TOPEKA — The Kansas Corporation Commission on Wednesday rejected the proposed sale of Westar Energy to Great Plains Energy, parent company of Kansas City Power and Light, citing it as being financially “too risky.”
Commissioners Pat Apple, Shari Feist Albrecht and Jay Emler voted 3-0 to approve a 43-page order concluding the proposed $12.2 billion deal was not in the public’s best interest.
“The proposed transaction fails not only to meet the majority of the merger standards but it fails to meet the most important of the factors” the KCC looks at in considering approving such deals, the order said.
“The threshold question facing the commission is how much financial risk can be accepted before the proposed transaction does not serve the public interest,” the order added. “In its detailed review of an extensive record, the commission found the proposed transaction to be too risky.”
KCC deputy general counsel Brian Fedotin outlined the order’s key points to the KCC prior to Wednesday’s vote during a special meeting at its headquarters in Topeka. The KCC intentionally scheduled the meeting to begin at 3:30 p.m., after the stock market had closed for the day at 3 p.m.
GPE officials were disappointed with Wednesday’s order, said Chuck Caisley, a vice president for the company.
“KCP&L and Westar have served customers in Kansas and Missouri for more than 100 years as neighboring utilities and as a combined company would create significant operational efficiencies and cost savings that would benefit our customers and communities,” Caisley said. “We will review the order and consider next steps.”
The applicants’ options include appealing the order.
Wednesday’s order appeared likely to concern more than just GPE’s stock price.
Part of the deal, according to paperwork filed with the Securities and Exchange Commission, requires GPE to pay Westar $380 million if the KCC fails to approve the acquisition. The company also would be out approximately $100 million in costs and fees associated with pursuing the transaction, Caisley said earlier this year.
Westar spokeswoman Gina Penzig said officials with that utility planned to examine the order before deciding how to respond.
Gov. Sam Brownback’s office also was reviewing the decision, said Melika Willoughby, the governor’s communications director. Brownback had been among local and state leaders who publicly expressed support for the proposed sale.
Westar, GPE and KCP&L filed a joint application in July with the KCC seeking approval for the purchase. It would have brought GPE a place on the Fortune 500 list of the nation’s largest companies, said GPE president and CEO Terry Bassham.
GPE projected the sale would bring savings of $2 billion through 10 years. The transaction was expected to bring the overall elimination of 638 jobs in Topeka and the Kansas City area.
Kansas law required the KCC to assess the proposed sale’s potential effects on consumers, the environment, public safety, state and local economies, utility shareholders and Kansas energy resources, as well as whether it would reduce the possibility of economic waste.
The Kansas Open Meetings Act prevented KCC members from discussing the proposed transaction with each other except at their public meetings. KOMA bans the majority of a legislative body — in this case, two of the three commissioners — from discussing business without allowing access to the public.
The order approved Wednesday included statements that:
• The size of the purchase price, particularly for a company of GPE’s size, calls into question its ability to service the acquisition-related debt. The joint applicants haven’t demonstrated sufficient savings to instill confidence that they will be able to service the transaction-related debt.
• After the proposed transaction was publicly announced, Moody’s Investors Service “placed Great Plains on review for downgrade” of its credit rating.
• Estimates the KCC received regarding savings GPE would realize as a result of the sale are too speculative to be reliable and do not appear to be all merger-related.
• The applicants claim they will try to reduce their labor force through attrition, but they can’t guarantee attrition will be sufficient to account for all necessary job reductions. If GPE’s projected savings estimates fall short, that money has to be accounted for and the two most likely sources are either job reductions or higher rates.
Rather than propose a rate moratorium or refund, the applicants intended to pass savings to through customers through “rate cases” the KCC would consider.
“The savings would stay with the utilities until the filing of a rate case,” the order said. “Until the next rate cases, which are not expected to be filed before 2019, customers will not receive any benefits from savings. GPE admits for the first three years after the transaction, its customers would not see any savings.”
The KCC earlier this year heard seven days of testimony from 28 parties to the sale, backed by thousands of pages of documents KCC members had more than two months to examine.
Wednesday’s order noted that of those 28 parties, only the applicants supported the proposed merger, with all others being opposed.
“The Joint Applicants try to discredit the opposition by claiming ‘most of the intervenors in this case intervened to pursue private individual interests’ rather than representing the public interest the Commission is charged to protect,” the order said. “But the Joint Applicants are also pursuing their own interests in advocating for the transaction.”
If approved, the combined company would have 1.5 million customers in Kansas and Missouri, with roughly 13,000 megawatts of generating capacity, 10,000 miles of transmission lines and 51,000 miles of distribution lines.
Matt Pivarnik, president and CEO of the Greater Topeka Chamber of Commerce and GO Topeka, said Wednesday those organizations stood ready to aid Westar in any way they could to digest the ruling’s ramifications and evalute the next steps for their future.
“We’ve enjoyed working with Great Plains Energy and KCPL and showcasing to them all that Topeka and Shawnee County have to offer,” Pivarnik said.