Money on the Mainline

By Tim Johnson

Vol. 5, No. 2, 1983, pp. 1-6

Bob Scherer, Chief Executive Officer and Chairman of the Board of the Georgia Power Company, believes that electric rates should not be regulated. "Regulation isn't working," he explained recently to a reporter from Industry Week magazine.

"If we were deregulated tomorrow," he continued, "and we could charge whatever we wanted, there would not be, in my opinion, a disproportionate amount of socking it to the customer."

Although Scherer did not explain what a "proportionate" amount of socking it to the customer would be, his company has engaged in a long-range strategy of persuading the Georgia General Assembly, one step at a time, to remove authority from the state Public Service Commission, steadily increasing rates and profits. After all, as Scherer declares, "We found out that our fundamental purpose was to raise a reasonable return for our investors."

In 1980, an election year (Georgia legislators serve two-year terms), Georgia Power pushed legislation that would have drastically restricted the PSC: the cost of plant construction work in progress would be placed into the rate base so that the Company would be allowed to earn profits on plants that were not yet in operation: consumers would be prohibited from intervening in rate cases; when the Company earned state income tax credits, the PSC would pretend that the taxes had been paid and charge consumers accordingly; rates would be based on Company estimates for future costs. Several other provisions would have also proven costly to the ratepayer. Dozens of citizens, most of them turned out by Georgians Against Nuclear Energy, lobbied furiously against the bill, and although versions of it squeaked through both houses of the legislature, it failed to pass both house and


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senate in identical form before time ran out.

The Company vowed to return the next session. In the meantime, the sponsor of the bill--Representative Bob Sise, a natural gas company executive--was defeated at the polls. The only issue his opponent discussed was "the Georgia Power Boondoggle," as the bill was called.

The next year, the Company was back. This time, it asked for much less--legislation that would require that electric rates be based on future costs and that state tax credits and deferrals be ignored in rate cases (federal law already requires this for federal taxes). With strong behind the-scenes support from Lieutenant Governor Zell Miller (who had opposed the Company's legislation the previous year, when he was running for U.S. Senate), the bill breezed through both houses and was signed by the Governor almost before citizens could react.

The sponsor of the bill, Senator Tom Allgood, was elected senate majority leader in only his second term in the senate. Bob Scherer sent out a fundraising letter to local business leaders for Miller's reelection campaign.

"Clearly, the Company is working toward deregulation of its rates," comments Neill Herring, an Atlanta activist. "Their construction program is so out of hand that they have a choice between admitting they were wrong and cancelling some of their plants, or intimidating the state legislature into giving them more of the ratepayers' money. And they won't admit they made a mistake." Herring is in a position to know: since 1971, he has been involved with various groups in opposing electric rate increases.

In January of this year, Herring and forty-five other citizens attended an "Energy Strategy Conference" at a Future Farmers of America Camp near Covington, Georgia, (a campground given to FFA by Georgia Power.) The conference was organized by the Southern Regional Council, the Environmental Action Foundation of Washington, and Georgians Against Nuclear Energy (GANE). Concerned about the same issues for varying reasons, these groups hoped to bring together a diverse coalition of citizens to discuss Georgia's energy future.

"Everybody's affected by higher power bills," points out Sid Moore, an attorney who has intervened in utility rate cases on behalf of poor people (for Georgia Legal Services), all residential and small business consumers (as the state-hired consumers utility counsel) and retail businesses (on behalf of the Georgia Retail Association).

Rising utility rates hit the poor hardest, but the middle class, small businesses, industry and government also suffer when power bills increase. And because utility rates are set by state agencies, organizers have a forum for opposing unjustified increases.

A recent ally of those concerned about rising electric bills is the environmentalist movement. In the past, many environmentalists supported electric rate hikes because higher rates encouraged conservation and conversion to renewable energy resources. However, because the major cause of rate hikes is the construction of new power plants, especially nuclear power plants, environmentalists have increasingly joined forces with those concerned about the economic impact of electric rate increases.

"If we're going to stop Plant Vogtle (a two-unit nuclear plant under construction by Georgia Power), we're going to have to cut off the money," explains Pam Beardsley of GANE.

The January Energy Strategy Conference drew representatives of business, government and citizens groups for a weekend of workshops and strategy sessions in six areas of concern: the economics of power plant construction; alternatives to construction; organizing within cooperatively-owned and city-owned power companies; intervening in rate cases; the politics of electric utilities in Georgia, and organizing around utility issues in the black community.

"Everyone agreed that the major problem facing electricity consumers in Georgia is Georgia Power's construction program," according to Debby Shepherd, the main coordinator of the conference.

