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Evergy plan built on coal retirements, grid and renewables investments

Evergy Inc. sees an opportunity to accelerate its emissions reductions and clean energy transition while beefing up reliability, through a newly unveiled strategic plan.

The company on Aug. 5 announced a stand-alone five-year strategic plan designed to increase earnings and capital investments, following the conclusion of an independent review of its business.

"Our new plan sets the stage for significant value creation and a strong future for Evergy and our stakeholders," Evergy President and CEO Terry Bassham said Aug. 5 on the company's second-quarter 2020 earnings call. "Throughout the review, we were focused on three core objectives: maximizing long-term value for our shareholders; serving the best interests of all Evergy stakeholders, including our customers, employees and communities; and continuing to advance our work to successfully create a forward-thinking, sustainable energy company."

The "Sustainability Transformation Plan" was recommended by the strategic review and operations committee and unanimously approved by Evergy's board of directors.

"Our new plan has the potential to expedite CO2 emission reductions by pursuing constructive regulatory mechanisms, economically retire coal-fired generation and expand Evergy's wind and solar footprint," Bassham said. "While we're still targeting 80% reduction in CO2 emissions by 2050, compared to 2005 levels, under this plan we have the potential to reduce CO2 emissions as much as 85% by 2030. A material improvement in our CO2 footprint over the next 10 years."

Evergy's stock continued to fall in early morning trading Aug. 5 after closing down 11.61% at $55.40 on Aug. 4 following media reports that the company would end sales talks and remain independent.

"We see this as very concerning," Guggenheim Securities LLC analyst Shahriar Pourreza wrote in an Aug. 4 report. "We see the potential for a failed sale process as a strong negative, with the focus now turning to [Evergy's] standalone prospects and a somewhat hostile [Kansas Corporation Commission]."

Under its stand-alone plan, Evergy is targeting EPS compounded annual growth of 6% to 8% through 2024, compared to its previous target of 5% to 7% through 2023.

Evergy expects the plan to result in $8.9 billion of base capital investments through 2024, an increase of about $1.4 billion from its prior plan announced in March, which will support 5% to 6% compounded annual rate base growth.

The capital plan is focused on investments that "accelerate decarbonization and grid modernization," according to company management.

"The result is greener, more reliable, affordable energy for our customers and line of sight to continue earnings growth and value creation for Evergy's shareholders," Bassham said.

Evergy expects to invest about $4.8 billion over the next five years to upgrade transmission and distribution infrastructure, as well as customer-facing platforms, to improve reliability and lower operating costs. The plan also outlines the potential for $500 million in asset hardening, distribution automation and technology investments through 2024.

Management noted that Evergy has "retired more than 2,400 MW of fossil generation and added or contracted for over 4,600 MW of renewables" in Kansas and Missouri.

Management said further coal retirements would likely come in the back half of its plan.

"It would not be closures in the next couple of years," Bassham said.

New York investment firm Elliott Management Corp. in January unveiled a plan to unlock $5 billion in value at Evergy through either a stand-alone path involving a revamped investment strategy spearheaded by new board members and a new management team or a "premium stock-for-stock merger."

Evergy entered an agreement with Elliott in early March to add two new directors to the board, abandon the remainder of its share repurchase program and start a review process for a potential sale. The review process was delayed a few weeks later due to the coronavirus pandemic.

"The committee conducted a robust and comprehensive process. We had advisers for both the committee and for the company. And yes, we did engage with a number of third parties," Bassham said in response to an analyst's question on interest in a strategic combination. "In the end, the committee and the board both agreed that based on that work and that review, that our standalone plan produced a better long-term shareholder return profile and that that was absolutely the best way to move forward."

The CEO added that "probably the greater risk part of the process would've been on the bidder side."

"Certainly, we think the standalone plan as we've presented today is less risky and more likely to be successful and create more value than a merger situation based on information we gathered through the process we went through," Bassham said.

Evergy executives said the company has been in discussions with regulators in Kansas and Missouri about the business review.

The Kansas Corporation Commission in June agreed to investigate the merits of both strategies.

"In fact, they've made it clear that they don't have a preference for a strategic versus a standalone plan," Bassham said.

The CEO, in response to an analyst's question, said the company believes "the bill impact will be very low" from its strategic plan.

Evergy's plan contemplates no new equity issuances.

The Kansas City, Missouri-headquartered utility was formed in June 2018 following the $15 billion stock-for-stock merger of Midwest electric utilities Westar Energy Inc. and Great Plains Energy Inc.