Work continues on Georgia nuclear reactors as coronavirus hits

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Construction continues on new nuclear reactors in Georgia as COVID-19 impacts workers, and as a Florida city tries in court to vacate its contract with a public power agency that has a stake in the nuclear project.

Georgia Power Co., the investor owned utility heading up construction, reports that 35 employees have tested positive for the novel coronavirus that causes COVID-19, which has killed more than 26,000 people in the United States since late February.

A containment vessel for nuclear reactor Unit 4 is put in place in March as construction continues at Georgia’s Plant Vogtle.

More than 9,000 workers are on site at Plant Vogtle in Waynesboro, Georgia, about 25 miles from Augusta. GPC owns 45.7% of the reactor project, while three public power agencies have a majority stake and combined ownership of 54.3%.

"We are awaiting test results for 42 workers, while 128 have tested negative," GPC spokesman John Kraft told The Bond Buyer Wednesday. "Construction work continues at the site under continuing enhanced protocols designed to reduce worker-to-worker contact and keep areas that workers frequent cleaned and sanitized."

Kraft said GPC's coronavirus safety plans were adopted in consultation with medical professionals and recommendations from the Centers for Disease Control and Prevention.

The Georgia Department of Health reported 14,987 positive cases of the virus, 552 deaths, and 2,922 hospitalizations across the state Wednesday.

The adverse effects of the viral outbreak and related government responses could include extended disruptions to supply chains and capital markets, reduced labor availability and productivity, and a prolonged reduction in economic activity, GPC’s parent Southern Co. said in a Securities and Exchange Commission filing April 1.

The impacts from the virus "could disrupt or delay construction, testing, supervisory and support activities at Plant Vogtle Units 3 and 4," the notice said. "It is too early to determine what impact, if any, the COVID-19 outbreak will have on the current construction schedule or budget for Plant Vogtle Units 3 and 4," the notice concluded.

With the onslaught of the coronavirus pandemic, S&P Global Ratings revised the North America regulated utility industry outlook to negative from stable on April 2. Southern’s A-minus long-term rating was placed on creditwatch negative, though it already had a negative outlook due to the Vogtle project’s construction and financial risks.

"We believe the measures adopted to contain COVID-19 have pushed the global economy into recession," S&P analysts said. "While we expect the sector to remain an investment-grade industry, we nevertheless project a modest weakening of credit quality within the industry."

While GPC is overseeing construction and owns a minority stake in the nearly $30 billion project, three public power agencies hold a majority interest. Those are Oglethorpe Power Corp. with 30%, Municipal Electric Authority of Georgia (or MEAG Power) with 22.7% and Dalton Utilities with 1.6% of the ownership.

MEAG remains locked in a federal lawsuit with the city of Jacksonville, Florida, and its utility, JEA.

JEA has a 20-year, take-or-pay power purchase agreement to pay debt service on a portion of bonds MEAG issued to finance part of its stake in the Vogtle project.

Under the agreement, JEA is paying 41% of MEAG’s cost to finance the new reactors, and will also receive power from the units when completed.

In a limited public offering memorandum last year, MEAG said the capital requirements for JEA’s PPA were estimated at about $2.9 billion, most of which were financed with $2.004 billion of long-term Project J bonds and $575.7 million of U.S Department of Energy loan guarantees. As project costs rose, JEA and MEAG sued each other in September 2018 over the PPA, with JEA and Jacksonville contending that the agreement was improperly approved and should be vacated.

The legal challenge landed in the Atlanta Division of the United States District Court Northern District of Georgia. In December, MEAG filed a motion for a declaratory judgment in an attempt to enforce the PPA.

JEA opposed MEAG’s motion and filed its own for a declaratory judgment stating, in part, that neither JEA nor the city can be bound by Georgia’s bond validation proceedings.

Federal Judge Mark H. Cohen allowed the parties to file additional pleadings.

In a Feb. 13 court filing, JEA argued that the PPA is not pledged as security for the Project J bonds, and that only certain payments along with other security are pledged, a complex distinction that if found valid by the court would enable JEA to continue challenging the PPA.

“MEAG falsely represents that JEA has 'conceded' that the PPA contract itself is the security for the bonds," JEA's filing said. "To the contrary, JEA has expressly and with care, explained that certain but not all payments to be made under the PPA are pledged as revenues to secure the Project J Bonds."

The PPA is governed by a statute that does not bar JEA and Jacksonville from challenging the validity of the agreement because they are not Georgia entities, the filing said.

JEA also contends that it isn't asking the court to invalidate the bonds, and says that the debt will not have a payment default if the PPA is found invalid, because 39 of MEAG’s members have agreed to pay the debt "in the event JEA does not pay during the first 20 years.”

In a Feb. 23 response, MEAG argued that distinguishing between pledging a contract as security and pledging the payments obligated under that contract as security is meaningless under Georgia law.

"When payments under a contract are pledged as security for bonds, Georgia courts including the validation courts...treat the contract as the security," MEAG's filing said.

If JEA disagreed with the validation court’s treatment of the PPA as security, it should have raised that argument during the validation proceedings, the filing said, adding, "JEA said nothing and cannot do so now."

"When payments under a contract are pledged as security, Georgia courts treat the contract as the security," MEAG's attorneys wrote. "No matter how they frame it, plaintiffs agree that the bond resolution pledges payments by JEA under the PPA as the security for the bonds. That means their claim is barred."

MEAG also said JEA and the city "contrive an elaborate argument that there will be no default if JEA abandons its payment obligations under the PPA because the MEAG [member] communities will be required to cover JEA’s default by increasing taxes and electricity rates," the filing said. "That is as irrelevant as it is incorrect."

"The PPA and JEA’s payments thereunder secure the bonds, regardless of whether eliminating that security would cause a default," said MEAG. "In any event, plaintiffs’ contrived theory for why communities around Georgia must make the payments JEA is obliged to make is wrong.

"Those communities are not obligated to pay the money JEA agreed to pay under the PPA," MEAG concluded.

In other arguments in the case, JEA and Jacksonville have cited increased costs from the delayed nuclear reactors, most of which occurred when the first primary contractor, Westinghouse, filed for bankruptcy. After that, GPC and the public utilities sharing costs in the project voted to continue construction.

JEA said it complained about what it considers a subsequent "new uncapped cost-plus construction contract."

MEAG said the PPA required JEA to "assume a proportionate share of the related construction risk,” a risk that every offtaker in the project that contracted with MEAG agreed to share.

"By its nature, JEA’s assumption of construction risk meant assuming the risk that construction costs could increase," according to MEAG.

Georgia Power said in a Feb. 19 construction report to the Georgia Public Service Commission that the target in-service date for reactor Unit 3 is still November 2021 and for Unit 4 the in-service date remains November 2022.

"The project team is continuing its strategy of utilizing a more aggressive site work plan," the report said. "Following a schedule refinement at the beginning of 2020, there were no changes to either the cost to complete or the in-service dates for the regulatory-approved schedule."

As of Dec. 31, 2019, GPC said the total project is approximately 84% complete. Procurement is about 98% complete with the final structural module delivered in December, along with the delivery of electrical and mechanical commodities to support construction, the report said.

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