The Missouri Public Service Commission will require Evergy Inc. subsidiary Evergy Missouri West to defer cost savings tied to the retirement of three coal units.
The commission voted 4-1 on Oct. 17 to direct the company, known in the case under its former name, KCP&L Greater Missouri Operations Co., or GMO, to set up a regulatory liability account for certain revenue and returns associated with Sibley generating units 1, 2 and 3. The decision grants a request made in December 2018 by the Missouri Office of Public Counsel and the Midwest Energy Consumers Group, which wanted to capture cost savings from the retirements and defer them until a future rate case.
Commissioners speaking in favor of the move said requiring GMO to track the costs will allow parties to present evidence and give a future commission the information it needs to set just and reasonable rates.
Commissioner Daniel Hall said the public advocate and customer group met their burden to demonstrate that the closure of Sibley, with 20 years of remaining anticipated service life and 20 years of unrecovered depreciation expense, was extraordinary, unusual and unique, and not recurring.
"At GMO's next rate case, the commission will be able to examine all relevant factors in setting just and reasonable rates going forward and determine at that juncture whether to apply that regulatory asset or some portion of that regulatory asset to make a downward adjustment to the revenue requirement," Hall said.
The company had asked regulators to delay issuing an order and instead hold additional proceedings on the matter, citing signals that the investment community was questioning the fairness of Missouri regulation.
Those signals came via a drop in stock prices after regulators on Oct. 9 indicated their intent to issue the order and Bank of America Merrill Lynch reduced its Evergy stock purchase recommendation from "Buy" to "Neutral" and its Evergy projected share price by $4. Moody's Investors Service also released an issuer comment saying the commission's granting of the request would be "credit negative" for GMO as it would be seen as a sign that the company and regulators are at odds.
Evergy said in an emailed statement that it is disappointed in the decision and is reviewing the order and considering next steps.
Commissioner William Kenney cast the lone vote against the order. Kenney said GMO followed the rules, broke no laws and made a prudent decision to retire the units.
"The company made a business decision that they felt was in the best interests of their ratepayers for many reasons, and I think this will have a negative financial impact on the company," Kenney said.
The costs of operating the units are incorporated into GMO's current rates. The case that set those rates was resolved in October 2018, and the rates took effect Dec. 6, 2018, by which time GMO had retired all of the Sibley units.
In its order, the commission said it is "significant" that the plant was retired after the rate case was resolved and before the rates took effect. Because of a rate freeze, those rates will remain in effect for at least three years.
"Most importantly, if GMO requests accelerated recovery of net plant depreciation costs in its next rate case, the commission should preserve the option of the future commission to consider the offset of those costs by consideration of the past savings amounts that would be deferred under the [accounting authority order]," the agency said. "If this AAO is not granted, such an offset could be challenged as retroactive ratemaking."
The commission also said its decision should not be taken as a sign that its support for renewable energy is wavering or that it will dissuade Missouri utilities from retiring economically inefficient coal-fired generation plants in the future.
"Rather, this decision is based solely on the commission's consideration of the particular circumstances of this case," the commission said. (Missouri PSC docket EC-2019-0200)