In a recent filing, Southern Company reported that the construction of two new nuclear reactors at Plant Vogtle, which is partially owned by its subsidiary Georgia Power, will be delayed an additional 18 months. Using a conservative estimate, the delay will increase the project’s cost to Georgia Power by roughly $720 million. The development highlights the risky nature of nuclear construction and casts further doubt on the Department of Energy’s decision to award $6.5 billion in loan guarantees to project co-owners.
The Department of Energy (DOE) finalized the loan guarantees for Georgia Power and Oglethorpe Power in February, 2014, capping a four year negotiation that was extended seven times. A third co-owner, MEAG, is still working to secure a $1.8 billion loan guarantee. As we suspected, the backroom process allowed the companies to argue for, and receive, great terms on the deal. So great, in fact, that neither company was required to pay anything for the guarantees’ credit subsidy cost. The credit subsidy cost (CSC) is an estimate of the long-term cost to the federal government of guaranteeing a loan for the entire period the loan is outstanding. You can read more about it and why a $0 CSC is outrageous here, but the main point is that the deal implied the loans being guaranteed, and by extension the construction project, had zero risk, or so little risk as to be negligible.
But that was never true. Independent firms have downgraded the credit rating of each of the Vogtle partners over the course of the construction project, precisely because of its riskiness. In particular, because of the risk that construction delays could add so much to the reactors’ cost that it would put repayment of the loans (and bonds issued by the companies) in jeopardy.
The recent news proves skepticism was warranted. Even after the loan guarantees were signed, there were indications the project could be further delayed, and now it has been, by another 18 months. It is now roughly 34 months behind its original schedule. Although $240 million of the $720 million the new delay will cost Georgia Power will be paid by the construction contractors, it hasn’t been revealed how much the delay will cost Oglethorpe or MEAG. At the least, the project will be $2.2 billion over budget. Further delays and cost increases have not been ruled out.
The worst news for taxpayers is that amid such proof of the project’s riskiness, DOE officials have maintained that there’s no chance the co-owners will default on their guaranteed loans. By refusing to confront reality, DOE is refusing to learn from its mistakes. That’s troubling considering DOE is still working to give MEAG a $1.8 billion guarantee for its share of the Vogtle costs, and considering the $12.5 billion in taxpayer-back loan guarantees they’ve just made available for other nuclear projects. We’ll continue raising our concerns on behalf of the taxpayer and hope they’ll listen.
DOE has extended its conditional loan guarantee offer to MEAG, yet again, to May 31, 2015, bending over backward to help the Vogtle co-owner secure cheaper construction financing while risking $1.8 billion.