State hears arguments on potential rate reduction for AmerenUE

Friday, July 12, 2002

JEFFERSON CITY, Mo. -- With settlement negotiations continuing, a hearing began Thursday in a case that could result in rate reductions for the roughly 1.2 million electric customers of AmerenUE.

The state's largest utility and the staff of the state's regulatory agency are at odds over AmerenUE's rate policy for upcoming years, although both have proposed some sort of rate reduction.

During opening statements in a hearing scheduled to run through the end of the month, staff for the Missouri Public Service Commission argued that AmerenUE's customers should get a reduction of as much as $250 million annually.

AmerenUE, whose top executives were accompanied by a team of lawyers, has presented a counter proposal offering at least $120 million annually in rate cuts and other benefits.

The utility company serves 66 Missouri counties, mainly in the St. Louis area and the eastern half of the state but with some pockets in western Missouri.

The proposal by the PSC staff would reduce electric bills for typical residential customers by 11 percent -- or $7.71 monthly.

"Using reasonable ratemaking principles, UE's rates are excessive and should be reduced significantly," said Steven Dottheim, chief deputy general counsel for the PSC staff.

The Office of Public Counsel, which represents consumer interests, is seeking an even larger rate reduction than proposed by the staff, said acting Public Counsel John Coffman.

AmerenUE has contended that the state proposal would cripple its ability to improve its infrastructure by trimming its earnings too much.

"We think that our alternative regulatory plan we proposed includes lower rates on top of already low rates," said Warner Baxter, AmerenUE's senior vice president for finance.

The hearing before regulatory law judge Lewis Mills is intended to gather evidence and testimony, which along with later written briefs would be submitted to the state Public Service Commission. The PSC hopes to make a decision in the case by the end of the year, said spokesman Kevin Kelly.

Meanwhile, the PSC staff, AmerenUE officials, consumer advocates and others are trying to reach an agreement that could be presented to the PSC for approval.

AmerenUE president Gary Rainwater said he hopes a settlement can be reached before the hearing concludes.

"Everybody is hoping to get it settled," Rainwater said. "Litigation just leaves a bad taste for everybody."

All sides already have agreed on at least one thing: If the PSC determines a rate decrease is warranted, the new rate would be retroactive to April 1.

That means customers would get a rebate -- likely in the form of a credit on their bills -- and also would have their rates reduced for all future bills.

The rate case is the first for AmerenUE since 1987 and comes after the June 30, 2001, expiration of six years of alternative regulation for AmerenUE.

Investor-owned utilities, such as AmerenUE, usually have customer rates set by the state based on the utility's cost of providing services, allowing for a certain percentage of earnings.

But under an experimental plan that began in 1995, AmerenUE agreed to share its earnings with customers once they reached certain levels.

For example, customers received half and shareholders the other half of all earnings above 12.6 percent and up to 14 percent. Nine-tenths of all earnings from 14 percent to 16 percent went to customers and all earnings over 16 percent went to customers.

The PSC staff is seeking to stick with a traditional means of regulating AmerenUE, allowing a lower rate of return on equity than sought by the utility company.

AmerenUE has proposed a new three-year alternative regulatory plan under which it would share a portion of its earnings over a certain threshold with its customers.

AmerenUE's proposal also pledges to commit at least $1.5 billion for energy infrastructure improvements through June 2005, plus millions of dollars more for economic development programs and efforts to help low-income customers pay their energy costs.

In March, the state PSC staff raised its estimate of a proper rate reduction for AmerenUE customers to a range of $246 million to $285 million annually.

But for the pending rate case, the PSC staff is sticking with its original projection of a reduction between $213 million and $250 million, Kelly said.


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