Environment

Utility customers to receive millions of dollars in credits: Tentative agreement with PSI would settle disputes, compensate ratepayers for risks related to merger

December 12, 2005

PSI Energy Inc. has reached a preliminary settlement with the state's utility consumer counselor on how its 750,000 Indiana ratepayers will fare under the merger of parent Cinergy Corp. with Duke Energy.

Details of the agreement aren't ready to be released, said Angeline Protogere, spokeswoman for the Plainfield-based utility.

But filings both sides made last month with the Indiana Utility Regulatory Commission suggest that ratepayers could receive credits on their bills 21 percent greater than previously estimated by PSI.

The utility estimated last summer that its customers could be credited $37.2 million in the first five years after the merger, or $7.32 a year for the average PSI residential customer. PSI estimated its rates in general would be 3-percent lower after the merger.

But PSI should give its customers a $45 million credit in return for increased risks they'll bear under the Duke merger, the Indiana Office of Utility Consumer Counselor stated in a filing with the commission early last month.

PSI agreed, in a filing with the commission on Nov. 30, that a $45 million credit is a viable option. PSI proposed a $9 million annual customer credit over five years-or $45 million.

PSI also proposed another option: Wait until its next base rate case to pass along the customer credit. The date of the next base rate case hasn't yet been set.

The IURC had previously scheduled starting Dec. 9 three days of public hearings on the merger, including how much of the savings from the marriage should be returned to PSI customers.

The IURC must ultimately sign-off on the agreement PSI reached with the OUCC. The commission is to rule on whether to approve affiliate contracts and a deferral of merger-related costs. The state commission has no authority to approve or deny the ultimate merger of Cincinnati-based Cinergy and Charlotte, N.C.-based Duke, however

The OUCC had other concerns. One is that PSI hadn't proposed a cap on the size of merger-related costs. Another was that the merger is likely to ding PSI's credit rating-driving up its borrowing costs.

"This is a holding company merger, so merger-related costs should be borne by the holding company," the OUCC said.

The agency also wants PSI to pay for detailed financial reporting, including an annual independent audit. It wants the commission to impose service reliability standards.

But PSI is still at odds with a number of other groups. Citizens Action Coalition is arguing that the economic benefits of the merger would go mostly to Cinergy and Duke shareholders instead of PSI ratepayers.

"Duke's plan is to pay Cinergy shareholders a 13.4-percent premium over the market price for Cinergy's stock. To help pay for this shareholder premium of over $1 billion, Duke is proposing that PSI customers receive only 23 percent of the economic benefits attributable to PSI," said Grant Smith, CAC's executive director.

CAC also is concerned about the risk of higher rates, lower-quality service and the fate of a number of consumer protection measures that were negotiated under the 1994 Cinergy-PSI merger.

While PSI and the OUCC appear to have a framework to end the merger debate in Indiana, another dispute is raging over the adequacy of an $11 million settlement PSI reached with its industrial customers last summer over several unrelated issues.

Citizens Action Coalition is asking the commission to force PSI to return millions of dollars more for the utility's Indiana ratepayers through the settlement, which involves fuel cost adjustments, synthetic fuel credits and a dispute over how the utility billed customers after new rates were imposed last year.

CAC argues that the commission should force PSI to credit customers an additional $3 million to make up for what it argues were unreasonably low prices at which PSI sold power to affiliate Cincinnati Gas & Electric.

Their offer "is like the car jacker saying, 'You got your car back; why would you want your purse?' We think ratepayers are owed [more]," said Jerry Polk, an Indianapolis attorney representing CAC.

PSI takes issues with the CAC's accounting and calls the group's position "extreme."

But whatever credits are ultimately doled out under the merger and the global settlement, they'll likely be eclipsed by environmental costs.

PSI plans to spend $1.1 billion to reduce pollution from its power plants, which could raise customer bills nearly 14 percent over a four-year period.
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