MISSOURI FORUM
By John Coffman
Energy utility lobbyists have been exerting increasing influence over Missouri by rewriting laws that are supposed to protect consumers.
Since 2003, utilities have successfully lobbied for seven unfair surcharges to be added onto our utility bills. Energy monopolies love surcharges because they allow rates to increase without a full audit by the Public Service Commission, and even allow rates to go up during a period when the utility’s overall costs are going down.
This onslaught of extraordinary new ways to raise rates for electricity and natural gas has not even stopped in the face of the current deep recession. In fact, 2009 may be the year that politicians succeed in overturning the citizen-led ballot initiative that banned Construction-Work-In-Progress (CWIP). The anti-CWIP statute was passed by voters by a nearly 2-to-1 margin in 1976 and remains one of our most important consumer protection laws. This law currently prevents electric utilities from raising rates for power plants that are not yet providing power.
The CWIP proposal would overturn the will of the voters and put in its place a new ratemaking system, one that is heavily tilted against consumers. Large power plants, such as the proposed $6-9 billion Callaway II nuclear plant of AmerenUE, could be “pre-approved” and then new CWIP surcharges could be added to electric bills every three months during the approximate 10-year construction period.
It is estimated that these charges alone could raise current electric rates by as much as 40 percent before that power plant has even proven it can be operational. And the proposal would allow the utility to collect these CWIP charges even if the power plant is ultimately cancelled and winds up serving no one.
Although the utilities claim that pre-paying saves money for consumers over the life of the plant, their calculations are flawed. Moreover, such overblown claims do not take into account the cost of money for the ratepayers to come up with the extra cash up front. Their claims also assume that each consumer charged will be around to benefit from the power of a plant that could take more than a decade to build. This violates a bedrock principle of fair ratemaking in that the consumers who are benefiting from a power plant should be the consumers who are paying for that plant.
CWIP is also being supported by Kansas City Power & Light Company and Empire District Electric Company, which will surely be swift on the heels of AmerenUE in taking advantage of such a CWIP ratemaking scheme. It is important to recognize that these utilities are privately-held, investor-owned monopolies that do not have to compete for consumers and are already assured of an opportunity to earn a healthy profit, usually in the double digits. These utilities have also rewarded their CEOs well. According to Forbes, AmerenUE CEO Gary Rainwater received a total compensation package of over $5 million last year. KCPL CEO Michael Chesser’s total compensation for 2008 was approximately $3.5 million.
The purpose for such high returns is compensating the utility for managing the risk of providing power. But they want to continue to reap high returns while passing their risk onto the rest of us. In my book, that is the very definition of a bailout. If captive consumers are going to be fronting the money for such large investments, essentially being forced to act as investors, then consumers should, at a minimum, be granted a return for their contribution to future power.
In another outrageous affront to consumers, Missouri’s natural gas companies are pushing to allow its uncollectible accounts to be expeditiously charged back to consumers who actually pay their bills on time. They are proposing to redefine the bad debt of non-paying consumers as “gas costs” and then be flowed through the purchase gas adjustment charge, which is currently limited to the wholesale cost of natural gas. So as the recession makes it hard for an increasing number of households to pay their heating bills, the rest of us must pick up their unpaid tab even more quickly. The goal is to ensure that utility profits do not suffer even a blip.
While all eyes are trained on Congress and its many bailouts, few citizens seem to be aware of these massive bailouts that are under consideration right under our noses in Jefferson City.
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Coffman is general counsel of the Consumers Council of Missouri.
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Copyright (C) 2009 by the Missouri Forum. 4/09
Energy utility lobbyists have been exerting increasing influence over Missouri by rewriting laws that are supposed to protect consumers.
Since 2003, utilities have successfully lobbied for seven unfair surcharges to be added onto our utility bills. Energy monopolies love surcharges because they allow rates to increase without a full audit by the Public Service Commission, and even allow rates to go up during a period when the utility’s overall costs are going down.
This onslaught of extraordinary new ways to raise rates for electricity and natural gas has not even stopped in the face of the current deep recession. In fact, 2009 may be the year that politicians succeed in overturning the citizen-led ballot initiative that banned Construction-Work-In-Progress (CWIP). The anti-CWIP statute was passed by voters by a nearly 2-to-1 margin in 1976 and remains one of our most important consumer protection laws. This law currently prevents electric utilities from raising rates for power plants that are not yet providing power.
The CWIP proposal would overturn the will of the voters and put in its place a new ratemaking system, one that is heavily tilted against consumers. Large power plants, such as the proposed $6-9 billion Callaway II nuclear plant of AmerenUE, could be “pre-approved” and then new CWIP surcharges could be added to electric bills every three months during the approximate 10-year construction period.
It is estimated that these charges alone could raise current electric rates by as much as 40 percent before that power plant has even proven it can be operational. And the proposal would allow the utility to collect these CWIP charges even if the power plant is ultimately cancelled and winds up serving no one.
Although the utilities claim that pre-paying saves money for consumers over the life of the plant, their calculations are flawed. Moreover, such overblown claims do not take into account the cost of money for the ratepayers to come up with the extra cash up front. Their claims also assume that each consumer charged will be around to benefit from the power of a plant that could take more than a decade to build. This violates a bedrock principle of fair ratemaking in that the consumers who are benefiting from a power plant should be the consumers who are paying for that plant.
CWIP is also being supported by Kansas City Power & Light Company and Empire District Electric Company, which will surely be swift on the heels of AmerenUE in taking advantage of such a CWIP ratemaking scheme. It is important to recognize that these utilities are privately-held, investor-owned monopolies that do not have to compete for consumers and are already assured of an opportunity to earn a healthy profit, usually in the double digits. These utilities have also rewarded their CEOs well. According to Forbes, AmerenUE CEO Gary Rainwater received a total compensation package of over $5 million last year. KCPL CEO Michael Chesser’s total compensation for 2008 was approximately $3.5 million.
The purpose for such high returns is compensating the utility for managing the risk of providing power. But they want to continue to reap high returns while passing their risk onto the rest of us. In my book, that is the very definition of a bailout. If captive consumers are going to be fronting the money for such large investments, essentially being forced to act as investors, then consumers should, at a minimum, be granted a return for their contribution to future power.
In another outrageous affront to consumers, Missouri’s natural gas companies are pushing to allow its uncollectible accounts to be expeditiously charged back to consumers who actually pay their bills on time. They are proposing to redefine the bad debt of non-paying consumers as “gas costs” and then be flowed through the purchase gas adjustment charge, which is currently limited to the wholesale cost of natural gas. So as the recession makes it hard for an increasing number of households to pay their heating bills, the rest of us must pick up their unpaid tab even more quickly. The goal is to ensure that utility profits do not suffer even a blip.
While all eyes are trained on Congress and its many bailouts, few citizens seem to be aware of these massive bailouts that are under consideration right under our noses in Jefferson City.
---------------------------------------------------------------------------
Coffman is general counsel of the Consumers Council of Missouri.
--------------------------------------------------------------------------------
Copyright (C) 2009 by the Missouri Forum. 4/09
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