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EVERGY, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS

Source: 
Edgar Glimpses

The following combined Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the consolidated financial statements and accompanying notes in this combined Quarterly Report on Form 10-Q and the Evergy Companies' combined 2019 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. EVERGY, INC. EXECUTIVE SUMMARY Evergy is a public utility holding company incorporated in 2017 and headquartered in Kansas City, Missouri. Evergy operates primarily through the following wholly-owned direct subsidiaries listed below. • Evergy Kansas Central is an integrated, regulated electric utility that

provides electricity to customers in the state of Kansas. Evergy Kansas

Central has one active wholly-owned subsidiary with significant operations, Evergy Kansas South.

• Evergy Metro is an integrated, regulated electric utility that provides

electricity to customers in the states of Missouri and Kansas. • Evergy Missouri West is an integrated, regulated electric utility that provides electricity to customers in the state of Missouri.

• Evergy Transmission Company owns 13.5% of Transource with the remaining

86.5% owned by AEP Transmission Holding Company, LLC, a subsidiary of AEP.

Transource is focused on the development of competitive electric transmission projects. Evergy Transmission Company accounts for its investment in Transource under the equity method. Evergy Kansas Central also owns a 50% interest in Prairie Wind, which is a joint venture between Evergy Kansas Central and subsidiaries of AEP and Berkshire Hathaway Energy Company. Prairie Wind owns a 108-mile, 345 kV double-circuit transmission line that provides transmission service in the SPP. Evergy Kansas Central accounts for its investment in Prairie Wind under the equity method. 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 14,700 MWs of owned generating capacity and renewable purchased power agreements and engage in the generation, transmission, distribution and sale of electricity to approximately 1.6 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). 50

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Table of Contents Strategy Evergy expects to continue operating its integrated utilities within the currently existing regulatory frameworks. In March 2020, the Evergy Board announced the creation of a Strategic Review & Operations Committee, whose mandate was to explore ways to enhance long-term shareholder value (taking into account applicable legal and regulatory requirements and any other relevant considerations), including through a potential strategic combination or an enhanced long-term standalone operating plan and strategy. The committee completed its review and unanimously recommended to the Evergy Board that Evergy pursue an enhanced long-term standalone operating plan and strategy and the Evergy Board subsequently unanimously concurred with the recommendation. This "Sustainability Transformation Plan" is a five-year plan to optimize and enhance value creation for shareholders, customers, communities and employees. Significant elements of the plan include: • targeting a reduction of approximately $330 million of operating and

maintenance expense by 2024 from 2018 adjusted operating and maintenance

expense (non-GAAP) (see "Non-GAAP Measures" within this Executive Summary

for a reconciliation of this non-GAAP measure to the most comparable GAAP measure);

• targeting a reduction of approximately $145 million of fuel and purchased

power expense between 2019 and 2024; and

• approximately $8.9 billion of expected base capital investments through

2024, or $1.4 billion more than Evergy's prior plan. Of this amount,

Evergy expects approximately $2.8 billion to qualify for plant-in-service

accounting in Missouri, and approximately $1.8 billion to be focused on

FERC-jurisdictional improvements. See "Liquidity and Capital Resources;

Capital Expenditures", for further information regarding Evergy's

projected capital expenditures through 2024.

The plan also enhances Evergy's efforts to mitigate future strategic risk through responsible, accelerated decarbonization. Evergy has already reduced carbon dioxide emissions by 45% from 2005 levels and, earlier in 2020 Evergy announced a goal to achieve an 80% reduction from 2005 levels by 2050. The Sustainability Transformation Plan has the potential to reduce carbon dioxide emissions 85% by 2030 compared to 2005 levels. The new plan expedites carbon dioxide emission reductions by pursuing constructive regulatory recovery mechanisms that would be necessary to economically retire aging, coal-fired generation and expanding Evergy's wind and solar footprint. The pace of decarbonization will ultimately be defined in continued collaboration with stakeholders, including in the second half of 2020 as part of Evergy's triennial integrated resource plan. See "Cautionary Statements Regarding Certain Forward-Looking Information" and Part II, Item 1A, Risk Factors, for additional information. Impact of COVID-19 The COVID-19 pandemic has had, and may continue to have, a significant impact on the way that the Evergy Companies conduct their operations, including the implementation of social distancing and other preventative protocols and the direction of employees to work remotely when possible. Further, the spread of COVID-19 has resulted in efforts to contain the virus, such as quarantines, restrictions on travel, closures and the reduced operations of businesses, governmental agencies and other institutions. The pandemic, along with the efforts to contain the virus, has caused and could continue to cause an economic slowdown or recession, result in significant disruptions or reductions in various public, commercial or industrial activities and cause employee absences. In the states of Missouri and Kansas as well as certain counties and municipalities within the Evergy Companies' service territory, "stay-at-home" orders were in effect for substantially all of April 2020 and expired in early May 2020. Following the expiration of the "stay-at-home" orders in early May 2020, much of the Evergy Companies' service territory was subject to phased reopening guidelines that limited the operations of businesses, governmental agencies and other institutions. Certain of these restrictions continue to remain in effect and a substantial portion of the Evergy Companies' service territory is also now required to utilize preventative measures such as the wearing of face coverings while in public areas. Management cannot foresee whether the outbreak of COVID-19 will be effectively contained, nor can it predict the severity and duration of its impact. 51

