Biggest customers pay lower Vogtle surcharges

Delivering electricity to big users costs less, Georgia Power says.

Georgia Power’s largest commercial customers have gotten breaks worth hundreds of millions of dollars off surcharges to finance the troubled Plant Vogtle nuclear project since 2011, an Atlanta Journal-Constitution analysis shows.

The rest of its customers — homeowners, smaller businesses and government power users such as MARTA and cities — have paid nearly 90 percent of the $1.9 billion collected so far in monthly bills to bankroll the Atlanta utility’s construction of two new nuclear reactors at the plant near Augusta. They will likely use about 70 percent of the plant’s output.

In contrast, Georgia Power’s industrial customers have paid only 12 cents out of every dollar of total Vogtle surcharges, even though they will likely use more than a fourth of the trou- bled expansion’s power if it is ever completed.

The utility and manufacturers say the lower charges, the result of excluding some power usage from the surcharges, are fair because it costs less to deliver electricity to big power users than to homes and smaller buildings.

The Vogtle project’s ongoing financing costs — which add about $100 a year to a typical residential bill — have taken on greater importance recently as state utility regulators ponder what to do with the troubled project.

The recent bankruptcy of key contractor Westinghouse Electric threw the project’s viability into doubt.

Georgia Power told the Georgia Public Service Commission Aug. 31 that it wants to keep building the project even though the bankruptcy and more delays will nearly double its ultimate cost, including the surcharges. The PSC has final say. Utilities have pulled the plug on two similar nuclear projects in recent weeks, citing the bankruptcy and other risks.

One of the five PSC members, Lauren “Bubba” McDonald, earlier this year called for Georgia Power to stop collecting the surcharges. The rest of the commission didn’t go along after getting the Georgia attorney general’s opinion that the move would be illegal.

Known as the Nuclear Construction Cost Recovery tariff, the surcharge was created by a 2009 law, the Georgia Nuclear Financing Act. The word “financing” is a bit of a misnomer. The biggest portion of the Vogtle surcharges goes toward paying Georgia Power’s approved profit margin on the project, plus enough to cover the company’s taxes. The rest pays interest on the project’s debt.

The surcharge has grown over time along with the reactors’ construction. It is now more than 9.7 percent of most customers’ “base” power rate.

By the end of 2016, Georgia Power’s 2.2 million residential customers had paid about $410 apiece in NCCR surcharges through their monthly power bills.

One big customer group is paying no surcharges.

Under the byzantine mix of federal and state regulations governing utilities, Georgia regulators and lawmakers have no authority to mandate that Georgia Power collect the surcharges from wholesale customers. Those are mostly out-of-state units of Georgia Power’s corporate parent, Southern Company, and other utilities.

Wholesale power is a growing business for Georgia Power, consuming about 5.3 percent of the utility’s power output last year, up from 4.1 percent in 2012.

Georgia Power says none of the power from its nuclear plants goes to wholesale customers.

“Since 100 percent of the benefit associated with the nuclear units goes to our retail customers, the associated cost is assigned to those customers as well,” said Georgia Power spokesman Jacob Hawkins.

He said it’s wrong to characterize the surcharge structure for large industrial and commercial ratepayers as a discount.

“All customers have the (surcharge) applied to their base bill,” he said. “Our priority is ... ensuring that our rates are fair and equitable for all customers based on all factors, including our cost to provide service.”

Hawkins said about 20 percent of revenue from industrial and commercial customers is not subject to Vogtle surcharges. That revenue totaled almost $18 billion between 2012 and 2016. That equates to about $435 million in savings for those customers.

Lower rates

Large industrial and commercial customers benefit from a number of exclusions written into state law or lower tariffs approved by the state’s utility regulator.

Part of industrial customers’ lower Vogtle surcharges comes from paying lower rates than residential and commercial customers for each kilowatt-hour of power they use. Utility industry experts say this lower base rate reflects the lower cost to build fewer power lines to big customers compared to the millions of homes in the state.

One factory might use the same amount of power as 1,000 homes, but need only one power line, said G.L. “Roy” Bowen, president of the Georgia Association of Manufacturers.

