Hedge Funds: Elliott’s Offensive on Evergy Unnerves Chamber of Commerce

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The Greater Topeka Chamber of Commerce is worried about layoffs.

Curtis Sneden, president of the Greater Topeka Chamber of Commerce is concerned about repercussions from activist hedge fund Elliott Management’s broadside against regional utility Evergy, Inc. (NYSE: EVRG). (Hays Post)

Sneden has reason to be nervous. Hedge fund and private equity investors have bruised and battered the Topeka head-quartered Payless Shoes. It emerged last month from its second bankruptcy. About 16,000 people were put out of work when it entered Chapter 11 in early 2019.

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

Feared activist hedge fund Elliott wrote to Evergy on January 21 requesting changes that would create value for shareholders. New York-based Elliott is owned by billionaire Paul Singer.

It owned an “economic interest” in Evergy worth $760 million as of the date of the letter.

Evergy: Elliott’s case for wind energy (and against coal)

“We believe Evergy’s valuation does not properly reflect the value of its collection of high-quality regulated utilities in Kansas and Missouri, and that a renewed focus on improving core utility operations and investing in Evergy’s critical electric infrastructure can rectify its prolonged underperformance, discounted valuation and associated increased cost of capital,” wrote Elliott.

Elliott charged that Evergy had inadequate decarbonization targets in respect of its coal plants. The company intends to operate its coal plants till the end of their lives, estimated at years 2040-2050.  Elliott termed this plan as “uninspired and economically inefficient.”

“Evergy lags behind leading peers that have pledged to reduce carbon emissions by 70-80% by 2030 and achieve net-zero emissions by 2050,” the hedge fund wrote.

The fund also said that the strength of the wind resource in Evergy’s service territory could facilitate renewables growth. It could also help transition its coal fleet to renewable energy.

“Illustratively, replacing 5.0 TWh (~20%) of Evergy’s highest cost, most inefficient coal generation with wind resources should yield more than $200 million of savings,” said Elliott. “This transition can also create opportunities for incremental rate base investment into flexible, low-cost storage or capacity to enhance system reliability.”

The social effect of shutting coal mines

Though the environmental benefits of phasing out coal are undeniable, the social and economic implications should be considered.

These include the collapse of local businesses and public services, the emigration of young people and social inequalities.

“It has been difficult to talk about the decline of coal in Wyoming,” said Robert Godby, director of the University of Wyoming’s Center for Energy Economics & Public Policy to the WSJ. “But…reality has come crashing through the door.”

Nearly 600 workers lost their jobs in Gillette after two of the area’s coal mines shut down abruptly.

Evergy: The power of being Elliott

Within 10 days of Elliott’s letter, Evergy announced a plan to reduce carbon emissions 80 percent below 2005 levels by 2050. It also will add 660 megawatts of wind energy to its portfolio via four new projects.

However, Evergy reiterated its plan to retire all coal power plants in its fleet at the end of their useful life.  That is likely to be between the years 2040-2050, with the exception of Iatan 2 in Missouri.

That should allow Sneden to breathe easier.

Evergy also said the four new wind projects combined would bring $180 million economic benefits to the region. In addition, they would generate hundreds of construction jobs and dozens of permanent green energy jobs.

Related Story: Hedge Fund: Elliott Management Ditches Stake in Hyundai Motors                                                  

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