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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--By the end of August, we'll know if the owners of the two-unit expansion at the Alvin W. Vogtle Nuclear Power Station prefer to finish building those units, or whether they want to cancel construction. Sometime later this month, Georgia Power, principal owner of the unit additions and a subsidiary of the Southern Company (NYSE:SO) (Atlanta, Georgia), will file its estimated costs for both options, as well as its recommendation, with the Georgia Public Service Commission (Atlanta, Georgia).
But in recent days, Georgia Power and its corporate parent have had to tamp down speculation about the total cost to add two units at Vogtle after a news report pegged those costs as more than $25.2 billion.
In its quarterly earnings call with analysts August 2, Southern's Chief Executive Officer Tom Fanning discussed the two construction options and two sets of costs: one to continue construction at Vogtle, and one to cancel construction of the two units, which are about 66% complete. If Vogtle's owners decide to complete construction of units 3 and 4, those in-service dates would be pushed back: Unit 3 would be expected to begin operating between February 2021 and March 2022, while Unit 4 would be expected to start generating electricity somewhere between February 2022 and March 2023. A year ago, Unit 3 was scheduled to be operating by mid-2019 and Unit 4 was expected to begin generating electricity by mid-2020. Originally, Unit 3 was scheduled to be operating in 2016 and Unit 4 in 2017.
In late 2016, Georgia utility regulators warned Georgia Power that if the plants are not running by yearend 2020, the utility will lose 300 basis points off its authorized return on equity (ROE), a very sharp financial penalty. For more on that, see January 5, 2017, article - Georgia Power Hit with Financial Penalties for Construction Delays at Vogtle Nuclear Plants.
In a preliminary estimate given during Southern's August 2 earnings call, company leaders said Georgia Power's net additional capital costs would increase by $1 billion to $1.7 billion, to between $3.9 billion and $4.6 billion, if the owners decided to complete construction of the two units. The utility already invested $4.5 billion for its share of construction costs for the two units. Completing the two units also would increase Georgia Power's share of the financing costs, to between $3.1 billion and $3.5 billion, well over previous estimates.
Offsetting those higher estimated costs is a total of $1.7 billion in payments Georgia Power is scheduled to receive from Toshiba Corporation (Tokyo, Japan), parent to Westinghouse Electric Company LLC (WEC) (Cranberry Township, Pennsylvania), which declared bankruptcy and exited the nuclear construction business earlier this year. For more on that, see March 30, 2017, article - U.S. Nuclear Power Project Developers Weigh Options in Wake of Westinghouse Bankruptcy. Toshiba pledged to pay about $3.68 billion to the owners, whether they completed construction or not.
Under the "no go" option, Georgia Power's construction costs would be frozen at the $4.5 billion it already had invested, and the utility's share of cancellation costs would be about $400 million, Fanning told analysts. Georgia Power already has collected about $1.4 billion in financing costs from customers. In a footnote, Southern noted "under Georgia law, prudently incurred costs related to certificated projects cancelled by the Georgia PSC are allowed recovery, including carrying costs, in future retail rates." So the utility and its corporate parent apparently feel Georgia Power does not have to refund money already collected if the project is cancelled.
All that is complicated enough. But confusion reigned for a few days earlier this month after a report in The Wall Street Journal stated Georgia Power's higher estimated cost to complete the two units translated into an overall project cost exceeding $25.2 billion. Aside from Georgia Power, which owns 45.7% of the two nuclear units, Vogtle units 3 and 4 are owned by Oglethorpe Power Corporation (Tucker, Georgia), which owns 30%; the Municipal Energy Agency of Georgia (MEAG Power) (Atlanta, Georgia), a 22.7% owner; and the City of Dalton, Georgia, which owns 1.6%.
Despite repeated requests from Southern's Fanning on the earnings call that investors and reporters not use Georgia Power's increased cost estimate to try to gross up the overall cost to add 2,234 megawatts (MW) of new nuclear generating capacity, that's exactly what a reporter for The Wall Street Journal did.
In response to the inaccurate news report, Georgia Power issued a statement August 4 that said: "Figures released this week are preliminary estimates only--they have not been finalized and are subject to further refinement. Georgia Power cautions against using the company's preliminary estimates for its 45.7% share of the project to calculate 100% of the project costs, as capital and financing costs for the project's co-owners will vary."
Fanning said the same thing several times on the August 2 earnings call, emphasizing that the regulatory processes, commercial terms and costs of capital of co-owners MEAG, Oglethorpe and Dalton have may differ from Georgia Power's situation.
