A Kansas regulatory commission disclosed that it is considering an investigation into whether power utility Evergy Inc’s (EVRG.N) agreement with hedge fund Elliott Management could end up costing consumers.
Evergy’s accord with Elliott established a committee on the utility’s board of directors that is exploring whether the company should be sold or implement a significant cost-cutting program. The committee is due to make a recommendation to the company’s board by July 30.
Kansas Corporation Commission (KCC) staff petitioned the utility regulator to launch a probe into Evergy’s ability to provide efficient service at “just and reasonable rates” as a result of any transaction the company pursues, according to a Thursday filing.
A commission spokeswoman said on Friday the regulator’s leadership will decide on the staff’s request as early as next week.
“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 KCC filing said, laying out questions it wants Evergy’s management to answer.
Evergy serves 1.6 million customers in Kansas and Missouri. Its stock fell 1.4% on Friday, giving it a market capitalization of $13.6 billion.
An Evergy spokeswoman said the company was reviewing the KCC filing and agreed on the importance of a “robust and transparent” process allowing input from all stakeholders.
Elliott declined to comment.
It is unusual for a regulator to investigate an agreement between a company and an activist shareholder. The KCC staff argued in Thursday’s filing that Elliott’s proposals on cost savings would benefit shareholders rather than consumers, something that would be “contrary to the regulatory policy goal” of offering “regionally competitive electric rates and reliable electric service” in Kansas.
Elliott does not control Evergy’s board. As part of its agreement with Evergy, only two board directors endorsed by the hedge fund were added to the utility’s 13-member board. Elliott asked Evergy to consider two paths: cut operating and maintenance costs and boost spending on renewable power generation as a standalone company, or consider a sale or a merger with another utility.
The KCC filing noted concerns raised since 2015 that power prices are higher in Kansas than in neighboring states.
Should the KCC launch a probe, it would mark the second major intervention in the company’s dealmaking in recent years.
The deal that created Evergy was first structured in 2016 as peer Great Plains Energy buying Westar Energy for $8.6 billion. The transaction was restructured as a merger of equals after the KCC objected to how a Great Plains purchase would impact the combined company’s finances and customer bills.