Vogtle shareholders get an edge (updated)

23 February 2010

With US president Barack Obama's decision to provide $8.33 billion in loan guarantees for construction of the 2,204MWe Vogtle 3&4 last week, the project's shareholders have gained a financial edge over other new-build nuclear projects.

Construction of Vogtle 3&4 as of January 2010
Construction of Vogtle 3&4 as of January 2010

The US Department of Energy has issued provisional loan guarantees to three Vogtle 3&4 stakeholders: $3.4 billion to 45.7% owner Georgia Power, a maximum of $3.1 billion to 30% owner Oglethorpe Power, and $1.8 billion to 22.7% owner Municipal Electricity Authority of Georgia (MEAG) Power. The final Vogtle project stakeholder (1.6%) is Dalton Utilities.

Although the loan guarantees are not loans, they are the next best thing; the government-owned Federal Financing Bank takes on the risk of defaulting on the loan. They generally cover up to 70% of the stakeholders' non-financing construction costs. This fraction is particularly important to Oglethorpe Power, which has secured a loan guarantee that is currently 73.8% of its estimated total spend. If Oglethorpe only spends what it expects to, it will only be able to receive $2.94 billion in loan guarantees, a company spokesman said. It would need to spend at least $4.36 billion to take the maximum $3.057 billion guarantee offered. The utilities do have to negotiate a fee with the bank to offset the risk of default.

In addition to the loan guarantees, the stakeholders are also allowed to reclaim the cost of financing the plant during the construction process (a deal called CWIP, construction work in progress), following a decision by the state's Public Service Commission in July 2009. According to Georgia Power, the loan guarantees save the utility $300 million, to an estimated total spend of $6.1 billion. That amount includes approximately $1.7 billion in financing to be collected during construction. MEAG Power also said that its expected costs of $3.7 billion includes 'interest capitalised during construction', although it did not specify how much came from finance. Oglethorpe Power said that it expected to pay $4.2 billion on the project.

Although the US government covers the risk on the majority of the loan, the sums are so large that even the remaining 30% that the companies are spending is a very significant sum. Georgia Power said that it would finance its remaining $1 billion through access to the private-sector equity and debt market. Oglethorpe Power said it would look to issue taxable bonds and tax-exempt bonds for qualifying equipment at the plant.

MEAG Power has announced complex plans to finance its stake. It has announced its plans to issue $2.48 billion worth of Build America Bonds and $54 million of tax-exempt bonds to fund its involvement. Also, it has set up 20-year deals to export more than half of its 22.7% share of power to utilities in adjacent states. JEA, formerly Jacksonville (Florida) Electric Authority, would get 40%, and Alabama-based PowerSouth Energy Cooperative gets 25%. In return, MEAG Power says, the two other utilities have agreed to share in the construction and operating risks relating to their purchased share of the output during the term of the contracts."

Dalton Utilities spokesman Don Cope said that the company was planning to fund its estimated $200 million outlay with operating revenues rather than debt. For this reason, it did not apply for a loan guarantee. The company also owns a 2% stake in Hatch 1&2 and Vogtle 1&2.

Final approval and issuance of the loan guarantees are subject to receipt of the Combined Operating License (COL) from the U.S. Nuclear Regulatory Commission (NRC), completion of final agreements, the receipt of any other required regulatory approvals and satisfaction of other conditions. Georgia Power received an early site permit from the NRC for the two additional units in 2009, and preliminary site work has begun.

The US Department of Energy has issued provisional loan guarantees to three Vogtle 3&4 stakeholders: $3.4 billion to 45.7% owner Georgia Power, a maximum of $3.1 billion to 30% owner Oglethorpe Power, and $1.8 billion to 22.7% owner Municipal Electricity Authority of Georgia (MEAG) Power. The final Vogtle project stakeholder (1.6%) is Dalton Utilities.

Although the loan guarantees are not loans, they are the next best thing; the government-owned Federal Financing Bank takes on the risk of defaulting on the loan. They generally cover up to 70% of the stakeholders' non-financing construction costs. This fraction If Oglethorpe power, the loan guarantee is actually The utilities do have to negotiate a fee with the bank to offset the risk of default.

In addition to the loan guarantees, the stakeholders are also allowed to reclaim the cost of financing the plant during the construction process (a deal called CWIP, construction work in progress), following a decision by the state's Public Service Commission in July 2009. According to Georgia Power, the loan guarantees save the utility $300 million, to an estimated total spend of $6.1 billion. That amount includes approximately $1.7 billion in financing to be collected during construction. MEAG Power also said that its expected costs of $3.7 billion includes 'interest capitalised during construction', although it did not specify how much came from finance. Oglethorpe Power said that it expected to pay $4.2 billion on the project.

Although the US government covers the risk on the majority of the loan, the sums are so large that even the remaining 30% that the companies are spending is a very significant sum. Georgia Power said that it would finance its remaining $1 billion through access to the private-sector equity and debt market. Oglethorpe Power said it would look to issue taxable bonds and tax-exempt bonds for qualifying equipment at the plant.

MEAG Power has announced complex plans to finance its stake. It has announced its plans to issue $2.48 billion worth of Build America Bonds and $54 million of tax-exempt bonds to fund its involvement. Also, it has set up 20-year deals to export more than half of its 22.7% share of power to utilities in adjacent states. JEA, formerly Jacksonville (Florida) Electric Authority, would get 40%, and Alabama-based PowerSouth Energy Cooperative gets 25%. In return, MEAG Power says, the two other utilities have agreed to share in the construction and operating risks relating to their purchased share of the output during the term of the contracts."

Final approval and issuance of the loan guarantees are subject to receipt of the Combined Operating License (COL) from the U.S. Nuclear Regulatory Commission (NRC), completion of final agreements, the receipt of any other required regulatory approvals and satisfaction of other conditions. Georgia Power received an early site permit from the NRC for the two additional units in 2009, and preliminary site work has begun.


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