Consumers Fight for Fairness in Overearning Case Against Ameren

St. Louis Post-Dispatch, July 27, 2014

When it comes to electric rate fights, Ameren Missouri is undefeated over the last decade.

Rate increases: 5. Rate decreases: 0.

On Monday, consumer groups will take another go at the St. Louis-based electric utility.

The Missouri Public Service Commission carved out the whole week to take testimony and evidence in the case, which accuses Ameren Missouri of earning more profit than regulators allow. Not only that, they will argue that the percentage return regulators do allow — the most important number for utilities and their consumers — is too high and should be reduced.

For customers, it won’t mean much on their bills. The latest testimony from PSC staff says Ameren earned about $25 million more than it should have during 2013. Spread that over 1.2 million customers, and it’s not much.

But after years of rate hikes — about $867 million, or a 42 percent increase since 2006 — consumers aren’t likely to say no thanks. It’s simply a matter of fairness, said John Coffman, a former Missouri public counsel who is now an attorney for the Consumers Council of Missouri and the AARP.

“If you told the average consumers that their utility was overearning by $25 million, I think they would like to have that reflected in their rates,” he said.

It’s not the first time the utility’s own numbers have showed it earning above its allowed rate of return. But to win an overearnings case, critics have to show that kind of earning will continue, and the groups seeking to hold the utility accountable don’t always have deep enough pockets to prosecute a complex regulatory action in front of the PSC.

Noranda Aluminum, on the other hand, does. Not only does it say Ameren earned more than it was legally allowed, it says the utility’s allowed return on equity of 9.8 percent is too high and should be reduced to 9.4 percent. That would put the utility’s 2013 excess earnings at $50 million.

Ameren has consistently said the numbers are a snapshot and not the full picture. Earnings fluctuate above and below the allowed rate of return, the utility argues, and just because it earned a little more than it’s allowed doesn’t mean it will continue to do so.

It appears to have the PSC staff on its side. Testimony submitted last month from Mark Oligschlaeger, who manages the PSC’s utility auditing unit, indicated staff would only conduct a full earnings review if the commissioners direct it to.

“The results of staff’s analysis of Ameren Missouri’s calendar year 2013 earnings … do not indicate that Ameren is materially or continually overearning at the present time when its recent actual earnings levels are analyzed in light of traditional Missouri ratemaking practices,” Oligschlaeger said in written testimony.

To do a comprehensive audit would be redundant, Ameren said after the complaint was originally filed in February. The utility pointed out it planned to file a general rate increase in July, and a comprehensive audit could be done then, which it said would show it was actually underearning.

It kept its word, filing a 10 percent, or $264 million, rate increase just as Independence Day weekend was getting underway.

Not since 2002 has a group succeeded in rolling back the rates of the state’s largest utility. That was the year consumer groups won $442.5 million in rate reductions and social-welfare benefits phased in through 2005. Ameren also saw its rates reduced in the late 1980s, and between 1988 and 2006, customers didn’t experience a single rate increase.

But the two prior rate reductions have two stark differences from the one underway. Each was launched in response to a marked outside change — a drop in the federal tax code in the mid 1980s that gave the utilities more money, and the end of an experimental regulatory regime in the early 2000s that allowed the utility to tweak its books to keep more customer cash.

Perhaps even more important, each overearnings complaint was initiated and prosecuted by the PSC staff, the closest thing to a counterbalance to the experience and manpower the utilities bring to bear at the commission.

Generally overearnings cases are triggered by some sort of outside change, such as a merger, said Charles Fishman, a utilities analyst with Morningstar. A rate reduction isn’t something that weighs heavily on the minds of investors. It does happen, but regulators know that if investors stop seeing regulated utilities as stable, secure sources of income, that could hurt electric reliability.

“Missouri regulation has been pretty consistent the last few years,” he said. “Every once in a while you run into events that create regulator mischief, where regulators don’t act as consistently as they have in the past. We see that every once in a while, but not that often.”

Needless to say, rolling back Ameren’s rates is no easy feat. The utility fended off a court order to roll back rate increases three years ago, when a Cole County judge ruled then invalid and put the utility at risk of losing $300 million or more a year in rate revenue. Consumer and industrial groups, initially cheered by the ruling, lost on appeal.

In 2006, the utility’s regulator, the Public Service Commission, ordered its staff to investigate Ameren’s earnings at the behest of some of the state’s largest industrial consumers. But the PSC staff came back and said they didn’t have the manpower to do it.

While Missouri law allows anyone to file an overearnings complaint, the barriers are high, Coffman, the former public counsel, said.

Earnings information filed in periodic reports is classified unless confidentiality agreements are signed. The time and expense it takes to launch an overearnings case precluded even his group and the office of public counsel from filing a complaint last year after Ameren financial data showed it made some $80 million more than its allowed return.

“The office of public counsel hasn’t had that kind of resource,” Coffman said. “If they had that kind of staff, I think they would be able to do it on their end.”