February 26, 2015 Read More →

How the Alabama Public Service Commission Keeps Its Ratepayer Public in the Dark

The Alabama Public Service Commission is a laggard both regionally and nationally in its outdated insistence on conducting the rate-paying public’s business in private.

The commission’s secrecy is especially notable in how it shields its integrated resource plan analyses, or IRPs, from public view, as we document in detail in a report we published today (“Left in the Dark: How the Alabama Public Service Commission Makes Customers Pay Billions of Dollars for Alabama Power Investments without Any Meaningful Public Review or Involvement.”) We prepared the report for the Southern Environmental Law Center, the Southern Alliance for Clean Energy, and GASP, all of which have been denied access to documents detailing the utility’s resource planning.

Utility companies across the U.S. conduct IRPs to determine the optimal mix of supply-side (generation) and demand-side (energy efficiency and conservation) investments in energy production and consumption. These analyses are used to plan energy decisions decades into the future and are typically reviewed every few years. An IRP is meant to provide an advance perspective as to what a utility believes its future needs are likely to be. It’s an approach that gives outside parties a chance to identify more cost-effective alternatives that the company may not have considered.

In many states, including a majority of those in the South, these IRP analyses and other utility resource decisions are typically reviewed in public regulatory processes that offer business and residential customers access to critical information, as well as an opportunity to participate in evidentiary hearings or to submit detailed comments before IRPs are approved.

Alabama is the exception.

The Alabama PSC “regulates” Alabama Power Company’s IRP and its related resource-planning decisions without allowing the company’s customers any meaningful opportunity to participate or even see what’s going on.

Some examples:

  • Through an opaque, mostly hidden-from-the-public process, the PSC has allowed Alabama Power to invest over $3 billion in environmental upgrades at its existing coal-burning power plants in just the past 10 years.
  • It has approved an additional $722 million of upgrades planned for the next four years without the open public evidentiary hearings that are conducted by the regulatory commissions in other states.
  • Even though they have not been permitted to participate, Alabama Power’s customers have already paid over $2.6 billion in higher rates due to its environmental plant upgrades, and will continue to pay billions more during coming decades.

Alabama Power has been allowed to make these investments without any public demonstration of how these expenditures are the least expensive options for its customers. The only opportunity—and it’s a minimal one—that customers have to question the company’s IRPs is through a brief and perfunctory annual off-the-record meeting. In 2014, the PSC cut off public questioning of Alabama Power after only 25 minutes.

The company profits from making expensive upgrades, even at power plants that are aging and/or that don’t generate much electricity. That’s because Alabama Power has been allowed to put the cost of these expensive investments into its rate base, saddling customers with the expenses and ensuring that Alabama Power gets a return on its investment for decades to come. The larger the company’s total rate base, the higher its profits.

This is especially true in Alabama, where without any formal public evidentiary hearings, the PSC allows Alabama Power Company to earn an extraordinarily high return on the investments in rate base. (see our March 2013 report “Public Regulation Without the Public”). Schlissel Alabama 022615 Minus a full and transparent regulatory process in Alabama, Alabama Power’s customers cannot know whether the company is making resource decisions based on the long-term needs of its ratepayers or whether it is simply maximizing profits of its sole owner, Atlanta-based Southern Company.

There is good reason to question whether the upgrades Alabama Power has made at its existing coal-fired power plants represent the lowest cost options for its ratepayers. Some of the plants are old, some have been running at low capacity, and many—even perhaps all of them—have become less economical to operate as a result of competition from cheap natural gas.

While Alabama Power has been spending billions of dollars on extending the lives of its existing coal-fired units, its unregulated merchant affiliate, Southern Power, does not own any coal-fired capacity. Instead, Southern Power has added new natural gas-fired plants to take advantage of low natural gas prices to produce significant profits, while not exposing Southern Company and its shareholders to the same coal-fired power plant-related risks that borne by Alabama Power’s customers.

It is high time for the Alabama PSC to replace its hidden-from-the-public regulation of Alabama Power and embrace true transparency and full public participation in the company’s resource planning processes. These reforms would ensure that Alabama Power is properly considering all viable supply-side and demand-side options in its resource planning analyses and would replace public doubt with public confidence that the company is managing its system in the public interest.

David Schlissel is IEEFA’s director of resource planning analysis.