The prospect of rising electricity prices prompted the Witchita public school district, the largest in the state, to file documents at the Kansas Corporation Commission, which is the equivalent of Minnesota’s Public Utilities Commission, decrying a massive 25 percent rate increase proposed by Evergy, the state’s largest investor-owned utility.
Witchita school district officials testified that higher electricity prices could lead to larger class sizes, and the De Soto school district told The Kansas City Star that its projected additional electric costs could pay for three or four teachers.
No one should be surprised by announcements like this because after school staff, energy costs are the largest expenses faced by school districts. The Witchita school district spends approximately $8.5 million on electricity each year while serving 45,000 students. Rising energy costs will necessarily lead to less money left over for educating kids:
“The largest area of operating expenditures is personnel, so a likely consequence would be the inability to add and retain teachers and other school staff,” Wichita Public Schools Chief Financial Officer Susan Willis said in written testimony last month. “This would lead to increasingly larger class sizes and continued reduction of student services.”
“Mary Sinclair, president of the Shawnee Mission Board of Education, said “absolutely” every additional dollar spent on utilities is a dollar that can’t be spent on teachers. The district in June estimated it will spend about $7.8 million on electricity during the current school year.”
The article in the Kansas City Star does an excellent job of describing the harmful impacts that rising electricity prices have on schools, but it does not explain why electricity rates are rising in the first place. For more insight into this question, we need to remind the reader how electricity prices are made.
Evergy Energy, like Xcel Energy in Minnesota, is not a private company. It is a government-approved monopoly utility that has the exclusive right to sell electricity in its service territory.
Because Evergy’s customers have no choice but to buy their power from the monopoly, it would be unfair to let the company charge whatever it wishes for electricity. As a result, the price of electricity is dictated by a mathematical formula called the Cost of Service formula.
This may sound complicated, but it is actually quite simple. The Cost of Service formula basically says that Evergy is allowed to charge enough for its electricity to cover the cost of providing the service to everyone in its service territory.
Whenever the company builds a new power plant, whether it is a natural gas plant or a wind turbine, the company is allowed to raise the price of electricity to recoup those costs, plus a government-approved profitof 7.17 percent, based on Evergy’s weighted cost of capital. This means the more a utility company spends, the more profit it makes, and the more electricity prices go up.
Data from the U.S. Energy Information Administration (EIA) shows that there have been virtually no changes to the composition of the Kansas electricity grid since 2001, except for a massive buildout of wind capacity.
The graph above shows coal capacity has declined slightly since 2001, with a slight increase in natural gas capacity. However, wind capacity grew from a rounding error in 2001 to nearly 45 percent of the installed capacity on the grid by 2021.
This massive growth in new spending on wind necessarily increases the cost of electricity. EIA data show that electricity prices have risen sharply in concert with rising wind capacity. It is important to note that companies like Evergy frequently receive approval to raise electricity prices before building new projects, which is why the increase in electricity rates occurs before the wind turbines are placed into service.
Spending billions of dollars on wind turbines has increased the cost of electricity in Kansas, and now school districts are being asked to shoulder an even larger cost burden that may force them to increase class sizes or endure deeper teacher shortages.
Unfortunately, these types of rate increases will continue as long as Evergy continues to build more wind facilities.