Worry over rate hikes spurs investigation of Evergy deal with activist investor
The agency in charge of regulating investor-owned utilities in Kansas has opened an investigation of an agreement between Evergy, the Kansas City area’s dominant electric provider, and an activist investment firm that’s pushing Evergy to consider a plan to cut costs or consider a sale.
The Kansas Corporation Commission on Thursday voted to initiate an investigation, saying it’s concerned that New York-based activist investor Elliott Management Corporation’s ideas for Evergy would likely result in increases in electricity rates paid by Evergy customers and may not be in the public’s interest. When Kansas City Power & Light and Westar Energy merged in 2018 to form Evergy, the company said it would not change base electric rates for five years.
Elliott, a $40 billion asset management firm that owns 11.3 million shares of Evergy, sent a letter in January to Evergy’s board of directors criticizing the utility company’s stock performance since the 2018 merger and claiming that its return to shareholders lagged behind that of similar Midwestern utility companies.
Elliott is known for buying up large shares of publicly traded companies in order to influence business decisions. In Evergy’s case, Elliott has said the company should consider a plan to save $700 million through operations and maintenance “efficiencies,” replacing 20% of Evergy’s coal facilities with wind generation and other cost-saving moves.
If Evergy can’t do that, then Elliott suggested it consider a merger or a sale. One of the public justifications for a KCP&L and Westar merger was to avoid the prospect of an out-of-town concern acquiring the regional utility, a promise that’s difficult to keep given the nature of a company whose shares trade on the New York Stock Exchange and the ability of investors like Elliott to influence its decisions.
Elliott has claimed either route would not raise consumer rates.
KCC staff petitioned its board on June 11, saying it disagreed with the assumptions Elliott made in its analysis and believed the investor’s recommendations for Evergy would result in higher rates.
“Staff is very concerned that Elliott’s focus on increasing shareholder value will place Evergy’s customers at a high risk of paying higher rates or receiving lower quality service in order to support an increase in shareholder value,” the KCC said.
The Citizen’s Utility Ratepayer Board, an agency that serves as a watchdog for Kansas utility customers, largely agreed with KCC’s analysis.
David Nickel, consumer counsel for CURB, said it’s important that any savings resulting from Elliott’s recommendations be over and above what was promised in the KCP&L and Westar merger, and those savings should benefit ratepayers rather than company shareholders.
Nickel, in an interview, said CURB was skeptical of Elliott’s proposals. He said cutting operations and maintenance expenses likely means cutting jobs.
“If it’s too deep, it could run into reliability of service, which is core to why we have electric utilities in the first place: To provide safe and reliable service,” Nickel said.
A spokesman with Elliott declined to comment.
Evergy, in a statement, said its board and management are committed to best interests of anyone who has a stake in the utility, including shareholders and customers.
“We agree with KCC Staff that it is important to have a robust and transparent process that allows for stakeholder engagement,” Evergy said in a written statement. “Any action we might consider that would alter our current strategic plan, will balance the interests of stakeholders, serve the interest of regional rate competitiveness and fully comply with the terms of the merger agreement allowing for the creation of Evergy.”
In February, Evergy entered into an agreement with Elliott to form a committee that would study the activist investor’s proposals. Evergy also agreed to expand its board of directors from 15 directors to 17 to make room for two directors favored by Elliott. Evergy’s board would later shrink back down to 13 members when four terms expired.
Evergy said in a filing with the Securities and Exchange Commission that the special committee set a deadline of July 30 to present a formal recommendation to the Evergy board. The board would then vote by Aug. 17.
The KCC’s investigation would require Evergy to answer a number of questions its staff has about Elliott’s proposals, including whether it could still keep promises from the 2018 merger.
