SB 1028 Modifies provisions relating to ratemaking for public utilities
Sponsor: Silvey Co-Sponsor(s)
LR Number: 6293S.07C Fiscal Notes
Committee: Commerce, Consumer Protection, Energy and the Environment
Last Action: 5/13/2016 - Informal Calendar S Bills for Perfection--SB 1028-Silvey, et al, with SCS Journal Page:
Title: SCS SB 1028 Calendar Position:
Effective Date: Emergency clause

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Current Bill Summary


SCS/SB 1028 - This act modifies provisions relating to ratemaking for public utilities.

FUEL ADJUSTMENT CLAUSE (Section 386.266) - Currently, electrical corporations may make an application to the Public Service Commission to approve rate schedules authorizing interim energy charges. Under this act, such rate schedules shall provide for adjustments reflecting all transmission charges and transmission revenues.

NET METERING AND EASY CONNECTION ACT (Section 386.891) - This act establishes the Net Metering and Easy Connection Act. Currently, a customer-generator is defined as the owner or operator of a qualified electric energy generation unit with a capacity of not more than 100 kilowatts. Under this act, a customer-generator is defined as the owner or operator of a qualified electric energy generation unit with a capacity of not more than 300 kilowatts if the customer-generator is served by a participating electrical corporation, or 100 kilowatts in all other instances. "Participating electrical corporation" is defined as an electrical corporation that files performance-based rate tariffs.

Currently, if the electricity generated by a customer-generator exceeds the electricity supplied by a retail electric supplier, the customer-generator is credited for the avoided fuel cost of the retail electric supplier. Under this act, if the retail electric supplier is a participating electrical corporation, the customer-generator shall be credited an amount equal to the rate applicable to that customer. If a customer-generator system has a capacity of up to 10 kilowatts, credits may carry over month to month, but at the end of each annual period any credit shall be equal to the avoided fuel cost of the participating electrical corporation. If a customer-generator system has a capacity between 10-300 kilowatts, credits may carry over month to month, but at the end of each semi-annual period any credit shall be equal to the avoided fuel cost of the participating electrical corporation. Once credited at the end of each annual or semi-annual period at the avoided fuel cost rate, customer-generator balances shall be reset to zero under this act.

Currently, customer-generator interconnection applications to a retail electric supplier for systems with a capacity of more than 10 kilowatts shall be reviewed within 90 days. This act changes this review timeline to 60 days.

This section expires on December 31, 2026.

21ST CENTURY GRID MODERNIZATION AND SECURITY ACT (Sections 393.1500-393.1575) - This act establishes the 21st Century Grid Modernization and Security Act.

CAPITAL INVESTMENT PLAN & VENDOR QUALIFICATION PROCESS (Section 393.1515) - This act requires electrical corporations to file with the Public Service Commission a 5-year capital investment plan on February 28 of each year if the electrical corporation participates in performance-based ratemaking authorized under this act. The plan shall also include a specific capital investment plan for the first year of the 5-year plan. Upon submitting such investment plan to the Public Service Commission, the electrical corporation shall hold a public stakeholder meeting to answer questions and receive feedback on the plan. After feedback is received, the electrical corporation may file a notice with the Commission to make modifications to the investment plan. The electrical corporation's investment plan shall be made publicly available under this act. Further, the submission of the plan shall not affect the Public Service Commission's authority to grant or deny any certificate of convenience and necessity.

This act requires each participating electrical corporation to establish a process to qualify third party vendors that bid to provide services, or that may bid on planned electrical distribution construction and maintenance projects based upon certain criteria set forth in this act. Such process shall be established within 9 months, and shall be utilized to qualify a vendor or a competitive bid process for projects estimated to cost more than $100,000. The Public Service Commission shall have the authority to review the electrical corporation's vendor qualification process, and shall prepare certain reports for the General Assembly on such process as set forth in this act.

RETURN ON EQUITY (Section 393.1520) - Under this act, if an electrical corporation elects to participate in performance-based ratemaking, the electrical corporation's return on equity shall be set at 9.45%, adjusted to reflect U.S. Treasury Bond yields. The electrical corporation's return on equity may then be increased or decreased up to 0.20% in the electrical corporation's annual reconciliation based upon performance metrics set forth in this act. This act also give the Public Service Commission the authority to replace any one of a participating electrical corporation's performance metrics by issuing a Commission order.

