How Much Will SB 4 Raise Your Utility Bills?

While there is agreement that SB 4 will lead to higher utility bills, many different numbers have been thrown around about how much SB 4 will increase your utility bills without explaining how the estimates are figured. ACT4MO has done a detailed analysis of SB 4, and what follows is as fair and conservative an estimate of SB 4’s potential rate increases as possible.

We found that the maximum percentage increase would be a 20.692% increase. With the average utility expense for Missouri residents at around $606 per month, a 20% rate increase would be $121.20 monthly or $1454.40 yearly. Again, this would be the maximum amount directly attributed to this legislation. Most likely, not all your utilities will reach the maximum amount, but you can bet that they will try to get as close to the maximum amount available. This amount also doesn’t include rate increases for other reasons.

How did we get to that percentage?

The potential 20% rate increase in utility bills is not explicitly calculated within the bill’s text but rather an estimated upper limit derived from the cumulative impact of multiple provisions that allow utilities to pass additional costs onto consumers. While the bill itself does not provide a specific formula totaling 20%, this figure stems from an analysis or projection of how these provisions could collectively drive up rates under certain scenarios. Below, I’ll detail the key provisions contributing to this potential increase and explain how they could lead to a 20% figure.

Key Provisions Contributing to the Potential Rate Increase

SB4 introduces several mechanisms that could raise utility rates by increasing the costs utilities can recover from consumers. Some provisions have explicit percentage increases, while others are more variable, depending on how utilities implement them. Here’s a breakdown of the major components:

1. Increased Public Service Commission (PSC) Assessment (Section 386.370)
   • What It Does: The maximum assessment utilities pay to fund the PSC increases from 0.315% to 0.45% of their gross intrastate operating revenues.
   • Impact on Rates: This is a direct cost increase of 0.135% (0.45% – 0.315%). If utilities pass this entire cost to consumers, it would raise rates by approximately 0.135%.
2. New Assessment for the Office of the Public Counsel (Section 386.720)
   • What It Does: Starting in fiscal year 2026, a new assessment of up to 0.057% of gross intrastate operating revenues is imposed to fund the Office of the Public Counsel.
   • Impact on Rates: If passed to consumers, this adds another 0.057% to utility rates.
   • Combined Assessment Impact: Together, these assessments total 0.192% (0.135% + 0.057%).
3. Securitized Utility Tariff Bonds (Section 393.1400)
   • What It Does: Utilities can issue bonds to recover costs for infrastructure upgrades or energy transition projects (e.g., retiring coal plants), with repayment costs added to consumer bills as “securitized utility tariff charges.”
   • Impact on Rates: The increase depends on the project size and financing terms. For example, if a utility with $1 billion in annual revenues issues bonds for a $100 million project at a 5% annual financing cost, this adds $5 million to consumer bills, or a 0.5% rate increase ($5 million / $1 billion). Larger projects could amplify this effect significantly.
4. Construction Work in Progress (CWIP) in Rate Base (Section 393.1900)
   • What It Does: Utilities can include costs of ongoing construction projects in the rate base before the projects are completed, allowing them to charge consumers earlier.
   • Impact on Rates: If a utility has $200 million in CWIP and includes 10% of it annually in the rate base, this adds $20 million to rates. For a utility with $1 billion in revenues, that’s a 2% increase ($20 million / $1 billion). Larger projects or higher inclusion rates could push this higher.
5. Future Test Rate Modeling (Sections 393.130, 393.135, and 393.1900)
   • What It Does: Utilities can set rates based on projected future costs, such as inflation, fuel prices, or construction expenses, rather than just historical costs.
   • Impact on Rates: If a utility projects a 5% cost increase due to these factors, it could raise rates by 5%. If projections are overly optimistic, the increase could be even higher, potentially leading to consumer overpayment.
6. Flexible Rate-Setting Processes (Sections 393.130 and 393.135)
   • What It Does: Utilities gain more flexibility to adjust rates, and the PSC’s ability to suspend rate changes is modified, potentially reducing regulatory oversight.
   • Impact on Rates: This could enable larger or more frequent rate increases. For instance, a utility might propose an additional 5% hike that faces less scrutiny, but the exact impact varies by implementation.
7. Higher Penalties for Natural Gas Safety Violations (Section 386.572)
   • What It Does: Penalties for safety violations are aligned with federal standards, which may increase fines.
   • Impact on Rates: If utilities pass these costs to consumers, rates could rise, though the summary doesn’t quantify the increase, making it a smaller, less predictable factor.
8. Sewer District Costs (Sections 204.300 and 204.610)
   • What It Does: Sewer district trustees can receive fees and expense reimbursements, adding to operational costs.
   • Impact on Rates: These costs could be passed to ratepayers, but the effect is likely minor and specific to sewer districts.