In the late 1960's and early 1970's, Georgia Power--like other utilities in the South--undertook massive construction programs predicated on growth rates projected at ten percent or more per year. Electricity consumption had grown at this rate through the sixties, and, using a straight-line projection, utilities assumed that this rate would continue.

There were several fallacies in this assumption. As Sid Moore points out, the utilities drew the straight line without looking at the reasons behind the growth in the sixties.

"Residences and offices installed air conditioning in the fifties and sixties, causing the tremendous jump in summer demand," says Moore. "But the market was saturated. To assume continued growth at these levels would mean that poor people would be putting in air conditioning, since they were the only ones without it."

Electricity prices had actually declined in the sixties, further encouraging consumption. The huge construction


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programs of the seventies, coupled with fuel price increases in the seventies, further dampening demand growth.

Contributing particularly to higher prices for electricity was the construction of nuclear power plants. Once glowingly touted as offering the potential for electricity "too cheap to meter," nuclear power turned out to be extraordinarily unreliable and expensive. By the end of the 1970's, electricity produced by new nuclear power plants exceeded the cost of electricity produced at oil-burning facilities.

"At this rate, it will soon be cheaper to burn money to produce electricity than to use nuclear power," commented Danny Feig of Atlanta, an antinuclear organizer.

Another reason for the slackening demand for electricity was the increasing share of the market taken by alternative energy sources. "People are utilizing conservation techniques, wood, passive solar water and space heating, low-head hydro, and cogeneration (producing industrial process heat and electricity with the same steam)," according to Jeff Tiller, an engineer who participated in the conference.

In those states where power companies failed to adjust their construction program to the reality of growth in consumption, the consequences have been severe. Consumers have usually been required to pay for new plants whether the plants were needed or not, sharply increasing rates and further dampening consumption. Georgia Power has tried to solve this problem not by reducing construction, but by selling plants to out-of-state utilities. However, these utilities themselves are usually overbuilt, so only small percentages of Georgia Power's "overcapacity" has been sold to out-of-state utilities.

The overcapacity problem in Georgia is particularly severe: a 1978 report by the U.S. House Committee on Government Operations states, "Georgia Power Company rated first (in annual cost to consumers of excess generating capacity) with overcharges of $39 million." The problem in Georgia has become much worse since that time, as several more plants have come on line and growth has further declined.

Yet, the construction program of Georgia Power continues.

In West Georgia, on the Chattahoochee River, two hydroelectric projects are under way at Goat Rock and two more at Bartletts Ferry (Georgia Power already operates several facilites at those sites).

In northwest Georgia, near Rome, the Company is building three pumped-storage hydroelectric projects on Rocky Mountain. A pumped-storage facility involves two dams, one at a lower elevation where water is stored after it flows from the higher, electricity producing dam during peak hours. During off-peak times, base-load electricity is used to pump water back up to the higher dam for use during the peak hours.

In Monroe County, near Macon, Georgia Power angered residents when it condemned twelve thousand acres of land for construction of a four-unit coal facility, the Robert Scherer Plant. Utility officials once bragged that this would be the largest coal-fired facility in the world, but became quieter when residents expressed concern rather than gratitude.

The state of Georgia is allowing Plant Scherer to be built without air-cleaning scrubbers, saying that land clearing at the site constituted the beginning of construction, making the facility exempt from federal requirements under a grandfathering provision. The result, according to Georgia Power's own environmental assessment, will be the following emissions: 37,200 pounds of sulphur dioxide per hour, 3,100 pounds of I articulates per hour, and 21,700 pounds of nitrogen dioxide per hour. Such emissions have been associated with various health problems (including lung cancer) and environmental problems (including acid rain and crop damage). Plant Scherer is a base-load plant (designed to operate around the clock) as opposed to a peaking plant (used only when demand is at its highest), meaning that the plant is scheduled to operate twenty-four hours a day, seven days a week, year round.

Georgia Power's repeated efforts to sell Plant Scherer to utilities in other states has fueled the bitterness of Georgia natives. One partial buyer is the Gulf Power Company, which, like Georgia Power, is a subsidiary of The Southern Company. Gulf Power cancelled a coal-fired plant it was building on the Crystal River in Florida to buy into Plant Scherer. The reason? The State of Florida required Gulf to put scrubbers on its plants, and the cost difference between the Florida plants with scrubbers and Plant Scherer without scrubbers made the cancellation economically attractive. Billy Lovett, a member of Georgia's Public Service Commission who attended the Energy Strategy Conference, expresses the sentiment of many Georgians when he refers to the deal as "filtering Florida's air with Georgia's lungs."

Molly Martin, and Zeke Williams of Macon were among those gathered in January at the Energy Strategy Conference. They expressed concern about the air pollution from the plant--one unit of which is complete--as their primary reason for attending the conference. Also present were homeowners whose land had been


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condemned for high-voltage power lines from Plant Scherer.

