On Jan. 13, the 88th Kansas Legislature will convene with several easily identified issues to examine. Medicare expansion probably tops that list, several constitutional questions will be reviewed with the intent to get those before Kansas voters, tax debates always make things lively, and votes will be cast carefully with an election later in 2020 that puts all Senate and House seats up for grabs.
Utility issues may also hit the headlines again in 2020. The 2019 session of the Kansas Legislature approved a bill that calls for a comprehensive study of 29 electric utility-related topics to be done by an independent consultant. The study was divided into two parts with different due dates. London Economics of Boston is currently working on the first part, which contains about two-thirds of the topics and is due in January 2020. The second phase will be conducted by AECOM Technical Services of Los Angeles, and is due July 1, 2020.
“When the 2020 Session starts, the electric cooperatives will be focused on the contents of the London Economics report and possible legislation that could evolve from that document,” said Bruce Graham, CEO, Kansas Electric Cooperatives, Inc. (KEC).
Graham noted that electric cooperatives are keenly interested in hearing a forthright opinion on several of the topics such as:
- Whether electricity providers in surrounding states are subject to similar state laws, regulations and oversight as Kansas utilities;
- How rate increases or the associated rising costs of Kansas investor-owned electric public utilities impact the retail electric rates of Kansas electric co-ops and municipal utilities;
- The costs and benefits incurred by Kansas ratepayers for transmission investments in Kansas used to export energy out of Kansas; and
- Whether retail electric rates in Kansas are a material barrier to economic development in Kansas.
Another of phase one’s study topics is whether “competitive markets for retail electricity can benefit all Kansas consumers.”
Sometimes referred to as retail wheeling, this restructuring would require consumers to choose their provider of electricity. Most likely, your current electric provider would still be responsible for maintaining and operating the poles and wires to deliver electricity, but consumers would need to evaluate different rate plans and carefully select another company to secure the kilowatt-hours needed to keep their lights on.
Retail wheeling boosters have rosy claims that consumers can save money, even though a comprehensive study completed by Christensen Associates Energy Consulting says otherwise. After reviewing the status of retail choice for the past 20 years, the authors found little evidence that this restructuring has yielded any significant benefits.
“A market price doesn’t mean a lower price — it means being subject to the fluctuations of a potentially volatile energy market. Proof of that risk can be found in the market price crisis that shocked Texas this past summer,” Graham said.
“Proponents of industry restructuring have regularly pointed to the Lone Star State as a model for success,” Graham said. “But the proponents have ignored the experience of other states where the promised benefits of choice have failed to materialize. Now, I imagine, they will be cautious about continuing to tout Texas.”
To ensure those headlines don’t disappear from public debate, KEC created KSEnergyFacts.com as a resource about the utility industry in Kansas and important issues such as retail wheeling or customer choice. The site includes several recent Texas stories of skyrocketing utility bills and busted budgets because of unfortunate choices and unscrupulous marketers.
“We will also be using KSEnergyFacts.com to post reaction and opinion on the upcoming rate study, any related legislation and, most importantly, the potential impact on electric cooperative members,” Graham said.
Another component of the study will be the opinion of London Economics on whether the rate making practice of electric cooperatives and utilities is in the public interest. Electric cooperatives were granted the ability to self-regulate rates by the Kansas Legislature back in 1992.
As not-for-profit utilities, electric cooperative rates do not include an amount to fund dividends for outside investors. Cooperative electric rates are set only to recover the cost of power supply and expenses to build, maintain and operate the infrastructure to deliver this power. Beyond that, any margin left over at the end of the year is allocated back to the consumer-members on a patronage basis.
“The rate-setting process is taken very seriously by those cooperative leaders elected by the members to make such decisions. Any legislative initiative to arbitrarily cap or reduce utility rates would interfere with successful governance and could threaten a co-op’s economic stability,” said Doug Shepherd, Vice President of Management Consulting Services at KEC. Shepherd has conducted numerous cost-of-service studies for electric cooperatives — a thorough process used by locally elected cooperative boards to guide rate decisions. He also notes that electric cooperative members have a voice in the rate-making process as illustrated by the accompanying chart (below).
“Suffice it to say, we don’t believe it is in the best interests of the state to undergo an expensive and disruptive restructuring of the utility industry unless it can be proven that all customers will see an opportunity to benefit,” Graham said. “There may be room for improvement though and we believe it is time for state leaders, including the energy industry, to work together on a comprehensive plan that looks at the optimal utilization of our existing resources and opportunities for the future.
“I think most people would be surprised to learn that Kansas does not have an energy plan. Governor Kelly has announced her intentions to craft a process for plan development that is ‘as inclusive and collaborative as possible’ and the electric cooperatives stand ready to assist with these important discussions.”