Alabama Power's Rate Freeze: A Stormy Calm Before a Price Hike?

Alabama Power is hitting the pause button on rate hikes for the next two years. In a recent filing with the Alabama Public Service Commission (PSC), the company pledged to maintain current electricity rates through 2027. The stated reason? "We know budgets are tight." It’s a PR-friendly move, especially considering the economic climate, but what's the real story behind this freeze?

Digging Into the Details

The company's CFO, Moses Feagin, mentioned "internal cost containment measures" as a key factor. That’s corporate speak for "we’re tightening our belts." They’re also delaying any rate adjustments related to their acquisition of the Lindsay Hill Generating Station until 2028. The acquisition cost was substantial (reported at $2.1 billion), and, naturally, they'll want to recoup that investment somehow.

Alabama Power is also asking for permission to divert any customer refunds from Rate RSE—Rate Stabilization and Equalization—to its Natural Disaster Reserve, which, according to the filing, currently has a negative balance. Rate RSE is a mechanism that adjusts rates based on profit projections. Higher profits mean lower rates, and vice versa. It's also seeking to use 2024 nuclear production tax credits to offset retail costs.

Here's where things get interesting. The company acknowledges that "weather, natural disasters, changes in fuel markets or other significant unforeseen events" could impact these commitments. This is a crucial caveat. Alabama has been hit hard by storms recently. Just yesterday, nearly 40,000 customers were without power due to severe weather. By 6:25 a.m. that number had climbed to over 50,000. Jefferson County alone saw almost 33,000 outages. Alabama power outage: Over 50,000 without electricity as storms knock down trees and power lines It seems to me like it is less a freeze and more of a “we will try our best barring any acts of god”.

The Looming Shadow of 2028

The rate freeze is presented as a customer-friendly initiative, but it’s essentially kicking the can down the road. Delaying the Lindsay Hill adjustment and relying on measures like Rate RSE diversions only postpones the inevitable. What happens in 2028? It seems pretty obvious, doesn’t it? A rate hike. A substantial one, perhaps.

The question becomes: how much higher will rates climb in 2028 to compensate for the deferred costs and the depleted Natural Disaster Reserve? Will it be a manageable increase, or will customers face a sudden, significant spike in their bills?

I've looked at hundreds of these filings, and the reliance on "unforeseen events" as a potential deal-breaker is a common theme. It's a convenient hedge, allowing the company to backtrack if things don't go according to plan. It is also a bit insulting to act like these storms are somehow unforeseen. The gulf coast region is known for having bad weather.

A Matter of Perspective

Alabama Power projected a nearly 2% rate reduction for 2025 a year ago. Now, they're touting a rate freeze as a win. Alabama Power says it will freeze electricity rates through 2027: ‘We know budgets are tight’ It’s a classic case of managing expectations. The company is framing the freeze as a positive, but it’s arguably just damage control.

And this is the part of the report that I find genuinely puzzling. Why not just implement the 2% reduction? Is the weather really that bad that it will completely wipe out any chance of a reduction? Or is it more likely that the company is just trying to look good while quietly preparing for future increases?

What’s the real motivation here? Is it genuine concern for customers, or a calculated move to maintain public goodwill while setting the stage for future price hikes?

The Calm Before the Inevitable?

The rate freeze is a temporary reprieve, not a long-term solution. The underlying costs haven't disappeared; they've simply been deferred. Alabama Power is betting on a stable next few years, but the reliance on "internal cost containment" and the looming specter of 2028 suggest that customers should brace themselves for a potential price hike down the line. It’s a carefully crafted narrative designed to project stability, but the data points to a different conclusion.