AmerenUE asks for 18% electric-rate increase
Less than six months after it raised electric rates by $163 million, AmerenUE is going back to Missouri regulators in search of another, larger increase.
The St. Louis-based utility on Friday sought approval to boost rates by 18 percent, or $402 million, to help compensate for higher fuel prices, financing costs and reliability improvements.
Rate requests are rarely approved in full. The $163 million rate hike it received in late January was about two-thirds of what the utility had requested.
But if AmerenUE got the entire sum it is seeking, the average residential customer bill would rise about $15 a month based on usage of 1,100 kilowatt-hours, the utility said. Exact amounts will vary according to usage.
More than half of the increase, $237 million, would go toward higher fuel costs, including the cost of shipping coal from Wyoming, AmerenUE CEO Warner Baxter said. Also a factor is the drop in wholesale power prices, which means less revenue from sales of electricity to customers outside of the utility’s service area.
The rest of the increase would go to fund reliability projects at power plants and on AmerenUE’s sprawling network of poles and wires, he said.
Consumer advocates had just begun to dig into AmerenUE’s filing Friday afternoon but were surprised by size of the
revenue increase being sought.
"Eighteen percent is a lot," said Lewis Mills Jr., Missouri’s Public Counsel. "And they just got a rate last year and one the year before that."
Of course, AmerenUE’s customers have been hit hard, too, and would have to absorb any increase. Many in the area have seen their investments eviscerated by the decline in stock markets, and metro area unemployment continues to rise.
"We know this is going to create challenges for some of our customers," Baxter said. But "our current rates simply do not reflect the investments we have made and the costs we are incurring."
Prices for all forms of energy have declined because of the recession. But AmerenUE buys coal under three- to five-year contracts and last year’s energy-price spikes haven’t been fully reflected in rates.
AmerenUE’s rates are currently 20 percent below other investor-owned utilities in the state. Even if the full rate increase is granted, rates would remain 10 percent lower, Baxter said.
The Missouri Public Service Commission has 11 months to consider the request, so rates likely wouldn’t change until mid-2010.
AmerenUE has, however, asked for an exception — an interim $37 million, or 1.7 percent, increase to cover investments that are already providing benefits to customers.
Baxter said an interim increase could help offset the gap between its actual costs and the historical costs on which rates are set paydayloans. This so-called regulatory lag has been a constant concern for the utility, which has indicated it will file frequent rate increases to compensate.
"In a rising cost environment, you tend to be chasing your tail quite a bit," he said.
Interim increases aren’t unprecedented, but they’re rare and have typically been reserved for instances where utilities face financial distress.
Mills said it was "highly likely" that he would challenge it.
AmerenUE is also asking regulators to approve separate surcharges that would allow speedier recovery of fuel expenses and costs to comply with state or federal environmental mandates. The surcharges are allowed with PSC approval under a controversial 2005 state law.
John Coffman, a consumer lawyer who has previously represented the AARP and Consumers Council of Missouri in rate cases, battled efforts to pass the 2005 bill remains fundamentally opposed to the use of special charges, which can be approved with less up-front scrutiny.
"The fairest way to raise rates is to allow a full audit and a full rate case that looks at all of the investments and expenses and the financial condition of the company," he said.
AmerenUE is asking the PSC for an 11.5 percent return on equity, or profit. That’s higher than the 10.76 percent return allowed by the commission in January, though Baxter said the utility will earn closer to 7 percent this year.
Generally, the lower the return, the more difficult it is for utilities to attract investors. That can lead to higher borrowing costs.
AmerenUE has already seen borrowing costs rise dramatically because of higher interest rates and tighter credit. The utility reported $53 million in interest charges in the first quarter compared with $41 million a year earlier.
Meanwhile, the utility says it’s reducing costs where possible, rolling out campaigns to help customers reduce bills by cutting energy use and continuing to improve reliability.
Executives said they’ve worked hard to restore the utility’s relationship with customers and regulators following a series of widespread power outages after a series of violent storms in 2006 and 2007.
To date, about 60,000 customers have benefited from AmerenUE burying more power lines, and the distribution system is stronger with the addition of 4,700 power poles and more tree trimming, said Richard J. Mark, senior vice president of energy delivery.
The results have been tangible — less frequent service interruptions and a drop in total outages, Mark said. "We are seeing significant improvement in reliability."
Filed under: economics by Pascal