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Archive for March, 2016

Georgia Utility Update – March 2016

Posted on: March 30th, 2016

By: Bobby Baker

In a Surprise Move Georgia PSC Approves Prudency Review for $7.9 Billion in Vogtle Costs

          With little advance notice the Georgia Public Service Commission approved a complete prudency review of all costs for Vogtle Units 3 and 4 incurred to date at its February 18 Administrative Session.  On January 28 all the parties to the Vogtle construction monitoring review were expecting to discuss Georgia Power Company’s request to recover the $350 million in litigation settlement costs to its contractors, Westinghouse and Chicago Bridge & Iron, and an additional $69 million for costs associated with cybersecurity and onsite security, but instead a surprise motion by Commissioner Stan Wise expanded the review from just the $419 million to also include over $7.453 billion for the total costs of the project to date.  Including the $419 million, this represents an increase in Project costs of more than $1.8 billion above the original certified cost in 2009 of $6.113 billion.

          The Georgia Commission’s decision to initiate a full prudency review is highly unusual because normal procedures have been completely ignored.  Multiple hearings with the presentation of witnesses for cross-examination will likely not occur.  To complicate matters there is no budget for the additional staff and consultants needed to conduct a thorough review.  Additionally, the Georgia PSC has an extremely full agenda for 2016 with the Georgia Power Integrated Resource Plan filed in January, a full Georgia Power rate case scheduled for July, the review of the merger of AGL Resources with Southern Company and two semi-annual Vogtle construction monitoring reviews.

          Georgia Power is scheduled to file its responses to a set of questions regarding the litigation settlement and Project costs by April 5.  Parties will only have 30 days to file comments and the PSC Staff may conduct discovery and is “authorized to engage in any settlement talks with the Company and intervening parties . . .” over six months.

Atlanta Gas Light Company (AGLC) May File Rate Case in 2016

          Hank Linginfelter, President of AGLC, testified on March 15 that AGLC was considering filing a rate case before the end of 2016.  Mr. Linginfelter was testifying at the hearing on the AGL Resources merger with Southern Company.  It was also revealed that AGLC’s current earnings level is approximately 100 basis points (one percent) below its authorized return on equity of 10.75% and was expected to decline further.

          The possibility of AGLC filing a rate case in 2016 puts additional pressure on the Public Service Commission Staff that already has a full plate handling Georgia Power’s Integrated Resource Plan, the unexpected Vogtle prudency review, the 14th Vogtle Construction Monitoring Review and the Southern Company – AGL Resources merger review.  Additionally, Georgia Power Company is scheduled to file its next rate case on July 1, 2016 and Atlanta Gas Light will file its capacity supply case later this summer.

Georgia Power 2014 Earnings Exceed Limits – Customers Get Small Refund

          Based on Georgia Power Company’s Annual Surveillance Report for 2014, the PSC Staff determined the Company had an adjusted return on equity (ROE) of 12.14% that resulted in a refund of $11.308 million to customers.  In its 2013 rate case the Company’s ROE level was set at 10.95% with an earnings dead band between 10.00% and 12.00%.  Any retail earnings above 12.00% are shared with two-thirds being refunded to customers and the Company keeping the other third.  One percent of the ROE is approximately $81 million.

Georgia Utility Update – January 2016

Posted on: March 30th, 2016

PSC Witness Confirms Vogtle 3 and 4 Cost of $9.517 Billion for Georgia Power

          At the December 10, 2015, hearing in the 13th Vogtle Construction Monitoring Review the Public Service Commission’s financial witness, Philip Hayet, confirmed that Georgia Power Company’s share of the cost for Vogtle Units 3 and 4 had increased from $6.113 billion to $9.517 billion an increase of 56%.  The Project cost overruns have been driven by persistent construction delays that have pushed back the original commercial operation dates of April 1, 2016 for Unit 3 and April 1, 2017 for Unit 4 to June 2019 for Unit 3 and June 2020 for Unit 4.

