Evergy Inc

Previous wording

The following MD&A generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 can be found in MD&A in Part II, Item 7, of the Evergy Companies' combined annual report on Form 10-K for the fiscal year ended December 31, 2022.

Current wording

The following combined MD&A should be read in conjunction with the consolidated financial statements and accompanying notes in this combined annual report on Form 10-K. None of the registrants make any representation as to information related solely to Evergy, Evergy Kansas Central or Evergy Metro other than itself. The following MD&A generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 can be found in MD&A in Part II, Item 7, of the Evergy Companies' combined annual report on Form 10-K for the fiscal year ended December 31, 2023 and are incorporated herein by reference.

Previous wording

Evergy Kansas Central, Evergy Kansas South, Evergy Metro and Evergy Missouri West conduct business in their respective service territories using the name Evergy. Collectively, the Evergy Companies have approximately 15,600 MWs of owned generating capacity and renewable power purchase agreements and engage in the generation, transmission, distribution and sale of electricity to approximately 1.7 million customers in the states of Kansas and Missouri. The Evergy Companies assess financial performance and allocate resources on a consolidated basis (i.e., operate in one segment).

Current wording

Evergy Kansas Central, Evergy Kansas South, Evergy Metro and Evergy Missouri West conduct business in their respective service territories using the name Evergy. Collectively, the Evergy Companies have approximately 15,800 MWs of owned generating capacity and renewable power purchase agreements and engage in the generation, transmission, distribution and sale of electricity to approximately 1.7 million customers in the states of Kansas and Missouri. The Evergy Companies assess financial performance and allocate resources on a consolidated basis (i.e., operate in one segment).

Previous wording

Evergy expects to continue operating its integrated utilities within the currently existing regulatory frameworks and is focused on empowering a better future for its customers, communities, employees and shareholders. The core tenets of Evergy's strategy are as follows:

Current wording

Evergy expects to continue operating its integrated utilities within the currently existing regulatory frameworks and is focused on enabling economic development across all of its service territories to strengthen the communities it serves and meet customer electric demand growth through the continued evolution of its generation, transmission and distribution systems. Evergy will remain focused on consistently delivering on its affordability, reliability and sustainability objectives and delivering competitive long-term returns to shareholders, including growth in earnings per share and targeting a 60% - 70% dividend payout ratio. The core tenets of Evergy's strategy are as follows:

Previous wording

•targeting approximately $12.5 billion of expected base capital investments through 2028 including new generation of approximately $2.9 billion which is expected to be primarily renewable and other generation. See "Liquidity and Capital Resources; Capital Expenditures", for further information regarding Evergy's projected capital expenditures through 2028;

Current wording

•targeting approximately $17.5 billion of expected base capital investments through 2029 including new generation of approximately $6.2 billion which is expected to be primarily renewable and natural gas generation that will help enable historic economic development opportunities in Kansas and Missouri. See

Previous wording

In February 2024, Evergy Missouri West filed an application with the MPSC to request an increase to its retail revenues of approximately $104 million. Evergy Missouri West's request reflected a return of equity of 10.5% (with a capital structure composed of 52% equity) and increases related to the recovery of infrastructure investments made to improve reliability and enhance customer service and the inclusion of costs related to Dogwood Energy Center (Dogwood) and Crossroads Energy Center (Crossroads), two natural gas plants. New rates are expected to be effective in January 2025.

Current wording

In February 2024, Evergy Missouri West filed an application with the MPSC to request an increase to its retail revenues of approximately $104 million. Evergy Missouri West's request reflected a return on equity of 10.5% (with a capital structure composed of 52% equity) and increases related to the recovery of infrastructure investments made to improve reliability and enhance customer service and the inclusion of certain costs related to Dogwood Energy Center (Dogwood) and Crossroads Energy Center (Crossroads), two natural gas plants.

