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Ken Hare In Depth: Public deserves more transparency in utility rate-setting process

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MONTGOMERY, AL (WSFA) -

Based on news coverage of the recent informal rate hearings for two of Alabama's regulated utilities, much of the Public Service Commission's hearing process seemed more about political agendas and public image than an actual discussion of the pros and cons of raising or lowering what Alabama consumers pay for natural gas or electricity.

When representatives of various groups did get around to discussing rates, they did not include anything close to the specific data and details that are often routine during rate hearings in other states.

When these "informal" hearings concluded, PSC President Twinkle Cavanaugh declared the process as a "huge success" and said she thought it would become a role model for other states.

But Commissioner Terry Dunn, who has supported formal rate hearings, strongly disagreed, telling me this week: "To speak plainly, even to suggest such a thing is absurd.

Before exploring which is better -- formal or informal hearings -- some background:

As I noted in an earlier column, back in the late 1970s and early 1980s, rates paid by residential users of natural gas and electricity in Alabama was a controversial political issue  that dominated election campaigns for the three PSC seats, as well as impacting other political races.

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.

That changed when 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.

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 in Alabama.

But then a few months ago, Public Service Commissioner Terry Dunn called for formal rate hearings on the rate structure for Alabama Power Company, Alabama Gas Corporation and Mobile Gas Service Corporation. But neither Cavanaugh nor Jeremy Oden, the other commissioner, seconded the motion, and it died.

That prompted editorial writers and news commentators across the state to question just why the PSC would not hold the first formal rate hearing in decades.

The central issue in all this, of course, is whether Alabama consumers are paying a fair price for the services they receive from regulated utilities. Groups such as Alabama Arise and AARP point out that the rates of return allowed by the Alabama PSC are higher than in most other states, while the utilities and their experts argue that the returns are justifiable.

I'm not going to wade too deeply into the rate debate, partly because the hearings did not provide the kind of balanced and  documented details necessary to reach such conclusions and partly because the issue is far too complicated to explore in depth in one column.

But whether there should be formal, full quasi-judicial hearings versus the informal hearings such as the PSC has just held is not so tough an issue.

Years ago as a young reporter, I covered the South Carolina Public Service Commission for that state's largest newspaper.  When rate cases came before the commission, I sat through day after day of testimony and cross examination of participants who were under oath.

It was a mind-numbing process for reporters, and probably to some extent for all involved. But what I saw emerge over time was the sort of details that allowed reasonable people to draw informed conclusions about what rates would be fair both to the public and to consumers. In addition, the process established a public record that allowed the citizenry of South Carolina access to just how their rate dollars were being used.

Contrast that to the "model" process lauded by Cavanaugh.

Commissioner Dunn points out that in the three one-day meetings on Alabama Power, rates "were not discussed at all – not at all – during the first two meetings."

"The informal process had numerous weaknesses, including the fact that speakers were not placed under oath, but when you watch how much time was wasted during the one day we devoted to the rates Alabama Power charges its customers, the absurdity of the process is laid bare," Dunn said.

An expert hired by the state attorney general's office, Dr. George Ford, also urged more formal hearings.

"The formal and documented dance among experts is important and vital to due process," Ford said in testimony before the PSC earlier this year.  "It develops the record that permits the staff and the commissioners to make informed decisions.  Also, the formal back and forth develops a record that serves as evidence of due process, thereby allowing the commission to issue a legally defensible action."    

But there is another reason for formal hearings: They build public confidence in PSC actions and the entire ratemaking process.

I strongly suspect that in a few months the PSC will announce a modest reduction in the rate of return for Alabama Power, especially with two commissioners up for re-election next year. (Ratepayers note: A reduction in a regulated utility's rate of return does not automatically mean lower rates for residential consumers. Watch the details when that announcement comes.)

But without the kind of transparency  provided by occasional formal rate hearings, the question of whether rates are fair both to consumers and the utilities will remain unanswered.

No one should want to return to the situation of three decades ago, when rate case after rate case dominated the headlines and the PSC essentially abdicated its responsibility by dumping the issues on the courts. But full, formal and in-depth rate hearings every four or five years for each regulated utility in the states should not be too much to ask.

In the long run, making the rate-setting process more transparent could prove more beneficial to Alabamians than a one-time, modest change in rates. 

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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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