AARP Eye Center
This letter was sent to members of the Alabama Public Service Commission this week in response to their change in the way Alabama Power's profits are calculated.
August 19, 2013
Twinkle Andress Cavanaugh, President
Jeremy Oden, Commissioner
Terry Dunn, Commissioner
Alabama Public Service Commission 100 N. Union St., Suite 800
Montgomery, Alabama 36104
RE: Alabama Power Company, Docket Nos. 18117 and 18416
Dear President Cavanaugh, Commissioner Oden and Commissioner Dunn:
AARP is disappointed in the lack of transparency in the adoption of a new rate plan for Alabama Power Company. It is unclear whether the proposed plan provides meaningful and deserved rate relief for Alabama families. We request your detailed calculations of the new electric rates so we can validate any actual relief to seniors and other consumers. We request a written explanation of the exact changes made by the recent decision. The public deserved to know if they will indeed receive any savings based on your decision, and if so, how much.
Press accounts have quoted Commissioner Cavanaugh as saying that consumers could save $30 -$110 annually, depending on power usage and other factors. Commissioner Oden’s figures differed with less projected savings.
Based on the information released by the PSC, such savings appear highly improbable, and no calculations explaining such statements have been made public.
- We call on the PSC to publicly release the worksheets used to make those calculations.
- Will the kWh rate of Alabama Power be reduced by this decision, and if so, by how much per kWh for each customer class?
- If not, how will savings be passed on to customers?
- Is the purported range of $30-$110 for all customer classes, or for the residential class only?
The Energy Information Administration reports that the average monthly electricity usage by residential customers in Alabama is 1,284 kWh per month.
- Please provide the projected Alabama Power bill for an average usage residential household at the new electric rates, and as compared to current electric rates.
Based on comments at the Commission’s open meeting in August and the agenda document distributed at that meeting, is appears the Commission’s decision applied Mobile Gas’ allowed common equity ratio of 56 percent to Alabama Power.
- Is this a correct understanding? If not, please describe the common equity ratio used.
According to AARP’s expert witness Steve Hill, Alabama Power’s current capital structure (common equity ratio of 44 percent) applied to the weighted equity return approved by the Commission would allow a cost of equity range of 13.07 to 14.11 percent, not 10.27 to 11.09 percent as was claimed.
Please explain this discrepancy.
News reports over the past week indicate that the approved plan was privately discussed with Commission staff, Alabama Power and the Attorney General’s office prior to the vote.
- Is this report accurate?
- If so, how can the Commission claim that new rates were set in a transparent process?
This closed door meeting is particularly disturbing because the adopted plan utilizes a methodology that is not used anywhere else in the United States and which may run afoul of established legal precedent mandating that regulated utility rates be determined using depreciated original cost, or book values. The unusual “ATWACC method” suggested by Alabama Power, and which appears to be the basis of your decision, mixes market values (fair value) and book value, resulting in an RSE that is even harder to understand and even less transparent that the current RSE.
By allowing a “weighted cost of equity,” it appears the utility company will be able to set its own profit at will by changing its common equity ratio. In other words, every time it changes its common equity ratio, its ROE or profit changes, so the Commission is not setting a firm rate of profit by using the weighted cost of equity as a basis for ratemaking. If the Commission disagrees with this view, please show how the Commission’s order has prevented such manipulation of profits. This methodology is radically different than that adopted for Mobile Gas Company. Please explain why the two companies were treated differently.
In sum, AARP is disappointed that the Commission adopted an untried methodology to guarantee Alabama Power profits, and we are even more so disappointed that negotiations were held behind closed doors, without consumer involvement. AARP’s proposal, consistent with the Mobile Gas case, would have saved residential customers nearly $100 per year, on average.
AARP requests the answers to its questions in writing, so we may share them with our members, thousands of whom shared their concerns with you during the informal hearings.
AARP also requests a meeting with each of you and the Commission staff, at your earliest convenience, to discuss our concerns and questions. As always, AARP puts Alabama ratepayers first, and we are not convinced that the recent vote on the Alabama Power’s RSE does the same.
cc: Judge John Garner, Chief Administrative Law Judge
Walter L. Thomas, Secretary
Luther Strange, Attorney General