The Vogtle Dilemma: To Run or Not To Run

It is becoming increasingly difficult for regulated traditional energy companies to secure their strategic niche, and compete convincingly in a diversified market. Affordable, clean and reliable power service is becoming an imperative within the changing landscape of various energy sources.  

In this strive, bringing the voice of the consumers within the institutional dialogue indicates that the notion of accountability may be shifting. We have the legislature, utilities, consumer institutions and the Public Service Commission (PSC), all together, resolving the issue of cost overruns. Who should pay for additional cost above and beyond the original estimated amount? To what extent are consumers accountable for the performance, decisions and actions taken by the public utilities? There is a shift in the dialogue in the energy discourse.

The Vogtle Nuclear Power Plant is between a rock and a hard spot. On the one hand, construction costs are running high and on the other hand, it has been difficult in meeting the construction deadlines and targets. Service delivery is an issue.

The recent introduction of a bipartisan legislation House Bill (HB) 267 at the Georgia General Assembly this session, question the viability of mega projects such as the Plant Vogtle. Few weeks back, the implementing agency of Plant Vogtle disclosed to Georgia regulators that the current budget of $6.11 billion approved by the PSC is insufficient to complete the project before 2018. An additional $737 million is required. These cost overruns, caused due to construction and logistical set-backs, delay completing dates of reactors by over twenty months. In order to address the cost impediment, HB 267 was introduced to penalize the implementing agency – in this case Southern Company’s subsidiary, Georgia Power for going over budget.

This Bill limits the profit margin of 11.5 percent rate of return on every dollar invested on Vogtle construction costs. However, the catch here is that despite the cost overruns and limits on the profit margin, HB 267 would allow the utility to recoup profit on any cost overruns by charging the rate payers. The circumventing on behalf of Vogtle raises regulatory, operational and ethical questions dealing with the performance, delivery time and cost. Is it fair to charge consumers for specific project delays of goods and services they may never benefit from? Are these decisions matter of PSC oversight or whether intervention by the General Assembly deemed essential? Who holds accountability to service delivery?

The dilemma of Vogtle Plant is not really about cost overruns, but rather on how to recover costs and from whom? Delving a bit deeper in this case, HB 267 beforehand questions the affordability aspects of energy generated from nuclear power. Complex projects come with complex operational timelines and schedules. Meeting targets and deadlines are contingent on various exogenous and endogenous factors, which sometimes lie beyond the planned scope of project implementation cycle.

In order to continue the project, additional investment is required. If not a risky investment, borrowing from shareholder investors is also an option. Vogtle must already be enjoying substantial subsidies, loan guarantees and production tax credits. In the scheme of Georgia Power’s business territory, additional $737 million may not be that big of a deal. The role, consumers eventually will play in enjoying clean, reliable and affordable energy will be a big deal.

 For the session 2013 however, HB 267 did not make it through the crossover day – Legislative Day 30, as it failed to pass the Energy, Utilities and Telecommunications subcommittee. There is a possibility that HB 267 could perhaps be revived for legislative action during the 2014 session. Until then, the answer to the question of accountability as a shared responsibility in the energy sector will remain unclear.