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Indiana utilities back bill to cut rate regulation January 27, 2011

Posted by Laura Arnold in 2011 Indiana General Assembly, Indiana Utility Regulatory Commission (IURC).
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http://www.indystar.com/article/20110127/BUSINESS/101270403/Utilities-back-bill-cut-rate-regulation?odyssey=tab|topnews|text|IndyStar.com

Jan 27, 2011

Written by John Russell

Major utilities across Indiana are pushing to change the way customer rates are set, supporting new legislation that would diminish the power of state regulators in favor of a formula that could set rates automatically.

Some consumer groups and large utility customers are howling that the move is a power grab by utilities that could result in large, frequent rate increases. But the industry said the move could benefit customers, because it would provide stable rate increases rather than sudden spikes.

“In a rising cost environment, we want to avoid rate shocks,” said Stan Pinegar, president of the Indiana Energy Association, a trade group that represents more than a dozen utilities, including Duke Energy, Citizens Energy and Indianapolis Power & Light Co. “This would allow for a more gradual increase, but it won’t guarantee there will always be an increase in rates.”

Pinegar said the measure also could provide more transparency about utility finances because the companies would be required to open their books wider.

Consumer groups had a very different take.

“This is a horrible concept and a horrible bill,” said Timothy Stewart, a lawyer who represents a group of large industrial customers, such as steel mills and shopping centers that buy millions of dollars of electricity a year. “It leaves very little opportunity for ratepayers to make arguments against rate increases.”

The legislation, Senate Bill 512, would allow electric, gas, water and wastewater utilities to choose whether to take part in the annual rate review. If they take part, it would change the way their rates are set.

Currently, utilities that want to raise rates have to file a request with the Indiana Utility Regulatory Commission. The commission holds hearings and considers evidence, then sets a rate that offers the utility the opportunity for a certain rate of return.

Under the bill, sponsored by Sen. James Merritt, R-Indianapolis, much of that process would be replaced by a rate-making mechanism, greatly diminishing the IURC’s role. Companies would provide certain financial information and would receive a guaranteed rate of return, tied to their common equity or net income. If the utility has a slow year and falls short of revenues and its targeted return, it could recover the difference through higher rates. There’s no dollar limit or percentage limit to how much rates could rise every year.

Some critics say the bill would remove incentives to control costs and would give utilities too much power. The IURC now regulates about $14 billion a year in rates paid by Indiana consumers for electricity, water, natural gas, steam and sewer utilities, as well as parts of the telecommunications and cable industries.

“This is all about protecting utility stock prices at the expense of consumers,” said Kerwin Olson, program director with Citizens Action Coalition. “It essentially guts the commission’s authority to set rates and makes it a rubber stamp to protect monopoly utility profits.”

The bill is headed for a hearing Feb. 3 before the Senate Utilities and Technology Committee, though details about the time and place of that meeting have yet to be posted. Merritt said Wednesday the bill originally was to be heard today, but he canceled the hearing because he was not satisfied with some of the measure’s provisions. He said he might revise some language to deal with concerns raised by state agencies and others.

Merritt said the primary goal of the bill is to provide transparency over utility company finances and avoid rate spikes.

“One of the overriding concerns we hear from people is they want utilities to open their books,” Merritt said. “This gives a mechanism for utilities to come in once a year and talk about their costs.”

It’s unclear how much support Merritt’s bill has from state agencies that would be affected. The IURC is “evaluating the legislation and speaking with all of the various interested parties with respect to the bill’s impact,” said agency spokeswoman Danielle McGrath.

Anthony Swinger, a spokesman for the Office of Utility Consumer Counselor, said the staff is still reviewing the bill and “it would be premature” to comment.

Jane Jankowski, a spokeswoman for Gov. Mitch Daniels, also declined to comment.

A few other states have already moved in this direction, including Alabama, Georgia and South Carolina. The trend is gaining popularity and is widely supported by industry, said Ken Costello, a principal with the National Regulatory Research Institute in Silver Spring, Md.

“The industry always pushes this because it gives them more protection,” Costello said. “If they’re able to adjust rates more often, it reduces risk to them.”

Janice Beecher, director of the Institute of Public Utilities at Michigan State University, sounded a note of caution against stripping away too much power from state regulators, as some states have done, in favor of automatic mechanisms.

“I think there is no substitute for regulatory review,” Beecher said. “You want to be very careful here not to limit or circumvent regulatory review, especially now, because we’re in a rising cost environment.”

Call Star reporter John Russell at (317) 444-6283.

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