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Archive for Wednesday, June 20, 2001

Opponents stake battle lines in Western reorganization plan

June 20, 2001

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— Electric customers and Western Resources Inc. fought again Tuesday in preparation for a hearing to determine whether Western should be allowed to go forward with its reorganization plan.

Consumer advocates said Western's proposal would push KPL and KGE electric utilities to the edge of financial ruin, force Kansas consumers to pay higher rates and give Western's top executives multi-million dollar golden parachutes.

But Western officials said the reorganization was necessary as part of a plan to keep the utilities strong.

"The cumulative effect of the transactions will help ensure that excellent electric service will be maintained," said James Martin, a Western senior vice president.

The dispute is over Western's proposal to separate its regulated electric utilities from its other businesses. The newly created corporation would include the home security firm Protection One and the gas utility ONEOK.

Western also is seeking a $151 million rate increase for KPL and KGE, and has announced plans to sell the utilities to Public Service Co. of New Mexico.

Western has filed a rights offering to sell stocks of the newly formed corporation Westar Industries to Western Resources shareholders. Last month, the KCC issued an order prohibiting the rights offering pending an investigation and hearing into its effect on ratepayers. The hearing is set for Tuesday at KCC headquarters in Topeka.

Responding to that investigation, the KCC staff recommended that the order be maintained.

"If the rights offering and the merger occur as planned, the result will be an unjust enrichment of the shareholders of Westar at the expense of Western Resources electric businesses' ratepayers," said James Proctor, a consultant testifying on behalf of the KCC staff.

Consultants for the Citizens' Utility Ratepayer Board, which is the state consumer agency, and the Kansas Industrial Consumers, agreed.

They argued that the utilities' financial problems are the result of Western's management team transferring equity from KPL and KGE to Protection One.

"I have never seen a situation whereby the directors and officers of a utility were so blatant in their disregard for the financial integrity of the utility," said Andrea Crane, a Connecticut-based financial consultant who specializes in utility regulation.

"It is interesting to note that the company's financial morass can be traced to the stewardship of the current management," she said, noting that Western's chief David Wittig will make at least $5.4 million if the reorganization goes through.

Crane submitted testimony on behalf of CURB.

The written testimony submitted by the KCC staff and the industrial consumer group echoed those sentiments about Western's management.

Western's testimony did not address those allegations, but said the rights offering was part of a plan to pay down debt and increase the bond rating for the utilities.

Western spokesperson Kim Gronniger said the company would not comment on the management issues until it had reviewed the filed testimonies.

Western called on the KCC to discontinue its order against the rights offering.

The rights offering would raise an estimated $120 million that will go toward reducing debt, Western officials said.

"These agreements offer the best solution to resolving Western Resources' current financial situation and ensuring continued superior utility service in Kansas," said Charles Cicchetti, a California-based consultant, testifying for Western.

Cicchetti said the KCC should not be concerned about the amount of debt left with the utility after the proposed split of the companies.

"This commission, through its ratemaking authority, will determine the level of debt that Kansas retail customers bear in their rates.

"Therefore, regulated customers will not bear responsibility for debt this commission does not believe is reasonable," he said.

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