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Posted on Thu, Feb. 14, 2008
By STEVE EVERLY
The Kansas City Star

KCP&L isn’t Disclosing Cost Overruns of Plant Near Weston, Anonymous Letter Says

Kansas City Power & Light’s plant being built near Weston is beset by cost overruns that have intentionally not been disclosed, according to a letter received by Missouri regulators.

The staff of the Missouri Public Service Commission, which regulates utilities in the state, is expected to look into the allegations regarding Iatan 2, the 850-megawatt, coal-fired power plant that is a big part of the utility’s plans to meet future electricity demand.

Mike Deggendorf, vice president of communications for KCP&L’s parent company, Great Plains Energy, said Thursday that the company planned to issue a revised cost figure for the plant in the second quarter of this year. He said the only thing affecting the timing of the release is the work needed to complete the estimate.

The plant is scheduled to begin operation in 2010, but the project has been beset by problems, especially skyrocketing costs, according to the anonymous letter, purportedly from a Great Plains employee.

“I have been in the utility industry for many years, and I don’t recall ever being involved in a fiasco such as Iatan,” said the letter, which the commission released.

The company had originally said its share of the plant’s cost would be $733 million. A year ago, it revised that figure to a range of $837 million to $914 million. The Iatan plant is 56 percent owned by KCP&L. Other partners include Aquila Inc., which owns 18 percent, and Empire District Electric Co., which owns 12 percent.

At the time, KCP&L executives said they were confident that costs wouldn’t exceed $914 million for their share.

But on Thursday, Deggendorf said the engineering of the plant had progressed to a point that the utility could issue a more accurate cost estimate.

The letter also alleged that Great Plains hadn’t disclosed the overruns because it didn’t want the issue to interfere with its bid to win Missouri regulatory approval of its acquisition of Aquila. Great Plains recently said it would like the matter to be settled by May 1, which would be well before the end of the second quarter.

The approval process for the Aquila acquisition has stalled over other issues, including whether customers should have to pay interest on debt that Aquila ran up on its unregulated businesses in the Enron era. A controversy over Iatan costs could further complicate the process.

The anonymous letter was sent this week to all five members of the commission. The letter also alleged that other aspects of the company’s comprehensive energy plan, including environmental retrofits of Iatan 1, were costing more than expected. The extra costs could endanger an agreement that Great Plains has with the Sierra Club, which would require more power from sources such as wind, according to the letter.

The letter’s allegations are expected to bring more scrutiny to Great Plains and its energy plan. If costs do increase, regulators will have to decide whether customers’ rates should be raised to cover them.

Lewis Mills, head of the Missouri Office of the Public Counsel, which represents consumers in utility cases, said the allegations are serious enough that the commission should investigate.

“If there are cost overruns at Iatan, that is a big deal,” he said.

Jeff Davis, chairman of the Public Service Commission, said that whenever “whistleblower” allegations are received by regulators, the commission’s staff investigates.

“We take these types of allegations seriously,” he said.

The letter also complained about the company’s executive compensation and said Great Plains executives’ stood to make millions from the acquisition of Aquila. Separately, some KCP&L employees have been complaining about executive pay even without the merger.

It was recently disclosed in a filing with the Securities and Exchange Commission that Michael Chesser, the chief executive officer of Great Plains, received a $75,000 increase in salary for 2008, to $800,000. Next month, details on bonuses and other compensation paid in 2007 will be disclosed.

In 2006, Chesser received $3.1 million in annual compensation, including awards of stock and an annual bonus. That compares with $3.2 million paid to the head of another big Missouri utility, Ameren Corp., for the same year. Ameren, which also has utilities in Illinois, had revenues that year of $6.9 billion, compared with $2.7 billion for Great Plains.

Deggendorf said Chesser’s compensation was considered fair and was determined by consultants who considered executive pay at comparable companies.

Meanwhile, a Feb. 20 deadline is closing in for Great Plains and Aquila to deliver a status report to Missouri regulators over where things stand in efforts to negotiate a settlement with opponents of their merger. If they don’t reach a settlement, the utilities could tell the commission how they plan to proceed — possibly seeking approval without a settlement, submitting a revised plan that doesn’t have all the parties’ blessing or abandoning the merger.

Hearings were suspended in December after several parties, including the commission’s staff, the public counsel’s office and several industrial users, objected to the merger terms the utilities proposed. If the utilities can reach a compromise with opponents, that will smooth the way to regulatory approval. Additional talks are to be held next week.

To reach Steve Everly, call 816-234-4455 or send e-mail to severly@kcstar.com.

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