Consumers Assert Ameren Profitted Millions More Than It Should Have

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.