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Ga. PSC staff, analysts play waiting game with potential Vogtle delays

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Vogtle units 3 and 4 were originally slated to go online in 2016 and 2017, respectively.
Source: Georgia Power Co.

The Vogtle nuclear expansion project could see more delays and cost overruns, according to the Georgia Public Service Commission's public interest advocacy staff, though analysts say it remains a waiting game to see how Georgia Power Co. and its partners proceed with the remaining construction.

Ahead of the PSC's Dec. 10 and Dec. 11 hearings on Vogtle's latest construction updates, several staff members and third-party consultants have expressed more concerns that completing Vogtle units 3 and 4 ahead of schedule to have them online by May 2021 and May 2022, respectively, will not happen.

Additionally, majority project owner Georgia Power and partners Oglethorpe Power Corp., Municipal Electric Authority of Georgia and City of Dalton, Ga. may not meet the Vogtle reactors' regulatory-approved dates for commercial operation by November 2021 and November 2022, according to pre-filed testimony. That would likely raise costs to completion beyond $17.1 billion, depending on schedule delay costs and productivity levels.

Through September 2019, the total project was reported to be 81.3% complete, compared to its "re-baselining" plan for 82.3% completion. The Vogtle project has achieved significant construction milestones, including unit 3's containment vessel top head being set and initial energization, and at unit 4 the setting of the reactor vessel and pressurizer.

However, the focus on major milestones masks the backlog of hours to complete the project, staff contends. As of Oct. 31, the project was more than 2 million earned work hours behind schedule and the deficiency may actually be greater than the project is reporting, according to PSC lead analyst Steven Roetger and GDS Associates executive consultant William Jacobs Jr. Roetger and Jacobs also characterized as inappropriate the focus by project partners on marking construction milestones when a task is started, rather than finished.

"Without significant improvements in production, productivity and planning … staff believes this trend will continue," they said in their Nov. 22 written testimony.

Contributing to the problem was that the April 2019 "re-baselining" report was not "a reasonable plan" for project execution, said Don Grace, vice president of engineering for the Vogtle Monitoring Group. The report's integrated project schedule was "too aggressive and the assumed commodity installation unit rates are not based on what craft labor has been able to achieve to date."

"[The Vogtle Monitoring Group] believes that significant improvements cannot be achieved in the near term to either recover lost schedule, or to even achieve the planned rate of construction work," Grace said.

Tom Newsome, the PSC's director of utility finance, and Philip Hayet, vice president and principal at consulting firm J. Kennedy and Associates, said the staff's analysis of Vogtle's cost to complete indicates the Vogtle expansion is economical to continue if Southern Co. subsidiary Georgia Power can still meet its current cost and commercial operation date forecasts. But if the project is delayed 18 months beyond the November 2021 and November 2022 regulatory-approved commercial operation dates, the project would become uneconomic to continue.

The PSC staff's latest testimony echoes previous concerns raised about the Vogtle project, which has faced several roadblocks, delays and cost overruns to bring units 3 and 4 online. In a July 30 review of Vogtle's updated construction schedule, staff said meeting the November 2021 and November 2022 in-service dates "will be a challenge to achieve."

During Southern's Oct. 30 earnings call on third-quarter results, CEO Tom Fanning said beating the regulatory-mandated operation dates was still possible, but executives were focusing on reaching critical milestones, adding, "We're not going to do anything stupid in terms of cost to achieve schedule."

Paul Fremont, managing director at Mizuho Securities USA LLC, said in a Nov. 26 note to clients that Mizuho remains cautious about whether the company will meet its regulatory-approved dates and stay on budget.

"We expect to get meaningful data points pertaining to the status of system turnovers and testing, as well as overall performance, when the company files the project's progress for the second half of 2019," Fremont wrote.

Amy Poszywak, a research analyst at S&P Global Market Intelligence's Regulatory Research Associates, said it is not unusual for the utility commission's advisory staff to be more critical on Vogtle developments, since they operate as the consumer advocate.

Vogtle's most recent construction monitoring report was "pretty clean" and did not raise any major issues, Poszywak added. The staff's concerns are worth noting for investors ahead of the PSC's hearings, but industry observers will have to wait and see how the hearings unfold and what the next Vogtle monitoring report holds.

"If they miss their target in-service dates, both investor sentiment and commission support will depend on how much of a delay there is and how large of a cost overrun that equates to," she said in a Dec. 5 interview.

Major delays in construction, such as the 18-month scenario mentioned by PSC staff, would cause dramatic concern, Poszywak said. But a minor delay would just be "a negative tick at this point," with the investor community's broad expectation that Georgia Power and its project partners will finish the project.

"It's so close to the end zone," she added.