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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Completing construction of units 3 and 4 of the Alvin W. Vogtle Nuclear Power Station will cost an additional $9.45 billion in capital costs, plus financing, but the four owners support continuing construction, Georgia Power Company (Atlanta, Georgia), said in a filing yesterday with Georgia utility regulators. That would bring the estimated capital costs to build units 3 and 4 to about $19 billion, the utility added. If Georgia regulators support the recommendation of the owners, "the most reasonable schedule" would be for Unit 3 to begin commercial operations in November 2021. Unit 4 should begin generating electricity one year later, in November 2022, Georgia Power said.
The capital cost estimate does not include financing costs, which would add billions of dollars to the project's overall cost. The August 31 filing with Georgia utility regulators did not disclose estimated financing costs. Four utilities share ownership of Vogtle units 3 and 4, but only one of those owners, Georgia Power, is regulated by the Georgia Public Service Commission (GPSC) (Atlanta, Georgia).
Georgia regulators will decide whether construction at Vogtle continues.
"Completing the Vogtle 3 & 4 expansion will enable us to continue delivering clean, safe, affordable and reliable energy to millions of Georgians, both today and in the future," Paul Bowers, chairman, president and chief executive officer of Georgia Power, said in a statement August 31. "The two new units at Plant Vogtle will be in service for 60 to 80 years and will add another low-cost, carbon-free energy source to our already diverse fuel mix."
In a separate statement, Mike Smith, president and chief executive officer of Oglethorpe Power Corporation, which owns 30% of units 3 and 4, said: "We believe we must take a long-term view and recognize the benefits of fuel diversity and the price stability of emission-free nuclear power over the next 60 to 80 years, especially when considering the risks of carbon-based fuel volatility and the potential for carbon regulation."
Georgia Power also selected Bechtel (San Francisco, California) to complete construction of the two-reactor expansion at Vogtle. "This is a critically important project for the nation and we're honored to be chosen," said Barbara Rusinko, president of Bechtel's government services and commercial nuclear power business. "We are committed to the long-term future of nuclear power as a safe and reliable, 24/7 provider of carbon-free electricity."
In its 17th semi-annual update of the Vogtle project, delivered Thursday to the GPSC, Georgia Power said, "the conditions under which the Project was first certified have changed. Namely, (Westinghouse Electric Company, LLC) has filed bankruptcy and rejected the fixed and firm protections of the EPC [engineering, construction and procurement] Agreement. The risks that WEC [Westinghouse] bore have been shifted to Georgians. Nevertheless, continuing the Project is the better course and in the best interests of Georgia and its citizens. There is no easy choice here; this is an important policy decision that will affect all Georgians for the next 60 to 80 years."
Units 3 and 4 would utilize two Westinghouse AP1000 reactors. Total generating capacity added would be about 2,234 megawatts (MW). Earlier this summer, the utilities trying to build two new units at the Virgil C. Summer Nuclear Power Station in Jenkinsville, South Carolina, which also would use the AP1000, decided to cancel that project. For more on that, see August 1, 2017, article - Utilities Abandon Construction of Summer Nuclear Plant in South Carolina.
In its August 31 filing, Georgia Power listed six specific risks facing completion of the unit additions at Vogtle. Some of those risks include the potential inability of Westinghouse's parent company, Toshiba, to make good on its $3.68 billion in financial commitments to the owners, whether the federal production tax credits are extended and expanded and whether the federal loan guarantees are extended.
Georgia Power, the 45.7% owner of Vogtle units 3 and 4, is a subsidiary of Southern Company (NYSE:SO) (Atlanta, Georgia). Besides Georgia Power and Oglethorpe Power, the other owners of Vogtle units 3 and 4 are the Municipal Energy Agency of Georgia (MEAG Power) (Atlanta, Georgia), a 22.7% owner, and the City of Dalton, Georgia, which owns 1.6%. The plant is years behind schedule and billions of dollars over budget. In 2008, Georgia Power estimated the project would cost about $12 billion, and both units would be operating by now. For more on this, see August 11, 2017, article - Georgia Power Calculates 'Go' and 'No Go' Options for Vogtle Units 3 and 4.
