RATE MATTERS AND REGULATION, AND REGULATORY MATTERS

12 Months Ended

Dec. 31, 2019

Regulated Operations [Abstract]

RATE MATTERS AND REGULATION, AND REGULATORY MATTERS

RATE MATTERS AND REGULATION

KCC Proceedings

Evergy Kansas Central 2019 Transmission Delivery Charge (TDC)

In March 2019, the KCC issued an order adjusting Evergy Kansas Central's retail prices to include updated transmission costs as reflected in the FERC transmission formula rate (TFR). The new prices were effective in April 2019 and are expected to decrease Evergy Kansas Central's annual retail revenues by $7.7 million.

Evergy Metro 2019 TDC

In April 2019, the KCC issued an order adjusting Evergy Metro's retail prices to include updated transmission costs as reflected in the FERC TFR. The new prices were effective in May 2019 and are expected to decrease Evergy Metro's annual retail revenues by $8.3 million.

Evergy Kansas Central Fuel Recovery Mechanism Recovery of 8% of Jeffrey Energy Center (JEC)

As part of the non-unanimous stipulation and agreement approved by the KCC in September 2018 in Evergy Kansas Central's 2018 rate case, it was agreed that in the event that Evergy Kansas Central purchased the 8% ownership interest in JEC that it had historically leased from a trust it would be entitled to file a request with the KCC to recover operating and maintenance and capital costs associated with the 8% ownership through its fuel recovery mechanism as these amounts were not reflected in Evergy Kansas Central's rates established as part of the 2018 rate case.

In the first quarter of 2019, Evergy Kansas Central entered into an agreement with the trust to extend its lease of the 8% interest in JEC from the previous expiration date of January 2019 to August 2019 and to then purchase the 8% ownership interest from the trust at the time the lease expired. Pursuant to the agreement, Evergy Kansas Central's purchase of the 8% ownership interest of JEC closed in August 2019.

In March 2019, Evergy Kansas Central filed an application with the KCC to request recovery through its fuel recovery mechanism of deferred lease expense and operating and maintenance expense incurred during the lease extension and future operating and maintenance expense subsequent to the purchase of the 8% ownership interest in JEC. In September 2019, the KCC issued an order finding that the lease extension and subsequent purchase of the 8% ownership interest by Evergy Kansas Central were not prudent and disallowed the recovery from retail customers of all associated capital and operating costs that were incurred during the lease extension and will be incurred in the future. The KCC order also provided that Evergy Kansas Central be allowed to retain any wholesale electricity sales associated with the 8% ownership interest of JEC.

As a result of the KCC order in September 2019, Evergy and Evergy Kansas Central recorded an $8.4 million pre-tax loss to operating and maintenance expense in their consolidated statements of income and comprehensive income in 2019 associated with the write-off of a regulatory asset for the deferred lease expense and other operating expenses.

Evergy Kansas Central and Evergy Metro Earnings Review and Sharing Plan (ERSP)

As part of their merger settlement agreement with the KCC, Evergy Kansas Central and Evergy Metro agreed to participate in an ERSP for the years 2019 through 2022. Under the ERSP, Evergy Kansas Central's and Evergy Metro's Kansas jurisdiction are required to refund to customers 50% of annual earnings in excess of their authorized

return on equity of 9.3% to the extent the excess earnings exceed the amount of Evergy Kansas Central's and Evergy Metro's annual merger bill credits for the year being measured.

As of December 31, 2019, Evergy Kansas Central and Evergy Metro estimate their 2019 annual earnings will not result in a significant refund obligation. Evergy Kansas Central and Evergy Metro expect to file their 2019 earnings calculations with the KCC in March 2020. The final refund obligation, if any, will be decided by the KCC and could vary from the current estimate.

MPSC Proceedings

Evergy Missouri West Other Proceedings

In December 2018, the Office of the Public Counsel (OPC) and the Midwest Energy Consumers Group (MECG) filed a petition with the MPSC requesting an AAO that would require Evergy Missouri West to record a regulatory liability for all revenues collected from customers for return on investment, non-fuel operations and maintenance costs, taxes including accumulated deferred income taxes, and all other costs associated with Sibley Station following the station’s retirement in November 2018.

