By Kristi E. Swartz, E&E Reporter
ATLANTA — Georgia Power Co.’s customers will continue to foot the bill for much of the rising costs of its nuclear expansion project, but the utility has agreed to eat $115 million through a lower rate of return on equity.
State utility regulators are reviewing the agreement reached last week with Georgia Power and the Georgia Public Service Commission staff. The two have been reviewing Plant Vogtle’s costs for months after one utility regulator asked them to do so.
Georgia Power owns 45.7 percent of Vogtle, the nation’s first nuclear reactors to be built from scratch in nearly 30 years. The project started with a $14 billion price tag, but that figure has increased because of a series of regulatory changes and vendor problems.
For Georgia Power, that means a $1.7 billion increase, according to company documents.
At issue is how to handle those extra costs, which include $350 million from a settlement with Vogtle’s contractors.
The settlement gives the utility certainty but sets up contingencies for the future, analysts say. It lets the company eventually recoup billions of dollars already spent on Vogtle but lays out penalties if future deadlines are not met.
“It’s a constructive settlement that bodes well for the project,” said Paul Patterson, a utility analyst with Glenrock Associates.
The settlement raises Vogtle’s capital costs to $5.68 billion, including a $240 million contingency, up from $5.44 billion.
The utility will continue to collect financing costs for Vogtle, which it has been doing monthly for years. Its rate of return on equity in calculating that monthly tariff has been reduced to 10 percent from 10.95 percent.
That reduction will lower earnings by $115 million over the next four years. It also will lower customer bills by $325 million over that period.
Consumer advocates have fought for years to change how much Georgia Power has been recouping from customers in the form of financing costs. The project is more than three years behind schedule, which means current customers are bearing more of the costs, advocates argue.
Liz Coyle, executive director of Georgia Watch, praised the benefits that current customers will get but said the settlement still passes on more than $2 billion in increased costs while leaving the company on the hook for $115 million.
Advocates also are frustrated that despite a series of construction delays, the money that Georgia Power has spent was deemed prudent, a legal standard that lets it recover those costs from customers.
“Given the evidence raised in hearings on construction management over the past five years, it’s hard to believe there was not any finding of imprudence. We certainly plan to raise these issues when hearings on the agreement are held,” Coyle said in a statement emailed to E&E News.
Eyes on Wall Street
Georgia Power filed roughly 1,000 pages with the commission justifying the amount and time the project has taken so far. The documents are a storied history of the project and how massive and complicated such projects are and even how the idea of building nuclear plants is so polarizing.
This is why the outcome of this agreement is not so much about money for the company as it is for future regulatory certainty. The utility needs to maintain a high credit rating, but it also needs to send a signal to Wall Street that it has continued regulatory and political support.
Georgia Power is eyeing a site in western Georgia to build nuclear reactors in the 2030s. While the company maintains that it needs more nuclear to keep a diverse fuel mix, one that is free of emissions, the low cost of natural gas has made the economics of nuclear unfavorable.
What’s more, Vogtle was to be a test case for building nuclear projects on time and on budget. That hasn’t happened.
The reactors are scheduled to start producing power in 2019 and 2020. Georgia Power’s rate of return on equity on parts of the project will be further reduced if that deadline isn’t met, according to the settlement.
“The settlement establishes reasonableness and prudence of currently estimated costs and schedule, plus a contingency,” a news release from Fitch Ratings said. “However, a cut in currently established authorized return on equity (ROE) and stiff reductions in ROE for cost and schedule overruns until the units are in service ensures that customers’ share of any potential overruns is minimized.”
The PSC has yet to decide a hearing schedule. PSC Chairman Chuck Eaton told E&E News he wanted to give all parties enough time to prepare now that an agreement has been reached.
“I think you’ve got to allow all parties enough time to plan. I want to give them additional time,” he said.
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