Wichita Western Resources should either not sell the KGE building in downtown Wichita or charge a market-rate price for it, the Kansas Corporation Commission staff says.
Last week Topeka-based Western Resources announced it had agreed to sell the former power company headquarters to its home-security subsidiary, Protection One, for more than $1.8 million less than it once said the building was worth.
In a report to the KCC, the commission's general counsel Susan Cunningham said the sale could raise electric rates in the future because the deal would give up a utility asset with a book value of $3 million to Protection One for only $475,000.
"Commission staff believes that the commission should either prohibit the sale of the Wichita office building or require Western Resources to sell it at a fair market price," said spokeswoman Rosemary Foreman.
The sale agreement also appears to violate an earlier commission order prohibiting Western from increasing its utility's debt load while the commission has an investigation underway of the company's financial plans.
Western has said the deal would actually save its Westar Energy division an estimated $1 million a year through reduced maintenance and operating costs.
The KGE building was built in the 1950s at a cost of $9 million. But the merger of KGE and KPL utilities under Western and a resulting consolidation of functions at Western's Topeka headquarters has substantially reduced the need for Wichita office space.
Meanwhile, Protection One, which is 80 percent owned by Western, plans to expand its operations in Wichita, where it already maintains a call center.
Wichita Mayor Bob Knight said he believes that the move is simply an attempt by Western to transfer a valuable asset from its regulated utility to the unregulated Protection One.
"It just seems to me to be a continuation of what they've been doing, or been trying to do, which is build the value of one company at the expense of the other," he said.
The commission staff shared similar concerns.
Cunningham, the KCC general counsel, said state utility law requires that sales of assets between affiliated companies be done through "arm's length" transactions, but that does not appear to have been the case with the KGE building.
Western has said the price was the result of three independent appraisals.