Regulators to re-examine formula for power profits

By Jeff Amy/The Associated Press

JACKSON — The Mississippi Public Service Commission is questioning whether the state’s two privately-owned electrical utilities should make lower profits because their borrowing costs have gone down.

The PSC voted 3-0 Tuesday to open inquiries into the profit margins allowed to Entergy Mississippi and Mississippi Power Co. Because of how the inquiry is structured, no rate changes would directly result. Instead, commissioners would have to later open separate rate cases if they wanted to change how much customers pay.

Because both companies are regulated monopolies, the state allows them to collect a certain return on equity. The formulas calculating that return are supposed to factor in the idea that people could take their money and park it in a bank for less risk. Thus they should get a higher return for investing in an electrical utility.

PSC staff attorney Shawn Shurden said the commission would investigate whether the formulas used to calculate rate of return are still relevant and functioning as intended.

Northern District Commissioner Brandon Presley, a Democrat, has been pushing the idea that the PSC should force the companies to lower rates because interest costs are at historic lows.

“If interest rates were up as much as they are down, the companies would be in here asking for a rate increase,” Presley said. “We’re elected to ask these tough questions of ‘Should they come down?’”

The other two commissioners have been less aggressive in their comments.

“My main priority is that the ratepayers are and remain protected,” said Central District Commissioner Lynn Posey, a Republican. “The commission has ordered this study to ensure the proper calculations are being done for the best interest of the ratepayer.”

Neither Entergy Mississippi nor Mississippi Power appears to be substantially more profitable than their corporate siblings.

Entergy Mississippi had a profit of $108 million in 2011 on revenue of $1.27 billion. That’s an 8.6 percent profit margin. Entergy’s two largest Louisiana utilities have had higher profit margins over the last three years, while the New Orleans and Texas units have had lower profit margins. The company’s Arkansas unit was more profitable in 2010 but less profitable in 2011 and 2009.

Mississippi Power posted a profit of $95.9 million in 2011 on revenue of $1.11 billion. That’s also an 8.6 percent profit margin. Southern Co.’s Alabama and Georgia units had profit margins almost 50 percent higher than Mississippi Power over the last three years. The Gulf Power Co. unit in Florida had higher margins in 2009 and 2010 but a lower margin in 2011.

Entergy said it believes the current formula is fair but will cooperate. The Mississippi unit of New Orleans-based Entergy Corp. has more than 435,000 customers in 45 counties in the western half of the state.

“We feel our formula is appropriate,” spokeswoman Mara Hartmann said. “We have some of the lowest rates in the nation.”

Mississippi Power, which has 185,000 customers in 24 counties from Meridian to the Gulf Coast, said it believes an inquiry will call for no changes.

“We think it’s an opportunity for us to show that we work to keep costs low for our customers,” Mississippi Power spokesman Jeff Shepard said.