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How customers are kept in the dark about their money that Alabama Power is allowed to use to improve its cash flow.

This report is about transparency – Alabama Power customers’ right to know how much they owe or are owed. Currently, the Alabama Public Service Commission has allowed customers to over-pay Alabama Power $177.5 million for pass-through fuel costs, an amount that was up to $237.6 in December, 2015 when the PSC announced a small “rate decrease”.  Sounds good until you understand that this comes from money already owed to customers, a fact not mentioned except by the press.

 

A year ago, in July, 2015, six months before the announced “rate decrease” of about $5 a year for the average customer, the PSC removed the regular report that would allow customers to easily see the total they owe or are owed. The PSC has refused to put it back, in spite of repeated requests, and in spite of Alabama Power’s approval of public access to the report. Slowly, some of this excess money is being given back to customers, where it belongs, but the PSC refuses to let us see the total owed, publishing only the monthly change and no information about the total or how fast or slow our money is expected to be returned. You wouldn’t let your bank get away with that.

It is neither transparent nor accountable to arbitrarily hide information readily available for years from customers who don’t have the capacity or time to dig into the online filings in the PSC system.

With practice and effort one can discover deep in the proceedings on the PSC website numbers which can be used to reconstruct some of the discontinued report. See a reconstruction at 2016 PSC July ECR Report (PDF). But inquiring minds would like to know: why was the usual report pulled off the agenda halfway through 2015 and who benefited from its disappearance? Certainly not the customers.

And why focus on this small report about who owes whom and how much? Primarily because it’s such a glaring example of the ease with which the Alabama PSC can deprive customers of knowledge about activities that materially affect them.

Some Background

Alabama Power Company is a government-sanctioned monopoly, operating without competition, so they have to have a regulator to ensure that there’s a balance between the utility’s profits and the customers’ need to pay no more than necessary. In Alabama, that responsibility falls to the Alabama Public Service Commission (PSC), led by three elected commissioners who make most of their utility decisions behind closed doors, ratifying them in quick monthly public meetings. Professional staff must abide by their directions and decisions.

Like most utilities, Alabama Power passes through the cost of fuel to customers, not making any profit on what they pay for fuel to create the electricity we need. In November or December of each year, Alabama Power and the PSC estimate what factor the PSC needs to apply to customers’ electricity use each month of the coming year to collect the estimated monthly fuel cost – a pass through to customers under Rate ECR, the Energy Cost Recovery Rate. The company provides an estimated budget for the coming year of expected fuel costs and expected recovery of those costs.

Since no one can know exactly what fuel costs will be, sometimes the account is over collected and sometimes under. In the early years, the energy cost factors were adjusted several times a year to keep the ECR account better in balance. Alabama Power was seriously under recovered at one point, and a formal hearing was held to consider their request to raise the recovery rate. For a very interesting history of Rate ECR, see Larry White’s testimony filed October 19, 2005 for a hearing on November 8, 2005.

More recently the changes have been made annually. The over-collected cumulative total belongs to the customers and the under collected amount is owed by customers to the company. When the report was discontinued at the July 2015 PSC meeting, the total owed to customers was $87.7 million. By December it had grown to $237.7 million. This amount was due to over recovery in the following months and also to a transfer to the ECR account of fees and damages related to the Federal government’s failure to follow through on charges for disposition of spent nuclear fuel.

The discontinued ECR Report showed the twelve months previous monthly changes and the cumulative total, as well as budgeted amounts for each month of the current year and the budgeted cumulative totals. When figures become available two months in arrears, the ECR Report changed the estimated budgeted costs and over or under recovered amounts to the actual amounts. The collections can swing over or under more than $20 million each month, so the ECR account is volatile.

On July 24, 2015, Mr. Free, Director, Electricity Policy Division of the PSC, responded to a request for a reason for the disappearance of the usual report as follows:

As we discussed after the July Commission meeting, the ECR presentation was modified because the accumulated recovery balance can be erratic and result in large swings from month to month. Accordingly, the balance at any one point in time can be misleading.

The amount of money APC owes customers is what it is, and that is not misleading. However, discontinuing the report so customers can’t see the actual figures is misleading.

Providing only the monthly change when the PSC could easily provide the cumulative amount and expected future collections as has been usual keeps the ordinary customer in the dark, with no easy access to the amount the company owes customers or customers owe the company.

Transparency is access to relevant information used by decision makers, presented in a comprehensible format, and with an opportunity for the public to review and respond. Actually, removing and refusing to return the ECR report is the opposite of transparency.

When the PSC commissioners voted to lower the Energy Cost Factors for 2016, and declared a “rate decrease”, they should have revealed the large over collected Energy Cost Recovery Account and explained that customers were only receiving some of the over collected money already owed them. By removing the report when they did, the PSC commissioners were able to claim a “rate decrease”, rather than revealing that they were slowly reimbursing customers for some of the money owed them.

The money in Alabama Power’s ECR account doesn’t affect the company’s bottom line, but does affect its cash flow, with over collected amounts providing the company cash it can use, though it doesn’t belong to them. Alabama Power was seriously under recovered at one point, and a formal hearing was held on their request to raise the recovery rate. For a very interesting history of Rate ECR, see Larry White’s testimony filed October 19, 2005 for a hearing on November 8 2005.

Alabama Power was $42 million over-collected at the end of 2013 and $47 million over-collected at the end of 2014 (see page 4 for both documents). Those amounts are not exceptionally high due to the volatile nature of the account. The cumulative amount continues to be carried over until lowering the fuel recovery factor or increasing cost of fuel to the company results in eventual under collection by the company. The account is not “zeroed out” at the end of each year. The total in the ECR account as of the end of December, 2015 (page 4) was $237.6 million.

The notice of the “rate decrease” announced Dec. 1 provided that customers would pay $120 million less in 2016. However it failed to mention that this pennies-a-month amount would only be returning some of customers’ own money.

It is strange that the ECR report disappeared when it did and that in December, no mention of the millions owed customers by the company was made when announcing the rate change. This oversight was pointed out in an editorial in the Montgomery Advertiser on Dec. 11, 2015: “PSC Operates with Impunity”.

This lack of transparency is regrettable and a disservice to the customers the Alabama Public Service Commission serves. Georgia Power also asked for a decrease in fuel cost factors in 2015. In that jurisdiction,  however, fuel cost factor changes merit a public hearing, whether for a decrease or an increase. On December 1, 2015, Georgia Public Service Commission held a public hearing on Georgia Power’s fuel cost factor; the Georgia PSC made its decision two weeks later so customers were relatively well informed about the sources behind their rate change. Alabama Power customers deserve a Public Service Commission with more transparent processes.

Summary

In the interest of transparency and accountability, the Alabama PSC should reinstate Alabama Power’s full Energy Cost Recovery report, which has been provided consistently for at least 15 years until it was removed in July, 2015. Returning the report to its former place on the PSC agenda would be in the best interest of customers, the company and the Public Service Commission. In the meantime, check the 2016 PSC July ECR Report (PDF). This site will occasionally post information that can be gleaned from the proceedings section of the PSC website as well as news and views about the changing energy sector and our stake in it.