The twin reactors are the only new construction of Gen III+ designs currently underway in the U.S.
In a tough vote the Georgia Commission voted unanimously to give a conditional” approval for completion of the Vogtle 3 & 3 AP1000 nuclear reactors now under construction in Georgia. The project was in danger of being cancelled like its counterpart in South Carolina where the V C Summer project has ended in disarray.
In voting 5-0 the commissioners overruled the recommendation of their staff who said that there was not an economic justification for a decision to go forward with the reactors.
The failure of Westinghouse to execute basic project management methods as the EPC lead was a major contributing factor to the problems at both Vogtle and V C Summer. Westinghouse is now in bankruptcy proceedings, and Toshiba, is parent firm, is also in financial distress having lied about its earnings by saying it booked $1.2 billion in revenue that never happened. A buyer is being sought for Westinghouse so that Toshiba can exit the nuclear energy industry.
Paul Bowers, CEO of Georgia Power, said the recommendation was based on the results of a comprehensive schedule, cost and cancellation assessment that was prompted by the bankruptcy of former primary Vogtle contractor Westinghouse in March 2017. He added that Vogtle 3 is expected online in November 2021 and Vogtle 4 in November 2022.
Costs Were a Driver of a PSC Staff Recommendation to Cancel the Project
The original cost of both of the reactors was estimated at $6.1 billion in 2009. That works out to about $2,350/Kw. These cost estimates may have been optimistic since the overnight cost of the twin ABWRs at the South Texas Project, announced two years earlier in 2007, were in the range of $2,700/Kw.
Completion cost of the twin AP1000s is now slated to be $23 billion for both units that works out to about $10,000/Kw which is well above the current global average “overnight cost” of $6,100/Kw.
Even with a 30% swing factor, which would put the overnight cost at a high of $7,900/Kw, the reactors are still perceived as being over priced which has led to howls of protest from rate payers and may lead to lawsuits aimed at the PSC decision from anti-nuclear groups bent on shutting down the entire project.
These numbers led to a staff recommendation that was based on the cost issue. The Washington Post reported 12/04/17 that they told the Georgia Public Service Commission that the Vogtle power station “is no longer economic” because of its huge cost overruns, construction delays and “the burden that would be placed on ratepayers while the company profits.”
They added that the economic costs of the nuclear reactors would outweigh the benefits by $1.6 billion. According to the Post, the staff advised the commission to block rate increases for costs due to mismanagement, the Westinghouse bankruptcy, and construction delays.
“It is unreasonable for ratepayers to have to bear increased costs as a result of the Units not being constructed efficiently,” the staff report said.
PSC Defends its Decision
Georgia PSC chairman Stan Wise said the decision came down to the importance of fuel diversity. It appears that not everyone thinks that low natural gas prices are going to last forever. Here are some highlights from the PSC’s decision (full text).
- The Commission determined that Plant Vogtle Units Three and Four should be completed.
- The Commission approved and verified $542 million in expenditures on the Vogtle Construction project from January 1, 2017 through June 30, 2017.
- The Company will take a portion of the amounts received from the Toshiba Parent Guaranty and credit customers with three $25 monthly credits to be received no later than the third quarter of 2018.
- The Commission approves and finds reasonable the Company’s revised schedule and cost forecast. The approved cost forecast will be reduced by the actual amounts of the Toshiba Parent Guaranty applied to the project’s construction in progress.
World Nuclear News (WNN) reported that a new conditional commitment of about $1.67 billion in additional loan guarantees from the Department of Energy, announced in September, and the recent payment by Toshiba of 100% of parent guarantees which had been scheduled to take place over several years, will also help to minimize the impact of the new units on electricity bills, the company said. The parent guarantee payments, in addition to penalties, are expected to contribute $2.75 billion.
The utilities building the V C Summer projects factored their payment from Toshiba to get all of the money upfront. Reuters reported that Georgia Power held onto its settlement. It said that Toshiba would pay the remainder of its $3.68 billion guarantee settlement by Dec. 15. Those payments were originally agreed to run through 2021.
Tax Legislation Faces Uncertain Fate
A key item is that Georgia PSC Chairman Wise emphasized that the PSC’s approval is conditional on Congress approving $800 million worth of tax credits for the project. The tax credits were not included in the legislation passed by Congress on 12/20/17. New legislation will be needed in 2018 to achieve this result.
The Vogtle project will face competition for these tax credits from a developer in Tennessee who wants them to pay for completion of the partial completed Bellefonte reactors located in Scottsboro, Alabama. That project will have two state congressional delegations in its corner compared to just one for Voglte in Georgia.
Additionally, developers of small modular reactors are asking for similar financial support in terms of tax credits to jump start their industry. Entrepreneurs developing both LWR and advanced fast reactors, such as molten salt designs, are spread out all over the U.S. Whether they could mobilize vendors in their planned supply chains to support the tax legislation remains to be seen.
All of these pleadings for tax credits will face an uphill battle due to the fact that the republican controlled congress passed a tax reform bill in December that creates a $1.5 trillion deficit.
House and Senate leaders are talking about massive cuts to health insurance and other entitlement programs to pay for the tax bill’s budget busting effects.
