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Georgia Utility Update – January 2017

Posted on: January 6th, 2017

By Robert B. Baker

PSC Approves Billions in Vogtle Expenditures and Cost Overruns With No Review

On December 20, 2016, the Georgia Public Service Commission unanimously approved the Stipulation between the PSC Staff and Georgia Power Company that increases the capital costs of the Vogtle Project for the construction of Units 3 and 4 from $4.418 billion to $5.680 billion, waives $1.552 billion in potential project cost disallowances, significantly reduces the chance that any prudency review of project costs will ever be done in the future and offers few or no protections to consumers all with no review of the Vogtle Unit 3 and 4 costs to date.  The Commission’s decision creates the largest revenue requirement imposed on Georgia Power ratepayers based on the least amount of public review by the Commission in its history.

By approving the Stipulation the Commission waived any future review of $700 million in additional financing costs incurred due to the current 39-month construction delay, the $350 million in Georgia Power’s share of litigation settlement costs with its Contractor and $502 million in additional replacement fuel costs incurred by the 39-month construction delay.  The Stipulation also increased the Vogtle Project’s forecasted capital costs by $1.262 billion to $5.680 billion that includes $2.380 billion in yet-to-be-spent capital costs.

The PSC Staff and Georgia Power claim the Stipulation provides $325 million in reduced rates for customers over the next four years based on a reduction to the company’s return on equity level used on the Project’s financing and a short-term deferral of financing costs that eventually will be paid by ratepayers.  In reality the Stipulation only provides approximately $29 million per year for the next four years in direct cost reductions to customers.  The remaining $210 million in savings is calculated based on $140 million in deferred financing payments and $70 million in tax savings based on the reduced earnings to Georgia Power.

Testimony from the only hearing on December 6th clearly showed that the PSC Staff was not focused on conducting a prudency review of the costs for Vogtle Units 3 and 4, but worked to develop information that could be used in settlement negotiations with Georgia Power.  The PSC Staff produced no report, memorandum, audit or any document that contained their analysis or discussed the billions of dollars in capital and construction costs they were allegedly reviewing.  In comparison, the prudency review conducted  in the late 1980s for Vogtle Units 1 and 2 took weeks of public hearings, contained extensive testimony from senior Georgia Power officials, consultants and accounting experts and created an enormous public record on which the Commission based its decision.

Georgia Power Company’s share of the Vogtle Project costs has increased from $6.113 billion to over $8 billion and more construction delays beyond the 39-month delay are expected.


Atlanta Gas Light Company Files Application for Alternative Form of Regulation

Atlanta Gas Light Company (“AGLC”) filed an application for an alternative form of regulation that will end comprehensive rate case proceedings and replace them with annual accounting true-up reviews.   AGLC’s application was filed December 1, 2016, and is on a very fast track for consideration by the Commission with a decision scheduled for February 21, 2017.  This application was filed just seven months after the Commission approved the historic merger of Atlanta Gas Light Resources with the Southern Company combining Georgia’s largest natural gas utility with Georgia’s largest electric utility.

Prior to any public notice or hearing the PSC Staff and AGLC negotiated a Stipulation for the transition to the alternative form of regulation.  The new form of regulation will eliminate any type of comprehensive rate case proceeding and severely limit review of the company’s operation.  Replacing the current review process will be an annual accounting true-up that will be limited to evaluating the company’s costs and revenues.

The procedural and scheduling order for this case was not issued until December 29th and intervenors must pre-file their testimony by January 6, 2017.  The speed and secrecy with which the PSC Staff and AGLC are handling this application should concern all ratepayers.  A single hearing is scheduled for February 7, 2017.

Georgia Utility Update – September 2016

Posted on: September 30th, 2016

By Robert B. Baker

PSC Approves An Additional 1,600 Megawatts (“MW”) of Renewable Energy by 2021

The Georgia Public Service Commission’s recent Integrated Resource Plan (“IRP”) decision provides for the development of an additional 1,600 MW of renewable energy in Georgia.  Requests for proposals will be issued in 2017 for 525 MW and 2019 for 525 MW.  The 1,600 MW or renewable generation will be composed of 1,050 MW of utility scale generation, 150 MW of distributed generation, 200 MW of self-build capacity for Georgia Power and 200 MW for a commercial and industrial program.  Costs to implement and administer the renewable energy program will be recovered through Georgia Power’s fuel charge.

No more than 75MW of  Georgia Power’s 200 MW self-build development may be with non-military customer projects.  All of the projects must be at or below the Company’s avoided cost.  Additionally, the Company shall consider the development of a 200 MW renewable Commercial and Industrial Program that will be reviewed by the Commission.

The IRP also provided for the retirement of several old coal plants – Plant Mitchell Units 3, 4A and 4B, Plant Kraft Unit 1 CT and Intercession City CT – to be completed by 2018.  The Company’s reserve margin was raised from 15% to 16.25%.  Additionally, the coal ash pond solar demonstration project and High Wind Study were   approved.

As part of  the IRP Georgia Power requested $175 million for licensing and study costs associated with new nuclear units to be located on the Chattahoochee River in Stewart County, the Commission approved $99 million until the next IRP in 2019.  PSC Staff analysis indicated that the initial request for $175 million did not include financing costs that would increase the actual costs for licensing to over $330 million.  Georgia Power claims it may need the additional nuclear generation capacity by the 2030s.


