Charlie Mitchell: Special status of utilities source of much consternation

February 6, 2013 10:56:33 AM



OXFORD -- The situation with Mississippi Power Company and its coal-fired plant under construction in Kemper County has a lot of people upset. Here why: We pick where to shop for clothes and food. We compare prices, at least to some degree, on other necessities such as gasoline for our cars. But we don't get to pick where we buy tap water or electricity. And, unless we have septic and propane tanks, we don't get to hunt for bargains on sewage service or natural gas or garbage collection. 


These services are public utilities. Things have changed in the world of phones as well as cable and satellite TV, but the state (or a municipality) issues certificates to private companies (or provides public utilities services itself) and no one else can sell the same service in an identified area. 


The utility companies send us bills. 


We pay or lose service. 


That's the first rub. Government-protected monopolies are at odds with capitalism. 


But because of the very nature of making and selling electricity as well as purifying and piping water, distributing natural gas and collecting waste, decisions were made long, long ago to compromise. 


In the name of efficiency, utility companies were given monopoly rights, but with a catch: Their rates must be approved by government. 


In Mississippi (except for muncipalities), this was formerly the exclusive role of three elected members of the Public Service Commission. But after a bribery-related dust-up, the Legislature mixed things up a bit. 


Today there is a bit more sunshine. There is a PSC staff of paid analysts and accountants who review and document rate information. The staff makes recommendations to the three elected officials, lessening the chance of backroom deals. 


At little more history and a little more legislation: 


In 1974, a consortium of Mississippi, Louisiana and Arkansas companies broke ground in Claiborne County. Eleven years and $3.5 billion later, Grand Gulf Nuclear Station began putting power on the grid. 


In the interim and for a while after 1985, there were legal struggles of epic proportions among the owners. Epic. 


Part of the reason the partnership splintered and bickered was that construction of the most expensive project in Mississippi history was taking place when interest rates were at all-time highs. Costs went through the roof. 


Back to the regulatory regimen. Private utilities, in addition to the requirement of having rates approved, are guaranteed, by law, to return a profit for owners. Long before New York banks were deemed to be too big to fail, it was decided that guaranteeing a fair return on investment for utility owners was good public policy. 


But under the rules, utilities, large or small, could not front-load capital expenses. Whether stringing wire, ditching for pipe or building plants, utilities had to pay those costs and recover them later, over time, from customers. 


For Grand Gulf, interest on construction loans added $1 billion, maybe $2 billion, to what customers have been paying. 


So in the run-up to the Kemper plant, expected to cost about $2.4 billion and enter service in May 2014, the Legislature was supplied with the idea of allowing companies in such situations to start collecting for the cost of electricity from a plant not yet built, to avoid so much borrowing. 


It makes fiscal sense. It's like a saving to buy a car and paying cash instead of driving off the lot and paying a car note for years. The former is cheaper than the latter. But ratepayers don't like it a bit, and their grief is the topic of at least one lawsuit claiming the Legislature's act was unconstitutional. 


Last week, in a 2-1 vote by the elected public service commissioners, yet another compromise deal was reached. A partial win for the consumers; a partial win for Mississippi Power. 


Interestingly, now that nearly 30 years have passed and Grand Gulf -- once called "Grand Goof" has recently been declared not only a cost-effective for the owners, but "wise" for consumers. 


Whether that will be true down the road for the Kemper plant remains iffy. That's understandable. It's healthy for people to be hostile to monopolies and to be suspicious of government officials whose jobs requires them to both keep their utility rates in check as well as guarantee the owners' profits. 


It's a strange alignment, a source of serious consternation, but one that, over time, has worked about as well as could be expected.