In less than two years, the cost to build a typical gas plant has doubled. These costs are unlike anything ever seen for gas-fired power plants and likely represent a bubble. While the cost increases are bad for ratepayers, they actually add to utility companies’ bottom lines, since utility profit is based on the amount of state-regulator-approved capital spending. Additionally, Georgia, South Carolina, and North Carolina also have special cost-drivers. As a result, electric utility companies in Georgia, North Carolina, and South Carolina are racing to build expensive gas-fired power plants in order to supply power to new computer data centers. It is hard to predict which state will approve the most costly one, but all three states have upcoming decisions that will impact their customers in important ways. It almost seems like the three states are competing to see who can approve the most expensive gas-fired power plant in our region, or even the country.
Georgia
The Georgia Public Service Commission will decide on December 19th on Georgia Power’s request to build three large gas-fired power plants. As an expert witness for SACE testified to the Commission, one of the plants (McIntosh) has the highest per-unit capital cost she has seen in the United States. The Georgia Public Service Commission’s own staff initially urged the Commission not to approve any of the proposed plants because of their high costs and the great uncertainty that data centers will actually use as much power as Georgia Power forecasts. But on the morning of the final hearings, the staff suddenly abandoned their prior position and agreed in writing to 100% of Georgia Power’s request. Far from limiting or capping costs, the agreement expressly allows Georgia Power to come back and request approval of cost overruns.
The proposed Georgia power plants also require interstate gas pipeline projects that will take years to complete. Georgia Power’s parent company Southern Company also co-owns the gas pipelines to the McIntosh plant, so it will earn a rate of return on both the doubled power plant cost (if approved) and the pipeline. The double-whammy of buying the top of a power plant price bubble plus a pipeline with a high rate of return makes Georgia a strong contender in the most-expensive-gas-power-plant-ever race. And if one were making bets about which state will approve the most expensive plant, it might be almost reckless to bet against the jurisdiction that regularly touts as a success a nuclear plant that came in $20 billion over budget.
North Carolina
In North Carolina, however, Duke Energy has added a novel twist: in addition to proposing several gas power plants that require major pipeline expansions, it is also testing the waters for a massive facility to store liquefied gas to run the power plants if pipeline gas supplies get interrupted. Nearly everything about the storage facility is unknown or secret, including the size, cost, and potential location. With a triple whammy of doubled power plant costs, pipeline expansions, and a massive liquified gas storage project, a betting person should not rule out North Carolina regulators as likely to approve the most costly gas power infrastructure either.
South Carolina
In South Carolina, two smaller utilities (Dominion Energy South Carolina and Santee Cooper) are teaming up to build a massive gas-fired power plant at a location called “Canadys.” The companies told state legislators that they would save “up to 30%” due to economies of scale. So far, the cost has doubled, from $2.5 billion to $5 billion (about $2,500 per electric customer for initial construction, not counting several other major costs), and construction hasn’t even started.
The unique thing about the Canadys plant is that it is much farther from the major gas pipelines than the other proposed Southeastern power plants. So, the South Carolina utilities have signed up to finance 200 miles of greenfield pipeline in Mississippi, a group of pipeline upgrades across Alabama and Georgia, and a brand new 70-mile pipeline from Georgia into South Carolina to supply the gas. The total cost to ratepayers of all these pipeline projects remains a secret, though local government officials accidentally leaked a map of the pipeline months before the approval process, so it is hard to tell what officials might know.
One might call this situation a “ratepayer quadruple whammy in the making,” because three separate pipeline projects in four states, plus the power plant, must go off without a hitch to avoid construction delays and big cost overruns. Keller Kissam, president of Dominion Energy South Carolina, already had to assure state legislators that the project would not be a repeat of the recent major nuclear cost overruns in South Carolina: “I promise you that ain’t going to happen, OK? I’ll pack up and leave, I’ll assure you,” he said.
Overall, it is impossible to know whether Georgia’s gas projects (with ratepayers paying two utility affiliate companies for power plants plus pipelines), North Carolina’s projects (with the novel massive gas storage project), or South Carolina’s project (with over three hundred miles of gas pipeline upgrades) will turn out to be the most expensive ever built in the Southeast, or even the country. Since each state keeps the key data secret, regulators themselves won’t have any idea, at least until the plants are approved. If they follow Georgia’s lead and refuse to impose rigorous project cost caps, they won’t know until the plants are complete.
