Alabama Power, blaming federal regulations past and future, specifically coal ash and wastewater management (although poor company planning may have more to do with it), announced last month that it will close the final three units of its elderly Gorgas coal-fired station in Parrish, Ala., near Birmingham.
But while the utility is blaming the feds, its customers will continue to pay the Southern Co. subsidiary’s costs and a return on investment for a plant that will stop generating electricity in April. The price tag comes to $740 million, according to the news website al.com.
The website reports that Atlanta-based Southern Co. disclosed the cost figure in a quarterly 10-k filing at the Securities and Exchange Commission. Spread among all of Alabama Power’s customers, that price tag, paid far into the future, works out to about $500 each. The environmental group Southern Alliance for Clean Energy pointed out the filing to the news site.
That the company would continue to earn a profit on an unproductive asset has struck some utility regulatory analysts as bizarre. Travis Kavulla, former Montana utility regulator and past president of the National Association of Regulatory Utility Commissioners, now director of energy and environment for the R Street Institute, a Washington think tank, tweeted, “You would not think the following principle would even be up for debate, much less resolved contrarily: Utilities should not make a profit off of assets which are producing no electricity for their customers.”
Asked whether this was also happening in South Carolina, at the failed V.C. Summer nuclear construction project, and at the Southern Co.’s failed Kemper gas gasification and carbon capture project in Mississippi, Kavulla told The Quad Report, “My recollection is that the MS PSC gave Southern quite a haircut on Kemper, and that Dominion had something taken off the top on V.C. Summer as well (although that is a simply enormous price tag even so). It seems from my reading that Alabama Power, meanwhile, is pretty much getting full reimbursement, plus a return, on the remaining stranded investment in Gorgas.”
While the Gorgas site has housed electric generation since 1917, the large coal complex began life in 1951 with a 125-unit, followed in 1952 by another 125-MW unit, a 188-MW unit in 1958, and a 789-MW unit in 1972. The first closed in 2014.
The stranded investment looks like the result of management decisions in the past five years to put big bucks into pollution control upgrades for the remaining units at the site, including in 2015 a $375 million fabric filter baghouse to capture particulate emissions.
John Wilson of the Southern Alliance told al.com, “A number of people, including us, wanted Plant Gorgas to be retired back in 2015 rather than investing $300 million to keep the plant going. And now Alabama Power customers will be paying for this, for these past years of continued investment in that plant. And that really could have been avoided. Maybe not the whole $700 million could have been avoided, but certainly somewhere between $300 and $400 million could have been avoided if they had taken earlier action to recognize that this plant was not economical in the long run.”
In an article on the group’s website, Wilson wrote, “Compared to other state regulators, the Alabama PSC operates with a very light touch. The annual rate adjustment docket includes many filings by Alabama Power which take effect automatically. Most of the actual orders issued by the Alabama PSC are its agreement to a proposed change in accounting methods or scope of costs included in the two accounting systems used to create customers’ rates.”
A utility spokesman commented, “Utilities have long planning horizons for the assets they invest in. We considered all viable alternatives before making this decision. Alabama Power’s ability to provide safe, reliable electric service to customers will not be affected.
“The company regularly examines its generation fleet to determine how to meet the future needs of customers, and this retirement will factor into that process. With the retirement of Gorgas, the remaining net investments are recoverable in this case.”
Tiny Parrish, Ala., population of about 1,000, is famous, or infamous, for the 2018 “Poop Train,” a freight train loaded with New York City sewage sludge that was stranded in the town for more than two months in the spring as hot weather arrived. The city was shipping its smelly sludge to a low-cost Alabama landfill, after federal rules 20 years ago stopped New York from dumping the sludge in the ocean. The train sat on the tracks in the town as trucks moved the noxious material to the landfill.
— Kennedy Maize