In October 2019, the MPSC granted OPC's and MECG's request for an AAO and required Evergy Missouri West to record to a regulatory liability the revenues discussed above for consideration in Evergy Missouri West's next rate case, which is expected to be completed no later than 2022. Depending on the MPSC's decision in this next rate case, Evergy Missouri West could be required to refund to customers all or a portion of amounts collected in revenue for Sibley Station since December 2018 or, alternatively, could be required to make no refunds.

As a result of the MPSC order, Evergy has recorded a regulatory liability of $10.2 million as of December 31, 2019 for the estimated amount of revenues that Evergy Missouri West has collected from customers for Sibley Station since December 2018 that Evergy has determined is probable of refund. Evergy expects that it will continue to defer such amounts as collected from customers until new rates become effective in Evergy Missouri West's next rate case.

The accrual for this estimated amount does not include certain revenues collected related to Sibley Station that Evergy has determined to not be probable of refund in the next rate case based on the relevant facts and circumstances. While Evergy has determined these additional revenues to not be probable of refund, the ultimate resolution of this matter in Evergy Missouri West's next rate case is uncertain and could result in an estimated loss of up to approximately $12 million in excess of the amount accrued per year until Evergy Missouri West's new rates become effective. Evergy's regulatory liability for probable refunds as of December 31, 2019 and estimated loss in excess of the amount accrued represent estimates that could change significantly based on ongoing developments including as a result of an appeal of the MPSC order, decisions in other regulatory proceedings that establish precedent applicable to this matter and positions of parties on this issue in a future Evergy Missouri West rate case.

FERC Proceedings

In October of each year, Evergy Kansas Central and Evergy Metro post an updated TFR that includes projected transmission capital expenditures and operating costs for the following year. This rate is the most material and significant component in the retail rate calculation for Evergy Kansas Central's and Evergy Metro's annual request with the KCC to adjust retail prices to include updated transmission costs through the TDC.

Evergy Kansas Central TFR

In the most recent three years, the updated TFR was expected to adjust Evergy Kansas Central's annual transmission revenues by approximately:

• $6.8 million increase effective in January 2020;

• $11.2 million decrease effective in January 2019; and

• $2.3 million increase effective in January 2018.

Evergy Metro TFR

In the most recent three years, the updated TFR was expected to adjust Evergy Metro's annual transmission revenues by approximately:

• $1.7 million decrease effective in January 2020;

• $2.8 million decrease effective in January 2019; and

•

$3.7 million increase effective in January 2018.

Regulatory Assets and Liabilities

The Evergy Companies have recorded assets and liabilities on their consolidated balance sheets resulting from the effects of the ratemaking process, which would not otherwise be recorded if they were not regulated. Regulatory assets represent incurred costs that are probable of recovery from future revenues. Regulatory liabilities represent future reductions in revenues or refunds to customers.

Management regularly assesses whether regulatory assets and liabilities are probable of future recovery or refund by considering factors such as decisions by the MPSC, KCC or FERC in Evergy Kansas Central's, Evergy Metro's and Evergy Missouri West's rate case filings; decisions in other regulatory proceedings, including decisions related to other companies that establish precedent on matters applicable to the Evergy Companies; and changes in laws and regulations. If recovery or refund of regulatory assets or liabilities is not approved by regulators or is no longer deemed probable, these regulatory assets or liabilities are recognized in the current period results of operations. The Evergy Companies continued ability to meet the criteria for recording regulatory assets and liabilities may be affected in the future by restructuring and deregulation in the electric industry or changes in accounting rules. In the event that the criteria no longer applied to any or all of the Evergy Companies' operations, the related regulatory assets and liabilities would be written off unless an appropriate regulatory recovery mechanism were provided. Additionally, these factors could result in an impairment on utility plant assets.

The Evergy Companies' regulatory assets and liabilities are detailed in the following tables.

