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Vogtle completion 'uneconomic,' Ga. regulatory consultants say

Consultants to the Georgia Public Service Commission said June 8 that Westinghouse Electric Co. LLC's bankruptcy has "invalidated" Georgia Power Co.'s cost calculations at its Alvin W. Vogtle Nuclear Plant and it would be "uneconomic" to complete the plant's expansion.

The consultants also said that if Georgia Power were to continue construction, the Southern Co. subsidiary will spend $3 billion more on Vogtle than what it predicted in a recent report, and the plant's new units will go online three years later than the company anticipates.

Philip Hayet and Lane Kollen, both vice presidents and principals at J. Kennedy and Associates in Roswell, Ga., submitted written testimony to the commission on behalf of its Public Interest Advocacy Staff. The state agency is conducting a review of Georgia Power's $222 million in Vogtle construction costs during the second half of 2016 for the Vogtle Construction Monitoring Report, or VCM.

Because the utility's cost-to-complete analysis is ongoing, PSC staff commissioned its own study from J. Kennedy and Associates, an economic consulting firm specializing in electric and other utilities. Hayet and Kollen estimated that the total capital cost of the Vogtle expansion will increase from $5.44 billion to $8.44 billion, or $3 billion more than what Georgia Power said in its VCM for the second half of 2016.

A first-quarter 2017 federal filing by the company said Vogtle units 3 and 4 would go online in December 2019 and September 2020, respectively, but Hayet and Kollen believe that those in-service dates will actually be June 2022 and June 2023.

With those revised figures in mind, Hayet and Kollen said, "it would be uneconomic to complete the Vogtle Project," even with Westinghouse parent Toshiba Corp.'s $3.68 billion guarantee to cover costs for Georgia Power and the project's co-owners, Oglethorpe Power Corp., Municipal Electric Authority of Georgia and Dalton Utilities.

The consultants said that if the guarantee falls through, that risk should be retained by Georgia Power and not its ratepayers. If Toshiba's payments are not made, ratepayers would experience over $2 billion in "economic harm," they said. Under the terms of a June 9 agreement, Toshiba's first payment is due in October.

Georgia Power has said that as of Feb. 28, its share of the remaining total project cost to complete Vogtle is $1.7 billion. Hayet and Kollen reminded commission staff that the company will likely incur more expenses due to future sunk costs.

They also gave several recommendations to Georgia Power for how to update its modeling assumptions, saying the company should include the impact of lower return on equity as specified in a Jan. 3 PSC order, along with an accounting of potential cancellation costs and tax abandonment loss deductions.

Recommendation, rebuke

Corresponding testimony submitted by PSC lead analyst Steven Roetger and GDS Associates executive consultant William Jacobs recommended that commissioners approve Georgia Power's $222 million in Vogtle construction costs during the second half of 2016.

But they noted that PSC approval is not a tacit endorsement of expenses, writing that "As Staff has previously explained, 'verification and approval' of costs means a determination that such costs have actually been spent on the Project and does not preclude a subsequent disallowance by the Commission."

Roetger and Jacobs argued that if earlier action had been taken, perhaps better predictions could have been made for the plant's future.

"Westinghouse's voluntary bankruptcy was not the result of unforeseen or uncontrollable circumstances," they wrote. "[T]he true cost and time to complete the Project could have been known five years ago had a reasonable [integrated project schedule] been developed."

"Had an economic analysis been performed at that time, before hundreds of millions of dollars of sunk costs were incurred, a more accurate picture of the value of the Project relative to its alternative would have been developed," Roetger and Jacobs wrote. "Also, assuming the economics of the Project remained positive, the Consortium could have had years to mitigate the financial distress it is currently under."

Georgia Power officials admitted at a March 30 meeting of the PSC's Energy Committee that the company "knew at some point in late 2016 that Westinghouse was going to file for bankruptcy, and that it was just a question of 'when, not if,'" according to Roetger and Jacobs' testimony.

They also said PSC staff is "concerned ... that procurement may be impacted sooner than construction should sub-contractors be unwilling to ship more product to the site as a result of pre-petition accounts receivables not being paid by [Westinghouse]. This in turn could impact construction."

Westinghouse's subcontractor, Fluor Corp., issued a construction performance improvement plan in August 2016 and revised it in October of that year. Roetger and Jacobs wrote that "while improving some functional areas, [the plan] failed to achieve improvement in production and productivity" at the Vogtle site.

Georgia Power has spent $3.9 billion on construction and capital costs at Vogtle from 2009 through 2016. Financing costs during that time were $1.26 billion, which makes the total project cost at Vogtle $5.16 billion.

PSC staff and intervenors will appear before commissioners June 29 to present testimony on Georgia Power's VCM. Company officials will present rebuttal testimony July 20, and the PSC will issue its decision on whether to approve the VCM on August 15.