St. Louis Post-Dispatch, March 31, 2014

A dispute between a major employer in the Missouri Bootheel region and St. Louis-based Ameren Corp. is commanding attention from consumer groups, cities and even the world’s largest retailer, creating unusual alliances in the process.
Noranda Aluminum Holding Corp., which operates a smelter in New Madrid that employs 888 people, is seeking sharply lower electric rates, something it says it needs to preserve jobs in an economically depressed corner of the state.

If granted, the rate cut to this one business — from 4.1 cents per kilowatt hour to 3 cents — would raise the cost of electricity by at least 1.8 percent for Ameren’s other customers in Missouri, according to a regulatory filing. The average residential customer pays 10.3 cents a kilowatt hour.

Despite that, some high-profile Missouri consumer advocates are on Noranda’s side.

The reason: Noranda, in a separate complaint with the Missouri Public Service Commission, is accusing Ameren of earning millions of dollars more than the 9.8 percent return on equity allowed by the PSC. The company wants state regulators to order Ameren to reduce rates for all customers.

In the 12 months ended Sept. 30, the amount the utility overearned was at least $29.2 million, according to Ameren’s own reports. Noranda’s consultants assert the amount was even higher, $67.1 million.

Ameren has argued the reports detailing its return on equity are not a complete picture of its earnings, and that Noranda already pays less for electricity than its other customers.

The allegation of overearning surfaced last year. In March 2013, the utility released part of a report that showed its return on equity, a key measure of profitability, was 11.66 percent in 2012 — far above the 10.2 percent it was authorized by the PSC to earn at the time. The difference equaled about $80 million.

Ameren attributed higher earnings in 2012 to some unusual circumstances, including the hottest summer on record.

Consumer groups could have filed a complaint and asked for a rate reduction when the excess earnings were first identified, but they didn’t.

“That takes quite a bit of money to do,” said John Coffman, an attorney for the Consumers Council of Missouri. “No one had the resources to put that together.”

Instead, the consumer groups turned to Noranda, a Franklin, Tenn.-based company controlled by Apollo Global Management, one of the nation’s biggest private equity firms.

Unlike the PSC’s Office of Public Counsel, which advocates for ratepayers, or grass-roots consumer groups, Noranda has the resources to press an overearnings case before the PSC.

Its complaint, filed last month, set off a flurry of activity from lawyers, lobbyists, publicists, advocacy groups, municipalities. Even Wal-Mart Stores Inc. has asked to intervene, although it has not taken a public position on the cases.

The group advocating on behalf of Noranda and consumers is the Fair Energy Rate Action Fund. Charles Skoda, Noranda’s senior vice president of strategic operations sits on the board. So does Joan Bray, a former state legislator who heads the Consumers Council. Jeanette Mott-Oxford, a former state representative from St. Louis who is currently director of the Missouri Association of Social Welfare is a board member, as is the Missouri state director of AARP.

Even though it would mean higher rates for other Ameren customers, the consumer groups have not opposed Noranda’s request for a rate cut. In fact, they have even filed a motion asking the PSC to expedite its review of Noranda’s request to lower only its rates, suggesting a plant closure could hurt other customers more.

The smelter buys roughly 10 percent of Ameren Missouri’s power. If the plant were to close, the drop in demand would have to be made up somewhere, they argue.

“That closure … would cause rates to increase for all Ameren Missouri customers by an amount greater than if complainants obtain their requested relief,” the consumer groups wrote in a filing asking for expedited review of Noranda’s rate reduction request.

A sluggish global economy and rising Chinese production have hurt aluminum prices and spurred producers to trim capacity. On Friday, Alcoa announced it would temporarily shutter a smelter and reduce production at another smelter because of the Brazilian facilities’ operating costs.

Public Counsel Lewis Mills, whose office represents consumers in regulatory matters and was a party in that filing, said there’s a difference between asking for faster review and “being on board” with Noranda’s request for lower rates.

The PSC should review the case quickly, Mills said, because Noranda has threatened to shut down. If that’s true, it could harm ratepayers.

“If the commission does not act expeditiously, it will be the same as not acting at all,” Mills said.

Mills, though, said there’s a chance Noranda’s overearnings complaint could help consumers more than the company’s rate reduction request would hurt them. Still, his office hasn’t staked out a position on the smelter’s rate filing yet.

