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University Daily Kansan, February 21, 1984
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KG&E wants Legislature not to change rate plan
By United Press International
TOPEKA - The president of Kansas Gas and Electric Co. yesterday asked the Legislature to take a hands-off attitude if the Kansas Corporation Commission adopts the company's proposed five-year rate increase to pay for the Wolf Creek nuclear plant near Burlington.
KCC spokesman Gary Haden said the phase-in rate plan would cause KG&E electric rates to increase.
Wilson Cadman said KG&E, based in Wichita, wanted assurances from the Legislature that it would not pass any future legislation to change the plan if the KCC approved the rate plan. But he did not want the Legislature to prevent the use of water entering the deferred revenue provided under the law.
If the five-year phase-in was completed, KG&E revenues would increase by $390.5 million a year over the 30-year life of the $2.67 billion plant.
THE FIRST RATE increase approved by the KCC would be for $153.9 million and would take effect the first day the plant began operation, tentatively scheduled for Feb. 15, 1985.
The second rate increase, $5.6 million, would take effect Feb. 15, 1986; the third increase, $7.2 million, on Feb. 15, 1987; the fourth increase, $6.3 million, the same day in 1988; and the fifth
increase, $67.5 million, in 1989.
Consumer electric rates in the first year would increase by 39.5 percent; in the second by 10.2 percent; the third by 8.9 percent; the fourth by 7.7 percent; and the fifth by 8.4 percent. Because of the phase-in, KG&E would have to borrow $35 million the first year, $122.5 million the second, $131.5 million the third, $100.8 million the fourth and $8.8 million the fifth.
If KG&E RECEIVED a full rate increase, consumers in the first year would pay $22.2 million more in electric rates, which is an 83.7 percent increase. Cadman told the KCC that such an increase would be too hefty and that the phase-in plan would be better.
Under a phase-in, customers would pay less for electricity during the first five years. In later years, the cost would be higher than with a one-time rate increase, but the difference generally would be less than one cent per kilowatt hour, KG&E said.
Cadman said the plan, if approved by the KCC, would be well received by bond rating companies that have an impact on how cheaply the utility can issue bonds to finance the remainder
"All fair people will recognize that we need some protection." Cadman said of the legislation. "This is in no way to be considered, at least by us, a bail-out scheme."
Moving out of Coffee County was the last thing on most people's minds in Burlington seven years ago. That was when officials from Kansas Gas and Electric Co. of Wichita and Kansas City Power and Light Co. of Kansas City, Mo., shun their spades into the weedy land overlooking Wolf Creek — land on which the 20-story steel and concrete plant now rests.
Burlington continued from p. 1
It was also when construction started on the $6.5 million project to build an upper-elementary school and a high school. Today, those two schools sit side-by-side in all their glassy newness near a subdivision of new homes in the northwest part of town.
INDEED, THIS COMMUNITY, the county seat of what used to be one of the poorest counties in Kansas, has banked on Wolf Creek. Between the town and county, two new schools, an addition to another school, a county historical society building and a new county jail have been built. The county also is doing extensive work on its roads.
Last year alone, KG&E and KCP&L paid alone 5 million in county property taxes on WC
All of the projects have been undertaken on the promise that the plant will be finished and provide a steady flow of tax money for years to come. In addition, we have made it known that they have said they are confident they will keep
Dettrich said that all of Burington's recent projects had been financed with the hope that the new project would be successful.
"IF THEY SHUT that thing down. I think we are all going to have to leave the county," he said. "I don't think we could afford our property taxes."
Property taxes had remained steady since 1977 until they recently fell slightly. And as long as Wolf Creek stays in the picture, they are guaranteed to stay low.
Said Harold Ziegler, manager and co-owner of & L Super Saver, a downtown grocery store that makes its customers feel at home.
definitely been good to us. If it went under, I think we all would have to move. Our taxes would be so high, we couldn't afford to pay them."
Coffey County taxes would increase if Wolf Creek's builders went bankrupt and couldn't pay taxes, because the county and the Burlington school district have issued bonds to pay for projects such as the news schools and the new jail. Both the county and the school district would receive their debts to almost single-handedly pay off those 10- and 20-year bonds, said Court Clerk Jack Scott.
IF THE PLANT is canceled and that money doesn't come in, he said, the citizens of Burlington and Coffey County were left with what was an impossible task of paying those bonds off themselves.
"Ilisten, if we have to absorb the cost of that school building and everything else, you are going to see an exodus to Arkansas," he said jokingly. "I just might be the first man in line."
