Kansas consumer advocates flag lack of rate-cut pledge in Senate bill tied to coal plant retirement

Evergy says customers will benefit from abandoning old facilities

The Kansas Senate is considering a bill endorsed by Evergy, owners of this Lawrence power plant, that would allow refinancing of debt on old coal-burning facilities to be paid through issuance of bonds backed by ratepayers. Questions remain about whether consumers would be guaranteed rate reductions. (Jill Hummels/Kansas Reflector)
The Kansas Senate is considering a bill endorsed by Evergy, owners of this Lawrence power plant, that would allow refinancing of debt on old coal-burning facilities to be paid through issuance of bonds backed by ratepayers. Questions remain about whether consumers would be guaranteed rate reductions. (Jill Hummels for Kansas Reflector)

TOPEKA — The Kansas consumer advocacy board dedicated to working on behalf of residential and small business customers registered skepticism with legislation laying the foundation for issuance of ratepayer-backed bonds to finance retirement of older, coal-fired power generation stations.

The bill moving through the Capitol pipeline could, to the delight of environmental organizations, place the stable of coal plants owned by Evergy in the crosshair. However, the Citizens’ Utility Ratepayer Board said Senate Bill 245 wasn’t written to guarantee lower electric rates for consumers. The bill would enable investor-owned Evergy, the state’s largest utility, to decide whether Wall Street or Main Street is the biggest winner from early abandonment of fossil-fuel plants struggling to compete with economics of wind or solar power.

CURB executive director David Nickel said securitization, the term used to describe the complex financing method sought by Evergy, would impose mandatory “energy transition” surcharges on Kansans’ monthly bills to cover bonds issued to deal with outstanding debt on unwanted plants. The legislation wouldn’t require ratepayers to benefit through compensatory electric rate reductions. For that reason, he said, CURB opposed the bill.

“It does not appear to provide expressly that ratepayers will enjoy immediate rate reductions flowing from the retirement or abandonment of electric utility generation facilities,” Nickel said. “CURB believes that energy transition bonds should not be issued unless there is an immediate and quantifiable benefit to the ratepayer. That benefit should come in the form of savings accompanied by reduced rates.”

Chuck Caisley, an executive with Evergy, said the company supported a Kansas Senate bill granting investor-owned utilities opportunity to voluntarily seek Kansas Corporation Commission approval of customer-backed bonds to retire coal-fired power plants. (Screen capture/Kansas Reflector)

Evergy senior vice president Chuck Caisley said the Kansas Grid Resiliency, Innovation and Dependability Act, or GRID Act, would allow the utility company to get out from under capital investment in plants no longer needed. For example, Evergy upgraded emissions equipment on smaller coal plants to comply with pollution regulations. The company might not fully recover upfront investment costs in those facilities for another decade, but the energy market has evolved in ways that made sense to replace those plants with more cost-effective sources of power.

“Evergy is generally long on older, more expensive coal generation,” he said. “In other words, we have older and less efficient coal power plants that are now approaching the end of their lifetimes. It costs us more to run them than it does to run newer generation, and yet because of the way rates are made, we continue to keep these units in use.”

He said industrial, municipal and educational customers along with residential consumers sought greater access to renewable energy. Abundant opportunities for wind and solar power in Kansas provide the state advantages in the transition to renewables, he said.

In terms of consumers, Caisley said, refinancing the unrecovered portion of a plant asset at a low interest rate would benefit customers. It allows Evergy to retire more expensive generation stations and “saves customers money in the long run and is a way to reinvest in Kansas,” he said. However, the Senate bill would authorize utility companies to make use of bond proceeds for “purposes it chooses at its sole discretion.”

Under the bill, likely to be debated this week by the Senate Financial Institutions and Insurance Committee, the Kansas Corporation Commission would oversee issuance of ratepayer-backed securitized bonds sought by investor-owned utilities. KCC estimated there would be two or three applications from utility companies over the next 10 years.

Sen. Jeff Longbine, right, chairman of the Senate Financial Institutions and Insurance Committee, moved quickly to conduct a hearing for Senate Bill 245, which would offer the investor-owned Evergy the option of issuing bonds to finance retirement of old coal plants. Evergy customers would be obligated to pay off the bonds through monthly fees. (Screen capture/Kansas Reflector)
Sen. Jeff Longbine, right, chairman of the Senate Financial Institutions and Insurance Committee, moved quickly to conduct a hearing on Senate Bill 245 offering investor-owned Evergy the option of issuing bonds to finance retirement of coal plants. Evergy customers would pay off the bonds through monthly fees. (Screen capture/Kansas Reflector)

Justin Grady, the KCC’s chief of revenue, cost and finance, said the commission’s staff had been involved in negotiations with Evergy and CURB. KCC is supportive of the securitization concept, he said, but the commission would never approve a utility company’s application for bonding unless there was “substantial benefit to customers.”