Previous wording

In February 2024, Evergy Missouri West, staff of the MPSC and other intervenors reached a unanimous stipulation and agreement recommending the MPSC grant Evergy Missouri West a CCN, subject to the terms and conditions included within the agreement. Among these terms and conditions, Evergy Missouri West shall be allowed to recover in rates a return of and return on the original cost, net of accumulated depreciation, of Dogwood. Evergy Missouri West shall also be allowed to recover in rates over two years a return of, but not a return on, the amount of the purchase price paid in excess of the original cost, net of accumulated depreciation, of Dogwood. In addition, net revenues generated from Evergy Missouri West's ownership of Dogwood from the date of closing to the date new rates become effective in Evergy Missouri West's current rate case shall not impact rates and shall be retained by Evergy Missouri West and reduce the amount of the purchase price paid in excess of the original cost, net of accumulated depreciation, of Dogwood to be recovered from customers. A decision by the MPSC and the closing of the transaction are expected by the end of second quarter of 2024.

Current wording

In April 2024, Evergy Missouri West purchased a 22% ownership interest representing approximately 145 MW in Dogwood, an operational combined-cycle natural gas facility located in Missouri, for approximately $60 million. The purchase was recorded as an asset acquisition to property, plant and equipment, net, on Evergy's consolidated balance sheet. The purchase was subject to terms and conditions listed in a stipulation and agreement approved by the MPSC allowing Evergy Missouri West to recover in rates a return of and return on the original cost, net of accumulated depreciation, of Dogwood. Evergy Missouri West shall also be allowed to recover in rates over two years a return of, but not a return on, the amount of the purchase price paid in excess of the original cost, net of accumulated depreciation, of Dogwood. In addition, net revenues generated from Evergy Missouri West's ownership of Dogwood from the date of closing to the date new rates become effective in Evergy Missouri West's current rate case shall not impact rates and shall be retained by Evergy Missouri West and reduce the amount of the purchase price paid in excess of the original cost, net of accumulated depreciation, of Dogwood to be recovered from customers.

Previous wording

Wolf Creek Refueling Outage

Current wording

Wolf Creek Refueling Outage and Fuel Supply

Previous wording

Wolf Creek's most recent refueling outage began in October 2022 and the unit returned to service in November 2022. Wolf Creek's next refueling outage is planned to begin in the first quarter of 2024.

Current wording

Wolf Creek's most recent refueling outage began in March 2024 and the unit returned to service in May 2024. Wolf Creek's next refueling outage is planned to begin in the fourth quarter of 2025.

Previous wording

The following table summarizes Evergy's net income and diluted earnings per common share (EPS).

Current wording

The following table summarizes Evergy's net income and diluted EPS.

Previous wording

•an $11.7 million decrease in pension non-service costs; partially offset by

Current wording

Net income attributable to Evergy, Inc. increased in 2024, compared to the same period in 2023, primarily due to new Evergy Kansas Central retail rates effective in December 2023, the recognition of a $96.5 million regulatory liability in the third quarter of 2023 for future refund of amounts of revenues previously collected from customers related to COLI rate credits, higher transmission revenues and lower pension non-service costs; partially offset by higher taxes other than income tax, depreciation, interest, income tax and operating and maintenance expense and lower investment earnings in 2024.

Previous wording

Diluted EPS decreased in 2023, compared to 2022, primarily due to the decrease in net income attributable to Evergy, Inc. discussed above.

Current wording

Diluted EPS increased in 2024, compared to the same period in 2023, primarily due to the increase in net income attributable to Evergy, Inc. discussed above.

Previous wording

Utility gross margin (non-GAAP) is intended to aid an investor's overall understanding of results. Management believes that utility gross margin (non-GAAP) provides a meaningful basis for evaluating the Evergy Companies' operations across periods because utility gross margin (non-GAAP) excludes the revenue effect of fluctuations in fuel and purchased power costs and SPP network transmission costs. Utility gross margin (non-GAAP) is used internally to measure performance against budget and in reports for management and the Evergy Board. Utility gross margin (non-GAAP) should be viewed as a supplement to, and not a substitute for, gross margin, which is the most directly comparable financial measure prepared in accordance with GAAP. Gross margin under GAAP is defined as the excess of sales over cost of goods sold.

