If Alabama's two largest gas utilities, Mobile Gas and Alagasco, charged the rates paid by natural gas customers in Mississippi and Georgia, people and businesses in Alabama would have saved about $260 million in 2010.

Using similar comparisons based on information in federal, state and company documents, the 500,000 customers of the two utilities would have saved more than a billion dollars collectively since 2006.

Reporting by AL.com in the last few weeks showed that Alagasco and Mobile Gas currently charge more than twice as much for natural gas service as the private utilities in Mississippi. Rates in Georgia track closely with the prices charged in Mississippi. Municipal utilities were excluded from these price comparisons because cities often mix other costs in with gas bills, and municipals are not regulated by state public service commissions.

Several utility regulators in other states said the high prices seen in Alabama raise a number of questions, including why it would cost the Alabama companies an extra $200 million or more per year to deliver gas to customers, compared to the prices charged by utilities in the two neighboring states?

Officials with Mobile Gas and Alagasco took issue with the rate comparison.

"You continue to fail to understand the rate making process and the role weather and the size of a utility's customer base play," read a statement emailed by Kesshia Davis, with Mobile Gas, which is owned by Sempra Energy, a large national energy company that operates gas utilities in Mississippi, California, Alabama and Mexico.

Davis noted that several of the companies used in the AL.com comparison are also large national energy companies, which she said made the comparison unfair. The company charges customers roughly the same price for gas today as it did in 2006, Davis said. In 2006, Mobile Gas was the third most expensive gas utility in the nation. It was the 11th most expensive in the nation in 2011, according to federal records.

Alagasco officials also suggested that the factors behind their rate structure were too complicated to allow comparisons with other utilities.

"We respectfully but fundamentally disagree with the underlying premise of these types of comparisons because -- as we have consistently said -- there are just too many variables -- laws, regulations, rate design methodologies, cost recovery methods, customer mix, etc. -- to consider in order to make meaningful comparisons with peer companies -- and to try to do so is misleading," read a statement from the company.

Both companies mentioned having a customer service representative answer the phone 24 hours a day as part of the reason behind the hundreds of millions in extra costs.

WHO IS WATCHING THE REGULATORS?

Natural gas utilities in all three states are regulated by Public Service Commissions, which are supposed to balance the need for utilities to make a profit against the public's interest when setting rates. A key distinction between Alabama and the neighboring states is that Alabama's PSC does not have a consumer protection division.

Outside of a handful of PSC officials, the state Attorney General's office is the only entity allowed access to the company's books. A spokeswoman for the Attorney General's office said the utility records are reviewed monthly.

In Georgia and Mississippi, independent agencies or divisions within the Public Service Commission -- sometimes called the Public Staff or the Adversary Staff, often with dozens of employees -- are dedicated to protecting consumers.

Alabama's PSC had such a division, but it was closed in 1985 after a telephone utility won a lawsuit. The final ruling in the case focused narrowly on the organization and funding sources of the Public Staff in Alabama, but neither the Legislature nor the governor's office has moved to find a different funding source or create a new oversight agency in intervening years.

At the time, Alabama ranked 25th in the nation in terms of gas prices, according to data compiled by the federal Energy Information Agency. Since the Public Staff was abolished, the state's rates have increased steadily.By 2006, Alabama had become the third most expensive state in the nation for natural gas.

In 1984, the average price of gas delivered to Alabama homes was $6.26 per 1,000 cubic feet, just ten cents above the national average. By 2010, Alabama's prices were $4.75 higher than the national average.

"It gives me a lot of pause. What could be the differences?" said Jeff Davis, with the Public Staff of the North Carolina Utilities Commission, discussing the higher prices seen in Alabama.

In North Carolina, Davis is part of a staff of about 80 that watches over the Public Service Commission on behalf of consumers. In Alabama, the Attorney General's office has three people overseeing the Public Service Commission, including "one full-time lawyer, one part-time lawyer, and a part-time economist," according to a statement from the Attorney General.

"Our utilities in North Carolina don't pad things, because they know if they do, we'll catch them. I think it is very important to have a watchdog like the Public Staff," Davis said.

He said the only way to understand whether the higher costs in Alabama were justified would be to conduct a thorough audit of each utilities' books, including looking at Operations and Maintenance expenses.

