SESSION OF 2024
SUPPLEMENTAL NOTE ON HOUSE BILL NO. 2527
As Amended by Senate Committee on Utilities
Brief*
HB 2527, as amended, would create new definitions and
modify existing definitions pertaining to cost recovery and rate
making procedures before the Kansas Corporation
Commission (KCC). The bill would establish new
mechanisms for the recovery of costs associated with
deferred depreciation and new gas-fired generating units.
Further, the bill would modify the qualification requirement
receiving a discounted electric rate and increase the term of
the discount for certain facilities. The bill would also make
technical amendments.
Definitions (New Sections 1 and 2)
The bill would establish new definitions for provisions
related to a utility’s recovery of cost for regulatory assets
(e.g., power plants, transmission lines). Among the new
definitions would be the following:
●“Qualifying electric plant” would mean all rate base
additions by an electric public utility, but not
including transmission facilities or new electric
generating units;
●“Qualifying regulatory asset” would mean any
regulatory asset balance arising from provisions
related to the deferral of depreciation of qualifying
electric plants, from the rate base cutoff date in the
utility’s most recent completed rate case to the
____________________
*Supplemental notes are prepared by the Legislative Research
Department and do not express legislative intent. The supplemental
note and fiscal note for this bill may be accessed on the Internet at
http://www.kslegislature.org cutoff date in the current general rate proceeding in
which a revenue requirement impact cap is
applied;
●“Rate base cutoff” would mean 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” would mean the date as reflected in
any jointly proposed procedural schedule
submitted by the parties in a general rate
proceeding or the date that is agreed to by the
parties; and
●“Weighted average cost of capital” would mean the
return on rate base used to determine the revenue
requirement or that was approved to be used for
regulatory accounting purposes in the public
utility’s most recently ordered return on rate base in
a general rate proceeding.
The bill would also provide a definition for “revenue
requirement impact cap.” Beginning on July 1, 2024, this cap
would limit the revenue requirement a utility could seek in a
general rate proceeding for regulatory asset balances, and
any excess to that cap would result in the regulatory asset
balance being reduced. Calculating the impact cap bill would
require multiplying 1/12 of 1.5 percent by the number of
months between two dates: the effective date of new base
rates in the utility’s most recent completed rate case and the
effective date of new base rates in a general rate case where
the cap was initially applied. The resulting value is then
multiplied by the revenue requirement from the preceding
completed rate case. This definition would only apply to
electric public utilities utilizing provisions pertaining to the
deferral of depreciation to regulatory assets.
2- 2527 Depreciation Deferrals, Cost Recovery and Return on
Equity (New Section 2)
Beginning July 1, 2024 and ending on December 31,
2030, the bill would allow an electric public utility to defer 90
percent of depreciation expenses and returns linked to
qualifying electric plants in service as regulatory assets. This
deferral would begin on July 1, 2024, once the utility notifies
the KCC. Any remaining balances would be included in the
utility’s rate base and recovered through rates without any
adjustments. The KCC has the authority to disallow balances
it deems imprudent.
The bill would specify that the electric public utilities’
earnings on the deferred balances will be calculated using the
weighted average cost of capital (previously defined) applied
to the change in the rate base related to the qualifying electric
plant, along with any relevant taxes. Additionally, any portions
of deferred balances not included in the rate base would be
mandated to be accounted for as carrying costs at the electric
public utilities’ weighted average cost of capital, including
applicable taxes.
The bill requires that regulatory asset balances
established by its provisions must be recovered from rates
over a 20-year period, starting from the date the balance is
incorporated into electric utility rates.
The KCC would be authorized, upon receiving an
application from a public utility utilizing a deferral before
December 31, 2028, to permit the utility to extend such
deferrals until December 31, 2036. The KCC must reach its
decision on the extended deferrals within 240 days of the
application’s filing and may conduct a hearing on the
application if requested by relevant parties. If the KCC denies
the application, the denial would affect only deferrals
occurring after December 31, 2030.
3- 2527 Economic Development Rates; Requirements (Section 3)
The bill would add to the list of facilities eligible to
receive a discounted rate the facilities with a projected peak
demand of 25 megawatts (MW) within two years of service
under the discounted rate. Demand projections could not be
the result of shifting existing demand from the customer’s
other facilities in the utility’s certified service territory.
Further, the bill would clarify how long certain facilities
would be eligible to receive discounted rates and extend the
discounted rate from five to ten years for facilities with a
projected peak demand of 25 MW. The bill would stipulate the
maximum average discount for these facilities could not
exceed 40 percent, but discounts could range between 20
percent and 50 percent in the first five-year period. In the
second five-year period, the maximum average discount
could not exceed 20 percent, but discounts could be between
10 percent and 30 percent in such period.
