Thursday, May 05, 2016
Emery: it's vital to curb regulations on Missouri utilities
A growing emphasis on conservation and the advent of subsidized energy sources like wind and solar has changed the logistics of electricity. The decades-long trend of growing demand for centralized generation such as coal, nuclear, hydro, and natural gas has been reversed, and electricity consumption is declining. Ratepayer and taxpayer funded rebates and incentives have reorganized electricity generation toward distributed sources like rooftop solar and remote weather-dependent sources like wind. The financial effect of this reversal is a harmful disincentive for maintaining the existing infrastructure, the electric grid.
The Public Service Commission (PSC) is the agency responsible for regulating Missouri’s public utility monopolies as a surrogate for competition. The problem is that the current regulatory model is designed for a growing industry and is not optimum for a one that is shrinking. Senate Bill 1028 is the latest in a series of attempts to redesign Missouri electricity regulations to foster two things: the lowest possible cost and the highest reliability of service. Because existing regulations punish investments in infrastructure and reward expanded generation capacity, they are upside down to what is best for consumers. The regulatory structure of Senate Bill 1028, called performance based ratemaking (PBR), corrects that misalignment.
Fundamentally, there are three elements in the world of electricity: base load generation, peak load generation and distribution (the electric grid). Additionally, the customer typically has two primary concerns when it comes to electricity: reliability (having the lights come on when switched on) and cost. Reliability is a combination of base load (lowest cost electricity, which cannot be easily or economically ramped up or down) and peak load (higher cost electricity, which can be speedily ramped up or even turned off). The significant additions of weather-variable sources of electricity like wind and solar have greatly increased the complexity both of base and peak load generation as well as distribution. Therefore, electricity infrastructure, its maintenance and modernization, is more significant than ever before. Senate Bill 1028 addresses this critical issue head-on, and its successful implementation in 26 other states provides significant validation. Ameren-Illinois has been under this regulatory format since 2011 and has enjoyed four rate reductions during that time.
My office has received multiple calls opposing performance based ratemaking and therefore, it seems timely to explain its provisions and anticipated effects. Senate Bill 1028 sets in statute the affected utilities’ allowed return on investment while imposing new rate and profit caps. It requires participating utilities to submit to the PSC annually a five-year infrastructure plan along with a one-year review of each participating utility’s operating procedures and costs. It shifts emphasis to maintaining and improving the electric grid, which will encourage smarter, cost-saving technology. It is also designed to keep rates more stable and predictable.
I have been involved in utility regulatory legislation since I began serving in the legislature, and this is the most promising reform I have seen. Regulated monopolies are complex and difficult to understand, let alone reform. Nevertheless, Senate Bill 1028 is both a meaningful and beneficial regulatory reform and has my support. It is expected to bring Missouri’s electricity regulation into alignment with present-day customer needs while at the same time permitting utilities to remain stable and secure. The shifted emphasis to grid modernization will benefit Missouri energy consumers for decades to come, and the rate stabilization mechanisms will make energy costs more affordable and predictable.