MIAMI – The unfortunate truth about the relationship consumers have with their local energy company is that they don’t really think about their provider until the power goes out or rates are going up.
A better example of this would be difficult to find than the recent stir caused by the planned rate increase and merger acquisition approvals sought by Empire District Electric Company, a regulated utility serving approximately 218,000 customers in Missouri, Kansas, Oklahoma and Arkansas.
While Oklahoma only accounts for 2.7 percent of the utility’s total consumer base, the pending impact of Empire’s rate hike and merger requests could prove significant for the state’s communities dependent on their services.
What Empire is working on
On Dec. 21 and 22, Empire made two important announcements. The first concerned a filing with the Oklahoma Corporation Commission (OCC) for an increase in annual revenues of $3.8 million or 27.58 percent. Approval of the raise would translate to an increase that would see an average residential customer (using 1,000-kilowatt hours) adding about $37, or about 36 percent to their monthly bill. A steep increase, especially for Empires served rural communities that have not seen rate hikes in almost a decade.
Further, Empire’s rate case filing is a step back in the revenue increase it originally sought, which was 10 percent higher and would have skirted the lengthy process of a traditional rate case by utilizing an OCC reciprocity rule. A process that allows utilities with a minimal consumer base in Oklahoma to seek revenue hikes based on rate cases that have already been granted approval in adjacent states. In Oklahoma’s case, the initial increase request was based on rates approved for Missouri.
The second announcement concerned the filing of an approval from the Kansas Corporation Commission (KCC) for Empire’s merger with Canadian conglomerate Algonquin Power & Utilities subsidiary Liberty Utilities Co. The green light from Kansas is especially important because it is the last regulatory hurdle to jump for the $2.4 billion merger to proceed.
Empire has already gained approvals from Oklahoma, Missouri, Arkansas, and federal regulators. KCC regulators are due to submit their final ruling by Jan. 10, 2017, which means Algonquin could have the all clear for its Liberty utility serving 485,000 customers in the U.S. to merge with Empire as early as Jan. 1.
Liberty operations span Arizona, Arkansas, California, Georgia, Illinois, Iowa, Massachusetts, Missouri, New Hampshire and Texas.
Why it matters
Although many consumers felt blindsided by Empire’s original request for revenue increases, and rightly pushed back, there is still little room to categorize the utility’s actions as purely greed driven.
Poorly planned, initially executed, lacking public outreach, perhaps yes.
There is also little chance of a nefarious link between Empire’s rate case filing and it’s pending merger under Algonquin. Both processes require a lot of time and regulatory oversight, and their overlap has more to do with where we are in the fiscal and regulatory year. While each will likely result in higher service rates in both the short and long-term, consumers should know one was not set in motion to specifically pad the prospects of the other.
What is happening with the filing for such significant rate increases and the upswing in Canadian acquisitions of U.S. energy companies is related to several important factors.
The U.S. in recent years has implemented some significant environmental standards for power generation. These are part of an aggressive nationwide plan aimed at reducing harmful emissions and lessening the impact of these on citizens and the environment. This transition is both a costly and time consuming. The burden of these transitions will, of course, find their way back to consumers. Where energy companies have fallen short was in their reluctance to begin these transitions proactively, instead of waiting for federal mandates.
It is also important to consider that with these transitions that most U.S. utilities will look to transitioning existing coal-fueled plants with high-efficiency gas powered ones, something that could have real market impact, especially with our nation’s expanding resources from domestic shale plays.
When considering the recent spate of Canadian acquisitions of U.S. utilities, it is important to understand why we are such an attractive market for our northern neighbors. Canadian energy companies have fewer options at home for expansion and profit growth than their U.S. counterparts because of tighter regulations. At the same time, Canada’s energy buyers tend to have less expensive access to financing, which means the ability and willingness to pay more.
So what is the takeaway in all of this? Empire is doing what all utilities are doing, and these imminent shifts are far from unique to Oklahoma customers.
There is a serious need for the very wide communication gap that makes these processes confusing and frustrating for customers, and sometimes more costly and time consuming for energy companies to be filled.
As we continue to transition away from traditional power generation, such as coal and foreign entities continue snapping up U.S. enterprises there is only one certainty – higher rates.
How and when those happens is where we need to come together, so consumers don’t feel gutted, and utilities don’t find themselves mired in bureaucracy.