Westar Energy plan would raise rates on residential customers, decrease those of large businesses
05/19/2014 5:40 AM
08/06/2014 8:37 AM
If you’re a homeowner or own a small business you’ll pay 6 to 9 percent more for electricity under Westar Energy’s latest plan to raise rates.
If you have a big business that buys a lot of power, you’ll pay 6 to 15 percent less for it.
And Westar will make more money.
That’s the short summary of a proposal by Westar that will have its first public hearing Monday evening, where Wichita-area customers will get their chance to tell the Kansas Corporation Commission what they think of the plan.
The commission will decide whether to grant or modify the company’s proposal.
The proposed changes would raise residential and small-business bills $83.5 million, while cutting $50 million off rates paid by bigger businesses and school districts.
Rates for a variety of smaller specialized customer classes would also be affected, leaving Westar with an overall net increase of $31.7 million a year.
Westar officials say they’re proposing to rebalance electric rates because industrial users and other large-volume customers are now paying more than their share of the cost of operating the system. They are also planning an economic development program that would give additional discounts to some businesses.
Westar is being opposed by the Citizens’ Utility Ratepayer Board, which argues that the rates are too high for all customers and that it’s particularly unreasonable to raise rates on small customers to pay for millions of dollars of cuts for the big users.
The current proposal would raise residential service rates overall by $62 million.
That would add $7.50 a month to the average residential electric bill — nearly a 9 percent increase — according to KCC documents.
Small-business customers’ bills would rise a total of $21.5 million, about a 6.2 percent increase.
While rates would rise for homeowners and small business, they would drop for larger users:• Medium-sized businesses would see their bills go down by $18.5 million, or 6 percent.
• Large industrial customers’ bills would drop by $17.4 million, about 8.4 percent.
• Two large unnamed business customers, on special contracts with the power company, would split a reduction of $10.6 million, or 15.1 percent.
• Public school district bills would be reduced $3.6 million, about 7.6 percent.
The rate case at hand is a follow-up to a 2012 rate review that gave Westar $50 million in increased rates.
Residential vs. business
The case is the latest in an ongoing series of battles between Westar, the state’s dominant power company, and CURB, the state agency that represents residential and small business consumers.
“I’m going to point out (at the hearing) that this is Westar’s 19th rate increase in four years for almost $470 million total,” said David Springe, chief consumer counsel for CURB.
Springe said an average ranch-style house in Wichita uses about 1,500 kilowatt hours of electricity a month in the summer.
“In 2008, that bill would have been about $138 and when this rate case is over that 1,500 kilowatt of bill would be about $196, about a 42 percent (increase),” he said.
Springe acknowledged that industrial rates are high. But he said the same is true of residential rates.
Kansas residential rates are lower than Colorado’s, but “we are higher than Iowa, Minnesota, Missouri, North Dakota, South Dakota, Arkansas, Oklahoma and Texas,” Springe said.
As for shifting costs from big business consumers to small business and residential customers, Springe said “I don’t think it’s fair.”
Springe, an economist, said there are a number of different economic models that utilities and regulators can use to divide the costs of providing power between rate classes.
“Westar wants the commission to use a set of models that will push more costs on residential customers,” he said.
Paying ‘fair share’
Jeff Martin, vice president of regulatory affairs for Westar, said he doesn’t dispute Springe’s numbers.
But he said the series of increases is better than in other states where utilities are seeking increases of hundreds of millions of dollars at a time to pay for rising costs and environmental upgrades to power plants.
“It sounds like it’s been a lot of rate increases,” Martin said. “But essentially you smooth it out over time instead of going in for these huge cases where people can’t budget, it surprises them, those type of things.”
On dividing rates between small and large customers, he said two economic models, one favored by Westar and another by the KCC staff, showed that too much cost was being allocated to the big customers.
“Instead of saying ‘here is where we’d like it to go,’ or spread it like peanut butter like we usually do, we said we really need to look at this and see what the cost of service is for each customer type, and then get everybody back on the playing field,” he said. “That’s what we’re proposing in this case, to rebalance those costs to make sure everybody’s paying their fair share.”
He said the high cost of power for bigger businesses is hampering the state’s efforts to grow the economy.
Martin said the company’s studies show overall Kansas rates remain at or below the national average.
“The industrials are right at national average where the small commercial and residential are still well below national average on their rates,” he said.
Beyond the proposed rate increases, CURB is also fighting Westar’s proposal for a program called “Promote Kansas,” which would offer discount rates to new and expanding businesses.
Westar can already give those kinds of discounts to help businesses start or grow by using what is called an economic development rider.
But the company is not doing that.
In a 2005 case, the commission told Westar it could only fund 40 percent of the program from customer rates. The remaining 60 percent would have to come from company profits.
“This requirement creates a disincentive for Westar to work with state and local economic development organizations,” Terrance Wilson, Westar’s executive director of customer and community relations, said in written testimony to the commission.
To give itself more incentive, Westar is proposing to fund the program solely from the money it makes from generating and selling power to other electric companies.
Now, those funds are used to reduce all customers’ bills by paying part of the cost of fuel for the company’s power plants.
Under Westar’s new plan, 60 percent of that money would continue to go to fuel costs; 30 percent would go to Promote Kansas and 10 percent to a new fund to help poor customers pay their power bills.
Springe acknowledged that it would be good for Westar to have more customers, but if it’s offering economic development incentives, “ultimately somebody has to pay.
“If we have a set level of cost, spreading it across more customers would arguably lower the burden for everybody,” he said. “But I don’t think that’s what Westar’s trying to do. I think they’re trying to keep the benefit in the (large) business community but spread the costs to the residential and small business customers.”
Martin said Westar isn’t using its old economic development rider because it’s not flexible enough.
Under the current program, a startup business would get a 25 percent discount on power. The discount would be reduced over five years until the customer paid full rates. The new plan allows Westar to vary the discounts to accommodate the needs of businesses.
As a safeguard against abuse, companies that want to take advantage of the program will have to be sponsored by a state or municipal economic development committee that will monitor the companies to make sure they meet promises of plant investment and job growth.
“It also gives us the flexibility to follow up and cancel it if we don’t see those criteria being met,” he said.
South-central Kansas government has been largely silent on Westar rates since former Wichita Mayor Bob Knight, a longtime Westar nemesis, left office in 2003.
That could change this time around.
Two Sedgwick County commissioners, Karl Peterjohn and Richard Ranzau, jointly filed a letter to the KCC accusing Westar of raising prices way beyond what’s necessary on residential and small business customers:
“This is almost five times higher than overall inflation for Kansas consumers. This is an outrage at a time when the Kansas economy continues to struggle.”
They wrote that they think the motivation is that businesses have increasing options for generating some of their own power.
“If Westar wishes to reduce their rates by $30.3 million (for big users)...that is their prerogative,” the letter said. “We suspect that this proposed decrease is tied to new co-generation options and the desire to preserve this customer base. However, just shifting these costs onto residential and small business consumers should be stopped.”