Wednesday, February 14, 2018

Bigger Pie Forum: Customers are outgunned by utilities

Einstein is said to have said: “Insanity is doing the same thing over and over. And expecting different Albert Einsteinoutcomes.” This was the lede in an earlier article about public education. (Fortunately, education is changing.) It also applies to the Mississippi Public Service Commission and the Mississippi Legislature. They haven’t changed in response to the Kemper lignite plant fiasco.


What have we learned? What will keep the PSC from approving the next utility boondoggle promoted by the next charismatic governor? Maybe the memory of the Kemper debacle? Or maybe PSC commissioners that are not beholden to the governor? Possibly. But memories fade. And commissioners change.

And big expensive projects are so profitable for regulated utilities that they find ways to make them sound good — and prudent even though they cause higher rates. For example, Kemper was supposed to provide “fuel diversity.” This was supposed to protect customers if the sky fell and natural gas got expensive or scarce as the company’s “research” predicted.

Too bad for Mississippi Power and its parent Southern Company that the experimental gasifier didn’t work. And that natural gas got more plentiful and cheaper thanks to fracking. But lucky for customers. So they won’t pay for the $6 billion gasifier, and their rates won’t go up as much.

Customers will pay more than they should though, because they will pay for some of Kemper’s extra cost — thanks to decisions by prior commissioners. Customers stepped over a snake. They may not be so lucky next time.

What could improve the odds that customers won’t get snake bit?

We (Bigger Pie Forum) asked this question and retained an expert on utility regulation to answer it. He looked at how other states regulate electric utilities. He found no magic answer. But he did find something that could help.

The odds are stacked heavily in favor of utilities. They have more experts. Their executives are highly motivated and highly paid. For example, Mississippi Power’s CEO makes $2 million per year. The top five executives make almost $6 million. The Southern Company’s CEO made $16 million last year – despite Kemper’s write offs. (But you are supposed to worry about a Mississippi Power bankruptcy.)

And the utilities have armies of employees, suppliers, lawyers, consultants, and lobbyists. They are well-organized and influential sources of campaign contributions for legislators, public officials and regulators. In Mississippi, they and the trial lawyers are probably the largest campaign contributors. They have political clout.

In contrast, retail utility customers have no clout. There are 155,000 retail customers in Mississippi Power’s 23 county monopoly service area. They include residential households and small businesses. The median household income is about $37,000 per year. The average residential electric bill is about $1,600 per year. Every rate increase eats into scarce disposable income. Note: Mississippi Power’s residential rates are already the highest in the state — even before the pending increase for Kemper’s fall out. Hello PSC.

Residential customers are not organized. They have no champion. Hence, no clout. And no alternative but to pay the higher bills. Some small businesses belong to a trade association which can represent them. But they are overmatched.

In contrast, large commercial and industrial customers (e.g., Walmart and Chevron) have their own experts and lawyers. So they have clout. They also have cheaper electricity.

So what could improve the odds for customers with no clout? Our expert found that many states have an independent consumer/small business advocate to represent clout-less customers before the PSC. This seems to help. It makes the regulatory process adversarial and fairer. Regulators hear arguments for higher rates from utilities which benefit from them. And they hear arguments against higher rates from an advocate for customers who pay them. Conscientious regulators can make more informed decisions. This is not how Mississippi’s PSC operates now though.

Mississippi has three elected PSC commissioners. They regulate electric monopolies, water systems, natural gas distribution, and other public monopolies. They have a staff of 58 (plus 15 vacancies). They are also advised by the Public Utilities Staff (25 plus one vacancy) headed by an appointee who reports to the Governor. The legislature created the PUS in the wake of Grand Gulf Nuclear Plant scandals which saw two PSC commissioners go to prison for taking bribes from utility representatives. The PSC and the PUS also retain outside experts.

The PUS is supposed to balance the needs of the utility companies and their captive customers and advise the PSC accordingly. It tries to carry water on both shoulders. It can’t. It didn’t do a good job for customers in the case of Kemper. Neither did the PSC.

Both have changed and are now trying to rectify earlier one-sided decisions favoring the company. It’s reasonable to assume those decisions were made because the company’s lawyers and experts advanced the company’s case unchallenged by effective advocacy for retail customers.

It’s also reasonable to assume that retail customers might fare better with an independent consumer advocate to represent them. So we proposed the Residential and Small Business Advocate Act. Representative Hank Zuber (R – Ocean Springs) introduced it as House Bill 1108, and Senator Mike Seymour (R – Vancleave) introduced it as Senate Bill 2562 in the current legislative session. It would create an Advocate’s Office as an independent voice for customers — with full access to rate increase filings.

Our bills did not make it out of committee. Fortunately, neither did other bills that would change how the PSC and PUS operate — to favor utilities even more.

But we started a discussion about how to prevent another Kemper. And how to help the PSC protect customers and assure them of reliable affordable electricity. That’s its mission.

It’s still possible to make some changes this session. There are also Kemper inspired laws (e.g., Base Load Act, Rate Mitigation and Reduction Act) that hurt customers, favor utilities, and could encourage another Kemper. They should be repealed.

Kelly Williams is the former President of  First Mississippi Corporation. 
 

 This post is sponsored content provided by Bigger Pie Forum.


10 comments:

Anonymous said...

