- Despite being faced with the disastrous effects of the Westinghouse bankruptcy, the five partner firms have decided to complete the twin AP1000 1150 MW nuclear reactors at an estimated cost of $19 billion.
- In doing so they have committed to overcome the effects of mind boggling mismanagement of the supply chain, cost overruns, and schedule delays,
- Key risk assumptions are that Toshiba will make good on its promise to pay the project $3.7 billion and that Congress will pass legislation extending the federal production tax credits beyond their current expiration dates.
- Bechtel has been hired to be the EPC. The reactors are scheduled to be finished a year apart in 2021 and 2022 respectively.
After weeks of hand-wringing in South Carolina as SCANA walked away from its plans to build two Westinghouse AP1000 nuclear reactors at the V C Summer project, Georgia Power and its partner utilities have decided to move forward with completion of its twin AP1000s. The utilities laid out their plans in a filing (multiple PDF files, 46 Mb) with the Georgia Public Utilities Commission (PUC). That agency said it would conduct a six month review of the filing before making a decision.
The New York Times report on the decision noted that in July, Stan Wise, the chairman of the commission, argued that Georgia may be better positioned to finish its reactors than South Carolina, in part because costs would be borne by a broader base of customers: 2.4 million for Georgia Power compared with 700,000 for South Carolina Electric & Gas.
In the PUC filing the owners of the Vogtle nuclear station expansion project in Georgia have recommended completing the two AP1000 nuclear units being built there, despite the bankruptcy of main contractor Westinghouse and increased costs.
The utilities – Georgia Power, Oglethorpe Power, the Municipal Electric Authority of Georgia and the city of Dalton, Georgia – said on August 31, 2017, that they want to complete the partly built units even without fixed-price guarantees from Westinghouse, which filed for bankruptcy reorganization in March 2017.
Many industry observers have pointed out that Westinghouse was unwise to have signed off on fixed price contract in, especially for a first of a kind project of this magnitude in the US. The validity of this observation has been borne out by the missteps Westinghouse took with its suppliers as well as its failure to establish a rigorous project schedule and cost baseline before breaking ground.
The ultimate decision to proceed with completion of the reactors will be made by the Georgia Public Service Commission (PSC), which will determine whether Georgia Power can recover its costs for the project from utility customers.
Georgia Power Lays Out the Rate Case
In its press statement related to the Georgia PUC filing the company said it will have a better chance of controlling costs if it finishes the reactors than if it abandons them and builds gas plants in their place. Georgia Power said in its statement that it had asked the PSC to approve its decision to continue with construction. It said failure to allow it to recover all its costs would be grounds for all the partners to abandon the project.
“Based on all factors considered, completing both units represents the most economic choice for customers and preserves the benefits of carbon-free, baseload generation. Assessments of the project included robust economic analyses; evaluation of various alternatives including abandoning one or both units or converting the units to gas-fired generation; and assumptions related to potential risks including future payments from Toshiba, availability of production tax credits and extension of loan guarantees from the Department of Energy (DOE). The latter two benefits were prescribed in the Energy Policy Act of 2005.
The total rate impact of the project remains less than the original estimate, after including anticipated customer benefits from federal production tax credits, interest savings from loan guarantees from the DOE and the fuel savings of nuclear energy. Once the project is on line, the company should still be able to offer retail rates below the national average with the additional long-term benefits from this new source of clean and reliable energy.
“Since the beginning of the Vogtle expansion, we have worked to minimize the impact of this critical project on customers’ monthly bills and, even as we assessed our options of whether or not to continue the project, our focus has been to ensure long-term value,” added Bowers. “Today, the total cost of electricity from Georgia Power is significantly below the national average, and when the project is completed, we expect that the new units will help keep energy bills competitive.”
Total Cost to Complete the Reactors
Georgia Power, which owns 45.7% of the new units, has invested $4.3B in capital costs in the project and estimates that its cost to complete the units is another $4.5B for a total capital cost forecast for the utility of approximately $8.8bn.
The Georgia PSC has already approved $5.68B in capital costs for Georgia Power’s share of the project. With $1.7B in anticipated payments from Westinghouse parent company Toshiba, Georgia Power’s potential additional capital costs are approximately $1.4bn.
Based on the new assessments, the total estimated capital cost forecast for 100% of the project is approximately $19B. The original project estimate was $14B.
The company expects unit 3 to begin commercial operation in November 2021 and unit 4 in November 2022.
The recommendation to proceed, which is supported by the project’s co-owners, was made following assessments made after contractor Westinghouse filed for bankruptcy protection in March. These analyses included economic analyses; evaluation of alternatives including abandoning one or both of the AP1000 units or converting them to gas-fired generation; and assumptions related to potential risks including future payments from Toshiba as well the deadline for production tax credits would be extended and the extension of federal loan guarantees.
Risk Factor for Completion
Georgia power has made a risk determination that it can succeed if the tax credits, an increase in DOE loan guarantees, and the $3.7 billion payment due in October from Toshiba all come to pass. The company said explicitly in its PUC filing that if any of these actions fail that the firm may have to revisit its decision to move forward to complete the two reactors.
Some of Georgia Power’s partners on the project may not want to pass along rate increases to their customers which might also change overall risk assumptions about the project. Georgia Power pointed out in its filing that abandoning the nuclear project to build a gas plant would add $585 million to the rates of all customers on top of whatever might be charged from as a result of a decision to abandon the nuclear effort.
