Ken Hare In Depth: Utility cost issue could provide political we - WAFB 9 News Baton Rouge, Louisiana News, Weather, Sports

Ken Hare In Depth: Utility cost issue could provide political wedge

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MONTGOMERY, AL (WSFA) -

In November, Alabama Democrats lost their last statewide political office when Public Service Commissioner Lucy Baxley failed to win re-election. Ironically, it could be a PSC-related issue that provides a political wedge that allows a Democrat to get his or her foot back in the door of statewide politics.

If the past is prologue in politics -- and it often is -- it shows us that a recent public debate over the utility rates paid by Alabama consumers could flare into the sort of populist issue in Alabama that could propel a Democratic challenger back into statewide office.

A history lesson, one that many in Alabama may have forgotten: Four decades ago, the rates paid by residential users of natural gas and electricity in Alabama was a huge and highly controversial political issue -- one that dominated election campaigns for not only the three PSC seats, but that also spilled over into Supreme Court races and even into legislative campaigns.

Every time electric and gas utilities wanted a rate increase, they had to go before the Public Service Commission in an open, on-the-record hearing and make a case under oath to justify that increase. Opponents of an increase also could testify under oath.

The political pressure that came with those increases often proved to be too much for most commissioners, causing them to deny the requests. Then the utility would appeal to the Alabama Supreme Court, which usually would find in favor of the utility for at least a portion of what it requested.

Many observers at the time felt the utilities asked for much more than they really wanted, leaving PSC members and Supreme Court justices room to look good to the voters by only approving part of the rate increase request.

Then, about three decades ago, the PSC entered into a new approach to ratemaking called "rate stabilization." Essentially, it said that utilities could adjust rates up or down as long as their return on equity remained within a certain range.

[ON THE WEB: kilowatt-hour costs for electricty by state]

Those changes made the full-scale rate hearings -- with executives having to make their case for rates publicly and under oath -- a thing of the past.

Now fast forward to recent events. A few weeks ago, Public Service Commissioner Terry Dunn made the motion  to call for formal hearings on the rate structure for Alabama Power Company, Alabama Gas Corporation and Mobile Gas Service Corporation.

But neither of the other two other commissioners, President Twinkle Cavanaugh and Jeremy Oden, would second the motion, and it died.

Since then, editorial writers and columnists across the state have questioned just why the commissioners would shy away from holding the first full rate hearing in decades.

Dunn said his push for a formal review of ranges of return on equity allowed for utilities would open up the process for the public. He said he has an open mind on whether the rates are too high, but said the process needs a formal review.

The Associated Press has reported that an independent research group, Regulatory Research Associates, said Alabama Power's range of 13 percent to 14.5 percent hasn't been changed since 1982. The range for Alabama Gas has been 13.15 percent to 13.65 percent since 1983, and the range for Mobile Gas has been 13.35 percent to 13.85 percent since 2002.

The report found the ranges of return for the three Alabama utilities were "well above" the average returns approved for energy utilities nationwide.

And it wasn't just Dunn asking for a formal review.  Kathryn Byrd, president of the League of Women Voters of Alabama, wrote an open letter to the three commissioners also asking for a formal review of utility rate structures.

"Consumers served by our investor-owned utilities pay them a much higher profit for shareholders than the average allowed by PSCs in other states," she wrote. "Our regulated electricity and gas utilities are guaranteed between 13.0 and 14.5 percent return on common equity and have been since 1982, as other electric utilities' average returns have been lowered with the changing times -- from 12.62 percent in 1990 to an average of 10.18 percent in 2012."

Byrd said these higher returns "may be appropriate, but citizens of Alabama have had no way of knowing." She urged the commissioners to end "the 30-year exclusion of interested parties from access to and involvement in decisions about our electricity and natural gas prices and plans."

No one seems to be asking the PSC to return to those seemingly constant rate hike request hearings of four decades ago when its members essentially abdicated their responsibilities and tossed the political hot potatoes to the courts.

But by denying a full-scale formal review of rate structures, the Republicans on the PSC are providing Alabama Democrats a ready-made political issue that has proved in the past to be an effective weapon against incumbents.

It remains to be seen if Democrats can take advantage of the issue, but it is one that is not likely to go away.

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Ken Hare was a longtime Alabama newspaper editorial writer and editorial page editor who now writes a regular column for WSFA's web site. Email him at khare@wsfa.com.

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