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Kansas will soon have a new tool to help it transition from coal-fired power plants, but experts say its impact won’t likely be known anytime soon.
A bill that would permit utilities to refinance remaining debt on retiring coal-fired power plants cleared its final legislative hurdle Monday in the state House. The legislation (HB 2072) passed both chambers with large bipartisan majorities and was widely expected to be signed by Gov. Laura Kelly.
The tool, known as securitization, is a way to reduce the financial impact when utilities retire coal plants before they have finished paying for their construction. Outstanding debt is repackaged as ratepayer-backed bonds at far lower interest rates.
The power plant debt refinancing method has been authorized in 25 states and used in recent months to help accelerate coal plant retirements in Michigan, Wisconsin, and New Mexico. It can be used for other purposes as well.
The potential impact in Kansas is still unclear. After opposing coal securitization bills in each of the two previous sessions, utility Evergy changed its position this year, but only after language was removed that would have required the company to invest any savings into clean energy projects.
In a letter shared last week with the state Senate, Evergy CEO David Campbell wrote that his company supports the bill because it will reduce the cost of retiring power plants “that have reached the end of their useful life,” but that access to ratepayer-backed bonds “will not have any impact on the retirement date we set for our LaCygne power plant or any other power plant in our fleet.”
In an email, Evergy spokesperson Gina Penzig wrote, “We remain committed to transitioning to a cleaner, efficient energy supply as laid out in our Sustainability Transformation Plan.”
That plan will be updated as part of an integrated resource plan Evergy is to file with state regulators no later than July 1. Ashok Gupta, a senior energy economist with the Natural Resources Defense Council, doesn’t expect the securitization option to factor into this year’s plan, which has been in production for many months.
However, he added, access to securitization “will allow for more opportunities to go faster” in future resource plans.
Dorothy Barnett, executive director of the Kansas Climate & Energy Project, remains suspicious about Evergy’s intentions for backing the bill and worries it may use securitization to quicken a transition from coal to natural gas rather than renewables.
The language in past years’ bills requiring that savings be invested in clean energy projects “would have allayed some of my fears that these investments would be made in gas,” Barnett said.
Evergy and Kansas’ two other investor-owned utilities would have to get permission from the Kansas Corporation Commission before proceeding with any new generation project. The bill legalizes the financing technique in general, but still requires regulatory approval of any specific project.
The power of securitization lies in its ability to reduce interest rates ultimately paid by utility customers on the outstanding debt on large investments in power plants and other utility equipment. In a report issued a year ago, consulting firm London Economics endorsed securitization among several strategies for reducing electricity rates in Kansas, which are higher than in all surrounding states.
Because people as a whole generally pay their electricity bills on time, bonds that are repaid through those monthly bill payments can snag very low interest rates, typically 2% to 4%. Evergy customers generally pay about 9% on outstanding debt from spending on generation plants and other facilities.
The legislation allows utilities to propose securitization for other uses besides power plant retirements. A representative of Kansas Gas Service, the largest gas provider in the state, said the company, which has been staggering under an estimated $420 million in “extraordinary costs” from the polar vortex in February, could make use of securitization right now. He estimated that the utility could cut $50 million from customers’ bills by refinancing the debt by issuing ratepayer-backed bonds.
Patrick Vogelsberg, the company’s manager of government affairs, said securitizing some of the debt would yield “meaningful savings, and those are for our customers.”
A broad range of backers testified in favor of the legislation, including gas and electric utilities, consumer representatives, the Topeka Chamber of Commerce, environmental interests and the ethanol industry. The bill passed 33-7 in the Senate last week and 113-9 in the House this week.
The enthusiasm largely comes down to money, according to Zack Pistora, who lobbies Kansas legislators for the Sierra Club.
“This is a voluntary tool that achieves lower interest on the debt and saves Kansans money,” he said.
Similar legislation is also in the works in Missouri. It was passed favorably out of a state Senate committee but was since bogged down in contentious debate over specifics.
Gupta, of the Natural Resources Defense Council, said other factors likely will weigh more heavily than securitization in the evolution of Evergy’s generation mix. At the top of his list: the policy environment around battery storage.
“I’m looking at a potential federal storage tax credit being a very important piece of the puzzle,” he said. “If we’re going to move to more and more renewables, we have to deal with storage issues. There are a lot of issues related to the Southwest Power Pool, and the capacity credits they give to different generation sources.”
As important as securitization is, Gupta said, it “cannot solve all of our problems. This is good for the environment and an important tool to have. We’ll fight other battles as we move forward.”