Alabama regulators on Tuesday rejected Spire Alabama’s request for a higher allowed return on equity, approving a lower rate and a two-year term for the utility’s rate stabilization mechanism.
The Alabama Public Service Commission voted unanimously to approve the framework after reviewing Spire Alabama’s Rate Stabilization and Equalization mechanism, known as RSE. The commission considered testimony and written arguments from Spire, the Alabama Attorney General’s Office and Energy Alabama.
The decision sets Spire Alabama’s return-on-equity adjustment point at 9.4 percent, with an allowed range of 9.2 percent to 9.6 percent. The commission also approved a two-year RSE term and suspended the company’s cost control measurement mechanism, which gives the utility an incentive to limit certain operating costs.
Spire had requested a 10.5 percent adjustment point, with a range of 10.3 percent to 11 percent, and a five-year RSE term. The company also sought to retain its cost control measurement mechanism.
Judge Luke Bentley presented the recommendation to the commission. He said the attorney general’s position most closely reflected the evidence in the case.
The Attorney General’s Office had recommended a 9.2 percent adjustment point and a range of 9 percent to 9.4 percent. It also recommended a two-year RSE term, suspension of the cost control mechanism and no increase in the fixed customer charge.
Energy Alabama recommended an 8.3 percent adjustment point and a range of 8.3 percent to 8.7 percent. The group took no position on the RSE term or cost control mechanism but opposed an increase in the customer charge.
Bentley said the evidence did not justify changing the existing 40-basis-point range. He said a two-year term was appropriate under current economic and operating conditions.
The commission also approved an increase in Spire Alabama’s fixed monthly customer charge. The utility will phase in the increase over two years.
Customers will pay an additional $2.50 a month beginning October 1 and another $2.50 a month beginning October 1, 2027.
Commissioners said the change will be revenue neutral.
The increase does not authorize Spire to collect an additional $5 per month from customers. Instead, the company will recover more of its fixed costs through the monthly customer charge and less through the usage-based portion of customers’ gas bills.
Public Service Commission President Cynthia Lee Almond emphasized that distinction during the meeting.
“The change is revenue neutral,” Almond said.
Some costs associated with serving customers remain fixed regardless of how much gas they use. Under the new structure, Spire will recover more of those costs through the fixed monthly charge while reducing the usage-based portion of the bill.
As a result, the change will not affect every customer’s bill in the same way. The effect will depend partly on how much natural gas the customer uses.
Almond said the commission’s decision to lower the return on equity also will affect future rates calculated under the RSE framework.
“Because of this reduction, customer rates set during the next budget process will be lower than they would have been if the company had maintained the previous RSE terms,” Almond said.
The commission will revisit Spire’s new RSE framework in two years. The company had requested a five-year term.
Almond said the commission must balance the interests of utilities and their customers.
“The mission of the PSC is to ensure a regulatory balance between the regulating company and consumers,” Almond said. “In order to provide consumers with safe, adequate, and reliable services at rates that are just and reasonable. That balance is not always easy to achieve, and these are not decisions that we take lightly.”
