Despite Huge Losses and Its own Bungling, Southern Company Wants to Complete Vogtle Plant

authordefault
on

By Dan Zegart, crossposted from Climate Investigationsย Center

With Southern Companyโ€™s boardย voting today to green lightย the completion of the Vogtle nuclear power plant, the prospect that Georgia utility customers may be on the hook for many billions for a plant that may never be economically feasible becomes veryย real.

Southern Company CEO Tom Fanning has blamed the bankruptcy of nuclear reactor builder Westinghouse for the plant being billions over budget and years behind schedule, calling the Westinghouse collapse an unforeseeable event that caught Southern byย surprise.

Tomorrow, Southern Company will recommend to the Georgia Public Service Commission that it nevertheless continue to build the project โ€“ which is only 32 percent complete after four years of construction โ€“ despite the huge and ever-increasing cost of a plant that the PSCโ€™sย own analysesย indicate may never be viableย commercially.

But a growing chorus of public interest and environmental groups blame the projectโ€™s collapse on Southern Company itself. They say a chronic failure to properly oversee project schedule and cost sealed Vogtleโ€™s fate. ย The Southern Alliance for Clean Energy and other watchdogs have called for an emergency public hearing to re-open the question of whether spending on the plant so far has been prudent, and whether it ought to beย scrapped.

Specifically, these groups point to Southernโ€™s refusal to insist on the use of modern construction management tools, and its persistent lack of candor reporting on progress and likely future construction outcomes, as reasons for the plantโ€™s poorย progress.

That argument is buttressed by the testimony of the Georgia Public Service Commissionโ€™s own experts, who have followed Vogtleโ€™s long history of missed deadlines, shoddy work, and massive cost overruns. Their testimony in recent hearings before the PSC makes it clear that Southern Company should have known that a Westinghouse collapse was almostย inevitable.

Meanwhile, utility customers are already paying for some of the $6 billion that their elected representatives on the Georgia Public Service Commission are letting Southern Company put into electrical rates as part of a formal stipulation negotiated and agreed to by Southern and the PSC in the fall ofย 2016.

And both the company and the commission say that finishing the reactors almost certainly wonโ€™t be feasible if Toshiba, Westinghouseโ€™s corporate parent, defaults on a $3.7 billion โ€œparental guaranteeโ€ it promised Southern after Westinghouseโ€™s March bankruptcy to cover some of Vogtleโ€™s ever-risingย costs.

Given Toshibaโ€™s recent series of financial scandals, default cannot be ruled out. ย The first payment ofย $300 million is due in October.

In fact, customers of Georgia Power, the Southern Company Georgia subsidiary responsible for Vogtle,ย have already paidย some $500 through their monthly utility bills for a plant that may never operate, and, under a 2009 law backed by Southern Company, may continue to pay billions more of Southernโ€™s costs for many more years โ€“ โ€“ even if the plant never produces a single watt ofย electricity.

Vogtleโ€™s reactors are a new Westinghouse design, the AP-1000, which has never been built or tested anywhere in the United States. Constructing a first-of-its kind nuclear design after a forty-year hiatus in new nuclear projects meant that predictions about cost and schedule were no more than guesses, according to utility expert David Schlissel, who warned the PSC of this at a 2008ย hearing.

The two Vogtle reactors, known as Units 3 and 4, were to go on-line in 2016 and 2017 respectively, but are now at least five years behind schedule, delayed until 2021 and 2022 respectively. The result is that a $14.3 billion construction job has ballooned to $25.2 billion with no end in sight. ย (Georgia Powerโ€™s costs represent its 45.7 percent ownership of the plant, with the balance owned by three much smallerย utilities.)

The delays came as the Georgia PSCโ€™s own experts warned that Southern Company was allowing Westinghouse and previous prime contractors for Vogtle to operate without computerized planning tools that are standard for an incredibly complex project involving over 200,000 interconnectedย activities.

Over a period of years, PSC experts repeatedly testified before the commission that failing to use the industry-standard planning software was inherently not prudent, meaning costs that resulted from such a failure could be excluded from the rate base, and that the lack of proper planning meant confusion and waste at the enormous Vogtle construction site near the Savannah River, a few miles from the South Carolinaย border.

Southern Company and the Georgia Public Service Commission claim they didnโ€™t learn that Westinghouse, Vogtleโ€™s builder and designer, was near collapse until the end of March, when the company filed for bankruptcy, citing $9 billion in losses onย Vogtle.