	December 31
	2019									2018
	Evergy			Evergy Kansas Central			Evergy Metro			Evergy			Evergy Kansas Central			Evergy Metro
Regulatory Assets	(millions)
Pension and post-retirement costs	$	795.9		$	359.9		$	330.7		$	808.2		$	343.7		$	361.5
Debt reacquisition costs	105.8			97.3			7.5			113.5			104.1			8.2
Debt fair value adjustment	112.0			—			—			134.5			—			—
Asset retirement obligations fair value adjustment	114.3			—			—			111.4			—			—
Depreciation	55.3			55.3			—			58.0			58.0			—
Cost of removal	129.3			94.4			34.9			102.4			65.7			36.7
Asset retirement obligations	167.1			52.8			79.4			171.9			49.5			91.6
Analog meter unrecovered investment	29.9			29.9			—			35.6			35.6			—
Treasury yield hedges	22.6			22.6			—			23.7			23.7			—
Iatan No. 1 and common facilities	7.1			—			2.8			7.4			—			2.9
Iatan No. 2 construction accounting costs	26.1			—			13.1			26.8			—			13.5
Kansas property tax surcharge	21.7			18.7			3.0			33.1			23.7			9.4
Disallowed plant costs	14.8			14.8			—			15.0			15.0			—
La Cygne environmental costs	13.7			11.2			2.5			14.8			12.2			2.6
Deferred customer programs	18.0			6.2			8.3			19.9			7.0			8.0
Fuel recovery mechanisms	34.7			—			16.6			91.2			7.1			41.7
Solar rebates	39.8			—			9.0			45.2			—			13.9
Transmission delivery charge	—			—			—			0.8			—			0.8
Wolf Creek outage	31.0			15.5			15.5			21.8			10.9			10.9
Pension and other post-retirement benefit non-service costs	31.8			7.4			15.6			13.6			5.2			4.8
Retired generation facilities	130.5			—			—			159.9			—			—
Merger transition costs	42.3			20.3			15.6			47.0			22.6			17.3
Other regulatory assets	28.5			17.4			5.3			6.1			13.5			2.3
Total	1,972.2			823.7			559.8			2,061.8			797.5			626.1
Less: current portion	(231.7		)	(93.3		)	(95.4		)	(303.9		)	(97.1		)	(130.9		)
Total noncurrent regulatory assets	$	1,740.5		$	730.4		$	464.4		$	1,757.9		$	700.4		$	495.2

	December 31
	2019									2018
	Evergy			Evergy Kansas Central			Evergy Metro			Evergy			Evergy Kansas Central			Evergy Metro
Regulatory Liabilities	(millions)
Taxes refundable through future rates	$	1,656.5		$	856.4		$	568.9		$	1,703.6		$	853.2		$	609.2
Deferred regulatory gain from sale leaseback	53.6			53.6			—			59.1			59.1			—
Emission allowances	50.1			—			50.1			54.1			—			54.1
Nuclear decommissioning	267.3			116.5			150.8			188.2			84.5			103.7
Pension and post-retirement costs	59.3			31.5			20.3			53.4			28.3			25.1
Jurisdictional allowance for funds used during construction	28.7			28.7			—			30.3			30.3			—
La Cygne leasehold dismantling costs	29.6			29.6			—			29.5			29.5			—
Cost of removal	49.1			—			—			48.1			—			—
Kansas tax credits	17.0			17.0			—			16.5			16.5			—
Purchase power agreement	7.4			7.4			—			8.8			8.8			—
Merger customer credits	—			—			—			7.5			—			7.5
Fuel recovery mechanisms	34.1			30.2			—			—			—			—
Sibley AAO	10.2			—			—			—			—			—
Refund of tax reform benefits	—			—			—			70.9			7.2			36.3
Other regulatory liabilities	48.7			3.9			13.5			59.0			3.9			11.2
Total	2,311.6			1,174.8			803.6			2,329.0			1,121.3			847.1
Less: current portion	(63.3		)	(42.3		)	(11.4		)	(110.2		)	(19.5		)	(52.8		)
Total noncurrent regulatory liabilities	$	2,248.3		$	1,132.5		$	792.2		$	2,218.8		$	1,101.8		$	794.3

The following summarizes the nature and period of recovery for each of the regulatory assets listed in the table above.

