It’s legal in some states
by Amy McCullough
Published: October 3,2010
Utilities make donations (more than $3 million the last three years) and then charge the cost back to customers
Entergy Mississippi and Mississippi Power Company have been reimbursed by customers for more than $3.1 million in charitable contributions to schools, colleges, civic organizations and businesses over the past three years, according to public records. These regulated public utilities plan to recoup even more in 2010.
Credit for donations to entities such as Boy & Girls Clubs, cities, museums, private and public schools and universities, neighborhood associations, Junior Auxiliary chapters, state agencies, chambers of commerce, theater and arts associations and more have gone to Entergy and Mississippi Power, when the majority of the tab was picked up by customers.
State law allows public utilities to recover charitable contributions that were made “in the public interest” in rate base, provided the donations are approved by the Mississippi Public Service Commission.
Many ratepayers are unaware that the Mississippi Public Service Commission, and its counterpart the Public Utilities Staff, allow utilities to donate ratepayer money.
Hollis Baugh, a retired state employee living in the Entergy service area, thinks the practice in concept is deceptive.
“If it is the practice for a utility to donate to a charity and then include the money that was donated in their next rate increase, then that is a very deceptive practice. And shame on the public utility regulators for allowing that practice to exist,” Baugh said.
Mississippi Power Company customer William Bova, a client services manager of a Gulfport law firm, called the practice “a form of taxation without representation” and said it was “obviously something that the state legislature needs to address.”
“Money could be given to a charitable organization that has different values than the ratepayer does, and they don’t even know that their money is going to fund something that they completely disagree with,” Bova said.
Quantifying the cost
If the price of electricity is approximately 10.5 cents per kilowatt hour, and an average household uses 1,000 kilowatt hours monthly, then an average monthly electric bill is around $105.
Using this calculation, over the past three years, Mississippi’s electric utilities have given away the equivalent of more than 29,500 monthly utility bills to charities of their choice with ratepayer money. This is also the equivalent of the annual electric bills of more than 2,400 people.
Deciding how to donate
Entergy Mississippi spokesperson Mara Hartmann said, “The big picture is we focus on three areas with our charitable contributions: Environmental, low income and education. More than a quarter of our customers — not only in Mississippi but Texas, Louisiana and Arkansas — live in poverty… Donations are designed to improve the lives of those customers, especially the elderly and disabled.”
Additionally, electric utilities build their businesses by attracting large industrial customers. An educated workforce plays a large role in attracting companies like Nissan and Toyota, she said.
“Some of those contributions are recoverable under the state statue or code. That does not come into play when are deciding what to contribute or how much to contribute. Some of the contributions we make are not recoverable, but that’s not something we think about when we donate. We look at how or whether it will help our low-income customers, help our environmental initiative or meet our objectives for helping out education in the state,” Hartmann said.
Mississippi Power Company spokesperson Cindy Duvall said, “We decline the opportunity to interview.”
Reimbursements can be denied
The Mississippi Public Utilities Staff annually reviews utility contributions and can “disallow” them from being passed into rate base. If the Staff does not allow a company to be reimbursed by ratepayers for a particular donation, that cost will be borne by company shareholders.
Contributions can be disallowed if they are political in nature, are not supported by adequate documentation or provide a benefit to the company.
In 2009, MPC tried to recoup nearly $128,000 the company was required to donate per a settlement with the Federal Energy Regulatory Commission (FERC). The Staff denied the request.
The FERC settlement required Mississippi Power, along with other Southern Company subsidiaries, to donate money to non-profit organizations “for the purpose of offsetting the electricity bills of low-income customers in their retail service areas.”
According to FERC, the settlement did not specify how the donations were to be funded.
Also in 2009, Entergy donated $250,000 to Jackson State University, which it tried to recoup from ratepayers. That request was denied.
Entergy Mississippi has pledged a total of $500,000 to JSU’s College of Science, Engineering and Technology, Hartmann said.
The law and the process
Mississippi Code § 77-3-79 states, “Reasonable charitable or civic contributions shall be allowed as cost of service not to exceed amounts established by regulations adopted by the commission.”
However, the Mississippi Public Service Commission has never established any rules that define the “amounts” referred to in state code.
Rule 22 of the Commission’s Rules of Practice and Procedure states: “Reasonable charitable or civic contributions shall be allowed as cost of service; however, the Commission shall not allow as cost of service for rate-making purposes any expenditures which it determines not to be reasonable, prudent or in the public interest. Due to the varied sizes and operations of the utilities regulated by the Commission, contributions will be studied individually to determine allowance as cost of service.”
There are no rules that define “public interest.”
Public service commissioners usually never see an itemized list of charitable contributions or disallowances. The Public Utilities Staff bundles together the utility contributions as well as other expenses to be paid by ratepayers and presents it to the Commission for approval as part of the company’s formulary rate plan (FRP).
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