However, public interest watchdogs and other observers believe the PSC could have learned of Westinghouseโ€™s dire financial condition had regulators conducted a traditional full-scale prudency hearing on the project instead of a brief prudencyย โ€œreview.โ€

In fact, while the PSC and Georgia Power negotiated an agreement on Vogtle late last year it was already public knowledge that parent company Toshiba was in serious fiscal straits. ย Toshibaโ€™s troubles actually date back to at least July 2015 when theย company admitted it had overstated its earningsย by over $1.2 billion over a seven-year period. ย By the end of the year, the Japanese firm hadย slashed some 10,000 jobsย in a desperate attempt to stayย afloat.

โ€œItโ€™s been well understood for some time that Toshiba was not a stable company,โ€ said Schlissel, the utilityย expert.

The truncated proceeding at which the Georgia Public Service Commission examined prudency late last year was quickly denounced by public interest groups as a hasty rubber stamp. The PSC took just four hours to approve $5.7 billion in spending on the two new Vogtle reactors โ€“ โ€“ and under terms critics say are a very poor bargain for Georgia Powerโ€™sย customers.

โ€œUnbelievably sloppy,โ€ said Robert Baker, a former chairman of the PSC who represented the Southern Alliance for Clean Energy in the Vogtle case at the time of December 6thย proceeding.

โ€œIt was not a prudency review. It wouldnโ€™t have qualified as any kind of review. A pay phone license would have taken more time,โ€ saidย Baker.

Under cross-examination by Baker during the hearing, PSC experts admitted that no financial audit of the project had been conducted in preparation for the hearing, and no memos or other documentation had been produced to justify a prudency finding for $3.5 billion spent on the plant as of the end of 2015 and a total cost, including future construction, of $5.7ย billion.

Instead, the staffโ€™s review consisted of collecting already available information and putting it intoย notebooks.

The hearing took place just as Toshiba announced it might have to write down billions on its Westinghouse unit due to overruns at Vogtle and a twin facility being built in Southย Carolina.

โ€œIf a full-on prudency review had taken place on Vogtle last year, there would have been no getting away from Westinghouseโ€™s situation,โ€ said Sara Barczak, a program director at the Southern Alliance for Clean Energy. โ€œBut it was only a settlement process. So eight months later, hundreds of millions have been spent that never should have beenย spent.โ€

That settlement process had already been completed by the time of the prudency review in early December, rendering the hearing itself largely meaningless, since by then the PSC and Georgia Power had signed a three-page stipulation on October 20, 2016 that gave the utility everything itย wanted.

The stipulation shifted the burden of proof away from Georgia Power to anyone challenging the spending. And perhaps most startling, not only did the agreement bless the $3.5 billion spent on Vogtle through December 2015, it actually declaredย future spendingย prudent: โ€œCapital costs incurred up to $5.680 billion will be presumed to be reasonable andย prudent.โ€

โ€œPursuant to what authority may the Commission determine that forecasted costs are either prudent or reasonable prior to the completion of the plant?โ€ Baker asked a panel PSC staff and company officials inย ย December.

โ€œWe didnโ€™t really address that,โ€ replied Georgia Power Comptroller Davidย Poroch.

Other recent PSC hearing testimony revealed that PSC staff and consultants had identified between $800 and $1 billion in costs that should not be declared prudent โ€“ but gave up those claims as a concession to make the stipulationย happen.

A full-scale prudency hearing would have been consistent not only with standard operating procedure for state utility regulators nationally but with past practice in Georgia โ€“ indeed, foregoing a full-scale hearing for a utility project of this scale may beย unprecedented.

The Vogtle 3 and 4 reactors are being built adjacent to Vogtle 1 and 2, the original two nuclear reactors. In marked contrast to Vogtle 3 and 4, Vogtle 1 and 2 were subjected to an exhaustive review befitting a project that cost $8.9 billion, which at the time was the โ€œlargest single investment ever constructed in the state of Georgia,โ€ according to the PSC.

Vogtle 1 and 2 were only approved in late 1987 after 42 days of hearings over a six-month period. One series of proceedings determined prudency while a separate set established new rates for Southern Companyโ€™s customers. Altogether, the process generated 12,329 pages of transcript and 502 exhibits. The prudency segment included testimony from nine individual witnesses and thirteen panels of anywhere from two to six witnesses, according to the PSC.

When contrasted with that, the PSCโ€™s recent four-hour version of prudency seems an undeniable example of โ€œregulatory captureโ€ by a company whose leadership often boasts to investors of its cordial working relationships with stateย regulators.

Far from bearing down on a project that has gone so far off track, Georgia commissioners seem to take offense at criticism of the Vogtle plant or Southernย Company.

