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The nuclear rort in Georgia. Consumers may end up paying for billions of dollars in cost overruns on the Plant Vogtle nuclear expansion.

Nuclear cost overrun could mean billions in extra Georgia Power profit,  By Matt Kempner, The Atlanta Journal-Constitution, 9 July 21, The more utility spends, the more it can earn; consumers pay price.

Consumers may end up paying for billions of dollars in cost overruns on the Plant Vogtle nuclearexpansion.

But for Georgia Power and its parent Southern Co., the extra costs could represent a huge financial windfall: billions of dollars in extra profit.

That’s because the electric utility’s profit from the sprawling project is tied largely to how much it spends, not whether it stays within budget.

The tab for 2.6 million Georgia Power customers — and the profit for Southern and its shareholders — could start becoming clearer this fall, when elected state regulators hold hearings to determine how much of Vogtle’s initial construction expenses can be added to electric bills for the first time.

By state law, Georgia Power can charge its customers for reimbursement of “prudent and reasonable” capital costs, such as from building a new plant, and for profit set as a percentage of those expenses. The higher the allowed costs, the greater the profit.

The Georgia Public Service Commission, which regulates the electric monopoly, could rule that many of Vogtle’s cost overruns weren’t prudent or reasonable, sharply limiting increases in consumer bills and reducing Georgia Power’s total profits.

But so far there are no indications that will happen, at least not in the long term.

Stock analysts, bond-rating agencies and the company’s own executives cite the risk, but they also often praise regulators’ “constructive” relationship with Georgia Power. In late 2019, the PSC agreed to let Georgia Power collect one of the highest rates of return among its peers around the nation.

“Their decisions, for lack of a better term, have been protective of or supported investments of Georgia Power,” saidJeff Cassella, a senior credit officer for bond-rating firm Moody’s Investors Service. He said he’s seen no indication the PSC will deny Vogtle costs.

Vogtle basics

Project: Build two new nuclear reactors near two existing reactors at Plant Vogtle south of Augusta, near the South Carolina line.

Owners: Georgia Power (45.7%), Oglethorpe Power (30%, represents electric membership cooperatives), the Municipal Electric Authority of Georgia (22.7%, represents city utilities), Dalton Utilities (1.6%).

Benefits: Expected to provide a reliable, stable power supply for at least 60 years….

Downsides: Beyond concerns such as toxic nuclear waste, the all-in-cost of the new electricity is projected to be higher than that from competing forms of electricity generation, according to state staffers.

Costs: Georgia Power’s portion of the total project cost was slated to be $6.1 billion. So far, it’s increased to $11.1 billion.

How Georgia Power’s portion of the project will be paid for: The company’s customers are already paying a fee in monthly bills for a portion of Vogtle financing costs and company profits on the project. It’s estimated that average residential Georgia Power customer will have paid over $850 in such fees before the project is completed. Then their bills are expected to rise higher to cover all “prudent” and “reasonable” construction costs and company profits that rise with those costs.

Who decides what costs are prudent and reasonable: The five elected members of the Georgia Public Service Commission, which regulates Georgia Power, a territorial monopoly that is part of Southern Company.

Had Georgia Power met its original budget and schedule, it would have made $7.4 billion in profits on the project, according to testimony of state independent monitors and PSC staff. But because costs have soared by billions of dollars, those profits could rise to $12.6 billion over the decades-long life of the two new reactors under construction, they testified in 2017.

Costs at Vogtle have continued to climb since 2017. As a result, profits could rise higher, too……………..

Vogtle’s expansion, meanwhile, has been riddled with problems and delays since the PSC approved the project in 2009. The company negotiated a contractor deal with Westinghouse to insulate the utility and customers from some of the worst of the possible overruns, but that was negated after Westinghouse filed for bankruptcy protection.

Georgia Power’s share of the initial estimated total project cost, $6.1 billion, has ballooned to $11.1 billion at the latest estimate.

The reactors were supposed to go into operation in 2016 and 2017, but the timetable has been repeatedly extended. Now, Georgia Power predicts the first unit will be finished in the first quarter of next year. A monitor for the state, though, says the earliest would be the summer of 2022, followed by the second reactor a year later, at best. And he cautioned that constructioncosts for Georgia Power and its partners could rise another $2 billion…………

Vogtle was set up for streamlined U.S. regulatory approvals, billions of dollars in federal loan guarantees and dibs on hundreds of millions of dollars in federal tax credits. Georgia’s legislators and then-Gov. Sonny Perdue allowed the company to collect financing costs and some profits years before any electricity was produced.

As a result, the average Georgia Power residential customer will have paid $854toward the project before it goes into operation. That doesn’t include the actual costs of construction, which keep growing.

Echols, the PSC’s vice chairman, said in an email that the enactment of short-term profit reductions shows the regulator is holding the company accountable and “sends a painful and embarrassing message to Georgia Power.”

Those cuts essentially last until the first new reactor goes into operation. Then profit rates can rise back up for what could be decades to come, dwarfing the initial penalties………

Georgia isn’t alone in allowing regulated utilities to potentially profit on project overruns. A number of other states in the Southeast operate under a similar framework, according to the National Association of Regulatory Utility Commissioners………. 

July 10, 2021 - Posted by | business and costs, politics, USA

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