Georgia Power: Chronic Leak in Budget Found
By Margaret Newkirk, The Atlanta Journal-Constitution
Jan. 25–Over the past few years as Georgia Power asked for, and the state Public Service Commission approved, a series of fuel charge increases, the company always had a culprit to blame.
In 2005, it was China, and the effect its voracious energy demands had on coal prices. Last year, it was Hurricane Katrina, and what that did to the price of natural gas.
On Wednesday, as the company and its critics wrapped up a two-day hearing on its latest request for more fuel money, another culprit had emerged: Georgia Power itself.
A major reason that the company is pushing for an additional $420 million per year in fuel money now is that the company is correcting a flaw in its own budgeting.
The flaw has existed for years, and is part of why the company keeps missing its target and coming back for more money.
Georgia Power now says it has consistently projected its fuel costs based on an assumption that it would run its cheapest-to-operate plants more than it in fact can or does. That meant the company was surprised — again and again and year after year — by larger-than-budgeted costs incurred by running more expensive plants instead.
A new and more realistic budgeting model is part of why the company is asking the PSC for an increase that will raise the typical residential power bill — averaged over a year — by another $5.50, to $94 from $89.
That’s on top of the $5 per month those bills went up this summer, after the company’s last fuel charge boost was approved by the PSC, and the nearly $8 added the previous year, also for a fuel price boost.
The increase will also significantly affect commercial and industrial power users.
The company said it could finally turn around a stubborn fuel pricing problem: “We think that if you approve the rates we filed that we’re in a good place for all of us,” said company Chief Financial Officer Ann Daiss.
PSC staff, industrial energy users and the Governor’s Office of Consumer Affairs all testified this week that the proposed increase was too large. All also agreed that the company’s predictions of future fuel costs were too high.
They disagreed on other parts of the proposal. They recommended cuts, but largely small ones: The company will get most of what it has asked for, because state law mandates that it get paid for its fuel spending as long as that spending isn’t imprudent.
Joint analysis Georgia Power’s budgeting problem was discovered in the course of a detailed analysis of the fuel program by the PSC staff, staff consultants and company officials.
The analysis found that Georgia Power had been undercalculating what’s called a “spinning reserve,” which is an amount of power that the company has to be able to add into the system quickly if needed to stave off blackouts or brownouts.
Georgia Power does that by running some easy-to-ramp-up, cheap-to-run coal plants at less than full power. More expensive plants make up the power those coal plants are holding in reserve.
For years, the company has been making its budget as if it had to have only 650 megawatt-hours of power held back for reserve. In fact, the company was holding back 1,000.
It meant that the company was consistently underestimating how much of the more expensive power it would use.
The mistake is significant, said consultant Jeffrey Pollock, testifying for the Georgia Industrial Group and the Georgia Textile Manufacturers Association. It aggravated the company’s shortfalls and helped put Georgia Power’s customers into debt with the company — a debt the company would later collect, plus interest, through a larger fuel charge.
Pollock said customers should be credited for at least the $4.3 million they paid in interest last year for shortfalls related to the budgeting problem: “Because ratepayers are not at fault, the company should be required to absorb all carrying costs associated with this modeling error.”
Daiss argued that such a credit would essentially punish Georgia Power for discovering the mistake and fixing it: It would be “a disincentive to improvement of modeling,” Daiss said in rebuttal testimony.
Pollock also said that the commission needs to look more deeply at Georgia Power’s wholesale sales, through which more than 1,400 megawatts of power from the company’s cheaper-to-run plants is under contract to electric membership cooperatives in Georgia and Alabama and to out-of-state power companies.
The arrangement, which Pollock called “incredibly lucrative,” means Georgia Power’s own ratepayers aren’t getting full advantage of those cheaper plants. He also said the company was not charging wholesale customers nearly enough for pollution allowances and was allowing those wholesale customers to benefit from environmental improvements paid for by retail customers.
The company said its wholesale business helped create an economy of scale that helps ratepayers.
The PSC staff recommended that the commission not allow Georgia Power to collect $3.5 million incurred when the company had to use expensive replacement power to make up for nuclear power, after three mistakes that each temporarily shut down its Plant Hatch nuclear plant.
The three incidents were among six examined by staff consultants, who said all three met the standard of imprudency that would allow the PSC to deny recovery.
One involved trash left inside a duct during a work project. Another shutdown happened after an engineer installed the wrong part during a repair. A third happened when the company ran a calibration test when the plant was running, instead of when it was shut down, as recommended.
The company said the mistakes were isolated and that its overall record of running its nuclear plants is better than the industry average.
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