Plant Vogtle: More Bad News (Georgia Power’s philosophic fraud, imprudence)

By Jim Clarkson -- January 3, 2019

“As usual the Georgia Power Company and the Georgia Public Service Commission staff quibble over the cost-to-complete analysis of Plant Vogtle (Units 3 & 4). The company inflates the cost of the combined-cycle alternative and leaves out costs of completing the project.”

“After water-boarding the numbers, the Company says completing the project is in the best interest of ratepayers. Staff again catches phony numbers and says an eight-month delay will make the project uneconomic. The full Commission again ignores the staff criticisms and approves whatever Georgia Power tells them. … Yawn.”

“Georgia Power’s obvious strategy is to delay the bad news until they get more sunk cost behind them.  The actual construction is about 60% complete; and Georgia Power, as always, says the schedule and budget projections are ‘challenging’.”

In his recent treatise on the contra-capitalist corporation, Enron Ascending: The Forgotten Years, Robert Bradley Jr. details how politically dependent firms also are prone to strategically deceive their counter-parties (commit philosophic fraud) and cut corners (practice imprudence). Bradley’s case study is the late Enron, but a living example is Georgia Power Company.

We are now in the 19^th six-month proceeding at the Georgia Public Service Commission (PSC) to approve incremental construction costs for the Vogtle nuclear plant (Units 3 & 4), a 2,234 MW addition. The PSC staff is again casting doubt on whether the official schedule and budget can be met.

Each time before that staff has raised such questions they were later proven right. Georgia Power’s obvious strategy is to delay the bad news until they get more sunk cost behind them.  The actual construction is about 60% complete; and Georgia Power, as always, says the schedule and budget projections are “challenging.”

As usual the Georgia Power Company and the PSC quibble over the cost-to-complete analysis. The company inflates the cost of the combined-cycle alternative and leaves out some costs of completing the project.

After water-boarding the numbers, the Company says completing the project is in the best interest of ratepayers. Staff again catches phony numbers and says an eight-month delay will make the project uneconomic. The full Commission again ignores the staff criticisms and approves whatever Georgia Power tells them. … Yawn

The Details

The staff and its hired expert look at the tasks remaining to complete construction, and start up the two reactors and view the Company’s forecasts as aggressive. Building on the Company’s admitted shortage of the necessary skilled workers the staff is skeptical that the Company can accomplish what they claim can be done in the allotted time. 

As usual the staff asks for more details from the Company as if that would make any difference. The Commission by word and deed has shown they will approve Vogtle no matter what.

The Company says its contingency cost has increased by $366 million for which it will seek recovery later. Hence the Company leaves this amount out of its cost-to-complete since, while it is a known cost, it has not been officially sought at this time.

The Company assumes the combined-cycle alternative would incur what the staff believes to be inflated carbon emission costs. The parties also disagree on tax impacts, cancellation costs, and the projected cost of natural gas.

The problems reviewed by Peter Bradford of the Southern Alliance for Clean Energy a year ago are only more correct today: 

Georgia Power Company, whose every important forecast of cost, of schedule and of the cost of alternatives has been wrong by more than enough to have invalidated the project before and since its original certification, now seeks the Commission’s credulity and permission to spend nearly as much all over again to complete the two nuclear power plants it once said would be operating by now. The Company’s request is based on forecasts presented by many of the same people who have been so devastatingly wrong to date. [1]

Alternatives to Nuclear Cancellation

There have been 130 cancelled nuclear reactor applications before the Nuclear Regulatory Commission during the life of the agency (see list here). None of these cancelled plants have been replaced by a gas-fired combined-cycle alternative. Yet that unrealistic alternative is what we have seen debated before the Georgia Public Service Commission for years.

In order to say they need the nuclear capacity, Georgia Power plans to shut down useful and still-economic sitting plants. The Company also assumes its purchased power contracts for independent producers will not be renewed. The Company has always maintained that pre-recession electricity growth will return.

Bottom line: Georgia does not need the Vogtle capacity. The Company, the staff and the Commissioners all know this. The series of Vogtle hearings are just regulatory theater.

Political Capitalism … Philosophic Fraud 

Georgia Power will spend tens of millions on legal and related fees each year on conducting its cases before the Georgia Public Service Commission. The cost would not be nearly so high if they just sought reasonable goals, normal profits, and respected  ratepayer interests.

The cost is so high because they plot and scheme against their customers and seek things they shouldn’t have. They manipulate the PSC to cover unreasonable costs, obtain higher-than-deserved profits, and shift risk to ratepayers. All this takes a lot of money for prevaricating expert witnesses, lobbyists, and lawyers.

Their methods include distorting accounting records to hide cost-shifting, inflated expenses and exaggerated estimates. They must develop plausible sounding explanations for outrageous customer true-ups.  It takes intense lobbying to do all these detrimental things to their customers.

Georgia Power goes through all this activity even when they have a solid majority of Commissioners firmly in their pocket. The show is put on to give the Commissioners a defense when they sell-out the public.

Here is the insult-to-injury: after spending so much extra money working against customers, the entire expense is recovered from ratepayers as a legitimate business expense. Customer groups who fight them must, of course, cover their own cost for participating in the regulatory process while still paying the Company’s cost to undermine customer defensive efforts.

Vogtle Financing Cost

The total financing charges accumulated during Vogtle construction are now projected to be $4.0 billion. In regulatory math, this figure is composed of $2.1 billion in profit, $1.1 billion in income tax on profit and $0.8 billion in interest on debt.

There will be additional financing cost collected after construction is complete.

Plant Vogtle is the black hole that keeps on sinking.

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[1] Direct Testimony of Peter A. Bradford, Southern Alliance for Clean Energy, December 1. 2017. Docket No. 29849: Verification of Expenditures Pursuant to Georgia Power Company’s Certificate of Public Convenience and Necessity for Plant Vogtle Units 3 and 4, Seventeenth Semi-annual Construction Monitoring Report; Proposed Forecast Cost and Schedule Revisions; and Determination of Continuation or Cancellation of the Project.