Westar Energy and Kansas Gas and Electric (referred to as Westar), as well as Great Plains Energy (GPE), Kansas City Power & Light (KCP&L), the Kansas Corporation Commission staff, and others on March 7 filed a joint motion with the commission seeking approval of a non-unanimous settlement agreement in relation to the proposed merger of Westar and GPE.
The others involved in the settlement are the Citizens’ Utility Ratepayer Board (CURB), Sunflower Electric Power, Mid-Kansas Electric, Kansas Power Pool, Midwest Energy, and Brightergy – collectively referred to as the joint movants.
The filing further noted that GPE, KCP&L, and Westar – collectively referred to as the applicants – last August filed an application with the commission requesting approval of the merger. The merger is a stock-for-stock merger of equals, negotiated with the intent and result that neither company would be paying or receiving a premium with respect to the other company, there would be no transaction debt and no exchange of cash.
The filing added that Westar and GPE would merge to form a new holding company, which would operate regulated electric utilities in Kansas and Missouri and would have a combined equity value of about $14bn. Shareholders of Westar and GPE would exchange their respective shares for shares in the new holding company, which would have new, yet-to-be-determined name.
The joint movants agree that, subject to the terms and conditions contained in the settlement agreement, the merger furthers the public interest and should be approved by the commission, the filing said.
As noted in the settlement agreement, the merger will result in a legal structure identical to the structure that exists at GPE today, but with the addition of Westar as an additional subsidiary utility operating company of a newly formed holding company. Ultimately, the merger results in the formation of a new publicly traded holding company, Holdco – also sometimes referred to as the combined company – of which Westar and KCP&L would be direct wholly owned subsidiaries. Holdco would be the 100% owner of Westar, KCP&L and KCP&L Greater Missouri Operations Company (GMO), the settlement agreement added.
The conditions listed in the settlement agreement include that Holdco would have operating headquarters in Topeka, Kan., and Kansas City, Mo., with Holdco’s corporate headquarters to remain at GPE’s current headquarters building in Kansas City.
Westar’s current headquarters in Topeka would be Holdco’s Kansas headquarters and the applicants commit that staffing levels there would be maintained at no less than 500 employees for at least five years following the merger’s closing. Thereafter, the settlement agreement added, Holdco would maintain a Kansas headquarters somewhere in Topeka for a period of at least 10 years after the merger’s closing.
Upon closing of the merger, current Westar President and CEO Mark Ruelle would become the non-executive chairman of Holdco for a period of three years, and current GPE and KCP&L Chairman, President, and CEO Terry Bassham would serve as president and CEO, the settlement agreement noted.
Upon closing of the merger, the size of the Holdco board of directors would be mutually determined by GPE and Westar. The settlement agreement also noted that Holdco, KCP&L, and Westar are to maintain separate capital structures to finance the activities and operations of each entity.
In addition, Holdco commits that future cost of service and rates of KCP&L and Westar are not to be adversely impacted on an overall basis as a result of the merger and that future cost of service and rates would be set commensurate with financial and business risks attendant to their individual regulated utility operations.
The settlement agreement added that Holdco agrees that its electric utility subsidiaries would provide Westar and KCP&L retail electric customers with one-time bill credits totaling about $23.1m to Westar retail electric customers, and about $7.5m to KCP&L’s Kansas retail electric customers as soon as practicable following the merger’s closing, with the understanding that the data necessary to effectuate the inter-class allocation of bill credit amounts would not be available until near the end of the respective KCP&L and Westar 2018 base rate review proceedings.
The signatories agree that, after the conclusion of KCP&L’s 2018 base rate review, Westar and KCP&L would be subject to a five-year base rate moratorium, subject to a certain return on equity capital (ROE) condition; the moratorium would expire five years from the final order date of KCP&L’s 2018 base rate review. The settlement agreement added that the signatories agree to recommend a 9.3% ROE to be utilized in the 2018 rate cases, and if including a range, testimony would not recommend greater than 20 basis points below or above the 9.3% recommended ROE.
Among other things, the settlement agreement noted that KCP&L and Westar are to meet with staff no later than 60 days after closing, and on a quarterly basis thereafter for a period of one year after closing, to provide an update on the status of integration implementation, including discussion of progress on organizational changes and consolidation of processes affecting the customer experience, including contact center operations.