Leader Blues

Wednesday, June 20, 2007

EDITORIALS>>PSC backs ratepayers

The job of the state Public Service Commission is to look out for the consumers of energy but fairly consider the profit interests of utilities. When the commission ordered Entergy Corp. Friday to reduce its base retail rate to homeowners and businesses by $5.7 million a year rather than raise them to the tune of $106.5 million as the company wanted, most consumers no doubt believed that the regulators did their jobs well enough. We think so, too, though we might have been a trifle tougher still.

This commission, under the new chairman, Paul Suskie, who was appointed in January by Gov. Beebe, seems to abide by the doctrine that utility regulators are to be first tribunes of the people — the customers — and not servants of the utilities and their investors.

Part of the company’s big rate request — originally $150 million a year, scaled back to $106.5 million after the PSC staff and the attorney general recommended flat rates or a reduction — was to compensate the company for hefty stock options and bonuses for top executives at the utility and its parent holding company, as well as a large assortment of lobbying expenses and executive perquisites.

When the media reported the details of these above-the-line expenses in the application early last year, it became impossible for the commission — almost any public commission — to recognize the costs as a legitimate consumer burden. A hot air balloon race? Body lotion? Sports tickets? Rock and symphony concert tickets? Country club dues? Expensive whisky? Personal financial advice? Overdue phone bills? They had to be kidding! But they weren’t.

The commission disallowed most of the recovery for stock options and incentive pay, but it did allow a few on the theory that some incentives for high performance by executives benefited the ratepayers in some way. We would have said none. Incentive pay is for raising shareholder value, not for improving service, and investors should pay it. The PSC reduced the calculation for the company’s return on equity — the compensation for shareholders — from the 11.25 percent requested by Entergy to 9.9 percent. Most of us would consider that a healthy return.

The reduced rate will take effect this month. But if you’re an Entergy customer, you should not go out and spend your savings on crystal or new frocks. When you get your bills, they will be higher, not lower. The news accounts did not make that clear.

Utility rates are complicated and consist of several tiers. While customers’ base monthly rate will go down slightly to reflect a reduction in the company’s systemwide income of $5.7 million, customers starting this month will have to subsidize Entergy customers in Louisiana, Texas and Mississippi because the utilities down there have higher production costs than the generating plants — nuclear and coal-fired — that were built in Arkansas in the last 35 years.

They burn a lot of natural gas to generate electricity south of us, and gas prices have gone through the roof. So Louisiana asked the federal government to make Arkansas customers help them pay their bills. President Bush’s regulators agreed in 2005. That subsidy — roughly $250 million a year — starts this month. It will show up on your bills every month as an extra charge.

All that the commission could do in its rate order Friday was determine how the extra charge would be computed and divided among residential, industrial, commercial and wholesale customers. Arkansas has been providing a similar subsidy since the Grand Gulf case in the mid-1980s, where the regulators under President Ronald Reagan determined that Arkansas should help its neighbors bear the cost of building hugely expensive nuclear plants.

Two years ago, Louisiana argued and the feds agreed that the total production costs should be roughly equalized among Entergy customers in the four states.

Arkansas would have to pay if its production costs were more than 11 percent below the others. It now is because of the high gas costs in Louisiana and the sharply lower annual depreciation cost of Arkansas’ aging nuclear and coal plants.

The PSC somewhat lamely explained Friday that it was doing its best for Arkansas by appealing the Bush administration order to the federal appellate court in Washington. It promised that if it lost it would appeal to the U. S. Supreme Court. Should it ever win, you will get a refund of your monthly subsidies to people and industries on the Gulf coast. Don’t start spending that either.