Utility rate bill contains exemptions; critics say it could raise residential costs 71 percent

Legislation is making its way through the state Senate that puts caps on utility-rate increases. But those opposing the bill say those caps are not what they seem, and exemptions in it would cause customer rates to rise beyond any cap the bill may set.

While the Missouri House of Representatives moves House Bill 2689 along, the Missouri Senate is considering its own bill about electrical rates in the state.

The senate bill (SB 1028) introduces the "21st Century Grid Modernization and Security Act," which allows for the imposition of earning caps, rate caps, performance standards and other customer protections in connection with service provided by electrical corporations.

The bill makes provisions for aluminum smelting facilities, like the idled Noranda plant in New Madrid, Missouri, allowing them and their respective electrical service provider to jointly submit an application to the Public Service Commission (PSC) for approval of an aluminum smelter rate.

The 65-page Senate bill also offers a renewable-energy resources and renewable investment plan and solar rebates for electrical corporations.

Sen. Ryan Silvey (R-Kansas City) said the factors that drove him to sponsor the bill were the need for meaningful utility reform and the desire to improve Noranda's chances for success. In an uncapped environment, Silvey said, electric providers are raising rates by 6 percent to 9 percent every 18 months.

"That's unsustainable for average consumers like myself, and it's unsustainable for industrial consumers like Noranda," he said.

Electric rates vary among utility companies and among customer classes. A representative at Ameren said the current residential rate is 10.26 cents per kilowatt hour. The average retail rate from all Ameren customer classes is 8.12 cents/kWh.

John Parker, vice president of communication and investor relations at Noranda, said in an email the aluminum smelter rates provided in the Senate and House bills are "key to attracting the outside investment necessary to restart the smelter." Noranda cites electric rates as one of the factors for the New Madrid facility's closing.

The Midwest Energy Consumer Group (MECG) opposes the bill. David Woodsmall of the MECG said it removes the customers from the rate-case process and guarantees the utilities at least a 9.4 percent profit.

"If the utility fails to manage its cost and doesn't reach its profit level, then the legislation says they get to increase their rates the next year to make up for the shortfall," Woodsmall said.

These factors, he said, will result in higher rates.

James Owen, acting director of the Office of Public Counsel, said there is concern the proposal will take the ability to review some rate cases away from the PSC.

"It kind of allows the utility company to be in the driver's seat as far as information they're providing in these cases. It takes away their burden of proof," he said.

According to a March 14 staff analysis report from the PSC, the language in the proposed bill limits the PSC's oversight to a prudence or imprudence judgment and prohibits a detailed review.

Owen said though regulation is often seen as a negative, in this case, it's needed to prevent high rates.

"It's a paradigm shift in what we've got now versus what we would have under this bill as far as the process goes," Silvey said.

Officials involved in the legislation have been sensitive to the concerns of the PSC to ensure they still have the ability to weigh in and protect consumers, Silvey said.

But he said the legislation would allow for 3.5 percent average rate caps, "and capping rate increases is something you don't have in the status quo now. So maintaining the PSC's input, but at the same time capping rates, we think puts us in a better position moving forward to have smaller rate increases than we've seen in the last decade."

Opponents, however, say the rate cap is not as straightforward as supporters may suggest.

Woodsmall pointed to Public Service Commission staff analyses provided to the General Assembly. The March 14 report said operation of the "rate cap" provisions will not restrain utility rate increases because of exceptions listed in the bill, such as environmental mandate costs, renewable energy costs and energy-efficiency costs. These costs, the report said, are expected to be among the primary drivers for increasing electrical rates.

"The way the bill works, it's not a cap on customer rates," Natelle Dietrich, PSC staff director said. "It's a cap on the amount of revenue the utility can earn each year."

The PSC staff report indicated the rate cap does not represent a stable rate for consumers, "but demonstrates that rates could increase from 55.82 to 100.12 percent, with residential customer rate increases ranging from 62.10 to 71.10 percent." The findings, the report states, are estimates based on available information.

"Any cost that a utility incurs as a part of the clean-power plan, that's all over the cap," Woodsmall said. "There are a lot of exceptions that don't come within the rate cap that will cause rates to go up more than 3.5 percent."

Owen said his office wants to see Noranda succeed.

"We believe it's not only important for your economy down there, but also the state and national economy," Owen said. But "I do not think, when you look at what this bill does all over the state, that you can say [the other aspects of the bill are] good for consumers."

Silvey, the Kansas City senator, said the rate caps won't keep utility costs from rising, but will slow the rise.

"I don't think anyone is under the impression that rates are going down anytime soon," Silvey said.

The bill is on the Senate calendar, and Silvey is hopeful it will be on a floor debate in the next week or two.

"There's a number of senators and representatives that are anxious to see something get done since we've had a stalemate for so many years," Silvey said. "We're hopeful we can come to an agreement that is better for consumers and allows for an upgrade in the utility infrastructure at the same time."

bbrown@semissourian.com

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