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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--In the end, the decision whether to terminate or continue the nation's only nuclear power project still under construction may come down to natural gas prices and federal tax legislation.
The Georgia Public Service Commission (GPSC) (Atlanta, Georgia) held three days of hearings, December 11-14, on PSC staff testimony over the economic feasibility of continuing construction of units 3 and 4 at the Alvin W. Vogtle Nuclear Power Station in Waynesboro, Georgia. That followed testimony filed in November by Georgia Power Company (Atlanta, Georgia), a unit of the Southern Company (NYSE:SO) (Atlanta, Georgia).
Georgia Power owns 45.7% owner of Vogtle units 3 and 4. The other owners include: Oglethorpe Power Corporation (Tucker, Georgia), a 30% owner; 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 owners want to continue building the two-unit addition, but testimony filed December 1 by the PSC staff cast doubt on the wisdom of continuing construction. It recommended the commission impose several conditions on continued construction, to protect customers from the financial consequences of continuing construction of what has become a $25 billion project. If the commission chooses not to impose those conditions, which Georgia Power opposes, the staff recommended terminating construction of the two new units, which are about two-thirds complete. For more on the unit additions at Vogtle, see October 13, 2017, article - Georgia Power Reaches Construction Milestones on Vogtle Expansion, September 1, 2017, article - Georgia Power Recommends Construction Continue at Vogtle, and August 11, 2017, article - Georgia Power Calculates 'Go' and 'No Go' Options for Vogtle Units 3 and 4.
The Georgia regulators had been scheduled to vote next February on continuing construction at Vogtle, but as a federal tax bill moved through Congress, GPSC Chair Stan Wise moved the decision date to December 21. If construction of Vogtle is cancelled this year, Georgia Power would take advantage of current tax rates and reap a $150 million tax benefit. If Congress approved the proposed bill lowering corporate income taxes from 35% to 20%-21%, the value of those tax benefits would decline after 2017.
If Georgia Power cancelled Vogtle this year, it also could take up to $4.7 billion in abandonment loss tax deductions, according to news reports of the PSC staff testimony. The company would have to monetize that loss over roughly three years at about $1.5 billion a year, according to a report in E&E News, a trade publication.
Recently, the Vogtle project received up to additional $3.715 billion in conditional federal construction loan guarantees. This decision, made this past September, is in addition to the $8.3 billion in federal construction loan guarantees the project received in 2010 from the Department of Energy (DoE) (Washington, D.C.) in 2009.
Ultimately, whether Vogtle is cost effective likely turns on the future direction of natural gas prices. Gas prices have fallen steadily over the last decade, thanks to the revolution in natural gas extraction from unconventional formations using hydraulic fracturing. A decade ago, electric generators paid $10 or more per thousand cubic feet (Mcf) of gas. Today, gas for electric generation is about one-third of that, about $3.31 per Mcf in September 2017, according to the most recent data released by the U.S. Energy Information Administration (EIA) (Washington, D.C.).
Click on the image at right to see a historical graphic on natural gas prices paid by electric generators.
The absence of a price on carbon dioxide (CO2) emissions also hurt Vogtle's economic viability. Many industry executives expected regulations or legislation limiting CO2 emissions, which would essentially put a price on each ton of emissions. The prospects for that looked bright during the Obama administration, but President Trump's administration has been moving in the opposite direction, raising questions about whether, and when, CO2 emissions might be limited and priced.
When the two-unit additions at Vogtle originally were announced in 2001, the cost to add 2,234 megawatts (MW) of generating capacity was estimated at about $7.5 billion, and the units were scheduled to be operating by mid-2013, according to Industrial Info's Global Marketing Intelligence (GMI) platform. Costs have spiraled since then, to a current estimate of $25 billion, including financing costs. Georgia Power's most recent estimate of the in-service dates for units 3 and 4 were late-2021 and late-2022, respectively.
