CWIP is among a host of consumer rip-off schemes currently pending in the Missouri Legislature.
written by John Coffman
General Counsel, Consumers Council of
Energy utility lobbyists have been exerting increasing influence over the Missouri state legislature, rewriting the laws that are supposed to protect consumers. Since 2003, investor-owned utilities have successfully lobbied for measures that permit seven unfair surcharges to be added onto our utility bills. Energy monopolies love surcharges because they allow rates to up without a full audit by the Public Service Commission, and even allows rates to go up for one item 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, prevents electric utilities from raising rates for power plants that are not yet providing power.
SB 228 and HB 554 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 ten-year construction period.
It is estimated that these charges alone could raise current electric rates by as much as 40% before that power plant has even proven it can be operational. And get this—the proposed legislation would even allow the utility to collect these CWIP charges is 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 upfront. 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. The legislation 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.
This legislation 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 new rip-off ratemaking scheme. It is important to recognize that these proponents of SB 228 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—an authorized return on common equity that is usually in the double digits. These utilities have also rewarded their CEOs well. 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 $3.5 million.
The purpose for allowing such high returns to a monopoly is compensation for managing the risk of providing power. But they want to continue to reap high returns while passing the 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 legislation that would allow its uncollectible accounts to be expeditiously charged back to everyone else. SB 299 would 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 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.
