Contractors are going to get a chance to finish the nation’s lone nuclear expansion after all.
After coming to financial terms with Georgia Power, state Public Service Commissioners unanimously approved continuing construction of the controversial Vogtle nuclear expansion project. The vote to continue construction came on the heels of harsh testimony by PSC staff analysts who called the project “uneconomic.” The agreement, announced at a Dec. 21 commission hearing, shields ratepayers from some future costs, and requires Georgia Power and its project co-owners to bear greater risk moving forward.
According to Georgia Power, “The decision continues to protect customers with new penalties for delays and cost increases in addition to penalties included in the previous stipulated agreement approved earlier this year by the Georgia PSC.”
More specifically, company shareholders will now shoulder approximately $750 million in additional costs through November 2022. Further, the utility states that the amount paid by ratepayers during the construction period will be reduced by $1.7 billion.
Currently, Georgia Power expects the new Vogtle units, 3 and 4, to reach commercial operation by November 2021 and November 2022, respectively. That’s approximately five-and-a-half years behind the units’ original commercial operation targets of April 2016 and April 2017.
“The decision to complete Vogtle 3 and 4 is important for Georgia’s energy future and the United States,” Paul Bowers, Georgia Power’s CEO said in a statement. He added: “Our responsibility is to our customers first and we remain focused on fulfilling our commitment to them to deliver a new energy source that will put downward pressure on rates for 60 to 80 years once the new units are on line.”
Earlier this month, PSC staff analysts had testified that Georgia Power was partly responsible for the project’s delays and soaring costs. As a result, they argued, ratepayers should not be forced to pay for costs caused by poor project management.
Georgia Power had most recently proposed collecting another $542 million from ratepayers for work on the project, but the PSC analysts recommended approval of just $44 million.
“The financial impact of the contractor’s failure to perform its scope of work should not be passed onto ratepayers,” read the analysts’ Dec. 1 testimony. “It would be unreasonable for the additional cost arising from the company’s and the contractor’s failures to meet their commitments of the project to be absorbed by ratepayers.”
PSC commissioners disagreed, unanimously approving the entire $542-million request as reasonable.
At the same time, the motion reduces the rate of exchange (ROE) that Georgia Power uses to determine its Nuclear Cost Recovery Rate from 10% to 8.7%, beginning Jan. 1, 2020. A year later, on Jan. 1, 2021, the ROE rate will be reduced further from 8.7% to 5.3%, or the company’s average cost of long term debt, whichever is higher. The utility would face further ROE reductions if the new units did not meet their respective scheduled commercial operation dates.
The motion estimated the rate changes would lower Georgia Power’s profits by about 20%, resulting in approximately $700 million in reduced earnings and revenues. Compared to the amount that Georgia Power requested in August, the new terms would lower the amount passed along to ratepayers by an estimated $1.1 billion.
Utility Sought Preapproval of Costs
Notably, Georgia Power’s August recommendation to proceed with construction had argued for a pre-approval of sorts for future costs, rather than the standard procedure of approving costs once incurred. The utility had argued, for instance, that if the PSC deemed “any” portion of the project’s estimated construction or financing costs as “unreasonable or imprudent”—and therefore unrecoverable from ratepayers—the utility project owners would not be able to continue construction.
The motion approved on Dec. 21 stated that the commission will continue with its current practice of approving expenditures after they are incurred.
“The commission should not stop exercising its responsibility to verify and approve future expenditures,” the motion stated. Noting that the PSC will not be assuring cost recovery to Georgia Power, the agreement adds that “all questions of cost recovery will be made after a prudence review at the end of construction.”
The PSC staff’s Dec. 1 testimony had marked the first time that the analysts had argued against full approval of Georgia Power’s costs.
The utility estimated the projected peak rate impact to its retail customers at approximately 10%, noting that 5% is already included in rates. That estimate assumes reauthorization of federal production tax credits.
Opponents Sound Off
The Plant Vogtle project, located near Waynesboro, Ga., is the nation’s lone remaining nuclear expansion. Earlier this year, two South Carolina utilities had decided to abandon their expansion of the V.C. Summer plant in Jenkinsville, citing that project’s exploding costs. Those costs became public partly as the result of the March filing for bankruptcy protection by Westinghouse Electric Co., the previous primary contractor of both projects. (Georgia Power has since hired Bechtel to manage Vogtle construction.)
The critical testimony by PSC staff filed earlier this month may have raised the hopes of Vogtle’s numerous opponents that the nuclear expansion was going to be halted. If so, they were disappointed.
“Today’s decision on the massive cost overruns and mismanagement of the Vogtle nuclear units is a sad day for electric power customers in Georgia; they clearly have been manipulated by Georgia Power and abandoned by the Georgia Public Service Commission,” stated Stephen A. Smith, executive director of the Southern Alliance for Clean Energy.
“This nuclear project is clearly not economic, it still has years to go before completion with billions of dollars of additional cost exposure to hard-working Georgia families and small business,” Smith continued. “It’s simply a horrible deal for electric power customers.”
Tom Clements, senior adviser with Friends of the Earth, said the PSC’s vote was not the “final word on the fate of the Vogtle project.”
Instead, “Chronic cost overruns, mounting schedule delays, on-going reactor design concerns and lack of the Production Tax Credit will be what finally decides the fate of the project,” he said. “One thing is clear by the vote: it authorizes ratepayers to front the bill for growing cost and more risk, for sure to alienate those customers from Georgia Power.”