Westar Energy Inc. executives say the company's proposed merger with neighboring utility Great Plains Energy Inc. can make it less reliant on electric rate increases for most of its earnings.
As a standalone company, Westar targets a 4% to 6% earnings per share growth rate between now and 2021, according to the company's Aug. 8 earnings presentation. This past July, the company and Great Plains announced a revised merger agreement to undergo a stock-for-stock exchange and form a new holding company valued at $14 billion.
"With the merger savings, we'll no longer be as dependent on rate cases to produce earnings," Westar CEO Mark Ruelle said on the company's second-quarter earnings call. Westar will maintain its own investments, such as its transmission program, Ruelle added, but the merger savings can strengthen the pro-forma earnings per share outlook to 6% to 8% through 2021.
Under the revised agreement, Westar would own 52.5% of the new holding company while Great Plains would own the remaining 47.5%. A prior merger proposal was rejected by the Kansas Corporation Commission in an April order. The revised proposal is "a deal that closely follows specifically the road map in the KCC's order" and is expected to address the commission's concerns, Ruelle said.
The revised agreement allows for a higher dividend, improved credit profile and significantly better earnings outlook, Ruelle told investors. The company plans to file its merger plan with the Federal Energy Regulatory Commission, the Nuclear Regulatory Commission and state utility commissions in Missouri and Kansas this month, he added. The company estimates closing the deal in the first half of 2018, according to Westar's earnings presentation.
On a stand-alone basis, Westar earned 50 cents per share in the second quarter of 2017, a penny lower from results in the second-quarter 2016. Mild weather lowered electric sales to residential and commercial customers in the second quarter and first half of 2017. Over the first six months of this year, earnings fell to 92 cents per share from 97 cents per share in the first six months of 2016, according to the company's earnings release.
Total retail power sales in the first six months of 2017 were roughly 9 million MWh, 1.9% below the nearly 9.2 million MWh sold in the first half of 2016, according to the company's Form 10-Q. Sales to wholesale customers, which include sales to other utilities and across the Southwest Power Pool, totaled 4.5 million MWh, gaining 26% from sales in the same period last year.
As part of the merger, Westar is able to accelerate closure of about 780 MW of fossil plants built in the 1950s and 1960s, Ruelle said. John Bridson, senior vice president of generation and marketing, said the company plans to retire the last remaining coal unit at its Tecumseh plant and older gas-fired Gordon Evans and Murray Gill steam plants in 2018.
During the earnings call, Ruelle also highlighted the company's changing generation portfolio. It was not long ago that Westar had been thought of as a Midwest coal-fired generator, but with the addition of the 280-MW Western Plains Wind Project, roughly half of its retail power sales comes from emission-free energy including nuclear, Ruelle said. In March, the company brought into full operation the Western Plains wind farm, which brings the company's clean energy portfolio to about 1,700 MW, Ruelle said.
After the merger, the combined company would own 94% of the 1,205-MW Wolf Creek nuclear plant, the only nuclear facility in its fleet. Currently, Westar and Great Plains subsidiary Kansas City Power & Light Co. each own a 47% share.