Nuclear milestone in Georgia boosts utility participants

Years late and billions of dollars over budget — but finally producing electricity.

The milestone of full operations for the Plant Vogtle unit 3 nuclear reactor in Georgia has improved the rating outlook for three utilities that contracted to take its electricity.

Georgia-based MEAG Power, Jacksonville’s city-owned JEA utility and Alabama-based PowerSouth Energy Cooperative, partners on the development of two new nuclear reactors at Plant Vogtle in Waynesboro, Georgia, all received rating outlook boosts to stable from negative from S&P Global Ratings Wednesday following the partial start of commercial operations.

Plant owner Georgia Power declared the Vogtle 3 unit to be in commercial operation as of July 31.

“Although construction continues at Vogtle unit 4, which has also experienced similar delays, we view the start of commercial operations at unit 3 and Nuclear Regulatory Commission clearance for the commencement of fuel loading at unit 4 as indicators of lower operating risks facing the three issuers,” S&P said.

MEAG Power owns a 22.7% stake in the $30 billion project. Its bonds carry S&P ratings between BBB-plus and A, depending on the revenues pledged to back them.

The reactors were to have been completed in 2016 and 2017 but investor-owned Georgia Power, owners of the largest 45% stake and its primary contractor, encountered numerous delays and overruns, S&P said.

“The outlook revisions reflect the commencement of commercial operation, albeit seven years behind schedule and at a cost that is almost double initial projections,” S&P said.

Under a take-or-pay power agreement struck with MEAG by JEA and PowerSouth, financing would be provided by billions of bonds issued by MEAG, with 20 years of debt service on the 40-year notes covered by the two other partners in return for ownership stakes in the energy produced.

In 2018, with work behind schedule and over budget, the JEA, owners of a 13% stake in the energy produced by the new reactors, sued to leave the partnership, leading to downgrades for JEA, the city of Jacksonville, and a directly affected MEAG series of bonds.

In August 2020 a settlement was reached that kept the deal afloat and resulted upgrades to affected ratings.

Now the project has found more stable footing, indicating lower operating risks facing the three issuers, S&P said.

S&P currently rates JEA A-plus with a stable outlook. It rates PowerSouth Electric Cooperative BBB-plus with a stable outlook.

In its decision, S&P cautioned that the reactor’s commercial viability “reduces but does not eliminate” the financial uncertainties surrounding the project and its partners.

The rating agency said JEA, which is pursuing the goal of 35% clean energy production by 2030 and hopes to leverage the two new reactors for 11% of that total, had a “limited transition to clean resources” suffering from “an outgrowth of a failed multiyear initiative to sell the utility that hindered long-term strategic planning.”

Alabama’s PowerSouth faced the confluence of rising natural gas costs and higher than estimated project totals, which together “placed potential pressure on the cooperative’s financial flexibility and resulted in softening of projected financial metrics.”

“Nevertheless,” S&P said, “we conclude that the utility’s strong financial performance and less uncertainty surrounding the Vogtle project support the revised outlook,” adding they will continue to monitor the uncertainties surrounding the completion costs of the fourth reactor.