Small Changes Could Yield Big Savings for Georgia Electricity Customers
The state’s electric customers are burdened by high utility bills, but state regulators have a few tools that could help alleviate the situation.
Across the country, families are struggling to pay their electric bills. The pain is particularly acute in Georgia, where residents have experienced some of the largest impacts from COVID and inflation over the past year. Georgia has low electricity rates but the fifth highest electricity bills in the contiguous United States.
Moreover, Georgia’s high energy burdens disproportionately affect low-income multifamily and/or renting households and persons of color. RMI’s Utility Transition Hub shows that customers earning less than 30 percent of the area median income (AMI) spent an average of 17.2 percent of their income on energy costs in 2020, while those earning 30 to 60 percent of AMI spent 6.8 percent on average. Energy burdens this high put households at risk of forgoing food or healthcare to keep the house powered. And as natural gas prices continue to rise, these energy burdens will only get worse.
While Georgia families struggle, the largest utility in the state, Georgia Power, is asking the state regulator for increased profit margin on some of its investments. If approved, the rate changes would further increase the energy burden in the state.
The good news? There are a number of actions the state’s utility regulator, the Georgia Public Service Commission (PSC), could take to alleviate customers’ suffering. As our colleagues pointed out in October, a financial mechanism called securitization could save Georgia Power customers $1.05 billion and help them transition away from fossil fuels. But that isn’t the only lever available to the PSC. Here are three additional steps the commission should consider to help alleviate energy burden in Georgia.
Return on equity (ROE), in highly simplified terms, is the profit margin utilities are allowed to earn on capital projects including building new power plants or investing in the distribution grid. The state commission determines the ROE, and Georgia Power’s authorized ROE has been above the national average since at least 2011. The utility’s current ROE is 10.5 percent — higher than the national average of 9.3 percent — and in this regulatory proceeding, Georgia Power is asking for an increase to 11 percent. The change would increase energy bills for all customers.
If Georgia Power’s ROE had been set at the national average over the past 10 years, customers would have saved $1.25 billion — and $110 million in 2020 alone — according to a Pearl Street Station Finance Lab analysis using RMI’s Utility Transition Hub. Instead, the proposed increase in ROE will add an estimated $17 dollars to the average customer’s monthly bill, further jeopardizing the financial security of thousands of residents.
What’s the justification for the requested ROE increase? Georgia Power asserts that market uncertainties due to COVID-19 have increased investor risks in the broader equity market, as well as for utilities. Between risk and inflation, the utility argues that a higher ROE is necessary to attract investment. Mark Ellis, an expert hired by the Southern Environmental Law Center, filed testimony in the proceeding arguing that not only does Georgia Power’s ROE not need to be raised but that “the Commission can substantially reduce the authorized ROE requested by Georgia Power, and thereby customer costs (by a billion dollars per year),” while still enabling the utility to address its stated concerns (emphasis added). The intervenors’ expert recommends an authorized ROE of 5.54 percent, half of the company’s current proposal, which would have huge impacts on both ratepayers and investors.
Fuel cost sharing
Fossil fuels are another big driver of the high costs of electricity in Georgia. According to a joint analysis by RMI and PSS FL, Georgia ratepayers spent almost $3 billion on fossil fuels during the height of the pandemic. With natural gas prices expected to remain high and Georgia Power’s reliance on gas, fossil fuel spending will only get worse. Experts from Southface testified in the rate case that rapid changes in gas prices, as we’ve seen in recent months, will put customers at risk of additional bill increases in the coming year due to current fuel-cost practices that allow the utility to pass fuel costs directly to customers.
- Other states, including Hawaii, Montana, and Idaho, have developed fuel-sharing mechanisms that Georgia could emulate. But here is the problem: recovery of fuel costs currently happens in rapid-fire fuel dockets that are expedited and not a good forum for reforming policy. In the general rate case where Georgia Power’s ROE is up for review, fuel costs are deemed to be “out of scope.” Updated system planning
The rate case is where the company determines how it will recover costs associated with investments, but many of those investment decisions are made in the utility’s Integrated Resource Plan (IRP), the company’s long term investment plan. Notably, Georgia Power’s 2022 IRP was filed prior to the passage of the Inflation Reduction Act (IRA), which can and should influence utility investments. For instance, the IRA included incentives that would make it more affordable for Georgia Power’s parent company to act on its bold commitments to retire all owned coal capacity by 2035 and replace most of that lost generation with renewables and storage, instead of new gas-fired capacity. The IRA would also help lower the costs of meeting the company’s climate goals. Finally, the IRA will accelerate electrification of vehicles and buildings, leading to load growth that will outpace the IRP’s assumption of less than 1 percent year on year.
In addition to the costs of power plants, the rate case provides recovery for transmission and distribution (T&D) investments. National data from RMI’s Utility Transition Hub shows that T&D is the largest part of a customer’s electric bill — and one of the fastest-growing. Georgia doesn’t do comprehensive planning for T&D the way it plans for new generation, putting customers at risk of paying for more expensive alternatives because the utility is incentivized to spend money on capital-intensive projects. Comprehensive T&D planning could facilitate prudent investment decisions and a more affordable and reliable electric grid.
An Opportunity to Ease Energy Burdens
The Georgia PSC is responsible for regulating in the interest of ratepayers — customers who don’t have a choice about who provides their electricity. In this case, the commission is considering potential rate changes that could have devastating impacts on thousands of families across the state. However, the commission has several policy tools to consider in pursuit of protecting ratepayers. By considering securitization, ROE reform, fuel-cost reform, and updated system planning, the commission could prevent electricity costs from putting more financial strain on Georgia ratepayers.