A $2.2 billion jump over eight months in the estimated cost to complete two nuclear reactors in Georgia could spell doom for the project.
The actual increase won’t be final until the project’s budget is revised, and it will require that the private and public utility owners vote on whether to continue the work at Plant Vogtle. The project is about 67% complete, according to the latest estimate.
Georgia Power Co., the investor-owned utility heading up the project, disclosed the increased cost in its financial report Wednesday, and said its share is about $1.1 billion. GPC, which owns 45.6% of the project, will write off a portion of the debt instead of charging it to customers.
“As a result of the increase in the total project capital cost forecast and GPC’s decision not to seek rate recovery of its allocation of the increase in the base capital costs as described above, the holders of at least 90% of the ownership interests in Vogtle Units 3 and 4 must vote to continue construction,” the Municipal Electric Authority of Georgia said in notice on the Municipal Securities Rulemaking Board’s EMMA filing system.
MEAG owns 22.7% of the reactors. It had $2.9 billion of Project J, M and P Vogtle revenue bonds and $1.2 billion of U.S. Department of Energy loan guarantees outstanding as of Dec. 31, 2017.
The Georgia Public Service Commission voted unanimously in December to allow the project to move forward. At the time, the estimated completion cost was $25 billion.
“The cost increase is credit negative coming so close after the most recent estimates,” Moody's Investors Service analyst Dan Aschenbach said Wednesday. “We will be evaluating how MEAG manages it and what impact it could have out their wholesale price.”
MEAG’s Project J and M bonds are rated A2 by Moody’s, and a Baa2 rating is assigned to the Project P bonds. S&P Global Ratings rates the J and M bonds AA-plus, and assigns an A-minus rating to the P bonds. Fitch assigns its A rating to the J and M bonds, and its A-minus rating to the P bonds.
MEAG and the other public power owners will share in the higher cost according to their ownership stakes. Oglethorpe Power owns 30% and Dalton Utilities owns 1.6%.
The co-owners are expected to vote on the project in the next two months. If they agree to continue construction they’ll also approve a revised budget with internal management expenses that could push the completion cost higher than the estimate announced Wednesday.
Georgia Power said it will file its 19th construction report with the PSC on Aug. 31, which will include a revised capital cost forecast.
Moody's downgraded GPC’s ratings to Baa1 from A3 and placed the ratings on review for downgrade on Wednesday.
“The downgrade of Georgia Power is prompted by the $1.1 billion additional increase in the utility’s share of Vogtle new nuclear project costs, which has materialized only eight months after a revised cost estimate and construction schedule was reviewed and approved by state regulators, demonstrating the ongoing challenges and execution risk with the continued construction of the Vogtle project,” said Moody’s analyst Jeff Cassella.
GPC said in its financial report that an estimated $1.4 billion increase in the base capital cost primarily resulted from changed assumptions related to finalizing contracts and management responsibilities for Bechtel Power Corp, which became the prime construction contractor after Westinghouse Electric Co. filed for bankruptcy in March 2017.
A similar project in neighboring South Carolina was scuttled in 2017 after the Westinghouse bankruptcy.
Other cost increases, GPC said, were attributed to having more than 60 subcontractors, labor productivity rates, and craft labor incentives, as well as project management and oversight expenses. An additional $800 million also will be necessary for a contingency fund.
Georgia Power said it “believes these incremental costs are reasonable and necessary to complete the project.”
A number of legal challenges to the PSC's approval of the project are still pending.