Great Plains Energy's (GXP) CEO Terry Bassham on Q2 2016 Results - Earnings Call Transcript

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Great Plains Energy Inc. (NYSE:GXP) Q2 2016 Results Earnings Conference Call August 5, 2016 9:00 AM ET

Executives

Lori Wright - Vice President of Investor Relations and Treasurer.

Terry Bassham - Chairman, President and CEO

Kevin Bryant - SVP, Finance and Strategy and CFO

Scott Heidtbrink - EVP and COO of KCP&L

Analysts

Paul Ridzon - KeyBanc Capital

Chris Turnure - JP Morgan

Steve Fleishman - Wolfe Research

Greg Orrill - Barclays

Paul Patterson - Glenrock Associates

Andy Levi - Avon Capital

Operator

Good day, ladies and gentlemen, and welcome to the Great Plains Energy Q2 2016 Earnings Conference Call.

At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today’s conference is being recorded.

I would now like to introduce your host for today’s conference call, Ms. Lori Wright, Vice President of Investor Relations and Treasurer. You may begin Ma’am.

Lori Wright

Thank you Kevin and good morning everyone. Welcome to Great Plains Energy's second quarter 2016 earnings conference call. We appreciate that you are joining us this morning.

Terry Bassham, Chairman, President and Chief Executive Officer and Kevin Bryant, Senior Vice President, Finance and Strategy and Chief Financial Officer are on the call today. Scott Heidtbrink, Executive Vice President and Chief Operating Officer of KCP&L is also with us this morning as our other members of our management team who will be available during the question-and-answer portion of today's call.

Today’s discussion will include forward-looking information and the uses of non-GAAP financial measures. Slide two 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.

A reconciliation of the non-GAAP financial measures can be found in the appendix. I also want to remind everyone that we issued our earnings release and second quarter 2016 10-Q after market closed yesterday. These items are available, along with today's webcast slides and supplemental financial information for the quarter on the main page of our website at greatplainsenergy.com.

As summarized on Slide three, Terry will provide an overview of our financial highlights for the quarter followed by an update on our anticipated acquisition of Westar, regulatory priorities and a discussion of our strategic plans. Kevin will discuss our financial results and 2016 earnings drivers.

With that, I will now hand the call to Terry.

Terry Bassham

Thanks Lori, and good morning, everyone. I will start my prepared remarks on Slide five. We remained solidly on track in 2016. We delivered GAAP net income of $31.6 million or $0.20 per share compared to $44 million or $0.28 per share a year ago.

While adjusted earnings, which excludes items associated with the pending acquisition of Westar, were $0.55 per share for the quarter. Our strong financial performance was driven by the impact of the retail rates of KCP&L Missouri in Kansas, including new cost recovery mechanisms and warmer weather with cooling degree days, 31% above the second quarter 2015.

Favourable weather impact when compared to normal was approximately $0.08 for the quarter. On a GAAP basis, year-to-date earnings were $0.37 per share compared to $0.40 in 2015. Year-to-date adjusted earnings per share was $0.72. We are pleased with our financial performance for the first half of the year and remain on track to deliver earnings within our 2016 adjusted EPS guidance range of $1.65 to $1.80.

Kevin will discuss the financial results in a little more in his remarks.

Turning next to slide six, we expect our pending acquisition of Westar to drive long term shareholder value in cost savings for customers. Our businesses are a natural fit and we remain as confident as ever about the financial and strategic benefits this combination will deliver. We continue to make progress on the milestones to close the acquisition in the spring of 2017. We’ve been down this path before and know what needs to happen for a timely close and a smooth integration.

In late June, we filed an application with the Kansas Corporation Commission seeking approval for their acquisition. At the federal level we made filings with FERC and the NRC last month. We anticipate filing for Scott -- Hart-Scott-Rodino clearance later this year and expect to receive all the necessary regulatory approvals by the second quarter of 2017.

We are pleased to hear last week, that the SEC has chosen not to review our joint proxy in S4 and expect to conduct our special shareholder meeting late in September.

