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_____________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
Amendment No. 43 to
SCHEDULE 14D-9
Solicitation/Recommendation Statement Pursuant to
Section 14(d)(4) of the Securities Exchange Act of 1934
____________
KANSAS CITY POWER & LIGHT COMPANY
(Name of Subject Company)
KANSAS CITY POWER & LIGHT COMPANY
(Name of Person Filing Statement)
Common Stock, no par value
(Title of Class of Securities)
____________
485134100
(CUSIP Number of Class of Securities)
____________
Jeanie Sell Latz, Esq.
Senior Vice President-Corporate Services
Kansas City Power & Light Company
1201 Walnut
Kansas City, Missouri 64106-2124
(816) 556-2200
(Name, address and telephone number of person authorized
to receive notice and communications on behalf
of the person filing statement)
____________
Copy to:
Nancy A. Lieberman, Esq.
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
(212) 735-3000
_____________________________________________________________
This statement amends and supplements the
Solicitation/Recommendation Statement on Schedule 14D-9 of Kansas
City Power & Light Company, a Missouri corporation ("KCPL"),
filed with the Securities and Exchange Commission (the
"Commission") on July 9, 1996, as amended, (the "Schedule 14D-
9"), with respect to the exchange offer made by Western
Resources, Inc., a Kansas corporation ("Western Resources"), to
exchange Western Resources common stock, par value $5.00 per
share, for all of the outstanding shares of KCPL common stock, no
par value ("KCPL Common Stock"), on the terms and conditions set
forth in the prospectus of Western Resources dated July 3, 1996
and the related Letter of Transmittal.
Capitalized terms used and not defined herein shall have the
meanings assigned to such terms in the Schedule 14D-9.
Item 9. Material to be Filed as Exhibits.
The following Exhibits are filed herewith:
Exhibit 119 Postcard mailed to KCPL shareholders commencing
October 7, 1996.
Exhibit 120 Notice of Intervention, Protest and Request For
Hearing of the Kansas Corporation Commission,
Docket No. EC96-30-000, filed with the Federal
Energy Regulatory Commission (FERC) on
September 30, 1996.
Exhibit 121 Kansas Corporation Commission Order on Motion to
Approve Agreement, Docket No. 193,306-U
96-KG&E-100-RTS and Docket No. 193,307-U
96-WSRE-101-DRS, issued October 1, 1996.
SIGNATURE
After reasonable inquiry and to the best of her knowledge
and belief, the undersigned certifies that the information set
forth in this Statement is true, complete and correct.
KANSAS CITY POWER & LIGHT COMPANY
By: /s/Jeanie Sell Latz
Jeanie Sell Latz
Senior Vice President-Corporate Services
Dated: October 7, 1996
EXHIBIT INDEX
Exhibit No. Description Page
___________ __________________________________________________ ____
Exhibit 119 Postcard mailed to KCPL shareholders commencing
October 7, 1996.
Exhibit 120 Notice of Intervention, Protest and Request For
Hearing of the Kansas Corporation Commission,
Docket No. EC96-30-000, filed with the Federal
Energy Regulatory Commission (FERC) on
September 30, 1996.
Exhibit 121 Kansas Corporation Commission Order on Motion to
Approve Agreement, Docket No. 193,306-U
96-KG&E-100-RTS and Docket No. 193,307-U
96-WSRE-101-DRS, issued October 1, 1996.
Exhibit 119
[Text of postcard mailed to KCPL shareholders commencing
October 7, 1996]
[front of postcard]
Q. Do I HAVE TO tender my KCPL shares to Western?
A. NO
We know you have questions.
Please call KCPL Investor Relations for answers:
1-800-245-5275
[back of postcard]
[KCPL logo] Kansas City Power & Light Co.
P.O. Box 418679
Kansas City, MO 64141-9679
Important information about your KCPL shares
Exhibit 120
FILED
OFFICE OF THE SECRETARY
96 SEP 30 PM 2:25
FEDERAL ENERGY
REGULATORY COMMISSION
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
WESTERN RESOURCES, INC. ) DOCKET NO. EC96-30-000
NOTICE OF INTERVENTION, PROTEST AND REQUEST FOR HEARING
OF THE
KANSAS CORPORATION COMMISSION
Western Resources, Inc. ("Western") has filed in this docket
an Application for Authorization and Approval of Merger under
Section 203.
Pursuant to Rules 211, 212 and 214(a)(2) of the Commission's
Rules of Practice and Procedure, 18 C.F.R. secs. 385.211, 385.212
and 385.214(a)(2), the Kansas Corporation Commission ("KCC")
hereby notices its intervention in this proceeding, protests the
filing and requests a hearing.
Persons on whom communications concerning this proceeding
should be served are:
David Heinemann, General Counsel
John McNish, Assistant General Counsel
Kansas Corporation Commission
1500 S.W. Arrowhead Road
Topeka KS 66604
(913) 271-3240 (tel.)
(913) 271-3167 (fax)
Scott Hempling
Attorney at Law
417 St. Lawrence Drive
Silver Spring MD 20901
(301) 681-4669 (tel.)
(301) 681-7211 (fax)
I. THE COMMISSION SHOULD DEFER ACTION ON THIS MERGER
A. THE COMMISSION SHOULD NOT TAKE ACTION UNTIL IT HAS
ESTABLISHED GENERIC GUIDELINES FOR MERGERS
Many talk of the need to "replace the COMMONWEALTH
standards." This description incorrectly assumes there is
something there to replace. In fact, the COMMONWEALTH
"standards" have become a mere list of the obvious subject areas:
competition, coercion, and costs. They offer no guidance. They
represent an empty vessel, filled afresh in each case with the
idiosyncratic arguments made by the applicants at the time. The
imperative now is not to modernize the COMMONWEALTH standards;
rather, it is to have some MEANINGFUL standards.
The current spate of merger applications should come as
little surprise. Of course, in general there is a need to
recognize the strategic nature of competition. Yet more
specifically, there is a need to recognize the strategic nature
of structural change. The very hallmark of the electric industry
restructuring is the change from agency regulation to market
discipline of generation decisions. For this change to yield the
expected net social benefits it is critical the resultant
generation market be sufficiently competitive. It is important
to recognize the advantages that merging now might yield in a
future marketplace that does not have same type and degree of
government oversight as the current marketplace. Put slightly
differently, it is important to recognize how merging on the eve
of restructuring might affect the ability of restructuring to
ultimately reach a sufficiently competitive generation market.
In particular, we believe the Commission needs to provide
more methodological guidance in at least the following areas:
a. the definition of relevant geographic markets,
including the relationship between transmission pricing
and geographic boundaries;
b. the calculation of market shares for a given
marketplace;
c. the relation between transmission pricing and the
ability to transact in surrounding, or distant markets;
d. the relation between the ability to transact in distant
markets and concentration (or market shares) in the
instant market;
c. guidelines on determining what level of post-merger
concentration requires disapproval;
d. the analysis of entry barriers;
e. the role of the Department of Justice MERGER
GUIDELINES; and
f. the effect of mergers on retail competition.
The assessment and applicability of any merger guidelines will
depend upon what assumptions it makes concerning the organization
of the restructured generation market. For example, whether a
specific marketplace utilizes an ISO or not, has access to non-
pancaked transmission tariffs will have a bearing on the
applicability of certain merger guidelines. This suggests a need
for the Commission to indicate how its merger guidelines are
conditioned by structural assumptions, and it further suggests
the merger guidelines be derived in the most comprehensive policy
framework as possible. As the Commission reviews merger
guidelines, the Commission should also recognize the
complementary need for restructuring guidelines.
If the Commission does set this matter for hearing rather
than deferring it, any approval should be conditioned on the
outcome of any merger rule issued by the Commission vis-a-vis the
pending Notice of Inquiry as well as restructuring related
Orders. Any other approach may induce other companies to merger
more rapidly than otherwise, to avoid any future Commission
requirements. We expect that the Commission, the KCC and all
other participants will learn a great deal from the Merger Notice
of Inquiry and organizational restructuring processes. The
benefit of this knowledge should be applied to this significant
market event in Kansas.
B. THE COMMISSION SHOULD NOT TAKE ACTION UNTIL THE STATE
COMMISSIONS HAVE ACTED
The Commission should defer any formal hearing, other than
discovery procedures, until the State commissions act. This
approach avoids the awkward, and potentially paralyzing,
situation in which a state commission is simultaneously an
advocate at FERC and a judge in the state proceeding. To protect
the interest of Kansas consumers, the KCC must play an active
role in the Commission's proceeding. That role is anticipated by
the Section 203 of the Federal Power Act, which expressly
requires merger applicants to serve copies of their application
on affected state commissions. Because there are many overlapping
or interconnected issues, it is difficult to take positions in
the FERC case without prejudging certain issues in the state
case. Our proposed procedure also would reduce the risk of
inconsistent public interest determinations at the state and
federal levels.
As with our suggestion on conditioning the merger on any
outcome of the merger NOI and Commission restructuring guidelines
(embodied in relevant Orders), this procedure should apply to any
proposed merger, not only to that involving Western and Kansas
City Power and Light Company ("KCPL").
C. THE COMMISSION SHOULD NOT TAKE ACTION UNTIL THERE IS
SHAREHOLDER APPROVAL
1. THE ABSENCE OF SHAREHOLDER AGREEMENT MAKES THE
RECORD INSUFFICIENT FOR SERIOUS EVALUATION
In determining whether a merger is consistent with the
public interest, the Commission must look at real facts: facts
about the costs and cost reductions associated with the
combination. The absence of shareholder approval in this case
makes all assertions about this merger speculative. Unless
management teams from both companies are assessing the savings,
distinguishing the feasible from the infeasible, separating
actual from aspirational, the analysis is neither complete nor
objective. What Mr. Flaherty, and Western, presents is a merger
theory, not a merger plan.
