Alabama Power scales back rate hike

Published 7:10 pm Tuesday, September 23, 2008

MONTGOMERY – Alabama Power Co. scaled back its record rate hike request Tuesday to 57 percent of what it originally sought.

The state’s utility regulatory board will meet Oct. 7 to decide whether to approve the revised amount that Alabama Power worked out in negotiations with some of its large industrial customers. If approved, the change will take effect Oct. 9.

The three commissioners need to review the details of the new proposal before reaching a decision, said Public Service Commission President Jim Sullivan.

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“The commission is under no obligation to accept or not accept the proposal, but it appears a lot positive has occurred,” he said.

If approved, a homeowner would pay an extra $9.30 each month for 1,000 kilowatt hours rather than the $16.45 that Alabama Power originally proposed. The PSC says the average Alabama home uses about 1,300 kilowatt hours monthly.

Alabama Power, a division of the Atlanta-based Southern Co., serves the southern two-thirds of the state. The Tennessee Valley Authority, which serves much of the northern third, decided in August to raise rates 20 percent due to rising fuel costs.

The PSC guarantees Alabama Power that it will recover through its rates the amount it spends on fuel. But through July, Alabama Power had spent $239 million more on fuel than it had recovered through its rates — primarily because of rising prices for coal, which generates 70 percent of the utility’s power.

Alabama Power had asked the PSC to approve a 14.6 percent rate hike for residential customers, 16 percent for commercial customers, such as retail stores, and 24.8 percent for industrial customers. That would have allowed Alabama Power to recover the $239 million shortage in one year. Then rates could have been adjusted again in October 2009.

Alabama Power’s largest customers, including steel mills and other manufacturers, negotiated with the power company to spread out the recovery of the shortfall over two years. They reached an agreement just before the start of a public hearing by the PSC on Tuesday.

The agreement means a smaller rate hike: 8.24 percent for residential customers, 9 percent for commercial customers, and 14 percent for industries.

Under the agreement, rates could change again in October 2010.

For residential customers, the original plan would have raised the cost of 1,000 kilowatt hours by $16.45 from $112.90 to $129.35. Now, the increase would be by $9.30 — from $112.90 to $122.20 — if approved by the PSC.

Alabama Power’s original rate proposal would have been its biggest increase since the PSC established the current rate-setting process in 1982. With the agreement, the proposed rate hike would now fall below the current record of 12.8 percent set in 2006, when Alabama Power had to recover from extensive hurricane damage.

The agreement drew the support of several industrial and business organizations. But others said low-income citizens and senior citizens on fixed incomes will have a difficult time paying any increase.

“Alabama households are already reeling from the impact of high energy prices and the economic downturn. Prices for food, gasoline and other products have skyrocketed along with the price of home energy,” said Joan Carter, state director for AARP Alabama.

Sullivan, who is retiring from the PSC in November after 25 years in office, said growing international demand for coal and natural gas is likely to cause more rate increases in the future.

“We don’t see in the short term or even in the long term that fuel prices are coming down,” he said.