Kansas regulators urged to investigate activist hedge fund


The influence that New York activist hedge fund manager Paul Singer has over Evergy Inc. has prompted Kansas regulators to consider investigating Singer’s efforts to convince the company to move faster away from coal.

The Kansas Corporation Commission was asked by staff in a petition last week to examine an agreement between Evergy Inc. and Elliott Management Corp. to boost the utility’s value, either through a merger or a revamped strategy according to Energy Wire.

The petition is a preemptive maneuver by the commission staff to scrutinize a potential shift in strategy at the utility before it’s announced that changes could adversely impact customers.

“Staff is very concerned that Elliott’s focus on increasing shareholder value will place Evergy’s customers at a high risk of paying higher rates or receiving lower quality service in order to support an increase in shareholder value,” the petition said.

Elliott, headed by billionaire Paul Singer, is no stranger to utilities. The activist hedge fund, with $40.2 billion in assets, has in recent years agitated for changes to increase shareholder value at NRG Energy Inc., Sempra Energy and, most recently, CenterPoint Energy Inc.

The pressure on Kansas City-based Evergy is different, however, because the fund cited the benefits of the utility accelerating the transition of its power plant fleet from coal to wind.

As part of $450 million in cost savings identified by Elliott, $200 million of it would come from replacing 20% of its least efficient coal generation with wind energy.

“Because of the strength of the wind resource in Evergy’s service territory, Evergy stands to be a leader in decarbonization system investments that facilitate renewables growth and help transition its coal fleet (which still accounts for 40% of its generation capacity) to renewable resources,” Elliott said in a Jan. 21 letter to the utility’s board.

Evergy announced an agreement with Elliott on Feb. 28 under which the hedge fund would get two board seats at the utility and establish a new board committee, including the two Elliott appointees, to study pathways to increase the company’s value.

The committee has a July 30 deadline to report its recommendations to Evergy’s full board for either a merger or a new long-term operating strategy, and the board will have until Aug. 17 to vote on the plan.

With weeks to go before the July 30 deadline, the commission staff petition aims to sow doubt about the hedge fund’s thesis that cost cutting could open the door to additional investment opportunities for the utility, including investments in more wind energy.

Specifically, the KCC staff’s analysis questioned Elliott’s suggestion that Evergy could replace more of its coal fleet with additional wind.

Debate over Evergy’s future comes as Kansas policymakers face pressure to confront rising electricity rates.

Average retail electric rates in the Sunflower State are higher than rates in any neighboring state, according to March data from the U.S. Energy Information Administration.

The report by London Economics International didn’t explicitly attribute rising electric rates to coal plants. But the report said regulators need better tools to assess the economic value of aging fossil plants and recommended ways to help ease the cost impact of plant retirements.

A second phase of the study ordered by Kansas legislators is due by the end of June.

In a statement, Evergy spokeswoman Gina Penzig said the utility’s executives and board have been “resolute” in their commitment to serving the best interests of customers, employees, shareholders and communities served by the utility.

“We agree with KCC staff that it is important to have a robust and transparent process that allows for stakeholder engagement,” Penzig said. “The support of our regulators is essential, and we will continue to maintain an open, collaborative dialogue with them as we complete our current strategic review.”

Source: Energy Wire