A Free-Market Energy Blog

Vogtle Settlement: Ratepayers Lose Some More (inside another nuclear bust)

By Jim Clarkson -- March 8, 2016

“As the magnitude of the Vogtle project disaster becomes clearer, the Public Service Commissioners are becoming less toleratant of criticism…. Steve Prenonvitz … heaps criticism on Georgia Power but also on the Commission itself…. Then there is Nuclear Watch South [whose] … assertions are painfully true and therefore irritating to the Commission, which is joined at the hip with Georgia power on the Vogtle project.”

Georgia Power has now provided details concerning the settlement with the Vogtle contractor. The total payout is $915 million of which Georgia Power’s 45.7% share is $350 million. Also agreed was a $69 million change order. This is a hit for customers, quite different from what the Company said for years: they expected to prevail in the litigation but were working on a possible settlement. (Ratepayers are protected unless the Commission orders a cost disallowance, which they should.)

They lost in a major way. The lawsuits by contractors contended that Georgia Power pay for the change orders and schedule delays caused by the utility. In effect, the settlement has Georgia Power admitting they were at fault.

In Denial

During the years the litigation was pending, Georgia Power did not include this cost in the planning and analysis of the project’s viability.  The $350 million was not counted as a liability; quite the contrary, it was treated as if Georgia Power would completely prevail in the suits.

Which brings us to the subject of Liquidated Damages. This common construction contract provision calls for the contractor to pay for delays in completing a project. Naturally, since Georgia Power admitted fault in this matter, the contract amendments now change the dates for such damages from the original April 2016 and April 2017 to new optimistic completion dates of December 2018 and 2019.

Yet through multiple hearings on Vogtle construction cost a Southern Company Vice President repeatedly, under oath, answered all questions about the cost of delays by saying the contractor was responsible under the prevailing contract.

Here we have a demonstration of an all-too-common Georgia Power tactic. Georgia Power’s spokesman knew good and well that the Liquidated Damages protection was being negotiated away, but he continued to assert it was in effect. Clearly Georgia Power does not mind using excuses that will later be shown to be false. Their important goal is to get more sunk costs approved by any means. This casts doubt on any excuse they make, such as their current assertion that the impact of Vogtle coming fully into rate base will only raise rates 6% or 8%.

Prudency Rush

When Georgia Power filed their application with the PSC seeking approval of the Vogtle Construction settlement, Commissioner Stan Wise made a surprise motion to declare all expenditures on the project to date be designated as prudent.

It is well known that the project is going to cost about $3 billion more than the initial approved amount even if the project has not so far exceeded the budget. Several Vogtle review proceedings back the Commission ordered that the question of the prudency be delayed until one of the two units came on line – putting the time of debate on the subject right during Wises’ primary reelection campaign.

Anyway, the Commission has ordered another proceeding to examine the prudency of the forecasted costs of the project.  This stresses the resources of the Vogtle critics including the PSC Staff.  The Company is to file their comments without any cross-examination. Then other parties can file comments, followed by a Commission decision, based on a settlement between the Company and the Staff.

The Rule of 72 Effect

Mortgage holders are familiar with the rule of 72.  Divide the interest on a loan into 72 to get the years to double the initial loan. A typical example is the homeowner borrows $100,000 at 6% so the payments total $200,000 in 12 years.  With a 30 year loan the total payout is $250,000.

Now let’s do some Vogtle arithmetic.  For each $1 billion at 8% return the doubling takes 9 years.  For a sixty-year payment period the collected amount becomes $6.7 billion. It get worse. Each dollar spent on construction carries with it an income-tax liability gross up and other costs of about 45%.  So the initial $1 billion in cost entitles the utility to collect $1.45 billion.  Then there is sales tax and franchise fees for every dollar on a customer’s bill. It looks like every $1 billion of Vogtle construction cost will hit ratepayers for about $10 billion on their bills over the life of the facility. This is a huge hit for the Georgia economy, and it’s all a mistake.

Speaking Truth to Power

As the magnitude of the Vogtle project disaster becomes clearer, the Public Service Commissioners are becoming less toleratant of criticism. A constant participant in the public comment part of Vogtle hearings is one Steve Prenonvitz, who not only heaps criticism on Georgia Power but also on the Commission itself.  Even worse, his words are true and strike to core of the Vogtle problems.

Then there is Nuclear Watch South, represented by Glenn Carroll as a formal intervenor. Here again, her comments and her assertions are painfully true and therefore irritating to the Commission, which is joined at the hip with Georgia power on the Vogtle project.

It’s not easy to stand up in a formal courtroom-like hearing room and take a rain of abuse, shouting, and insults from the commissioners and come back for more time and again.

This is more than can be said for all the fancy-pants lawyers that swarm around the PSC.


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