Brief ⁽¹⁾

HB 2290 would repeal KSA 66-1213, which pertains to public utility loans or credit pledged to persons or companies having an affiliated interest in the company. KSA 66-1213 requires a utility to apply to the Kansas Corporation Commission for approval before the utility may loan money or pledge its credit to its affiliate. Upon receipt of the application, the Commission has up to ten days to conduct an investigation, if deemed necessary, and either approve the application or schedule a hearing. The Commission must approve the application unless it finds the loan or pledge will substantially impair the utility's financial condition or its ability to maintain sufficient and efficient service.

Although a utility would no longer have to receive the Commission's approval as a precondition for making a loan or pledging credit to an affiliate, the utility would still be required to report to the Commission the terms and conditions of the loan or pledge. The utility would have to notify the Commission within ten days after making the loan or pledging the credit.

The bill would take effect upon publication in the Kansas Register.

Background

The 1999 Legislature considered and took action on HB 2290. That bill was amended by the House Committee on Utilities. The bill was further amended by the Senate Committee on Utilities and the Senate Committee of the Whole. (A summary of the amendments is set forth below.) After the Senate Committee of the Whole recommended the bill for passage, it was returned to the House where it was ruled materially changed. The bill was then returned to the House Committee on Utilities on March 26, 1999. The House Committee's substitute bill deletes all of the Senate's amendments. It is the same version as the one the House Committee had adopted during the 1999 Session.

The introduced version of HB 2290 would have repealed KSA 66-1214, in addition to KSA 66-1213. KSA 66-1214 explicitly authorizes the Commission to prohibit dividend payments that could impair a utility's financial health and operating condition.

A spokesperson for Utilicorp supported the introduced version of the bill. Kansas Corporation Commission staff supported repealing KSA 66-1213, but not KSA 66-1214. The Consumer Counsel for the Citizens' Utility Ratepayer Board opposed repealing both statutes. The House Committee amended the bill, as recommended by the Commission, to repeal KSA 66-1213 but not KSA 66-1214.

Proponents for deleting KSA 66-1213 cited the onerous burden placed on utilities and the Commission to comply with approval procedures. The Commission staff suggested it would be less cumbersome and equally effective to repeal the statute and examine any costs generated by pledges of credit in rate proceedings. Rate proceedings may allow costs associated with the utility's transaction to be passed on to consumers. However, if the Commission approves such a transaction under KSA 66-1213, it is very unlikely that associated costs could be passed on to consumers.

The Senate Committee on Utilities amended the bill to include the provisions of Sub. for SB 243 which was recommended by the Committee and unanimously passed by the Senate Committee of the Whole. Sub. for SB 243 was one of two generation facility siting bills considered by the Senate Committee on Utilities during the 1999 Session.

The Senate Committee of the Whole added amendments to KSA 66-301, pertaining to the responsibility of railroads to maintain railroad crossings. This amendment originated from a complaint filed with the Attorney General's office alleging that a railroad company had threatened to close a railroad crossing on a farm owner's property unless the owner agreed to sign a contract requiring payment of an annual license fee of $225 and a contract preparation and administration fee of $200. In addition, the contract requires the property owner to purchase commercial general liability insurance with coverage of, at a minimum, $3 million or substitute homeowners' insurance.

In a written response to the complaint, the Attorney General's office noted that the Kansas Supreme Court has consistently held that KSA 66-301 applies only to tracks constructed after the statute was enacted in 1911. However, the track running through the complainant's farm was constructed in 1888. The Attorney General's office concluded that the railroad therefore would not be obligated to maintain the crossing.

As previously noted, the version of the bill reflecting Senate Committee of the Whole amendments was returned to the House Committee of the Whole where it was ruled materially changed. The bill was then referred to the House Committee on Utilities, which recommended a substitute bill to repeal KSA 66-1213 and delete all of the Senate's amendments.

The House Committee of the Whole added the requirement that the utility report to the Kansas Corporation Commission the terms and conditions of any loan or pledge of credit made directly or indirectly to an affiliate prior to making the loan or pledging the credit.

The Senate Committee on Utilities modified the utility's reporting requirement to delete the reference to direct or indirect loans or pledges of credit. Testimony from Utilicorp indicated that the language pertaining to the indirect pledging of credit could be interpreted as an energy trade. Given that interpretation, Aquila Energy (a wholly owned natural gas subsidiary of Utilicorp) would have to notify the Kansas Corporation Commission between 400 and 700 times per day. The Senate Committee also amended the bill to allow notification to occur within ten days after a loan or pledge of credit was made. This amendment responded to a concern raised in Utilicorp's testimony that notification prior to consummation of a transaction could pose problems for the company in its bidding process. Finally, the Senate Committee amended the bill to have it take effect upon publication in the Kansas Register.

1. *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at http://www.ink.org/public/legislative/bill_search.html