with me on stage is of course, Mark Ruelle our president and chief executive officer and also the only member of management who serves on the board of directors.
I’d also like to introduce the other members of the board all of whom are seated in front – here in the front row on this side. Right now, here we go – what a good looking group. From left to right in the photo, Sandra Lawrence of Leawood, the next Richard Hawley of Bellevue Washington, Art Krause of Leawood, Jerry Farley of Topeka, myself, Tony Isaac of Wichita, Mark Ruelle, Carl Soderstrom Jr. of Longwood, Florida, Mollie Carter of Salina, R.A. Edwards of Hutchinson and Mike Morrissey of Leawood. So that gives you an idea of the group that we have on the board and that we have a pleasure of working with.
Our executive team is also seated on this side of the front of the room. Also joining us today is Michael Contrera, the engagement partner and his colleagues from Deloitte & Touche. I see Michael right here. And they are independent accounting firm as I believe you know.
Well let’s begin our business meeting and vote on the proposals outlined the proxy statements. Following the business portion of the meeting, Mark will make a few comments about the year and we will then take questions and comments and respond as appropriately.
Our business meeting is now called to order. I have been provided an affidavit of a proper mailing of the proxy, the common shareholders of record as of March 18, 2013 and that a quorum is represented at the meeting. Most of you have already voted. If this is the case you don’t need to cast the ballot during the meeting this morning unless you wish to change your vote. If you have not yet voted or wish to change your vote, please raise your hand and a ballot will be provided to you. Who needs a ballot this morning?
Okay. Looks like we are in good shape. While they would be collected I guess we don’t need any this morning. So we are particularly efficient group. We engage corporate election services to act as the independent proxy tabulator for this meeting. Mr. Check Roberts, got you on the back of the room from Corporate Election Services has been appointed to serve as judge of this election and is present here.
The purpose of the meeting is to elect three Class II directors for a term of three years, to provide an advisory vote on executive compensation and to ratify and confirm the appointment of Deloitte & Touche as our independent public accounting firm for 2013. The first business matter proposal one is the election of three Class I directors. The board’s nominees are Richard L. Hawley, B. Anthony Isaac and S. Carl Soderstrom, Jr. Information about each director is contained in the proxy statement.
Our company’s articles and incorporations, the last shareholders made nominations from the floor of the annual meeting provided prior written notices as made to our corporate secretary. No such notice was received and therefore as there are no other nominations I will declare that these nominations are closed. The board has recommended that you vote for Mr. Hawley, Mr. Isaac and Mr. Soderstrom.
The next business matter proposal number two is an advisory vote on executive compensation. The board has also recommended that you vote for this proposal. The last business matter consider proposal three is the ratification and confirmation of Deloitte & Touche as our independent registered public accounting firm for 2013. And once again the board has recommended that you vote for that proposal as well.
So I guess since everyone has voted and satisfied, and that’s very good. Then I will declare the polls closed for each matter voted upon at this meeting. And we will call on Mr. Roberts to give us a report.
I have a preliminary report for each proposal. On proposal one, each of the nominees received 99% of the votes cast in favor of their election. On proposal two, 92% of the votes cast approved the compensation of the named executive officers and on proposal three, 99% of the votes were cast to ratify and confirm the appoint of Deloitte & Touche as the company’s independent registered public accounting firm for 2013.
Thank you. Well, based on this report of the results, I declare that Mr. Mr. Hawley, Mr. Isaac and Mr. Soderstrom have been appropriately elected Class II directors of the company and the other proposals as outlined by Mr. Roberts have been approved by vote of the shareholders as recommended by the board. The final voting results will be posted in our file with the Securities and Exchange Commission by the close of business next Tuesday.
Well this then concludes the business portion of the 2013 annual meeting and it will stand adjourned. Before I hand things over to Mar, I just wanted to talk for a moment about your management here because they are a wonderful group.
2012 was a good year by many years that didn’t keep the management team from continuing to explore ways to bring our more efficiencies from operations and better position the company for the future, because as many of us know if there’s uncertainties ahead of us that we are going to have to deal with in every type of business and every walk of life.
