The Kansas Corporation Commission staff is recommending that Kansas Public Service, the Lawrence natural gas utility, be granted only about one-third of the rate increase it requested.
In a non-binding recommendation to the three-member KCC panel, the KCC staff said the Lawrence utility was entitled to a rate increase of $431,196 rather than the $1.284 million it is seeking.
The increase sought by KPS would raise rates for residential and small commercial users by 9.4 percent, increasing the average gas bill by $4.61 a month. The KCC staff's recommendation would shave that increase to 3.2 percent over current rate levels.
The KCC, which held a public hearing on the KPS request last month in Lawrence, has scheduled a technical hearing on the matter for 9:30 a.m. May 26 at the KCC offices in Topeka. The commission is expected to make a decision on the request by the end of the summer.
BILL SALOME, president of KPS, said today that his company still is formulating its response to the staff recommendation and expects to file a rebuttal later this month.
"There are a number of points of contention," Salome said in reaction to the staff recommendation. The increase suggested by the staff, he said, is "much less than we expected."
KPS applied for the rate increase in December, citing costs associated with a mandatory gas line improvement program the utility has undertaken to improve its delivery system in Lawrence. Under the 10-year program, KPS is replacing all its bare steel and cast-iron mains, which are vulnerable to corrosion, with plastic and coated steel pipe.
A statement from the KCC said that in recalculating the rate increase requested by the utility, staff adjusted several cost estimates used by KPS and recommended that KPS' rate of return on equity be set at 11.52 percent rather than the 12.93 percent KPS requested.
BESIDES THE KCC staff, two other intervenors have filed testimony contesting KPS' proposed rate increase.
Alan Decker, consumer counsel for the Citizens' Utility Ratepayer Board, a state agency that performs a utility watchdog function, said his agency's position supplements that of the KCC staff.
Decker said several of the KPS cost estimates are too high, including those for the plant improvement program and its rate case expenses, which it folded into the rate increase request.
He said CURB also opposes the KPS plan to collect the entire rate increase from residential and small commercial customers with none of the revenue coming from high-volume consumers such as industries.
"We did not address that in our testimony but it remains a concern," Decker said. "We hope to address that later (at the technical hearing.)"
KPS HAS SAID that assigning any of the rate increase to high-volume customers would give those customers an incentive to bypass KPS and buy their gas from an independent supplier. KPS argues that the decreased volume of gas then used by the utility would result in even higher rates for its other customers.
The other intervenor, Mountain Iron Supply Co., a Wichita-based gas broker, also has expressed concerns about the KPS plan to exempt large industrial customers from the rate increase.
"That seems unusual to us," said Richard Stavely, attorney for the company. "In normal fairness, it seems they should be asked to pay part of the cost.
"It's a peculiar situation that should be investigated," he said, adding that by exempting its largest consumers from the rate increase, KPS may be thwarting competition for those customers in the marketplace where companies like Mountain Iron Supply Co. do their business.
PETER EELKEMA, managing economist for the KCC, said the staff has proposed that a mechanism be built into the utility's rate structure to allow KPS to offer competitive rates to large consumers who threaten to leave the system while buffering rates for residential and small commercial customers.
The mechanism would require KPS to absorb a portion of the revenue lost from reducing the rates for large consumers rather than requiring low-volume consumers to make up the entire difference.
"As much as possible, we'd like to see an equal percentage increase for all customers," Eelkema said. However, he said allowing KPS the flexibility to set lower rates for high-volume consumers produced benefits for residential and small commercial customers as well.
"If they bypass the system, that is going to result in higher rates," Eelkema said.