Georgia Power rate hike approved
by Matt Shinall
Dec 23, 2010 | 4234 views | 0 0 comments | 15 15 recommendations | email to a friend | print
The Georgia Public Service Commission approved a Georgia Power rate increase Tuesday that will take effect Jan. 1. An increase of $562.3 million will take place in 2011 raising the average residential customer's monthly bill by about $10.76.

Scrutiny has been hard on Georgia Power as advocacy groups contend now is not the time to raise rates as Americans face a recession of historic proportions. Among the more vocal groups lobbying against such an increase was AARP.

"This deal was crafted by Georgia Power for Georgia Power," said Will Phillips, associate state director of AARP Georgia. "It raises customer rates by hundreds of millions of dollars more than is necessary in one of the worst economies in a generation."

Testimonies filed in July by Georgia Power in support of the requested increase specified the need for a revenue boost, including environmental regulations and capital investment projects.

"We cannot wait for the recession to end to begin building for growth. We must continue to support the future needs of our customers today. The current recession has not altered the fundamental drivers of our business. Our business still requires significant capital investment on a long lead time basis. Our economy will continue to run primarily on electricity. The increasing population in Georgia, like other Southeastern states, continues to require more electricity. Since 2006, Georgia Power has added over 48,000 customers and existing customers today use about 7 percent more electricity than they did 10 years ago (1999)," stated Michael Garrett, president and CEO of Georgia Power.

The vote passed the PSC at 4-1 with the nay vote cast by outgoing Commissioner Robert Baker, who, according to the Associated Press, called the ruling a "disturbing precedent."

A settlement agreement was reached by the PSC to set the three-year rate plan for a total base rate revenue increase of $844.6 million from the originally requested $1.2 billion. Base rates will increase incrementally through 2013. The ruling sets Georgia Power's return on equity at 11.15 percent. An earnings band was set for 10.25 percent to 12.25 percent. Earnings above 12.25 percent will be shared two-thirds with customers.

"Although the allowed profit margin has been slightly reduced, we don't see why Georgia Power should be entitled to earn a profit margin in excess of 11 percent -- a margin far greater than most businesses are currently earning," said Clare McGuire, director of the Georgia Watch Consumer Energy Program.

Georgia Power argues that service cost has been kept at low levels without being adjusted for inflation. They have also worked with the PSC to reduce costs in an attempt to reduce the need for additional hikes by extending the construction schedule of new units in McDonough and deferring maintenance and operation costs among other measures.

"Georgia Power has been able to hold prices well below the rate of inflation since the early 1990s. That means that customers are paying lower base rates today than they were in 1991 on a nominal basis and dramatically less on an inflation-adjusted basis. If base rates had just increased with inflation, customers would be paying base rates of nearly 8 cents a kWh as opposed to the 4.85 cents they are now paying. ... Even considering our total rates, which includes base and fuel rates, our overall rates have lagged the rate of inflation," Garrett said. "Even with this requested rate increase, our customers will still be paying lower base rates today than they were in 1991 on an inflation-adjusted basis. Our customers will continue to pay rates well below the national average."

Credit woes have also added to Georgia Power's request as cited in the July testimonies of Georgia Power Comptroller and Assistant Comptroller Ann Daiss and Robert Morris, respectively. Moody's and Fitch, Nationally Recognized Standardization Organizations, rate the credit standings of major corporations -- in September 2009, both organizations lowered Georgia Power's credit rating outlook from stable to negative. NRSO revisions are created by formulas based on cash flow metrics and risk profiles. A lower rating is feared by Georgia Power to affect loan guarantees.

"With the largest capital expenditure budget in the Company's history over the next several years, the Company will have to repeatedly access the capital markets to fund these investments. This additional financing must be sought in a highly competitive marketplace in which many utilities and other companies will also be seeking capital and in which investors will have numerous other opportunities to earn the returns they seek. We must remain financially healthy in order to attract investment at reasonable costs, and the rating agencies have indicated, as shown above, that they are closely watching the Company's financial health," stated Daiss and Morris. "While the Company has diligently worked to control costs, the increases in investment necessary to meet federal and state mandated environmental controls as well as to maintain reliable service for our customers, have been dramatic; therefore, an increase in revenues is needed to maintain the Company's financial integrity and to allow it to attract new capital to meet its growing infrastructure needs."

Although the base rate increase will help secure financing, it will not directly fund ongoing expansion across the state, including two new units at Georgia Power's Nuclear Plant Vogtle in Waynesboro, Ga. A Nuclear Construction Cost Recovery tariff was approved by the Georgia General Assembly in 2009 and again Tuesday by the PSC adding another $3.73 per month for the typical household.