Partners in the development of a pair of nuclear reactors in Georgia have settled a legal dispute that threatened the project’s underlying financing structure.
Investor-owned Georgia Power and cooperative Oglethorpe Power, primary partners on the construction of two new nuclear reactors at Georgia Power’s Plant Vogtle in Waynesboro, recently agreed to new terms regarding cost-sharing obligations following years of cost overruns and delays that sent the effort’s price tag soaring and landed the duo in court.
Georgia Power, owner of the largest 45.7% stake in the project, broke ground in 2013 on Plant Vogtle’s Units 3 and 4, promising to boost energy output with the addition of the facility’s third and fourth reactors. The effort was financed by power-sharing agreements struck by Georgia Power with several partners trading financial support for a portion of the energy produced by the future reactors.
Georgia Power
Oglethorpe is the project’s second-largest shareholder with a 30% stake. Other partners include municipal utilities the Municipal Electric Authority of Georgia, which owns a 22.7% stake, and Dalton Utilities with a 1.6% stake.
At the start of construction, total price estimates hovered around $14 billion but project officials, who originally eyed 2016 and 2017 for completion dates for the new units, quickly found themselves behind schedule and over budget, laying the blame in the end on supply chain issues, inflationary pressures, and an increase in material and labor costs.
Unit 3, originally meant to begin operations in 2016, only started commercial energy production for the first time in August.
Construction continues on Unit 4, but as project costs more than doubled to $35 billion by 2022, Oglethorpe took to the courts and sought to renegotiate its contract with Georgia Power, or else institute a “freeze option” divesting the cooperative of a portion of its shares, financing, and future energy purchases if a new arrangement wasn’t struck.
That fate has been avoided, according to documents filed with the U.S. Securities and Exchange Commission, and under a new agreement, Georgia Power will pay Oglethorpe $413 million to cover construction costs.
The agreement calls for $318 million to go to current work and $105 millions toward future needs. Georgia Power has also agreed to cover any additional cost overruns associated with the Vogtle Units 3 and 4.
Oglethorpe spokesperson Heather Teilhet told The Bond Buyer the cooperative had sought partnership on the project as to meet an expected increase in long-term demand for energy as its members experienced growth.
“There is great value in keeping our full Vogtle capacity, especially at a significantly reduced cost,” she said. “We believe nuclear energy is increasingly important to the clean energy transition, and Oglethorpe Power’s significant ownership in the Vogtle construction project is a testament to the important investments we’re making that drive us toward a cleaner and more sustainable energy future.”
Teilhet added that overall project risks had declined with the start of operations at Unit 3.
“Reaching commercial operation of the first new advanced nuclear plant in the US in more than 30 years was a significant milestone for Oglethorpe Power and our members, as well as the entire nuclear industry across the U.S.,” she said.
The agreement has already netted positives for the power cooperative.
Fitch Ratings pointed to the settlement Oct. 12 when it revised Oglethorpe’s rating outlook to positive from stable, while affirming its issuer rating of BBB.
Prior to the settlement agreement, Oglethorpe had estimated the budget at $8.1 billion “including an assumed reduction in ownership share to 27.5% with OPC’s exercise of the ‘freeze option,’ and the release of approximately 55MW of its 660MW,” Fitch said.
In light of it, the rating agency estimated Oglethorpe’s 30% stake in Vogtle Units 3 and 4 had risen in value to $8.3 billion.
Fitch said the revision also factored in Oglethorpe’s “very strong revenue defensibility,” active efforts to extend the term of the wholesale power contracts, and an expected decline in leverage, in addition to Unit 3’s start of operations followed by two months of “consistent and reliable” service.
“Nuclear construction remains an asymmetric rating factor consideration that constrains the rating at this time, given the inherent complexity of nuclear start-up operations,” the report said. “Nevertheless, the positive outlook indicates that with commercial operation of the second unit expected early next year, this asymmetric consideration could be removed within the outlook period.”
In the report, Fitch also affirmed a BBB rating for Oglethorpe’s $4.15 billion first mortgage bonds and of $612.5 million of pollution control bonds issued by the development authorities of Appling, Burke, and Monroe Counties. Such pollution control bonds are generally tax-exempt private activity bonds. Fitch also affirmed an ‘F2’ rating on OPC’s $1.2 billion commercial paper program.
Moody’s Investor’s Service rates Oglethorpe Baa2 with a stable outlook.
The start of operations at Unit 3 also netted Oglethorpe and another project participant, MEAG, along with several of its financial backers, including Jacksonville’s city-owned JEA utility and Alabama-based PowerSouth Energy Cooperative, outlook boosts to stable from negative from S&P Global.
The milestone was an “indicator of the reduced operating risks facing the cooperative,” S&P said in its report.
MEAG, which had backed its share of construction costs through municipal bond sales, saw its partnership with JEA nearly fracture as costs rose and the JEA, committed to purchase 13% of the energy produced by the reactors under a pay-or-take agreement with MEAG, sued to leave the arrangement.
The dispute led to downgrades for JEA, the city of Jacksonville, and a directly affected MEAG series of bonds. The sides ultimately settled with JEA remaining in the deal, and the settlement brought upgrades for the former litigants.
S&P currently rates JEA A-plus with a stable outlook.
Progress continues on Vogtle Unit 4, with Georgia Power expecting a start to commercial operations in March 2024, an encouraging sign for the project, S&P added.
Earlier this month, Georgia Power announced it found a faulty coolant pump when testing Unit 4 that would require a replacement, but said it didn’t expect the issue to affect the new start date.