PSC blames Obama for 2018 rate increase, allows for power company cost recovery

The state entity charged with regulating Alabama Power and, in its own words, providing consumers with “safe, adequate and reliable services at rates that are equitable and economical,” blames former President Barack Obama for rate increases passed down this year to consumers for the utility having to close six coal ash ponds at power plants around the state. 

The latest increase of more than $205 million was approved by the Public Service Commission (PSC) in December 2018 and went into effect at the beginning of this year, almost two full years after the 44th president left office. 

“In December 2018, Alabama Power was allowed to recover additional costs associated with (f)ederal mandates,” PSC staff and commissioners wrote in an email message. “This total was $205,009,856, which is the latest increase in the price tag of Liberal Obama’s War on Coal.” 

The Public Service Commission, under the direction of President Twinkle Andress Cavanaugh, Commissioner Jeremy Oden and Commissioner Chip Beeker, can allow the power company to increase its rates as a cost-recovery method. The most recent increase in rates to customers would pay for the cap-in-place method to deal with coal ash ponds across the state, including at the Barry Steam Plant in Bucks. The PSC allowed Alabama Power a roughly 3 percent increase that went into effect in January. Alabama Power’s spokesperson said at that time the increase would amount to about $4.49 per household. 

“Rates are generally based on cost of service. As Alabama Power’s cost of service changes, rates are adjusted accordingly,” PSC staff and commissioners wrote. “Included in this recovery are costs associated with the closure of ash ponds, as well as costs associated with other federal environmental mandates.” 

The commission did not answer a question about whether a sunset would be placed on rate increases. It was also not made clear whether the $205 million increase was for one year or over several years or whether Alabama Power could come back to them later for more increases related to coal ash pond closures. Alabama Power did not answer questions asking how much additional money the rate increase was expected to bring in.

However, Alabama Power is guaranteed an average of 6.12 percent retail return on common equity, PSC officials confirmed. 

“Alabama Power’s 2019 RSE [rate stabilization and equalization] filing projected a weighted retail return on common equity of 6.12 percent,” PSC officials wrote. 

The issue regarding the closure of ash ponds stems from a 2015 change from the Environmental Protection Agency (EPA), which stated that such ponds within 5 feet of the water table must be closed. The EPA offered the option to utilities to either cap-in-place, or bury, the toxic ash, or to excavate it and move it to lined landfills. Alabama Power’s coal ash ponds are unlined and have been leaching toxins into nearby groundwater, earning fines from the Alabama Department of Environmental Management (ADEM) as recently as May. 

As Lagniappe has reported, Alabama is the only state in the Southeast allowing all of its ash ponds to be capped in place. Even Georgia Power — Alabama Power’s sister company also owned by the Southern Company — is excavating the majority of its ponds. Even though Alabama’s handling of coal ash ponds puts it out of step with other states in the Southeast, Alabama Power has argued cap-in-place is the safest, most cost-effective method of keeping arsenic and other toxins contained in coal ash out of local waterways and groundwater.

“All ash pond closure plans — be it Alabama Power or another utility — are site-specific,”  Alabama Power spokesperson Michael Sznajderman wrote. “Alabama Power’s pond closure plan goes beyond the EPA-prescribed, close-in-place methodology.” 

The power company has said its plans to cap-in-place the Plant Barry coal ash pond and all others in the state will cost $2 billion. It estimates removal to a lined landfill would take decades and cost much, much more. 

“Under current plans, the permanent closure of the Barry ash pond is estimated to take approximately 13 years,” Sznajderman wrote. “Based on industry estimates and our own review, close-by-removal would cost three to five times more and take three to five times longer to safely complete closure.”

Despite Alabama Power being granted cost recovery for these closures, Sznajderman wrote that the costs have to be “reasonable” to PSC members. 

“The costs must be justified to the PSC as reasonable and are one of many factors that go into determining rates,” Sznajderman wrote. “Should these mandated environmental costs be reduced over time, this would be factored into rate calculations.” 

The PSC was designated by the Alabama Legislature in 1915 and had evolved from the state’s railroad commission, according to information on the agency’s website. The commission’s authority was expanded to approving the sale and lease of utility properties or franchises. It was first allowed to regulate utility prices in 1920. 

The agency’s role continued to expand throughout the 1970s and 1980s until the federal government preempted some of its authority with a series of laws in the 1990s, according to the PSC website. 

Commissioners are elected and serve four-year terms. The president of the commission is elected separately, through the general election process. Nobody owning stock in a utility may run for office in the PSC, under state law. The state attorney general’s office is to serve as the representative of the people of the state in actions in front of the PSC. 

The PSC has an electricity policy division, which specifically oversees the regulation of “investor-owned” electric utilities in the state. The division is separated into three segments: electricity, federal affairs and public affairs, according to the PSC website.