        Testimony from the PSC’s Construction Monitor strongly point to more significant construction delays in the future.  Georgia Power reported that construction on the Project was 26.4% complete based on the total man-hours necessary to complete the Project.  While it won’t take another 15 years to complete the Project based on current man-hours expended, it is certain that the current commercial operation dates will not be met.

         Fluor Corp. took over management of the Project on January 4from Chicago Bridge & Iron and is the fourth construction manager for the Project.

Compromising the Regulators By Utility Companies Subsidizing The Regulatory Agency’s Budget

          Having enough funds to properly carry out a government regulatory agency’s duties and responsibilities has always been a challenge.  The Legislature is very reluctant to increase a government agency’s budget unless there is a serious pressing need or a major crisis forces them to act.  Government agencies respond by prioritizing their work load or trying to become more efficient.  But a disturbing new trend has arisen in which regulated companies are directly paying hundreds of thousands of dollars in consulting fees, subscriptions and travel expenses of the Georgia Public Service Commission.

          The most recent example of this new funding is associated with the acquisition of Atlanta Gas Light Resources (“AGLR”) by Southern Company.  Southern Company and AGLR will pay the Commission’s consultants fees.  AGLR has agreed to pay up to $119,000 for the consulting fees of J. Kennedy & Associates and Southern Company has agreed to pay up to $264,480 for the Accoin Group.  The consulting companies’ invoices will be “reviewed and approved” by the PSC, but the checks to the PSC’s consultants will be written by AGLC and Southern Company.

          Becoming dependent upon utility companies to pay for annual subscriptions, regular travel expenses and consulting fees rather than including those expenses in the agency’s state budget gradually erodes the agency’s independence.  The utility company goes from being the regulated entity to also being a very important source of agency funding.  This new funding source may reduce the demand for public tax funds provided through the legislative funding process, but the regulator becomes dependent upon the regulated entity and eventually the decision making process is completely compromised.

Maintaining A Competitive Natural Gas Market in Georgia After the Merger of Atlanta Gas Light Resources with Southern Company

          The merger of Atlanta Gas Light Resources (“AGLR”) with Southern Company should be completed this summer, but the Georgia PSC will be conducting a review of the merger and considering whether any safeguards should be implemented to protect the competitive natural gas market in Georgia.  The merger of the two largest utility companies in Georgia – Georgia Power Company and Atlanta Gas Light Company – could impact the natural gas market in Georgia.

          Today consumers benefit from numerous competitive marketing plans that provide a variety of programs and prices offered by large and small natural gas marketers.  Consumers benefit from having multiple providers of natural gas.

          When AT&T acquired BellSouth in 2006 the Georgia Public Service Commission imposed several restrictions on AT&T so that the combined market power of both companies would not negatively restrict or inhibit competition for local phone service in Georgia.  Most of the conditions were very general, such as, not giving any preference to affiliated companies.

          The same thing needs to be done with the Southern Company and AGLR merger.  Reasonable restrictions must be imposed to preserve the competitive natural gas market in Georgia after the two largest utility companies in Georgia are combined.

Georgia Utility Update – November 2015

Posted on: March 30th, 2016

By: Bobby Baker

Georgia Power Company Rates Set to Go Up January 1, 2016

          Pursuant to the terms of the 2013 rate case settlement, Georgia Power Company filed on October 2 with the Georgia Public Service Commission its rate adjustments that will go into effect January 1, 2016.  Base rates will increase $48.8 million while the net increase for all riders will be $104.6 million.  The average Georgia Power customer will see their base rates increase by approximately 1%.  The range of rate adjustments for all tariffs varied from no increase to 1.4%. This is the third of three annual rate adjustment filings made by the Company pursuant to the terms of the 2013 rate case settlement.

