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Mo. PSC report offers small changes to utility regulation

Missouri regulators have released final recommendations on potentially improving regulation of investor-owned utilities in the state. In an order issued Dec. 6, the Missouri Public Service Commission said small changes to the current regulatory structure could be needed to prompt more investment in grid modernization, but maintained that "regulatory lag and utility earnings have not been a serious problem to date."

The conclusion reached by the PSC was essentially in alignment with a report issued by its staff Oct. 17 that incorporated comments from industry stakeholders.

The PSC noted that, as mentioned in the staff report, electric utilities in the state are not currently permitted to "earn a return on or recover amounts invested in infrastructure until the conclusion of a rate case following the date such plant is put in service." This can cause a delay in recovery of a utility's investment.

The staff said in its report that it was not convinced a problem exists to the level raised by the utilities, but that "the myriad of comments suggest some degree of policy or legislative reform could be beneficial to the Missouri regulatory process and, ultimately, Missouri consumers." The staff also said that many of the proposed investment opportunities could improve reliability, safety or security, "but more likely, will automate the Missouri grid using the latest technologies and changing consumer needs."

While the benefits of grid modernization must always be weighed against the costs, the PSC noted that there are several benefits, such as the ability to remotely disconnect and reconnect customers, the potential to resolve service issues more quickly and the possibility of lessening the duration of power outages. Grid modernization could also further cut down on costs paid by ratepayers to utilities.

The PSC said that it "recognizes the General Assembly may determine that it should be the policy of this state to encourage utility investment in grid modernization, enacting legislation to encourage such investment."

If the General Assembly does reach this conclusion, the PSC advised it to consider, when drafting related legislation, that the state's current regulatory structure has "functioned very effectively for over a century, and there is no need for a massive, radical overhaul."

Additionally, any changes should not obstruct the PSC’s authority or "ability to meet its statutory obligations to set just and reasonable rates while balancing the interests of utilities and their customers," the PSC advised. Also, modifications of the current regulatory structure should be narrowly tailored, and a utility’s use of any new rate mechanism should depend on the PSC's review and authorization.

"For over a decade, Missouri investor-owned utilities (IOUs) have proposed legislation seeking to significantly alter the way the Public Service Commission sets utility rates," the PSC said in the order. "The breadth of the legislation and specific mechanisms proposed have varied significantly. However, each legislative effort has been primarily focused on the following contention: Missouri's regulatory framework creates regulatory lag effectively precluding utilities from earning their authorized return and disincentivizing needed capital investment."

The PSC voted 4-0 to approve the order, with one commissioner absent. (Missouri PSC File No. EW-2016-0313)

Investor-owned electric utilities operating in Missouri are Ameren Corp. subsidiary Union Electric Co. d/b/a Ameren Missouri, Empire District Electric Co. and Great Plains Energy Inc. subsidiaries Kansas City Power & Light Co. and KCP&L Greater Missouri Operations Co.