Tuesday, February 10, 2009

How much will the Georgia Power bill cost Georgia?

There's a new argument floating around against Senate Bill 31, which would allow Georgia Power to charge customers more to offset the cost of expanding it's nuclear facilities near Augusta.

Namely: The state can't afford it. The state of Georgia is one of Georgia Power's biggest customers, and it's not clear how much its power bills would get jacked up if this measure passes.

A lot of bills like this would have a fiscal note attached to them, which tells legislators how a bill would affect the state's bottom line. This one does not, and apparently the issue was raised relatively late in the process.

"We would have considered (the lack of a fiscal note) had it been timely raised," Regulated Industries and Utilities Chairman and state Sen. David Shafer said this morning.

State Sen. Don Balfour is the measure's sponsor, and he noted the bill would save the state — and other customers — money over the long haul. That's been a major argument for the bill: That it will be cheaper to all of Georgia Power's customers if the company can raise the money it needs to fund construction up front, rather than having to cover higher interest costs by waiting until the plant is under construction to increase rates, as the law now allows.
CORRECTION: I need to double check, but I believe I was wrong on this. The rules currently allow the company to raise the rates once the new power stations are in service, not simply under construction.
This has been the main argument against it.

Balfour notes that there will be no impact on the state budget for the next three years, then the extra fee would kick in, costing the state more for a few years. Then the benefit of paying for the work up front would have a positive effect on the state budget, he said.

"There's a huge amount of positives and there's not a lot of negative," he said.


Travis said...

Sure, having a slightly higher power bill now, but we avoid racking up huge interest costs AND credit rating agencies will give the company a good credit rating BECAUSE the costs are being paid off now- which means even less interest! We’re going to have to pay either way, so we can choose to pay less now, or more in the future. It is time to start thinking long term.

Here are the numbers:

1) We avoid a hefty bill for 300 million interest on interest
2) save 2 billion/30% on the in-service cost of the plant
3) and total rate increases will 3% lower once the plant goes into service because we’ve avoided interest on interest!

Also, preserving a good utility credit rating is a good idea in general because it means that there’ll be lower costs for other projects which will keep our rates lower. Part of the reason we’re in such an economic mess is because we keep making stupid financial decisions for short term gain.

Eddie said...

I understand the concerns people have with this bill, especially in these economic times but here are the facts:
The cost of the plant will be phased-in over 7 years, versus included in rates over only two years. (Approx. 1.3%/yr over 7 years for total of 9%, versus approx. 12% total over two years.) Customers will avoid paying $300 million in “interest on interest.” The in-service cost of the plant will be reduced by nearly $2 billion (30 percent).
And second of all,Georgia needs these plants (would you rather have coal?). Just as generations before us invested into infrastructure to help our generation, we need to invest in infrastructure to help future generations.

Jessica Smith said...

Traditionally, utilities are allowed to recover the cost of
investments, such as power plants, after the plants begin to operate
and serve customers. During the construction period, utilities incur construction ("brick and mortar" and labor) costs – and related financing costs. Because of the tremendous cost of investments such as power plants, utilities also incur additional financing costs to pay interest expenses during the construction period ("interest on interest"). Traditionally, recovery of these financing costs is deferred during the construction period, added to the ultimate cost of the plant and recovered from customers over the useful life of the plant (40 - 60 years in the case of a nuclear generating plant). As an alternative, rates can be set to allow for recovery of financing costs during the construction period – and therefore avoid "interest on interest" expenses. Recovery of financing costs during the construction period can be allowed by including the on-going
construction costs related to the new units in rate base. When
financing costs are included in the rate base, customers avoid paying "interest on interest" and reduce the total return required over the life of the asset. Utility credit rating agencies view recovery of
financing costs during construction positively, which can result in lower financing costs for all utility projects. Better credit ratings can lower the interest costs the company – and therefore customers –
must incur to finance the cost of new power plants – and all other
utility investments.