The Missouri Legislature is rapidly advancing a bill that proposes significant changes to how electric utility rates are determined in the state.
This legislation aims to repeal a longstanding prohibition on charging customers for Construction Work in Progress (CWIP) and introduces the use of a future test year for setting rates.
Proponents argue that these changes are essential for economic growth and infrastructure development, while opponents express concerns about potential increases in consumer costs.
Background on Construction Work in Progress (CWIP)
In 1976, Missouri voters approved an initiative that barred utilities from charging customers for the costs of power plants under construction but not yet operational.
This measure was enacted in response to public dissatisfaction over rate hikes associated with the construction of a nuclear power plant in Callaway County.
The current bill seeks to repeal this prohibition, allowing utilities to include CWIP in their rate base for new generating plants, particularly those that burn natural gas.
Introduction of Future Test Year for Rate Setting
The proposed legislation also permits utilities to utilize a future test year for rate proceedings. Traditionally, rates are set based on historical costs, reflecting expenses already incurred.
Under the new proposal, beginning July 1, 2026, utilities can project their expenses and revenues for the first 12 full calendar months following the filing of new base rates.
This approach allows utilities to anticipate costs and adjust rates accordingly, potentially leading to more timely infrastructure investments.
Supporters’ Perspective
Advocates of the bill assert that modernizing rate-setting mechanisms is crucial for meeting the state’s growing energy demands and attracting industrial investments.
They argue that allowing CWIP charges and adopting a future test year will facilitate the construction of new power plants, ensuring a reliable energy supply.
Jason Klindt, Senior Director of External Affairs at Evergy, highlighted that large industrial users seek locations with abundant power, and building new plants in Missouri could make the state more competitive.
He stated, “We look forward, frankly, to announcing new power plants if we can get this bill across the finish line.”
Opponents’ Concerns
Critics caution that these changes could lead to substantial increases in consumer electricity bills. They argue that allowing utilities to charge for construction projects before they are operational transfers financial risks from shareholders to consumers.
Gretchen Barwick, Director of the Missouri Chapter of the Sierra Club, described the bill as “designed to provide corporate welfare to monopoly utilities,” suggesting that it prioritizes corporate interests over consumer protection.
Potential Impact on Consumer Rates
The debate centers on how these regulatory changes might affect consumer electricity rates. Opponents estimate that the combined effect of CWIP charges and future test year projections could increase residential electric bills by as much as $1,100 annually.
They argue that this shift places undue financial burden on consumers, especially those on fixed incomes. Diana Plescia, attorney for the Missouri Industrial Energy Consumers, warned that the legislation could lead to rate increases of 40% to 80%, potentially deterring new investments in the state.
Role of the Public Service Commission
The Missouri Public Service Commission (PSC) will play a pivotal role in implementing these changes. The PSC is tasked with evaluating and approving utilities’ projected expenses and revenues under the future test year framework.
Additionally, if actual costs are lower than projected, the PSC has the authority to mandate refunds to customers, ensuring a mechanism for consumer protection.
The bill also allows the PSC to extend the CWIP provisions beyond the initial expiration date if deemed necessary.
The proposed legislation to modify Missouri’s electric rate regulations represents a significant shift in the state’s approach to utility infrastructure funding and rate setting.
While supporters believe these changes are essential for economic development and meeting future energy demands, opponents raise valid concerns about the potential financial impact on consumers.
As the bill progresses through the legislative process, it is crucial for lawmakers to carefully consider both the economic benefits and the consumer risks associated with these regulatory changes.