Watch out consumers, rate creep on the way

Watch out consumers, rate creep on the way

April 10th, 2013 in Opinion Times

Before Gov. Bill Haslam and his super-majority Republican Legislature restructured the Tennessee Regulatory Authority to make it more "business friendly" - the mantra of the governor and GOP lawmakers - local governments and business groups like the Chattanooga Manufacturers Association were able to mount collaborative legal challenges against proposals for big rate increases by for-profit utilities. In fact, the practice became nearly routine for the rate-hikes proposed by the Tennessee-American Water Co. and the Chattanooga Gas Co., which frequently sought double-digit rate increases, sometimes above 20 percent.

As a result of legal challenges and the customary intervention of the state Attorney General's Consumer Advocate Division, such outlandish rate hikes usually got shaved to reasonably modest single-digit amounts. Sometimes they were rejected altogether by the Attorney General's office.

That isn't likely to happen very often any more.

Haslam's recent restructuring of the TRA leadership, along with a follow-on bill changing rate review rules that is now headed for his sign-off, will substantially change the rules, making it easier for utilities to pass along regular rate hikes through what the new TRA bill says are "alternative methods" for rate adjustments.

Among other things, for example, the bill would allow the TRA to approve so-called "trackers." These would let companies automatically pass on some costs, such as fuel price adjustments and similar market-based costs. Because for-profit utilities, generally monopolies, are legally allowed to make a reasonable profit, it's likely such adjustments would reflect an automatic profit margin.

That is surely one reason why state Attorney General Robert Cooper's office expressed concern about the bill before it flew through final votes in the state House and Senate. Given the history of excessive rate-increase requests, Cooper's concern remains legitimate.

In a memo from Cooper's office, the Attorney General noted that for-profit utilities had overstated their rate requests by as much as 60 percent over the past 10 years. If they begin to regularly use the "alternative methods" for pass-through cost increases as opposed to full-blown rate hikes and public hearings as in the past, they will be less likely to attract as much collaborative legal and municipal scrutiny, and thus more likely to opt for continual rate creep.

"What this does in our opinion is make it more likely that rates will increase for business and households," Assistant Attorney General Vance Broemel told a House panel last month. Obviously, not many lawmakers cared to pay much attention.

TRA officials, of course, pointed out that the bill providing regular rate adjustments by alternate methods will remain subject to a legal review and potential intervention by the attorney general's office. Maybe, but that does not change the looming potential for rate creep. Intervention is also less likely to occur because of political protocols: The attorney general's office would have to buck the TRA's own staff, which would have already worked hand-in-glove with a utility to consider an adjustment. Under the prior structure of the TRA - when it had three full-time independent commissioners whose job was to hear a legal court-style argument before making a ruling on a rate request - the odds for a reduced rate were greater.

Haslam assumed office with an agenda that included changing that dynamic to make it more "business friendly." After reshaping the TRA to install a single chief executive, he named a personal friend to that post. That doesn't raise our confidence that consumers will find a benefit in the changes at the TRA.