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Posted: June 25, 2011 9:41 p.m.

Comparing Covington's electricity costs

By Gabriel Khouli/

Covington uses profits from electricity sales to subsidize other government operations; that's no secret. But, how does that affect residents' bottom line, and do they pay more for power than other Georgians?

The short answers appear to be not that much and no.

Electric rates for all utility providers are publically available at the Georgia Public Service Commission's website, and Covington has consistently bested both Georgia Power's rates and the state average the past couple years, while Snapping Shoals is generally the lowest.

However, officials say those rates may not always be up to date. So, Electric Cities of Georgia did a rate comparison between Covington and Georgia Power and found Covington was cheaper at every usage level in both summer and winter.

Electric Cities of Georgia is paid by Covington and other cities that produce power to conduct analysis, provide training and recruit industry to their communities.

Costs in Covington
So, why do Covington's bills seem higher than surrounding neighbors? Multiple factors could play into that phenomenon. First, Covington includes all of its services on one bill, electric, gas, water, sewer and solid waste, so often the total bill is quoted instead of the electricity charge only.

Second, Covington has historically had high rates. As recently as 2008, Covington had the second-highest summer electricity prices of anyone in the state. The city at that time had to buy a large amount of electricity off the open market, and prices were high.

Covington contracts to buy the bulk of its power from the Municipal Electric Authority of Georgia, a nonprofit coalition of cities that owns portions of coal and nuclear power plants across Georgia.

Prior to 2009, Covington's contract was leaving it short on power, and it had to make up the difference by buying power from other providers at marked-up prices. The city managed to reach contract agreements for additional power in 2009 and prices have since stabilized. Hence, the more favorable rankings.

Rates never changed during this time, but that "PCA" line item on your bill takes market prices into account. Even when Covington has a set contract, costs for the city can still fluctuate, and the PCA recoups those costs for the city.

Finally, residents may not actually have paid less in the past three years. Summers have been hotter than average and winters have been colder than average, including near record highs and lows, meaning usage has been at some of its highest levels. Residents can be glad the prices did stabilize or bills would have been even higher.

Prices only getting higher
While temperatures are unpredictable, the cost to produce power is only going to get more expensive. Federal regulations are forcing coal plants to upgrade technology and operate more cleanly, which bumps up costs.

According to a report from the Municipal Electric Authority of Georgia, Covington's environmental compliance costs could increase from $500,000 in 2011 to more than $1.8 million by 2015, and its total power costs could increase 9 percent.

Covington is investing heavily in nuclear power, and two new reactors are being built at Plant Vogtle near Waynesboro, Ga. While nuclear power has many positives, including stable operating costs, one of its negatives is that its billion-dollar plants often have cost overruns and those overruns can be large.

The first two reactors at Plant Vogtle were scheduled to cost $1 billion, but had cost overruns of $8 billion in the 1980s, and a recent article in the Atlanta Journal-Constitution warned of potential issues with the soon-to-be-built reactors.

Georgia Power already asked for a rate increase to help finance the building of the new $14.5 billion reactors, but it and other utilities may attempt to pass on cost overruns to customers as well.

In 2010, Covington acquired around 35.4 percent of its power from nuclear plants and 34.8 percent of its power from coal plants. Other sources include natural gas, hydroelectric and fellow power providers.

By the time 2011 is finished, Covington will have absorbed about $4 million of cost increases in an effort to save customers money, but city officials recently said they can't keep absorbing costs.

What about the profits?
Covington uses its electricity and gas profits to fund many governmental activities instead of property taxes.

This is a luxury the county government doesn't have and explains the vast difference in their budgets. Covington recently approved a budget with $121 million in expenses, while the county has a budget of $44.28 million, despite having a population six times as large.

About $48 million of Covington 's expenditures are related to electric and gas operation. Water sales account for another $18 million; Newton County has a water fund that is separate from its general operating budget.

In the 2009-2010 fiscal year, the last one fully completed, Covington spent $25.8 million to purchase electricity. It then sold that electricity for $35.3 million, which looks like a big rate of return.

But the city has to maintain its electric infrastructure, but it also gets additional revenue from late penalties and other miscellaneous items. So, its rate of return on electricity was 12.8 percent. The rate has generally hovered in that range in past years.

The term "profit margin" is somewhat misleading, because those "profits" are reinvested into city operations. In 2009-2010, the city netted $4.13 million, which was used to supplement various general fund departments, such as human resources, fire, information technology, police and streets. That number has been as high as $7.8 million in past years.

The rate of return appears to have declined to 11.96 percent as the city has reduced its operating budget, and Covington ranks right in the middle, 13th out of 27, compared to other cities that sell power, according to a study by John Lansing, manager of pricing for Electric Cities of Georgia. The data is from 2011.

According to the Public Service Commission, Georgia Power was allowed to collect a rate of return of 11.15 percent in 2010.

The rate of returns ranged from 4.64 percent to 30.64 percent. The lowest end is comprised of cities that have independent authorities to run the electricity system, so the city doesn't see the full return.

In 2009, if Covington had chosen to lower electricity prices and raise property taxes, the millage rate would have had to be doubled from its 8.208 rate.

Covington benefits from having 11,093 electric customers, one of the largest customer bases among cities, some of whom are outside the city limits. In this way, city residents actually benefit from the city owning utilities, while non-city residents may bristle at helping subsidize government service they don't receive.

While Georgia Power's rates are regulated by the state, Covington and other cities are self regulated, and the city council sets the rate. The state can apply pressure to Covington to make changes, according to officials, but the cities have the final say.

"If city residents are unhappy with their rates, they can contact their council members or vote them out," said Bill Edge, public information officer with the Public Service Commission.

Covington residents appear to be getting a fair shake, but Oxford's and Mansfield's customers continue to face higher than average rates, because their cities are entirely residential. That's something that doesn't figure to change anytime soon.

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