PERFORMANCE-BASED RATEMAKING (Section 393.1525) - Under this act, an electrical corporation may become a participating electrical corporation seeking to recover its cost of service through performance-based rate tariffs by filing such tariffs with the Public Service Commission. Under this act, an electrical corporation participating in performance-based ratemaking is referred to as a "participating electrical corporation". The Public Service Commission approving a participating electrical corporation's performance-based rate tariffs shall specify the cost and revenue components of rates, with specificity so that such rates may be updated annually to reflect the electrical corporation's cost of service. Further, the Public Service Commission may approve adjustments to such performance-based rate tariffs if the Commission finds that such tariffs to not meet legal requirements, or seek to recover imprudently incurred costs.

Under this act, electrical corporations serving more than 200,000 Missouri customers that recovers fuel and purchased power costs under the fuel adjustment clause shall instead recover such costs through its performance-based rate tariff. Participating electrical corporations serving less than 200,000 Missouri customers may continue to recover fuel and purchase power costs through the fuel adjustment clause without periodic general rate filings to retain such fuel adjustment clause until 5 years after the participating electrical corporation terminates its participation in performance-based ratemaking.

If a participating electrical corporation filed tariffs with the Public Service Commission prior to the effective date of this act, and the electrical corporation files performance-based ratemaking tariffs under this act, previous tariffs shall be withdrawn when the electrical corporation makes an initial performance-based rate tariff filing. Performance-based rates shall be applicable to all customers, except aluminum smelting facilities. Performance-based rate tariffs shall adhere to requirements set forth in this act, including establishing the cost of service, reflecting the electrical corporation's year-end capital structure of not greater than 53% and not less than 47% total capitalization, including a cost of equity and certain ratemaking adjustments for the purpose of setting prospective rates, and including protocols for prospective termination of performance-based ratemaking. Certain ratemaking adjustments shall include recovery of regulatory assets and return of regulatory liabilities, recovery of amounts amortized under this act, establishment of rates based on actual billing determinants allowing the electrical corporation to use weather-normalized billing determinants, recovery of nuclear refueling costs, interest accrued on customer deposits, an estimate of revenue to be received to offset the participating electrical corporation's revenue requirement, recovery of any forgone margin as calculated in this act, allocation of common costs, adjustments to the electrical corporation's FERC Form 1 information as applicable, pension expense and other post-employment benefits, a 1% annual operating expense additive, closure of a generating plant, adjustments that reflect return on rate base, depreciation, and amortization expense and income taxes, adjustments necessary to correct errors in the FERC Form 1 or the proposed revenue requirement, and shall provide for annual reconciliations. Certain items shall be excluded from recovery under performance-based ratemaking, including expenses relating to lobbying, charitable donations, institutional advertising, incentive compensation, pass-through taxes, and imprudently incurred costs.

Upon a participating electrical corporation's initial performance-based rate tariff filing, the Public Service Commission shall initiate a docket to review such filing. The Public Service Commission shall enter an order approving, or approving as modified, such tariff within 244 days, except if an electrical corporation makes its first performance-based rate tariff filing after April 1 but before May 1, the Commission shall expedite such filing to ensure that rates are in effect by the following January 1. The Public Service Commission may approve adjustments to the tariff only upon finding that the filed performance-based tariffs do not meet the requirements of this act, or that such tariffs seek to recover imprudently incurred costs. This act sets forth a standard which the Public Service Commission shall use to assess prudence. Once an electrical corporation's performance-based rate tariffs are approved, they shall be updated annually, and such rates shall not be adjusted without approval by the Public Service Commission.

If, prior to becoming a participating electrical corporation, an electrical corporation's rates set in its most recently concluded general rate proceeding are not based on the average and excess methodology, the electrical corporation's revenue requirement under performance-based ratemaking shall limit increases to customers in the large power service rate schedule to no more than the class cost of service. Further, under this act, electrical corporations shall adhere to certain rate design requirements for its large power service rate schedule customers. After calculating the impact of large power service rate schedules, any difference in large power service customers' revenue determination shall be allocated to all other customer classes equally.

ANNUAL UPDATE FILINGS (Section 393.1530) - On or before May 1 after the first year an electrical corporation elects to use performance-based ratemaking, and annually thereafter, a participating electrical corporation shall make an annual filing with the Public Service Commission to update cost inputs in order to establish performance-based rates for the upcoming rate year. The annual update filing shall include a reconciliation of the cost of service, performance-related rate adjustments, an updated revenue requirement based upon the results of the revenue test set forth in this act, an updated return on equity, and shall be subject to revenue requirement increase limitations set forth under this act. The annual update filing shall also include supporting prefiled direct testimony and exhibits offered by the participating electrical corporation. The annual update filing rates shall take effect January 1 of the year after the filing has been made.

