State regulators agreed Thursday to order restructuring of financially troubled Westar Energy Inc., the state’s largest utility.

The move, unprecedented in Kansas, could remove company executives from direct oversight of the utility.

Members of the Kansas Corporation Commission said they would require Westar to separate its regulated electric operations from its nonregulated businesses, which have been plagued by money problems. The three-member commission said Westar was unfairly burdening electric ratepayers with debt from those other businesses.

“The ratepayers don’t share in the gains and shouldn’t share in the pain,” Commissioner Brian Moline said.

Attorneys for Westar who attended the hearing declined to comment. They referred questions to officials at Westar headquarters in Topeka, who did not return telephone calls from the Journal-World.

During Thursday morning’s hearing, commissioners were highly critical of Westar’s management under David Wittig, the company’s president, chairman and chief executive officer. The order to restructure the company could push him and other executives away from control of the utility operation.

A national trend

Commission spokeswoman Rosemary Foreman said the decision, which will be made official next month, may represent the first time in more than 100 years of agency history the KCC has required a company to restructure itself.

The decision may be unprecedented in Kansas history, but such actions are a national trend. Other states also are reining in companies that have been financially battered after their managers strayed from the business of being a monopoly electric company.

Charles Gray, executive director of the Washington, D.C.-based National Association of Regulatory Utility Commissioners, said the KCC’s efforts were being repeated by state regulators across the nation.

“A lot of these holding companies that have diversified in these risky businesses have really suffered,” he said.

Regulators are trying to make sure the cost of those business decisions isn’t being dumped on ratepayers, Gray said.

Investment firms several years ago were urging “stodgy” utility companies to diversify and take risks, but now are saying just the opposite.

“Utilities are now seen as the strongest piece in many of these holding companies,” Gray said.

Blunt remarks

Matthew Brown, energy program director for the National Conference of State Legislatures, said the utility industry and regulation had changed drastically the past few years.

“What the regulators are doing in Kansas is pretty standard regulatory practice,” he said. “The concerns are about subsidizing the nonregulated businesses.”

Those concerns were aired in blunt remarks by the Kansas commissioners.

KCC Chairman John Wine called Westar’s proposals to shift debt to KPL, which provides electricity to Lawrence and northeast Kansas, and to the company’s other regulated electric divisions, “unfair” and “unrealistic.”

He said the commission’s earlier efforts to provide direction to Westar had been unsuccessful.

“Frankly, this company doesn’t take hints,” he said. “We can issue any order that is supported by the record, and we have a very extensive record related to management.”

The commissioners said Westar probably should be dissolved because it was basically an accounting mechanism, not a real company. They conceded the restructuring could bring changes to the company’s management structure, but they said they wanted nothing to do with telling Westar how to manage its unregulated businesses.

Those businesses include an 85 percent interest in Protection One, a security alarm firm, and a 45 percent interest in ONEOK Inc., a Tulsa, Okla., natural gas retailer.

Management audit

By separating the utility businesses from the holding company, the commission would “have a much better opportunity to track what is going on,” said Commissioner Cynthia Claus.

Moline urged approval of a management audit of Westar, saying he was concerned when top Westar officials declined to answer KCC questions about Westar business dealings.

“It’s just not acceptable,” he said.

But Wine and Claus said they were willing to give Westar some time to show how the company would allocate its debt in a way to hold ratepayers harmless from losses in the company’s other businesses.

If Westar doesn’t respond, Claus said, she would support a management audit.

Jim Zakoura, an Overland Park attorney who represents industrial customers, and Walker Hendrix, head of the state office that represents consumers, said they were pleased with the commission.

“Their comments seemed rather forceful,” Hendrix said.

Any decision of the KCC could be appealed by the company to state district court.

Westar stock closed at $10.25 a share in regular trading Thursday on the New York Stock Exchange, up 10 cents. Four years ago, the stock was trading at more than $40 a share.