St. Louis Post-Dispatch, March 12, 2013
Ameren Missouri spent most of last year successfully convincing state regulators to boost electric rates.
Now, the utility’s own financial data show that it earned millions of dollars more than authorized in 2012. And that was before the Public Service Commission approved a $263 million increase that took effect in January.
It’s not illegal for Ameren to exceed its allowed return on equity, a key measure of profitability that’s used by the PSC to establish rates, and under state law it’s impossible for customers to recoup the money. But consumer advocates, including some of Ameren’s biggest customers, say it’s proof that utilities don’t need an infrastructure surcharge that would yield millions of dollars in additional revenue.
“It shows you that they had a very good year and that they have plenty of money that they could plow into infrastructure,” said John Coffman, an attorney for the Consumer Council, a nonprofit consumer advocacy group. “The current process allows them to earn a sufficient amount of money, if not overearn.”
Warren Wood, Ameren Missouri’s vice president of legislative and regulatory affairs, disagreed with the assessment. He said the jump in earnings was because of several unusual circumstances, including the hottest summer on record.
“You don’t have to look any further than last summer,” he said.
Other factors also influenced Ameren Missouri’s profitability, he said. The utility didn’t halt its Callaway nuclear plant for refueling last year, it recorded a legal settlement and made an accounting change — all factors that contributed to higher earnings.
“If you take those out of the calculation, our earnings were back below our authorized commission return,” he said.
Ameren Missouri’s 2012 profitability is the latest data point in a fierce debate over Senate Bill 207, legislation proposed by Sen. Mike Kehoe, R-Jefferson City, that would give investor-owned electric utilities the ability to impose a surcharge for infrastructure investments.
Utilities say they need to get paid more quickly for improvements to the electric grid and other investments so they have enough cash to ramp up spending and improve electric reliability.
Critics of the bill — the consumer groups — say the current regulatory system works just fine. They say the bill does more than reimburse utilities more quickly: it pads profits at the expense of consumers who have been slammed hard by repeated rate increases.
The consumer groups last week asked the PSC to declassify a confidential report that Ameren files with the commission every three months, saying it was needed information to the debate in Jefferson City.
Ameren agreed to release parts of the so-called surveillance monitoring report Monday evening. It withheld portions of the report that contain proprietary information.
The report that shows last year’s return on equity, a key measure of profitability, was 11.66 percent. That was far above the 10.2 percent it was authorized to earn. The difference equals about $80 million.
In a note accompanying the report, Ameren said the company’s return would have been 9.5 percent without the “unusual factors” such as the hot summer.
But Lewis Mills, Missouri’s Public Counsel, argues otherwise. “Earning 9.5 (percent) under the current regime argues very strongly that the system’s not broken,” he said.
Wood said all of the focus on the utility’s 2012 earnings ignores that Ameren has for years fallen short of its maximum allowed return.
“Before very recently, we haven’t hit our return on equity a single time in over five years,” he said.
Ameren’s maximum return on equity was reduced by the PSC in December even while the commission approved a rate increase. The lower return reflects a downward national trend in financing costs for utilities linked to lower interest rates.
Still, Ameren expects to again earn less than its new allowed return on equity, Wood said. The projection assumes a planned outage at the Callaway plant for refueling and a return to more normal summer weather.
The debate over Ameren’s return on equity is a common one in the hearing rooms of the Public Service Commission, but less so at the State Capitol. In setting utility rates, regulators try to establish returns in a way that allow the utility to compete for investment capital and that’s fair to consumers. The differences between 10.2 and 9.8 seem small, but add up to millions of dollars that either go to utility shareholders or stay in consumers’ pockets.
Consumers have no way to recover money already paid to a utility. But they can file a formal complaint asking regulators to reduce a utility’s rate if profits exceed the return level established by the PSC.
Doing so, however, is a time-consuming, expensive endeavor. Unlike a rate case in which a utility must prove it needs more revenue, the burden of proof is reversed. And when the commission considers future rates, factors cited by Ameren such as weather are part of the equation.
“You need to have fairly convincing evidence that they have been, are, will be overearning by a significant amount” before filing a complaint, Mills said.
At the very least, he and other consumer groups said it’s a situation worth monitoring closely in the coming months.
Meanwhile, Ameren maintains that last year alone didn’t cure a need for cash to invest. The utility, which is spending about $600 million a year in infrastructure projects now, according to Wood, projects being able to boost investment by $100 million a year if the legislation is approved.
“If you look into the future, you see a need for some incremental level of investment to start working our way through this bow wave of aging infrastructure,” he said.