At its weekly agenda meeting, the Missouri Public Service Commission closed the docket related to the Westar transaction. As anticipated, the Commission did not assert jurisdiction, given the dockets investigation focus. As indicated in prior orders in public statements, the Commission reiterated that they did not view this docket as a form for determining jurisdiction and the Commission staff could file a formal compliant if they believe it was warranted.

As we have said, the law and past precedent [ph] is clear on its issue. The Missouri Public Service Commission does not have jurisdiction to approve this transaction. We appreciate the Commission’s expeditious handling of the docket, and their awareness that the timeline for approval of this matter is an extremely important issue to us.

We remain on track to close the transaction in the second quarter of 2017, and have begun our integration planning to prepare for a smooth transition. As our integration planning work progress however, we remained focussed on strengthening our base businesses through operational excellence clearing top geared customer services and managing regulatory lags.

As slide seven highlights, while we continue to move the Weststar transaction forward, we continue to actively manage existing regulatory priorities on a number of fronts. Our efforts to modernize the Missouri regulatory environment remains at the top of that list and continue to gain traction. Conversation around meaningful reform to the regulatory construct has intensified following efforts in the 2016 legislative session.

After a significant stakeholder indication and rigorous coalition building, we believe there is a growing recognition of the issues facing Missouri’s electric utilities and that now is the time to work together on common sense, regulatory reforms to pro actively address these issues. We are encouraged that the commission recently opened a docket to consider policies to improve electric utility regulations in the state and we are actively participating in that proceeding.

Procedurally, the Commission is expected to file its report on the matter by year-end ahead of the 2017 legislative session. Also, the Missouri Center has formed an interim committee on utility regulation and infrastructure investment. We are encouraged that the committee has promised to review this past year’s utility legislation in Missouri, and compare it with what is happening nationally with trends and utility regulatory policy.

There are commonalities between this committee and the MPSC open docket on utility regulation which may point to a climate more receptive to change that in years past. And we think it is positive the policy makers are actively involved in reviewing these issues. We are hopeful that these activities will result in meaningful regulatory reform in Missouri.

In the interim we will continue our dialogue with stakeholders as we work towards developing legislation to advance it in this session. While we work towards finding pragmatic regulatory reform in Missouri, we will continue to invest, consistent with our existing regulatory frameworks and make active general rate case filings to minimize lag until such changes are materialized.

To that end, in early July we filed our $62.9 million general rate increase in our KCP&L Missouri jurisdiction on approximately $2.6 billion or rate base with a return on equity of 9.9%. The request also included an additional $27.2 million associated with the rebasing of fuel and purchase power expense.

The primary drivers of the requested increase includes new infrastructure investments and continued increases in cost such as transmission and property taxes. New rates are expected to be effective in the second quarter of 2017. We expect the procedural schedule shortly, consistent with the traditional 11 month rate case calendar.

The GMO rate case that we filed back in February remains on schedule for completion by year end. As a reminder, GMOs request increases 59.3 million based on the ROE of 0.9%. In July, we saw Missouri staff file testimony supporting a modest increase and we will continue to work to bring, bridge the gap between the two. We believe opportunities exist to sell key elements to the case. Nonetheless, evidentiary hearings in the case are scheduled to begin in September, and new rates effective by the end of December.

You can find the summary of the Missouri rate cases in the appendix to this presentation. Finally on the regulatory front, consistent with our plan, we will be filing an abbreviated rate case in Kansas by November 2016, the true-up cost for La Cygne environmental project that went into service last year.

Now turning to slide eight, we continue to closely focus on our core strategic priorities, which were managing our existing business, promoting economic growth and improving our customer experience. As we progress towards a cleaner energy future through targeted investments in renewable energy resources and energy efficiency.

Last month we announced the opening of our first utility scale solar power facility in Greenwood, Missouri, located just 30 miles southeast of Kansas City. This 3 megawatt facility represents our first investment in utility scale solar, an operative platform for us to gain valuable experience toward our ultimate goal of increasing our use of solar power as a generating resource.

