Alabama Power buys Calhoun plant despite rising gas prices

Alabama Power has asked the Alabama Civil Service Commission to purchase a 743 MW gas-fired power plant in Calhoun County, Alabama, despite its parent company’s net zero emissions goal and strong increase in gas prices which risk pushing up customer bills. Alabama Power’s decision to purchase the plant, which is already in operation and owned by an independent power producer, comes on top of the company’s plan to increase its gas production capacity by nearly 2,000. MW, which the Alabama Public Service Commission (PSC) approved in 2020. Alabama Power currently has an agreement to purchase power from the Calhoun plant, which is expected to end in 2022.

Alabama Power’s request for authorization from the PSC to purchase the Calhoun County gas plant did not specify the assumptions used by the utility to project the future price of gas.

Alabama Power had previously called methane a “persistent” low-cost resource in a January 2020 filing with the Alabama PSC. At that time, the Henry Hub Spot Price, a commonly used metric for gas prices, was $ 2.02 per MMBTU. By October 2021, gas prices had climbed to $ 5.51 per MMBTU.

In addition to risking increasing customer bills, Alabama Power’s purchase of the gas plant does not appear to be in line with the target set by its parent company, Southern Company, of achieving “net-zero” emissions. by 2050. The public service has defended its use. of gas as part of its goal of net zero emissions, despite the fact that the combustion of methane in power plants emits carbon dioxide and that methane leaks upstream of gas-fired power plants emit methane directly, a powerful greenhouse gases in the atmosphere. The utility’s net zero implementation plan, released in September 2020, showed it will operate gas-fired power plants until 2050 and Alabama Power has received approval from the AlabamaPSC to operate a new power plant. gas until 2060.

Alabama Power’s moves to buy power plants from independent power producers have raised questions of anti-competitive behavior, echoing a Department of Justice (DOJ) investigation into Entergy over a decade ago that accused the utility to prevent competitors from selling electricity and later buying the power plants at artificially low costs. Entergy then joined a competitive market to alleviate the DOJ’s concerns. Alabama Power is not a member of a competitive market.

The Southern Renewable Energy Association (SREA) called Alabama Power’s wave of gas acquisitions “part of Southern Company’s holistic strategy to restrict market competition and acquire merchant gas-fired power plants. natural in the region ”. The SREA has highlighted the potential problems of manipulation of the gas procurement market in a proceeding before the Federal Energy Regulatory Commission.

Customers will pay for the increase in gas prices

Multiple factors have caused the price of methane to skyrocket in recent months in the United States; oil and gas producers have restricted supply after a decade of overproduction at a loss and are using their income to pay off debts and reward investors, rather than ramping up production again. The explosion of liquid methane [natural] gas exports in recent years have also tied the product to the more expensive world market, pushing up prices in the United States. Investor-owned utilities typically pass all fuel costs directly onto consumers, with their own shareholders bearing little or no risk if prices rise. Businesses benefit from building new gas-fired power plants regardless of how the price of gas changes over the life of a power plant.

The risks of rising gas prices for electricity customers become more pronounced when the utility is more dependent on gas. Mississippi Power, one of Southern Company’s three electrical subsidiaries, generated 92% of its electricity from the combustion of methane gas in 2020. In a recent Integrated Resource Plan (IRP), most of Mississippi’s future plans Power involved building even more gas-fired power plants. Georgia Power, another subsidiary of Southern Company, generated 50% of its electricity by burning methane in 2020.

When Alabama Power received PSC approval to build and purchase nearly 2,000 megawatts of new gas, local clean energy advocates and the Alabama Attorney General’s Office (AG) told the Commission from the Alabama Public Service that the new gas-fired power plants posed a high risk for the creation of stranded assets – or assets that would become liabilities or costly to operate before the end of their useful life. forecast – especially since at least one of the plants was expected to operate at least ten years beyond Southern Company’s net zero emissions target. The AG’s office demanded that Alabama Power investors be required to shoulder at least some of the potential burden of this risk, but the PSC has ignored those demands.

Georgia Power has already requested a 15% increase in its fuel pass-through costs from customers, which represents an increase of approximately $ 340 million in customer bills. Georgia Power projects that customers will still owe an additional $ 320 million for gas in May 2023, even with the 15% increase, and the utility “doesn’t expect” the situation to “self-perpetuate”. corrects over the next 20 months ”.

Southern Company also owns gas utilities like Atlanta Gas Light, Chattanooga Gas (in Tennessee), Nicor ​​Gas (in Illinois), and Virginia Natural Gas, all of which sell gas directly to customers, primarily for heating. . These customers are likely to see their bills increase even more due to the higher gas costs, compared to electricity customers.

A long-term solution to hedge the exposure of these gas customers to gas price volatility would be to electrify their buildings with super efficient electric heat pumps. Despite being a subsidiary of Southern Company which only sells electricity and not gas, Georgia Power supported a 2020 bill in the Georgia legislature that prohibited municipalities from restricting the use of gas in buildings in any way, for example by requiring new construction to be fully electrified. The bill was passed.

Southern CEO’s GHG Bounty Still Enables New Gas

Southern Company has put in place an executive compensation structure that pays its CEO, Tom Fanning, for adding zero-carbon resources, phasing out coal-fired power plants, and phasing out gas-fired power plants. The company added the incentive to pull out gas-fired power plants in 2020, after initially factoring only coal pulls and carbon-free additions into Fanning’s compensation structure. Southern’s addition of the gas withdrawal language coincided with an order from its Mississippi regulators, after litigation, to withdraw older and infrequently used gas-fired power plants in Mississippi, where the utility had built. too much generating capacity after overestimating electricity demand for years.

While Fanning’s pay structure will now give him a bonus for phasing out those gas-fired power plants, the company’s planned addition of new gas-fired power plants will not count towards Fanning’s pay at all. He can still receive his full bonus, which Southern told investors as a “GHG reduction measure,” even if the company builds more methane-fired power plants, without penalty.

Banner photo courtesy of Flickr: Jimmy Emerson, DVM

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