In addition to the effect of the merger on overall costs,
the Commission also must look at the effect of the merger on
ratepayers. These effects remain indeterminate until there is
shareholder approval from both companies.
It is no secret that in merger negotiations, the negotiating
parties come to an internal understanding as to the level of
possible cost reductions, and then proceed to divide those
expected benefits up among five categories: shareholders of
Company A, shareholders of Company B, ratepayers of Company A,
ratepayers of Company B and management of the merged company. The
outcome of these negotiations is based in part on the bargaining
skills and leverage of each company. Then they present the
outcome of these negotiations (which never involve either the
ratepayers or the State commissions) to the public as a complete
merger plan, the subject of "extensive negotiations," hinting
strongly that regulatory alteration would "disrupt the deal."
In the case of a Western-KCPL arrangement, no such
negotiations have taken place. The regulators do not have final
information on the companies' proposal for dividing up the
benefits. Thus the regulators could reach a decision on that
division which KCP&L shareholders might well reject. The absence
of information on what KCP&L shareholders would accept makes this
merger proceeding a theoretical exercise. The public is not
served by using scarce regulatory resources this way.
The only possible response to this argument is that the
Commission can review a merger without knowing the final
arrangement is that the division of merger benefits, and merger
risks, among the five categories is irrelevant to the public
interest. We do not see how that can be so. The division of
benefits has direct relevance to post-merger rates and cost
levels.
The same argument applies to the analysis of
competition. The potential to use the combined system
anticompetitively requires collaboration among the two merging
companies. Reduction in competition is a matter not only of
structure but of behavior. Without a history of cooperation
between the companies in the preparation of this merger, it is
easy to underestimate the level of market power which the two
companies could exercise on a combined basis.
2. SECTION 203 DOES NOT CONTEMPLATE APPLICATIONS BY
ENTITLES OTHER THAN THOSE OWNING THE ASSETS
We also note that the Application requests certain
authorizations the Commission is not authorized to grant.
According to the Application (at 1-2), Western Resources requests
that the Commission, among other things,
(2) authorize KCPL to dispose of its jurisdictional assets
and facilities by means of Western Resources gaining control
of KCPL through the exchange of Western Resources' common
stock for each share of KCPL common stock...."
Western Resources also requests, to the extent necessary,
approval for a change in control over the jurisdictional
facilities of Northwest Power Marketing Company. L.L.C.
(Northwest Power), KCPL's affiliated power marketer, in the
context of the merger. These jurisdictional facilities
consist of Northwest Power's rate schedule.
Section 203 does not authorize the Commission to
"authorize" the disposition of facilities owned by an entity
other than the public utility seeking approval. The language of
Section 203 is clear: "No public utility shall ... dispose of
the whole of its facilities ... without first having secured an
order of the Commission authorizing it do so."
The entity required to "have secured" the order is the
public utility which would dispose of its facilities.
We recognize the Commission addressed the issue of
unsolicited takeovers in the KCP&L request to acquire KG&E in
1990. KANSAS CITY POWER & LIGHT COMPANY, 53 F.E.R.C.
Section 61,097 (1990). But the Commission in that order focused
on policy considerations without addressing the literal language
of the statute.
We wish to stress, to the point of excess, that the KCC
does not intend with this argument to suggest that unsolicited
takeovers should receive any different statutory treatment than
so-called consensual takeovers. We agree with all the arguments
of regulatory neutrality set forth in the Commission's opinion in
KCPL. But the Commission can achieve the goal of neutrality while
adhering to the words of the statute.
The simple solution is to require that any merger must have
shareholder approval. Shareholder approval is common to both a
consensual and an unsolicited takeover. In this way the
Commission is assured of reviewing a merger to which both parties
are committed. It heeds the statutory language and assures a
meaningful record.
Just as one company's noncooperation should not prejudice
the suitor, it should not prejudice the public. The purpose of
Section 203 is to require a full inquiry into the effect of a
merger on the public interest. There can be no compromises of
that statutory requirement.
II. IF THE COMMISSION DOES NOT DEFER ACTION, A HEARING IS
NECESSARY
The Applicants have the burden of showing that the
merger is consistent with the public interest. A merger is not
consistent with the public interest if it is not an efficient
transaction. Western therefore has the burden of proving that
the merger transaction is an efficient one. The hearing must
cover two major areas: competition and costs.
A. COMPETITION ISSUES
1. THE MARKET POWER ANALYSIS SHOULD CONSIDER THE
ABSENCE OF SPECIFIC ARRANGEMENTS NECESSARY TO THE
DEVELOPMENT OF A COMPETITIVE REGIONAL GENERATION
MARKET
A. THE SIGNIFICANCE OF REGIONAL MARKET
STRUCTURES
The Commission has an obligation to develop and implement
policies that promote the efficient operation of regional
generation markets. Efficient regional generation markets
require efficient regional market structures. Only with an
efficient regional market structure can the Commission expect the
generation of electricity to be performed at minimum cost while
maintaining system reliability. And only with an efficient
regional market structure can the Commission expect optimal long
run generation and transmission decisions, like location of new
units and transmission lines and upgrades of existing facilities.
Because it will reduce the number of market participants,
namely producers, this merger will affect the regional market.
It may also affect the incentives for other utilities in the
region to merge - and acting upon those incentives may further
reduce the number of producers in the region. The direct and
potential indirect reduction in independent producers resulting
from this merger will affect the ease with which a competitive
regional generation market can develop. Although the question
formally before the Commission is whether this merger is
"consistent with the public interest," the public interest
analysis cannot be isolated from the market in which the merger
is occurring. Nor can it be isolated from an analysis of the
larger picture, that being the structural development of that
market over time. In judging this merger, therefore, the
Commission must ask this question: WILL THE PROPOSED MERGER
FACILITATE THE OPERATION AND STRUCTURAL DEVELOPMENT OF A REGIONAL
GENERATION MARKET THAT ACHIEVES THE ECONOMICALLY EFFICIENT
GENERATION?
B. REGIONAL TRANSMISSION PRODUCTS ARE ESSENTIAL
TO EFFECTIVE COMPETITION
The Commission should explore whether the merger should be
conditioned on the existence of an efficiently priced tariff for
the transmission of wholesale power in the region affected by the
merger.
The practice of pancaking is inefficient and can be
anticompetitive. It is inefficient because a transmission charge
exceeding the (marginal) transmission cost can preclude efficient
generation dispatch. It can be anticompetitive where the
additional toll charge is sufficiently high to cause the
wholesale customer to prefer the generation sold by the
vertically integrated transmission owner rather than generation
sold by a competitor of the transmission owner.
As noted above, the achievement of efficient regional
generation markets requires efficient regional market structures.
To facilitate the development of such structures, the Commission
must move transmission pricing away from the point-to-point,
"contract path" practice. The Commission instead must move
towards the multiutility, regional network model of transmission
pricing necessary to support an efficient regional generation
market. A growing number of entities have come to a similar
conclusion and are urging similar Commission action.
In response to arguments for regional transmission pricing,
some transmission owners seeking merger approval have responded
that the issue belongs in some other docket. SEE, E.G., UNION
ELECTRIC-CENTRAL ILLINOIS PUBLIC SERVICE COMPANY merger
proceeding, Docket No. EC96-7-000 (Applicants' answer to the
Missouri Public Service Commission). Somewhat contradictorily,
Union Electric and Central Illinois Public Service Company cite
the reduction in pancaking as a reason to approve their merger
(Transmittal Letter at 18-19):
The benefit conferred upon other utility systems by
granting access to the combined transmission system
under a single postage stamp rate pursuant to the
combination of UE and CIPS goes beyond the benefit
these other systems would realize by virtue of separate
compliance with the Open Access NOPR by UE and CIPS.
This results from the fact that, due to the
combination, these other systems will have to pay only
one transmission rate in order to utilize both systems.
Western echoes this point. SEE Application at 27-28:
Western Resources will offer transmission service over
the merged system on a single-system, postage stamp
rate basis, thereby eliminating the pancaking of rates
for transactions which occur between or cross over what
are currently Western Resources' and KCPL's individual
service areas.
While the Commission continues to defer the question of
regional transmission pricing, proposed mergers are rearranging
the rational generation market. In an efficient merger market,
individual utilities should seek the business combinations most
likely to reduce costs - and prices - as required by competition.
To be clear, when a merger results in cost reductions that are
passed on in the form of equivalent price reductions, then it can
be argued the merger itself is required to meet the existing
competition. In that situation, merger decisions are fully
conditioned by competitive forces. But when competitive forces
are nascent or yet to be unleashed, as they currently are at the
retail level, then business combinations that either preempt the
development of, or reduce, potential competitive discipline must
be carefully analyzed. In the absent of already developed full
competition, tradeoffs between lower costs and the potential for
less market discipline must be weighed. With a regional market
flawed by pancaking, a flaw still tolerated by this Commission,
it is difficult to know whether the business combinations which
are alleged to reduce costs for the companies being combined are
necessarily consistent with reduced costs for the region as a
whole. With multiple, simultaneous mergers proposed in the
region, the need to correct this flaw is becoming urgent.
The problem of pancaking is not ameliorated by assertions
of comparability. It may well be that the transmission owner's
use of its transmission system is subject to the same rules as
the use by others. CF. DUQUESNE POWER & LIGHT, 71 F.E.R.C. para.
61,155 (1995) ("the PJM Companies do not rely on a single system
rate when providing transmission service to one another and,
therefore, are not required to offer a single system rate
to third-party transmission customers"). The comparability
of the treatment does not ensure the efficiency of the transactions.
The comparability also disregards the significant fact of
vertical integration. If, because of pancaking, both the
transmission owner and its wholesale customers find the use of
transmission too costly, they will use transmission service less.
They will turn to local generation, owned by one of the very
vertically integrated utilities whose transmission pricing practices
have contributed to the pancaking problem. The Commission's goal
of efficient, competitive generation markets, a goal we share, would
go unfulfilled.
