A century gone by and we're still no closer to real choice in electricity.
The magazine being what it is, this column usually goes to press at least three weeks ahead of the cover date. Ordinarily I try to anticipate some upcoming event before the fact.
With this issue, however, the job gets tougher. It's more than a new year. In the popular view it's a new century. (But mathematicians know the Millennium begins in 2001.)
Did the electric grid crash on Jan. 1? Did the Federal Energy Regulatory Commission announce its new rule on regional transmission organizations on Dec. 15? You'll know before I do. So don't expect any Y2K reports here. There's no percentage in it.
Instead, I plan to attend the opera on New Year's Eve. And they say this one ends on a happy note - no murders or suicides at the final curtain. Let's hope the house lights come up when they're supposed to, and stay on long enough for the audience to find the exits, before the clock strikes midnight.
RUMORS WERE FLYING AT PRESS TIME on whether Western Resources Inc. would go with its planned merger with Kansas City Power & Light Co. (KCP&L) to form Westar Energy. On Dec. 9 the Wichita Eagle had published a story from the Associated Press that the two merger partners were "working to dispel the impression" that their deal was "near collapse." According to the AP, a member of the Kansas Citizens' Utility Board had said the merger was threatened by a drop in the stock price for Western Resources. As the AP reported, financial analysts had tied the drop in price to "poor financial performance" by Protection One, a subsidiary of Western Resources that provides home security services.
The story added that Western Resources chairman David Wittig had discussed possible action if the merger was not completed, fueling speculation that the deal might flounder. According to a spokesman at Western Resources, Witting was discussing only "thoughts and ideas."
I mention these events because in a previous column ("Jim Hoecker's Mailbox," Oct. 15, p. 4), I addressed some of the issues surrounding the Westar deal. In particular, I described how the merger plan approved by Kansas regulators would perpetuate a disparity in retail rates charged to customers located in Wichita vs. those in Topeka. That disparity reflected the former service territory boundaries of Kansas Gas & Electric (KGE) and Kansas Power & Light Co. (KPL). Those two companies had combined in 1992 to form Western Resources. KGE had invested in the Wolf Creek nuclear plant (along with KCP&L and a rural cooperative), but KPL had not.
In my editorial I implied that the rate disparity was unfair, forcing customers to pay for decisions made by others long ago. To lend a human element to the controversy, I quoted an email message from a disgruntled KGE customer in Wichita to James Hoecker, chairman of the U.S. Federal Energy Regulatory Commission. All of this elicited a critical letter from KGE, reproduced verbatim below.
On Nov. 28, the Eagle reported that the Wichita City Council had set aside $300,000 to hire consultants to study the feasibility of creating a city-owned utility to break away from Western Resources and, presumably, to shrink or reduce the rate disparity.
WHY DO I ATTACK THE RATE DISPARITY? On one hand, I agree with KGE president Annette Beck that the rate disparity stems directly from retail and wholesale ratemaking principles ordained by regulators, and from capacity sharing agreements signed between KPL and KGE.
In fact, Wichita and Western Resources disagree over the interpretation of those agreements, as shown by pleadings filed by the respective parties in FERC Docket No. EL99-90-000.
(In that case, Wichita complains that Western Resources overstepped by dictating below-cost prices for capacity obtained from KGE. Wichita witness Timothy Corrigan from R. W. Beck claims that Western runs a single integrated system and ought to equalize costs across its territory. Western filed its answer at the FERC on Oct. 18, after my column was published. It alleged that the FERC knew of the below-cost capacity discount when it OK'd the system operating agreement in 1992. It says that KGE acceded to the discount and that in any case Western has an option not to buy the capacity, so it cannot now be forced to pay a higher price for surplus KGE capacity to help reduce rates in Wichita. Western adds that KGE and KPL did join efforts in planning for the Wolf Creek nuclear plant, so that the FERC has no warrant to equalize costs across the system.)
But on the other hand, is ratemaking the end game? Who has sovereignty? A merged utility is free to start fresh. How long can it pacify unhappy customers with theories of cost allocation?
By analogy, suppose that either Exxon or Mobil must sell off some gasoline stations before they merge. Then suppose that after the merger, the combined company forces the operators of the former Mobil stations to charge more per gallon than the operators of the former Exxon stations, to reflect differences in pre-merger cost structures of the formerly separate companies.
How long would that wash?
From and interested reader:
Nov. 18, 1999
Dear Mr. Radford,
To say that the employees of Western Resources were disappointed with your recent Frontlines column (Oct. 15, 1999, p. 4) would be an understatement.
While we all are entitled to diverse and far-ranging opinions, the reckless and inflamatory manner in which you presented your views about Western Resources as fact was a disservice to your subscribers and the electric utility industry in general.
Yes, there is a difference between the electric rates charged customers of our electric utilities, KPL and KGE. That difference is based on the cost of service dedicated to each customer base. As you should know, that approach is not unique to our company or our industry.
And while our pending Westar Energy merger would add yet another electric utility to the Western Resources portfolio, your assumption that this business structure would provide less reason to segregate costs is flawed. Instead, I believe, it is an oversimplification on your part to provoke readers into perceiving a problem where none exists.
While you have given a cursory glance at the rate structure of our electric utilities, I would challenge you and others to be mindful that the issue is ensuring the costs of providing the service are recovered so utility companies remain viable businesses.
Further, your characterization that surplus capacity from Wolf Creek is sold at "bargain basement rates" to neighboring KPL customers simply is wrong. Wolf Creek was built as a base-load generating facility for KGE customers. As a result, KGE customers incur the construction costs of this facility in their rate base.
Since 1996, more than $75 million in rate reductions have been allocated to KGE customers, brinigng KGE rates today to approximately 10 percent below the national average.
To give credence to an e-mail sent by a disgruntled KGE customer certainly is your prerogative. After all, we all look for ways to pay less for services and commodities. However, your disregard in contacting Western Resources to get the other side of the story is irresponsible.
President and Chairman of the Board
KGE (subsidiary of Western Resources Inc.)
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