Fate of Vogtle Nuclear Expansion Hinges on Minority Owners

On August 8, Georgia Power announced that its revised capital and construction cost forecast for its share of the Plant Vogtle expansion project had increased from $7.3 billion to $8.4 billion, based on a revised cost-to-complete estimate from Southern Nuclear. The news was softened somewhat by Georgia Power's declaration that significant construction progress had been made on Units 3 and 4 since Southern Nuclear assumed the responsibility for project management following Westinghouse's bankruptcy in 2017.

Nonetheless, Georgia Power is not the only company on the hook for cost increases; there are three other co-owners of the project. Georgia Power holds a 45.7% stake in the Plant Vogtle expansion, while Oglethorpe Power Corp. (OPC, 30%), MEAG Power (22.7%), and Dalton Utilities (1.6%) hold the remaining shares.

According to The Bond Buyer website, both OPC and MEAG could face bond rating downgrades due to the increased cost estimate for Vogtle. In an August 13 post, Bond Buyer reported, "Fitch Ratings placed its A and A-minus ratings on MEAG's bonds on Rating Watch Negative Friday, affecting $5.17 billion of outstanding debt. Oglethorpe's A-minus rating on $3.9 billion of outstanding obligations was also placed on Rating Watch Negative."

The Vogtle cost increase has not been kind to Georgia Power's ratings either. According to The Florida Times-Union, a Jacksonville-based newspaper, "Moody's Investors Services issued a downgrade to Georgia Power's rating, saying the increase comes just eight months after utility regulators signed off on the previous round of increased cost estimates."

In August 2017, OPC's Board of Directors approved a $7.0 billion budget that included a contingency most-recently valued at about $490 million. After Georgia Power announced the new budget forecast, OPC issued a press release in which Mike Smith, the company's president and CEO, said, "The need to adjust OPC's budget to complete Plant Vogtle 3 and 4 to account for the recently announced increases will be muted for OPC and its member [electric membership corporations], due to a conservative contingency that we imbedded in our existing budget of $7.0 billion."

However, the OPC statement also said the company was "still analyzing the need to rebuild its contingency." It suggested the budget could increase by 5% to 6%, assuming a contingency similar to the amount announced publicly by Georgia Power.

Additionally, OPC said it was "performing its due diligence under the Project Adverse Events (PAEs) within the co-owner agreement resulting from the new budget forecast and Georgia Power's decision not to seek rate recovery for these amounts. A vote on these items is anticipated late in the 3rd Quarter of 2018."

A post on the Seeking Alpha website written by Michael Wald, a self-employed research analyst based in Georgia, suggested MEAG was "facing a rebellion" from JEA, a Florida utility contracted to purchase power from the Vogtle expansion. The Times-Union reported that JEA's 20-year purchase-power agreement with MEAG stipulates that JEA will pay even if the Vogtle reactors never produce power. It said no cap exists on how high JEA's obligations could go based on the continued increases in the cost of constructing the reactors. Wald wrote, "JEA is demanding that either the construction project be abandoned or that the contract between the utility and MEAG be canceled." Furthermore, Wald surmised that if MEAG canceled the contract with JEA, it would have a difficult time covering its costs for the Vogtle project.

Southern Co. CEO Tom Fanning was essentially asked during the company's second quarter earnings call what would happen if a member of the joint ownership group chose not to continue the project. Fanning responded, "Yeah, so, the technical answer there is that the project would be deemed to be cancelled, I believe. And then, of course, you could take a variety of different paths beyond that. But the technical answer is, if you don't get the 90% vote, the project is cancelled. Then you have to figure out how or whether to proceed beyond that. There is no prescription per se beyond that action. Of course, we could all negotiate-whatever-but that would also require Public Service Commission approval and a variety of other things."

A vote by the partners is expected in late September.

-Aaron Larson, executive editor (@AaronL_Power, @POWERmagazine)

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