We currently own renewable energy assets or have commitments in place representing nearly 20% of total generation capacity and we expect almost 44% of our retail energy to come from non-carbon emitting resources on to begin taking energy from the purchase of 500 megawatts of wind energy we announced earlier this year.

We also actively partner and engage with our customers through our company sponsored energy efficiency programs. Our programs continue to advance helping customers save energy while serving as an increasingly reliable generation planning resource.

In fact, we estimate that for the 12-months ended June 30, these programs impacted demand by approximately 0.7%, proving the programs are working as designed as we recover the cost of our programs and the throughput disincentive resulting from these lower sale volumes with potential for incremental performance incentives.

Kevin will discuss demand in a little more detail in his remarks.

Finally, turning to slide nine. The steps we’ve taken over the past several years to reduce our risk profile and tightly manage cost have us well positioned to continue to create value for our shareholders. We have abundant long-term opportunities to invest in our base business while consistently growing our dividend in a way to drive dependable share holder returns.

Our anticipated acquisition with Westar only enhances the earnings power of Great Plains Energy and provides opportunities for even further efficiency, cost savings and investment optimization across the combined company.

Our post transaction long term earnings growth targeted of 6% to 8% long term dividend growth target of 5% to 7% clearly position us to deliver competitive regulatory shareholder return.

Now with that, I’ll call -- I’ll turn the call over to Kevin.

Kevin Bryant

Thanks, Terry and good morning, everyone. I will begin with an overview of our financial performance on Slide 11. As Terry mentioned 2016 is on track with adjusted earnings for the quarter at $0.55 per share compared with $0.28 a year ago.

As detailed on the slide the $0.27 increase for the quarter was driven by new KCP&L retail rates in Kansas and Missouri, warmer weather, new cost recovery mechanism and an increase in MEEIA throughput disincentive.

These impacts were partially offset by lower demand. For the year-to-date period, adjusted earnings per share increased $0.32 to $0.72, driven by several or the same factors impacting the quarter.

The favourable weather impacted results $0.04 in a year-over-year period, when compared to normal weather contributed $0.02 year-to-date. As reflected in our financial results, and not to be taken lightly, the implementation of the fuel recovery mechanism in KCP&L Missouri last fall minimises the margin risk moving forward.

For the 12-months ended June 2016, demand declined 0.4% net of the impact of our energy efficiency program. We continue to experience solid customer growth. Year-to-date the number of customers grew 1% and the second quarter of 2016 marked 21 consecutive quarters of customer growth in our system. This growth is no doubt supported by the continued expansion of the Kansas City economy.

Employment levels are at an all time high, hourly wages are increasing and the unemployment rate is below the national average. And the housing market continues to improve as single family housing starts are at their highest level since June 2007, up 29% year-over-year.

While the number of customers is increasing however, the average use per customer continues to decline due to several factors, including both traditional increases and efficiency and the success of our energy efficiency program. As Terry mentioned, we estimate the impact of our MEEIA program impacted demand approximately 0.7% and we expect this impact to continue.

Recall, we recover the cost of the program and the MEEIA throughput disincentive compensates those for the reduction in sales volume resulting from the programs. Performance incentives are also possible upon conclusion of program [Indiscernible].

We believe our demand calucations are also impacted by weather patterns that deviate from normal. After a mild weather, the first several months of the year this June was the warmest since 1980. While traditional weather normalization estimates incorporate the typical customer response to weather variation versus normal, we believe the unusual weather patterns and resulting customer response during the first half of 2016 have impacted our weather normalization and demand. That said, we continue to project weather normalized demand growth of flat to half percent for the year.

Turning to slide 12 for a view of full year 2016. In terms of the rest of the year when compared to 2015, we have new retail rates and cost recovery mechanisms in KCP&L’s Missouri and Kansas jurisdictions which became effective September 29, 2015 and October 1, 2015, respectively.

