Renewable energy advocates challenge Alabama Power’s request to buy natural gas plant

Renewable energy advocates want the Alabama Public Service Commission to prevent Alabama Power from purchasing an Autauga County natural gas plant and raising customer rates to pay for it.

The utility said in a filing in October that it wants to acquire the Lindsay Hill plant in Billingsley, expected to provide 900 megawatts of electricity, to address an expected shortfall of energy by 2029.

“The proposed acquisition of Lindsay Hill represents a unique and cost-effective opportunity for the company and its customers,” said Christopher J. Habig, manager of resource planning for Alabama Power in a transcript of his testimony that was included in the October filing. “The economics alone are quite favorable, and there are additional benefits expected to develop as the company explores opportunities for efficiencies and synergies with central Alabama.”

To finance the cost of the purchase, Alabama Power proposes to increase the monthly utility bill for its residential customers by $3.32, according to the filing. Alabama Power customers absorbed other rate increases after the utility purchased natural gas resources in 2020 and 2022. Those acquisitions increased utility bills by a combined $5 each month. If the proposed acquisition is approved, the increased would would increase utility rates by $8 per month or $96 annually.

The utility said last year it expected the acquisition to raise monthly rates by $3.80. But in filings last month, both Alabama Power and opponents of the move said the cost would be $3.32 a month.

Renewable energy advocates such as Energy Alabama and the Greater-Birmingham Alliance to Stop Pollution (GASP) have intervened to prevent the transaction, claiming it is not in the best interest of Alabama residents.

“Basically, it just means that people are paying for a power plant that they do not need,” said Daniel Tait, executive director for Energy Alabama, an organization that advocates for renewable energy. “Your monthly bill goes up a little bit. And Alabama Power makes more money, and you are not really getting any benefit from that.”

The utility said in its filing last fall that it had about 108 megawatts of reserve electricity for the winter months and will reach its peak excess electricity capacity in 2026 at 650 megawatts.

However, it said its reserves for the winter will steadily decline, going to 390 megawatts in 2027 and diminishing even further to 150 megawatts in 2028 as its analysts expect increased demand across three of its customer segments: residential, commercial and industrial.

Several data centers are planned to be built in Alabama during the next several years, according to Fred Clark, president and CEO of the Alabama Municipal Electric Authority, in an interview in October. That will increase the demand for electricity in Alabama, reducing the company’s reserves.

Two new data centers are expected to come online in the next few years, which Alabama Power said increases the load on the system in its filing with the Alabama Public Service Commission.

Alabama Power estimates that by 2029 it will have a net deficit for winter electricity capacity of 1,179 megawatts, a number it expects to grow to nearly 2,500 megawatts in 2035.

Energy Alabama and GASP argued in a proposed order that Alabama Power overestimated the future demand from data centers and that in seeking new sources of energy, the utility excluded potential resources of energy that are more climate friendly.

According to the proposed order submitted by attorneys from the Southern Environmental Law Center, the organization representing both Energy Alabama and GASP, the company has regularly overestimated the demand forecasted with its industrial companies to account for projects that expand their sites as well as maintain and modernize them. The filing cited an analysis by James Wilson, an energy economist.

“The industrial sales forecast was well above actual sales in ten of the past twelve years (2012-2023), including each of the past five years (2019-2023),” the proposed order from Energy Alabama and GASP states.

The actual figures from Alabama Power that experts for Energy Alabama and GASP used for analysis were redacted from publicly available legal documents because Alabama Power said they are trade secrets that could not be disclosed.

“This over-forecasting may be due to how the company prepares its forecasts for the industrial sectors, which is through customer surveys that collect ‘specific information about its customers’ anticipated facility expansions, long-term maintenance and modernization plans, and other activities impactful to load,’” the proposed order from Energy Alabama and GASP. “This approach may capture customers’ possible expansions but is less likely to capture contractions or efficiency improvements.”

The SELC also expressed skepticism about the demand from data centers, arguing the increased demand for power does not happen immediately and is highly uncertain.

“Technology companies like Amazon, Google, Microsoft and Meta are considering multiple locations for data centers but may only build a subset of the contemplated data centers,” the proposed order states. “In addition, they may only load the data centers with servers and chips on a delayed schedule due to the huge investment required to fill the data center with the servers and chips that bring it to full capacity and the likelihood that chips will be increasingly scarce and expensive as the demand for data centers increases.”

The renewable energy groups also argue Alabama Power “ explicitly excluded solar and storage resources” in a 2023 Capacity RFP, which allows groups to submit bids to Alabama Power and provide the company with power to meet the needs of its customers, arguing that the power source was “reliable, dispatchable and available year-round.”

Alabama Power challenged Wilson’s estimates in a response to Energy Alabama and GASP.

“The predicate for Mr. Wilson’s alternative industrial demand forecast (the 550 MW reduction through 2029) is the historical annual variance in energy sales from the Company’s industrial class,” the company’s proposed orders states. “While at any point in time there may be some correlation between a loss of energy sales and peak demand, Mr. Wilson made no effort to determine whether or to what extent that correlation exists.”

Alabama Power also said in the filing that the projection regarding electricity use for data centers was based on data taken from a data center that is currently operating.

The company also said it had to exclude solar power and energy storage from consideration in the procurement process because it did not have the operational experience to oversee that particular source, which is required by the Alabama Public Service Commission.

The company added that the Lindsay Hill power generating station “is the least-cost option among the potentially viable alternatives available to the Company, as reflected in proposals and self-build projects responsive to the 2023 Capacity RFP.”

Energy Alabama and GASP, however, want to intervene and stop the purchase of the natural gas power plant because of the increased cost burden it will have for Alabama Power customers.

“Alabama Power customers bear the risks associated with the Company’s proposal. Additionally, the proposal will add to the bill increases associated with recent gas additions by the Company,” the proposed order states.