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Nixon blames regulatory system for natural gas increases

February 27, 2001
By: Matt Williams
State Capital Bureau
Links: SB 387, HB 723

JEFFERSON CITY - Substantial increases in natural gas rates this winter were not the result of illegal activity by local gas companies, according to a report Attorney General Jay Nixon released Tuesday.

Criticizing the state's regulatory scheme, Nixon placed the blame for double-digit natural gas rate increases on a system that has allowed utilities to pass their risk to the consumer.

"We did not find that laws were broken," said Nixon, who conducted the review at the request of Missouri Gov. Bob Holden. "But we did discover that Missouri's laws themselves are broken as they relate to the regulation of natural gas."

The Missouri Public Service Commission, the state's agency that regulates utilities, has come under fire since it approved rate increases about 40 percent affecting more than one million natural gas customers, with some lawmakers calling for the removal of those commissioners who approved the increase.

Wholesale gas prices skyrocketed this winter, and two utilities, Laclede Gas and Missouri Gas Energy, received approval for rate hikes of 38 percent and 44 percent, respectively.

Although each company has since lowered rates by about 18 percent, Nixon said the system made it easier for rates to increase than to decrease.

"The way the system is now, rates can go up in 10 days, but it takes as long as three years for rates to go down," Nixon told reporters.

At issue was the "purchase gas adjustment," a measurement that allows gas companies to reflect wholesale fuel costs in their rates.

The PSC said it would review Nixon's findings.

"Our commission will certainly seriously consider the information from the state's attorney general," said Kevin Kelly, a spokesman for the five-member commission.

Meanwhile, lawmakers considered a bill that would allow electric utilities to use a mechanism similar to the "purchase gas adjustment" to recover increased fuel costs.

The bill's sponsor, Sen. Wayne Goode, D-St. Louis County, said the plan would strike a balance between protecting consumers and keeping utilities healthy.

"The customer may pay a little more quickly, but they won't pay more," Goode said.

However, the state office that represents consumers before the commission has come out against the proposal. John Coffman, speaking for the Public Counsel, said it would remove any incentives for utilities to save money.

"There's no incentive to hedge or lock in prices, exposing consumers to 100 percent of the price volatility," said Coffman, who is also a member of the Columbia City Council.

Under the proposal, rates would likely increase for customers of Empire District Electric, which serves Southwest Missouri, and UtiliCorp, which has customers throughout the state. Electric cooperatives would not be affected.