Calculating the cost-effectiveness of completing the Vogtle unit additions became more complicated earlier this year after Westinghouse Electric Company LLC (Pittsburgh, Pennsylvania) declared Chapter 11 bankruptcy and exited the nuclear construction business. Vogtle units 3 and 4 would utilize Westinghouse's AP1000 reactors. Earlier this year, 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 pre-filed testimony earlier this month, the GPSC staff said, "This proceeding marks a significant inflection point regarding the decision of whether to continue construction of the Vogtle Units 3 and 4 Project ("the Project" or "the Units") or to cancel the Project." It noted that Georgia Power's 45.7% share of the project has ballooned to about $12.2 billion from $6.1 billion when the project originally was certificated.
"Staff concludes 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," continued the pre-filed testimony. "Staff opposes several of the conditions requested by the Company, which would effectively shift most of the financial risk of the Project to customers. Staff's analysis indicates the Project's economic benefit is a negative $1.6 billion, meaning that the Project is uneconomic."
The GPSC staff testimony continued: "We conclude that certain costs already incurred by the Company are not reasonable to allocate to customers. 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." Testifying for the staff were Tom Newsome, P.E., C.F.A., Philip Hayet and Lane Kollen.
The original purpose of the December hearings was for the GPSC to determine how much of the $542 million the owners spent on the unit additions during the first half of 2017 should be recovered from customers. Georgia Power sought to recover $542 million from customers for Vogtle outlays during that time, but the PSC staff urged the commission to approve only $44 million of that request. The remaining $498 million should not be recovered from customers and instead should be absorbed by shareholders, the staff urged.
"The Power industry will tune in on December 21 to see if the nuclear renaissance will end ignominiously, or whether it will continue to move forward, albeit on an impaired basis," commented Britt Burt, Industrial Info's vice president of research for the Global Power Industry. "For the nuclear industry, a lot of things have not worked out as planned over the last decade. But a lot of people, both at utilities and at utility commissions, are concerned about relying too heavily on one fuel, natural gas, to generate electricity. In some ways, the GPSC decision will be placing a price on fuel diversity. Stay tuned."
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 Georgia Public Service Commission (GPSC) (Atlanta, Georgia) held three days of hearings, December 11-14, on PSC staff testimony over the economic feasibility of continuing construction of units 3 and 4 at the Alvin W. Vogtle Nuclear Power Station in Waynesboro, Georgia. That followed testimony filed in November by Georgia Power Company (Atlanta, Georgia), a unit of the Southern Company (NYSE:SO) (Atlanta, Georgia).
Georgia Power owns 45.7% owner of Vogtle units 3 and 4. The other owners include: Oglethorpe Power Corporation (Tucker, Georgia), a 30% owner; 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 owners want to continue building the two-unit addition, but testimony filed December 1 by the PSC staff cast doubt on the wisdom of continuing construction. It recommended the commission impose several conditions on continued construction, to protect customers from the financial consequences of continuing construction of what has become a $25 billion project. If the commission chooses not to impose those conditions, which Georgia Power opposes, the staff recommended terminating construction of the two new units, which are about two-thirds complete. For more on the unit additions at Vogtle, see October 13, 2017, article - Georgia Power Reaches Construction Milestones on Vogtle Expansion, September 1, 2017, article - Georgia Power Recommends Construction Continue at Vogtle, and August 11, 2017, article - Georgia Power Calculates 'Go' and 'No Go' Options for Vogtle Units 3 and 4.
The Georgia regulators had been scheduled to vote next February on continuing construction at Vogtle, but as a federal tax bill moved through Congress, GPSC Chair Stan Wise moved the decision date to December 21. If construction of Vogtle is cancelled this year, Georgia Power would take advantage of current tax rates and reap a $150 million tax benefit. If Congress approved the proposed bill lowering corporate income taxes from 35% to 20%-21%, the value of those tax benefits would decline after 2017.
