Oglethorpe Power Corporation

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Oglethorpe Power Corporation

2100 East Exchange Place
P.O. Box 1349
Tucker, Georgia 30085-1349
U.S.A.
(404) 270-7600
Fax: (404) 270-7872

Private Company
Incorporated: 1974
Employees: 540
Sales: $1.03 billion

Oglethorpe Power Corporation is a cooperative venture of some 39 of Georgia’s 42 member-owned electric membership corporations (EMCs). It serves more than 30 percent of Georgians in a territory that covers approximately 71 percent of the state’s land area. It owns one hydroelectric facility outright, holds partial ownership of nuclear and fossil-fueled generating plants, is building a pumped storage facility, and leases a large fossil-fueled plant from a group of investors. Through the nation’s first fully developed integrated transmission system (jointly held with Georgia Power Company, Georgia’s other major electric utility, and the Municipal Electric Authority of Georgia), Oglethorpe brings electricity in bulk to its member EMCs. They, in turn, deliver the electricity at the retail level to farms and suburbs, factories, and office buildings. Once serving an exclusively rural constituency, Oglethorpe’s member EMCs are now faced with demand from the suburbs of booming Atlanta.

Oglethorpe was incorporated in 1974, but it traces its roots back to 1935 when Franklin D. Roosevelt signed a presidential order creating the Rural Electrification Administration (REA). The REA provided loans to construct power lines in rural areas and brought electricity to people and businesses that commercial power companies found uneconomical to serve. Under the program, customers in rural counties joined together in EMCs, and purchased electricity wholesale from a variety commercial and governmental utilities. In Georgia, there are 42 EMCs; to ensure a reliable and economical source of wholesale power, 39 of them formed Oglethorpe Power Corporation in 1974.

Soon after incorporation, Oglethorpe’s management and board of directors developed a three-point plan that they hoped would guarantee a stable supply of power. First, Oglethorpe would purchase partial ownership in existing power plants and participate in the financing and ownership of generating facilities still on the drawing board. Second, Oglethorpe would buy into the transmission system to ensure delivery of power to its member systems. (Previously, the statewide transmission system had been the domain of Georgia Power.) Third, if the need were great enough, Oglethorpe would build and operate its own generating facilities.

Shortly after the completion of this plan, Oglethorpe purchased ownership in two Georgia Power plants and became joint owner in Georgia’s primary transmission network. Then, with loans guaranteed by the REA, Oglethorpe bought into the planned two-unit Vogtle nuclear plant near Waynesboro, Georgia, and the planned four-unit Scherer coal fired plant near Forsyth, Georgia. Vogtle, like many other nuclear plants, was plagued with delays, cost overruns, and licensing battles. Between the time Georgia Power first proposed it in the early 1970s and the time the second unit went into operation in 1989, costs increased more than 1,200 percent.

The construction of Scherer, on the other hand, led Oglethorpe to an unexpected monetary windfall and an unexpected headache. As a participant in Scherer, Oglethorpe accrued massive federal tax benefits. But since Oglethorpe’s income was very low (Oglethorpe claimed tax exempt status until 1982), it could not use these tax benefits to its own good. What it could do was sell those benefits to a third party under provisions of the Economic Recovery Tax Act of 1981. In 1982 and 1983 Oglethorpe sold its tax benefits to three companies and reported proceeds of $101.2 million from the sale of income tax benefits relating to the first Scherer unit and associated facilities.

Unfortunately, the IRS questioned the way Oglethorpe worked the deal. In 1986 the IRS began both civil and criminal investigations into Oglethorpe and the accounting firm of Arthur Andersen & Co. The IRS questioned whether Oglethorpe as a tax-exempt organization had violated the tax code by receiving less than 85 percent of its income from members. The investigation focused on whether Oglethorpe should be made to pay taxes on the proceeds of that sale and whether Oglethorpe committed fraud by filing as a tax-exempt organization. However, in September of 1990 the U.S. Tax Court in Washington ruled that Oglethorpe had not violated IRS regulations by selling tax credits accrued during construction of coal-fired Scherer plant. Company officials breathed a sigh of relief as a loss in the case might have cost Oglethorpe up to $325 million.

