BRADENTON, Fla. — Moody's Investors Service said Tuesday that $2.7 billion of bonds issued by the Municipal Electric Authority of Georgia could be downgraded if early uncertainties in the construction of two nuclear units in Georgia lead to higher costs cost and further delays beyond those known so far.
The total cost for the new units 3 and 4 at Plant Vogtle originally was estimated at $14 billion to be shared by Georgia Power Corp. at 45.7%, Oglethorpe Power Cooperative at 30%, MEAG at 22.7%, and the city of Dalton at 1.6%. The units were originally projected to come online in 2016 and 2017.
Georgia Power, the builder, recently announced a $600 million construction cost increase and a delay in service of almost two years. Lawsuits are also pending with contractors disputing $900 million in additional costs, and a Georgia Public Service Commission construction monitor has warned about possible further delays.
"The early uncertainties on the ultimate cost and construction schedule of Vogtle nuclear units 3 and 4 give pause as to whether the project will face more serious credit challenges," said Moody's analyst Dan Aschenbach.
The construction schedule delay — "far surpassing expectations" — has exerted negative credit pressure on the MEAG's revenue bonds, Aschenbach said.
"Construction delays are a leading indicator of rising costs," he said. "We think that further delays and new cost over-runs are likely, and there is a finite level that will be tolerated by ratepayers, which could lead to a rating downgrade."
The project has shown recent progress with the pouring of special concrete for the foundation of the new reactors earlier this month.
Moody's said it believes factors that support the project as "an economic and long-term strategic resource" to MEAG Power and its participants, include fuel diversity, replacement generation for the decommissioning of other nuclear units, a predictable stable cost.
Jim Fuller, senior vice president and chief financial officer at MEAG, said the project is progressing and that cost increases as a result of schedule delays are “unfortunate but not unexpected for a project of this magnitude.”
MEAG has been “very conservative” and anticipated these types of issues in its financing plans by including sufficient sources of capital when bonds were sold in 2010 and a conditional federal loan guarantee was obtained, he said.
“The cost impacts of the potential delay in the in-service date and related cost impacts are manageable and result in very small impacts to the forecasted production cost from the units and on MEAG Power’s forecasted competitive wholesale system power costs,” Fuller said.
MEAG secured most of its financing for the nuclear project in 2010 selling $1.03 billion of Project M bonds rated A2 by Moody's, $1.25 billion of Project J bonds rated A2, and $390.5 million of Project P bonds rated Baa2. The agency has an additional $1.8 billion loan guarantee from the Department of Energy.
Fitch Ratings and Standard & Poor's both rate the Project J and M bonds A-plus, while the Project P bonds are rated A-minus.
