Overruns invite questions about Vogtle approval

State regulators still to decide if consumers will pay for budget-busting costs.

WAYNESBORO — The biggest construction project in Georgia is also becoming one of the biggest budget busters in state history. And nearly every Georgian with a monthly electric bill may end up paying for it.

Despite Georgia Power’s early confidence about staying on track, the massive nuclear expansion of Plant Vogtle south of Augusta is more than three years behind schedule. The company’s share of costs are at least $1.4 billion, or 23 percent, over original projections — enough to build two new Braves stadiums and still have a fortune left over.

The potential hit to Georgians invites questions about whether elected members of the Georgia Public Service Commission adequately weighed warnings from their own staff and experts before approving the project six years ago, making Georgia the first state to bet on new nuclear power in 30 years.

Atlanta Journal-Constitution interviews and a review of more than 1,000 pages of testimony and documents show the PSC approved the massive undertaking without significant room in cost estimates to cover potentially steep overruns.

Staff warned increases were likely. Past nuclear projects — including Plant Vogtle’s original construction in the 1980s — soared far over budget. But Georgia Power, which provided the cost estimates the PSC adopted, only disclosed years later that it was unusual on such large projects to leave out padding to handle big overruns.

The omission helped make the project to look like a better deal for consumers than alternatives such as building a natural gas plant, a project that PSC staff said would generate far less profit for the company.

PSC chairman Chuck Eaton said he doesn’t think the PSC made any critical mistakes in approving the plant expansion. But that doesn’t mean he’s comfortable that Georgia Power has twice reported sizable delays.

“They are still giving me a lot of assurances,” Eaton said of Georgia Power officials. But you’ve got two significant delays. Are there going to be delays in the future?”

The PSC eventually will have to decide how much of the overruns can be passed on to Georgia Power customers, adding to the higher bills they already face for years to come under the original financing plan. The PSC can reject any Vogtle costs that it deems imprudent.

PSC members didn’t follow their own experts’ advice to impose a risk-sharing mechanism that would have reduced Georgia Power’s profit if it blew past cost estimates. The company argued such a measure would be unfair and potentially counter productive.

Before the project’s approval in 2009, Georgia Power officials expressed confidence they could limit the financial risks. One told the PSC there was a slightly better chance of staying under budget than going over.

The tone is different now.

Buzz Miller, Georgia Power’s executive vice president for nuclear development, said recently that the biggest surprise since the expansion started “is that people would be surprised that a project this size is taking a little longer.”

A former PSC commissioner who cast the sole vote against the Vogtle expansion said he suspects the company aimed its cost and timeline estimates more at getting regulatory approval than accuracy.

“I’m suggesting that they low balled their number,” Bobby Baker, an attorney whose clients now include an environmental group critical of Vogtle, told the AJC in a recent interview.

Georgia Power residential customers already pay about $8 on a typical summer bill of $159 for financing costs related to the Vogtle expansion, or about $81 a year.

Construction charge coming

Under PSC plans, the financing charge would end around the time the first of two new reactors is finished, then be replaced by a charge for construction costs. The amount depends on the final cost and how much the PSC decides Georgia Power can pass on to customers. The charge would linger for decades, but at its peak it would average of 6.6 percent above what bills would have been without the project, according to company estimates based on the latest delays.

That could add at least another $36 a year to the typical residential bill, for an annual Vogtle total of $117.

Overruns would be higher if not for two big items in customers’ favor: lower-than-expected interest rates and federal guarantees and credits for the project.

Georgia Power said it negotiated a contract that made the risk of other cost increases — such as material, equipment, additional construction labor, etc. — the responsibility of contractors. Those contractors have sued Georgia Power and other owners of the Vogtle project over more than $900 million in costs.

Georgia Power leaders say that even with the delays and rising costs, economic benefits to consumers are massive over what they predict will be the 60-year or longer life of the plant.

They forecast billions in savings versus coal and natural gas plants that have higher fuel costs and produce emissions blamed for worsening climate change. They see big advantages in diversifying the state’s energy mix and avoiding over reliance on natural gas, whose price has been low lately but is prone to big swings.

“I have got gray hair because we have delays,” Miller told the AJC. “Because we don’t like them at all. But at the end of the day this is still a huge value to customers and the rate impact to customers is still where we set it.”

Tom Fanning, chief executive of Southern Company, Georgia Power’s parent, told the AJC the company remains committed to nuclear as a dominant power source in the future, adding that the Vogtle project “is enormously attractive for us and Georgia customers.”

Georgia Power maintains the overruns will have “minimal impact” on customer bills.

Environmental groups that favor energy efficiency and solar and wind power, criticize Vogtle’s cost and the risk of nuclear accidents, the lack of permanent storage for radioactive waste, and the plant’s mammoth thirst for Savannah River water.

