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PSC staff recommends Georgia Power shoulder more Vogtle risk

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PSC staff recommends Georgia Power shoulder more Vogtle risk

SNL Image

The Alvin W. Vogtle Nuclear Plant in Burke County, Ga.

Source: Georgia Power Co.

The Vogtle nuclear plant expansion continues to be uneconomic, a Georgia regulatory staffer and outside consultants say, also recommending certain project costs be born by Georgia Power Co. and its shareholders.

In written testimony filed Dec. 1, Georgia Public Service Commission staff called for regulators to modify the company's proposed conditions to complete construction at Vogtle units 3 and 4. They asserted that the "economic cornerstones of the Project are no longer in place," and criticized the Southern Co. subsidiary for what staff sees as flawed assumptions underpinning its rationale for pursuing completion.

Staff concluded in the testimony that "completion of the Project is no longer economic on a to-go (forward looking) basis given the additional costs and schedule delays, even without considering the conditions requested by the Company." The expansion's economic benefit, according to authors Tom Newsome, Philip Hayet and Lane Kollen, is negative $1.6 billion.

Newsome is a PSC staff member, and Hayet and Kollen are both vice presidents and principals at J. Kennedy and Associates in Roswell, Ga. In June, Hayet and Kollen submitted testimony calling Vogtle's completion "uneconomic."

Several of the Vogtle co-owners' proposed conditions, outlined in an August report to the PSC, are opposed by staffers, who argue the terms "would effectively shift most of the financial risk of the Project to customers." According to the authors, Georgia Power will recover $3.0 billion to $3.4 billion of financing costs during construction, with the revenue requirement collected from ratepayers to be an estimated $4.5 billion.

Newsome, Hayet and Kollen forecast that the nominal lifecycle capital cost revenue requirement collected from customers would be $37 billion. Georgia Power would collect $12.6 billion in profit over the units' entire lifetime, they added, noting the utility will collect "considerably more" in profit due to years of schedule delays.

"Furthermore, we conclude that certain costs in the Company's estimate of future costs are also unreasonable to allocate to customers and instead should be allocated to the Company and its shareholders," they wrote.

Under the terms requested in the co-owners' latest filing, Georgia Power's financial exposure to additional delays and cost overruns relative to ratepayers "is quite limited," the authors argue. "The Company wants all the capital cost approved as reasonable including capital costs that have not yet been incurred."

Further concerns

The authors also testified that "the economic rationale for the Units is diminished" due to several factors: an arrangement is no longer in place that requires former contractor Westinghouse Electric Co. LLC to absorb certain capital cost overruns, and the "threats" of high natural gas prices and carbon legislation "have diminished."

"The fact that the protections of the original [engineering, procurement and construction] Agreement for ratepayers are now gone, and Westinghouse and [new builder Bechtel Corp.] have no 'skin in the game' going forward are indicators that the Project may incur additional delays and cost overruns," the authors wrote. "Georgia Power wants ratepayers to be wholly responsible for these cost overruns."

Newsome, Hayet and Kollen also said other large-scale Southern efforts — Georgia Power's combined-cycle McDonough plant and Mississippi Power Co.'s integrated gasification combined-cycle Kemper project — "had their difficulties." Georgia Power incurred a $400 million cost overrun at McDonough, and Mississippi Power suspended gasification operations at Kemper after its cost estimate had increased by $4.6 billion.

The three also argued against certain terms of the revised co-owner agreement between Georgia Power, Oglethorpe Power Corp., the Municipal Electric Authority of Georgia and Dalton Utilities. One provision held that the utilities would have the right to abandon the expansion if regulators do not approve Georgia Power's share of the proposed revised cost forecast.

This arrangement is "unacceptable," the authors stated, and "it may impair the ability of Georgia Power to meet its obligation to its customers."

"Staff recommends that the Commission not approve the revised co-owner agreement," they added. "Staff does not believe that the Commission should intentionally or unintentionally cede its authority of the Project to the co-owners."

The PSC in November heard co-owner testimony on Vogtle, with a Georgia Power executive telling commissioners that it is "not our intent" to abandon the expansion. Oglethorpe's CEO said on a November earnings call that the owners would not immediately pull out if conditions change.

Staffers and intervenors will share their perspectives the week of Dec. 11, with Georgia Power scheduled to present a rebuttal in January 2018. The PSC is expected to render a decision on the project's future in February 2018.