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Minutes for SB69 - Committee on Utilities

Short Title

Requiring the state corporation commission to study electric rates and consider certain factors in establishing just and reasonable electric rates.

Minutes Content for Tue, Feb 19, 2019

Chairman Masterson opened the hearing on SB69

Chuck Caisley, on behalf of Westar Energy and KCP&L (Evergy) testified in opposition to SB69.  Chuck Caisley and Whitney Damron share the same testimony.(Attachment 2)

Whitney Damron, on behalf of Liberty Utilities-Empire District testified in opposition to SB69.(see attachment 2)  Mr. Damron said in Kansas, Liberty Utilities-Empire District owns and operates a 286-megawatt natural gas power plant in Riverton, Kansas and has purchase power agreements with two Kansas wind farms:  Elk River Wind Farm in Butler County and Meridian Way Wind Farm in Cloud County. 

During the 2018 legislative session, there were a number of bills, resolutions and legislative hearings on the subject of electric rates, including initiatives urging, requesting or demanding the KCC undertake a comprehensive rate study of electric rates.  The KCC did conduct a comprehensive rate study.

Mr. Damron stated that KCP&L and Westar are in general agreement with the KCC study findings and filed their own complimentary study.  The findings and conclusions made in the KCC study are likely consistent with most electric utilities providing service in Kansas and certainly applicable to Liberty Utilities-Empire District.

He said a review of the rate history for Liberty Utilities-Empire District would provide a similar picture. 

Mr. Damron then stated that SB69 proposes to study the rates of public utilities exempt from KCC regulation.  The bill would charge the Legislative Coordinating Council with selecting an "independent organization or organizations" to perform a study.  This process does not insure an unbiased entity will be chosen.  The KCC is the proper entity for such a study.

Mr. Damron put emphasis on the following (The study allows input from residential, commercial and industrial customers and "advanced energy stakeholders," yet only allows utility input "when requested."

Bruce Graham, Chief Executive Officer, Kansas Electric Cooperatives, Inc. on behalf of The Electric Distribution Cooperatives in Kansas, Sunflower Electric Power Corporation, Midwest Energy, Inc and Kansas Electric Power Cooperative, Inc. (KEPCo) spoke in opposition to SB69.(Attachment 3)

Mr. Graham stated that they oppose SB69, but not because they don't recognize and understand the frustration with utility rates. He went on to say, Electric co-ops have also been impacted by the cost increases identified in those reports and an analysis of the effect of those rising wholesale generation and transmission rates on cooperative and municipal utility rates is called for in SB69.  Additionally, the way SB69 is written, the consultant will take input only from "residential, commercial and industrial customers and advanced energy stakeholders."

Janet Buchanan, Director of Rates and Regulatory, Kansas Gas Service testified in opposition to SB69.(Attachment 4)  Ms Buchanan stated that although the purported intent of the Bill is to create a study of electric utility rates and expanded review and reporting requirements for the Kansas Corporation Commission (Commission) to address electric rates, the Bill, in Sections 2 and 3 also imposes requirements for natural gas utilities.  As presented, SB69 incorrectly attempts to regulate natural gas utilities under electric statutes.  Beginning with Section 2b, the Bill improperly make references to "natural gas public utility."

As it relates to Section 3, Kansas Gas Service's primary concern is the direct result of the Bill's addition of requirements for the annual report the Commission files with the legislature. 

She concluded by saying, to the extent that it is the intent of this Bill to also study and address the legitimacy of natural gas utility rates in Kansas, Kansas Gas Service objects to the inclusion on the grounds that such inclusion is unnecessary.

Colin Hansen, Executive Director, Kansas Municipal Utilities opposes SB69.(Attachment 5)

Mr. Hansen stated while our members encourage and respect the conversation regarding electric rates in Kansas, we do not believe that another expansive-and expensive-rate study is the most effective mechanism for understanding the root causes of Kansas electric utility rates and potentially effecting change.  KMU also believes that any next step should be forward looking and not yet another historical analysis of past reasons for increasing electric utility costs. 

Municipal utilities in Kansas currently offer low-cost and reliable service and additional regulation and scrutiny will simply incease cost to Kansas electric consumers.

Mr. Hansen concluded by saying that the independent rate study envisioned by SB69 will likely be a costly one.

