Kansas files federal complaint to reduce Westar transmission profit

08/20/2014 7:53 PM

08/21/2014 7:47 AM

The Kansas Corporation Commission has filed a federal complaint against Westar Energy, seeking to save $15.8 million a year for customers of the state’s dominant power company, the KCC said Wednesday.

The KCC says Westar is getting excessive profit for its shareholders from the power-line transmission portion of its business. Westar replies that cutting those rates could dry up necessary investment in transmission lines.

The case will be decided by the Federal Energy Regulatory Commission. It’s the first time in recent memory – possibly ever – that the state commission has challenged transmission rates granted by its federal counterpart.

The issue is return on equity – known as ROE – essentially the profit margin for stockholders that the utility gets for transmitting electricity from its power plants to the communities where it’s used. Those rates have been rising in recent years as utilities improve the power grid and add remote wind-power sites to the generating mix.

The KCC is arguing that Westar’s return on equity is too high, allowing the company to collect 11.3 percent in addition to its costs for transmission.

Westar’s transmission costs are passed directly through to consumers through a bill “rider” system approved by the state Legislature. While the KCC sets basic rates paid by home and business customers, the state law requires that the commissioners must let utilities raise rates to cover rising transmission costs, plus the profit margin approved by the federal commission.

“Changing an electric utility’s ROE by just a fraction of one percent can result in ratepayers bearing millions of dollars of unjust and unreasonable costs,” the KCC filing said. “The unjust and unreasonable level of the subject ROE is not a mere ‘unsubstantiated allegation,’ it is a documented fact that can neither be ignored nor successfully disputed.”

The filing says Westar’s rates may have been reasonable when they were approved in 2008, but aren’t now.

“Like most electric utilities, Westar faced much different financial conditions in 2008 than it now faces in 2014,” the filing says. “Westar’s subject ROE has remained unchanged during the past six years, despite significant capital market changes and significantly revised investment long-term and short-term growth projections.”

While the KCC sets the rates that Westar can charge its customers for power, transmission rates are set by the federal agency because Kansas utilities share costs as part of an interstate power pool.

“We appreciate that the (Kansas) commission is looking closely at the prices our customers pay, looking out for consumers,” Westar spokeswoman Gina Penzig said Wednesday. “We have to disagree with them on this particular issue.

“Our concern is something that might save customers a few cents a month on their bills could really have unintended consequences on attracting investment in our state’s infrastructure.”

Penzig said the cut the KCC is seeking would probably reduce the average customer’s bill by about 80 cents a month.

David Springe, consumer counsel for the Citizens Utility Ratepayer Board, said he was stunned that the commission is challenging Westar.

“I’m surprised,” Springe said.

“I agree completely. North of 11 percent return on equity on transmission is extremely high.”

CURB, the state agency that represents residential and small-business utility customers, has often argued before the KCC that it was granting utilities too high a return for shareholders – the same issue the KCC is now arguing before the federal commission.

Springe said it’s been frustrating to watch the transmission costs pile up on people’s bills, which CURB can’t effectively challenge before the KCC because of the state law.

“All of that gets passed through to the customer through the transmission rider,” Springe said. “Every transmission dollar is a dollar out of the customers’ pockets.”

Reach Dion Lefler at 316-268-6527 or dlefler@wichitaeagle.com.

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