HCS HB 1100 & 1241 -- UTILITIES

SPONSOR:  Rector

COMMITTEE ACTION:  Voted "do pass" by the Committee on
Communications, Energy and Technology by a vote of 17 to 4.

This substitute allows any electrical corporation to recover all
of the prudently incurred costs for fuel delivered to its
generating stations and for the variable cost component of
purchased electrical energy for its retail customers.  The
company will use an energy cost adjustment schedule to determine
how these costs will be recovered.  All energy cost adjustment
schedules must be filed with the Missouri Public Service
Commission for consideration.  The commission will establish a
procedure to remedy any over-collections or under-collections
from previous adjustment periods.  The schedule can be modified
every 90 days to accurately reflect fuel and energy cost
fluctuations.

The substitute allows any electrical, gas, or water corporation
to request the commission to evaluate a project proposal to
determine whether or not it is prudent.  Utility corporations
requesting a determination must also submit a cost projection for
the project.  The substitute explains the types of proposals that
can be submitted, applicable time frames, and the application's
requirements.

The commission must conduct a hearing and issue an order within
180 days.  If the commission determines that a proposed project
and its cost projection is prudent, it will issue an order and
certificate and address all ratemaking principles requested by
the corporation.  The order and the statements regarding
ratemaking principles will be applied in any future rate case to
the investment and costs of the facility or contract and will be
binding in all future proceedings.

If the commission fails to issue a decision regarding an
application, the project in question will be deemed to be prudent
180 days from the date on which the complete application was
submitted.  The corporation will have 270 days after the
effective date of the prudency order to notify the commission
about whether or not it will go ahead with the proposed project.
If the corporation decides not to proceed, any ratemaking
principles included in the order will be void and no adverse
presumptions will be applied to the corporation in any future
proceedings before the commission.

The corporation must report to the commission at the specified
times in the order and when any significant or unusual event
occurs.  At any time prior to the completion of a project, the
commission may require the corporation to present evidence
supporting the decision to continue a project.  If the commission
determines that continuation of the project is no longer prudent
or should be modified, the corporation will be allowed to recover
in rates the amounts already expended, incurred, or obligated on
the project, even though the project may never be fully
operational or used for service.  The corporation will be able to
recover by increases in rates all costs deemed to be prudent by
the commission.  Any cost in excess of the cost projection will
be presumed imprudent and not recoverable, unless the commission
determines that the excess cost was prudent, in which case the
excess costs would be recoverable through rate increases.

No corporation may file more than one application related to a
single project during a 12-month period.

FISCAL NOTE:  Not available at time of printing.

PROPONENTS:  Supporters say that Missouri is one of only three
states that does not allow fuel adjustments.  Fuel adjustment
procedures are the rule, not the exception, and investors look
favorably upon the procedures because they lower risks.  The bill
requires a rate case to be heard before the Missouri Public
Service Commission before a fuel adjustment clause can be
implemented.  If a utility has a fuel adjustment clause, it must
have a rate case every three years so that rates and the baseline
can be reset.  The commission has the power to make rules
regarding incentive programs that will ensure that the utilities
continue to get the best deal on fuel, so that customers pay the
lowest cost.  The bill has more consumer protection provisions
than fuel adjustment laws in other states.  It is a balanced and
fair bill which will not raise customers' rates.  Currently,
utilities guess at what the rate will be, and the rate is fixed.
A fuel adjustment clause means that the customer will pay no more
or no less than what they fairly owe.  Currently, an investor-
owned utility examines its needs and determines if it should
build a new facility.  The utility takes on all of the risks.
After the facility is built and becomes operational, the utility
can ask the commission whether or not the decision was prudent.
The commission can say the decision was not prudent which hurts
the utility's credit.  The bill requires the commission to
determine whether or not the project is prudent early in the
process, before construction begins.  This will make it easier
for the utility to obtain financing for the project, because
potential investors will know in advance that the commission has
approved it.  Because the investors' perceived risk is lower, the
cost of financing the debt will also be lower.  This results in a
less expensive project.

Testifying for the bill were Representative Rector; LS Power;
Empire Electric District; Aquila; Ameren UE; Kansas City Power
and Light; Missouri Gas Energy; Missouri Energy Development
Association; Great Plains Energy; and Laclede Gas.

OPPONENTS:  Those who oppose the bill say that the bill will
increase rates and the rate changes will be volatile.  The bill
does not provide incentives for prudent energy purchasing.  The
incentives that have been in place will be removed.  Investors
and utility companies may approve of fuel adjustment clauses, but
might not be in the best interest of consumers.  That balance
must be met through regulation.  Requiring the commission to
determine whether or not a utility's proposed project is prudent
before it is completed shifts the risk from the utility company
to the consumers, which is wrong and removes the utility's
incentive to operate efficiently and responsibly.

Testifying against the bills were Ford Motor Company; American
Association of Retired People; Office of Public Counsel; Missouri
Energy Group; and Bryan and Cave Law Firm.

Alice Hurley, Legislative Analyst

Missouri House of Representatives
92nd General Assembly, 2nd Regular Session
Last Updated September 23, 2004 at 11:14 am