If Georgia Power cancelled Vogtle this year, it also could take up to $4.7 billion in abandonment loss tax deductions, according to news reports of the PSC staff testimony. The company would have to monetize that loss over roughly three years at about $1.5 billion a year, according to a report in E&E News, a trade publication.
Recently, the Vogtle project received up to additional $3.715 billion in conditional federal construction loan guarantees. This decision, made this past September, is in addition to the $8.3 billion in federal construction loan guarantees the project received in 2010 from the Department of Energy (DoE) (Washington, D.C.) in 2009.
Ultimately, whether Vogtle is cost effective likely turns on the future direction of natural gas prices. Gas prices have fallen steadily over the last decade, thanks to the revolution in natural gas extraction from unconventional formations using hydraulic fracturing. A decade ago, electric generators paid $10 or more per thousand cubic feet (Mcf) of gas. Today, gas for electric generation is about one-third of that, about $3.31 per Mcf in September 2017, according to the most recent data released by the U.S. Energy Information Administration (EIA) (Washington, D.C.).
The absence of a price on carbon dioxide (CO2) emissions also hurt Vogtle's economic viability. Many industry executives expected regulations or legislation limiting CO2 emissions, which would essentially put a price on each ton of emissions. The prospects for that looked bright during the Obama administration, but President Trump's administration has been moving in the opposite direction, raising questions about whether, and when, CO2 emissions might be limited and priced.
When the two-unit additions at Vogtle originally were announced in 2001, the cost to add 2,234 megawatts (MW) of generating capacity was estimated at about $7.5 billion, and the units were scheduled to be operating by mid-2013, according to Industrial Info's Global Marketing Intelligence (GMI) platform. Costs have spiraled since then, to a current estimate of $25 billion, including financing costs. Georgia Power's most recent estimate of the in-service dates for units 3 and 4 were late-2021 and late-2022, respectively.
Calculating the cost-effectiveness of completing the Vogtle unit additions became more complicated earlier this year after Westinghouse Electric Company LLC (Pittsburgh, Pennsylvania) declared Chapter 11 bankruptcy and exited the nuclear construction business. Vogtle units 3 and 4 would utilize Westinghouse's AP1000 reactors. Earlier this year, 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 pre-filed testimony earlier this month, the GPSC staff said, "This proceeding marks a significant inflection point regarding the decision of whether to continue construction of the Vogtle Units 3 and 4 Project ("the Project" or "the Units") or to cancel the Project." It noted that Georgia Power's 45.7% share of the project has ballooned to about $12.2 billion from $6.1 billion when the project originally was certificated.
"Staff concludes 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," continued the pre-filed testimony. "Staff opposes several of the conditions requested by the Company, which would effectively shift most of the financial risk of the Project to customers. Staff's analysis indicates the Project's economic benefit is a negative $1.6 billion, meaning that the Project is uneconomic."
The GPSC staff testimony continued: "We conclude that certain costs already incurred by the Company are not reasonable to allocate to customers. 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." Testifying for the staff were Tom Newsome, P.E., C.F.A., Philip Hayet and Lane Kollen.
The original purpose of the December hearings was for the GPSC to determine how much of the $542 million the owners spent on the unit additions during the first half of 2017 should be recovered from customers. Georgia Power sought to recover $542 million from customers for Vogtle outlays during that time, but the PSC staff urged the commission to approve only $44 million of that request. The remaining $498 million should not be recovered from customers and instead should be absorbed by shareholders, the staff urged.
"The Power industry will tune in on December 21 to see if the nuclear renaissance will end ignominiously, or whether it will continue to move forward, albeit on an impaired basis," commented Britt Burt, Industrial Info's vice president of research for the Global Power Industry. "For the nuclear industry, a lot of things have not worked out as planned over the last decade. But a lot of people, both at utilities and at utility commissions, are concerned about relying too heavily on one fuel, natural gas, to generate electricity. In some ways, the GPSC decision will be placing a price on fuel diversity. Stay tuned."
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.
