If you're a customer of Westar Energy, you might be understandably confused about what's about to happen to your electric bill. Is it going up or down? The answer is, it's hard to say right now.
The confusion stems from decisions last week by two different regulatory agencies — one federal and one state — that deal with how much Westar charges for transmission fees. That's the money it collects, separate and apart from the price of the electricity itself, for transmitting that electricity across a network of power lines and substations to get it from the power plant or wind farm to your neighborhood.
You can think of it as a shipping fee. Whenever you buy a new shirt or computer from an online retailer, there's the cost of the product itself, and then there's the cost of sending it to your house.
That transmission fee — formally known as a "tariff" — is regulated at both the state and federal level. The Kansas Corporation Commission, the state agency, is in charge of setting the rate based on a complex formula that determines how much of the overall load on the electric grid is attributable to different classes of customers. But the Federal Energy Regulatory Commission, or FERC, also has a role that includes deciding how much profit a utility company like Westar can make off of its investment in transmission lines.
Two years ago, the KCC filed a complaint with FERC, alleging that Westar was making too much profit, as measured by its "return on equity," or ROE. At the time, according to the KCC, Westar was earning about 11.3 percent ROE.
Nearly a year later, in July 2015, the KCC and Westar reached an agreement whereby Westar would lower its ROE to 10.3 percent and refund roughly $10 million to its customers. That would have lowered most residential customer bills by about 40 cents per month.
But that settlement needed the approval of FERC, which evidently wasn't very pleased with it. And so negotiations continued until last week when FERC signed off on another settlement in which Westar has agreed to lower its ROE to 9.8 percent, along with the same $10 million refund. According to the KCC, that lower ROE would save ratepayers about $8 million annually.
That still hasn't become final yet. According to Westar spokeswoman Gina Penzig, the company needs to make a new filing with the KCC to implement the agreement, and both the KCC and FERC need to sign off on the final numbers, a process that could take a number of months.
Westar estimates the agreement will save residential customers about $1.50 per month, Penzig said.
But here's where things get complicated, and it explains why many customers are understandably confused. While those negotiations have been going on, Westar filed a new tariff request with the KCC, as it periodically must do, seeking to update its transmission tariff. That request was based on the previous 10.3 percent ROE. And according to KCC spokesman Samir Arif, the commission was statutorily obligated to accept it once it had reviewed the numbers.
And so on Thursday, one day after the FERC settlement to lower the transmission tariff was announced, the KCC issued a separate order to raise the tariff by $25 million, or roughly $4 per month for an average customer. That order took effect immediately April 1.
Acknowledging that this is all just a bit hard for average customers to digest at once, the KCC included a statement in its press release Thursday saying its staff will continue to audit the new, higher transmission charge to make sure it stays within the new lower ROE limit.
For its part, Westar notes it has invested $1.3 billion in its power grid over the past 10 years, much of which has been for transmission lines that bring energy from its wind farms in central and western Kansas to its urban population centers in Wichita, Kansas City, Lawrence and Topeka.
Merger and acquisition rumors
Meanwhile, some of you may still be wondering about recent media speculation that Westar could go up on the auction block sometime soon.
Penzig had a one-sentence answer when asked about those rumors: "We don’t comment on speculation in the marketplace."
According to a Bloomberg story in March, it was Westar's own CEO Mark Ruelle who fanned that speculation when he spoke to business reporters during a conference call in November about the company's quarterly financial report.
“In the context of M&A (mergers and acquisition), given our relative size, we don’t really perceive ourselves likely to be a buyer, were there a consolidation,” Bloomberg quoted Ruelle as saying. “I think we would be more likely to see ourselves [as a] seller than a buyer.”
That comment caused Westar's stock price to skyrocket almost immediately, which resulted in trading of the stock being temporarily suspended.
Ruelle's comment came in response to questions about a recent spate of mergers and acquisitions in the U.S. utility industry. According to the Bloomberg article, demand for electricity has been leveling off in recent years, and some companies have decided their only opportunity for growth is through acquisitions.
Bloomberg cited unnamed sources as saying Westar has been in talks with potential financial advisers as the company looks at its options.
Westar, which serves 700,000 customers in Kansas, is the state's largest public utility company. But its operations are contained entirely within the state of Kansas.
Supporters of wind energy cheered final passage in Congress of the bill to avert the "fiscal cliff."
The bill included a one-year extension of the wind energy Production Tax Credit for projects that start construction this year.
This statement came from the American Wind Energy Association: "America's 75,000 workers in wind energy are celebrating tonight over the continuation of policies expected to save up to 37,000 jobs and create far more over time, and to revive business at nearly 500 manufacturing facilities across the country."
Gov. Sam Brownback has touted Kansas' growth in wind energy and supported extension of the credit. But he has also called for phasing it out over several years.
Wind energy development in Kansas has produced more than 12,000 jobs, economic benefits for landowners, and put downward pressure on electric rates, according to a study released Monday by a pro-wind group.
“The Sunflower State has one of the best wind resources in the nation, and the leadership in Kansas should be applauded for harvesting the economic benefits of wind in a thoughtful manner that has helped control electricity rates,” said Jeff Clark, executive director of The Wind Coalition. The coalition is composed of wind developers, manufacturers, and others in eight south-central states, including Kansas.
The report was put together by members of the Polsinelli Shughart's Wind Energy Practice in partnership with the Kansas Energy Information Network.
The report states: — Utility filings of actual costs of new non-baseload generation indicate that wind energy generation is equivalent to, or in some cases cheaper than, new natural gas peaking generation;
— Kansas wind generation has created a total of 3,484 construction jobs, 262 operation and maintenance jobs, and 8,569 indirect and induced jobs for Kansas citizens;
— Kansas wind generation has created revenues of more than $273 million for landowners; and more than $208 million for community organizations and local and county governments;
— The Kansas Renewable Portfolio Standard (RPS) has become an important economic development tool for attracting new businesses to the state. This requires that major utilities to have 20 percent of their energy capacity from renewable sources by 2020.