"I bought a home in a rural area to get away from environmental threats to my family," says Rabun Tingle, a small business operator and the father of six. "I'm not about to roll over and play dead when they try to condemn my land for dangerous power lines from a plant they don't even need."

Tingle pointed out that during condemnation proceedings for Plant Scherer, Henry Strozier, Assistant Vice-President and Manager of System Planning for Georgia Power, swore that the plant would not be sold to out-of-state utilities: "We only build for Georgia," he said under oath.

In the same 1974 proceeding, Strozier downplayed the significance of energy conservation, saying, "The energy conservation kick has little effect on demand."

The overconstruction problems at all these sites are dwarfed when compared with just one construction project: the Alvin W. Vogtle Nuclear Plant, named after the current president of The Southern Company. (Jeanne Shor house, a Southern Company stockholder who opposes Plant Vogtle, once proposed at an annual meeting of the Company that a currently operating plant be renamed after Alvin Vogtle "so his ego won't be so tied up in this worthless nuclear plant.")

Located across the river from the Savannah River Plant (where plutonium and tritium are produced for the nation's nuclear weapons), Plant Vogtle is the most expensive construction project ever undertaken in Georgia. The Municipal Electric Authority of Georgia (MEAG), a partner in the project, estimated in May of 1982 that its 17.7% share of the plant would cost $1.8607 billion, for total plant cost of more than $10.5 billion (assuming that Georgia Power could obtain capital as cheap as MEAG's tax-free municipal bonds, which it cannot). This cost estimate includes only construction and interest costs before the plant comes on line.

In comparison, the Kings Bay Naval Submarine Station now under construction at Kings Bay on the Georgia coast--the most expensive peacetime construction project the Navy has ever undertaken--is projected to cost $1.7 billion, less than one-sixth the currently projected cost of Vogtle. The Atlanta airport, one of the largest and busiest in the world, cost less than $500 million--one twentieth the cost of Vogtle.

At the end of 1981, the net value of all of Georgia Power's operating equipment totaled $3.7 billion. Plant


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Vogtle would therefore cost, at current estimates, nearly three times as much as all plants, lines, poles, meters and other capital equipment in operation a year ago combined.

In 1972, Georgia Power told Moody's investment service that the two units at Plant Vogtle would cost a total of $731 million and both would be in operation by 1980. In 1983, the Company estimates that the plants will be on line in 1988, and admits even this projection is "optimistic." And MEAG projects that they will cost more than fourteen times the 1972 projection.

Environmentalists have long been concerned about nuclear power problems such as plant safety, waste disposal and decommissioning. Peace activists have traditionally opposed nuclear power development because it provides a means for producing materials for nuclear weapons. It is now clear that, at least in the case of Plant Vogtle, continued construction is a major economic issue.

"Plant Vogtle is an albatross," says Al Burrell, a founder of GANE and editor of its newsletter, The Gainsayer.

Burrell and the other citizens at the January Energy Strategy Conference agreed that Plant Vogtle would be a major target of their efforts.

"We agreed that focusing on the economic aspects of Plant Vogtle holds the most promise for stopping the plant," said Debby Shepherd.

If Plant Vogtle is completed and placed into the rate base it will have a devastating impact on electricity consumers in Georgia. Sid Moore calculates that electricity produced at Plant Vogtle will cost more than twenty cents per kilowatt hour to produce (not including distribution or administrative costs), compared with about three cents per kilowatt hour for electricity produced in Georgia today.

The cost of Vogtle electricity will be borne by virtually all electricity consumers in Georgia, since cooperatives and city-owned utilities own shares in the project.

To estimate the direct impact on Georgia Power's retail residential consumers, a relatively simple calculation produces frightening projections. Placing Georgia Power's share of the facility into the rate base--$5.5 billion--and paying the Company a 12.5% return on rate base (less than they now are allowed), then doubling this for the tax effect (any rate increase must be doubled for the effect of state and federal income taxes; although Georgia Power does not pay this amount, state and federal-laws require the PSC to pretend that no tax credits or deductions were taken) indicates a $1.375 billion rate hike. This does not include labor, operating costs, distribution costs or other related costs. The residential consumers' share of this would be about $460 million, divided among Georgia Power's 1.1 million residential consumers. Thus, the average residential consumer would pay more than four hundred dollars a year in higher power bills due merely to adding Plant Vogtle to the rate base.

Effects on other consumers--stores, industry, schools and others--will be similarly startling. What will happen to marginal businesses? Will industry locate in other states? Money put into paying school systems' power bills cannot be spent increasing teachers' salaries.

"Plant Vogtle is an economic quagmire," says Carol Stangler, former coordinator of GANE. "It's time to pull out."

