Alabama Power Authorized to Procure 500 MW of Renewables

The Alabama Public Services Commission (the “PSC”) has granted a petition filed by Alabama Power Company (“Alabama Power”) for a certificate of convenience and necessity to develop or procure 500 megawatts of capacity and energy from “renewable energy and environmentally specialized generating sources.” Docket No. 32382 (July 16, 2015) (order). The authorization will expire six years from the date of the order and includes several limitations, including a 30-day review process for each project submitted under the order to ensure that the project meets the specified eligibility criteria.

In its discussion of the order, the PSC noted that the petition was unique in that it focused on “customer interest in renewable energy rather than reliability of the electric system.” In particular, Alabama Power focused on interest from military bases within the state, which account for over 12 percent of Alabama’s GDP and are now subject to two new renewable energy goals: (i) the National Defense Authorization Act for Fiscal Year 2007, Public Law 109-364, which established a goal for the Department of Defense to procure at least 25 percent of its energy consumption from renewable sources by 2025 and (ii) Executive Order 13693, which established a goal for all federal agencies to procure at least 10 percent of all energy consumption from renewable sources by 2016 and at least 25 percent by 2025. Increased generation may be necessary, Alabama Power claimed, to avoid future base closures and compete with neighboring states such as Florida and Georgia, which have already added a combined 240 MW of renewable generation to serve their respective military installations. Alabama Power also testified at hearing that large customers in the private sector, including nearly half of the nation’s Fortune 500 companies, have begun to make facility siting decisions based on the supply of renewable energy generation.

Alabama Power’s approach is in line with the recent trend of “sleeve” arrangements pursued by utilities such as Dominion Virginia Power to provide large customers that want green power with a mechanism to obtain it while keeping the large customers on their systems and protecting other customers from the cost differential between green and brown power. Unlike Dominion’s arrangement, however, Alabama Power’s approach allows Alabama Power to acquire the renewable energy for sale to the general public. The costs Alabama Power incurs for the renewable projects will be passed on to ratepayers generally and will not be isolated on a separate rate tariff. To protect ratepayers, however, the order requires that a proposed project be “expected to result in a positive economic benefit for all customers,” based on both the projected avoided costs over the term of the project as well as “other project-specific benefits”, including such considerations as (i) impact on load growth or load retention, (ii) contribution to Alabama Power’s compliance with environmental mandates, and (iii) any customer-specific contributions to the project. Customer-specific contributions to a project might include, for example, in-kind or financial support.

Projects may be in the form of construction or acquisition of new generation as well as power purchase agreements with existing generators. Individual projects may not exceed 80 MW, and only 160 MW may be approved in a single year without explicit approval from the PSC. Alabama Power must also issue a generic request for proposals on a biennial basis beginning in 2016, although projects are not required to arise from a request for proposal process. To review each project, the order adopts minimum informational requirements that Alabama Power must submit to both the Alabama Attorney General and PSC Staff for confidential review and confirmation that the project satisfies the order’s criteria. Projects must then be approved or disapproved by a majority vote of PSC.