Chris Roepe, executive director of the Fair Energy Rate Action Fund, said there is no conflict between Noranda and the more consumer-oriented members of the group.

“The fact is all consumers’ rates are going to go up higher if Noranda has to buy energy on the open market or they have to close their doors,” Roepe said. “That would be a very bad thing for consumers.”

One of the parties that has taken a position on Ameren’s side, the office of St. Louis Mayor Francis Slay, also says consumers will be hurt, but for the opposite reason.

In a letter sent last week to the PSC, City Counselor Michael Garvin wrote that Noranda’s request to reduce its rates would increase consumer rates by “more than 2 percent per year for the next decade” and cost city coffers $3 million over 10 years.

Irl Scissors, director of Missourians for a Balanced Energy Future, a utility advocacy group that generally pushes bills beneficial to Ameren, criticized the consumer groups’ work with Noranda. In effect, he said, they’re endorsing a rate increase on their own members.

“It is shocking and it is indefensible that some of these groups would just walk lockstep with whatever Noranda requests,” he said.

But Mott-Oxford said her goal and the coalition’s objective is to hold down utility rates.

“You don’t have to agree with people about every single thing that they do if you have a common goal,” she said.

Noranda’s request for a special rate case is nothing new — companies ask for incentives and special treatment all the time, Mott-Oxford said. She doesn’t celebrate it, but to hold down utility rates, her organization has found more success within a coalition than acting alone, she said.

“Who would you sit down with if you had to examine everyone’s life for absolute purity?” she said.

St. Louis Post-Dispatch, March 25, 2014

Ameren Missouri’s largest customer says the utility earned $44.6 million more than legally allowed from October 2012 through September 2013, according to documents unsealed Tuesday.

Noranda Aluminum Holding Corp., which operates a smelter in New Madrid, last month filed a complaint against Ameren with the Missouri Public Service Commission, saying the utility made more money than it was allowed.

The amount, though, was unknown until Tuesday, when administrative law judge Morris Woodruff unsealed confidential documents that accuse Ameren Missouri of earning more than the 9.8 percent return on equity allowed by the PSC.

Noranda also says Ameren should be earning a smaller return on equity. Based on estimates from Greg Meyer, a consultant with Brubaker & Associates in Chesterfield who was hired by Noranda to perform the financial analysis, the utility should only earn a return of 9.4 percent on equity. Adjusting for that, Ameren Missouri earned $67.1 million more than it should have from October 2012 through September 2013.

Along with its overearnings complaint, Noranda is seeking a reduction in its electric rates, warning it may have to lay off 150 to 200 workers at its smelter later this year if it doesn’t get a break. Eventually, the company says it may have to close the plant and lay off the close to 900 people who work there.

If its plant closes, Noranda says rates for other customers will go up because Ameren will lose about 10 percent of its power demand and be forced to sell electricity in other markets for less than the new rate the smelter is asking for.

Noranda wants the commission to reduce the rate it pays Ameren Missouri to 3 cents per kilowatt hour from roughly 4.1 cents per kilowatt hour. The average residential customer pays 10.3 cents a kilowatt hour, Ameren says.

The change could result in other Ameren consumers paying up to 1.8 percent more, Noranda says. Ameren counters a rate cut for Noranda likely would raise rates for other consumers by 2 percent.

The Office of Public Counsel earlier this month asked that documents be made public detailing Noranda’s overearnings allegations. They were redacted because they came from a confidential PSC report, known as a surveillance monitoring report. But the public counsel, which advocates on behalf of ratepayers, argued it was unable to explain Noranda’s complaint to its clients — the public — without knowing more.

Warren Wood, Ameren Missouri’s vice president of legislative and regulatory affairs, acknowledged that the surveillance report data shows the utility overearned by $29.2 million during the 12-month period ended September 2013.

But he said surveillance reports are a poor indicator to determine whether a utility is earning more than allowed because the allowed return is more of an average than a ceiling.

“The expectation is you’ll bounce around that number over time,” he said.

Ameren Missouri has invited the PSC to conduct a “cost of service” study if it is concerned the utility is overcharging customers. Either way, Ameren Missouri plans in July to ask the commission for authority to raise rates, which will trigger a larger rate review study that Ameren said it welcomes.