Although the economic forecast for Burlington would be grim if Wolf Creek failed, many businesses are doing well.
Between sips on his longneck bottle of beer at an after-work gathering at the Sports Center Bar, construction worker Brad Sprinkle speculates that Burlington's having to do without Wolf Creek.
"THE TOWN PROBABLY would go back to
it." He said. "He said it.
It used to be a pretty not little town."
Spinkle commutes weekly from the Kansas City area. He is a 21-year-old union worker employed by L.E. Myers Co., the St. Louis contractor that is building a 100-mile, 90-foot "highline" to carry electricity from the plant to a KGSE substation outside Wichita.
Mayor Floyd Lewis said that in time the town could probably shake off the economic loss it incurred.
"A lot of people would move out," he said.
But eventually the economy would return to the way it was before the recession.
Laverne Shepard, a worker at Z & L Super Saver, agreed that life in Burlington would return to normal if Wolf Creek failed.
"Sure, we would notice a difference," she said. "That plant definitely has been good for us. We've noticed it here at the store. But if it closed, we could do something. It was a way it used to be, and that want all that bad."
Wolf Creek
continued from p. 1
K&E and KCP&L officials are confident that their rate increases will be approved. But legislators and officials of the KCC said last week that they had no guarantees for the two companies. They said K&E and KCP&L should be allowed to pass along the cost of the plant.
"I don't think anybody can guarantee anything right now," said Gary Haden, a spokesman for the KCC. "Under state law the KCC is required to give the utilities a chance to earn a fair rate of return on their investment. But there is no guarantee implicit in that."
Legislative controversy
Wolf Creek is shaping up to be the most controversial subject of the 1984 legislative session. The Legislature is considering two bills that would amend the KCC's powers to allow such a phase-in.
One of those bills, introduced Feb. 9 in the House and endorsed by 46 of the 125 state representatives, would give the KCZ power to severely restrict rate increases for Wolf Creek — even to the point that KG&E and KCP&L could not afford to put the plant on line.
Several legislators who have been involved in the Wolf Creek issue agreed with Haden that the companies should not expect the Legislature or automatically agree to the expected rate requests.
Both companies' financial problems apparently are scaring away investors.
The Wolf scares off investors
"I don't think this thing is down pat at all," said State Rep. Betty Jo Charlton, D-Lawrence. Charlton is a member of the House Energy and Environmental Committee and one of the 46 signers of the House bill
Companies facing bankruptcy commonly file for reorganization under Chapter 11 of the federal bankruptcy laws. Under Chapter 11, a company's creditors cannot collect on debts while the company is reorganizing and employee contracts are nullified.
"If they wanted to bet the company, then that's not the fault of the rate payers or the Legislature," she said. "And if KG&E goes bankrupt, it's not the end of the world. What would happen if we reorganized and would be reorganized under better management and the electricity would continue to flow."
Bond ratings go bust
"Our whole industry is getting awfully gosy about things like Wolf Creek," he said.
Both companies are deeply in debt from borrowing to pay for Wolf Creek, according their most recent financial statements. Utilities commonly borrow through bank loans or through the sale of a variety of financial instruments, including first mortgage bonds, commercial paper, promissory notes and common stock.
On top of the deep debt, the two companies are having difficulty borrowing additional money.
Financial problems at Wolf Creek are probably to blame for KCP&L's lower stock prices, said John Begert, a stockbroker in the Toeaek office of Paine Webb Inc.
Moody's and Standard & Poor's - have substantially lowered both companies bond yields.
In 1973, when KG&E and KC&P reached their final decision to build Wolf Creek, Moody's and Standard & Poor's both gave KG&E bonds and KC&P bonds their second-highest bond ratings. Moody's rated both companies' bonds Aa, and Standard and Poor's rated them AA.
As the ratings of the companies' bonds have fallen, so have the prices of common shares of stock in those companies. For the past three months, KG&E has been forced to put off selling 2 million shares of common stock because its stock prices have been so low that the sale will generate the money the company needs to meet its expenses, the biggest of which is Wolf Creek.
Standard and Poor's bad cut KG&E bonds to BB-plus and KCP&L bonds to BBB, meaning that it considers KG&E bonds to speculative bonds in the UK and KG&E bonds are at the bottom of investment grade.
By this year, Moody's and downgraded KG&E's bonds to Baa3 and KCP&L's bonds to Baa2. Both ratings are at the bottom of what Moody's considers investment grade bonds.
