News Release 05-20

KCC trims Westar Energy's request for rate increase

On May 2, 2005, Westar Energy Inc. (Westar) filed an application with the Kansas Corporation Commission (KCC) requesting a comprehensive review of its electric rates which included an overall annual revenue increase of approximately $84.1 million. This represented an increase of 9 percent or $47.8 million for its northern region, and a 6 percent or $36.3 million increase in rates for its southern region customers.

Today, the Kansas Corporation Commission issued an order granting Westar an overall annual rate increase of approximately $3 million. Today’s action will increase Westar’s northern region rates by approximately 4.7 percent or $24.2 million, and decrease its southern region rates by approximately 4.2 percent or $21.2 million.

In its order the Commission stated, “While this outcome results in rate increases in the North and rate decreases in the South, our determinations set forth above will generate overall revenues quite close to those existing from current rates. These current revenues have enabled Westar to improve its balance sheet, attract investors, refinance debt, move toward investment grade credit ratings, and yet generate electricity at the cheapest rates in Kansas.” The Commission indicated that its determinations should enable the company to continue to meet those goals, stating “…this order will allow Kansans and our state’s economy to continue to benefit from a strong utility that efficiently generates electricity, encourages conservation, and meets its environmental responsibilities, all at just and reasonable rates.”

For customers in the northern region, the average residential customer’s monthly bill will increase approximately $3.00 from $58.50 to $61.50 or 5.1 percent. For customers in the southern region, the average residential customer’s monthly bill will decrease approximately $3.47 from $72.00 to $68.53 or 4.8 percent. The average bill calculations are estimates based on the company’s average monthly residential revenue in each region, divided by the number of residential customers in each region.

The Commission also approved the implementation of an Energy Cost Adjustment (ECA) charge. Historically, fuel costs were included in the per Kwh (kilowatt hour) energy charge and were only adjusted at the time of the company’s next rate case. Under an ECA process fuel costs incurred by the company for the generation of electricity will be passed more directly and quickly to customers through the ECA charge. The ECA charge will be reflected as a separate line item on the customer bill and will fluctuate on a monthly basis. This method allows for consumers to benefit from fuel cost declines, and when fuel costs go up, it serves to give consumers better “price signals” regarding their energy usage and thereby encourages conservation.

The Commission approved a Return on Equity (ROE) of 10 percent and an overall Rate of Return (ROR) of 7.8907 percent. Westar had requested a ROE of 11.50 percent and a ROR of 8.8350 percent.

The ROE is the amount of money a company has the opportunity to earn on its common equity provided by stockholders and the ROR is the combined cost of debt and equity used to finance assets.

In determining the ROE, the Commission relied on the range recommended by KCC Staff, finding a 10 percent ROE to be appropriate based on the extensive testimony provided by the various parties in the case, and taking into account a reduction in risk to the company resulting from the use of an ECA process to recover fuel costs.

In its order, the Commission clearly states that it is confident that costs associated with the misdeeds of prior Westar management have been excluded from this rate case and that ratepayers are not being asked to bear the burdens of those prior actions.

The new rates will be effective for usage on or after approval of the company’s new tariff filings.

The company’s last rate case was in 2001, when it filed for an overall increase of $151 million. The Commission ordered a total company decrease of approximately $22.7 million.

The northern and southern regions are the geographical areas historically served by KPL and KG&E, respectively. Westar provides retail electric service to approximately 352,000 customers in the northern region and approximately 303,000 customers in the southern region.

Docket No. 05-WSEE-981-RTS