The Covington City Council is considering several options to increase the city's electricity supply, which currently is not large enough to meet the community's demands on its own.
This shortage of electricity power has necessitated the purchasing of large quantities of energy from the market. According to City Manager Steve Horton, Covington purchased approximately 25 percent of its power from the market in July.
"We are considerably short on both capacity and energy," Horton said.
Because energy prices on the market are subject to change with the whims of the market, the large amount of energy Covington is currently purchasing from the market has lead to higher utility bills for Covington consumers.
Additionally, the market price of energy is especially expensive in the summer months when demand is at its highest, thus resulting in one of the most expensive utility rates in the state for Covington customers using 2,000 or more kilowatt hours in a month.
According to a survey of all electric providers in Georgia by the Georgia Public Service Commission, in June, 2006 out of 94 providers Covington had the third most expensive electricity rate ($220) in the state for residents consuming 2,000 KWh in a month.
"The fact that we're buying a lot from the market is due in large part to the growth that we are experiencing," said Bill Meecham, utility director for the city of Covington.
Covington does not operate any energy plants itself. Rather the city is a member of a public corporation called the Municipal Electric Authority. MEAG currently provides power to 49 communities in the state who in turn provide power to their residents.
MEAG has investments in four main base load capacity plants. Through MEAG, Covington also owns shares in these plants. Covington's shares currently give the city the rights to slightly less than 80 megawatts per year.
However the demand for power this year has been so high that the city had to purchase an extra 20 MW from the market according to information provided by energy consultant Charles Parmelee.
With Covington's population forecasted to grow to 86,000 residents by 2028 (Covington 2028 Comprehensive Plan), the city's energy demand will only continue to increase.
It is with this in mind that the Covington City Council is debating the merits of purchasing additional energy capacity through MEAG.
At the request of Meecham, Parmelee has prepared a preliminary analysis of the options available to Covington to expand its power base. The analysis was presented by Meecham to the Covington City Council at their work session on Oct. 1.
"Right now the city is at the mercy of the power merchants," Meecham told the council.
Exploring the options
One option is to purchase additional base load capacity from other MEAG participants who have more base capacity than they require. According to Meecham both College Park and Marietta have been raised as possibilities.
According to the analysis, MEAG is currently trying to organize a group of member communities to make a joint offer to Marietta for 50 MW of base load capacity which the city is reportedly looking to unload.
If Covington decides to join the group, Meecham said the city will likely purchase a minimum of 10 MW though he said he would recommend that the city purchase between 15 and 20 MW.
"The more of that, the better we are in terms of buying this power off the market," Meecham said.
While prices haven't been finalized, Meecham guessed that each MW would likely cost $1 million if payment was made in a lump sum.
Whether the city decides to pay for the base load capacity with a large lump sum payment or through payments strung out over a period of years will affect the cost paid by the city. According to the analysis, if payments were spread out over a 30-year period, the price of one MW would be closer to $2.6 million
The option of using a portion of the $22 million still left unspent by the city from the proceeds of the sale of Covington Cable to fund the purchase of base load capacity from MEAG has not yet been debated by the council.
A decision will likely need to be made on purchasing the extra base load capacity by November said Meecham.
A second source of base load capacity for the city could be the proposed Vogtle Nuclear units 3 and 4. According to the analysis, these new units would be built at the present Vogtle nuclear plant site in Burke County by the Southern Company. The units are expected to be on-line by 2016.
According to the Southern Company's Web-site, MEAG owns 22.7 percent of the Vogtle plant while Georgia Power owns 45.7 percent, Oglethorpe Power Corporation owns 30 percent and the city of Dalton owns 1.6 percent.
MEAG participants have an option to buy 500 MW of the capacity from the new units. According to the analysis, the amount available to Covington would depend on how much capacity other participant cities require.
As the new Vogtle units will not come online until 2016, Parmelee is recommending that the city council pursue purchasing base load capacity from other MEAG participants as soon as possible so that energy costs for Covington can be stabilized.
Meecham said he expected that a decision on investing in the new Vogtle units would be made in 2008.
In addition Covington has the option of purchasing additional peaking capacity through MEAG. As peaking capacity is very expensive it is generally only used on the hottest days of the year, when demand is at its highest, or when market energy prices are higher than the operating costs of the peaker energy.
Meecham said the city council will have to make a decision by the end of the month on whether or not they wish to enter into a 20-year contract with MEAG for additional peaker capacity. Meecham said the terms of the peaker energy contract seem favorable for the city.
According to Meecham, the cost of peaker energy under the contract is $43,200 per MW.
The amount of peaker capacity purchased will be determined by the amount of additional base load capacity purchased said Meecham.
Additionally how much base load capacity Covington purchases from other MEAG providers will affect how much the city invests in the new Vogtle units.
"If you buy a certain amount of Project 1 (base load capacity) that reduces the amount of peaking power you need," Meecham said. "What we're going to recommend on peaking will be our best estimate but we're not ready to put forward that estimate yet."
According to Parmelee's analysis, if Covington does decide to buy base load capacity from other MEAG providers, the city will assume all the rights associated with the capacity as well as all the responsibilities for debt service and operating costs.
According to Meecham, Covington residents shouldn't expect to see an immediate decrease in their utility bills if the city does go through with the above outlined purchases. Rather the initial impact will be the stabilization of utility rates.
"Would it lower next year's bill? Probably not," Meecham said. "Would it lower the bill five years or six years down the road? Probably so."