Empire seeks to increase rates for Missouri customers

The Joplin-based utility on Oct. 1 asked the Missouri Public Service Commission to allow it to increase annual revenues by $34.7 million, or 10.11 percent. The utility said the increase would result in a monthly increase of approximately $9.75 for a residential customer using 1,000 kilowatt hours of electricity. Empire is also asking the PSC to implement a fuel adjustment clause.

Bill Gipson, Empire’s president and CEO, said in a news release that the company made the request to recover the cost of more than $135 million in capital improvements – such as a new 150-megawatt generating unit at the Riverton (Kan.) Power Plant and the construction of a pollution control system at the Asbury Power Plant. The company’s request also mentions the costs of reconstruction work following January’s ice storm.

In explaining the fuel adjustment clause (FAC) request, Gipson said, “Continued volatility in fuel and purchased energy costs have compelled us to seek implementation of an FAC. We believe employing an FAC achieves an equitable balance, ensuring financial stability for the company while providing more timely savings to customers in the event fuel and energy costs decrease.”

The PSC will study Empire’s finances and conduct hearings before deciding whether to approve the request. Empire said it anticipated that any new rates would not become effective until fall 2008.

Kevin Kelly, a spokesman for the PSC, said public hearings on the rate increase will likely not be held until after Jan. 1, 2008. The commission, by law, has 11 months from Empire’s filing to make a decision on the case.

Gipson gave the PSC seven pages of testimony supporting the company’s rate request. Several other company representatives also provided information.

“The major factors driving the need for a Missouri rate increase at this time are the capital additions we have made and will make to our electric system in 2007; the financial impact, both capital and expense, related to a catastrophic ice storm that hit our service area in January 2007; and the large capital expenditures we are making to participate in the construction and ownership of two new coal-fired generating units, Iatan II and Plum Point,” Gipson said in his testimony.

Empire completed construction of the new $40 million Riverton unit in April. The company says it expects the $31 million selective catalytic reduction system at Asbury will enter service in November.

The ice storm cost Empire almost $31 million, including $19 million in equipment that it put back into its system, Gipson said.

Empire is undertaking steps to mitigate the increases in fuel costs including natural gas, Gipson said. He said those efforts include a natural gas hedging program in place since 2001, wind energy from the Elk River Wind Farm in October 2005, and a new contract to purchase 100 percent of the output from a new wind farm, Meridian Way Wind Farm, near Concordia, Kan.

Julie Maus, an Empire spokeswoman, said the new wind farm is expected to enter service in January 2009. The farm’s capacity will be an estimated 100 megawatts in ideal wind conditions. She said the company expects it to generate 350,000 megawatt hours a year – enough to power as many as 25,000 homes. Empire signed a 20-year contract for the farm’s power so it will provide price stability, Maus said.

Credit rating agencies, including Standard & Poor’s, have voiced concerns about Missouri’s lack of a permanent fuel adjustment clause and Empire’s exposure to volatility in both fuel and purchased energy costs. Gipson said implementing an FAC would maintain Empire’s investment grade status as it completes construction of the Iatan II and Plum Point power plants.

“If we are to continue to provide our customers with the outstanding level of service they have come to expect, the company must be able to finance significant capital projects at the lowest cost possible,” he said.

Under the company’s proposed FAC, Empire would compare its actual fuel and energy costs to the base rates every six months. Maus said the reviews and changes to customers’ rates would take place in June and December.

“It provides financial stability for the company during times of volatile and increasing fuel prices, but it also has the potential to passing savings in a more timely manner on to customers when fuel prices drop,” Maus said.

The PSC last adjusted Empire’s rates on Dec. 21, 2006. The commission’s decision allowed the company to increase electric revenues by approximately $20 million a year, or about 5 percent. In the case filed Feb. 1, 2006, Empire sought an annual increase in electric revenues of approximately $29.5 million, or 9.6 percent.

The increase gave Empire a return on equity of 10.9 percent. Empire wanted 11.7 percent. The utility asks for an 11.6 percent return on equity in the new request.

The commission’s ruling said, “In light of the comparable companies’ average return on equity at or near 10.9 percent, the national average return on equity of 10.5 percent, and the perceived risks associated with investment in Empire (including the downgrade of Empire’s credit rating to the lowest investment grade after this case was filed), the commission concludes that 10.9 percent is the reasonable and appropriate return on equity for Empire.”

The ruling included fuel costs in the base rates and did not approve an automatic fuel cost adjustment mechanism.

The increase, approved with a 3-2 vote by the PSC, was the second for Empire in less than two years. In March 2005, the PSC approved raising Empire’s annual electricity revenues by $25.7 million and implemented the interim energy charge, which generated about $8.2 million a year.[[In-content Ad]]