Archive for Sunday, December 4, 2011

Rising rates

A rate increase that includes a 10.6 percent return for Westar Energy is a tough sell for Kansas electrical consumers.

December 4, 2011


The price of just about everything is going up, but there are real questions about whether Westar Energy’s electric rates should go up by the $91 million the company is seeking in a request pending before the Kansas Corporation Commission.

The request would add an average of about 6 percent to Westar customers’ bills, but not all customers are equal. Residential bills will increase by about 7 percent, Westar officials said, and commercial bills will rise by 4-6 percent.

It’s the first general rate increase sought by Westar since 2008, but that doesn’t mean that electrical bills haven’t been going up in the last three years. General rates may not have increased since the KCC approved a $130 million increase for Westar in 2008, but all those “extra” charges on your bills certainly have.

According to figures supplied by the Citizens Utility Ratepayer Board, $123 million in “line item” charges have been added to Westar customers bills since 2008. Those charges are in three categories: transmission, environmental and energy efficiency. These fees are aimed at boosting transportation facilities, making required environmental improvements at Westar plants and funding energy efficiency programs. Since 2008, Westar has collected $79.2 million in additional fees for transmission lines, $78.1 million in environmental fees and $13.8 million for energy efficiency — in addition to the $130 million general increase.

Major environmental work under way at the Lawrence Energy Plant will be covered by those special fees, Westar officials told a group of Journal-World staff members last week, as will new energy efficiency programs being introduced in Lawrence. So if Westar is covering all of those programs with special fees, what will it use its general rate increase for?

A large chunk of it (about $37 million) will go to fund pensions for Westar employees. Lawrence customers also may be interested in the company’s plans to add $20 million to its existing $25 million tree-trimming program. Company officials say the program is a tried-and-true way to increase system reliability and decrease power outages, although recent experience in Lawrence seems to buck that trend.

Perhaps the part of the rate request that has gotten the most attention from consumers, however, is the provision for a 10.6 percent rate of return for Westar shareholders. Such a high figure seems unconscionable to many Westar customers during the current economy. Westar officials say the 10.6 rate is necessary for the company to compete for investors with other utilities nationwide. David Springe, consumer counsel for CURB, confirms that the rate isn’t out of line with what other utilities offer but pointed out at a public meeting in Topeka that CURB believes that amount “is clearly excessive in a market where 30-year bonds are selling below 3 percent.” Springe also notes that line-item riders have removed much of the risk to Westar investors, because the riders cover most of the variable costs of the company’s operation.

It’s easy to see why Westar customers would balk at paying the higher rates. Stock market losses that hurt the Westar pension fund also have hurt investors across the state. Kansans are earning miniscule interest rates on any kind of fixed-rate investment. Individuals and businesses are having to delay desirable, but optional expenses until the economy improves. It seems Westar should do the same.

If history is any guide, Westar is unlikely to get approval for its entire $91 million request. The KCC is right to drive a tough bargain on behalf of consumers. The company needs to earn enough to stay in business, but it seems like a good time for the KCC to make sure Westar isn’t padding its spending or its profits at the ratepayers’ expense.


roadwarrior 5 years, 1 month ago

One would hope that we were all in this together. When one group stands on the backs of another group we cannot rise up together which is the only way this country can begin to thrive again. How in touch is the KCC panel with citizens still reeling from recession ? Thank you for your work David and by bringing this to our attention on our behalf.

jafs 5 years, 1 month ago

You're mixing up a couple of things there.

The rate of return for investors is not the same thing as improvements in energy efficiency or cleanliness - it's an additional amount added to that.

How is a 10% rate of return reasonable for an investment that's considered quite safe, and regulated by the government, which generally allows rate increases?

just_another_bozo_on_this_bus 5 years, 1 month ago

Westar isn't expanding the dam. They have no interest in it whatsoever.

jafs 5 years, 1 month ago

Regulated utility companies, especially ones that operate without competition, are generally understood to be rather safe investments.

I have no problem paying for clean energy and other improvements to the grid, but see no reason to guarantee such a high rate for investors.

If people want to get a 10% return, they can invest in more risky investments.

Lawrence Morgan 5 years, 1 month ago

For poorer people, or those with children, these increases in rates could be disastrous.

This is not the time to reward shareholders just because the company needs to keep up with other utilities nationwide. As roadwarrior says, how about our own people in this situation?

jafs 5 years, 1 month ago

Most poor people don't have money invested in the stock market - they're poor.

just_another_bozo_on_this_bus 5 years, 1 month ago

What about them? Do you honestly believe it's the widows and retirees that hold a controlling interest of these stocks, and they're at the shareholders meetings demanding this rate of return?

jafs 5 years, 1 month ago

The strong performance of public utilities regardless of the economic situation is part of what makes them safer investments.

