Topeka ? State regulators must reconsider the electric rates they set for 655,000 homes and businesses, the Kansas Court of Appeals ruled Friday, creating the possibility of lower monthly bills and even refunds.

A three-judge panel rejected parts of an order dealing with rates for Westar Energy Inc., the state’s largest electric utility, issued in December by the Kansas Corporation Commission. The commission, which regulates utilities, had increased rates $3 million a year, then allowed Westar to pass along millions of dollars more in higher costs to consumers.

The judges invalidated KCC decisions that cost Westar ratepayers from $46 million to $48 million annually, though the panel upheld the decision to allow Westar to pass along some of its rising costs to consumers.

Friday’s decision isn’t the last word, however. Various parties, including the commission and consumer advocates, can appeal to the Kansas Supreme Court, and even if they don’t, the Court of Appeals ruling sent issues back to the KCC for more review.

Still, Jim Zakoura, an Overland Park attorney representing large, industrial customers, said, “I think certainly it’s a very positive decision for ratepayers.”

Westar spokeswoman Karla Olsen said the utility was disappointed by the ruling.

“We are reviewing the opinion, and we will then review our options,” she said.

The appeals panel ruled in three separate cases, all appeals of the commission’s decision. One came from the Wichita school district and another, from the Citizens’ Utility Ratepayers Board, which represents residential and small-business customers. The other came from other parties, including Zakoura’s clients.

David Springe, the board’s chief attorney, described the decision as “mixed” for consumers. He and Zakoura had asked the Court of Appeals to prevent the KCC from allowing Westar to pass rising fuel costs directly to consumers, as well as impose a separate charge for special environmental projects.

Those charges dwarf the $3 million increase in Westar’s rates. In fact, testimony during the KCC’s hearings suggested those costs could be $50 million or more a year.

They argued such issues should be covered by the company’s rates, so that the utility would have an incentive to look for savings elsewhere. However, the appeals panel said the KCC had the legal authority to do what it did.

“It really gives the commission incredibly broad authority to do almost anything,” Springe said. “That’s troubling.”

Other issues dealt with more technical issues, how the commission revised Westar’s rates to account for depreciation of its buildings and how much to include in the rates to cover electric transmission costs.

In the case of transmission costs, the appeals panel ruled that the KCC’s order didn’t follow a “clear and unambiguous” law on the subject. On the depreciation issues, the court said the KCC didn’t cite any hard evidence to justify its decisions and suggested that part of its reasons rested on “unchecked speculation.”

But Susan Cunningham, the KCC’s general counsel, noted that the commission had lengthy hearings and took voluminous written testimony during the rate case.

“I’m certainly surprised,” she said.