Another year, another Plant Vogtle delay, another plea from Georgia Power to shift costs onto its captive customers.
In March, the company identified in an 8-K filing that additional construction remediation work would push back its timeline by at least a month. In June, the company filed a Common Rate Adjustment Application proposing to increase annual rates to customers by $235 million once Plant Vogtle’s Unit 3 begins operation.
More:Public Service Commission staff testify to mechanical issues, delays at Plant Vogtle
More:With Plant Vogtle nearer to completion, Georgia Power seeks to recoup capital costs
The total price tag for the 2,250-megawatt project has now ballooned to $25 billion, with Georgia Power’s portion of the cost increasing from a $6.1 billion estimate to over $11.1 billion today. For comparison’s sake, Duke Energy built 560 megawatts of combined cycle natural gas capacity at the new Asheville, North Carolina, power plant for less than $820 million, illustrating the high opportunity cost of Georgia Power’s Vogtle adventure. And while Georgians are now all but inured to bad Vogtle news, real harm is being done: The cost to each Georgia Power household has now climbed to more than $850, according to the Atlanta Journal-Constitution.
Anti-nuclear activists have seized on the Vogtle fiasco as an indication that the technology is itself cost-prohibitive. But a more discerning reading of Vogtle’s history doesn’t call for an indictment of nuclear energy; it calls for an indictment of the cronyist utility regulation model that plagues Georgia.
For subscribers:Going nuclear over Plant Vogtle’s problematic nuclear reactors
The Vogtle fiasco exhibits the pitfalls of a system that insulates investor-owned utility companies from the incentives of profit and loss. In Georgia’s system – and those in about two dozen other states – a utility monopoly negotiates with the regulatory board rather than with its customers, and is granted a guaranteed rate of return on its investments. Because the regulatory board, the Public Service Commission, is Georgia Power’s primary audience, the customer feedback mechanism is clouded.
In the arena of consumer technology, a field that reflects market principles as well as any, companies compete to deliver prospective customers high-value products at affordable prices. If they fail to stay at the top of their game, they lose market share – just ask BlackBerry.
In the arena of electricity, on the other hand, the incentives allow monopolies like Georgia Power to spend profligately on new projects, increase expenses for the state’s households and businesses, and yet continue to hum along. In fact, with its proven ability to convince the Public Service Commission of the need to bake capital costs into the base rate for customers, Georgia Power is incentivized to opt for projects, like nuclear, that are capital intensive.
More:Georgia Public Service Commission staff to testify of more Plant Vogtle Unit 3 delays
Failures like Vogtle aren’t limited to nuclear energy, however, and they’re not limited to Georgia. In Mississippi, a now-scrapped coal-to-gas power-generation gambit shows many of the same hallmarks. Mississippi Power’s Kemper Project was approved by state regulators at a cost estimate of $2.4 billion, yet saw repeated delays, a tripling of cost estimates, and a frightening explosion before the regulatory board put the project on ice and avoided passing double-digit rate increases on to customers. While the new units at Plant Vogtle will (hopefully) soon produce power, Georgians will be paying the double-digit rate increases Mississippians avoided.
Interestingly, the Kemper coal-to-gas failure and the Vogtle trouble emanate from subsidiaries of the same umbrella corporation: Southern Company.
Southern Company is a Fortune 150 entity and is the second-largest utility provider in the country. Despite the Mississippi embarrassment and the ongoing cost escalations Georgians will pay for from Vogtle, Southern Company’s stock price is higher than ever and it has provided shareholders a growing quarterly dividend for 20 straight years. If we need any further evidence of the perverse incentives in electricity, Southern Company’s overall financial success should seal the case.
Georgia needs Vogtle to pull through, but going forward, the state ought to reckon with the cronyist utility regulation model that has created this debacle. The model has allowed Southern Company shareholders to get rich while Georgians see their household budgets pinched by the pass-through of Vogtle’s cost overruns.
More:How much will Plant Vogtle expansion cost Georgia Power customers? Regulators to decide
The solution to this systemic problem is the careful introduction of market competition that will reacquaint utilities like Georgia Power with the interests of their customers. The Peach State has come under the national microscope in recent years across a range of policy issues. On electricity, it should use that prominent national position to display its ability to learn from past mistakes by opting for market reforms that bring accountability to out-of-line utilities.
Jordan McGillis is deputy director of policy at the Institute for Energy Research, Washington-based think tank that monitors issues surrounding the regulation of global energy markets.