BRADENTON, Fla. – A U.S. bankruptcy judge in New York has approved Westinghouse Electric Co.’s rejection of its contract to build two nuclear reactors at Plant Vogtle in Georgia.
The rejection, in conjunction with a negotiated agreement, hands the project over to the owners, which include Southern Co.’s Georgia Power and the Municipal Electric Authority of Georgia, even though it has not been determined if both units will be completed.
The agreement includes an acknowledgment that Westinghouse’s parent company, Japan’s Toshiba Corp., will honor a $3.68 billion financial guarantee of project costs, which Fitch Ratings said it views favorably.
“This amount will be payable to Georgia Power and other Vogtle owners irrespective if they decide to move forward with the construction of Vogtle 3 and 4 units or not,” Fitch analyst Shalini Mahajan said in a June 26 report. “The settlement agreement establishes a schedule of payments beginning in October 2017 and continuing through January 2021.”
Fitch said it views the payment of the guarantee obligation as a key factor in Georgia Power's decision to move forward with the Vogtle units, although the guarantee payments can also offset the costs to customers to a large extent if future construction is abandoned.
Georgia Power owns 45.7% of the two new units under construction at Plant Vogtle.
MEAG owns 22.7% of the project and has issued $2.92 billion of bonds; the nonprofit Oglethorpe Power Corp. has issued $1.5 billion of first mortgage bonds for its 30% ownership share; and the city of Dalton, Ga., has a 1.6% share that its utility is funding on its own.
“The agreement on the parental guarantee is credit positive for MEAG Power and the other owners because it requires Toshiba to honor the guarantee for contract performance and provides some protection that can mitigate the impact of the Westinghouse bankruptcy,” Moody's Investors Service analyst Dan Aschenbach said last month.
For MEAG, the estimated value of the Toshiba guarantee is $835 million, he said.
The financial guarantee has been in question since Westinghouse, the main contractor for the Georgia project and a similar project in South Carolina, filed for Chapter 11 bankruptcy on March 29. Toshiba has said the $3.68 billion guarantee has already been incorporated into its financial outlook, which includes a reserve for losses.
Toshiba also has its own fiscal problems, including hundreds of complaints filed by shareholders and corporations seeking compensatory damages due to accounting discrepancies, the company has said.
Under the services agreement, Georgia Power plans to transition construction management of the new nuclear reactors to Southern Nuclear Operating Co., a Birmingham, Ala.-based affiliate of Southern Co.
Southern Nuclear operates two existing nuclear reactors at Plant Vogtle.
Westinghouse, whose new AP1000 nuclear reactor designs are being built at the Georgia plant, will provide ongoing design, engineering, and procurement services to Southern Nuclear, according to the agreement.
U.S. Bankruptcy Judge Michael E. Wiles signed the order Thursday approving of Westinghouse’s contract rejection and approval of the services agreement with the Vogtle owners. He also set a Sept. 7 hearing date to consider objections filed by 24 companies.
On Friday, the Vogtle owners asked the bankruptcy court to approve an extension of their interim assessment agreement until July 27, to continue a “cost-to-complete” analysis of the project.
