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Mo. bill speeding recovery of utility infrastructure spending sent to governor

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Mo. bill speeding recovery of utility infrastructure spending sent to governor

A bill in Missouri to ease regulatory approvals for utility investments in infrastructure passed the state House May 16 and waits for action from Gov. Eric Greitens, who is expected to sign it into law.

The House passed Senate Bill 564 by a 125-20 vote. The state Senate passed the bill in February by a 25-6 margin.

S.B. 564 includes various utility-related items including rate design, solar energy rebates and refunds related to federal tax reform. Analysts said that all electric utilities in the state, particularly Ameren Corp., will benefit. Ameren said its passage could prompt the company to increase its capital expenditures by as much as $1 billion over the next five years.

Aside from Ameren, other utilities that analysts expect could benefit from the passage of the bill are Great Plains Energy Inc.'s Kansas City Power & Light Co. and KCP&L Greater Missouri Operations Co. utilities and Algonquin Power & Utilities Corp. subsidiary Empire District Electric Co.

The Missouri chapter of the Sierra Club Missouri Chapter and the Consumers Council of Missouri, a nonprofit advocacy group, said the bill would weaken the authority of the state Public Service Commission and give utilities more leeway to raise rates.

Consumers Council Executive Director Cara Spencer in an interview Mary 17 called for the governor to veto the bill, saying that if passed, it could lead to an average increase in customer rates of 5% a year. That estimate does not account for refunds coming from federal tax reform enacted in late 2017, Spencer said.

One provision of the bill requires the PSC to, within 90 days of its becoming law, pass through to ratepayers a reduction, retroactive to Jan. 1, related to the federal tax reform. Ameren said that would result in a cut in its rates of about 5%.

Paul Ridzon, a vice president and equity research analyst at KeyBanc Capital Markets, said in a May 14 report that the federal tax reform provision helped the bill garner bipartisan support after similar bills failed to pass in previous years.

Another key provision that benefits utilities relates to "plants in-service accounting," or PISA, which allows electric utilities to defer for future recovery 85% of their depreciation expense and returns from plants and equipment placed in service in between rate cases. Utilities that opt for PISA are subject to a cap on annual rate increases. If Ameren Missouri, known legally as Union Electric Co., were to opt for the PISA methodology, its base rates would be frozen through April 1, 2020, and rate increases would be capped at a 2.85% compound annual growth rate through the end of 2023, the company said in a Form 8-K filed May 17. Rate increases related to fuel charges and renewable energy riders can be deferred for recovery in a future rate case.

S.B. 564 allows for a more prompt recovery of investments and mitigates regulatory lag, Glenrock Associates LLC analyst Paul Patterson said in an interview May 16. Patterson said the PISA is just one example of how states are reforming their regulatory process. Other states have taken different approaches, he added, pointing to formula rates instituted in Illinois under that state's 2011 Electric Infrastructure Modernization Act.

In addition to the PISA, the Missouri bill lets large energy users whose monthly use is at least 300 kW to apply for discounts to base rates.

Ridzon estimated the bill could raise Ameren's 2019 earnings per share by 5 cents to $3.25 per share since it would let Ameren go ahead with additional infrastructure investment. Wells Fargo Securities utility analysts Neil Kalton and Sarah Akers estimated a 6.5% growth rate in Ameren's EPS over the next five years because of the additional investments above the company's $11 billion CapEx plan for 2018-2022.

Under state law, the governor has 15 days to sign if the bill is sent by May 18, when the legislative session ends. If the bill is delivered after, Greitens has 45 days to sign. Should the governor take no action, the bill automatically becomes law.

On the evening of May 18, the Legislature also begins a special session to consider impeachment of the governor, who has been accused of using a private charity's donor list to seek campaign funds. Greitens has also been embroiled in the fallout of an extramarital relationship.

The governor's office could not be reached immediately for comment May 17.