Policy Memo: Georgia Must Reform Its Outdated Utility Model To Realign Incentives

To: The Georgia Public Service Commission, Chairman Jason Shaw

From: David Sillman - Board Member, Georgians For Affordable Energy

INTRODUCTION

As clean energy technologies continue to decline in cost and increase in efficiency, they are driving transformative changes in the electric power system. Add to that the rising demand for electricity and the worsening effects of climate change, and system operators and regulators are forced to adapt to new technical and economic realities. This in turn necessitates reforming utility policy and governance to best meet the needs of a modern clean energy grid. 

While sufficient for most of its 53-year history_[1], these factors have rendered the revenue model for Georgia Power, Georgia’s investor-owned utility, outdated and harmful both to ratepayers and the environment. Ratepayers have suffered rate inflation of 70% since 2010 and 30% since 2023 (Figure 1). 

Figure 1: (Above) Ratepayers of Georgia Power have seen a 70% increase in rate inflation since 2010, and (below) 30% since 2023. 

Additionally, renewables make up a small share of Georgia Power’s energy mix (Figure 2).

Figure 2: (Left) It is evident that most of Georgia’s electricity generation is powered by fossil fuels. 

(Right) Specifically, hydro and solar make up cumulatively ~11% of Georgia’s energy mix.

Fundamental regulatory reform is needed to keep customer costs in check and to decarbonize Georgia’s grid. Alternative models exist _[2], a variety of which have been employed in other states to positive results. Primary among them are a class of regulation and ratemaking known as Performance-Based Regulations (PBR)_[3], a regulatory framework that aligns a utility's financial incentives with policy goals such as energy efficiency, grid reliability, affordability, and integrating more clean energy into the grid. In turn, energy efficiency drives lower cost through less fuel use, while accelerating the uptake of renewables drives lower wholesale power rates_[12]. This is thanks to the "merit-order effect," where low marginal-cost renewables displace more expensive fossil fuels_[13], improved grid reliability_[14], and decarbonization.

For many years states have recognized the need to reform regulatory structures in order to adapt to rapidly evolving energy technologies, address the climate crisis, and better serve customers₁. It’s past time for Georgia to do the same. The Public Service Commission (PSC)'s primary responsibility is to ensure safe, affordable and reliable service for consumers_[4]. Per Georgia Code § 46-2-23_[5], the PSC has the broad authority and legal tools to explore and implement alternative regulatory models such as PBRs.

THE PROBLEMS AND CAUSE

The defects in our current regulatory structure are not unique to Georgia. They exist wherever vertically integrated electric utilities still employ the traditional Cost-Of-Service (COS) revenue model for compensating investor-owned utilities. In this model, originated more than a century ago and initially designed to encourage grid expansion_[6], utilities derive profits through a guaranteed return on infrastructure investment, primarily power plants and transmission & distribution lines. As an investor-owned utility, Georgia Power’s primary business driver is profits. In the current revenue model, the incentive is to build ever-more infrastructure and the more costly that infrastructure, the more profitable. Today that means fossil fuel-based generation, which drives up both system cost and climate risk.

These flaws in the COS model arose organically as solar, wind and storage have undergone steep cost-declined, which resulted in these technologies now delivering the lowest cost sources of electricity_[7]. This is made all the more so in light of the expensive impacts of the climate crisis having grown dramatically_[8].

The net result is that we find ourselves with a perverse utility incentive structure that works at cross purposes to clean energy, innovation, least-cost electricity generation and incentivizes over-investment in large-scale projects_[18]. There is no better evidence of this than the recent IRP passed on July 15, 2025, which approved new gas plants and cancelled previously scheduled coal plant retirements despite the availability of lower cost options_[9], all at a most precarious time for our planetary health_[10].

EVOLUTION OF THE INCENTIVE STRUCTURE 

Performance Based Regulation offers a framework for policy reform that aligns utility profits with public goals by rewarding performance rather than infrastructure investment or sales volume. Within the PBR framework, Performance Incentive Mechanisms (PIM) are the specific financial rewards or penalties that a utility receives based on its performance against specific, measurable metrics _[11].

PBR and PIM represent not one tool but an entire toolkit_[21] designed to encourage preferred outcomes as well as offering flexibility to grid operators as it relates to implementation and piloting. States are increasingly turning to PBR; as of mid-2024, at least 28 states were either implementing or exploring PBR efforts_[15][16].