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Table of Contents During the second quarter of 2020, Evergy experienced an overall reduction in demand and the shifting of usage away from customers with relatively higher load requirements, such as industrial and commercial customers, towards customers with relatively lower load requirements, such as residential customers. Of Evergy's total 2019 revenues, approximately 37% were from residential customers with approximately 47% from commercial and industrial customers. The KCC and MPSC have established different prices for the Evergy Companies' residential, commercial and industrial customers and a similar change in demand across each customer class will have a different impact on earnings. Management estimates that a 1% change in demand for residential, commercial and industrial customers will impact Evergy's 2020 earnings by approximately $10 million, $8 million and $2 million, respectively. As a result, the impacts to Evergy's earnings from a reduction in demand from industrial and commercial customers have been partially offset by an increase in demand from residential customers. The Evergy Companies have also temporarily implemented policies, and in the future may implement additional policies, that are intended to ease the financial burden of the pandemic on customers. These policies, such as temporarily extending payment options and offering incentives for customer payments on overdue balances as well as the elimination of late payment fees and disconnections for non-payment through July 15, 2020, could lead to higher levels of credit loss expense and lower levels of operating cash flows compared to historical levels for the Evergy Companies. In addition, these policies, along with lower electric sales as a result of the overall reduction in demand discussed above, could also lead to the additional repayment of portions of the Evergy Companies' borrowings under receivable sale facilities. Finally, the Evergy Companies have incurred, and will continue to incur, expenses related to monitoring the COVID-19 pandemic and modifying operations in response to the pandemic that are recorded in operating and maintenance expense. In May 2020, Evergy Kansas Central, Evergy Metro and Evergy Missouri West filed joint requests for AAOs with the KCC and MPSC, as applicable, that would allow for the extraordinary costs and lost revenues incurred by the companies, net of any COVID-19-related savings, as a result of the COVID-19 pandemic to be considered for future recovery from customers as part of their next rate cases. The KCC approved the AAO request in July 2020 and a decision by the MPSC is expected in the fourth quarter of 2020. Evergy's management is actively monitoring, and will continue to monitor, the evolving impact of COVID-19 on its results of operations and any developments affecting its workforce and suppliers and will take additional actions as it believes are warranted. The situation is changing rapidly and future impacts may materialize that are not yet known. Accordingly, the extent to which COVID-19 and the factors noted above may impact the results of operations, financial condition, cash flows and liquidity of the Evergy Companies will depend on future developments that are highly uncertain and cannot be predicted, including new information concerning the severity and duration of the COVID-19 outbreak and the actions taken to contain it or to seek recovery of its impact, among others. See "Cautionary Statements Regarding Certain Forward-Looking Information" and Part II, Item 1A, Risk Factors, for additional information. Regulatory Proceedings See Note 4 to the consolidated financial statements for information regarding regulatory proceedings. 52

