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Economy & Business

CWIP protect consumers from higher bills - or simply delay the reckoning?

This article first appeared in the St. Louis Beacon, March 25, 2009 - The current debate over a possible second nuclear power plant for Missouri involves issues ranging from safety to energy conservation to environmental quality.

But for many consumers, the most pressing question will be the bottom line on their monthly electric bill.

Whether that number rises -- how much and how soon -- could depend on what lawmakers in Jefferson City decide to do about AmerenUE's drive for the authority to charge electric customers for costs associated with the plant even before it begins producing power.

Asked to decide that issue in 1976, voters overwhelmingly said no, at a time that the state's first nuclear power plant was being planned for Callaway County in mid-Missouri. Now, with Callaway II an increasingly hot topic of discussion, that prohibition may be reversed. To those on either side, the arguments are as clear and bright as a cartoon light bulb.

Richard Mark, a senior vice president of AmerenUE, looks at it "like a home construction model. You're paying the interest on the loan up front, and once you move into the house, you start paying down the principal and interest.

"I think if you ask [customers], knowing that you have to pay for it one way or the other, would you rather pay 1-2 percent a year, or would you rather pay nothing for six years and then pay 50 percent more each year, they'd say, 'We'd rather pay as we go.' "

But opponents say consumers should not have to pay for anything until they see some real benefit. Robert Cropf, a public policy professor at Saint Louis University, argues that the change would transfer the risk for the plant from AmerenUE shareholders, where he says it belongs, to ratepayers, who would have no choice.

"It's always easier to try to shift the burden of costs somewhere else," Cropf says. "Why are we in effect giving a subsidy to the shareholders of AmerenUE?

"Shareholders can vote with their feet and move their money somewhere else. You and I can't vote with our feet unless we move out of the area served by AmerenUE."

From Callaway I to Callaway II

When Missouri's first nuclear plant was on the drawing board, the Public Service Commission agreed to let it charge customers for costs of the facility while it was being built -- a policy known as construction works in progress, or CWIP.

Consumer groups unhappy with the decision put a proposition on the ballot in November 1976 that would bar the practice. It passed by a ratio of nearly 2 to 1 despite a campaign by Union Electric, the predecessor of AmerenUE, that warned of large rate increases when the plant went online and began producing power.

Once the juice did begin to flow, in 1984, rates did rise sharply for a few years -- 15.1 percent in April 1985, 9.9 percent in April 1986 and 4.6 percent in April 1987. Then, for 20 years, electric customers paid no increases at all. So depending on how you look at it, rates rose more than 30 percent in a three-year period or in a 23-year period.

Now, AmerenUE is in the planning stages for Callaway II, on the same site as its first plant. It would cost about $6 billion, with another $3 billion thrown in for financing. The company says it has not made a firm decision on whether to build the plant.

Company officials have said they would not proceed unless they could recover the costs of financing from ratepayers -- in other words, if they could reverse the popular vote from 1976 and be able to take advantage of CWIP.

To overturn the anti-CWIP vote, Ameren worked with lawmakers to craft two pieces of legislation - SB228 and  HB554.  Neither bill deals specifically with a nuclear power plant, and each does more than simply allow a utility to charge for construction works in progress.

But everyone involved acknowledges that the bills are designed to help build Callaway II. They also agree that between now and the end of the legislative session in mid-May, significant changes are likely to be made before either bill comes up for final passage. Even if one is sent to Gov. Jay Nixon, whether he would sign it is not entirely clear.

AmerenUE's case

Mark, the AmerenUE vice president, has taken the lead in arguing that charging ratepayers for the costs of financing the plant is both necessary and fair.

Every month, he said in a recent interview, the utility is paying $8 million-$10 million to keep the application process rolling, so it hopes the Legislature passes something this year that would help cover the costs of financing the plant. If things proceed smoothly, he said, construction could begin in 2013, when customers would begin being charged for the project, and it would be completed five years later.

"If we have no certainty on if there is going to be legislation to allow us to build this plant," he said, "we are going to have look at conserving our cash and we'll probably throttle down the project."

Asked why the Legislature should reverse a vote of the people, he said that the 1976 balloting was conducted in an atmosphere where voters were uneasy about nuclear power, so the result reflected far more than a consumer push to save money. Today, he says, surveys show that Missourians look favorably on nuclear power by a 70-30 ratio over coal -- the mirror image of what polls showed when the anti-CWIP provision was passed.

In the current battle with consumer groups that are unhappy with the prospect of paying to finance a plant before it produces power, Mark is clearly frustrated. He feels that opponents of the effort are engaged in utility bashing and don't necessarily represent individual electric customers whose bills could rise sharply in tough economic times.

