Big profits, big bills: Alabamians pay some of the nation’s highest electricity costs

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Big profits, big bills: Alabamians pay some of the nation’s highest electricity costs

Joshua Remley and his wife Elizabeth were shocked last year when their monthly power bill topped $700, well above the $170 to $250 or so they paid when they moved

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PATRICK WILSON Opelika-Auburn News Feb 7, 2023 Updated Feb 7, 2023


Felicia Trammell of Opelika talks about the difficulties paying her Opelika Power Services electric bill. Video by Patrick Wilson/ Lee Enterprises


Joshua Remley and his wife Elizabeth were shocked last year when their monthly power bill topped $700, well above the $170 to $250 or so they paid when they moved into their house four years ago.

They’d wondered if they missed a payment to Alabama Power Company the prior month. But they hadn’t.

The increase was so dramatic that the couple had to forgo paying other bills on time and incur penalty fees. “It’s pretty much just been a catch up game,” said Remley, who lives in Pinckard.

Joshua Remley, standing in front of his family’s home in Pinckard, Ala., on Tuesday, Jan. 31, shows a copy of a monthly electric bill that his family received from Alabama Power last year.
JAY HARE, DOTHAN EAGLE

For over a decade, Alabama’s residential electricity bills have been in the top three highest in the nation. Spikes in natural gas prices and home heating costs are compounding the problem for Alabamians.

And while Remley and others are adjusting their budgets, Alabama Power raked in higher profits than comparable electric utilities in other southern states, an investigation by the Opelika-Auburn News and Dothan Eagle found.

In one of the poorest states, the only investor-owned electric utility earns one of the biggest profit margins in America. Documents from experts filed in another state, for example, show Alabama Power earning a 38% higher profit margin than neighboring Georgia Power.

Critics say people are paying too much and fault the three elected Republican commissioners on the Alabama Public Service Commission for not holding formal hearings on Alabama Power’s profits. Commissioners oversaw four Alabama Power rate increases for the company’s 1.5 million customers in Alabama in 2022 without hearings or sworn testimony.

Critics also say the commission over the past decade allowed Alabama Power to become overly reliant on natural gas to produce electricity while ignoring cost-efficient renewable energy.
“Not only are we paying for the gas plants, but we’re paying for the fuel cost increases because of the price volatility of gas,” said Christina Andreen Tidwell, a senior attorney with the Southern Environmental Law Center in Birmingham. That organization backs clean energy and wants to limit fossil fuel production to protect the environment.

“Decisions that the Public Service Commission makes are why you’re paying more for fuel costs now.”

Christina Andreen Tidwell, a senior attorney with the Southern Environmental Law Center in Birmingham, questions representatives of Alabama Power Company on Dec. 13, 2022, at a meeting of the Alabama Public Service Commission in Montgomery. Judge John Garner, the commission's chief administrative law judge, presided over what he called an "informal meeting."

PATRICK WILSON

Officials with Alabama Power—the second largest utility within Atlanta-based Southern Company—opted not to be interviewed for this story, or to answer questions in writing about their profit margin and rate increases.

In a statement, company spokeswoman Alyson Tucker said the company’s electricity prices are below the national average.
“Our long-term planning helps us provide the dependable power our customers trust us to deliver, especially in extreme weather situations. In doing so, we invest in our grid and various fuel types and sources,” she said. “We offer a number of programs to help reduce bills by better managing energy use and to provide direct assistance to customers in need, including a discount for customers on Medicaid and time-of-use rates to save money based on when and how major appliances are used.”

Meanwhile, a former member of the commission says it’s under political control of the company it regulates.

Terry Dunn, a Republican who lost re-election in 2014 when he was subject to attacks falsely labeling him as a liberal environmentalist, said he learned quickly that regulators didn’t make decisions without approval of Alabama Power Company, whose lobbyists permeated the commission’s offices.

“They’re regulating themselves,” he said of the company. “Alabama Power handpicked basically everybody that was in office other than me.”

Terry Dunn, a Republican and former member of the Alabama Public Service Commission, was defeated in a re-election bid in 2014 after dark money groups tied him to "liberal environmentalists."
Courtesy photo

 

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Growing customer costs

Alabama’s average monthly residential electricity bills are the third highest in the nation, according to the U.S. Energy Information Administration. The state falls behind Hawaii and Connecticut.


That’s been consistent for over a decade, according to the federal data.
While people in Georgia have electric bills averaging $134.11 per month and people in Mississippi average $135.31, Alabamians averaged $147.75 in 2021, according to the most recent available data, up from $143.95 in 2020.
Critics of Alabama Power Company and the Public Service Commission say past expansions in natural gas plants to generate electricity resulted in increased customer costs.

In 2019, Alabama Power Company proposed a large expansion of natural gas capacity. The company also asked the commission for some solar energy and energy storage, something that can capture energy from renewable projects to use when needed. The proposal was the largest expansion in Alabama Power’s company history. Investor-owned monopoly utilities like Alabama Power earn more money, and customer bills go up, when the companies add to their portfolio of power plants. Those costs are paid by customers, rather than the company.


