HCS HB 404, 324, 403, 344, 426 & 541 -- REGULATION OF ELECTRIC,
GAS, AND WATER UTILITIES

SPONSOR:  Rector

COMMITTEE ACTION:  Voted "do pass" by the Committee on
Communications, Energy, and Technology by a vote of 19 to 2.

This substitute makes numerous changes to laws regulating
electric, gas, and water utilities.

PUBLIC SERVICE COMMISSION

Under current law, members of the Public Service Commission must
reside within 40 miles of Jefferson City.  The substitute just
requires commissioners to be Missouri residents.

The substitute also requires the commission to retain a
six-member technical advisory staff with expertise in accounting,
economics, finance, engineering or utility operations, law, and
public policy.  Each commissioner may also retain a personal
advisor.  All hiring of technical advisory staff members must be
completed by July 1, 2004, and be offset through elimination of
other commission staff positions.  Advisory staff members cannot
be a party to any case before the commission and are subject to
the same ex parte and conflict of interest requirements as
commissioners.  No one regulated by, appearing before, or
employed by the commission may offer advisory staff members new
appointments or positions.  No one leaving the advisory staff can
be employed by the commission in any other capacity for at least
two years; and new advisory staff members cannot have been
employed by the commission, the Office of the Public Counsel, or
any company regulated by the commission for at least two years
before being hired.

Commissioners may confer with others on matters not relating to
filed cases.  Commissioners may also confer with others on
matters relating to pending or filed cases if no evidentiary
hearing has been scheduled and if the matter is discussed at an
announced public meeting or a forum where affected parties are
present or if the discussion is subsequently disclosed to
affected parties.  If an evidentiary hearing has been scheduled,
commissioners may only discuss matters relating to procedures or
unanimous agreements that resolve a case fully.

UTILITY CONTRACTS AND PROJECTS

The substitute allows gas and electric corporations, prior to
entering into certain new contracts or construction projects, to
file a petition with the commission requesting a determination of
rate-making principles that will be applied to costs prudently
incurred over the term of the contract or useful life of the
constructed facility.  To be eligible, contracts must be for the
purchase of at least $5 million of electric power, and projects
must involve construction of a new electric or gas plant costing
at least $5 million for companies serving from 100,000 to one
million Missouri customers, or at least $25 million for companies
serving more than one million Missouri customers.

After receiving the petition, if the commission does not issue an
order within 180 days, the rate-making principles proposed by the
corporation will be considered approved.  Within one year after
the determination, the corporation must notify the commission if
it plans to participate in the contract or construction project.
If the corporation decides not to participate, the determination
will be invalid and have no precedential value in subsequent
proceedings.

ENERGY COST ADJUSTMENTS

The substitute allows electric corporations to recover prudently
incurred costs for fuel and purchased electricity through energy
adjustment rate schedules.  The schedules may be filed with the
commission separately or as part of a general rate proceeding.
The commission must allow modification of the rates as frequently
as every 30 days to reflect changes in costs that are not
reflected in the corporation's base rates.  The commission will
establish a procedure to provide customer credits or refunds for
any over-estimated costs and collections.

Each corporation that has an energy adjustment rate schedule on
file with the commission will submit a monthly adjustment report
including calculation of the next month's energy adjustment rate.
The commission may only examine the calculations for accuracy and
may not consider other costs or overall rates.  The commission's
decision on each proposed rate adjustment will become effective
no later than 30 days after filing.  Rates are not subject to
suspension by the commission.

This portion of the substitute contains an emergency clause.

COST RECOVERY FOR INFRASTRUCTURE SYSTEM REPLACEMENT PROJECTS

The substitute allows gas corporations and water corporations
serving more than 10,000 customers to file petitions with the
commission for rate adjustments that recover from customers
prudently incurred costs for infrastructure replacement projects.
Eligible projects may include replacement of deteriorating
equipment, safety enhancements, and non-reimbursed costs of
facility relocations required by highway and other public works
construction.  Projects may not increase revenue by connecting to
new customers and must not have been included in the
corporation's last general rate case.

Commission staff may examine the petition and submit a report
within 60 days.  The commission may hold a public hearing and
must issue an order that becomes effective within 120 days after
the petition is filed.  During its consideration of the petition,
the commission may not examine the corporation's other revenue
requirements or rate-making issues.

Adjustment charges must appear on customer's bills as a separate
charge and may only apply to classes of customers that receive
benefits from the infrastructure replacement project.  Charges
must be applied in a manner consistent with the customer class
cost-of-service study from the corporation's most recent general
rate proceeding.  Charges will not be approved if the
corporation's last general rate proceeding was more than three
years before the petition was filed or if the adjustment produces
revenue exceeding 10% of the base revenue level approved in the
corporation's last general rate proceeding.  Rates may not be
adjusted more than twice a year, and charges may not be collected
for more than three years unless the corporation has filed or is
the subject of a new general rate proceeding.  Estimated monthly
charges are subject to annual reconciliation.