And as Terry mentioned, we expect new retail rates for GMO will be effective late December 2016. On the cost front, we remain diligent in managing the operating expenses of our business. As I have stated on our last two earnings call, we expect to see a bit of an increase in O&M year-over-year due to our strong actions in 2015 but remain keenly focussed on continued disciplined performance.

Finally, on slide 13, I’ll provide an update on our financing plans. We remain committed to a solid investment grade balance sheet. Our focus is on minimizing the financing risk associated with the Westar acquisition through multiple risk management techniques. These include 750 million of previously committed mandatory convertible preferred equity and entering into $4.4 billion deal contingent swaps to hedge against interest rate fluctuations on future issuances of long term debt.

Our quarterly GAAP earnings include the non-cash mark-to-market adjustment associated with interest rate movement from the swap through the end of the quarter. The settlements of the swaps will occur at transaction close based upon prevailing rates when the long term debt is issued.

And on the equity front, we continue to evaluate the timing and mix of the remaining 2.35 billion we expect to issue to both minimize risk and optimize overall execution and price. The next several months will be active but our team is diligently working to deliver on our financial commitment.

Thank you for your time this morning. We are now happy to answer any questions you may have.

Question-and-Answer Session

Operator

Operator Instructions] Our first question comes from Paul Ridzon with KeyBanc Capital. Paul?

Paul Ridzon

Yes, can you hear me?

Terry Bassham

Can now.

Paul Ridzon

Sorry about that, I have a weak signal. First, congratulations on the solid quarter. I think it shows the underlying earnings power of the Company when you don't have the lag issues. And secondly, my read on the order yesterday was not so much that the Commission doesn't have jurisdiction but rather that the open venue was not the place to discuss it. Am I reading that wrong?

Terry Bassham

No you are not. I mean, certainly we would have like ultimately for that docket to settle this issue completely. Their technical finding was exactly what you said and then they gave a venue for the staff or anyone else to make a filing if they disagree with our position, but it doesn't change the fact that we made several filing that made it clear that the commission doesn't have jurisdictions.

Paul Ridzon

Do you have any read on what the staff is likely to do next?

Terry Bassham

No, not really, I mean, again I think the commission has said before that it had no interest in slowing down the transaction or causing the time line to be changed. And so outlining what people could do if they had a question. I think it's clear what people could do. What the staff might do? We really don't know. But if they make a filing we'll obviously respond quickly and ask for expedited treatment on anything that's requested.

Paul Ridzon

So yes, yesterday was certainly better than having maybe the Commission say yes, we are going to assert jurisdiction. So, all right, we will stay tuned. Thank you very much.

Terry Bassham

All right. Thank you, Paul.

Operator

Our next question comes from Chris Turnure with JP Morgan.

Chris Turnure

Good morning, guys.

Terry Bassham

Good morning.

Chris Turnure

I was wondering if you have kind of latest thoughts on the timing of your proxy filing. I think you mentioned that the special shareholder meeting would be at some point in September?

Kevin Bryant

Yes, Chris. So this is Kevin. We expect the proxy to get filed within the next couple of weeks. We're pleased that as Terry mentioned that the SEC decided not to review the document which is kind of a nod to the legal and accounting team here at Great Plains Energy. But that said, we expect to get the filed in the next couple of weeks with that shareholder vote date set in late September.

Chris Turnure

Okay, great. And then are you having discussions in the background right now with potential folks that would take another position in preferred mandatories for you? Or is that something that would wait for the proxy and wait for later this year as well, even though you've already done the first tranche of that?

Kevin Bryant

Yes. So, I won't speak specifically to any conversations ongoing, but I will say we're evaluating all our options. And obviously with the shareholder date a little bit earlier than we expected may open up a window to do a little bit more sooner than we expected originally. But we're keeping all our actions on the table as we evaluate our financing alternatives and we'll try to both be opportunistic and manage the risk associated with that financing.