Two states prominent in the development and implementation of PBR include:

• Hawaii: A frontrunner in PBR, Hawaii has set financial incentives and penalties tied to utility performance to meet its 100% renewable energy goal. Hawaii’s leadership has catalyzed an expanding PBR focus across the U.S._[17]. Among their successes, Hawaii has proven that decarbonization and affordability go hand in hand, and has introduced incentives for utilities to improve their bottom line through structural and operational improvements, something COS utilities are not dependent on like firms in competitive markets_[18].
• New York: Has a well-established PBR framework through it’s "Reforming the Energy Vision" (REV) initiative, which has held utilities more accountable for their performance while successfully promoting the integration of distributed energy resources like solar and storage. Notable success has been realized through a mix of legislative action, new rate case frameworks, and targeted incentives _[19]. Key results include a multi-year rate plan which dramatically reduced the utility's initial rate increase request, a focus on enhanced performance metrics, significant bill discounts for low-income customers, and provisions that support the state's climate goals _[20].

With electricity demand rising, climate risk growing and energy burden stretching families, it is imperative that Georgia reforms their outdated COS utility model to realign utility incentives towards the public interest. in fact, the majority of the American public supports a transition to clean energy_[21]. The data also supports that wherever policy is aimed at driving this transition, broad economic growth, increased business opportunities, and job creation happen as a result_[22].

Ultimately, such reform can make doing the right thing for customers and the planet profitable for Georgia Power. A 21^st century carbon-free electricity system will lead to improved grid reliability, lower cost of power, increased operational efficiency and a distributed system more secure from external threats_[23].

References

[1] –         “The Interesting History Surrounding Solar Advocacy and Law” - Georgia Tech Scheller College of Business. April 24, 2017

[2] -          “Utility Business Models” - ACEEE. Sept 24,2019

[3] -          “Core Sector: Energy Resources and the Environment” – National Assn of Regulatory Utility Commissioners (NARUC)

[4] -          “The mission of the Georgia Public Service Commission”

[5] -          2024 CODE OF GEORGIA, Title 46 - PUBLIC UTILITIES AND PUBLIC TRANSPORTATION

[6] -          “We Found The Hidden Cost of Data Centers. It's in Your Electric Bill” – Ari Peskoe, Director of the Electricity Law Initiative - Harvard Law School – (7:04)

[7] -          “Debunking The Myth of Clean Energy’s ‘Cost Problems’” - Canary Media: March 21, 2025. 

             Lazards Levelized Cost of Energy Comparison — Version 18.0

[8] -          “U.S. Billion-Dollar Disasters: 1980-2024” – Climate Matters: July 16, 2025

[9] -          “PSC Approves Georgia Power’s Dangerously Short-Sighted IRP” - Southern Alliance For Clean Energy: July 15, 2025

[10] -       “Pollution, melting microbes, undamming rivers, risks for elders: 4 key climate issues” – UN News: July    26, 2025

[11] -       Gemini AI prompt “PBR and PIM”

[12] -       “Wholesale electricity prices lower and more stable in 2024” – PV Magazine: January 16, 2025

[13] -       “On the long-term merit order effect of renewable energies” – Science Direct: April 28 , 2021

[14] -       “How Do Renewables Affect Grid Reliability?” – EE Power: Dec 05, 2024

[15] -       Performance-Based Regulation State Tracking Map - National Assn of Regulatory Utility Commissioners (NARUC)

[16] -       “Global climate predictions show temperatures expected to remain at or near record levels in coming 5   years” – World Meteorological Organization: May 28 , 2025

[17] -       “Upheaval in utility regulation emerging nationally as Hawaii validates a performance-based approach” – Utility Dive: July 5, 2022

[18] -       “Five Lessons from Hawaii’s Groundbreaking PBR Framework” – RMI: February 8, 2021

[19] -       Gemini AI prompt “New York success with utility PBR regulations”

[20] -       “PSC Dramatically Reduces National Grid’s Rate Request” – New York State Dept of Public Services: August 14, 2025

[21] -       “Yale Climate Opinion Maps 2024” – Yale Program on Climate Change Communication: Aug 28, 2025 

[22] -       “Clean Energy and the Economy” – US Environmental Protection Agency

[23] -       “Building a Brighter Future by Changing Utility Incentives” – RMI: July 12, 2024