Wood called Noranda’s overearnings complaint a “distraction” designed to divert attention from the aluminum company’s other case pending in front of the PSC that would lower its rates at the expense of other customers.

Noranda, for its part, says it hasn’t shied from the fact that its proposal might affect household rates. But it has argued that its plant’s closure would hit Ameren customers harder.

“Our rate design proposal is revenue neutral to Ameren,” John Parker, Noranda’s vice president of communications, said. “We’ve been very open about the impact our proposed rate design will have on other consumers.”

Parker also defended the company’s use of the surveillance reports in its overearnings calculations. “There’s a reason the Public Service Commission insists they file these reports quarterly,” he said.

The Missouri Retailers Association, the Consumer Council of Missouri and the AARP have all filed responses with the PSC saying the reports show that Ameren earned more than allowed and should reduce rates.

St. Louis Post-Dispatch, March 8, 2014

To understand the latest dispute between Ameren Missouri and its biggest electricity customer, Noranda Aluminum, think about pie.

Ameren, the investor-owned monopoly utility company, is always hungry. It likes pie.

When Ameren wants to charge more for the electricity you use, it asks the Public Service Commission for more pie. Over the past six years, Ameren has been gluttonously successful in grabbing a 43 percent bigger pie.

When rates go up, the PSC does a couple of important things. First, it sets a profit target for Ameren which the company isn’t supposed to regularly exceed. Second, it divides shares of the pie among all the consumers. Those consumers, from big industrial users of the most power to senior citizens on a fixed income, generally negotiate and come to consensus on which part of the pie they will fund.

The biggest consumers, such as the New Madrid aluminum smelter owned by Noranda, get the lowest rates. Other big manufacturing companies, like Boeing and Anheuser-Busch InBev, also pay less per kilowatt hour. Residential customers pay the most per kilowatt hour because it is less efficient to distribute electricity to individual homes than big manufacturing plants.

Usually, the consumers, big and small, gang up on Ameren to try to make the entire pie smaller.

That context is important in understanding two recent filings with the Public Service Commission by Noranda.
The company, which is owned by private equity giant Apollo Global Management, is asking the PSC to lower its rate, already the lowest rate in the state. Noranda currently pays a little more than 4 cents per kilowatt hour of electricity; it wants to cut that by 25 percent, to 3 cents.

For comparison, the rest of us pay a little more than 7 cents per kilowatt hour. Noranda also wants the PSC to declare that Ameren has been making more money than it is supposed to.

In many ways, the first request is just another case of a big company exerting its oversized influence to obtain a taxpayer (or ratepayer) subsidy. How big? The rate cut would shift about $500 million over 10 years onto the rest of us. For what Ameren calls its typical residential electric customer, that increase could cause a monthly bill of $104.50 to go up by about $2.09.

That doesn’t sound like a lot. But it adds up. So it’s curious that consumer groups aren’t making much noise about Noranda’s rate-cut request.

Joan Bray, executive director of the Consumers Council of Missouri, says this about Noranda: “They have been on the side of consumers.”

Indeed, that’s true. Hence Noranda’s second filing, which accuses Ameren of eating an extra helping of pie.
On behalf of all consumers, Noranda is asking the PSC to determine that Ameren has earned more than the 9.8 percent profit level set during the utility’s last rate case.

Ameren, through its vice president of legislative and regulatory affairs Warren Wood, denies it is taking in more profits than allowed by the PSC.

“The complaint is without merit,” he told us.

OK, then, why won’t Ameren simply open up its books?

That’s what the consumers have been asking them to do for months. It is something Ameren has done previously when accused of overearning, most recently in 2012. In fact, lawyers for parties to Ameren’s most recent rate case already have seen the confidential financial reports that ultimately will determine whether the PSC tries to order Ameren to reduce its rates. It seems highly unlikely that Noranda would file an expensive PSC overearnings case without already knowing the answer it seeks.

In effect, Noranda is asking the PSC to (a) first reduce the overall portion of pie that Ameren gets to eat, and then (b) also reduce the aluminum smelter’s portion of its pie.

