It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness
- Charles Dickens, A Tale of Two Cities
Recent decisions about the future of two large power plants could have striking implications for the Trump Administration’s efforts to bolster nuclear and coal-fired power.
For proponents seeking to move forward with construction of two new units at the Vogtle nuclear power plant near Augusta, Georgia, late September 2018 was the best of times. The owners of the plant agreed to a cost-sharing deal that will continue a project that is already five years behind schedule and nearly double its initial cost estimate of $14 billion. If completed, Vogtle will be the first nuclear power plant built in the U.S. in more than thirty years and will become the nation’s largest nuclear generating facility when combined with the existing two units onsite.
For those seeking to extend the life of the Navajo Generating Station near Page, Arizona, late September 2018 was the worst of times. Potential investment partners exploring the purchase of Navajo – over two gigawatts of capacity, the largest coal-burning plant west of the Mississippi - withdrew from the deal, making it very likely that the plant will close at the end of 2019. If this happens, it will add to a steady trend of coal plant closures across the U.S. with hundreds closed this decade and the pace showing no signs of slowing down.
Vogtle’s Owners Say Yes
Vogtle’s cost and scheduling problems are tied to several factors – most notably, the fate of Westinghouse, the plant’s construction contractor, who declared bankruptcy in 2017. While costs are rising, revenue projections for the plant are falling due to lower power prices driven by cheap natural gas, declining cost of renewables and slackening demand growth for electric power.
Similar cost and revenue concerns led to the scuttling of construction on the Summer nuclear plant in neighboring South Carolina in 2017. At about the same time Summer abandoned its efforts, Vogtle’s owners – a consortium of utilities led by Southern Company – decided to push forward with their project. By and large, Vogtle could continue when Summer could not, because its owners had greater financial capacity to handle losses. This capacity, however, is neither unlimited nor evenly distributed. The Vogtle deal required the largest-share owner, Southern, to absorb a disproportionate cut of any future cost overruns that arise and thereby cap the losses of its smaller partners Oglethorpe Power, Municipal Electric Authority of Georgia (MEAG), and Dalton Utilities.
The agreement also needed the consent of MEAG and Oglethorpe, who drew out the negotiations until the very end and were subject to a fair bit of political pressure. In a letter to Vogtle’s owners on September 21, the Department of Energy expressed that while the decision to continue is at its heart a commercial matter, it “will have a profound impact on the U.S. nuclear industry and a reputational mark on the ability of American industry to complete important and complex infrastructure projects.” Moreover, the DOE letter reminds the owners that it has disbursed approximately $5.6 billion of an $8.3 billion DOE loan guarantee and would need to seek recourse for loan repayment should the owners decide not to continue, a cost that could cripple the operators. Georgia Governor Nathan Deal also pushed hard for the plants owners to continue. All four owners ultimately agreed to the terms.
Navajo’s Potential Owners Say No
In 2013, the six companies and agencies that owned the Navajo plant had arranged with the federal government to continue operations until the 2040s, but evolving market conditions made this decision uneconomic. By early 2017, the owners of the plant voted to close it after its lease with the Navajo Tribe expires at the end of 2019. Because of the importance of the power plant to the Tribe, the Central Arizona (water) Project, and Peabody Energy, the plant’s sole supplier of coal, the U.S. Department of Interior worked with stakeholders to find a buyer for the plant. A partnership between a New York investment company, Avenue Capital Group, and Illinois-based Middle River Power (MRP) considered the purchase but announced on September 20 that they would not pursue the deal. A combination of low electricity prices, pending renewables mandates in Arizona, and tightening carbon regulations in the plant’s largest out of state customer, California, also makes this a tougher deal. So does the trend toward smaller generating units with quicker ramping capabilities to meet more variable power demands across the western grid.
The Trump Administration and local Congressional representatives, for their part, have tried to keep Navajo open. A public request of emails from the Department of the Interior reveals efforts to convince the Central Arizona Water District to renew its power purchase agreement with the Navajo plant. The federal government also was able to secure a waiver of environmental controls for the plant. Rep. Paul Gosar (R-Ariz) drafted a bill that would force the Central Arizona Project to keep buying Navajo’s power until the plant’s debt of over one billion dollars is paid down, but the bill was never introduced.
Is This A Sign of the Times?
Although these recent decisions produced a split decision for proponents of each plant, it seems unlikely the government can bat .500 on future efforts to favor the building of new pressurized water reactor nuclear plants of Vogtle’s type, or maintain large, aging coal plants. Government efforts to support nuclear and coal plants on a transactional basis will continue to face strong headwinds from market forces and other policy goals. Only time will tell if the Vogtle and Navajo decisions will reflect an age of wisdom or an age of foolishness.
[Will Niver of the Duke University Energy Initiative provided research assistance for this article]
