Electric rates: Missouri walks a thin line in Ameren case

The $361 million rate case filed by AmerenUE last week is one that the Missouri Public Service Commission can't afford to get wrong.

At stake, along with the size of your monthly electricity bill, are the financial stability of the state's largest utility and the vibrancy of the region's economy. Relatively cheap electricity, after all, has long been one of St. Louis' major selling points. If the cost of running an Internet server or a factory production line goes too high, jobs may go elsewhere.

On the other hand, if the PSC is too stingy with Ameren, it might endanger one of this town's few large-company success stories. Major credit rating agencies currently have Ameren on a watch list for a possible downgrade; they're mainly concerned about a political fight over deregulation of the company's Illinois utilities, but an unfavorable rate decision in Missouri also could trigger a downgrade.

"It's pretty important," said Moody's analyst Michael Haggarty. "They've been under cost pressures now for several years. In order to keep the rating where it is, we would hope they get most if not all of the rate increase." Advertisement "Their financial profile is expected to slip" without the increase, said Standard & Poor's analyst Barbara A. Eiseman. "The fact is that they've invested $2.6 billion in infrastructure since the last rate case, and fuel costs are a lot higher, and employee and retiree benefit costs are up by more than 50 percent. They need to recover those costs." Why should St. Louisans care about Ameren's credit rating? The utility has an investment-grade rating, three levels above junk-bond status. If that rating slips, it must pay more to borrow money. Capital projects, such as a new transmission line, would become more expensive, as would Ameren's stated strategy of buying other utilities. The utility industry is consolidating, so if Ameren isn't strong enough to be a buyer, it may well be a seller.

That, certainly, wouldn't be in St. Louis' interest. But neither would a rate case that pushes electricity prices too high for the area's factories and offices.

Ameren is proposing to raise rates by 17.7 percent overall, but with only a 10 percent increase for residential customers. Commercial and industrial customers would be hit with increases of 23 and 29 percent.

Warner Baxter, Ameren's chief financial officer, made clear that Ameren is mainly concerned with the size of the package and that a final decision on apportioning the rate increases will be up to the PSC. He said Ameren's proposal was based on the idea that businesses could pass on the increase to their customers, while homeowners have no such flexibility.

That may not be true, however, for businesses that face tough competition from overseas. If they can't raise prices, their profits will suffer. If profits disappear entirely, factories and back-office operations may close.

Make no mistake, rates have to go up. They're rising almost everywhere, including a shocking 72 percent increase for some Maryland customers.

We've been fortunate in St. Louis, with average electricity prices 15 percent below the Midwestern average and 30 percent below the national average.

We've had the advantage of a well-run, efficient utility that's overseen by a pragmatic but sharp-penciled regulatory body, and we're counting on both Ameren and the PSC to maintain that advantage.

David Nicklaus is a business columnist for the St. Louis Post-Dispatch.