We do not want to create obstacles to efficient mergers.
Nor do we want mergers that create obstacles to efficient
competition. There cannot be efficient mergers if there are
obstacles to the development of efficient regional market
structures. A transmission policy which tolerates "point-to-
point," "contract path" thinking rather than a regional network
approach is such an obstacle. It is an obstacle which this
Commission has the power and the obligation to address in this
case.
C. THE COMMISSION SHOULD TAKE INTO ACCOUNT
MOKAN'S APPARENT INTENT NOT TO FILE A SINGLE
JOINT RATE AS REQUIRED BY ORDER NO. 888
Both Western and KCP&L are members of MOKAN. It is our
understanding that he MOKAN utilities do not consider themselves
obligated to create a single, non-pancaked regional tariff by
December 31, 1996. Western Resources and KCP&L together have a
large enough presence in MOKAN to obtain substantial agreement on
a single tariff. However, neither has made efforts in this
direction and, in fact appear to cooperating in the position that
the MOKAN members are not obligated to file a single joint
tariff.
Consistent with our views on regional transmission pricing
generally, we are asking the Commission not to treat this merger
as consistent with the public interest until both utilities
indicate their intention to work to have filed a joint,
non-pancaked tariff at FERC; alternatively, the Commission can
remove this ambiguity by stating directly (and redundantly) what
it stated in Order No. 888: MOKAN has to file a single, joint,
non-pancaked tariff.
D. RELATED MATTERS
There is much discussion in the industry today about new
types of regional market mechanisms. The Commission has raised
such issues in its docket concerning alternative power pooling
methods. In addition, its new transmission rule discusses the
concept of the independent-system operator.
Regulatory actions which encourage efficient regional market
mechanisms can reduce the potential for market power arising from
a merger. While the preceding subsection has emphasized methods
of regional transmission pricing, we do not mean to preclude
exploration of additional regulatory actions which can encourage
efficient regional markets. The Commissions analysis of this
merger, and of methods of mitigating any market power, therefore
should explore whether actions in addition to appropriate
transmission pricing are necessary to ensure that the proposed
merger makes the regional market more efficient.
2. THE COMMISSION MUST INVESTIGATE THE MERGED
COMPANY'S ABILITY TO MAKE STRATEGIC USE OF
TRANSMISSION CONSTRAINTS
Mr. Jackson asserts that there are no actions Western
Resources could take, either individually or in concert with
other joint owners of these transmission facilities, to limit the
transmission capacity of these facilities. He states that "[t]he
capacity and the power flows on these facilities are based on the
laws of physics. However, unscheduled loop and parallel path
flows may limit the available capacity of these facilities from
time to time." Jackson Testimony at 6.
The Commission has rejected the view that transmission
constraints can never be the result of transmission owner
actions. In its hearing order on the NSP-WEPCO merger, 74 FERC
Section 61,069 (1996), the Commission stated its concern about
how transmission constraints may affect the analysis of market
power even with nondiscriminatory open access transmission
tariffs in place:
We are concerned about how transmission constraints
affect the bounds of the relevant markets within which
a wholesale seller's market power will be analyzed. We
also are concerned about the possibility that the
combination of such transmission constraints and
strategically located generation facilities owned by
the wholesale seller may result in market power in more
localized markets.
The Applicants assert that Dr. Spann's market analysis took
considered constraints. It is not clear, however, what level of
trading he assumed: the level of trading in the pancaked STATUS
QUO, or the level of trading which would exist if present
pancaking were eliminated and replaced with an economically
efficient, single regional tariff. Elimination of intraregional
pancaking likely would induce more trading, and possibly more
constraints.
3. THE MARKET POWER REVIEW SHOULD CONSIDER A VARIETY
OF TRANSMISSION PRICING SCENARIOS
Western promises to file a joint transmission tariff for
service over the combined company, but has not done so. It
argues that because its filing will satisfy Order No. 888, the
Commission can consider and approve this merger, conditioned on
the future filing of that tariff. The Commission should decline
this invitation, for two reasons.
First, the notion that any market power problems caused by
the merger are automatically erased by compliance with a standard
transmission filing is not correct. Market power is unique to
each merger. The Commission has taken a "once size fits all"
approach to transmission access in order to eliminate undue
discrimination on an expedited basis. Moreover, it is true that
the Commission began a practice of requiring each merger to have
a transmission tariff and of not always looking under the market
power hood once the tariff was provided. But more recently, the
Commission correctly has recognized that transmission tariffs
alone do not eliminate market power. There may be issues of
constraints, either natural or management-made, requiring case-by-
case scrutiny. Therefore it is not obvious that any pro forma
tariff would eliminate consequences unique to this merger. The
premise of Western's procedural proposal -- approve the merger
now subject to later approval of transmission tariffs -- is
inconsistent with this reasoning.
The analysis also assumes use of the Commission's pro forma
tariffs under Order No. 888. That approach to transmission is
unlikely to be permanent. The Commission is examining
alternatives like capacity reservation tariffs. The applicant
therefore should perform a market power analysis under a variety
of assumptions about transmission pricing. This type of analysis
will give the Commission more guidance as to what conditions to
impose.
Second, Western previously has filed deficient transmission
tariffs that disregarded explicit Commission requirements,
leading to unnecessary refilings and waste of regulatory
resources, including the limited resources of the KCC. The
Commission should provide an inducement to discourage such errors
this time. The best inducement is not to consider this proposed
merger until a proposed tariff consistent with Order No. 888 has
been provided.
4. THE COMMISSION MUST LOOK CLOSELY AT WESTERN'S
DEFINITIONS OF THE GEOGRAPHIC AND PRODUCT MARKETS
A. PRODUCT MARKET
Dr. Spann says that the relevant product market is
"wholesale power." Spann at p. 12 1.12. He present market share
data for both "total generating capacity" and "uncommitted
generating capacity."
Given the variety of power supply products which are
important to competitors, this approach is very imprecise. The
Department of Justice MERGER GUIDELINES, Section 1.11, define a
relevant product market as THE MOST NARROW set of products which,
if controlled by a single seller, the seller could profitably
impose a significant, nontransitory price increase above the
levels that would prevail under competition. "Wholesale power"
is not a narrow category. There are many narrower subcategories,
such as nonfirm energy, short-term capacity, and emergency
energy.
B. GEOGRAPHIC MARKET
Dr. Spann says that the relevant geographic market is "the
SPP plus utilities not in the SPP that are directly
interconnected with one or both of the merging companies." Spann
at p. 12 1.17-18. He describes this as "the area where the
merging companies are sellers of power and/or where competitors
of the merging companies are located." ID. at p. 12 1.21-p. 13
1.1. SPP does not have a single transmission rate. (In fact
Western, in 2 years of SPP discussions, has taken no action to
increase the possibility of a single transmission rate.)
Transactions with SPP members who are not directly interconnected
would require the payment of pancaked transmission charges. This
result favors generation owned by those controlling transmission
and generation, such as the merging companies.
Separately, Dr. Spann defines the geographic markets using
what he described as the Commission's "Tier 1" analysis. This
approach disregards important determinants of geographic markets
like patterns of generating costs, and opportunity costs for
power sales. More specifically,
With respect to opportunity cost, a seller with capacity or
energy which Dr. Spann assumes would be sold into the market
which he is analyzing might find it more profitable to sell that
capacity or energy elsewhere, into markets with higher avoided
costs. If the seller did make the sale into these other markets,
the capacity or energy which Dr. Spann counted in the market
under analysis would not be available.
5. THE COMMISSION SHOULD UPDATE ITS MARKET POWER
ANALYSIS IN OTHER WAYS
A. THE COMMISSION SHOULD REVIEW ALL MARKETS
AFFECTED BY THE MERGER
Order No. 888 requires transmission owners to offer various
transmission-related services on an unbundled basis to wholesale
customers. This requirement, even when accompanied by a proper
review of market power in the generation market, does not by
itself prevent the accumulation of market power in the various
unbundled markets. For each of these other markets, a separate
review of market power, including concentration and entry
barriers, should be required. At least the following markets
should be evaluated:
1. Existing Generation
2. New Generation
3. Ancillary Services Related to Generation
4. Transmission
5. Ancillary Services Related to Transmission
6. Retail Aggregation and Sales
7. Physical Distribution
8. Ancillary Services Related to Retail Service
B. THE COMMISSION SHOULD REVIEW ENTRY BARRIERS
In past mergers, the Commission's market structure analysis
has focused primarily on generation market shares. The Commission
has not investigated entry barriers because it has assumed there
are no entry barriers to new generation. The Commission should
question that assumption before applying it to this case. In
particular, the Commission must take care not to make judgments
on the basis of "pre-merger entry conditions when mergers alter
those conditions." J. W. Wilson, "Merger Policy Guidelines For
The Electric Power Industry." THE ELECTRIC JOURNAL 2021
(January/February 1996).
Many features of the regulatory landscape were erected to
establish a particular industry structure: vertically integrated
utilities with exclusive territories and exclusive dispatch
control within those territories. The efficiency of that
structure is being questioned by all regulators. It is possible
that features of regulation can act as entry barriers to
competitors who are not vertically integrated or who lack
exclusive territories.
The Commission should not assume that such barriers do not
exist. At hearing the Applicants should have an opportunity to
show that there are no entry barriers in any of the markets
affected by the merger.
C. THE ANALYSIS OF THE PROPOSED MERGER SHOULD
TAKE INTO ACCOUNT OTHER MERGERS IN THE REGION
There are pending mergers involving Northern States Power
and Wisconsin Electric Power, Wisconsin Power & Light and several
Iowa utilities, and Union Electric and Central Illinois Public
Service Company. These mergers affect relations within MAIN and
MAPP; the first one involves both MAIN and MAPP. The product of
a Western-KCP&L merger certainly would be an important player
within both MAIN and MAPP, selling into and buying from entities
within those areas. More mergers in the region may be proposed
before the instant merger is fully processed.
