Unless state utility regulators intervene, developers stand to lose about $1.4 million in deposits for electric lines built to projects that haven’t been completed because of the slowdown in construction during the recession.
The Wichita Area Builders Association and Westar Energy are asking the Kansas Corporation Commission for a two-year extension of the deadline on the deposits, which otherwise will be forfeited this year or next.
The extension would help builders who planned projects in 2009 and 2010, but haven’t finished them because of the slowdown in housing caused by the recession, said Wess Galyon, president and chief executive officer of WABA.
If the commission grants the extensions and the market for new housing continues to recover at the current rate, “developers should get most of that money back … unless everything goes south and then all bets are off anyway,” Galyon said.
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Galyon said it costs about $2,000 to $3,000 per lot to bring electrical service into a new development, depending on the layout and how far it is from Westar’s current facilities.
Westar absorbs the first $30,000 of the cost, while the developer has to pay, in cash, a deposit for the rest of the projected cost.
Westar installs the lines and transformers and the deposit is refunded to the developer on a lot-by-lot basis when houses are built and permanent meters are put in place. That’s the point at which Westar can begin recouping the investment by selling electricity to the new homeowners.
While the developer generally expects to get most of the money back, it’s a significant startup cost, Galyon said.
“Say you’ve got 50 lots at $3,000 each,” he said. “That’s $150,000 in cold cash that’s got to be put on deposit.”
At present, Westar is holding about $1.4 million in deposits that could be affected by the commission decision, said company spokeswoman Erin La Row. Galyon said about half of that is for stalled projects in the Wichita area.
Westar is the state’s dominant electric provider serving almost 700,000 customers.
La Row said Westar joined WABA in seeking the extensions to help builders whose plans were derailed by the recession.
More homes means more customers for Westar, which allows the company to spread its costs across a larger customer base, La Row said.
In their joint filing, Westar and WABA stated that they assume “that the extension will incentivize developers to continue efforts to fully cultivate the currently underdeveloped residential subdivisions that have been slow to recover from the economic downturn. … The proposed extension will not adversely affect Westar’s ratepayers.”
David Springe, consumer counsel for the Citizens’ Utility Ratepayer Board, said he doesn’t really see a downside for customers either. CURB is the state agency that represents residential and small-business utility consumers.
“Westar wants the customers and Wichita wants the houses, so I don’t really see a problem,” Springe said.