Kirkland Andrews
Executive Vice President, Chief Financial Officer at Evergy
Thanks, David. Good morning, everyone and I'll start with the results for the quarter on Slide 16. For the fourth quarter of 2022, Evergy delivered adjusted earnings of $68.6 million or $0.30 per share compared to $32.9 million or $0.14 per share in the fourth quarter of 2021. As shown on the slide, the year-over-year increase in fourth quarter EPS was driven by the following. First, an increase in heating degree days, partially offset by lower demand drove a net $0.08 increase in EPS compared to the fourth quarter of 2021.
High transmission margins resulting from both our ongoing investments to enhance our transmission infrastructure and higher volumes drove a $0.04 increase. A decrease in O&M versus the fourth quarter of 2021 drove an $0.08 increase in adjusted EPS for the quarter. These positive drivers were partially offset by $0.03 of higher D&A expense and $0.09 from the combination of higher interest expense and lower AFUDC equity.
Income tax related items, including increased wind and other tax credits and the timing of the use of tax credits compared to the prior year, drove $0.06 of higher EPS in the quarter. And finally, other items, both positive and negative, drove a net $0.02 of year-over-year increase. These items consist of higher COLI proceeds and other margin, which were partially offset by $0.06 from the Kansas earnings sharing program, which was one of our merger commitments, which expired in 2022. Warmer weather through the summer and into the fall drove our earned ROE at Kansas Metro above our current authorized 9.3%, requiring us to refund half of that excess back to customers. I'll turn next to year-to-date results, which you'll find on Slide 17.
For the full year 2022, adjusted earnings were $853.8 million or $3.71 per share, which compares to $795.2 million or $3.46 share in 2021. Again, moving from left to right, our full year EPS drivers versus '21 include the following. Weather contributed $0.21 versus 2021. Relative to normal, weather drove an estimated $0.29 favorability in 2022. Weather-normalized demand was 1.1% higher than 2021, driving an $0.11 increase. Higher transmission margins from increased investment as well as higher volumes, drove a $0.15 year-over-year increase and lower O&M drove adjusted EPS $0.02 higher versus 2021.
These positive drivers were partially offset by $0.11 of D&A and $0.14 of increased interest expense and lower AFUDC equity, with higher interest expense accounting for $0.11 of the $0.14 decrease in adjusted EPS.
Finally, other items drove a net $0.01 of favorability consisting primarily of $0.04 from the expiry of merger bill credits, $0.02 from tax credits and $0.01 of other items, which were partially offset by $0.06 from the earnings sharing program or ERSP, at Kansas Metro, which I mentioned earlier in my fourth quarter remarks. Turning to Slide 18, I'll provide a brief update on our recent sales trends. On the left-hand side of the slide, you'll see that total retail sales increased 3.5% in 2022, driven primarily by a strong increase in residential usage and supported by healthy commercial and industrial growth. Looking to the right-hand side of the slide, after adjusting for the estimated impact of weather, retail sales increased 1.1% for the full year. These results were bolstered by strong industrial demand from the oil and chemical refining sectors.
The 1.7% increase in weather-normalized commercial demand was driven by customer growth and a continued return to normal post COVID. Underlying the continued growth in residential and commercial customers is a strong labor market, highlighted by Kansas and the Kansas City Metro area unemployment rates of 2.9% and 2.4%, respectively, as of year-end.
These remain below the national average of 3.4%. Overall, in 2022, we saw continued recovery following pandemic and our economy is well positioned to extend that positive trend. As a result, adjusting for 30-year weather, we expect an approximate 1.6% increase in weather-normalized demand in 2023, which I'll discuss as part of our 2023 EPS guidance, which you'll find on Slide 19.
Starting on the left side of that slide and beginning with 2022 adjusted EPS of $3.71, we expect an $0.11 decline from demand or just under 1% decrease in total demand. This $0.11 decrease is the net impact of removing that estimated $0.29 impact in '22 from weather, partially offset by an $0.18 increase in weather-normalized demand. Removing the largely weather-driven impact of the earnings sharing program, or ERSP at Kansas Metro in 2022, results in a $0.06 increase.
We expect an approximate $60 million reduction in pretax O&M to deliver a $0.20 EPS increase as we continue to execute on our cost savings programs as part of our focus on and commitment to affordability and operational excellence. Higher transmission margins are expected to add $0.13 in 2023 as we continue to make investments to improve our transmission infrastructure.
The pending acquisition of the Persimmon Creek wind farm is expected to drive $0.05 of EPS. These positive drivers are expected to be partially offset by the following, increased D&A of $0.16 as we continue to invest in infrastructure and execute our capital plan, increased interest expense of $0.21 due to higher debt balances at higher rates, and $0.02 of other items, primarily driven by lower year-over-year earnings from a combination of the expiry of a wholesale contract in Kansas and the onetime true-up of Uri carrying costs in 2022 and which were partially offset by higher expected COLI proceeds.
Turning next to Slide 20. Our strong results in 2022 reflect our ongoing focus on and continuing to build a track record of consistent execution. As David mentioned earlier, we're reaffirming our long-term compound annual EPS growth rate target of 6% to 8% from 2021 to 2025 as we remain confident in achieving that trajectory. And as we continue to progress on that path, we also remain committed to returning capital to our shareholders and target dividend growth in line with earnings growth with that dividend payout ratio of 60% to 70%.
Our updated five-year capex plan from 2023 to 2027 totals $11.6 billion and implies rate base growth of approximately 6% from 2022 to 2027. We've included some additional disclosures in the appendix of today's presentation, including a breakdown of planned expenditures by category and by utility, which we hope you will find helpful.
In addition to allowing us to achieve these financial targets, executing on this investment plan also advances our key objective to advance affordability, reliability and sustainability over the long term.
I'll conclude by reviewing some specific 2023 objectives as you turn to Slide 21. Building on the positive momentum from our strong results over the past two years, we remain focused on meeting or exceeding our financial targets in 2023. This year, we'll be working collaboratively with our Kansas regulators and stakeholders to achieve a constructive outcome in our first Kansas Central and Metro rate cases since the merger in 2018.
As a key factor in achieving our goal of affordability, we look forward to providing our Kansas customers with the benefits of significant O&M savings we've achieved over the last five years. Consistent with the needs identified in our integrated resource plan, we are focused on closing the acquisition of the 200 megawatts Persimmon Creek Wind Farm this year, which is PISA eligible and will serve our Missouri West customers with clean, low-cost energy.
Finally, we've recently launched a new renewables RFP, focused on sourcing the balance of our 2024 renewables as well as our 2025 and 2026 investment objectives, and we will look to complete this process later this year to begin executing agreements to achieve those objectives. We will also update our integrated resource plans in both states in June, which will, for the first time, incorporate the benefits of the Inflation Reduction Act.
With that, we'll be happy to take your questions.
