Measure would let utilities use formula to set rates

Some consumer groups and large customers are fighting a proposed Indiana law that would allow power, gas and water companies to have their rates set annually by a formula rather than by state regulators.

A bill introduced in the General Assembly would allow electric, gas, water and wastewater utilities to choose whether to take part in annual rate reviews that would determine rates under the formula.

"This is a horrible concept and a horrible bill," said Timothy Stewart, a lawyer who represents steel mills, shopping centers and other customers that buy millions of dollars of electricity a year. "It leaves very little opportunity for ratepayers to make arguments against rate increases."

Stan Pinegar, president of the Indiana Energy Association, a power company industry group, said the measure would help utility customers by avoiding sudden price spikes.

Under current state law, utilities that want to raise rates must petition the Indiana Utility Regulatory Commission, which then holds hearings and considers evidence before setting a rate that gives the utility the opportunity to earn a certain rate of return.

The bill sponsored by Sen. James Merritt, R-Indianapolis, would replace much of that process with a rate-making mechanism, greatly diminishing the IURC's role. Companies would provide certain financial information and would receive a guaranteed rate of return, tied to their common equity or net income. If the utility has a slow year and falls short of revenues and its targeted return, it could recover the difference through higher rates. There's no dollar limit or percentage limit to how much rates could rise every year.

The Senate Utilities and Technology Committee that Merritt chairs is due to hear the bill next week.

Some critics say the proposal would remove incentives to control costs and would give utilities too much power. The IURC now regulates about $14 billion a year in rates paid by Indiana consumers for electricity, water, natural gas, steam and sewer utilities, as well as parts of the telecommunications and cable industries.

"This is all about protecting utility stock prices at the expense of consumers," said Kerwin Olson, program director with Citizens Action Coalition. "It essentially guts the commission's authority to set rates and makes it a rubber stamp to protect monopoly utility profits."

Merritt said the primary goals of the bill are to avoid rate spikes and to provide transparency over utility company finances.

"One of the overriding concerns we hear from people is they want utilities to open their books," Merritt said. "This gives a mechanism for utilities to come in once a year and talk about their costs."

IURC spokeswoman Danielle McGrath said the agency is still evaluating the legislation.

Anthony Swinger, a spokesman for the Office of Utility Consumer Counselor, said its staff also is still reviewing the bill.

A few other states have already moved in this direction, including Alabama, Georgia and South Carolina. The trend is gaining popularity and is widely supported by the industry, said Ken Costello, a principal with the National Regulatory Research Institute in Silver Spring, Md.

"The industry always pushes this because it gives them more protection," Costello said. "If they're able to adjust rates more often, it reduces risk to them."