No rate hike, MPSC!
September 24, 2002

"Time for consumers to get a break, not just Empire" was a comment made by Connie Meier of Joplin. She was one of more than a dozen customers who testified at a recent fact finding hearing on the campus of Missouri Southern regarding the electric utility's proposed 9% rate hike, which, if allowed by the Missouri Public Service Commission (MPSC), would become effective in early 2003. With the increase, Empire District Electric Company (Empire) hopes to generate approximately $19.8 million in revenue. A formal hearing has been scheduled for October 28, 2002 in Jefferson City.

Meier was one of 6 who specifically spoke against the community absorbing Empire's losses rather than its stockholders. "If they want to retire short term debt, then they should absorb (any) loss by lowering their stock price," she said. It should be noted that in spite of a drop of more than 50% in net income applicable to common stock at the end of 2001 versus the previous two years, Empire has maintained the dividends per share of common stock at $1.28.

Jerry Lee Woolsey of Joplin stressed Empire's monopoly. It's a stock company. "I'm against any rate increase because of it," he said. "Let them float stock if they need money. Give people the opportunity to buy stock who can afford it--people with better paying jobs," he added.

Empire floats stock

In March 2001 Empire did generate $50 million by selling two million 8 1/2 % Trust Preferred Securities. At the end of that year, Empire issued 2,012,500 in common stock, generating $39.2 million net which they added to the general fund. In May 2002 they sold 2,500,000 newly issued shares of common stock representing approximately $41 million, which they used to repay $37.5 million in First Mortgage Bonds, 7.5% Series due July 2002. Net proceeds from both stock offerings were used to repay short-term indebtedness.

Citing the drop in price of Empire stock after the failed merger and after September 11th, versus before, Darby Marcum of Joplin accused the company of wanting to "recoup stockholders' losses." She reminded everyone that Empire's stock had lost about 20 percent of its pre-September 11 value.

Dale Cardwell of Carthage who claimed to understand the financial workings of a power company voiced his opinion that surcharges weren't needed to afford new equipment. Capital expenditures should come out of profits, he said. He also thought that the customers shouldn't have to pay for company "indiscretions." The company needs new management, he concluded. Part of the management mistakes, he addressed, may have had to do with management improperly budgeting the price of natural gas and underestimation of construction expenditures dealing with the purchase and maintenance of new equipment.

"Fair but aggressive" approach cited

According to Empire, the rate increase, in a "fair but aggressive" approach, "seeks to recover new operating costs and obligations and reflects the changes in our capital structure since the rate increase in October 2001." A one-time write-down of $4.1 million was taken in the third quarter of 2001 by Empire for costs related to the construction of the State Line Combined Cycle Unit, a commercial venture with Westar Generating in the southwest corner of Jasper County that had total costs of approximately $204 million. The disallowed costs were part of a stipulated agreement approved by MPSC that will not be recovered in the proposed rate increase. However, the net effect after considering the tax consequences on this write-down is $2.5 million, a capital expenditure Empire hopes to recover with pending rate relief.

At the end of December 2001 Empire made a request with the Kansas Corporation Commission (KCC) for a 22.8% rate hike to recover costs associated with investment in the State Line Unit. Through a KCC agreement on June 27, 2002, Empire was not to file for general relief before 11/1/03, barring unforseen or extraordinary circumstances.

Jane Daniels of Joplin asked MPSC to "freeze the rate for three years" to see if they can live within a budget. "Empire should be more fiscally responsible," she said citing the multi-million dollar losses incurred by Empire's failed merger with Utilicorp.

Utilicorp merger terminated

In May of 1999 Utilicorp entered into an agreement to buy Empire, merging the two Missouri-based companies in a stock and cash transaction valued at $800 million. The deal represented a premium of 39 percent for Empire District's stockholders based on the then current share price and a 14 percent increase in annual dividends based on Utilicorp's present dividend and share price. As a result of the merger's termination in January 2001, Empire District was hit with $6.1 million in merger related expenses, some of which they eventually were able to write off. But several million dollars contributed to operating expense, including the cost associated with an increased number of executives retiring at a time when the value of invested pension funds had sharply decreased.

