ATLANTA — Georgia Power Co. has cut in half the 7% rate increase it requested from state energy regulators last summer.
But in an unusual development in Georgia rate cases, the proposal the state Public Service Commission will take up on Tuesday is missing a key element. Commissioners will have to decide on the fly how much return on equity to award the Atlanta-based utility because negotiators for Georgia Power and the PSC staff were too far apart to reach an agreement.
As a result, the commission will have three alternatives to consider rather than the typical single proposal: a settlement agreement submitted by Georgia Power, a second plan from the agency’s staff and a third in the form of a motion by commission Chairman Lauren “Bubba” McDonald.
“It’s definitely unusual,” said Kurt Ebersbach, senior attorney for the Southern Environmental Law Center, one of more than a dozen parties intervening in the rate case. “There’s almost always a stipulation agreement between the staff and company. … I’m not used to seeing it come down to the wire like this.”
The rate hike Georgia Power submitted last June 30 would cover a three-year period starting Jan. 1.
The utility’s original request of a 7% increase, a big jump by previous standards, was driven in part by a six-year lag since it received its last adjustment. Georgia Power agreed not to pursue a rate case in 2016 while the PSC was busy considering and subsequently approving its proposed merger with natural-gas giant AGL Resources.
This year, company executives argued the utility needed the money to recover the costs of major investments since 2013 in infrastructure improvements aimed at better serving customers and environmental compliance expenses, including closing all of its coal-ash ponds adjacent to power plants. Georgia Power also was hit with a clean-up bill of more than $450 million following several major storms, including Hurricane Michael in October of last year.
The company’s plan to raise its basic service fee on residential customers from $10 a month to $17.95 drew a public outcry as the PSC opened hearings on the case, including sign-carrying demonstrators marching outside the commission’s headquarters in downtown Atlanta.
In negotiations with the PSC staff, the utility backed away significantly from its original stance. The new settlement agreement would reduce the proposed fee hike to $14.
In another major concession, Georgia Power pledged not to seek any increase next year. Instead, the monthly fee would go up to $12 in 2021 and not reach $14 until 2022.
Liz Coyle, executive director of the Atlanta-based consumer advocacy group Georgia Watch, said she’s encouraged by the company’s willingness to compromise on the fees.
“I believe we’re getting close to a resolution that will be to the benefit of Georgia Power customers,” she said.
But Georgia Power isn’t budging on the return-on-equity issue, which the utility sees as vital to its credit worthiness and overall financial integrity.
“Maintaining the company’s credit rating is critical, especially as the company goes to the financial markets to build out the … infrastructure, comply with federal and state (environmental compliance) obligations, all the investments (the PSC) staff has admitted, accepted and agreed we need to make,” Kevin Greene, a lawyer representing Georgia Power, told the commission’s Energy Committee Thursday.
The ROE question is the main reason the company and PSC staff have failed to reach agreement. Georgia Power originally proposed a ROE of 10.9%, while the PSC staff countered with 9.2%.
“That’s worth $390 million, $290 million of which would be profit for the company,” Ebersbach said.
The commission’s staff upped its offer last week to 10.25% — with McDonald concurring in the motion he filed last week.
But Greene said reducing the ROE essentially would punish Georgia Power despite a record of stellar customer service.
“Georgia Power is a superior performing utility,” he said. “It deserves to be treated as such.”
But McDonald brought up the massive cost overruns and scheduling delays Georgia Power has encountered at its Plant Vogtle nuclear expansion project as an example of “poor decisions” by the utility that are costing ratepayers.
He said he took Plant Vogtle’s woes into account in crafting his motion for a lower ROE for Georgia Power, even though costs associated with the nuclear construction are not part of the rate case.
“You failed to recognize the leadership decisions made over the years that didn’t work, that could be negative to consumers,” McDonald told Greene. “You have to take responsibility.”
Greene said Georgia Power shareholders already have absorbed $720 million in costs associated with Plant Vogtle. To reduce the utility’s ROE in a rate case essentially would be to “double penalize” the company, he said.
Despite Georgia Power’s willingness to pare back the increase in its basic service fee, environmental and consumer advocacy groups remain opposed to the proposed settlement agreement and are calling on the PSC to approve its staff’s recommendations.
Notably, none of the six intervenors in the case that signed off on the Georgia Power agreement last week were environmental or consumer groups. Intervenors siding with the utility include the city of Atlanta, MARTA, The Kroger Co. and three organizations representing Georgia manufacturers and other large commercial customers.