Tony Webster / Creative Commons
After opposing such legislation in previous sessions, Evergy is backing bills in Kansas and Missouri that would help it refinance and retire coal plants ahead of schedule.
In a reversal from previous legislative sessions, Kansas City utility Evergy is backing proposals in two states aimed at buffering customers and investors from the costs associated with accelerated coal plant retirements.
Securitization legislation has gone nowhere in both the Kansas and Missouri legislatures for several years. Evergy, which serves about 1.6 million customers in eastern Kansas and western Missouri, has opposed the bills on the grounds that they were unnecessary and a potential financial risk.
On Friday, though, a bill drafted by Evergy was introduced in the Kansas Senate (SB 245) and referred to a finance and insurance committee. And a hearing for a similar bill (SB 202) in the Missouri Senate has been scheduled for next week.
What changed? Evergy government affairs director Jason Klindt said the pivot is a result of changing demands from customers and investors.
“We’re long on old coal generation. We’re seeing increasing demand from industries and municipalities for access to renewable energy. That’s new in the last couple years,” Klindt said. “If you look at Washington D.C., Wall Street and our customers, we are under increasing pressure to meet the demand for more renewable power. The ability to do that depends on retiring old coal generation.”
Evergy came under pressure a year ago from one of its largest shareholders, Elliott Management Corp., which wanted the utility to invest spare capital in infrastructure rather than repurchasing shares in the company.
Securitization, also known in the utility world as ratepayer-backed bonds, has been used for years to, for example, finance repairs to equipment damaged in storms. More recently, clean energy promoters have cast it as a key to speeding up the retirement of coal-fired power plants. With permission from state regulators, utilities can arrange for the outstanding debt on assets to be sold as bonds that are then repaid by customers’ monthly bill payments.
Those ratepayer-backed bonds typically can snag interest rates of 2% to 4% because repayment is considered almost guaranteed. The bottom line for customers: The bonds are costing them about one-third of what they would pay if the utility was still paying off the outstanding coal-plant debt. If Evergy were to securitize the remaining $300 million owed on a coal plant, for example, ratepayers would save about $15 million, according to Klindt.
Evergy’s bill in Kansas would ensure that bonds could not be revoked nor the terms altered by legislators or state regulators. That certainty of repayment is what likely would earn the bonds a Triple-A rating that would snag an all-important low interest rate.
Evergy also wrote in a provision that allows the utility to earn a profit on the power it obtains through a lease, or power purchase agreement. Currently, regulated utilities in Kansas and many other states can earn profit only on money they have invested in assets such as power plants and wires and poles.
The bill also specifies that the utility has sole control over how proceeds from the bond issuance are spent. As with any company infrastructure investments that it wants customers to pay for, it would require approval from the Kansas Corporation Commission.
Some clean energy advocates want the proceeds to go toward more renewable energy. And while that is one option, Klindt said Evergy wants to have the freedom to spend that new capital as it sees fit.
“You can expect us to invest in reliability and resiliency,” Klindt said. And while some of the proceeds likely would pay for some additional renewable generation, he said the company wants to reserve the right to direct money toward distribution, transmission and “direct customer programs.”
And this year, longtime securitization advocate Ashok Gupta is “optimistic” that it will pass. The language itself is “99%” identical to previous legislation, according to Gupta, a senior energy economist for the Natural Resources Defense Council. The critical difference, he said, is that this year’s bill has the imprimatur of Evergy. That weighs heavily in the legislature, he said, where utilities typically make large donations and wield a lot of influence.
Clean energy promoters generally advocate securitization as a cost-effective means of closing coal-fired plants early. Between reducing customer bills, providing utilities with cheaper capital and closing coal plants early, securitization would be “a win for all involved,” said Zack Pistora, who lobbies in Kansas for the Sierra Club.
A year ago, the practice earned the endorsement of the consulting firm London Economics. The firm, hired by the legislature to advise the state on how to lower its relatively pricey electricity rates, included securitization among its recommendations. However, the authors pointed out, securitization has downsides. Although monthly payments would be less, the overall cost to ratepayers likely would be higher. And once the debt is securitized, state regulators would no longer have any jurisdiction over that portion of the utility rates.
While securitization gives utilities access to cheaper capital that can speed up the transition from fossil-fueled plants, it isn’t actually a plan to do so. That will happen in the company’s next integrated resource plan, he said, which is due at the corporation commission later this year.