2017 Annual Report

A Message from
the Chairman and President

James E. Fuller
President
Gregory P. Thompson
Chairman

As we reflect on 2017, we are energized by what we have accomplished and what lies ahead. We have prepared for tomorrow with operating and financial strength and the affordable, reliable, clean wholesale energy that helps our local public power communities thrive.

As MEAG Power communities, our Participants receive the benefits of our high-performing generation and transmission facilities throughout the state. For another year, the nuclear generating units we jointly own with Georgia Power Company, Oglethorpe Power Corporation and Dalton Utilities operated admirably with record-setting refueling outages at both Vogtle and Hatch Generation Stations and record-setting utilization, 19 million MWhs of generation, at Vogtle Generation Station during a year with two refueling outages.

Also notable are the safety records of our facilities. The combined cycle, natural gas generation facility at Plant Wansley, which is wholly owned by MEAG Power, was presented with the Leadership award by the Governor’s Safety Conference for their development of a safety-focused workforce evidenced by the plant’s achieving five years without an accident.

Importantly, this combined cycle unit allowed us to take advantage of the year’s sustained low natural gas prices. Through its balanced fuel portfolio, MEAG Power has the ability to schedule the most economical generation resource to meet our Participants’ needs. In 2017, this natural gas unit was our lowest-cost fossil resource. This allowed us to both lower energy costs for the Participants as well as take advantage of opportunities to further reduce cost through sales into the wholesale market. The result in 2017 was $6.2 million in off-system sales margins, despite lower energy prices and mild weather throughout the year.

Also, lower energy prices created opportunities to purchase market energy to serve our system, which resulted in reduced costs to our Participants.

The ability to evaluate and execute these transactions 24 hours a day, 365 days a year is facilitated by The Energy Authority (TEA). For 20 years, TEA has assisted MEAG Power in successfully optimizing our assets in the wholesale energy and natural gas markets.

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LaGrange welcomes Sentury Tire, a global manufacturer, making an initial investment of $530 million in a new 400-acre, 1.4 million sq. ft. facility that is projected to add more than 1,000 jobs to the area.

Douglas announced Premium Peanuts’ plan to invest $14 million to add a filtered crude peanut oil facility. The company also announced that it intends to expand its present peanut shelling operation, which will also increase employment.

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Fort Valley is providing electricity, water, wastewater, natural gas and telecom services to Pure Flavor, a company investing $105 million to build a new high-tech, 75-acre greenhouse facility and distribution center focused on tomato and cucumber production.

Our team continued to find more ways to earn a return on our generation investments and thereby minimize the total purchased power costs of our Participants. In 2016, we partnered with multiple Participants and the City of Robertsdale, Alabama, to supply the City’s full wholesale generation requirements of 25 MW for eight years beginning in 2018. In 2017, we duplicated this kind of long-term partnership arrangement with two other Alabama communities, the City of Evergreen and the City of Hartford. These wholesale sales, totaling 22.5 MW annually, also began on January 1, 2018 and will continue through December 31, 2022.

Cost control efforts were a focus throughout the organization. Lower operating and maintenance costs for the generation fleet, as well as increased productivity due to shorter outage durations were instrumental in achieving our objectives. Also, prudent fuel supply, dispatch and cost control decisions lowered energy costs, as well as administrative and general costs.

All in all, we are pleased that we managed MEAG Power’s assets efficiently and economically and ended 2017 with total operating costs and cents per kWh below budget.

How Clean Is Our Delivered Power?

In 2017, our Participants’ wholesale power supply was clean and reliable, with 67% of the energy being supplied from non-emitting nuclear and hydroelectric resources. This marks the ninth consecutive year that the wholesale electricity we delivered to our local public power utilities was over 50% emissions-free. Our supply remains some of the cleanest in the Southeast, and in the nation, with an estimated carbon dioxide emission rate of 422 lbs/MWh.