The smelter argues it needs a lower rate to compete, pointing to several consecutive quarters of net losses. It says its competitors in other states have obtained even larger rate cuts. Noranda suggests that unless it gets its rate cut, it will have to fire employees or shut down completely.
That argument isn’t without merit, but it’s hard to swallow when Leon Black, the chief executive officer of Apollo, made $546 million last year, more than any other private equity firm boss. Here’s how Crain’s business magazine described his obscene haul:

“Mr. Black’s pay, which was in cash, was about 25 times higher than the amount awarded to Goldman Sachs CEO Lloyd Blankfein or JPMorgan Chase’s Jamie Dimon, who are paid mostly with stock. It is more than double the New York Yankees’ payroll and, for those keeping score at home, 10,702 times more than median household income in the U.S.”

This is the very picture of income inequality in America. For Mr. Black, $546 million wasn’t enough. He needs to squeeze a few more pennies out of grandma next year or he’s going to take his aluminum smelter and go home.

It’s distasteful. And, yet, without Noranda, who keeps Ameren’s runaway greed in check?

Our hope is that the PSC dials back the gluttony of both behemoths.

Save some pie for grandma.

Fox 4 News WDAF-TV Kansas City, February 24, 2014

Missouri Gas Energy wants a $23 million rate hike. It says the increase is needed to help with pipeline and service line costs, lines that bring warmth to homes and business.  The energy company says if the Missouri Public Service Commission grants its request, residential customers will pay an extra $2.33 a month.  That’s money some customers believe is not just to build pipelines but to line the pockets of company executives.

Click here to read and see more.

The Motley Fool, September 3, 2013

After receiving approval on July 17 from the Missouri Public Service Commission, Laclede Group (NYSE: LG) announced today it has completed the $975 million acquisition of Missouri Gas Energy, or MGE, from a subsidiary of master limited partnership Energy Transfer Partners (NYSE: ETP). The deal became final September 1, according to Laclede’s statement, and will be accretive to fiscal 2014 net earnings.

With the acquisition complete, Laclede said it is now “the largest natural gas distribution company in Missouri, now serving more than 1.1 million natural gas customers.” President and CEO of Laclede Suzanne Sitherwood said, “We’ve been working on the integration of the two companies since last year, and we are now fully ready to complete a seamless transition as we welcome Missouri Gas Energy employees and customers into the Laclede family.”

The sale of MGE, along with Energy Transfer Partners’ pending $60 million (less debt) sale of its New England Gas division, “is another important step in ETP’s efforts to streamline and integrate its asset portfolio through the divestiture of non-core assets,” the company said in its statement.

Liberty Tribune, August 31, 2013

The Missouri Public Service Commission has approved a request filed by KCP&L-Greater Missouri Operations Co. to change the fuel-adjustment charge on the monthly bills of its electric customers.

The FAC change reflects fuel and purchased power costs during the six month period December 2012 through May 2013. It also reflects the company’s annual FAC true-up. In that filing, GMO stated the true-up reflects an under-collection of approximately $314,400 from customers in the MPS rate district (Kansas City area) and an under-collection of approximately $357,600 from customers in the L&P rate district (St. Joseph area).

The change in the FAC will take effect Sunday, Sept. 1. It will mean an increase of approximately $0.78 a month for the average residential customer in the territory served by MPS and an increase of approximately $1.29 a month for the average residential customer in the territory served by L&P.

The fuel adjustment charge was authorized by the Commission for KCP&L-GMO in a regular rate case in 2007. The FAC tariff allows the company to pass increases or decreases in its net fuel and purchase power costs to customers outside of a general rate case.

The FAC allows the company to recover most — up to 95 percent — of its costs to encourage conservation and prudence in fuel use by the company. Any charges resulting from the fuel adjustment clause must appear in a separate category on customers’ bills.

Fuel adjustment charges are intended to help companies deal with volatility in fuel pricing. The FAC tariff requires regular adjustments to reflect changes in prices the company has incurred for fuel and for wholesale power purchased to serve customers.

KCP&L-GMO provides electric service to approximately 312,700 electric customers in Missouri.

St. Louis Post-Disptach, July 3, 2013

Laclede Gas Co. would not raise natural gas delivery rates for St. Louis area customers for at least two years under an agreement submitted this week to help the utility win approval of its $975 million purchase of Missouri Gas Energy.

