Changes may blow out Westar’s wind proposal; Board says development might not be in best interest of ratepayers
Westar Energy’s request for increased rates to develop the state’s largest wind energy program could have a long-term impact on Kansans.
“This is a big case, and we’re fighting over a lot of things,” said David Springe, consumer counsel for the Citizens’ Utility Ratepayer Board.
Westar wants a decision from the Kansas Corporation Commission quickly. Rate cases generally take at least six months, but this one has been placed on a three-month fast-track.
Westar, the state’s largest utility, says it needs a quick turnaround because wind energy is hot.
“To put it bluntly, it is a seller’s market. If we cannot commit within the time frame we have outlined, the developers will likely take their business elsewhere,” said William Moore, Westar president and chief executive officer.
The hearing in the case starts today. KCC is scheduled to make a decision by the end of the month.
Westar wants to add 295 megawatts of wind-generated energy, which would be enough electricity to power a city the size of Lawrence. About half of the power would be built and owned by Westar and the other half would be bought through power purchase agreements. If enacted, the proposal would nearly double current wind generation in Kansas, which is among the top three states when it comes to potential wind power.
To embark on this plan, Westar wants some upfront assurances from KCC. It wants to be able to include the $282 million to build wind power in the company’s base for rates and it wants to be able to recover the costs of the purchased power. It also wants a 1 percent rate of return bonus for its troubles.
If it gets all this, Westar says it will obtain another 200 megawatts of wind generation by the end of 2010.
Average residential costs will increase $2 to $2.50 per month under the proposal, Westar says. CURB’s Springe has argued the increase could be closer to $4 per month.
Moore says wind energy is justified because it may protect consumers in the long run from volatile fluctuations in other energy sources, such as coal and natural gas.
“It is entirely possible the net result of adding wind generation will result in a rate benefit over the life of these contracts and investments,” Moore said in testimony to KCC.
CURB, the agency that represents ratepayers, doesn’t argue that Kansas needs wind energy.
But development of wind must be in the ratepayers’ interest, said Andrea Crane, an expert consultant hired by CURB.
“It would be irresponsible for regulatory commissions to promote renewable energy at any price,” Crane said.
Crane’s analysis says Westar-owned wind energy will cost ratepayers 14 percent more than if the company purchased its wind energy from other companies on the wholesale market. Wind purchases provide rate stability because the rates are fixed for the term of the agreements, while company-owned assets – the turbines and their operation – increase the rate base and risk to ratepayers, she said.
Crane also opposes the 1-percent bonus for Westar, especially if KCC gives Westar the OK to build wind farms.
She argues KCC shouldn’t provide incentives for Westar to build because this bonus will benefit company stockholders while ratepayers are exposed to added risk.
Westar’s Moore disagrees with Crane, although he concedes it isn’t known whether built or bought wind will cost more.
“The fact is that we will not know which method for acquiring wind energy is less expensive until we have many years of experience with these resources,” he said.
But if KCC agrees with CURB, Westar will reduce its project, and wind development by Kansas utilities would be dealt a devastating blow, Moore said.
Both Westar and CURB, however, do agree that KCC should consider having Westar offer a “green tariff” so that those customers who are willing to pay for additional amounts of wind energy can do so.
The rate case also has generated controversy.
Last month, one member of the three-member KCC disqualified himself from the case, and CURB asked the other two commissioners to do the same.
This happened after CURB found an internal Westar memo that stated Gov. Kathleen Sebelius told utility executives that their companies would be “fully compensated” when seeking to recover costs for building more wind energy.
Sebelius appointed all three KCC commissioners. Commissioner Joseph Harkins has recused himself from the Westar case because he said he wanted to avoid the appearance of impropriety. Before being placed on KCC in June, Harkins served as Sebelius’ energy adviser.
But Commissioners Thomas Wright and Michael Moffet refused to disqualify themselves, saying they never have had any discussions with Sebelius on the subject of setting rates.
Wright noted that KCC “has clearly indicated its intent to further alternative energy and energy efficiency programs in prior dockets.”
By Scott Rothschild
3 December 2007
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