Archive for Tuesday, December 12, 2000

Utilities’ rate hike plan includes service incentives

KPL and KGE could earn as much as $4 million a year for reducing power failures, answering calls

December 12, 2000

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— The rate increase being sought by the two electrical power subsidiaries of Western Resources includes incentives for providing better service, along with penalties if they don't deliver.

The KGE and KPL units could earn as much as $4 million a year in bonus money for such actions as reducing power failures and answering the phone before customers on hold hang up.

However, the utilities would have to pay rebates to customers if quality of service declines.

Western's two subsidiaries, which serve 634,000 electric customers, are asking the Kansas Corporation Commission for rate increases that would increase total revenue by $151 million a year.

If approved by the Kansas Corporation Commission, it would mark the first time a Kansas utility would be able to earn rewards for improving customer service. It would affect 634,000 electric customers.

The rate hike is projected to increase the monthly bill of an average KGE residential customer by about $6.50, while that of a KPL customer would rise by $9.25.

If the companies earned a reward for improving their service, customers would be billed a surcharge. Penalties for a decline in service would come out of the company's profits and be distributed as rebates.

The performance plan would measure four areas of service average number of power failures, average length of outages, customer-service call handling and meter-reading efficiency.

State law already requires that KGE and KPL provide reliable power, but it doesn't establish any benchmarks the power companies have to meet.

Walter Hendrix, chief consumer counsel for the Citizens' Utility Ratepayers Board, said he has no problem with the commission setting such standards.

But, he added, "To pay them more for doing what they're supposed to do in the first place is always something we look at."

Western Resources counters that a potential reward would give its utilities incentive to improve.

"We're putting ourselves in a position where we have to live up to a higher standard than the law requires," said Jim Ludwig, senior director of regulatory affairs for Western Resources.

The KCC now responds case by case to consumer complaints about quality of service, said its senior utility engineer, Mark Doljac.

The commission has the authority to levy fines against utilities, but it almost never does.

Any fines the commission levies go to the state, while Western's proposal would compensate the customers who bear the inconvenience of service interruptions, he said.

Doljac said he would study the proposal closely and make a recommendation to the commission.

The system of rewards and penalties for power company performance was pioneered in California and has been approved for utilities in New York and Mississippi, according to Lawrence Kaufmann, vice president of the Pacific Economics Group in Madison, Wis.

Kaufmann, an expert witness for Western Resources in a rate case filed by Western Nov. 27 in response to a complaint from Kansas Industrial Consumers, a group of the state's largest electrical consumers, said such plans provide the same kind of incentives for improved service that non-monopoly companies get in an open markets.

But David Fukutome of the California Public Utilities Commission pointed out that California uses a very different method for setting rates.

The idea behind California's performance standards is to take away the incentive for utilities to improve their bottom line by slashing costs to the point where service becomes unreliable, Fukutome said.

The outcome has been "kind of mixed," he said, but companies have received more rewards than penalties.

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