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Table of Contents Earnings Overview The following table summarizes Evergy's net income and diluted EPS. Three Months Ended Year to Date June 30 June 30 2020 Change 2019 2020 Change 2019 (millions, except per share amounts) Net income attributable to Evergy, Inc. $ 133.4 $ (6.3 ) $ 139.7 $ 202.8 $ (36.4 ) $ 239.2 Earnings per common share, diluted 0.59 0.02 0.57 0.89 (0.07 ) 0.96 Net income attributable to Evergy, Inc. decreased for the three months ended June 30, 2020, compared to the same period in 2019, primarily due to lower retail sales driven by a decrease in weather-normalized commercial and industrial demand primarily due to temporary business closures as a result of COVID-19, partially offset by an increase in weather-normalized residential demand and favorable weather; higher depreciation expense, and higher income tax expense due to the Kansas corporate income tax rate change, partially offset by lower operating and maintenance expense driven by plant outages and lower employee headcount. Diluted EPS increased for the three months ended June 30, 2020, compared to the same period in 2019, primarily due to a lower number of diluted weighted average common shares outstanding in 2020, which increased EPS by $0.04 for the three months ended June 30, 2020. Net income attributable to Evergy, Inc. decreased year to date June 30, 2020, compared to the same period in 2019, primarily due to lower retail sales driven by a decrease in weather-normalized commercial and industrial demand primarily due to temporary business closures as a result of COVID-19, partially offset by an increase in weather-normalized residential demand; higher depreciation expense; lower corporate-owned life insurance (COLI) benefits in 2020; higher interest expense and higher income tax expense due to the Kansas corporate income tax rate change, partially offset by lower operating and maintenance expenses in 2020. Diluted EPS decreased year to date June 30, 2020, compared to the same period in 2019, primarily due to the decrease in net income attributable to Evergy, Inc. discussed above, partially offset by a lower number of diluted weighted average common shares outstanding in 2020, which increased EPS by $0.07 year to date June 30, 2020. For additional information regarding the change in net income, refer to the Evergy Results of Operations section within this MD&A. Adjusted Earnings (non-GAAP) and Adjusted EPS (non-GAAP) Evergy's adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP) for the three months ended and year to date June 30, 2020, were $154.2 million or $0.68 per share and $248.4 million or $1.09 per share, respectively. For the three months ended and year to date June 30, 2019, Evergy's adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP) were $140.3 million or $0.58 per share and $251.4 million or $1.01 per share, respectively. In addition to net income attributable to Evergy, Inc. and diluted EPS, Evergy's management uses adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP) to evaluate earnings and EPS without the costs resulting from rebranding, voluntary severance, advisor expenses and the revaluation of deferred tax assets and liabilities from the Kansas corporate income tax rate change. Non-GAAP Measures Adjusted Earnings and Adjusted EPS Adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP) are intended to enhance an investor's overall understanding of results. Adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP) are used internally to measure performance against budget and in reports for management and the Evergy Board. Adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP) are financial measures that are not calculated in accordance with GAAP and may not be comparable to other companies' presentations or more useful than the GAAP information provided elsewhere in this report. 53

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Table of Contents The following tables provide a reconciliation between net income attributable to Evergy, Inc. and diluted EPS as determined in accordance with GAAP and adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP). Earnings (Loss) per Earnings (Loss) Earnings (Loss)

Diluted Share Earnings (Loss) per Diluted Share Three Months Ended June 30

2020 2019 (millions, except per share amounts) Net income attributable to Evergy, Inc. $ 133.4 $ 0.59 $ 139.7 $ 0.57 Non-GAAP reconciling items: Rebranding costs, pre-tax(a) - - 0.9 0.01 Voluntary severance costs, pre-tax(b) (0.4 ) - (0.1 ) - Advisor expenses, pre-tax(c) 9.8 0.04 - - Income tax benefit(d) (2.4 ) (0.01 ) (0.2 ) - Kansas corporate income tax change(e) 13.8 0.06 - - Adjusted earnings (non-GAAP) $ 154.2 $ 0.68 $ 140.3 $ 0.58 Earnings (Loss) per Earnings (Loss) per Earnings (Loss)

Diluted Share Earnings (Loss) Diluted Share Year to Date June 30

2020 2019 (millions, except per share amounts) Net income attributable to Evergy, Inc. $ 202.8 $ 0.89 $ 239.2 $ 0.96 Non-GAAP reconciling items: Rebranding costs, pre-tax(a) - - 1.1 - Voluntary severance costs, pre-tax(b) 26.6 0.12 14.7 0.06 Advisor expenses, pre-tax(c) 16.4 0.07 - - Income tax benefit(d) (11.2 ) (0.05 ) (3.6 ) (0.01 ) Kansas corporate income tax change(e) 13.8 0.06 - - Adjusted earnings (non-GAAP) $ 248.4 $ 1.09 $ 251.4 $ 1.01

(a) Reflects external costs incurred to rebrand the legacy Westar Energy and

KCP&L utility brands to Evergy and are included in operating and maintenance

expense on the consolidated statements of comprehensive income. (b) Reflects severance costs incurred associated with certain voluntary

severance programs at the Evergy Companies and are included in operating and

maintenance expense on the consolidated statements of comprehensive income.

