Kansas Gas Service Co. officials say giving bonuses to executives enables the company to hire outstanding employees who operate the company with such efficiency that shareholders and ratepayers alike benefit.
And according to an Associated Press story, company officials think a $32 million rate increase would allow them to further demonstrate that efficiency and continue to save Kansas ratepayers money. But efficiency has its cost. Some of the rate increase would help fund the roughly $8 million that the company spends on employee bonuses.
Fortunately, staff of the Kansas Corporation Commission, which will rule on the proposal, are recommending a much smaller increase: $3.6 million. And the Citizens’ Utility Ratepayer Board (CURB), a state agency that looks out for residential and small business utility customers, thinks even $3.6 million is too much. CURB recommends a slight rate cut. From CURB’s perspective, bonuses encourage company officials to focus disproportionately on shareholder profit.
In written testimony to the KCC, Kansas Gas Service President Bradley Dixon defended bonuses as the only way the company can reward superb performance. What’s more, he said it is not the KCC’s role to serve as his company’s business manager.
Perhaps not. But neither is it the KCC’s role to grant rate increases because utility companies want to pay bonuses. The company is welcome to reward company employees with bonuses, of course, but it ought to look elsewhere for the money.
Niki Christopher, a lawyer for CURB, had it about right in saying that bonuses ought to be subsidized by shareholders. Said Ms. Christopher: “I’ve always kind of wondered why they give these top executives bonuses and then turn around and say they’re so strapped they need a rate increase.”
Rejecting the part of the requested rate increase that would go for bonuses would not diminish the importance of efficiency. Rather, it would emphasize that efficiency is among minimum expectations.
Both the KCC staff and CURB recommend that the bulk of the company’s bonus plans be separated from utility rates. That’s reasonable. We don’t pretend to know how much of a rate increase the KCC should approve. But given that the KCC staff recommends an increase of just $3.6 million and CURB recommends a rate cut, Kansas Gas Service would be wise to scale back its request, starting with the bonus money.