Georgia Power Braves Nuclear Headwinds

EnergyBiz: Georgia Power Braves Nuclear Headwinds

Despite the headwinds, the nuclear sector in this country is forging ahead with new construction. Georgia Power, a subsidiary of Southern Company, is now in the spotlight and wants to build two new reactors on an existing nuclear site.

But concerns exist that the utility could exceed its timetable and allocated budget given the dynamics that underscore the energy marketplace today: Low natural gas prices, reduced demand and public apprehension in a post Fukushima Daiichi world. Still, the industry is insistent that it can deliver their product cheaply and safely -- and that loan guarantees are essential to do so.

Those loan guarantees assure borrowers that they will get reimbursed in the case of default. As part of the Energy Policy Act of 2005, Congress authorized such guarantees and then instructed the U.S. Department of Energy to devise the program. About $18.5 billion is now on the table, although the Obama administration wants to increase the total to $54 billion -- with the first two loans totaling $8.8 billion for the reactors to be built in Georgia.

The White House considers nuclear part of its overall strategy to reduce carbon emissions by 80 percent by 2050. "Investing in nuclear energy remains a necessary step," President Obama said in speech to union workers who would benefit from those jobs. "And what I hope is that this announcement underscores our seriousness in meeting the energy challenge."

Backers of that government policy emphasize that the loan guarantees are not taxpayer handouts but rather a form of insurance that will entice Wall Street bankers to invest in their enterprises. Opponents of them, conversely, say that nuclear plants are expensive and uncompetitive and that they have a proven track record of cost-overruns. As such, if they are unable to receive private financing then taxpayers should not become a backstop.

The one thing that both sides can agree upon is that the capital costs associated with constructing nuclear power plants are tremendous. According to Moody's Investor Services, the number is akin to $9 billion per reactor -- a lot more than a conventional fossil fired plant or a renewable energy facility. The nuclear industry responds that its plants operate at a 90 percent capacity factor, which is much better than competing facilities. Over the 40-year lifespan of such a plant, the operational costs are nominal.

Loans Guarantees

In 2009, the Energy Department identified four nuclear projects that it said qualified for loan guarantees. But two of those have run into obstacles. That leaves the twin facilities that Georgia Power would like to build as well as two others that SCANA Corp's South Carolina Electric & Gas Co. wants to construct. Both remain on schedule to get the combined construction and operating licenses they need from the U.S. Regulatory Commission to build reactors that would generate more than 1,000 megawatts each.

"Loan guarantees allow utilities to lower capital costs for new nuclear construction, which ultimately leads to lower electricity prices for consumers," says Jim Rogers, chief executive of Duke Energy.

In the case of Georgia Power, the value of the project is estimated to be $14 billion. Of that, about $6 billion would fall on the utility. The rest would come in the form of loan guarantees. If those numbers hold up and the company is able to pay off its loan, then most agree that the endeavor would be worth it.

But with all the uncertainty that now shrouds the nuclear sector, Georgia's public utility commission wants to shift more of the risks over to Georgia Power. That is, if the utility exceeds its budget, it would then receive a lesser allowable rate of return.

That's a point of contention for the utility, which says that substantial penalties could affect its credit ratings and that there are a number of external factors beyond its control. Its customers currently pay a small monthly fee to ensure the plants get built by 2016, and may conceivably get dunned for money if the power company does not stay on track.

"The fact that Georgia Power won't even allow a modest penalty so that they are motivated to stay on schedule and on budget is unacceptable," says Steven Smith, executive director of the Southern Alliance for Clean Energy, in an interview with the Atlanta Journal-Constitution.

At least the neighbors of the would-be plant are supportive. Two such facilities already exist on the site. By adding two more, the utility says that it would employ a total of 800 people to work there -- not bad in an area of the state that has 12 percent unemployment.

It would seem that the odds are stacked against Georgia Power. Its push to build those two additional reactors is coming during a period of record national debts and on the heels of the worst nuclear accident in 25 years. But the utility -- and the entire nuclear industry -- says that over time the building of new nuclear plants is vital and that now is the time to start.

EnergyBiz Insider has been named Honorable Mention for Best Online Column by Media Industry News, MIN. Ken Silverstein has also been named one of the Top Economics Journalists by Wall Street Economists.