Alabama PSC Shows Rate Hearings Can Lower Rates, Not Raise Them

Guest Opinion by John Dodd, Policy Manager, Energy Alabama

Some claims sound great in a committee room but fall apart under scrutiny. Back in March, as the state Senate Fiscal Responsibility and Economic Development Committee took up HB 475, some of the lawmakers rewriting the bill made claims that never added up. The biggest one went like this:

“A mandatory rate case every three years is the same thing as, it equals mandatory rate hikes, that’s what that does.”

That is just simply not true. And you don’t even have to take our word for it, because the Alabama Public Service Commission just ran the test.

In June, the PSC announced it would put Spire through a formal rate investigation, with a public hearing. Spire is the natural gas company that serves parts of central and north Alabama through Spire Alabama and the Mobile area through Spire Gulf. It was the first time in more than 40 years that a regulated utility was forced to offer expert testimony, publicly under oath, or to justify its cost of capital and the higher return on equity it was asking for. If Spire had been successful, the increase in the company’s return on equity would have meant higher bills for its customers.

Nobody in the legislature ordered the PSC to do this. The PSC made that call on its own, just a few months after watching tens of thousands of Alabamians fight to keep mandatory rate hearings in HB 475, only to see them stripped out before the bill became law. Maybe it was a coincidence. But it seems unlikely. Those Alabamians are fed up with what they are being forced to pay in order to keep the lights, the AC, and the heat on.

In August, the case was tried like a courtroom proceeding. Spire put up its witnesses. Organizations like Energy Alabama intervened on behalf of our members who are Spire customers. Then the Attorney General’s office and the intervenors cross-examined Spire’s executives and witnesses under oath. Energy Alabama and the AG’s office hired their own expert witnesses to demonstrate the requested increase in return on equity was not justified by Spire’s cost of capital.

When it was all said and done, Spire ended up with a lower allowed return, not a higher one. Spire asked the PSC to raise its allowed return and lock that in for five years. The PSC did the opposite and voted unanimously to cut Spire’s allowed return below where it already stood. That lower rate stays in place for two years in central and north Alabama and three years on the Gulf Coast, before Spire has to come back to the PSC and make its case again. For the record, we asked for a deeper cut than the PSC granted. But a cut is still a cut.

Using the Attorney General’s estimates, Energy Alabama expects Spire customers will save more than $15 million a year compared to what Spire originally asked for. Measured against what Spire was already allowed to earn, the cut is roughly $4.3 million per year.

So let’s revisit that claim from March. The Alabama PSC held a public rate hearing, and instead of the rate hike we were warned about, the utility walked away with a lower allowed return than it started with and customers came out with millions of dollars in savings. That’s not our opinion. Cutting Spire’s return was the PSC’s unanimous decision. A mandatory rate case is not a mandatory rate hike, and anyone who says otherwise is simply misinformed.

Alabama Power hasn’t been through a formal public rate hearing in more than 40 years either. If a single hearing could do this much for Spire customers, imagine what one could do for Alabama Power customers, who are currently paying some of the highest power bills in the nation.

Energy Alabama is a nonprofit membership-based organization advancing Alabama’s clean energy future through education and advocacy since 2014. For more information, visit https://energyalabama.org.

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