The six candidates for utility regulator representing the Baton Rouge and Lafayette region said in separate interviews that they are open to consider lowering the profit guaranteed to electric companies.
All the candidates for the Louisiana Public Service Commission agreed that the guaranteed profit margin, called “return on equity” or ROE should not be unilaterally lowered. But they said changes in financial markets necessitates investigation.
Four Republicans, one Democrat and one person running without party affiliation are vying to replace retiring PSC Commissioner Jimmy Field, of Baton Rouge. The election is set for Nov. 6. A runoff between the top two vote-getters, if no candidate receives more than 50 percent of the vote, is scheduled Dec. 8.
“The people have a right to know if ... they will push a full-fledged investigation on ROE,” said PSC Chairman Foster Campbell, of Bossier City. “There can’t be a bigger issue for the regulator of a monopoly to determine if the profit is too high.”
Nationally, investor-owned utility companies make an average 10.66 percent ROE, Campbell said. Louisiana’s average is 10.65 percent. Dropping the ROE by 2 percent would save the typical residential customer in Louisiana about $50 a year, Campbell said.
Campbell argues that prime interest rate is 3.25 percent, which is several points lower than when the profit margin was set about half decade ago.
Campbell’s four PSC colleagues say the analysis should be part of periodic review of costs that leads to setting the rates. For some Entergy companies in Louisiana that review is scheduled to begin in January.
Asked for their positions on the “return on equity” issue, the six candidates answered:
- Scott A. Angelle, R-Breaux Bridge, said the guaranteed profit rate should be competitive and should help the privately owned companies take advantage of opportunities that could keep monthly bills lower.
“But it needs to be fair,” said Angelle, 50, the former secretary of state Department of Natural Resources. “I’d want to be active in those discussions.”
- Greg Gaubert, No Party-Thibodaux, said prices and costs are changing faster these days, and rates should be studied and, if warranted, reset every year.
“I’m for lowering rates,” said Gaubert, a 48-year-old innkeeper. “The rates should reflect reality and not be a reward for the (shareholders) of the utility company.”
- Sarah Holliday, R-Baton Rouge, said the PSC should look at the various factors before making a decision.
“Everything needs to be looked at,” said the 49-year-old activist. “I need more information on how they derive the figure ... But I will be fair and balanced.”
- Erich Ponti, R-Baton Rouge, said the ROE should reflect that the private utility companies do not have competition. But utility company investments in infrastructure and efficiencies are directly linked to reducing customer bills, he said.
“The primary function of the PSC is that regulated utilities provide reliable and at fair rates,” said the 47-year-old general contractor and state representative.
- Ed Roy, R-Lafayette, said the PSC should carefully review the financial elements that go into setting rates of return.
“I don’t think you can look at a set percentage and say this is too low or too high, without doing the investigation,” said 63-year-old businessman and former television weatherman.
- Forest Wright, D-New Orleans, said a review of the authorized profit margin is necessary. He once worked for the Alliance for Affordable Energy, a consumer group in New Orleans. Though no law precludes someone living outside the district from serving as a commissioner, Wright said he is moving to Baton Rouge.
“We definitely should look at the utility companies’ return on equity,” said the 35-year-old utility regulatory consultant who regularly attends PSC hearings. “There have been changes in our economy, lower costs of capital, for instance, that for fairness sake should be reviewed.”
Utility companies generally charge the customers the costs of making and transmitting electricity, plus a guaranteed profit. Utilities in Louisiana also are allowed to collect the cost of fuel to run the electricity generators, along with riders to repay expenses, such as repairing storm damage, but an ROE is not added to these monthly charges.
Bill Mohl, chief executive officer of the two Entergy Corp. subsidiaries that service about 1 million customers in Louisiana, argues that over the next 20 years, utilities are going to need to triple their investment to keep up with increasing demand for power. A profit margin that is out of whack with those authorized by other states translates into higher financing costs, he said.
“The Current ROE’s for Louisiana’s electric utilities are reasonable when compared with similarly situated utilities in the region,” Mohl said.
The newly redrawn 2nd PSC district stretches from northern parts of Livingston Parish; includes south Baton Rouge and Central; the Felicianas; much of West Baton and Iberville parishes south to the Gulf Coast to include the “Bayou Communities” in Lafourche, Terrebonne and St. Mary parishes; and west into parts of the Acadiana parishes of Lafayette, Iberia and St. Martin.