New Nuclear Reactors? Wall Street Says 'No Thanks' - Watchdog: Taxpayers Face New Solyndra Drubbing As Wall Street Takes a Walk
ANOTHER VOGTLE REACTOR DEADLINE PASSES: TAXPAYER ADVOCATES WARN GOVERNMENT KEEPS PUSHING BAD DEAL THAT WALL STREET WON'T TOUCH
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WASHINGTON, D.C. - July 2, 2013 (Investorideas.com newswire) Think Washington has learned its lesson after Solyndra? Think again. The nonpartisan budget watchdog group Taxpayers for Common Sense (TCS) pointed out today that another deadline has passed for the U.S. government, Southern Company, and other entities involved in the controversial Vogtle nuclear reactor project to reach agreement on loan guarantee terms.
Even as the end of June deadline for reaching agreement on loan guarantee terms comes and goes, Washington continues to woo Southern and its utility partners – while nearly every major Wall Street rating firm has downgraded Southern and the related entities due to increased risks and financial uncertainties associated with the Vogtle project, which could cost taxpayers 15 times that of the Solyndra deal.
Ryan Alexander, president, Taxpayers for Common Sense, said: "This whole thing has the stink of another Solyndra-like goose egg for American taxpayers. Wall Street is sending every possible signal that investors would be ill-advised to hop on the Vogtle bandwagon and yet Washington is taking exactly the opposite tack: bending over backwards to find a way to put taxpayers on the hook, no matter how bad the terms. We say: Enough is enough. There has been ample time to work out a deal here. Now that we know Wall Street wants no part of it, we think it's time for prudent people in D.C. to follow suit and put the interests of taxpayers first."
Just how negative is Wall Street about the Vogtle reactor project? When it downgraded Southern Company on June 21, the ratings agency Zacks wrote: "We also remain skeptical regarding Southern Company's $14 billion investment for the construction of two new reactors at the company's existing nuclear site in Vogtle, Georgia. With a fair chance of cost overruns and likely modifications - to fully address the safety risks exposed by the meltdown at Japan's Fukushima plant … the project cost could easily end up around $20 billion. This will substantially increase Southern Company's leverage and deteriorate its credit metrics."
The adverse Wall Street ratings are just one of the issues addressed in TCS' fact sheet issued today
VOGTLE: A PROJECT IN TROUBLE
As TCS notes, in February 2010, the Department of Energy (DOE) conditionally offered Southern Company and its partners a total of $8.33 billion in taxpayer-backed loan guarantees to construct two 1,100 MW Westinghouse AP1000 reactors (reactors 3&4) at Southern Co.'s Plant Vogtle near Waynesboro, Georgia. Southern Co. experienced massive cost overruns while constructing the first two reactors at the site in the 1980s. Original estimates for Vogtle reactors 1&2 were under $1 billion each, but final costs skyrocketed to nearly $9 billion.
Currently, reactors 3&4 are estimated to cost more than $14 billion and come online in 2017 and 2018, respectively. However, construction delays and pending lawsuits have already pushed the project's commercial operating date back a year and could cause significant increases in project costs. In a February 2013 report to the Georgia Public Service Commission, Georgia Power (subsidiary of Southern Co.) requested approval for additional project costs totaling $737 million, potentially raising the initial $14 billion estimate to $14.7 billion.
Further, Westinghouse and the Shaw Group—the two contractors hired to construct Southern's two new reactors—filed suit against the Southern Co. and its partners seeking $900 million over disputed costs resulting from project design changes. As of June 2013, litigation is pending. If the project's utility partners lose the lawsuit, project costs could rise to $15.6 billion.
WALL STREET SAYS "NO WAY"
Here is what Wall Street is saying about the key players in the troubled Vogtle reactor project:
Goldman Sachs and Zacks Investment Research have recently rated Southern Company as a "sell." The Southern Company (parent company of Georgia Power) reported net income of $2.35 billion in 2012. The energy conglomerate currently has around $1.3 billion in outstanding debt and a debt-to-asset ratio of 36.8 percent. In first quarter of 2012, Southern Company earned $0.42 per share. In the first quarter of 2013 this dropped by 79 percent to $0.09 per share. Goldman Sachs cited "accelerating capital spending on Vogtle nuclear project and ongoing litigation with the plant's contractors" as well as the Kemper coal gasification plant and upcoming GA Power rate case. Zacks pointed to weak share earnings, increased expenses, and high risks associated with the construction of reactors 3&4 at Plant Vogtle. With the likelihood of additional delays and cost overruns, Zacks states "the project cost could easily end up around $20 billion."
Standard and Poor's downgraded the Outlook on Southern Company and Georgia Power's credit ratings from 'Stable' to 'Negative.' Georgia Power has 45.7 percent ownership of the proposed Vogtle expansion project, and its share of project costs is nearly $6.4 billion. Georgia Power is currently paying for financing costs associated with Vogtle reactors 3&4 in part by charging its customers in advance with a tariff referred to as a Nuclear Construction Cost Recovery Rider with a Construction Work in Progress (CWIP) balance that now totals $2.3 billion.
Fitch Ratings recently downgraded the outlook on all of Oglethorpe Power Corporation's bonds from 'Stable' to 'Negative.' Oglethorpe's 2012 financial filings note that the rising costs of the Vogtle project are a risk factor for the company. Oglethorpe's share of the project (30 percent) has increased from $4.2 billion to $4.5 billion while the Vogtle 3&4 reactors' planned commercial operation dates have been pushed back a year to the fourth quarter of 2017 and 2018, respectively.
Moody's has downgraded the outlook on Municipal Electric Authority of Georgia bonds from 'Stable' to 'Negative.' MEAG Power (loan guarantee applicant), a not-for-profit public energy consortium based in Fulton County, Georgia, was created by the Georgia General Assembly in 1975 to provide power to small cities and towns. MEAG estimates its share of reactors 3&4 construction costs (22.7 percent) will come to $4.2 billion. To finance that amount, MEAG has issued three series of bonds since 2009: Project M bonds, Project J bonds, and Project P bonds. MEAG Power had $6.63 billion of outstanding debt at the end of 2012.
Taxpayers for Common Sense is a 501(c)(3) nonpartisan budget watchdog serving as an independent voice for American taxpayers. The mission of TCS is to achieve a government that spends taxpayer dollars responsibly and operates within its means. The organization works with individuals, policymakers, and the media to increase transparency, expose and eliminate wasteful and corrupt subsidies, earmarks, and corporate welfare, and hold decision makers accountable.
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