State regulatory staff and consumer advocates are recommending deep cuts in a proposal by Westar Energy to increase electric rates by $90.8 million.
Analysts for the Kansas Corporation Commission staff are recommending that the proposed increase be reduced to $33.6 million. The Citizens’ Utility Ratepayer Board, the state agency that advocates for residential and small-business customers, is recommending that instead of any increase, Westar’s current rates actually be decreased by $11.6 million.
Both agencies filed testimony Thursday in the ongoing rate case. The rate increase request was filed in August and is scheduled to be decided by the commissioners by April 23.
A key point of contention is the company’s “return on equity,” the financial cushion that Westar gets above its projected costs to provide a profit for company shareholders.
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While Westar has proposed a 10.6 percent return on equity, KCC staff is recommending 9.5 percent, and CURB, 8.85 percent.
“That’s a place where the commission can help consumers, by decreasing shareholder profit,” said David Springe, chief consumer counsel for CURB.
CURB’s proposed return on equity would save customers about $64 million a year, he said.
Westar, the state’s dominant power company, serves 687,000 customers. The company’s proposed 5.85 percent rate hike would add an estimated $6.44 a month to the average 900 kilowatt-hour residential electric bill, or about $9.78 for larger homes using 1,500 kwh.
A Westar official said the company is evaluating the voluminous testimony filed by the state agencies, but believes its original request was reasonable given the business challenges the company faces in providing power while also managing hundreds of millions of dollars in projects to retrofit its coal-fired power plants to meet new environmental requirements.
Company officials have said they think the 10.6 percent return is what they’ll need to entice investors to finance the company.
Company spokeswoman Gina Penzig said Kansas City Power and Light was granted a 10 percent rate of return in February of last year.
“Our request isn’t really out of line with what other companies have received,” Penzig said.
CURB, however, says the proposed rate is far too high in a time of very low interest rates and little financial risk for the utility, which is already being compensated for fuel, transmission and environmental costs in separate line-item proceedings outside the rate case.
Not including the current rate case, Westar has increased rates 15 times for a total of $390 million since 2009, Springe said.
CURB and the KCC staff also recommend reducing the $20 million that Westar wants to expand tree-trimming.
All sides agree that cutting branches away from power lines reduces the number of power outages and emergency service calls.
CURB, however, is recommending a $14 million increase in tree trimming, $6 million less than Westar’s request.
KCC staff is recommending an increase of about $13.2 million in the trimming program.
Another area of contention is compensation for Westar’s nonunion employees, which includes its top executives.
CURB proposes a $13 million decrease in the amount Westar has proposed for management incentive and bonus pay. KCC staff wants to cut that expense by about $1.4 million.
Springe said the company’s nonunion employees have received eight pay increases since 2006, totaling 27 percent. He said the reduction from Westar’s request that CURB proposes would not cut salaries for any of the company’s employees, who he said are “top notch.”
However, “Few Kansans enjoyed 27 percent salary increases over the last six years or received millions in bonuses,” Springe said. “Seniors, many of whom are on a fixed income, and other Kansans who are unemployed or who are employed but haven’t had raises in recent years have all had to tighten their belts. It’s time for Westar to do the same."
Penzig confirmed that Springe was accurate on the number and size of raises, but said it was done because salary studies showed similar-sized utilities were paying their employees more.
“We were falling behind the curve and we were losing key people,” Penzig said.
One area where there’s agreement that Westar’s increase can be trimmed is the cost of the rate case itself.
Westar, CURB and the KCC are all compensated by ratepayers for the costs involved in litigating rate cases.
Westar had originally estimated the overall cost of the current proceedings will be about $2.8 million.
But CURB said it plans on spending no more than $100,000 on the case, mostly on payment to two outside experts who have analyzed Westar’s proposal and provided testimony for the consumer agency.
How much the KCC expects to spend was not immediately available, but agency spokesman Jesse Borjon said CURB and the KCC spent a combined $573,000 on a fully litigated Westar rate case in 2005.
Penzig said CURB’s proposal to cut about $1 million off the rate case expense is in line with what the company now expects to be the actual cost.
“We’d estimated $2.8 million, now we think it’s going to be closer to one-and-a-half million,” she said.
Westar’s expenses will likely total about $635,000, about a third of which will be for a study on depreciation of power plants, required by the commission as part of the rate case, Penzig said.