Each of these mergers affects conditions under which another
merger might occur. Merger A-B may alter the boundaries of the
market in which merger C-D is taking place. The HHI index for a
market in which merger C-D occurs may be different depending on
whether merger A-B occurs. The transmission constraints in the
market in which merger C-D occurs may be different if the new
economy transactions associated with merger A-B occur. The
effect of mergers in or near the same relevant market therefore
must be evaluated simultaneously. SEE A. Kahn, THE ECONOMICS OF
REGULATION Vol. II at 88 (1988 ed.) (quoting criticisms of
Interstate Commerce Commission for its case-by-case approach to
railroad mergers in the 1960's; "where several mergers are
pending in one area, the cases inexorably shade into each other
requiring a rearrangement of competition on a regional basis").
Consistent with the Commission's recognition that generic
approaches are necessary, the Commission should require specific
evidence from the Applicant on how its merger would interact with
these other events.
B. COST ISSUES
1. MR. FLAHERTY'S ASSERTIONS ARE TOO GENERAL TO BE
ACCEPTED AT FACE VALUE
Mr. Flaherty's assertions of cost reductions are not the
product of an internal corporate plan for, as Mr. Norman has
stated (at 13), no such plan exists. The numbers on savings
appear to be based on Mr. Flaherty's standard model. Whether the
results of that model can be implemented in practice is unknown,
as he offers no evidence from other companies who have relied on,
and then tried to achieve, those numbers. He has not discussed
their achievabiilty with anyone from KCP&L, whose cooperation
will be essential.
In fact, Mr. Flaherty acknowledges (at 12) that whether the
asserted cost savings will be permanent depends on "how
management ultimately operates the combined entity." The
Commission cannot be indifferent to the cost-benefit analysis,
just because the particular corporate strategy chosen by the
Applicant precludes them from offering any proof. One does not
count on the savings obtained from walking on the moon until one
has designed a vehicle for getting there.
2. MR. GRENNAK'S ASSERTIONS OF THE BENEFITS OF JOINT
DISPATCH SHOULD NOT BE ACCEPTED ABSENT A SHOWING
THAT THEY ARE UNACHIEVABLE ABSENT A MERGER
Mr. Grennak (at 15-16) describes the benefits of joint
dispatch which would be produced by the merger. Joint dispatch
can be accomplished without a merger. The dozens of unaffiliated
utilities in the New England Power Pool do so. The three major
utilities in California, upon formation of the proposed Power
Exchange, will achieve many of the benefits of joint dispatch
without a merger. If there are savings available from joint
dispatch, Had KCP&L and Western as a member of prudent utility
practice should be achieving them without a merger. If they had,
these asserted savings could not be attributed to the merger.
Nothing about the joint dispatch described in Mr. Grennak's
testimony suggests that it can be achieved only through merger.
In fact, as Mr. Grennak points out the two companies do a great
deal of joint operation and planning through their joint
ownership of major power plants and participation in MOKAN and
SPP.
These asserted savings should not be accepted absent a
showing that they are unachievable without a merger.
3. MR. GRENNAK'S ASSERTIONS OF THE BENEFITS FROM LOAD
DIVERSITY SHOULD NOT BE ACCEPTED ABSENT A SHOWING
THAT THEY ARE UNACHIEVABLE ABSENT A MERGER.
Mr. Grennak (at 17-18) describes the diversity of load
between the two companies, and argues that these benefits can be
realized by the merger.
Load diversity, as the name implies, arises from the
characteristics of the load, not the skills of the company.
Economies from load diversity are exploited when those who serve
the load create an institution to exploit them. A merger is only
one example. A competitive market is another. In a fully
competitive market, one with non-pancaked transmission pricing
and low entry barriers to new generation, the benefits of
diversity are available without a merger.
A Poolco-type arrangement or a Power Exchange also could
realize all the potential gains from diversity without
eliminating a competitor from the market.
In short, the benefits of load diversity can be achieved in
a variety of ways, depending on the decisions of those who
control the load. Mr. Grennak describes only that method which
is consistent with his company's strategic objective: merging
with KCP&L. More objective testimony would have described all
the methods and evaluated their advantages and disadvantages.
More fundamentally, Western has declined to pursue the other
means. Its failure to pursue diversity efficiencies for its
ratepayers, except through the merger strategy designed to
achieve Mr. Hayes' objective of being one of the 15 largest
utilities, implies that Mr. Hayes places that strategic objective
ahead of the ratepayer objective of maximizing diversity gains.
Mr. Grennak identifies a magnitude of diversity which, if
realized can reduce peak by 1%. A merger is not necessary to
obtain a 1% decrease in peak. If there is economic justification
for this merger, it should come from some other source.
For all these reasons, the Commission should not
automatically attribute diversity gains to the merger.
4. MR. GREENAK'S ASSERTIONS OF THE BENEFITS FROM FUELS
PROCUREMENT SHOULD NOT BE ACCEPTED ABSENT A
SHOWING THAT THEY ARE UNACHIEVABLE ABSENT A MERGER
Mr. Grennak argues (at 16-17) that Western could reduce its
coal costs by utilizing some of KCP&L's "capabilities in fuel
procurement." The implication is that Western's performance in
this area is not optimal. This is news to the KCC, and not
entirely consistent with Mr. Hayes' praise for his own
management. If there is subpar performance at Western in any
area, it should be improved as a consequence of the company's
public service obligation. The improvement should not be
attributed to the merger if it is a matter of management
improvement.
Alternatively, Western could replace those managers
responsible for achieving below KCP&L's standards and contract
with KCP&L to manage fuel purchases. These benefits are not
dependent on a merger which eliminates competitors from the
market. If Western has tried and met resistance, it should inform
the KCC so that it can use its statutory authority to ensure that
all public utilities in Kansas are operating efficiently for the
benefit of Kansas ratepayers. If no response is forthcoming we
will assume Western has made no attempt. Whether Western's
failure to make such an attempt is consistent with the public
interest which Western argues will be advanced by the merger will
have to be addressed by both jurisdictions.
5. THE COMMISSION SHOULD NOT CREDIT BENEFITS
ATTRIBUTED TO THE ELIMINATION OF PANCAKING
Western asserts there will be cost reductions in the region
arising from its filing of a single tariff, replacing the present
pancaking between KCP&L and Western.
The Commission should not credit these savings because
elimination of pancaking should be occurring without the merger,
as a matter of prudent utility practice. Moreover, Western has
not been an advocate of eliminating pancaking. It is not
consistent with effective competition, logic or good faith to
advocate elimination of pancaking with respect to merger targets,
but to oppose or be indifferent to elimination of pancaking with
respect to competitors.
By failing to act to eliminate pancaking elsewhere in the
region (including taking no action on the Western-KCP&L pancaking
until this merger application), Western Resources is denying its
targeted stakeholders -- customers of Western, customers of
KCP&L, and shareholders of KCP&L -- of the benefits of the
elimination of pancaking unless KCP&L agree to merger and the
regulators approve the merger. Coercion would be a strong term
to describe this discriminatory behavior, but it is not behavior
consistent with the public interest, and certainly the claimed
benefits should not be counted.
6. SUMMARY
In the area of merger savings, the Commission has invited
and tolerated "generalizations" rather than hard facts. SEE
PACIFICORP-UTAH POWER & LIGHT MERGER, 45 F.E.R.C. para. 61,095 at
p. 61,298 (1988) (requiring only "A MORE GENERALIZED INQUIRY and
cross examination regarding the TYPES OF SAVINGS AND EFFICIENCIES
that MIGHT BE ACHIEVED through merger") (emphasis added).
The Commission should develop objective, empirical tests for
the major categories of savings, and their magnitude, which can
legitimately be attributable to mergers. Conversely, the
Commission should determine what types savings, such as from
coordination, should be achievable in wholesale markets without
merging. This set of findings should be based on close review of
mergers which already have taken place. These tests should apply
to all mergers.
The analysis should cover all costs, not just wholesale
costs. Section 203 requires a finding that the merger is
"consistent with the public interest." The public interest
includes the interest of all customers, not only wholesale
customers. The wholesale-retail distinction made by Congress in
Section 205 was not made in Section 203.
CONCLUSION
WHEREFORE, for the foregoing reasons, the KCC respectfully
requests the Commission to defer action on this Application; or,
in the alternative, set this matter for hearing.
Respectfully submitted,
/s/John McNish
David Heinemann, General Counsel
John McNish, Assistant General Counsel
Kansas Corporation Commission
1500 S. W. Arrowhead Road
Topeka, KS 66604
(913) 271-3218
Scott Hempling
Attorney at Law
417 St. Lawrence Drive
Silver Spring MD 20901
(301) 681-4669
Attorneys for Applicants
September 27, 1996
CERTIFICATE OF SERVICE
I hereby certify that on September 27, 1996, I served the
foregoing document on the parties listed on the official service
list in this proceeding, by first class mail or equivalent method
of service.