Chris Turnure

Okay. And the only other thing I had was on the quarter having about $0.08 of weather versus normal. You guys are probably trending pretty well within your guidance because of that. Should we expect O&M to be dialed up a bit at some point in the back half if we do have normal weather to offset that or to pull forward some spending from future years?

Kevin Bryant

No. What I would say, Chris, we continue to managed cost. We think – we're not going to response to weather one way or the other. We think managing the business is – managing the cost is a right thing to do. Obviously we're trying to offset some of the transaction cost as well. So no, I wouldn't anticipate any undo or uptick in O&M. We're trying to drive for a strong year this year.

Chris Turnure

Okay. Thanks, Kevin.

Operator

Our next question comes from Steve Fleishman with Wolfe Research.

Steve Fleishman

Hi. Good morning. Hi, guys. Couple questions. First, there was this story about DOJ potentially coming out and wanting to review the merger. Can you give us some color on that and why their interest?

Terry Bassham

Yes. I'll take on the conversation we have and this is a kind of traditional look at two companies in a deal of this size that are connected if you will. So, they've got to look SBP processes which will help I think from that angle. We don't see or hear anything that concerns us and we are – we expect revolution if it fairly quickly.

Steve Fleishman

Okay. Secondly, just on the shareholder vote, your late September that you talked about, would that be for all of the votes, both the Great Plains votes that are required and the Westar vote?

Terry Bassham

Yes. But not having a review of our proxy, it allowed us to move things up little bit, so it would be both the votes that we've talked about before.

Steve Fleishman

Okay. And then just the guidance that the Company had in the S-4 filing for Great Plains, should we -- is it fair to say that would reflect the guidance of the Company as we stand today for the next few years? Standalone guidance?

Terry Bassham

Yes. When you say guidance, I assume you mean the forecast that was included.

Steve Fleishman

That's correct. I'm sorry, yes.

Terry Bassham

Yes. So we provided obviously 2016 guidance and then we provided growth guidance for the five-year period, and we clearly try to explain the folks that we've been working really hard to eliminate this kind of historical soft-tooth nature of our earnings, but that we would still have a majority of the growth on that plane we gave towards the back end when all those cases are filed.

So, as you see that forecast if you will there were flat periods there in the middle. I wouldn't suggest here that we would have been satisfied with that, but that certainly was our forecast, that's a time which supported the ultimate outcome in the rate cases. So, no, I wouldn't say obviously that that would still be our guidance going forward and obviously beginning in 2017 we'll have the transaction closed and there'll be changes as a result of that. So we'll have to give updated guidance if you will on those interim years once the transaction is completed.

Kevin Bryant

Steve, this is Kevin. I'd just reiterate Terry's points, that was a function of a point in time, obviously you guys – as you guys look at that kind of flattish trajectory, its not optimal, we obviously would be working hard in consistent with my response to Chris's question earlier to find ways to continue to earn -- to improve that trajectory. That said, as we know the real material ways to drive the lag is file rate cases and that exactly what we're doing.

Steve Fleishman

Okay. One last question. Just with respect to the Missouri regulation and whether they are going to look to your holdco structure or not. Can you just -- what happens I guess in the GMO case if they continue to want to look to your holdco structure. I assume that's going to happen before the merger closes. How should we look at the implications of that?

Terry Bassham

So, again, Steve, I know there's been some writing on this issue, but there isn't any real precedent in the state of Missouri or Kansas other than our case in the GMO Aquila cases where they've look through the utility to the holdco. We did that. We offered that. And we process that way for several years because we were bringing benefit to the utility by using the holdco structure given that condition that Aquila was in at the time we purchased them.

Other than that, certainly the staff has filed testimony and certainly the staff had set things in some cases recently about that kind of structure, but the Commission has never taken that position or order that. And as I've said before I don't think it makes either common or economic sense for the utility. So as a result of that, I don't think that's something that we're going to have an issue with. I think it makes common sense and legal sense that we would use the utility which is doing the financing capital structure. It's an actual capital structure which historically it’s been the standard in Missouri.

