You get to Atlanta, Man, and Things Change

Why invest in bonds when Georgia Power (stock ticker: Southern Company SO) pays a higher rate and the Public Service Commission will do whatever necessary to insure that the company maintains a certain level of profitability?  Case in point: Georgia Power (and other utilities) tell the PSC how much money their fuel will cost to power their plants, and the PSC approves rate increases to pass that cost along to ratepayers instead of shareholders.  The PSC essentially gives Ga Power whatever they ask for — if you ask me that kind of policy dis-incentivizes profit-driven planning by the utility, but hey that’s how it works and I guess Georgians aren’t smart enough to figure that out, or else they would elect a more consumer friendly PSC.  The public gets the public service commission they deserve.

Anyway, Georgia Power had a screwed up internal forecasting model which had the utility budgeting for more capacity from lower cost fuel plants than those plants could actually yield.  OK, says the PSC, it cost more than you thought so we’ll get ratepayers to subsidize that amount after the fact.  But, Georgia Power has the gall to go the commission and say because of our error in forecasting we should also be compensated for the interest we had to pay.  In other words, Georgia Power has their profits entirely protected by the Public Service Commission, and if they correctly do their math and tell the PSC what they need in advance, the PSC will make sure that ratepayers subsidize all of it.  But now Georgia Power is saying we screwed up, we didn’t ask for the right amount in advance and we had to pay $4,000,000 interest, and now we think ratepayers should bail our shareholders out of our error.

And guess what?  The PSC agreed with Georgia Power, voting down an amendment by Angela Spier 3-2.  Guess who the deciding vote was?  If you guessed then you are correct.  I guess Chuck’s forgotten his campaign promise to require “performance based rate-making” and all of the other crap he told the gullible AJC editorial board in order to get their endorsement.

You know what the most scandalous thing of all is, though?  Georgia Power screwed up a forecasting formula which cost the company $4,000,000 in interest.  Thomas Fanning, an executive Vice President who is also CFO and Treasurer, got a $800,000 bonus in 2005.  Raise your hand if you can make a mistake at your job that costs your company $4,000,000, get a nearly $1,000,000 yearly bonus and then have 3 government bureaucrats vote to have 9,000,000 Georgians bail you out.   If only Georgia Power was in the mass transit business, we might be able to get some of our legislators attention when this stuff happens.


  1. What in the world did people expect when we have a 100% republican PSC?

    I imagined that the good conservative voters of GA willingly gave corporate interests a blank check when it came to utility regulation!

    If I’m not mistaken this was the race where the sole democrat was voted out & replaced by a utility company lobbyist!

    As far as I’m concerned GA can reap what it has sown- I can afford the $5. Maybe crap like this will make voters think twice before becoming a one party state . . . . I’m not holding my breath, though.

  2. Mike Hauncho says:

    I’m sure the other two who voted for this are equally to blame as Eaton so to put the blame on his shoulders is a bit much.

  3. drjay says:

    yeah pretty disappointing that this is his 1st “big vote” as a commisioner. i admit to not knowing much about it, but this set up does seem to make ga power devoid of any real fiscal responsibility. i certainly cannot run my business that way…

  4. Rick Day says:

    Mike, I doubt either of the two made the same claim to get elected as Eaton.

    It will be interested to hear Eaton’s explanation regarding this vote and how it helps the ratepayers in GA.

  5. Chuck Eaton says:

    I don’t think there is any blame to be assigned as I feel like the PSC worked out a fair deal. The following is my explanation, make sure to get a cup of coffee and take some NoDoz if you plan on reading it.

    Under Georgia law, the Company is allowed to recover actual fuel expenses, absent illegal or imprudent conduct. O.C.G.A 46-2-26

    Prior Commission orders have already stated that carrying costs (interest) associated with fuel expenses are recoverable and there was no valid evidence presented suggesting the spinning reserves under-recovery was imprudent. Had the costs not been under-forecasted, GA ratepayers would have paid higher rates last year. No Commissioner disputed the underlying money is owed to GA Power. While there was some argument over the interest, keep in mind the underlying costs were deferred at a very low interest rate that would have been unavailable to the majority of Georgians (the rate moves very slightly around 5%). Georgia Power isn’t “making” any money off of the interest rate and if it did, along with any other money made off of fuel, it would be recovered back to the ratepayers when the next forecast is reconciled.

    I feel the PSC would have had trouble justifying the additional $4 million (making it $8 million) in court, which is where I think the case would have headed without a stipulation. The $4 million settlement assures us there will be no court proceedings – avoiding an unpredictable outcome.

    The additional $4 million disallowance was a disagreement I had with the two Commissioners who voted for the amendment. Although I will say Commissioner Speir made some good points in her argument. Our staff did a tremendous job in negotiating a stipulation that kept the best interest of Georgia ratepayers in mind while ensuring we didn’t enter an unpredictable court battle. Keep in mind that our staff’s un-amended stipulation was ultimately passed with a 5-0 unanimous vote.

