Monday, December 19, 2016

Westar Energy Sale Not In Best Interest Of Public, KCC staff says

Westar Energy’s (WR) sale to Great Plains Energy (GXP) is not in the best interest of the public, said Jeffrey McClanahan of the Kansas Corporation Commission, in testimony filed on Friday.
Jeffrey McClanahan is employed by the Kansas Corporation Commission as Director, Utilities Division.

“Staff’s overall conclusion is that the proposed transaction fails most of the 22 merger standards and is, therefore, not in the public interest,” he said. “Moreover, there are fundamental flaws in the proposed transaction that prohibit staff from recommending merger conditions that would support a finding that the transaction is in the public interest. Thus the proposed transaction should be denied.”

Justin Grady, KCC staff, says the purchase price Great Plains has agreed to pay cannot be determined to be reasonable in light of the savings that can be demonstrated and it is not within a reasonable range.

Adam Gatewood of the KCC says the post-merger entity will be financially weaker than the existing stand-alone entities. He also asserts  that the merger is not in the public interest because customers will be asked to pay rates that are in excess of the cost of providing services. Finally, the transaction weakens the commission’s ability to effectively regulate the post-merger entity.

Robert Glass, Ph.D., finds that the transaction will have a negative effect on the Kansas economy.

McClanahan said the proposed transaction would leave ratepayers, the state, and even the post-transaction entity in a worse position moving forward. In fact, this transaction primarily promotes the interests of Westar’s shareholders – due to the overcompensation they will receive – to the detriment of the public interest.

McClanahan said staff cannot recommend approval of the merger even with conditions. Merger conditions cannot remedy several fundamental flaws within the transaction as proposed. These fundamental flaws are: The purchase price of $12.2 billion is too high because it results in Great Plains and its subsidiary Westar being in a significantly weaker financial position post-acquisition. Even though joint applicants assert they are not explicitly requesting recovery of the acquisition premium, ratepayers will inevitably pay this acquisition premium implicitly through financial engineering.

Financial engineering requires the commission to change its current approach to setting a utility’s cost of capital by allowing Great Plains to earn equity-level returns on investment financed with lower-cost debt, McClanahan said.

Joint applicants have failed to demonstrate that the transaction benefits customers through demonstrable and quantifiable savings which can be reasonably attributed to the acquisition, McClanahan said.

Joint applicants have failed to provide any certainty with regard to the continued financial health of the companies.

Great Plains Energy plans to acquire Westar Energy for about $12.2 billion. Westar shareholders will receive $60 per share -- $51.00 in cash and $9.00 in Great Plains Energy common stock. Upon closing, Westar will become a wholly-owned subsidiary of Great Plains Energy. On Sept. 26, 2016, the two companies announced that the shareholders of both companies voted to approve Great Plains Energy's acquisition of Westar Energy. The companies hope the acquisition will close in second quarter 2017.

The governing body for the Kansas Corporation Commission are three commissioners. They do not necessarily have to follow recommendation of the staff.

Jay Scott Emler was appointed to the KCC by Governor Brownback on January 8, 2014. He was confirmed by the Kansas Senate on January 16, 2014. On May 21, 2015, Emler was confirmed for a four year term, which expires on March 15, 2019. He was elected Chairman on January 14, 2016.

Shari Feist Albrecht was appointed to the KCC by Governor Brownback on June 25, 2012. She served as Chair from January 9, 2014, to January 14, 2016. Her term expires on March 15, 2016.

Pat Apple was appointed to the KCC by Governor Brownback on March 24, 2014. He was confirmed by the Kansas Senate on April 6, 2014. His term expires on March 15, 2018.

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