An Evergy Inc. subsidiary is warning the Missouri Public Service Commission that investors could be scared off if the agency defers cost savings tied to the retirement of three coal units.
The Missouri Office of Public Counsel, or OPC, and the Midwest Energy Consumers Group, or MECG, in December 2018 petitioned the state Public Service Commission to issue an order requiring Evergy Missouri West to assign to a regulatory liability account operating and capital cost savings associated with Sibley generating units 1, 2 and 3. The company, known in regulatory filings as KCP&L Greater Missouri Operations Co., or GMO, announced plans to start retiring the units in 2017 and finalized that process in late 2018.
Through their petition, the OPC and MECG, which respectively represent the public and large commercial/industrial customers in matters before the commission, seek to capture cost savings from the retirements and defer them until a future rate case.
During the PSC's Oct. 9 meeting, three of the agency's five commissioners indicated their support for an order granting the request, despite GMO's previous warning that granting it "would likely cause the investment community to question the fairness of Missouri regulation."
In a notice filed with the commission on Oct. 10, GMO said Evergy's stock fell by more than $1/share shortly after the PSC's Oct. 9 discussion was broadcast live over the internet. From the opening bell on Oct. 9 through 11 a.m. CDT on Oct. 10, GMO said, Evergy's share price fell by $1.68, from $65.19 to $63.51 — a reduction in market value of about $400 million.
Bank of America Merrill Lynch on Oct. 10 reduced both its Evergy stock purchase recommendation from "Buy" to "Neutral" and Evergy's projected share price by $4. Then, on Oct. 11, Moody's Investors Service released an issuer comment stating that 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.
In a supplemental notice filed with the PSC on Oct. 15, GMO said granting the request would reduce the company's actual earnings by $30 million to $39 million per year, according to the estimates of OPC and MECG, reducing GMO's return on equity to a range of 5.69% to 6.32%. An order in favor of the public advocate and customer group also would "strongly indicate that GMO's ability to obtain return of and return on its investment in Sibley in the future is at risk," the company said.
The company has asked regulators to delay issuing an order and instead hold additional proceedings to consider how a decision could affect the investment community's perceptions on the fairness of Missouri regulation and the continued access of investor-owned utilities with Missouri operations to the capital market on reasonable terms.
The matter is on the commission's Oct. 17 agenda.
Dispute over 'extraordinary' event
The OPC and MECG in their petition argued that the retirement of the Sibley units is an "extraordinary" event and that the commission therefore can direct GMO to defer to a regulatory liability account the operating and capital costs that were included in the revenue requirement used to set rates in the company's last rate case (Case No. ER-2018-0146). That case was resolved in October 2018 and the rates took effect on Dec. 6, 2018, by which time GMO had retired all of the Sibley units.
The public advocate and customer group argued that the retirements are unusual because electric utilities do not retire generating units regularly or frequently. They also said the commission set GMO's current rates assuming that the Sibley units would remain operational.
"Consequentially GMO's ratepayers will be paying for nonexistent expenses, while at the same time no longer benefitting from Sibley's revenues," the petition said. "Such a result for ratepayers is beyond the norm, and warrants accounting thereof."
But GMO and commission staff disagreed that the retirements are an extraordinary event since they are a routine part of utility business, and they separately called on the commission to deny the request.
In its Oct. 15 filing, the company said its plans for the units were known more than a year before the June 30, 2018, conclusion of the rate case true-up period. Units operating at that time qualified, under long-standing commission precedent, for inclusion in rates, GMO said. Issuing an accounting authority order would mark an "an abrupt and retroactive about-face that would give rise to legitimate questions about the fairness of Missouri regulation to any rational investor," GMO said. (Missouri PSC docket EC-2019-0200)