Reliable, low-cost, non-emitting wholesale electric power ultimately provides a competitive edge to our Participants. Businesses seeking new locations, and those contemplating expansion, understand that these energy attributes can positively impact their bottom line and heighten their sustainability effort. Moreover, the local aspect of our Participants’ public power model, which provides local rate setting, local development incentives and local service, along with their hometown hospitality, gives companies even more reasons for choosing one of MEAG Power’s communities. And importantly, as commercial and industrial customers of public power communities, they will be pleased knowing that their electricity payments directly benefit the hometowns where their facilities operate, rather than stockholders located miles away.

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Cartersville is proud to partner with Hühoco Group who will invest $24 million in a new 70,000 sq. ft. greenfield project that is projected to add 200 jobs. The German organization is a global player in the refining of metal products found in more than 30 industry sectors.

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Covington is excited about the new Three Ring Studios $100 million film and TV studios which, when completed, will encompass 160 acres and provide three different innovative and high-tech campuses. The development will house Georgia’s first post-production and game development facilities.

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Fairburn is the home of Sonoco Products’ new $20 million, state-of-the-art packaging center that is estimated to create more than 500 full- and part-time jobs and serve as a magnet for additional growth of the state’s industrial network.

Where Do We Stand with the Expansion at Plant Vogtle?

Much of 2017 was spent addressing the future of the Vogtle Units 3&4 (Project) after the contractor, Westinghouse Electric Company (WEC), on March 29, 2017, filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. This action was prompted, at least in part, by potential cost overruns at both the Project and the V.C. Summer project in South Carolina, where WEC was serving as the engineering, procurement and construction (EPC) contractor. We were aware that a bankruptcy filing by the contractor was a possibility and were engaged in extensive contingency planning with Georgia Power Company (GPC), our agent for the Project, in anticipation of this action. Immediately after the filing, GPC, for itself and as agent for MEAG Power and the other two co-owners of the Project (Oglethorpe Power and Dalton Utilities) worked to provide a transition that ensured activity at the site would continue uninterrupted. This effort was successful, and construction has been ongoing.

MEAG Power, along with the other co-owners, agreed four key factors needed to be addressed before a decision could be made concerning the future of Vogtle Units 3&4.

  • Transition the Project to a self-build approach with Southern Nuclear serving as project manager, and ultimately Bechtel as the construction contractor, while minimizing disruption of the work at the Project and ensuring that the highest standards of safety and quality were maintained.
  • Through a services agreement with WEC, secure the rights to the AP 1000 intellectual property and related design services concerning the Project, such as analyses, engineering, drawings and computer systems.
  • Negotiate a commitment from Toshiba that secured payment of the parent guarantees from the EPC contract to the full designated 40% of the total contract price, a total of $3.7 billion for the Project.
  • Complete a detailed Project schedule and cost estimate-to-complete in order that each co-owner could evaluate the completion or cancellation of the Project.

All four factors were successfully addressed, and on August 30, 2017, the MEAG Power Board unanimously voted to support Georgia Power’s decision, subject to the Georgia Public Service Commission’s (GPSC) approval, to complete the Project. On December 21, 2017, the GPSC voted to approve the 17th Vogtle Construction Monitoring Report and support the completion of the Project. The new in-service dates for Vogtle Unit 3 and Vogtle Unit 4 are November 2021 and November 2022, respectively.

We also have conditional approval from the Department of Energy for up to $415 million in additional loan guarantees toward construction. Additionally, as a result of legislation passed by Congress on February 9, 2018, MEAG Power now has the ability to monetize the benefits of the Nuclear Production Tax Credits associated with the Project once the units are placed into commercial operation.

Many long hours were spent addressing the future of the new Vogtle units. We appreciate that the MEAG Power staff and Board members worked tirelessly on this effort, and we are grateful for the cooperation of our Project partners and MEAG Power Participants.

We understand there may be remaining challenges with this complex Project, but believe that when finished these two new nuclear units, with a projected operating life of 60 years, will provide our Participants with another economical, emissions-free resource with stable pricing — a resource that can serve the growing needs in the Southeast.

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