Steve Fleishman

Okay. Thank you.

Terry Bassham

You bet. Thank you.

Operator

Our next question comes from Greg Orrill with Barclays.

Greg Orrill

Yes. Thank you. I was wondering if you could provide a little bit more detail around the throughput disincentive and kind of what you're looking, I don't know if you provided guidance for what you expect for the full year on that regarding the energy efficiency program?

Kevin Bryant

Yes. So, Greg, this is Kevin. We've talked about – so taking a step back, the throughput disincentive really is intended to recover the impact of loss synergy sale associated with our energy efficiency programs. We've talked about previously expecting kind of 0.5% impact on load. We've seen a little bit of increased participation in our current programs given an extension from the end of 2015 through the first quarter of 2016. And so, we saw a little bit more participation and also I think folks were getting some projects in prior to the deadline, so we were up that to 0.7% and that's what we expect to persist for the year.

And so then in terms of what the impact is, I mean, if you think about what we've talked about historically with demand growth, the 1% of demand growth been about a $0.05 to $0.10 per share of earnings impact that can give you a proxy of what a 0.7% impact of load loss due to energy efficiency programs might yield from a ongoing rate perspective.

So, we think that 0.5% to 0.7% impact from EMEA [ph] program is a good expectation certainly for 2016. We obviously evaluate that as we move forward. But it's exactly what we were trying to do when we put those programs in place we recognised it increased efficiency is something that is real and to extent we can pursue programs through our own programs and recover some of that impact, its good for both our customers and good for business.

Greg Orrill

Okay. Thank you.

Operator

Our next question comes from Paul Patterson with Glenrock Associates.

Paul Patterson

Good morning.

Terry Bassham

Good morning.

Paul Patterson

So if Missouri does end up -- just as a hypothetical, obviously, but if they do exercise jurisdictional merger review authority, how should we think about the time that it would take for them to do that? Is there any statutory time frame where they would have to make a decision?

Terry Bassham

Paul, the direct answer of your question is no. In Missouri there is not a statutory time frame, but we are very confident and the Commission has already said in open discussion of the investigation docket, that they have no interest in slowing down the progress in this matter. If you look at what they did in the Empire case, they actually had a shorter time line in Kansas. And I would full expect that it if we end in that situation that there would be a time line established which would allow us to present the case we already prepared in Kansas and keep the same time line and contractual obligations we have. I think we're very confident that that would be their wish. This transaction is good for customers and good for the state of Missouri and there's no reason for them to cause a delay even if they decided they wanted to review it.

Paul Patterson

Okay, that's good to hear. Just if there is a complaint that is filed and I would assume then you guys would do -- there would be counter-responses and what have you, do you have any idea about how long it would be, because I don't -- given how parties have filed these -- their positions in the investigation case, do we have any idea about how long it would take for the Commission, roughly speaking, to come to a determination as to whether or not they were going to pursue the complaint or not, if you follow me?

Terry Bassham

I do. I don't have a specific day count for you. We would obviously respond immediately and ask for expedited treatment and we believe the Commission would us expedited treatment. Again, they have been very clear that they don't want to slow the process down and if there was a possibility of a determination of jurisdiction, therefore the need of the case they would want to move quickly. So we expect that they would quickly allow for interventions and briefing candidly, the staff and we have provided all our briefing and this is a legal issue that's already been briefed and so I would – excuse me.

Paul Patterson

No. I was just agreeing with you. It has been briefed. So it makes sense that would go pretty quickly, I would assume, is what you are about to say.

Terry Bassham

And I think they would. So now is that two weeks or a month, I mean, I don't know, but I would expect the expedited treatment from the Commission.

Paul Patterson

Okay, great. And then, I'm sorry if I'm a little slow on this, but on the sales growth, the 27%, I wasn't clear as to what the 27% that you guys are responsible for that -- what does that translate to in terms of basis points? Or is there -- I apologize; I just wasn't clear about the impact of your energy efficiency, what that 27% meant.

