Battle over Plant Vogtle costs Jacksonville a downgrade in credit ratings, outlook
By David Pendered
The battle among the owners of Plant Vogtle over its continued construction has led to a lowering of the credit ratings of about $2.1 billion in bonds sold by Jacksonville, Fl. The concern is the city’s reliability to repay its debts, according to a rating action issued by Moody’s Investors Service.
In addition to the credit downgrade, the outlook on the city’s bonds was downgraded from stable to negative. The city’s debt remains at an investment grade, but of a lower quality than before, according to Moody’s rating system.
The action is part of a broader downgrade of the city’s debt that was triggered by lawsuits filed by two partners in the Vogtle project. The parties are JEA, Jacksonville’s city-owned utilitiy, and MEAG, a Georgia utility.
JEA filed a lawsuit in its home county that seeks to void a requirement that its ratepayers fund Vogtle at virtually any cost, MEAG countered with a federal lawsuit contending that JEA seeks to breach its contract and undermine continued construction on the only nuclear plant being built in the United States.
The lawsuits were filed after the latest financial report on Vogtle’s construction progress shows the project to be $1.5 billion over budget. This cost level triggered a mandatory vote among partners on continuing with the project.
JEA strongly opposed continuation, stating in an Aug. 17 letter to MEAG:
- “Continuing to saddle ratepayers with more debt for a project that will be subsidized by the government or the project’s owners for years to come if it ever achieves COD [commercial operation date], or worse, a project that will have to be abandoned before completion after even greater sums are invested, is inconsistent with prudent utility practices.”
Vogtle’s owners voted Sept. 26 to continue building the plant.
The deal to continue included guarantees by Georgia Power to shoulder the cost of future cost overruns for MEAG and another partner, Oglethorpe Power, in the event the overruns reach a certain point, according to a Moody’s report on terms of the deal.
In its Oct. 11 action that downgraded the $2.1 billion in bonds, Moody’s laid responsibility for the downgrade largely at the feet of the two lawsuits and the impact ruling could have on the ability of investors to recoup their money and expected earnings:
- “The city’s action calls into question its willingness to support an absolute and unconditional obligation of its largest municipal enterprise, which weakens the city’s creditworthiness on all of its debt and is not consistent with the prior Aa rating category.
- “The contract in question was signed in 2008 and is the sole source of repayment for $1.4 billion of outstanding MEAG Power Project J debt bonds.”
The downgrade included the city’s $54.3 million in transportation refunding revenue bonds, and for the city’s $434.6 million in outstanding parity transporation bonds. Moody’s observed in a Sept. 25 rating action:
- “The A1 rating reflects ongoing economic expansion and population growth, the stabilizing impact of the naval base, and sound debt service coverage with conservative projections.”
In observing on factors that could lead to an upgrade, analysts wrote:
- “Withdrawal by the city and JEA from the lawsuit against MEAG requesting the termination of the take-or-pay contract….”
In observing on factors that could lead to a further downgrade, analysts wrote:
- “Continuation of JEA-MEAG lawsuit and decisions by the court favorable to termination of the contract….”
That said, analysts took the city to task for other concerns about the way it manages its public debt and other financial matters. They include:
- Further increases in fixed costs, including pension and related retirement benefits;
- Level of reserve funds;
- Potential decline in tax revenues and employment levels in the city.