Session of 2024
HOUSE BILL No. 2527
By Committee on Energy, Utilities and Telecommunications
Requested by Laura Lutz, on behalf of Evergy
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AN ACT concerning public utilities; relating to the state corporation
commission; authorizing cost recovery mechanisms for certain rate
base additions; requiring the commission to evaluate the capital
structure of certain public utilities without regard for entities affiliated
with such utility; authorizing certain public utilities to elect a specific
return on equity in rate proceedings; increasing the peak demand
threshold and discount term for economic development electric rates
for large facilities; removing requirements for tracking and deferral to a
regulatory asset of revenue reductions caused by economic
development rates; authorizing a rate adjustment mechanism for the
construction of new gas-fired electric generating facilities; amending
K.S.A. 2023 Supp. 66-101j and 66-1239 and repealing the existing
sections.
Be it enacted by the Legislature of the State of Kansas:
New Section 1. (a) As used in this section:
(1) "Commission" means the state corporation commission.
(2) "Public utility" means the same as defined in K.S.A. 66-104, and
amendments thereto.
(3) "Qualifying electric plant" means all rate base additions by an
electric public utility.
(4) "Rate base cutoff date" means the date rate base additions are
accounted for in a general rate proceeding. In the absence of a commission
order that specifies the rate base cutoff date, "rate base cutoff date" means
the date as reflected in any jointly proposed procedural schedule submitted
by the parties in the applicable general rate proceeding, or the date that is
otherwise agreed to by such parties.
(5) "Weighted average cost of capital" means the return on rate base
used to determine the revenue requirement in the public utility's most
recently completed general rate proceeding except that in the absence of
any commission determination made on or after July 1, 2021, and prior to
July 1, 2024, to establish the return on rate base for such public utility, the
weighted average cost of capital shall be determined using the public
utility's actual capital structure as of December 31, 2023, excluding short-
term debt, the public utility's actual cost of long-term debt and preferred
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stock as of December 31, 2023, and a cost of common equity of 9.5%.
(b) Notwithstanding any other provision of law except K.S.A. 66-
1239(b)(5), and amendments thereto, commencing on July 1, 2024, a
public utility shall defer to a regulatory asset 100% of all depreciation
expense and return associated with all qualifying electric plants recorded
to plant-in-service on the utility's books if the public utility has provided
notice to the commission of the public utility's election to make such
deferrals pursuant to subsection (f). Except as provided in subsection (c),
in each general rate proceeding concluded after August 28, 2018, the
balance of the regulatory asset as of the rate base cutoff date shall be
included in the public utility's rate base without any offset, reduction or
adjustment based upon consideration of any other factor with the
regulatory asset balance arising from deferrals associated with qualifying
electric plants placed in service after the rate base cutoff date to be
included in rate base in the next general rate proceeding.
(c) The regulatory asset balances arising under this section shall be
adjusted to reflect any prudence disallowances ordered by the commission.
This section shall not be construed to affect existing law with respect to
the burdens of production and persuasion in general rate proceedings for
rate base additions.
(d) Parts of regulatory asset balances created under this section that
are not included in rate base shall include carrying costs at the public
utility's weighted average cost of capital, plus applicable federal, state and
local income or excise taxes. Regulatory asset balances arising under this
section that are included in rate base shall be recovered in rates through a
20-year amortization beginning on the date new rates reflecting such
amortization take effect.
(e) (1) Depreciation expense deferred under this section shall account
for all qualifying electric plants placed into service less retirements of the
plant replaced by such qualifying electric plant.
(2) Return deferred under this section shall be determined using the
weighted average cost of capital applied to the change in plant-related rate
base caused by the qualifying electric plant, plus applicable federal, state
and local income or excise taxes. In determining the return deferred, the
public utility shall account for changes in all plant-related accumulated
deferred income taxes and changes in accumulated depreciation, excluding
retirements.
(f) This section shall only apply to any public utility that has elected
to make the deferrals for which this section provides and filed a notice
with the commission of such election. A public utility that makes such
election shall be authorized to make the deferrals authorized by this
section.
