On December 10, the Alabama Public Service Commission (PSC) conducted an “informal public hearing” regarding Alabama Power’s capital expenditures for environmental compliance. The three-and-a-half hour hearing effectively demonstrated Alabama’s systemic failure to appropriately safeguard ratepayers. Meanwhile, the Alabama Coal Association was busy distracting the public from this important non-hearing by blaming groups like ours for their market failures.
While compliance options could include retiring coal plants and replacing them with other sources like gas, wind, solar, or efficiency, Alabama Power chooses its preferred option behind closed doors – in this case, spending over $1 billion on retrofitting coal plants – and plugs the cost into an arcane formula called Rate CNP (for “Certified New Plant”) that adds it to consumer rates.
Like Rate RSE, the basic rate formula that was rejiggered earlier this year to great fanfare and little benefit for customers, Rate CNP is just one of the many formulas that keeps customers in the dark and paying some of the highest bills in the country while Alabama Power makes an extraordinarily high profit.
Alabama Power makes more than 13% profit on its spending, including the capital expenditures for environmental compliance discussed at the PSC on Tuesday – 40% higher than the national average of 10%. The more it spends, the more it makes. How can we be assured that its spending is prudent without public disclosure?
The bulk of the meeting consisted of public education about the various public health safeguards Alabama Power must abide by, followed by a unit-by-unit explanation of technology to be installed on each coal-fired boiler, complete with time-lapse photography of construction in progress, and wrapped up by enumerating the costs of the upgrades.
Alabama Power staff spent nearly three hours on an exhaustive engineering review apparently designed to assure the naïve that Alabama Power is capable of making big important decisions for itself. However, nobody questions the competence of Alabama Power’s engineers. That time could have been better spent reviewing the economic analysis of options for environmental compliance, or better yet, a discussion of how energy efficiency, solar energy, and wind energy could cost-effectively offset the need to keep coal-fired plants running.
About 45 minutes remained for questions from the public – questions for which answers like “we don’t have that information” or “that’s propriety business information” swiftly ended any discussion.
For example, I asked how much of the coal burned at Alabama Power’s plants was expected to come from Alabama. Answer: We don’t have that information. That seems surprising, given that historical data is readily available: it’s only about 24%. Perhaps Alabama Power didn’t want to discuss that in front of the attending United Mineworkers, whose industry is using environmentalists as a scapegoat for its decline and blaming us for job loss that is really a result of industry shifts.
I also pointed out that the average age of the generating units under discussion was 52 years, and that the oldest coal-fired generator currently operating is about 73. What assumptions were made about the cost to continue operating these plants into the future, given that no one knows the cost to operate a plant beyond a certain age?
That, we were told, was factored into Alabama Power’s economic analysis, which is proprietary business information. Unlike Georgia’s review process, there is no way for public interest groups like SACE to review such information, even under a legal agreement not to share trade secrets.
John Free, Director of the Electricity Policy Division at the PSC, did ask the Alabama Power staff some questions about whether plant retirement was considered as an option, and they said it was not found to be the best option for providing reliable service. While we appreciate Mr. Free reflecting some of the issues we raised, we are unsatisfied with the answers.
To her credit, Assistant Attorney General Olivia Martin asked astute questions about whether ratepayers would pay interest on deferred capital expenditure recovery (“no”), and how active Alabama Power and parent Southern Company are in supreme court action around public health protections (“we participate as appropriate to achieve a fair and reasonable result for the customers”).
Aside from needing more transparency of Alabama Power’s economic analysis, we’re concerned that some very important issues remain outside the scope of the PSC’s review process. These issues include the ways water quality and availability affects the ability of plants to operate – a major concern highlighted in a recent Union of Concerned Scientists report on Water-Smart Power – and how air pollution captured in retrofit technologies adds additional toxics to coal ash stored in unlined ponds near Alabama’s precious waterways.
Coming out of this informal hearing, we remain concerned that Alabama needs a formal review of its rate-setting process to ensure full transparency and accountability for Alabama Power’s spending decisions. We will continue to advocate for utility planning that’s accountable to Alabamians as we head into 2014.
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