Kansas regulators sharply criticized Great Plains Energy’s planned acquisition of Westar Energy, calling it potentially bad for the companies and the state.
Staffers for the Kansas Corporation Commission recommended that its board reject the $12.2 billion deal between Topeka-based Westar and Great Plains, the parent company of Kansas City Power & Light.
The potential deal would create a utility behemoth, serving 1.5 million customers on both sides of the Kansas and Missouri border. The deal was big enough to place No. 9 on Fortune magazine’s list of the 12 largest mergers and acquisitions of 2016.
In extensive testimony filed with the KCC last week, the utility regulatory agency’s staff raised concerns that Great Plains would take on too much debt in its bid to buy Westar and that the merger could shed enough jobs to hurt the Kansas economy.
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The KCC staff’s comments amounted to strong regulatory pushback and an at-times stinging appraisal of the deal.
Great Plains Energy owns KCP&L. The electric utility provides service for much of the Kansas City metro area that’s not covered by ratepayer-owned utilities. Westar provides electricity for most of the eastern half of Kansas, reaching into the western edge of Johnson County.
The utilities strongly disagreed with the KCC staff’s assessment.
“It’s unfortunate and highly unusual that a commission staff would come out and be against an acquisition like this and offer no way or no opinion as to how it might be fixed,” Chuck Caisley, vice president of marketing and public affairs for Great Plains and KCP&L, said Tuesday. “We, frankly in our experience, haven’t seen that.”
The KCC board has three members, all appointed by Gov. Sam Brownback. They will ultimately have to approve or reject the deal.
Great Plains Energy announced in May that it planned to acquire Westar in a cash and stock purchase. Great Plains would pay $8.6 billion for Westar’s equity and assume $3.6 billion of its debt. Westar shareholders would receive $60 per share.
Great Plains Energy projects that Kansas electric consumers would save $2 billion over 10 years from the efficiencies of a combined utility company. KCC staff members questioned those calculations.
Robert Glass, an economist with the KCC, acknowledged that lower electricity rates would be a plus for the Kansas economy, but not enough when potential job losses from a combined utility are taken into account.
“We strongly disagree with almost everything that they wrote as being one-sided and uninformed and not factual,” Caisley said.
He said that the merger company did not anticipate involuntary layoffs or staff reductions as an immediate consequence.
“Rather, we would be looking to reduce our workforce through attrition and other tools like voluntary separations for early retirement or mechanisms of that nature,” Caisley said.
He pointed to Great Plains Energy’s 2008 acquisition of Aquila Inc., the former Kansas City-based natural gas and electric utility. In that deal, he said fewer than 5 percent of the combined company’s employees were laid off or had an involuntary separation immediately after it was finalized.
Jeffrey McClanahan, director of the KCC’s utilities division, testified that the merger would increase the financial risk to Great Plains and its regulated subsidiaries because it would issue $4.4 billion in debt to finance the purchase of Westar.
Caisley said bond rating agencies have said the combined utility could retain its investment-grade rating. He added that Wall Street investors welcomed the deal.
Great Plains Energy, since announcing its plans to buy Westar, raised $2 billion in an equity offering in less than 12 hours.
“Institutional investors who have skin in the game ... have already voted overwhelmingly to participate in one of the largest equity offerings in the history of the industry,” Caisley said.
Westar Energy also spoke out against the KCC’s findings.
“While we don’t see eye to eye with KCC staff at this time and disagree with much of their testimony, we are confident in and committed to successfully closing this transaction in the spring of 2017,” Jana Dawson, director of corporate communications for Westar, said in a statement to The Star.
“The KCC Staff’s recommendation to the KCC Commissioners is just one step in a very long process. We’ll continue to work with our Kansas regulators and stakeholders throughout the process.”
Great Plains Energy plans to file rebuttal testimony to the KCC on Jan. 9. A hearing on the matter in Topeka is scheduled for Jan. 30 and could last up to three weeks.
Caisley said he expects a commission decision in April.
The Kansas Corporate Commission’s board has three members. They are board chairman Jay Scott Emler, former Kansas Senate majority leader; Shari Feist Albrecht, formerly of the KCC and Kansas Department of Health and Environment; and Pat Apple, former Kansas senator and chairman of the Kansas Senate Utilities Committee.
Great Plains Energy is not seeking the Missouri Public Service Commission’s approval of the Westar deal. In October, the Midwest Energy Consumers Group filed a lawsuit arguing that because Westar has assets in Missouri — the utility owns 40 percent of the State Line Combined Cycle Plant in Joplin, Mo. — Missouri regulators should evaluate the acquisition.
Great Plains Energy has filed motions before the Public Service Commission to dismiss the complaint. Caisley added that Great Plains has a settlement with the PSC staff and Office of Public Counsel to “allay their concerns and reach the same types of protections that they wanted.”