          As part of the annual rate adjustment the Environmental Compliance Cost Recovery (ECCR) rider will increase to 12.7680% from 10.9683%.  The Nuclear Construction Cost Recovery (NCCR) rider will increase from 9.4638% to 9.7357%.  The residential Demand Side Management (DSM) rider will decrease from 1.8276% to 1.7195%, while the commercial DSM rate will increase from 2.1288% to 2.6109%.

          The average residential customer (living outside a city) will pay a total of 25.3757% of their gross monthly bill for the ECCR, NCCR, DSM and MFF riders in addition to a 1.2594% increase to their base rate charge.

Georgia Power Company Ratepayer Riders

          2011           2012            2013            2014           2015          2016

NCCR                             5.8619         6.4362          7.5821            9.3141           9.4638         9.7357

ECCR                             10.0131       10.0131        10.0131          10.4629          10.9683       12.7680

DSM – Res                      1.6273         1.9126          2.3403           1.8198            1.8276         1.7195

DSM – Com                     0.3831         1.0795          1.4484           2.0568           2.1288         2.6109

MFF – Inside                    2.9109          2.9109         2.9109           2.9643            2.9350        2.9989

MFF – Outside                 1.0801         1.0801          1.0801            1.0882          1.0891          1.1525

 

Vogtle Owners Reach $760 Million Settlement with Their Contractors

          Earlier this month the owners of Vogtle Units 3 and 4 entered a settlement agreement with their Contractors for the Project.  The Owners agreed to pay $760 million to the Contractors to resolve all outstanding contract disputes.  Georgia Power Company’s share of the settlement payment is $350 million while Oglethorpe Power’s share is $230 million and the Municipal Electric Authority of Georgia will pay $174 million.

          As part of the settlement deal Westinghouse Electric Company agreed to buy CB&I Stone & Webster for $229 million, and become the prime contractor for the Project.  CB&I Stone & Webster was the contractor responsible for construction on the Vogtle Project.  CB&I also reported that it would take noncash, pre-tax charges of $1 billion to $1.2 billion to reflect the reduced value of their nuclear business.  Subject to the close of Wesinghouse’s acquisition of CB&I, Fluor Corp. will take over management of Vogtle construction.

 

 

 

Georgia Utility Update – October 2015

Posted on: March 30th, 2016

By: Bobby Baker

$7.9 Million Pipeline Project Will Take Almost 300 Years to Break Even

          It will take close to 300 years to recover the $7,890,000 that it will cost to build a 57,500 foot six inch high pressure steel pipeline based on projected annual revenues of $27,800 between 2015 and 2019, while the pipeline’s useful life is 60 years.  The project’s total cost, including financing is $10,433,269, and the cost- benefit ratio was calculated at 0.0176.  According to Atlanta Gas Light Company’s application the pipeline will be built in Appling County which “is expected to experience growth of approximately six households per year between 2015 and 2019,” and there is no guarantee that any of the households will use natural gas.

          The application to build the pipeline in Appling County is part of Atlanta Gas Light Company’s strategic corridor program, and was filed May 29, 2015.  It was considered at the July 2, 2015, Energy Committee meeting at 10:00 and was approved by a unanimous vote at a Special Administrative Session held that same day at 10:23.

          Two other recent pipeline projects in Banks and Dodge Counties have cost- benefit ratios of 0.0069 and 0.0023.  The Banks County pipeline cost $7,644,452 with annual estimated revenue of $10,601, a cost benefit- ratio of 0.0069 and a 690 year payback.  The Dodge County pipeline cost $1,019,525 with estimated annual revenue of $468, a cost- benefit ratio of 0.0023 and a 2,000 year payback.

PSC Approves 27% Rate Increase for Gainesville and Columbus Gas Customers

          With no prior hearing or discussion during the September 15 Administrative Session, the PSC unanimously approved a 27% rate increase for residential customers of Liberty Utilities for their pipeline replacement program.  A residential customer will now pay $120.72 per year for the pipeline replacement surcharge.  Commercial and industrial customers saw smaller rate increases of only 3.4%.  The residential monthly pipeline replacement fee increased from $7.93 to $10.06, while commercial customers saw their monthly charges go from $29.19 to $30.19, and industrial charges went from $243.28 to $251.61 a month.