Vogtle Units 3 and 4 Prudency Review Report to the Commission Due October 19

On January 21, 2016, Georgia Power Company filed a request with the Commission to recover $350 million in litigation settlement costs it paid to its contractor for Vogtle Units 3 and 4.  At the January 28th Energy Committee meeting Commissioner Wise made a motion to review all of the Vogtle Project costs incurred-to-date, including the litigation settlement costs.  On February 2, 2016, the Commission approved the Vogtle prudency review for all costs of the Project.

Georgia Power is seeking certification that all of its costs up to December 31, 2015, or $3,509 billion are prudent and reasonable.  Costs certified as “prudent and reasonable” are not subject to any future review or disallowance.  Certified costs are included in the Company’s rate base for recovery from ratepayers.

This is the first prudency by the Public Service Commission since the Vogtle Units 1 and 2 prudency reviews conducted in 1987 and 1989.  While the Vogtle 1 and 2 prudency reviews had several weeks of public hearings, testimony from the Company’s senior officers and consultants and cross-examination of those witnesses, the prudency review for Vogtle 3 and 4 provides for no extended public hearings, no testimony from any witnesses and no cross-examination.

The Public Service Commission Staff is conducting a limited review of the Vogtle 3 and 4 expenses and is scheduled to report to the Commission its findings or possible settlement proposal on October 19, 2016.  Certification of all the Vogtle 3 and 4 costs as prudent and reasonable face several challenges, such as, the Project currently being 39 months behind schedule, persistent problems with the module and sub-module fabrication from the beginning of the Project, no complete Integrated Project Schedule until 2016, the inability to test equipment and systems until they are complete and the possible inclusion of costs that should be allocated to Vogtle Units 1 and 2.


Atlanta Gas Light Company Submits Its 2017 Facilities Expansion Plan for $24 Million

Atlanta Gas Light Company (“AGLC”) recently submitted its 2017 facilities expansion plan that will target Appling, Macon and Schley Counties.  Estimated total costs for the three projects are $9.5 million for Appling County, $2.5 million for Macon County and $12.4 million for Schley County.  Of particular interest is the Schley County project which has no projected customers and no projected revenue through 2021.  The AGLC filing in Docket 40714 indicates that the project will install approximately 26,000 feet of six inch steel pipe along Highway 271 to US Highway 19 to provide natural gas service to customers in Ellaville.

Georgia Utility Update – July 2016

Posted on: July 12th, 2016

Southern Company/AGL Resources Merger Complete as of July 1 

The Southern Company acquisition of AGL Resources was completed as of July 1 making Southern Company the second largest utility in the country with a customer base of approximately 9 million and a projected rate base of approximately $50 billion.  Eleven electric and gas utility companies will serve customers in nine states.

The Georgia Public Service Commission approved the joint merger application of the companies on April 14, 2016, by adopting a Settlement Agreement between the parties.  As part of the Settlement Agreement the Commission conditioned the merger application by prohibiting the recovery of the merger transaction costs through a rate proceeding and the allocation of any transaction costs to Georgia Power or Atlanta Gas Light by either Southern Company or AGL Resources.  The merger Settlement Agreement also delayed the filing of Georgia Power’s rate case from July 1, 2016, to July 1, 2019.


Georgia Power Integrated Resource Plan (“IRP”) Provides for 1,600 MWs of Renewable Generation

The Public Service Commission will consider Georgia Power’s proposed IRP and Stipulation on July 28.  The proposed IRP provides for development of 1,200 MW (150 MW of distributed generation) through the Renewable Energy Development Initiative (“REDI”).  Two RFPs in 2017 and 2019 will each solicit 525 MW of renewable energy for development by 2019 and 2021.  The REDI program limits wind resources to no more than 300 MW.  The IRP also provides for 200 MW of self-build capacity by the Company and the possible development of a renewable commercial and industrial program that will be capped at 200 MW.     

The IRP contains several other significant provisions.  Five older coal and natural gas plants will be decertified and retired, and capital expenditures at five additional coal plants will be restricted pending anticipated retirement after 2019.  The Company’s High Wind Study and ash pond solar demonstration projects will be approved, and its planning reserve margin will be increased to 16.25%.

The Company’s request for $175 million for funding new nuclear development in Stewart County also will be decided by the Commission.  The PSC Staff estimated that between $131 to $153 million for financing costs through 2026 would have to be added to the $175 million.


$5 Billion Vogtle 3 & 4 Prudency Review Cloaked in Secrecy

Unlike the prudency review conducted in the late 1980s for Vogtle Units 1 & 2 where senior Georgia Power officers and others testified in public hearings there will be no witnesses, no public hearings, no opportunity for cross-examination and no record other than the comments filed by the Company and a few interveners regarding the Company’s request that approximately $5 billion in capital and financing costs be found prudent by the Commission.  In fact, it’s not known exactly how much Georgia Power is asking the Commission to certify as prudently spent on the Vogtle Project because no amount or cut-off date was included in the Company’s filing.  In response to an inquiry by the Commission Staff the Company indicated that they would like to have all of their expenses for the Vogtle Project up to the day of the Commission’s Order included as a prudent expense, which begs the question, how can you review an expense that is incurred the day it is approved?

The Commission’s procedural and scheduling order for the prudency review used the term “settlement” seven times which is a telling indicator what is expected from the Staff.  Should they not get the message, the Commission reserves the right “to extend the deadline if the Commission deems it appropriate to do so in order to allow further time for review or further negotiations.”  The Staff is scheduled to report to the Commission on October 19 the results of their negotiations with Georgia Power Company.

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.