Electricity is an energy form that is vital to the economy of the state and to the quality of life of our citizens. Of the three utility industries, electric is the most universal and perhaps the most essential. Like the other two industries, the electric industry is in a state of change. The PSC expects that the electric industry in Georgia may be restructured in the future. Unlike the other two industries, however, the existing legal framework reflects a state of traditional regulation under which the Commission regulates the rates of the state’s two investor-owned utilities, Georgia Power Company ("Georgia Power") and Savannah Electric and Power Company ("Savannah Electric"). Combined, these companies serve approximately 1,650,000 homes and businesses and have retail revenues of approximately $3.3 billion.

Pursuant to O.C.G.A. §46-3A-1 et seq., the Integrated Resource Planning Act, the Commission is responsible for reviewing and approving integrated resource plans filed by these investor-owned utilities on a three-year cycle and granting applications for certificates as indicated by need.

In addition, the Commission oversees territorial assignments for all suppliers pursuant to the Georgia Territorial Electric Service Act, found in O.C.G.A. § 46-3-1 et seq. by reviewing and approving requests for transfers of retail electric service, deciding disputes over territories and customer choice, and maintaining the electric supplier territorial maps for each county in the State. The Commission also approves the financing of rural cooperatives.

 Despite the existence of traditional regulation in the electric industry, the Commission has taken the initiative to examine restructuring in Georgia. In 1997, the Commission completed a series of electric restructuring workshops and published a report that identified issues that must be resolved for competition to succeed in the electric industry. It also has begun addressing issues in generic proceedings related to functional unbundling, which would require restructured rates to more closely match cost to provide service, and the recovery of stranded costs, which would require a determination of the types and amounts of assets that may qualify for recovery. The Commission plans to investigate additional issues in 1999.

After holding four public hearings during the summer of 1997, the Commission issued a report in January 1998 addressing the restructuring of the electric industry in Georgia. The comprehensive report contains guiding principles the PSC will employ as it evaluates the pros and cons of competition. The report also provides a roadmap the PSC will follow in

examining the impact of competition in Georgia. If true benefits of electric competition are believed to be attainable, the PSC may recommend legislative action be taken during the 2000 Session of the General Assembly.

Calling its January 14, 1998 decision a reasonable conclusion to a twenty-year dilemma, the PSC ruled that construction in the late 1970's and early 80's by Georgia Power of a hydroelectric power plant known as the Rocky Mountain Pumped Storage Facility was not

a prudent decision. In issuing its ruling, the Commission denied Georgia Power from billing ratepayers for $35 million of the construction.

The PSC only allowed Georgia Power recovery of $108 million of the $143 million Georgia Power had requested. The $108 million that was allowed by the Commission is expected to have little noticeable impact on Georgia Power’s 1.7 million customers, as the project costs will be spread out over thirty years.

After learning that Savannah Electric potentially could be overearning as much as $7 million annually from ratepayers, the PSC Staff successfully negotiated an agreement with this utility to reduce its earnings by $22 million over a four-year period. These reductions will be achieved through a combination of rate cuts, accelerated depreciation of assets and storm damage accruals.

On June 10, 1998, the PSC approved electric rate reductions over the next four years in the amount of $11 million for small business customers of Savannah Electric. Beginning with the first billing cycle in July, small businesses realized a 5% reduction in rates. By the fourth year of this plan reductions will climb to approximately 8.6%. Operations benefiting from this rate relief range in size from small businesses in strip malls to large grocery stores using 50,000-kilowatt hours or less per month.

For the first time in over 30 years, a Commission review of Georgia Power’s rates has resulted in significant reductions for the utility’s 1.8 million customers. The PSC voted unanimously on December 18, 1998 to cut Georgia Power’s profits more than $1 billion over three years, with $834 million being applied directly to rate reductions starting in January 1999.

Under the plan, rates in 1999 will be cut $262 million and at least $286 million during the second and third years. An additional $255 million in earnings will be used to accelerate depreciation of regulatory assets. The Company’s rate of return was capped at 12.5% return on equity. The first $50 million earned over 12.5% goes toward accelerated depreciation. Two-thirds of any earnings after the first $50 million will be shared with ratepayers; the remaining third will go to the Company.

The bulk of the rate reductions—$483 million—will go to 213,000 small business customers who have been paying disproportionately higher rates. Residential customers will see reductions of $196 million over the period. Large commercial customers will receive reductions of $147 million. Outdoor lighting customers will receive discounts of $7.5 million.