Why is electricity getting more expensive? How Georgia Power plans to raise rates

If you’re one of the 2.7 million Georgians who pay their electricity bills to Georgia Power, you’ve probably noticed the rates have gone up in recent years.

What you may not know is that the rate hikes are the result of an opaque process involving trial-like hearings held every three years before a relatively little-known regulatory body.

On Sept. 27, the Public Service Commission — a statewide elected body — began hearing a “rate case,” or proceedings on Georgia Power’s request for a hike in electricity rates.

At the hearings, which resume Tuesday, the utility company is arguing its case for a rate increase of 12% over the next three years through examinations of expert witnesses.

A number of other interested parties, from environmentalists to consumer advocates to representatives of industry groups, are allowed to participate as “intervenors.” At the first round of hearings in September, intervenors were permitted to cross-examine Georgia Power’s witnesses; in this week’s round, they will provide testimony and witnesses of their own.

But the ultimate authority to approve or deny the proposed rate hike lies with the Public Service Commission — a group which has come under fire in recent years for its perceived deference to Georgia Power, and for alleged racial discrimination baked into its voting mechanism.

To understand what’s going on, let’s take a step back and understand the structure of Georgia’s energy market.

How your electricity rates are set

Georgia is unlike most U.S. states in that it has what is known as a “regulated” energy market for electricity. In Georgia, as in several other predominantly Southern states, a single company has a monopoly on production, transmission, and distribution of electricity. In the 1990s, Georgia was the first state to deregulate natural gas, but it did not follow other states in deregulating electricity.

In the 1990s, many other states chose to break up such monopolies. If you live in a “deregulated” state, the company that owns the power line that electrifies your house (and to whom you pay your utility bill) may select among a variety of energy producers to buy power from, using a complicated market system.

Georgia Power is a for-profit company, and a subsidiary of the larger Southern Company, which owns utilities across the South.

However, it is unlike other businesses in that the profits it returns to its shareholders are not subject to market forces, due to the lack of competition for the power Georgia Power produces and distributes to customers who have nowhere else to buy it from.

So where most corporations’ profits depend on how much people are willing to pay on an open market, Georgia Power proceeds backwards: first by setting a return on equity, or ROE (basically, how much shareholders are allowed to profit, as a function of the net value of the company’s assets and liabilities), and then charging rates accordingly.

The ostensible role the Public Service Commission plays in this process is to determine a fair ROE. In the current system, this amount is reevaluated during rate case hearings every three years.

The biggest infrastructure project in America

This system offers certain advantages over the deregulated-electricity states. The promise of an assured ROE means the company is attractive to investors — and as a result, Georgia Power is able to undertake expensive projects with long-term horizons that might be out of reach in deregulated states.

One such project is in Burke County, where Georgia Power’s Plant Vogtle is the only nuclear power plant under construction in the entire country. According to the company, two new reactors at the plant will be completed in the next two years. These will be the first new nuclear reactors to be built in the U.S. in some three decades, and their construction will render Vogtle the nation’s largest nuclear plant.

It’s the kind of ambitious project few states could envision, and one Georgia Power says is crucial for enabling the transition away from coal and toward clean energy (the utility is rapidly shuttering its coal plants, including Plant Scherer in Monroe County’s Juliette). The new reactors will provide carbon-free baseload power for 60-80 years, company officials said in last month’s rate case hearings.

But the project has also run massively overbudget and is six years behind schedule, generating accusations of financial mismanagement.

When construction began in 2012, the reactors were supposed to be online by 2016 and 2017 and costs were estimated at $14 billion.

In a 2021 report, Georgia Conservation Voters charged that the project’s current price tag, now around $30 billion, renders Vogtle “the most expensive power plant ever built on earth.” Several of the reactors’ other investors have taken Georgia Power to court over the cost overruns.

The process by which Georgia regulates energy only works if the Public Service Commission plays its part and protects ratepayers against Georgia Power abusing its monopoly power — a duty critics say the commissioners have not performed.

Though the commissioners are elected, turnout is low, and few Georgians actually know what they do.

Patty Durand, the Democratic candidate for a seat on the commission, suggests renaming it the “Public Utilities Commission” (the equivalent in some other states) to give voters a better idea of its scope — so that they might vote out a commission that, in Durand’s words, “doesn’t take their role seriously to be a check on monopoly power.”

Durand told the Telegraph the “profit structure the commission has chosen to give [Georgia Power] is like a king’s ransom.”

In 2019, the commission voted to raise Georgia Power’s return on equity to a record 10.5% (resulting in a rate hike that caused electricity bills to rise over the last three years). Durand says most other state-regulated utilities had a 9.5% ROE, which was “well above the cost of credit” and therefore still attractive to investors.

In the current rate case, Georgia Power is seeking to again raise its ROE to 11%, arguing this will make it cheaper for the company to borrow money in order to make improvements to its grid and fund the continuing transition away from coal.

“They’ve done nothing to deserve those excessive profits,” Durand said in a phone interview.

While half a percentage point may not sound like much, the rate hike that would result is estimated to raise annual household energy bills by nearly $200 over the next three years.

Additionally, during this period, rates are expected to rise again by undetermined amounts due to Plant Vogtle coming online, and in response to the rising cost of natural gas. Georgia Power has not yet requested these rates, and will have to do so in new rate case hearings.

Georgia Conservation Voters organizing director Wan Smith told the Telegraph the impact of such a rate hike on poor people in Georgia could be deadly.

“Georgia has more heat-related deaths per year than all of the hurricane and tornado deaths in the entire United States. This is not a game — people need their damn air conditioning,” Smith said in a phone call.

How much will the rate hike actually cost?

At the Sept. 27 Public Service Commission hearing, a dispute arose at the rate hearings over the total cost to ratepayers of the rate hike. Georgia Power CEO Chris Womack said it would cost customers “a little bit over $1 billion,” but Preston Thomas, an attorney for the PSC’s public interest advocacy staff, said company filings showed a total increase of $3 billion.

The reason for the discrepancy was that the Georgia Power figure of $1 billion derives from what CFO Aaron Abramovitz described in the hearings as a calculation of the “incremental change to rates” over three years.

The proposed rate hike is staggered over the next three years, raising rates by a different amount each year. Georgia Power’s proposal under consideration is to increase the annual amount it collects from ratepayers by $852 million in 2023, followed by an additional $107 million in 2024, and finally $45 million more in 2025.

These three increases, considered individually, add up to $1.004 billion, in line with Womack’s figure.

But by only adding up the yearly increases, Georgia Power’s $1 billion figure does not represent the actual excess amount customers will pay — which is indeed nearly $3 billion.

How you can watch rate case hearings

The next round of Georgia Power’s rate case hearings at the PSC take place this week, on Tuesday, Wednesday, and Thursday at 9:30 a.m.

The hearings, at which intervenors will present their witnesses for cross-examination, will be streamed on the PSC’s YouTube channel.

The commissioners are scheduled to make a final decision on Georgia Power’s requested rate hike on Dec. 20.