If you’re one of the 2.7 million Georgians who pay their electricity bills at Georgia Power, you’ve probably noticed that the rates have increased in recent years.
What you may not know is that rate hikes are the result of an opaque process involving hearings similar to trials held every three years before a relatively little-known regulatory body.
On September 27, the Utilities Commission, a statewide elected body, began hearing a “tariff case” or proceeding over Georgia Power’s request to raise electricity tariffs.
At hearings, which resume on Tuesday, the utility company is advocating a 12% rate hike over the next three years through expert scrutiny.
A number of other stakeholders, from environmentalists to consumer advocates to representatives of industry groups, can participate as “interveners”. In the first round of hearings in September, the interveners were allowed to question Georgia Power witnesses; in this week’s round, they will provide testimonials and witnesses.
But the ultimate authority to approve or deny the proposed rate hike rests with the Commission on Utilities, a group that has been targeted in recent years for its perceived deference to Georgia Power and alleged racial discrimination. incorporated into its voting mechanism.
To understand what is happening, let’s take a step back and understand the structure of the Georgian energy market.
How the electricity tariffs are set
Georgia is different from most US states in that it has what is known as a “regulated” energy market for electricity. In Georgia, as in many other predominantly southern states, a single company has a monopoly on the production, transmission and distribution of electricity. In the 1990s, Georgia was the first state to deregulate natural gas, but it did not follow other states in electricity deregulation.
In the 1990s, many other states chose to dismantle such monopolies. If you live in a “deregulated” state, the company that owns the power line that electrifies your home (and to which you pay the bill) can choose from a variety of energy producers to purchase energy from, using a complicated system of market.
Georgia Power is a for-profit corporation and a subsidiary of the larger Southern Company, which owns utilities throughout the South.
However, it differs from other businesses in that the profits it returns to its shareholders are not subject to market forces, due to the lack of competition for the energy that Georgia Power produces and distributes to customers who have nowhere else to buy it. .
So where the profits of most companies depend on how much people are willing to pay in an open market, Georgia Power goes backwards: first by establishing a return on equity, or ROE (basically, how much shareholders are can profit, as a function of the net value of the company’s assets and liabilities), and then charging the rates accordingly.
The apparent role played by the Public Services Commission in this process is to determine a fair ROE. Under the current system, this amount is re-evaluated during tariff case hearings every three years.
The largest infrastructure project in America
This system offers some advantages over states of deregulated electricity. The promise of a secured ROE means that the company is attractive to investors and, as a result, Georgia Power is able to undertake costly projects with long-term horizons that may be out of reach in deregulated states.
One such project is in Burke County, where Georgia Power’s Vogtle plant is the only nuclear power plant under construction in the entire country. According to the company, two new reactors at the plant will be completed in the next two years. These will be the first new nuclear reactors to be built in the United States in about three decades, and their construction will make Vogtle the largest nuclear power plant in the nation.
It’s the kind of ambitious project few states could imagine, and according to Georgia Power it’s critical to enabling the transition from coal to clean energy (the utility is rapidly shutting down its coal plants, including the Scherer plant in Juliette in Monroe County). The new reactors will provide carbon-free core power for 60-80 years, company officials said in rate case hearings last month.
But the project has also vastly exceeded its budget and is six years behind schedule, generating allegations of financial mismanagement.
When construction began in 2012, the reactors were expected to be operational by 2016 and 2017 and costs were estimated at $ 14 billion.
In a 2021 report, Georgia Conservation Voters blamed the project’s current price, now around $ 30 billion, which makes Vogtle “the most expensive power plant ever built on earth.” Many of the other reactor investors took Georgia Power to court for cost overruns.
The process by which Georgia regulates energy only works if the Public Service Commission does its part and protects taxpayers from the abuse of Georgia’s monopoly power, a duty critics say the commissioners have not fulfilled .
Although the commissioners are elected, voter turnout is low and few Georgians really know what they do.
Patty Durand, the Democratic candidate for a seat on the committee, suggests renaming it the “Commission for Public Services” (the equivalent in some other states) to give voters a better idea of its scope, so that they can vote outside one. a commission that, in Durand’s words, “does not take its role as a brake on monopoly power seriously”.
Durand told the Telegraph the “profit structure the commission has chosen to give [Georgia Power] it is like a king’s ransom ».
In 2019, the commission voted to raise Georgia Power’s return on equity to a record 10.5% (resulting in a rate hike that has caused electricity bills to rise over the past three years). Durand says most other state-regulated utilities had 9.5% ROE, which was “well above the cost of credit” and therefore still attractive to investors.
In the case of the current rate, Georgia Power is looking to raise its ROE again to 11%, arguing that this will make it cheaper for the company to borrow money to make improvements to its network and finance the continued transition from coal.
“They did nothing to deserve those excessive profits,” Durand said in a telephone interview.
While half a percentage point may not seem like much, it is estimated that the resulting rate hike will increase households’ annual energy bills by nearly $ 200 over the next three years.
Also, during this period, tariffs are expected to rise again by indeterminate amounts due to the entry into operation of Plant Vogtle and in response to the rising cost of natural gas. Georgia Power has not yet requested these tariffs and will have to do so in the new hearings on the tariff cases.
Georgia Conservation Voters organization director Wan Smith told The Telegraph that the impact of such a rate hike on the poor in Georgia could be deadly.
“Georgia has more heat-related deaths per year than all hurricane and tornado deaths across the United States. This isn’t a game – people need their damn air conditioning,” Smith said in a phone call. .
How much will the rate increase actually cost?
At the hearing of the Public Services Commission on September 27, a dispute arose over the rate hearings on the total cost to taxpayers of the rate hike. Chris Womack, CEO of Georgia Power, said it would cost customers “just over $ 1 billion,” but Preston Thomas, an attorney on PSC’s public interest advocacy staff, said company records showed an increase. total of $ 3 billion.
The reason for the discrepancy was that Georgia Power’s $ 1 billion figure comes from what CFO Aaron Abramovitz described in the hearings as a calculation of the “incremental rate change” over three years.
The proposed rate hike is staggered over the next three years, increasing rates by a different amount each year. Georgia Power’s proposal under consideration is to increase the annual amount it raises from taxpayers by $ 852 million in 2023, followed by an additional $ 107 million in 2024 and finally $ 45 million more in 2025.
These three increases, considered individually, amount to $ 1.004 billion, in line with Womack’s figure.
But when adding up the annual increases alone, Georgia Power’s $ 1 billion figure does not represent the actual excess amount customers will pay, which is in fact nearly $ 3 billion.
How can you watch the hearings of the evaluation cases
Georgia Power’s next round of PSC hearings will take place this week, Tuesday, Wednesday and Thursday at 9:30 am
The hearings, during which the interveners will present their witnesses for cross-examination, will be streamed on the PSC YouTube channel.
The commissioners are expected to make a final decision on Georgia Power’s requested rate hike on December 20.