The detailed Operations and Maintenance records are considered proprietary information by the PSC and the utilities and not open to inspection by Al.com. But, an examination of federal data, annual financial reports filed by gas utilities, and information Alabama's companies must make public in annual filings with the PSC, shows that Alabama's utilities charge customers more than utilities in neighboring states at every turn.

Regulators said that without close oversight, Operations and Maintenance costs reported by utilities amount to a black box where all sorts of excess charges can be hidden. The Alabama utilities have Operations and Maintenance costs that are up to three times higher than costs in neighboring Georgia and Mississippi, and amounted to increased costs for the state's residents of about $96 million in 2010.

Some businesses purchase their natural gas on the national wholesale market, and then pay a fee called the "transportation tariff" to local utilities to transport it for them. Alabama's utilities charge their customers five to eight times more to transport gas than utilities in other states charge. The higher fees cost Alabama businesses about $19 million in 2010.



"One of the things we've done in Mississippi, we've begun the long road of putting intense scrutiny on expenses,"said Brandon Presley, a public service commissioner representing northern Mississippi.

Presley said the PSC had put an end to the utilities' use of private corporate jets, and other expenses that did not benefit ratepayers. He declined to speculate on why Alabama's rates were so much more expensive than Mississippi's.

ALABAMA COMPANIES ALLOWED TO MAKE HIGHER PROFITS

Presley and the other Mississippi commissioners voted unanimously this year to open an inquiry into the return on equity the state's monopoly utilities are allowed to earn. The return on equity amounts to the profit utilities are allowed to earn each year, based on what they spend to run their businesses.

Presley said he decided to look into the return on equity issue when he learned that Mississippi was in the top 10 nationally for what it allowed utilities to earn. That seemed egregious, he said, given that Mississippi ranks last in terms of per capita income. Alabama ranks between somewhere in the bottom eight states for income, depending on the survey.

In Mississippi and Georgia, the utilities earn between 10 and 11 percent. A nationwide survey conducted by the American Gas Foundation in 2008 found that the average return on equity allowed to gas utilities was "in the low 10 percent range."

In Alabama, Alagasco is allowed a 13.65 percent return on equity, and Mobile Gas is allowed 13.85 percent. Al.com could find no record of a higher return on equity for a gas utility anywhere in the nation.

"These companies are monopolies. They don't have any competition. It's not like your hardware store or grocery store, where there is competition for your business. Nobody can steal their customers," Presley said. "I believe the companies are overearning."

Regulators say the return on equity system used in Alabama leaves consumers particularly vulnerable unless there is strict oversight of a utility's expenses.

Presley noted that interest rates have come down dramatically in the last few years, meaning utility companies save a lot of money on corporate debt. The utilities are also protected from risks related to storm damage, warmer than normal weather, and other factors most private businesses must deal with. He said utilities deserve to make money, but it is important to remember a regulated monopoly amounts to a relatively risk free enterprise that comes with a guaranteed profit.

"These companies, their risk is at an all-time low. If their risks had gone up as much as they've gone down, if interest rates had gone up instead of down, they would not have been timid about asking for a rate increase,"Presley said. "This is basic regulation 101, to make sure the savings get passed along to the consumer."

The Alabama Public Service Commission announced last week that it would investigate the rates set for Mobile Gas at meetings to be held in January.

"The new team at the Alabama Public Service Commission is committed to having utility prices as low as possible for consumers while ensuring safety and reliability," read a statement from PSC president Twinkle Cavanaugh. "As I said before, I will not throw stones at decisions made by past leadership at the Alabama Public Service Commission, but will constantly seek solutions for the future of our state."

Asked if she thought it made sense that the utilities in neighboring states were so much cheaper than Alabama's two largest gas suppliers, Cavanaugh issued a statement that referenced the state laws governing the PSC, and described the state's rates as, "set at the lowest possible level consistent with honest and efficient management and with the provision of safe and reliable service."

This story was updated at 11:33 to reflect that a telephone utility was responsible for the lawsuit that resulted in the loss of the Public Staff division within the PSC.

See related stories:

Click here to see more stories by Ben Raines. Follow him on Twitter @BenHRaines, or on Facebook.