Will hedge funds hurt Evergy ratepayers?
Four of the five members on Evergy’s finance committee, tasked with recommending management and investment decisions to the board of directors, were selected by activist hedge funds that critics worry are asserting undue influence over the electric utility.
That involvement, consumer advocates say, could drive up rates for Evergy’s 1.6 million customers in Kansas and Missouri – including Eastern Jackson County outside Independence – to satisfy the hedge funds’ desire for a return on their investment.
“These are not nice guys – they’re thugs,” said Tyson Slocum, energy program director for the nonprofit Public Citizen. “And they have a business model that is structured to intentionally evade regulatory oversight, and we think that’s a problem.”
Slocum, for months, has been investigating the relationship between Evergy and Elliott Management Corp. and Bluescape Energy Partners.
Utilities such as Evergy are highly regulated and cannot simply raise customers’ electric bills to bring in more revenue. But when they invest in new energy generation and transmission projects, they’re entitled to a return, benefitting investors like Elliott and Bluescape.
Elliott, one of the hedge funds, with a near 5% ownership stake in Evergy, previously pressured the utility to take on that sort of investment, resulting in the utility’s sustainability transformation plan, an $8.9 billion capital plan.
And although the two firms own a little enough sum Evergy stock to remain below the threshold regulators use to determine whether businesses are affiliated, consumer advocates worry Evergy is too close to them both.
The Kansas Corporation Commission, which regulates utilities in that state, said in a statement last Tuesday it has concerns about Elliott’s role in encouraging and developing Evergy’s sustainability plan. The KCC ordered Evergy to explain increased spending in its five-year projections and the impact it will have on rates.
The merits of the plan will be evaluated in future rate cases, the KCC said, with an emphasis on achieving regionally competitive rates.
Public Citizen and the Communications Workers of America filed a protest with the Federal Energy Regulatory Commission, urging members to require Evergy to disclose more information about its relationship with the two hedge funds and their relationships with each other.
“There is substantial evidence that the hedge funds exert controlling influence over Evergy,” Public Citizen and CWA wrote to FERC.
Evergy’s spokeswoman, Gina Penzig, said in an email Elliott and Bluescape are “shareholders with no more or less control than any other shareholder.”
“We have engaged in a dialogue with them over a process and have been transparent about that process,” Penzig said. “We frequently have dialogue with shareholders about our business operations and strategy.”
Bluescape and Elliott did not return requests for comment for this article.
Scrutiny of Evergy and Elliott’s relationship has been ongoing since last year when the hedge fund sent a letter to Evergy’s board urging the company to either consider a sale or invest in capital. Elliott then gained two seats on Evergy’s board of directors.
Bluescape bought interest in Evergy earlier this year, and its executive chairman gained a seat on the company’s board.
This spring, FERC issued a letter of deficiency, requesting more information from Evergy about the relationship with Elliott and Bluescape. This fall, it again asked Evergy for more information.
Regulators wanted to know how many members of Evergy’s board were selected or recommended by the hedge funds, what responsibilities committees have and whether the hedge funds share any employees with Evergy.
As of late October, when Evergy responded, Elliott owned 10.5 million shares of Evergy stock, a stake of about 4.6%. Bluescape owned 2.4 million with warrants to acquire up to almost 4 million, a stake of 1.1%.
Since September, Bluescape has acquired an additional 200,000 Evergy shares, bringing its holdings to 2.5 million shares, according to Evergy’s filings with the Securities and Exchange Commission.
All told, the two hedge funds have four selected members to fill four seats on Evergy’s 13-member board, and all four of them sit on the board’s finance committee.
Under an agreement Bluescape struck with Evergy when it acquired its shares, the committee’s charter gives C. John Wilder – Bluescape’s executive chairman and a member of Evergy’s board who leads the committee – wide authority to set the agenda and report to the board, which is tasked with advising on the “financial condition, financing plans and financial strategies of the company.”
According to analysis by CWA in the joint protest, companies that have had investments and pressure by Elliott end up paying higher costs of capital when they take on projects. Interventions like those by Elliott and Bluescape, the letter says, “have consequences for ratepayers.”
“Rate base investment should be driven by consumer demand for technological improvement and system maintenance requirements rather than an acquiescence to the short-term, profit-oriented demands of select investors, as was the case with Elliott and Bluescape’s intervention in Evergy,” the letter says.
The letter concluded by asking FERC to classify Elliott and Bluscape as affiliates of Evergy and require Evergy to turn over contracts between the groups or compel testimony by the hedge funds’ leadership.
“The commission must act to ensure just and reasonable rates,” the protest says, “by classifying both Elliott Management and Bluescape Energy Partners as affiliates of Evergy.”
Allison Kite is a data reporter for The Missouri Independent and Kansas Reflector, with a focus on the environment and agriculture.