    I’m not sure if the public is fully aware of the total amount of under-collection that exists from past years. This amount is over $900 million and it’s an undisputable debt owed by the GA ratepayers to GA Power. This almost $1 billion debt is currently accruing interest and is the largest under-collection we’ve ever had in Georgia. Wall Street has started to take note of this debt and my conservative nature tells me it’s time to pay down the credit card balance.

    During the stipulation negotiations, in my discussions with Staff and my fellow Commissioners, I made it very clear that the interests of the Georgia ratepayers should be protected. As a result of those negotiations the following occurred:

    1. The $4 million settlement was the largest ever and was met with great resistance.

    2. The average utility bill will go up $5 instead of the original $5.50. I would have liked to have fought for a lower increase, but the $900 million interest accruing debt we owe GA Power causes me great concern. I don’t think it’s responsible to “mortgage” our future rates.

    It’s ironic you bring up the performance based rate-making aspect. Georgia Power runs their nuclear power fleet well above the national average, which was not disputed by any Party. Currently GA Power receives no benefit, other then company pride, to running these plants far more efficiently then its peers – if you ask me that kind of policy dis-incentivizes profit-driven planning by the utility. What I would like to do, and it requires a little more planning than 4 weeks on the job, is work with the other Commissioners to develop a performance based rate-making plan that would reward GA Power for continuing to run its nuclear fleet above the national average, penalize them for dropping in efficiency and subtracting future disallowances from rewards. I feel that concept would have adequate risk / reward for GA Power to continue to pursue new efficiencies.

    Thank you all for your interest and please feel free to post here or email at the PSC if you have any further questions.

  6. Thanks Chuck. What concerns me is that Georgia Power made some pretty bad long term decisions in the 90’s that we’re paying for in higher rates now. I suppose you could say they made those decisions hand in hand with the commission and there is a lot of blame to go around, and you’re probably right about that.

    One of my points is that knowing the ratepayers (me) are going to pay for the cost of making the electricity no matter what, I’d like to see the PSC take the lead in actually telling Georgia Power we’d like to see you go down this road or that road. I’d gladly pay a surcharge for solar or even more nuclear as opposed to just more coal and gas and I think the PSC should take a longer view with their “shareholders” (us) in mind.

    Maybe precedent dictated that they should get this kind of statement. But who are we kidding, $4 million translates to about $0.0005 per share. Meanwhile, the VP whose department made this mistake got an $800,000 bonus last year. I think the PSC really blew a chance to say to Georgia Power and other utilities that, going forward, you’ve got to be responsible economic stewards and if you make operating mistakes that aren’t strictly related to fuel increases, your shareholders are going to have to pay for it and not ratepayers.

    Chuck, I don’t think taxpayers are going to bail out your corporation if you screw up your accounting, and I don’t think you’ll also give yourself a huge bonus at the same time. This situation just smells funny, no one appears to want to hold Georgia Power accountable for their actions and we ratepayers are basically a blank check for anything goes. I know this is only $4 million, which isn’t much in the scheme of things, but it could have sent a powerful message. I also doubt Georgia Power could litigate this for less than $4 million which makes me doubt the threat of going to court.

  7. jsm says:

    I may be showing my ignorance on this particular issue, but I’d like to understand more about the $900 million undercollection from past years:

    – Is this fuel expenses that were not passed along to ratepayers? Is that why it’s an “undisputable debt?”

    -How has it been allowed to reach $900 million?

    -Has anyone researched other possible cost-cutting measures (administration, etc.) within GA Power?

  8. bowersville says:

    jsm, a ditto from me. I’ve never heard of the undisputed $900 million either and would like further explanation and a proposal of how a settlement will be reached.

  9. Or how about this: why does Southern Company need to pay executives millions of dollars to run the company when the PSC is just going to guarantee their profits no matter what they do?

    Or, why should Southern Company executives be able to admit fault to the PSC and have the PSC bail them out, but at the same time tell their shareholders we are doing a great job give us bonuses.

    Well, who are they telling the truth to?

  10. Bill Simon says:


    You have VERY valid points concerning the payments and (clear) over-payments of compensation to the executives and managment of Georgia Power.

    It is too bad no Democrat thought to (somehow) require a long time ago (when they had the power to make laws in this state) that the compensation of utility-company executives fall under the purview of the PSC.

    Because, as so aptly pointed-out, the utility companies, because they are guaranteed a maximum return on invested capital BY the PSC, can pretty much play with the numbers all day and all night to get the numbers to work in their favor, and all the while take whatever compensation they wish…and NOT have to worry about losing their jobs over incompetence in forecasting.

    That being said, Chris, I know you’re one of those conservation freaks…so, just make sure you use less electricity and you won’t have to pay as much of the $4,000,000 burden. 🙂

  11. Trackboy1 says:

    The first time Stan Wise and the Public Service Commission stick up for Georgia residents will be the first time Stan Wise and the Public Service Commission stand up for Georgia residents. The ultility companies say “kiss me now”, and Stan Wise and the Public Service Commission say “where and for how long”?

  12. Martin Kopp says:

    I just got back today from my wonderful Cruise on Royal Caribbean’s “Legend of the Sea” and I highly recommend this ship!