The commission held three days of hearings for the proposed expansion, and the Southern Environmental Law Center wasn’t alone in expressing concerns.
The office of Republican Attorney General Steve Marshall, in a May 2020 filing with the commission, wrote that Alabama Power Company’s new natural gas projects would “significantly impact millions of customers in the monthly bills they must pay for electricity.”

The Alabama Attorney General in 2020 cautioned the state’s Public Service Commission about the future costs of a large natural gas expansion by Alabama Power Company

Alabama “already faces one of the highest energy burdens in the United States,” the attorney general wrote. “As we enter a period of economic uncertainty, there is a heightened need to ensure that Alabama ratepayers are not left to bear the burden of any capacity additions that prove unnecessary.”


The filing said there had been no new demand for energy. Alabama Power was already retiring power plants before their scheduled dates and its customers would continue to pay the costs of the shuttered plants.

“While a large fleet of natural gas units may seem reasonable or prove worthy, it is impossible to know what the most technologically advanced electricity generation method will be forty (40) years from now,” the filing said.

The Southern Environmental Law Center, representing two clean energy groups, told the commission that the company had overestimated its future energy and natural gas needs, but it supported the solar energy and energy storage proposals for their cost benefits. Because solar energy comes from the sun, customers don’t pay any cost for fuel to run the plants.

Despite objections, the Alabama Public Service Commission found in 2020 that Alabama Power did need more capacity and the commission approved the natural gas requests, but denied the solar and energy storage request.
“The solar plus storage facilities would have resulted in cost savings,” said Tidwell, the Southern Environmental Law Center lawyer.


Then, in July of 2022, the commission signed off on another expansion. Alabama Power purchased a plant that it previously bought electricity from, known as Calhoun. The company estimated that would add $1 per month to the typical residential customer bill.

That year, Remley, the Pinckard man, saw his bill reach $700 at his three-bedroom home with an attached garage and study. He, his wife and their sons, try to only run electricity in the evening because they’re at work or school during the day. Still, their power was cut off briefly last year when they couldn’t pay their bill.

Joshua Remley watches his son's Gabriel, 7, and Steven, 3, feed chickens and ducks outside of their home on Tuesday, Jan. 31.

JAY HARE/DOTHAN EAGLE

Alabama Power’s expansions aren’t the only thing that’s led to rising customer bills, critics say. The Public Service Commission allows Alabama Power to earn much more money than comparable regulated utilities in other states, dealing a pricier blow to residents.

Rates go up without formal hearings

Alabama Power issued four rate hikes in 2022. The first two came in July and November, because of the rising cost of fuel used to generate electricity. Two more rate increases followed in December. The increases add $22.81 to the monthly bill of the average residential customer.

The Public Service Commission oversaw those hikes without any formal hearings or sworn testimony, which typically happens in states like Georgia, Virginia and South Carolina. Commission meetings in the capital city are short; staff read the agenda while commissioners vote on agenda items without discussion. The January meeting lasted 34 minutes and covered 33 agenda items.

The rate increases in 2022 would have been even higher, but the commission and Alabama Power agreed that Alabama Power would use money it saved through tax cuts during the Trump administration to offset one of the four increases.


A day after its Dec. 6 meeting, where the commission oversaw the third and fourth Alabama Power rate increases of the year, a commission press release about the rate increases included comments from the three commissioners blaming President Joe Biden’s energy policies.

But one week later, representatives of Alabama Power Company cited regulations in place before Biden took office. Although inflation was a factor, one of the rates needed to go up because the company had performed a periodic study that showed its costs were rising, company officials said.

Those comments came at what the commission described as an “informal meeting” on some of Alabama Power’s rates. It is the only time each year that members of the public can ask questions of the company.

 

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Alabama government officials, shown here, questioned representatives of Alabama Power Company on Dec. 13, 2022, at a meeting of the Alabama Public Service Commission in Montgomery. From left are Lindsay Dawson, assistant attorney general; Tina Hammonds, assistant attorney general; Tanya Champion, public utility analyst at the Alabama Public Service Commission; and Patricia Smith, public utility analyst manager at the commission.
PATRICK WILSON

Representatives of Alabama Power Company answer questions at an Alabama Public Service Commission meeting in Montgomery on Dec. 13, 2022. From left are Bronson Kilgore, financial planning manager; Brian George, assistant treasurer; Daniela Willcox, financial manager; and Dan McCrary, attorney.
PATRICK WILSON

Tidwell, the Southern Environmental Law Center attorney, later said in an interview that she was unaware of the company doing any study.

“A lot of things are done without public participation, without transparency,” she said.

Twinkle Andress Cavanaugh, president of the Public Service Commission, was first elected in 2010. In an interview in December, she said residential electric bills in Alabama are high in part because of its climate.

