Thursday, July 18, 2013

Cameron Smith: Populism, power and the Public Service Commission

  Over the last several months, the Alabama Public Service Commission (PSC) has held a number of informal hearings inviting public comment and questions regarding all aspects of Alabama Power’s business. Interested organizations and citizens were given the opportunity to examine a wide range of topics from the Rate Stabilization and Equalization mechanism to reviewing Alabama Power’s operations and painstakingly exploring its finances.

  The reason for the explosion of interest in Alabama’s utility rates has less to do with rate setting than it does a discussion over Alabama’s environmental policies. Frankly, an open discussion over those policies is appropriate in Alabama regardless of the events at the PSC.

  The creeks where I play with my boys are likely much cleaner and safer now than they were several decades ago. Common-sense environmental practices are not only a good idea; they improve our ability to leave a safe, clean world to our children. Recycling, conservation, and even choosing products and services that have a lower impact on the environment are reasonable and effective ways to improve our air, water and soil.

  At the same time, environmental concerns are balanced against economic costs. Some of these costs we may be willing to incur; others we may not.

  The participant and expert list for the recent PSC hearings is replete with environmental groups: the Southern Alliance for Clean Energy, the increasingly-activist AARP, Southern Environmental Law Center, Greater Birmingham Alliance for Stopping Pollution, and the Alabama Environmental Council.

  The aforementioned groups push an agenda that is anything but mindful of cost. These are the same entities that advocate for more strident and costly EPA regulations. Many also support the type of “cap and trade” scheme that President Obama said would cause energy prices to “necessarily skyrocket.” Shutting down cheaper sources of energy like coal results in higher energy generation prices that are passed to consumers…period.

  So what changed to make these environmental advocacy groups seem like advocates for low-cost energy?

  Many recognize that their idea of environmentalism at any cost fails to gain traction in a state like Alabama. So instead, they have decided to tap into Alabama’s populist streak. Nobody likes paying the power bill, especially in the hot Alabama summer. If environmentalists can convince Alabamians that the power company is making too much as a result of existing PSC rate-setting mechanism, they see an opportunity to change the rate review structure in a manner that would serve their agenda.

  A move to an adversarial formal review structure gives environmentalists the ability to shut down coal and other fossil-fuel generation through litigation and financial modeling that anticipates significant federal regulatory burdens without ever having to convince the people of Alabama of the merits of those ideas.

  Similar environmental groups were successful at targeting coal and oil generation through Georgia’s adversarial rate review, and Georgia Power has plans to retire 15 such plants. The economic models used to justify the retirement of coal facilities assume an ever-increasing cost of federal regulation.

  In other words, environmentalists use the economically burdensome regulations they support as one of the most significant economic reasons why coal and oil fired electricity generation must be shut down.

  Keep in mind that an informal mechanism to review power rates already exists, and Alabamians from across the political spectrum have provided their input. More importantly, there is a particularly formal means for Alabamians to ensure an appropriate balance between the customer’s interest and the utility’s profit: The election of PSC Commissioners.

  When the PSC makes their rate determination, the average Alabama utility customer has the chance to respond.  If he or she feels that rates are unbalanced, finds service to be insufficient, or even desires a PSC that more aggressively champions the ideas of environmental activists, the customer can vote to change the Commission’s makeup at the polls.

  Transparency is important, especially when it comes to regulated industries. The PSC would be wise to receive input and questions from anyone willing to put them forth, and they must weigh that information against that provided by the power company.

  The same transparency must also be a priority for groups promoting policies that impact the entire state. Environmentalist groups have every right to advocate for the end of coal generation. They can pursue more strident environmental standards than those already put forth by the EPA.  In either case, they should make their case directly to the PSC, elected officials, and the people of Alabama rather than engaging in a populist sleight of hand.

  About the author: Cameron Smith is policy director and general counsel for the Alabama Policy Institute, an independent, non-profit research and education organization dedicated to the preservation of free markets, limited government and strong families. If you would like to speak with the author, he may be reached 205.870.9900, at camerons[at] or on Twitter @DCameronSmith.

  This article was published by the Alabama Policy Institute.

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