“We’re within the five yard line on the football field,” he said. “We’re going to continue to work together to work this out.”

The legislation endorsed by Evergy would make securitization a voluntary option for utility companies, a provision intended to thwart any campaign by environmental groups to close all Kansas coal plants. The company previously opposed securitization on financial grounds, but this year endorsed attempts in Kansas and Missouri to make it a reality for the 1.6 million customers in the two-state service area. Given political influence of Evergy in Topeka and Jefferson City, the legislation is certain to receive more interest than past efforts led by environmentalists.

Zack Pistora, a lobbyist for the Kansas chapter of the Sierra Club, said securitization offered the Legislature an opportunity to capitalize on homegrown energy resources to boost the economy, benefit the environment and embrace less-costly resources such as wind and solar. The Sierra Club has advocated for securitization the past three years and London Economics, consultants hired by the Legislature to examine electric rates in Kansas, suggested the process as one way of dealing with the state’s high electricity costs.

“Through a process similar to refinancing a home mortgage or student loan, securitization allows utilities to pay down debt, retire coal plants that are no longer economically viable, reduce consumers’ rates, and provide funds for investments in cost-effective clean energy resources as well as worker and community transition,” Pistora said.

He recommended the Senate bill be amended to require utility companies to use the lowest lifetime cost generation option and to mandate taxpayer savings from bonding. In other words: Don’t use it to retain fossil fueled facilities. It’s not enough, he said, to say in the bill the process was “expected to provide net quantifiable benefits to customers” or “mitigate rate impacts to customers.” He said the legislation should identify reinvestments other than generation replacement to specify conservation, grid upgrades and energy storage.

Phil Wages, of the Kansas Electric Power Cooperative, which includes 16 rural cooperatives serving two-thirds of Kansas, said it was surprised by introduction of the securitization bill and wanted more time to evaluate its impact on customers. (Screen capture/Kansas Reflector)
Phil Wages, representing Kansas Electric Power Cooperative, which includes 16 rural cooperatives serving two-thirds of Kansas, said KEPCo was surprised by introduction Feb. 12 of the securitization bill and needed more time to evaluate its impact on customers. (Screen capture/Kansas Reflector)

Dorothy Barnett, executive director of the Climate and Energy Project, said well-done securitization was possible. She said her organization was unable to enthusiastically support the pending Senate bill. The state is experiencing a rapid energy transition away from coal, she said, and state lawmakers shouldn’t approve a bill leading to consumer surcharges if utility companies were permitted to replace coal plants with natural gas facilities.

“Unfortunately, there is no mention of renewable energy in this bill,” Barnett said. “Previous versions of this bill specifically called out renewable energy investments and least-cost supply side and demand side resources, neither of which I can find in the current bill.”

She said Kansas adopted the Energy Efficiency Investment Act six years ago, but the state remained 48th on an efficiency scorecard developed by the American Council for a Clean Energy Economy. Securitization proceeds can deliver energy efficiency programs to low- and moderate-income Kansans, she said.

Robert Vincent, an attorney with Kansas Industrial Consumers Group and the Kansans for Lower Electric Rates, objected to the Senate bill because it didn’t guarantee material rate relief for customers and didn’t provide the KCC sufficient oversight. He also said this wasn’t the right time to consider taking any generation plants out of service. The electric service outages tied to the winter storm will trigger investigations that include consideration of how plant retirements can influence reliability of the grid, he said.

Ashok Gupta, a securitization advocate and senior energy economist at Natural Resources Defense Council working primarily on electric utility regulatory issues, said ratepayer-backed bonds were an effective tool for transitioning to less-expensive energy resources and dealing with undepreciated utility company assets. Ratepayer-backed bonds are a form of direct borrowing based on repayment by ratepayers through special fees. It’s different from corporate bonds repaid using cash flow generated by the utility company’s business, he said.

“This legislative proposal creates the right to put in place, adjust and collect these charges on customers’ monthly utility bills as a property right for bondholders,” Gupta said.

He said securitization had been authorized by legislatures in more than 20 states and was relied upon to refinance 60 investor-owned utility transactions between 1997 and 2018 valued at $50 billion. The purpose of those bond projects was to deal with the costs of storm recovery, environmental upgrades, energy efficiency and nuclear power plant retirements.

Phil Wages, who represents the Kansas Electric Power Cooperative and its 16 member rural electric providers, said the organization serving two-thirds of Kansas hadn’t had sufficient time to evaluate the Senate bill introduced Feb. 12 and brought before the committee Feb. 18. He said KEPCo, which is among Evergy’s largest clients, would withhold judgment about the bill until it could be determined whether the measure had a negative impact on its customers.