Tom Stevens, Director, Regulatory, Black Hills Energy spoke in opposition to SB 69.(Attachment 6)

Mr. Stevens talked about Commitment to Safety.  He said Black Hills Energy has set a goal to be the safest energy company in the country.    He then said that Natural Gas is a strong value for their customers. 

He stated the provisions in Section 2 regarding the determination of just and reasonable rates provide the most concerning language in the bill.  Black Hills Energy is expending considerable capital on replacing aging and obsolete pipelines in Kansas to ensure continued safe and reliable natural gas utility service for our customers.

In summary, while the provisions of the rates study are directed toward electric utilities, the regulatory constructs being deliberated could have an impact on natural gas utilities as well.

Shelly Bass, Atmos Energy spoke in opposition to SB69, specifically the provisions that incorporate the natural gas utilities.(Attachment 7)

Ms. Bass said the provision of natural gas services is vital to the Kansas economy, and disrupting the functioning of the regulatory framework upon which the industry relies does not promote the safe operation of Atmos Energy's system nor the best interest of the State of Kansas.

Jeff McClanahan,, Director, Utilities Division on behalf of the Staff of the Kansas Corporation provided testimony in opposition to SB69 (Section 2 only).(Attachment 8)

Mr. McClanahan stated that the Staff of the Commission is taking a neutral position regarding Section 1 of SB69.  However, Staff would like to explain some of the issues we see with the rate study outlined in Section l.  We anticipate that the rate study envisioned in SB69 could be very expensive due to the depth and breadth of the individual issues to be evaluated.  He went on to explain how and why this study could be expensive.

Mr. McClanahan said the Staff is opposed to Section 2(b) of SB69.  Section 2(b) requires the Commission - in determining just and reasonable rates - to evaluate the competitiveness of any proposed electric rate with those of comparable public utilities in surrounding states.

Mr. McClanahan concluded by saying Staff notes that Section 3 of SB69 includes a requirement that the Commission include an assessment of the regional competitiveness of electric and natural gas rates compared to certain states as part of the Commission's annual report to the legislature.  They (Staff) believe this is the most relevant and useful venue to provide not only an evaluation of the competitiveness of Kansas' rates, but also an evaluation of the impact of the electric and natural gas rate changes on the Kansas economy.

In response to a question, the Chair recognized Revisor Sterling to address whether the provisions of Sections 2 and 3 of Senate Bill 69 constituted substantive changes to the law.  Revisor Sterling explained that in evaluating the provisions of the bill, term "substantive" might have a different meaning to the Committee and to conferees than it does to someone from the Office of Revisor of Statutes.

Revisor Sterling further stated that in his analysis of whether a proposed change in any legislation is substantive or technical in nature, he looks to whether the proposed language in the bill would make any change in the law, but that he does not evaluate whether any such policy change is a minor or major change in the law.  He said that an evaluation of the importance or significance of a policy change is more appropriately left for the Committee and those conferees testifying on the legislation.  He stated that any technical amendments suggested by someone from his office would be done so to clarify the language or correct an inadvertent mistake, but such amendments would not be directed at making a policy change and would not be substantive. 

With that as the context for his analysis, Revisor Sterling stated that since the changes made in Sections 2 and 3 would require specific actions by the Kansas Corporation Commission that the Commission is not currently required to take, these provisions would be substantive.  He further clarified that his analysis is performed by only looking at the provisions of the bill and goes no further.

Chairman Masterson asked if any members had questions for conferees.  Chuck Caisley responded to all questions.

Randy Stookey, General Counsel, Kansas Grain and Feed Association provided neutral testimony on SB69.(Attachment 9)

Mr. Stookey stated that grain elevators are high industrial users of energy for turning and processing grain.  The grain industry generally operates on tight margins, with profitability in any given year highly dependent on fixed costs, such as energy.  He said that recent reports have shown that Kansas has the highest electric rates in the Midwest.  As our members operate continually, and are charged at industrial peak use rates, those high costs have become unsustainable.  It is for this reason that we support a comprehensive study on the competitiveness of Kansas energy rates. 

Mr. Stookey addressed questions from members.

Written testimony neutral to the bill was submitted by Randy Stookey, Renew Kansas Association.(Attachment 10)

Chairman Masterson left the hearing on SB69 open to be continued on February 20, 2019 to hear proponents and other neutral testimony.

Meeting adjourned at 2:30pm