40 th Annual EEI Finance Conference

Transcription

1 40 th Annual EEI Finance Conference Hollywood, FL November 6-8, 2005

2 Forward-Looking Statements Disclosure The following presentation contains some forward-looking statements with respect to Westar Energy Inc. s ( Westar ) future plans, expectations and goals, including management s expectations with respect to future operating results and dividend growth. The Private Securities Litigation Reform Act of 1995 has established that these statements qualify for safe harbors from liability. Although we believe that the expectations and goals reflected in such forward-looking statements are based on reasonable assumptions, all forward-looking statements involve risk and uncertainty. Therefore, actual results could vary materially from what we expect. Please review our quarterly report on Form 10-Q for the period ended September 30, 2005 for important risk factors that could cause results to differ materially from those in any such forward-looking statements. Any forward-looking statement speaks only as of the date such statement was made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement was made except as required by applicable laws or regulations. 2

3 Management Team Present Jim Haines President and Chief Executive Officer Mark Ruelle Greg Greenwood Kelly Harrison Executive Vice President & Chief Financial Officer Treasurer Vice President Regulatory Bruce Burns Director Investor Relations 3

4 Vertically Integrated Kansas Utility Topeka Kansas Key Operational Facts: 659,000 customers Nearly 6,000 MW of generation 2005 reserve margin 20% 11,000 sq mile service territory 34,500 miles of T & D 2,100 employees Kansas retail market remains fully regulated 4

5 Diverse Customer Base Retail Sales by Class MWh by Year Residential 33% 30 Retail Wholesale 25 Industrial 29% Millions of MWh Commercial 37% Other 1% (1) 2004 TTM Sept 2005 (1) Reflects sale in August 2003 of 10,000 rural retail customers. 5

6 Our Focus Successful rate order Continued improvement in financial strength Operational excellence Attention to customer service Enhanced reliability Efficiency Employee and public safety Expand regulated investment to meet long-term customer needs Generation Environmental improvements Transmission system 6

7 Customer Satisfaction Targets Industry Quartile Performance Target Customer Segments Residential 4th 3rd 2nd 1st Small/Medium Commercial Industrial 3rd 3rd 2nd 1st Large Commercial Industrial/Key Accounts 3rd 2nd 2nd 1st 7

8 Customer Service Initiatives Providing estimated restoration times Virtual Hold Infrared / inspection programs Fuse coordination Improved line clearance 8

9 Improved Customer Service 100.0% Improving Answered Call Rate 97.5% 95.0% 95.3% 92.5% 91.6% 90.0% 87.5% 85.0%

10 Improved Service Reliability Reduced Customer Outages 1.80 Frequency (Occurrences) 180 Duration (Minutes) SAIFI SAIDI

11 Rates & Regulation

12 2005 Rate Review Overview On May 2, Westar filed two rate applications Retail rate review with Kansas Corporation Commission (KCC) By Kansas statute, KCC must issue order no later than December 28, 2005 FERC formula transmission rate Unbundles transmission service from retail rates Consistent with Southwest Power Pool RTO membership Allows for ROE premium Transmission rate effective, December 2005 subject to refund 12

13 Kansas Retail Case Highlights Seeking $84.1 million increase Northern territory $47.8 million, or 9.3% Southern territory $36.3 million, or 6.3% Increase still allows us to retain our regional and national competitive pricing advantage Requested average rates Northern territory 6.0 cents per kwh Southern territory 6.4 cents per kwh Rates remain the lowest in the state Further closes the difference between our Northern and Southern rate areas Proposed difference now less than 7% Was about 32% at the time of the merger Common rate structure and design 13

14 Low Retail Utility Rates Lowest rates in Kansas Below the national average of Cents per KWh National Average Westar Energy North Westar Energy South Empire District Electric (KS) Aquila (formerly West Plains, KS) Kansas City Power and Light (KS) Yellow bar indicates recent and proposed rate increases Source: EEI July 1,

15 Key Calculations in Retail Case KCC jurisdictional rate base of $2.3 billion Excludes $313 million FERC jurisdictional rate base Transmission rate base of approximately $270 million Reduced for rate base credits of $626 million Principally deferred income taxes Requested rate of return summarized (a) % of Capital Component Cost WACC Pre-Tax Common equity 45% x 11.5% = 5.2% 8.7% Debt 55% x 6.6% = 3.6% 3.6% Weighted average return 8.8% 12.3% (a) Summary excludes minor effect of 0.7% preferred stock ratio 15

16 2005 Retail Rate Case Components Key Components of Case (05-WSEE-981-RTS) Fuel adjustment clause with off-system sales sharing Environmental Cost Recovery Rider Transmission formula rate Increase in depreciation rates of $29 million Storm recovery of $49 million over 3 to 5 years Re-match COLI credits and Wolf Creek revenue requirement Asking KCC to reconsider two adjustments adopted in prior case Unamortized gain on LaCygne sale-leaseback transaction Imputed deferred income taxes associated with 1992 merger 16