/s/John McNish
John McNish
Exhibit 121
BEFORE THE STATE CORPORATION COMMISSION
OF THE STATE OF KANSAS
Before Commissioners: Timothy E. McKee, Chair
Susan M. Seltsam
John Wine
In the matter of the Application of )
Kansas Gas & Electric Company for )
Approval to Accelerate the Depreciation )
of the Wolf Creek Generating Station, ) Docket No. 193,306-U
Extend the Depreciation Lives of Its ) 96-KG&E-100-RTS
Non-Nuclear Generation, Transmission )
and Distribution Assets, and Make )
Certain Reductions in Its Charges for )
Electric Service. )
In the Matter of the Application of )
Western Resources, Inc. to Make Changes ) Docket No. 193,307-7
in the Depreciable Lives of its ) 96-WSRE-101-DRS
Electric Generation, Transmission and )
Distribution Assets and its Computer )
Related Equipment. )
ORDER ON MOTION TO APPROVE AGREEMENT
Now the above-captioned matters come on before the State
Corporation Commission of the State of Kansas ("Commission") upon
a Motion to Approve Agreement. This Motion to Approve Agreement
was filed by Western Resources, Inc. ("Western"), Staff of the
State Corporation Commission ("Staff"), the Citizens' Utility
Ratepayer Board ("CURB"), and the City of Wichita, Kansas,
(collectively referred to herein as "Joint Movants"). On August
27, 1996, and September 4-5, 1996, the Commission conducted an
evidentiary hearing upon the subject motion. After hearing the
evidence presented, and being otherwise fully advised in the
premises, the Commission finds and concludes:
I. PROCEDURAL BACKGROUND
1. On August 17, 1995, Western, on behalf of its KPL Electric
Division ("KPL") and Kansas Gas and Electric Company ("KGE")
(collectively referred to as "Applicants"), filed Applications,
which were docketed as the above-captioned cases, seeking certain
depreciation changes and authority to implement an annual $8.7
million rate decrease for KGE electric customers for a period of
seven (7) years.
2. On December 19, 1995, the Commission entered an Order
Setting Hearing and Procedural Schedule, ordering that public
hearings for the purpose of receiving public comments from the
Applicants' customers with regard to the proposed rate changes be
scheduled for January 24, 1996 in Topeka, Kansas; January 25,
1996 in Salina, Kansas; January 31, 1996 in Independence, Kansas;
and January 31, 1996 in Wichita, Kansas. In that Order, the
Commission directed the Applicants to provide notice of the
Applications and hearings by first class mailing to all of their
customers by mailing notice which was attached to the Order. The
notice provided an explanation of the proposed rate changes
contemplated by the Applications then pending before the
Commission. The position taken by Staff at the public hearings
was that Applicants' electric operations were over-earning and
may recommend reductions for KPL and KGE customers. (Cowger, Tr.
27).
3. On April 5, 1996, Western filed a Motion to Amend, Motion
to Consolidate and Motion for Interim Relief, seeking to amend
its rate plan by including the Regulatory Plan as set forth in
Western's Merger Docket and to consolidate the pending
Applications with its Merger Docket. On April 19, 1996 the
Commission allowed the amendment and consolidation. The
Commission also implemented an interim rate decrease of $8.7
million.
4. On May 22, 1996, Staff and CURB filed testimony pursuant
to the December 19, 1995 procedural order. Staff recommended to
the Commission that Applicants' rates be reduced to yield annual
revenue reductions for KPL and KGE in the amount of $46,548,371
and $58,499,615, respectively, based on a cost of service
analysis for the test year ending January 31, 1995. (Direct
Prefiled Testimony of Ann Diggs, pp.5-6.)
5. On May 22, 1996, Applicants filed a Motion to Amend their
Applications seeking permission to sever the depreciation issues
and to file cost of service studies. Western did not originally
contemplate filing cost of service testimony but was made aware
that Staff and at least some Intervenors would file cost of
service testimony. Western believed that under such
circumstances, it would be best to file its cost of service
studies in order to proceed in an orderly and conventional
fashion.
6. On June 14, 1996, the Commission grated Applicants' Motion
to Amend their Applications as requested, changing the case into
a more traditional cost of service rate case. The Commission
recognized that the Amended Applications constituted a
substantial alteration of the facts used as the basis for the
requested relief and thereby restarted the 240-day time period
mandated by K.S.A. 1995 Supp. 66-117(b).
7. On August 9, 1996, Joint Movants filed their Motion to
Approve Agreement and requested that the matter be set for
hearing.
8. On August 15, 1996, the Commission issued a procedural
order setting the Motion to Approve Agreement for hearing on
August 27, 1996, at 9:30 a.m. On August 27, 1996, the Commission
commenced the hearing on the Motion to approve Agreement which
was continued to September 4 and 5, 1996. The Commission allowed
the parties to submit written briefs either opposing or
supporting the agreement.
II. PROPOSED SETTLEMENT
A. TERMS OF THE AGREEMENT
9. Under the proposed settlement, Western agreed to decrease
KGE and KPL electric rates by a total of $64.7 million. The rate
reduction would be implemented on a staggered basis beginning
with a $37.3 million annual rate reduction for KGE customers and
a $8.7 million rate reduction for KPL customers upon final order
of these docketed cases. The current $8.7 million rate reduction
would be included in the total rate reduction and would become
final. On January 1, 1998, a $10 million rate reduction would be
implemented for KGE customers. This $10 million rate reduction
would be removed from Western's Regulatory Plan proposed in the
Merger Docket(1).
10. Also, under the proposed settlement, the depreciation
proposals including the accelerated depreciation plan contained
in the original Applications may be submitted by any Movant to
the Commission for consideration and decision, recognizing that
the depreciation proposals may be subject to additional findings
of the Commission in the Restructuring Docket(2) and subsequent
legislative action. The Joint Movants retained the right to
establish their respective positions on the depreciation
proposals. Further, the agreed rate reductions, as described
above, are not affected by any depreciation proposals approved or
modified by the Commission.
11. The proposed settlement established a five-year incentive
mechanism such that all annual regulated earnings in excess of
12.00% regulatory return on equity ("ROE") will be returned in
the following year as an annual rebate to KGE customers. The
computation of the actual ROE will incorporate post-1970
investment tax credits ("ITC") and KPL/KGE merger savings, as
defined by the settlement agreement. The actual ROE will be
calculated by combining KPL electric and KGE electric operations.
The Joint Movants reserved the issues of whether the accelerated
depreciation and the depreciation reduction of transmission and
distribution ("T & D") facilities and non-nuclear generating
plants will be incorporated into the rebate computation and
whether Western's gas operations should be included in the rebate
computation for the Commission to consider and determine. The
Joint Movants acknowledge that the incentive mechanism and
associated reporting requirements must be further defined before
implementation.
12. Under the settlement proposals, the KPL/KGE annual merger
savings will be fixed at $40 million. This amount will be
allocated among the jurisdictions according to the testimony of
Western's witness Kelly Harrison in these docketed cases. The
Joint Movants acknowledge that in the event generation is spun
off pursuant to any restructuring order or legislative
initiative, the allocation to generation is reserved for
Commission consideration and determination.
13. The regulated earnings under the proposed settlement will
be adjusted to reflect the amortization of the Acquisition
Premium ("AP"), authorized by the Commission in the KGE/KPL
merger, based on the agreed level of merger savings, as described
above. The shareholder allocable share of merger savings in
excess of the Commission authorized AP amortization ($12,951,970)
shall be imputed as an operating expense in calculating Western's
regulated earnings. Absent the generation restructuring
referenced above, the level of imputed expense would be
$13,524,015 ($40,000,000 minus $12,951,970 divided by 2).
14. Under the settlement agreement, the incentive plan and
electric rates will remain in place for five (5) years subject to
changes necessary to reflect the effect of laws and/or edicts, or
other material changes in circumstances which have a substantial
net impact upon Western's utility operations or revenues.
Western will file cost of service for electric operations at the
end of the five year period.
15. Finally, all issues not resolved by the settlement
agreement would be subject to resolution through further
negotiations or hearing. The Joint Movants agree that if the
Commission approves the proposed agreement, in part or with
additional conditions, the Joint Movants shall have the
opportunity to accept the partial approval of the conditions or
reject them and proceed with hearing on all issues.
B. STANDARD OF REVIEW OF SETTLEMENT AGREEMENTS
16. The acceptance by the Commission of a settlement offer
must constitute a reasoned decision supported by substantial
competent evidence which is also subject to the requirements of
KAPA that agency actions not be arbitrary, capricious, an abuse
of discretion or otherwise not in accordance with law. Southwest
Kan. Royalty Owners Ass'n. v. Kansas Corporation Comm'n, 244 Kan.
157, 165, 769 P.2d 1 (1989). See also, K.S.A. 77-621(c) (1989).
17. The Commission retains the responsibility of making
independent judgment as to whether the settlement agreement
constitutes a reasonable remedy or resolution of the issues.
With respect to trial courts, the Kansas Supreme Court has
stated:
". . . parties may not by stipulation invest a court with
jurisdiction over the subject matter of a cause which it
would not otherwise have had. And clearly, the parties to
an action may not stipulate for the determination thereof
by the trial court in a manner contrary to the statutes
and rules of a court. It is also established that matters
affecting public interest cannot be made the subject of
stipulation so as to control the court's action in respect
to such matters." In re: Petition of City of Shawnee for
Annexation of Land, 236 Kan. 1, 16-17, 687 P.2d 603
(1984), citing 73 Am. Jur. 2d Stipulations, sec. 1, 4 and
5.
Like a trial court dealing with matters affecting public
interest, the Commission is not controlled by stipulations,
settlement offers or other agreements because the question of
whether utility rates are reasonable is a question of law.
18. The disposition of any proceeding before the Commission
vis-a-vis through settlement negotiations or the hearing process
must be reasonable and not so wide of the mark as to be outside
the realm of fair debate. Zinke & Trumbo, Ltd. v. Kansas
Corporation Comm'n, 242 Kan. 470, 474, 749 P.2d 21 (1989). In
determining the reasonableness of a proceeding's disposition
authorized by the Commission, the Kansas Supreme Court has
stated:
[T]he KCC is not bound to use any particular formula, or
combination of formulae, in valuing a public utility's
property for rate making purposes. Any evidence having a
bearing or combination of formulae that it may believe
necessary for arriving at a reasonable basis for rate-
making purposes. Kansas Gas & Electric v. State
Corporation Commission, 239 Kan. 483, 501-02 720 P.2d 1063
(1986) citing Southwestern Bell Tel. Co. v. State
Corporation Commission, 192 Kan. 39, 385 P.2d 515 (1963).