Kevin Bryant

Yes. What I would – I would say, we've talked about there been a 0.7% impact for the year. And so the rule of thumb we've given folks for what the impact of a 1% change in demand is between a nickel and a dime. So, $0.05 to $0.10 per share. So, if we saw 0.5% impact at load, you could use the low side of that range is what the impact would be do to our energy efficiency programs.

Paul Patterson

Okay. But -- so the point to -- when you say 27%, that translates into 0.7%. Is that correct -- of demand reduction?

Kevin Bryant

I'm not following the 27%. We've said.

Paul Patterson

I thought…

Kevin Bryant

Go ahead Paul.

Paul Patterson

I though, maybe I just misheard, it's very possible. I thought you guys said that -- I thought it was -- I wrote it down. Maybe I wrote it down wrong -- that 27% of the demand reduction -- of the energy efficiency that you are seeing is due to programs you took. Did I get that wrong?

Kevin Bryant

Yes. No, we said 0.7%.

Paul Patterson

Okay. Sorry about that guys. That makes lot more sense.

Kevin Bryant

27% might freak me out.

Paul Patterson

I didn't know what it was. I didn't know what the base was; I was confused. Okay, so that explains that. Just finally on the sharp decline in commercial, is there any particular technology or something like LEDs or something that is driving that? Or is there something else going on?

Kevin Bryant

Yes. You got two things going on there Paul, you got exactly, what you describer general energy efficiency based on the federal standards that were put in place probably a decade ago or starting to filter through the commercial segment, so folks are putting in place more efficient lighting, more efficient motors, more efficient HVAC in their commercial buildings.

But important to note, part of what we're seeing is also part of its 0.7% is adoption of energy efficiency with our commercial customers, and so we're recovering that. So we're seeing a little bit of just traditional energy efficiency, but the part that's going through our programs we're getting a little bit of recovery for. So, we're seeing a little bit of both.

Paul Patterson

Okay. Great. Thanks a lot guys.

Operator

[Operator Instructions]. Our next question comes from Adam Levi with Avon Capital.

Andy Levi

Hey, guys. It's Andy. How are you doing?

Kevin Bryant

Andy, good morning.

Andy Levi

Just a few questions. Just back on the merger proceeding in Missouri. So just to understand -- so the next step, if there is one, will be the staff making a filing, right, trying to assert or basically opening a case on the merger, right?

Terry Bassham

Right.

Andy Levi

Okay. And then how would I work where there be like a full proceeding at that point or would the commission first have to allow the staff to move along? So like would there be a ruling and then a full proceeding or just explain to us how that would work?

Terry Bassham

So, Andy, obviously the nature of what happens next would be somewhat depend on what's filed. But what the Commission made clear is if the staff wanted to have a determination of jurisdiction, it needed to file something that would started a contested case. Our expectation is that we would immediately contest the jurisdiction and if that issue would need to be decided before any actual merger approval was started and so that issue would get started first.

And we believe that we could ask for expedited treatment for that that would have to be an allowance probably of time for other parties to intervene since its a contested case, parties would be allow to brief. Although again staff and we have briefed this twice already and we would expect a very quick turnaround for any oral arguments or decision on behalf of the Commission.

If in fact that happened and the Commission at that point determined that it had jurisdiction, we would make – I would anticipate a filing then. We would appeal that decision. So we would appeal the decision because we believe it to be – that will be incorrect. But on the parallel path to keep the timeline moving, we would also file that case that basically we filed in Kansas and get that process started.

And as I've said even with all that we are very confident that Commission has made clear that they don't have any interest in delaying consideration of this matter and we would get it done within the current timeline. We're expecting for the spring of 2017.

Andy Levi

That's helpful. And then, does the staff have a time frame that they must kind of make this filing if they want to get involved or could they can do it kind of any time? Like if they want to wait three months, could they do that or does it have to kind of happen fairly quickly?

