Topeka Electric rates would rise by an average of 11 percent for more than 675,000 Kansas homes and businesses under a proposed regulatory settlement announced Friday by Westar Energy Inc.
The changes would generate $130 million in additional revenue annually for Westar, the state's largest electric company. The company's shareholders would see a return on their equity of about 10.4 percent.
Westar had asked the Kansas Corporation Commission, which regulates utilities, for a 15 percent rate increase, generating $177 million in annual revenues and a return for shareholders of nearly 11 percent.
But in the resulting rate case before the commission, its staff and the Citizens' Utility Ratepayers Board had proposed significantly smaller increases and lower returns for shareholders. The citizens' board is a state agency representing residential and small-business customers.
The settlement by Westar with those adversaries and four other parties still must be approved by the three-member KCC, which has the power to alter its terms. However, by settling, Westar could expedite changes in its rates as the nation's financial markets remain in turmoil.
David Springe, CURB's chief attorney, said Friday that the turmoil "softened up Westar" on some issues and a settlement provides some certainty for the company.
"The financial markets, I think, provided some impetus to get the parties and keep them around the table," said Springe. "It certainly was one of the many factors that was in the back of our minds."
But Jim Ludwig, a Westar executive vice president, said the financial turmoil "cut both ways." He noted that while achieving stability in rates is helpful to Westar, having rates rise less than they could have is helpful to consumers who are feeling financial stress.
"I think the settlement is fair and reasonable, particularly in light of the economic crisis," Ludwig said. "It's favorable to consumers and to the company."
The KCC already has taken testimony from the public in Westar's rate case and planned to begin hearings Wednesday in which company executives, economists and consultants would be questioned by attorneys. The parties went ahead Friday with a pre-hearing conference, but the commission may delay its hearings.
Members of the KCC's staff declined to discuss the settlement.
Westar can't say yet how much residential customers' monthly bills will increase because the parties still are working out exactly how much revenue will come from each class of customer, Ludwig said.
Besides the KCC's staff and CURB, the other parties to the agreement include Wal-Mart Stores Inc. and The Kroger Co. grocery chain. Also involved are the Wichita school district, the state's largest, and Kansas Industrial Consumers, a coalition of representing some of Westar's highest-volume electric customers.
KCC spokeswoman Rosemary Foreman called it "an agreement in principle" and noted, "Nothing has been filed."
Westar had argued that higher rates will help it pay for new power plants and wind farms and repair damage to its system from winter storms. Also, it said, its shareholders should be allowed to earn a return on their equity typical for other utilities, so that it can continue to attract capital.
Both CURB and the KCC's staff had conceded the need for higher rates.
The utility opened a new, natural gas-fired power plant this year northeast of Emporia to handle periods of peak demand. It has a capacity of 300 megawatts, enough to meet the peak demands of 150,000 households, and will double in size next year.
The utility bought a 300-megawatt natural gas-fired plant in 2005 in Logan County, Okla., north of Oklahoma City, also to help it handle peak loads.
In addition, Westar is a partner in planned wind farms in Barber, Cloud and Wichita counties to provide up to 296 megawatts of generating capacity.
Foreman noted that all of those projects were approved by the KCC before Westar filed its proposed rate increase in May.
"We knew from the outset that rates were going to go up," Springe said. "I've been telling everybody that Westar is going to get a good part of what they asked for."
And Ludwig said: "I think the settlement acknowledges all of those factors - new generation facilities, energy being brought onto our system, the cost of restoring our system after the December 2007 ice storm."
But Springe said the utility made a number of key concessions. He said it agreed to give up a proposal to give its shareholders an even higher rate of return on their investments in wind farms, and it accepted CURB proposals to redesign rates to encourage consumers to limit their electric use.
Also, Springe said, the utility agreed to give consumers more notice of increases in its fuel costs, which automatically are passed on.
"Those types of policy changes really sort of moved me over to believing this is, on balance, a pretty good settlement overall," Springe said.
As the Dow Jones industrial average dropped 3.6 percent during regular trading Friday, Westar's shares did slightly better. They dipped about 3.1 percent in value, down 56 cents to $17.41.