September 3, 2012
By Tom Crawford
From The Georgia Report
In its latest cost report submitted to state regulators, Georgia Power is dropping a broad hint that cost overruns on the Plant Vogtle nuclear generators currently under construction could amount to as much as $2 billion.
The utility giant also conceded in its latest cost report that the $14.5 billion nuclear project has now fallen seven months behind its original completion schedule, as expert witnesses predicted earlier this year, with further delays possible.
The red flag on potential cost overruns is hidden deep within the cost report that Georgia Power’s attorneys filed Friday afternoon with the Public Service Commission, covering the construction expenditures made from January through June of 2012.
On page 34 of the document, the company discloses that it included no contingency amount in the original cost estimates it filed with the PSC before construction work got underway. Georgia Power states:
It is rare, if not unique, that a project of this size and magnitude has no contingency to cover cost pressures that the EPC [engineering, procurement, and construction] Agreement itself clearly contemplated.
This is appropriate under our regulatory framework as long it did not suggest the conclusion or expectation that the Facility might not exceed its original projected cost without a contingency. That would be an unrealistic expectation and indeed unprecedented for large infrastructure projects such as this. It is more usual that a project of this size would have a contingency of between 20 percent and 25 percent.
Attorneys and analysts familiar with the project said the contingency statement by the utility giant is a sign that it may later ask the PSC to approve a 25 percent increase in the certified costs of the Vogtle project. That increase, along with other disputed construction costs now being negotiated between Georgia Power and its contractors, would drive up the Vogtle construction tab by roughly $2 billion.
They speculated that Georgia Power would most likely seek PSC approval of such a cost hike after the Nov. 6 general election, which is when commissioners Chuck Eaton and Stan Wise, who usually vote with Georgia Power in rate cases, are up for reelection.
Georgia Power continues to maintain that, despite the potential cost increases and schedule delays, the Vogtle project will still be beneficial to the utility’s customers.
“Construction of the Facility is progressing well,” the utility said in its cost report. “We are on track to build an advanced Facility that is on the leading edge of technology and safety, and that delivers excellent value for our customers.”
“As capital intensive as this project is, completing it still represents net savings of over $5 billion for our customers compared to the next best alternative over the life of the Facility,” Georgia Power contended.
Georgia Power holds a 45.7 percent share of the Vogtle project, with the remaining ownership interest divided among its partners: Oglethorpe Power, MEAG and Dalton Utilities. Georgia Power’s share of the $14.5 billion estimated cost of the nuclear reactors has been certified by the PSC at $6.113 billion.
If the utility does ask the PSC to approve an additional $2 billion as its share of the Vogtle costs, the commissioners would have to decide whether Georgia Power’s shareholders absorb the extra charges or whether the costs are charged off to customers in the form of higher electricity rates.
When the PSC originally approved the $6.113 billion cost level for Georgia Power, the dates on which the two nuclear plants would begin generating electricity were projected to be April 2016 and April 2017.
In its latest filing, Georgia Power said the startup dates now are projected to be “no earlier than November 2016 and November 2017 for Units 3 and 4, respectively. Even with those later ‘in-service’ dates, the projected cost of the Facility remains below the original certified projected cost.”
The utility had earlier disclosed that it is already negotiating $425 million in disputed cost increases with its contractors, Westinghouse and Stone & Webster.
Georgia Power says it has spent $2.3 billion to date on the Vogtle project, which it estimated to be about one-third complete.
One of the major financial benefits Georgia Power has touted for the Vogtle project was the preliminary approval by the U.S. Department of Energy (DOE) of $8.3 billion in loan guarantees to help finance construction costs.
Those loan guarantees have not been finalized, however, and Georgia Power indicated in last week’s filings that they may not happen.
“In the event that DOE does not issue a loan guarantee, Congress takes action to rescind the DOE Loan Program, or Georgia Power determines that the final terms and conditions of the loan guarantees by the DOE are not in the best interest of its customers, Georgia Power expects to finance the construction of the Facility through more traditional means such as security issuances and term loans,” the utility’s lawyers said.
“Should any of the preceding events occur, Georgia Power requests that the related deferred issuance costs be reclassified as a regulatory asset and recovered, to the extent they are not refunded, over a period to be decided in the next base rate proceeding,” the utility added.