Having significantly higher electric rates than surrounding states isn’t just a millstone around the neck of the average Kansan, it’s dragging down economic development as well.
Jim Zakoura of Kansas Industrial Consumers Group and Kansans for Lower Electric Rates said in an interview recently that “It’s not sustainable for Kansas to have the highest electric rates in the region,” Zakoura said. “This is foundational to our state.”
Zakoura said, as an example, they had a client who could locate around the Wichita area or they could locate around the Enid, Oklahoma area. He said the annual difference in electric costs was $5 million.
“Where do you think they’re going?” Zakoura said. “There’s only a handful of businesses who wouldn’t think a $5 million difference in electric rates wasn’t significant.”
Zakoura noted in an email that Evergy Kansas, which supplies the Kansas City area as well as Crawford County, in Southeast Kansas, has a $41.5 million rate increase set to take effect on April 1, which he says is entirely due to Evergy’s loss of wholesale customers.
According to Evergy spokeswoman Gina Penzig, the wholesale contract that expires at the end of this month provided about $41.5 million in “savings” to customers.
“As agreed in our 2018 rate case, when we file the next update to our fuel costs, it will be adjusted for this lost revenue,” she said in an email. “This fuel line item captures the cost of fuel and purchased power and credits from off-system sales.”
Zakoura said the “savings” were nothing of the sort.
“In past years, when {Evergy’s} rates were competitive, they were able to make wholesale sales with generation capacity that was not being used by retail ratepayers,” he said. “One of these sales was a wholesale sale to Mid Kansas Electric (a co-op in Western Kansas) of about 172 MW.
“So you have the cost of all of the generation (total costs) being borne by the retail customers – but sales to other than retail ratepayers (i.e. Mid Kansas) are ‘credited’ to the total cost of service.”
Zakoura said the Mid Kansas sale was lost because of the high Evergy price, and retail ratepayers get absolutely no benefit from Westar’s excess generation capacity.
“Its as simple as this — the same total costs spread over a smaller number of units of sale,” Zakoura said. “This is the only business, where if a seller loses sales, it simply collects more per unit of sale from the remaining customers. The utility suffers no reduction in profits, because it collects more from the remaining captive customers.”
Pittsburg, the largest city in Crawford County has felt the impact of those rates.
“We have had one instance, specific instance, where a company has come in and said that they could get the electricity considerably cheaper in Oklahoma, and they didn’t they decided not to locate here,” Pittsburg Assistant City Manager Jay Byers said. “They were a high user, you know, high electricity user, so I get it.”
However, Byers said, the larger problem is that when site selectors come to look at a city to locate a business, they’re looking at the full picture, and electric rates are a large part of that.
“There’s a lot of factors that are involved, and electricity rates are typically one of those,” Byers said. “We are of the opinion that businesses have ruled us out … they don’t even consider us. We don’t even hear from them because they see what our rates are and they go ‘well why would I do that I’ll just go to Oklahoma or Missouri or some other lower rate place.’ So we are worried about the ones we never hear from.”
Pittsburg is somewhat unique in small cities in Kansas, as it has expanded its manufacturing base in recent years, but only with existing companies. New companies have been reluctant to move in.
“We haven’t had any major industry located here in a long time,” Byers said. “We have increased the footprint of our existing manufacturing base, but we have not had any new ones in a while. Electrical rates are a large part of that.”
A rate study by London Economics, commissioned last year by the Kansas Legislature, on page 11 notes there is an imbalance in the way the Kansas Corporation Commission assess rate cases by the utilities.
“… rate making practices reflect some degree of imbalance between utility incentives and public interest objectives, such as achieving regionally competitive rates or other public objectives. For instance, retail rates for Kansas consumers have generally increased in the last decade to become higher than the regional average.”
Zakoura said that imbalance is hurting economic development.
“Okay, what that says when you come through from that is rate regulation as its conducted in Kansas, there’s an imbalance because … the study shows that {Evergy}, particularly {Evergy} far outpaced the profitability of the {Standard and Poors index} while at the same time we had the highest rates in the region, well, those aren’t unrelated.”
“It seems to me {the study} calls out that there’s a failure of regulation in Kansas because there’s not a proper balance between the interests of the customers, the ratepayers, and the utilities.
“If you’re going to build a new business and you can pay 30 percent more for your electric rates in Kansas, or 30 percent less than that in Oklahoma, where do you think that’s going to be built?”
Pittsburg, at least, is assessing something fairly unusual to address the electric rate issues — the possibility of creating a municipally-owned utility.
The Pittsburg Morning Sun reported in July 2019 that efforts were ongoing to assess the feasibility of the city purchasing the infrastructure from Evergy and then buying power on the open market — possibly at considerable savings.
“What we have learned through the feasibility study and through some of our research is that the city can buy power cheaper,” Byers said in that story. “We have a great chance to stabilize the rates and possibly even lower our electricity rates. That is certainly on the table.”
Byers said that should Pittsburg choose to go the public power route, it could be a very important tool in attracting new business.
“It really becomes an important tool in the mix of all the incentives we have here, and we have to use them all,” Byers said. “Making no mistake, no one’s coming to Southeast Kansas because of the {strip} pits and they like to fish. They want to come here for economic reasons. And we need to put as much on the table as we can.”