New Sec. 2. (a) As used in this section:
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(1) "Commission" means the state corporation commission.
(2) "Large public utility" means a public utility as defined in K.S.A.
66-104, and amendments thereto, that serves not less than 20,000 retail
customers in Kansas on July 1, 2024.
(b) In any general rate proceeding filed pursuant to K.S.A. 66-117,
and amendments thereto, the commission shall evaluate any large public
utility on a stand-alone basis and, for purposes of establishing the revenue
requirement, utilize such public utility's test year capital structure, without
regard to the capital structure or investments of any other entities with
which such public utility may be affiliated, unless the commission finds
based on evidence in the record that the large public utility's parent
company does not hold an investment-grade credit rating from at least one
nationally recognized credit rating agency. The capital structure shall
include the relative proportions of common equity, long-term debt and
preferred stock consistent with the public utility's test year.
(c) (1) In any general rate proceeding filed pursuant to K.S.A. 66-117,
and amendments thereto, a large public utility may elect to base its return
on equity on the fully-litigated case 12-month average from the most
recent report issued in the regulatory research associates regulatory focus
publication, or its successor publication, for the applicable utility type. In
the case of large public utilities that are also electric public utilities, fully-
litigated observations from cases for electric utilities in restructured
jurisdictions or special rider or non-base rate cases in other jurisdictions
shall be excluded from the average. If the large public utility elects to use
such return on equity, such election shall be conclusive and binding on the
commission for purposes of determining the revenue requirement and,
except as provided in paragraph (2), no other evidence of return on equity
shall be admitted.
(2) The commission may establish pursuant to a commission order,
operational metrics for large public utilities which, if achieved, may result
in an adjustment of up to 25 basis points above or below the regulatory
research associates regulatory focus publication, or its successor
publication, to the fully-litigated case average return on equity determined
pursuant to paragraph (1), where dictated by customer service, operations,
changing economic or market conditions or other relevant factors.
(d) The commission shall consider all admissible evidence on return
on equity and select a reasonable return on equity for a large public utility
that does not elect the return on equity treatment in subsection (c).
Sec. 3. K.S.A. 2023 Supp. 66-101j is hereby amended to read as
follows: 66-101j. (a) Notwithstanding the provisions of K.S.A. 66-101b or
66-109, and amendments thereto, the commission shall authorize an
electric public utility to implement economic development rate schedules
that provide discounts from otherwise applicable standard rates for electric
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service for new or expanded facilities of industrial or commercial
customers that are not in the business of selling or providing goods or
services directly to the general public. To be eligible for such discounts,
such customer shall:
(1) Have incentives from one or more local, regional, state or federal
economic development agencies to locate such new or expanded facilities
in the electric public utility's certified service territory;
(2) qualify for service under the electric public utility's non-
residential and non-lighting rate schedules for such new or expanded
facility; and
(3) not receive the discount together with service provided by the
electric public utility pursuant to any other special contract agreements.
(b) The discount authorized by this section shall only be applicable to
new facilities or expanded facilities that have:
(1) A peak demand that is reasonably projected to be at least 200
kilowatts within two years of the date the customer first receives service
under the discounted rate and is not the result of shifting existing demand
from other facilities of the customer in the electric public utility's certified
service territory and:
(A) Has an annual load factor that is reasonably projected to equal or
exceed the electric public utility's annual system load factor within two
years of the date the customer first receives service under the discounted
rate; or
(B) otherwise warrants a discounted rate based on any of the
following factors:
(i) The number of new permanent full-time jobs created or the
percentage increase in existing permanent full-time jobs created;
(ii) the level of capital investment;
(iii) additional off-peak usage;
(iv) curtailable or interruptible load;
(v) new industry or technology; or
(vi) competition with existing industrial customers; or
(2) a peak demand that is reasonably projected to be at least 300
kilowatts 25 megawatts within two years of the date the customer first
receives service under the discounted rate and is not the result of shifting
existing demand from other facilities of the customer in the electric public
utility's certified service territory and:
(A) An annual load factor that is reasonably projected to be at least
55% within two years of the date the customer first receives service under
the discounted rate; and
(B) the facility shall, once first achieved, maintain the peak demand
and load factor for the remaining duration of the discounted rate.
