Kansas Business Review Abstracts

Vol.21, No.1, Fall 1997


Kansas Consumer Sentiment Survey

by Norman Clifford and Kevin Nelson Institute for Public Policy and Business Research, University of Kansas.

In an attempt to better evaluate Kansans' expectations about the future economic performance within the state, the University of Kansas Survey Research Center began conducting a quarterly survey of Kansas residents in February, 1996. The survey, called the Kansas Consumer Sentiment Survey (KCSS), is conducted every three months and asks four hundred residents of Kansas, randomly selected to participate in the study, questions relating to their personal expectations about the national and state economies as well as their individual financial conditions and purchasing decisions. What Kansans think about the current economy depends on an array of factors, such as the economic situation, demographic characteristics, and agricultural conditions; nevertheless, the information derived from these surveys can be useful if these circumstances are taken into account.

Overall, Kansans today are more optimistic about the economy than they were a year ago, although survey respondents in August 1997 were slightly less optimistic about business conditions in the state over the next twelve months than those surveyed in May 1997. Even so, not only do Kansans expect the national economy to do well, but they also expect their personal financial conditions to improve. A plurality of respondents believe the state will experience good times over the next five years, rather than experiencing periods of widespread unemployment and depression. Differences in these expectations exist individually and demographically, but while the KCSS attempts to measure the overall economic sentiment of the state's residents, recognition of these differences is important for economic policy making. Conducting the survey and developing indices for specific regions or even specific communities may be one way to better assess regional and local economic conditions. Results from the survey may pinpoint specific regional economic problems and issues that need to be addressed. Although forecasting economic conditions at any aggregate level can prove difficult, information obtained from this survey can provide local and state leaders with another tool to use to evaluate economic conditions and to develop policies to enhance the area's economic performance.


An Analysis of the Impacts of Retail Wheeling on the State of Kansas

by the McFadden Consulting Group, Inc., Arvada, Colorado, and Resource Data International, Inc., Boulder, Colorado.

The traditional role of the U.S. electric utility is being dramatically reshaped by retail wheeling, an unbundled transmission or distribution service that delivers electric power sold by a third party directly to end-users. This service would allow a retail customer to buy power from someone other than the franchised local utility but still receive delivery using the power lines of the franchised local utility. In the process, the scope and character of government regulation are being redefined, creating opportunities for new participants and daunting challenges for current market players. State and federal level initiatives to unbundle and restructure the electric utility industry into a fully-competitive marketplace also give new and sometimes baffling options to customers.

Public utilities currently have an obligation to serve all customers within their service territory pursuant to the terms and conditions of their tariffs. In the restructured environment will utilities continue to have the same obligation to serve? The electric utility industry is responding to these changes by experimenting with a host of business strategies: aggressive efforts to reduce costs, corporate restructuring, creation of non-regulated marketing subsidiaries, strategic alliances, and consolidation through mergers and acquisitions. Emerging from these changes is a more diversified and, above all, much more competitive industry.

A critical part of transforming the retail power markets is ensuring a competitive, but level, playing field. When territorial monopolies control an industry, rate regulation is necessary for the protection of customers. After the introduction of retail access and deregulation, this kind of regulation is no longer necessary for the power supply; however, regulation is expected to continue for delivery. On an average statewide basis, prices in a deregulated market will be lower than in a regulated environment, but the amount of savings declines steadily from year to year.

It is expected that power marketers will initially concentrate their efforts in urban areas, although some may concentrate on building an identification in the rural markets. For smaller customers there will probably be new marketing programs designed to attract customers. Currently, some utilities have special payment plans for low-income customers. If retail wheeling is allowed, there is concern that funding for such customers will be reduced. On the other hand, customers will no longer be liable for poor business decisions over which they have very little input and control.

Many experts believe restructuring of the electric utility industry will provide economic benefits to customers; others express doubt that multiple suppliers will provide service more efficiently and less expensively in a specific utility's service utility than the utility itself. With the increased efficiency in the wholesale market provided by electronic trading and reduced transaction costs, a larger number of economy energy transactions will be advantageous every day. Creative pricing programs are likely to develop.

There are several major risks associated with retail wheeling, however. The fundamental economic risk is the failure of a competitive power supply market to develop; therefore, it is advisable that policy makers take a deliberate approach to restructuring to ensure alternate suppliers are not discouraged or inhibited from the market place. The overwhelming operational risk is that power supplies are not delivered to customers, compromising the reliability and integrity of the transmission and distribution systems.


