Mike Garrett: Powering Up
Georgia Power’s CEO says the state’s combination of growth and increased consumption requires higher rates. He worries about water, transportation and education, and he thinks it’s time for a nuclear renaissance.
Georgia Power Company, a subsidiary of the Southern Company, provides electrical power to some 2.25 million customers in 155 counties in the state. The firm, which earned $787 million in 2006, formally requested a $406 million rate increase from the Public Service Commission last summer. The figure provided for a 12.5 percent return on equity – the return the company gives its investors.
The PSC’s advocacy staff countered with a suggestion that the company should actually decrease its rates; but in November it was announced that Georgia Power and opponents of the initial request, including the PSC staff, had agreed on a $323 million increase. The return on equity would remain at its current level of 11.25 percent. Just as this issue went to press, the PSC approved the $323 million increase by a 3-2 vote.
Georgia Power President and CEO Mike Garrett, a native of McRae, first went to work for the company in 1968 and held senior management positions throughout the Southern Company before he assumed his present position in 2004. Garrett talked to Editor Susan Percy in his office in Atlanta in early November. Following are excerpts from that interview.
GT: Let’s talk about the rate increase you requested. Why do you need it?
Garrett: We’ve only had one base rate increase since ’91, and it was 4.2 percent and it went into effect in 2005. So we’re trying to keep the base rate part of the thing low. But we’ve got environmental controls and we’ve got tremendous growth. They say from 2000 to 2030 the population of Georgia is going to grow by 47 percent. Not only do you have the growth … [but] average consumption of electricity has gone up about 15 percent.
GT: So it’s a combination of growth and increased consumption … ?
Garrett: You’ve got all this growth coming in, so we have to keep the infrastructure up. We’ve got to make sure that the transmission lines are built, the generation plants are built, the distribution lines are built. We spend about a billion dollars a year on that kind of capital growth. One of the things this commission has allowed us to do over the years has been to meet that demand. It never has been more obvious than this August when we went through the worst heat wave that’s on record. We set a new peak four days in a row. So building that infrastructure is part of this rate case and certainly the environmental controls that we are required to install. There’s about $2.25 billion in this rate case for [investment in] environmental controls. The majority of this is growth of the distribution, transmission, generation side and environmental controls. Here again, our goal is to continue to provide the level of service that the people of Georgia have come to expect both in reliability and in price and availability.
GT: Are you optimistic about the PSC’s vote?
Garrett: They’ve been fair to us in the past. They recognize that cutting our revenues doesn’t necessarily mean lower rates. They understand a healthy utility can provide better service. Our rates right now are 17 percent below the national average. They’ll still be significantly less after.
GT: How do your rates compare with other Southern states?
Garrett: We’re right in the middle of the pack. If you look at just Georgia, look at EMCs and municipalities, we’re lower than most of those.
GT: Most of us just assume that our lights will come on when we flip the switch. Is it harder to make the case for a rate increase if your consumers take reliability for granted?
Garrett: That’s really what we want them to do. We want it to not be an issue. We’ve got a lot of other issues we can deal with but we don’t want reliability to be one. It’s our job as the supplier in the state to make sure that the electricity stays on. Fortunately this commission has taken that very seriously. They’ve given us the resources we need to do that over the years. Georgia’s distribution and transmission system is in good shape and it’s because the commission has had the foresight to allow us to do what we needed to do when we need to plan for it.
GT: You don’t see your relationship with the PSC as adversarial?
Garrett: We have a long-range planning process called an Integrated Resource Plan that we take to the commission. They go over it from one end to the other and we talk about what our needs are going to be out in ’10, ’11, ’12 all the way out to ’16. We all agree on what we need to build. It’s not what a lot of people think that it is – some big argument that we have. We work very closely with the commission on future needs and resources that are needed to meet the demands. If you think about it, a state that is growing as fast as Georgia, we can’t afford to be bickering with the PSC over what we need to do. We need to all decide together what we need to do to meet the energy demands so that when you do flip that switch on, the lights come on and stay on.
GT: All this growth that Georgia has been experiencing. Is it sustainable?
Garrett: I think we’re going to continue to see growth because we have in Georgia what most people are looking for as far as an environment, as far as a business climate and quality of life. I think that the biggest challenge that the elected officials and the business leaders have in this state is making sure that this is quality growth that maintains or improves the quality of life that we have now.
GT: That’s a big challenge.
Garrett: You’ve got to deal with transportation issues, you’ve got to deal with water issues. You’ve got to deal with housing and education issues. You’ve got to have a trained workforce to meet the demands. If you ask me what is the number one economic development issue facing this state, I would say making sure that we have a trained workforce. Some of the things that the governor’s done with this, getting communities’ workforces ready [through the Georgia Work Ready Program], that’s all beginning to bring the education community and the business community together, so the business community is saying this is what our needs are and the education community can meet those needs.
GT: I’d like to talk about the drought. Georgia Power is a big water user.
Garrett: But not consumer.
GT: What’s the difference?
Garrett: We’re probably the largest user. But we return 93 percent to the streams or lakes we take it out of and then the biggest portion of the 7 percent is in condensation, which goes into the atmosphere. So we’re just not consuming that much water.
