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By: Bobby Baker
What the Southern Company Acquisition of AGLR Really Means
The announcement last month of Southern Company’s acquisition of Atlanta Gas Light Resources (“AGLR”) is more significant than two very large utility companies merging. This transaction will have long term impacts on Georgia ratepayers and the utility industry. First, ratepayers should anticipate applications for significant rate increases to be filed in 2016 by Georgia Power and Atlanta Gas Light Company (AGLC’s last rate case was in 2010) . Second, the purchase of AGLR signals Southern Company’s plans to rely on natural gas for its generation needs for the long term. Finally, say good-bye to more expensive nuclear development, although Vogtle Units 3 and 4 will be completed.
Mergers aren’t cheap and Southern Company (“SoCo”) is going to be borrowing a lot of money to purchase AGLR. In order to keep its bankers and stockholders happy SoCo is going to be looking to its subsidiaries, both Georgia Power and soon Atlanta Gas Light Company (“AGLC”) to increase their revenues. In addition to the SoCo/AGLR merger, Georgia Power is planning on spending $6.9 billion in capital projects through 2017 that includes $1.643 billion for Vogtle 3 & 4, and $5.6 billion in new financing. Georgia Power ratepayers will see a slight reduction in their fuel costs in the current fuel cost recovery case, but they shouldn’t be lulled into complacency expecting the same when the Company files its 2016 rate case. Expect AGLC to file a rate case after the merger is completed.
When you spend $8 billion to buy a natural gas company with extensive transmission and storage assets in your service territory it’s hard to justify building anything but natural gas powered generation. Georgia Power gets 35+% of its electric generation from natural gas units today and that percentage is going to increase. Very low gas prices and large gas reserves make the decision to build combined cycle natural gas fired units the logical choice when new generation is needed.
The merger also signals the end of Southern Company’s plans to build more nuclear units. It’s kind of hard to justify building over-priced nuclear units when you just bought a natural gas utility, natural gas prices are really low and you have large generation reserves. The nuclear Renaissance didn’t last too long for SoCo and what anti-nuclear and conservation groups have been trying to do for years will be accomplished by one business transaction; stop more nukes from being built.
Integrated Resource Planning Workshop Scheduled for October 20-21
In a surprise move last month the Georgia Public Service Commission approved plans to conduct a pre-Integrated Resource Planning (“IRP”) workshop at which the Commission will examine issues related to the value of renewable and distributed energy resources. The nine issues to be considered were presented for the first time in the Commission’s Order.
The Notice of Inquiry indicated that the goal of the workshop was to “narrow the issues to be addressed in the IRP.” Issues such as the quantifiable benefits and costs of renewable resources, the current method for valuing distributed generation and the impact of distributed generation on base-load generation will be considered in the workshop. Initial comments are due at the Commission by September 11 and the workshop will be conducted on October 20 and possibly the 21st.
Georgia PSC Rubber-Stamps Approval of the Latest Vogtle Expenditures
The August 26th Order issued by the Georgia Public Service Commission in the 12th semi-annual construction monitoring review approved Georgia Power’s latest expenditures of $169 million and did little else. The Vogtle Project is currently 39 months behind schedule and the Company itself expressed grave concerns about their Contractor’s performance. The highly touted $4 billion in project benefits to consumers has been reduced to a mere $208 million according to the PSC Staff’s expert witness, and the remaining positive benefits would go negative if the $522 million in Production Tax Credits are lost for Unit 4. Furthermore, the 39 month delay will mean an additional $319.00 or $6.26 a month rate increase for the average residential customer who uses 1,000 kilowatt hours per month beginning April 2016 and continuing to June 2020.
Georgia Power Company filed its 13th Semi-annual Vogtle Construction Monitoring Report on August 28 and the initial hearing is scheduled for some time in October 2015.