A.J. Goulding delivered his firm's assessment of the power dynamic between utilities and regulators in hearings Tuesday before Kansas legislators.
Lawmakers in 2019 commissioned a study of why Kansas has higher electricity rates than other states in the region. For its study, London Economics compared Kansas to 18 states.
The firm recommended Kansas establish a state energy plan and mandate the annual publication by utilities of an integrated resource plan. Additionally, the study recommends a shift to performance-based ratemaking, where utilities are rewarded or punished for things like service quality and reliability.
Reaction to Goulding's presentation by lawmakers in a House panel centered on decisions made by Kansas utilities a decade ago to invest in coal-fired energy production. While the price of natural gas bottomed out, environmental regulations escalated the costs of operating coal plants.
Meanwhile, renewable energy production also became more affordable.
"I think it's important to acknowledge that the power sector over the past 10 years is changing more rapidly than it has in the past 50 years," Goulding said. "This means that even with the most effective ratemaking practices available, everybody is playing catch-up to a degree."
Rep. John Carmichael, D-Wichita, said the decision to gamble on coal put customers in a difficult situation, and he asked who should bear the responsibility for a bad bet.
"If you want to make headway," Goulding said, "then what you do is you go back and you start examining those decisions with a fine-tooth comb. That also takes an investment of time and money on the regulators' part."
Rep. Joe Seiwert, R-Pretty Prairie, asked Goulding whether current investments in natural gas pose a long-term risk.
"We all know the green energy people are after natural gas at this point for fracking and everything," Seiwert said.
Goulding said he expects modest changes in the cost of generating power from gas.
"I personally don't feel that gas today is necessarily a bad thing to have in your planning mix because I think the environmental challenges, practically speaking, are going to be incremental rather than dramatic," Goulding said.
Compared to other states in the region, the level of surcharges and riders that appear on customer bills as a means of paying for specific investments were "an anomaly" for Kansas. Those fees "explain a significant portion" of rising electricity costs, Goulding said.
A transition to performance-based rates would take one to two years, Goulding said. Regulators need to determine goals that utilities can achieve, he said, and consider things that are beyond a utility's control. An example of unavoidable costs would be hypothetical mandates for cybersecurity.
©2020 The Topeka Capital-Journal, Kan. Distributed by Tribune Content Agency, LLC.
