SACE blasts Alabama PSC, Alabama Power and rate-setting processes

42062 : 2014 Wholesale Transmission Service Charges for ERCOT
12/5/2013: The Texas PUC Legal division filed an application with the commission on Dec. 2, 2013, to set the 2014 wholesale transmission service charges for ERCOT. The commission established the following procedural schedule in Order 1 issued on Dec. 3:

Intervention deadline - Jan. 3, 2014
Changes to load aggregation - Jan. 8, 2014
Intervenor objections and requests for delay - Jan. 15, 2014

If intervenors do not object, the following schedule will apply:

Staff draft transmission charge matrix - Jan. 22, 2014
Comments on staff's draft - Jan. 29, 2014
Reply comments - Feb. 5, 2014
Staff final transmission charge matrix - Feb. 12, 2014

The following parties filed requests to intervene as of Dec. 5: City of Robstown, Floresville Electric Light and Power, Electric Transmission Texas, CenterPoint Energy Houston, Brazos Electric Power, AEP Texas, CPS Energy, Wind Energy Transmission Texas, and TNMP.

Southern Company and Florida Markets:

18117 and 18416 : Petition by Alabama Power Company for Approval of Revision to Rate CNP (Certificated New Plant)
12/8/2013: SACE blasts Alabama PSC, Alabama Power and rate-setting processes – The Southern Alliance for Clean Energy (SACE) contributed the following guest column that is sharply critical of the Alabama PSC's handling of its inquiry into Alabama Power Company's (APC) rates and earnings. Commissioner Terry Dunn pushed hard to conduct traditional, on-the-record hearings to investigate APC's rates and ROE, but President Twinkle Andress Cavanaugh and Commissioner Jeremy Oden joined forces to defeat Dunn's request in favor of holding informal meetings on APC's rates. SACE is a nonprofit organization that has participated in the proceedings. SACE frequently intervenes in PSC proceedings in Southeastern states to promote responsible energy choices that ensure clean, safe, and healthy communities throughout the Southeast. www.cleanenergy.org

The reward schemes the PSC has invented for Alabama Power hurt customers, benefit shareholders, and leave the henhouse unguarded - On Tuesday, Dec. 10, 2013 the Alabama PSC and Alabama Power Company will conduct their regular annual "informal public hearing." This process stands out nationally for the lack of public input in determining the profits that the utility, Alabama's largest, is allowed to earn, and by extension, the rates it can charge customers. As we have through the special informal review process earlier this year, the Southern Alliance for Clean Energy will participate to the extent allowed on behalf of our members' interest.

The approval process will be done mostly behind closed doors, with a token hearing to give the sense that the public has a chance to chime in. But the reality is that, unlike almost every other state in the nation, returns and rates will be set using arcane accounting formulas that no matter how much spin the PSC and company put on them, leave residential and commercial customers paying some of the highest bills in the country.

There are multiple formulas, each of which is enough to make the average customer's head spin. The basic formula, called Rate Stabilization and Equalization, or RSE, allows the company to pass on the costs of its operations to customers. Another, called Certified New Plant, or CNP, is the mechanism the company uses to get customers to pay for capital expenditures such as building new power sources and installing pollution controls on its aging fleet of coal plants – without a review of the prudence of those costs. A third, called the Rate Rider RGB (for Supplementary, Maintenance, or Back-up Power), in some cases would charge customers more for connecting solar panels to the grid

than it would pay them for the power they produce. We're concerned that the less the public understands about how
customers' bills are determined, the better for keeping the gravy train going.

The basic Rate RSE formula was rejiggered earlier this year to much hollow fanfare by PSC President Twinkle
Cavanaugh, who is pre-emptively congratulating herself on the process that led the PSC to tinker with the RSE formula.
Those proceedings, which ended in July, resulted in the PSC scrapping the old scheme it had used to determine rates
and replacing it with an even more complex one.

Southern Alliance for Clean Energy created a question and answer fact-sheet that explains more of the minutiae of
scrapping the old scheme, which tied rates to Alabama Power's Return on Equity, or ROE, and replacing it with an even
more complex one tied to the company's Weighted Cost of Equity, or WCE. Creative accounting is what most people
would call it, and considering the lack of any tangible benefits, it's little wonder that the 2-1 vote to approve the change
was done under the veil of secrecy. Commissioner Terry Dunn dissented, explaining that his own analysis showed
little or no benefit to customers, while the company's profits would likely increase.

It's not immediately clear where the idea of switching to WCE came from. This approach was not considered during
the PSC's three meetings on Alabama Power, which started in May and concluded in July. The first two hearings were
filled with glad-handing and PR opportunities touting Alabama Power's customer service. Substantive information on
rates was discussed only on the final day, with complex material from the company's expert witnesses presented only
during the last few hours. WCE was never recommended by Alabama Power's staff or any other witnesses as a
potential alternative for determining rates, in any documentation that we were able to review. This mysterious formula
seems to have been adopted without any public scrutiny – a red flag if there ever was one.

The bottom line, however, is that no matter how hard the commissioners who voted for it try to sell the public on the
change, all the new process really accomplishes is further hiding the company's lofty returns, which are higher than
almost all the other utilities in the country. Meanwhile, the simple change in accounting still leaves customers paying
abnormally high bills.

Not long after the PSC adopted the new mechanism in August, Alabama Power announced that even with the change,
there will NOT be any immediate reduction in rates, a decision that flies in the face of the assurances made by
Cavanaugh and Commissioner Jerry Oden, both of whom voted for the change and promised that the new formula
would "definitely" lower Alabama Power profits and that consumers would save money on their bills.

