Editorial: Split the Utility Baby in Noranda-Ameren Dispute Over Rates

St. Louis Post-Dispatch, August 5, 2014

If you rely on Ameren Missouri for electricity, as most people in the region west of the Mississippi do, here is what you need to know about the utility monopoly’s months-long rate battle with its largest customer:

One way or another, you are going to pay more.

In March, Noranda Aluminum, which operates a huge smelter in New Madrid in southeast Missouri, said it needed lower rates to stay competitive in a depressed aluminum market. Manufacturing aluminum requires tremendous amounts of electric power; industry-wide, it is estimated that electricity represents about a third of the cost of an ingot of aluminum.

When Noranda made its rate request, it also asked the Public Service Commission to punish Ameren for earning more than the investor-owned monopoly’s regulated return on investment.

The PSC could rule on one or both cases any day.

The simple math is that consumers lose if Noranda wins. Also, consumers lose if Ameren wins. In Missouri, consumers lose no matter what because the game is entirely rigged against them.

The dispute over whether Ameren has earned more than the 9.8 percent profit established by the PSC makes that painfully clear.

The PSC sets that target return on investment whenever a utility seeks a rate hike, by balancing the company’s need for growth and profit with consumers’ need for affordable, consistent rates for electricity. Because Ameren is a monopoly, the PSC’s role is to provide the pressures that might otherwise be provided in a competitive environment. To keep Ameren honest, the company is required to file “surveillance reports” to show whether it is earning more than is allowed.

But the PSC has determined those reports are confidential. So, for several months, a select number of attorneys and others involved in the previous rate case have known what the reports show: That Ameren has over-earned by tens of millions of dollars over the past year.

Those attorneys couldn’t talk about it, however. They asked the PSC to release the reports and the PSC said no. Ameren claimed it wasn’t over-earning, but it also sought to keep the reports confidential.

Here’s how Noranda described the situation in its opening statement in the over-earnings case:

“What is the point of requiring surveillance monitoring reports … if, when those reports evidence over-earning, the commission does nothing about it?”

Late last month, just before the PSC’s hearing on Ameren’s over-earning was to begin, a judge finally opened up the reports. From July 2012 to March 2014, they show a consistent pattern of Ameren earning above its regulated rate of return. It can be argued that money rightfully belongs to Ameren’s consumers, not its shareholders. The over-earning, depending on who is doing the counting, is currently somewhere between about $25 million and $60 million a year.

But it gets worse for consumers.

The standard for showing whether those figures actually constitute the legal definition of over-earning involves a complicated and expensive process. Ameren employs lots of lawyers and experts. The staff of the PSC, and the Office of Public Counsel, which is supposed to represent consumers, don’t have the resources to complete.

Meanwhile, Ameren’s next rate increase request, in which a full analysis of its books will take place, is about to start. Worth noting: Ameren has been successful in increasing its rates by more than 40 percent in the past six years.

The way the system is set up right now, Ameren has no incentive to not gouge consumers because the regulators are too weak to do anything about it. The Legislature could fix that, but Ameren also employs lots of lobbyists and makes lots of campaign donations.

All of that explains why consumers are supporting what amounts to a massive subsidy to Noranda. The aluminum company is the only consumer, it seems, with deep enough pockets to take on Ameren at either the PSC or in the Legislature.

In March, when the two cases were filed by Noranda, we wrote: “Our hope is that the PSC dials back the gluttony of both behemoths.”

The PSC could still do precisely that. A group of consumers has negotiated a possible settlement to Noranda’s request to decrease rates that would allow a subsidy of about $21 million a year for the next five years, subject to Noranda maintaining its job base in southeast Missouri.

That’s much less than Noranda asked for. Even so, the subsidy would raise the average residential consumer’s rates by less than 1 percent. But if Ameren’s No. 1 customer folded up shop and left Missouri, everyone else’s rates would go up even more.

The PSC should agree to that settlement, while also returning to consumers a similar amount in over-earnings that Ameren has pocketed over the past two years. The surveillance reports and the testimony in the over-earnings case tell the PSC commissioners all they need to know. Ameren has over-earned. Make them give some of the money back.

Ultimately, the Legislature should get serious about protecting consumers by funding the Office of Public Counsel to a level that would negate the need for consumers to have to rely on Noranda or other large industrial companies to do their heavy lifting for them.

We won’t hold our breath over that one.

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