“Just think of the infrastructure that is in place to serve a thousand homes,” he said.

He said manufacturers’ lower rates have helped support a rebound in manufacturing in Georgia.

“By bringing rates closer to cost of service, we have seen a tremendous growth in manufacturing jobs and investment,” he said.

But Georgia manufacturers initially opposed the proposed Vogtle surcharge several years ago, because the plan was to apply it to a bigger portion of their power bills.

“This front-loads the cost of these nuclear units and places a burden on customers who will not be taking advantage of these units for most of their useful life,” Bowen told the AJC in early 2009, before the law was enacted.

Bowen acknowledged that large power users dropped their opposition when the proposed law was tweaked to reduce their surcharges.

“In discussions with (Georgia Power) and the legislators, they did believe that was a fair way of dealing with the (surcharge),” said Bowen.

The law states that the surcharge will be applied to all customers’ “base” electricity rates “on an equal percentage basis.”

An added phrase restricted the surcharge in a way that means factory owners and other large power consumers don’t have to pay Vogtle surcharges on power they use under certain programs involving variable or seasonal usage.

That change now saves large power users more than $80 million a year.

Georgia Power disputes that the tweak amounted to a discount.

“We continuously work to ensure that our rates are fair and equitable,” said Hawkins. “Investments made in the Georgia electric grid, including the Vogtle nuclear expansion, other generation facilities and transmission/ distribution wires, are supported by all of our customers through rates and tariffs approved by the Georgia PSC.”

But former PSC Commissioner Bobby Baker said the law allows some industrial customers to exclude most of their power usage from surcharges.

The most widely used variable power tariff for industrial customers, Georgia Power’s “Real Time Pricing” program, can account for about 20-70 percent of large industrial customers’ power consumption, according to Baker.

“You can figure out who benefits from that language,” he said. “It was the people who have the marginal pricing.”

According to the PSC, Georgia’s utility regulator, a couple of other programs allow certain big power users to exclude 35 percent of their power usage from the surcharges.

All told, the structure resulted in overall power costs for industrial customers that are 55 percent lower per kilowatt-hour than residential customers’ costs, according to Southern’s filings to the Securities and Exchange Commission.

If all customers had paid the surcharge equally based on their power consumption, industrial customers would have paid $287 million more between 2011 and 2016, according to the AJC’s analysis. Residential customers would have paid $307 million less.

Wholesale customers would have paid $92 million, instead of nothing.

Vogtle’s rising costs

With the Vogtle expansion’s future now in question, Southern recently disclosed figures indicating that the original price tag and build time have roughly doubled, to up to nearly $28 billion and a late-2022 completion date, instead of $14 billion and 2017.

That means cumulative financing costs will likely swell to about $4.1 billion by 2023, according to the AJC’s estimate. (Southern recently disclosed expected financing costs will rise to $3.1 billion to $3.5 billion by 2023, but that doesn’t include taxes on Georgia Power’s Vogtle-related profits, also covered by the surcharge.)

Back in 2009, when Georgia Power was lobbying legislators to enact the surcharge law, the company argued that paying surcharges up front would save customers about $5 million a year over the 60-year life of the new reactors, or a total of $300 million. Without the 2009 law, customers wouldn’t have paid Georgia Power until Vogtle was completed, meaning they would have paid interest on the financing costs during construction.

Don Balfour, former Republican state senator from Snellville, said he still believes the surcharge will save ratepayers money, even if it’s collected twice as long as expected when he sponsored the law.

“Twice as long is going to save even more money,” he said, arguing that the surcharge is like saving money up front before buying a car.

A closer analogy might be that it’s like paying your mortgage and the homebuilder’s profits and taxes for 12 years before he finishes your house.

One of the basic rules of finance is that the longer you pay up front for something in exchange for later savings, the longer it’s going to take to break even.

Baker, the former PSC commissioner, said the money-saving claim was never valid.

“Do the math,” he said. “It never made sense to collect billions of dollars (up front) to save $5 million a year.”