Westar board says company is no Enron
But consumer advocates claim troubling similarities, call for audit
Consumer advocates are calling for an audit of Westar Energy’s management practices and the millions of dollars paid to the struggling utility’s top executives. But company board members with Lawrence ties insist the state’s largest energy utility is well-run or they decline to discuss the matter.
“The company has been well-operated for a long, long time,” said Westar board member Frank Becker, owner and president of Becker Investments in Lawrence.
Related links:Becker said salaries and bonuses paid to the utility company’s top executives were “probably in the mean of the industry. (They’re) not above average, not way below average. Their compensation is appropriate.”
Becker, in his 10th year on the board, fielded reporters’ questions Wednesday after a ceremony at Kansas University’s Kenneth Spencer Research Library, during which librarian William Crowe was presented with the Gretchen and Gene A. Budig Distinguished Librarian Award.
Becker and other board members usually have turned aside questions from the Journal-World or not returned phone calls seeking information about the situation at Westar, formerly known as Western Resources Inc.
Million-dollar benefits
Gene Budig, former KU chancellor, also serves on the board. Clearly agitated, he declined to take reporters’ questions on the subject.
Budig, Becker and John Dicus, president of Topeka-based Capitol Federal Savings, were members of the board’s Human Resources Committee in 1998 when the committee proposed taking out a life insurance policy on the company’s six top executives.
Approved by the full board, the so-called split-life insurance policy allowed the executives to withdraw two-thirds of their would-be death benefit.
According to company records, the policy was meant to recognize the executives’ role in an $865 million windfall resulting from the sale of its stock in Tyco International.
The policy is expected to cost the company $57 million.
Becker defended the policy, saying it reduced the tax on a much-deserved bonus.
Since the policy took effect, five of the six executives have resigned or retired, each withdrawing his share of the benefit.
The policy sets aside $14 million for David Wittig, Westar Energy’s president and chief executive officer. Between 1998 and 2001, Wittig, a KU graduate, collected another $18.5 million in salary and received several hundred thousand shares of company stock.
Investigation sought
Last month, the City of Wichita, Wichita’s USD 259, the Kansas Industrial Consumers Group and the state’s Citizens Utility Ratepayer Board asked the Kansas Corporation Commission to investigate the utility company’s management practices.
The KCC is expected to rule on the request in October or November.
“We are questioning whether the level of compensation being paid to Westar executives is appropriate,” said Jim Zakoura of Kansas Industrial Consumers, an association representing many of the state’s largest manufacturers.
It’s inappropriate, Zakoura and others argue, because the company’s debts now exceed $3.2 billion, the value of its stock has plummeted and its credit rating is at junk-bond levels which means the company has to pay more to borrow, a cost that is passed on to consumers.
In the first quarter of this year, the company’s losses totaled $652 million a figure that included accounting write-downs associated with the company’s money-losing protection services subsidiary.
The company’s stock value peaked at $44 a share in March 1998. It closed at $11.05 a share Friday on the New York Stock Exchange.
“Our position is not that we object to executives being well compensated; it’s that we believe compensation ought to be tied to performance we don’t see that happening,” Zakoura said, noting that company records show executive salaries increased three-fold in four years.
Second guessing?
Becker said he was familiar with Westar Energy’s critics and their claims.
“I think the company is well-managed and decisions were made right,” Becker said. “It’s very easy to second guess, 10 years later. But unless you sit in that seat and make those decisions I think time will prove that management made good decisions, overall.”
Becker said Westar Energy’s troubles were typical of those facing utility companies that in recent years sought to diversify their holdings.
Westar Industries, an unregulated subsidiary of Westar Energy, bought Protection One, one of the nation’s largest providers of home security services, in 1997. Since then, the company has posted substantial losses.
“I don’t think we’re all infallible in knowing what to invest in,” Becker said.
Asked how the controversy surrounding Westar Energy compared with those at Enron and WorldCom, Becker replied: “There are some companies that (have) some problems, but Westar is not one of them.”
Steve Edmonds, branch manager and senior vice president for investments at Robert W. Baird & Co. Inc. in Lawrence, agreed with Becker’s assessment.
Not an Enron
“Relative to other utility companies, he’s right a lot have done worse in the last 12 months, especially those that, like Enron, spun off into the energy-trading business,” Edmonds said. “They’ve suffered more than Westar.”
Edmonds shied away from criticizing Westar Energy’s decision to buy Protection One.
“A lot of utilities almost all of them, in fact got into the nonregulated side of things in the late 1990s,” he said. “And most of them have done poorly.”
Roy Lecoursiere, a retired psychiatrist, finds little comfort in knowing other companies are worse off than Westar Energy.
“This whole thing leaves a terrible taste in my mouth,” said Lecoursiere, who lives in Topeka.
A Westar stockholder for 20 years, Lecoursiere watched in disbelief as the value of his shares plummeted.
“Nowhere else in corporate America is there no relationship between performance and compensation,” he said. “All of them Wittig and that sycophantic board ought to be embarrassed as hell.”
Lecoursiere, who once owned thousands of shares, said he’s down to his last 100 shares.
“They’re there, but I quit watching it,” he said. “Why should I? I don’t trust them.”