Since 2010 the residential, commercial and industrial monthly pipeline replacement charges have increased approximately 250%.  The new rates went into effect on October 1, 2015.  This is the fourteenth year of the pipe replacement program which began in 2001 to replace all the cast iron and bare steel natural gas pipeline located in Columbus and Gainesville, Georgia.

Liberty Utilities Pipeline Replacement Program Monthly Charges

                  2010                2011                2012                2013                2014             2015

Residential $4.00               $5.49               $6.85               $8.18               $7.93             $10.06

Commercial $11.99             $16.47             $20.54             $24.54             $29.19           $30.19

Industrial     $99.91             $137.25           $171.19           $204.50           $243.28         $251.61

 

La Capra Associates Report Questions Financial Viability of Marine Base Solar Project

          A report from La Capra Associates commissioned by the Public Service Commission raised some serious questions about the financial viability of Georgia Power Company’s proposed development of a 46 megawatt solar facility at the Marine Corps Logistics Base in Albany, Georgia.  This is the fifth solar project Georgia Power is proposing to develop on military bases in Georgia.

          The key elements of this solar project are: (1) Georgia Power is entering a 35 year contract; (2) “Georgia Power has represented that the Navy will grant the Company a lease at zero cost for 35-years” (Section 3.2); (3) the Company claims “the project will be substantially complete by the beginning of December 2016” (Section 4.3); (4) Georgia Power “retains all power and renewable attributes generated by the project: (Section 10.2), and; (5) “. . .the Company’s ratepayers assume the risk that actual production levels differ from the forecasts included in the economic analysis” (Section 8.1).  The Marine base gets no electricity, no renewable energy credits (“RECs”), no rent, no access to power in an emergency, and ratepayers are liable for any revenue shortfall.  The same conditions apply to the other solar projects located on military installations in Georgia.

          The financial viability of this project is heavily dependent upon Georgia Power qualifying for the 30% federal Investment Tax Credit which ends December 31, 2016.  Sections 10.5 and 10.6 of the report outline the risk areas to ratepayers, but a memo dated July 13, 2015, to the PSC Staff states, “There is an 11 percent margin for error in the assumptions used in the economic analysis in order for this project to provide economic benefit to ratepayers.  There is a material risk that the project will ultimately prove to be in excess of avoided costs.”

 

Supreme Court of Georgia Eliminates Direct Appeals from Denials of Immunity at Motion to Dismiss Stage

Posted on: March 28th, 2016

deniedBy: Andy Treese

Since 2009, government defendants in Georgia state courts have been authorized to directly appeal from denials of immunity-based motions to dismiss.  The underlying premise has been that such rulings, though not “final orders,” fell within a narrow category of “collateral orders” which were effectively final and therefore subject to immediate appellate review.  Board of Regents v. Canas, 295 Ga. App. 505 (2009).

No more.  Last week, the Supreme Court of Georgia held that a denial of immunity raised in a motion to dismiss is not directly appealable as a collateral order, expressly overturning Canas and at least twenty subsequent cases.  The cases are Rivera v. Washington (S15G0887) and Forsyth County v. Appelrouth (S15G0912)(consolidated for appeal) and the opinion is available here.  The Court signaled in its ruling that any reform of the appellate scheme will require legislative action, and the ruling appears to foreclose direct appeals as to the denial of sovereign, official, qualified, or any other immunities asserted by a motion to dismiss.  The result is that interlocutory review remains available through the discretionary appeal process, which the Georgia Supreme Court encourages trial courts to liberally grant.

This severely undermines the power of state-law immunities asserted in Georgia by way of motions to dismiss; future opinions will have to explore whether this ruling applies to summary  judgment orders.