Ameren Missouri filed a $1 billion infrastructure investmentplan with the Missouri Public Service Commission that called for changes in thesetting of Missouri's electricity rates to enable those improvements.
An AmerenCorp. subsidiary legally known as , Ameren Missouriargued in its Sept. 23 request that the utility's aging infrastructure needs tobe replaced but "regulatory lag built into Missouri's decades-old ratesetting process prevents full recovery of the cost of these investments."
The utility said it had once relied on customer's risingenergy needs to cover those costs, but declining electricity usage by customerssince 2007 has cut into revenues and cash flows. Ameren Missouri said itexpects further declines in its sales as a result of energy efficiency measuresand the growth of distributed and renewable generation from intermittentsources, such as privately-owned rooftop solar panels.
The utility cited the loss of its largest customerNoranda AluminumInc., which filed for bankruptcy in , as a contributory factor inits July filingrequest for a $206 million rate hike. The new rates, if approved, would takeeffect by May 28, 2017.
As cause for concern, Ameren Missouri noted in its filingthat its four baseload coal-fired power plants are on average almost 50 yearsold, while roughly half of its substations are more than 40 years old andfacilities serving its underground network for downtown St. Louis are 80 to 100years old.
"These aging facilities must be replaced and modernizedto maintain the strong reliability that our customers have come to expecttoday, but also to meet their future energy needs and expectations," theutility said.
The filing proposed an incremental $1 billion infrastructureoverhaul over 5 years "if regulatory lag were appropriatelymitigated." Among its recommendations included accelerating thereplacement of its substations that are more than 40 years old, modernizingseveral substations to increase resiliency during short circuits, replacingunderground cables, and automating distribution facilities to minimize outagesand enhance security. In addition, the utility wants to replace out-of-datemeters with smart meters to help minimize the need to build additional largepower plants as more baseload generators retire in coming years. AmerenMissouri said it has also identified incremental investments of $4 billion over10 years.
However, Ameren said the current rate-setting policy inMissouri bases future rates on a "backward look at expenses and capitalinvestment" and contributes to regulatory lag while serving as a financialdisincentive for needed utility investments.
"In a rising operating cost and capital investmentenvironment (which we are clearly in now), rates set in this way are out ofdate from the moment they take effect," Ameren Missouri said. "In anenvironment of no electric sales growth and increasing investment needs, ratesnever reflect electric utilities' true cost of service and losses are nevermade up. In this environment, limiting capital investment is necessary in orderfor an electric utility to have any reasonable chance to earn its authorizedreturn, which is at odds with the state of Missouri's energy needs for thefuture."
Ameren Missouri said it invested approximately twice itsdepreciation rate from 2007 through 2011 and "never came close to earningits authorized return." The utility said it reduced its capitalinvestments starting in 2011, and by 2015 its ratio of capital investments todepreciation had fallen to the bottom eighth of U.S. electric utilities at1.37. At the same time, Ameren Missouri began to earn returns closer to itsauthorized return. According to thefiling, reducing capital investments and expenses have been necessary to enableany "reasonable opportunity" at earning an authorized return.
"We remain convinced that Missouri must take steps nowto adopt a modern regulatory framework that promotes a smarter and strongergrid," said Ameren Missouri. The filing listed a number of ways to securethe state's economic future by speeding up the setting of electric rates,including forward test years, formula rates, infrastructure riders,plant-in-service accounting, and the inclusion of construction costs in therate base. However, Ameren said incremental steps, such as reducing discoverytimes in rate cases to "slightly shorten" the 11-month rate caseprocess, will not be enough to enable needed infrastructure investments.