(c) The discount authorized by this section shall be determined by
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reducing otherwise applicable charges associated with the rate schedule
applicable to the new or expanded existing facility by a fixed percentage
for each year of service under the discount for a period of up to:
(1) Five years to facilities that qualify pursuant to subsection (b)(1);
and
(2) 10 years to facilities that qualify pursuant to subsection (b)(2).
(d) (1) For discounts to facilities that qualify pursuant to subsection
(b)(1), the average of the annual discount percentages shall not:
(1) exceed 20% for discounts that qualify pursuant to subsection (b)
(1), but, except that such discounts may be between 5% to 30% in any
year; and of such five-year period.
(2) For discounts to facilities that qualify pursuant to subsection (b)
(2), the average of the annual discount percentages shall not exceed:
(A) For the first five years of the discount period, 40% for discounts
that qualify pursuant to subsection (b)(2), but, except that such discounts
may be between 20% to 50% in any year of such five-year period; and
(B) for the final five years of the discount period, 20%, except that
such discounts may be between 10% and 30% in any year of such five-
year period.
(d)(e) In each general rate proceeding concluded after the effective
date of this section, the commission shall allocate the reduced level of
revenues arising from the discounted rates provided for in this section
through the application of a uniform percentage adjustment to the revenue
requirement responsibility for all customer classes of the electric public
utility providing such discounted rate, including the classes with customers
that qualify for discounts under this section, except for rates for service
provided to customers under contract rates either approved by the
commission pursuant to K.S.A. 2023 Supp. 66-101i, and amendments
thereto, or the commission's general ratemaking authority.
(e) (1) The commission shall approve a tracking mechanism to track
reductions in revenue experienced by the electric public utility serving the
facility as a result of the discount rate from the date the discount rate
becomes effective; and
(2) such reductions in revenue shall be deferred to a regulatory asset
and shall accrue interest at the weighted average cost of capital used by the
commission to set the electric public utility's rates in its most recently
concluded general rate proceeding with the balance of such regulatory
asset to be included in the rate base and revenue requirement of the electric
public utility in each of the utility's general rate proceedings through an
amortization of the balance over a reasonable period until fully collected
from the utility's non-contract rate customers.
(f) The provisions of this section shall not apply to rates for service
provided to customers under contract rates approved by the commission
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pursuant to K.S.A. 2023 Supp. 66-101i, and amendments thereto, or the
commission's general ratemaking authority according to custom and
practice of the commission in place prior to the effective date of this
section.
(g) Starting in January 2023, the commission shall biennially provide
a status report to the legislature about any discounts from tariffed rates
authorized pursuant to this section. Such report shall include the:
(1) Number of entities with such discounts;
(2) number of entities with increased load;
(3) number of entities with decreased load;
(4) aggregate load and change in aggregate load on an annual basis;
(5) total subsidy and the subsidy for each individual contract;
(6) annual and cumulative rate impact on non-contract rate
customers; and
(7) estimated economic development impact of entities with
discounted rates that occurred as a result of such discounts through an
evaluation of the annual: (A) Total employment for such entities; (B)
change in employment for such entities; and (C) tax revenue generated by
such entities.
(h) For the purposes of this section:
(1) "Electric public utility" means the same as prescribed defined in
K.S.A. 66-101a, and amendments thereto, but does not include any such
utility that is a cooperative as defined in K.S.A. 66-104d, and amendments
thereto, or owned by one or more such cooperatives;
(2) "expanded facility" means a separately metered facility of the
customer, unless the utility determines that the additional costs of separate
metering of such facility would exceed the associated benefits or that it
would be difficult or impractical to install or read the meter, that has not
received service in the electric utility's certified service territory in the
previous 12 months; and
(3) "new facility" means a building of the customer that has not
received electric service in the electric utility's certified service territory in
the previous 12 months.