Pension and post-retirement costs: Represents unrecognized gains and losses and prior service costs that will be recognized in future net periodic pension and post-retirement costs, pension settlements amortized over various periods and financial and regulatory accounting method differences that will be eliminated over the life of the pension plans. Of these amounts, $735.4 million, $359.9 million and $312.9 million for Evergy, Evergy Kansas Central and Evergy Metro, respectively, are not included in rate base and are amortized over various periods. Additionally, $288.4 million, ($23.6) million and $131.1 million for Evergy, Evergy Kansas Central and Evergy Metro, respectively, represent differences between pension and post-retirement costs under GAAP and pension and post-retirement costs for ratemaking that will be recovered or refunded in future rates and differences in accumulated unrecognized gains and losses and prior service costs between Evergy and Evergy Metro due to Evergy Metro electing not to apply "push-down accounting" related to the merger.

Debt reacquisition costs: Includes costs incurred to reacquire and refinance debt. These costs are amortized over the term of the new debt or the remaining lives of the old debt issuances if no new debt was issued and are not included in rate base.

Debt fair value adjustment: Represents purchase accounting adjustments recorded to state the carrying value of Evergy Metro and Evergy Missouri West long-term debt at fair value in connection with the merger. Amount is amortized over the life of the related debt and is not included in rate base.

Asset retirement obligations fair value adjustment: Represents purchase accounting adjustments recorded to state the carrying value of Evergy Metro and Evergy Missouri West AROs at fair value in connection with the merger. Amount is amortized over the life of the related plant and is not included in rate base.

Depreciation: Represents the difference between regulatory depreciation expense and depreciation expense recorded for financial reporting purposes. These assets are included in rate base and the difference is amortized over the life of the related plant.

Cost of removal: Represents amounts spent, but not yet collected, to dispose of plant assets. This asset will decrease as removal costs are collected in rates and is included in rate base.

Asset retirement obligations: Represents amounts associated with AROs as discussed further in Note 7. These amounts are recovered over the life of the related plant and are not included in rate base.

Analog meter unrecovered investment: Represents the deferral of unrecovered investment of retired analog meters. Of this amount, $21.6 million is not included in rate base for Evergy and Evergy Kansas Central and is being amortized over a five-year period.

Treasury yield hedges: Represents the effective portion of treasury yield hedge transactions. Amortization of this amount will be included in interest expense over the term of the related debt and is not included in rate base.

Iatan No. 1 and common facilities: Represents depreciation and carrying costs related to Iatan No. 1 and common facilities. These costs are included in rate base and amortized over various periods.

Iatan No. 2 construction accounting costs: Represents the construction accounting costs related to Iatan No. 2. These costs are included in rate base and amortized through 2059.

Kansas property tax surcharge: Represents actual costs incurred for property taxes in excess of amounts collected in revenues. These costs are expected to be recovered over a one-year period and are not included in rate base.

Disallowed plant costs: The KCC originally disallowed certain costs related to the Wolf Creek plant. In 1987, the KCC revised its original conclusion and provided for recovery of an indirect disallowance with no return on investment. This regulatory asset represents the present value of the future expected revenues to be provided to recover these costs, net of the amounts amortized.

La Cygne environmental costs: Represents the deferral of depreciation and amortization expense and associated carrying charges related to the La Cygne Station environmental project. This amount will be amortized over the life of the related asset and is included in rate base.

Deferred customer programs: Represents costs related to various energy efficiency programs that have been accumulated and deferred for future recovery. Of these amounts, $10.2 million for Evergy and $8.3 million for Evergy Metro are not included in rate base and are amortized over various periods.

Fuel recovery mechanisms: Represents the actual cost of fuel consumed in producing electricity and the cost of purchased power in excess of the amounts collected from customers. This difference is expected to be recovered over a one-year period and is not included in rate base.