(c) Reflects advisor expenses incurred associated with strategic planning and are included in operating and maintenance expense on the consolidated statements of comprehensive income. (d) Reflects an income tax effect calculated at a statutory rate of approximately 26%, with the exception of certain non-deductible items. (e) Reflects the revaluation of Evergy Kansas Central's, Evergy Metro's and Evergy Missouri West's deferred income tax assets and liabilities from the Kansas corporate income tax rate change and are included in income tax expense on the consolidated statements of comprehensive income. 54

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Table of Contents 2018 Adjusted Operating and Maintenance Expense The following table provides a reconciliation between 2018 operating and maintenance expense and 2018 pro forma operating and maintenance expense as determined in accordance with GAAP and 2018 adjusted operating and maintenance expense (non-GAAP).

(millions)

2018 Operating and maintenance expense $

1,115.8

Pro forma adjustments(a): Great Plains Energy operating and maintenance expense prior to the merger

317.9

Non-recurring merger costs and other (101.3 ) 2018 Pro forma operating and maintenance expense $

1,332.4

Non-GAAP reconciling items: Voluntary severance costs(b) (23.5 ) Deferral of merger transition costs(c)

28.5

Inventory write-offs at retiring generating units(d) (31.0 ) 2018 Adjusted operating and maintenance expense (non-GAAP) $

1,306.4

(a) Reflects pro forma adjustments made in accordance with Article 11 of

Regulation S-X and ASC 805 - Business Combinations. See Note 2 to the

consolidated financial statements in the Evergy Companies' combined 2018

annual report on Form 10-K for further information regarding these

adjustments.

(b) Reflects severance costs incurred associated with certain voluntary

severance programs at the Evergy Companies and are included in operating and

maintenance expense on the 2018 consolidated statements of comprehensive

income in the Evergy Companies' combined 2018 annual report on Form 10-K.

(c) Reflects the portion of the $47.8 million deferral of merger transition

costs to a regulatory asset in June 2018 that related to costs incurred

prior to 2018. The remaining merger transition costs included within the $47.8 million deferral were both incurred and deferred in 2018 and did not

impact earnings. This item is included in operating and maintenance expense

on the 2018 consolidated statements of comprehensive income in the Evergy

Companies' combined 2018 annual report on Form 10-K.

(d) Reflects obsolete inventory write-offs for Evergy Kansas Central's Unit 7 at

Tecumseh Energy Center, Units 3 and 4 at Murray Gill Energy Center, Units 1

and 2 at Gordon Evans Energy Center, Evergy Metro's Montrose Station and Evergy Missouri West's Sibley Station and are included in operating and

maintenance expense on the 2018 consolidated statements of comprehensive

income in the Evergy Companies' combined 2018 annual report on Form 10-K.

Wolf Creek Refueling Outage Wolf Creek's most recent refueling outage began in September 2019 and the unit returned to service in November 2019. Wolf Creek's next refueling outage is planned to begin in the first quarter of 2021. ENVIRONMENTAL MATTERS See Note 10 to the consolidated financial statements for information regarding environmental matters. RELATED PARTY TRANSACTIONS See Note 11 to the consolidated financial statements for information regarding related party transactions. 55

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Table of Contents EVERGY RESULTS OF OPERATIONS The following table summarizes Evergy's comparative results of operations. Three Months Ended Year to Date June 30 June 30 2020 Change 2019 2020 Change 2019 (millions)

Operating revenues $ 1,184.7 $ (37.0 ) $ 1,221.7 $ 2,301.4

$ (137.2 ) $ 2,438.6 Fuel and purchased power 258.1 (33.5 ) 291.6 516.3 (105.3 ) 621.6 SPP network transmission costs 69.7 6.9 62.8 131.7 5.4 126.3 Operating and maintenance 272.7 (15.9 ) 288.6 560.9 (34.6 ) 595.5 Depreciation and amortization 221.6 6.2 215.4 440.1 11.1 429.0 Taxes other than income tax 90.9 (0.7 ) 91.6 183.2 (1.7 ) 184.9 Income from operations 271.7 - 271.7 469.2 (12.1 ) 481.3 Other expense, net (4.2 ) 5.2 (9.4 ) (25.4 ) (8.0 ) (17.4 ) Interest expense 99.5 4.1 95.4 195.7 9.2 186.5 Income tax expense 33.7 9.3 24.4 43.8 10.1 33.7 Equity in earnings of equity method investees, net of income taxes 2.0 (0.1 ) 2.1 4.2 (0.1 ) 4.3 Net income 136.3 (8.3 ) 144.6 208.5 (39.5 ) 248.0 Less: Net income attributable to noncontrolling interests 2.9 (2.0 ) 4.9 5.7 (3.1 ) 8.8 Net income attributable to Evergy, Inc. $ 133.4 $ (6.3 ) $ 139.7 $ 202.8 $ (36.4 ) $ 239.2 Evergy Utility Gross Margin and MWh Sales Utility gross margin is a financial measure that is not calculated in accordance with GAAP. Utility gross margin, as used by the Evergy Companies, is defined as operating revenues less fuel and purchased power costs and amounts billed by the SPP for network transmission costs. Expenses for fuel and purchased power costs, offset by wholesale sales margin, are subject to recovery through cost adjustment mechanisms. As a result, changes in fuel and purchased power costs are offset in operating revenues with minimal impact on net income. In addition, SPP network transmission costs fluctuate primarily due to investments by SPP members for upgrades to the transmission grid within the SPP RTO. As with fuel and purchased power costs, changes in SPP network transmission costs are mostly reflected in the prices charged to customers with minimal impact on net income. Management believes that utility gross margin provides a meaningful basis for evaluating the Evergy Companies' operations across periods because utility gross margin excludes the revenue effect of fluctuations in these expenses. Utility gross margin is used internally to measure performance against budget and in reports for management and the Evergy Board. Utility gross margin should be viewed as a supplement to, and not a substitute for, income from operations, which is the most directly comparable financial measure prepared in accordance with GAAP. The Evergy Companies' definition of utility gross margin may differ from similar terms used by other companies. 56

