Kansans are paying more for electricity than other states, according to a recent report from the Kansas Corporation Commission.
However, Hays-area customers who receive power from Midwest Energy pay more favorable rates than customers served by the state’s largest power provider, Evergy. Evergy was formed by the merger of Westar and Kansas City Power and Light last year.
“Midwest Energy’s electric rates are competitive statewide, with investor-owned utilities and against the average for co-ops in Kansas. Against electric co-ops in Kansas, our rates on average were 19 percent below those of the average Kansas cooperative,” said Mike Morley, director of corporate communications for Midwest Energy.
Between June 2016 and June 2017, monthly bills based on average residential consumption of 916 kWh were $121.40, while the national average was $120.56. An equivalent Midwest Energy bill would have been $105.52. These numbers were calculated without taxes.
Special interest groups, especially business and industry, are calling for a legislative review of electric rates in the state, saying the high rates are making it difficult for them to stay competitive.
Chuck Caisley, KCP&L and Westar Energy senior vice president of marketing and public affairs, spoke before the Kansas Senate Utilities Committee on Wednesday. He also defended the power company in a press release issued last week.
“We are ahead of our peers in providing renewable energy, meeting federal and state environmental regulations and ensure our transmission system is modernized and reliable,” Caisley said in the press release. “Our prices are competitive with the national average. As utilities in neighboring states continue to invest in their infrastructure, they are asking to increase prices to recover those investments.”
Several of the factors that have resulted in an increase in power rates for Evergy customers are not affecting Midwest Energy.
In its report, the KCC noted installation of emissions-reducing equipment at coal-fueled power plants was one factor that led to utility rate increases.
Midwest Energy was not directly affected by the changes at the coal-fired plants, Morley said. Although Midwest Energy purchases power from Evergy, which has coal-fired power plants, Midwest Energy does so via long-term energy supply contracts, and the costs of any environmental upgrades are contained in those contract prices.
Both Evergy and Midwest Energy have seen the cost effects of improving infrastructure to accommodate the use of wind energy. In 2008 Midwest Energy signed a purchased power agreement to purchase 49 MW of wind energy from the Smoky Hill Wind Farm. In 2017 Midwest Energy signed a purchased power agreement for an additional 57 Megawatts from the Kingman Wind Farm As a result, roughly one-third of its electricity comes from Kansas wind.
Transmission charges for Midwest Energy have outpaced inflation, increasing from .0033 cents per kWh in 2009 to .0088 cents per kWh in 2018.
Morley said transmission charges are hard to compare between utilities because of differences in how they are applied to customers’ bills.
Morley said he thought the Kansas regulators can take action to keep Kansas electric rates low.
Morley said he would like to see the Legislature address utility property taxes.
Utilities have real property assessed at a rate of 33 percent in Kansas, which is higher than agriculture (30 percent), commercial/industrial (25 percent) and residential (11.5 percent). In 2018, Midwest Energy paid $8.2 million in property taxes to 43 counties, and those costs flow back to the customer.
Morley also said he would like to see out-of-state power customers pay a greater share of infrastructure costs when power is exported out of state. Midwest Energy has spent tens of millions of dollars over the last decade upgrading and improving its transmission system to allow wind interconnections, even though most of that electricity is sold to far-away markets, Morley said.
Historically, one-third of those costs have been spread regionally through the Southwest Power Pool, with Midwest Energy customers picking up two-thirds of those costs. Discussion is taking place at the Southwest Power Pool to revise that cost-sharing formula and make these transmission projects less costly to local customers.
“One other idea worth considering might be some type of excise tax or fee on wind energy that’s exported out of the state,” he said. “Having that fee offset utility property taxes would directly benefit electric customers, who have had to pay the majority of the cost of building these transmission ‘highways’ for that wind energy to leave the state.”
Smaller utilities have challenges
Despite lower rates, Midwest Energy does have its own challenges. A high ratio of residential customers puts Midwest Energy at a disadvantage when it comes to rates.
“Generally speaking, the more large commercial customers a utility serves, the more positive effect on rates,” Morley said. “This is because large commercial loads (factories, manufacturing) are the most economical to serve, as they have a high “load factor” – they consume a lot of electricity at a consistently steady rate over time.”
Midwest Energy’s customer breakdown is below.
Residential: 59.8 percent of meters; 21 percent of kWh sales
Small commercial and oil: 34.9 percent of meters; 47 percent of kWh sales
Large commercial: .1 percent of meters; 27 percent of kWh sales
Irrigation: 5.2 percent of meters; 5 percent of kWh sales
Customer density is another factor. Utilities in more urban areas often have customers-per-mile ratios of 25 or more, Morley said. Midwest Energy has 4.4 customers per mile of line. All other factors equal, lower customer densities mean higher rates.
Although Hays benefits from lower electric rates, it needs other resources to bring new businesses into the region.
“Our commercial and industrial rates are competitive with those throughout the region,” Morley said. “While there are many challenges in recruiting industrial customers to the region (labor force availability and housing are often cited, as are proximity to markets), we work hard to minimize costs, keeping our rates as low as possible and competitive within the region.”
Change in rate structure
In 2018, Midwest Energy requested a change in rate structure, but it should result in a $0 increase in revenue for the utility.
Midwest Energy bought its W system from Westar in 2003. M system customers were often paying more for electricity than W system customers. The rate structure changes bring rates between the two systems closer together over three years.
The changes also simplify rate designs. For years, Midwest Energy had “inclining block rates” during the summer months. As usage moved up through the blocks, your per-kWh rates would also increase. The new rates bring a lower, year-round per kWh rate for all customers.
“I can only speak for Midwest Energy, but generally speaking, we predict rates to be fairly stable in the intermediate term (next three years), with modest rate increases approximating inflation over the next 10 years. We will examine all opportunities to control costs and keep rates affordable,” Morley said.
Corrected to reflect accurate per-kWh charges.