Customers who get their natural gas from Black Hills Energy urged state regulators on Thursday to dial back the company’s request for a rate increase, especially the amount the company wants for its shareholder profit.
Black Hills is seeking permission from the Kansas Corporation Commission to hike rates about $4.17 a month for the average home customer.
Thursday’s public hearing was conducted live at the University of Kansas in Lawrence and linked by teleconference to Wichita, Garden City and Goodland.
Customers who testified primarily objected to Black Hills’ request for a 10.6 percent return for its shareholders.
Gerald Schmidt of Wichita said he looked up Black Hills’ financials.
“In the first quarter, it said they made a little over 9 percent return on their equity,” Schmidt told the commission. “I don’t mind a person making a little money, and I appreciate that I can get a product safe to my home and stay warm in the winter.
But I do not like to have money taken out of my pocket so that somebody else can make a (high) rate of return on their money.”
He said he supports a counterproposal by the Citizens’ Utility Ratepayer Board to set the return on stock at about 8.5 percent.
“At least that’s an improvement,” he said.
Maren Turner, Kansas director of the AARP, testified in Lawrence and sounded the same theme.
“We would support any effort to ensure that Black Hills is paid a fair rate,” Turner said. “But the request for a 10.6 percent return on equity is neither fair nor reasonable. Instead, it appears Black Hills is rewarding their stockholders with excessive profits while too many older people struggle to put food on the table.”
Black Hills has provided the commission with a list of what it considers to be similar companies getting returns like those it has proposed.
Todd Jacobs, Black Hills’ general manager for Kansas, said the stockholder return is carefully calculated to ensure the company can attract enough investors to fund reliable operation of the system.
He said the proposed increase is fair to the company and its customers.
He also said Black Hills faces unusual challenges compared to other Kansas gas providers. Its operation is spread across two separate urban areas, Wichita and Lawrence, and it also serves a broad swath of rural Kansas.
Overall, Black Hills operates in eight states. It has approximately 110,000 customers in Kansas, about a third of them in the Wichita metropolitan area.
Jacobs said the company has not sought an increase in base rates since 2006 and that the current proposal would raise customer bills only 7.5 percent.
“If you look at the Consumer Price Index, which is the measure of goods and services, how much those have increased over that period of time, that’s actually been 12.5 percent,” he said.
David Springe, chief consumer counsel for CURB, disputed the company’s calculations.
While Black Hills hasn’t had a commission rate case in eight years, it has benefited from increases in line-item charges on customer bills that were approved by the Legislature during that time frame, he said.
He also questioned the company’s computation that the average bill increase is 7.5 percent, because it includes the cost of purchased gas – which appears on bills as a direct pass-through charge to customers.
“The portion of the bill that’s at issue in this case is for their pipes, and for your meter, and for the lawyers and the executives, all of those kinds of things,” Springe said. “If you just look at that, it’s closer to (an increase of) 16 percent.”
The commission can regulate only part of the company’s rates, the amount collected to operate the system that delivers gas to homes and businesses.
The actual price customers pay for their gas is based on the open market and changes from month to month.
Jacobs said safety is the driving force behind the rate increase proposal.
“We want to be the safest energy company in the U.S., period,” Jacobs said. “As a company, we want to make sure we can put infrastructure in the ground to make sure our service is safe and reliable.”
Springe said nobody’s opposed to safety, but infrastructure expenses need to be examined carefully.
“The company makes money, they make profit by spending money putting pipe in the ground,” Springe said.
Another point of dispute in the rate case is that Black Hills proposes to increase the flat monthly service charge from $16 a month to $21.70 a month for all residential customers.
The company is proposing a slight decrease in the component of its rates that is based on the amount of gas a customer uses.
CURB is arguing that the higher customer charge and lower volumetric rates would discourage conservation.
Black Hills argues that it costs the same to deliver gas to a home, regardless of how much the customer actually uses, and that a higher monthly charge tends to reduce bill swings from winter to summer.