Nuclear project costs drive downgrades at Oglethorpe and MEAG Power
BRADENTON, Fla. – The recent decisions by Oglethorpe Power Corp. and the Municipal Electric Agency of Georgia to complete two nuclear reactors triggered one-notch downgrades for each agency by Fitch Ratings.
OPC's ratings were downgraded to A-minus from A, affecting $858.2 million in pollution control bonds issued by the Development Authorities of Appling, Burke, Heard and Monroe Counties, and $3.05 billion in first mortgage bonds.
Fitch also lowered the rating on OPC's $1 billion of commercial paper notes to F2 from F1.
MEAG Power’s $5.12 billion of bonds were downgraded to A from A-plus, while Fitch maintained an A-minus rating on $477.8 million outstanding project P bonds.
Fitch said the downgrades for both power agencies were driven by its view that the higher ratings were not consistent with the increased leverage and reduced financial flexibility that is now anticipated due to the nuclear expansion project at Plant Vogtle.
Investor-owned Georgia Power announced Aug. 31 that the co-owners of the project voted to finish two new reactors at Vogtle after completing an assessment of costs following the March 29 bankruptcy of the prime contractor, Westinghouse Electric Co. GPC owns 45.7% of the project.
“Variables driving the ultimate outcome include receipt of payments from Toshiba pursuant to a settlement agreement and a decision from the Georgia Public Service Commission approving Georgia Power Co.'s recommended schedule and cost to complete Units 3 & 4,” analyst Kathy Masterson said in reports on MEAG and OPC.
Both Oglethorpe and MEAG remain on rating watch negative, a status that Fitch said it expects to resolve within the next six months as more information becomes available on the nuclear construction plan and its impact on each agency’s leverage and financial performance.
The total cost estimates include a $3.68 billion guarantee provided by Westinghouse’s parent company, Toshiba Corp. The first payment is due Oct. 1, with remaining payments due in phases through 2021.
Oglethorpe, an electric cooperative that provides wholesale power to 38 members, will require an additional $1.5 billion to $2.3 billion in financing based on the new completion cost estimate and assuming receipt of $1.1 billion from the Toshiba agreement, according to Fitch.
OPC has also submitted an application to the U.S. Department of Energy for an additional $1.6 billion increase to its $3.06 billion in authorized loan guarantees that Fitch said could help fund the majority of the expected cost increase.
“OPC's 30% share of project costs has increased from the initial $4.2 billion estimate to the most recent forecast range of between $6.5 billion and $7.3 billion,” Masterson said.
MEAG Power originally estimated its 22.7% share of the project would cost $3.5 billion. Fitch said the new cost estimate has risen to $5.7 billion, and will require an additional $1.4 billion in financing.
The new estimate assumes MEAG will receive its share of the Toshiba agreement, which totals $835.36.
MEAG has also applied to the DOE for an additional $414.7 million in federal loan guarantees and expects to finance the remaining additional debt in the public markets, Fitch said.