Tax advantages were again primary considerations in 1985 when Oglethorpe sold its 60 percent share in the second unit of the Scherer coal-fired plant to a consortium of finance and investment corporations for $395 million and then signed a multi-year lease-back agreement for the same facility. As a non-profit organization, Oglethorpe could not utilize the tax benefits of the plant’s depreciation, but the consortium could. Because Oglethorpe made $57 million on the deal (it paid $338 million for the plant), and because the lease was pegged against the consortium’s lower interest rate mortgage, Oglethorpe was able reduce the rate of increase on wholesale electricity.

During the 1970s and 1980s, Oglethorpe experienced a sometimes explosive growth in demand. A major contributor to this growth was the changing profile of member systems. Historically, EMCs had served a predominantly rural constituency; however, as previously rural areas became suburban, even urban EMCs began serving a new, faster growing constituency. In 1986, for example, nearly 40 percent of the households served by member systems were located in metropolitan Atlanta. In 2006 that figure is expected to rise to nearly 56 percent. Projections also indicate that by 2006 EMCs served by Oglethorpe will provide electricity to an estimated 44 percent of Georgia’s total population— up sharply from the current 30 percent.

Despite increased capacity from the Vogtle nuclear plants coming on line, management saw that Oglethorpe would have difficulty meeting future peak demand. To help control power use during peak hours, the utility installed a computer-controlled radio switching system in 1985. The system, connected to energy-consuming personal appliances such as air conditioners and hot-water heaters, would switch off appliances of participating customers for seven minutes each half hour during the hottest, peak-use days. Costing Oglethorpe $2.5 million and participating EMCs an additional $5.5 million, power officials estimate the system saved $8 to $10 million in generating costs by allowing Oglethorpe to use cheaper nuclear power, rather than costly fossil fuel in plants it activated during peak periods. At present, 36 of Oglethorpe’s 39 EMCs participate in the program.

Another mode of meeting peak demand is storing excess energy produced during low-demand periods and then using that energy to meet peak demand. Though significant amounts of electricity are consumed in the process, pumped-hydroelectric energy is one of the most effective energy storing systems. In pumped-hydroelectric energy officials pump water into high, artificial mountain lakes during the evening and then during the day allow it to fall to lower altitudes turning turbines and producing energy as it goes.

In 1985 Oglethorpe began searching for a site to build a pumped-storage facility while simultaneously exploring the possibility of buying into Georgia Power’s mothballed Rocky Mountain pumped-storage hydroelectric plant near Rome, Georgia, which was 20 percent complete. The latter option was eventually decided upon; and in 1987 Oglethorpe and Georgia Power reached a preliminary agreement. Oglethorpe would construct the remainder of the plant and ultimately operate it, owning roughly 75 percent of the facility and Georgia Power owning the rest. After Oglethorpe secured a $706.8 million loan guarantee from the REA, Oglethorpe and Georgia Power signed the deal on December 15, 1988.

In 1989 the second unit of the Vogtle nuclear plant came on line (the first was completed in 1987), ending roughly 15 years of construction. Oglethorpe’s 30 percent share of the facility cost more than $2.79 billion.

In 1990 Oglethorpe signed a group of agreements with Georgia Power, giving Oglethorpe a greater say in jointly owned projects and freeing up Oglethorpe to sell surplus power to outside utilities. In view of the new realities in the electric power business and the ever-increasing demand for power, Oglethorpe recently requested proposals from independent power producers to see if buying new capacity might be cheaper than building it.

From a cooperative of rural, member-owned EMCs, Oglethorpe has grown to a modern state-of-the-art utility which participates in the national power grid and has customers in both rural and urban settings.