Vogtle Expansion Will Continue

by Will Davis

Breaking:  In a unanimous vote, the Georgia Public Service Commission (PSC) has APPROVED a multi part motion by Commissioner Tim Echols which allows the Vogtle 3 and 4 project to move forward, but which reduces burden on ratepayers and places more on shareholders of the owners.  Georgia Power accepted the new conditions immediately after the PSC vote and will continue construction of the project under the new management structure, which itself was approved by the Commission as one part of Echols’ proposal (although it neither approved nor disapproved of the actual owners’ agreement terms; it simply approved the project management structure).

Echols’ motion, which constituted the basis of today’s decision, had sixteen parts; the last, a motion to include a solar plant on the Vogtle site (where presently a laydown and parking area exists) was split from the main motion in an attempt to modify or kill it, but in fact the unmodified motion passed separately anyway.

The bank of motions centered on what Echols referred to as “sticks and carrots” – in other words, they offer benefits for making schedule and penalties for missing it, although there were large cost-related motions included, as well.

In a significant move, the third part of Echols’ motion was an item to approve the new cost and schedule estimates submitted by the project owners, but cut the amount asked for because of the full receipt of the Toshiba parental guarantee payment.  Thus, while Georgia Power asked for a project cost approval for $8.9 billion, in fact today’s action approves $7.3 billion.  (Ratepayers will see a line item on their bills each month for three months, which will be a $25 refund labeled “Vogtle Settlement Refund”).

The owners do not, however, have a blank check.  As before they will be subject to reasonableness findings on all costs above the previously stipulated $5.68 billion once the projects are complete.  According to the motion filed by Echols “All decisions regarding recovery (of costs) will be decided later according to Georgia law.”  In other words, today’s vote was not a blanket approval of any costs as reasonable or prudent beyond the $5.68 billion limit.

Serious reduction to the owners’ profits is included in the motion approved today, which, according to Georgia Power’s statement at the meeting “are more punitive than we had hoped for” but which the company clearly agreed to sustain.  Profits to Georgia Power for example will be cut by something over 20 percent.  This cut had to be tempered, as Echols noted, as the company “still needs to attract about $1.4 billion in capital in order to finish the project, about half of that debt and about half of it equity.”  Cutting profit more, he feared, would hurt the company’s ability to attract money.  A friendly amendment to Echols’ original motion cut the profits slightly more than originally proposed, was agreed on and passed (and is the figure used above).

Today’s action includes the statement that it was based on the assumption that the Production Tax Credits, which didn’t make it through Congress as part of the Tax Bill, will eventually be extended so that the units can take advantage of them.  The right to reconsider based upon that outcome is included, but it was noted that halting today would have been irrevocable, and it was best to assume that the PTC’s would be extended given the difficulty of slowing or stopping the project and then attempting to restart it.

Another important change is that Unit 3 can be rolled into the rate base when it enters commercial operation, instead of having to wait for Unit 4 as was previously agreed.  This further incentivizes Georgia Power to move rapidly but safely on these plants.

The vote finally taken today at just after 10 AM by the Georgia PSC, after a few insignificant modifications and brief discussion, was unanimous.  The commissioners seemed pleased with the ability to develop a plan to allow the project to continue.  Chairman Stan Wise said he was glad “the Commission did not shirk its responsibility” today, and noted that this particular vote had been moved up considerably in a deliberate way to prevent the owners from abandoning the project.  “Although the decision is more punitive than the company’s (Georgia Power’s) requests, we believe that this decision is reasonable.”

Plant Vogtle rendering including new Units 3 and 4 at left, courtesy Southern Company.

Plant Vogtle rendering including new Units 3 and 4 at left, courtesy Southern Company.

Today’s motion appears to have been heavily colored by considerations presented to the PSC by two groups of its staff, in consideration of the project.  Background on these reports and their findings is below for context on today’s decision.

Background – A Bleak Outlook This Month

The Vogtle expansion, which incorporates Units 3 and 4 at the site, has been seriously affected by the Westinghouse bankruptcy (and all of the events that led to that bankruptcy.)   In recent months, because of the schedule and cost problems, the Georgia PSC staff has issued two different recommendations, each coming from a different internal / consultant group.