Current wording

operations across periods because utility gross margin (non-GAAP) excludes the revenue effect of fluctuations in fuel and purchased power costs and SPP network transmission costs. Utility gross margin (non-GAAP) is used internally to measure performance against budget and in reports for management and the Evergy Board. Utility gross margin (non-GAAP) should be viewed as a supplement to, and not a substitute for, gross margin, which is the most directly comparable financial measure prepared in accordance with GAAP. Gross margin under GAAP is defined as the excess of sales over cost of goods sold.

Previous wording

Evergy's adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP) for 2023 were $815.6 million or $3.54 per share. For 2022, Evergy's adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP) were $853.8 million or $3.71 per share.

Current wording

Evergy's adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP) for 2024 were $877.9 million or $3.81 per share. For 2023, Evergy's adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP) were $815.6 million or $3.54 per share.

Previous wording

viii. the 2023 deferral of the cumulative amount of prior year revenues collected since October 2019 for costs related to an electric subdivision rebate program to be refunded to customers in accordance with a June 2020 KCC order; and

Current wording

iii. the second quarter 2023 recognition of a regulatory liability for the refund to customers of revenues previously collected since October 2019 for costs related to an electric subdivision rebate program to be refunded to customers in accordance with a June 2020 KCC order;

Previous wording

ix. the deferral of revenues for future refund of amounts previously collected from customers related to COLI rate credits in accordance with a September 2023 KCC rate case unanimous settlement agreement.

Current wording

iv. the recognition of a regulatory liability for future refund of amounts of revenues previously collected from customers related to COLI rate credits in accordance with a September 2023 KCC rate case unanimous settlement agreement; and

Previous wording

(c)Reflects mark-to-market gains or losses related to forward contracts for natural gas and electricity entered into as economic hedges against fuel price volatility related to Evergy Kansas Central's 8% ownership share of JEC that are included in operating revenues on the consolidated statements of comprehensive income.

Current wording

(a)Reflects mark-to-market gains or losses related to forward contracts for natural gas and electricity entered into as economic hedges against fuel price volatility related to Evergy Kansas Central's 8% ownership share of Jeffrey Energy Center (JEC) that are included in operating revenues on the consolidated statements of comprehensive income.

Previous wording

(d)Reflects non-regulated energy marketing incentive compensation costs related to the February 2021 winter weather event that are included in operating and maintenance expense on the consolidated statements of comprehensive income.

Current wording

(b)Reflects non-regulated energy marketing incentive compensation costs related to the February 2021 winter weather event that are included in operating and maintenance expense on the consolidated statements of comprehensive income.

Previous wording

(k)Reflects the deferral of the cumulative amount of prior year revenues collected since October 2019 for costs related to an electric subdivision rebate program to be refunded to customers in accordance with a June 2020 KCC order that are included in operating revenues on the consolidated statements of comprehensive income.

Current wording

(c)Reflects the second quarter 2023 recognition of a regulatory liability for the refund to customers of revenues previously collected since October 2019 for costs related to an electric subdivision rebate program to be refunded to customers in accordance with a June 2020 KCC order that are included in operating revenues on the consolidated statements of comprehensive income.

Previous wording

(l)Reflects the deferral of revenues for future refund of amounts previously collected from customers related to COLI rate credits in accordance with a September 2023 KCC rate case unanimous settlement agreement reached between Evergy, the KCC staff and other intervenors that are included in operating revenues on the consolidated statements of comprehensive income.

