Georgia Power files settlement over Vogtle construction issues with its PSC

Georgia Power on Jan. 21 filed with the Georgia Public Commission detailed terms and conditions of a $350 million settlement agreement between it and Westinghouse, the contractor for the Vogtle 3 & 4 project.

The settlement reaffirms the current in-service dates of June 2019 (Unit 3) and June 2020 (Unit 4) for this new nuclear capacity, adds additional contractual protections for customers and increases efficiencies with Westinghouse and its affiliates as the primary project contractor.

Including the settlement, the project’s remaining projected customer rate impact is still approximately 2.5%, an average of less than 1% per year through the expected completion date of 2020, said Georgia Power. Once the new units come online, they are expected to put downward pressure on rates and deliver long-term savings for customers.

Now more than 60% complete based on contractual milestones, progress continues at the Vogtle site. Major milestones completed in 2015 included the placement of the 1,140-ton CA01 module for Unit 3, the placement of the 950-ton lower ring for Unit 4 and more than 26,000 total cubic yards of concrete.

The expansion at Plant Vogtle near Waynesboro is part of Georgia Power’s long-term, strategic plan for providing safe, clean, reliable and affordable energy for Georgians. Once units 3 and 4 join the existing two Vogtle units already in operation, Plant Vogtle is expected to generate more electricity than any other U.S. nuclear facility. Southern Nuclear is overseeing construction and will operate the new units on behalf of Georgia Power, which owns 45.7% of the facility, and co-owners Oglethorpe Power, the Municipal Electric Authority of Georgia and Dalton Utilities. Georgia Power is the largest subsidiary of Southern Co. (NYSE: SO).

Said the Jan. 21 settlement filed with the PSC: “Georgia Power Company (‘Georgia Power’ or the ‘Company’ hereby files this Application for Review and Approval of Amendment 7 to the Engineering, Procurement and Construction Agreement for Units 3 and 4 at the Vogtle Electric Generating Plant Site executed on April 8, 2008, as amended (the ‘EPC Agreement’) associated with a Definitive Settlement Agreement for certain major claims and disputes and modifications to the EPC Agreement.

“Amendment 7 to the EPC Agreement is the result of reasonable and prudent decisions by Georgia Power, Oglethorpe Power Corporation (an Electric Membership Corporation), Municipal Electric Authority of Georgia and the City of Dalton, Georgia acting by and through its Board of Water, Light and Sinking Fund Commissioners (collectively, the ‘Owners’) to amend the EPC Agreement to mitigate financial risk to the Project, improve the protections provided by the EPC Agreement to the Owners and their customers, to recognize the more realistic project completion dates, to provide more realistic incentives for meeting the revised schedule, and to otherwise provide proper and realistic payments to the contractor.

“Amendment 7 to the EPC Agreement, which is part of the broader settlement, will increase the most recent forecasted capital cost of the Project and it recognizes and confirms the current projected fuel load dates of late 2018 for Unit 3 and late 2019 for Unit 4. In addition to the provisions of Amendment 7 to the EPC Agreement, the settlement will focus the contractor’s responsibilities on Westinghouse Electric Company LLC (‘Westinghouse’) as a single prime contractor and resolve contentious and distracting litigation between the Owners and Westinghouse and CB&I Stone & Webster.”

Deal establishes Westinghouse as the prime contractor

The EPC Agreement provided that the two contractors (Westinghouse and Stone & Webster, collectively called the “Contractor”) would design, engineer, procure, construct, and test two AP1000 nuclear units with electric generating capacity of approximately 1,100 MW each at Plant Vogtle. Pursuant to the EPC Agreement, the Owners agreed to pay a Contract Price (as defined in the EPC Agreement) of approximately $6.8 billion.

Said the settlement: “Beginning principally in 2010 and 2011, the Contractor began to assert requests for change orders related to design changes in the Design Control Document (‘DCD’) regarding the shield building design, structural module design, as well as delays in the review and approval of the Contractor’s DCD, which in turn led to a delay in the schedule for the issuances of the Combined Operating License/Limited Work Authorization (the ‘Major Claims’). The Contractor asserted that the design changes and licensing delay were a result of Nuclear Regulatory Commission (‘NRC’) actions that were compensable under the EPC Agreement, either as Changes in Law or Uncontrollable Circumstances, as those terms are defined in the EPC Agreement.

“The Owners denied that those change orders were within the scope of the Owners’ obligation to pay. This dispute resulted in litigation in the U.S. District Court for the Southern District of Georgia, Augusta Division. Litigation over the Major Claims began in earnest in late 2013 and throughout 2014. By mid-2015, additional claims from the Contractor related to delays in nuclear island rebar installation and additional changes to module designs, which the Contractor also asserted were compensable under the EPC Agreement either as Changes in Law or Uncontrollable Circumstances, were included in the Major Claims litigation. Trial was projected to begin in mid-2016. As of June 2015, the Contractor had updated its estimated damages to an aggregate (based on Georgia Power’s ownership share) of approximately $714 million (in 2015 dollars).

“All parties grew increasingly concerned that a prolonged trial and contentious litigation could distract their attention and focus from the most important task: completing the Project safely and as efficiently as possible. For this reason, settlement discussions between the Contractor and the Owners began, and continued parallel with litigation. During the course of the litigation, it became increasingly clear to the Owners that substantial disagreements over cost responsibilities were also plaguing the dual prime contractors Westinghouse and CB&I Stone & Webster. In October 2015, Westinghouse and CB&I Stone & Webster’s parent entered into an agreement by which Westinghouse would purchase CB&I Stone & Webster’s interest in the Project. This allowed Westinghouse to become the sole prime contractor responsible for completion of the Project. That in turn allowed Westinghouse and the Owners to make substantial improvements to the EPC Agreement, and to successfully resolve their dispute over the Major Claims litigation.

“Notwithstanding the Major Claims litigation, throughout the course of the Project, the Owners agreed that some change orders were within the scope of their payment obligations under the EPC Agreement. As such, the Owners accepted and paid many of those submitted change orders. Other submitted or potential changes orders were still awaiting resolution, but are also addressed by the Definitive Settlement Agreement, which included a mutual release executed by the Parties. These include, among others, commercial issues associated with plant security computer supply and new cyber security requirements enacted by NRC regulations, and Vogtle 1&2/Vogtle 3&4 site security integration.

“On October 27, 2015, Westinghouse and the Owners entered into a Binding Term Sheet and agreed to finalize a Definitive Settlement Agreement to resolve the Major Claims litigation and other unresolved claims, including change notices and change disputes under the EPC Agreement. During the Thirteenth Vogtle Construction Monitoring proceeding direct hearing, Georgia Power agreed that it would present the full commercial resolution of the Major Claims to the Commission for consideration in a separate proceeding.

“On December 31, 2015, the Owners entered into a Definitive Settlement Agreement with Westinghouse that effectively resolves all claims between the parties to the Major Claims litigation, all claims that were or could have been asserted by the litigants at the time of the agreement and all claims arising from events or circumstances occurring up to the date of the Definitive Settlement Agreement.  The parties filed a Joint Stipulation of Dismissal with the District Court and, on January 5, 2016, the District Court issued an order dismissing the Major Claims litigation and closing the case. Also on January 5, 2016, the Owners, Westinghouse and Stone & Webster, Inc. executed Amendment 7 to the EPC Agreement (the form and substance of which was agreed to in the Definitive Settlement Agreement) which effectuates many of the terms and conditions of the Binding Term Sheet.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.