Reports related to this article:
Project(s): View 1 related project in PECWeb
Plant(s): View 1 related plant in PECWeb
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--With an eye on the future and several references to the past, the Georgia Public Service Commission (GPSC) (Atlanta, Georgia) on December 21 voted unanimously to allow Georgia Power Company (Atlanta, Georgia), to recover the $542 million in outlays made during the first half of 2017 to add two new nuclear units at the Alvin W. Vogtle Nuclear Power Station.
The commission's staff recommended allowing only $44 million of those outlays to be recovered from customers in electric rates.
The commission also said units 3 and 4 at the Vogtle station should be completed, and adopted, with some modification, the utility's revised capital cost forecast of $7.3 billion, which represents Georgia Power's share of the project. The total cost of the construction project is about $25 billion, including financing costs. Georgia Power is 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), a 22.7% owner; and the City of Dalton, Georgia, which owns 1.6%. Only Georgia Power is regulated by the GPSC.
The two units under construction at Vogtle are about two-thirds complete. When finished, they will add about 2,234 megawatts (MW) of new generating capacity. When the two unit additions at Vogtle originally were announced in 2001, the cost 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 currently expects Unit 3 to be operating in November 2021 and Unit 4 in November 2022.
Construction of the two new units, the only active new nuclear construction project in the U.S., was complicated earlier this year when Westinghouse Electric Company LLC (Pittsburgh, Pennsylvania), a unit of Toshiba Corporation, declared Chapter 11 bankruptcy and exited the nuclear construction business. Westinghouse was providing two AP1000 reactors to the Vogtle project.
For more on the two unit additions at Vogtle, see December 18, 2017, article - Georgia Regulators to Decide Fate of Vogtle Nuclear Additions This Week; 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.
"Today's decision may or may not be the most important decision ever made by this body," GPSC Chair Stan Wise said at Thursday's hearing. "But it certainly could be the most impactful depending on how history judges any decision we make today."
History also was invoked by GPSC Commissioner and Vice Chairman Tim Echols, who took the lead in drafting the commission's order on Vogtle units 3 and 4. "I firmly believe," he said, "that future Georgians will look back on this decision today and be as grateful for it as we are for the decision to complete (Vogtle) units 1 and 2," which, like units 3 and 4, were controversial, over-budget and years late in beginning operations.
Given likely future carbon constraints and "hostility to coal," Chairman Wise said, "nuclear needs to be part of a diversified fuel mix. We are facing a difficult dilemma," he continued. Completing construction of Vogtle units 3 and 4 would provide "decades of reliable, economic and carbon-free energy that brings energy security as well as well-paying jobs."
Wise noted the commission's order was "more punitive" than what Georgia Power was seeking. However, a Georgia Power representative agreed to the terms of the commission's order.
"The decision to complete Vogtle 3 & 4 is important for Georgia's energy future and the United States," Paul Bowers, chairman, president and chief executive of Georgia Power, said in a statement after the commission's decision. "The Georgia Public Service Commission has shown leadership in making this complex and difficult decision and recognized that the Vogtle expansion is key to ensuring that our state has affordable and reliable energy today that will support economic growth now and for generations to come."
"Our responsibility is to our customers first, and we remain focused on fulfilling our commitment to them to deliver a new energy source that will put downward pressure on rates for 60 to 80 years once the new units are online," Boers added.
While the commission's December 21 decision was preferable to the staff recommendation, Georgia Power, a unit of the Southern Company (NYSE:SO) (Atlanta), faces significant future financial penalties for future delays in completing the project. Earlier in 2017, the commission imposed financial penalties on Georgia Power if the new units were not operating by 2021 and 2022. The commission's December 21 ruling toughened those sanctions.
The original settlement, reached this past January, would lower Georgia Power's return on equity (ROE) by 300 basis points, or three full percentage points, to 7%, if both units were not generating electricity by the end of 2020. For more on those earlier sanctions, see January 5, 2017, article - Georgia Power Hit with Financial Penalties for Construction Delays at Vogtle Nuclear Plants. But on December 21, the commission said it would further lower Georgia Power's ROE to 8.3% effective January 1, 2020, and to 5.3% in January 2021, if the units were not operating by their scheduled in-service dates. The commission said it would award Georgia Power either these new lower ROEs or the company's long-term cost of capital, whichever was higher.