How These Provisions Could Reach 20%

While the direct increases from assessments are small (0.192%), the provisions involving securitized bonds, CWIP, and future test rate modeling have the potential for much larger impacts because they involve significant capital expenditures and projections. The 20% figure is not a precise calculation from the bill but an estimate of the cumulative effect if utilities fully utilize these cost-recovery tools. Here’s a hypothetical scenario to illustrate how it could happen:

• Assessments: 0.192% from the PSC and Office of the Public Counsel increases.
• Securitized Bonds: A utility issues bonds for a $500 million project with a 5% annual financing cost, adding $25 million to rates (2.5% for a $1 billion revenue utility).
• CWIP: The utility includes $300 million in CWIP at 10% annually, adding $30 million to rates (3%).
• Future Test Rate Modeling: A projected 10% cost increase (e.g., due to inflation or fuel costs) leads to a 10% rate hike.
• Flexible Rate-Setting: The utility uses its new flexibility to add another 5% with limited PSC pushback.

Total: 0.192% + 2.5% + 3% + 10% + 5% = 20.692%.

This example assumes a utility with $1 billion in annual revenues and aggressive use of the bill’s provisions. While not every utility would see increases this large, the scenario shows how 20% could be plausible under specific conditions, such as major infrastructure projects or high cost projections.

Why 20% is an Estimate, Not a Guarantee

The 20% figure likely represents a worst-case scenario or an upper limit based on the full implementation of these provisions. Factors supporting this interpretation include:

• Variable Implementation: Not all utilities will maximize every provision. Some may issue fewer bonds or include less CWIP, resulting in smaller increases.
• Regulatory Oversight: The PSC may mitigate some rate hikes, though the flexible rate-setting processes could limit this.
• Project Scale: The impact depends on the size of utility projects and how costs are financed or projected.

Thus, 20% reflects a potential maximum, not an across-the-board or immediate increase. Again, it is reasonable to assume that they will try to get as close to the maximum as possible. It is also worth noting that these projections don’t include any rate increase requests already being considered or may be requested for reasons not related to this legislation.

Conclusion

The potential 20% rate increase comes from the combined effect of multiple provisions in SS2 for SB4 that allow utilities to recover costs from consumers, including small, explicit increases (e.g., 0.192% from assessments) and larger, variable increases from securitized bonds, CWIP, and future test rate modeling. While the bill doesn’t provide a specific calculation, this estimate likely arises from an analysis of how these measures could cumulatively raise rates—potentially reaching 20% in scenarios where utilities fully leverage them for significant projects or cost projections. For consumers, this highlights the bill’s capacity to significantly elevate utility costs, with 20% representing an upper-end possibility rather than a universal outcome.

Disclaimer:

The information provided in this article is based on a detailed analysis of Senate Bill 4 (SB 4) and offers an estimate of its potential impact on utility bills. The estimated maximum percentage increase of 20.692% is derived from an interpretation of the bill’s provisions and assumes a scenario where utilities fully utilize the cost-recovery mechanisms permitted by SB 4. This figure represents a potential upper limit, not a guaranteed or immediate increase. Actual increases may be lower, depending on how utilities implement these provisions and the oversight exercised by regulatory bodies such as the Public Service Commission (PSC).

For illustrative purposes, the article uses an average utility expense of $606 per month to demonstrate a potential increase of $121.20 monthly or $1,454.40 yearly. This example is intended to provide context and may not reflect individual circumstances. Furthermore, this analysis focuses solely on the potential effects of SB 4 and does not account for other factors that may influence utility rates, such as existing rate increase requests, future proposals unrelated to this legislation, or other legislative changes.

While ACT4MO strives to present a fair and conservative estimate, the actual impact on utility bills will vary based on utility-specific implementations, the scale of projects financed through mechanisms like securitized bonds or construction work in progress (CWIP), and regulatory decisions. Readers should interpret the 20.692% figure as a maximum potential increase under specific conditions rather than a universal outcome.