“We use so much electricity to produce air conditioning in our sweltering hot summers,” she said. “But to add to that, most of the people in Alabama, a majority, in fact the highest state in the country, use heat pumps to heat their homes in the winter.

“I don’t know that there’s too much we can do about our weather, and obviously folks want to stay cool, and we have very hot summers here.”

Asked if she’d support more solar energy because costs of natural gas are so high, Cavanaugh said, “We have a president that’s declared war on fossil fuels. He doesn’t care how it’s affecting families.”

She said Alabama Power Company’s 2020 request for more solar energy — which the commission denied —“didn’t make sense” as part of the company’s need for more energy.

She said she supported wind and solar energy but defended the state’s reliance on natural gas. “Fossil fuels are what made our country great.”

During the “informal meeting” on Dec. 13, the Southern Environmental Law Center attorney, Tidwell, asked Alabama Power representatives about the company’s profit, noting that it appeared the company would earn more than a fair profit from its customers in 2022.

But the Public Service Commission doesn’t hold hearings on the company’s profits, and it wasn’t about to start now.

“We’re drifting off into an area that really has nothing to do with the 2023 filing which is the subject of this meeting,” Alabama Power attorney Dan McCrary told the official overseeing the proceeding.

John Garner, the commission’s executive director and chief administrative law judge, told Tidwell the question was off limits. “If you’ll wrap it up quickly,” Garner said. “We are drifting a little far afield.”

Cavanaugh didn’t respond when later asked in a follow up email for this story why the commission doesn’t hold formal hearings on Alabama Power’s profits.

Alabama Power earns more profit than other companies

Utilities like Alabama Power are monopolies, meaning their customers don’t have any option to choose another electricity provider. In turn, their profits are governed by state laws and regulators.

“The utility is supposed to spend money prudently to build a reliable system,” said Albert Lin, who analyzes the motivations, risks and consequences of energy policy as the

executive director of the Pearl Street Station Finance Lab, created three years ago with money from two nonprofit foundations that support clean energy. “Then they should be able to charge a rate that gets that money back, plus a return that seems fair and in line with a business of their risk level.”

State regulators allow utilities to earn profits that are too high, he said.

It’s not easy to compare Alabama Power’s profits to similar large monopoly utilities. That’s because the Alabama Public Service Commission in 2013 changed the way Alabama Power’s profits are reported.

The 2013 order said that in six years Alabama Power was to report to the Public Service Commission and state attorney general about how its profits compare to peer utilities.

But the commission denied a public record request by a clean energy group on that issue, saying the documents were confidential. And the Alabama attorney general provided no records in response to a request from the Opelika-Auburn News, suggesting records were “privileged.”

The records should be public because Alabama Power has no competitors, said Daniel Tait of Huntsville, who requested documents on behalf of the Energy and Policy Institute, an electric utility watchdog that advocates for renewable energy.

“It seems like they want to hide behind closed doors instead of telling the public exactly what we’re paying for,” he said.

Instead, those answers can be found in filings in Virginia.

In 2021, the Virginia State Corporation Commission was determining the appropriate profits of Dominion Energy, which serves 2.7 million customers in Virginia and North Carolina. Experts hired by Dominion, the Virginia State Corporation Commission and the Virginia attorney general submitted the profit margins of peer regulated utilities.

All found that Alabama Power was an outlier, earning more money than the others. Alabama Power Company’s return on average equity for 2018 to 2020 was 12.76 %, according to the Virginia commission’s filings

In comparison, Florida Power & Light earned 11.39 %, Mississippi Power 11.11 %, Duke Energy Carolinas 9.37 %, Georgia Power 9.24 % and Louisville Gas & Electric 8.67 %.

This 2021 filing by an expert working for Dominion Energy in a Virginia case shows Alabama Power Company as a high-end outlier when it comes to “return on equity” – or profit margin – among similar electric utilities.

That means the Alabama Public Service Commission is allowing Alabama Power Company to earn far more profit than other state utility regulators allow monopoly electric utilities to earn. Cavanaugh and the commission staff did not respond to requests for comment on the company’s profit margin.
Alabama Power’s high profit margins are being cited in Virginia by Dominion Energy as justification for a legislative proposal that would bypass state regulators and raise Dominion’s profits.

The Pearl Street Station Finance Lab recently calculated that if Alabama Power ran its business in the free market and let its stock trade accordingly, its returns would be lower.

For 2020, the lab calculated, Alabama Power earned $750 million more than it would have if it was a non-monopoly company in the free market — money that could be returned to customers.

Tait said the commission wasn’t doing its job by allowing Alabama Power to earn too much.
“To be able to get away with these types of profit is bad no matter where it is, but to do it in one of the poorest states in America is just wrong,” he said.

Patrick Wilson is a reporter for the Lee Enterprises Public Service Journalism Team.
pwilson@lee.net
Justin Lee of the Opelika-Auburn News and Sean McGoey of the Richmond (Va.) Times-Dispatch contributed to this story.