Outlook for Federal Production Tax Credits
A critical issue called out in the filing with the PUC Georgia Power is an assumption that the federal production tax credits for new nuclear power, set to expire in 2021, will be extended. Last June the House passed an extension (HR1551) of the tax credit deadline, and the measure is now pending in the Senate. US Senator Johnny Isakson (R-GA) said in a statement his office is working to get the measure passed this year. Last the June the White House issued a statement in support of the legislation.
The 2005 Energy Policy Act provided a production tax credit of 1.8 cents per kilowatt-hour of electricity produced by new nuclear power plants. The tax credit is available only for the first 6,000 megawatts of new nuclear generating capacity. Originally, to qualify for the nuclear production tax credit, a new nuclear plant would have had to been in service on or before December. 31, 2020. The new bill (HR 1551) would remove the existing deadline for the nuclear tax credit and instead allow the 6,000-MW cap to serve as the limit for the program.
Under current tax rules the units would need to be brought on line before January 2021 deadline to qualify for credits. If the legislation is not passed it could cause real problems for the Georgia utilities.
Congress returns for its work session this week with major legislative challenges facing it. They include raising the debt ceiling, tax reform, another potential run at repeal of the Affordable Care Act, and a new wrinkle which may be an action by the White House to force congressional action on immigration issues. A new issue that may complicate the debt ceiling legislation is relief funding for areas of the country hit by Hurricane Harvey.
Funding the for the entire federal government needs to be approved or extended via a continuing resolution. It’s plausible the product tax bill could be attached to the it as that legislation is often called “a train that will leave the station” insuring that riders agreed to it get swept up in the rush to fund the government.
Congress and the President do not get along so controversies over this short list of critical fiscal issues may doom any of these actions which could lead to a government shutdown. In 2013 congress failed to fund the government shutting down all federal agencies for three weeks.
Nuclear Industry Leadership Lines Up for Vogtle
Maria Korsnick, president and CEO of the US Nuclear Energy Institute, said Georgia Power’s decision signaled a “new era” for nuclear energy in the USA and was a “shot in the arm” for on-site employees and contractors, and the national nuclear supply chain. She called for the US Senate to vote to lift the deadline for the nuclear production tax credit.
“The Vogtle reactors are a national asset that we can ill afford to lose, and the Senate must act quickly to preserve a critical piece of our strategic infrastructure,” she said.
NEI has thrown its lobbying weight behind extension of the product tax credits.
“Extending the production tax credit for these nuclear plants supports innovation in energy and American competitiveness in a vital industry,” NEI Vice President of Governmental Affairs Beverly Marshall said.
The New York Times reported that Ernest J. Moniz, a secretary of energy under President Barack Obama, warned in July that the decline of the domestic nuclear industry could mean the loss of a valuable tool to tackle climate change, since nuclear plants do not generate carbon dioxide emissions. He also argued that ceding the global nuclear industry to China and Russia could weaken nonproliferation standards.
“The U.S. position as a valued supplier is rapidly being eroded,” Mr. Moniz wrote.
Bechtel Takes the Reins
Engineering News Record (ENR) reports that Georgia Power announced last week it has contracted with Bechtel to manage daily construction efforts under the direction of Southern Nuclear.
Georgia Power wants five more years to complete its Plant Vogtle nuclear expansion project and has replaced Fluor Corp. with Bechtel to oversee construction. Both Fluor and Bechtel submitted cost and schedule proposals to Georgia power in bids to complete the reactors.
The utility’s new schedule estimate extends, by 29 months, the current commercial operation dates of Units 3 and 4 to November 2021 and November 2022.
“This is a critically important project for the nation and we’re honored to be chosen,” Barbara Rusinko, president of Bechtel’s government services and commercial nuclear power business, said in a statement.
Bechtel added that it “will assume responsibility for a broad range of activities including day-to-day construction through completion of the project under the management of Southern Nuclear.”
Fluor had been brought in by Westinghouse to work on the two disastrously over-budget and late nuclear power projects in late 2016. Westinghouse had hoped for some kind of miracle to turn the project around, but any experienced construction manager will tell you that once a project goes more than 15% over budget, there are no miracles to be found, only angry customers, or in this case, ratepayers.
Fluor was hired in Fall 2016 by Westinghouse to act as its EPC as it became clear the reactor vendor needed help with the project. That decision came as part of a package in which CB&I sold its nuclear business to Westinghouse.
The deal with CB&I, which was separate from the Westinghouse contract with Fluor to be the EPC, went sour with a follow-on claim by Westinghouse for $2 billion in costs. That claim was thrown out by the Federal Court in June of this year.
It isn’t clear what risks if any are in Bechtel’s contract and the company declined to discuss them, referring questions to Georgia Power. Fluor’s contract with Westinghouse was on a cost-plus basis and it is a plausible assumption that similar terms and conditions are part of Bechtel’s new contract with Georgia Power and its partners.
Steve Kuczynski, CEO of Southern Nuclear, told ENR that the utility decided that Bechtel—which has been managing Vogtle’s nuclear island construction activities via a staff of about 220 provides the “best complete package” as prime constructor. Bechtel will transition as the “sole, main contractor” over “the next number of months,” Kuczynski added.
Ty Troutman, Bechtel’s project manager, said that the team will initially consist of Bechtel’s existing resources, additional resources from throughout the company and resources from Southern Company.
The Vogtle project is majority owned by Southern Company subsidiary Georgia Power (45.7%), with co-owners Oglethorpe Power (30%), MEAG Power (22.7%) and Dalton city (1.6%). The units will be operated by Southern Nuclear Operating Company.
Note to readers This report also relied on reporting by NucNet and World Nuclear News.
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