Published: February 28, 2025
On January 31, 2025, Evergy utility subsidiaries filed a Motion to File Legal Analysis Regarding Standards for Determining Capital Structure with the Kansas Corporation Commission. This Motion was filed concurrently with an application for a general rate case.1
Like many jurisdictions, capital structure has been a contested issue in Kansas. Due to the prevalence of black box settlements, the issue is not always fully litigated. In anticipation of heavy opposition to its proposal to use the actual standalone capital structure of its Kansas utilities in calculating revenue requirements, Evergy took the unusual step of proactively filing this Motion to provide the Commission with a legal foundation at the outset of the proceeding rather than during post-hearing legal briefing.
In summary, the Motion addresses:
- The Commission’s policy to “use a capital structure that will result in the lowest overall cost of capital that is representative of utility operations”
- The Standalone Approach
- Consolidate Capital Structure and FERC’s three-part test
- Hypothetical Capital Structures
- Capital Structure and a Fair Rate of Return
- Capital Structure and Corporate Veil-Piercing Principles
- And concludes the Standalone Approach should be the presumptive standard and to overcome that presumption a party must present substantial competent evidence demonstrating the actual capital structure is imprudent or inconsistent with industry norms, or there has been intentional manipulation of corporate capitalization
Concentric Energy Advisors’ Cost of Capital practice helps North American utilities to understand the impact of regulatory activity such as the Evergy filing on their own businesses and regulatory strategies.
For more than twenty years, Concentric Energy Advisors has supported clients with a sophisticated and industry-based perspective on capital structure and return on equity. We have provided expert testimony and support to clients the United States and Canadian provinces. For more information, please contact info@ceadvisors.com
1Before the State Corporation Commission of the State of Kansas, In the Matter of the Application of Evergy Kansas Central, Inc. and Evergy Kansas South, Inc. for Approval to Make Certain Changes in their Charges for Electric Service. Docket No. 25-EKCE-294-RTS
— All views expressed by the author are solely the author’s current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, related companies, or clients. The author’s views are based upon information the author considers reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.
Published: February 14, 2025
How can utilities ensure that the collection of depreciation expense remains accurate without the expense and rigor of a complete depreciation study?
Depreciation guidelines recommend conducting depreciation studies periodically to confirm that the depreciation rates in use remain appropriate, and to recognize the inherent variability in depreciable service lives and net salvage estimates. For these reasons, Concentric recommends that most utilities complete a full depreciation study every three to five years.
Usually, depreciation studies are performed as part of a utility’s rate case. However, there are instances when general rate applications may occur outside the three-to-five-year cycle of depreciation studies. This can create unique challenges in instances where, for example, a significant technological change requires the retirement of the majority of assets in an account or an account has been fully depreciated. The key question then becomes: How can utilities ensure that the collection of depreciation expense remains accurate without undertaking a full depreciation study?
A beneficial alternative for utilities to explore is a technical update or depreciation review. This option allows for the recalculation of depreciation expense based on the assets in service at the time of the update, without re-evaluating the underlying depreciation parameters. In practice, this means that the estimates of average service life and net salvage parameters remain unchanged, while the total depreciation expense is updated to ensure accuracy.
Since technical updates do not require a re-examination of depreciation parameters, they can be completed relatively swiftly and cost-effectively, requiring less labor from the utility. Many utilities choose to perform these updates annually to ensure that the book depreciation reserve aligns with expectations. This proactive approach empowers utilities to quickly identify any emerging issues and resolve questions about the underlying data without the pressure of an impending rate case.
With the significantly lower costs for technical updates, and the subsequent savings that are often realized in full depreciation studies, annual technical updates are highly recommended for many utilities. This strategy is particularly applicable for utilities using the Equal Life Group procedure; however, even those using the Average Life Group procedure typically benefit from annual technical updates.
Why Choose Concentric for your Depreciation Technical Update?
- Our depreciation practice has nearly a century of combined technical experience.
- Our lead team members are Certified Depreciation Professionals by the Society of Depreciation Professionals.
- Concentric staff have successfully completed dozens of technical updates and more than 125 depreciation studies for clients across North America.
To learn more about Concentric’s proactive approach to a Depreciation Technical Update, please contact Amanda Nori.
— All views expressed by the author are solely the author’s current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, related companies, or clients. The author’s views are based upon information the author considers reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.