Fanning disappointed in DOE's modified terms for Vogtle loan

Southern Co CEO Tom Fanning EIA DOE loan guarantee Plant Vogtle VC Summer SCANA Georgia Power Mississippi Power Kemper County IGCC plant GenerationHub

By Wayne Barber, Chief News Analyst, GenerationHub

Southern (NYSE:SO) CEO Tom Fanning is disappointed that the Department of Energy (DOE) changed the “terms and conditions” for final approval of a federal loan guarantee for two new nuclear units in Georgia in the wake of the Solyndra bankruptcy.

Solyndra is the solar technology company that suspended operations in September of 2011 despite receiving a federal loan guarantee. During his remarks June 17 at the Energy Information Administration (EIA) conference in Washington, D.C., Fanning didn’t sound as if subsidiary Georgia Power was on the brink of finalizing its DOE loan guarantee.

“This is a corporate financed project” that DOE is trying to treat as a “project financing” venture, Fanning told GenerationHub following his speech. Project finance tends to be based upon the projected cash flows of the project rather than the balance sheets of its sponsors.

DOE’s project financing approach would not take into account the “full faith and credit of Georgia Power” is behind the construction of Vogtle Units 3 and 4.

“Those terms and conditions just aren’t suitable for our application, so we’ll just have to see,” Fanning said.

The Southern subsidiary owns almost 46% of the $14bn nuclear plant construction project and is about halfway through the 10-year project, Fanning said. Despite the uncertain status of a federal loan that Georgia Power customers are likely to see an overall cost increase of only 6% to 8% as a result of the new nuclear units.

At the outset of the project, Fanning said that he figured the nuclear construction would probably require a cost increase in the neighborhood of 12% for customers.

Recently-confirmed Energy Secretary Ernest Moniz did not mention the nuclear loan guarantee status in his remarks to the conference.

Moniz did, however, say he was excited about the nation building new nuclear units for the first time in 30 years. In addition to Vogtle, SCANA (NYSE:SCG) is leading developing V.C. Summer Units 2 and 3 in South Carolina.

Moniz said it was very important for confidence in the nuclear industry that such units are built on time and on budget.

The DOE is also committed to seeing commercial development of small modular reactor (SMR) technology, Moniz said.

As he did in a recent appearance before a House of Representatives panel, Moniz emphasized his support of carbon capture and storage (CCS) technology for coal-fired power generation.

Fanning: Don’t forget ‘workhouse’ power of coal, nuclear

During the past six years, Southern has seen natural gas grow from 16% to 47% of its electric generation portfolio. Southern is now the nation’s third largest consumer of natural gas.

Nevertheless, Fanning fears there are several potential pitfalls connected with overreliance on natural gas. They include: Environmental concerns linked with fracking; the need for more pipeline infrastructure; the uncertain implications of increased exports of liquefied natural gas (LNG) and dramatic increases in gas demand.

In 2011, the U.S. consumed on average 67 billion cubic feet (BCF) of gas per day, Fanning said. Some estimates suggest that figure could reach 100 BCF by the end of the decade.

The “workhorse” technologies of coal and nuclear power continue to be very reliable, Fanning said.

Nuclear power can be generated at about $1/mmBtu and the integrated gasification combined-cycle (IGCC) plant that Southern subsidiary Mississippi Power is now building should generate power at about $1.25 mmBtu, Fanning said.

Testing has already started for the 582-MW IGCC, which will gasify locally-mined lignite coal and capture about two-thirds of the CO2 for use in enhanced oil recovery (EOR).

Although Southern recently took a write-down on the IGCC project, Fanning still feels good about its overall prospects and its planned mid-2014 commercial operation date.

On June 5, Mississippi Power announced that John Huggins has been elected vice president of generation development. Huggins will be responsible for the development and construction of the Kemper County energy facility and other generation projects.

In April, Mississippi Power increased its cost estimate for the coal gasification project from $2.88bn to about $3.42bn, both net of DOE grants and cost cap exceptions. But the utility has promised the Mississippi Public Service Commission to limit customer rate base exposure for the plant to $2.4bn.

Fanning has called the IGCC venture a pioneering project for the use of 21st century coal. “This is a technology that’s important for America,” Fanning said.

He added that Southern is one of the few companies around that still do private research and development of coal power technology.

On other topics, Fanning said Southern subsidiaries have also recently added 1,200 MW of renewable energy and were making a major investment in energy efficiency.

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