Short Answer: The monopoly utilities providing electricity to Alabama residents bet heavily on natural gas, while continuing to burn other increasingly costly fossil fuels to generate power. These fuel prices have skyrocketed for a variety of reasons, including COVID. Utilities made the wrong bet, but YOU are the one who’s paying the price. That’s because utilities can simply pass the price increase on to you, at no risk to themselves or shareholders (if they have them). Read on and we’ll explain how and why.
Long(er) Answer:
Your utility bill is determined based on the rates approved by the applicable utility regulator, based on state or federal legislation. For Alabama Power customers, the rates would be authorized by the Alabama Public Service Commission (PSC). Alabama Power has not undergone a formal public rate hearing since 1982. The last informal rate hearing was in 2013!
Your utility provider is allowed to pass-through to YOU all fuel costs used to generate your electricity. That is, UNLESS the regulator (like the PSC) requires the utility to bear some of the burden. In Alabama, of course, that NEVER happens. The Alabama PSC is happy to let Alabama Power continue to charge you for its bad investments. If prices go up in the commodity market for the fuels used to generate electricity, those price increases will be passed on directly to you and increase your monthly bill. That’s a big reason your bills are going up right now.
Another element that impacts your bill relates to capital expenditures by the utility. The more a utility spends on electricity generation facilities the more the utility can charge you. A coal or gas fired electricity generation plant will cost billions of dollars and is much more expensive due to capital requirements than a solar generating facility and battery storage.
Side Note: Remember that solar energy is generated by the sun, which is not sold on the commodities market, it has no fuel cost. If the Alabama PSC instead selects fuel sources with volatile fuel costs, you pay the price when fuel costs get out of whack. Because solar, battery storage do not have a fuel cost and very minimal to no operational costs, they are DEFLATIONARY by definition.
Reliance on Volatile Gas
Alabama utilities are heavily dependent on gas for generating electricity, according to the Energy Information Administration.
More specific to Alabama Power, the monopoly utility regulated by the Alabama PSC, had this mix of fuel sources in its electricity generation portfolio for 2021:
- Gas & Oil 25%
- Coal 43%
- Hydro 8%
- Nuclear 24%
Non-hydro renewables are practically non-existent on the Alabama Power grid.
Alabama Power has doubled-down on gas as its preferred fuel source and recently received approval from the Alabama Public Service Commission (PSC) for about 2 gigawatts (GW) of new gas-fueled production capacity. TVA is currently moving forward on a misguided plan to replace the Cumberland Fossil Plant, a coal-powered plant it’s retiring and has additional plans for as much as 6 GW of gas production. For context, 6 gigawatts of electricity is enough to power between 1.8 million and 4.35 million homes (depending on home size and average home electricity consumption per year).
Energy Alabama fought the efforts of Alabama Power to expand gas-fired production facilities, but the Alabama PSC rubber stamped the request, while simultaneously rejecting a modest request by Alabama Power to add a tiny bit of solar production capacity to its energy portfolio.
Energy Alabama is also working with a number of allies to advocate against TVA’s proposals to replace its Cumberland Fossil Plant (a coal-powered plant in Tennessee) with a new 100% gas-powered facility. These plans are not yet 100% final, so there’s still time for TVA to change course and add solar and storage to the mix.
In the midst of this increased reliance on gas, fossil fuel prices have skyrocketed in the past year due to a war in Ukraine, COVID-19, supply chain issues, and increased exports to Europe to help them break their addiction to Russian gas.
When utilities are so reliant on natural gas, the slightest hiccups in the market can have a devastating effect.
Nationwide, U.S. utilities paid substantially higher prices for all forms of fossil fuels used in power generation in May 2022 compared to May 2021.
As it turns out, over-committing to gas was not a smart move, just as we had argued.
Gas prices are skyrocketing globally, just as demand has also ramped up. U.S. gas producers are exporting more gas to Mexico via existing pipelines. U.S. producers have also ramped up gas exports to Europe and other global destinations in the form of liquified natural gas, in part to reduce European reliance on Russian gas.
Exports are great for the shareholders of fossil fuel producers—especially when commodity fuel prices are sky high! Oil and gas industry profits are soaring. Profits are so high, in fact, that the UK appears likely to impose some form of a short-duration “windfall profits tax” on Big Oil to help pay for programs to help residential customers pay their home utility bills. Source:
The unpredictability of gas prices due to global demand, combined with Alabama utilities reliance on gas as a major percentage of their energy production portfolios leaves Alabama customers paying the price.
In Alabama—like other states where monopoly utilities still exist—fuel costs are fully passed on to the end customer. Alabama Power’s profits are not impacted by the increase in fuel cost. Alabama Power shareholders won’t get lower dividends because gas or coal prices are up. Additionally, when power plants are built and utilities project fuel costs over the lifespan of the plant, there is no penalty for being wrong.
Failure to Promote Energy Efficiency in Alabama
Both Alabama Power and TVA ignore energy efficiency improvements as a way to help consumers lower their utility bills. The Alabama PSC does NOTHING to require Alabama Power to implement any form of energy efficiency initiatives.
Energy Alabama has argued for aggressive action on energy efficiency. This is the fastest way to help Alabamians right now to lower their home utility bills. And it is cheaper for utilities to pay for energy efficiency than new expensive power plants.
Weather stripping around windows and doors and more (or better) insulation can make major differences in the monthly cost to cool or heat a home. Incentive programs to make energy efficiency upgrades affordable for home owners, small landlords, and larger commercial property rental companies would make a huge difference. Unfortunately, Alabamians are left footing 100% of the cost of energy efficiency improvements out of their own pocket because the utilities do not want customers to reduce their monthly utility bill.
Failure to Add Solar & Storage
Solar and storage technologies are readily available today and could be easily implemented by Alabama Power—if only the Alabama PSC would require it. Alabama is near the bottom in energy production from solar, even though it’s viable and growing next door in Georgia and soon to provide a big boost to Mississippi’s economy.
Georgia Power is already far ahead in bringing solar into its energy generation portfolio. That’s because the Georgia legislature and the Georgia PSC have required the utility to take at least some modest action.
The state of Mississippi is also joining the move to solar, leaving Alabama in the dust.
The Bottom Line
Corporate profits and political power are the fuel that drive Alabama Power and many other utilities.
If someone tries to convince you that your power bills are high in 2022 because of something OTHER than high fuel prices coupled with Alabama’s reliance on natural gas and coal as the primary source of electricity generation, they probably have a vested interest they are trying protect. You would be wise to ask them how they plan to encourage their utility to pursue a lower-cost, cleaner path going forward. When you know better, do better…