Through these efforts they were able to identify more than 16 million in additional reduced operating costs without impacting the liabilities and customer service. It’s that leadership and that drives for continual improvement that will better position Westar to be a solid performer for many years to come.
So with that introduction, I am pleased to introduce Mark Ruelle to tell you more about the progress of our company in 2012 and some of the plans that we have for this year as well. Mark?
Well, good morning and welcome. Thank you for joining us this morning and for your interest in Westar Energy. It’s always nice to recognize among our shareholders and many former employees as well. Well thank you for your interest and I will give you an update from more perspectives (ph). It gives me great pride to share with you how your company is growing and changing.
First, let’s get the technicalities out of the way, because Westar is subject to securities regulations as a public company and we’re going to today talk about your investment, please consider these forward looking statements that basically says that when we talk about things in the future it might turn out differently as this kind of a nature forecast.
Feels like to celebrate getting older other than maybe a few Hollywood stars and their amazing plastic surgeons we find no way to slow the aging process. But when it comes to a company, years are something that we are celebrating. Especially when the company has for more than a century providing a product that is advanced for a society, I would argue more than any other. Up until the last century for all time before, night was synonymous with darkness, now not much happened at night.
Electricity changed all that. Businesses were able to operate around the clock. Students were able to take night classes. Entertainment, recreation, all things that were limited by daylight hours made possible by electricity. An interesting note, it was actually our company’s kilowatt hours that illuminated the first regulator night game in organized professional baseball that was in Independence, Kansas 1930.
Our predecessors had the foresight that an electrified society was a great thing and those that enabled it made on a great return on their investment. And I doubt they would have imagined just how dependent our lives would become on electricity and they couldn’t have dreamed just how much in one home we could electrify for so little relative cost.
Let me give you an illustration. Most of our customers today spend less per day on their home’s entire electrical needs than the cost of a single gallon of gasoline. Another perspective, with electricity they could enjoy the comforts and conveniences of their home for 24 hours, they are about the cost of driving the car for 30 minutes. If only our predecessors could have seen the path they sort of had filmed and that that would lead to a strong 21st century company today. One that provides comfort, convenience and productivity.
Westar success is built on a simple belief and – if we take care of our customers, our shareholders will be rewarded and our community is brighter, safer and more productive places to live in the world. Our employees work behind the scenes to produce cooling usually with little regard and that’s okay. That’s okay, boring is good. And surprisingly it’s really hard to get it that way sometime. They just keep plugging away, taking care of our customers and showing that Kansas communities continue to have safe, reliable electricity. You might not think about it but we have a little role in saving lives and protecting the safety in our community.
Reliable service is what keeps our customers’ machines running and their products running down the line even throughout the night. It’s important in attracting new industry to Kansas. New and growing businesses provide more jobs and that helps spread the fixed cost, the heavy fixed cost of an electrical grid across a larger customer base. So we will roll out the welcome mat and help do our part to keep the Kansas economy competitive.
Some recent successes, Mars Chocolate, making M&Ms and other candies don’t create 200 jobs in Topeka, very shortly. Diary plastics in Loraine, you might not have heard of them but you use the products. They do plastic ware for restaurants including McDonalds. They have doubled their production over the last five years and recently even added some facilities right between here in Loraine. Sugar Creek Packing, this is an innovative company in front of that Kansas without East Kansas who usually say they are enormous microwave to cook bacon. They have doubled the size of it in just the past three years.
Incidentally I just read last week that bacon for every meal is a key to a long life. Now I know we are not closed to believe everything we read but on this one, I might. Our lives are so intertwined with electricity we don’t even give it a second thought. We know that to maintain that level of unconscious dependence and ensure a healthy electrical system for our kids and our grandkids, for that we need to invest in the future and invest in our infrastructure. Our space and our community’s electrical infrastructure is too important to take chances with or they just kick the can down the road.
