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PSC case could hurt stocks, lead to less investment in Missouri, Evergy warns

   

JEFFERSON CITY, Mo. — The Public Service Commission will consider an order Thursday that some are predicting will send a Missouri energy company’s stocks plummeting. 

At issue is the closure of a Kansas City Power and Light Company (KCP&L) Greater Missouri Operations (GMO) coal plant in Sibley. (KCP&L recently merged with Westar Energy, operating under the name Evergy.) 

Late last year, the Public Service Commission (PSC) approved KCP&L’s rate case which allowed the company to continue collecting on the plant until the next rate case. Under the new PISA law recently passed by the General Assembly, energy companies have increased infrastructure investments in Missouri while increasing the time between rate cases.

But the Office of Public Counsel and Midwest Energy Consumers Group have petitioned the PSC to approve an accounting authority order which would require Evergy to collect all revenue associated with the plant, hold it, and record it as a liability. What to do with that money would then be decided at a future rate case, and it most likely would not be returned to investors, Chuck Caisley, a senior vice president at Evergy, told The Missouri Times. 

The case is on the docket for the PSC’s meeting Thursday. 

“From an accounting perspective, it will be an immediate hit to our earnings with no expectation that we’ll ultimately be able to collect that money,” Caisley said. 

Since the PSC discussed the accounting authority order last week — with three of the five commissioners indicating support — Evergy’s stock has gone down in market value in excess of about $400 million, Caisley said. 

“If investors can make an investment in Missouri, get a rate case order, but then retroactively get that return on their investment reduced by 40 or 50 percent, we’re going to have to be very careful about what we invest in Missouri on a go-forward basis,” Caisley said. “I think it’s very likely we could see less investment in this part of our jurisdiction at a time when we’re hoping to ramp up investment — particularly in things like renewables.” 

The commission had authorized a little more than a 9 percent return on equity for the company during the last rate case; approving this order would decrease that to the 5 percent range, Caisley said. 

“What investors will see is a reduction of what they can earn almost in half. They treat that as pretty significant,” he said. 

More pressing, Caisley said Evergy would most likely need to accelerate its next rate case when it had not planned for one for another three or four years which could mean it would not be able to take advantage fully of utility bill signed into law last year. 

PSC Chairman Ryan Silvey indicated support for the accounting authority order during the PSC’s weekly meeting last week, saying while the closure of a coal plant is not extraordinary in nature, its early shuttering is. 

“They’re going to have depreciation through 2040,” Silvey said. “I think that we should allow for the future commissions to take that into consideration at the next rate case.” 

Commissioners Daniel Hall and Scott Rupp sided with Silvey; Commissioners Bill Kenney and Maida Coleman disagreed. PSC Staff, normally at odds with utilities, also disagreed with the order siding with Evergy in filings. 

Since the public discussion, one market ratings service changed Evergy’s stock purchase recommendation has changed from “buy” to “neutral,” and its projected share price has reduced by $4, it said in a notice filed with the PSC ahead of Thursday’s meeting. 

Evergy’s stock closed at 63.58 Wednesday — down about 0.49 percent on the day; it opened at 63.86. It closed at 65.01 on Oct. 8, the day before the PSC’s discussion. 

Despite the disagreement, commissioners unanimously agreed KCP&L and GMO did not do anything “wrong or illegal.” 

Caisley said he hopes the PSC will grant additional discussion before deciding on the accounting authority order. 

“From our perspective, this has always been a very constructive commission. They’ve always been very consistent in the way they have made decisions, and they’ve always been very good about knowing the law and balancing the interests of all stakeholders and finding solutions that work for everyone,” Caisley said. “In the past, the commission has been very, very sparing in its granting in accounting authority orders when a utility has requested them. We would hope they will apply the same standards to accounting authority orders requested by other stakeholders.” 

“We just don’t want a decision that would retroactively change what investors believed they were getting in Missouri less than a year after the rate case was decided,” he said. 

Caisley pushed back on the notion the plant is shuttering early. He said the plant is physically able to operate, but because of new environmental requirements, it was known the plant would need to be retired while it still had depreciation life left. 

The Sibley plant retired at about 50 years of age which is common in the industry. Operating a coal plant for more than 70 years, with an abundance of investment to keep up with regulations — which would be the case if Sibley didn’t retire until 2040 — would be unusual. The plant is fully retired, but Evergy is still in the process of decommissioning it. 

James Owen, the executive director of Renew Missouri, applauded the early retirement of the coal plant. He suggested the legislature should consider a fix in the upcoming session to make it easier and more beneficial for companies to shutter coal plants if this order is passed.