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The following tables summarize Evergy's utility gross margin and MWhs sold and provide a reconciliation of utility gross margin to income from operations.

Revenues and Expenses MWhs Sold Three Months Ended June 30 2020 Change 2019 2020 Change 2019 Retail revenues (millions) (thousands) Residential $ 476.7 $ 45.1 $ 431.6 3,723 461 3,262 Commercial 388.7 (49.9 ) 438.6 3,854 (480 ) 4,334 Industrial 139.3 (17.3 ) 156.6 1,899 (246 ) 2,145 Other retail revenues 9.1 (0.4 ) 9.5 32 (3 ) 35 Total electric retail 1,013.8 (22.5 ) 1,036.3 9,508 (268 ) 9,776 Wholesale revenues 47.3 (25.0 ) 72.3 3,861 702 3,159 Transmission revenues 82.2 5.8 76.4 N/A N/A N/A Other revenues 41.4 4.7 36.7 N/A N/A N/A Operating revenues 1,184.7 (37.0 ) 1,221.7 13,369 434 12,935 Fuel and purchased power (258.1 ) 33.5 (291.6 ) SPP network transmission costs (69.7 ) (6.9 ) (62.8 ) Utility gross margin (a) 856.9 (10.4 ) 867.3 Operating and maintenance (272.7 ) 15.9 (288.6 ) Depreciation and amortization (221.6 ) (6.2 ) (215.4 ) Taxes other than income tax (90.9 ) 0.7 (91.6 ) Income from operations $ 271.7 $ -

$ 271.7 (a) Utility gross margin is a non-GAAP financial measure. See explanation of utility gross margin above.

Revenues and Expenses MWhs Sold Year to Date June 30 2020 Change 2019 2020 Change 2019 Retail revenues (millions) (thousands) Residential $ 879.2 $ (4.1 ) $ 883.3 7,301 75 7,226 Commercial 773.4 (78.7 ) 852.1 8,060 (698 ) 8,758 Industrial 279.9 (23.7 ) 303.6 3,898 (258 ) 4,156 Other retail revenues 19.7 0.4 19.3 65 (6 ) 71 Total electric retail 1,952.2 (106.1 ) 2,058.3 19,324 (887 ) 20,211 Wholesale revenues 110.8 (44.6 ) 155.4 6,735 (453 ) 7,188 Transmission revenues 157.8 4.7 153.1 N/A N/A N/A Other revenues 80.6 8.8 71.8 N/A N/A N/A Operating revenues 2,301.4 (137.2 ) 2,438.6 26,059 (1,340 ) 27,399 Fuel and purchased power (516.3 ) 105.3 (621.6 ) SPP network transmission costs (131.7 ) (5.4 ) (126.3 ) Utility gross margin (a) 1,653.4 (37.3 ) 1,690.7 Operating and maintenance (560.9 ) 34.6 (595.5 ) Depreciation and amortization (440.1 ) (11.1 ) (429.0 ) Taxes other than income tax (183.2 ) 1.7 (184.9 ) Income from operations $ 469.2 $ (12.1 )

$ 481.3 (a) Utility gross margin is a non-GAAP financial measure. See explanation of utility gross margin above.