The tax bill is not popular with voters as it is seen, correctly, as primarily benefitting people in upper income brackets. With 55 million people depending on Medicare, and in others like Medicaid which has 73 million people enrolled in it, that’s a lot of “no” votes to reductions in these program,
However, media reports said senators began laying the groundwork for approving the tax credits when the finance committee introduced legislation that would effectively guarantee the $23 billion costs of the project.
WNN notes that Georgia Power supports the legislation which would enable the Vogtle plant to continue to qualify for advanced nuclear production tax credits if the units enter service after 2021. Under existing tax rules the units – expected to start commercial operation in November 2021 (unit 3) and November 2022 (unit 4) – would need to be brought on line before 1 January 2021 to qualify for credits.
Construction has continued uninterrupted at Vogtle following Westinghouse’s bankruptcy, with Southern Nuclear taking over as project manager at the site and Bechtel managing construction. More than 5,000 people work at the site.
Two Georgia PSC Commissioners Explain their Votes
In a widely distributed OP ED, Chuck Eaton and Tim Echols, Georgia Public Service Commissioners, explained their votes and why it is important for the project to move forward.
The two commissioner acknowledged the frustration of ratepayers, and pointed out that the utilities building the plants will be held accountable.
“We most certainly understand the frustration from our ratepayers. For this very reason, we voted this week to put in place risk-sharing mechanisms to save consumers money—especially if the project runs later than expected. Even as we approved a new higher cost and schedule for the beleaguered project, we have imposed penalties on Georgia Power reducing their overall revenue collection from current ratepayers by over $1.7 billion. And at the end of the project, we are prepared to disallow every single penny of imprudent expenditures—including schedule delays because of such. “
The OP ED also points a well-deserved finger of blame at Westinghouse. Once the nation’s premier nuclear energy developer, it was driven into the ditch by mismanagement from its senior leadership team.
“Let’s be honest. It was the bankruptcy of Westinghouse, the prime Vogtle project contractor and reactor designer, that has put us in the pickle we are in. All the protections we had built into their contract were made null and void by their self-serving action to walk away from their contract with Georgia Power.”
Eaton and Echols also noted that the pain of the Westinghouse debacle was mitigated by a cash payment from Toshibva.
“It is important to note that Toshiba, Westinghouse’s parent company has paid a significant penalty for Westinghouse’s failure – $3.68 billion or 40 percent of the original contract price. This payment will reduce the cost of the project and that benefits customers. That payment made a difficult vote a little better.”
Finally, they point out the economic benefits of completing the reactors.
“Based on a consulting study by the Brattle Group, a single nuclear plant produces about $450 million annually in sales of goods and services in the local community. Moreover, the federal Bureau of Labor Statistics show the median nuclear plant operator earns an average annual wage of $91,170, so the 800 permanent jobs created by these new reactors will go a long way to boost the Georgia economy too. So too are the 6000 construction jobs now on site at the plant.
Ceasing construction on the new units would have been like pulling $115 million in annual payroll from the regional economy. In lieu of building this project, we could consider shorter-term options such as “leasing” a gas plant or out-of-state wind turbines. But having Georgia-grown nuclear power that can last 80 years provides reliable baseload electricity over the longer term despite the higher upfront costs. “
In closing they address the case made by anti-nuclear groups that the reactors should be cancelled and investments made in renewable energy projects.
“Georgia Power also looked at renewable energy. In this case, the total cost to replace Vogtle capacity with solar PV coupled with battery storage is roughly $25 billion, accounting for a 60-year asset life. That’s $7 billion for 4,000 megawatts of solar panels, and another $18 billion for 3000 megawatts of lithium ion batteries. And these estimates don’t include the cost of the 30,000 acres of land needed.”
Echols said in a separate online essay that,
“The Commission passed my motion to approve a new cost and schedule forecast for Georgia Power to finish this massive project. At the same time, we are requiring them to share in the “pain” by reducing their overall revenue collection from current ratepayers by over $1.7 billion. And at the end of the project, we are prepared to disallow every single penny of imprudent expenditures — including schedule delays because of any mismanagement or failure to perform.”
NEI Weighs In
The Nuclear Energy Institute (NEI) was consistently a strong supporter of completion of the Vogtle reactors. NEI CEO Maria Korsnick testified before the PSC on December 12, 2017.
“NEI believes that building new nuclear power plants in the United States is vital for this safe, reliable, clean air electricity source to maintain its important role in our nation’s energy mix,” Korsnick stated. “I urge the commission to consider the overall benefits of nuclear generation as part of its deliberation on the specific issues before it in this proceeding.”
At the hearing, Korsnick also sounded a note of warning on the strategic importance of maintaining U.S. expertise in nuclear technology and manufacturing.
“Completion of the Vogtle reactors will signal that the United States continues to be a significant force in the global nuclear industry. If the U.S. forgoes its role as a leader in the global nuclear industry, the world will look to active nuclear nations like China and Russia for leadership, which will put them in a position to develop future international standards for nuclear energy technology use.”
Nuclear energy is the largest and most efficient source of carbon-free electricity in the United States, with 99 reactors in 30 states generating nearly 20 percent of the nation’s electricity—and nearly 60 percent of its carbon-free electricity.
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