Questions about capital spending by Evergy — Kansas’ largest electric utility — came to a head Thursday as the Kansas Corporation Commission, which regulates private utilities in the state, issued an order requiring the company to explain its capital spending plan — publicly.
KCC staff in July raised concerns about Evergy’s propensity to exceed its allowed capital expenditure budget — with the costs passed on to consumers in the form of higher electric rates.
“Evergy’s ratio of capital expenditures to depreciation and amortization has grown to a level that is 7% above its regional peers,” the report reads. “Additionally, Evergy’s 2022-2024 capital expenditure projections grew 8.70% over its 2021-2023 projections, whereas the capital expenditure projections of Evergy’s regional peers grew by an average of 3.38%.
“These trends are highly concerning to Staff. Evergy’s propensity over the last three years has been to increase its capital expenditure budgets higher and higher with every iteration. If this continues, we believe it will undermine the goal of achieving regionally competitive rates and reliable electric service, especially against the backdrop of general inflationary pressures being experienced throughout our economy.”
This order is hard on the heels of the KCC approving public utility status for a developer planning a transmission project, which would cut a swath half a football field wide through five counties and 89 miles of Kansas countryside, taken from landowners by eminent domain, for a massive high voltage power line — largely at the expense of Kansas ratepayers.
KCC staff remains concerned, Evergy defends plan
KCC staff said in the order that — while Evergy has complied with the commission’s “Capital Investment Plan” framework and their “total capital expenditure projections are not excessive when compared to other publicly traded electric holding companies,” — staff remained “concerned” by increased expenditure projections in the Sustainability Transformation Plan.
“The capital expenditures are estimated to be $1.215 billion higher (21.82% more) than the STP,” the order notes. “The 2022 five-year Capital Investment Plan has also increased by $1.048 billion (18.27%) over the 2021 five-year Capital Investment Plan, which increased $1.095 billion (23.60%) over the 2020 five-year Capital Investment Plan.”
KCC staff also noted that while Evergy’s projected increase in “Net Plant” (physical generating capacity) for 2022-24 remains below the average electric utility in the U.S. (20.28%) and below the average of its regional peers (16.13%), “Evergy’s ratio of capital expenditures to depreciation and amortization (2.27) has grown to a level that is 7% above its regional peers (2.12).”
Moreover, staff notes that with increased projections come increased costs to the consumer.
“Additionally, Evergy’s 2022-2024 capital expenditure projections grew 8.70% over its 2021-2023 projections, compared to the average 3.38% growth for Evergy’s regional peers,” the order reads. “If this trend continues, Staff believes it will undermine the goal of achieving regionally competitive rates and reliable electric service, especially with rising inflation.”
Evergy, in answer, simply claimed its projections are reasonable and that KCC staff “fail to recognize Evergy’s focus on improving its regional rate competitiveness while making capital investments that improve reliability for customers and help transition to cleaner energy.”
KCC adopts staff recommendations
KCC staff advised the commission to urge Evergy to slow the pace of its increased transmission investment in favor of distribution modernization projects. Other recommendations include:
- To favor Purchased Power Agreements for renewable energy projects instead of making them utility-owned,
- Require Evergy to file updated and comprehensive financial modeling,
- To show how retail rate changes are impacted by continued increases in capital expenditures, and
- Direct Evergy to explain the upward trend in its capital expenditures to its various stakeholder groups in public workshops.
The Citizens’ Utility Ratepayer Board effectively made the same recommendations and voiced similar concerns, with some additional issues.
“CURB expresses concerns over the increased planned spending, especially for Evergy Kansas Central, with the levels of proposed transmission spending, and that spending on information technology has not provided sufficient benefits in customer service,” the order reads. “Lastly, CURB believes that Evergy’s flat or low growth load warrants careful consideration before building new generation of any type.”
The commission agreed with these concerns and ordered Evergy to file “updated and comprehensive financial modeling to provide more transparency into Evergy’s s current expectations of retail rate changes that will result from Evergy’s continued increase in capital expenditures.”
Evergy was ordered to meet with KCC staff, CURB, and Commission Chair Dwight Keen by Sept. 30 to propose a date for the public workshop — prior to Dec. 1 of this year — and to file the modeling with the KCC in advance of the workshop.
“In addition to explaining the necessity and impact of the proposed capital spending in its CIP, at the workshop,” the order states, “Evergy should be prepared for a detailed discussion on Staffs recommendations: a) to slow the pace of its increased transmission investment and shift some of the planned investment towards distribution modernization projects; and b) to strongly consider PPA arrangements for any additional renewable investments.”