Perceptions and facts about the rate case
Rate cases and related regulations can be confusing. Get the facts about our proposed rate increase here.
Perception: The Ameren Illinois Utilities just reduced the amount of rate increase they are requesting by $96 million. It looks like they might have inflated the original number.
Fact: The Ameren Illinois Utilities filed requests for electricity and natural gas delivery service rate adjustments on June 5, 2009. Those requests would have generated $226 million in additional annual revenue to provide the resources needed to provide a reliable, safe energy delivery system.
We recently made important revisions to the original service rate increase request and are now requesting a rate increase of $130 million. We were able to reduce the amount requested for several reasons, including: improved financial markets, plans to reduce 2010 wage increase, the impact of our voluntary and involuntary workforce reductions, additional 2010 budget cuts and lower gasoline and diesel fuel prices.
Perception: The Ameren Illinois Utilities aren't seeking ways to cut costs.
Fact: The Ameren Illinois Utilities' efforts to contain costs wherever possible are ongoing, and we seek to appropriately reflect the known and measurable effect of such efforts in our rate case request. On Monday, July 27, 2009, we made revisions to our June 5, 2009, rate case filings to reduce certain costs originally reflected in our request. This happened because we identified opportunities to reduce our capital budget for 2010 and received updated information regarding pension expense. The effect of these cost containment efforts will reduce the Ameren Illinois Utilities' rate increase request by approximately $7 million. We will continue to seek ways to contain costs that will help customers and not jeopordize our efforts to deliver electricity and natural gas in a safe and reliable manner.
Perception: The Ameren Illinois Utilities are raising the cost of electricity and natural gas delivery services.
Fact: True. We are asking the Illinois Commerce Commission to approve new electric and natural gas delivery service rates that will allow the companies to recover our operating costs, while continuing to make our distribution systems more reliable.
A delivery service rate is the charge the Ameren Illinois Utilities put on bills to cover the cost of delivering electricity and natural gas to our customers.
Perception: The Ameren Illinois Utilities are raising rates now.
Fact: The Ameren Illinois Utilities have asked the ICC for permission to change the delivery service rates. The ICC now will conduct a thorough review of our request and provide opportunities for public comment and testimony. This process will take 11 months to complete. If approved by the ICC, new delivery service rates will not take effect before May 2010.
Perception: The Ameren Illinois Utilities are raising rates just to increase profits.
Fact: No one wants to pay more for any good or service, but all organizations – for-profit businesses, nonprofits and governmental – must have revenue sufficient to meet their obligations. Aggressive cost-containment measures help to reduce costs – and we cut spending by millions of dollars. However, cost-containment alone is not enough. We also must increase our revenue in order to recover the costs of new facilities already in place and for maintaining and operating our energy delivery system. These costs include:
• Day-to-day operating costs. This includes everything from the customer service representative who answers your call to the energy efficiency expert who helps you reduce energy expenses.
• Routine maintenance. Much like your automobile that requires oil changes and safety inspections, our complex delivery system – which includes about 46,000 miles of electric lines, 18,000 miles of natural gas transmission and distribution mains and 12 underground natural gas storage fields – demands constant inspection and routine maintenance to just keep the lights on and the gas flowing.
• Improving reliability. Each year, we spend hundreds of millions of dollars on a wide variety of projects designed to improve the reliability and add capacity to our distribution system. These projects include upgraded and new electrical substations, new natural gas distribution and transmission mains, new electrical transformers and new meters.
It also should be noted that an investor-owned utility has a need to earn a reasonable rate of return. Those who purchase bonds and stock put their money at risk through their investments. In return, a portion of profits are used to pay dividends to stockholders, with remaining profits invested back into the company.
Perception: Ameren Illinois Utilities customers pay rates that are way above the national average. They are taking advantage of us.
Fact: Actually, our residential rates are well below the national average. For 2008, the national bundled rate – that is, both delivery service and electric supply – average was 11.38 cents per kilowatt-hour. The average residential rate during 2008 for AmerenCIPS rate was 9.04 cents per kilowatt-hour, the AmerenCILCO average rate was 9.50 cents and the AmerenIP average rate was 9.88 cents.
In 2008 the average delivered cost of natural gas for U.S. residential customers was $1.37 per therm of natural gas. By comparison, the average for all AIU customers was $1.21 per therm.
We work hard to keep your costs as low as possible.
Perception: The Ameren Illinois Utilities recently lowered the price of electricity. Now you are raising rates to get that money back.
