Southern Co. (NYSE: SO) subsidiary Georgia Power and its partners might have to pay more than expected in developing two nuclear units at the Vogtle station in Georgia because the lead vendors are seeking price adjustments due to schedule delays and other issues.
Southern outlined the issue in a May 7 10-Q quarterly report filed with the Securities & Exchange Commission. Georgia Power’s share of the proposed increased costs are set at $400m. A utility spokesperson declined further comment May 14.
The owners of the project are Georgia Power, Oglethorpe Power, the Municipal Electric Authority of Georgia (MEAG) and the City of Dalton, Ga. The chief contractors are part of a consortium that involves Westinghouse and Shaw Group (NYSE: SHAW) subsidiary Stone & Webster. The parties have set up both informal and formal dispute resolution procedures in accordance with the engineering, procurement, and construction agreement for the two 1,100-MW reactors.
During the early development work, issues have arisen that could alter the project budget and schedule. The owners and the consortium have begun negotiations regarding these issues, including the assertion by the consortium that the owners are responsible for these costs under the terms of the Vogtle 3 and 4 agreement.
In preliminary discussions, the consortium has said the estimated adjustment attributable to Georgia Power (based on its ownership interest of almost 46%) is roughly $400m (in 2008 dollars) with respect to these issues, which include an initial estimate of costs for efforts to maintain the projected in-service dates of 2016 and 2017 for Vogtle units 3 and 4, respectively.
Georgia Power has not agreed with the amount of these proposed adjustments or that the owners have responsibility for any costs related to these issues, the utility said in the 10-Q. Georgia Power expects negotiations with the consortium to continue over several months during which time the parties will attempt to reach an acceptable compromise. If that doesn’t happen, then litigation could result.
Georgia Power and its partners got their combined construction and operating licenses (COL) from the Nuclear Regulatory Commission (NRC) in February for Vogtle units 3 and 4. Groups opposing the new nuclear units subsequently filed legal challenges to both the NRC combined license and the NRC’s approval of the Westinghouse AP 1000 reactor design scheduled to be used at the plant. The groups also want the U.S. Court of Appeals for the D.C. Circuit to stay the effectiveness of the new NRC licenses until the appeal is heard.
Georgia Power has filed a motion to intervene and intends to vigorously contest these petitions, the company said in the filing. In 2009, Georgia’s governor signed into law the Georgia Nuclear Energy Financing Act that allows Georgia Power to recover financing costs for nuclear construction projects by including the related construction work in progress (CWIP) accounts in rate base during the construction period. With respect to Vogtle units 3 and 4, this legislation allows Georgia Power to recover projected financing costs of approximately $1.7bn during the construction period beginning in 2011, which reduces the projected in-service cost to roughly $4.4bn.