GT: What are you doing to conserve water?
Garrett: Long before this drought got anywhere close to where it is now, we started making sure that we were conserving as much water as we possibly could and that we were planning for the future, in case this thing got worse. Right now if you look in your crystal ball, it doesn’t look like it’s going to get any better at least until maybe spring rains or certainly hurricane season next year or tropical storm season. So we’ve been planning significantly. We only have a few plants that rely on a lake or pond. Most of ours rely on the run of the river, and so a lake being down certainly affects the run of the river, but the run of the river is more of our concern as it relates directly to generating our electricity.
I have some concerns – the low flows last year created very high river temperatures, and we’re very sensitive to [the possibility of major] fish kills; and we put temporary cooling towers at Plant Hammond [near Rome] to avoid that. Temporary cooling towers bring the temperature down 5 to 7 degrees. They brought them in on trailers and put them [in] and we cooled the water we put back into the river, because the river temperature got up pretty high. So we have all those balancing acts and concerns that we have to deal with. If we don’t get significant rain between now and summer, it’s going to be a really tough situation not only for drinking water and water usage for home, but also for generating electricity.
GT: Let’s talk about nuclear power. How do you see that fitting into Georgia’s energy future?
Garrett: Look at the price of coal and natural gas … and how volatile gas has been over the last four years … and look at the fact that there hasn’t been any generation built to speak of in the last 10 years that isn’t gas. If you look at that and you look into the future, you would surmise that this country and this state has to look at a nuclear renaissance. We haven’t had a nuclear plant started since 1979. I don’t think we can meet the environmental issues that we face unless we turn to nuclear. The first issue is nuclear has got to be safe, so you can’t cut corners. You’ve got to make sure. The plants we’ve built in the past have proven to be safe. You have little issues, but you have little issues at any plant. So safety is of paramount concern.
GT: What about cost?
Garrett: Then you obviously have to look at how much is a new nuclear [plant] going to cost and how long is it going to take to build it. We’re in negotiation with the supplier of nuclear units currently and we hope to have a price by the end of this year . And we will decide whether or not we think that’s something that fits into our overall plan and if it is, we’ll submit it as a bid. The RFP [request for proposal] is already out. We put an RFP out for 2016 and we’ll get this price in December and we’ll take a look at it and we’ll decide whether we want to enter this bid into this RFP. And if we do, the commission will have until December 2008 to decide if they want to go forward with nuclear or not.
GT: What do you see as the advantages of nuclear power for Georgia?
Garrett: It’s emission-free – some people would take issue, but for all practical purposes, it’s emission free. We know that at some point in time, there’s going to be some kind of tax on carbon out of coal-fired plants. We don’t know the timeline and we don’t know the amounts. I still have questions in my mind as to whether you can capture carbon and if you capture it, how you sequester it [store it safely]. We don’t know as an industry how much it’s going to cost. We don’t know if it’s going to totally take coal off the table or not.
It’s time to turn to nuclear and look to see if it’s time to start this nuclear renaissance in the country. The plants will be – should be – less expensive than the ones that we’ve built in the past. They also should have safety [features] built into them that have been designed … since we’ve built the last ones. The others are very safe, as I’ve mentioned. We’re talking about gravity flow, water systems and things of that nature, so there will be less pumps.
GT: You’re strongly in favor of more nuclear power?
Garrett: Generally I’m very pro-nuclear. I realize that we’ve got 25 percent of the population probably opposed to nuclear for various reasons. I think we have to respect those concerns; we have to find out what those concerns are and see if we can resolve them. For the most part, I think that for the good of the country and for the good of this state, Georgia Power Company has to be looking at the possibility of putting two new nuclear units at Plant Vogtle and then more after that. Because if you can’t build coal and you can’t capture carbon and sequester it, you’re obviously going to have to put [in] gas or nuclear, and gas prices are just too volatile. It’s kind of a double-edged sword – when we build a gas unit, we put upward pressure on gas prices, so if you’re an industrial customer sitting out here, you’ve got us building gas units, which have a very volatile price. It also puts upward pressure on us if they use gas for other parts of their process; we’re just driving the price up. So we’ve got to look to the future.
GT: What about conservation measures?
Garrett: We have to look at more conservation. We [Georgia Power] have 18 conservation programs that have been approved by the commission now. Both the commission and this company have been very careful to put conservation programs in that we think will work, not just give lip service. We’ve got 18 programs that we spend $41- or $42 million a year on that don’t put upward pressure on rates. We’re convinced that if we utilize these, we can continue to conserve. We’ve given out 100,000 compact fluorescent light bulbs this year. Those things conserve energy. We’ve got to be doing things like that. We’ve got to play a major role in that.
People say if you promote conservation that means you don’t sell as much and you don’t make as much money. That’s not true. We should be the ones out promoting conservation, and that’s what we’ve been trying to do. Sometimes we’ve been accused of not being as aggressive as we should; but I would tell you that we have substituted common sense and good judgment for being too aggressive and doing things that wouldn’t actually work and would actually cost ratepayers money. The commission’s taken a pretty pragmatic approach to that.