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									                                        Docket No. 13605-U

In re:          Application of Savannah Electric and Power Company to Increase the Fuel
                Cost Recovery Allowance Pursuant to O.C.G.A. § 46-2-26

                               ORDER ON RECONSIDERATION

       On April 30, 2001, the Georgia Public Service Commission (“Commission”) issued its
order in the above-styled docket. On May 10, 2001, Savannah Electric and Power Company
(“Savannah Electric” or “Company”) filed with the Commission a Motion for Rehearing,
Reconsideration and Oral Argument. Also on May 10, 2001, the Savannah Industrial Group
(“SIG”) filed with the Commission a Motion for Reconsideration.

1.       Savannah Electric and Power Company’s Motion

        Savannah Electric’s motion raises the sole issue of the Commission’s decision to allocate
a portion of the Summer Deal short-term purchases to capacity. The Commission’s April 30,
2001, order (“Final Order”) contained the following ordering paragraph:

         ORDERED FURTHER, that costs from the Summer Deal short-term
         purchases that are identified as a capacity resource in Savannah Electric’s
         2001 IRP filing that are above $100 per MWh should be allocated to
         capacity, and not recovered through the fuel rider. The Commission directs
         that the definition of “fuel costs” in the Company’s fuel rider should be
         amended to exclude these costs. The Company shall file a revised tariff
         consistent with the provisions of this Order within ten (10) days of the date
         of this Order. (Order, Page 11 of 12).

The Commission determined that this treatment was reasonable because the evidence in the
proceeding demonstrates that Savannah Electric treated these purchases as capacity in its Integrated
Resource Plan. (Tr. 410-411). Also, the record reflects that these Summer Deals are projected to be
nearly five times more expensive than Savannah Electric’s per unit generation cost and over three
times more expensive than purchased power. (Iverson’s Prefiled Testimony, p. 15).

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        The first ground Savannah Electric advances in its motion is that allocating a portion of the
purchases to capacity would adversely impact system reliability and the Company’s financial
condition. As a preliminary matter, the Commission notes that Savannah Electric characterizes the
allocation as an “arbitrary cap.” To the extent that the allocation to capacity works as a cap, it only
limits what Savannah Electric may recover through the fuel clause. It does not “cap” what
Savannah Electric may seek recovery for through base rates. The reason for the allocation is
because the Commission determined based on the Company’s own testimony in the record that the
purchases are treated as capacity. As noted in the Commission’s April 30, 2001, Order, it is
consistent with prior decisions in fuel clause dockets to exclude capacity costs from the fuel clause.1
Savannah Electric’s claim that it is arbitrary to limit recovery through the fuel clause to $100 per
MWh is misguided. SIG presented evidence related to the costs of operating Savannah Electric’s
most expensive peaking plants on the highest demand days. SIG recommended based on this data
allocating all costs above $100 per MWh to capacity. Savannah Electric did not contest SIG’s
calculations. That the $100 per MWh figure is imprecise does not render it arbitrary.

        The basis for Savannah Electric’s first argument is that prior to the Commission’s order in
this proceeding, the Company had entered into Summer Deals for the year 2001 summer. Since no
portion of these costs are included in base rates, the Company argued the Commission’s order
would deny Savannah Electric the opportunity to recover these costs. Savannah Electric also stated
that the Commission’s decision would jeopardize system reliability.

        The evidence presented and the briefs filed with the Commission did not make clear that
Savannah Electric had already entered into some of the Summer Deals for the year 2001 summer.
In brief, Savannah Electric merely mentioned that it objected to the inclusion of what it referred to
as a “non-fuel” issue such as “placing an illegal and arbitrary cap on the cost of energy purchases.”
(Brief of Savannah Electric and Power Company, Footnote 2). SIG’s witness, Kathryn E. Iverson,
referred to the costs of the Summer Deals as “projected.” (Iverson Pre-filed Testimony, p. 15). The
testimony went on to state that the cost of the Summer Deals is “still being negotiated.” Id. at 16.
Also, the testimony states that the cost Savannah Electric included in its fuel clause application to
account for Summer Deals was based on amounts from year 2000. The Commission reasonably
concluded from this information that the Company had not yet entered into Summer Deals for the
year 2001.

