Those executives at Southern Company and
Georgia Power from 2008 to 2018 need to be blamed for this spending travesty.
DOE Loan Guarantee Program: Vogtle Reactors
3&4, 2/19/14.
In February 2010, the
Department of Energy (DOE) conditionally offered Southern Company and its
partners a total of $8.33 billion in taxpayer-backed loan guarantees to
build two nuclear reactors in Georgia, but the award has yet to be finalized.
According to documents obtained through the Freedom of Information Act, the
Department of Energy and project partners have struggled to reach an agreement
on an appropriate credit subsidy cost for the loan guarantee. Southern Company
and partners have now spent four years lobbying policymakers to craft a deal that
heavily benefits them and exposes U.S. taxpayers to even greater risk.
While Southern Company and
its partners push for increasing reliance on taxpayers, the construction of
Plant Vogtle reactors 3&4 has experienced substantial cost overruns and
schedule delays. Subsequently, each of the project owners’ credit ratings has
been downgraded or their credit outlook changed to ‘Negative’ by one of the top
financial ratings agencies.
If the loan guarantee is
finalized, the subsidy would be provided through the same program that awarded
more than $500 million to the now-defunct solar power company, Solyndra.
A Project in Trouble - In 2008, Southern Co. and
its utility partners applied to receive a federal loan guarantee to
construct two 1,100 MW Westinghouse AP1000 reactors (reactors 3&4) at
Southern Co.’s Plant Vogtle near Waynesboro, Georgia. Southern Co. experienced
massive cost overruns while constructing the first two reactors at the site in
the 1980s. Original estimates for Vogtle reactors 1&2 were under $1 billion
each, but final costs skyrocketed to nearly $9 billion.
Project Cost - In August 2008, it was
originally estimated that Plant Vogtle reactors 3&4 would cost $14.3
billion and begin commercial operations in 2016 and 2017 respectively.
Today, the estimate of the
project’s cost has reached $15.5 billion and the reactors are projected to come
online in 2018 and 2019 respectively. Pending lawsuits between project partners
and the construction contractors could push the project’s final costs even higher
to $16.5 billion.
In a February 2013 report to the Georgia Public Service
Commission (PSC), Georgia Power (subsidiary of the Southern Company) requested
approval of cost overruns totaling $737 million, signifying an increase of the
initial $14.3 billion cost estimate to $15.5 billion (an 8.4 percent increase).
Westinghouse and the Shaw Group (recently purchased by Chicago
Bridge and Iron)—the two contractors hired to construct Southern’s two new
units— filed suit against Southern Co. and its partners in 2012 seeking around
$900 million for the costs of construction design changes. As of February 2014,
litigation is pending as interest continues to accrue on the disputed costs
which have risen above $930 million. If the project partners lose the lawsuit,
total costs of the project could rise to $16.5 billion (14.9 percent more than
initial cost estimates).
Project Delays - In August 2008, the
initial construction schedule projected that Plant Vogtle reactors 3&4
would reach commercial operation in 2016 and 2017. Since then, Southern Company
and its partners have failed to meet many of the project construction
deadlines. Today, the reactors are projected to be completed in 2018 and 2019.
The type of reactor, the Westinghouse AP1000, has
never been built in the U.S. before or ever successfully completed anywhere in
the world. Reactor
design approval took five years and 19 alterations to meet basic safety
requirements set by the U.S. Nuclear Regulatory Commission (NRC).
In June 2011, the PSC-hired Independent Construction Monitor
testified that the construction of Plant Vogtle reactors 3&4 was two months behind schedule. A few months later, the
project fell to five months behind schedule.
In April 2012, NRC inspectors reported that the rebar in the
“basemat,” or the foundation, for reactor three
had been improperly installed. A proposal to compensate for the faulty rebar and correct
foundation unevenness was finally approved by the NRC in October, allowing work
to resume on the area after six months of costly delay.
The Shaw Group—recently purchased by Chicago Bridge and Iron—is
responsible for the assembly of many of the key reactor components in Lake
Charles, LA. Once assembled, components are transported to Georgia for final
assembly. An
independent monitor reported in Dec., 2012 that The Shaw Group “clearly lacked
experience in the nuclear power industry and was not prepared for the rigor and
attention to detail required to successfully manufacture nuclear components.”