This act sets forth guidelines for a Public Service Commission proceeding in which the Commission is reviewing a participating electrical corporation's annual update filing. Under this act, the Commission shall have the authority to review the prudence of actual costs incurred used in the reconciliation of cost of service, the authority to make adjustments necessary to correct accounting mistakes and errors that may appear in the FERC Form 1 or proposed revenue requirement, and the authority to hear evidence concerning prudence of actual cost of service and the accuracy of revenue requirement calculations. Further, the Commission may hold an evidentiary hearing and approve adjustments in certain cases. In any annual update filing proceeding, the Commission shall enter its order 210 days after the electrical corporation's filing, or December 1, with rates being effective on the first billing day of the calendar year after the calendar year in which the filing was made. This act also requires the Public Service Commission to establish a procedural schedule for annual update filing proceedings and other testimony set forth in this act.

The rates approved by the Commission shall be final upon a Commission ordering approval of updated rates, and such rates shall be final and not subject to reexamination, provided that this act shall not prohibit a party from seeking judicial review in appellate court or a Public Service Commission rehearing. Further, performance-based rate tariffs approved in an annual update filing shall provide for equal percentage changes in customer rates, with the exception of aluminum smelting facility customers.

5 YEAR FILING (Section 393.1535) - Under this act, a participating electrical corporation shall make a filing with the Public Service Commission within 5 years of initially filing a performance-based rate tariff that either proposes revenue-neutral rate design changes or to leave rate design unchanged. If the electrical corporation proposes a revenue-neutral rate design change, the participating electrical corporation shall rely on certain methodology for the allocation of fixed production related costs for customers taking service under the large power service rate schedule. If the electrical corporation proposes no change to rate design, it shall report the results of an embedded class costs of service study as set forth in this act. All changes shall be implemented prospectively, and implemented at the same time new annual rates are made effective. Further, this act provides that if rate design changes are approved, but cannot be implemented due to termination on behalf of a participating electrical corporation or due to the expiration of this act, the Commission may implement rate design changes upon the conclusion of the electrical corporation's first general rate proceeding occurring after termination. Under this act, a participating electrical corporation may submit a depreciation schedule for approval at any time. If approved, revised depreciation rates shall be used to set rates prospectively under the participating electrical corporation's annual update filing.

PERFORMANCE-BASED RATE LIMITATIONS (Section 393.1540) - Under this act, performance-based rates shall be subject to both an annual increase limit and an average annual increase limit in determining revenue requirement increases for all customers, except aluminum smelting facility customers. Annual percentage increases shall be calculated as set forth in this act. Such limits shall be filed by the participating electrical corporation annually with the Commission in its annual update filing. Annual increases shall be limited to no more than 2% for the first 2 years in which performance-based rates are in effect, and thereafter the annual increase limit shall be 4.75%. Additionally, the average annual increase over the duration of the participating electrical corporation performance-based rate tariff shall not exceed 3.5%. For participating electrical corporations with less than 200,000 Missouri customers, net fuel and purchased power shall not be included in the calculation of the average annual rate increase limitation.

The electrical corporation shall analyze, in its initial performance-based rate tariff and annual update filings, whether the revenue requirement increase proposed will exceed increase limitations set forth in this act. Under this act, if the limitation will be exceeded, the participating electrical corporation shall reduce the revenue requirement in an amount sufficient to bring any increase within the limitations allowable under this act. Further, under this act, certain exclusions shall apply to the calculation of any annual revenue requirement increase limitation including all compliance costs or any foregone wholesale power sales or off-system power sales as a result of federal and state environmental regulations, all costs to comply with federal or state renewable energy mandates, charges associated with the Missouri Energy Efficiency Investment Act including provision for the financial impact of sales reductions attributable to energy efficiency programs, variability in revenue and fuel and purchased power costs due to weather, local add-on taxes or franchise fees, and amounts associated with force majeure events as defined in this act.

Under this act, any amount excluded from rates due to limitations set forth under this act shall be carried forward with interest at the participating electrical corporation's short-term borrowing rate. Any amount carried forward shall not exceed 4.75% of the revenue requirement used to set the participating electrical corporation's performance-based rates in its most recent annual update filing.

