Editorial: High-stakes utility decision
It’s too early to say for sure, but new proposal between Westar and Great Plains Energy looks more promising than the last one.
You don’t have to be interested in Wall Street finance to have a rooting interest in the proposed merger between Westar Energy and Great Plains Energy. More than 1 million electricity users in Kansas and Missouri have a lot at stake in this proposal.
If the two utility companies — along with state regulators who are responsible for approving the merger — get this wrong, we’ll all be paying for the mistake for years to come.
For that reason, judgment should be reserved on this merger until more details can be provided. However, there is reason to believe that this deal is a better one for ratepayers than the one the two companies proposed last year.
Give credit to the Kansas Corporation Commission for unanimously rejecting the previous merger proposal. The previous proposal would have required about $8 billion in borrowing. If the merged company didn’t perform as well as expected, ratepayers likely would have been on the hook to help repay that debt through higher electric rates.
The current proposal places much more of the risk with shareholders. The current plan requires no debt. Instead, it is a merger of equals. The two companies will combine their shares into a new entity, and shareholders will be asked to trust that the new combined company will be more efficient and more profitable than either company could be on its own. If the combined entity doesn’t perform as well as expected, there at least won’t be $8 billion in debt to pay off.
But in some ways, the deal sounds too good to be true. Under the proposed deal, the company will provide a one-time $50 million in rate savings to electric customers. The company will increase its earnings by 6 to 8 percent. Former Westar shareholders will see their dividend payments rise by 15 percent. The new company will have cost savings of about $170 million by 2021. Yet, company officials have said they do not expect layoffs as a result of the merger.
That would seem to be a tough trick to pull off, but Westar and Great Plains officials deserve the opportunity to explain to the public and regulators how it can be done. A successful merger could be a very good turn of events for the entire region. Great Plains is the parent company of KCP&L. The fact that Great Plains is based in Kansas City and Westar is based in Topeka is an attractive detail of this plan. Kansans should feel better about the proposal knowing it involves a Kansas City company that understands the region. Westar and KCP&L combined could be a powerful entity to promote prosperity for the region, and might even be able to help improve relations between Kansas and Missouri leaders, which have become disjointed over economic development issues.
The deal still must receive multiple layers of approval before it can become final. Shareholders of both companies must approve the merger. Importantly, the Kansas Corporation Commission also must approve the deal.
Douglas County officials should be prepared to get involved in the KCC process. Douglas County is linked to Westar Energy more so than many other counties. Westar operates a coal-fired power plant just northwest of the Lawrence city limits. In addition to providing some good jobs, the plant is one of the largest property tax payers in the county. As the two companies seek efficiencies, it will be important for local officials to understand whether there will be any impacts on the Douglas County power plant.
Making sure that we have a safe, reliable and affordable source of electricity to power our homes and businesses into the future is a critical concern. For that reason alone, we should all make sure we stay plugged in to the debate to come.