Sec. 4. K.S.A. 2023 Supp. 66-1239 is hereby amended to read as
follows: 66-1239. (a) As used in this section:
(1) "Commission" means the state corporation commission;
(2) "contract" means a public utility's contract for the purchase of
electric power in the amount of at least $5,000,000 $10,000,000 annually;
(3) "generating facility" means any electric generating plant or
improvement to existing generation facilities;
(4) "stake" means a public utility's whole or fractional ownership
share or leasehold or other proprietary interest in a generating facility or
transmission facility;
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(5) "public utility" means the same as defined in K.S.A. 66-104, and
amendments thereto; and
(6) "transmission facility" means: (A) Any existing line, and
supporting structures and equipment, being upgraded for the transfer of
electricity with an operating voltage of 34.5 kilovolts or more of
electricity; or (B) any new line, and supporting structures and equipment,
being constructed for the transfer of electricity with an operating voltage
of 230 kilovolts or more of electricity.
(7) "Weighted average cost of capital" means the same as defined in
section 1, and amendments thereto.
(b) (1) Prior to undertaking the construction of, or participation in, a
transmission facility, a public utility may file with the commission a
petition for a determination of the rate-making principles and treatment, as
proposed by the public utility, that will apply to the recovery in wholesale
or retail rates of the cost to be incurred by the public utility to acquire such
public utility's stake in the transmission facility during the expected useful
life of the transmission facility.
(2) The commission shall issue an order setting forth the rate-making
principles and treatment that will be applicable to the public utility's stake
in the transmission facility in all rate-making proceedings on and after
such time as the transmission facility is placed in service or the term of the
contract commences.
(3) The commission in all proceedings in which the cost of the public
utility's stake in the transmission facility is considered shall utilize the rate-
making principles and treatment applicable to the transmission facility.
(4) If the commission fails to issue a determination within 180 days
of the date a petition for a determination of rate-making principles and
treatment is filed, the rate-making principles and treatment proposed by
the petitioning public utility will be deemed to have been approved by the
commission and shall be binding for rate-making purposes during the
useful life of the transmission facility.
(5) If the commission does not have jurisdiction to set wholesale rates
for use of the transmission facility the commission need not consider rate-
making principles and treatment for wholesale rates for the transmission
facility.
(c) (1) Prior to undertaking the construction of, or participation in,
acquiring a stake in a generating facility, prior to entering into a new
contract or prior to retiring or abandoning a generating facility, or within a
reasonable time after retirement or abandonment if filing before retirement
or abandonment is not possible under the circumstances, a public utility
may file with the commission an application for a determination of the
rate-making principles and treatment, as proposed by the public utility, that
will apply to:
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(A) Recovery in wholesale or retail rates of the cost to be incurred by
the public utility to acquire such public utility's stake in the generating
facility during the expected useful life of the generating facility or the
recovery in rates of the contract during the term thereof; or
(B) reflection in wholesale or retail rates of the costs to be incurred
and the cost savings to be achieved by the public utility in retiring or
abandoning such public utility's stake in the generating facility, including,
but not limited to, the reasonableness of such retirement or abandonment.
(2) Any utility seeking a determination of rate-making principles and
treatment under subsection (c)(1) shall as a part of its filing submit the
following information: (A) A description of the public utility's
conservation measures; (B) a description of the public utility's demand
side management efforts; (C) the public utility's ten-year generation and
load forecasts; and (D) a description of all power supply alternatives
considered to meet the public utility's load requirements describe how the
public utility's stake in the generating facility is consistent with the public
utility's most recent preferred plan and resource acquisition strategy
submitted to the commission.
(3) In considering the public utility's supply preferred plan and
resource acquisition strategy, the commission may consider if the public
utility issued a request for proposal from a wide audience of participants
willing and able to meet the needs identified under the public utility's
generating supply preferred plan, and if the plan selected by the public
utility is reasonable, reliable and efficient.
