Fitch: Favorable Development for Georgia Power Regarding the New Vogtle Nuclear Units

NEW YORK--()--Fitch Ratings views the resolution of the pending litigation between Vogtle owners and EPC contractors, changes in the EPC agreement, and the contractor changes announced yesterday by Westinghouse as a positive development for Georgia Power Company (Issuer Default Rating 'A'; Stable Outlook by Fitch).

Georgia Power along with the other Vogtle owners have been involved in a long standing dispute with EPC contractors regarding the costs associated with the delay in the construction of Vogtle 3 and 4 units, whose timeline has slipped 39 months from the originally proposed April 2016 and April 2017 completion dates.

Based on its ownership interest, Georgia Power will pay approximately $350 million to resolve the pending litigation versus the contractors' outstanding claims of $714 million related to the first 21 months of the construction delay. Of the $350 million, approximately $121 million has already been paid to the contractors in accordance with the provisions of the EPC Agreement; $114 million will be paid at the execution of the settlement; and the balance will be spread out in twelve quarterly payments plus significant payments tied to the estimated nuclear fuel loading dates of Dec. 2018 and Dec. 19 for the two units. In addition, Georgia Power and the other owners have agreed to delay the start of liquidated damages, which will now commence from the estimated nuclear fuel loading dates for each unit rather than the originally guaranteed substantial completion dates of April 2016 and April 2017.

In return, Georgia Power was able to secure certain favorable amendments to the original EPC agreement that significantly limits the circumstances that the contractors could claim as material changes to the nuclear regulatory law, thereby, reducing the likelihood of future disputes. The modified EPC agreement also confirms the in-service dates as June 30, 2019 for Unit 3 and June 30, 2020 for Unit 4.

Fitch views Westinghouse's acquisition of the Stone & Webster nuclear construction business from Chicago Bridge & Iron Company N.V. (CB&I, not rated by Fitch) and the potential engagement of Flour Corporation ('A-'/Stable Outlook by Fitch) as a subcontractor favorably. Now that Westinghouse has assumed the role of the primary contractor, Fitch's concerns regarding inter-creditor disputes and CB&I's credit worthiness have diminished. While the Shaw Group's guarantee of certain Stone & Webster obligations will terminate, Toshiba Corporation (the parent) will continue to guarantee certain Westinghouse obligations.

Georgia Power intends to file the litigation settlement and the amended EPC agreement with the Georgia Public Service Commission (PSC)for review once the settlement becomes final following the closing of the Westinghouse/CB&I transaction. Georgia Power sees no change to its assessment of a 6% - 8% impact on customer rates as a result of the $350 million increase in project costs to reflect the litigation settlement. In Fitch's opinion, this should minimize the regulatory risk.

Additional information is available at 'www.fitchratings.com'.

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Contacts

Fitch Ratings
Primary Analyst
Shalini Mahajan, CFA
Managing Director
+1-212-908-0351
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY, 10004
or
Secondary Analyst
Julie Jiang
Director
+1-212-908-0708
or
Media Relations
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Shalini Mahajan, CFA
Managing Director
+1-212-908-0351
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY, 10004
or
Secondary Analyst
Julie Jiang
Director
+1-212-908-0708
or
Media Relations
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com