Consumers Council of Missouri

ST. LOUIS POST-DISPATCH

Do the math on Senate Bill 228

Tuesday, Apr. 14 2009

Missouri’s largest electric utility wants to change state law so that customers
could be billed for finance charges while a new nuclear power plant is being
built in Callaway County.

No big deal, AmerenUE officials say. The result would be “a 1 percent to 3
percent annual increase in rates several years from now,” AmerenUE President
Tom Voss said in a letter to ratepayers. That sounds trivial.

If you do the math, a 3 percent annual increase, compounded annually, would
hike electric rates by 34.4 percent over 10 years. The average residential
customer, who now pays about $75 a month, would be paying almost $101 a month
at the end of that time.

Or it could be higher. Nothing in Senate Bill 228, the law AmerenUE is pushing,
would cap rate increases for what’s known as Construction Work In Progress
(CWIP).

A 5 percent annual rate hike would increase electric rates by 63 percent over
10 years, from $75 to $122.17. And that’s if rates don’t rise for other reasons.

These are rough estimates. In reality, rates probably would not increase by the
same amount every year. But the cumulative impact still would be significant.

Any increases would come on top of already-rising electric rates. AmerenUE got
a $163 million-a-year rate hike in January. But even before the new rates went
into effect March 1, company officials told investors they would ask for yet
another rate increase this year. They declined to say how much more they’re
seeking.

There’s also the distinct possibility that Congress will pass a carbon
cap-and-trade system later this year. That would increase costs for utility
companies, like AmerenUE, who generate most of their electricity by burning
coal. Added costs would be passed on to ratepayers.

Any way you slice it, electric rates are going up. The question for legislators
and ratepayers is how to minimize those increases.

AmerenUE says the answer is to repeal the state law against CWIP. But utility
experts from the Office of Public Counsel, which represents ratepayers before
the Public Service Commission, disagree. The PSC staff last month agreed with
the public counsel’s assessment.

The public counsel’s office says using a different financing arrangement called
“credit metrics regulation” would cost less. Such a system could allow AmerenUE
to accelerate depreciation on the new plant, thus reducing what it costs the
firm to borrow money.

AmerenUE says financing the new plant during construction would add between 10
percent and 14 percent to customer bills.

Both the public counsel and the PSC staff say it will add far more — as much as
40 percent, according to the public counsel. The PSC staff reckons the increase
at 55 percent.

The actual figure depends on certain assumptions built into the estimate. A
Maryland utility is building an identical nuclear power plant that carries a $9
billion price tag. AmerenUE estimates a cost of just $6 billion, because it
says it will find partners to help with the cost.

AmerenUE estimates it will take six years to build the facility. But Callaway I
took more than eight years and came in more than $500 million over budget.

Lawmakers are expected to take up SB 228 again soon, perhaps as early as next
week. They’d be well advised to do the math before they do. Their constituents
will be living with it for a long time to come.

Next week, the Missouri Senate will likely be

debating SB 228..the CWIP legislation that

has appeared on this website in the recent  

past.  Now is the time to write your Senator

and say you are opposed to paying for the

construction of a nuclear plant before it

begins to produce.  Check the Post Dispatch

editorial which appears below for more facts

and write NOW.  Let’s tell them how regular

consumers feel about this travesty!

A Missouri Senate committee is to vote this afternoon on a revised — but still deeply flawed — utility bill that was written to benefit the state’s largest electric company.

AmerenUE has applied for a federal permit to build a new nuclear reactor in Callaway County. Whether you think that’s a good idea or not — whether you support nuclear power or oppose it — SB 228 is a bad bill, and not just for AmerenUE customers. are some of the whys:  Please click here to read the full text of The St. Louis Post-Dispatch editorial.

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.

JEFFERSON CITY, Mo. (AP) — Senators grilled AmerenUE leaders during a hearing Tuesday on legislation allowing utilities to charge electric customers for the costs of new power plants before they come online.

Missouri law bars investor-owned utilities from passing the expenses of building a power plant to their customers before the facility starts producing electricity.

Ameren is considering construction of a second nuclear reactor at its Callaway County power plant and says repealing the 1976 state law is critical to financing the estimated $6 billion project.

A large crowd attended Tuesday’s Senate Commerce, Consumer Protection, Energy and the Environment Committee hearing on the legislation, which would apply to new plants powered by nuclear energy, renewable sources or new coal technology.  Please click here to read the entire AP story by Chris Blank.

A state Senate committee is scheduled to begin hearings today on a deeply flawed bill that would remove key consumer protections for utility customers.

The measure, Senate Bill 228, would repeal a 1976 law that prohibits utilities from charging for the cost of building a new power plant until it starts generating electricity.

SB 228 is designed to benefit utility giant AmerenUE, which has applied to build a new nuclear plant in Callaway County. Whether or not you think that new plant is a good idea — whether you favor nuclear energy or oppose it — SB 228 is a bad bill. Click here and let the St. Louis Post-Dispatch editorial board count the ways.

Click here to view KSDK’s story.

This editorial is just a place holder. We haven’t decided yet whether to write about one of the biggest issues facing Missouri legislators this year.
Our colleague Tony Messenger did. In a column published Tuesday, Mr. Messenger wrote that executives from utility giant AmerenUE danced around the “gorilla in the room” when they briefed lawmakers on energy issues.
That gorilla would be a new nuclear reactor the utility applied to build in Callaway County. Strictly as an option, of course.
“No decision has yet been made,” utility lobbyist Matthew Forck insisted. It’s the same line utility executives have used for months.
We wouldn’t want to jump the gun. But if we did decide to write about the issue, we’d mention that AmerenUE filed an 8,000-page application to build the plant with the U.S. Nuclear Regulatory Commission last July. It expects the facility to cost at least $6 billion.
AmerenUE asked state utility regulators for a rate hike that includes between $5 million and $7 million a year to pay for the application. The company spent about $50 million on it last year.
Maybe it’s just us, but we wouldn’t spend $50 million and fill out an 8,000-page application unless we were pretty sure we were going ahead.  Click here to read the entire St. Louis Post-Dispatch editorial.

Missouri’s energy debate is about to go nuclear.

A state lawmaker filed a bill in the Legislature on Thursday that sets the stage for a battle between utility interests who want to build a new nuclear plant and consumer groups that are leery of the costs.

The action comes the day after AmerenUE chief executive Tom Voss visited key decision makers in the Capitol to lobby for the bill.  Click here to read the entire St. Louis Post-Dispatch article which includes quotes from John Coffman, our lobbyist.

Groups trying to pave the way for a second AmerenUE nuclear plant in Missouri have a new weapon in Jefferson City — a top lobbyist for environmentalists.

Irl L. Scissors, who previously represented a leading Missouri environmental and conservation alliance, last week announced in an e-mail to leaders of that group he was going to work to help undo the law that prohibits utilities from charging customers for power plants under construction.  Click here to read the full St. Louis Post-Dispatch story.