17 2005 Retail Rate Case Time Line Pre-file notice Company filing Intervention / Interveners filed April May 2 Discovery September 9 Rebuttal testimony October 3 Public Hearings Pre-hearing Conference October 14 Technical hearings October 17 thru November 3 Briefs November 21 Reply Briefs December 1 Decision On or before December 28 Rates implemented (January 2006) Gray boxes indicate completed activities, blue boxes are activities to be completed. 17

18 2005 FERC Filing FERC jurisdictional transmission rate base approx. $270 million Adopt a formula rate approach to: Establish current rates for transmission service Keep rates current with annual adjustment Rate change includes requested ROE of 11.5% plus 0.5% adder Westar - member SPP Regional Transmission Organization Case (ER ) assigned to settlement judge Proposed rates accepted for filing, suspended for five months, to become effective December 2005, subject to refund 18

19 FERC Formula Transmission Rate Regulatory / Strategic Advantages: Streamline regulatory adjustment Potential for premium ROE Line item on retail bill Paves way for improvements to transmission system 19

20 Generation

21 Coal Delivery Issue Westar Energy s coal fleet uses nearly 100% Powder River Basin (PRB) coal delivered by the BNSF and UP railroads Railroads reporting deliveries of PRB coal running 80 85% of normal through year end Westar deliveries have been lengthened but to a lesser extent Westar coal inventories below desired 2 month supply Compensating measures: Curtailing lower margin off-peak wholesale sales Transferring railcars between or among power plants Ordered additional railcars for delivery in early 2006 Ultimate financial impact depends on improving delivery cycle times 21

22 Generating Plant Performance Capacity Factors 100% 90% 80% 70% 60% 99% 81% 75% 78% YTD Sept 2004 YTD Sept % 40% 30% 20% 8% 8% 10% 0% Nuclear Coal 2005 nuclear performance reflects a refuel outage Intermediate & Peaking 22

23 Competitive Low-Cost Generation Portfolio 12 Months Ended Sept 2005 Uranium 15% Energy Generated Gas/Oil 4% Coal 81% $75.00 $70.00 $65.00 $60.00 $55.00 $50.00 $45.00 $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 Fuel Cost by Source $/MWh $4.27 Avg. Fuel Cost: $14.10 $13.26 $70.16 Uranium Coal Gas / Oil 23

24 Capacity Planning Site evaluation for future peaking and base load capacity in process Internal process targeted for completion by year end Additional peaking capacity needed beyond 2008 Project need for base load capacity by middle of next decade Likely coal generation Lengthy time frame for siting, permitting and construction Will consider power or asset purchases as alternative to building Announced agreement to purchase Spring Creek facility 24

25 Spring Creek 300 MW facility located near Edmond, OK Four 75 MW simple-cycle natural gas-fired units Operates with a 75 MW capacity contract with OMPA through 2015 Constructed in 2001 Operated at 98% availability factor in 2002, 2003 and 2004 Approval required from FERC Expect to add plant to regulated rate base in a future rate case 25

26 Load and Capability Forecast 6,000 Total System Capacity 5,000 4,000 3,000 2,000 1,000 20% 18% 17% 14% Capacity Margin System Peak Responsibility Assumes purchase of Spring Creek in

27 Environmental Westar relies significantly on base load coal generation Almost 100% of coal burned is low sulfur, PRB Focused on lowering emissions Stepped up EPA enforcement Open investigation by EPA on notice of violation related to emissions from certain of Westar operated coal plants Settlement discussions continue with EPA and Kansas Department of Health and Environment 27

28 Environmental Estimate up to $660 million of capital expenditures through 2014 Environmental expenditures for LaCygne Station (a) Total. $3.4M $30.9M $24.9M $193.7M $252.9M Capital spending at other facilities depends on outcome of settlement discussions Expect all environmental spending to be qualified utility investments (a) Great Plains Energy, as operator, has received regulatory approval of its Energy Plan which includes environmental upgrades 28

29 Financial Strength

30 Current Capitalization September 30, 2005 (millions) Preferred 1% Common 46% Debt $1,663 Preferred 21 Common 1,465 Total Capitalization $3,149 Debt 53% Long-term capitalization target 50/50 ratio 30

31 Liability Management Long-term debt $1.7 billion as of September 30, 2005 First mortgage bonds $1.0 billion Pollution control bonds $521.3 million Unsecured debt $145.1 million Refinanced $1.3 billion of debt since June 2004 Floating rate debt represents 13% of total debt portfolio Lengthened and smoothed overall maturity profile Weighted average term of 17 years currently compared to 11 years at December 2003 Weighted cost of debt about 5.5% today 31

32 Investment Considerations

33 Dividend Policy 2004 dividend payout ratio 51% Target 60% to 75% payout of ongoing earnings 2005 ongoing earnings may result in ratio at lower end of range Next dividend review planned for early

34 Growth Opportunities Intrinsic growth Estimated 1% customer growth translates to approximately 2 to 3% retail kwh growth Wholesale marketing Environmental investment Generation supply plan Transmission system enhancements 34