The Southern chief also resisted comparisons of Vogtle to the Summer nuclear project, which earlier that week had been abandoned by its two co-owners, South Carolina Electric & Gas (Cayce, South Carolina) and Santee Cooper (Moncks Corner, South Carolina). "There are a host of differences between our project and the Summer project that (SCE&G) and Santee Cooper recently cancelled," Fanning said. "It really is apples to oranges. I really want to resist any reconciliation of where (they) were to where we are." For more on the Summer plant abandonment decision, see August 1, 2017, article - Utilities Abandon Construction of Summer Nuclear Plant in South Carolina.
In his call with analysts, Fanning several times refused to tip his hand on a go/no go decision, nor would he speculate on what Georgia's regulators might do and when they might do it. But he did say the four owners were working well together. By contrast, Santee Cooper's decision to oppose completion of the two Summer units forced project manager SCE&G's hand and led to that project's cancellation.
"I would respectfully remind everyone that we do not want to get ahead of any of the regulatory proceedings in any of our states, including ... the filing and consideration of our Vogtle go/no go recommendation in Georgia," Fanning said August 2. Georgia Power is in the final stages of finalizing cost estimates for the "go" and the "no go" decision and its recommendation. He said a filing is expected in late-August. "Ultimately, the final decision will rest with the Georgia PSC," he reminded everyone on the call.
While stressing that no recommendation has been made, several of Fanning's comments could be interpreted as suggesting the owners were leaning toward completing construction. "With the engineering nearly complete and all the major equipment on site, the primary success factor going forward would be the productivity" of onsite workers, the Southern CEO said. Later, he commented, "We've already seen pretty dramatic (productivity) improvements. I want to say it was something like 25% improvement this year in productivity and really ramping. ... Our near-term experience tells us that we can do a better job than Westinghouse, should we decide to go down that road."
"From a political standpoint, from an operational standpoint, fuel diversity and lots of other things, the state's integrated planning process believes nuclear is important," he said, adding nuclear generation offers fuel diversity, as well as a hedge against potential carbon legislation or regulation.
Fanning urged investors to recognize Georgia Power operates in a "generally constructive" regulatory environment as well as the fact that "we have a framework in place that will provide for rates of return during the construction period, however long that is." Plus, if construction is completed, the owners will have a generating asset that will produce carbon- and emission-free electricity for decades, he added.
"The Georgia PSC has been very vocal about their desire for a reasonable outcome" on Vogtle units 3 and 4, Fanning said. "You could make a short-term decision or you could make a long-term decision," he continued. If the owners decide to cancel construction, Georgia Power will build gas-fired generation, but it won't be at the Vogtle site, he said. Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
But in recent days, Georgia Power and its corporate parent have had to tamp down speculation about the total cost to add two units at Vogtle after a news report pegged those costs as more than $25.2 billion.
In its quarterly earnings call with analysts August 2, Southern's Chief Executive Officer Tom Fanning discussed the two construction options and two sets of costs: one to continue construction at Vogtle, and one to cancel construction of the two units, which are about 66% complete. If Vogtle's owners decide to complete construction of units 3 and 4, those in-service dates would be pushed back: Unit 3 would be expected to begin operating between February 2021 and March 2022, while Unit 4 would be expected to start generating electricity somewhere between February 2022 and March 2023. A year ago, Unit 3 was scheduled to be operating by mid-2019 and Unit 4 was expected to begin generating electricity by mid-2020. Originally, Unit 3 was scheduled to be operating in 2016 and Unit 4 in 2017.
In late 2016, Georgia utility regulators warned Georgia Power that if the plants are not running by yearend 2020, the utility will lose 300 basis points off its authorized return on equity (ROE), a very sharp financial penalty. For more on that, see January 5, 2017, article - Georgia Power Hit with Financial Penalties for Construction Delays at Vogtle Nuclear Plants.
In a preliminary estimate given during Southern's August 2 earnings call, company leaders said Georgia Power's net additional capital costs would increase by $1 billion to $1.7 billion, to between $3.9 billion and $4.6 billion, if the owners decided to complete construction of the two units. The utility already invested $4.5 billion for its share of construction costs for the two units. Completing the two units also would increase Georgia Power's share of the financing costs, to between $3.1 billion and $3.5 billion, well over previous estimates.
Offsetting those higher estimated costs is a total of $1.7 billion in payments Georgia Power is scheduled to receive from Toshiba Corporation (Tokyo, Japan), parent to Westinghouse Electric Company LLC (WEC) (Cranberry Township, Pennsylvania), which declared bankruptcy and exited the nuclear construction business earlier this year. For more on that, see March 30, 2017, article - U.S. Nuclear Power Project Developers Weigh Options in Wake of Westinghouse Bankruptcy. Toshiba pledged to pay about $3.68 billion to the owners, whether they completed construction or not.
