by Ginger Harris and Wallace McMullen
In early August of this year newspaper articles quoted Steve Gaw, past Speaker of the Missouri General Assembly and newly appointed member of the Public Service Commission, as saying that deregulation of Missouri’s electric utility industry may be happening without any authorization by restructuring legislation. This aroused the alarm and interest of the Ozark Chapter’s Energy Committee.
The Public Service Commission (PSC) was established in Missouri in 1913, about the same time that such institutions were being created in other states to prevent further abuses by utility holding companies that were “buying” utility franchises from local politicians. To avoid becoming publicly owned and operated, the utilities agreed to submit to limited regulation. Missouri’s PSC has six members, all appointed by the Governor. Although not required by law as many other state commissions in Missouri are, the six members of the PSC are equally divided between Republicans and Democrats.
Why does the public care?
The PSC is legally charged with setting utility rates at a level which allow a reasonable rate of return on the investments by regulated utilities, but prevent price gouging. So it has considerable influence on an industry which touches everyone's life and which has billions of dollars of sales in Missouri every year.
The PSC also seeks to ensure reliability of electricity service. If your lights go off too often, they are the regulatory agency that one would complain to.
Why do environmentalists care?
The electric power industry emits a huge amount of atmospheric pollution. It is responsible for more than 30% of all global warming emissions, is the largest source of mercury emissions, and is a major ingredient in acid rain and smog. The major fuel for Missouri’s electricity is coal. The laws and regulations controlling this industry can determine whether we begin to move toward clean renewable energy or continue to burn a lot of fossil fuel, which exacerbates global warming, makes St. Louis a non-attainment area, and makes the large mouth bass unsafe to eat.
If we don’t want the forests to die from acid rain and global warming, if we don’t want widespread malaria due to climate creep caused by global warming, if we don’t want hospitals choked with victims of asthma attacks, we need to pay attention to where our electricity is coming from. This is why our Ozark Chapter Energy Committee has taken an active interest in the issues of electricity regulation.
The electricity industry seems to have come almost full-circle since 1913. Local utilities are now increasingly being bought out by multi-state holding companies, which are thriving in other states due to deregulation. AmerenUE and Kansas City Power & Light (KCP&L) attempted to achieve deregulation through SB 455 in the Missouri legislature last spring. This bill would have allowed utility companies to continue owning distribution lines but to spin off generating plants that could sell electricity to anyone in or out of the state and which would be exempt from PSC regulation. The General Assembly did not pass this “genco” bill last Spring, but we expect to see similar bills introduced in January 2002.
When the Ozark Chapter Energy Committee found out that KCP&L had received approval from the PSC to become a subsidiary of a holding company, despite Steve Gaw’s dissenting opinion, we decided to find out more. We requested meetings with two members of the PSC: Sheila Lumpe and Steve Gaw, whom we had known in their previous roles as legislators. We also invited representatives of three other organizations, League of Women Voters, Missouri Coalition for the Environment (MCFE), and Missouri Public Interest Research Group (MoPIRG) to join us in these meetings. Representatives from Missouri Coalition for the Environment and MoPIRG were able to join our volunteers and staff in the meetings, which occurred on September 21 and 22.
Besides the Commissioners, attendees included Rebecca Wright representing MCFE, Dmitri Portnoy representing MoPIRG, Carla Klein and Ken Midkiff representing Sierra Club staff, and Ron McLinden, Wallace McMullen and Ginger Harris representing our Energy Committee.
Prior to the meetings we circulated a draft “agenda” of the points we wanted to cover. These can be summarized as follows:
1. What are the Commissioners’ opinions as to whether utility restructuring/deregulation has brought net benefits to consumers in other states, and what is their advice on this issue?
2. What are the Commissioners’ opinions as to the best ways – either mandates or incentives – to achieve energy efficiency?
3. Why since 1994 hasn’t the PSC enforced the Integrated Resource Planning law which requires utilities to prepare reports identifying lower-cost means of meeting electricity demand, including reducing demand through conservation and efficiency measures and encouraging customers to invest in “alternative” sources of energy such as solar and wind?
4. What is the best way to establish a “Public Benefits Fund” to finance investments in energy efficiency and renewable energy, and to provide low-income consumer assistance?
5. What is the best way to establish a “Renewable Portfolio Standard” by which utilities would be required to generate a certain percentage of their total electricity from renewable sources? (We suggested a phased implementation of this requirement: 5% by 2010, 10% by 2015, and 20% by 2020. We would also count as part of the utility’s required renewable portfolio any renewable energy that is provided to the grid by customers via net metering.)
6. Could the PSC allow utility companies a slightly higher rate of return on their capital investment in renewable-energy capacity to encourage the latter?
7. Can the PSC play any role in getting utilities to accept net metering whereby customers contribute decentralized solar and wind energy to the electric grid and are compensated fairly, rather than penalized, for doing so?
8. Is there any way to incorporate the “external” costs to society of electricity generation (air pollution, air toxics, and global warming) into electric rate structures?
The above questions were sent to the Commissioners shortly before our meetings. We covered most of them in one or another of the meetings, but discovered that most of our goals would require legislation, either because the authority of the PSC was limited or because the majority of Commissioners tend to take a conservative, strict-constructionist view of their authority.
Below are some additional issues we discussed with Commissioner Lumpe.
Sheila Lumpe, former state representative from St. Louis County, was appointed to the PSC by Governor Carnahan, and served as its chair during Mr. Carnahan’s second term. She gave us a thumbnail history of the PSC and described the roles it plays in utility regulation. Among other duties, the PSC staff may assist legislators by giving advice regarding proposed legislation.
