In an abbreviated rate review last year, Westar was given permission to add $17.1 million to rates to pay for expansion of wind power — projects pushed by former Govs. Kathleen Sebelius and Mark Parkinson.
Since its last official rate review in 2008, Westar Energy has raised its electric rates four times. Those four increases have already cost Kansas customers more than the $91 million the company requested to add to rates last week.
“You’re paying $110 million more than (after) the last rate case, and this is $91 million on top of that,” said David Springe, chief consumer counsel for the Citizens’ Utility Ratepayer Board, the state agency that represents residential and small-business utility consumers.
In years past, Westar would seek a rate increase about every four or five years and rates would stay stable from year to year in between reviews.
But in recent years the company argued – and the Legislature agreed – that today’s more volatile energy markets require faster response to changing conditions.
The result is that bills creep up year after year without the full-scale review that the utility’s requests used to go through.
A constant irritant
The constantly rising rates are an irritant to customers like Don Hedrick, 75, of Severy, in southern Greenwood County.
“Over here in eastern Kansas, they put $10 on last year and now they want another (increase),” Hedrick said.
Hedrick, who lives on $1,100 a month in Social Security payments, said some of his neighbors are getting by on as little as $400 a month.
“My Social Security, I haven’t gotten a raise ever since when,” he said. “But every year, every year, they (Westar) want more money.”
And, he said he doesn’t think the Kansas Corporation Commission, which regulates rates for the state, is doing a particularly good job of it.
“I’ve called them,” he said. “They’ll thank you, and that’s it. I wish they would come down and realize how bad things are for people in the small towns.”
Rate increase through riders
At its last full rate case three years ago, Westar requested $177 million in increased rates and got $130 million, Springe said.
But since then, the Legislature has allowed Westar to seek rate increases through a variety of “riders” including funds for environmental improvements to its power plants and new transmission lines.
Since 2008, regulators have granted Westar permission to increase rates $57.1 million through the environmental rider and $55.2 million on its transmission rider, according to numbers provided by Westar.
In an abbreviated rate review last year, Westar was given permission to add $17.1 million to rates to pay for expansion of wind power – projects pushed by former Govs. Kathleen Sebelius and Mark Parkinson.
Westar was also granted a $5.8 million rate increase under a rider to spur energy efficiency, another priority of the Sebelius and Parkinson administrations.
Overall, the increases approved since the last rate case total $135.2 million, $4 million more than Westar got in its last rate case.
Springe said the only way customers like Hedrick are going to be able to affect their rates is if they become involved in the process.
While some of the increases are unavoidable – such as the need to bring Westar’s aging coal plants up to current emission standards – a lot of the costs are arguable, Springe said.
He said if people want to affect their rates, they have to organize and participate in the public hearing process that’s part of ratemaking.
In recent years, the hearings have generally been sparsely attended, with ordinary residents often outnumbered by company officials.
“If 10 people show up and say ‘I don’t like this,’ it doesn’t (affect the outcome),” Springe said. “There’s 600,000 residential customers. If a whole lot of people got together and started making noise and writing their legislators, because legislators then call the KCC, that does have an impact.”
The current proposed Westar increase will add $6.44 to the electric bill of an average customer using 900 kilowatt hours of electricity a month.
At The Eagle’s request, Westar also provided numbers showing how the change would affect smaller and larger users.
A small house or condo using 750 kilowatt hours a month would see a monthly increase of $5.54, while a large house using 1,250 kilowatt hours would pay $8.56 more, according to Westar’s figures.
Out of the company’s $91 million rate increase, the biggest cost driver – at $37.5 million – is the rising costs of employee benefits, especially pensions and depreciation related to pensions, said spokeswoman Gina Penzig.
No. 2 on the list is $22 million in reduced sales.
A planned expansion of tree trimming to prevent power outages is the third-largest cost driver. Westar has been running a pilot program in Wichita that it now proposes to expand throughout its system.
And at $12 million, the fourth-biggest impact on rates is increased maintenance and turbine replacement costs at the Wolf Creek nuclear plant at Burlington, Penzig said.
While costs are rising, Westar has some decreases that kept the costs from going higher than they are, she said.
The company has saved $30 million against planned depreciation of its power plants, she said.
“We’re taking good care of our plants and getting more use out of them” than was originally projected, she said.
And Penzig said Westar is continuing to reap cost reductions – about $17 million this year – from the 1992 merger of the Kansas Gas & Electric and Kansas Power & Light systems that created the company now known as Westar.
In addition, the company is saving $8.8 million a year through changes in the way it finances employee life insurance, she said.
Lower sales a factor
Westar’s lower-than-expected power sales last year – which is raising rates by $22 million – is not closely related to efforts by the state and the company to get individual consumers to conserve power, Penzig said.
She said residential usage has remained fairly stable, and the dropoff has been with commercial and industrial companies.
Battered by the recession, many of those companies have either cut their production or closed down, which means they buy much less power from Westar, Penzig said.
Springe said he also advocates for conservation. As an economist, he said, he recognizes that electricity sales do affect Westar’s ability to cover its fixed operating costs and get a reasonable profit.
But while declining sales can cause higher rates in the short term, using less is a good long-term strategy, he said.
In pure economic terms, “If everybody cut their usage in half, then they (Westar) are going to collect half as much money, so they would have to come in and double the rates to get back to where they are,” he said.
But while that’s the textbook answer, the real problem in Kansas is that the company has to invest a lot in updating power plants and expanding capacity to meet forecast future demands, he said.
“Really, what you’re doing when you’re trying to conserve now, is trying to avoid building future stuff,” Spring said. “You’re still going to have to build some, but the question is, if we conserved a whole lot, could we knock a chunk off of that and save us all some money?”
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