SUSPENSION OF RATE ADJUSTMENT MECHANISMS (Section 393.1545) - Any rate adjustment mechanism shall be suspended upon an electrical corporation's initial performance-based rate tariff filing. However, such rate adjustment mechanism shall survive until any costs and revenues accumulated prior to the electrical corporation's initial performance-based rate tariff filing are fully recovered over a transition period of not more than 24 months. After the transition period ends, any remaining costs or revenues shall be included in the electrical corporation's annual update filing reconciliation balance. If an electrical corporation withdraws is performance-based rate tariffs, the accumulation periods shall resume and shall include any net fuel and purchase power cost that would have otherwise been accumulated, and shall be reconciled to actual expenses incurred for the same period. Under this act, any costs that were previously recovered under a rate adjustment mechanism shall be 100% incorporated in performance-based rates.

Regulatory trackers adopted in the participating electrical corporation's most recently concluded general rate proceeding with respect to pension expense and other post-employment benefits shall continue to be recognized for ratemaking purposes in performance-based ratemaking. Under this act, all other regulatory trackers shall be suspended with the electrical corporation's initial performance-based rate tariff filing. All costs and revenues that would have been included in such trackers shall be included in the determination of the electrical corporation's cost of service under performance-based ratemaking. Upon termination of performance-based rate tariffs, such regulatory trackers and rate adjustment mechanisms shall be automatically reactivated.

DEFERRAL AND AMORTIZATION (Section 393.1550) - Under this act, a participating electrical corporation may petition the Public Service Commission to allow for deferral and amortization of any significant balance or amount over a period not to exceed 5 years to prevent unnecessary rate volatility; provided that the electrical corporation can show that such deferral and amortization is significant and would cause rate volatility. Any deferral or amortization shall include carrying costs calculated as set forth in this act. The Public Service Commission shall grant or deny the request within 120 days.

RULEMAKING, CORPORATE OWNERSHIP, CHANGES TO PERFORMANCE-BASED RATE STRUCTURE, CONSUMER COMPLAINTS, NEW SERVICES, & COMMISSION AUTHORITY (Section 393.1555) - Under this act, the ability of an electrical corporation to file a performance-based rate tariff shall be allowed regardless of whether the Public Service Commission has enacted any rules relating to such rate tariffs. A failure by the Commission to act on any tariff, rate, or regulatory relief requested within the timelines set forth shall result in such tariff, rate, or relief becoming effective.

Under this act, if a participating electrical corporation is acquired or merged, or is subject to a change in ownership, performance-based rate tariffs shall remain in effect. Further, nothing in this act shall restrict an individual consumer from filing a complaint with the Public Service Commission.

Under this act, a participating electrical corporation shall be permitted to propose changes to the performance-based rate structure. Further, such participating electrical corporation shall also be permitted to request approval of a new service or tariff and associated rate schedules. The Public Service Commission shall have the authority to review or investigate a participating electrical corporation's performance-based rate tariff in order to ensure that the tariff is operating to provide just and reasonable recovery of only prudently incurred costs. Further, the Public Service Commission shall retain its existing authority to hold public hearings seeking comment from members of the public concerning any change in tariff rates and services proposed by a participating electrical corporation.

TERMINATION OF PERFORMANCE-BASED RATES (Section 393.1560) -

Under this act, performance-based rates shall continue in effect after the last year that they apply, and they shall be changed on January 1 of the year following the last year that they apply through the annual update filing in order to exclude reconciliation balances and carry forward amounts that have been recovered, and to include reconciliation balances from the year prior to the last year that performance-based rate tariffs are in effect. If any adjustment to rates under this provision produces a reduction in rates compared to the previous year, the reduction shall be reflected in the rates but if such adjustment produces an increase in rates, the increase shall not exceed 4.75% of the participating electrical corporation's revenue requirement used to set rates in the previous year. Such performance-based rates shall terminate when superseded by rates set in a general rate proceeding.

If performance-based rates have not been superseded by rates set in a general rate proceeding, such rates shall be changed on January 1 of the second year after a participating electrical corporation's performance-based rate tariffs apply to exclude reconciliation balances and carry forward amounts that have been recovered, and to include reconciliation balances from the year prior to the last year that performance-based rate tariffs are in effect. All reconciliation balances arising from the last two years to which performance-based rate tariffs apply shall include interest at the participating electrical corporation's short-term borrowing rate. Amounts excluded from rates due to increase limitations set forth in this act shall be carried forward to be recovered in the year following the last year that performance-based rate tariffs apply. If any adjustment to rates under this provision produces a reduction in rates compared to the previous year, the reduction shall be reflected in the rates but if such adjustment produces an increase in rates, the rate shall not change.

A participating electrical corporation may file a general rate proceeding to implement new rates, with such new rates superseding any performance-based rates. However, the regulatory asset or liability associated with any reconciliation balances or carry forward amounts shall be recovered or credited through a surcharge or credit on customer bills over a period of 24 months.

