News

2/25/2009

POSITION PAPER OF CITIZENS ELECTRIC CORPORATION

February 2009

HISTORY

Citizens Electric Corporation (CEC) was originally organized in 1941 under Chapter 394 of the Revised Statutes of Missouri as Genevieve Electric Cooperative. In 1945, Genevieve Electric Cooperative acquired the property of the financially distressed Missouri General Utilities Company which served the counties of Perry, Ste. Genevieve and Cape Girardeau. Chapter 394 prohibits rural electric cooperatives from serving any municipality with a population exceeding 1,500. As Genevieve Electric Cooperative would now be serving the cities of Ste. Genevieve and Perryville, each having a population of over 1,500, a change in organizational structure was required under state law. As a result, CEC was incorporated in 1947 and became subject to full regulation by the Missouri Public Service Commission (PSC) under Chapter393 of the Revised Statutes of Missouri. All assets and property were transferred to this new entity in May of 1948. CEC, under reorganization, continued to carry out the original purpose of Genevieve Electric Cooperative - that is, to furnish electricity to its member/owners on a non-profit basis. Because it was structured as a not-for-profit rural electric corporation, the entity was eligible to borrow money from the Rural Electrification Administration (now known as the Rural Utilities Service) to extend electric service to non-served rural areas.

Prior to 2003, CEC was the only member-owned, not-for-profit electric utility in the state subject to full PSC jurisdiction. The annual fee for PSC regulation was $90,000, and the cost for CEC's 2002 rate case before the PSC was over $225,000. In addition, it takes 10 months to work through a PSC rate increase/decrease proceeding. This duplicative and lengthy process hampered CEC's ability to buy power in the unregulated wholesale market, thus adding to the cost of serving our member/owners. That regulatory barrier was significant because the cost of the wholesale power we purchased (we did not own generation at that time) was 75% of the retail cost of electricity.

In 2003, CEC was successfully removed from PSC rate jurisdiction via House Bill #208 sponsored by then-Representative Kevin Engler and former Representative Rod Jetton. CEC sought this legislation in order to reduce its overhead costs and be treated like every other not-for-profit electric utility in the state of Missouri with local regulatory oversight. CEC has continued to be PSC-regulated with respect to safety and reliability.

RECENT DEVELOPMENTS

Some have suggested that CEC's rates have increased since 2003 because its rates are no longer regulated by the PSC. This is simply not the case. As the 2008 House Interim Committee on Electric Service Territories and Economic Development stated in its January 2009 report, "It is unlikely that the removal of Citizens Electric from PSC jurisdiction in 2003 had any impact on the pricing of electricity. Citizens Electric does not have unreasonable electricity rates given its current costs of production."

Prior to the expiration of its last power supply contract with Ameren on 12/31/06, CEC conducted a thorough analysis of all viable power supply alternatives. Unfortunately, the cost of wholesale power had increased dramatically since 2003 due to federal deregulation of the wholesale power market, higher transmission costs, and increased fuel prices. CEC's Board of Directors selected Wabash Valley Power Association (WVPA), a not-for-profit generation and transmission cooperative, as its power supplier effective 1/1/07. While WVPA rates are higher than those contained in its last Ameren contract, CEC strongly believes that WVPA offered then and continues to offer CEC the lowest and most stable rates over the long term by giving it the opportunity to invest in generation for the first time.

CONCLUSION

Placing CEC back under PSC rate jurisdiction will not prevent CEC's rates from increasing. Eighty percent (80%) of CEC's costs are related solely to power supply. As a not-for-profit entity, CEC must collect a dollar for every dollar it spends. PSC rate jurisdiction comes at a cost. In 2003, the cost of being regulated by the PSC was $90,000. The cost of CEC's 2002 rate case before the PSC was $225,000. Today's cost for this regulation is estimated to be $500,000 a year, which consists of annual fees, annual rate case filing expenses, consultants' fees and attorneys' fees. These additional regulatory costs would have to be incorporated into CEC's current rates.

Currently, there are 40 electrical distribution cooperatives and 88 municipal electric utilities operating successfully without PSC rate jurisdiction. It is also very important to note that CEC is subject to Federal review and oversight through the USDA/Rural Utilities Service and is fully regulated by a local elected board of directors who are member/owners of the utility. Our objective is to provide safe and reliable electricity at the lowest possible cost.

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