MONTGOMERY, Ala. —
Alabama's utility regulatory board on Tuesday approved a new rate plan for Alabama Power Co., with two commissioners predicting customers will see savings and another predicting no change.
The state Public Service Commission voted 2-1 Tuesday to base Alabama Power's rates on weighted cost of equity, rather than return on equity, which has been used for the last 31 years.
The commission's majority voted set the weighted cost of equity between 5.75 percent and 6.21 percent. The range had been a return on equity of 13 percent to 14.5 percent.
"It's definitely lowering the range of their profit," Commission President Twinkle Andress Cavanaugh said.
Commissioner Terry Dunn, who voted against the change, said the PSC changed a lot of numbers without doing anything to benefit consumers. "Basically nothing changed," he said.
Cavanaugh said all types of customers should see annual savings of $30 to $110, with most likely to fall near the middle if their usage remains the same. Commissioner Jeremy Oden forecast annual savings of $30 to $45 for residential customers and small businesses.
"Our actions today represent a victory for Alabama families," Oden said.
Dunn said the savings forecasts are based on hypothetical numbers that overstate the portion of equity in Alabama Power's capital structure. "It was a deliberate effort to confuse people and there will be no change," Dunn said.
Alabama Power spokesman Michael Sznajderman said switching from return on equity to weighed cost of equity provides a broader look at how the company finances its business. But he said Alabama Power was disappointed the commission lowered the company's allowed return. He said the company is still reviewing the plan's financial effect on it and its customers.
If Alabama Power accepts the new plan, it would take effect in December and customers would see it reflected in their January bills.
A study released by the U.S. Energy Information Administration in September 2012 showed that in 2011, Alabama Power's average retail price per kilowatt hour was 11.49 cents. The report showed 14 electric cooperatives in Alabama had higher average prices and nine had lower prices.
Tuesday's vote came after a series of public hearings where the three-member commission heard from Alabama's largest electric utility and groups that count Alabama's 1.4 million customers among their members. Cavanaugh and Oden supported that style of hearing where anyone could speak, while Dunn wanted formal, court-like hearings that he said would have delved deeper into the company's finances.
The plan approved by the commission was worked out in talks between the commission's staff, Alabama Power and the attorney general's office, which represents consumers in utility rate matters.
Commission staff said the weighed cost of equity approved by the commission equates to a return on equity of 10.27 percent to 11.0 percent, which is lower than what Alabama Power had been getting. The new plan also requires more regular review of Alabama Power's finances than the PSC had done since adopting the old rate plan in 1982.
AARP disputed the PSC staff's calculations and said the new plan equates to almost the same return on equity the company had for many years. "Alabama Power will still have the highest allowed profit in the country by far," AARP utility expert Steve Hill said Tuesday.
He also said weighed cost of equity is not normally used by utility regulatory boards in the United States, which will make it harder for Alabama Power customers to compare their rates with other utilities.
The PSC's vote drew praise from some business groups, including Manufacture Alabama and the Partnership for Affordable Clean Energy. Manufacture Alabama President George Clark said the PSC kept politics out of the hearings. "This thing could have turned into a convention of demagogues like I've seen in the past," he said.