Georgia Power wants to earn more off the investments its shareholders make in its electricity system, while regulators and consumer groups want to reduce those earnings as the country recovers slowly from a recession.
The Southern Co. subsidiary has asked the Public Service Commission to raise its target return on the money supplied by investors to 11.5 percent from 11.15 percent.
As a monopoly, Georgia Power’s rates are set by state regulators. The company has filed a new rate case that the elected members of the Public Service Commission are set to decide in December. One of the most significant issues is the company’s allowed return on equity, or how much money the firm can earn when its shareholders invest in the electric system.
“An 11.5 percent rate of return is required by our equity investors and will attract the necessary dollars for our construction program over the next few years,” said John Kraft, a Georgia Power spokesman, in a statement.
The higher return for investors is at least partly offset by low borrowing costs, Kraft said.
Staff regulators at the Public Service Commission instead want to trim the earnings rate to 10 percent because they see lower overall risks for investors and because the economy is still recovering from a recession, according to regulatory reports.
The different between those two figures is worth more than $200 million a year, according to calculations by regulators.
A Duke University economist hired by Georgia Power, James Vander Weide, said an 11.5 percent return for Georgia Power would be fair. He noted that comparable companies received a 10.8 percent return, but Georgia Power faced additional risks. The utility’s capital structure is composed of nearly 48 percent debt, which is higher than other companies used in his comparison. Debt investors can claim the firm’s assets and money before equity investors, making equity investments riskier than debt investments.
Investors face other potential risks, too, such as a drop in customer demand, increased expenses or new environmental rules that cut into profits.
Regulators and consumer advocates say Georgia Power is seeking too generous a return. The consumer advocacy group Georgia Watch has recommended that Georgia Power be allowed to earn a 10.5 percent return on its investments, said its attorney, Robert Baker, a former PSC commissioner.
He said Georgia Power was asking for too much when comparing the firm to other utilities and considering that Georgia is still emerging from an economic slump.
“If they got 11.5 percent they would have it not the highest, then close to the highest return for an investor-owned utility in the United States,” Baker said. “And the risk isn’t there to justify that high of a return on equity.”