Southern Company’s lawyers secured at least $200 million in profit for the company, largely on the backs of rural utility customers in Mississippi, Alabama, and Georgia, thanks to a March 2019 settlement agreement with rural municipal and cooperative utilities.

The settlement stems from a complaint that the Alabama Municipal Electric Authority (AMEA) and Cooperative Energy filed in May 2018 about alleged overcharges with the Federal Electric Regulatory Commission (FERC).  The utilities claimed that Southern Company’s profits from transmission assets were “unjust and unreasonable”. Southern Company reaped its purported excessive profit directly from the members and end-use customers of AMEA and Cooperative Energy due to their non-profit status.

Southern Company and its subsidiaries overcharged the customers of rural electric cooperatives and municipal utilities in Alabama and Mississippi for the use of its transmission lines by $266 million per year, according to the complaint. The average AMEA and Cooperative Energy residential or commercial customer would have paid approximately $433 of “excess” profit to Southern Company and its investors every year, according to a calculation performed by the Energy and Policy Institute with publicly available information based on the number of customers served by the utilities.

By the end of June 2018, PowerSouth Energy Cooperative, the Mississippi Public Service Commission, and the Georgia Transmission Corporation filed motions to intervene in the case before FERC. The documents filed by PowerSouth, the Mississippi PSC, and the Georgia Transmission Corporation did not provide estimated damages.

In the settlement, Southern Company agreed to reduce its return on equity (ROE) from 11.25% to 10.6%, a reduction of just 0.65%, which is equivalent to $66.5 million. AMEA and Cooperative Energy originally claimed any ROE above 8.65% would “exploit consumers”.

Southern Company’s lawyers won the negotiations and secured the lesser ROE reduction, preserving $200 million in profits compared to the $66.5 million it agreed to pass back to AMEA and Cooperative Energy. Southern Company protected additional profits from PowerSouth and Georgia Transmission Corporation, though the exact amounts are not clear from the filings.

FERC Trial Staff stated it did not support the settlement ROE but chose not to oppose the settlement because it reduced “litigation risk” and provided “rate certainty”. On May 15, 2019, the Settlement Judge recommended FERC “approve the Settlement without modification or condition.” FERC has not accepted the settlement as of the time of publication.

Photo source: Pixabay

Posted by Daniel Tait

Daniel Tait is a Research and Communication Manager for the Energy and Policy Institute.