Current wording

(d)Reflects the recognition of a regulatory liability for the refund to customers for amounts of revenues previously collected related to corporate-owned life insurance (COLI) rate credits in accordance with a September 2023 KCC rate case unanimous settlement agreement reached between Evergy, the KCC staff and other intervenors that are included in operating revenues on the consolidated statements of comprehensive income.

Previous wording

(f)Reflects severance costs incurred associated with certain severance programs at the Evergy Companies that are included in operating and maintenance expense on the consolidated statements of comprehensive income.

Current wording

(e)Reflects costs incurred associated with the realignment of the executive operations corporate structure that are included in operating and maintenance expense and taxes other than income tax on the consolidated statements of comprehensive income.

Previous wording

(m)Reflects an income tax effect calculated at a statutory rate of approximately 22%.

Current wording

(f)Reflects an income tax effect calculated at a statutory rate of approximately 22%, with the exception of certain non-deductible items.

Previous wording

In 2023, Evergy's pension expense was $8.5 million under GAAP and $102.5 million for ratemaking. The impact on 2024 pension expense in the table above reflects the impact on GAAP pension costs. Under the Evergy Companies' rate agreements, any increase or decrease in GAAP pension expense is deferred to a regulatory asset or liability for future ratemaking treatment. See Note 9 to the consolidated financial statements for additional information regarding the accounting for pensions.

Current wording

In 2024, Evergy's pension expense was $33.5 million under GAAP and $57.6 million for ratemaking. The impact on 2025 pension expense in the table above reflects the impact on GAAP pension costs. Under the Evergy Companies' rate agreements, any increase or decrease in GAAP pension expense is deferred to a regulatory asset or liability for future ratemaking treatment. See Note 9 to the consolidated financial statements for additional information regarding the accounting for pensions.

Previous wording

Evergy recognizes revenue on the sale of electricity to customers over time as the service is provided in the amount it has the right to invoice. Revenues recorded include electric services provided but not yet billed by Evergy. Unbilled revenues are recorded for kWh usage in the period following the customers' billing cycle to the end of the month. This estimate is based on net system kWh usage less actual billed kWhs. Evergy's estimated unbilled kWhs are allocated and priced by regulatory jurisdiction across the rate classes based on actual billing rates. Evergy's unbilled revenue estimate is affected by factors including fluctuations in energy demand, weather, line losses and changes in the composition of customer classes. See Note 3 to the consolidated financial statements for the balance of unbilled receivables for Evergy as of December 31, 2023 and 2022.

Current wording

Unbilled revenues are recorded for kWh usage in the period following the customers' billing cycle to the end of the month. This estimate is based on net system kWh usage less actual billed kWhs. Evergy's estimated unbilled kWhs are allocated and priced by regulatory jurisdiction across the rate classes based on actual billing rates. Evergy's unbilled revenue estimate is affected by factors including fluctuations in energy demand, weather, line losses and changes in the composition of customer classes. See Note 3 to the consolidated financial statements for the balance of unbilled receivables for Evergy as of December 31, 2024 and 2023.

Previous wording

Accounting rules require goodwill to be tested for impairment annually and when an event occurs indicating the possibility that an impairment exists. The goodwill impairment test consists of comparing the fair value of a reporting unit to its carrying amount, including goodwill, to identify potential impairment. In the event that the carrying amount exceeds the fair value of the reporting unit, an impairment loss is recognized for the difference between the carrying amount of the reporting unit and its fair value. Evergy's consolidated operations are considered one reporting unit for assessment of impairment, as management assesses financial performance and allocates resources on a consolidated basis. The annual impairment test for the $2,336.6 million of goodwill from the Great Plains Energy and Evergy Kansas Central merger was conducted as of May 1, 2023. The fair value of the reporting unit substantially exceeded the carrying amount, including goodwill. As a result, there was no impairment of goodwill.