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Evergy's utility gross margin decreased $10.4 million for the three months ended June 30, 2020, compared to the same period in 2019 driven by: • a $7.2 million decrease including lower retail sales driven by a decrease

in weather-normalized commercial and industrial demand primarily due to

temporary business closures resulting from government restrictions to slow

the spread of COVID-19, partially offset by an increase in weather-normalized residential demand and favorable weather; cooling degree days increased 24% and heating degree days increased 31%; • a $4.9 million decrease related to Evergy Kansas Central's TDC rider; and • a $2.7 million decrease in revenue related to the granting of an AAO by

the MPSC in October 2019 requiring Evergy Missouri West to record a

regulatory liability for the estimated amount of revenues it has collected

from customers for certain costs related to Sibley Station since its retirement in November 2018; partially offset by • a $2.8 million increase for recovery of programs costs for energy efficiency programs under the Missouri Energy Efficiency Investment Act

(MEEIA), which have a direct offset in operating and maintenance expense;

and

• a $1.6 million increase in Evergy Metro's and Evergy Missouri West's MEEIA

throughput disincentive in 2020.

Evergy's utility gross margin decreased $37.3 million year to date June 30, 2020, compared to the same period in 2019 driven by: • a $26.9 million decrease primarily due to lower retail sales driven by a

decrease in weather-normalized commercial and industrial demand primarily

due to temporary business closures resulting from government restrictions

to slow the spread of COVID-19, partially offset by an increase in weather-normalized residential demand;

• a $9.6 million decrease in revenue recognized for the MEEIA earnings

opportunity in 2020 related to the achievement of certain energy savings

levels in the second cycle of Evergy Metro's and Evergy Missouri West's

MEEIA programs;

• a $5.4 million decrease in revenue related to the granting of an AAO by

the MPSC in October 2019 requiring Evergy Missouri West to record a

regulatory liability for the estimated amount of revenues it has collected

from customers for certain costs related to Sibley Station since its retirement in November 2018; and

• a $5.1 million decrease related to Evergy Kansas Central's TDC rider;

partially offset by • a $6.7 million increase for recovery of programs costs for energy

efficiency programs under MEEIA, which have a direct offset in operating

and maintenance expense; and

• a $3.0 million increase in Evergy Metro's and Evergy Missouri West's MEEIA

throughput disincentive in 2020.

Operating and Maintenance Evergy's operating and maintenance expense decreased $15.9 million for the three months ended June 30, 2020, compared to the same period in 2019 primarily driven by: • a $19.5 million decrease in plant operating and maintenance expense at

fossil-fuel generating units primarily due to:

• a $9.4 million decrease at Evergy Kansas Central primarily driven by a $7.2 million decrease from maintenance outages at JEC Unit 2 and La Cygne Unit 2 in 2019 and lower employee headcount; and • a $7.6 million decrease at Evergy Metro primarily driven by a $7.2 million decrease from outages at Hawthorn Station, Iatan Station and La Cygne Unit 2 and lower employee headcount; and 58

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• an $8.5 million decrease in transmission and distribution operating and

maintenance expense primarily due to lower employee headcount in 2020; partially offset by • $9.8 million of advisor expenses incurred in the second quarter of 2020 associated with strategic planning; and

• a $2.8 million increase in program costs for energy efficiency programs

under MEEIA, which have a direct offset in revenue.

Evergy's operating and maintenance expense decreased $34.6 million year to date June 30, 2020, compared to the same period in 2019 primarily driven by: • a $28.0 million decrease in plant operating and maintenance expense at

fossil-fuel generating units primarily due to:

• a $14.9 million decrease at Evergy Kansas Central primarily driven by a $10.9 million decrease from maintenance outages at JEC Unit 2 and La Cygne Unit 2 in 2019 and lower employee headcount in 2020; and • a $9.1 million decrease at Evergy Metro primarily driven by a $9.7 million decrease from outages at Hawthorn Station, Iatan Station and La Cygne Unit 2 and lower employee headcount;

• a $25.8 million decrease in transmission and distribution operating and

maintenance expense primarily due to $13.1 million of costs at Evergy

Metro and Evergy Missouri West incurred from storms that occurred in January 2019 and lower employee headcount in 2020; and

• a $9.2 million decrease in various administrative and general operating

and maintenance expenses primarily driven by a $4.2 million decrease in

labor and employee benefits expense that included lower employee headcount

in 2020 and a $3.7 million decrease in property insurance expense due to a

higher annual refund of nuclear insurance premiums received by Evergy

Kansas Central and Evergy Metro in 2020 related to their ownership interest in Wolf Creek; partially offset by • $16.4 million of advisor expenses incurred in the first half of 2020 associated with strategic planning;

• an $11.4 million increase due to $6.6 million of voluntary severance

expenses incurred in the first quarter of 2020 by Evergy Kansas Central

and Evergy Metro related to a Wolf Creek voluntary exit program and a $4.8

million increase of voluntary severance expenses at Evergy Kansas Central,

Evergy Metro and Evergy Missouri West related to additional Evergy voluntary exit programs in 2020; and

• a $6.7 million increase in program costs for energy efficiency programs

under MEEIA, which have a direct offset in revenue.

