POWERGRAMS

led to stable rate formula for company the offensive against the media and inaccurate, incomplete or biased stories. In January 1979, Wallace, barred by the state constitution from running again, left office. In September 1979, Hurricane Frederic blew through Mobile and throughout Alabama, causing widespread devastation and power outages for hundreds of thousands of customers. Alabama Power restoration crews earned praise from new Gov. Fob James and customers, which Farley credited with changing the public's view of the company. After Wallace left office, the Alabama Supreme Court determined some of the PSC rate denials to be unlawful. Hutchins and other Alabama Power employees already had begun working on adapting for Alabama a formula patterned after approaches used in other states. The concept generally allowed a range of return on equity, either raising or lowering utility revenues to meet that return. By November 1982, after a "zero order" in which the PSC denied Alabama Power any rate relief associated with the then-new Farley Unit 2, the Supreme Court had seen enough. It ordered the PSC to establish "rates which are not confiscatory." The PSC, which earlier had begun working with Alabama Power over the new rate-making concept, soon after adopted what became known as RSE. With RSE, the PSC continuosly reviews Alabama Power's retail rates. RSE prevents rate increases of more than 5 percent a year, and limits rate increases in two consecutive years to an average of no more than 4 percent annually. That makes rates more stable and prevents "rate shock" for customers. After three decades, the system has worked well. "RSE has changed the regulatory environment in Alabama, from one of distrust and confrontation, to one of communication and cooperation," the EEI study said. RSE is "a winning approach for the (Public Service) Commission, Government, company officials met at bargaining table. the consumers and utilities alike," the study concluded. Among the benefits cited: improved regulatory oversight "through ongoing, cooperative dialogue, rather than through the prism of sporadic litigated rate cases;" job growth in Alabama because low rates attract industries; rate stability and high levels of service reliability for customers; a favorable effect on the company's credit rating, which lowers the cost of debt and saves customers money; and a reasonable opportunity for Alabama Power to earn the allowed return. By Bob Blalock RSE Realities H ere are some facts to help dispel the myths about Alabama Power, its rates and the Rate Stabilization and Equalization (RSE) mechanism the Public Service Commission uses to regulate the company: Contrary to reports the PSC hasn't re-examined RSE since it was put into place 30 years ago, the PSC has made a number of modifications or policy changes to the system. Alabama Power's total retail price is below the national average and has been for decades. The company is committed to keeping rates flat this year and is working to do the same in 2014. That contrasts with at least 10 utilities in the Southeast and 33 across the country that are pushing for rate increases. RSE offers customers stability and predictability in their bills. During the 30 years RSE has been in place, increases have averaged less than 1 percent a year. When adjusted for inflation, Alabama Power's total retail price is 30 percent lower than when RSE was established in 1982. RSE provides Alabama Power financial integrity and stability, helping provide award-winning customer satisfaction, reliability rates among the highest in the country and industryrecognized storm recovery efforts. RSE allows Alabama Power to play an active role in the state's efforts to attract quality jobs to Alabama. Companies cite high electric reliability and competitive prices as factors in choosing Alabama. Among the international companies Alabama Power has been involved in luring are MercedesBenz, Honda, Hyundai and Airbus. RSE allows, but does not guarantee, Alabama Power the opportunity to earn between 13 percent and 14.5 percent return on equity (ROE). Some media outlets and activist groups have focused only on that aspect of the company's capital structure, arguing it is too high. A more accurate way to measure what Alabama Power earns is to look at the company's total return on all invested capital, which is less than 8 percent. That is comparable to utilities in the Southeast and across the country. RSE has allowed Alabama Power to rebuild its credit rating after agencies downgraded it during the turmoil of the 1970s, when Garrett Coliseum the company struggled financially as a result of the PSC denying requested rate increases. Alabama Power's high credit rating — one of five utilities with an "A" rating — has resulted in a cost of debt that is among the lowest in the country, which saves customers money. PAGE 5

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