Additional financial penalties will be assessed if Unit 3 is not operating by June 1, 2021, and Unit 4 by June 1, 2022. The utility has said Unit 3 is scheduled to be operating by November 2021, and Unit 4 by November 2022. So, it appears further financial penalties on Georgia Power are baked into Thursday's decision.
"Compared to the January 2017 agreement, (today's) order cuts the ROE a year earlier and goes deeper as an incentive (to Georgia Power) to move expeditiously," Echols said. The commissioner had considered lowering the ROE to 8% in January 2020, but said a return that low "might kill the project." A lowered ROE "is a powerful incentive for the company to work as fast and as safely as (it) can to finish the units," Echols said. He noted Georgia Power needs to raise about $1.4 billion to fund completion of the two units. "If we tell investors they will get no return on their investment needed to complete the units, we may not be able to finish the units," he explained.
The GPSC also instructed Georgia Power to provide all customers with three $25-per-month credits on their bills in 2018. Those credits will come from the $1.7 billion Westinghouse parent Toshiba paid to Georgia Power to settle construction disputes.
Echols praised the utility for getting Toshiba to pay the full amount it had pledged. He also recognized Georgia Power for forcing Westinghouse and contractor Chicago Bridge & Iron (NYSE:CBI) (The Hague, Netherlands) to absorb about $4 billion in cost overruns.
That said, Echols underscored that the December 21 ruling does not constitute a cost cap, nor does it address any potential disallowances or guarantee recovery of any future costs. "The company retains the burden of prudency for all capital costs, about $5.680 billion," which represents the utility's share of the capital costs to build units 3 and 4. "We haven't addressed prudence questions," which normally are tackled after a utility finished building a capital project. Prudence hearings examine whether a utility spent money prudently to build a particular project compared to pursuing other alternatives.
The GPSC order also touched on federal production tax credits (PTC) for next-generation nuclear power. Those credits are scheduled to expire at the end of 2020. Nuclear projects can't take advantage of those credits if their new nuclear units are not operating by then. An effort was made to extend those credits in the recently completed federal tax bill, but that effort fell short. The Senate Finance Committee has begun efforts to extend those tax credits, but nothing is certain. The commission assumes those tax credits, valued at about $800 million, will be available to the Vogtle project, but if not, it will take that up in a future proceeding.
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 commission's staff recommended allowing only $44 million of those outlays to be recovered from customers in electric rates.
The commission also said units 3 and 4 at the Vogtle station should be completed, and adopted, with some modification, the utility's revised capital cost forecast of $7.3 billion, which represents Georgia Power's share of the project. The total cost of the construction project is about $25 billion, including financing costs. Georgia Power is 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), a 22.7% owner; and the City of Dalton, Georgia, which owns 1.6%. Only Georgia Power is regulated by the GPSC.
The two units under construction at Vogtle are about two-thirds complete. When finished, they will add about 2,234 megawatts (MW) of new generating capacity. When the two unit additions at Vogtle originally were announced in 2001, the cost 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 currently expects Unit 3 to be operating in November 2021 and Unit 4 in November 2022.
Construction of the two new units, the only active new nuclear construction project in the U.S., was complicated earlier this year when Westinghouse Electric Company LLC (Pittsburgh, Pennsylvania), a unit of Toshiba Corporation, declared Chapter 11 bankruptcy and exited the nuclear construction business. Westinghouse was providing two AP1000 reactors to the Vogtle project.
For more on the two unit additions at Vogtle, see December 18, 2017, article - Georgia Regulators to Decide Fate of Vogtle Nuclear Additions This Week; 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.
"Today's decision may or may not be the most important decision ever made by this body," GPSC Chair Stan Wise said at Thursday's hearing. "But it certainly could be the most impactful depending on how history judges any decision we make today."
History also was invoked by GPSC Commissioner and Vice Chairman Tim Echols, who took the lead in drafting the commission's order on Vogtle units 3 and 4. "I firmly believe," he said, "that future Georgians will look back on this decision today and be as grateful for it as we are for the decision to complete (Vogtle) units 1 and 2," which, like units 3 and 4, were controversial, over-budget and years late in beginning operations.