As Baker bored in on the PSC experts about the lack of evidence for prudency, an annoyed Commissioner Lauren โ€œBubbaโ€ McDonald interrupted, saying he didnโ€™t โ€œknow why we need to go through and see what size shirt they wear and all of this in order to reach and look at what the document is in front ofย us.โ€

McDonald asked what the object of Bakerโ€™s questionsย was.

โ€œThe object, Commissioner McDonald,โ€ Baker replied, โ€œis to understand how the staff came to its conclusion to enter into this proposed stipulation, which is a seven billion dollar plus agreement that will burden or be the responsibility of Georgia ratepayers for the next 60ย years.โ€

ย After two South Carolina utilities decided to scrap the V.C. Summer nuclear plant on July 31, Commissioner Tim Echols issued a series of tweets castigating critics of the plant, and stressing the differences between Summer andย Vogtle.

โ€œOur commissioners will look at total cost to complete soon. Hopefully, we can move forward and finish. It is VERY important,โ€ Echols commented, adding, โ€œWe have strong partners on this project, and GA Power has negotiated masterfully. Toshiba must make good onย commitments.โ€

Echols alsoย tweeted;

Andย also:

โ€œGAโ€™s situation slightly different. Larger utility, Federal Loan Guarantee, and fully-supportive electedย commission.โ€

There is certainly plenty of evidence for the latter. Georgiaโ€™s five elected commissioners have presented a largely united front supporting the plant from the beginning of the projectโ€™s construction history with littleย criticism.

They have largely ignored years of complaints by the independent monitors, the PSCโ€™s on-site project watchdogs, who have faulted Southern Company for failing to provide a reliable cost-to-complete theย project.

They have also pointed out on numerous occasions that Southern has never come up with an Integrated Project Schedule, a computerized planning tool. The IPS is an industry-standard program that tracks the projectโ€™s myriad engineering, procurement and construction operations and updates project cost and schedule to reflect actualย progress.

The IPS is considered essential for such a complex, expensive job โ€“ the first nuclear project built in the United States in decades and one that employs a never-before-tested design and equipment, the Westinghouse AP-1000 reactor. PSC experts have said several times over the years that a failure to use an IPS is inherentlyย imprudent.

Georgia Power has blamed Westinghouse for failing to develop an IPS as the projectโ€™s prime contractor and designer, but in fact, PSC experts have pointed out, it is ultimately Georgia Powerโ€™s responsibility to make sure such safeguards are inย place.

In a series of emails to Climate Investigations Center, Commissioner Tim Echols said he opposed the prudency review idea but wasย outvoted.

โ€œHow can you review prudency when the reactors are not even working?โ€ Echolsย commented.

But Echols also argued that the stipulation does provide safeguards for utility customers. He noted that the agreement delays the worst of the rate impact, and lowers Southernโ€™s return on investment for the entire project if a December 31, 2020 completion date isย missed.

โ€œIt was not perfect, but given the circumstances and the vote count, I felt like it was the best we could get,โ€ Echolsย said.

Georgia Power says productivity has improved recently on the Vogtle site, but testimony at a June PSC hearing revealed that the net result of the past yearโ€™s construction activity has been to put the project yet another yearย behind.

With Westinghouse out of the picture, Southern Companyโ€™s Southern Nuclear subsidiary became the prime contractor, with Westinghouse agreeing to provide some support services. Southern Nuclear has never built a nuclear plant, or coordinated a project that currently involves 5,000 craft and otherย workers.

Under the terms of the Southernโ€™s agreement with Toshiba, ย Toshiba is absolved from liability beyond the $3.7 billion it has promised, meaning Southern itself will now be responsible for all future cost and schedule snafus. ย Ultimately, with a compliant PSC, those obligations could wind up in the laps of Georgiaย consumers.

ย 

authordefault

Related Posts

on

Survey data shows almost double the number of people would back restrictions than those who oppose them.

Survey data shows almost double the number of people would back restrictions than those who oppose them.
on

โ€œWe cannot stand by and allow this to happen. We need to hold this administration accountable.โ€

โ€œWe cannot stand by and allow this to happen. We need to hold this administration accountable.โ€
Series: MAGA
on

A Zen Buddhist priest's guide to supporting yourself and your community in these testing times.

A Zen Buddhist priest's guide to supporting yourself and your community in these testing times.
on

The Tory leader was hosted by a firm that holds a major contract with one of the worldโ€™s biggest polluters.

The Tory leader was hosted by a firm that holds a major contract with one of the worldโ€™s biggest polluters.