KCC discusses energy rate increase request





The Kansas Corporation Commission (KCC) held a public hearing Thursday night in Lawrence regarding a rate increase request filed by Black Hills Energy on April 29.

Video conferencing technology allowed people in other parts of the state to observe the hearing and address the KCC. One of the video conferencing locations was in Wichita and the other two were in Garden City and Goodland.

According to the KCC notice, Black Hills indicates the proposed rate increase is necessary to cover increased costs of wages, medical expenses and supplier costs. The increase would only affect the part of a customer's bill that relates to delivery of gas, not the cost of the gas itself, which is passed through to customers as is.

Black Hills' last rate increase of $5.1 million was approved in May 2007. The new rate increase is a 6.7 percent increase totaling $7.28 million.

Black Hills Energy has approximately 111,000 customers in 64 Kansas communities and sent letters to its customers in June with an explanation of the rate increase and a copy of the KCC notice.

"Since 2006, we have invested more than $50 million in our natural gas system in Kansas. Yet, we haven't requested a rate increase in those eight years, a fact that reflects our focus on effective cost management and successful process improvement efforts," Todd Jacobs, Black Hills general manager, wrote.

Jacobs stressed that the rate request only pertains to delivery costs, which he said are less than half the typical bill. The majority of a natural gas bill covers commodity costs, which Black Hills passes through to customers without markup, according to Jacobs.

If the rate increase is approved, Black Hills estimates a typical residential customer's bill would go up $4.17 per month. Commercial customers would see an average monthly bill increase of about $13. The new rates would go into effect in February 2015, if KCC approves. Changes in rates must be approved by the KCC. The commission's staff reviews the request and considers public comments and testimony from the Citizens' Utility Ratepayer Board (CURB), Black Hills representatives and other interested parties.

The KCC, officials of Black Hills Energy, and counsel for both Black HIlls and the Citizens Utility Ratepayer Board (CURB) made comments during Thursday night's hearing.

Jacobs said the main thing driving the increase is infrastructure, or improving the company's pipeline system to respond to state and federal requirements.

"As a company, we want to make sure we're able to put infrastructure on the ground, make sure our system is safe and reliable," Jacobs said.

He said a benefit to increasing the customer charge is that it remains fixed and isn't variable like the volumetric charge, which fluctuates based on gas usage.

"So you're not going to see those huge spikes," Jacobs said.

He said public input is very important and that because Black Hills Energy is a regulated company, it is accountable to it's customers.

David Springe, consumer counsel with CURB, which represents utilities consumers in rate cases, said that one thing the KCC will consider in deciding the case is how much shareholder profit is built into utility rates.

"Black Hills has built in about 10.6 percent profit," Springe said. "I can tell you right now, we think that's too high."

Springe said that CURB's view is that 8.5 percent is a fair rate of return and that the KCC has the authority to choose a rate of return between 8.5 and 10.6 percent.

"That's where the public is very important," Springe said. "(The KCC) is ultimately answerable to you."

Springe said another issue CURB has with the proposal has to do with the increase in the customer charge because it guarantees a profit to Black Hills regardless of a customer's gas usage.

A third issue addressed by Springe has to do with surcharges. He pointed out that within the past two years, Black Hills has increased two of them --¬ a property tax surcharge and a gas supply realignment surcharge.

"In this particular case, the company is asking for a new surcharge, a new line item charge on your bill, so that between rate cases, they can do some additional pipeline replacement. And they'll say it's safety," Springe said. "We all want a safe system. But I can guarantee you I can sit any one of Black Hill's executives up on the stand and ask them if their system is unsafe and they will tell you it's not unsafe. So the question becomes, 'Why do you need a new surcharge?'"

Springe said based on what he has seen so far, he doesn't think there is overwhelming evidence that there is big need for additional consumer money.

The KCC ¬ will conduct an evidentiary hearing on the Black Hills rate increase request at 9 a.m. Nov. 12 to 17 ¬ in the first floor hearing room at its Topeka office. At this hearing, KCC Staff, Black Hills representatives, and CURB will present their case to the Commission.

KCC is accepting written comments from Black Hills customers through Sept. 22. Comments regarding the case should reference Docket No. 14-BHCG-502-RTS, and may be sent to the Kansas Corporation Commission, Office of Public Affairs and Consumer Protection, 1500 S.W. Arrowhead Road, Topeka, KS 66604. They can also be emailed to public.affairs@kcc.ks.gov.

The KCC must issue a decision by Jan. 6, 2015.

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