Given likely future carbon constraints and "hostility to coal," Chairman Wise said, "nuclear needs to be part of a diversified fuel mix. We are facing a difficult dilemma," he continued. Completing construction of Vogtle units 3 and 4 would provide "decades of reliable, economic and carbon-free energy that brings energy security as well as well-paying jobs."
Wise noted the commission's order was "more punitive" than what Georgia Power was seeking. However, a Georgia Power representative agreed to the terms of the commission's order.
"The decision to complete Vogtle 3 & 4 is important for Georgia's energy future and the United States," Paul Bowers, chairman, president and chief executive of Georgia Power, said in a statement after the commission's decision. "The Georgia Public Service Commission has shown leadership in making this complex and difficult decision and recognized that the Vogtle expansion is key to ensuring that our state has affordable and reliable energy today that will support economic growth now and for generations to come."
"Our responsibility is to our customers first, and we remain focused on fulfilling our commitment to them to deliver a new energy source that will put downward pressure on rates for 60 to 80 years once the new units are online," Boers added.
While the commission's December 21 decision was preferable to the staff recommendation, Georgia Power, a unit of the Southern Company (NYSE:SO) (Atlanta), faces significant future financial penalties for future delays in completing the project. Earlier in 2017, the commission imposed financial penalties on Georgia Power if the new units were not operating by 2021 and 2022. The commission's December 21 ruling toughened those sanctions.
The original settlement, reached this past January, would lower Georgia Power's return on equity (ROE) by 300 basis points, or three full percentage points, to 7%, if both units were not generating electricity by the end of 2020. For more on those earlier sanctions, see January 5, 2017, article - Georgia Power Hit with Financial Penalties for Construction Delays at Vogtle Nuclear Plants. But on December 21, the commission said it would further lower Georgia Power's ROE to 8.3% effective January 1, 2020, and to 5.3% in January 2021, if the units were not operating by their scheduled in-service dates. The commission said it would award Georgia Power either these new lower ROEs or the company's long-term cost of capital, whichever was higher.
Additional financial penalties will be assessed if Unit 3 is not operating by June 1, 2021, and Unit 4 by June 1, 2022. The utility has said Unit 3 is scheduled to be operating by November 2021, and Unit 4 by November 2022. So, it appears further financial penalties on Georgia Power are baked into Thursday's decision.
"Compared to the January 2017 agreement, (today's) order cuts the ROE a year earlier and goes deeper as an incentive (to Georgia Power) to move expeditiously," Echols said. The commissioner had considered lowering the ROE to 8% in January 2020, but said a return that low "might kill the project." A lowered ROE "is a powerful incentive for the company to work as fast and as safely as (it) can to finish the units," Echols said. He noted Georgia Power needs to raise about $1.4 billion to fund completion of the two units. "If we tell investors they will get no return on their investment needed to complete the units, we may not be able to finish the units," he explained.
The GPSC also instructed Georgia Power to provide all customers with three $25-per-month credits on their bills in 2018. Those credits will come from the $1.7 billion Westinghouse parent Toshiba paid to Georgia Power to settle construction disputes.
Echols praised the utility for getting Toshiba to pay the full amount it had pledged. He also recognized Georgia Power for forcing Westinghouse and contractor Chicago Bridge & Iron (NYSE:CBI) (The Hague, Netherlands) to absorb about $4 billion in cost overruns.
That said, Echols underscored that the December 21 ruling does not constitute a cost cap, nor does it address any potential disallowances or guarantee recovery of any future costs. "The company retains the burden of prudency for all capital costs, about $5.680 billion," which represents the utility's share of the capital costs to build units 3 and 4. "We haven't addressed prudence questions," which normally are tackled after a utility finished building a capital project. Prudence hearings examine whether a utility spent money prudently to build a particular project compared to pursuing other alternatives.
The GPSC order also touched on federal production tax credits (PTC) for next-generation nuclear power. Those credits are scheduled to expire at the end of 2020. Nuclear projects can't take advantage of those credits if their new nuclear units are not operating by then. An effort was made to extend those credits in the recently completed federal tax bill, but that effort fell short. The Senate Finance Committee has begun efforts to extend those tax credits, but nothing is certain. The commission assumes those tax credits, valued at about $800 million, will be available to the Vogtle project, but if not, it will take that up in a future proceeding.
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.
