Brief ⁽¹⁾

HB 2268 would provide various incentives for the construction in Kansas of certain electric utility property which is owned or operated by Kansas public utilities. One incentive would expand the application of an accounting treatment which allows into the ratebase any public utility's construction work in progress (CWIP). (Under existing law, construction costs of such facilities may not be included in customers' rates until the facilities or transmission lines are completed and ready to provide service.) The following incentives would be made available to public utilities:

• Inclusion of any of the following property in the ratebase of a public utility prior to such property being placed in service: an electric generation facility, an addition to an electric generation facility, and electric transmission lines. To qualify for the accounting treatment, these facilities and transmission lines would have to be placed in service on or after January 1, 2001. Transmission lines may include towers, poles, and other necessary property, which will be used to transmit electricity from a facility.
• 
  
  
• Eligible electric generation facilities and all pollution control devices at generation facilities would be exempt from all STATE-IMPOSED property tax levies, including the mandatory school district general fund property tax levy. That exemption would apply beginning in tax year 2001 and from and after commencement of construction of the facilities or transmission lines and from and after purchase or commencement of construction or installation of the pollution control devices for the ten taxable years immediately following the year in which the construction is completed.
• 
  
  

• Counties and cities would be granted discretionary authority to remove all such generation facility and pollution control device property from LOCALLY imposed property taxes for the same ten year period.
• 
  
  
• Eligible electric transmission lines and appurtenances, as well as the right-of-way on which such lines are located, would be exempt from ALL property taxes for 10 years from and after the construction of such property is completed, also beginning as early as tax year 2001.

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

Background

HB 2268 is intended to encourage investment in electric generation facilities in Kansas. Together with another bill (HB 2266) which was passed by the House Committee on Utilities, HB 2268 would make incentives available for the development of generation facilities that use coal or that use natural gas for peaking purposes. HB 2266 also would provide incentives for generation facilities that use natural gas as a back up fuel for renewable resource generation.

Although both HB 2268 and HB 2266 share a common objective (more construction of electric generation facilities in Kansas), they resort to different approaches to realize that objective. HB 2268 is targeted to encouraging Kansas public utilities to invest in the construction of rate-based coal-fired generation facilities and natural gas-fired peaking facilities (not baseload facilities) in Kansas. These generating facilities may sell power either on a retail or wholesale basis. In contrast, HB 2266 is targeted to promoting construction of independent power producers (IPPs) which sell wholesale power. An IPP may be totally unaffiliated with a Kansas public utility. Alternatively, a nonregulated subsidiary of a Kansas public utility which constructs IPPs may take advantage of the incentives offered in HB 2266. In either case, IPPs would not be included in a public utility's ratebase.

The introduced version of the bill was supported in concept by spokespersons for: Utilicorp; Kansas City Power & Light Company; Kansas Electric Power Cooperative, Inc.; and Western Resources. The Consumer Counsel of the Citizens' Utility Ratepayer Board opposed the bill. Spokespersons for the Kansas Chapter of the Sierra Club opposed the bill because it would provide incentives to assist in the construction of coal-fired power plants in Kansas.

The House Utilities Committee amended the bill to enable utilities to receive incentives if they use natural gas to generate electricity on a peaking basis at a capacity factor not to exceed 20 percent. The Committee also amended the bill to authorize a ten-year property exemption for pollution control devices. Finally, the Committee amended the bill to require the forfeiture of a property tax exemption if an otherwise qualified peaking facility were to exceed the specified threshold for natural gas capacity over a two-year period.

The amendment of the House Committee of the Whole was technical.

The Senate Committee on Utilities amended the bill to:

• Make the CWIP incentive available to eligible generation facilities or eligible transmission lines;
• 
  
  
• Delete the financing provisions through bonds;
• 
  
  
• Provide for mandatory statewide property tax exemptions for eligible generation facilities and pollution control devices; and
• 
  
  
• Provide for permissive property tax exemption at the county or city level.

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/fulltext.cgi