A report released Friday by an energy industry think tank states that the system used to set utility profits and rates in Alabama “is unfair to customers, is no longer needed, unjustifiably rewards the utility company and is costly to the citizens of the state.”

The report was commissioned by the Arise Citizens Policy Project, an Alabama nonprofit group comprised of religious congregations and community groups that advocates for Alabama's poor.

In a prepared statement, the Public Service Commission described the report as "condemning the regulatory processes" at the agency.

"While the Commission does not concur with the conclusions in the press release and accompanying report," read the statement, "the Commission is of the opinion that it would be more appropriate to address the areas of disagreement at public meetings that will take place later this year."

Alabama Power also criticized the report in a prepared statement.

“The report paints a very biased picture of Alabama Power and the regulatory process under which our company operates. It misinterprets the reasons the regulatory system was established, cherry-picks data and attempts to compare Alabama Power to an undisclosed group of utilities that could be very different from our company,” read the statement.

Titled “Public Utility Regulation without the Public: the Alabama Public Service Commission and Alabama Power,” the report was authored by David Schlissel and Anna Sommer of the Institute for Energy Economics & Financial Analysis, based in Massachusetts.

Schlissel has worked in the field of utility regulation for 40 years and has testified during more than 100 cases before regulatory boards and public service commissions, according to his company’s website. He has testified on behalf of consumers, regulated utilities, government agencies and environmental groups during that time.

“They told me about the regulatory process in Alabama and I was astounded,” Schlissel said during an interview Friday. “All we’re advocating is public regulatory hearings. We’re not arguing one way or the other. We’re just saying that like all the others states, there should be a public process in Alabama where the public can participate.”

In Alabama, Schlissel said, the Public Service Commission has established a system that excludes the public from rate hearings instead of a system, “where those that pay the freight get to participate.”

In its response, Alabama Power endorsed the state's practices.

“The regulatory process in Alabama has worked well, providing our customers electric service that is among the most reliable in the industry, award-winning customer service, and affordable prices,” its statement read.

Read the company's full response here.

The Arise report concludes that Alabama Power’s residential customers paid an average of 14 percent more for electricity than customers of investor-owned utilities across the Southeast since 2008, and business customers paid an average of 20 percent more. Alabama Power customers paid higher rates than customers of the affiliated Southern Company utilities in Georgia, Mississippi and Florida between 2008 and 2011, according to the study. The return on equity allowed to Alabama Power by the PSC is about 40 percent higher than the average allowed to 76 investor-owned utilities examined in the report.

Schlissel said his findings mirrored the conclusions reported in a January analysis of Alabama Power's rates by AL.com. It showed that despite lower fuel costs, Alabama Power generally charged its residential and commercial customers higher rates than neighboring Georgia from 2006 to 2011.

“Go across the border into Georgia. There are formal rate hearings there and I’ve not heard anybody complain that Georgia Power doesn’t make a good living,” Schlissel said. “We’re asking for a process where people can participate… It works in Georgia and the other states. There is no reason it wouldn’t work in Alabama.”

The report states that there has not been a public rate case for Alabama Power in 30 years. Formal rate cases were abandoned in favor of a system known as Rate Stabilization and Equalization, RSE. The report concludes that system has not benefitted consumers.

“The Alabama Public Service Commission has a regulatory process that allows Alabama Power to adjust its charges each year without any public evidentiary hearings and, indeed, without any participation by ratepaying consumers whatsoever other than off-the-record and after-the-fact comments at an informal hearing that completely lacks public transparency,” reads the report.

Schlissel said that in all of the other states he has worked in, companies submit information about their costs and charges at evidentiary hearings before a rate case is heard by regulators. Citizens and groups challenging the rates are allowed to examine that information, and can request more information through a discovery process, similar to the process used in court for legal proceedings. A formal record of the proceedings is established that can be examined by anyone challenging rates or charges allowed.

Schlissel said it was impossible for the public in Alabama to challenge rates allowed by the PSC because the public does not have access to utility information that is readily available in other states.

“The report from the Arise Citizens’ Policy Project says what I have been saying for months now, and frankly it is gratifying to see our message reinforced with this kind of analysis,” read a statement from Commissioner Terry Dunn, whose call for formal hearings on the rates charged by Alabama Power, Mobile Gas and Alagasco has been rejected by his fellow commissioners, Twinkle Cavanaugh and Jeremy Oden.

“The hearings I have called for – and which have been rejected by my colleagues on the PSC -- are about 25 years overdue,” Dunn said.

Instead of formal rate hearings, Cavanaugh and Oden have said they will hold informal hearings on each regulated utility.

Schlissel said he had grave doubts about informal hearings, and questioned how they could provide any useful insight if the companies were not compelled to provide detailed information about their costs and rate structures. He also said he was surprised by Commissioner Cavanaugh’s repeated suggestion that radical environmentalists would hijack formal rate hearings.

In January, Cavanaugh posted an open letter on the PSC website titled, "Environmental extremists push for formal hearings to kill coal jobs and increase utility rates." Cavanaugh received $88,902 from coal interests during her campaign for PSC president.

“Next January, it will be 40 years I’ve been doing this. I’ve never seen a commissioner attacking interveners and rate payers the way it is happening in Alabama.” Schlissel said, discussing Cavanaugh’s remarks.

“There are lots of commissioners who don’t like what I say, but they are all respectful,” Schlissel said. “But here in Alabama, it’s incredible. All this talk of radical environmentalists and that stuff. It’s incredible... All we are asking for is a process where people can participate."

Read the Arise report here. Arise report -- Public Utility Regulation Without the Public 3-1-13.pdf

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