In its August 31 filing with Georgia utility regulators, Georgia Power acknowledged that generators receiving federal production tax credits for advanced nuclear technologies must be operating by January 1, 2021, under the terms of the Energy Policy Act of 2005. Although the Vogtle units, now about 66% complete, will not make that deadline, the utility said a bill, H.R. 1551, recently passed by the U.S. House of Representatives and pending in the U.S. Senate, will extend the sunset date until the Vogtle units are operational. Georgia Power calculated its costs based on those tax credits being extended. The tax credits would be worth 1.8 cents per kilowatt-hour generated by units 3 and 4 for an eight-year period, Georgia Power said.
The federal government also provided the Vogtle project billions of dollars of construction loan guarantees, and Georgia Power currently is negotiating with the U.S. Department of Energy (DoE) (Washington, D.C.) to "expand the current capacity of the original (loan guarantee) commitment." The existing loan guarantees would save customers about $400 million in financing costs, Georgia Power estimated, and expanding those guarantees would save customers an additional $100 million to $140 million.
Because the Vogtle unit addition is such a dynamic project, subject to a variety of exogenous forces, Georgia Power said, "while the Owners recommend going forward based on the assumptions they have made, they also understand that it is important to revisit the 'go/no go' recommendation as these assumptions may change over time, and the Owners and the Commission get better clarity as to whether these assumptions have or will be realized."
In other words, while Thursday's filing was based on the best available information, significant future events, as outlined in the risk factors, could affect the cost, in-service dates and financial viability of completing the project. Still, based on what it knows today, Georgia Power said completion of units 3 and 4 "is still an economic option." Cancelling construction of both units would cost the owners between $730 million and $760 million, though that would be offset somewhat by salvage and sale of assets, Georgia Power said. Cancelling only Unit 4 would cost the owners between $420 million and $490 million.
Georgia utility regulators already are penalizing Georgia Power for delays and cost overruns at the project, and further financial penalties are expected. Georgia Power has already agreed to forego several hundred million dollars of electric price increases that were scheduled to take place between 2017 and 2020. For more on that, see January 5, 2017, article - Georgia Power Hit with Financial Penalties for Construction Delays at Vogtle Nuclear Plants. In that same order, issued in late 2016, Georgia regulators said if the new units are not operating by the end of 2020, they will lower the utility's return on equity (ROE) by 300 basis points, or about 30%, a hefty financial penalty.
Britt Burt, Industrial Info's vice president of research for the Global Power Industry, made the following comment: "Natural gas prices have dropped by more than 75% since the project conducted its initial feasibility study, but you can't go back and change that decision using what you know today. Vogtle 3 and 4 have become a 'bet the company' proposition, but it's hard to see how Georgia regulators could tell the company to stop building the new units now."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 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.
The capital cost estimate does not include financing costs, which would add billions of dollars to the project's overall cost. The August 31 filing with Georgia utility regulators did not disclose estimated financing costs. Four utilities share ownership of Vogtle units 3 and 4, but only one of those owners, Georgia Power, is regulated by the Georgia Public Service Commission (GPSC) (Atlanta, Georgia).
Georgia regulators will decide whether construction at Vogtle continues.
"Completing the Vogtle 3 & 4 expansion will enable us to continue delivering clean, safe, affordable and reliable energy to millions of Georgians, both today and in the future," Paul Bowers, chairman, president and chief executive officer of Georgia Power, said in a statement August 31. "The two new units at Plant Vogtle will be in service for 60 to 80 years and will add another low-cost, carbon-free energy source to our already diverse fuel mix."
In a separate statement, Mike Smith, president and chief executive officer of Oglethorpe Power Corporation, which owns 30% of units 3 and 4, said: "We believe we must take a long-term view and recognize the benefits of fuel diversity and the price stability of emission-free nuclear power over the next 60 to 80 years, especially when considering the risks of carbon-based fuel volatility and the potential for carbon regulation."
Georgia Power also selected Bechtel (San Francisco, California) to complete construction of the two-reactor expansion at Vogtle. "This is a critically important project for the nation and we're honored to be chosen," said Barbara Rusinko, president of Bechtel's government services and commercial nuclear power business. "We are committed to the long-term future of nuclear power as a safe and reliable, 24/7 provider of carbon-free electricity."
In its 17th semi-annual update of the Vogtle project, delivered Thursday to the GPSC, Georgia Power said, "the conditions under which the Project was first certified have changed. Namely, (Westinghouse Electric Company, LLC) has filed bankruptcy and rejected the fixed and firm protections of the EPC [engineering, construction and procurement] Agreement. The risks that WEC [Westinghouse] bore have been shifted to Georgians. Nevertheless, continuing the Project is the better course and in the best interests of Georgia and its citizens. There is no easy choice here; this is an important policy decision that will affect all Georgians for the next 60 to 80 years."