Fact: We understand why some people may think this is true. The price customers pay for electricity – called the Electric Supply charge – was reduced on June 1. The decline in the wholesale price of electricity is a reflection of reduced global demand for all types of energy. A 2007 state law created the Illinois Power Agency (IPA) to procure electricity through a competitive process for all Illinois investor-owned utilities, including the Ameren Illinois Utilities. Through the IPA procurement process, the Ameren Illinois Utilities have contracted for an amount of electricity that represents about one-third of its total needs for the next 36 months. Electricity supply contracts run for three years and about one-third of the total supply is procured annually to minimize the impact of possible wholesale price volatility. The wholesale price of electricity is not regulated. It is estimated the new Electric Supply charge will mean a residential customer who uses 10,000 kilowatt-hours of electricity per year will save about $100. Business customers who purchase their power supply from the Ameren Illinois Utilities will also see price reductions.
It is important to remember that the Ameren Illinois Utilities do not profit from the Electric Supply charge. Electricity is sold to customers without any markup. Furthermore, customers have the option of purchasing power from an ICC-approved alternate retail electricity supplier.
Overall, our rate increase request only applies to the costs associated with delivering energy to homes and businesses.
Perception: The Ameren Illinois Utilities talk about cutting their costs, but they never do anything.
Fact: Aggressive cost containment is a priority at AIU. For example, nearly $28 million has been saved this year by postponing vehicle purchases, deferring construction, curtailed hiring, cutting travel and trimming budgets. We have extensive evidence in the rate increase filings that demonstrate our commitment to controlling costs.
Perception: The Ameren Illinois Utilities want people to use more energy because that means bigger profits.
Fact: Last year, we launched the Act On Energy initiative. Act On Energy is built on a very simple concept – spend less by using less energy without sacrificing personal comfort.
In response to a new state law, we launched our electric energy efficiency effort on June 1, 2008. The state law allows the cost of this program to be recovered through a small charge on customer bills. During the first year of the program, this amounted to about $3.80 per year for a residential customer using 10,000 kWhs annually. Beginning in June 2009, this cost will increase to about $10 per year for a residential customer using 10,000 kWhs annually.
Through Act On Energy, we have implemented programs for both residential and business customers. Highlights include:
• Advice on how to reduce energy use.
• Residential incentive programs:
o Low cost compact fluorescent lights (CFLs).
o A program designed to get old, inefficient refrigerators and freezers off the grid.
o Discounts on high-efficiency central air conditioners.
o E-Smart Thermostat to help reduce summer demand.
o Home energy audits.
o Rebates on ENERGY STAR appliances.
o ENERGY STAR New Home program.
• Business incentive programs:
o A program to help reduce lighting costs.
o Cash-back amounts for energy efficiency projects.
o Small Business Online Store that offers big savings on lighting products.
o Special program for the owners of apartment buildings.
We also have requested and received ICC approval of the Gas Energy Efficiency Plan that is now a part of the Act On Energy initiative. A key component of this program is a special incentive for customers who purchase and install high-efficiency natural gas furnaces.
For more information on these programs click here.
Perception: Act On Energy programs are all puff. They really don’t work.
Fact: These programs do work. By the end of our first program year, our ENERGY STAR qualified compact fluorescent light (CFL) program could reduce residential customer electric bills by as much as $6.5 million per year. To date, we have scheduled the collection of more than 4,000 older refrigerators and freezers, paying customers $35 for each unit and helping them realize annual savings of about $100 for each unit. Our business programs can reduce yearly energy costs for businesses by at least $4 million in the first year of the program.
Our programs are designed to reduce residential and business electric usage by about 63,000 megawatt-hours (MWhs) in the first year – that’s enough electricity to power about 5,800 homes for a year. In the second year, the goal is 126,000 MWhs (about 11,600 homes) and in the third year the goal is 191,000 MWhs (about 17,500 homes).
As for our natural gas initiative, our goal is to reduce natural gas usage by 1.4 million therms during the first year, 2.4 million therms the second year and 3.4 million therms the third year.
Perception: The Ameren Illinois Utilities are doing nothing to support renewable energy.
Fact: On the contrary. A 2007 state law requires all investor-owned electric utilities to purchase electricity from renewable resources, such as wind and solar. Last year, 2 percent of our total load came from renewable sources. This year, that amount will be as high as 4 percent. The required percentage amount will continue to increase in the coming years. The law allows utilities to satisfy the state requirements by purchasing Renewable Energy Credits (RECs) rather than take possession of the actual renewable energy. At this time, taking actual delivery of the renewable energy would likely impose additional costs for us and our customers. Each REC represents the green attributes of 1,000 kWhs of electricity from renewable energy resources.
In surveys, many customers have said they would like to the option of being able to purchase additional RECs at a modest price. In response, we are asking the ICC to approve the Voluntary Green Program, which we refer to as VGP. Each REC represents the green attributes of 1,000 kilowatt-hours (kWhs) of electricity produced from renewable energy resources. Residential customers will have the option of contributing as little as $3 per month to participate. AIU will use the proceeds from the program to purchase RECs on behalf of program participants. The program is strictly voluntary.