Especially in view of Georgia's glut of electricity generating capacity (more than forty percent above peak demand with twelve more plants under construction), it is in the best interest of the state's economy to stop construction of the Vogtle plant. Experience in other states similarly indicates that cancellation of Plant Vogtle would be a wise action.

It is also in the best interest of the Georgia Power Company to stop construction of Plant Vogtle.

As eletricity rates rise, consumers shift to alternative sources of energy, including conservation. Many industrial consumers now use their process heat (heat produced in the manufacturing process by burning coal, oil, gas, wood or another fuel) to boil water, producing steam which turns turbines, thereby producing their own electricity. Industrial motors produced today are twice as efficient as those produced just a few years ago. Residential consumers insulate their homes and, as they replace appliances, purchase more efficient ones (household appliance efficiency has quadrupled in the past ten years). Passive solar energy for space and water heating is already considerably cheaper than electricity. While few people have the capital needed at the front-end for these alternatives, lending institutions are proving more receptive.

As Georgia Power's electricity becomes more expensive, it will make even more economic sense to switch to alternative energy sources. Within a few years--before Plant Vogtle is scheduled to come on line--electricity produced from solar cells is expected to be cheaper (including battery storage) than the electricity produced at Plant Vogtle. As consumers conserve and switch to other sources, Georgia Power will either have to lower prices in order to be more competitive with the alternatives (in which case, unless they cancel some of their construction, they will lose money) or to raise prices to its remaining customers to pay for idle power plants--an option likely to drive away even more customers.

"Georgia Power apparently doesn't plan to stop Plant Vogtle anytime soon," says Pam Beardsley. "Not if they can get the money the plant requires." But Beardsley believes that, by drawing attention to the detrimental effects on the state's economy of high utilty rates and


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overconstruction of power plants, new allies will be drawn into the battle.

Within the last few weeks, a remarkable coalition has emerged to challenge the Power Company's latest legislative maneuverings--attempts to allow rate hikes to go into effect before full PSC proceedings are completed. Such legislation would provide Georgia Power with an extra hundred million dollars or more during each rate case.

The organized elderly have voiced their opposition through the Georgia chapters of the American Association of Retired Persons, the National Retired Teachers Association and the Council on Aging. Organized labor is represented by the Communication Workers of America, the United Auto Workers and the Machinists. Residential consumer advocates are working through Ratewatch, Georgia Action/ACORN and others. The attorney who represents major commerical consumers on rate design issues has lobbied extensively, as has John Lewis, former SNCC organizer, long-time civil rights activist and member of Atlanta's City Council. All five Public Service Commissioners oppose such legislation as do the current and two former Consumers' Utility Counsels (a state office established to represent consumers). The two Atlanta newspapers, usually advocates for Georgia Power, have, of late, taken the consumers' side as have several other newspapers around the state. Two chemical companies have joined the coalition. And citizens from all over Georgia have phoned and written legislators to express their opposition.

The coalition has named itself the Campaign for a Prosperous Georgia; "It has a Republican ring to it," explains organizer Doug Teper in explaining the attempt to show that fighting utility rate hikes is not a subversive activity. A full-time coordinator has been hired, a small grant has been obtained from the Janet Lowe Memorial Fund, and more fundraising efforts are under way.

"The fight is between truth and money," says Rabun Tingle. "We'll see who wins."

The Co-Owners Of Plant Vogtle

Currently, Plant Vogtle is jointly owned by:

Georgia Power 50.1%
Oglethorpe Power Corporation 30.0%
Municipal Electric Authority of Georgia (MEAG) 17.7%
City of Dalton 2.2%

Georgia Power is an investor-owned utility serving the majority of Georgia's electric consumers. It is wholly owned by The Southern Company, which also owns Alabama Power, Gulf Power (in Florida), and Mississippi Power.

Oglethorpe Power Corporation consists of rural electric cooperatives which serve a majority of the land area (though a minority of the population) of Georgia. It was established in the 1970s to buy into Georgia Power's construction projects and has been able to obtain extremely cheap money from the federal Rural Electrification Administration (meaning that taxpayers are subsidizing the construction with their tax money as well as their electric rates).

MEAG was created by the State of Georgia and consists of 46 city-owned electric systems and one county-owned system representing about 8. 6% of the state's population. It was created in the 1970s exclusively for the purpose of buying into Georgia Power's construction projects, thereby providing lower cost capital for the construction. This is due to the tax-free nature of bonds it issues (another taxpayer subsidy).

The City of Dalton opted to stay out of MEAG but bought into Plant Vogtle on its own.

Tim Johnson, who has worked for the Georgia Public Service Commission and the Consumers' Utility Counsel of Georgia, its an Atlanta writer and organizer.