Originally created 04/08/01

Officials see little danger of Georgia energy crisis



SAVANNAH - With electric rates poised to mimic already skyrocketing natural gas prices, it's no mystery why energy issues have politicians, government officials, and business and residential users worried.

And if rate increases aren't enough to get their attention, there's always California, menaced by rolling power outages, nearly bankrupt utilities and thousands of jobs at risk.

But while state officials, utility managers and politicians note smugly that Georgia isn't California, most of them join the public in wondering secretly - if not out loud: Can it happen here?

The short answer: No.

Public Service Commissioner Bobby Baker says the PSC, Georgia's watchdog group for regulated industries, won't let the state to slip into a crisis.

Mr. Baker, who studies the state's energy needs in an office adorned with college diplomas and a Ronald Reagan campaign poster, has a growing collection of newspaper clippings about California's crisis and Georgia's own energy struggles.

He also has a detailed report, filed by the electric utilities in January, describing their current and projected electrical production and needs.

It's up to the PSC to decide whether the projections are enough.

"This year is going to be a very important year for electricity in Georgia for the two companies we regulate," Mr. Baker said.

As for not becoming another California, those knowledgeable about the West Coast's problem say it grew out of a combination of bad situations and poor monitoring. Not enough electricity was being generated, partly because of the region's high growth and tough environmental standards that discouraged utilities from building big power plants.

THEN CAME A DEREGULATION plan capping rates electric companies could charge customers but not the increasing costs of fuel needed to generate electricity.

California's electric utilities got into deep trouble.

Georgia seems unlikely to repeat California's mistakes.

Why? The two states' utility environments, populations, geographic and economic constraints are too different.

But before Georgians gloat, they should recognize that those differences mean that completely different problems lurk just past every plugged-in appliance.

Outside temperatures were barely high enough to be considered light-jacket weather when March began, but Karen Bull, marketing director for the Satilla Rural Electric Membership Cooperative, was already talking air conditioning.

The Satilla Rural EMC, which serves southern Georgia, was making preparations for the summer arrival of 11 rented diesel-powered electricity generators. This summer, for the second year in a row, Satilla is renting diesel generators. They provide the extra electricity needed during peak hours when the nine, mostly rural, counties covered by Satilla strain its capacity to deliver. The company can't afford a new plant, Ms. Bull said, but the EMC has to serve its members.

Members of EMCs are also owners in the cooperative energy generators. For Satilla, and the 41 other co-ops dotting Georgia's map, every nickel spent comes directly from the residents, farms and small businesses who are members.

"We and our members are one in the same," Ms. Bull said. "Everything we do is for the longer-term benefit of our members."

THIS IS THE THIRD summer that cooperatives are turning to diesel generators to supplement their own electrical output, said Jack Capp, program manager with the Environmental Protection Division. The division has received more than 175 permits for diesel generators this year.

Comparatively, Ms. Bull said, renting diesel generators is not cheap. The alternative, though, is to take on a huge amount of debt to construct a coal or nuclear facility, that - once built - is cheaper to run but isn't needed most of the year.

"We don't need (peak power) 365 days a year, but we do need it during the summer," Ms. Bull said. "The cost of building is extremely expensive. The lead time is long, and in the background there is the risk of stranded expenses."

Building a coal-fired generator means a five- or six-year process to get approved and doesn't help meet current electrical needs, said Matt Gignilliat, Savannah Electric's director of economic development and regulatory affairs.

Also, Georgia's public utilities are shying away from building new plants unless absolutely necessary. The specter of deregulation looms, and, under deregulation, electric utilities might not be guaranteed reimbursement for capital costs.

"If you have any deregulation, that's a hard thing to recover," Mr. Gignilliat said.

Still, Savannah Electric and Georgia Power - feeling pressure from state regulators, bad publicity from California and strains on their own grids - are expected to ask the PSC for new capacity for 2005. Mr. Gignilliat said part of this new capacity would be coal-fired generators.

About 15 years ago, Mr. Baker said, there was a surplus of average base load - electricity generated from a plant that operates more than 60 percent of the time.

Since then, though, no major base load plants have been constructed. The last time major base load plants were fired up in Georgia was during the late 1980s. Savannah Electric last brought substantial base load on line in 1979.

ONE PLANT WAS PROPOSED during the late 1990s and would have come on line in 2005, but plans were shelved in 1998. The PSC is looking into whether the state has enough base load to meet growing demands.

