Critics say PSC let rate hike sneak into pact

By MARK BALLARD

Capitol news bureau

A consumer advocate said Friday all the focus on the $95 refund from Entergy diverted attention from another part of the settlement: The sentence that changes the way utility rates traditionally have been calculated.

Called the Formula Rate Plan, or FRP, the new system will mean higher utility bills, said Sallie Davis of the Alliance for Affordable Energy. The New Orleans-based group represents small commercial and residential utility users.

Hers is a position that nobody on the five-member Public Service Commission disputes, even the proponents of what is called the global settlement.

The PSC, which regulates utility rates in the state, voted 3-2 on March 23 to settle a dozen possible lawsuits with Entergy in return for a $95.5 million refund. For the 324,000 customers of Entergy Gulf States Inc., the subsidiary providing electricity from Baton Rouge to Lake Charles, that works out to about $95 for the average user.

Point 4 in the inch-thick stack of settlement papers -- between the paragraphs that address how much each consumer is going to get -- is a simple sentence that states the PSC "will approve a Formula Rate Plan." Readers are then referred to the back for an 8-page discussion of just what that sentence means.

definitely seemed to work because a lot of people thought, 'Wow! Isn't this great! We're getting $95 million.'

"I wonder if they would have liked it so much if they knew that they're going to get dramatically increased rates. And guess what? You have no recourse. With this Formula Rate Plan, the PSC has abrogated its own ability, its constitutional duty to set rates," Davis said. Her group might file a lawsuit to block the global settlement, arguing that the PSC did not follow its own procedures in preparing and approving this and other parts of the global settlement, she said.

Commissioner Jimmy Field of Baton Rouge, whose district stretches west from the Capitol City to Lafayette, opposed the global settlement but generally supports establishing a Formula Rate Plan. Still, Field said, he was disappointed that the FRP was approved with as little scrutiny as it received.

"The rates are going to go up, probably sooner rather than later," Field said. "Usually there is a thorough examination of what goes into making the rates before a commission sets an FRP. There was none of that here."

The Formula Rate Plan is basically an accounting mechanism that takes into consideration the utility's operating expenses, investments and other financial variables. Entergy Gulf States will be allowed to earn a 10.65 percent return on equity, which measures the corporation's profitability.

Basically, Entergy's numbers will be plugged into the 20-step calculation and out the end will come the amount consumers will have to pay for electricity the next year.

The PSC agreed to start setting utility rates by using an FRP instead of its traditional practice of reviewing Entergy's financial data, deciding what expenses should be passed on to customers and which should be paid by the company, then setting the rate.

Changing to the FRP system is one of Entergy's goals, according to the company's report to shareholders.

"I have a hard time believing that the rates are going to be way out of whack now," said Commissioner Jay Blossman of Mandeville. He voted for the global settlement.

"And if they are, then the FRP will catch it. If Entergy is earning too much, then there will be a refund. If they are under-earning, then rates will go up. That's the way it goes," Blossman said.

Some form of a formula rate plan is used to determine what consumers of 15 utilities in 14 states pay. CLECO Power LLC, which covers much of central Louisiana, uses a form of the plan, as does Entergy's subsidiary in Mississippi.

"It's fair. It's predictable. It's best for everyone," said Entergy's economic consultant, Bruce M. Louiselle of McLean, Va.

"Opponents of the FRP have many misconceptions about the way it works," said Matthew Kahal of Columbia, Md., who is a consultant for the PSC staff. The plan allows the PSC to better monitor whether the rates are at an appropriate level, he said.

Though the rates may change dramatically when FRP is used for the first time, after that, the price of electricity should stabilize with only modest increases or decreases from year to year, Kahal said.

"It smoothes out the process; makes everything more predictable," Kahal said