The Department of Justice says litigation filed by a municipal electric utility in Florida could jeopardize the completion of two nuclear reactors at Georgia’s Plant Vogtle.
The DOJ made the assertion in a federal lawsuit filed by the city of Jacksonville and JEA, formerly Jacksonville Electric Authority, in the United States District Court Middle District of Florida.
In the suit, JEA is challenging the legality of its 20-year power purchase agreement with the Municipal Electric Authority of Georgia. The PPA secures bonds that MEAG has issued to fund a portion of its ownership in the twin nuclear reactor project under construction at Plant Vogtle in Georgia.
The DOJ said the Department of Energy has substantial economic interests at stake in the reactor project. If JEA’s suit is successful in rescinding its power purchase agreement with MEAG, the resulting “domino effect” could potentially jeopardize the completion of the reactor project, the DOJ said
If the Vogtle project isn’t completed, federal attorneys also said the DOE could be required to pay billions in loan guarantees on loans issued to the owners of the unfinished reactors. The owners are Georgia Power Co., Oglethorpe Power Corp., MEAG and the City of Dalton, Georgia.
“Rescission would also impair DOE’s contracted-for rights to collateral securing DOE’s loan guarantee,” the brief said. “And, finally, rescission could threaten completion of the entire nuclear generation project, further expanding the United States’ financial exposure and negatively impacting the United States’ policy interests in fuel diversity and worldwide leadership with respect to civilian nuclear power.”
MEAG, which owns 22.7% of the two reactors, has $4.09 billion in debt consisting of bonds and DOE loan guarantees related to financing its portion of the project.
Of the debt, $1.42 billion of Project J bonds are backed by the JEA power purchase agreement. MEAG has also allocated $578 million in DOE loan guarantees to Project J, of which about $340 million has been disbursed to date by the Federal Financing Bank.
Fitch Ratings assigns a BBB-plus rating to the Project J bonds, Moody's Investors Service rates them Baa3 and they receive an A rating from S&P Global Ratings.
Combined, the DOE said it has promised $8.3 billion in DOE-guaranteed loans to Vogtle’s owners, and $5.6 billion have been disbursed to date. The department has also entered into $3.7 billion of additional conditional loan guarantee commitments to support completing the reactors.
If JEA wins its case MEAG might not be able to obtain alternative financing to fund its portion of the costs, the DOJ said, and other reactor owners might not fund MEAG’s unpaid share of construction costs.
“JEA’s action thus could jeopardize completion of the entire project, which, in turn, could result in demands that DOE honor its guarantees as to the broader $8.3 billion in loans,” DOJ attorneys said.
JEA’s federal suit was originally filed in state court in September by the city of Jacksonville and JEA challenging the legality of its power purchase agreement with MEAG. The state court suit was removed to federal court in Florida by MEAG.
The DOJ’s comments regarding its exposure to the project and the potential consequences of JEA’s litigation were made in a brief opposing JEA’s motion to send the suit back to state court.
“The enforceability of the PPA could have a dramatic impact on the United States’ financial, contractual, and policy interests,” DOJ attorneys wrote. “Such a case should be decided in a federal forum.”
MEAG, in an attempt to enforce the agreement, filed its own federal lawsuit seeking monetary damages in U.S. District Court for the Northern District of Georgia in September.
MEAG contended that JEA breached its contract to buy electricity that will be generated by the nuclear reactor project. Contract payments have been paid despite the litigation.
In the five months since the lawsuits have been pending, much of the time has been spent arguing over the venue of the litigation filed in Florida.
The federal government has also ramped up its involvement in another of the three legal challenges involving the PPA.
The Department of Energy
JEA said costs associated with building the reactors at Plant Vogtle “have far surpassed the initial projections” when the parties executed the PPA, which was signed when the engineering, procurement and construction agreement was a fixed-rate structure under Westinghouse Electric Co.
Westinghouse filed for bankruptcy in March 2017. Subsequently, the Vogtle EPC agreement was assumed by Southern Nuclear Corp. in a “cost-plus premium structure” that requires increased costs to be passed through MEAG to JEA without any incentive to curtail costs, JEA said in the FERC petition.
FERC took public comments on the case until mid-October.
Although JEA said it was not asking FERC to take “blanket” jurisdiction over public power agreements, the case generated opposition from dozens of public agencies across the country, with most of them saying they were concerned that FERC's involvement would open them to a new level of oversight as well as additional business and financing risks.
FERC will consider the petition during its meeting Thursday. The public will not be allowed to address the commission since comments have already been taken, a spokesman said. The commission meeting starts at 10 a.m. and can be
On Feb. 1, the Department of Energy urged FERC to deny JEA’s request.
The DOE said that FERC doesn’t have the authority to oversee over the PPA since both JEA and MEAG are non-jurisdictional entities under the Federal Power Act, and that similar arguments have been rejected by federal courts.
If FERC takes jurisdiction over the PPA, the DOE also said it “would create high levels of regulatory uncertainty for all state-run utilities and the federal Power Marketing Administrations.”
“The consequences of FERC asserting jurisdiction over the PPA between JEA and MEAG would be dramatic, calling into question the jurisdictional status of virtually every wholesale power contract between state-run utilities,” energy department attorneys said.
If FERC takes the case, they said “the long-established jurisdictional structures of the federal Power Marketing Administrations would suddenly be called into question.”
Currently, the PMAs establish and set rates pursuant to various federal statutes, sell power generally subject to judicial review, and rely on an exemption from the Federal Power act to conduct business, the DOE said.
Delays and soaring costs have led Fitch Ratings, Moody's Investors Service and S&P Global Ratings to place negative outlooks on all the public power providers involved in the project. Most of them have also encountered rating downgrades, including JEA because some analysts view the utility’s legal actions regarding the PPA as an attempt to repudiate its debt.
Initially, the new nuclear reactors 3 and 4 at Plant Vogtle were estimated to cost $14 billion and reach commercial service in 2016 and 2017.
Last fall, the cost was projected to be $27.3 billion with the units coming online in 2021-2022. The project is more than half way completed. A similar project in South Carolina
Georgia Power Co., which is heading up construction and owns 45.7% of the project, was due to file its 20th report on the progress of work on the two reactors and costs this month. It would have been the first of two reports this year. On Tuesday, the Georgia Public Service Commission voted 4-1 to allow Georgia Power to combine Vogtle construction monitoring reports 20 and 21, and file that report on Aug. 31.
The PSC said the reason for the change is that Georgia Power is in the midst of reworking the costs and completion schedule to provide a new baseline estimate for the project. That work will not be done until April.
In a stipulated agreement, Georgia Power will file a progress report on the re-baselining by May 15. PSC staff will file an assessment of the work on July 31.