KCP&L's stock has experienced a similar slide. Last year it reached a high of about $21 a share, but fell to a low of $16.50 a share. Last year the stock was selling for about $7.50 a share.
Four closings: Utilities hit by financial crunch
n July 1983, the Washington Public Power Supply System announced that it would default on $2.25 billion worth of municipal bonds that had been sold to build five nuclear power plants across Washington state.
The default was the biggest municipal bond failure in U.S. history and generated questions about the financial solvency of the bank.
So far, two of the five proposed WPPSS plants have been canceled and two have been postponed. Construction on plant No. 2, near Richland, is almost complete.
WPSS has canceled plant No. 4, also near Richland, and No. 5, near Satsop. The No. 1 plant, near Richland, and plant No. 3, near Satsop, have been mothballed for at least three years.
WPPSS, also commonly known as "Whooops," is a state agency that oversees 29 utilities and municipal power agencies. Since October, the Securities and Exchange Commission has been investigating WPPSS to determine whether the agency and some brokers associated with it committed fraud in issuing and selling bonds.
n late January, Cincinnati Gas and Electric Co. announced it would convert its financially troubled William H. Zimmer nuclear plant, near Moscow, Ohio, into a coal-fired generator.
The plant is 97 percent complete, C&G EAY says. The conversion would cost an estimated $1.7 billion. The original $1.6 billion price tag placed on the plant in 1969 has already been surpassed.
CGGE's decision to switch the 810-megawatt plant to coal stunned the nuclear industry. This was the first time a conversion had seriously been considered. Many industry experts believed that the technology upgraded and predict that CGGE will eventually abandon Zimmer.
In December, Business Week reported that Wall Street was edgy about whether CGME could maintain its $12.16 annual dividend. Since October, the price of the company's common stock has fallen from $18.25 a share to about $11.
Even if CGE&E successfully converts the plant, it still might not be allowed to raise rates to pay for it. The Ohio Public Utility Commission is investigating charges of mismanagement made by CGE&E's two Ohio partners.
PSI officials have said that they still are convinced that electricity from Marble Hill will be needed, although the company has not said whether it will resume construction. The company expects a percent reduction in dividends on its common stock this year.
in mid-January, the principal utility building the Marble Hill nuclear plant abandoned the project, on the banks of the Ohio River near Madison. Ind. It was closer to completion and it was built in any other than its U.S. nuclear plant that had been scrapped.
When construction started in 1979, Marble Hill was supposed to cost $1.4 billion, but it would have cost an estimated $7 billion by its completion in 1990. The 2,260-megawatt plant is the largest power plant in Indiana, 83 percent owner of the plant, decided to pull out
The Piens and Wabash Valley Power Association, which owns the remaining 17 percent of Marble Hill, had spent $2.5 billion on the plant. Cost overruns, charges of poor construction and op-­‐native-nuclear protesters plagued the plant from the beginning.
That decision came after the Virginia Corporation Commission reported that VEPCO would stand to lose less money if it abandoned the plant, which company officials had acknowledged was getting too expensive to build, than if it finished
ate in November, Virginia Electric and Power Co. halted construction of its North Anna Three nuclear plant in
In 1982, VEPCO officials estimated that North Anna Three would cost $3.8 billion to complete, but that estimate had jumped to $5.1 billion by the time VEPCO decided to cancel construction.
The company had spent about $500 million on the plant, which was to be one of four North Anna stations in Mineral. The company announced its plans in 1968 for building the four plants, and construction on the plants began that year. North Anna One and Two went on line in 1978 and 1980, respectively.
VEPCO canceled North Anna Four in late 1980, saying that the electricity that the electricity the plant would generate would not be in demand.
Andrew Hartley/KANSAN
Financial illness spreads to plants across the nation
By ROB KARWATH
Staff Reporter
Officials at each of the utility companies that were building or had planned to build the 19 reactors indicated that either a lack of money to complete the projects or overestimated demand that made the reactors unnecessary caused all of the cancellations.
The financial disease that has infected the Wolf Creek station near Burlington is part of an epidemic that last year led to the demise of 19 nuclear reactors nationwide.
Officials with the Energy Information Administration of the U.S. Department of Energy in Washington, D.C., said last week that 19 nuclear power plants in the country were canceled last year before completion
Joe Kramer, nuclear information spokesman for Kansas City Power and Light Co., Kansas City. Mo., said that converting a nuclear reactor would be so expensive that it would be impractical.