In the period from July 2012 – December 2012, the project contractors were
forced to repair “welds on [reactor components] that were found to be the wrong
type of weld” according to the most recent IM report. Additionally, an oversized 300-ton reactor vessel nearly fell off the transport
train while on route to Plant Vogtle. The reactor vessel
was returned to the Port of Savannah where it sat for nearly a month before
eventually making its way to the site. By December
2012, the project was more than a year behind schedule.
In an August 2013 report, the independent monitor stated that
the construction contractors have “not demonstrated the ability to fabricate
high-quality CA20 submodules at its Lake Charles, La., facility that meet the design requirements at a rate necessary to support the project
schedule.”
In his most recent testimony before the PSC in July 2013, the IM
projected that the project is now 21 months behind schedule with
final commercial operation dates for Plant Vogtle reactors 3&4 in early
2018 and 2019.
Loan Guarantee Going to Unstable Partners - As a result of the
escalating construction costs and continued delays of the Plant Vogtle project,
financial rating agencies are downgrading their assessment of the partners
involved in the project:
Standard and Poor’s downgraded the Outlook on Southern Company
and Georgia Power’s credit ratings
from ‘Stable’ to ‘Negative’ in May,
2013.
Fitch Ratings downgraded the outlook on all of Oglethorpe Power Corporation’s bonds from ‘Stable’ to ‘Negative’ in August, 2013.
Moody’s has downgraded the outlook on Municipal Electric
Authority of Georgia bonds from ‘Stable’ to ‘Negative.’
Goldman Sachs and Zacks Investment Research have rated Southern Company as a “sell.” Golden Sachs cited
“accelerating capital spending on Vogtle nuclear project and ongoing litigation
with the plant’s contractors” as well as the Kemper coal gasification plant and
a GA Power rate case that has since resulted in a disappointing ruling for the
company. Zacks pointed to weak share earnings, increased expenses, and high
risks associated with the construction of reactors 3 and 4 at Plant Vogtle.
With the likelihood of additional delays and cost overruns, Zacks states “the project cost could easily end up around $20 billion.”
For more information on
the Plant Vogtle project partners see Appendix One.
Seven Extensions – DOE Dangling Massive Subsidy - DOE conditionally offered
Southern Co. and its partners $8.33 billion in federal loan guarantees in
February 2010 – $3.46 billion to Georgia Power Company, $3.06 billion to
Oglethorpe Power Corporation, and $1.81 billion to the Municipal Electric
Authority of Georgia. Since then, the Department of Energy has extended its
$8.33 billion loan guarantee offer multiple times. The most recent deal between
DOE and project partners was reached in January 2014, when the offer was
extended until February 28, 2014.
In April 2010, Southern
Company and its partners requested a 30-day extension to deliberate and by June
they accepted DOE’s offer. The deal was valid until 90 days after the Nuclear
Regulatory Commission awarded Southern Company and its projects partner a
combined construction and operation license (COL). Yet, once the project
received its COL from the NRC in February 2012, DOE and Southern Company
announced a second extension until December 2012. As 90-day deadline
approached, DOE and Southern Company once again extended the deadline for
agreement on final loan guarantee terms until June 2013.
In late June 2013, more than three and a half years after the
initial offer was made, DOE and Southern Company quietly agreed to a fourth
extension until September 30, 2013. A fifth extension was then awarded that set
a new deadline of December 31, 2013. On New Year’s Eve, the deadline was
pushed to January 31, 2014 for Southern Company and Oglethorpe Power, while the
offer for MEAG was extended until July 31, 2014. Most recently, a seventh
extension was made to the offer setting a new deadline of February 28, 2014.
Documents obtained through the Freedom of Information Act after
years of effort reveal wide-ranging negotiations between the Office of
Management and Budget, Department of Treasury, and the Department of Energy on
what the appropriate credit subsidy cost should be. Years of closed door
negotiations have likely allowed loan guarantee partners to craft a deal that
heavily benefits them and exposes taxpayers to even greater risk.
Norb Leahy, Dunwoody
GA Tea Party Leader
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