Economic Impacts of Retail Wheeling on Kansas and its Regions

by David Burress and Patricia Oslund, Institute for Public Policy and Business Research, University of Kansas.

The Institute for Public Policy and Business Research constructed a detailed economic impact model which simulates the likely effects of price changes in the electricity sector. The model focuses on changes in Kansas real income and employment caused by price changes in the electricity sector, including those associated with retail wheeling. In particular, the authors compare a scenario with retail wheeling to a scenario without wheeling and calculate the levels of prices and levels of niminal Kansas household income reported in current dollars for the two situations. Then they calculate the price deflator for the two situations. The initial change in the price of electricity causes other price changes and changes in output. These changes trickle through the various sectors of the Kansas economy until an equilibrium is reached; that is, until there are no further price or output changes.

A major finding of the model is that real income and employment in Kansas are relatively insensitive to changes in electricity prices. This is important, because electricity price changes are the channel through which retail wheeling affects the Kansas economy. Impact effects are relatively small in the model partly because electricity sales are a relatively small share of the economy, and partly because various factors tend to offset each other. Price changes in industrial sectors have much smaller effects on real income than price increases in commercial and household sectors. This point is significant because retail wheeling is expected to lead to price reductions that are about twice as large for industrial users as for commercial firms and households.

In summary, retail wheeling affects state and local tax revenues in two general ways. The first effect results from changes in the utility industry itself. Retail wheeling will also have the effect of stimulating real income in the Kansas economy, tending to increase sales tax collections from sources other than utilities, such as personal income taxes and property taxes from non-utility property. Overall, the direct tax revenue losses in the utility industry outweigh the gains due to retail wheeling's general economic stimulus.


1990 to 1995 Population Changes: a Focus on Kansas Counties

by Duane Williams, Community Development Specialist, University of Missouri, and Leonard Bloomquist, Director, Population Research Laboratory, Kansas State University.

In the Spring of 1996 the U.S. Bureau of the Census released its July 1, 1995 county population estimates and updated the July 1, 1990 through July 1, 1994 county estimates. The purpose of this report is to evaluate change in the populations of Kansas counties over the five-year period of July 1990 to July 1995. Such an analysis helps define the important demographic trends that are shaping the population of Kansas; however, information about changes in the United States is also presented in order to clarify the nature and significance of population changes in the state.

The report is organized into three major sections: (1) analysis of the 1990 and 1995 population estimates, including an evaluation of the numeric change of the senior population; (2) an evaluation of these population changes using the U.S. Department of Agriculture's Economic Research Service county coding systems; and (3) a comparison of the 1995 population estimates of Kansas with the 1995 projections issued in 1992.

The population projections for 1995 indicated that only 37 counties in the state would experience an increase in population, and that the state overall would grow by only 1.9 percent. However, the population estimates for 1995 found that the state had a 3.4 percent increase in population, with a majority of the state's counties--55--growing in population. On the plus side, 26 counties projected to decline actually increased, and 16 other counties increased at a faster rate than projected. Kansas had over 342,000 residents 65 years of age and over in 1990; over the 1990-1995 period, the senior population in the state increased by 2.4 percent. Nonmetro counties in Kansas have both the largest number and highest proportion of senior residents. Kansas metro counties had a higher birth rate, a lower death rate, and, therefore, a higher natural change rate between 1990 and 1995 than did nonmetro counties in the state.

The 1995 population estimates indicate a brighter picture than that painted by the population projections for 1995. A majority of the state's counties, 55, grew in population, as around one fourth of the state's counties, 26, reversed their earlier pattern of population decline. This growth extended out into rural areas beyond the direct influence of urban growth, and it included many farm-dependent counties. Seventeen other counties, primarily rural and farm dependent, declined at a slower rate than was projected. There was an unexpected decline in several nonmetro counties with medium-sized cities and a faster rate of decline than projected in about one fourth of the state's counties (25). Most of these 25 counties were highly-rural, farm-dependent counties. This is a clear indication that the storm clouds of the 1980s, i.e., the farm crisis, energy "bust," and decline in rural manufacturing, have not entirely vanished from the Kansas countryside.


The Outlook for Kansas and the Nation: 1997-1998 Update

by Norman Clifford, Institute for Public Policy and Business Research, University of Kansas.

The U.S. economy is expected to continue solid growth in 1998, although the projected increase is nearly a percentage point lower than that of 1997. The Kansas economy, which performed well in 1997, will continue to do so in 1998.





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