So even when it might seem costly and unpopular we take a long view and make thoughtful decisions today that will benefit others long into the future and long after many of us are gone. Here in Topeka we are upgrading a system built over a half century ago. At that time want to make a court or not in the cow pastures. One sure thought to Topeka today shows that while our electrical infrastructure has served us well, it’s now outdated and no longer meeting the needs of our communities. So we are replacing several 1950’s era substations with the one state of the art substations that incidentally will also serve as an educational center for Kansas school children as they learn how electricity works. Perhaps some of those students might be inspired to study extra hard and pursue an engineering career with that local utility.
These improvements are part of the $150 million overall infrastructure plan for Shawnee county, able to give Topeka an enviable electric grid for decades to come. Of course, it’s not just Topeka. We are working on a number of other regional transmission projects as well to strengthen our stage grid to improve reliability and security and to give us access to more diverse electricity. We live in the communities that we have a privilege of serving. So we have an extra incentive to ensure our communities are great places, healthy places to raise our kids and grandkids. An example is how we safeguard the environment.
We’ve cut emissions the things that can contribute to acid rain and smog by other two-thirds. Even our carbon dioxide emissions were down 20% and for all the hub and finger pointing from Europe the last few years they are not even close to meeting their goals. Cleaning up the air requires that we use water. But rather you use chemicals to treat that water after it’s done its job, at Jeffrey Energy Center, we are serving the mother nature. By building a wet rain where the plants clean up the water and return it to nature safe.
The gold age of electricity was during the baby boomers and so it’s not surprising that many of our utility workers are baby boomers. We are told that about 10,000 US baby boomers turned 65 every day and many of us are now moving on to the next phase of life. We’ve got tremendously talented employees throughout the years, I am looking at some of you right now. It’s bittersweet, but we are getting our feel of retirement case as we bid farewell to so many employees each year. So we need to attract the best and the brightest to carry on this work. We want to keep our young and talented kids in Kansas by encouraging regular studies and then providing them best well paying job a lot of which require less than a four-year college degree.
Our electrify your future program just high school student’s exposure to careers in the utility industry with a focus on the technical trades. Most of them at this perspective at our William E. Brown professional development center right here in Topeka. Two, we think – every time we pull in there, remember what you did for our company. So thank you for letting us name it after him.
We built it to keep our people sharp and well practice and teach them about new technology and equipment and most importantly how to work safely. But with the blades that equip the pumps, motors, valves and all kinds of electrical equipment, it also gives students a glimpse into the possibilities of the career in the electric utility industry. Thinking of safety I would like to brag about our employees a little bit. 2012 was our safest year ever. Let me put that in perspective.
More than 600 people operating and supporting our power plants went an entire year without a single accident. If you have been around power plants, you know they are heavily industrialized environment. Things spin, things can pressure, things that heat, with lots of elevation, that can be dangerous places. Our employees know how to use them and use them safely. Bruce Dickens, who is our vice president of power delivery operations just shared with me this week that we just passed the six months mark for alignment with no injuries. That safety performance places Westar among top industry leaders. It’s our firm belief and conviction that the habit and focus and attention that it takes to deliver those safety results, they will also help our employees do their job better and more efficiently.
A leading industry publication recently awarded Westar for having the best maintenance reliability program for power plants. You probably didn’t see this one of the news stand. But it’s a big magazine for us. This program in which we predict and prevent more costly problems down the road has been so successful that we are now taking those same techniques into our transmission and substation operations. Because of the nature of our business each time we did a hole to plant we find ourselves close to our communities. We could only be as strong as the people that we serve. So we don’t just serve the electricity needs of our communities, we volunteer our time and talent as well.
70 Westar employees helped lead local organizations by serving on board. Many, many more employees and retirees gave 63,000 volunteer hours last year to our communities, that’s equivalent of 30 full time employees helping in our communities. A family financial resources are more precious than ever. Our customers depend on electricity to keep the nightlight life to keep the booking there in a way, or to cool their homes on hot summer days, to clean the dishes after dinner or to light those homework assignments at the kitchen table. In all these we can help make sure our customers use our energy dollar wisely. They love selling electricity but as I said we don’t want anybody to waste, we are in this together.