35 Investment Highlights Pure utility / constructive regulation Diverse customer mix / below average utility rates Reliable, low-cost generating assets Stable environment Attractive dividend policy Good growth opportunities 35

36 Appendix

37 Regulation in Kansas Three Commissioners appointed by governor (no more than 2 from same political party) Term Ending Brian Moline, (D) Chairman March 15, 2006 Robert Krehbiel, (D) March 15, 2007 Michael Moffet (R) March 15, 2008 Commission staff combination of appointments and civil service positions Staff of 46 in the utilities division Common interveners in Kansas regulatory process Citizens Utility Ratepayers Board (CURB) Industrial and commercial groups 37

38 Coal Supply Westar-operated plant supply (80%) 75% under contract through 2020 (10+ MM tons/yr) 70% has no market openers 30% reopened on price every 5 years Next reopening in 2008 All volumes have cost escalators 25% under contract until (3.5 MM tons/yr) 100% at fixed price or capped through % at fixed price or capped through 2009 Co-owned plant supply managed by GXP (20%) Fixed price volumes under contract % 90% 70% 35% 38

39 Mark-to-Market of Coal Supply Contract Coal supply contract for Lawrence and Tecumseh Energy Centers requires mark-to-market accounting through the income statement $100 $90 $91.1 Mark-to-market Gains (in Millions) $80 $71.3 $70 $60 $50 $40 $30 $25.5 $20 $12.2 $10 $3.9 $0 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Implementing a fuel adjustment clause would: Eliminate income statement recognition of the mark-to-market valuation, with off-setting regulatory asset/liability Require reversal of previously recorded mark-to-market gains / (losses) 39

40 Resolution of Legacy Issues August 19 Federal Election Commission settlement August 26 KCC issued order closing debt reduction docket September 1 Proposed settlement of securities class action and derivative lawsuits accepted by the court Open issues: ERISA class action lawsuit Arbitration claim against former management Department of Labor inquiry 40

41 Ongoing Earnings 3 rd Quarter 2005 Consolidated Earnings and Earnings Per Share Three Months Ended September 30, 2005 (Unaudited) Earnings Earnings Per Share Reconciliation of GAAP to Non-GAAP Earnings Available for Common Stock $ 84,233 $ 60,127 $ 0.97 $ 0.70 Special Items (After-tax): Discontinued operations Investigation/litigation expense (2,252) (2,557) (0.03) (0.03) RSU vesting for former management Loss on debt retirement Write-off plant operating system development (2,134) - (0.02) - Total Special Items (4,386) (2,557) (0.05) (0.03) Ongoing Earnings Note (a) $ 88,619 $ 62,684 $ 1.02 $ 0.73 Average equivalent common shares outstanding 86,950 86,059 Ongoing earnings is a non-gaap (generally accepted accounting principles) financial measure that differs from GAAP earnings because it excludes the effect of special items. Westar Energy provides ongoing earnings in addition to GAAP earnings because it believes this measure provides investors with a useful indicator of results comparable between periods because it excludes the effects of special items that may not recur or may occur on an irregular or unpredictable basis. Management uses ongoing earnings to provide a more meaningful view of Westar Energy's fundamental earnings power. This measure is used internally with management and the board of directors to evaluate business performance. NOTE (a): Ongoing earnings includes mark-to-market gains on fuel supply contracts of $45.8 million, or $0.32 per share, and $3.8 million, or $0.03 per share for three months ended September 30, 2005 and September 30,2004, respectively. 41

42 Ongoing Earnings YTD Sept. 30, 2005 Consolidated Earnings and Earnings Per Share Nine Months Ended September 30, 2005 (Unaudited) Earnings Earnings Per Share Reconciliation of GAAP to Non-GAAP Earnings Available for Common Stock $ 127,240 $ 89,300 $ 1.47 $ 1.09 Special Items (After-tax): Discontinued operations - 6, Investigation/litigation expense (6,090) (7,265) (0.07) (0.09) RSU vesting for former management - (2,750) - (0.03) Loss on debt retirement - (11,346) - (0.14) Write-off plant operating system development (2,134) - (0.02) - Total Special Items (8,224) (14,473) (0.09) (0.18) Ongoing Earnings Note (a) $ 135,464 $ 103,773 $ 1.56 $ 1.27 Average equivalent common shares outstanding 86,784 81,849 Ongoing earnings is a non-gaap (generally accepted accounting principles) financial measure that differs from GAAP earnings because it excludes the effect of special items. Westar Energy provides ongoing earnings in addition to GAAP earnings because it believes this measure provides investors with a useful indicator of results comparable between periods because it excludes the effects of special items that may not recur or may occur on an irregular or unpredictable basis. Management uses ongoing earnings to provide a more meaningful view of Westar Energy's fundamental earnings power. This measure is used internally with management and the board of directors to evaluate business performance. NOTE (a): Ongoing earnings includes mark-to-market gains on fuel supply contracts of $71.1 million, or $0.49 per share, and $3.4 million, or $0.02 per share for nine months ended September 30, 2005 and September 30,2004, respectively. 42

43 Westar Energy Investor Contact Bruce Burns Director Investor Relations