Moving target dates

The project adds two new reactors near Vogtle’s existing pair. The first was initially scheduled to go on line April 1, 2016, the second a year later. Now the first won’t be in service until June 2019, the second in mid-2020.

The expansion is gargantuan, with about 5,500 workers on the site. New cooling towers will be taller than all but the highest Atlanta skyscrapers. The new reactors will be able to power half a million homes and businesses.

But the project quickly started to go off course, with numerous design revisions, rebar installed out of place, delays in delivery and finishing paperwork, and problems with pre-fabricated equipment.

Initially, the total cost was about $14 billion, to be divided among Georgia Power and three smaller electric power suppliers: Oglethorpe Power, the Municipal Electric Authority of Georgia and Dalton Utilities.

With a 45.7 percent stake, Georgia Power’s share was supposed to be $6.1 billion. Now, it appears that price has climbed to about $7.5 billion. In addition to potentially paying the higher project cost, Georgia Power customers also could pay nearly $1 billion because they will have to rely longer on more expensive power, according to an AJC analysis of state reports.

Vogtle’s smaller owners also face higher costs. The PSC doesn’t oversee what those utilities charge.

Oglethorpe Power, which sells power to members such as Jackson EMC in Gwinnett and Cobb EMC, says its budget for the project has risen $800 million and its wholesale rate will rise as a result. Another big chunk of the project belongs to MEAG, which funnels electricity to municipal utilities such as those in Marietta, Lawrenceville and Norcross.

“Our cities are generally still very supportive of the project,” MEAG chief executive Bob Johnston said. He thinks low interest rates will keep delay-related cost increases “pretty minimal.”

Many assurances

Georgia Power officials acknowledged during the PSC’s approval process that overruns were possible. But they stressed their experience on big projects and use of a top construction firm. They said newly designed reactors are only an enhancement of existing technology.

PSC staff cautioned commissioners that even minimal cost increases would make the project a bad financial deal.

In a 2009 brief, a PSC staff attorney warned that if commissioners didn’t enact a risk-sharing mechanism, Georgia Power would have no incentive “to work diligently to properly estimate the in-service cost and to control the costs of the units. In fact, the company would have disincentive to do so. Because Georgia Power earns a percentage return on the amount in rate base, the Company’s profits would increase if the cost of the units increased.”

The PSC, however, didn’t put a hard cap on how much Georgia Power could recoup from customers.

Mississippi took a different approach on a new-technology coal plant being built by another Southern Company subsidiary. Its PSC capped the ratepayer cost, which could keep them from eating billions in overruns.

In Georgia, a PSC consultant questioned Georgia Power for using a cost estimate that didn’t include significant funding for overruns. Georgia Power officials said they were confident in their figures and such padding was unnecessary.

“There were a lot of: ‘Don’t worry about it. We know what we are doing,’” Baker, the only commissioner who voted against the project, recalled recently.

Georgia Power and its shareholders can make substantially more money by spending billions more on a nuclear plant than on a natural gas plant with lower upfront costs. That’s because as a regulated utility, the company earns a profit on big capital investments. The bigger the investment, the bigger the profit.

But including significant contingency costs in Vogtle project estimates would have shown nuclear to be the more expensive option and might have killed it, Baker said.

Three years later Georgia Power startled PSC staff and consultants when, seemingly contradicting its stance when seeking approval, said in a filing that not factoring potential overruns into cost estimates was “rare, if not unique” for large projects. By then, the company was under pressure because of rising project costs.

Not the best option?

By 2013, PSC consultant Philip Hayet, citing falling natural gas prices and rising Vogtle costs, concluded: “If a decision had to be made today to build a new nuclear project, it would not be justified on the basis of these results.”

Eaton, the PSC chairman, said he doesn’t think Georgia Power misled the commission. “There’s a big difference,” he said, “between being overly optimistic and misleading somebody.”

Even if the Vogtle project was less cost effective than a natural gas plant, the PSC might still have approved because of other benefits, such as energy diversity, he said.

Eaton said consumer protections are still in place. The commission has yet to approve any cost overruns, and Georgia Power will have to justify the expenses, he said.

The PSC doesn’t have to vote on how to deal with overruns until after the first new unit is completed. Some current members may be gone by then. Perhaps hoping to put the issue to the current commission, Georgia Power last week made a filing that could lead to a decision as soon as this year.

Commissioner Lauren “Bubba” McDonald said he is “disappointed to some degree” by delays but still supports the project.

“I’m not going back and Monday morning quarterbacking,” he said. “We are not going to pull the plug on it. And the consumers in Georgia in the end are going to be fine with what we have done.”

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