Terry Bassham

So, they obviously don't have to make filing and it's in fact after this they've decided that they don't plan to make a filing. They will continue to move forward. I would say that the later anybody would wait to raise this issue, certainly would weigh on the Commission's interest in processing such a request.

Again, I don't believe that the Commission has any interest in delaying this kind of discussion. And if in fact someone had a genuine concern I think that's exactly why the Commission made it clear what their avenue was. And if they waited three or four months I don't think that would be received well by the Commission.

Andy Levi

That's great. Okay. And then just two other questions. Just you mentioned in your when you filed your S-4 that you know obviously there was forecast in there and that was a point in time. What was that point in time?

Terry Bassham

That was our five-year plan that would have been finished in 2015 which based or supported our guidance to the Street at the beginning of this year. Remember that at the beginning of this year we wrapped up what we had given in terms of guidance for the prior period. We have guidance being [ph] forward. That was the basis for that guidance over both growth and earnings and in dividends.

Andy Levi

Okay. And that was before – that was anticipating a GMO filing but not anticipating the second Missouri filing or not?

Terry Bassham

Well, over the full time of the time period it had a several filings, it obviously had the GMO case, it has the Kansas City Fire and Light case, we just filed here currently, but it also had cases filed later in that five-year time period that would have included ongoing investments that we see coming over the next four, five years. As Kevin said, I mean, that was our plan based on the economics and the visual going forward and the economy, and what we saw from rate cases. As you move along we look for opportunities to reduce cost. We look for opportunities for additional growth in the sector. We look for opportunities anywhere we can to improve on that.

Our job is to continue growth. But if you look at the rate case and the structure in Missouri, that was our plan. Remember that any improvement in Missouri would have improved that plan as well. So, we've shown that we're continuing to look for every way to improve on what previously was a pretty tough soft-tooth around Missouri regulation structure. And I think we've continued to improve on that and would continue. In fact, this transaction helps to provide an improvement on that as well through our combined efforts with Westar.

Andy Levi

Okay. And then…

Kevin Bryant

I would be clear on this point. I mean, I think the actions we took last year, getting the fuel cost, getting the cost recovery mechanisms help us closer to earn our allowed return. This management team is absolutely committed to continue to earn closer to our allowed. So Kerry is right, that was a point in time we would have continue to work to try to identify ways to improve.

And we are doing that as we speak both with and hopefully as we move forward to through our integration process identifying more opportunities with the Westar acquisitions. We're excited about the prospect that this team is absolutely committed to earnings close to allowed return. That's why we're active on the legislative front and we will continue to do so.

Andy Levi

Okay. And then the last subject matter I have is just on the financing for the merger. What would be the -- and again, because looking at the proxy and you need to get shareholder approval and all that. What would be the earliest you'd be willing to come to market to start? Again, I think you've mentioned that you would maybe do the financing in some pieces. But what would be the earliest you think you would come to market to start financing this merger?

Terry Bassham

So, probably I would add on that front Andy, just given the timing of the shareholder now being moved up to late September, it most likely we'd wait to after the shareholder vote to do any long-term financing.

Andy Levi

Okay. That's very helpful. I think that's it from me, but thank you very much.

Terry Bassham

Thank you.

Operator

And I'm not showing any further question at this time. I'd like to turn the call back over to our host.

Terry Bassham

Yes. So, just to dog pile, just a little bit on the very end, let me reiterate that we are driving for shareholder value in every corner we can find. And just to restate, we've been managing our O&M down. We've been working with Missouri to improve, the structure of Missouri. We have been filing rate cases to make sure that we're managing our lag as much as we can within a current structure and this transaction is one more step in that process to be more efficient, provide lower cost for our customers, while driving consistent growth in shareholders earnings and returns.

We are very confident and where we are for the year, very pleased with our first half results and we'll continue to work on those and we are very confident and our ability to complete and close this transaction with Westar next spring. And look forward to working to create a great company here in the Midwest. So appreciate your attention this morning, your questions. Look forward to talking to you in the future. Thanks.

Operator

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

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