Georgia Power’s Long-Term Power Plan Is a Bad Deal for Electric Customers in Georgia
Peter Hubbard - May 13, 2022 - Georgia Center for Energy Solutions
Georgia Power Company's 2022 Integrated Resource Plan is a bad deal for electric customers in Georgia. The plan is designed to be a Rube Goldberg machine that does two things: inflate the cost to integrate renewables and discount the true cost of fossil generation. In short, the 2022 IRP is a plan that will raise costs and risk for Customers of Georgia Power Company.
The 2022 IRP is Georgia Power Company's plan to build and buy sufficient electric generation capacity to meet Customer demand for the next 20 years (through 2041). The plan is refreshed every 3 years, is more than 1,100 pages with studies, is heavily redacted, is scrutinized by stakeholders, and must be approved by the five Commissioners of the Georgia Public Service Commission, who receive citizen testimony and expert testimony and will render a decision by July.
In the 2022 IRP, Georgia Power Company is proposing to increase its fossil gas capacity to over 10 gigawatts or 41% of its total capacity. They do this in part by locking in nearly 2.4 GW of fossil gas across six Power Purchase Agreements.
The thing about the 6 gas PPAs is that 85% of the capacity is offered by Southern Power Company, which is owned by Southern Company who also owns Georgia Power Company. In other words, one company is both party and counterparty in the same transaction, which raises costs and risk.
The gas PPAs are not a market solution.
Southern Company quarterly SEC 10-Q/K financial filings show that Purchased Power is up to 2.3x more costly than power generated by Georgia Power Company, who regularly requests and receives Commission approval to purchase 30% of its capacity from ‘merchant’ generators like Southern Power Company.
In this marketplace, Georgia Power Company earns an Additional Sum as offtaker of the gas PPAs. Southern Power Company sells capacity and energy to Georgia Power Company. And Southern Company Services manages the fuel purchase and delivery.
Georgia Power Company is a fully-owned subsidiary of Southern Company, who also fully owns Southern Power Company and Southern Company Services
5 out of 6 of the Power Purchase Agreements seeking certification (85% of total capacity) are being offered by Southern Power Company
Each year, Georgia Power Company collects $2 billion or more from its Customers to pay for fuel, at no cost (or risk) to itself. The Company passes 100% of the cost of fuel through to the ratepayer, so it has no risk and could care less what the price of gas is. Renewables don't face that fuel cost or that risk…at all.
As former Wyoming Secretary of State Kathy Karpan put it, “…because we export energy to the rest of the country, we have other people paying our taxes.”
But the gas PPAs aren’t just more costly, they’re riskier too. Georgia Power Company’s own 2022 IRP modeling shows that the Base Case—which assumes a moderate gas price and no carbon price and forms the core of the Proposed Portfolio—has huge upside cost risk that could double Customer rates.
Georgia Power Company leans heavily on the US Energy Information Administration Annual Energy Outlook 2021 for its Base Case moderate gas price. The AEO Reference Case is well-known for excluding future policy—leaving that to the scenarios—and the AEO 2021 gas prices are now out-of-date, so they should not be used for forecasting.
Pliny the Elder once said, “The only certainty is that nothing is certain.”
How does the 2022 IRP treat renewables? Poorly. Georgia Power Company disadvantaged or excluded renewables and storage from its Capacity RFP covering 2022-2028. In those years, the solar and storage in the Proposed Plan is based on the company’s ‘best judgment.’ Economic renewable builds don’t start until the First Year of Capacity Need, which is always in the future.
Georgia Power Company’s Renewable Cost Benefit or RCB Framework shows there are five benefits and one cost to distributed generation like rooftop solar. Yet the Company says it must finish interconnecting the 5,000 residential RNR tariff customers with monthly netting, wait a full year, and perform an analysis in order to make a recommendation on that program.
The 2022 IRP inflates the integration costs for renewables by ratcheting up ‘required’ Operating Reserves to fully match renewable intermittency and mitigate curtailment (an opportunity cost, not a direct cost) and by ignoring the advantages of diverse geography. This inflates the apparent cost to bring more renewables onto the grid.
