Proposals Would Shift Utility Infrastructure Costs to Ratepayers
Electricity and gas bills could creep higher in several states, as lawmakers consider whether to allow utilities to charge customers upfront for upgrading aging infrastructure.
Utilities typically recoup costs only after a project's completion, as part of negotiations with regulators that take place every few years. But legislation in at least four states — Indiana, Maryland, Missouri and New Jersey — would let some tack on extra fees, called cost trackers, to immediately pay to improve pipelines and the electrical grid.
The possible shift in obligation has irked consumer advocates, who argue that monopoly companies have shirked their basic responsibility to keep systems up-to-date, pocketing the cost savings, only to now ask customers to pay extra.
Such fees typically add no more than a few dollars to residents' monthly bills, but in states that allow multiple trackers, critics say they add up — particularly for poor families or seniors with fixed incomes.
“It certainly is frustrating to consumers,” says Janee Briesemeister, who tracks utility legislation for the AARP. “For seniors, every dollar makes a difference.”
The debates come as states, either through legislation or rulemaking, are increasingly breaking with tradition and approving cost trackers for infrastructure, as Stateline has reported.
The mechanism has been used in the past, but only to recover costs from unforeseeable events, such as a quick spike in fuel prices or fallout from a disaster.
Proponents say multi-million dollar upgrades to equipment, necessitated by new federal regulations, changing economics and decades of wear and tear, are urgent but too costly to absorb into normal rates.
“Financially weak utilities don't do good things for customers,” says Lawrence Borgard, president of Integrys Energy Group. “Unless we have reasonable cost recovery systems, Wall Street is going to chew us up.”
The Maryland legislature will likely send the governor a bill allowing gas companies to charge extra to shore up a system that relies heavily on cast iron pipes — those that turn brittle over the years and are especially prone to failure.
Following deadly explosions in Pennsylvania and California in 2010 and 2011, federal regulators have been pushing states to ensure such old pipes are replaced.
Maryland has experienced 31 “significant” pipeline incidents since 2002, though eight were caused by excavation damage, according to the U.S. Pipeline and Hazardous Materials Safety Administration. The incidents caused more than $13 million in damage, killed one person and injured 16 others. The proposed trackers there would generate up to $36 million for improvements through fees capped at $2 per customer.
Maryland regulators have repeatedly denied tracker requests in the past. The legislation wouldn't require them to approve requests, but it would make approval more likely.
In New Jersey, where Hurricane Sandy's winds and waters knocked out power for 7 million people for as long as two weeks, the growing threat of extreme weather has prompted lawmakers to push the change. Legislation there would require electric and gas companies to meet new standards for reliability and response, necessitating new infrastructure. That might include “smart meters” to pinpoint outages more quickly and systems that redirect power when a generating station fails. Companies could recoup those costs through trackers.
But critics say utilities don't need the extra revenue — even if costly upgrades are needed.
“It almost makes the utility industry a risk-free business,” says Kerwin Olson, executive director of Citizens Action Coalition, a group fighting tracker legislation in Indiana, where regulators already allow electric, gas and water companies to add some fees.
Olson and others say the combination of trackers essentially deregulates public utilities. “It's a vicious assault on the widely accepted regulatory compact between consumers and monopoly utilities,” he says.
That newest proposal would allow electric and gas companies to use trackers to finance upgrades to a wide range of equipment, including pipelines, transmission wires and storage systems. It is similar to a Missouri proposal that would apply to electric utilities. That bill is stuck in committee.
The Indiana legislation sailed through the Senate, but is likely to face resistance in the House. Governor Mike Pence, a Republican, has not said whether he will sign it.