Westar Energy has reached a settlement with the federal government to make at least $200 million and possibly $500 million in environmental improvements to its Jeffrey Energy Center coal plant northwest of Topeka.
The settlement comes three months after Westar won state permission to share such costs across its northern and southern divisions.
That means Wichita-area customers will pay for a larger share of the Jeffrey upgrades than they would have under the old system when Westar north and south paid different rates.
However, a leading opponent of rate consolidation says the added cost burden on Westar south customers is likely to be offset somewhat when similar environmental improvements are made at the southern La Cygne power plant in Linn County.
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No matter where they live, Westar customers won't see an immediate increase in rates from the work at Jeffrey, said company spokesman Nicholas Bundy.
Planning and engineering for the upgrades is expected to begin next year. Customers could start to see that in their bills starting in 2012.
The bulk of the cost is likely to start showing up in rates in and after 2014, company officials said.
Westar agreed to install equipment to reduce its output of sulfur dioxide and nitrogen oxides by about 78,600 tons a year, according to a statement from the U.S. Justice Department.
The Justice Department sued Westar on behalf of the Environmental Protection Agency last year, alleging that the company violated the Clean Air Act by modifying the three generating units at Jeffrey without installing required pollution-control equipment.
The company argued that the work on the units was maintenance, which could legally be done without triggering the requirement for new pollution controls.
It will be several years before the full cost of the environmental improvements is known, said Bill Eastman, Westar's environmental director.
He said the company has committed to installing one smog scrubber, which will cost about $200 million.
Westar is hopeful that it can meet its emission-reduction targets without having to install a second unit, which would bring the cost closer to the $500 million that the Justice Department estimates, Eastman said.
In addition, the company agreed to pay a $3 million fine and for $6 million worth of off-site environmental improvements, including vehicle emission reductions and wind power.
Westar north, the former KPL system, owns about 520 megawatts of generation from Jeffrey, compared to 125 megawatts for the southern division, formerly KGE.
Had Westar rates remained split between the northern and southern divisions of the company, northern customers would have had to pay for a proportionately larger share of the upgrades to the Jeffrey plant through rate increases.
The Kansas Corporation Commission agreed to consolidate the rates between the two systems in October — meaning customers north and south will share the costs equally.
The commission is expected to finalize the consolidation decision Wednesday, agency spokeswoman Abbie Hodgson said.
James Zakoura, lawyer for Kansas Industrial Consumers and a leading opponent of consolidation, said he expected that Westar would have to make significant improvements at Jeffrey.
But, he said, some or all of the additional cost to southern customers will be offset when northern customers have to share the cost of improvements at La Cygne.
Zakoura said he's mainly worried about the potential cost to southern customers if the federal government passes a carbon tax or institutes a cap-and-trade system to reduce emissions of carbon dioxide.
Overall, Westar north is significantly more dependent on carbon-dioxide-generating coal plants than Westar south, which gets most of its electricity from the Wolf Creek nuclear plant near Burlington.