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Credit agencies eyeing Plant Vogtle cost overruns

Ray Henry, Associated Press

ATLANTA (AP) -- As the cost of building a new nuclear plant in Georgia rises, credit rating agencies are taking critical notice.

Four power utilities — Georgia Power, the Municipal Electric Authority of Georgia, Oglethorpe Power Corp. and the City of Dalton — are building a first-of-its-kind nuclear plant about 30 miles southeast of Augusta. That project was originally expected to cost roughly $14 billion, but it has fallen behind schedule by more than a year and is expected to exceed its budget.

The effort is managed by Southern Co. subsidiary Georgia Power, a large utility with a 46 percent stake in the new plant. In late February, Georgia Power told state regulators that its costs were expected to grow by roughly $737 million to about $6.85 billion. Other utilities have reported similar increases in spending roughly equivalent to their share in the project.

Few analysts are worried about the financial implications for Georgia Power, which has a big balance sheet. So far, elected utility regulators that oversee the monopoly have allowed it to pass along its costs to nearly 2.4 million customers.

Other partners are facing more scrutiny. Last week, Fitch Ratings gave a negative outlook to bonds issued by Oglethorpe Power Corp., which supplies electricity to 1.8 million customers, and owns a 30 percent stake in the two new reactors being built at Plant Vogtle. The company's share of project costs has risen by $300 million to $4.5 billion, according to financial filings.

Fitch did not change the company's mid-level credit rating, a ranking that shows analysts think there is low risk that Oglethorpe will fail to repay its lenders. But the negative outlook "reflects Fitch's concern that further delays and higher costs related to the Vogtle nuclear expansion project could weaken the cooperative's operating and financial profile beyond original expectations," the Fitch report said.

Besides increased construction costs and delays, Fitch said questions over the company's continued access to low-cost loans and an ongoing legal dispute with the plant's designers and builders over an additional $900 million in unanticipated costs contributed toward the negative outlook. The plant owners have denied responsibility for those costs.

Those concerns were partly offset by Oglethorpe's decision to partner with Georgia Power, a utility with experience building nuclear plants. Fitch said contracts also help minimize Oglethorpe's exposure to extra construction costs. Cheaper interest rates and low natural gas prices will moderate increases in electricity costs caused by the nuclear project.

Alan Spen, a senior director for Fitch's public power group, said Oglethorpe had a contingency budget for the project and has benefited from low interest rates, which helped keep costs down.

"They've probably used up a certain amount of that flexibility," Spen said. "And now with the delays and the litigation and other factors ... I think if things can stabilize and go as expected, that probably would be good for the rating and project. If it continues to cost more and we see more delays, it would have to then get reflected in the rating."

Oglethorpe, which sells wholesale electricity to smaller power provides, said it believes the nuclear plant will prove cost-effective in the long-run. The company told investors in March that it has more than enough cash to meet its obligations. Regulators do not set its rates, meaning elected officials cannot balk at passing its costs onto customers.

"A construction project of this magnitude can result in some near-term pressure on financial metrics," Oglethorpe spokesman Greg Jones said in a statement.

Separately, Moody's Investors Service has not changed its scoring for the power companies building the new reactors at Plant Vogtle. But it released a report in March noting that negative financial pressures were increasing for three bonds issued by the Municipal Electric Authority of Georgia, which owns a 23 percent stake in the new plant.

"Construction delays are a leading indicator of rising costs," the report said. "We think that further delays and new cost over-runs are likely, and there is a finite level that will be tolerated by ratepayers which could lead to a rating downgrade."

In a worst-case scenario, Moody's said increased costs and building delays could force MEAG to issue more debt and put pressure on power companies that have to cover project payments.

Jim Fuller, MEAG's chief financial officer, said the company has enough financing to fund its share of construction costs and still allow for contingencies. If more money is necessary, there are no legal barriers to borrowing more.

"There's been some delay in the schedule and some cost increases, which for a project of this magnitude isn't unexpected," he said.


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