The William H. Zimmer plant, near Moscow, Ohio, and the Marble Hill station, near Madison, Ind, both went under in January because the building them could no longer afford to do so.
PUBLIC SERVICE CO. of Indiana has abandoned Marble Hill, Cincinnati Gas and Electric Co. has said it will convert the Zimmer plant to a coal-fired generating station, a conversion several fired experts doubt can be made.
Industry experts have said that the recent financial trouble in the nuclear industry has several underlying reasons — including tougher safety regulations, difficulty in rounding up investors and low demand for the energy the plants would produce.
"I would have to classify it as a hair-brained idea." he said.
IN MARCH 1975, a near-disaster at Metropolitan Edison's 1973 Mile Island plant near Harrisburg, Pa., unleashed a flurry of controversy that brought new, expensive Nuclear Regulatory Commission rules on the safety of nuclear plants.
Three Mile Island also set off a wave of anti-nuclear sentiment that has reached Wall Street and scared away many investors whose money had been sunk into electrical utilities that were building nuclear plants. Consequently, the utilities are having trouble borrowing money that they badly need to finish construction of their plants.
Oil shortages in the 1970s also made many Americans conservation-minded, thus curtailing the growth in demand for electricity and reducing some plants that are now under construction.
Still, many critics of nuclear power plants have criticized the utilities themselves for cost overruns.
Late last month, Colorado energy consultant Amory B. Lovins criticized Kansas Gas and Electric Co. of Wichita, the principal owner and operator, for going out on a financial limb to build the plant.
"KGGE is trying to build a plant that is one-third larger than they are financially," he said during a joint meeting of the Senate and Energy and Natural Resources committees.
"A lot of people around here have that stock, especially KG&E," he said. "When they come in here, we are recommending that they get out of it."
Brad West, another Topeka Paine Webber broker, said he had been advising his customers to sell their KG&E and KCP&L stock.
said he hadn't been recommending KG&E or KCP&L stock in new investors, either. "I would suggest staying away from it," he said. "It really doesn't about it and recommending it to our customers."
Unless the KCC allows the two utilities to raise rates and pass the cost of Wolf Creek on to their customers, West said, KG&E and KC&P will have extreme difficulty selling stock.
"If that happened, the money to pay for Wolf Creek would have to come out of the stockholders' pockets, meaning the dividends would be given," he said. "That has a lot of people worried."
Bill Smith, KU professor emeritus of electrical
Industry hits on hard times
engineering, said that a decade ago, people who had invested in utilities were doing anything but worrying. Utilities used to be such good financial assets, but now they investors with their security and steadie dividends.
Wolf Creek has brought home the financial problems troubling the nuclear industry nationwide. Nuclear plants that have been on line for some time are not experiencing financial troubles, unlike plants that have yet to be threatened. The financial difficulties that are threatening the future of unfinished plants surfaced because of a myriad of events in the past decade.
The accident at Three Mile Island, the most prominent of those events, led to increased safety regulations that inflated the costs of building nuclear plants. It also raised concerns about the financial stability of utilities that had invested in them.
Those new standards were costly. Plants had to pay for additional safety equipment, construction materials had to be double-checked and the workers had to be trained. All plants had conformed with the new regulations.
KG&E and KCP&L officials said they did not know exactly how much the new safety regulations added to the cost of Wolf Creek. The addition of the regulations is one of the main reasons the plant is $1.63 billion over budget, they said.
In March 1979, the near-melt-down of the Unit Two nuclear reactor at the Metropolitan Edison's Three Mile Island plant, near Harrisburg, Pa., forced the Nuclear Regulatory Commission to set tough new safety standards at the building and under construction across the country.
"It has definitely meant big bucks," Kramer said.
KG&E and KCP&L officials have said that
another cause of the cost overruns at Wolf Creek was a state law that went into effect just as construction was starting. That law, signed in April 1978 by Go Bordon Robert F. Bennett, prohibited utility companies from charging customers (or workers) for digging plants while they were, under construction.
Before that law was enacted, utilities commonly increased the rates they charged their customers to pay for the plant as it was being built. Utilities now may transfer the expense of the plant to their customers only after the plant has started generating electricity.
Under the old system, utilities listed the money made from rate increases as assets on their balance sheets and referred to it as allowance for "construction work in progress."
Koerper said the loss of CWIP money had caused Wolf Creek's building expenses to surge, which has left KG&E and KCP&L on shaky financial ground.