Ameren seeks reworking of rate clause

AmerenUE received most of what it asked for when the Missouri Public Service Commission approved a rate increase last month, but the utility company didn't count on the devastating effect of the ice storm that crippled Southeast Missouri.

When the PSC meets today in Jefferson City, the agenda includes a discussion of Ameren's request that commissioners rework a provision in the rate case that allows the company to more quickly recover extra costs when the price of fuel rises. But because of the ice storm, the provision could save Ameren's 1.2 million electric customers more than $100 million.

The PSC on Jan. 27, by a 3-2 vote, approved an increase of about 8.1 percent in the company's basic electric rates, a decision that allows the company to increase revenue by $162.6 million annually. Ameren had asked for $251 million. The decision was approved the same day a massive ice storm wreaked havoc on the electric grid supplying Southeast Missouri.

Noranda Aluminum in New Madrid suffered severe damage as a result of the outage. When the power stopped, aluminum being processed cooled. The plant's capacity was cut by 75 percent, and the company estimated in a news released issued Jan. 29 that it could take up to a year to restore full production.

In response, Ameren told the PSC that it will lose the sale of up to 3.2 million megawatt-hours of electricity, or enough to power 3.4 million average homes for a year. That power will be sold on the wholesale power market at a higher price than Noranda would pay. The income from that power, an estimated $135.3 million compared to the $104 million that Noranda would pay, sent Ameren back to the PSC for another look at a rate-setting rule known as the fuel adjustment clause.

Under the rule, if the price of fuel goes up unexpectedly Ameren can pass 95 percent of the cost to customers. But if Ameren gains more from wholesale power sales than it spends on higher fuel costs, 95 percent of the benefit is supposed to go to customers.

Applied to the Noranda situation, Ameren said the rule would wipe out almost half of the rate increase approved Jan. 27, "thus depriving AmerenUE of a sufficient opportunity to earn a fair" profit.

Ameren is asking the PSC to allow it to keep an amount equal to what it would have earned from Noranda and pass the rest, about $31.4 million, on to customers.

Noranda objects

But Noranda, which already was one of the most vocal opponents of the rate increase because of its huge power purchases, raised objections to any change. Ameren is getting what it asked for, Noranda noted in papers filed Tuesday with the PSC.

The Missouri Legislature allowed a fuel adjustment clause in electric rate cases beginning in 2005, after heavy lobbying by Ameren and other utilities. The Jan. 27 rate ruling is the first time it has been used for Ameren. The 95 percent pass-through provision was requested by Ameren and was not challenged when approved by the PSC in December.

"That is what they were asking for," said Lena Mantle, the head of the PSC's energy department. "That is what the commission had previously ordered for other companies" including the Empire District Electric Co. and Kansas City Power & Light's Missouri Operations Co.

Ameren wants to change the rules because the fuel adjustment idea isn't working out, Noranda argued to the PSC. "Apparently an FAC is desirable so long as costs are rising and loads are steady. But if loads (or revenue expectancies) disappear for any reason including economic conditions, storms and the like, following this example we may expect the utility to return to the commission urging that its once-vaunted instrument of salvation needs some adjustment to produce the results that the utility desires."

The change it is seeking is designed to prevent the utility from a devastating loss of its own, Ameren spokesman Mike Cleary said. "Without this exception, UE will suffer an irreversible loss of many millions of dollars -- the equivalent of losing production of a major power plant or the reversal of up to 40 percent of the recently approved rate increase," he said in an e-mail to the Southeast Missourian.

But Noranda, battered already by a precipitous drop in aluminum prices that forced it to shed more than 200 workers out of its 1,100-person work force, said it is suffering as well. The electric rate increase, which it is asking the PSC to reconsider, will impose significant increased costs at a time when the company is struggling.

"During the process, the rate process, FAC was a big topic of conversation and they agreed to specific stipulations that we believe they need to live by," said Kyle Lorentzen, chief financial officer for Noranda.

rkeller@semissourian.com

388-3642

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