Further, in Southwestern Bell Tel. Co. v. State Corporation
Commission, 192 Kan. 39, 385 P.2d 515 (1963), the Kansas Supreme
Court recognized that there was an "elusive range of
reasonableness," for any Commission determination and remarked
that:
It cannot be assumed that the Commission in establishing a
rate has fixed it to the exact degree of definiteness. At
some point a rate of return becomes so low as to be
unreasonable to the Company as a matter of law. At some
point a rate of return becomes so high as to be
unreasonable to the consumers as a matter of law. It is
only at the high and low point that a court can interfere.
It is the responsibility of the Commission to fix the rate
somewhere between the high and low point which it
believes, under all circumstances, to be fair to both the
Company and consumer. Southwestern Bell, at 85.
C. COMMISSION FAVORS SETTLEMENT
19. The Commission looks with favor on settlement agreements
made in compromise of controversies, entered into intelligently
and in good faith, particularly when the controversy involves
complex litigation requiring extensive time and expense to
litigate. A settlement of issues, all of part, with or without
unanimous agreement, will be entertained and considered by this
Commission. In the context of a regulatory proceeding, there is
no requirement that there be unanimous support, or some specific
level of support, of participating parties before a contested
settlement may be approved. See, for example, City of Somerville
v. Public Utility Commission, 865 S.W. 557, 560 (Tex. Ct. App.
1993). There is no point in resolving controversies over the
exact number of supporters and nonsupporters of the settlement
agreement, or the percentage of refunds/rate reductions each
group represents. When the Commission approves a contested
settlement, it is effectively adopting that settlement as its own
independent resolution of the matter at issue. Mobil Oil Corp.
v. FPC, 417, U.S. 283, 94 S.Ct. 2328, 41 L.Ed 2d 72 (1974).
III. COMMENTS
A. COMMENTS SUPPORTING THE SETTLEMENT
20. Staff supported settlement submitting that the rate
decrease allowed for a dramatic reduction in the electric rate
disparity between KGE and KPL service territories. In support of
the settlement agreement, Staff presented the testimony of James
Proctor. Mr. Proctor sponsored Staff's Exhibit 1, a copy of the
settlement agreement, which incorporated by reference the
prefiled testimony of Kelly Harrison for purposes of determining
allocation of the merger savings among jurisdictions. Mr.
Proctor also sponsored Staff's Exhibit 2, a schedule reconciling
the revenue requirement reflected in Staff's prefiled testimony
with Staff's settlement position. Mr. Proctor also sponsored
Staff's Amended Exhibit 2, a revised schedule reconciling the
revenue requirement reflected in Staff's prefiled testimony with
Staff's settlement position after discovery of a $32.2 million
tax error. Both Staff's Exhibit 2 and Staff's Amended Exhibit 2
incorporated by reference the prefiled testimony of Staff which
addressed all rate-making issues subject to these proceedings.
Staff's revised cost of service calculations show Western's
revenue excess, based upon the sum of KGE and KPL individual
revenue excesses of $74 million and $39 million, respectively, to
equal approximately $113 million with a corresponding 10.5%
return on equity. Staff also submitted that the incentive
mechanism proposed in the settlement agreement provided a means
of ensuring stable or declining rates (should Western earn in
excess of the 12% rate of return on equity) for a period of five
(5) years and afforded further opportunity to reduce the rate
disparity between the KGE and KPL service territories. Staff
recognized that all terms of the incentive mechanism had not been
fully defined but that such issues were reserved for the
Commission to determine at a later proceeding.
21. Western supported the settlement agreement submitting that
the record, taken as a whole, is sufficient upon which to base a
finding that the settlement agreement among Joint Movants is just
and reasonable. In support of the settlement, Western offered
the testimony of James Martin. Mr. Martin provided Western's
analysis in reaching a settlement agreement with the other Joint
Movants. Mr. Martin testified that a return on equity in the
range of 11.33% to 11.45% or somewhere in that range would be
reasonable given the incentive mechanism to share earnings in
excess of 12%. (Martin, Tr. 146). Mr. Martin maintained this
position after the discovery that Staff did not fully recognize
the effects of an increased tax deferral in their prefiled
testimony. In recognition of the omission and in response to
Staff's Amended Exhibit 2, Mr. Martin sponsored Western's Exhibit
1 to show that the settlement agreement fell within his stated
range of reasonable return on equity. Western entered into the
settlement agreement assuming Staff would not likely win 100% of
its proposed adjustments and assuming the Commission would not
likely accept a return on equity of 10.5%, as recommended by
Staff. (Martin, Tr. 146, 211-212). In essence, Western reasoned
that a higher return on equity in the range of Western's
recommended return on equity and the elimination of one or more
of Staff's pro forma adjustments would lead to a revenue
requirement in the range proposed by the settlement. (Martin, Tr.
213). And finally, in its Brief in Support of Settlement,
Western stated that "the issue regarding accelerated depreciation
is left for further settlement or hearing," but that resolution
of the issue was not ripe, at this time, for a Commission
decision. (Brief of Western Resources, Inc. and Kansas Gas and
Electric Company in Support of Settlement, at 18).
22. The City of Wichita joined in the support of the
settlement agreement submitting that the level and allocation of
the rate reductions take significant steps toward eliminating the
rate disparity that currently exists between the KPL and KGE
service territories. The City of Wichita noted that none of the
parties opposing the settlement agreement had undertaken any
independent cost of service analysis in their prefiled testimony.
The City of Wichita believed that the settlement agreement
represented a fair compromise given the compounding and time
value of achieving rate reductions sooner than the originally
filed plan. The City of Wichita also submitted that it intends
to work with Western on the pending proposal to accelerate
depreciation of the Wolf Creek nuclear facilities which will
lower the company's rate base in plant helping it become a more
competitive resource for the benefit of both consumers and
Western.
23. CURB also joined in support of the settlement agreement
with the understanding that the accelerated depreciation issues
associated with the Wolf Creek nuclear facilities would be
submitted to the Commission for consideration. CURB believed
that the return on equity contained in the settlement agreement
may be higher than they thought appropriate in absence of the
accelerated depreciation proposal. CURB submitted that Western's
proposed accelerated depreciation would offset such a return.
Clearly, CURB was aware that the Commission may approve, reject
or modify the accelerated depreciation proposal and was equally
aware that the Commission is setting rates notwithstanding the
accelerated depreciation proposal. CURB further submitted that
additional write down of Wolf Creek nuclear facilities would
mitigate against potentially stranded investment associated with
the facility in the advent of a deregulated generation market.
B. COMMENTS IN OPPOSITION OF SETTLEMENT
24. Farmland Industries, Inc. ("Farmland") opposed the
settlement agreement contending INTER ALIA that the settlement
agreement discriminates against classes of customers within the
KGE system as well as within the KPL system. Farmland is both a
KPL and KGE customer. With respect to the KGE system, Western
provides service to Farmland under special contract not pursuant
to their published general tariffs and schedules. With respect
to the KPL system, Farmland submitted that KPL customers are
being forced to bear the burden of KGE costs. The Commission
recognizes that special contracts were negotiated by large users
of electricity to fall outside the scope of the general tariff
and schedules existing for the KGE system. Special contracts
were allowed, in part, to avoid substantial load loss on the KGE
system due to the construction and operation of privately owned
electric cogeneration and thus lawful under applicable Kansas
law. K.S.A. 1995 Supp. 66-117. However, the literal language of
the statute places special contracts in a different category from
the general tariff and schedules published by a utility company.
The Commission will not re-write the special contract between
Farmland and KGE. Farmland cannot complain that the published
tariffs and schedules were modified. Farmland should have
anticipated for such changes and included a contingency clause
tying their special contract to the published tariffs and
schedules. These are the risks assumed by Farmland and other
similarly situated businesses when entering into special
contracts. With respect to the KPL system, KPL customers are not
burdened by the costs created by KGE customers. At the hearing,
Staff witness James Proctor testified concerning the revised
schedules contained in Staff's Amended Exhibit 2. The revised
schedule shows that the company is over-earning in excess of $73
million. However, the allocated rate reduction proposed by the
settlement to KGE customers is $56 million. Factually, it is an
inaccurate statement to suggest that the KPL customers are
burdened by the KGE customers under the proposed settlement.
Furthermore, the Commission agrees with Western and Staff in that
the rate disparity between KGE customers and KPL customers should
be reduced or eliminated. KGE rates are substantially higher
than those of KPL and lie well above regional average. (Martin,
Tr. 147; Proctor, Tr. 101).
25. The Kansas Industrial Consumers ("KIC") opposed the
settlement arguing INTER ALIA that the settlement should be
rejected because it lacked specificity. On behalf of KIC,
Nicholas Phillips testified that the rate base, return on equity
and operating expenses were not identified. However, Staff
witness James Proctor characterized the settlement as a "black
box settlement." (Proctor, Tr. 197). There was not a specific
determination by the Joint Movants of the items which comprised
the revenue requirement such as rate base, operating income and
rate of return. (Proctor, Tr. 197). In SERIOUSLY contested
proceedings, the rate base, fair rate of return and reasonable
operating expenses must be determined. Southwestern Bell Tel.
Co. v. State Corp. Comm., 192 Kan. 39, 46-47, 386 P.2d 515
(1963). Here, however, Mr. Phillips, testifying on behalf of
KIC, candidly admitted that he had not filed any prefiled
testimony nor had Mr. Phillips prepared any independent cost of
service analysis wherein a revenue requirement was determined.
(Phillips, Tr. 442). In fact, none of the nonsupporters of the
agreement had prefiled any testimony concerning the cost of
service issues nor had any of the nonsupporters conducted an
independent cost of service analysis. (Phillips, Tr. 442;
Harpster, Tr. 406-407).
26. The Kansas Pipeline Partnership ("KPP") moved to dismiss
the settlement on grounds INTER ALIA that the settlement
agreement was based upon a material error of fact. Mr. Gary
Harpster, testifying on behalf of KPP, noted that Western
included Wolf Creek accelerated depreciation in original data
submitted to Staff. Western's adjustment increased depreciation
$50 million and decreased deferred income taxes by $14.3 million.