        The Commission’s intent was for the adjustment to take effect prospectively. Therefore, the
Commission clarifies that the allocation to capacity of all costs related to Summer Deals above $100
per MWh shall apply to those Summer Deals entered into by the Company from April 30, 2001,
forward. All of the costs of Summer Deals entered into prior to April 30, 2001 may be flowed
through the fuel clause. Savannah Electric must file with the Commission within 30 days of this
order, the Summer Deals that were contracted for prior to April 30, 2001.

   Commission Order, Page 10 of 12, citing Docket 10205-U, Savannah Electric and Power Company’s Application
for Approval to Increase the Fuel Cost Recovery Allowance, Schedules FCR-13 and TOU-3. In Docket No. 10205-
U, the Commission discontinued the recovery of capacity reserve sharing costs based on arguments that the costs
were capacity-related. (Page 6 of 8).

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        Savannah Electric argues next that this issue was not properly considered in a fuel clause
proceeding. The Company supports this position with legal and policy arguments stating that the
“cap” on Summer Deals should not be implemented. All these arguments establish is that the
Company disagrees with the Commission’s determination. They do not establish that the
Commission should not have even considered the issue. Savannah Electric included costs in its fuel
cost projections that another party to the proceeding argued should not be treated as fuel costs. The
fuel clause proceeding is the appropriate proceeding to resolve this dispute.

         Savannah Electric’s legal argument is that since the Summer Deals are billed through the
Intercompany Interexchange Agreement, a FERC approved contract, O.C.G.A. § 46-2-26(j)
prohibits the Commission from interfering with the charges under the contract. This argument
overlooks that the Final Order did not disallow any costs related to the Summer Deals. The
Commission’s decision only determines where the charges should be recovered. O.C.G.A. § 46-2-
26(j) states that the

       The commission shall not prohibit or limit the operation of a rate schedule or other
       tariff of a utility to the extent that it permits rate increases or decreases to adjust for
       increased or decreased purchased power cost, where such increased or decreased
       purchased power costs shall have become effective under the procedures of a federal
       regulatory agency or under a contract approved by a federal regulatory agency. Any
       subsequent refunds received by any such utility with respect to any such increased
       purchased power costs which become effective under procedures of a federal
       regulatory agency, or otherwise, shall be refunded by the utility to its customers in
       the manner directed by the commission. (emphasis added)

The limitation on Commission authority is only “to the extent” that the fuel clause tariff permits
recovery of certain costs. O.C.G.A. § 46-2-26(a)(1) defines a utility’s “Fuel costs” as the “cost of
fuel as defined in the utility company’s tariffs in effect on July 1, 1979, as such tariffs may be
changed from time to time by order of the commission as provided by law.” (emphasis added) If
the Commission defines fuel costs in the tariff to exclude particular costs, then the limitation on
Commission authority contained O.C.G.A. § 46-2-26(j) is not relevant. In its Final Order, the
Commission directed the Company to amend the definition of “fuel costs” in its fuel rider to
exclude the costs at issue. The Commission concludes that O.C.G.A. § 46-2-26(j) does not prohibit
the Commission from allocating a portion of the Summer Deals to capacity.

     Savannah Electric’s argument that the Commission’s order is retroactive is addressed by the
Commission’s clarification of its earlier decision. The Company’s final argument that the
Commission’s decision is arbitrary and capricious has been addressed in the above discussion.

2.     Savannah Industrial Group’s Motion

       SIG requested that the Commission reconsider its decision on four issues.