We have employees who have experienced to guide customers through the expanding options of light ball. And what’s the best choice based on the application and function? Initiatives like our watt saver program helps customers better understand and manage their energy use and it also helps us to manage our costs by reducing the number of power plants that we need some of which we only need for a few hours on hot summer days. Our product and services folks introduced that technologies that make customers’ life better and enhance our environment. Just one example, Excel, a company has in Kansas, manufactures the world’s first zero turn electric lawn mower, recognized by Popular Mechanics as the top 10 innovation. Never underestimate good old Kansa ingenuity.
But from across the globe innovative technologies are making customers’ life more productive, more connected, more convenient and even more fun and nearly all of them are powered by electricity. We can no more imagine all the future uses of electricity that Edison could have imagine iPad but I am certain electrical innovations will continue to be a bright spot for our investors even in the midst of uncertainty. Of course which we will play.
We could do nothing for our customers without your continued trust and confidence. So thank you. We know our shareholders rely on their Westar dividend for a significant portion of their expected return on investment. Strong earnings last year gave your Board of Directors confidence to again raise the dividend for the ninth consecutive year. The past few years have taught us that there are few guarantees in life particularly when it comes to investing. So we are taking that same steady as she goes approach that I mentioned earlier making wise investments, managing our expenses to help create an island of stability amidst these uncertainties.
After terrific stock market performance in 2011, last year investors kind of pulled away from utilities. Most utilities including Westar saw only modest stock price appreciation. We started the year at 28.35 per share and ended at only slightly higher at 28.62 per share. But even with that modest price appreciation when they added to the dividend that we paid still resulted in a respective 4.1% total shareholder return. Looking over the longer term the Westar investment has performed pretty well compared with to other utilities.
I am sure most of you have also noticed that we started 2013 on a good note. We were up 18% year to date. Now I wish we can take the credit for this at this meeting and report those results but alas you will have late till next year and cross your fingers, hope that continues. With your support we have been able to accomplish great things. In the last few years, we have nearly doubled our assets and more than doubled the value of all of our shares outstanding. And we did this by deliberately and directly going above the business of keeping the lights on and the power flow in Kansas. That’s our only business.
We value your trust in Westar. Some 20,000 Westar shareholders are also friends, neighbors and relatives that live right here in Kansas. You have entrusted us with your hard earned savings, whether that’s retirement saving, or savings for your children’s or grandchildren’s education, it’s the responsibility we take very seriously and we appreciate your continued support. Westar is a home grown company, for more than a century, we are proud to be part of what made Kansas a great place to live in the world. So thank you for your continued investment and confidence in Westar Energy.
At this time, we’d like to open the floor for questions. We have microphones in each of the aisles. If you’re kind of boxed in and feel you might not be able to get one, just raise your hand and we will bring one to you. And the executive team and I will do our best to address your questions or comments.
Good morning. My name is Ron Darkin. You’ve had a program for a while where you offered program that will firm assess, free of charge to customers and in return you were able to adjust the power use during peak times, wonder just if you speak to how successful that program has bee.
Thank you for your question Mr. Darkin. That’s called the watt saver program and it’s just as you described it. We offer to our customers free of charge a very nice and well-functioning program with thermostat that allows them to adjust their energy use at different times of day and based on the circumstances and schedule of the day. So for example, if they are off to work or out to lunch they can automatically adjust the thermostat without having to peddle with it and save energy. But one of the five benefits of that is in exchange for that there are periods of time, three periods of time where the demand on our system is at an time peak, then remember what I mentioned, some of our power plants – we built our electrical system like in church the size of the fuse for Easter Sunday. You have to have enough for everybody even if they only use it for a little bit of a year, and that system allows us to cycle the air compressor for a few minutes, every hour on those just peak periods.
