Moody's Investors Service is in no rush to downgrade Southern (NYSE:SO) utility subsidiary Georgia Power just because contractors say that completing two new Vogtle nuclear units could take 18 months longer than previously expected.
Moody's said Feb. 3 that it was affirming Georgia Power's A3 rating and its stable outlook.
“Moody's had anticipated additional delays and cost overruns at the Vogtle project since schedule changes were announced at the nearly identical Summer new nuclear project in South Carolina late last year and considering testimony of the Georgia Public Service Commission's (GPSC) independent monitor in November warning of likely delays,” Moody's said.
“Although the latest developments will ensure that this complex, "first-of-a-kind" project will remain a key driver of Georgia Power's credit profile until at least 2020, the year the second unit may now be fully in-service, Moody's believes the utility will retain its solid state regulatory support for cost recovery on the project and continue to exhibit a financial profile adequate for its rating,” Moody's said.
Days earlier Southern had reported that the contractor team for Vogtle now expect the timetable for Units 3 and 4 to take 18 months longer than the prior target.
The impact of such a revised timetable means that the expected commercial operation of Vogtle Unit 3 will be delayed from the fourth quarter of 2017 to the second quarter of 2019. Likewise, commercial startup for Unit 4 is delayed from 4Q of 2018 until 2Q of 2020.
Although Georgia Power has not agreed to these changes and does not believe the revised forecast reflects potential mitigation efforts to alleviate the delay, Moody's assumes that the new schedule is more likely than not to be realized, and that additional schedule delays and cost increases over and above these are possible.
Georgia Power estimates that the latest schedule delays will result in an increase in its capital costs of approximately $10m per month and its financing costs of approximately $30m per month, for an approximate total cost increase of $720m.
The capital cost of Georgia Power's share of the project will now be in the range of $5bn, up from $4.4bn originally. Including the additional financing costs, the total cost of the project to Georgia Power will now be approximately $7.3bn, Moody's said.
Georgia Power believes that, under the terms of its engineering, procurement and construction (EPC) agreement for the project, the contractors are responsible for any additional construction costs and mitigation efforts related to the latest delays and that it, along with its utility partners, are entitled to recover liquidated damages for delays from the original estimated completion dates.
The company expects the contractors to contest these claims as has been the case with $425m of previous project cost increases that are currently being litigated.
“As Moody's has noted before, the dearth of subsequent new nuclear construction projects in the US has diminished the incentive for the parties to the EPC agreement to cooperate or negotiate on disputed matters, with additional litigation highly likely,” Moody's said.
More detail on the Moody's analysis of Georgia Power can be found at https://www.moodys.com/research/Moodys-affirms-Georgia-Powers-A3-rating-outlook-stable--PR_317689.