MEAG bondholders breathe more easily for now

28 September 2018

On 26 September, co-owners of the Vogtle 3&4 nuclear plants agreed to continue construction of those facilities. The agreement gives investors a degree of comfort, but the possibility of additional delays and cost overruns remains a significant and unquantifiable risk. This is especially the case given that construction was only 55.3% complete as of 31 July.

 

Vogtle partners and their respective ownership shares are Georgia Power Company (GPC, 45.7%), Oglethorpe Power Corporation (30%), the Municipal Electric Authority of Georgia (MEAG, 22.7%), and the City of Dalton, Georgia (1.6%). The GPC also serves as project manager.

 

Recent developments

 

On 8 August 2018, Vogtle cost and contingency increases totaling USD 2.2bn were announced, with MEAG’s share of this amount USD 500m. The higher project costs alone did not require that co-owners vote to continue construction, but those costs in conjunction with the GPC’s decision not to pass them along to its customers resulted in the need for a vote.


Proceeding with construction required approval by co-owners that comprise 90% or more of project ownership. MEAG, GPC, and Oglethorpe each agreed to continue, but Oglethorpe attached conditions to its vote.

 

After two days of negotiations, the GPC agreed to assume a greater share of the liability for financing Vogtle 3&4 if project costs continue to increase. GPC also said that upon project completion it would purchase additional production tax credits from the other co-owners and lessen for MEAG any adverse effects of its JEA litigation.

 

Analyst takeaway

 

Working in favor of the project is that when cost increases were announced in August, completion dates remained unchanged. In addition, the GPC reported last month that nuclear facilities of the same design as Vogtle 3&4 were progressing toward commercial operation in China, and one such plant reached full power on 11 August.

 

However, if Vogtle construction costs continue to increase, the projects will become unsustainable from an economic or political point of view, or both. As of now, Vogtle enjoys the support of Georgia Governor Nathan Deal (R).

 

 

*Prior to construction

 

Given past project delays and construction completion at 55.3%, investors should be prepared for the possibility that similar delays will occur.

 

by Greg Clark