Current wording

Accounting rules require goodwill to be tested for impairment annually and when an event occurs indicating the possibility that an impairment exists. The goodwill impairment test consists of comparing the fair value of a reporting unit to its carrying amount, including goodwill, to identify potential impairment. In the event that the carrying amount exceeds the fair value of the reporting unit, an impairment loss is recognized for the difference between the carrying amount of the reporting unit and its fair value. Evergy's consolidated operations are considered one reporting unit for assessment of impairment, as management assesses financial performance and allocates resources on a consolidated basis. The annual impairment test for the $2,336.6 million of goodwill from the merger that created Evergy was conducted as of May 1, 2024. The fair value of the reporting unit substantially exceeded the carrying amount, including goodwill. As a result, there was no impairment of goodwill.

Previous wording

As of December 31, 2023 and 2022, Evergy had recorded AROs of $1,203.1 million and $1,153.2 million, respectively. See Note 6 to the consolidated financial statements for more information regarding Evergy's AROs.

Current wording

As of December 31, 2024 and 2023, Evergy had recorded AROs of $1,297.0 million and $1,203.1 million, respectively. See Note 6 to the consolidated financial statements for more information regarding Evergy's AROs.

Previous wording

Evergy's results of operations and financial position are affected by a variety of factors including rate regulation, fuel costs, weather, customer behavior and demand, the economy and competitive forces.

Current wording

Evergy's results of operations and financial position are affected by a variety of factors including rate regulation, fuel costs, weather, level of capital investment, customer behavior and demand, the economy and competitive forces.

Previous wording

Energy efficiency investments by customers and the Evergy Companies also can affect the demand for electric service. Through MEEIA, Evergy Metro and Evergy Missouri West offer energy efficiency and demand side management programs to their Missouri retail customers and recover program costs, throughput disincentive, and as applicable, certain earnings opportunities in retail rates through a rider mechanism.

Current wording

Energy efficiency investments by customers and the Evergy Companies also can affect the demand for electric service. Evergy Kansas Central, Evergy Metro and Evergy Missouri West offer energy efficiency and demand side management programs to their respective Kansas and Missouri retail customers and recover program costs, throughput disincentive, and as applicable, certain earnings opportunities in retail rates through a rider mechanism.

Previous wording

Evergy's gross margin (GAAP) decreased $118.9 million in 2023, compared to 2022, and Evergy's utility gross margin (non-GAAP) decreased $4.1 million in 2023, compared to 2022, both measures were driven by:

Current wording

Evergy's gross margin (GAAP) increased $178.3 million in 2024, compared to 2023, and Evergy's utility gross margin (non-GAAP) increased $285.7 million in 2024, compared to 2023, both measures were driven by:

Previous wording

•a $19.9 million decrease due to mark-to-market losses related to forward contracts for natural gas and electricity entered into as economic hedges against fuel price volatility related to Evergy Kansas Central's 8% ownership share of JEC; and

Current wording

•a $6.1 million increase due to lower mark-to-market losses in 2024 related to forward contracts for natural gas and electricity entered into as economic hedges against fuel price volatility related to Evergy Kansas Central's 8% ownership share of JEC; and

Previous wording

•an $83.1 million decrease primarily due to lower retail sales driven by unfavorable weather (cooling degree days decreased by 6% and heating degree days decreased by 13%), partially offset by higher weather-normalized residential and commercial demand;

Current wording

•a $4.4 million increase primarily due to higher retail sales driven by higher weather-normalized residential and commercial demand, partially offset by unfavorable weather (cooling degree days decreased by 5% and heating degree days decreased by 4%); partially offset by

Previous wording

•a $40.8 million decrease in operating and maintenance expenses which are determined to be directly attributable to revenue producing activities primarily driven by an $18.6 million decrease in operating and maintenance expense at fossil-fuel generating units, a $16.7 million decrease in transmission and distribution operating and maintenance expense and a $6.1 million decrease in operating and maintenance expense at Wolf Creek as described further below.