Solar rebates: Represents costs associated with solar rebates provided to retail electric customers. These amounts are not included in rate base and are amortized over various periods.

Transmission delivery charge: Represents costs associated with the transmission delivery charge. The amounts are not included in rate base and are amortized over a one-year period.

Wolf Creek outage: Represents deferred expenses associated with Wolf Creek's scheduled refueling and maintenance outages. These expenses are amortized during the period between planned outages and are not included in rate base.

Pension and other post-retirement benefit non-service costs: Represents the non-service component of pension and post-retirement net benefit costs that are capitalized as authorized by regulators. The amounts are included in rate base and are recovered over the life of the related asset.

Retired generation facilities: Represents amounts to be recovered for facilities that have been retired and are probable of recovery.

Merger transition costs: Represents recoverable transition costs related to the merger. The amounts are not included in rate base and are recovered from retail customers through 2028.

Other regulatory assets: Includes various regulatory assets that individually are small in relation to the total regulatory asset balance. These amounts have various recovery periods and are not included in rate base.

The following summarizes the nature and period of amortization for each of the regulatory liabilities listed in the table above.

Taxes refundable through future rates: Represents the obligation to return to customers income taxes recovered in earlier periods when corporate income tax rates were higher than current income tax rates. A large portion of this amount is related to depreciation and will be returned to customers over the life of the applicable property.

Deferred regulatory gain from sale leaseback: Represents the gain Evergy Kansas South recorded on the 1987 sale and leaseback of its 50% interest in La Cygne Unit 2. The gain is amortized over the term of the lease.

Emission allowances: Represents deferred gains related to the sale of emission allowances to be returned to customers.

Nuclear decommissioning: Represents the difference between the fair value of the assets held in the nuclear decommissioning trust and the amount recorded for the accumulated accretion and depreciation expense associated with the asset retirement obligation related to Wolf Creek.

Pension and post-retirement costs: Includes pension and post-retirement benefit obligations and expense recognized in setting prices in excess of actual pension and post-retirement expense.

Jurisdictional allowance for funds used during construction: Represents AFUDC that is accrued subsequent to the time the associated construction charges are included in prices and prior to the time the related assets are placed in service. The AFUDC is amortized to depreciation expense over the useful life of the asset that is placed in service.

La Cygne leasehold dismantling costs: Represents amounts collected but not yet spent on the contractual obligation to dismantle a portion of La Cygne Unit 2. The obligation will be discharged as the unit is dismantled.

Cost of removal: Represents amount collected, but not yet spent, to dispose of plant assets. This liability will be discharged as removal costs are incurred.

Kansas tax credits: Represents Kansas tax credits on investment in utility plant. Amounts will be credited to customers subsequent to the realization of the credits over the remaining lives of the utility plant giving rise to the tax credits.

Purchase power agreement: Represents the amount included in retail electric rates from customers in excess of costs incurred under purchase power agreements. Amounts are amortized over a five-year period.

Merger customer credits: Represents one-time merger bill credits to Evergy Metro's Kansas electric retail customers that were provided in the first quarter of 2019.

Fuel recovery mechanisms: Represents the amount collected from customers in excess of the actual cost of fuel consumed in producing electricity and the cost of purchased power. This difference is expected to be refunded over a one-year period and is not included in rate base.

Sibley AAO: Represents the estimated amount of revenues that Evergy Missouri West has collected from customers for Sibley Station that Evergy has determined is probable of refund. These amounts were recorded in connection with an AAO granted by the MPSC in October 2019 and deferred amounts will be considered by the MPSC in Evergy Missouri West's next rate case.

Refund of tax reform benefits: Represents amounts collected from customers in 2018 related to federal income tax in excess of the income tax owed by the Evergy Companies as a result of the lower federal income tax rate enacted by the Tax Cuts and Jobs Act (TCJA) and were refunded to customers in 2019.

Other regulatory liabilities: Includes various regulatory liabilities that individually are relatively small in relation to the total regulatory liability balance. These amounts will be credited over various periods.