Madigan against $90M rate hike

By Jessica M. Karmasek | Aug 26, 2011


CHICAGO (Legal Newsline) - State regulators should reject a proposed $90 million rate hike increase by power company Ameren and instead order a rate cut, according to new testimony filed by Illinois Attorney General Lisa Madigan and a utility watchdog group.

The proposed increase -- originally $111 million -- was filed in February, less than a year after the Illinois Commerce Commission had granted Ameren a $44 million rate hike. The company supplies electric and gas services primarily to Missouri and Illinois.

Since 2008, Ameren has received more than $200 million in rate hikes.

The nonprofit, nonpartisan Citizens Utility Board, created by the General Assembly in 1983 to represent the interests of residential utility customers in the state, says the proposed increase threatens to jack up rates for customers by up to $100 a year.

The board says Ameren's proposed rate hikes would mostly affect a bill's delivery charges, which are the fees the companies charge to deliver gas and electricity to a home, plus a profit.

The delivery portion of a person's bill consists of the fixed monthly customer charge and a per-therm or a per-kilowatt-hour distribution charge. They take up about one-third of a person's bill. The charge for the actual gas/electricity used takes up the other two-thirds.

"It's been a long hot summer, but that's not why Ameren customers are red in the face," CUB Executive Director David Kolata said in a statement Thursday.

"A joint analysis by Attorney General Lisa Madigan's office and CUB proves that Ameren doesn't deserve another dollar from customers, let alone 90 million of them."

The testimony filed by CUB and the Attorney General's Office on Tuesday called for deep cuts in Ameren's proposed natural gas increase, as well as a $28 million reduction in electricity rates. The overall impact is a $2.2 million rate cut.

One of the key findings of the testimony is that Ameren is seeking an "exorbitant" return on equity -- an allowed profit rate for shareholders -- of 11 percent on the electric side and 10.75 percent on the gas side.

The CUB and attorney general's analysis recommends a more reasonable profit margin of 9.06 percent and 8.22 percent. That recommendation alone would cut Ameren's proposed increase by $57 million -- $34 million for electric and $23 million for gas.

The analysis also found that Ameren inflated estimates for operations and maintenance expenses connected to its natural gas and electric distribution system.

For example, the company forecasted a 28 percent increase over its estimated electric distribution operations and maintenance spending from 2011 to 2012.

There is no justification for Ameren to argue that current levels of spending are not adequate to properly maintain the system, according to the testimony by the board and Madigan's office.

According to recommendations submitted by the board and the Attorney General's Office in this area, the rate hike could be reduced by another $25 million.

"It's completely unacceptable for Ameren to ask consumers for yet another unneeded rate hike when consumers are still facing substantial financial hardship," Madigan said in a statement.

"We shouldn't have to foot the bill to help the utility pump up its profits."

A public hearing on the proposed increase is scheduled for Tuesday in Springfield. The ICC will issue its ruling on the request in January.

The testimony was prepared by Chris Thomas, CUB director of policy; David Effron, a New Hampshire-based consultant specializing in utility regulation; and Scott Rubin, a Pennsylvania-based consultant who focuses on public utility issues.

From Legal Newsline: Reach Jessica Karmasek by email at

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