Your assumptions are odd - safer investments for pension plans generally come with lower rates of return. So, if a pension plan moved money into a higher returning investment, they'd be trading off some safety for a possibly higher return.

Some pension plans were invested with Madoff - clearly a bad idea. Pension plans should be invested in lower risk investments, but shouldn't expect to get high rates of return.

I may be wrong, but isn't the bowersock project completely separate from Westar?

pizzapete 5 years, 1 month ago

We should allow big corporations to pollute our water and air so we'll have lower energy costs. That way we'll all have more money to spend at Walmart.

Crazy_Larry 5 years, 1 month ago

Technically, it's Tricky Dick Nixon's EPA. The Utility companies should be taken over by the government. Electricity is too important to us all to be left to greed-driven corporate interests. IMHO, of course. Put Your Lights On:

Crazy_Larry 5 years, 1 month ago

1-I don't live in Lawrence and 2-you're wrong. I understand you prefer high-paid, for profit, corporate monopolies... Pretty dumb, if you ask me, but I've come to expect it in 21st Century USA. Our country is saturated with dumb and stupid. It's not ignorance, mind you, that could be fixed.

Dark ages in 5 years, eh? FYI, Doofus, the USPS was created in 1792, and it operated fine for over 200 years. A 2006 act of congress (Postal Accountability and Enhancement Act) required the USPS to PRE-fund retirement health-care benefits (something that no other private company or government entity is required to do). That is what's brought about extreme financial hardship on the USPS.

BushCo set the USPS up for failure, you know, because we should privatize everything. The Postal Service is required to prefund 80 percent of future retiree health costs. That's the biggest reason they're broke. And it doesn't help that most correspondence these days is sent electronically.

Do us all a favor and crawl back under your rock. Maybe bash your head on that rock to see if you can knock some sense into it. At the very least, open a friggin' book up and read it. The ignorance you've displayed has me on the verge of breaking stuff.

Crazy_Larry 5 years, 1 month ago

If you'd read a book you wouldn't be so ignorant.

Mike1949 5 years, 1 month ago

No mention because as a right wing Obama basher, you talk in a language all your own and no one except a Obama critic (if he breaths you all are critics) would understand!

mloburgio 5 years, 1 month ago

Nixon created the Environmental Protection Agency.

mloburgio 5 years, 1 month ago

Corporations care more about profits than they do about people.

jafs 5 years, 1 month ago

Corporations don't care about people at all.

They only care about profits.

just_another_bozo_on_this_bus 5 years, 1 month ago

"They only care about profits."

Exactly-- it's the fiduciary responsibility of every BOD and corporate executive, and it overrides all other considerations.

jayhawkinsf 5 years, 1 month ago

Yes, it's their fiduciary responsibility just as a lawyer or priest must keep confessions confidential. Just as doctors must treat the mass murderer and the innocent child equally. Just over half the population has money invested in the stock market. They've invested their retirement money, their child's college fund. They expect the Board of Directors to behave in their best interests, as they are required to. Without that requirement and without that expectation, the system loses credibility. It collapses. And the over half of the population loses their investments.
Yes, "They only care about profits" just as the doctor only cares about providing the best care or the defense lawyer only cares about providing the best possible defense. Are these things bad?

jafs 5 years, 1 month ago

Bad analogies.

For one thing, the other professions you mention and the duties of them are far more noble than simply making money.

For another, it's not a choice between maximizing profits to the exclusion of all other concerns, and going bankrupt, losing everything.

There is an obvious middle ground, wherein companies could make money (and profits), while also acting in ways that are more humane.

jayhawkinsf 5 years, 1 month ago

"Far more noble than simply making money" If I change it around and say they are protecting millions of retirement investments or millions of college funds, does that make it more "noble"? Can I substitute my idea of "noble" into how a lawyer, priest or doctor can behave?
You're entitled to your idea of noble, as am I and as are 300 million Americans. Good luck trying to get consensus in getting them to "act in ways that are more humane", whatever that is.

jafs 5 years, 1 month ago

All of those groups have ethical principles that are to be their guides, and groups that monitor those and attempt to make sure they live up to them.

No such things exist for corporations.

Thus there is a very distinct difference between a priest, doctor, lawyer and a corporation - the former have professional ethical guidelines that structure their behavior, while the latter do not.

I think there actually quite a bit of consensus right now that something is fundamentally off in the way corporations maximize their profits.

For clarification, if a corporation maximizes it's profits by laying off large numbers of people, and demanding that the fewer employees just work harder, I consider that to lack "humane-ness".

