Alabama Power, Public Service Commission give electricity users the old switcheroo

By John Archibald, al.com on August 18, 2013 at 6:01 AM & updated August 18, 2013 at 6:07 AM

I know that trick.

Heck, I’ve done the trick.

Half a life ago, working a summer gig at the Florida theme park Circus World, I understudied the “Transported Troublemaker” role in the clown magic show. The illusion worked like this:

I’d sit in the audience and heckle the magician as he performed his first lame tricks. I’d draw attention so obnoxiously that no one would forget my face. In the dark later I’d slip through a trap door. Then, as the magic clown put his lovely assistant into a box onstage for the finale, I’d climb a ladder beneath the stage to switch places with the assistant.

When the magician opened the door– Voila! – I’d be there blinking, perplexed, bewildered, but fully believing the magic.

I know that trick. That’s why this week’s illusion by the Alabama Public Service Commission seemed so familiar.

Not just because trap doors are everywhere. Not simply because every voice is not who it seems to be. And not because everybody, in the end, secretly wants to believe the magic.

It was more. And it was PSC prestidigitator-in-chief Twinkle Cavanaugh who said the magic words Tuesday.

She declared Alabama Power’s informal rate hearings a massive success and a lesson in transparency, despite all those boos and calls for more formal hearings. Electricity rates, she said with a flourish, will drop for Alabama Power customers.

Presto!

But that’s where the “transparency” bit gets a little … tricky.

The cuts come, Cavanaugh said, because of a change in the way the rate structure is built. Instead of simply setting the utility’s allowed return on equity (ROE), as it has done for years and as most American utilities do, the PSC has instead set a weighted cost of equity (WCE), which combines the ROE with the utility’s equity ratio to set allowable returns.

Does it sound confusing? Obviously. Transparent?

The three members of the Public Service Commission itself can’t even explain what it all means in a way that is clear.

Commissioner Cavanaugh said power rates will fall dramatically.

Commissioner Jeremy Oden said power rates will fall moderately.

Commissioner Terry Dunn said the new structure could actually lead to higher rates by allowing the power company more leeway to affect the formula.

The majority of the commission “is playing the people for fools, and I don’t go along with that,” Dunn said.

Shazam!

In the magic name of transparency, not a single member of the commission can agree what this rate change means.

But it’s not that hard. And it’s not that magic.

Under the old way of setting rates, Alabama Power was allowed an ROE of 13-14.5 percent. The national average is about 10 percent. The new plan, PSC staffers and national utility experts agree, would still give the power company the equivalent of a return on equity above 13 percent.

It is barely any cut at all. And it is still allows Alabama Power, as analyst Stephen Hill told the AP, “the highest allowed profit in the country.”

Ta-da!

And that’s the trick, I guess. But it’s not really the grand finale. That came after the PSC decision, as Alabama Power sadly told the world it would have to go back to study what this new rate structure would mean for the company. As if it had not been in on the act from the start.

Alabama Power is “disappointed,” by the ruling, company spokesman Michael Sznajderman said.

You can see him — like magic — if you squeeze your eyes real tight. He is there in his box, blinking, perplexed and bewildered. Begging us with his eyes to simply believe in the magic.

It is spoiled for me. I’ve seen that trick before.

http://www.al.com/opinion/index.ssf/2013/08/alabama_power_public_service_c.html