One Public Service Commission Puts Excessive Profits before People

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More than 5,000 Alabamians asked the PSC to lower their Alabama Power bills, but their requests were ignored.

Remember Paula Wood, the retired, single Alabamian struggling to pay her electric bills? While there has been some good news, things in Alabama aren't looking a whole lot better.

  • In early July the Public Service Commission (PSC) voted to lower the profit (return on equity) that Mobile Gas is allowed to earn from 13.45% to 10.95%.  While the decision is complicated, this will initially help save consumers like Paula money.
  • The rates for Mobile Gas customers will go down, but, there will be an increase to the annual cost adjustment, an increase in the equity cap, and, may be a new surcharge to be implemented in the future, the costs of which are still not known.

The Mobile Gas decision may have been a step in the right direction, but the PSC put excessive profits before people with this month's ruling on Alabama Power. 

Effectively, the PSC is playing a shell game with the profits of Alabama Power.  And, Alabamians will continue to pay the price.

  • The PSC shifted Alabama Power from a system that restricts the profit that the company is allowed to earn, called Return on Equity, to an unorthodox and unproven system called Weighted Equity.
  • No other state or utility in the U.S. uses the untested Weighted Equity formula, which may allow utilities to manipulate profit.
  • According to AARP's utility finance expert, Stephen Hill, using the Weighted Equity formula, Alabama Power will be allowed to earn 13-14% profit, or the same as the company is allowed to earn now.
  • Alabama Powers is allowed to continue earning the highest profit of any monopoly utility in the country, while Alabamians continue to pay some of the highest rates.

If the Public Service Commission lowered Alabama Power's return on equity to 10% - similar to the action they took with Mobile Gas - the typical Alabama Power customer's bill would go down by $100 a year.

More than 5,000 AARP members in Alabama contacted the PSC directly to urge the Commission to lower their electric bills.  This decision will do little, if anything, to help seniors like Paula who are struggling to pay their $300 a month electric bill or buy critical medicine and food,

Since nothing related to this decision by the PSC was discussed during the informal hearing process, it highlights the need for greater transparency in the ratemaking process through formal hearings.  AARP Alabama has called on the PSC to release its' calculations related to the Alabama Power decision and the use of Weighted Equity to the public, along with specifics about what Alabama Power customers will now pay for electricity.

The next company up for review by the PSC is Alabama Gas, with hearings September 5 thand 25 th, October 9 th, and November 13 th.  Until then, I'll be keeping a close eye on Alabama. Stay tuned on Twitter @RoamTheDomes or for news on the ground, @ALAARP.

For more on our multi-state utility campaign, sign up for the AARP Advocates e-newsletter, or visit your state web page.

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