By Scott DiSavino and Eileen O'Grady
NEW YORK/HOUSTON (Reuters) - The future of U.S. nuclear power rests squarely on the shoulders of Atlanta-based Southern Co, which will lead the industry's effort to prove the concept of new reactor construction after a 30-year hiatus.
The U.S. Nuclear Regulatory Commission (NRC) on February 9 voted 4-1 to issue Southern a permit to build and operate two units at its existing Vogtle plant in eastern Georgia. These were the first U.S. permits issued since 1978, a year before the partial meltdown at the Three Mile Island plant in Pennsylvania cast a pall over the industry and halted plans for dozens of plants.
Government officials and Wall Street financiers will watch Southern closely for evidence that utilities can maneuver through a complex construction schedule and avoid cost overruns like those that plagued the last wave of U.S. reactor building in the 1970s and 1980s. One early challenge -- a lawsuit by anti-nuclear power groups -- is expected on Thursday.
"The Vogtle project has a huge burden on its back to show we can do this on time," said Edward Kee, vice president of NERA Economic Consulting, a unit of Marsh & McLennan. "That's the next hurdle for them."
The two new advanced AP1000 reactors, manufactured by Toshiba Corp unit Westinghouse Electric, will cost Southern and its partners $14 billion and enter service as soon as 2016 and 2017.
Twelve public interest groups on Thursday are expected to file suit challenging the Vogtle permit on grounds that the NRC has not heeded lessons from Japan's Fukushima accident last year, the worst since the Chernobyl disaster in Ukraine in 1986.
Any delay caused by legal challenges could result in cost overruns totaling millions or even billions of dollars. Southern and partners have already spent more than $4 billion on major components at the Vogtle site and await final approval of an $8.3 billion federal loan guarantee.
"The license may be granted, but these reactors are far from a done deal," said Damon Moglen at Friends of the Earth, one of the environmental groups joining the legal challenge. "As in the past, expect delays and cost overruns."
Southern will try to avoid a replay of the delays and ballooning costs that beset the two existing reactors at Vogtle when they were built. Original estimates put those costs at $660 million when proposed in the early 1970s. But they ended up costing more than $8 billion by the time they entered service in the late 1980s. Much of the increase was due to required safety upgrades after the Three Mile Island accident.
Southern Chief Executive Thomas Fanning said he was confident the company could overcome any lawsuit challenging the license since the issues the environmental groups will likely raise have already been heard and decided by the NRC.
William Jacobs, the independent construction manager reporting to the Georgia Public Service Commission, has testified that completing the Vogtle units in 2016 and 2017 will be a challenge for Southern and its partners.
In a twice-yearly report, Jacobs said the April 2016 timeline for commercial operation of Vogtle 3 has already slipped by five months and could slip further as installation of the first rebar for the Vogtle 3 nuclear island had to be delayed until the NRC approved the license.
"Given the (construction) consortium's continued inability to meet scheduled milestones to date leads me to question the consortium's ability to complete a significant portion of the schedule faster than originally planned," Jacobs said in testimony filed in early December.
A longer construction period could increase Vogtle's financing costs and potential change orders already identified "could significantly impact the direct construction cost of the project," Jacobs said.
"Until the magnitude of these costs associated with these potential change orders and the responsibility for these costs is known, the forecast cost for the project is unknown," Jacobs said.
Southern's Fanning said, "The project is on track, and our targets related to cost and schedule are achievable."
Georgia's utility regulators have approved Vogtle construction costs as recently as February 10, the day after the NRC voted to issue the license.
The industry touted a nuclear "renaissance" in the early 2000s amid high oil and natural gas prices and as the U.S. Congress appeared likely to begin limiting carbon emissions, placing a premium on carbon-free nuclear generation.
But with no carbon regulations are in sight and power companies attracted to natural gas, whose price is near 10-year lows due to record production of shale gas, few utilities are willing to make billion-dollar bets on nuclear power.
Even the Nuclear Energy Institute, the nuclear trade group, expects only a handful of new reactors to enter service by 2020, including the two at Vogtle and another two AP1000s at power company Scana Corp's Summer plant in South Carolina, which is expected to get an NRC license later this year.
Other power companies like Duke Energy, Progress Energy and NextEra Energy are seeking federal licenses to build new reactors but don't expect to complete anything until the next decade.
Nuclear capacity in the United States will grow by an estimated 10 gigawatts by 2035, according to federal energy data, but its share of total generation will likely fall. A gigawatt can power about a million homes.
The Vogtle project is "an important test of the nuclear industry's ability to bring a new reactor online in a timely, cost-effective, and safe manner," said Joe Romm of the Center for American Progress, a think tank. "How they meet this challenge will impact how other utilities, regulators, policymakers and consumers feel about more nuclear investments."
(Reporting By Scott DiSavino in New York and Eileen O'Grady in Houston)