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2023 Fuel Cost Recovery - Docket 44902
Georgia Power Company is gambling massively on natural gas, and using Georgia electricity customers’ money.
Why is the FCR-26 stipulation imprudent? - Georgia law [O.C.G.A. § 46-2-26 (h)] states that, “the Commission shall disallow…fuel cost that is the result of…clearly imprudent conduct on the part of the utility.” In the last fuel cost recovery docket in 2020, Georgia Power Company proposed and the Commission accepted a large and imprudent decrease in the fuel hedging program, based on the Company’s flawed fuel cost forecasting methodology, a flawed market outlook, and 100% pass-thru of cost and risk to customers. This last point means that Georgia Power Company pays for 0% of fuel costs, although companies 100% owned by Georgia Power Company’s parent company profit handsomely by marketing, selling, and moving the gas to Georgia, and they can be cavalier with fuel costs because they pay exactly $0 toward fuel costs. We the customers bear the risk. Georgia Power Company increased that exposure to risk without justification, and here we are today with a huge fuel cost bill to pay.
No. 1 - The Comptroller and Assistant Comptroller of Georgia Power Company say in sworn testimony that “the Company does not [their emphasis] earn a return on fuel costs” -- but this is deeply misleading and evasive. The return on fuel cost is earned by companies fully owned by Southern Company, who fully owns Georgia Power Company. The return on fuel cost is earned by Southern Company Services, which markets natural gas to Georgia Power Company. The return on fuel cost is also earned by Southern Power Company, who sells power to Georgia Power Company via the gas PPAs. The return on fuel cost is also earned by Southern Natural Gas Pipeline, as they transport the natural gas to Georgia. Georgia Power Company earns plenty of return for these other companies, all of which are 100% owned by Southern Company except the pipeline which is 50%.
Here are the problems with the FCR-26 stipulation:
No. 2 - Georgia Power Company asked for and received approval to lock in 2,356 MWs of gas-fired Power Purchase Agreements for up to 15 years. Meanwhile, natural gas prices are seeing long-term, sustained upward price pressure from fundamentals like LNG exports, which the Company explicitly referenced as a key risk. Before the gas PPAs even expire, LNG exports could make up half of total US demand for natural gas, driving up the cost of electricity in Georgia as we compete in a tight world market for fuel. Hear me when I say, this will not be the last rate increase from Georgia Power Company.
Click here or click the EIA graph to the right for a presentation I made in 2014 on the impact of LNG exports on Henry Hub prices.
No. 3 - And yet 100% of the fuel price risk is borne not by Georgia Power Company but by its customers. 0% of the risk is borne by Georgia Power Company. They can be cavalier with fuel prices, by using a deeply flawed methodology to forecast the fuel budget for FCR cases and by dramatically scaling back the hedging program in FCR-25 that resulted in a $2,187,000,000 debt bomb that they would like to leave with us customers. Is that prudent or justified? No, it is not.
Three years ago, the Company asked for and received a reduction in the hedging window by 12 months and reduced the hedging percentage of fuel burn by 10%, when prices were extraordinarily low due to a global pandemic. The Company also uses the NYMEX Henry Hub futures curve for its forecast budget in the FCR, which is not accepted in the industry as a forecast, but rather a snapshot in time. Furthermore, the FCR forecast is different from the natural gas price forecast the Company uses in its Integrated Resource Plan, which is from the EIA Annual Energy Outlook. The same mistake from 3 years ago is being repeated once again in this FCR-26 proceeding. Study closely this graph:
No. 4 - Now, all this risk was made very clear to this Commission in this docket, made clear during the last two IRPs, and I’m sure in the dockets before I began intervening in IRPs. Here are my exhibits that show Georgia Power Company’s own analysis demonstrates that a heavy dependence on gas-fired generation has a massive upside cost risk. Well, we’re seeing that risk borne out in real life, and just as designed we the customers of Georgia Power Company pay that cost while they take 4 or 5 cuts of the natural gas profits on its way to become electricity delivered to your home or business. By the way, there is 0% production of natural gas in this state, and 0% production of coal, so all these billions of Fuel Cost Recovery dollars are just leaving the state, forever.
No. 5 - Allowing Georgia Power Company to impoverish hardworking Georgians while they extract profits for shareholders and out-of-state natural gas and coal companies is simply unacceptable. Allowing Georgia Power Company to grossly mismanage the fuel cost risks because they have no downside cost, only upside profit, is simply unacceptable. Allowing Georgia Power Company to radically adjust the Interim Fuel Rider to be hair trigger as we see more volatility and more natural gas price increases, is simply unacceptable. Please reconsider this stipulation and hold Georgia Power Company accountable, for once.
Prudent regulatory actions that Georgia deserves from its Public Service Commission
The Georgia Public Service Commission should disallow 10% of the under-recovered fuel cost due to the imprudent, unjustified, and poorly timed 10% reduction in hedging in 2020 when prices were artificially low due to Covid-19 entering its third month, and a further 10% disallowance due to the Company’s increased reliance on natural gas in the face of significant economic headwinds that will put constant upward pressure on fuel prices (rising LNG exports, high cost of capital, rising labor costs, diminishing natural gas reserves, supply chain constraints, etc.). This would result in a 20% disallowance of $437,400,000 (or $0.4374 billion) of the under-recovered FCR-26 request, with a total authorized under-recovery of $1,749,600,000 (or $1.7496 billion).
Order a Discovery Docket to more deeply evaluate the benefits of requiring some amount of risk-sharing and cost-sharing by Georgia Power Company in managing its fuel supply, including the benefits to ratepayers; to overall system reliability; to emissions and to national security. A modernized Fuel Cost Recovery mechanism could allow Georgia Power Company to secure earnings for its shareholders, while better protecting its customers from fuel price spikes and fuel price volatility.
Order and fund a study to examine the net benefits that would result from Georgia joining a Southeast Regional Transmission Organization. The General Assembly of South Carolina determined a Southeast RTO would enrich South Carolina by $187 million annually. The state of Georgia would likely benefit up to $375 million annually. See 4/27/23 SC Electricity Market Reform Measures Study Committee report.
Order and fund a study to examine the net benefits to Georgia of adopting fuel cost sharing policies currently in effect in Idaho, Missouri, Wyoming.
Regulate Georgia Power Company by disallowing imprudent fuel purchases until and unless it can address the legitimate concerns raised here, specifically the concerns raised by Southern Alliance for Clean Energy and Sierra Club expert witnesses Jeremy Kalin and Brent Alderfer, and specifically as it applies to Official Code of Georgia Annotated law as written and currently in force.
Reinstate and refund the Consumer Utility Council to support the Georgia Public Service Commission in its obligation to only authorize prudent and just investments.
Make a donation.
If you care about accountability in government, thoughtful analysis, prudent expenditure of public dollars, and if you want to leave Georgia a better place than you found it, please consider a donation to the Georgia Center for Energy Solutions, a 501(c)3 not-for-profit. Your donation is tax deductible. Thank you.
