Hedge Fund Pushes Kansas Utility Away From Coal, Toward Wind And Solar

Feb 7, 2020

TOPEKA, Kansas — Curtis Sneden remembers what impatient investors did to Topeka-based Payless Shoes. Pressure for profits now and the bankruptcy that followed.

Now the president of the Greater Topeka Chamber of Commerce looks at regional utility giant Evergy and worries what might come of pressure from activist investment firm Elliott Management Corp.’s demands for a higher stock price.

“When you’re on the ground and it’s your friends and neighbors and your community and economy, that is not a very reassuring type of narrative,” Sneden said.

He’s worried that the changes requested by Elliott Management could lead to layoffs at Evergy — or worse.

“When this sort of challenge comes along, for Topekans it gives us quite a concern,” Sneden said.

Elliott Management is a New York-based hedge fund run by billionaire Paul Singer. It recently disclosed to the public that it owns 11.3 million shares of Evergy. Its stake is worth about $760 million and about 5% of the company.

The hedge fund’s play to remake Evergy could lead to the shuttering of coal plants sooner and more spending on wind farms and solar power. It might also trigger layoffs and threaten careers in Evergy’s corporate suites. And it could alter how much customers pay for electricity, although analysts differ on whether consumers would welcome the changes.

Elliot sent a letter to Evergy’s board of directors claiming it could make more money for shareholders.

“A renewed focus on improving core utility operations and investing in Evergy’s critical electric infrastructure can rectify its prolonged underperformance,” the letter reads.

It built a website, energizeevergy.com, to lobby publicly for management changes at the utility that came from the merger of Great Plains Energy and Westar Energy.

Elliott is pressing the leadership at Evergy to invest more in renewable energy generation, close down its coal plants, and increase the overall efficiency of its operations.

“It’s just really a question of timing,” said Shar Pourreza, an energy analyst at Guggenheim Partners.

He said, at face value, there’s nothing that Elliott is asking that Evergy isn’t already planning on doing. Elliott just wants it to happen quicker, which might be easier said than done.

Conditions set by regulators during the Westar-Great Plains merger mean that Evergy can’t file a rate case for at least five years.

Closing the coal plants early would also leave Evergy with a stranded asset, something investors and ratepayers would still be paying for but not using.  And then there’s the trickle down effects. 

“You have to deal with job losses, the unions, loss of tax base,” Pourreza said. “There’s multiple things.”

If Evergy can’t do that on its own, the analysts at Elliott argue, it should merge with yet another company. But few companies stand in a position to combine with, or purchase, Evergy.

Pourrezza suggested Ameren, which is Missouri’s largest electric power provider, as the most likely suitor.

In an emailed statement, Ameren said, “We do not comment on rumors or speculative (merger and acquisition) activities.”

Elliott has a long history of pushing companies to bend to the hedge fund’s wishes. Sometimes that involves pushing out a company’s executives. In other cases, those bosses adopt Elliott’s advice.

Recently, Elliott made similar requests to NRG Energy and Sempra Energy. Management at those companies worked with Elliott to make changes. The CEOs at the two companies ultimately kept their jobs, but changes were made to the composition of their boards of directors.

In both cases, the companies saw their stocks increase after Elliott intervened.

Evergy has not been as eager to work with Elliott. Discussions between the two companies have been ongoing since October 2019.

In a press release, Evergy said it is confident in its ability to deliver long-term growth and shareholder value by continuing down the path it’s already established for itself.

Elliott contends its suggestions would increase returns for investors and and save ratepayers money. The company argues those payoffs would come partly from streamlining — which might mean layoffs — and partly by cashing in on the ways renewable energy operating costs have become cheaper than burning coal.

Evergy’s stock price has risen 3.86% since Elliott announced its plans.

“If you look at some of the recent activism in this space,” Pourreza said, “the utilities do come out of it in some form or another better than they were going into it.”

Brian Grimmett reports on the environment, energy and natural resources for KMUW in Wichita and the Kansas News Service. You can follow him on Twitter @briangrimmett or email him at grimmett (at) kmuw (dot) org. The Kansas News Service is a collaboration of KCUR, Kansas Public Radio, KMUW and High Plains Public Radio focused on health, the social determinants of health and their connection to public policy.

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