Below are some key points concerning Senate Bill 705 and House Bill 1610, as prepared by the AARP.
- SB 705 and HB 1610 would allow increases on natural gas bills to pay the utility for the bad debts of its non-paying natural gas customers, overriding the current consumer protection against such single-issue ratemaking.
- This legislation would allow energy rates to increase, even at times when Laclede Gas Company or Missouri Gas Energy’s overall cost of doing business is not going up!
- Bad debts are already included in rates. When a utility needs to adjust rates, including for bad debt, it may initiate a rate case. The Bad Debt Surcharge would allow accelerated increases without the protections of a full rate case audit.
- This Bad Debt Surcharge would increase the volatility of natural gas bills, due to the correlation between wholesale gas rates and uncollectible accounts.
- The Bad Debt Surcharge would be a hidden surcharge. By cleverly attempting to redefine certain bad debts as “gas costs”, it would be disguised in the Purchased Gas Adjustment (PGA), instead of being identified separately on gas bills.
- The legal purpose of the PGA is solely for recovering the wholesale cost of natural gas—not to compensate the utility for bad debt. In 2009, the Missouri PSC ruled unanimously that bad debt is not a “gas cost” [Case No. GT-2009-0026].
- This legislation may decrease the utility’s incentive to effectively manage its bad debt accounts and increase the incentive to write off accounts early and pass those costs through the PGA. However, writing off accounts as “uncollectible” does not stop the utility from continuing to attempt collection from the customer who owes the debt.
- The Bad Debt Surcharge also reduces the utilities’ risk, and therefore increases their profits. These companies are already compensated for this risk through the return on equity (ROE) component of rates. Laclede and MGE are already permitted double-digit ROEs. In other states, it has been estimated that such surcharges would enhance earnings by 0.75% to 0.95%.
Prepared by AARP.
