Kansas’ high utility electric rates compared to neighboring states are expected to be one of the hot topics during this legislative session, pitting Westar Energy and Kansas City Power & Light against advocates trying to lower rates while regulators sit in the middle.
Kansas Corporation Commission staff recently put out an in-depth report on why utility rates are high, pointing primarily to costs of capital investment and changes to the industry landscape, including declining usage. A Westar report filed with KCC soon after agreed with KCC, citing such changes as lowered natural gas prices that made Kansas’ coal generation lose ground and environmental retrofits.
But advocates of getting Kansas electric rates to a more competitive level with regional states said last week at a news conference they aren’t really concerned with why Kansas rates are where they are. They just want relief.
Jim Zakoura, spokesman for the Kansas Industrial Consumers Group, which represents large industrial businesses in Kansas, reeled off a list of how much lower rates in surrounding states are than those in Kansas: Arkansas, 32 percent lower; Oklahoma, 31 percent; Texas, 20 percent; Missouri, 7.5 percent; and Colorado, 5.8 percent.
“These sky-high electric rates are a tremendous burden on large and small businesses in Kansas, the families in Kansas, particularly those families on a fixed income, schools, hospitals, every person in the state of Kansas,” he said.
Utilities: Merger equals lower rates
Chuck Caisley, spokesman for the two energy companies, which merged in 2017 under the name Evergy, argued that the merger was their strategy for getting rates down. Capital investments and other moves the companies made in the past few years have set them up for a competitive future, he said.
Part of the merger agreement made with KCC was that Westar and KCP&L won’t seek any rate increases on their base rate for five years. They also have projected merger savings of $800 million to $1 billion, some of which have been returned to customers up front as part of the agreement.
“We’re much better positioned in the future to be able to compete with our neighbors, all of whom with the exception of OG&E (Oklahoma Gas & Electric) are two to three times bigger than us,” Caisley said. “This is a cyclic business. If you look back at the last 30 years, you’ll see that in the late ’70s or early ’80s, we had a significant increase in rates when we built new generation and we upgraded the grid. Then we saw 20 to 25 years of below the national and regional averages, and you saw 20 to 25 years of flat rates.
“In the early 2000s, the beginning of this millennia, we went through a program of capital investment and now we’ve come out of it, we’ve merged and we expect to see stable rates well into the future, while other companies go through their build cycle,” he said.
Jessica Lucas, with the Clean Energy Business Council, said waiting for surrounding states to catch up to Kansas’ rates isn’t a reasonable solution.
“What we react to very strongly is the KCC study and the utility study that seems to say we have all these costs that we can’t do anything about,” Zakoura agreed. “We reject that. That’s not a solution, and it also denies the creativity in people working together for a greater cause to address those issues for the betterment of the people in the state. There’s nothing particularly unique about Kansas. Why in the world do these other states have rates that are materially lower than Kansas? They figured it out.”
Overbuilt? Over capacity?
In some testimony before KCC and during other utility rate discussions, Zakoura and others have said Westar and KCP&L may have overbuilt their capacity, especially in recent years of flat or declining utility sales.
Caisley said no utility builds to meet current demand, but instead looks out to what the future will bring.
“They look out over a 20-year time period, and you look for what we think of as the least cost generation to build on, to serve what we anticipate the load is going to be,” he said. “Then you build the cost efficient size to do that. For example, with KCP&L, when we built Iatan 2, that was an 850-megawatt power plant, but we weren’t ever going to use all 850 megawatts of that power Day 1. We built that because it was the most efficient size to build and we knew it would be an asset that would absorb load over the next 20 years.”
But David Nickel, consumer counsel at the Citizens’ Utility Ratepayer Board, which represents residential and small business consumers during rate cases, said overcapacity is a problem and one that consumers shouldn’t have to bear. He absolutely agreed that utilities can’t practically build on an as-needed basis, but that still leaves questions to answer.
Who bears the costs?
“There has to be future planning. But that future planning has to be reasonable also,” Nickel said. “To the extent that somebody makes a mistake and they don’t plan reasonably and we have a lot of overcapacity, then the question becomes who’s responsible for it.
“If you’re a private business and you overbuild your inventory, it’s borne by the owner of the business. In this case, it’d be the shareholders. It should not be borne by people and can’t be in a private business, borne by the people or the consumers. Consumers wouldn’t stand for that. They’d find some other business. Why should monopolies, or our utilities, be any different?”
But Caisley argued that any capital investment the utilities made has been discussed and approved by the KCC, usually with CURB, KIC and others as intervenors in the process.
In 2004 or 2005, right before the recession, Westar and KCP&L looked at anticipated load growth over the next 10 to 15 years, he said. A KCC proceeding involving stakeholders found at the time, after considering industry changes like prices of natural gas, coal and wind and needed system improvements, determined more generation would be needed.
All parties, including Zakoura’s group and CURB, agreed to the results of those discussions, and the results included additional generation, Caisley said.
Then two unprecedented things occurred in the industry, he said.
“One was that for the first time in 130 years, in a five- to six-, seven-year period starting with the recession, there was a flat to declining load growth,” Caisley said. “In the history of our industry, 130 years, that had never ever occurred.”
The second occurrence was that natural gas prices plummeted because of the shale gas revolution, Caisley said. Kansas had done well for years selling its coal-generated power to states reliant on natural gas because gas was much higher. That flipped.
Caisley also said that, by law, the two utility companies are required to have excess generation, to the tune of about 12 percent, to meet customer needs.
“If then in a regulated industry where you’re required to meet the demand of customers — we don’t have a choice — if you’re required to have that obligation and if you initiate a stakeholder process where everybody agrees on the right path forward, if you temporarily have excess generation, it’s not fair to say, ‘Well, shareholders just get to eat the cost of that.’ ”
Caisley called the criticism of Westar and KCP&L in regard to overcapacity the “ultimate in bad-faith Monday morning quarterbacking.”
Next week, Westar will present its rate study to both Senate and House utilities committees.