“[The Georgia] situation is part of a trend where regulators are becoming the senior partners in the monopoly-regulatory cartel.”
Georgia Power is getting a lot of press these days about its commitment to using solar and wind generation. The problem is the age-old triumph of political power over consumer-driven power. The Company does not need this marginal supply, and what is being committed to is more expensive and less reliable than what they already have or could otherwise purchase.
Back in 2007 Georgia Power had its peak year in sales; today’s average is down about 15%. However, the Company continued to increase capacity, and its capacity factor (average utilization) has fallen to 55% from 73% in 2007. With a big nuclear plant coming on, why in the world is Georgia Power out buying more power capacity from other sources?
One big reason for buying unneeded renewable power is the stick of political pressure from the Georgia Public Service Commission. Commissioner Bubba McDonald has two other Commissioners, H. Doug Everett and Tim Echols, willing to back his agenda of more renewables at whatever costs and whether needed or not.
Georgia Power is vulnerable because their nuclear project is over-budget and behind schedule with more bad news to come. Georgia Power needs these Commissioners’ votes to collect for the nuclear debacle.
This situation is part of a trend where regulators are becoming the senior partners in the monopoly-regulatory cartel.
The Carrot: 3 for 1
Georgia Power has another reason for buying renewable power which requires standby gas-fired power to compensate for the intermittence of solar and wind.
Already the Commission is allowing Georgia Power to create Zombie plants. These are coal-fired generating plants with years of remaining useful life that are shut down in accordance with the utility industry’s deal with the EPA. The PSC allows Georgia Power to convert the remaining unrecovered capital from these assets to “regulatory assets” where they live on the books being amortized with a rate of return. So customers are stuck paying for idle capacity once.
Then Georgia Power replaces this capacity with wind and solar power, costing customers a second time for capacity. However, renewable generation requires gas-fired back up capacity. Consumers are charged capital recovery three times for actual useable capacity.
Being Regulated: Never Having to Say You’re Sorry
Georgia Power has made and continues to make big mistakes: creating overcapacity with its conventional power plant fleet, building an unneeded nuclear plant that is way too expensive, imposing very high overhead costs for efficiency measures that would be done anyway, and now buying expensive renewable power requiring back-up.
Out in the real business world this string of mistakes would lead to severe punishment. In the regulatory world things are different. Georgia Power enjoys one of the highest returns on equity (ROE) by a regulated utility in the country, and it usually makes even more than authorized.
The parent, Southern Company, tells investors they project sales growth of 2% per year. Growth of capital in place and earnings are projected to be 8% per year. Only in the regulated world does management brag about costly mistakes.
Political Cycles and Nuclear
Many PSC decisions are scheduled around political season. We saw a speed up in the fuel recovery reductions back when Chuck Eaton was up for reelection. There is a lot of Georgia Power news about renewables as we approach the reelections of Everett and McDonald. We have discussed the delay on the Atlanta Gas Light’s 2012 proposal to charge for accounting mistakes.
But the big driver is the construction of the Vogtle nuclear plant. Georgia Power and the Commission acknowledge there are sizable cost overruns, but the initial “certified” amount will not be changed until after the 2016 reelection of Commissioner Echols.
Here are pending matters that will be announced at the best politically advantageous times. There is the announcement of the resolution of the $900 million lawsuit between Georgia Power and building contractor. There are the next announcements of more cost overruns and scheduling delays.
With incumbents Everett and McDonald safely reelected this November there is a break until the June primaries for 2016 when Echols faces his republican opponents. The remainder of 2014 and year 2015 are a good time to get bad news out of the way so it will be forgotten by election year. Watch for it.
Who Will Protect Us From Our Protectors?
The Georgia Public Service Commission (PSC) has a handbook on consumer rights. The subtitle is “Your Defense Against Marketplace Abuse.” The handbook consists of citations of state statutes.
A free-and-open marketplace that allows multiple suppliers of goods and services and where consumers are free to switch suppliers provides far more protection than any silly government agency. Behind the rhetoric of protecting consumers is the reality that the PSC protects the utilities from consumers.
The PSC allows the utilities under its charge to make profits far higher than they could make in a competitive market. The utilities are allowed to cut sweetheart deals with affiliates, incur excessive costs, spend money defeating reform efforts by customers and potential competitors while generally running slipshod over customers.
There is no abuse in the marketplace that comes anywhere near matching the abuse of the monopoly regulatory system. Where’s our handbook on protecting us from the PSC?
We hear so much about market failure. What about government failure, the kind that is being witnessed today with Georgia Power and the PSC? Some of us are cynical enough to believe that imperfect markets are better than perfect government.
Jim Clarkson is president of Resource Supply Management, a provider of energy procurement and energy management services, and a longtime libertarian. His previous posts at MasterResource can be found here.