Senate committee reviews bills that would modify utility rate increases

By Molly Gibbs, Missouri News Network 

JEFFERSON CITY — Advocacy groups voiced opposition to Senate bills that would allow utility rates to be calculated using so-called “future test years” during a committee hearing on Wednesday.
The bills sponsored by Sen. Mike Cierpiot, R-Lee’s Summit, contain multiple provisions to aid utilities. Allowance of future test years is a feature of both bills and was the main point of tension between witnesses testifying for and against the bills.
Cierpiot is the committee chairman, a powerful position that allows him to determine which bills get public hearings. He introduced both bills ahead of testimony and spoke in support of using future test years.
“Utilizing a future period would benefit customers by having all interested parties, including the Public Service Commission, the OPC which is the state consumer advocate and other consumer groups to be involved in evaluating capital projects and expenditures prior to them occurring,” Cierpiot said.
A test year is a 12-month period used in a rate case to decide the cost of service to be included in future utility rates. Currently, Missouri utilities use a historical test year, which bases utility rates on expenses, investments and sales from a recent 12-month period to determine what it will cost to provide service in the future.
Senate bills 4 and 5 would give utility companies the option to use future test years, which base rates on projected expenses and revenue. The Public Service Commission can stop a company from using future test years if it determines it is harmful to the public interest, according to the bills.

Consumer advocacy groups testified against the bills, arguing that consumers would face unjustified rate increases if utility companies were allowed to use future test years.
“Doing a future test year rather than looking at projects that have been done, really is just an incentive for fiscal irresponsibility,” said Jay Hardenbrook, director of advocacy at AARP.
Using historical data ensures that customers are only charged what is completely justified, Hardenbrook said.
Rich Svinland, president of Missouri American Water, testified in favor of the bills.
“Under a future test year scenario, we believe we could do a project faster ... because there is a little more certainty around it,” Svinland said.
Sen. Tracy McCreery, D-Olivette, shared her concern with Svinland that using future test years would lessen financial incentives for utility companies to save money while completing projects.
Svinland argued that incentive is built into the system to “get things done for cheaper.”
Both bills address the scenario in which a company uses less money than they projected using the future test years. Utility companies would be required to return the difference to consumers.