Westar’s $50 million rate increase gets approved

04/18/2012 5:00 AM

04/19/2012 7:29 AM

The Kansas Corporation Commission has approved a $50 million increase in electric rates for Westar Energy, pleasing the company but angering state consumer advocates.

The commission accepted a settlement agreement made between the power company, KCC staff and large commercial and industrial consumers, that will add $3.54 a month to an average 900 kilowatt-hour electric bill.

The decision was immediately denounced by the Citizens’ Utility Ratepayer Board, the state agency that represents residential and small-business customers. CURB was the only party to the case that opposed the settlement.

“The KCC has become a cash register for the utilities,” said CURB’s chief consumer counsel, David Springe. “It’s clear the commission staff got in bed with Westar on this one.”

About $42 million of the $50 million increase will be paid by residential and small-business customers. The increased rates will start showing up on bills in early May.

Westar spokeswoman Gina Penzig said the settlement approved by the KCC “involved some significant concessions on the part of all the parties involved, including Westar.”

Although the agreement was negotiated behind closed doors and the commission referred to it as a “black box” settlement, Penzig said the rate case was a “very transparent process” and Westar feels it resulted in a fair decision.

“Consumers were provided with a fair view of what expenses were driving our initial rate request and ultimately the approved rate request,” Penzig said.

CURB’s main objection was that the settlement grants Westar a 10 percent return on its stock, which Springe said is too high in the current economic climate.

He quoted an article in Barron’s in which Bill Gross, cofounder of the Pacific Investment Management Co. – the world’s largest bond investor – said utilities “pay big dividends because they continually are granted a 10 percent return on equity by regulators in a world where returns are moving much lower. After earning 10 percent, they can pay out 4 or 5 percent to shareholders.”

Of 13 stock analysts following Westar, 12 recommend buying or holding the stock, with only one advising to sell, according to the Wall Street Journal’s MarketWatch service.

In a news release announcing the rate increase, the KCC noted that the settlement was about 45 percent less than the $90.8 million increase Westar originally requested.

The commission’s order said the 10 percent return on equity is “within the zone of reasonableness.”

“No evidence was presented that suggested that selecting a limited 10.0% ROE would (1) adversely impact the financial ability of the public utility to continue to provide service; (2) constitute an excessive burden on either current or future consumers; or (3) be unduly discriminatory,” the order said. “When viewed in light of the record as a whole, the (settlement agreement) conforms to applicable law and will result in just and reasonable rates that are in the public interest.”

Springe, however, said the $50 million is only one of 13 rate increases Westar has gotten from the commission since January of 2009, including a recent order to allow the company to begin collecting higher rates while the commission considers a permanent increase in charges for transmission expenses.

Springe estimated that taken together, the increases have hiked summer rates by about 40 percent in the past 3 1/2 years for Westar’s northern division, the former KPL. A 1,500 kilowatt hour bill there will have gone from $123 a month to $173, Springe said.

The southern division, formerly KGE, had higher rates to start so a similar bill has gone from $138 to $173, a 25 percent increase, he said.

Still pending is another $19.5 million for environmental upgrades, which would be the 14th rate increase since 2009, Springe said.

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