Georgia Power consolidated its control of the controversial Plant Vogtle expansion last week, winning both influence and the potential to earn additional profit in a new agreement with its co-owners. Oglethorpe Power Company, the instigator of the down-to-the-wire negotiations, and the Municipal Electric Authority of Georgia (MEAG) consequently lost control and influence in exchange for minor risk reductions in the event of future cost overruns. MEAG and its partners JEA, of Jacksonville, Florida, and PowerSouth are now left with no recourse over spiraling costs and extended deadlines for Plant Vogtle. The new agreement has been portrayed publicly as a win for consumers, but it sets the stage for another potential $2.1 billion in cost overruns that would be borne in large part by electric customers throughout Georgia.
Republicans’ Warning to Vogtle Partners Scorned
On September 19th, 20 Georgia legislators, including 19 Republicans, sent a letter to Georgia Power, Oglethorpe, and MEAG urging them adopt a cost cap due to “ever-escalating cost of Plant Vogtle and the unfair impact of those costs”. MEAG and Oglethorpe members, unlike Georgia Power, do not have Wall Street shareholders to help bear cost overruns. Every increase in project costs for MEAG and Oglethorpe are paid for by their members or contractual partners.
Georgia Power balked at a cost cap, saying publicly, “Instead of taking a long-term view, Oglethorpe Power is using the vote to try to burden others with its obligations and extract unreasonable concessions.” Oglethorpe said it had been advocating for its customers, but it forfeited the right to do that in the agreement it signed until the project exceeds its current budget by an additional $2.1 billion, on top of the current cost overruns. No utility company involved in the negotiations agreed to or insisted upon a cost cap, despite pleas from legislators eyeing races in November.
Maneuver Adds Minimal Risk, Delivers Full Control to Georgia Power
In the new agreement, signed on September 26th, Georgia Power shoulders up to an additional $180 million in risk, or just 0.006% of the total project cost, should it fail to meet certain cost targets. In return for picking up slight risk, Oglethorpe could surrender a significant portion of their contributions in the project to this point.
Georgia Power negotiators also won key provisions that scrap almost any future potential for a contentious vote and its resulting public scrutiny. Any increase in the cost of the project, also known as a “Project Adverse Event,” would no longer trigger a vote by the partners. MEAG could receive financial support from Georgia Power if it struggles to makes its payments due to its conflict with JEA.
JEA, the public utility of Jacksonville, contracted with MEAG for 206 megawatts of Plant Vogtle. MEAG has struggled to quiet JEA’s public protestations about the project and claimed the public fight could hurt its financial position.
Oglethorpe and MEAG now only have one option for recourse; wait until costs go up by another $2.1 billion and forfeit their investment.
Georgia Power Retains Credit Rating. Everyone Else Takes Hit.
Much of the media coverage surrounding the momentous vote applauded Oglethorpe’s stand for consumers.
“The state’s most powerful commercial and political behemoth had been successfully brought to the negotiating table by Oglethorpe Power,” one political columnist wrote in Georgia about the deal.
Oglethorpe did in fact bring Georgia Power to the table. But Wall Street credit agencies proclaimed Georgia Power the clear winner of the negotiations.
S&P downgraded MEAG, Oglethorpe, JEA and PowerSouth, and in a statement, credit analyst Jeffrey Panger noted, “The lower ratings reflect our view of the cumulative effect of the numerous delays and cost overruns.”
The agency also stated the new agreement was best for Georgia Power, not the other co-owners, saying, “It [the new agreement] also removes the rights of MEAG, and co-owners Oglethorpe Power Corp. and Dalton Utilities, to cancel the project. However, GPC [Georgia Power Company], one of the co-owners, retains the right to cancel the projects if completion costs exceed prescribed thresholds. If it exercises that right, it could leave the municipal co-owners (and by extension JEA) with stranded investments.”
S&P, expecting more cost overruns, continued to say, “We do not consider this budget revision final.”
However, S&P affirmed Georgia Power’s credit rating and outlined exactly how Georgia Power negotiators won the day. In its decision, the credit agency said that the new agreement resulted “in a less restrictive definition [of a “Project Adverse Event]” and “does not include any conditional “cost-caps” for the project.” They believed these provisions mitigated Georgia Power’s risks that had the potential to stop the project.
Eyes on November
Reactions to the new Vogtle agreement from Georgia Public Service Commission (PSC) candidates rolled in quickly.
District 3 Republican incumbent Chuck Eaton told the Atlanta Journal Constitution the project should be completed or else utilities “will still be on the hook for what has been spent and you won’t have a single volt of electricity for it.” Eaton told the Columbus Ledger-Enquirer that while the project deserved scrutiny, he did not think it was legal for the PSC to adopt a cost cap.
Lindy Miller, the Democrat challenging Chuck Eaton, confronted Eaton in an October 2nd debate for what she called his giving Georgia Power a “blank check” for Vogtle and “$300,000 in special interest money”. The Energy and Policy Institute has previously reported on campaign contributions from individuals and companies closely related to regulated entities in the Georgia PSC race.
Libertarian District 3 challenger Ryan Graham noted in his closing debate statement that, “Ratepayers for Georgia Power customers are not inherently better than ratepayers for the other companies. So what are those people going to do? They’re going to pay higher rates. We can’t just ignore them.”
District 5 Democratic challenger Dawn Randolph issued a statement on September 28th saying, “This seems like business as usual where we all hold our breath until the next Vogtle report is released with updated cost estimates. … I will refuse to sign that blank check the current Commission is determined to give Georgia Power.”
John Turpish, the Libertarian running for the District 5 seat, penned a blog on his campaign website summing up his position on a cost cap. “Yes of course the project needs a cap on the final price. And a deadline. It seems almost everyone involved has fallen into the sunk cost fallacy. Perhaps most egregiously when [Commissioner] Echols said it was too big to fail. No, it isn’t.”
Not all candidates thought the agreement was noteworthy.
In the October 2nd debate, Republican incumbent Tricia Pridemore minimized the amount that Georgians cared about the Vogtle cost overruns, saying, “People rarely talk to us about Plant Vogtle.” She maintained that most people she spoke with cared more about rural broadband and access to natural gas.
CORRECTION: In the original version of this article, the Energy and Policy Institute may have incorrectly calculated the “buyout” provisions from the new Vogtle agreement for costs $2.1 billion and above the current estimated cost. This information has been removed from the article. We apologize for any confusion.
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