The bill would also prohibit the inclusion in the
calculation of the public utilities revenue requirements any
variance in revenues resulting from discounted rates,
compared with what revenues would have been without the
discounts.
The bill would provide an exception for any reduction in
revenue resulting from any discount that was tracked by the
public utility and deferred to a regulatory asset prior to July 1,
2024, would be recoverable in any general rate proceeding
initiated on or after July 1, 2024, through an equal percentage
adjustment to the revenue requirement responsibility for all
customer classes of the public utility, including the customer
classes that include customers that qualify for discounts
pursuant in continuing law.
4- 2527 Continuation of Discount Rates for Certain Facilities
Electric public utilities would only be authorized to offer
discount rates for facilities with a projected peak demand of
25 MW until December 31, 2030, unless they apply to the
KCC for continued authorization of the discounted rate until
December 31, 2036. An application for continued
authorization would be required to be received on or before
December 31, 2028. The KCC would be required to make
determination within 240 days of the application’s filing and
could conduct a hearing on the application if requested by
relevant parties. If the KCC denies the application, the denial
would affect only discounted rates that would have occurred
after December 31, 2030.
Removal of Tracking Requirements
The bill would remove the requirements for a utility to
track reductions in revenue as a result of the discounted rate
and defer those reductions in revenue to a regulatory asset.
Rate-making, Generally (Section 4)
The bill would modify the definition of “contract” to
increasing the threshold at which a utility would need to
receive a KCC determination on rate-making principles from
$5.0 million to $10.0 million. The bill would also clarify that a
public utility could file with the KCC for a determination of
rate-making principles for cost recovery when it acquires a
stake in a generating facility.
Rate-making Principles for New Gas-fired Generation
The bill would establish rules for how a gas-fired power
plant’s costs could be covered by utility rates. If the KCC
decides it is reasonable for the utility to invest in the plant, the
utility would be able to recover 100 percent of construction
costs at the weighted average cost of capital, not to exceed
5- 2527 the cost estimate found reasonable by the KCC. The cost
recovery from customers could begin no sooner than 365
days after construction begins and within 60 days of filing to
utilize the cost recovery mechanism. The rates could be
adjusted every six months until new base rates reflecting the
plant’s costs are established.
Electric public utilities would only be authorized to
recover construction costs with this mechanism until
December 31, 2030, unless they make application to the KCC
for continued authorization of the cost recovery mechanism
before December 31, 2036. An application for continued
authorization would be required to be received on or before
December 31, 2028. The KCC would be required to make
determination within 240 days of the application’s filing and
could conduct a hearing on the application if requested by
relevant parties. If the KCC denies the application, the denial
would affect only discounted rates that would have occurred
after December 31, 2030.
The KCC would have the authority, after a hearing, to
require a public utility to issue a refund to customers if it
utilizes a mechanism to recover costs of a facility under
construction and subsequently terminates the initiative to
acquire a stake in the facility.
Legislative Intent and KCC Rate-making Procedures
The bill would express legislative intent as it applies to
petitions for determination of rate-making principles for the
construction of transmission and generating facilities and
increase from 180 days to 240 days the amount of time the
KCC would have to make a determination on petitions.
The bill would establish the following requirements for
the KCC in regard to such matters:
●Issue a determination on such petitions
expeditiously;
6- 2527 ●Attempt to issue a determination in less than the
240-day deadline;
●Provide notice of the public utility’s intent to file a
petition to each party or intervenor involved in the
utility’s most recent rate case;
○Petitions to intervene would be submitted
after a public utility files the petition; and
●Adopt a procedural schedule within 30 days a
petition is filed.
Background
The bill was introduced by the House Committee on
Energy, Utilities and Telecommunications at the request of a
representative of Evergy.
House Committee on Energy, Utilities and
Telecommunications
In the House Committee hearing on February 6, 2024,
representatives of Evergy, Greater Topeka Chamber, and
Salina County Economic Development provided proponent
testimony, stating the bill would grow the state’s capacity for
energy generation, which will invite capital investment and
encourage economic growth. The proponents also explained
the legislation would make Kansas more competitive with
neighboring states for economic development.
Written-only proponent testimony was provided by
representatives of Block Real Estate Services, LLC; Greater
Wichita Partnership; Hutchinson/Reno County Chamber;
IBEW Local Union 124 & 271; JQ Resources, LLC; Kansas
City Chamber of Commerce; Kansas City Area Development
Council; Kansas Economic Development Alliance; Leawood
Chamber; Liberty Utility; LiUNA Local Union 1290;
Construction & General Laborers; Mid-America Carpenters
7- 2527 Regional Council; North Point Development; Overland Park
Chamber; and Shawnee Chamber of Commerce.
