AARP Testimony for KCP&L Rate Hike Request Public Hearing

May 18, 2015

Kansas Corporation Commission

AARP Kansas Comments on KCP&L Gas

Docket No. 15-KCPE-116-RTS

By David Wilson, AARP Kansas Lead Volunteer

 

Chair Shari Fiest Albrecht, Commissioner Jay Scott Emler, and Commissioner Pat Apple, thank you for the opportunity to provide comments concerning the KCP&L rate increase request, Docket No.15-KCPE-116-RTS. For the record, my name is David Wilson and I serve as a Lead Volunteer and Past State President for AARP Kansas. AARP Kansas has more than 320,000 members across the state. I thank the members of this Commission for the opportunity to speak on behalf of our 320,000 AARP members, many of whom are KCP&L customers, and all older Kansans who would be adversely impacted by another significant rate increase in their utility bills.

AARP is a nonprofit, nonpartisan membership organization that advocates for people who are 50 years of age and older, seeking to promote their independence, choice and control in ways that are beneficial and affordable to them and to society as a whole. One way AARP promotes the well-being of older persons is through its advocacy for reasonable utility rates and services.

I appreciate how carefully members of this commission consider requests such as the one before you tonight. I know that many hours of deliberation go into your decisions and the overarching impact your decisions have on citizens and the business community.

The dramatic escalation in utility rates that we are seeing in Kansas and across the entire nation poses a special concern for older households. All consumers must be able to rely on the availability of safe, affordable, and high-quality utility and communications services.  

Utilities—including telecommunications, electricity, natural gas, water, and sewer services—are all crucial to health and personal welfare. The abilities to contact police, fire, medical, and other responders in times of emergency; to access readily affordable safe water; and to have air-conditioning during the summer and heat during the winter at an affordable rate are absolutely critical. For older Americans there is an added dimension of necessity for these services.

Older consumers tend to devote a higher percentage of their total spending towards residential energy costs than other age groups, and they often have special safety concerns with regard to their continued access to utility services.

Kansas City Power & Light (KCP&L) has filed for a $67.3 million revenue increase, or approximately a 12.5 percent increase. The increase could raise the monthly bill for a typical residential customer by $11.67 per month or about $144 dollars per year. If approved, any new rates would effective on or around October 1, 2015.

Return on Equity

KCP&L is requesting a 10.2% return on equity. AARP Kansas and older Americans understand that essential services such as utilities cannot be provided resulting in financial loss for corporate entities. However, the rate of return on investment for utilities should be fair and reasonable. Utility providers must remember their responsibility to the public they serve and not just to their investors, especially at a time when many older Kansans on low to moderate incomes are struggling to make financial ends meet. [1] The return on equity requested by KCP&L is higher than what could be justified by current economic conditions, and higher than the rates granted utilities in other states.

There is simply no justification to award KCP&L stockholders excessive profits that will be coming out of the pockets of struggling Kansas families. Many Kansas seniors face tough choices with very little flexibility in their budgets, and even a few dollars more per month on their utility bills could mean they must cut back on other essentials such as food and medication.

Here in Kansas, many older residents who want to remain in their homes, many of whom rely on Social Security for their income, already have to make tough choices between heating their homes, putting food on the table, and purchasing medications. They should not be asked to fund the excessive profits or rate increases requested in this KCP&L proposal. AARP members in Kansas, many of whom are residential customers of KCP&L, rely upon affordable and reliable energy to keep their homes warm. Just turning on the lights for these consumers could be almost twice as expensive. Costs to these consumers continue to rise while increases in Social Security are minimal.

The US Department of Agriculture, Economic Research Department (ERS), Food Price Outlook, 2015, Consumer Price Index (CPI) for all food decreased 0.3 percent from February to March and is now 2.3 percent above the March 2014 level. The food-at-home (grocery store or supermarket food items) CPI was down 0.5 percent in March but was 1.9 percent higher than last March. Looking ahead to 2015, ERS predicts that supermarket (food-at-home) prices will see normal to slightly-lower-than-average food price inflation, increasing 2.0 to 3.0 percent.

A new analysis indicates prices rose significantly across the board for all types of medicines. Overall, prices for brand, generic and specialty drugs combined increased 10.9% in 2014 from the year before, according to Truveris, a research firm that tracks drug pricing.

The Kansas Legislature, in their search for funding to eliminate the state’s fiscal deficit, held hearings on SB 261, which would eliminate the 0% sales tax applicable to residential gas and electric utility services - or basically impose a tax on sales of gas, electricity, heat, and other fuel sources for residential premises.

All of this while the Office of Social Security, based on the increase in the Consumer Price Index (CPI-W) from the third quarter of 2013 through the third quarter of 2014, included a cost of living adjustment (COLA) of 1.7 percent to Social Security and Supplemental Security Income (SSI) beneficiaries for 2015. The benefit for 2014 was 1.5 percent.

 

Therefore, AARP Kansas asks the Commission to specifically reject the KCP&L request for the proposed 10.2% return on equity.

 

Fixed Monthly Customer Charge

Electric companies across the country are requesting higher fixed customer charges trying to create a guaranteed cash flow regardless of the volume of energy a customer consumes. However, already this year, regulators in Kentucky, Missouri, Minnesota, Washington, and Michigan have rejected these proposals. We urge Kansas regulators to follow this pattern. Several state regulatory commissions have recently rejected similar requests, ordering that customer charges remain the same and not be raised at all. For example, Missouri and Minnesota have each just recently voted to keep current $8.00 customer charges the same, while raising the volumetric or usage components of electric rates.