(Harpster, Tr. 392). However, Western's adjustment did not have
any actual income tax effect to the test year period. (Harpster,
Tr. 392-393). However, Staff reversed the accelerated
depreciation and correspondingly increased deferred income tax.
Then, Staff unnecessarily took an additional step to increase
actual current income tax expense for the test period. This
additional step resulted in Staff underestimating KGE's adjusted
operating income by $19.4 million for the test period. Applying
the appropriate tax conversion factor, Staff's recommended
revenue reduction of $105 million was understated by
approximately $32.2 million. (Harpster, Tr. 393-394).
Recognizing the error, Staff introduced Staff's Amended Exhibit 2
which revised the revenue excess attributed to the KGE system to
show a total of $73,964,496. (Staff Amended Exhibit 2; Proctor,
Tr. 188-190). The tax error and the attempt to reconcile the
error with the settlement agreement goes to the reasonableness of
the settlement agreement and to the merits of the Joint Movant's
Motion to Approve Agreement. It would not be appropriate for the
Commission to dismiss the motion on such grounds asserted by KPP.
IV. DISCUSSION
A. JURISDICTION
27. The customers in the KGE and KPL service territories
received notice of the Applications filed herein through inserts
in their billings and through publication in accordance with
Kansas statutes and orders of the Commission. The Application,
as originally filed, contained depreciation proposals including,
in particular, the proposal to accelerate the depreciation of the
Wolf Creek generating facilities. As the result of its
investigation, Staff believed that Western was over-earning and
sought to have this issue reviewed and examined by the
Commission. These investigative efforts eventually changed the
proceedings into a more traditional cost of service rate case.
However, the accelerated depreciation proposals remained within
the case. The notice is not defective simply because the case
evolved from an accelerated depreciation proposal into a more
traditional cost of service rate case. Moreover, the notice
requirements of K.A.R. 82-1-231 are not applicable. These
proceedings involve a substantial DECREASE in electric rates not
a substantial INCREASE. K.A.R. 82-1-231 applies only to major
INCREASE in electric rates. Furthermore, adequate notice of
hearing was given to the parties consistent with K.S.A. 77-518.
In addition, the proceedings were continued for eight (8) days
allowing the parties opposing the settlement agreement additional
time in which to prepare. The parties opposing the settlement
agreement have confused their substantive due process right to a
meaningful opportunity to be heard with a lack of evidentiary
support. None of the parties opposing settlement proffered any
evidence of the appropriate revenue requirements. KPP's and
KIC's witnesses candidly admitted that they did not prefile any
testimony pertaining to the cost of service nor had they compiled
an independent cost of service analysis. (Harpster, Tr. 406-
407; Phillips, Tr. 442). Thus, the Commission has jurisdiction of
the parties and jurisdiction to hear and consider the subject
matter pursuant to K.S.A. 66-117 and 66-101.
B. THE PROPOSED TOTAL REVENUE REFUNDS IS NOT
REASONABLE UNDER THE FACTS AND CIRCUMSTANCES
PRESENTED HEREIN.
28. The Commission must determine whether the rate reductions
proposed by the settlement agreement are reasonable
notwithstanding any accelerated depreciation proposal that may be
approved, denied or modified. To be reasonable, the
determination must be based upon substantial evidence. The
Commission emphasizes that it is not prejudging any issue. The
decision made herein is based upon the evidence, as outlined
above.
29. Staff presented evidence starting with total revenue
requirement of approximately $105 million. See Staff's Exhibit
2. Staff evaluated the strengths and weaknesses of their cost of
service analysis to show a potential litigation outcome of
approximately $81.4 million. (Proctor, Tr. 126-127; Staff Exhibit
2). Then by using a range of return on equity from 10.5% to
12.0%, Staff opined that the proposed rate reductions were
reasonable given the range of possible litigation outcomes
prompted by the range of return on equity. (Proctor, Tr. 129-
130). Western also entered into the settlement agreement
assuming the Commission is not likely to accept 100% of Staff's
proposed adjustments and assuming the Commission would not likely
accept a return on equity of 10.5%, as recommended by Staff.
(Martin, Tr. 211-213). In essence, Western reasoned that a higher
return on equity in the range of Western's recommended return on
equity and the elimination of one or more of Staff's pro forma
adjustments would lead to a revenue requirement in the range
proposed by the settlement. Theoretically, all settlements
involve this process of weighing the strengths and weaknesses of
a case. Here, however, the underlying basis of this analysis was
inaccurate and appears to have been concluded on a material error
of fact.
30. During the hearing, a $32.2 million error was discovered.
The nature of the error is a computational error that was
inadvertently not carried through Staff schedules properly.
Staff acknowledged the oversight and revised the revenue
requirement excess from $81 million to $113.7 million. (Proctor,
Tr. 172-173; Staff's Amended Exhibit 2). Western, through the
testimony of James Martin, attempted to minimize the significance
of the error by changing two assumptions which had been the basis
of the settlement agreement. First, Western re-evaluated the
relative strengths and weaknesses of Staff's proposed
adjustments, as contained in Staff's prefiled testimony, and
submitted that other adjustments were vulnerable to attack by
Western. Specifically, Mr. Martin identified the fuel repricing
adjustment as an adjustment that would be strongly contested and
that, if the Commission ruled in favor of Western, the total rate
impact would be reduced by a total of $26.1 million. (Martin,
Tr. 212). Secondly, Western submitted it would be foreseeable
that the Commission would set a return on equity higher than
10.5% as reflected in Staff's prefiled testimony. Using these
assumptions, Mr. Martin sponsored Western's Exhibit 1 showing
various rates of return on equity at an associated revenue
requirement excess.
31. Mr. Martin initially testified (before the discovery of
the tax computation error) that a reasonable return on equity
would fall in the neighborhood of 11.33% to 11.45% (Martin, Tr.
146). However KIC, through the testimony of Mr. Phillips,
submitted that, considering the tax error, the settlement would
produce a return on equity of 13.41%, assuming Staff wins all of
their proposed adjustments and based upon Staff's original
schedules. (Phillips, Tr. 432). The size of the tax
computational error is substantial and return on equity
implicated by the tax error cannot be ignored.
32. The Commission is concerned about the magnitude of this
tax error in relation to Staff's proposed adjustments and the
negotiating position of the parties had they known about the tax
error. Staff's own witness, James Proctor, at best, could only
opine that the settlement agreement was "probably reasonable."
(Proctor, Tr. 200). The Commission believes that had the parties
known about the error before entering into settlement
negotiations, they would have likely arrived at a different
result. In contested matters, given the risks and rewards of not
knowing the outcome litigation will render, the parties may
divide evenly those risks and rewards. Here, given the magnitude
of the computational error and the timing of the discovery of the
error, the simple re-evaluation of the strengths and weaknesses
of the respective adjustments fails to properly account for the
rate impact associated with the tax error. Under the facts and
circumstances presented herein, the Commission is not convinced
that the recommended revenue requirement excess of $64.7 million
is reasonable.
C. THE INCENTIVE MECHANISM IS REASONABLE.
33. the Settlement agreement contains a five year incentive
mechanism. Under the terms of the proposed incentive mechanism,
customers of KGE will receive an annual rebate equal to 50% of
Western's regulated earnings above a 12% return on equity.
Western's shareholders will keep the other 50% of Western's
regulated earnings above a 12% return on equity. Staff testified
that incentive regulation encourages a regulated company to
implement management practices to decrease costs and become more
efficient without the risk of being called in for a rate review.
(Proctor, Tr. 85). Under incentive regulation, the regulated
company is compensated for efficiency gains while customers are
likely made no worse off and maybe better off if sharing occurs.
(Proctor, Tr. 86). Incentive regulation should also decrease The
cost of regulation because fewer rate cases are necessary since
customers receive the benefit of company efficiency gains through
periodic rebates. (Proctor, Tr. 87). Staff also testified that
under the proposed incentive plan, the risk to customers is
minimized since customers share in any efficiency gains made by
Western, but the plan does not grant Western the authority to
file for a rate increase when earnings fall below a predetermined
level. (Proctor, Tr. 92). Western testified that it believes
incentive regulation is good for customers and the company,
particularly as we head into a more competitive marketplace, and
the ability to retain part of the savings through efficiencies is
a critical incentive for utilities to work their hardest on
behalf of shareholders and customers. (Martin, Tr. 151).
34. The Commission believes that as the regulated companies
over which the Commission has jurisdiction face changing industry
structures and potential new competition, the Commission must
also adapt its traditional methods of regulation to allow
flexibility and incentive for efficient behavior. The adoption
of an incentive mechanism, as contemplated in the settlement
agreement, furthers that goal. The incentive mechanism proposed
in the settlement agreement is merely an outline. The settlement
agreement contemplates further proceedings will be convened where
parties can develop, and the Commission can issue findings
regarding the specific mechanics of how the incentive mechanism
will operate. The Commission would be an active participant in
such proceedings. With no incentive mechanism, Western has the
potential to keep 100% of all regulated earnings, even those
above the 12% return on equity level. It is not logical to argue
that allowing Western to keep 100% of all regulated earnings is
more reasonable than providing a mechanism where Western must
potentially share some portion of its regulated earnings above a
certain level. Furthermore, Western's earnings will be reviewed
on an annual basis during the period the incentive mechanism is
in effect. Without the incentive mechanism, this review would
not be possible. Therefore, the Commission would be disposed to
approve such an incentive mechanism in theory.
35. The settlement agreement sets the level of merger savings
from the KPL/KGE merger at $40 million per year. A fixed level
of merger savings is desirable in order to simplify the annual
calculation of return on equity under the incentive plan.
(Martin, Tr. 154; Proctor, Tr. 97). It is also desirable because
as the date of the merger becomes more remote, tracking savings
attributable to the merger becomes more difficult. (Martin, Tr.
