Kansas City-based Evergy Inc. announced a new five-year strategic plan, one that will help the company avoid a possible sale. The company said the plan will help speed its move to cleaner energy and do it as a stand-alone company.
The plan results from a review by a special committee put together by the Kansas City-based utility and activist investor Elliott Management Corp. In line with a deal Evergy and Elliott reached in late Febuary, the committee was charged with recommending to increase shareholder value by investing more in Evergy’s infrastructure and increasing reliance on renewable energy — or by seeking a sale.
The committee recommended what’s being called a Sustainability Transformation Plan, which Evergy’s board approved unanimously reported the Kansas City Business Journal.
The plan will benefit shareholders, customers, employees and the communities the company serves, Evergy Chief Customer Officer Chuck Caisley said.
“This is something that has a little something for everyone,” he said.
As part of the plan, Evergy expects to invest roughly $4.8 billion to upgrade its electrical grid, improve customer service platforms and increase access to renewable energy.
Evergy has been on a path to increasing sustainable energy, Caisley said, “but what this will do is make some investments to accelerate that.”
That will mean additional investment in wind power but also adding solar power and battery storage. The price of large-scale solar power generation has come down and will be competitive within five to seven years, he said.
Peak production from solar occurs at midday in Evergy’s territory (much of Western Missouri and Eastern Kansas), which doesn’t completely match peak demand times in the summer, he said. The wind generates the most power at night, when demand is lowest.
The new strategic plan came from a review by a committee with representatives of the Kansas City company and activist shareholder Elliott Management Corp. The committee also could have recommended selling the utility.
That’s where battery storage comes into play.
Whether it’s working on grid-level storage or tapping the growing number of electric vehicles as essentially batteries with wheels, Caisley said the company can begin changing its infrastructure to position itself up to take advantage of power storage.
A big part of the plan is to ask Kansas and Missouri for assistance in speeding the retirement of Evergy’s coal-fired power plants. Caisley said the company would ask the states to issue bonds to pay off all debt owed on the plants. Evergy would repay the bonds through a line on customer’s bills.
Caisley noted that customers already pay the cost of the coal plants. With the bonds, the company will reduce interest owed on the plant debt and free up money to invest in more efficient systems. Also, by relying more on wind and solar power, the company will reduce fuel costs.
In a presentation for the plan, the company said it has the potential to cut carbon dioxide emissions by 85% by 2030 compared with 2005 levels. Evergy’s current target has been to hit an 80% reduction by 2050.
Evergy’s plan also includes updating customer meters, which Caisley said will cut current expenses from employees driving around physically checking meters. The company also plans a new system for communicating with customers when there’s a power failure. Instead of customers notifying call centers to report when the power is out, the system will detect interruptions and contact affected customers with notices and updates on when power will be restored, he said.
Elliott began pressing Evergy for change in October. The New York-based activist investor worked behind the scenes for months but issued a letter in January that essentially gave Evergy an ultimatum: Restructure, or merge with a partner.
The world-class activist investor’s past targets have included AT&T Inc., eBay Inc. and Twitter Inc. By the time it reached an agreement with Evergy in February, Elliott said it controlled 10 million shares of the utility’s stock.
Elliott criticized Evergy for earnings and rate base growth estimates that trailed other utilities and for deciding to spend billions on stock buybacks rather than investing in infrastructure.
The new plan anticipates compound annual growth of 6% to 8% through 2024, which would translate into earnings per share of $3.87 to $4.25 in 2024, according to a release. The plan calls for rate base growth of 5% to 6% from 2019 to 2024 with no new equity required.
Although the new strategy has Evergy and Elliott on board, it will face scrutiny from state regulators. In June, the Kansas Corporation Commission began an investigation of Evergy’s February agreement with Elliott out of concern that its plans could increase shareholder value by boosting customers bills or reducing service quality.
Caisley said the company has been working with KCC staff and thinks it can address its concerns.
The close of the board’s strategic review does not mean an end to Elliott’s involvement. In a release, the company said Evergy and Elliott will continue to collaborate during an initial 90-day implementation of the plan. As part of a new agreement, Evergy will share information — public and nonpublic — with Elliott, and the investor will continue to engage with the company’s board and senior management.
Elliott also may consult with the review committee “during its review and evaluation of the optimal management team to execute on the Sustainability Transformation Plan,” according to a release.
“Evergy plans to make an announcement relating to a change, if any, in senior management within 90 days,” the release said.
Caisley said no management changes are planned at this time.
The intensive review of Evergy’s plans during the past few months and the addition of experienced utility executives to the board at Elliott’s direction will turn out to be a benefit, he said.
“So right now, the hangover of this is we are laser-focused and laser-excited about the execution of this plan,” Caisley said.
Source: Kansas City Business Journal