Opponent testimony was provided by representatives of
Kansas Industrial Consumers Group (KIC), Kansans for
Lower Electric Rights (KLER), Citizens’ Utility Ratepayer
Board (CURB), KCC, Americans for Prosperity (AFP), and
AARP Kansas. The opponents raised concerns with Section
2 of the bill, pertaining to provider control of setting return on
equity and with the likelihood of increased costs to
customers.
Written-only opponent testimony was provided by
representatives of Kansas Chamber; Kansas Agribusiness
Retailers Association, Kansas Grain and Feed Association,
and Renew Kansas Biofuels Association; and Wichita Public
Schools.
Neutral testimony was provided by a representative of
WindSoHy, LCC.
Written-only neutral testimony was provided by a
representative of the Wichita Regional Chamber of
Commerce.
On March 5, 2024, the House Committee discussed a
proposed amendment to the bill and received testimony in
support of the amendment from representatives of Evergy
and the Kansas Chamber, who stated that stakeholders were
able to find compromise by removing the contents of New
Section 2 of the original bill and by making other
amendments.
Further testimony on the amendment was provided by
representatives of CURB, KCC, KLER, and the Kansas Sierra
Club, who expressed that pieces of the original legislation
with which they had concerns had been edited by the
proposed amendment and, consequently, they considered
themselves neutral on the bill.
8- 2527 The House Committee amended the bill to:
●Add a definition for “qualifying electric plant”;
●Remove provisions that prescribed how the KCC
would establish a utilities revenue requirement and
return on equity in a general proceeding;
●Change the amount of depreciation that could be
deferred to a regulatory asset to 90 percent;
●Establish sunset and extension mechanisms for
provisions related to deferred depreciation, certain
discount rates, and recovery of cost for gas-fired
generation units under construction;
●Express legislative intent and set forth
requirements for KCC procedures related to
petitions to construct transmission and generating
facilities; and
●Make technical and conforming changes.
Senate Committee on Utilities
In the Senate Committee hearing on March 18, 2024,
proponent testimony was provided by a representative of
Evergy, who stated that the bill would incentivize an increase
to capital investment in utilities in Kansas. He also noted that
the bill would enhance Kansas’ electricity generation
competitiveness with surrounding states while also
maintaining energy reliability and lower costs to consumers.
Written-only proponent testimony was provided by
representatives of Empire District Electric Company [Note:
also known as Liberty Utilities in Kansas], Greater Kansas
City Chamber of Commerce, Greater Topeka Chamber of
Commerce, Hutchinson/Reno County Chamber of
Commerce, International Brotherhood of Electrical Workers
Local Unions 124 and 271, Kansas Chamber of Commerce,
9- 2527 Kansas Economic Development Alliance, Overland Park
Chamber of Commerce, Mid-America Carpenters Regional
Council, Shawnee Chamber of Commerce, and Wichita
Regional Chamber of Commerce.
Neutral testimony was provided by representatives of
the KCC, KIC and KLER; and CURB. They stated that the bill,
as amended by the House Committee, would be a
compromise between stakeholders in the industry with the
addition of consumer protections, sunset date, Planned
Service in Accounting provisions, depreciation recovery, and
allowing collection of fees on construction works in progress.
The representative of KIC and KLER provided an amendment
that would not allow customers to be charged for economic
rate cost changes and discounts until after the next rate case
on or after July 1, 2024.
Neutral written-only testimony was provided by a
representative of the Kansas Sierra Club.
No other testimony was provided.
The Senate Committee amended the bill to:
●Include the proposed amendment by the
representative of KIC and KLER, which would
provide that any reduction in revenue resulting
from discounts could not be added to customers’
bills until after the next general rate proceeding on
or after July 1, 2024, and only those changes in
revenue prior to July 1, 2024 could be added
during the general rate proceeding; and
●Make technical amendments.
Fiscal Information
According to the fiscal note prepared by the Division of
the Budget on the bill, as introduced, the KCC indicates the
10- 2527 bill would not have a fiscal effect on its operations. CURB
indicates the bill would not affect the agency’s workload and
would not have a fiscal effect on its operations. CURB notes
the fiscal effect could change depending upon the number of
filings and complexity of cases filed as a result of enactment
of the bill. Any fiscal effect associated with the bill is not
reflected in The FY 2025 Governor’s Budget Report.
Economic development; electric rates; KCC; public utilities
11- 2527