Alabama Power’s diverse fuel mix will pay off for customers in the coming year.
Lower coal and natural gas prices through 2015 will help the company offset rising costs related to federal regulations. The result: a 2 percent reduction in the total retail price paid by Alabama Power customers through 2016.
The reduction takes effect January 1.
“There’s no question – costs related to federal environmental mandates and other governmental regulations continue to be a concern for us,” said Nick Sellers, Alabama Power’s vice president for Regulatory and Corporate Affairs.
“Regulatory costs related to coal-fired generation, in particular, are going to continue to rise as more environmental rules come in to play,” Sellers added. “For now, we’re pleased that our fuel flexibility is helping blunt the negative impact of these federal mandates.”
The company is grappling with immediate cost pressures totaling a quarter of a billion dollars that are traceable to federal regulations, including environmental compliance. Federal regulations connected to the company’s transmission and distribution operations and nuclear operations also are playing a role.
Thanks mainly to lower fuel costs, however, the company expects to return an estimated $120 million to customers through the end of 2016, even as it faces these new governmental cost pressures. That translates to a modest reduction, on average, in the total retail price customers pay.
“Given these federally mandated costs, this will end up being a modest decrease in power bills for our customers,” Sellers said. “But the good news is that rates are going down next year, not up.”
Fuel costs are a direct pass-through to Alabama Power customers, with the company earning no profit on fuel-related expenses. Any savings the company can gain through prudent fuel choices go directly toward reducing customer costs.
Alabama Power has long advocated for the ability to use a variety of fuel sources – from natural gas and coal to nuclear, hydro and other renewables. That flexibility provides a hedge against a volatile fuel market. In other words, when costs for one type of fuel go up relative to other fuels, the company can shift to generation sources that rely on those less expensive fuels.
Alabama Power customers who use large amounts of fuel, such as large industrial plants, are likely to see a larger reduction in their bills next year than other customers. In the end, though, customer bills will be dependent on many factors, including their energy usage and the weather. A hot summer next year, for example, could lead customers to use more power. Regardless, the fuel savings being returned to customers over the next year will result in their bills being lower than would otherwise have been the case.
While fuel flexibility will help customers this coming year, more federal environmental mandates, and related expenses, are on the way. For example, the company is nearing completion on about $1 billion in environmental controls and other projects that are required to further reduce emissions from coal-fired units and to enable other units to shift from coal to lower-emission, natural gas. Additional environmental regulations are on the way that are likely to present additional challenges, and require more costly changes, to the generating fleet in the coming years.
Despite rising costs for federal environmental regulations and other mandates, Alabama Power has been able to keep its total retail price below the national average. The company’s reliability, meanwhile, remains among the best in the industry.
“We will continue to do everything we can to provide affordable, reliable power for our customers,” Sellers said. “That’s our focus.”