Or, if it outsources jobs to a country that doesn't protect children and other workers.

Or, if it continues to inflate salaries at the top, while salaries throughout the rest of the company stagnate.

No comment on the obvious middle ground, in between going bankrupt and maximizing profits? That's where all of the decent solutions are in capitalism.

jayhawkinsf 5 years, 1 month ago

I'm not an attorney, but I believe your initial assumptions are wrong. I believe I'm correct in saying that the fiduciary responsibilities of corporations are established by federal regulations and have been established in courts. Remember, if a corporation does not maximize profits, shareholders can sue. They will sue. And they will win. As I said, I'm not an attorney so I cannot quote specific cases, but I believe I'm correct. All those other things you mention, more humane, middle ground, etc. go by the wayside in light of their responsibility to maximize profits. BTW - I'll tell you a story I heard a number of years ago on NPR. Ben and Jerry of the ice cream company wanted to donate money to some causes they were interested in. But they had gone public several years earlier. Their attorneys told them that if they took company profits to do this, they would be sued and they would lose. What they did was sold some of their own stacks and then made the donations, perfectly legal.
While you say doctors, lawyers, etc. have established ethical guidelines established by professional organizations, I think the same could be said about corporations. It's called the FEC and courts.
I'll give you ammunition for your side of the argument. It seems to me that a corporation could, if it chose, write into it's papers of incorporation that they would behave in certain ways, in which case investors could choose to invest, knowing in advance the intentions of the corporation. But for any existing corporation to unilaterally behave in that manner, they would certainly be sued.

jafs 5 years, 1 month ago

Yes - you're right about the legal obligation to maximize profit.

That's the problem.

And, yes, there are plenty of "socially responsible" investment options, in which those considerations are part of the package, and people knowingly choose to value them.

Legal requirements for a corporation are not analogous, in my view, to ethical and moral guidelines, hence the ability of those corporations to act in the ways I specified.

Oh, by the way, a corporation that pays their CEO less and other workers more can easily do so and retain the same shareholder benefits they currently offer.

Crazy_Larry 5 years, 1 month ago

"protecting millions of retirement investments or millions of college funds" LOL! You're so funny. Tell that to the retirees who watched their saving evaporate in 2008 with the collapse of the economy. I'm sure they'd rather have had that money stuffed in their mattress than in a Wall Street Banksters pocket. The game is rigged against the average American. They call it the "American Dream" because you have to be asleep to believe it.

jayhawkinsf 5 years, 1 month ago

If they wanted their money stuffed into their mattress, they would have done that. They chose instead to roll the dice on the stock market, an investment that in the long run, proves to be one of the best investments around.
You give the American public no credit. Maybe we shouldn't. Go to any casino and you'll see retirement funds being wasted faster than Wall Street can spend it. Smokers, drinkers, druggies, they're all wasting their retirement funds. They're all rolling the dice. But it's their dice to roll, not mine. I'd rather they decide what to do with their money than for you or I. Isn't that the American Dream, I choose what's best for me and you choose what's best for you.

Crazy_Larry 5 years, 1 month ago

In 1980, average corporate CEO pay equaled 42-times the average blue collar worker's pay. In 2010 it equaled 343-times the average blue collar worker's pay.

jayhawkinsf 5 years, 1 month ago

Feel free to invest in companies that pay it's CEOs 42 times the pay of the average blue collar worker. And feel free to avoid companies that pay it's CEOs 343 times the pay of the average blue collar worker. Or put your retirement money under your mattress. Isn't that the way it's supposed to work?

nativeson 5 years, 1 month ago

Corporations care about their shareholders. They care about people when it is in their best interest. Corporations understand competition. This fact should be used to the advantage of the consumer. Deregulate the purchase of electricity in Kansas. About 1/2 of the states in the US now allow for competition. Westar needs a competitor.

Clinton Laing 5 years, 1 month ago

Hey, anyone who thinks the rate proposed is too high, and agreed wih the Lawrence City Council that we shouldn't be building new coal-fired power plants in Kansas... you bring this stuff on yourself, dolts!

Centerville 5 years, 1 month ago

Granted, the energy efficiency stuff a boondoggle but keep an eye on the transmission Trojan horse. That is a pure scam.

gccs14r 5 years, 1 month ago

Westar had to pay Wittig $40 million. That may explain part of the rate request.

Evan Ridenour 5 years, 1 month ago

A 10.06% return for an investment that is almost zero risk? I am sure investors are throwing money at you.

Evan Ridenour 5 years, 1 month ago

It is almost zero risk because they are already allowed to automatically increase rates to compensate themselves for variations in those costs.

You need to check your facts, and You are wrong.

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