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Great Plains Energy (GXP) |
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WIKI ANALYSIS
Great Plains Energy (NYSE:GXP) is a regulated electric and gas utility that supplies energy to 821,000 retail customers in Missouri and Kansas.[1] It is the parent company of Kansas City Power and Light (KCP&L), which accounts for 100% of Great Plains' revenue. The company has a generating capacity of 6000 megawatts.[2] 82% of Great Plains’ generating capacity is based on coal and natural gas, making the company vulnerable to swings in fossil fuel prices and carbon emissions legislation.[3] 17% of the company's energy comes from nuclear power.[4]
Company Overview
Business Segment
- Kansas City Power & Light Company: KCP&L is a regulated electric utility that generates and distributes electricity to 821,000 customers in 24 counties in western Missouri and eastern Kansas. KCP&L’s retail revenue accounts for 81% of its total operating revenue, while wholesale and bulk power sales account for the rest. Its customers include approximately 724,000 residences, 95,000 commercial firms, and 2,300 industrials, municipalities, and other electric utilities. KCP&L has over 6000 MW of generating capacity. The addition of its new coal-fired plant in Iatan in 2010 will added 435 MW to KCP&L’s generating capacity. With 98% of KCP&L’s electricity supply originating in the Powder River Basin, a localized catastrophe has the potential to cause far-reaching disruptions, although the acquisition of Aquila will geographically diversify Great Plains’ power supply.
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Business Growth
FY 2009 (ended December 31, 2009)[5]
- Net revenue increased 18% to $2 billion.
- Net income fell 3% to $150 million.
Trends and Forces
Rising Fuel Costs Pose Risk to Great Plains Energy’s Margins
Great Plains’ regulated status makes it difficult to pass on increases in fuel costs to its customers. As a result, increases in fuel prices cut into the company’s profit margins.
Coal: 80% of KCP&L's generating capacity is based on coal.[4] KCP&L's reliance on coal and other fossil fuels is poised to increase as demand increases, making the company vulnerable to swings in coal prices and carbon emissions legislation.
Nuclear: The cost of uranium hexafluoride and conversion services to Great Plains remained relatively stable through 2009 due to contracts already in place. Afterwards through 2018, the company expects an increase in the price of nuclear fuel due to greater market demand. Even with this anticipated increase, however, the cost of nuclear fuel per MWh is expected to remain less than the cost of other fuel sources per MWh.
Government Regulation of Retail Electricity Prices Promotes Stable Revenue Outlook
Great Plains Energy’s subsidiaries have legal monopolies over retail electricity in its areas of service in Missouri and Kansas, bringing stability to the company’s operating outlook through a guaranteed customer base. However, Great Plains’ regulated status also makes it more difficult for the company to adjust retail prices based on swings in the cost of fuel since regulators must approve changes in electricity rates. Kansas retail rates contain an Energy Cost Adjustment provision which provides for a firm profit margin in the event fuel costs rise. Missouri retail rates do not contain such a provision, so a rise in fuel costs would adversely affect Great Plain’s net income until regulators authorize an increase in rates.
No legislation authorizing retail choice of electricity has been introduced in Missouri and Kansas for several years.
Competition
Although Great Plains is the sole retail electricity utility in its areas of operation in Missouri and Kansas, it still competes with other energy companies and technologies. For example, customers have the ability to install other sources of energy, such as installing their own solar panels. KCP&L also competes with other power suppliers in the wholesale power market in surrounding areas where it does not have a statutory monopoly. The company’s wholesale power revenue accounted for 17% of its total revenue over the last three years.
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