Units 3 and 4 would utilize two Westinghouse AP1000 reactors. Total generating capacity added would be about 2,234 megawatts (MW). Earlier this summer, the utilities trying to build two new units at the Virgil C. Summer Nuclear Power Station in Jenkinsville, South Carolina, which also would use the AP1000, decided to cancel that project. For more on that, see August 1, 2017, article - Utilities Abandon Construction of Summer Nuclear Plant in South Carolina.
In its August 31 filing, Georgia Power listed six specific risks facing completion of the unit additions at Vogtle. Some of those risks include the potential inability of Westinghouse's parent company, Toshiba, to make good on its $3.68 billion in financial commitments to the owners, whether the federal production tax credits are extended and expanded and whether the federal loan guarantees are extended.
Georgia Power, the 45.7% owner of Vogtle units 3 and 4, is a subsidiary of Southern Company (NYSE:SO) (Atlanta, Georgia). Besides Georgia Power and Oglethorpe Power, the other owners of Vogtle units 3 and 4 are the Municipal Energy Agency of Georgia (MEAG Power) (Atlanta, Georgia), a 22.7% owner, and the City of Dalton, Georgia, which owns 1.6%. The plant is years behind schedule and billions of dollars over budget. In 2008, Georgia Power estimated the project would cost about $12 billion, and both units would be operating by now. For more on this, see August 11, 2017, article - Georgia Power Calculates 'Go' and 'No Go' Options for Vogtle Units 3 and 4.
In its August 31 filing with Georgia utility regulators, Georgia Power acknowledged that generators receiving federal production tax credits for advanced nuclear technologies must be operating by January 1, 2021, under the terms of the Energy Policy Act of 2005. Although the Vogtle units, now about 66% complete, will not make that deadline, the utility said a bill, H.R. 1551, recently passed by the U.S. House of Representatives and pending in the U.S. Senate, will extend the sunset date until the Vogtle units are operational. Georgia Power calculated its costs based on those tax credits being extended. The tax credits would be worth 1.8 cents per kilowatt-hour generated by units 3 and 4 for an eight-year period, Georgia Power said.
The federal government also provided the Vogtle project billions of dollars of construction loan guarantees, and Georgia Power currently is negotiating with the U.S. Department of Energy (DoE) (Washington, D.C.) to "expand the current capacity of the original (loan guarantee) commitment." The existing loan guarantees would save customers about $400 million in financing costs, Georgia Power estimated, and expanding those guarantees would save customers an additional $100 million to $140 million.
Because the Vogtle unit addition is such a dynamic project, subject to a variety of exogenous forces, Georgia Power said, "while the Owners recommend going forward based on the assumptions they have made, they also understand that it is important to revisit the 'go/no go' recommendation as these assumptions may change over time, and the Owners and the Commission get better clarity as to whether these assumptions have or will be realized."
In other words, while Thursday's filing was based on the best available information, significant future events, as outlined in the risk factors, could affect the cost, in-service dates and financial viability of completing the project. Still, based on what it knows today, Georgia Power said completion of units 3 and 4 "is still an economic option." Cancelling construction of both units would cost the owners between $730 million and $760 million, though that would be offset somewhat by salvage and sale of assets, Georgia Power said. Cancelling only Unit 4 would cost the owners between $420 million and $490 million.
Georgia utility regulators already are penalizing Georgia Power for delays and cost overruns at the project, and further financial penalties are expected. Georgia Power has already agreed to forego several hundred million dollars of electric price increases that were scheduled to take place between 2017 and 2020. For more on that, see January 5, 2017, article - Georgia Power Hit with Financial Penalties for Construction Delays at Vogtle Nuclear Plants. In that same order, issued in late 2016, Georgia regulators said if the new units are not operating by the end of 2020, they will lower the utility's return on equity (ROE) by 300 basis points, or about 30%, a hefty financial penalty.
Britt Burt, Industrial Info's vice president of research for the Global Power Industry, made the following comment: "Natural gas prices have dropped by more than 75% since the project conducted its initial feasibility study, but you can't go back and change that decision using what you know today. Vogtle 3 and 4 have become a 'bet the company' proposition, but it's hard to see how Georgia regulators could tell the company to stop building the new units now."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 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.
