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State May Let Fuel Costs Influence Electric Bills

Posted on: Tuesday, 20 December 2005, 00:00 CST

By Dion Lefler, The Wichita Eagle, Kan.

Dec. 19--After decades of driving up electricity costs for southern Kansas consumers, the Wolf Creek nuclear power plant may in the future help keep rates down.

The reason is a proposed change in state utility regulations that would allow Westar Energy to raise or lower electric rates each month depending on the cost of fuel such as coal or nuclear energy.

Currently, electric rates stay the same for years, regardless of changes in the cost of fuel.

Last week, state regulators indicated they'll make this "energy cost adjustment" as part of Westar's rate case that is under way in Topeka to set new electric rates for the company.

The Kansas Corporation Commission has until Dec. 28 to set the new rates.

Westar officials declined to comment for this story because of the pending rate case.

The reason this change might help consumers in Wichita more than in northern Kansas is simple: The power comes from a different source.

Most of the power is nuclear for customers in Wichita and the rest of Westar's southern division, the former Kansas Gas and Electric, or KGE, service territory.

Customers in Westar's northern division, formerly Kansas Power and Light or KPL, get most of their electricity from coal.

The choice of fuels could fuel a difference in the rates the customers end up paying, said Ken Rose, an energy economics consultant and senior fellow with the Institute of Public Utilities at Michigan State University.

Nuclear option cheaper

Rose said it's fairly common across the country for utilities to be able to pass their fuel costs to customers.

The price of coal and the cost of transporting it to power plants appear to be increasing, though more slowly than with other fossil fuels such as natural gas, Rose said.

The cost of nuclear fuel, however, is basically flat and may even be dropping slightly, he said.

While nuclear power plants are expensive to build, they're among the cheapest generating facilities to operate, and Wolf Creek in particular has a record as one of the most efficient plants in the nation, he said. Wolf Creek is near Burlington in Coffey County.

If Rose's projections run true, that could mean that northern customers would see their rates rise with the cost of coal while southern customers would benefit from the more stable price of nuclear fuel.

The idea of Wolf Creek having a moderating effect on rates may take a little getting used to here in old KGE territory.

Until now, it's always been the power plant that southern Kansans love to hate.

Because of the high costs associated with building Wolf Creek, southern customers have paid millions of dollars more for power than their northern counterparts since 1992, when KGE and KPL merged to form Western Resources, which was later renamed Westar.

Wolf Creek was originally designed as an almost-identical twin to the Three Mile Island nuclear plant in Pennsylvania.

But after the 1979 meltdown at Three Mile Island, the nation's worst civilian nuclear accident, Wolf Creek, which was under construction, had to be redesigned to meet new safety standards.

The plant, originally estimated to cost $525 million, wound up costing $3 billion.

The overruns drove KGE to the brink of bankruptcy until the merger with KPL.

One of the conditions of that merger was that Wolf Creek debt would not raise rates for KPL customers, leading to higher rates for KGE consumers.

That's been the situation ever since, although the rates for the two companies have moved closer together as a result of several commission decisions to give more rate relief, when available, to the KGE side.

To parity, or beyond?

When it comes to electricity, "Rate parity" has been Wichita's battle cry for years.

The City Council passed its first resolution demanding parity less than a year after the KGE-KPL merger.

Former Mayor Bob Knight made it one of his signature issues, fighting all the way to the federal government in 2002, while threatening to pull Wichita out of KGE and create a municipal utility.

The secession threat was dropped after the commission ordered a 6.6 percent cut in KGE rates in 2001, narrowing the rate differential from approximately 25 percent to about 12 percent.

In the current rate case, Westar's northern and southern divisions could move even closer to parity.

Westar has proposed an overall increase of $84.1 million for its two divisions -- a $47.8 million hike for the north and $36.3 million for the south.

Commission staff has countered with a recommendation of an $11.1 million increase in the north and a $41.5 million cut in the south.

Still, southern customers might never pay lower rates than their northern neighbors, said Niki Christopher, a lawyer with the Citizens' Utility Ratepayer Board, the state agency that represents residential and small-business utility consumers.

Christopher said that once the long-sought goal of rate parity is reached, it might spell the end of KGE as a separate entity and Westar would go forward as one company with one set of rates.

"It would justly turn around the other way," with KGE customers paying lower rates, she said. "But I don't think that's going to happen."

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Copyright (c) 2005, The Wichita Eagle, Kan.

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Source: The Wichita Eagle (Wichita, Kan.)

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