Georgia Watch Urges PSC to Adopt Cost Controls on Vogtle Nuclear Construction

March 31, 2011

In a scheduled committee meeting this morning, Georgia Watch Consumer Energy Program Director Clare McGuire urged Georgia’s five public service commissioners to adopt cost controls on the construction of two new nuclear units at Plant Vogtle. McGuire said the current agreement between Georgia Power and the PSC unfairly exposes ratepayers to cost-overruns.

The two new units – Vogtle units 3 and 4 – are expected to cost $6.1 billion and be completed in 2016-17. PSC Staff has proposed a risk-sharing mechanism (RSM) on cost overruns that would incentivize Georgia Power to complete the project on time and under budget. Most importantly, the proposal calls for a slightly lower profit margin for Georgia Power if construction costs rise above $6.4 billion, or $300 million over budget.

Georgia Watch fully supports PSC Staff’s recommendation.

“By adopting Staff’s RSM proposal, it will align ratepayer and shareholder interest in the most equitable way possible,” said McGuire. “A risk-sharing mechanism is appropriate, it’s in the public interest, and it’s necessary to protect ratepayers interests.”

Naturally, Georgia Power strongly opposes the proposal, saying it should be judged on its conduct during the construction process, not the project’s final cost.

“That to me is the fundamental point of disagreement with [PSC] Staff. I think if we can find an incentive mechanism that incented us to control things we can control, we’d be much closer to resolving this. But we can’t live with a results-oriented process here, ” said Georgia Power attorney Kevin Greene.

On those grounds, Georgia Power is asking ratepayers to bear the entire financial burden of cost-overruns at the same level of profit as if the project were coming in at budget. The current allowed profit margin for the project is 11.15 percent.

“It’s ironic that Georgia Power says it shouldn’t have to share financial burden for delays and ballooning costs because it has no way of predicting what those will be. If Georgia Power doesn’t know, ratepayers certainly don’t know. Yet ratepayers should be solely responsible for cost overruns? It’s just a raw deal for customers,” said McGuire.

Under the RSM proposal, Georgia Power would recover all capital and financing costs above the $6.1 billion figure from ratepayers. In addition, Georgia Power would continue recovering substantial profits. If total construction costs increased to $7 billion – $900 million over projected cost – then Georgia Power’s allowed profit margin would decrease from 11.15 percent to 9.3 percent. If total construction costs ballooned to $9 billion – $2.9 billion over projected cost – then Georgia Power’s allowed profit margin would decrease to 6.99 percent.

“We’re really not asking a lot of Georgia Power. We’re simply pushing for a slightly reduced profit margin in case project costs get excessive,” said McGuire.

The PSC will vote on Staff’s RSM proposal Tuesday, April 5th.