There are few, if any, other utilities in the nation that can get away with setting rates that give them as high a return as
Alabama Power's. The change to the new mechanism leaves Alabama Power with returns on equity (based on its
current equity ratio) of 13.73%. That's 3.1% higher than the current target established by the PSC (13.32%) and around
40% higher than the utility industry average of about 10%. The math makes it hard to figure how the Commissioners
can claim the new formula equates to a lower return on equity or lower rates.

A few tenths of a percentage point here and there may not seem like much, but the amounts the RSE and CNP formulas
allow Alabama Power to recover from customers are astounding. Alabama Power, according to filings with the PSC,
plans to pass over $3 billion in capital expenditures on to customers. According to Steven Hill, an expert consultant
hired by AARP to analyze the rate process and its fairness for senior citizens, if the PSC were to set the company's
returns at the industry standard, it would save consumers $287.5 million annually.

Those are real dollars that would mean a lot to Alabamians if they stayed in their pockets instead of being siphoned off
into Alabama Power's coffers. Yet the company doesn't have to justify any of its costs. It doesn't have to offer any
alternatives to spending money on coal plant upgrades, for example. No independent experts get to analyze the validity
of its decisions. And the company doesn't have to explain to customers why it's not spending more of their money on
programs like efficiency that will help lower bills. The PSC abandoned the public process to determine rates in 1982, so
as it has for the past 30 years, Alabama Power gets to make all those decisions simply by plugging numbers into
formulas behind closed doors and every year get the PSC's rubber stamp.

The whole idea of setting rates using a fixed formula with no formal review is highly questionable, and the PSC's recent
decision to alter the rate setting formula is a proverbial two steps back. Not only are Alabamians no closer to realizing
lower electricity bills, but they are also now faced with an untried scheme that can raise rather than lower the
company's profits.

It's long past time for changes to be made to the rate-setting process in Alabama. The idea of returning to formal
hearings that open the company's data, models and assumptions to public scrutiny is the only way Alabama residents
and businesses will see a cut in their excessively high bills.

It's time for Alabama to put the concerns of ratepayers on equal ground with the monopoly that provides their
electricity.

U-5115 : Application Requesting Approval to Establish a Regulatory Liability for Accumulated
Depreciation for Mobile Gas Service Corporation
12/5/2013: Mobile Gas files to change depreciation system - Mobile Gas Service Corporation filed an
application with the Alabama PSC on Nov. 26, 2013, seeking approval to establish a regulatory liability account for
accumulated depreciation. The company explained it was implementing a plant accounting software system and
discovered its accumulated depreciation on property is overstated by approximately $2.67 million as of Sept. 30, 2013.

Mobile Gas requested approval to apply $1.3 million to reduce the unfunded balance of its Self-Insurance Reserve;
apply $440,000 to bring its Enhanced Stability Reserve to its authorized balance; and refund $747,000 directly to
customers. Mobile Gas proposed to use the remaining balance to fund a new depreciation study, or to refund the
balance to customers as a credit to depreciation expense in fiscal year 2015.

Mobile Gas also requested approval to switch to a fixed-life calculation from the mean balance depreciation calculation
for general plant items, noting its new plant accounting system can accommodate those calculations and would prevent
over-depreciating general plant in the future.

The case was on the agenda for the commission's Dec. 3, 2013 meeting as an "Off Agenda Item." Staff recommended
approval.

130140-EI : Petition for Rate Increase by Gulf Power Company
12/6/2013: Commission approves Gulf's rate increase and settlement agreement – On Dec. 3, 2013, the
vote sheet from the Florida PSC's Dec. 3 commission conference was posted, reflecting the commission's approval of
the stipulation and settlement agreement between Gulf Power Company, Office of Public Counsel, Florida Industrial
Power Users Group, Federal Executive Agencies and Wal-Mart Stores East, LP and Sam's East, Inc. The commission
unanimously voted to approve the stipulation and settlement agreement in its entirety.

Background – The parties filed the stipulation and settlement agreement on Nov. 22, agreeing that Gulf Power's
authorized return on equity (ROE) should continue to be 10.25%, which is the same as the midpoint ROE set by the
commission in Order No. PSC-12-0179-FOF-EI issued on April 3, 2012 in docket 110138-EI with a proviso that if at any
time during the term, the average 30-year United States Treasury Bond yield rate for any period of six consecutive
months is at least 75 basis points greater than a yield rate of 3.7947 as accepted and agreed to by the parties as the
benchmark yield rate, GPC's authorized ROE of 10.25% and associated authorized ROE range of 9.25% to 11.25% shall
be increased by 25 basis points to a midpoint of 10.50% and a range of 9.50% to 11.50%, respectively.

The parties also agreed, among other things, that rate increases will be implemented as follows: Jan. 1, 2014 – $35.0
million increase; Jan. 1, 2015 – $20.0 million increase (thereby producing rates in 2015 that are $55.0 million over
GPC's authorized base rates as they exist on Nov. 15, 2013).

GPC will not be able to file for new base rates to be effective sooner than July 1, 2017, subject to a bilateral right of GPC
or consumer parties to initiate a rate proceeding if GPC's ROE falls below or above the authorized range.

The commission issued a news release on Dec. 3, announcing the approval.

130204-EM : Commission Review of Numeric Conservation Goals (Orlando Utilities Commission).
12/6/2013: Notice of proposed order on proxy methodology for utilities' conservation goals – The Florida
PSC issued a notice of proposed agency action order approving the use of proposed proxy methodology on Dec. 4, 2013