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By JOHN HANNA
Associated Press Writer

TOPEKA -- Kansas regulators can show their approval of a financial restructuring of the state's largest electric company by increasing its annual rates by at least $84 million, a company attorney said Monday.

The Kansas Corporation Commission, which regulates utilities, began three weeks of hearings on the request for higher rates from Westar Energy Inc.

''The commission decision will be a referendum on Westar's strategy,'' company attorney Mike Lennen told the KCC. ''The outcome of this case is crucial to whether Westar can make it as an electric-only utility.''

Lennen noted that two years ago the commission ordered Westar to seek a review of its rates after approving the utility's plans for improving its finances.

Westar sold off non-utility assets and abandoned a strategy of diversification pursued by its former management, including former Chief Executive Officer David Wittig, recently convicted of federal fraud charges related to how he ran the company. Westar also cut its corporate debt by more than half.

''Westar has done everything this commission has ordered,'' Lennen said. ''This case is all about making sure that Westar has the resources to sustain that progress.''

Jim Haines, the company's president and chief executive officer, was scheduled to be the first witness.

State law requires the KCC to make a decision by Dec. 28. Both its staff and the Citizens' Utility Ratepayers Board are recommending an overall decrease in what Westar charges its 655,000 customers.

Westar contends it needs additional revenue to cover rising costs.

It also has asked the KCC to allow it to pass on to consumers changing fuel and transmission costs and expenses from modifying generating plants to meet federal air pollution standards, a proposal that potentially could cause rates to go even higher.

The company's rate request drew support from Charles Benjamin, an attorney for the Kansas chapter of the Sierra Club. He told the commission the group supports efforts to combat pollution.

Westar's request would represent a change in how the company is regulated. Currently, if fuel and transmission costs rise, the company's shareholders shoulder the burden until the KCC reviews Westar's overall rates -- a process that can take up to seven months.

For the 352,000 customers in Westar's northern region, rates would increase about 9 percent under the company's proposal. In its southern region, where the company has about 303,000 customers, rates would rise about 6 percent.

The ratepayers' board, which represents residential and small-business customers, has noted that under Westar's proposal, the company still would earn an 11.5 percent profit for investors -- compared with the 8.75 percent the ratepayers' board recommends.

Westar's profits are regulated by the KCC because it has a monopoly on providing electric service in much of Kansas. The KCC is most likely to modify Westar's proposal, but one or both regions still could see higher rates.

In Westar's southern region, the average residential customer would pay $4.58 more a month, or about $55 annually. The region includes Arkansas City, El Dorado, Fort Scott, Independence, Newton, Pittsburg and Wichita.

The company has said the additional revenue also will allow Westar to continue services such as expanded tree trimming and telling consumers who have lost power when it should be restored.

On the Net:

Westar Energy: http://www.wr.com

Kansas Corporation Commission: http://www.kcc.state.ks.us