Current wording

•a $23.9 million increase in operating and maintenance expenses which are determined to be directly attributable to revenue producing activities primarily driven by a $16.7 million increase in transmission and distribution operating and maintenance expense and a $7.3 million increase in operating and maintenance expense at generating facilities as further described below.

Previous wording

•a $14.0 million decrease in various transmission and distribution operating and maintenance expenses primarily due to lower labor costs driven by an increase in labor capitalization and lower employee headcount, partially offset by a $3.6 million increase in vegetation management costs; and

Current wording

•a $16.6 million increase in transmission and distribution operating and maintenance expenses primarily driven by a $10.2 million increase in labor expense primarily due to a decrease in labor capitalization driven by lower capitalization activity related to the installation of transformers and meters in 2024 and higher employee headcount and a $6.5 million increase in non-labor expense including a $2.8 million increase in vegetation management costs; and

Previous wording

•a $7.6 million decrease due to lower pre-tax income in 2023; and

Current wording

◦ a $7.4 million increase at fossil-fuel generating units primarily due to a $15.4 million increase at Evergy Kansas Central driven by major maintenance outages at JEC and Lawrence Energy Center (LEC) in 2024, partially offset by a $7.6 million decrease at Evergy Metro driven by maintenance outages at Iatan Station and Hawthorn Station in 2023; and

Previous wording

Evergy's depreciation and amortization increased $147.1 million in 2023, compared to 2022, primarily driven by:

Current wording

Evergy's depreciation and amortization increased $37.5 million in 2024, compared to 2023, primarily driven by:

Previous wording

•a $70.8 million increase primarily due to capital additions.

Current wording

•a $7.7 million increase primarily due to capital additions.

Previous wording

•an $11.6 million decrease in equity allowance for funds used during construction (AFUDC) principally driven by higher short-term debt balances in 2023.

Current wording

•an $8.7 million increase in equity allowance for funds used during construction (AFUDC) primarily at Evergy Kansas Central and Evergy Metro primarily driven by higher construction work in progress balances in 2024 and lower short-term debt balances; partially offset by

Previous wording

•a $21.9 million decrease due to recording higher Evergy Kansas Central COLI benefits;

Current wording

•an $11.6 million decrease due to recording lower Evergy Kansas Central COLI benefits in 2024.

Previous wording

•a $15.9 million decrease primarily due to higher wind and other income tax credits in 2023 principally driven by the acquisition of the Persimmon Creek wind farm;

Current wording

•a $16.4 million decrease primarily due to higher wind and other income tax credits in 2024 driven by the acquisition of Persimmon Creek in the second quarter of 2023.

Previous wording

•Evergy's fuel and supplies inventory increased $103.3 million primarily due to a $69.3 million increase in coal inventories driven by lower coal burn, improved railroad performance and higher average coal prices in 2023 and a $26.7 million increase in materials and supplies primarily driven by higher costs and higher overall levels of inventory to mitigate longer supply chain lead times.

Current wording

•Evergy's fuel inventory and supplies increased $91.2 million primarily driven by an $84.3 million increase in materials and supplies primarily driven by higher costs and higher overall levels of inventory to mitigate longer supply chain lead times and supply constraints due to industry wide infrastructure investments.

Previous wording

•Evergy's regulatory assets - current decreased $75.9 million primarily driven by a $97.9 million decrease related to Evergy Missouri West's fuel recovery mechanism recoveries, partially offset by the reclassification of $18.6 million from regulatory assets - long-term related to deferred fuel and purchased power costs at Evergy Kansas Central expected to be recovered in the next 12 months related to the February 2021 winter weather event.

Current wording

•Evergy's regulatory assets - current decreased $111.2 million primarily driven by a $77.0 million decrease related to Evergy Missouri West's fuel recovery mechanism recoveries and a $56.1 million decrease due to recoveries of deferred fuel and purchased power costs at Evergy Kansas Central related to the February 2021 winter weather event.