       (a)     Treatment of Savannah Electric’s net gain realized on the sale of gas

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        Savannah Electric realized a gain when it sold gas to non-associated parties at a higher
price than that which the Company paid when it arranged to procure the gas on behalf of
ratepayers. Savannah Electric did not credit this gain to the fuel clause. The Commission’s
Final Order included the following ordering paragraph:

       ORDERED FURTHER, that the Commission finds that on a prospective
       basis the net gain Savannah Electric realizes on the sale of natural gas or
       other fuel should be applied as a credit to the deferred fuel cost balance
       and the result amortized over the same three-year period, but that the gain
       already realized by Savannah Electric from such sales shall not be credited
       to the fuel rider.

SIG argued in its motion that the Commission should require Savannah Electric to credit to the
fuel clause gains previously realized by the Company through these sales. As stated in the
Commission’s Final Order, Savannah Electric’s current tariff does not provide for the treatment
of these gains through the fuel rider. The Commission declines to reconsider its decision on this

       (b)     Savannah Electric’s escalation of coal handling equipment costs

        SIG requested that the Commission reconsider its decision to not apply the proposed
escalator to coal handling and unloader expenses. In its Final Order, the Commission found that
these costs were sufficiently related to fuel to warrant inclusion in the fuel clause. The
Commission denies reconsideration on this issue.

       (c)     Allocation of funds in the liability account to offset underrecovered fuel expense

        In brief, SIG proposed that the $4.2 million in the regulatory liability account should be
credited to the fuel rider. (SIG Brief, pp. 5-6) In its Motion for Reconsideration, SIG states that
the liability account is a tool to mitigate the increase to the fuel clause. (SIG Motion, pp. 3-4).
In Docket No. 8330-U, Savannah Electric and Power Company’s Request for an Accounting
Order, the Commission approved a stipulation that included the creation of the liability account.
As explained in the Final Order, the stated intent of the liability account was to provide for the
mitigation of potentially stranded costs and/or regulatory assets. The Commission has not
reached a determination yet on stranded costs or regulatory assets. The more appropriate
proceeding to address this issue is in Savannah Electric’s next rate case proceeding. The
Commission denies reconsideration on this issue.

       (d)     The extension of the load contribution factor.

        In its Final Order, the Commission declined to adopt Savannah Electric’s proposed Load
Contribution Factor. The proposed Load Contribution Factor, by recognizing that customers that
are not time-of-use contribute more heavily to the load during peak periods, results in increases
to standard FCR rate customers of about $2.9 million. (Tr. 209). SIG requests that the
Commission reconsider its decision and adopt the Load Contribution Factor.

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       Implementing the Load Contribution Factor at a time when the standard FCR rate is
already undergoing a significant increase would exacerbate the rate shock impact to these
customers. The Commission denies reconsideration on this issue.

3.      Ordering Paragraphs

        WHEREFORE IT IS ORDERED, that the Final Order is clarified to state that the costs
from the purchases contracted for prior to April 30, 2001, may be recovered through the fuel
clause. For purchases contracted for from the date of the Final Order forward, Savannah Electric
shall only be allowed to recover through the fuel clause $100 per MWh.

       ORDERED FURTHER, that Savannah Electric shall file with the Commission within
30 days from the date of this Order the Summer Deals that were contracted for prior to April 30,

        ORDERED FURTHER, that the Commission denies reconsideration on all other issues
raised in Savannah Electric’s or SIG’s motions.

       ORDERED FURTHER, that any motion for reconsideration, rehearing or oral argument
or any other motion shall not stay the effective date of this Order, unless otherwise ordered by
this Commission.

       ORDERED FURTHER, that jurisdiction over this matter is expressly retained for the
purpose of entering such further Order or Orders as this Commission may deem just and proper.

        The above by action of the Commission in Administrative Session on the 11th of June,

________________________________                   ____________________________________
Reece McAlister                                    Lauren McDonald, Jr.
Executive Secretary                                Chairman

________________________________                   ____________________________________
Date                                               Date

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