Nuclear project may be canceled
Westinghouse has a lot at stake in Ga.
The future of Westinghouse Electric Co.’s AP1000 plant, the fate of the U.S. nuclear industry and the trajectory of the bankrupt Cranberry-based nuclear firm might come down to what’s good for Georgia electricity customers.
It’s a question that must be weighed by that state’s public service commission this week. The commission’s opinion will determine if the remaining nuclear power plant construction project in the country — two AP1000 units at Plant Vogtle — will meet its premature end, possibly in the next few weeks.
It’s not a direct cancellation vote. The commission, which began hearings Monday, must determine if the costs incurred in the first six months of this year by Georgia Power, a 45 percent owner of the project, are reasonable to recover from electric customers, and if future costs would be as well.
The commission’s staff doesn’t think all of the costs are. In fact, staff members think it’s
time that the shareholders of Georgia Power’s parent company, Southern Co., feel some of the pain for Southern’s poor oversight of the Vogtle project, the price tag of which ballooned from $14 billion to $27 billion while Westinghouse was in charge of construction.
The larger threat to Vogtle and to Westinghouse, which could see its flagship new generation reactor fade into the ether over this, is that the utilities that commissioned the reactor have said they can pull out of the project if the commission rules that costs can’t be passed on to ratepayers.
It was a decision by one of the utilities that commissioned two AP1000 plants in South Carolina to pull out that led to the cancellation of that project in July.
That’s when all eyes turned to Georgia where Southern said it would seek the public service commission’s blessing to continue.
The shadow of Westinghouse’s bankruptcy is everywhere in these proceedings.
Georgia Power said it spent $542 million during the first half of the year. Of that, $498 million went to Westinghouse contractors who said they were stiffed by the nuclear firm before it filed for bankruptcy in March. Southern paid them off in order to keep the construction project humming during the uncertainty of the weeks following the bankruptcy filing.
“The financial impact of [Westinghouse’s] failure to perform its scope of work should not be passed onto ratepayers,” the commission’s staff argued in prefiled testimony.
The commission was scheduled to make a decision on the costs in February, but its chairman, Stan Wise, said he’d like to move up the timeline to have a decision by the end of the year. The reason is tax breaks. Although dropping the corporate tax rate from 35 percent to 20 percent, as proposed by bills in both chambers of Congress, generally would be good for Southern and its customers, the company told the commission, it would also rob Southern of $150 million in tax benefits if Vogtle were canceled after the tax rate dropped.
“These benefits would offset project costs and be passed along to consumers,” Mr. Wise said in a letter to Georgia Power last week. He did not indicate if he’s in favor of canceling the project.
The commission’s staff, in its analysis, said that canceling the project would bring $1 billion in tax benefits. It also declared the project “no longer economic.”
“The economic cornerstones of the project are no longer in place,” the staff wrote. “The agreement, which required [Westinghouse] to absorb certain capital cost overruns, is no longer in place. The threats of high natural gas prices and carbon dioxide legislation have diminished. Without these economic cornerstones, the economic rationale for the units is diminished.”
And although the project’s construction monitor and commission staff analysts said in testimony that it appears work at the site is going more smoothly since Southern took over construction and hired Bechtel Corp., a construction management firm, as a subcontractor, they also noted that now Southern bears all the risk.
“Now, Westinghouse [and Bechtel] have ‘no skin in the game,’” they wrote.
Yet Westinghouse has a lot at stake at Vogtle. It has no other domestic prospects for selling the AP1000 power plant and its international efforts have dragged on with no contracts signed outside of China.
In China, where the first four AP1000 plants are being built, Westinghouse’s future opportunities are limited by its agreement to transfer the nuclear technology to Chinese nuclear firms. That means the next wave of AP1000 reactors in China — six have been ordered — will have a much smaller role for the Cranberry-based firm and a much smaller price tag.
Even if Vogtle goes forward, it could still stain the industry, said Chris Gadomski, head of nuclear research at Bloomberg New Energy Finance.
Whether Vogtle is completed or not, the project demonstrates that large nuclear plants can’t be built economically, he said.
That, and the rise of cheap natural gas among other factors has fostered the attitude on Wall Street that “the era of large scale nuclear power plants in the U.S. is done.”
In some nuclear industry circles, Mr. Gadomski said, there’s a sentiment that Vogtle’s demise might free the industry to focus on advanced nuclear reactors.
“If the Westinghouse project at Vogtle implodes, there’ll be crying and gnashing of teeth, but we’d put it behind us,” he said.
Nevertheless, politicians and officials at the U.S. Department of Energy also understand that a failure at Vogtle might take the U.S. out of the game when it comes to nuclear development abroad which, Mr. Gadomski noted, also has national security implications.
“For nuclear Team America to no longer exist is probably a troublesome thought [for them],” he said. “So, there’s some sort of implicit support for the project to continue.”