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Ameren includes new, questionable costs in customer fuel charge

This article first appeared in the St. Louis Beacon, Dec. 11, 2012 - Even though Missouri law bars utilities from charging their customers for construction projects that haven't produced any power, Ameren Missouri has tacked $10 million onto Missouri customers' bills for power lines that it hasn't even started to build yet.

The utility estimates that this cost will increase to $53 million by 2016. The Public Service Commission staff and Office of Public Counsel, which represents the ratepayer in these hearings, had been unaware of a significant portion of these charges until after they had begun to flow into the customers’ bills.

On Wednesday, the PSC approved a $260 million rate increase for Ameren Missouri, about two-thirds of what the company had sought. The hike goes into effect Jan. 2.

Cooperative arrangement

Ameren Missouri is part of the Midwest Independent System Operators (MISO), an electricity cooperative that promotes safe, reliable and affordable electricity within 11 states and a Canadian province. This arrangement allows Ameren Missouri to sell its electricity to the cooperative and then buy back the power needed to serve the customers. The electricity that is not bought back is sold to another utility and the revenue is used to offset the charges customers pay for purchased power and fuel.

The Public Service Commission has allowed Ameren Missouri to remain in the interstate electricity cooperative because it expected the benefits to be greater than the costs. While the charges from the transmission projects are unavoidable as long as Ameren remains part of the organization, they present a dilemma for the commission.

According to Lena Mantle, staff manager of the Public Service Commission’s energy unit, the Federal Energy Regulatory Commission has given the cooperative the power to require transmission lines to be built and charge its members for the construction of these transmission lines. This federal decision allows the cooperative to charge for the transmission lines as they are being built -- which stands in direct conflict with Missouri’s anti-Construction Work in Progress Law (CWIP), which does not allow utilities to charge ratepayers for construction costs before they receive the benefits from the project.

“So, that may get around our anti-CWIP law, which we are working through,” Mantle said.

Tom Byrne, Ameren’s managing associate general counsel, said that the costs of being part of the interstate electricity cooperative, including the construction projects, are charges the company is required to pay.

“From Ameren Missouri’s perspective,” Byrne said, “we’re not constructing anything.”

Former state Sen. Joan Bray, D-University City, said that the interstate electricity cooperative must work within the framework of state laws. “It certainly isn’t something that we should take on because some one says so.”

In December 2011, the electricity cooperative approved plans to start constructing multi-value projects, which are supposed to improve regional electricity reliability and provide jobs and other economic benefits. The ratepayers within the cooperative’s region are expected to share the costs of the projects.

Byrne said although Ameren Missouri has not yet started building any of its own multi-value projects, its customers are helping pay for projects constructed in other states in the cooperative.

According to Mantle, part of this expense is reflected in Ameren Missouri’s base rates. The difference between actually incurred costs and what is in Ameren Missouri’s base rates has been reflected in Ameren customers’ fuel adjustment charge since the previous rate case, which ended July 13, 2011. She estimates these additional charges to total about $10 million.

Ameren officials declined to provide information about how much the $10 million increased individual customers’ bills, but the amount charged adds up to a total of about $9 a customer since they began in July 13.

Transmission vs. transportation

More debate centers on whether these charges can be legally added to the fuel charge. The legislature created this charge to help Missouri investor- owned electric utilities pay for volatile fuel and transportation costs. Mantle said that transporting coal from Wyoming to Missouri could cost as much as the cost of the coal itself.

Kevin Thompson, a staff attorney at the Public Service Commission, said that some people argue that the legislature would have used the word transmission if such charges were meant to be included in the fuel charge. “Others would say, ‘Well, they use transportation because that’s broader and they want to make it clear that it pays for trains, trucks and transmission.’"

Ameren says that the interstate electricity cooperative transmission project charges belong in the fuel charge.

“From our perspective,” Byrne said, “we believe it’s appropriate to include those in the fuel adjustment clause, because they are mandatory charges that we have to pay to be in MISO, which gets our customers all the benefits of being in MISO, which far outweigh these costs.”

The Office of Public Counsel representing the ratepayers in the rate case hearings has taken the position that the costs of building transmission lines is not allowed in the fuel charge.

The counsel’s attorney Lewis Mills said, “When you’re talking about electricity, nobody certainly in the utility industry -- and I don’t think anybody in the world -- talks about ‘transporting’ electricity. You talk about transmitting electricity.”

The fuel charge is an example of single-issue ratemaking, where certain expenses are isolated and added as an additional, changeable charge on customers’ bills. This is to allow Ameren to recoup unpredictable costs. However, some revenue is included in the fuel charge, such as the sale of excess energy on the market when it can make a profit.

According to Mantle, with single-issue ratemaking, Ameren Missouri can increase utility bills even if the company is making money. At the hearing, staff presented a surveillance report, prepared and filed by the company, that shows its earned return on equity exceeded its authorized return on equity for the 12 months ended June 30.

“With single-issue ratemaking, there is a one-way street where there should be a two-way, Mantle said. “All cost increases and decreases should be reviewed.”

Mantle also noted that single-issue ratemaking reduces the risk for the utility.

Bray said that she fought against the fuel charge when she was in the legislature, and its passage is what precipitated the resurrection of the Consumers Council of Missouri in 2006, on which she now serves as the
chair.

“We have long been proponents of the full-rate case,” Bray said. “The specialized charges and costs harm the consumer by picking out single costs and charging for them without looking at the whole.”

John Coffman, the Consumers Council’s legal counsel, said that such charges also reduce incentives for Ameren Missouri to make cost-efficient decisions.

Bray said that fuel charges should be addressed within Ameren’s rate cases.

“These days they’re having so many rate cases,” Bray said. “It’s obvious to just deal with them that way.”

Flaws in oversight

Although these transmission charges had been flowing through the fuel charge since January 2012, the staffs at the Public Service Commission and the Office of Public Counsel were unaware that charges for transmission facilities themselves were included until making preparations for Ameren Missouri’s rate case.

Commissioners questioned the staff about why the charge had been overlooked for months.

“I freely admit it is our job to know, and we should know, but it’s difficult,” Thompson said. “It’s not as easy as picking up the phone and calling Ameren and saying, ‘Tell me whatever’s going on right now that you think
I ought to know.’”

Byrne said he and others at Ameren had no doubts at the time they decided to start flowing transmission charges through the fuel charge.

“In our mind,” Byrne said, “those were clearly covered by the fuel adjustment clause tariff and we do monthly reports on what’s flowing through.”

Although Ameren does report to the Public Service Commission regularly about the costs flowing through the fuel charge, both Thompson and Mills said information is easy to overlook.

Despite an increase in rate cases in recent years, Mills said the Office of Public Counsel’s funding has diminished, putting more work on fewer people. The Office of Public Counsel’s yearly budget is $700,000. Ameren spent about $2 million on the most recent rate case.

“If we had $2 million to spend on this rate case and a commensurate amount to spend on all the other rate cases, my budget would be 10 times as big,” Mills said. “That doesn’t seem feasible in today’s economic climate. No matter what happens, the public will always be outspent by the utility, but it should not be anywhere near this bad.”

While the public gets outspent, Ameren has an advantage when it comes to information.

“We don’t know anything about their business if they don’t tell us,” Thompson said. “And if they don’t think to tell us or we don’t think to ask, then we’re not going to know.”

Emilie Stigliani is a freelance writer.