(4) The commission shall issue an order setting forth the rate-making
principles and treatment that will be applicable to the public utility's stake
in the generating facility or to the contract in all rate-making proceedings
and all securitization proceedings on and after such time as the generating
facility is:
(A) Placed in service or the term of the contract commences; or
(B) retired or abandoned.
(5) With respect to a new gas-fired generating facility, unless the
commission timely elects not to set forth ratemaking principles applicable
in the future on the grounds that acquiring a stake in such a generating
facility is not reasonable, then notwithstanding any other provision of law,
the public utility shall be permitted to implement a new rate adjustment
mechanism designed to recover the return on 100% of amounts recorded
to construction work in progress on the public utility's books for the public
utility's stake in such a generating facility at the weighted average cost of
capital without offset, adjustment or reduction for any other issue or
consideration, except that such return shall be in lieu of any otherwise
applicable allowance for funds used during construction that would have
accrued from and after the effective date of such rate adjustment
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mechanism. A rate adjustment mechanism authorized pursuant to this
section shall become effective not sooner than 365 days after construction
of the generation facility begins and within 30 days of the filing for the
establishment of such mechanism by the public utility. As construction of
the public utility's stake in such a generating facility continues and the
balance of construction work in progress grows, the rate adjustment
mechanism in effect shall be subject to periodic increases, without
adjustment, offset or reduction for any other issue or consideration, except
that such periodic increases shall not occur more frequently than once
every six months. Except as provided in this section, the public utility's
customers shall be charged pursuant to such rate adjustment mechanism
until such time as new base rates reflecting the public utility's investment
in such generating facility take effect, with such base rates to include
carrying costs on any unrecovered portion of such investment at the public
utility's weighted average cost of capital as determined in the rate-making
proceeding setting such base rates that occurred between the date such
generation facility was placed in service on the public utility's books and
the effective date of base rates in such proceeding. A rate adjustment
mechanism authorized pursuant to this section shall be permitted to
remain in effect for a period not to exceed six years.
(6) The commission in all proceedings in which the cost of the public
utility's stake in the generating facility or the cost of the purchased power
under the contract is considered shall utilize the rate-making principles and
treatment applicable to the generating facility, contract or retired or
abandoned generating facility.
(6)(7) If the commission fails to issue a determination within 180
days of the date a petition for a determination of rate-making principles
and treatment is filed, the rate-making principles and treatment proposed
by the petitioning public utility will be deemed to have been approved by
the commission and shall be binding for rate-making purposes during the
useful life of the generating facility, during the term of the contract or
during the period when the cost of the retired or abandoned generating
facility is reflected in customer rates.
(d) The public utility shall have one year from the effective date of
the determination of the commission to notify the commission whether it
will construct or participate in the construction of acquire a stake in the
generating or transmission facility, whether it will perform under terms of
the contract or whether it will retire or abandon the generating facility.
(e) If the public utility notifies the commission within the one-year
period that the public utility will not construct or participate in the
construction of acquire a stake in the generating or transmission facility,
that it will not perform under the terms of the contract or that it will not
retire or abandon the generating facility, then the determination of rate-
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making principles pursuant to subsection (b) or (c) shall be of no further
force or effect, shall have no precedential value in any subsequent
proceeding, and there shall be no adverse presumption applied in any
future proceeding as a result of such notification.
(f) If the public utility notifies the commission under subsection (d)
that it will construct or participate acquire a stake in a generating facility
or participate in a purchase power contract and subsequently does not, or
that it will retire or abandon a generating facility and subsequently does
not, it will be required to notify the commission immediately in the
proceeding it initiated pursuant to this section and file an alternative
supply plan with the commission pursuant to subsection (c) within 90 days
provide notification of a change in the utility's preferred resource plan as
required by commission order.
Sec. 5. K.S.A. 2023 Supp. 66-101j and 66-1239 are hereby repealed.
Sec. 6. This act shall take effect and be in force from and after its
publication in the statute book.
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