Speaking of cost inflation, nuclear units Vogtle 3&4 now cost $35 billion vs. a budget of $14 billion and will arrive 7 years late. Vogtle 1&2 were $5 billion over budget and 5 years behind schedule. Each Georgia residential power customer has already paid $1,000 for Vogtle 3&4, which were a mistake from a prior IRP just as the gas PPAs are a mistake in this 2022 IRP.
Also speaking of cost inflation, the price tag for Georgia Power Company’s coal ash disposal is now at $9 billion with the unacceptable ‘leave-in-place’ costs, which will grow with proper disposal of coal ash. IRP after IRP, Georgia Power Company has affirmatively advocated for coal, contrary to years of testimony from Customers, experts, and stakeholders who have asked repeatedly to retire coal.
Georgia Power Company likes to mix & match models—not to enhance the IRP process but to introduce discontinuities that lock in desired outcomes and guide the IRP toward a favorable outcome. Georgia Power Company does production costing in at least 3 different models (SERVM, AURORA, and Stategist) and relies heavily on its own internally developed models.
Georgia Power Company advertises its reliability on radio, TV, and social media, but it comes in near the bottom on a list of 114 utilities that self-report their reliability data to the EIA. Reliability is vital—hospitals and other critical health services depend on reliable electricity. The Company metrics are even worse with pandemic Customer shut-offs.
Georgia Power Company is entrusted with a monopoly over an entire sector of the state economy in exchange for a regulated but guaranteed return of 10-12%. This rate of return doesn’t waver much, regardless of poor performance. In fact, the more costly the total project, the more the company earns when it recovers its costs.
Renewables today are very economic and reliable. The resistance to change is entrenched in corporate management, which is mostly old white men. For their point of view, why risk a massive transition for a ‘future’ problem and upset the lucrative apple cart right before retirement? Milton Friedman said, “There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits,” and helped justify trickle-down economics.
The 2022 IRP has many other issues where it does not adequately demonstrate economic, environmental, and other benefits to Georgia. For example, uneconomic unit commitment—which consultant Synapse Energy found to cost Customers of Georgia Power Company $232 million from 2017 to 2020—is fully ignored in the 2022 IRP.
There are many other 2022 IRP flaws not explored in this article, like gas pipeline delivery risk, correlated forced outages, 0% capacity for solar, gold-plating the reserve margin (to build more capacity at a rate of return of 10-12%), zealous use of trade secret privilege, historical weather-normal pattern applied to future weather and demand, creating barriers to competition in the PURPA QF market, gas affiliates, and more.
The IRP also doesn’t mention the 2050 Net Zero Carbon target that parent company Southern Company has adopted.
In sum, the 2022 IRP should meaningfully address the extra costs on renewables, the ignored costs and risk on gas, the modeling sleight-of-hand, and other issues in the testimonial record, and it should be based on an All-Source Procurement for both new and replacement capacity. Doing that would make this 2022 IRP a plan that adequately demonstrates economic, environmental, and other benefits to Georgia.
A few final points from other stakeholders. Arne Olson from Energy and Environmental Economics (E3) on behalf of the Georgia Large Scale Solar Association identifies modeling improvements to capture four types of diversity benefits provided by renewables and storage that improve dispatch economics, reduce capacity requirements, lower renewable integration costs, and reduce risk. Michael Goggin from Grid Strategies on behalf of the Southern Renewable Energy Association spotlights how the 2022 IRP is limited and constrained in many ways, and this deprives Customers of significant net benefits. American Rivers and Nantahala Outdoor Center on behalf of the Restore Chattooga Gorge Coalition argue to restore the wild and scenic confluence of the Tallulah River and Chattooga River, a smart move that will bring tourism-based economic development to this region of Georgia.
To recap, the Georgia Power Company 2022 IRP is sub-optimal and not in the best interests of Georgia or Customers of the Company. All files are found under Dockets 44160 and 44161 at https://psc.ga.gov.