Glenn D. Rhoads of Joplin, a retired Empire employee, also spoke against the rate increase. He claimed that some officials may be guilty of feathering their nests and that five officials have "tremendous" Golden Parachutes.

Union contractors upset

Rhoads also suggested that Empire use their own people to do work instead of contractors. He may have been speaking on behalf of the families of Carpenter-Millwright Local 311 of Joplin, whose representatives were outside distributing flyers. They claim that Empire is currently having work done at its La Russell generating station using a non-union contractor out of Charleston, South Carolina.

Empire's concern for short-term profitability, they claim, impacts on the long-term welfare of the community and its consequent unemployed workers.

Men in "suits" speak

Two gentlemen in suits, one who opened the hearing, spoke in favor of Empire's full rate increase. Rudy Farber, Chairman of the Board of Directors of the Community Bank & Trust of Neosho and the Chairman of Neosho Land Development, cited Empire's commitment to economic development. As an example, he mentioned Empire's role in keeping the Neosho YMCA cost effective, including a donation of land.

Wes Braman of Neosho, when questioned by John Coffman, Acting Public Counsel, denied having any financial connection to Empire and said he had come only as a "residential consumer." He said that a five or ten dollar increase was not important on a monthly basis, that Empire provided excellent customer service and was important to the enrichment of the community. He mentioned that Empire has been a "company of integrity" for 100 years "not just to its stockholders."

What Braman didn't say was that he is Chairman of the Board of the Joplin Chamber of Commerce,"the principal advocate for, and provider of srevices to, its business community." And that several executives from Empire serve on key positions within the organization: Bill Gipson, the Joplin Business & Industrial Development Corp; Mike Palmer, Community Development Division--Public Policy Chairman; Rick Hendricks, Education Division--Choices; and Myron McKinney (retired), Downtown Development--Vision 2020 Task Force Co-chairman. In addition, he is Executive Director of Business Development of Freeman Hospital, which benefited from a generous contribution by Empire to the Joplin Family Y--South, one of Freeman's pet projects.

The Joplin Globe's position questioned

The sub-headline in The Joplin Globe, "Residents: Utility may deserve rate hike, but city can't afford it," may be partially true. Everyone but Farber and Braman would agree with Meier, "the community at large can't support a 9 percent increase."

Jim Higley, a retired firefighter from Joplin, who considered himself "representative of low income people," said that a 9 percent increase was "ridiculous," and that he was "tired of going backwards with pay."

Mary Ann Simrell of Sarcoxie said she lived on a fixed income. She needed to turn off her air conditioning this summer, yet still incurred an unaffordable $100 per month bill.

Also on a fixed income, Kathleen Tucker of Duenweg mentioned that the area had the lowest paid incomes in the country. She compared Empire's increase to that of robbing Peter to pay Paul. They just can't keep doing that, she said.

"I can't go to my boss to say, 'I need a raise,'" said Richard Bourne of Carl Junction. If he could, he said that three percent would be considered good. He said he was just a working individual worried about retirement and costs going up. "I think, it's greed!" he added.

Red Cross director speaks

Kobi Watford, an official of the Red Cross, claimed her sole purpose for speaking was to provide information on how Empire works together with the Red Cross to meet the needs of the elderly and disabled. While what she said might have implied that in some way Empire directly assisted these needs, she mainly was describing Project Help, the program that encourages customers to make a dollar donation to a fund which assists those with difficulty paying their bills.

Marcum, who said her income had dropped 70% in 1998 when she became disabled, spoke against receiving assistance such as Project Help. "People would want to live independently if they could without charity," she said.

Another opinion: "Customers need 'a break' - Residents: Utility may deserve rate hike, but city can't afford it," an article by Andy Ostmeyer, The Joplin Globe, Sept. 20, 2002, page 1. "Wages and rates," a commentary, The Joplin Globe, Sept. 22, 2002, page 8A.

Contact: Gregg Ochoa, Public Information Coordinator, Public Service Commission, State of Missouri.

John B. Coffman, Acting Public Counsel, State of Missouri, Dept. of Economic Development, Office of the Public Counsel.

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Good jobJBC102602002-09-26 13:34:23
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