Well, I don't have the time right this minute to read this whole thing yet, but the BIG news for Miss. electricity customers is that Trump's budget/infrastructure plan proposes selling off TVA electric.

That could have a HUGE impact on much of north and east Mississippi.

As TVA notes, "Municipal and cooperatively owned utilities sell TVA electricity in the Mississippi counties of Alcorn, Attala, Benton, Calhoun, Chickasaw, Choctaw, Clay, De Soto, Grenada, Itawamba, Kemper, Lafayette, Leake, Lee, Lowndes, Marshall, Monroe, Neshoba, Newton, Noxubee, Oktibbeha, Panola, Pontotoc, Prentiss, Quitman, Rankin, Scott, Tallahatchie, Tate, Tippah, Tishomingo, Tunica, Union, Webster, Winston and Yalobusha."

Try to imagine that power grab for the sale. This would equal the Kemper disaster.

And, low cost power is KEY to attracting industry. TVA is a great benefit to us.

Anonymous said...

A majority of the customers across the country are paying less this year for utilities. Mississippi is an exception it seems.

BusinessFirstFamily.com said...

Homeowners are always getting the short end of the stick when it comes to paying utilities. If we ever change our energy system, I think we will just be paying a hefty heating bill to another clean energy corporation. I hope we can see more changes and repeals this session.

Anonymous said...

The only source of funds for these utilities is the money they take from customers, so when they lobby for something not good for their customers, they are doing so with money they have taken from said customers.

Anonymous said...

The region never needed the power plant. This was going to be a customer and tax payer subsidised experiment for the southern co to get their TRIG carbon capture technology operational...the money was in selling the TRIG to other companies and countries...even low level employees knew in 2012 that it wasnt going to work...this plant could have been built for 350 million...an existing coal fired plant outside of Houston TX was adapted for carbon capture for around 1 bilion in 1 year using technology from a Japanese company.

Search Brett Wingo to find the whole story on how far the southern company went to attempt to hide this fraud...now they have 6 lawsuits filed from stockholders and partners in this venture. Kemper was selected because of the lack of jobs, and poor area. The incoming employees were steered to neighboring Lauderdale county which had the only school with a passing score. For local employees, it was a "who you know" situation. Many people who actually were hired made long term financial decisions based on what the companynwas telling them. Some have lost homes, vehicles, and had to move or work in faraway states to survive. None of the local media has ever reported anything negative about the project. One local news outlet reported on the Obama Department of Energy visit...saying the US needed 100 more of these type plants....100 x 8 billion..pretty soon you are talking about real money. A local realtor when asked about the economic impact to Kemper county replied..."well it put a construction worker RV in almost every yard for several years"

Anonymous said...

So...
It seems to me that the first flaw is that our elected officials invariably rely on the data given them by " company research" and never make any attempt to verify the research or socio-economic value. Our founders thought that their job. And, the elected officials have the resources and expertise available from our State universities. Such verification would be great " real life" projects for students and those student can talk and tweet if their findings are ignored.

The other obvious safe guard would be a law that any project that exceeds the figures given elected officials would be paid by the company providing those figures. And, that 1/2 of the over run monies would be paid for by reductions in the CEO's salary and he'd be personally liable for that share if he resigned or retired.

I'm frankly tired of paying for the mistakes of others and the responsibility for these boondoggles is with those who proposed them and have zero consequences when they soak the taxpayer.

Japan does well in making sure their CEOs who attempt to fleece or harm their customers pay a heavy price. So we might try following their example.


Anonymous said...

Now comes Senate Bill 2295. It takes away the Attorney General's authority to take these greedy utility monopolies to court without PSC permission. Think how this would have worked with the previous PSC who approved the Kemper katastrophe. This bill would also rollback the $18 million Entergy customer's rate reduction the AG's lawsuit forced them to give customers for illegal overcharges. It is time to end the utilities monopolies, their price gouging and political influence. Defeat SB 2295 and then bring open competition to the electricity market. We want free enterprise and capitalism so these companies will lose their cost plus guaranteed profits and will have to compete in the open market for our energy business. Teddy Roosevelt would be proud!

Anonymous said...

You might want to read Senate Bill 2295 before commenting. All the utilities are audited every year by the staff for fuel purchases. Entergy has passed those audits and additional audits ordered by the PSC. Hood is suing anyway, apparently to make sure his out-of-state trial lawyers get a fee. If his case is so strong, why does Hood mind going before Cecil Brown and Brandon Presley at the PSC for a hearing?

Anonymous said...

Hey 12:42,

Maybe if you cut down on the eighth grade snark you could explain to readers that the Justice Department was/is investigating Energy for these overcharges. The audits are already in existing state law. If you had read the bill, you would know that. Or maybe you area shill for the utilities and just being dishonest with the facts. Those audits did no good when the previous PSC allowed Energy to overcharge their customers. People wake up! Whenever a multi-billion dollar monopoly utility is trying to tie the hands of investigators, it is so they can get their hands in your pocketbook. We need more oversight of these subsidized monopolies, not less. Where is a Teddy Roosevelt when you need him?

Anonymous said...

Make that $118 million that Energy was overcharging its customers before being forced to buy the cheapest energy on the market rather than the most expensive energy they from their own partners. They were forced to reduce rates then.

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