    Now, that I’m back I have to think reality, and what is happening in the world and in our Country today! Your right, the Politicians will tell us what we want to hear. Your also right, that our soldiers are doing a fine job, and we have to support our troops, and it’s our administration who is at fault for having no good back up plan after we entered Baghdad!

  13. Good dialogue, keep it going, just a few facts and views from Wall Street along the way.
    Could money mangers of 31 trillion in assets be wrong to be concerned?:

    January 30, 2007
    Report: Global Warming to Cost Utility Company Investors

    A report prepared for institutional investors puts some cold hard figures on the cost of global warming to electric utility companies worldwide. No surprise that coal-dependent U.S. utilities will see a significant hit on their bottom line if they do not begin to cut their spew and a nationwide cap on greenhouse gas emissions is imposed, as proposed in legislation now before Congress. Utilities like PG&E (PCG) that resell power from cleaner-burning natural gas and renewable energy sources stand to profit

    —while coal-using Southern Company (SO) and American Electric Power (AEP) could lose billions.

    —The report was prepared for the Carbon Disclosure Project, an alliance of 225 institutional investors – managing $31 trillion in assets

    — that annually asks corporations to reveal their greenhouse gas emissions. This year the report focused on electric utilities, one of the largest sources of planet-warming gases. “No longer can fiduciaries claim to be unaware of what is at stake,” the report’s authors warned. “Taking climate risks into account is now becoming part of smart financial management. Failure to do so may well be tantamount to an abdication of fiduciary responsibility and indicative of poor management.”

    About 42 percent of the world’s 265 biggest public utilities disclosed emissions data to the project. That information was used to calculate the cost of the utilities’ carbon emissions based on the $22 average trading price for a ton of carbon dioxide on the European carbon market, known as the European Trading Scheme. “Remarkably, by this measure few electric utility companies were adding value to the economy,” the authors concluded. “The damages they imposed exceeded the surpluses they generated, often by a large margin.” The report found that American Electric Power and Southern imposed net annual costs of $3.6 billion and $2.7 billion, respectively. American Electric plants, for instance, emit 146 million tons of greenhouse gases. “These companies must be regarded as quite exposed to future restrictions on greenhouse gas emissions,” the report stated. PG&E, on the other hand, emitted 536,000 tons of greenhouse gases and reaped a net benefit of $404 million by the report’s methodology. Similarly, nuclear power producer Exelon (EXC) produced a net benefit of $225 million.

    The report also calculated the cost to the utilities if a California-style global warming law – requiring a 25 percent reduction in greenhouse gas emissions – was adopted nationwide. At current emissions levels, such a cap would cost American Electric nearly 7 percent of its annual revenue. Texas utility TXU (TXU), under fire from environmentalists for its coal-power plant building binge, would lose 3 percent of its revenue. Such a cap would cost PG&E just .03 percent of its sales.

  14. Southern Company’s Financials in a snapshot:

    “Southern Co. boosts profit 18%; sales slip”
    Jan 25, 2007

    SAN FRANCISCO (MarketWatch) – Southern Co., one of the biggest energy providers in the South, reported Thursday an 18% jump in fourth-quarter profit, powering past a setback in sales.

    “Nuclear Regulatory Workforce Challenged”
    January 18, 12:12 pm ET
    By Dan Caterinicchia, AP Business Writer

    Nuclear Regulators Need More Money, Employees to Handle Rising Number of Plant Applications

    WASHINGTON (AP) — The Nuclear Regulatory Commission’s ability to hire enough workers to manage the expected onslaught of new nuclear reactor applications will be crippled without increased funding, a report by the investigative arm of Congress says.

    Georgia Power proposes big project in Smyrna
    November 29, 9:38 am ET

    Georgia Power wants to replace its only coal-fueled plant in metro Atlanta with a natural gas-fueled generating unit, which it says would be more efficient and would help improve the area’s air quality.

    1)Pay 2) Options Exercised:
    Mr. David Ratcliffe , 58
    Chairman, Chief Exec. Officer and Pres
    1) $ 2.93M 2) $ 2.21M

    Mr. Tom Fanning , 49
    Chief Financial Officer, Exec. VP and Treasurer 1) $ 1.36M 2) $ 812.00K

    Mr. Charles D. McCrary , 55
    Exec. VP, Chief Exec. Officer of Alabama Power Company and Pres of Alabama Power Company 1) $ 1.39M 2) $ 1.13M

    Mr. Michael D. Garrett , 57
    Exec. VP, Chief Exec. Officer of Georgia Power and Pres of Georgia Power
    1) $ 1.38M 2) $ 1.01M

    Mr. G. Edison Holland Jr., 55
    Exec. VP, Corp. Sec. and Gen. Counsel
    1) $ 1.12M 2) $ 417.00K



    please check my georgia math but:

    4 million dollars divided by 747 million shares =
    or 1/2 of a penny per shareholder?


    your $0.0005 per share
    or 5/100ths of a penny per shareholder?

    -keep it flowing guys, we’re making progress on this communication thing,

    Victor Jones
    Macon, Georgia

  15. jsm says:

    “Thank you all for your interest and please feel free to post here or email at the PSC if you have any further questions.”

    Should we email these posts to Chuck? I’d still like to hear some answers.

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