Southern signs $3.4 billion guarantee for new nuclear reactor 

It's the first of at least four such agreements with utilities and the Department of Energy

The Southern Company (NYSE:SO) has signed an agreement with the federal government for a loan guarantee covering $3.4 billion in costs for the project which involves two new Westinghouse 1,150 MW AP1000 reactors. CEO David Ratcliffe said in a statement the units are expected to enter revenue service at the utility's Vogtle power station in Waynesboro, GA, in 2016 and 2017.

The agreement marks the formal acceptance of the terms and conditions of the government's "conditional commitment" for the loan guarantee. It becomes final when Southern gets its NRC licenses for the two reactors. Southern received an early site permit in 2009.

The exact amount of the premium, which could be 1% or more of the total amount of the loans covered by the guarantee, won't be final until Southern gets the NRC license. Southern led the negotiations with the government on behalf of George Power which is a subsidiary. Both Southern and other utilities who applied for loan guarantees, such as Constellation, are sensitive about the premium costs saying too high a price could scuttle the program.

According to Georgia Power CEO Mike Garrett, the company pursued the agreement because, "it will provide [2.3 million] customers with significant savings."

Loan guarantee lowers risk and interest rates

Under the agreement total loans covered by the federal program won't exceed 70% of the "eligible costs" of the two new plants. The DOE loan guarantees are expected to save ratepayers tens of millions in interest costs. The backing of the federal government lowers the risk of new loans and provides confidence to investors to put up money for the plant at lower interest rates.

CEO Ratcliffe told Bloomberg wire service the loan guarantee "lowers the cost of the project by getting a better financing rate." He said the company would build the plant even if it didn't get the loan guarantee, but with it, customers will get less expensive power once the reactors enter revenue service.

One of the critical success factors for obtaining the loan guarantee is having a contract in place for engineering, procurement, and construction of the reactors. Southern signed an EPC contract with the Shaw Group in April 2009. It is the first EPC contract for a new reactor in the U.S. in more than three decades. Shaw and Westinghouse are already under contract to build four new AP1000 reactors at two sites in China. Another six contracts are expected in the U.S.

Green groups calls it a handout

Opponents of the project, and the loan guarantee program, issued a statement critical of the agreement. The Southern Alliance for Clean Energy said in a statement the loan guarantee is a handout.

"Let’s be clear – this is what it takes to build new nuclear reactors – lots of handouts and bailouts to big companies along with closed-door negotiations.”

The planned construction of the two new reactors received approval from the Georgia Public Service Commission in March 2009. The decision followed a series of public hearings. The agency granted Southern the right to begin charging customers for some construction costs. The company argues that this action, along with the loan guarantee, will save ratepayers tens of millions in interest costs. The company has 4.4. million customers in Georgia, Alabama, and Mississippi.

Job creation

Southern estimated that construction of the two new reactors will create 3,500 construction jobs and 800 permanent jobs once the plants being operations.  There are two Westinghouse nuclear reactors which are already in operation at the Vogtle plant.

The loan guarantee was announced by President Obama on February 16. At that time he announced $8.3 billion in available loan guarantees for the project. The $3.4 billion agreed to by Southern represents its ownership share of the new reactors. Voglte is a joint venture including Georgia Power, Oglethorpe Power, the Municipal Electric Authority of Georgia, and Dalton Utilities.

Three other utilities expect to get conditional commitments for loan guarantees later this year. They are NRG’s South Texas Project. Constellation’s Calvert Cliffs plant and Scana’s V.C. Summer station in South Carolina.

Who was Alvin Vogtle?

If you ever watched the WWII movie classic "The Great Escape," which aired in theatres in 1963, the character portrayed by Steve McQueen is Alvin Vogtle, for whom Southern's nuclear plant is named.

He was President of the company and chairman of the board of directors. According to an entry in Wikipedia, he was the inspiration for the POW character portrayed by Steve McQueen in the movie.

He was an Army Air Force pilot and was shot down and captured in North Africa, then moved to prison camps in Germany. He spent three years as a POW. He made five escape attempts and on the sixth try made it out to Switzerland in March 1945.

The New York Times obituary published April 13, 1994, notes he served in senior executive positions with Southern from 1969 to 1983. The newspaper records that he was a native of Birmingham, Ala. Mr. Vogtle graduated from Auburn University and the University of Alabama Law School. As a member of a Birmingham law firm, he became legal counsel and then President of Southern.

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