Westar recommends rate increase

? The state’s largest electric company must increase its annual rates by at least $84 million to continue recovering from financial problems associated with former CEO David Wittig’s tenure, utility officials told Kansas regulators Monday.

The proposal from Westar Energy Inc. would increase rates 9 percent for 352,000 customers in its northern region – including Lawrence – and about 6 percent for 303,000 customers in its southern region. Westar also wants permission to pass onto to its consumers each month rising costs for fuel, transmission and complying with environmental regulations.

The Kansas Corporation Commission, which regulates utilities, began three weeks of hearings on the proposal, and Jim Haines, who replaced Wittig as president and chief executive officer, was the first witness. The commission has until Dec. 28 to rule.

After Wittig resigned in December 2002, Westar abandoned a strategy that had been adopted in the mid-1990s of diversifying its businesses. Under KCC pressure, the company sold almost all its nonutility assets and cut its debt from $3.6 billion to $1.7 billion.

“The commission decision will be a referendum on Westar’s strategy,” company attorney Mike Lennen told the KCC. “The outcome of this case is crucial to whether Westar can make it as an electric-only utility.”

The three-member KCC ordered the review of Westar’s rates in 2003, when it approved a plan from the company to return to being only an electric utility.

Critics of Westar’s proposal contend the company’s proposed rate increases aren’t justified by actual business costs. Both the KCC’s staff and the Citizens’ Utility Ratepayer Board have proposed cutting Westar rates.

A key issue is the profit Westar can earn while having a monopoly over providing electric service in much of Kansas. The company has proposed 11.5 percent, while the KCC’s staff wants 9.6 percent, and the ratepayer board, only 8.75 percent.

“Their whole case is: ‘Never mind the details, just give us the money,’ ” said David Springe, chief attorney for the ratepayer board.

Westar’s request also would change how the company is regulated. Currently, if fuel and transmission costs rise, the company’s shareholders shoulder the burden until the KCC reviews Westar’s overall rates – a process taking up to seven months.

In Westar’s northern region, the average residential customer would pay $5.28 more a month, or about $63 annually. The region includes Atchison, Emporia, Lawrence, Leavenworth, Manhattan, Olathe, Salina, Topeka, Hutchinson and Parsons.

Westar’s southern region includes Arkansas City, El Dorado, Fort Scott, Independence, Newton, Pittsburg and Wichita. There, the average residential customer would pay $4.58 more a month, or about $55 annually.

The company argued the additional revenue also would allow Westar to continue services such as expanded tree trimming and telling consumers who have lost power when it should be restored.

When Wittig was CEO, Westar also faced criticism from the ratepayer board, the KCC’s staff and Westar’s large-industrial customers, who suggested that a foray by Westar into the security alarm businesses had weakened the company.

They also repeatedly raised other questions about Wittig’s management. In September, a federal jury in Kansas City, Kan., convicted Wittig on 39 charges, agreeing with prosecutors that he and another former executive had looted the company during their tenure.

In written testimony for the KCC, Haines described the company as near financial collapse when he took over in December 2002. On Monday, he testified that investors and credit rating agencies view Westar as much stronger but added that they don’t think its rates are sufficient to cover rising costs.

“The outcome of this rate case is a substantial question mark for them,” Haines said.

The company’s rate request drew support from Charles Benjamin, an attorney for the Kansas chapter of the Sierra Club. He told the commission the group supports efforts to combat pollution.