The 43-page agreement, filed Tuesday with the Public Service Commission, was signed by Laclede, the Missouri Office of Public Counsel, the PSC staff and several other parties. [CCM note: The agreement includes Consumers Council of Missouri.]

It still must be approved by the five-member commission.

The agreement as submitted would bar Laclede from seeking a gas-delivery rate increase before Oct. 1, 2015, unless there’s an “unusual event” such as a terrorist act or severe downturn in financial markets that produces a net loss greater than

$5 million.

The utility also would not be allowed to recover any transaction-related costs from utility customers or any costs related to the acquisition premium.

But that doesn’t mean gas bills won’t rise during the next two years.

The agreement would permit Laclede to pass through changes in fuel costs, which make up about two-thirds of residential gas bills. The utility would also be allowed to seek increases in an infrastructure surcharge to raise money for the replacement of older cast iron and bare steel gas mains.

The agreement also allows Laclede to seek a rate increase for its MGE Division service area in western Missouri if it does so before Sept. 18. Otherwise, the utility cannot ask for higher rates until Oct. 1, 2015.

St. Louis-based Laclede in December agreed to a $1.04 billion purchase of two natural gas utilities. The centerpiece of the deal is Missouri Gas Energy, which serves about 500,000 customers in the Kansas City area.

The transaction would produce the fourth-largest gas distribution utility in the nation and almost double Laclede’s customer base in its home state.

Earlier this year, Laclede agreed to forgo a proposed $48.4 million rate increase to provide PSC staff additional time to focus on its analysis of the Missouri Gas Energy acquisition.

In a statement Wednesday afternoon, Laclede Gas President Steve Lindsey said the company is “pleased to have reached an agreement in principle with most of the parties to the Missouri Gas Energy acquisition case. This is a transformative transaction for Laclede, our shareholders and our customers.”

Laclede expects to close the transaction by the end of its fiscal year on Sept. 30.

Commentary in The Beacon, July 22, 2013

Many challenges face the future of the Universal Service Fund Lifeline telephone program, which extends affordable, discounted telecommunication service to elderly people, people with low incomes or disabilities, and those receiving government assistance. It has been successful in connecting and keeping millions of customers on the telecommunications network and thereby linked to 21st century life.

Unfortunately, Lifeline, as with many worthy programs that assist our society’s most vulnerable members, has been a victim of waste, abuse and fraud. As a result, the program must also contend with perceptions of it formed by half-truths, rumors and confusion, as evidenced in the recent commentary by M.W. Guzy.

Part of Lifeline’s problem has been lax policing, poor reporting and less than diligent accountability. Services to disadvantaged people often seem to be the target of opportunists and scam artists.

The program was begun in 1985 under the Reagan administration landline service. But as technology advanced, in 2005 the Bush II administration expanded it to include cell phone service. In January 2012, the Federal Communications Commission adopted comprehensive reform and modernization of the program.

Calls to end Lifeline are better directed to monitoring the FCC’s efforts and looking for new ways to address universal service and access to new technologies in the future.

The telecommunications companies that participate in the Lifeline program process the applications, verify eligibility by reviewing qualifying affidavits and documents and connect service. It’s a federal crime to misrepresent facts concerning eligibility.

To obtain the “eligible telecommunications carrier” designation, the wireless carriers who join the program offer a cell phone and a fixed number of minutes of use – 250 minutes a month — at a price discounted from normal retail price. The Universal Service Fund pays the cell carriers for the revenue they lose due to the discounted basic package, just as it does for landline carriers. Over the years, the payment has been about $10 a month per household.

Of course, the wireless companies do not want to miss an opportunity to “sell up.” Many of them offer additional minutes, upgraded plans and extra equipment to the Lifeline enrollees. But the extras do not qualify for USF reimbursement. Under the rules of the program, only one Lifeline landline or cell phone line is permitted per household. The customer may have one or the other, but not both.

Another confusing aspect of the program is the USF surcharge on telephone bills, which many customers read to be a federal tax. It is confusing because the telecom companies make it look like a tax and do little to clarify it. It actually is the USF’s assessment on the companies. But the companies pass it through as a direct surcharge on customers, which goes back to the companies. It appears on the bill with the service rate, taxes and other surcharges, thereby requiring customers to subsidize the full cost of providing the Lifeline program. The Federal Communications Commission and the USF Board allow the companies to present the pass-through as they do as a “business decision.”

