Kansas opts for bonding to help consumers with energy price shocks, transition from coal

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TOPEKA — Gov. Laura Kelly signed bipartisan legislation stretching over time consumers’ payment of exorbitant natural gas costs incurred during the February freeze and to offer financial incentive for utility companies weighing transition from old coal plants to newer solar or wind sources of electricity.

The law’s most immediate result would be issuance by public utilities such as Kansas Gas Service of ratepayer-backed bonds so customers had years instead of months to pay extraordinary utility bills.

The long-term consequence was that investor-owned utilities, including Evergy, would be permitted to issue bonds covered by ratepayers that softened the risk of taking a step away from coal. Bonding, also referred to as securitization, has been relied upon in a couple dozen states to help utility companies deal with undepreciated investments in aging coal plants. In Kansas, much of that investment was in emissions control equipment installed to tame some of the country’s biggest coal-plant polluters.

Contents of House Bill 2072 gained momentum at the Capitol among legislators eager to help constituents with sticker-shock utility bills, but it also earned endorsements from a rare consortium of interests drawn to the possibility of shuffling the energy mix in Kansas. In the 165-member Legislature, 146 House or Senate members voted for the bill. Kelly signed it without blinking.

Sixteen opponents in the Legislature either didn’t like the notion of government-sanctioned bonds, objected to the advance of renewable energy or harbored parochial concerns, including preservation of coal-fueled plant in their district.

On the Kansas Reflector podcast, public-interest advocate Paul Johnson and Kansas Sierra Club lobbyist Zack Pistora added their voices to the Legislature’s debate on financial, political and environmental ramifications of the law.

Johnson said one of the unknowns of securitization was to what extent the three-member Kansas Corporation Commission would allocate savings to ratepayers when a company relied on bonding to move more quickly to a lower cost energy source. The Kansas law required the KCC to make certain bonding transactions provided a net quantifiable rate benefit to customers, but the calculations could get tricky.

“It’s going to be in their court to make sure that ratepayers do benefit,” Johnson said.

Saving by bonding

Pistora said utility company shareholders accustomed to earning 8% or 9% return in Kansas might be more willing to adjust a portfolio laden with coal plants with the bonding option on the table. He said bonding could deliver 2% or 3% return on legacy investments in plants ripe for decommissioning. In exchange, the state could more easily follow a migratory path to wind and solar, he said.

“It takes a bunch of risk out of the issue of whether they’re going to get paid back on these previous investments,” Pistora said. “What securitization does, it provides a happy medium to say, ‘We will pay … off that debt, but at a lesser rate of return.’ If used wisely, this tool should be able to retire these uneconomic assets in favor of cheaper, reliable energy.”

Pistora said operation of Evergy’s fleet of coal plants cost the company $267 million in price premiums from 2015 to 2018 because it couldn’t opt for lower-priced wind. Wind is the predominant energy source in Kansas due to steady growth of wind farms despite a moratorium in a big chunk of the Flint Hills.

Bonding would only be done at a utility company’s request, but the KCC would have regulatory authority. The idea of securitization was recommended by London Economics, a firm that conducted an electric rate study for the Kansas Legislature in 2020.

The same report suggested Kansas formally develop an energy plan, which would serve as a road map to retirement of coal plants, the addition of wind and solar or investment in energy efficiency.

“We have 1.2 million homes in Kansas,” Johnson said. “How many of those are properly insulated? There’s much better lighting these days, much better motors, much more efficient air conditioners.”

House, Senate vibe

Debate on House Bill 2072 was more sedate in the House than in the Senate, where it was met with opposition from a handful of Republicans.

Ottawa Rep. Blaine Finch, a Republican, said customers would share in the 6% to 7% savings represented by the difference between the normal rate of return for utility companies and the lower return offered through bonding. He told House peers the bill didn’t guarantee alteration of the portfolio of coal, gas, nuclear, wind and solar generation among companies operating in Kansas.

“We’re able to assume that Kansas customers will get lower rates,” he said. “This is simply about a finance instrument to make sure rates and rate containment can happen at the end of an undepreciated asset’s useful life.”

Rep. Rui Xu, D-Westwood, said this “good bill” was among the few to cross the House floor that offered potential for controlling utility rates of Kansans and meaningfully addressing climate change.

On the other side of the rotunda, however, Emporia Sen. Jeff Longbine dealt with blowback from fellow GOP Sens. Mike Thompson and Caryn Tyson, who tried to retain bonding to deal with winter price-spikes but deny bonding to companies that might retire coal plants. Longbine reminded them the bill was negotiated and embraced by Evergy, Black Hills Energy, Kansas Gas Service as well as the KCC, Sierra Club, Kansans for Lower Electric Rates, a group of Kansas industrial customers and the Citizens Utility Ratepayers Board.

“This is a very, very complicated bill,” Longbine said. “It has been agreed upon by all parties. We need to get this relief to customers.”

He said securitization wouldn’t rid Kansas of coal plants, but the bill recognized power plants did get old. The La Cygne Generating Station is scheduled to remain in operation until 2039, but that would be 31 years longer than the average useful life of a coal plant.

‘Not sustainable’

Tyson, a Parker Republican representing a district that included the La Cygne coal plant, failed to convince the Senate to block securitization as a plant-retirement vehicle. She said wind and solar were “not sustainable” and lauded coal, gas and nuclear power. In addition, she said, out-of-state investors in Kansas utilities didn’t place best interests of Kansans at the forefront in the way state legislators did.

“We should take a closer look at our power plants,” Tyson said. “I think that we could convert them to nuclear or natural gas plants in the state of Kansas.”

Thompson, a former television weather forecaster from Shawnee in Johnson County, said shortcomings of wind and solar power rendered them part-time options. Thompson rejects science pointing to climate change and orchestrated a Senate committee hearing on a bill that would have made it nearly impossible to build more wind farms in Kansas.

He referred to securitization as a fad and denounced as ill-conceived movement in Kansas away from nuclear, coal and natural gas.

“It’s the first domino to fall in the transition away from reliable power sources like coal toward renewables that are unreliable in artic outbreaks,” said Thompson, who predicted Kansas electricity costs would surge. “Ratepayers of Kansas, remember this discussion. I ask you to write down the price of your electrical bill today, then look at that number in 10 years.”

Kansas Reflector is part of States Newsroom, a network of news outlets supported by grants and a coalition of donors as a 501c(3) public charity. Kansas Reflector maintains editorial independence. Contact Editor Sherman Smith for questions: info@kansasreflector.com. Follow Kansas Reflector on Facebook and Twitter.

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