Bill backed by KCP&L in Missouri would allow annual rate increases

Missouri utilities could raise customers’ rates every year — and with less control by regulators — under a bill they’re advocating in Jefferson City.

In return, proponents say, those increases will be more predictable and subject to yearly limits. Electricity customers in Kansas City, for example, wouldn’t face another rate spike like the 11.7 percent boost they got last September from Kansas City Power & Light.

But opponents say that customers would almost be guaranteed an increase every year, and that the bill’s yearly limits have too many holes in them to really protect consumers.

For decades, utilities have had to submit detailed rate requests and justify their costs in months-long proceedings before the Public Service Commission. The regulators then granted what they thought were “reasonable and just” rates, usually covering some but not all of the request.

The new proposal, sponsored by Sen. Ryan Silvey of Kansas City, would amend Missouri’s 1913 regulatory law so that utilities instead could expect quicker and more predictable returns on their investments in power plants, transmission lines and other infrastructure.

They could choose to submit such expenses for the past year and, unless the regulators proved the costs “imprudent,” expect to get a set return on those investments.

“Our hope is that we can come up with a modern system that works for today’s issues,” Silvey said. “A lot has changed in the utility space and how we utilize electricity in the last 103 years.”

But many consumer advocates and industrial energy users oppose the bill, saying its formula approach would remove much of the PCS’s ability to scrutinize rate requests and control rate increases.

“There’s nothing in this bill to keep rates from going up every year,” said James Owen, the state’s acting public counsel, whose office represents consumers in utility cases.

Advocates note that the bill caps increases in utility revenue to 2 percent for each of the first two years, no more than 4.75 percent in any one year after that, and a rolling average of 3.5 percent. Some consumer advocates like that aspect of the plan.

“No one likes rate increases,” said Kristin Riott, executive director of Bridging the Gap, a nonprofit that helps low-income Kansas City residents. “But having them smoothed out would be an advantage for the average Kansas Citian.”

Riott was one of several people who testified Tuesday afternoon and evening in a 4-hour-plus hearing of the Missouri Senate’s Commerce, Consumer Protection, Energy and Environment Committee, of which Silvey is the chairman.

The hearing and several meetings in the past few months have given everyone involved in the regulatory process a chance to be heard, Silvey said. He now hopes to have a final version of the bill that his committee can vote on after the General Assembly’s spring break next week.

The PSC has taken no official position on the legislation. And a former regulator from Illinois who testified, Erin O’Connell-Diaz, said a similar streamlining had worked well since being adopted in her state.

But Owen and other witnesses raised several red flags on the bill.

One is that the percentage caps on annual increases would apply to overall utility revenue, rather than an average customer’s bills. As a result, large customers could be favored, and poor households could see their bills go up more than the 3.5 percent average allowed every year.

Owen also noted that the bill would give utilities a choice to stay under the current rate-increase process or join the new streamlined “formula” setup — and continually move back and forth, choosing which system favored them in a particular year.

The new process also would eliminate the PSC’s charge to ensure rates are “just and reasonable” and would shift the burden of proving costs were “reasonable and prudent” from utilities to the PSC staff, Owen said.

David Woodsmall, an attorney for the Midwest Energy Consumers Group, said its membership of large commercial and industrial electricity users opposed the new setup for several reasons. Besides virtually assuring higher rates every year, he said, the system’s rate caps were “illusory” because exceptions to them were allowed.

He said KCP&L and Ameren,, the St. Louis utility that serves eastern Missouri, had invested heavily in infrastructure in recent years and were already the most reliable utilities in the Midwest.

“Customers are already paying higher rates as a result,” Woodsmall said, “and this system given them an incentive to go out and gold plate their networks.”

Chuck Caisley, KCP&L’s vice president of marketing and public affairs, took an opposite view, saying the legislation would enhance regulatory control.

“Keep in mind we can make a new request every 12 months now — an uncapped request,” he said in an interview. “We can ask for whatever revenue increase we want, and whatever return on equity we want.”

The legislation would set a utility’s return on equity at 9.45 percent, something the PSC can determine now. But that’s on the low end of what utilities make nationally, Caisley said, and was slightly lower than the return rate granted in the utility’s latest rate increase. But because of other restrictions, Caisley said, KCP&L can’t actually achieve the allowed return rate.

As a result, Caisley said, KCP&L was “willing to take a lower allowed return rate” in return for streamlining the overall process and giving the utility a better chance to actually make its allowed rate.

Caisley also said much of the contentious and costly rate process revolved around determining that rate of return. Setting that rate by law would save time and legal costs, he said, “and hurt the pocketbooks of the silk-stockinged, high-priced lawyers who have profited millions” representing consumers and industrial clients.

Caisley also noted that 18 states had moved to the type of streamlined formula approach Missouri is considering. Besides Illinois, neighboring states Oklahoma, Arkansas, Kentucky and Iowa “all have forward-looking and more modern regulatory mechanisms,” he said.

Kansas has not switched systems, but Caisley said the state had taken some steps in that direction. Its rate process is typically eight months instead of Missouri’s 11 months, he said, and Kansas has adopted provisions that make it easier and faster to recoup certain kinds of costs.

KCP&L and Ameren have long favored streamlining the regulatory process, but big industrial users have led the opposition in the past.

This year, however, aluminum-maker Noranda has dropped its opposition. Noranda has been Ameren’s single biggest customer, but it lately has been torpedoed by falling aluminum prices and filed for bankruptcy. It also has struggled to keep its huge smelter in southeast Missouri even partly open, and now hopes that capped rate increases might help it reorganize.

Silvey had focused on appropriations rather than regulatory policy issues in his dozen years, but in September he became chairman of the energy committee. And as someone who had never taken sides in the utility regulation dispute, he thought he might be able to help break the deadlock.

“Suddenly there was this opportunity, and I stepped into the role of mediator,” he said. “We’re trying to eliminate the regulatory lag for the utilities but also keep rates as low as possible for consumers.”

This story was originally published March 16, 2016 at 12:05 PM with the headline "Bill backed by KCP&L in Missouri would allow annual rate increases."