COST RECOVERY FOR SECURITY MEASURES AND RELOCATIONS

The substitute requires the commission to allow electric, gas,
and water corporations to recover from customers prudent costs
for security measures, including incremental insurance costs,
that were incurred after August 28, 2003, and necessary to comply
with federal, state, and local requirements.  Requests will be
protected from public disclosure.  The commission is also
required to allow electric corporations to recover non-reimbursed
costs of facility relocations required by highway and other
public works projects.  Cost recovery will not be approved if the
corporation's last general rate proceeding was more than three
years before the petition was filed or if the corporation has
been the subject of an earnings review.  Charges may not be
collected for more than three years unless the corporation has
filed or is the subject of a new general rate proceeding.

OTHER PROVISIONS

In other provisions, the substitute:

(1)  Allows the commission to approve programs that assist
low-income residential customers in obtaining reliable utility
service.  Terms and conditions must be proposed by an electric or
gas corporation, may include energy efficiency, weatherization,
and evaluation components, and must not have a negative financial
effect on the corporation; and

(2)  Requires anyone who acquires an interest of at least 5%
ownership in both a public utility regulated by the commission
and an entity that supplies more than $1 million in products per
year to the same utility to notify the commission within 30 days.
Failure to report is a class A misdemeanor.

FISCAL NOTE:  Estimated Net Cost to General Revenue Fund of
$686,487 in FY 2004, $599,024 in FY 2005, and $607,660 in FY
2006.  Estimated Net Effect on Public Service Commission Fund of
$0 in FY 2004, FY 2005, and FY 2006.

PROPONENTS:  Supporters of House Bill 404 say that the bill will
improve the commission's ability to analyze increasingly complex
issues and remove uncertainty about ex parte communications.

Supporters of House Bill 324 say that prior approval of
rate-making principles will approve the ability of utilities to
attract capital for energy projects and reduce costs.

Supporters of House Bill 403 say that increasing volatility in
natural gas prices makes periodic fuel cost adjustments
financially critical for utilities.  Costs are merely passed
through, with an annual true-up and no added profit.

Supporters of House Bill 344 and House Bill 426 say that the bill
will allow utilities to promptly recover costs of government-
mandated security measures and infrastructure system replacement
projects.

Supporters of House Bill 541 say that the bill allows the
commission and utilities to develop voluntary programs that will
aid low-income customers and lower overall costs by reducing the
number of disconnections and re-connections.

Testifying for House Bill 404 were Representative Rector; Ameren
UE; Missouri Energy Development Association; Office of the Public
Counsel; and Public Service Commission.

Testifying for House Bill 324 were Representative Richard;
Missouri Energy Development Association; Empire District Electric
Corporation; Great Plains Energy Services Company; Ameren UE;
Laclede Gas Company; and Missouri Chamber of Commerce.

Testifying for House Bill 403 were Representative Rector;
Missouri Energy Development Association; Missouri Gas Energy;
Great Plains Energy Services Company; Ameren UE; Empire District
Electric Corporation; and Laclede Gas Company.

Testifying for House Bill 344 and House Bill 426 were
Representative Willoughby; Missouri Gas Energy; Great Plains
Energy Services Company; Missouri American Water Company; United
Steelworkers of America; Aquila, Inc.; and Empire District
Electric Company.

Testifying for House Bill 541 were Representative Willoughby;
Ameren UE; Aquila, Inc.; Missouri Gas Energy; Empire District
Electric Corporation; Laclede Gas Company; and Office of the
Public Counsel.

OPPONENTS:  Those who oppose House Bill 324 say that prior
approval of rate-making principles removes incentives for
utilities to be prudent and is a risky departure from an existing
regulatory system that has produced competitive rates and
financially healthy utilities.

Those who oppose House Bill 403 say that allowing frequent fuel
cost adjustments removes incentives for utilities to manage risks
and will increase consumer costs.

Those who oppose House Bill 344 and House Bill 426 say that
utilities are not financially disadvantaged under the current
system of infrastructure cost recovery.  Unwarranted secrecy
could be applied to many deliberations under the bill's vague
definition of security measures.

There was no opposition voiced to the committee on House Bill 404
and House Bill 541.

Testifying against House Bill 324 were Office of the Public
Counsel; Missouri Industrial Energy Consumers; Missouri Energy
Group; and AARP Missouri.

Testifying against House Bill 403 were Missouri Industrial Energy
Consumers; Office of the Public Counsel; and Missouri Energy
Group.

Testifying against House Bill 344 and House Bill 426 were Office
of the Public Counsel; and Missouri Industrial Energy Consumers.

Terry Finger, Senior Legislative Analyst

Missouri House of Representatives
Last Updated July 25, 2003 at 10:11 am