Topeka ? State regulators’ latest order on Westar Energy Inc. is designed to improve the company’s finances while still granting consumers $20.5 million in rebates on their electric bills.

However, the order avoids the thorny question of whether Westar is charging too much, month in and month out, to provide power to its 653,000 customers. The KCC isn’t likely to tackle the question until 2006.

In issuing the order Friday, the Kansas Corporation Commission approved a compromise plan for improving Westar’s finances and reducing the company’s $2.9 billion debt. The plan resulted from negotiations among company officials, the KCC’s staff and other parties.

Rate review on table

During a hearing last week, the possibility of Westar “over-earning” was mentioned only in passing. Yet that issue, when it is tackled, is likely to mean more to Kansans than the rebates, which will average about $31 per customer over two years.

“You can’t look at everything in a vacuum,” said David Springe, chief attorney for the Citizens’ Utility Ratepayers Board, which represents small businesses and residential customers. “There’s at least an indication that perhaps their rates are too high.”

Westar, of course, disagrees with Springe’s assessment, and the KCC’s staff has accepted a delay of several years in reviewing Westar’s rates.

“I don’t think it would be appropriate for a commission to launch a rate investigation of a company just on the mere possibility that it could be over-earning,” said James Haines, Westar’s chief executive officer.

Last year, the KCC ordered Westar to reduce its debt. Discontent with Westar had mounted as that debt rose to more than $3 billion. Critics have suggested the company wants to stick electric customers with paying off the obligation, even though much of it was generated by nonutility operations.

Westar announced plans to sell off its nonutility assets and use the cash to pay down its debt, still at $2.9 billion as of last week.

The compromise plan approved by the KCC is designed to settle most of the remaining issues related to Westar’s finances.

The rebates — $10.5 million on May 1, 2005, and an additional $10 million on Jan. 1, 2006, represented a price Westar paid to gain more flexibility than it had under last year’s KCC directive.

Compromise plan

The KCC had given Westar until Friday to cut its debt to $1.67 billion — a deadline the company was all but certain to miss. The new plan requires Westar to increase its reliance on investors for capital by the end of next year.

Under the plan, Westar will ask the KCC in May 2005 to begin reviewing its rates, meaning a decision on whether those rates should be adjusted probably won’t come until early in 2006.

CURB was the only party to object to the compromise plan, because it allows the company to continue paying its annual dividend of 76 cents per share to investors — about $50 million a year. The dividend was the focus of last week’s hearing, with CURB arguing it dwarfed the promised rebates.

But Springe acknowledged about the dividends, “This is kind of the side issue.”

Charging too much?

The bigger issue — albeit largely undiscussed — is Westar’s rates.

One reason is that when the KCC last set Westar’s rates in 2001, the company had 2,500 employees. Now it has about 1,900.

Kansas Industrial Consumers, a group representing Westar’s largest customers, calculated the reduced payroll costs at $35 million a year.

Secondly, there is Westar’s income tax burden and an arcane-to-outsiders question about assumptions the KCC made in setting rates, about Westar’s reliance on debt for capital.

In effect the KCC — as it acknowledged in its 2001 rate order — could be allowing Westar to raise $49 million more than it needs to pay its income tax bills each year.

There are, of course, counterarguments.

Haines said the company has hired contractors for some jobs and is paying more overtime to remaining employees, possibly wiping out all or part of the estimated savings from a smaller payroll.

Secondly, the KCC has the legal authority to make assumptions about a utility’s reliance on debt when it sets rates, even if commissioners know the numbers are not accurate. In some cases, a company’s reliance on debt is a disputed matter.

Finally, James Zakoura, an Overland Park attorney representing the industrial consumers, said even if the KCC wanted to review rates, it probably would wait until 2004, with a decision in 2005. He said his clients might go through an expensive proceeding, only to see Westar prevail. Rebates seemed to him a reasonable compromise.

But those arguments don’t eliminate Westar’s rates as an important issue. The KCC has just decided to put off resolving that issue.