Depreciation and Amortization Evergy's depreciation and amortization increased $6.2 million for the three months ended June 30, 2020, compared to the same period in 2019 primarily driven by capital additions at Evergy Kansas Central and Evergy Metro. Evergy's depreciation and amortization increased $11.1 million year to date June 30, 2020, compared to the same period in 2019 primarily driven by capital additions at Evergy Kansas Central and Evergy Metro. Other Expense, Net Evergy's other expense, net decreased $5.2 million for the three months ended June 30, 2020, compared to the same period in 2019 primarily driven by a $2.6 million increase in Evergy Kansas Central's equity allowance for funds used during construction (AFUDC) in 2020 and a $1.0 million decrease due to recording higher Evergy Kansas Central COLI benefits in the second quarter of 2020. Evergy's other expense, net increased $8.0 million year to date June 30, 2020, compared to the same period in 2019 primarily driven by: • a $5.5 million increase due to recording lower Evergy Kansas Central COLI benefits in 2020; 59

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Table of Contents • a $3.5 million decrease in investment earnings primarily due to a loss from equity investments; and

• a $2.8 million increase due to higher Evergy Metro pension non-service

costs in 2020; partially offset by

• a $4.2 million increase in Evergy Kansas Central's equity AFUDC in 2020.

Interest Expense Evergy's interest expense increased $4.1 million for the three months ended June 30, 2020, compared to the same period in 2019 primarily driven by: • a $12.5 million increase due to the issuance of Evergy's $1.6 billion of

senior notes in September 2019;

• a $3.9 million increase due to the issuance of Evergy Kansas Central's

$500.0 million of 3.45% FMBs in April 2020; and

• a $2.5 million increase due to the issuance of Evergy Kansas Central's

$300.0 million of 3.25% FMBs in August 2019; partially offset by • a $9.3 million decrease primarily due to Evergy's borrowings under its

$1.0 billion term loan credit agreement in 2019 and a lower commercial

paper balance and a lower weighted-average interest rate on short-term

borrowings at Evergy Kansas Central and Evergy Metro in 2020; and

• a $5.1 million decrease due to the repayment of Evergy Kansas South's

$300.0 million of 6.70% FMBs at maturity in June 2019.

Evergy's interest expense increased $9.2 million year to date June 30, 2020, compared to the same period in 2019 primarily driven by: • a $24.9 million increase due to the issuance of Evergy's $1.6 billion of

senior notes in September 2019;

• a $4.9 million increase due to the issuance of Evergy Kansas Central's

$300.0 million of 3.25% FMBs in August 2019; and

• a $3.9 million increase due to the issuance of Evergy Kansas Central's

$500.0 million of 3.45% FMBs in April 2020; partially offset by

• a $13.5 million decrease primarily due to Evergy's borrowings under its

$1.0 billion term loan credit agreement in 2019 and a lower commercial

paper balance and a lower weighted-average interest rate on short-term

borrowings at Evergy Kansas Central and Evergy Metro in 2020;

• a $10.1 million decrease due to the repayment of Evergy Kansas South's

$300.0 million of 6.70% FMBs at maturity in June 2019; and

• a $4.7 million net decrease due to the repayment of Evergy Metro's $400.0

million of 7.15% Mortgage Bonds at maturity in April 2019, which decreased

interest expense by $8.6 million, partially offset by a $3.9 million increase due to Evergy Metro's issuance of $400.0 million of 4.125% Mortgage Bonds in March 2019. Income Tax Expense Evergy's income tax expense increased $9.3 million for the three months ended June 30, 2020, compared to the same period in 2019 primarily driven by a $13.8 million net increase due to the revaluation of deferred income tax assets and liabilities in the second quarter of 2020 due to the change in the Kansas corporate income tax rate. Evergy's income tax expense increased $10.1 million year to date June 30, 2020, compared to the same period in 2019 primarily driven by a $13.8 million net increase due to the revaluation of deferred income tax assets and liabilities in the second quarter of 2020 due to the change in the Kansas corporate income tax rate. See Note 12 to the consolidated financial statements for more information regarding the change in the Kansas corporate income tax rate. 60