Our customer response rate on that I think is like a 95% satisfaction, Jim, is that correct? Yeah and so they don’t even notice when we are doing it but it helps us save money and help them save money. It’s actually been a remarkable program. And of course there are nice features that, if you are hosting a graduation party and there is really hot day, you could opt out of that in case you have any concerns that your guests might notice that. But frankly our guests or our customers told us they don’t even notice when we were doing it. We might do it a few times a year. We have tens of thousands of them but I don’t know the current number Jim Ludwig, executive vice president of public affairs and customer services I suspect has a pretty good answer.
Currently we have about 50,000 thermostats being sold in customers’ homes and businesses. That’s about 50 megawatts of peaking capacity equipment. So if you went past our energy center at Emporia we have a small set of aerodynamic, aeroderivative units, it’s 50 megawatts is directly the equivalent of one of those units. So it’s a very good deal for us and it’s been a very satisfying experience for our customers.
And to put that in perspective, Jim said we had 50,000 of them, we have about 650,000 plus or residential customers.
That’s understandable. It’s obviously the volunteer program, your opinion of it is much like most they like it. They don’t notice it when it’s activating that can’t tell you what it is but we also understand that there are some people that say I don’t care for that program. But I’m surprised your testimonial isn’t enough to convince.
Thank you for your idea. Any other questions or comments?
I think anyone has been paying attention would agree that EPA under the current administration is coal industry and its size, especially with regard to coal mining. But I would like to know is what do you the effect is going to be sort of the regulation of the generation, and see how what’s like on expanded generating capacity for Westar and current capacity and particularly with regard to using coal for generation of electricity.
That’s a great question. I am trying to – to find something that will be useful for you that doesn’t involve your missing launch.
You are correct. The current path of environmental regulation is not favorable to coal but the fact is half of the electricity in this country approximately is produced with coal. So they aren’t ready and available substitute for that much electricity generation. So how do we approach that? Maybe it’s age, maybe it’s pragmatism, maybe it’s experience but we have come to a conclusion, we can’t predict future. And what the causes us to do is take us an approach of the diverse energy supply so that you will probably never be able to hear us, brag about how much smart we’re forgetting it’s just right. And I hope you never after you hear us apologize we are getting a 100% wrong. We continue to use all forms or major forms of producing electricity, coal, uranium, natural gas and a growing source of renewable energy. And we have a commitment to that diversity because we think it’s best for our customers as they would show them, as it leaves them in the dark, and we think that’s best for our shareholders.
Now with regard to coal, we have much more flexibility in how we generate electricity today than we did 10 or 15 years ago. We haven’t built a coal plant since the reg administration. But they still remain an important part of the electricity supply for our customers. More recently in the past few decades we built mostly natural gas and wind energy plants. But through this, the amount of electricity we produce hasn’t changed that much from those different sources, coal still remains a relatively inexpensive way of making electricity, even after considering the additional costs that it takes and the additional measure we have to put in place to keep the air cleaner and the water clean. So even with significant investment $1.5 billion to make our coal plants ever cleaner they still remain a viable and economical source of generation and remains a significant part of our generating portfolio. But it’s not the only thing we rely on. And neither would we say well let’s scrap those and put everything in natural gas, let me comment just a bit on natural gas.
You pick up the paper and we hear about amazing technology of horizontal drilling in shale formations. And it’s remarkable. It’s revolutionary. But natural gas is still a relatively volatile fuel source when you compare to coal. Let me give you an illustration. Today natural gas is a little over $4 a dekatherm, last year at this time we had that. Five years ago it was three times that. During that period coal kind of just hang in there as a fairly stable cost price, so another source of energy. So one of the things that having a diversified – that keeps our customers being with us by rapid changes in volatility of the price of any particular fuel. But it means it will never be all right and hopefully we will never be all wrong.
As I said, -- the executive team and I will hang around after the meeting for – with any of you that want to have a deeper conversation on any of the subjects. I know it looks simple as a light switch but believe or not, we have a lot going on behind it. So – are there other questions or comments?
Well, if not, thank you very much for joining us today. As I said if you have additional questions or comments we will be delighted to address them with you after the meeting. Have a great day. Thank you for coming.
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