The Atlanta Journal-Constitution
Four months from now, when customers start paying in advance for Georgia Power’s Vogtle nuclear construction project near Augusta, they might want to wish a man named Bill Jacobs some luck.
A Marietta nuclear engineer, Jacobs stands between ratepayers and the kind of epic cost overruns that characterized Georgia Power’s last nuclear venture.
The stakes are high. Most electric customers in the state — including those of most co-ops and cities — will pay what’s estimated to be the $14 billion cost of building the two new reactors. But if the project goes as far over budget as the original Vogtle nuclear reactors did in the 1980s, that cost would soar over $160 billion — or more than 10 times this year’s Georgia state budget.
Acting as the ratepayers’ eyes and ears during the projected six to seven years it takes to build the reactors, Jacobs is just part of what’s different as Georgia Power builds nuclear again.
In a kind of mating dance of tarantulas, Georgia Power grudgingly granted Jacobs unprecedented access to its project in exchange for an oversight regime that may cut its own risk of losing money again for shareholders. Hired by the state Public Service Commission with Georgia Power money, Jacobs is the man on point, monitoring construction. He’s in the room when the utility haggles with its builders and he reports problems to PSC staff as they happen. He functions as an early warning system, giving regulators a way to affect project costs in real time.
The five-man commission can overrule both Jacobs and PSC staff — and, in fact, it has.
But at least this time, somebody is paying attention along the way.
A pricey lesson
The staggering cost overruns at the original plant Vogtle are the reason Jacobs’ job exists.
Named after Southern Co.’s then-CEO, Vogtle was one of the most expensive generation plants ever built in the U.S. when it was finished in 1987. Even now, the industry jokes that no nuclear plant will ever be named for a utility CEO again, because of the awkwardness of pulling out if things go wrong.
Things went wrong at Vogtle. The project busted its seven-year deadline by nine years and its $660 million budget by more than $8 billion — a whopping 1,263 percent. Georgia Power sold half of the plant to the state’s co-ops and municipal power companies in order to finish.
State regulators described Vogtle’s problems in a 138-page order. Safety requirements after the 1979 Three Mile Island accident, “rising interest rates and inflation and stagnant demand substantially changed the economics of construction nuclear plants from that which had existed previously.”
Mismanagement also caused “serious impacts on the Plant Vogtle project schedule and cost,” the PSC said, citing poor quality controls and an out-of-control surge in labor costs. By 1986, 13,896 workers were on site, the PSC wrote: “This was, and is by far, the largest work force reported in the nuclear industry in the United States.”
But there had been little cause to scrimp. The plant was built on a cost-plus basis. Contractors earned what they spent, plus a profit, with ratepayers expected to pick up the cost.
The PSC sat by helplessly. They could weigh in only when the plant was done and the utility asked to charge ratepayers for it.
In the end, the PSC ruled that customers could be charged about $7 billion of Vogtle’s cost and the typical household power bill went up by 12.3 percent.
But the PSC also ruled that nearly $1 billion of the construction cost couldn’t be passed on to ratepayers. It came out of Georgia Power’s profits, in a scenario the company never wants to repeat.
It would be almost two decades before Georgia Power mentioned nuclear construction again.
A tighter rein
The utility now plans two new reactors at Vogtle and says their low operating costs will balance the high construction cost long term.
Jacobs’ watchdog role is one of a number of changes intended to keep the new Vogtle project in check. Georgia Power is using a fixed price contract, for instance, instead of a cost-plus one. The builders wil get a negotiated amount, with a negotiated inflation allowance, regardless of what they spend.
Regulators also review and approve costs twice a year, based on Jacobs’ reports, instead of waiting until the project is done. That cuts the company’s risk that the PSC will disallow passing on big portions of its costs to ratepayers and it’s what Georgia Power gets in return for Jacobs’ seat at the table.
Jacobs is a natural for the job.
He received a doctorate in nuclear engineering in 1971, and has been in the nuclear power business since.
In the 1970s and early ’80s, Jacobs worked as an engineer on reactor construction in three U.S. states, then in South Korea, Yugoslavia, Slovenia and the Philippines.
He returned home in 1985, a Westinghouse employee on loan to the Institute for Nuclear Power Operations, an industry self-policing group in Cobb County, where he advised utilities on proper reactor policies. The next year, he joined a start-up Marietta consulting group, GDS Associates, where he works today, testifying on nuclear issues across the country and helping utility regulators scrutinize costs.
Today, Jacobs monitors Vogtle and two reactor projects in Florida. He’s one of a handful of U.S. engineers with two generations of nuclear plants on his resume. “If there are more out there other than Bill and me, they’re a lot grayer and a lot balder,” said Jacobs’ fellow monitor Mark Crisp, who is watching a South Carolina nuclear project.
Crisp, of C.H. Guernsey & Co. in Atlanta, said Jacobs is “going to be fair and he’s not going to be sensational. He’s complete. He’s thorough, and he’s not averse to going that extra mile, to explore when he thinks something needs to be looked at in more depth.”
“It may turn out to be nothing,” Crisp said, “but he’s going to turn over that rock.”
Already, Jacobs has had to fight for access. Reactor designer Westinghouse still won’t let him into its meetings with the Nuclear Regulatory Commission. And Georgia Power initially offered Jacobs only monthly briefings, banning him from monthly status meetings at the site, where problems would likely surface.
“They very much resisted my presence at those meetings at first,” he said. “They said my attendance would have a chilling effect. One guy sitting in the back of the room isn’t going to have a chilling effect.”
He’s now in the door and said the meetings get tense. Georgia Power is “very aggressive. They are pressing (the builders) in areas where things are getting behind schedule.”
Jacobs has a $600,000 per year budget, although he hasn’t billed near that yet: Since August 2009, he has billed less than $200,000.
Jacobs said the company takes him seriously and that a top executive pulled him aside to say so: “He said, ‘This project is extremely important to us, for Georgia Power and for the entire industry. If you see anything that concerns you, call me.’ It meant a lot for him to say that to me.”
The last word
Neither Jacobs nor the other changes will prevent cost overruns entirely, but the hope is to keep them well under the previous blow-out.
The fixed contract terms, for instance, are as likely to bring legal squabbles as they are to protect ratepayers if costs soar, said Mark Cooper, a senior fellow at the Vermont Law School who has criticized the project: “It’s going to be everybody else’s fault.”
And while Jacobs has access, he doesn’t have ultimate power. His reports are “a heads-up, not a cure-all,” said commissioner Robert Baker. “Ultimately, it’s up to the commission to either accept or reject the staff’s recommendations.”
The current PSC hasn’t shown much appetite for telling Georgia Power “no.” Critics point to an August ruling in which the PSC voted 4-1 to approve a contract change that will cost ratepayers $108 million. The change settled a contractual dispute between Georgia Power and its construction team and reduced the project’s exposure to inflation. Jacobs and staff had recommended rejecting the change because it cost too much.
“We’re at the beginning of what could be a very long and costly road,” said Angela Speir, director of the consumer group Georgia Watch. “I’m always hopeful that the commission will make the right decisions. But if their recent Vogtle vote is any indication of the future, it doesn’t look good for the consumer.”
Jacobs, though, took the rejection in stride, calling it “differing professional opinions.”
“Both sides presented their arguments,” he said. “And the commission decided.”