Do No Harm
Commissioner Lumpe described the philosophical position of the current PSC Commissioners as being somewhat conservative. The only position they all unanimously agree on is “do no harm” to utility companies or customers when ruling on the rates or structure of the electric industry.
We asked about the PSC establishing standards that would allow individual customers with small-scale solar or wind generating capacity to connect to the commercial electric grid without having to carry huge liability insurance or undergo other prohibitive expenses, etc. This is commonly referred to as having “Net Metering” standards. Commissioner Lumpe said that she expected the national association of utility regulators to recommend such standards within a few years. In the meantime, the MoPSC has set a precedent by arranging for installation of photovoltaic cells on the roof of their own building in Jefferson City. The solar power units are currently awaiting action by the state’s Facilities Management department.
Ron McLinden asked about the usefulness of convening a conference between regulated electric companies, the regulators (PSC) and legislators, and the public, including environmentalists, akin to those initiated almost a decade ago by State Representative Pat Dougherty on Energy, Growth & the Environment. Commissioner Lumpe liked this idea. She also mentioned other ways in which the public's voice can be heard on utility issues, e.g. energy roundtables sponsored by the PSC, and Governor Holden’s Energy Policy Task Force, which is expected to issue its report this October.
Ron also asked if the PSC could make rulings favorable to renewable energy under its consumer protection authority. Commissioner Lumpe responded that the Commission’s authority extends only to whether the utility “purchased prudently” in obtaining its power. The PSC is authorized to forbid cross-subsidization between generators that are exempt from PSC regulation and those that are not exempt. The PSC has tended to be strict in enforcing this no-cross-subsidy rule, and has been challenged in court. Such a challenge is currently making its way through the courts.
To the question of whether the PSC could allow a higher return on investment in renewables than in “traditional” energy sources, Commissioner Lumpe responded that tax credits or tax incentives would have to come from the legislature. UtiliCorp was allowed to apply a $5 monthly surcharge on willing customers in Missouri as an incentive for the electric utility to invest in wind power, even though wind power generally costs no more than, and sometimes less than, coal-fired fossil-fuel generated electricity. Commissioner Lumpe didn’t think the PSC could allow utilities to inflate the value of their alternative energy plants in order to effectuate a higher rate of return, but did think it would be possible to allow faster depreciation on such facilities to achieve the same purpose. She suggested that stricter enforcement of existing laws regarding energy-efficient appliances might also help achieve energy conservation. As a citizen and voter, she would support legislation requiring all state government buildings and any buildings subsidized by the state to install the most energy-efficient appliances.
To the question as to why the PSC no longer enforces the Integrated Resource Planning law, Commissioner Lumpe said that the utilities felt it required an odious amount of paperwork, and so had gotten staff’s permission to replace the required reports with semi-annual discussions with staff covering the same issues, i.e. identifying opportunities to substitute conservation and renewable sources in lieu of new traditional sources whenever the former was found to be more cost-effective.
There was some discussion as to whether the current distribution of costs within the regulatory environment allows for subsidization of sprawl. This area needs further research.
We pointed out that the existing market system does not include the true cost of electricity in the prices charged, because the cost of health and environmental damages are not included. She responded that this was an interesting idea deserving more thought.
Rebecca Wright from the Coalition for the Environment made a plea not to include “stranded costs” for nuclear generating facilities if and when deregulation occurs in Missouri, either through legislation or through rulings by the PSC. Stranded costs are the investments utilities have made that the utilities must continue to pay off even if the utility no longer owns the plant.
Commissioner Lumpe told us that previous legislation (2 years ago) had established within the PSC a staff position to disseminate information on deregulation. That staff person, Tom Green, is available to speak to groups on this subject.
Below are some of the additional topics covered in our meeting with Commissioner Gaw.
Steve Gaw takes a more activist approach to many of these issues. He indicated concern over the real harm to the economy of the state if the trend to unregulated suppliers continues.
There was discussion about the efforts of utilities to put their less-expensive generating capacity outside of PSC regulation, so that the rate base upon which their rates of return are calculated are as high as possible. Since the PSC is authorized to require utilities to assure that enough electricity is generated for Missouri customers, Ron asked if the PSC
can't require that such capacity be provided by these utilities’ own in-state, (and thus regulated), generators. Commissioner Gaw explained that if utilities have long-term contracts with out-of-state, thus exempt, generators, they are considered as providing the required assurance.
We discussed KCP&L’s attempt to get a commitment from the city of Columbia to buy power from KCP&L’s proposed Weston Bend plant. Municipally-owned utilities are outside of the PSC’s jurisdiction. However, if a municipal utility partners with a private utility to build a generating plant, the resulting corporation may be regulated. The municipalities’ statewide association has been lobbying to get unregulated status for anything they do as a group.
There was further discussion about the tendencies of utilities to “bundle” or “unbundled” various pieces of their industry depending on the incentives built into the regulatory system. Currently electric utilities in Missouri seem to be trying in their proposed legislation to “unbundled” the generating parts from the transmission parts so as to release generators from the PSC’s direct regulation. Commissioner Gaw observed that there is a major push to rebuild and add capacity to the transmission system nationally to meet the growing demands for freewheeling electricity. But he hopes that technological advances, e.g. in fuel cells, will reduce future needs for transmission capacity.
Although we were left with some unresolved questions and the realization that we need to research these issues in greater depth, we were extremely grateful for the time and expertise which Commissioners Lumpe and Gaw offered us in these meetings.