As a regulated investor-owned utility, KCP&L provides services that are essential to our society. These services and their costs are regulated.
KCP&L is regulated by state utility commissions—the Kansas Corporation Commission
and the Missouri Public Service Commission
The Evolution of Utility Regulation
For most businesses, the free market sets prices for products or services based on supply and demand. This open market provides companies the opportunity to provide a product or service and, if successful, earn a profit depending on costs, quality and market factors.
It originally worked that way for electric utility companies, too. When the industry was born, inventors and investors could request franchises to create electric companies with few barriers to market entry. Many did and competition determined the rate the customer would pay. But there was also startling disorganization: lines and poles from multiple companies occupied the same streets, service was unreliable and grids weren't interconnected. It was inefficient and, at times, dangerous. This eventually led to the creation of state commissions to regulate electric utilities.
How KCP&L is Regulated
Today, regulated electric utilities work under the terms of state law, enforced through the state regulatory commission. The sum of these laws is often called the Regulatory Compact. The Compact recognizes that electricity is most efficiently delivered when limited to single entities. This exclusive right to serve is partnered with an obligation to provide service to all customers within a service area. In return for the exclusive right to serve, the utility is subject to oversight from the state utility commission.
Regulation begins with established standards for safety and quality of service. Regulations established by the state utility commissions cover a wide range of areas and issues, including billing practices, resource planning, reliability monitoring, vegetation management and renewable energy. The Commission Staff provides oversight and perform investigations to ensure companies comply with those standards.
The Compact also recognizes that the utility company can set prices that cover its costs and provide an opportunity to earn a fair return on investment. Those prices, or rates, are reviewed and approved by state utility commissions through a legal rate case process rather than market forces. Rates provide the revenue needed to cover both business operations and the service debits we incur in building out the system. Our operations include the maintenance of electric distribution and transmission, generating facilities, fuel purchasing, administration and the costs to provide for skilled workers who maintain the electric grid
. Our operational costs also allow for the deployment of energy efficiency
and renewable technology
to reduce the future burden on the grid. All these efforts are in place to ensure we can continue to provide safe, reliable and affordable electricity to our customers.
KCP&L relies on investors and shareholders to provide funds to service the debit and equity cost necessary to finance new and upgraded power plants, transmission lines, distribution systems and other assets. Investors will only support KCP&L and our customers if they are provided an opportunity to earn a reasonable return on that equity. Profits are not guaranteed; they reflect only that we have the potential to earn through efficient, quality service.
What Regulation Does
Through the regulatory process, the commissions strive to balance the need of customers, the company and investors. Regulation helps ensure:
- Consistent standards for safety and quality of service
- Safe and reliable electricity at just and reasonable rates
- Balanced interests for customers and shareholders by setting rates that give the company an opportunity (though not a guarantee) to earn a reasonable return on its investment after recovering prudently incurred expenses