On December 1, 2017, the group of Tom Newsome, Philip Hayet and Lane Kollen reported to the PSC several general findings.  They suggested that Georgia Power’s ultimatum that unless ratepayers bear future costs it would cancel was not to be taken at face value, and recommended that the company show the project to be economic and, importantly, that the Commission find that all costs requested by the company were not reasonable to pass to ratepayers.  They further suggested that if such limits were not acceptable to the Commission that it cancel the project.  In addition, this group recommended that not more than $8.3 billion of the Total Project Cost be found reasonable (and thus able to pass on to ratepayers). They also pointed out that Westinghouse and Bechtel are now operating on cost-plus contracting, and that all the earlier buyer and ratepayer protection guarantees related to overruns are now completely gone.

Nuclear plant construction consultants for the PSC staff Steven Roetger and William Jacobs were joined on their most recent report to the Commission by Ralph Smith, and found that while project management has been much improved with Southern taking over management (along with Bechtel as a contractor) there is still considerable, unpredictable risk facing the project’s present further 21 month slip date.  They suggested that any delay risk beyond the 21 months presently expected (Georgia is asking for recovery up to 29 months) be borne by shareholders, not ratepayers.

According to Roetger, Jacobs, and Smith, the latest completion delay is not a result of the Westinghouse bankruptcy, instead it is what caused the bankruptcy.  According to their testimony to the PSC, when the team of Westinghouse and Fluor developed what was referred to as a robust schedule for the project for the first time, the further completion delay became apparent, and given the fixed cost contract entered into by Westinghouse with the project owners, dictated bankruptcy for Westinghouse.

The three made it clear that at the start of construction only about 40 percent of the design of the plant was complete and that, at the date of their report it was still not complete and that there had been over 12,000 design changes had been submitted – changes whose origins were rooted in Chinese experience, or because designs were not easily built, or for other reasons.  Their report stated “The impact on the Project of the implementation of over 12,000 design changes cannot be over emphasized.”

Two things must be noted:  Both staff groups took specific issue with Georgia Power having paid original Westinghouse contractors out of pocket to keep them working and then having attempted to pass these costs on to ratepayers.  Also, on the up side, the early payment of the full Toshiba parental guarantee had not occurred when these analyses were made.

Neither group came out directly and suggested that the PSC cancel the project.  However, it was made clear by both groups that considerable future risk exists and that Georgia Power must not be allowed to pass all of that risk and cost along to the ratepayers – in other words, the shareholders would have to bear a measurable burden absent recovery allowance by the PSC.  In light of this, both groups recommended serious alteration to Georgia’s requests for recovery be made by the Commission.  Both groups suggested that if these alterations were not put in place that the project be cancelled.

Today’s Vote

The action taken today by the Georgia PSC reflects some of the findings from its staff as summarized above, although it doesn’t in any way label them as fact.  What has essentially happened today is exactly as staff suggested – that the PSC find a way to continue the project but impose upon the owners a larger amount of the risk and cost of the project.  This has occurred, along with some other very significant addenda to incentivize the owners to move at what Echols called “fast but safe” speed in finishing the plants – the rate base inclusion of Unit 3 when commercial being a major one, and penalties on return on investment for late operation being another.


Will DavisWill Davis is a member of the Board of Directors for the N/S Savannah Association, Inc. He is a consultant to the Global America Business Institute, a contributing author for Fuel Cycle Week, and he writes his own popular blog Atomic Power Review. Davis is also a consultant and writer for the American Nuclear Society, and serves on the ANS Communications Committee and the Book Publishing Committee. He is a former U.S. Navy reactor operator and served on SSBN-641, USS Simon Bolivar.  His popular Twitter account is @atomicnews.

4 thoughts on “Vogtle Expansion Will Continue

  1. Martin Burkle

    The Sanmen Chinese nuclear project also uses the AP1000 design. There were reports this summer placing the Sanmen 1 start “before year end”. The year has ended but I see no notice of start-up. Does anyone think that any AP1000 will start before the end of 2018?

  2. Curtis Beck

    Sort of confirms what the industry has been saying for several decades now…the key to cost-effective nuclear plant construction is to used standardized designs, plan the construction well, and complete the plant quickly. Everything that could could have gone wrong for Georgia Power’s project did go wrong and that just provides an opening for regulators to punish the investors. Sheesh what a country!

  3. Mark Forssell`

    Will, thanks for the in-depth details on the PSC actions, particularly those that keep rate payers expenses down. The need to complete the Vogtle units 3 and 4 is pivotal for any future nuclear plants in the US. If these units were scrapped, it is highly unlikely that any future nuclear plants would even be attempted.