The projected cost to add two new units to the Alvin W. Vogtle Nuclear Power Station jumped by about $2.3 billion, a unit of the Southern Company (NYSE:SO) (Atlanta, Georgia) disclosed August 8, bringing the estimated cost to construct 2,234 megawatts (MW) of new nuclear generation to more than $27 billion, more than double its original projected cost.
Later this year, Vogtle's four owners will vote on whether to continue with construction, now about 67% complete. Construction will only continue if owners representing 90% of the two units' ownership vote to continue. If the vote falls short of 90%, construction will cease and the project will be cancelled, according to a 10-Q filing with the U.S. Securities and Exchange Commission (SEC) (Washington, D.C.) made August 8 by Southern Company.
Southern Company subsidiary Georgia Power Company owns 45.7% of the new units. The other owners are Oglethorpe Power Corporation (Tucker, Georgia) (30%), Municipal Electric Authority of Georgia (Atlanta) (22.7%) and Dalton Utilities (Dalton, Georgia) (1.6%).
In an August 8 statement and the 10-Q filing, Georgia Power said its share of the projected construction cost has risen by $1.1 billion--to $8.4 billion from $7.3 billion. It pledged to absorb $700 million of those new costs. The company believes the other $400 million can be recovered from customers. Georgia Power confirmed the projected in-service dates for Unit 3 was still November 2021, while Unit 4 is still on track to be operating by November 2022.
Vogtle units 3 and 4 are the only active nuclear construction projects in the U.S., and Georgia Power has faced tough regulatory scrutiny as estimated construction costs have risen and in-service dates have been pushed back. For more on that, see December 22, 2017, article - Georgia Power Authorized to Complete Construction of Vogtle Units 3 and 4 and September 1, 2017, article - Georgia Power Recommends Construction Continue at Vogtle.
While Georgia Power said it believes the increased projected costs are "reasonable, necessary and prudent," it has decided not to ask the Georgia Public Service Commission (PSC) to approve those costs "so soon after receiving the Georgia PSC's approval of the capital forecast last year."
Georgia Power officials cited rising labor costs as the main reason for the cost increase. In its SEC filing, Georgia Power said the $700 million increase to the base capital cost forecast results from "changed assumptions related to the finalization of contract scopes and management responsibilities for Bechtel and over 60 subcontractors, labor productivity rates and craft labor incentives."
Bechtel Corporation (San Francisco, California), the project's engineering, procurement and construction (EPC) firm, has about 1,100 electricians and pipefitters working on units 3 and 4, according to the August 8 SEC filing. But in a conference call that day with investors, Southern Company Chief Executive Officer Tom Fanning said "we need to add 600 more electricians by November. It's the crucial issue at the moment." He added the company is looking to recruit workers from Canada and possibly from Puerto Rico, as it also "re-segments" workers already on the site.
In its statement, Georgia Power said the cost increase stemmed from "a series of decisions, such as providing craft labor incentives to both attract and retain adequate staffing levels and increased field supervision and engineering oversight, in an effort to lower project risk and maintain project momentum."
In early 2017, Industrial Info identified how the massive Vogtle construction project could affect the demand for and supply of skilled craft labor in the southeastern U.S. For more on that, see April 25, 2017, article - Westinghouse Chapter 11 Filing Roils Labor Markets in Georgia and Beyond. Georgia Power said more than 7,000 workers from across the country are onsite working to complete the new units.
"Significant progress has been made on the construction of Vogtle 3 & 4 since the transition to Southern Nuclear following the Westinghouse bankruptcy," said Paul Bowers, chief executive officer of Georgia Power. "While there will always be challenges in building the first new nuclear units in this country in more than 30 years, we remain focused on reducing project risk and maintaining the current project momentum in order to provide our customers with a new carbon-free energy source that will put downward pressure on rates for 60 to 80 years."
In reporting its second-quarter earnings August 8, Southern said a $1.1 billion asset writedown turned an $815 million profit into a $154 million loss. Moody's Investors Service downgraded Georgia Power's bonds after the announcement, noting the cost increase has come just eight months after state regulators reviewed and approved a revised cost estimate and construction schedule. "The latest revised cost estimate risks damaging the ongoing support from regulators, given it occurred so soon after they vetted and approved an earlier estimate," said Jeff Cassella, a Moody's senior credit officer.
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