Many older consumers diligently dedicate themselves to conserving their home energy usage in an effort to keep their energy bills more affordable. Those consumers should be receiving the full economic benefit of their careful conservation efforts. It is frustrating for them to see the rewards of their frugality minimized. Reducing energy usage components from distribution rates while increasing monthly customer charges would also send price signals that erode the incentives for conservation and energy efficiency. Customers could lose the incentive to conserve if the proposal to increase charges on utility bills is approved by the Kansas Corporation Commission (KCC).

Just turning on the lights could be almost twice as expensive if KCP&L has its way. KCP&L is asking to nearly double the fixed electrical charge on your utility bill to $19.00 each month. This is the fee you pay before using any electricity at all. A high fixed residential delivery charge of $19.00 per month is sure money for KCP&L, so it is not surprising that it has been proposed by the utility.

Raising the fixed monthly charge lowers the variable per-kilowatt charge, which creates a disincentive for conservation and energy-efficiency and gives consumers less control of their bill. The customer charge should not be used as a catch-all cost recovery mechanism. It should recover only metering and billing costs. Raising the customer charge inappropriately overly burdens lower users. It is poor public policy since it lessens the incentive to conserve by lessening the ability of customers to control their energy bill.

Shifting cost recovery for electric distribution to a customer charge creates an economic burden to low usage customers. [2] The smaller the electrical usage within a household, the greater the negative impact would be from this proposal. A large number of customers use less than the average amount of electricity (many of these are one-person or two-person senior households), and these consumers would face a disproportionately higher-percentage rate increase from KCP&L’s rate design compared to households that consume more than the average amount of electricity.

Therefore, AARP opposes the KCP&L proposal to dramatically increase the fixed monthly customer charge portion of residential utility bills while continuing to charge a slightly reduced volumetric rate. AARP Kansas asks the Commission to specifically reject KCP&L’s request for the proposed increase of the customer fixed monthly charge.

 

KCP&L Proposed Trackers

KCP&L is proposing rate design changes that would involve the use of new cost-recovery surcharges or “trackers.” Trackers adjust rates between rate cases based on actual increases or decreases in certain utility costs. The danger they pose for consumers is that such adjustments tend to limit regulators’ ability to scrutinize and evaluate costs. This design also may lessen the utility’s incentive to control its costs between rate cases.

Regulators should ensure that utility rate changes occur within the context of a full rate case review and depart from this approach only when a utility can demonstrate that extraordinary circumstances jeopardize its financial condition and require emergency or interim action. Regulators should require full rate case reviews at intervals short enough to ensure that the utility remains accountable to its customers.

If policymakers allow a utility to recover a portion of its expenditures via a surcharge or tracker on a ratepayer’s utility bill, the following minimum consumer protections should be in place:

• A surcharge should recover only clearly defined costs, should expire in a reasonable period of time, and should undergo an audit or review (including public comment opportunities) to determine whether it achieved the intended result.
• The number of surcharges and trackers available to any one utility should be limited.
• A utility’s authorized rate of return should be downwardly adjusted to reflect the reduced business risk that results from the guaranteed revenue stream that a surcharge or tracker provides.
• A surcharge or tracker should be designed so that cost overruns are absorbed by the utility and underspending is returned to ratepayers.
• The amount of a surcharge should be reduced to reflect utility cost savings when revenue from the surcharge funds’ investments, such as upgrades in plant equipment, improves efficiency.

AARP opposes the plethora of trackers that utilities are proposing. The KCPL proposal is one of the worst we have seen. There is no need for a special transmission, cyber cost or ash borer/environmental tracker. KCP&L can include those costs in base rates which will give them an incentive to keep spending down. In general, once utilities have trackers and everything is then a flow through, rates soar as every dollar spent is a flow through. There is scant risk of disallowance.

 

Smart Meters

KCPL is requesting to recover the cost of replacing its current fleet of electronic meters with so-called “smart meters”.

AMI systems allow utility companies to quickly pinpoint the exact location of interruptions and system problems, enabling faster restoration of service. However, the potential cost savings to consumers who use a smart meter is unclear.

The cost of installing smart meters is an area of concern. Utility companies can realize operational savings by installing advanced meters, but those savings may not cover the overall cost of installation. Thus to recover the remainder of the costs, utility companies may ask regulators for authority to add surcharges to consumers’ electric bills.

Regulators should ensure that the installation and use of smart-meters be accompanied by a consumer education program that, at a minimum, informs customers of both the costs and benefits associated with the selection of the program, how to determine the impact of the program on the customer’s annual electricity usage, and the costs of the customer’s annual electricity usage.

AARP Kansas asks the Commission to specifically reject KCP&L’s current request for overall installation of “Smart Meters” to KCP&L residential customers until commissioners can complete a thorough analysis of such an effort.

 

Conclusion

AARP Kansas respectfully requests that the KCC:

• reject the current KCP&L request for increases to consumer base charges;
• authorize a thorough analysis on the potential impact on consumers possible with overall installation of smart meters;
• reject the current KCP&L request for the proposed 10.2% return on equity; and
• reject the KCP&L request for the use of cost recovery surcharges, or trackers as part of the current KCP&L request.

I hope that you will grant very careful consideration to this request, keeping your consumers and constituents first and foremost in your minds as you consider any rate adjustments.

 

Respectfully,

David Wilson

 

 

[1] A total of 92 percent, or 362,172, of older Kansas residents received Social Security in 2012. The average annual benefit was $15,400. Social Security accounted for 55 percent of the typical older Kansan’s family income. Low- and middle-income older adults in Kansas are even more reliant on Social Security’s earned benefit, typically receiving 79 percent of their family income from Social Security.

 

2 AARP is not claiming that there is a precise correlation between usage and age, nor that where is a precise correlation between usage and low-income status. However, large numbers of vulnerable customers in each of these categories have been proven to be among the smallest users of energy.