The post has been updated to include comments from stakeholders.
The Georgia Public Service Commission today voted unanimously in favor of a cost increase for Georgia Power’s Vogtle project, rejecting a recommendation by the commission's staff.
Georgia Power had sought approval of $8.9 billion to complete the project, but the PSC lowered that amount by $1.7 billion in part by backing out the value of a guarantee from Toshiba that backstopped its bankrupt Westinghouse Electric subsidiary.
In an unusual move, PSC Chairman Stan Wise asked Georgia Power's legal counsel if the company would move forward with the project under the conditions imposed, and counsel affirmed that Georgia Power and its partners in the project would accept the conditions.
The PSC’s unanimous decision comes at a cost for Georgia Power, but it will leave most of the burden for the $10 billion nuclear project on ratepayers, not shareholders.
Georgia Power had asked the commission to approve a total of $12.2 billion in financing costs to move Vogtle forward. The PSC’s Public Interest Advocacy Staff had recommended that the commission approve only $9 billion, saying that any amount over that amount was unreasonable and uneconomic.
The commission in the end voted in favor of a motion by Commissioner Tim Echols. Among other things, Echol’s motion removed the value of the Toshiba guarantee from Georgia Power’s ask.
Georgia Power had sought $8.9 billion in capital and construction costs (financing costs would add in about $3 billion more to costs). The Echols motion approved by the commission lowered the approved amount to $7.3 billion to reflect the receipt of Georgia Power’s share of the $3.68 billion payment from Toshiba.
Westinghouse’s Chapter 11 filing set off a chain of events that jeopardized both projects. Westinghouse rejected its fixed price contracts, which had to be replaced with more expensive contracts, adding further delays to a timetable that was already years behind schedule.
Toshiba made the payment as part of a guarantee to backstop contracts held by its bankrupt Westinghouse subsidiary. The PSC decision directs Georgia Power to refund a portion of the Toshiba guarantee back to ratepayers in the form of three, $25 monthly credits on their bills in 2018.
In total project costs, the PSC approved $10.5 billion in costs for the Vogtle expansion project, or “$1.5 billion over the break-even” recommended by the PSIA, Echols told Utility Dive.
The addition of two new reactors at the Vogtle plant were originally estimated to cost $14 billion and due online in 2016 and 2017. The reactors are now estimated to cost as much as $25 billion and are expected in service in 2021 and 2022. Georgia Power owns 45.7% of the project. The other owners are Oglethorpe Power, 30%, Municipal Electric Authority of Georgia, 22.7%, and Dalton Utilities, 1.6%. The PSC ruling only applies to Georgia Power.
The decision reflects sunk costs of $5 billion already spent on the nuclear project and is a hedge against higher natural gas prices and the possibility of a price on carbon dioxide being imposed after the Trump administration is no longer in office, Echols says.
Echols’ motion also added a “carrot” for Georgia Power to stick to the updated construction schedule. The motion reduced Georgia Power’s return on equity for the nuclear project to 8.3% from 10% beginning on Jan. 1, 2020, the date the first reactor is due online, and then to 5.3% beginning Jan. 1, 2021, the date the second reactor is due online. If those units do not come online by the due dates, the utility’s ROE would be reduced by 10 basis points per month, but not falling below its long term cost of debt.
Echols’ motion assumes that Congress will approve nuclear tax credits but provides an option to reconsider if that does not happen. The tax bill Congress just passed does not extend the nuclear PTC, though Sen. Lisa Murkowski told Utility Dive they could included in an extenders package next year.
Commissioner Lauren “Bubba” McDonald, Jr., introduced a motion that would have forced shareholders to share the burden if the PTC is not passed, but the motion was not seconded.
In closing remarks, PSC Chairman Stan Wise made a “personal appeal” to Congress to pass the nuclear PTC and expressed optimism that the Senate Finance Committee has included an $800 million nuclear PTC in a tax credit extender bill.
Wise also expressed his confidence that “history over time will show we were correct” in approving the Vogtle project, which will “serve as a hedge against natural gas” and aid in the deployment of intermittent renewable resources.
Critics of the nuclear project have pointed out that the PSC’s past approval of costs related to the Vogtle expansion have allowed to Georgia Power to earn a return on costs associated with project delays and charge those costs to ratepayers. The Vogtle reactors were originally due online in 2016 and 2017.
“Most people have to pay for their mistakes, but Georgia Power is still profiting from theirs,” Kurt Ebersbach, senior attorney for the Southern Environmental Law Center, said in a statement after the PSC decision. “There’s something wrong with a system that rewards this kind of failure.”
The decision has been closely watched as an indication of the future or the U.S. nuclear industry. Vogtle, and the now canceled V.C. Summer nuclear project that was being built by SCANA and Santee Cooper, were the first nuclear projects started in 30 years.
When the projects were started – a Georgia Power affiliate filed the first permit for the Vogtle expansion in 2006 – they were heralded as the beginning of a nuclear renaissance. Since then, several nuclear plants have been shut because of competition from low cost natural gas-fired generation.
“I don’t see new nuclear being viable under current conditions,” Dean Murphy, a principal with The Brattle Group, told Utility Dive. That might change if natural gas prices rise considerably or there is a substantial price put on emitting carbon dioxide, but neither seems very likely, Murphy says.
A new nuclear plant takes so long to build that it would impose high risks on the builders, even if conditions were more favorable and those conditions could reverse by the time the plant came online, Murphy says.
The financing costs of the Vogtle project are already being borne by ratepayers through a surcharge on their bills. The remaining costs will be eligible to be added to ratebase when the project enters service, and the PSC completes a prudency review.