Under this act, any participating electrical corporation that had suspended its fuel adjustment clause shall reinstate such clause after termination of performance-based rate tariffs. Any participating electrical corporation whose fuel adjustment clause is reinstated shall be relieved of the obligation to make a general rate proceeding filing every 4 years, and instead shall be required to file a general rate proceeding no later than 4 years after the last year that performance-based ratemaking applied.

PUBLIC SERVICE COMMISSION REPORT (Section 393.1565) - This act requires the Public Service Commission to prepare and file with the General Assembly a report on the impact of performance-based rates by December 31, 2023.

The 21st Century Grid Modernization and Security Act will expire on December 31, 2028.

ALUMINUM SMELTING FACILITIES (Section 393.1580) - Under this act, aluminum smelting facilities, and their respective electrical corporation service provider, may jointly submit an application to the Public Service Commission for approval of an aluminum smelter rate. Such application shall include certain features as set forth in this act, and that it includes an executed contract between the facility and its electrical corporation service provider. Within 30 days of filing the application, the Public Service Commission shall issue an order directing the electrical corporation to file tariffs containing the rates, terms and condition set forth in the application, and authorizing the electrical corporation to create a regulatory asset for the difference between revenues that would have been collected under the previous rate and the new aluminum smelter rate.

Any aluminum smelting facility shall only be eligible for an aluminum smelter rate if it maintains a number of full-time employees not less than 1 1/2 times its megawatt demand. If a facility becomes ineligible for such rate, they shall be served at a rate that would otherwise be applicable to a customer of its size and load characteristics.

This section expires on December 31, 2026.

RENEWABLE ENERGY RESOURCES & RENEWABLE INVESTMENT PLAN (Sections 393.1590 & 393.1600) - Under this act, a participating electrical corporation shall file, either in its annual Missouri Energy Efficiency Investment Act report or 180 days after filing initial performance-based rate tariffs, a renewable investment plan. Such plan shall be subject to Public Service Commission approval within a timeframe set forth in this act, and shall seek to meet a target of 30% of electricity sold under the Renewable Energy Standard be purchased or generated from physical renewable energy resources. If such target cannot be reasonably attained, the participating electrical corporation's renewable investment plan may propose a lower target and articulate the reasons that only the lower target can be obtained. The physical renewable energy resources used to attain such goal shall either be owned by the participating electrical corporation or by a third party willing to sell such energy back to the corporation, and the participating electrical corporation's renewable investment plan shall specify the location of such physical renewable energy resources to be located in either Missouri or a contiguous state.

Further, under this act, a participating electrical corporation may comply with Renewable Energy Standard portfolio requirements after January 1, 2017 by purchasing renewable energy credits to cover requirements that are not met by utilizing physical renewable energy resources under a renewable investment plan.

These sections expire on December 31, 2026.

SOLAR REBATES (Section 393.1610) - Under this act, electrical corporations serving more than 200,000 Missouri customers shall make solar rebates available to customers, including solar electric systems up to 25 kilowatts for residential customers and 100 kilowatts for non-residential customers. Solar rebates shall be paid through June 30, 2020 up to 2% of the annual revenue requirement used to establish the electrical corporation's rates. Under this act, electrical corporations shall not be required to make payments for 12 months after the effective date of this act that exceed 8/10 of 1% of the annual revenue requirement used to establish rates in effect on the effective date of this act. Further, an electrical corporation shall not be required to make solar rebate payments that exceed 1/2 of 1% of the annual revenue requirement used to establish rates in effect on the effective date of this act. The electrical corporation shall be permitted to recover the cost of solar rebate payments through either base rates or a rate adjustment mechanism over a period of 5 years.

This section expires on December 31, 2026.

DEPLOYING FACILITIES (Section 393.1620) - This act requires the Public Service Commission to permit a participating electrical corporation to recover costs for deploying certain facilities without demonstrating that such technology is the least cost alternative, provided that such project meets certain requirements set forth in this act.

This section expires on December 31, 2026.

DEMAND-SIDE PROGRAMS (Section 393.1630) - This act qualifies programs for participating electrical corporations that utilize combined heat and power technology to generate electricity as demand-side programs offered under the Missouri Energy Efficiency Investment Act.

This section expires on December 31, 2026.

This act contains an emergency clause, and a non-severability clause for certain sections.

This act is similar to SS/HCS/HB2689 (2016) and HB 2816 (2016).

KAYLA HAHN