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The “Bad Debt Surcharge” is Unfair to Consumers

Big gas companies have pushed the Missouri legislature to create a surcharge so they could raise our bills without going before the Public Service Commission, which currently sets utility rates in Missouri. This new surcharge would have allowed them to charge you immediately when other people don’t pay their utility bills. If this new practice had become law, what motivation would the gas companies have to track down customers skipping out on their bills when they could just stick you with their debt?

  • Two bills before the legislature in 2010 (SB 705 and HB 1610) would have allowed increases on natural gas bills to pay the utility for the bad debts of its non-paying natural gas customers, overriding the current consumer protection against such single-issue ratemaking.
  • This legislation would have allowed energy rates to increase, even at times when Laclede Gas Company or Missouri Gas Energy’s overall cost of doing business was not going up!
  • Bad debts are already included in rates. When a utility needs to adjust rates, including for bad debt, it may initiate a rate case. The Bad Debt Surcharge would allow accelerated increases without the protections of a full rate case audit.
  • This Bad Debt Surcharge would have increased the volatility of natural gas bills, due to the correlation between wholesale gas rates and uncollectible accounts.
  • The Bad Debt Surcharge would have been a hidden surcharge.  By cleverly attempting to redefine certain bad debts as “gas costs”, it would have been disguised in the Purchased Gas Adjustment (PGA), instead of being identified separately on gas bills.
  • The legal purpose of the PGA is solely for recovering the wholesale cost of natural gas—not to compensate the utility for bad debt.  In 2009, the Missouri PSC ruled unanimously that bad debt is not a “gas cost” [Case No. GT-2009-0026].
  • This legislation would have decreased the utility’s incentive to effectively manage its bad debt accounts and increased the incentive to write off accounts early and pass those costs through the PGA.  However, writing off accounts as “uncollectible” does not stop the utility from continuing to attempt collection from the customer who owes the debt.
  • The Bad Debt Surcharge also reduces the utilities’ risk, and therefore increases their profits. These companies are already compensated for this risk through the return on equity (ROE) component of rates.  Laclede and MGE are already permitted double-digit ROEs.  In other states, it has been estimated that such surcharges would enhance earnings by 0.75% to 0.95%.

Single Issue Ratemaking

Single issue ratemaking is an unfair utility proposal whereby Missouri’s public utilities are allowed to increase electric rates on Missouri consumers through rate increase surcharges outside of the normal ratemaking process. As fuel charges have increased on Ameren as on all other consumers, for instance, Ameren has raised electrical rates via fuel surcharge increases. Often, Ameren has imposed these fuel surcharges even when their revenues are increase from other means such as off system sales. The result is that, while all Missourians struggle at times with increased fuel charges, only Ameren is able to pass those increased costs on to hard working families. FERAF opposes single-issue ratemaking for exactly these reasons.

Ameren Demands 18% Rate Increase

Missouri’s families and employers are struggling with a state unemployment rate of nearly 10%. In the face of this struggle, rather than tighten their belts like Missouri’s working families, Ameren  demanded that the Missouri Public Service Commission (PSC), the regulatory body responsible for policing the Ameren monopoly, allow another Ameren rate hike.  Thanks to the efforts of concerned Missourians and FERAF the rate hike was cut nearly in half.

  • Raise electricity rates on Missouri’s working families and employers by 18%.
  • Resulted in an immediate rate hike on Missouri’s electricity users. If Ameren has their way, Missouri’s families and employers would have had their electricity rates raised immediately, during one of the most difficult economic downturns we’ve seen in decades.
  • Ameren’s original request would have allowed them to raise rates more frequently. Despite the fact that they enjoy a monopoly, Ameren isn’t content with its profits. Buried in the fine print of of its 18% rate hike request was a plan to allow it to raise rates on struggling Missouri families more often through rate increase surcharges on customers’ electric bills. If Ameren had their way, Missourians would need to be prepared for more frequent rate increases!
  • Cause Missouri job losses. Missourians are losing their jobs. Missouri businesses are being forced to downsize in order to stay afloat. Hiking rates on Missouri’s employers and small businesses when they’re already struggling will force many to lay off even more workers.
  • Push already struggling Missouri families into poverty. Rate increases will hurt Missouri’s employers and small businesses but it will hurt Missouri families even more. In this fragile economy, thousands of families live on the brink of financial disaster. Electric rate increases will cause the number of Missouri families living in poverty to increase.