Southern trying to sort out contractor assumptions on Vogtle delay

Southern (NYSE:SO) Chairman, President and CEO Tom Fanning told financial analysts Feb. 4 his company is still digesting documents from the contractor team building two new nuclear units and seeing how the vendors decided an 18-month delay is likely for operation of Vogtle Units 3 and 4.

Southern and utility subsidiary Georgia Power revealed Jan. 29 that the contractor team headed by Chicago Bridge and Iron (NYSE:CBI) and Westinghouse Electric now believe it will take 18 months longer than previously thought to complete the new AP 1000 nuclear units.

The updated timetable by the contractors, if it proves correct, would mean that Vogtle 3 wouldn’t come online until mid-2019 and Vogtle 4 in mid-2020.

During the Feb. 4 call, Fanning repeated the Southern position that it has not accepted the revised timetable put forward by the contractors and, in the event there is such a delay, it is chiefly the responsibility of the contractors.

“We have not agreed to any change” in the substantial completion date agreed upon earlier by the parties, Fanning said. In addition, Southern continues to believe that the contractor team will be liable for most of the financial hit.

Southern was recently presented with “a 10,000-page document” and “we need to understand the assumptions they used in reaching this conclusion,” Fanning said.

“We need to understand what their position is,” Fanning said. It is the obligation of the contractor to meet the obligations laid out in the contract. That could include, “adding new shifts” or “paying overtime,” the Southern chief added.

“There are some financial disputes between the two of them [CBI and Westinghouse]” and that could be affecting the schedule forecast. At one point, Fanning said that the document does not properly take into account several positive strides that would offset out some of the challenges identified by the vendors.

Even with a schedule delay, rate impact would be small

Even if you assume the full 18-month delay occurs, the rate impact would still fall within the 6%-to-8% projections by Georgia Power, Fanning said.

A few years back it was assumed that the rate impact on Georgia electric customers would be closer to 12%, Fanning said.

The utility expects to file an updated nuclear report with the Georgia Public Service Commission around Feb. 22, Fanning said.

When asked by one analyst, Fanning said that did not see any credible testimony to the state PSC that would threaten “prudency” review for the Vogtle project.

Despite the bad news on Vogtle, Fanning was much more upbeat when discussing progress on the Kemper integrated gasification combined-cycle (IGCC) plant with carbon capture, which subsidiary Mississippi Power is building.

More cost and delays were announced for Kemper in the fourth quarter of 2014, but Fanning is optimistic that the company is on top of the issues, Fanning said. Southern now expects to see commercial startup of the 582-MW coal gasification power plant in the first half of 2016.

There remain “unknown unknowns” when you start something up, Fanning said. But most of the troublesome issues have been addressed, he indicated. Fanning noted that staff recently ironed out some issues with lignite drying equipment at Kemper.

Southern confident that it will mean the in-service deadline and carbon capture requirements necessary for the Kemper facility to benefit from the agreed-upon Department of Energy (DOE) funding.

Mississippi Power won’t be seeking cost recovery beyond the $2.88bn cost cap for Kemper, officials said during the call.

Speaking of carbon, Fanning said he thinks EPA knows it has a “flawed proposal” in the Clean Power plan. “I think there is a lot of ground to cover before we get a final rule,” Fanning said.

Southern reported fourth-quarter 2014 earnings of $300m, or 33 cents per share, compared with earnings of $414m, or 47 cents per share, in the fourth quarter of 2013. Southern also reported full-year 2014 earnings of $1.98bn, or $2.21 per share, compared with earnings for 2013 of $1.64bn, or $1.88 per share.

 

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.