153; Proctor, Tr. 97). Furthermore, Western examined the merger
savings and believed the annual merger savings could be justified
at a level from $53 million to $60 million. (Martin, Tr. 153-
154). Staff estimated the merger savings to be $26 million;
however this estimate did not account for the impact of customer
growth and productivity. (Proctor, Tr. 98). Staff believes that
accounting for customer growth and productivity is not consistent
with a prior Commission order, but the concept has merit and the
Commission may decide to approve these adjustments after
considering the evidence. (Proctor, Tr. 98). The amount of merger
savings, assumed for purposes of this proposed settlement
agreement, is a reasonable compromise based upon the evidence
presented at the hearing.
36. The settlement agreement predetermines that all rebates
generated under the incentive mechanism will be passed to the KGE
customers. The Commission can appreciate the Joint Movants'
recognition of the rate disparity existing between KGE and KPL
customers. However, the Commission believes that the allocation
of rebates between Western's KPL and KGE divisions is a matter
that should be decided at a later date in conjunction with the
proceeding to develop the specific mechanics of the incentive
mechanism.
D. THE CORPORATE STRUCTURE DOES NOT
NEED TO BE CHANGED.
37. KGE is a wholly owned subsidiary of Western. Western has
maintained a separate corporate existence presumably for purposes
of tax accounting and financing. However, the KGE and KPL
electric systems are operated on an integrated basis. There is
apparent justification for requiring Western to submit rate
proposals on a stand alone basis as well as on a combined basis.
See, e.g., Kansas Power and Light Company and Kansas Gas and
Electric Company, 56 FERC Section 61,356, at 62,377-78 (1991).
Such treatment by Western of the KGE and KPL electric systems
would represent a significant step toward addressing the rate
disparity between KGE and KPL customers while, quite conceivably,
allowing the company to effectively become more competitive in a
changing electric industry.
E. THE ACCELERATED DEPRECIATION PROPOSAL IS
RESERVED FOR FURTHER PROCEEDINGS.
38. Mr. Martin also testified that Western had filed the
subject Applications anticipating that the Commission would
authorize Western to accelerate the depreciation of Wolf Creek.
The additional depreciation expense would lower Western's rate
base which would, in turn, permit Western to price its
electricity more competitively in a restructured electric
industry. Mr. Martin stated that when Western implemented the
$8.7 million interim rate reduction, Western was not implementing
rates based upon their accelerated depreciation proposal.
(Martin, Tr. 329). Mr. Martin also stated he had no knowledge as
to whether Western intended to abandon its proposed accelerated
depreciation proposal given the negotiated rate reduction.
(Martin, Tr. at 332).
39. The City of Wichita and CURB believes that the opportunity
to argue the accelerated depreciation proposal has value. Mr.
Martin's testimony does not establish that the company is
withdrawing its proposal. Furthermore, the company submitted in
its brief that the issue is left for further settlement or
hearing. From a policy perspective, a utility company like
Western should be allowed to respond to changes in the electric
industry. The Commission recognizes that public utility
regulators must also be in a position to respond to changes in
the electric industry. As of the date of this Order, the
accelerated depreciation proposal is reserved for further
proceedings in these dockets. It is for the commission to weigh
the impact of such proposals on the company, market and customers
and if necessary to call the issue before it for resolution if
Western fails to do so.
F. RE-SUBMISSION OF SETTLEMENT AGREEMENT
40. The Commission is not reviewing or deciding individual
adjustments. Western's prefiled testimony pertaining to such
adjustments was not admitted or incorporated by reference into
any exhibit for the Commission to consider. The Commission wants
to emphasize it is not prejudging the merits of any particular
adjustment but merely assessing the reasonableness of the
proposed settlement agreement given the evidentiary restraints
presented by the record as it now exists. The Commission is
providing some guidelines and principles which may be helpful if
the parties re-submit a settlement agreement. If a settlement
agreement is resubmitted consistent with the guidelines and
principles outlined herein, the Commission could find such a
settlement agreement reasonable based upon the evidentiary record
presented to the Commission at the hearing held on August 27,
1996 and September 4-5, 1996.
41. The Commission finds that this record, taken as a whole,
could support a settlement in the range of $71.5 million to $96.9
million revenue requirement excess. In arriving at this range,
the Commission reviewed the assumptions of the parties placed on
the record. First, assuming the Staff would win all of its
adjustments less those conceded in KCC Staff Exhibit 2 and
Amended Exhibit 2, and applying a return on equity in the range
of 11.5%, as suggested by Western, to be reasonable the revenue
requirement excess would be approximately $96.9 million dollars.
(See KIC Exhibit 1). The Commission believes that the record
fully supports, assuming a range of numbers favorable to each
party, that $96.9 million represents the high end of a range of
reasonableness for settlement purposes based on the record before
us. Western argues that it is not reasonable to assume that
Staff would win 100% of its adjustments in a contested hearing.
The Commission in general cannot argue with this assertion. From
the record the Commission can ascertain that Staff believes
approximately $26.6 million of its prefiled adjustments are at
risk. (See KCC Staff Amended Exhibit 2) and that Western, as an
example, identifies an additional adjustment that would lower
Staff's revenue excess by $11.6 million for KGE and by $13.8
million for KPL. (Martin, Tr. 212). Western's assertion that
this adjustment would be decided in Western's favor was strongly
contested by parties opposing this settlement. The Commission is
limited by the record from determining which adjustments Western
may or may not win in a contested hearing. However, for purposes
of developing a reasonable range for settlement purposes based
upon the record now before the Commission and assuming that the
contested adjustment is decided in Western's favor, and further
assuming a return on equity in the range of 11.5%, suggested by
Western, to be reasonable, the Commission believes a revenue
requirement excess figure of approximately $71.5 million dollars
represents the low end of a reasonable range for settlement
purposes. The Commission believes the above analysis is
supported by the facts in the record and represents a reasonable
range for settlement purposes.
42. The settlement agreement proposed to implement the rate
reductions on a staggered basis. The delay in implementing the
rate reductions is not unreasonable given the magnitude of the
overall rate reductions contemplated by this order. However, the
settlement agreement refers to the date of implementation as the
date of the final order. If there is an appeal or even petitions
for reconsideration, the date the final order becomes effective
may be uncertain. To avoid this uncertainty, a specific date
certain should be stated in any agreement.
43. The rebate allocation between KPL and KGE electric, as
contemplated by the 5-year incentive mechanism, should be
reserved for the Commission to determine at a later proceeding.
In the later proceedings, the Commission can examine in more
detail the fairness and reasonableness of the rebate allocation
between the KPL and KGE customers.
44. Paragraph H of the settlement agreement applies to the
incentive plan and the settled electric rates. The enforcement
of the provision is unclear. The Commission believes that this
provision should not only be available to the company but also to
the Commission. If, for example, the electric industry is
restructured, the Commission intends to retain the right to
revisit the incentive plan as well as any other provision of the
settlement agreement. Furthermore, it should be made clear that
any requested changes must be made for good cause shown and be
the result of events outside the discretion of Western.
V. PROCEDURAL SCHEDULE
45. The procedural schedule should be resumed and modified as
follows:
A. The deadline for Joint Movants to re-submit a
settlement agreement consistent with the
principles outlined hereinabove is October 8,
1996.
B. The deadline for Staff and Intervenors to
prefile responsive direct testimony to
Western and KGE's amended application and
supplemental direct testimony is October 14,
1996.
C. The deadline for Western and KGE to file
rebuttal/responsive testimony to Staff and
Intervenors' previously filed testimony is
October 21, 1996.
D. The deadline for service of data requests is
October 25, 1996.
E. The hearing on these dockets (193,306-U and
193,307-U) is set for October 29, 1996 at
9:00 a.m. at the Kansas Corporation
Commission, First Floor Hearing Room, 1500
S.W. Arrowhead Road, Topeka, Kansas.
F. If the parties re-submit a settlement
agreement, the Commission will consider
modification of the procedural schedule
adopted above.
VI INTERVENTION
46. On September 13, 1996, the Board of County Commissioners
of Jefferson County, Kansas ("Jefferson County") filed a Motion
to Intervene and Submit Comments. Jefferson County is a
governmental unit having a similar interest to that of the City
of Wichita. Under these facts and circumstances, the motion to
intervene is granted. However, the Commission notes that notice
was provided by publication and billing inserts. The failure of
Jefferson County to respond in a more timely manner is the sole
responsibility of Jefferson County. Moreover, Jefferson County
will not be allowed to delay or extend any of the procedural
deadlines established by the Commission by reason of their late
intervention.
IT IS, THEREFORE, BY THE COMMISSION, CONSIDERED AND ORDERED
that:
1. The motion to dismiss these proceedings of Kansas Pipeline
Partnership is denied.
2. For the reasons more fully discussed herein, the proposed
settlement agreement, as contained in Staff's Exhibit 1, is not
approved.
3. Without further hearing or other evidentiary proceedings,
the parties may re-submit a settlement agreement consistent with
the principles announced herein for approval.
4. The procedural schedule outlined herein is adopted.
5. The motion to intervene filed by Board of County
Commissioners of Jefferson County is granted.
BY THE COMMISSION IT IS SO ORDERED.
McKee, Chr.; Seltsam, Com.; Wine, Com.
Dated: Oct 01 1996
/s/Judith McConnell
JUDITH McCONNELL
EXECUTIVE DIRECTOR
jm
ORDER MAILED
OCT 01 1996
/s/Judith McConnell
Executive Director
_______________________________
1/ Docket No. 194,661-U (96-KCPE-527-MER), In the Matter of the
Application of Western Resoruces, Inc., for Approval of its
Proposal to Merge with Kansas City Power & Light Company, and for
Other Related Relief.
2/ Docket No. 193,390-U (96-GIME-371-GIE), In the Matter of a
General Investigation into the Restructuring of the Electric
Industry in the State of Kansas.