He also says that because the Public Service Commission allows AmerenUE to receive a 10.7 percent return on its investment in any case, it would be easier for the company to avoid the hassle of building a $6 billion project that involves so much controversy. But, he said, that course would ignore the state's future power needs.

"If there's a way to find compromise that is agreeable but yet meets the reasonable test of the financial markets, we're open to talking to people," he said.

"We've been willing to talk to people, but what we have found is that people have chosen to go out and make outlandish, inaccurate statements to the media and in the hearings without substantiation and without even talking to us about what does this mean."

He gets particularly animated when he talks about what others consider to be solutions that wouldn't really address the state's basic energy requirements.

"Why don't you ask that question before you stand up in a public hearing and call us greedy bastards?" he said. "That's all I ask, is common sense."

Consumer advocates respond

For those who oppose allowing CWIP, the arguments fall into three main categories:

Ratepayers should not have to pay for something until they can use it. They shouldn't be charged costs for energy that they may not be around to take advantage of in the future, if they die or move away. And they shouldn't assume costs that are more rightly shouldered by shareholders, not electric customers.

As Missouri's public counsel, Lewis Mills is the consumers' advocate in utility rate cases -- and someone whose persistence in seeking information from AmerenUE has gotten under Mark's skin on more than one occasion. He looks at the issue of CWIP as one of fairness.

"The idea that before the utility invests money and gets a plant up and running, that the customers would be charged, is contrary to the whole regulatory paradigm. It's not the way things are done."

He has been particularly irritated by what he considers AmerenUE's resistance to giving his office the information he says he needs to make its case.

"They have not been forthcoming, " Mills said. "They have fought tooth and nail to try to keep from releasing information. Only after the Public Service Commission ordered them did they release it to me."

Another opponent of the effort to allow CWIP is John Coffman, general counsel of the Consumers Council of Missouri. Both he and Mills say there are other ways that AmerenUE could recover some of its costs for the project without overturning the vote from 1976.

Coffman notes that if the Public Service Commission can grant rate increases based on construction that is still in progress, it may not be able to spot waste and other factors that could save consumers money. After construction of Callaway I, he said, audits found such items that saved electric customers hundreds of millions of dollars each year.

In the current situation, he calls the utility "amazingly intransigent" in its attitude.

"It is absolutely possible that something could be worked out to allow a plant of that size to be built," Coffman said. "The approach that AmerenUE is taking now is 'It's our way or no way and we're going to cram this legislation down your throat.' "

What bothers Cropf, the SLU public policy professor, is the haste that AmerenUE is in to push the bill through as well as the basic changes that would be made to how utility rates are set in Missouri.

"Ameren's goal is to get it done quickly," he said of the drive to have a bill passed this year. "The longer it is drawn out, the less valuable it will be to shareholders. What all business wants more than anything is certainty."

As far as the possible changes in the role of the Public Service Commission in determining rates, he says:

"It abdicates its responsibility and loses all of its oversight. It becomes basically a rubber stamp, and that's ridiculous. That's like turning back the clock on regulation of utilities 100 years."

Worries at the PSC

The regulatory role also weighs heavily on the mind of PSC Chairman Robert Clayton. While he can't discuss cases pending before the commission, he was willing to talk about what he thought is a major shortcoming in both CWIP bills in the Legislature.

If AmerenUE simply wants to make sure it can charge customers for construction works in progress, Clayton said, all it needs to do is work for simple legislation to overturn the 1976 vote. But the bills now under consideration do much more.

In effect, he said, they would force the staff of the PSC to come up with recommendations in three-month intervals -- far less time than it needs to thoroughly and properly examine the issues involved.

He explained that while the PSC supervises its staff, in rate cases the staff is considered to be just another party. Its recommendations are considered by the five-member commission, which votes on whether to accept them.

Just as bad as the truncated time frame, Clayton added, are provisions that make it impossible to revisit any decisions once they are made.

"It's not actually CWIP that is the most aggressive piece of the bill," he said. "I think it's the shortened timelines that changes how we do business."

Clayton said that CWIP is a legitimate form of doing business, and "I am not as offended by repealing Proposition 1 as much as some are. We are going to operate under the law regardless of what it is.

"The Legislature is going to expect that we dig in and hold their feet to the fire. I just want to make sure we have tools to do that."

In the end, Clayton said, he would like to see legislation that balances the needs of the utilities with the protection of the consumer.

"I think it would be in everyone's interest to get together and work out some basic agreement," he said. "I think the public would have more confidence if there was some sort of agreement on these issues. I think there is plenty of room for parties to get together and hammer out some basics."

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