Lifeline’s problem is also one of identity and public relations. Lifeline carriers are required to make diligent efforts to publicize the availability of their Lifeline plans. Mass media advertising, cold call telephone solicitations and internet ads for Lifeline intermix similar or similarly named services. That makes it difficult for customers to sort out which is a Lifeline provider and what are the authorized reimbursable benefits.

Companies have been known to give away a phone and call it “lifeline” or a government-issued cell phone. But that does not make it part of the USF Lifeline program. With the cost of a cell phone and service declining, a company can afford to charge $10 or give away a phone with the expectation that the customer will “buy up” by adding lines, texting and more minutes. Nothing prohibits a company from selling more minutes, texting or other upgrades in connection with its USF Lifeline solicitation or program since USF doesn’t pay for those items outside of the Lifeline benefits.

Companies that are not USF Lifeline providers or are just sharp operators have also been known to use a free phone giveaway to make it sound like the federal government is handing out taxpayer-paid cell phones to everyone who wants one. The internet is littered with websites with pitches that use the terms “lifeline,” “government program” and even set out the federal eligibility requirements. Of course, those companies include solicitations for more minutes and more expensive plans.

The Lifeline program is also haunted by internet rumors that it provides an “Obama Phone,” a free cell phone and free minutes given out to garner votes. The rumor is easily debunked as a myth. Street-corner and parking-lot phone giveaways that Mr. Guzy saw, and the internet rumors, would not be lawful under the USF Lifeline program. They have no eligibility screening and would not otherwise be anywhere close to compliance. They should be reported to the FCC because fraudulent enrollment is a federal crime.

A USF Lifeline lookalike is probably being offered by a company that resells someone else’s service, like AT&T’s or Verizon’s, and gives away a cheap phone with a small number of minutes. Credit cards or prepaid phone cards can be used to reload the phone with minutes for higher-than-normal rates, and the phone may be upgraded at an additional prepaid price.

Lifeline serves poor people — primarily rural, elderly and families with children — and promotes national interests by enabling them to more fully engage in productive lives.  -The program fulfills the congressional mandate of the Communications Act of 1934 to ensure the availability of communications to all Americans at just, reasonable and affordable prices. Since then, Lifeline has helped tens of millions of low-income Americans afford basic phone service that has enabled them to find jobs, stay in touch with their families and access emergency services.

Many assistance programs are plagued by people who game the system and ruin it for those who deserve benefits. Lifeline should not fall prey to the spoilers. It should meet accountability tests and continue to work to include all Americans in our hyper-connected society.

The authors:  Joan Bray is interim director of Consumers Council of Missouri. Mike Dandino is the retired chief legal adviser for the Missouri Office of Public Counsel and a former board member of  Consumers Council of Missouri.

Associate Press, August 1, 2013

JEFFERSON CITY, Mo. • State regulators have determined that Ameren Missouri owes its electric customers slightly more than $26 million for failing to include some revenue in its calculations.

The Missouri Public Service Commission on Wednesday approved an order for the St. Louis-based company to refund the money to customers.

But Ameren Missouri won’t be sending out checks. Instead, the $26.3 million will be applied by adjusting a fuel charge that customers otherwise would pay.

The PSC found that Ameren Missouri improperly excluded revenues from certain power sales agreements when calculating rates charged under its fuel adjustment clause.

Ameren Missouri called the decision disappointing but not surprising given a recent appeals court ruling on the matter. The company says it still believes its position is correct.

Ameren has 1.2 million electric customers in Missouri.

Today, Wednesday, July 10, Governor Jay Nixon vetoed the bill that would have cost consumers hundreds of millions of dollars more in our gas utility bills over the next five years.

Please THANK HIM NOW!

Click here to email the Governor to thank him.

Or call him at 573-751-3222.

By vetoing SB 240 Governor Nixon prevented gas utilities from adding more costly surcharges to consumers’ bills.  He also maintained the current balance in the rate process that gives consumers a fighting chance against the gas companies, which enjoy monopoly status and very healthy profits.

To read the Governor’s veto message, click here.