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Table of Contents LIQUIDITY AND CAPITAL RESOURCES Evergy relies primarily upon cash from operations, short-term borrowings, debt and equity issuances and its existing cash and cash equivalents to fund its capital requirements. Evergy's capital requirements primarily consist of capital expenditures, payment of contractual obligations and other commitments and the payment of dividends to shareholders. See the Evergy Companies' combined 2019 Form 10-K for more information on Evergy's sources and uses of cash. As of June 30, 2020, Evergy had $176.4 million of cash and cash equivalents on hand and $2.0 billion of available borrowing capacity under its master credit facility. Evergy believes that its existing cash on hand and available borrowing capacity under its master credit facility provide sufficient liquidity for its existing capital requirements. Short-Term Borrowings As of June 30, 2020, Evergy had $2.0 billion of available borrowing capacity under its master credit facility. The available borrowing capacity under the master credit facility consisted of $394.3 million for Evergy, Inc., $757.9 million for Evergy Kansas Central, $570.0 million for Evergy Metro and $281.0 million for Evergy Missouri West. Evergy Kansas Central's, Evergy Metro's and Evergy Missouri West's borrowing capacity under the master credit facility also supports their issuance of commercial paper. See Note 7 to the consolidated financial statements for more information regarding the master credit facility. Along with cash flows from operations and receivable sales facilities, Evergy generally uses borrowings under its master credit facility and the issuance of commercial paper to meet its day-to-day cash flow requirements. As a result of lower electric sales as well as delays in the timely receipt of customer payments and increased customer non-payment due to the COVID-19 pandemic and temporary policies implemented by Evergy to ease the financial burden of the pandemic on customers, the Evergy Companies have not had sufficient eligible receivables to maximize their borrowing capacity under their receivable sales facilities and have been required to repay portions of these borrowings under the facilities. As of June 30, 2020, Evergy had total borrowings under receivable sales facilities of $297.0 million out of a maximum borrowing capacity of $395.0 million. To the extent that the Evergy Companies continue to experience lower electric sales, further delays in the timely receipt of customer payments or increases in customer non-payments, they could be required to repay additional borrowings under their receivable sales facilities. Evergy expects that these repayments would be funded with cash from operations or short-term borrowings. Significant Debt Issuances See Note 8 to the consolidated financial statements for information regarding significant debt issuances. 61

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Table of Contents Capital Expenditures Evergy requires significant capital investments and expects to need cash primarily for utility construction programs designed to improve and expand facilities related to providing electric service, which include, but are not limited to, expenditures to develop new transmission lines and improvements to power plants, transmission and distribution lines and equipment. Evergy's capital expenditures were $1,210.1 million, $1,069.7 million and $764.6 million in 2019, 2018 and 2017, respectively. In August 2020, Evergy announced its new Sustainability Transformation Plan, which includes, among other things, approximately $8.9 billion of expected base capital investments through 2024, or $1.4 billion more than Evergy's prior plan. See "Executive Summary; Strategy", above for further information regarding the Sustainability Transformation Plan. Capital expenditures projected for the next five years pursuant to the new plan, excluding AFUDC and including costs of removal, are detailed in the following table. This capital expenditure plan is subject to continual review and change. 2020 2021 2022 2023 2024 (millions) Generating facilities $ 453 $ 280 $ 767 $ 494 $ 262 Transmission and distribution facilities 893 1,314 1,336 1,252 1,131 General facilities and other 240 132 137 106 108 Total capital expenditures $ 1,586 $ 1,726 $ 2,240

$ 1,852 $ 1,501

Pensions

Year to date June 30, 2020, Evergy made pension contributions of $35.8 million. Evergy expects to make additional pension contributions of $96.9 million in 2020 to satisfy ERISA funding requirements and KCC and MPSC rate orders, of which $16.8 million is expected to be paid by Evergy Kansas Central and $80.1 million is expected to be paid by Evergy Metro. Also in 2020, Evergy expects to make additional contributions of $3.1 million to the post-retirement benefit plans. Debt Covenants As of June 30, 2020, Evergy was in compliance with all debt covenants under the master credit facility and certain debt instruments that contain restrictions that require the maintenance of certain capitalization and leverage ratios. See Note 7 to the consolidated financial statements for more information. Off-Balance Sheet Arrangement Evergy's off-balance sheet arrangements were reported in the Evergy Companies' combined 2019 Form 10-K. As of June 30, 2020, there have been no material changes with regards to these off-balance sheet arrangements. Cash Flows The following table presents Evergy's cash flows from operating, investing and financing activities.

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