Archive for Sunday, December 1, 2002

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December 1, 2002

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Reducing debt. Improving employee morale. Rebuilding relationships. Erasing the past.

TheyâÂÂre all priorities for James Haines Jr., new president and chief executive of Westar Inc.

âÂÂThere are several âÂÂ'job onesâ we have to tackle,â Haines said in an interview last week. âÂÂThe company has some significant problems.âÂÂ

One week ago, Haines was named by the Topeka-based utility company to replace David Wittig, who resigned Nov. 22 under federal indictment for fraud and money laundering charges involving his personal finances.

Haines is no stranger to the Topeka utility.

The former chief operating officer of Westar left the company about the time Wittig joined. And he intimated that part of his new job would be erasing WittigâÂÂs marks on the company.

âÂÂI have no reason to think that any of WestarâÂÂs problems are not fixable,â Haines said. âÂÂI wouldnâÂÂt be taking the job if I thought it was a foolâÂÂs errand.

âÂÂFundamentally, I still think it is a great company. It has excellent facilities, excellent infrastructure. And I know many of the people who work there. They are great people who want to do a great job.

âÂÂI think the past just has to be cleared away so they can do that.âÂÂ

The utility focus

Walker Hendrix, consumer counsel for the CitizenâÂÂs Utility Ratepayer Board, said he thought Haines would accomplish that by changing the focus of the company.

Under WittigâÂÂs leadership, Hendrix said, the company spent too much time dealing with its nonutility businesses, mainly the security monitoring firm Protection One.

âÂÂHaines is more of your classical type of utility executive who, I believe, will really be much more focused on the utility operations,â Hendrix said. âÂÂI may not always agree with him, but I have an appreciation for him because I think that is absolutely the focus this company needs.âÂÂ

And the utility business is where the incoming Westar chief built his career.

In the mid-1980s, Haines was in the legal department at Kansas Gas & Electric. He later became KG&E;âÂÂs group vice president.

In 1992, when KG&E; merged with Kansas Power and Light Co. to form Western Resources Inc., Haines was named the big utilityâÂÂs chief administrative officer.

In 1996, he resigned his post as chief operating officer at Western Resources âÂÂ:quot; which later was renamed Westar under Wittig. Haines became president and CEO of El Paso Electric Co., a Texas-based utility with about half as many customers as Westar.

WittigâÂÂs focus

Wittig, on the other hand, came to the company in 1995 after a career in investment banking and the mergers and acquisitions industry.

And it was an acquisition that led to WestarâÂÂs downfall, Hendrix said.

In the consumer watchdogâÂÂs view, many of the companyâÂÂs problems - including a stock price that has plummeted from the $40 range a few years ago to a closing price of $11.53 per share Friday on the New York Stock Exchange - can be traced to the 88 percent ownership stake Westar took in Protection One.

âÂÂThey got themselves involved with Protection One, and it just drug them down,â Hendrix said. âÂÂIt never made them any money, and then one day they woke up and realized they had more than $2 billion into a company that wasnâÂÂt returning anything to the bottom line.

âÂÂAnd I think while David Wittig was there, the management was unwilling to say this was a bad investment and that it needs to be written off.âÂÂ

For his part, Haines wonâÂÂt rule out the possibility of removing Protection One from WestarâÂÂs future.

âÂÂThat is something I need to figure out,â he said. âÂÂI can say I donâÂÂt think it is fundamentally a problem for a utility company to have nonregulated operations, but I also believe the nonregulated operations have to support themselves. They should not be allowed to be a drag on the regulated operations.

âÂÂIf Protection One can make money for the shareholders and do that without jeopardizing the utility operations, then it could be a good thing. If not, weâÂÂll have to figure out how to resolve that.âÂÂ

Plenty of problems

It is just one of many issues Haines must figure out.

âÂÂIt appears to me the company has lost the confidence of its customers, its shareholders, its employees and its regulators,â Haines said. âÂÂObviously, we have to regain that confidence.âÂÂ

Confidence has been sinking as WestarâÂÂs debt has been increasing. The company has an estimated $3 billion in debt. The high debt level has raised eyebrows on Wall Street. Standard & PoorâÂÂs consistently labels the companyâÂÂs financial condition as âÂÂfrail.âÂÂ

Haines said he also was concerned about Westar debt.

âÂÂThereâÂÂs clearly well over $1 billion worth of debt that we need to figure out how to pay,â Haines said.

The debt has done more than upset investors. It also has created a problematic relationship with the Kansas Corporation Commission, the state agency responsible for overseeing utility rates.

âÂÂYou can tell from the language of the recent KCC orders that it is a strained relationship,â Haines said. âÂÂIt is pretty clear there is a significant level of frustration on the part of the commissioners that the company has incurred all of this debt largely to support the unregulated business and in doing so have created some jeopardy for the regulated businesses. We have to work on building that relationship back up.âÂÂ

Flagging morale

The same could be said of the relationship the company has with its approximately 5,000 employees. Haines said he was still assessing employee morale, but indications are that it is bad.

âÂÂI canâÂÂt say for sure where the level of morale is at, but it does appear to me that it is low and that is a problem,â Haines said. âÂÂPeople need to be happy at work.

âÂÂI want to do my part to get everybody back to the point of where they are really proud to work for Westar and proud to be providing electric service to Kansas.

âÂÂYou do that by paying attention to a lot of little things. You do that by telling people what you are going to do and then doing it. You do it by making yourself accessible to people.âÂÂ

Despite the companyâÂÂs problems, Hendrix said it still has a sound base in its utility operations. The industry generally regards favorably the companyâÂÂs power plants, infrastructure and ability to cheaply produce electricity.

âÂÂFrom an operational standpoint, it is still regarded as a good company,â Hendrix said. âÂÂBut whether it can continue to operate that way given their financial condition is a real ongoing question.âÂÂ

Rate increases?

WestarâÂÂs weakened financial condition has Hendrix worried about what price the companyâÂÂs approximately 647,000 customers, including Lawrence residents, will have to pay for electricity in the future.

âÂÂWhen a company has liquidity problems like Westar, and then they have an outage and have to buy additional power or build a new plant âÂÂ: they just donâÂÂt have a way to get that money other than a big, massive rate increase,â Hendrix said. âÂÂThe problems of their unregulated companies have created real pressure on their utility business.

âÂÂIâÂÂm sure weâÂÂre going to be faced with the new management considering rate increases as a way to get out of debt faster.âÂÂ

Haines didnâÂÂt discuss the issue of increasing rates but made it clear he would be bottom line-oriented.

âÂÂI think the utility operations are still in a good place right now,â Haines said. âÂÂWhat I want to do is just get it focused on providing great service for customers, making it a tremendous and safe place to work, and making lots of money for shareholders. I think you can do all three of those things at the same time.âÂÂ

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