Under the "no go" option, Georgia Power's construction costs would be frozen at the $4.5 billion it already had invested, and the utility's share of cancellation costs would be about $400 million, Fanning told analysts. Georgia Power already has collected about $1.4 billion in financing costs from customers. In a footnote, Southern noted "under Georgia law, prudently incurred costs related to certificated projects cancelled by the Georgia PSC are allowed recovery, including carrying costs, in future retail rates." So the utility and its corporate parent apparently feel Georgia Power does not have to refund money already collected if the project is cancelled.
All that is complicated enough. But confusion reigned for a few days earlier this month after a report in The Wall Street Journal stated Georgia Power's higher estimated cost to complete the two units translated into an overall project cost exceeding $25.2 billion. Aside from Georgia Power, which owns 45.7% of the two nuclear units, Vogtle units 3 and 4 are owned by Oglethorpe Power Corporation (Tucker, Georgia), which owns 30%; the Municipal Energy Agency of Georgia (MEAG Power) (Atlanta, Georgia), a 22.7% owner; and the City of Dalton, Georgia, which owns 1.6%.
Despite repeated requests from Southern's Fanning on the earnings call that investors and reporters not use Georgia Power's increased cost estimate to try to gross up the overall cost to add 2,234 megawatts (MW) of new nuclear generating capacity, that's exactly what a reporter for The Wall Street Journal did.
In response to the inaccurate news report, Georgia Power issued a statement August 4 that said: "Figures released this week are preliminary estimates only--they have not been finalized and are subject to further refinement. Georgia Power cautions against using the company's preliminary estimates for its 45.7% share of the project to calculate 100% of the project costs, as capital and financing costs for the project's co-owners will vary."
Fanning said the same thing several times on the August 2 earnings call, emphasizing that the regulatory processes, commercial terms and costs of capital of co-owners MEAG, Oglethorpe and Dalton have may differ from Georgia Power's situation.
The Southern chief also resisted comparisons of Vogtle to the Summer nuclear project, which earlier that week had been abandoned by its two co-owners, South Carolina Electric & Gas (Cayce, South Carolina) and Santee Cooper (Moncks Corner, South Carolina). "There are a host of differences between our project and the Summer project that (SCE&G) and Santee Cooper recently cancelled," Fanning said. "It really is apples to oranges. I really want to resist any reconciliation of where (they) were to where we are." For more on the Summer plant abandonment decision, see August 1, 2017, article - Utilities Abandon Construction of Summer Nuclear Plant in South Carolina.
In his call with analysts, Fanning several times refused to tip his hand on a go/no go decision, nor would he speculate on what Georgia's regulators might do and when they might do it. But he did say the four owners were working well together. By contrast, Santee Cooper's decision to oppose completion of the two Summer units forced project manager SCE&G's hand and led to that project's cancellation.
"I would respectfully remind everyone that we do not want to get ahead of any of the regulatory proceedings in any of our states, including ... the filing and consideration of our Vogtle go/no go recommendation in Georgia," Fanning said August 2. Georgia Power is in the final stages of finalizing cost estimates for the "go" and the "no go" decision and its recommendation. He said a filing is expected in late-August. "Ultimately, the final decision will rest with the Georgia PSC," he reminded everyone on the call.
While stressing that no recommendation has been made, several of Fanning's comments could be interpreted as suggesting the owners were leaning toward completing construction. "With the engineering nearly complete and all the major equipment on site, the primary success factor going forward would be the productivity" of onsite workers, the Southern CEO said. Later, he commented, "We've already seen pretty dramatic (productivity) improvements. I want to say it was something like 25% improvement this year in productivity and really ramping. ... Our near-term experience tells us that we can do a better job than Westinghouse, should we decide to go down that road."
"From a political standpoint, from an operational standpoint, fuel diversity and lots of other things, the state's integrated planning process believes nuclear is important," he said, adding nuclear generation offers fuel diversity, as well as a hedge against potential carbon legislation or regulation.
Fanning urged investors to recognize Georgia Power operates in a "generally constructive" regulatory environment as well as the fact that "we have a framework in place that will provide for rates of return during the construction period, however long that is." Plus, if construction is completed, the owners will have a generating asset that will produce carbon- and emission-free electricity for decades, he added.
"The Georgia PSC has been very vocal about their desire for a reasonable outcome" on Vogtle units 3 and 4, Fanning said. "You could make a short-term decision or you could make a long-term decision," he continued. If the owners decide to cancel construction, Georgia Power will build gas-fired generation, but it won't be at the Vogtle site, he said. Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