"We're taking the review ... very seriously," Mr. Baker said. "It is going to help prevent a California crisis."

Until now, Savannah Electric and Georgia Power, along with electrical co-ops and electric utilities nationwide, have relied increasingly on natural gas-powered turbines to create electricity.

"Demand for natural gas has been growing 200 percent annually for electrical generation," Mr. Baker said.

As more large users gobble up natural gas, supplies get tight nationally, pushing up prices. Mr. Baker said the price of natural gas has nearly tripled, explaining why everyone's gas bills went up last winter - and why they can expect higher electric bills this summer.

As for new sources of natural gas, the process takes roughly two years for a new well to come on line, said Clayton Preble, with Atlanta Gas Light Co. Utilities, which wants to build cheap plants to meet peak demands. The strategy serves high-demand times, he said, and it raises rates because running the peak plants a lot siphons away natural gas from residential users.

"Mother Nature will probably control what happens next year," Mr. Preble said. "A cool summer and mild winter will ease this."

ALTHOUGH NATURAL GAS, coal and fuel oil can be stored once mined, making it possible to match supply with demand, electricity is fleeting. It has a shelf life of nearly zero. Electricity's makers have but one option - sell as much as possible instantly.

Because demand is not constant throughout the day, utility officials must cope with the prospect of shortages, blackouts, brownouts and rates pushed up by increasing fuel costs.

So how do you plan for the future? How do you know how much to make? How do you know how much people will be willing to buy? And what do you do if you fail to deliver?

Savannah Electric officials try to balance their utility's generation among various sources. Coal-fired generation provides the mother lode of the utility's electricity, with gas-fired turbines kicking in for peak moments. Other utilities turn to nuclear or hydroelectric where available.

By being part of the Southern Co. pool of electric generators, Savannah Electric officials say, they can take advantage of cheaply generated electricity inside the Southern family of utilities.

In that way, Savannah Electric's customers already benefit from wholesale deregulation.

True, the Public Service Commission sets rates, but the utility might buy electricity from any generators whose contracts or plants let them generate cheaper power.

Individual homeowners still have no choice, but larger industrial users can shop around. It's a one-time deal, but it lets companies broker long-term rates.

The freedom of choice enjoyed by large industrial users poses a big risk to electric utilities in Georgia. As more small-time electric companies move into the state, using cheaper-to-build gas or diesel powered generators, Savannah Electric and Georgia Power are being forced into fierce competition for the most lucrative customers.

WHILE DEREGULATING ELECTRICITY for the entire state had been talked about before this past winter, Mr. Baker said, the subject now appears buried beneath piles of constituent complaints and newspaper articles about rolling blackouts.

So far, the Southern Co. is not a big fan of deregulating electricity.

"The smaller the customer, the less likely they will benefit," Mr. Gignilliat said. "Savannah Electric is small and might not benefit."

But is reregulating natural gas a possibility? With natural gas, something that can be stored, deregulating the industry was intended to give consumers a choice. Saying that consumers would be able to shop around easily for the best deal, legislators were sold on the idea. While large industrial users of natural gas, such as textile mills and factories, have benefited from this freedom, so far the residential user has seen little more than hassles and higher rates.

Though there has been talk and even some attempts at reregulating the industry, most politicians and energy industry officials agree the current system is here to stay.

The system might be tinkered with, but overall the market will probably remain open for competition.

Regardless of what alterations are suggested or made, the relationship between Atlanta Gas Light Co. and the various natural gas marketing companies is expected to remain intact.

Atlanta Gas remains a regulated company, and its rates are still set by the Public Service Commission. But under deregulation, Atlanta Gas no longer sells natural gas to residents. The utility sells natural gas to marketers, who are unregulated, letting them worry about signing up customers. Atlanta Gas still delivers the natural gas to consumers over its lines and is paid a fee for this service - the rate set by the PSC.

"All the pieces that can be regulated are," Mr. Preble said. "All that (deregulation) would do is take the choices from the consumers."

When asked about the escalating cost of natural gas, Mr. Preble said prices will drop only when supply catches up with demand. Rate caps such as California's won't solve the problem, he said.

"Price caps can't work in a free market," Mr. Preble said.

In general, he said, Georgia's natural gas prices compare favorably to those throughout the nation. Mr. Preble, who still says Georgia's deregulated natural gas market will benefit residential consumers, says more consumer education is needed.

"As winter comes to an end and summer starts, that is the time to look for deals to sign," Mr. Preble said. "For long-term contracts, look ahead of the heat of summer."