Vogtle Units No. 3 and No. 4 Construction Project	6 Months Ended
Jun. 30, 2017
Vogtle Units No. 3 and No. 4 Construction Project
Vogtle Units No. 3 and No. 4 Construction Project	(L) Vogtle Units No. 3 and No. 4 Construction Project. We, Georgia Power, the Municipal Electric Authority of Georgia, and the City of Dalton, Georgia, acting by and through its Board of Water, Light and Sinking Fund Commissioners, doing business as Dalton Utilities (collectively, the Co-owners) are parties to an Ownership Participation Agreement that, along with other agreements, governs our participation in two additional nuclear units at Plant Vogtle, Units No. 3 and No. 4. The Co-owners appointed Georgia Power to act as agent under this agreement. Our binding ownership interest and proportionate share of the cost to construct these units is 30%. Pursuant to this agreement, Georgia Power has designated Southern Nuclear Operating Company, Inc. as its agent for licensing, engineering, procurement, contract management, construction and pre-operation services. In 2008, Georgia Power, acting for itself and as agent for the Co-owners, entered into an Engineering, Procurement and Construction Agreement (the EPC Agreement) with Westinghouse Electric Company LLC and Stone & Webster, Inc. (collectively, the EPC Contractor). Stone & Webster was subsequently acquired by Westinghouse and changed its name to WECTEC Global Project Services Inc. (WECTEC). Pursuant to the EPC Agreement, the EPC Contractor agreed to design, engineer, procure, construct and test two 1,100 megawatt nuclear units using the Westinghouse AP1000 technology and related facilities at Plant Vogtle. Under the EPC Agreement, the Co-owners agreed to pay a purchase price that is subject to certain price escalations and adjustments, including fixed escalation amounts and certain index-based adjustments, as well as adjustments for change orders and performance bonuses. The EPC Agreement also provided for liquidated damages upon the EPC Contractor's failure to fulfill the schedule and certain performance guarantees, each subject to an aggregate cap of 10% of the contract price, or approximately $920 million. Toshiba Corporation guaranteed certain payment obligations of the EPC Contractor under the EPC Agreement (the Toshiba Guarantee), including any liability of the EPC Contractor for abandonment of work. In January 2016, Westinghouse delivered to the Co-owners $920 million of letters of credit from financial institutions (Westinghouse Letters of Credit) to secure a portion of the EPC Contractor's potential obligations under the EPC Agreement. The Westinghouse Letters of Credit are subject to annual renewals through June 30, 2020, and require 60 days' written notice to Georgia Power, as agent of the Co-owners, in the event the Westinghouse Letters of Credit will not be renewed. Under the terms of the EPC Agreement, the EPC Contractor did not have the right to terminate the EPC Agreement for convenience. In the event of an abandonment of work by the EPC Contractor, the maximum liability of the EPC Contractor under the EPC Agreement was 40% of the contract price, or $3.68 billion, of which our proportionate share is approximately $1.1 billion. On March 29, 2017, the EPC Contractor filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. To provide for a continuation of work at Vogtle Units No. 3 and No. 4, Georgia Power, acting for itself and as agent for the other Co-owners, entered into an Interim Assessment Agreement with the EPC Contractor and WECTEC Staffing Services LLC which the bankruptcy court approved on March 30, 2017. The Interim Assessment Agreement provided, among other items, that during the term of the Interim Assessment Agreement (i) Georgia Power was obligated to pay, on behalf of the Co-owners, all costs accrued by the EPC Contractor for subcontractors and vendors for services performed or goods provided, with these amounts paid to the EPC Contractor, except that amounts accrued for Fluor Corporation (Fluor) were to be paid directly to Fluor; (ii) the EPC Contractor was to provide certain engineering, procurement and management services for Vogtle Units No. 3 and No. 4, to the same extent as contemplated by the EPC Agreement, and Georgia Power, on behalf of the Co-owners, made payments of $5.4 million per week for these services; (iii) Georgia Power had the right to make payments, on behalf of the Co-owners, directly to subcontractors and vendors who had accounts past due with the EPC Contractor; (iv) the EPC Contractor was to use commercially reasonable efforts to provide information reasonably requested by Georgia Power as was necessary to continue construction and investigation of the completion status of Vogtle Units No. 3 and No. 4; (v) the EPC Contractor was to reject or accept the EPC Agreement by the termination of the Interim Assessment Agreement; and (vi) Georgia Power, on behalf of the Co-owners, would not exercise any remedies against Toshiba under the Toshiba Guarantee. Under the Interim Assessment Agreement, all parties expressly reserved all rights and remedies under the EPC Agreement and all related security and collateral under applicable law. The Interim Assessment Agreement, as amended, expired on July 27, 2017. The Co-owners' aggregate liability under the Interim Assessment Agreement totaled approximately $650 million, of which our proportionate share totaled approximately $195 million. As of June 30, 2017, approximately $552 million of this aggregate liability had been paid or accrued. Subsequent to the EPC Contractor's bankruptcy filing, a number of subcontractors to the EPC Contractor, including Fluor Enterprises, Inc., a subsidiary of Fluor, alleged non-payment by the EPC Contractor for amounts owed for work performed on Vogtle Units No. 3 and No. 4. Georgia Power, acting for itself and as agent for the Co-owners, has taken, and continues to take, actions to remove liens filed by these subcontractors through the posting of surety bonds. Georgia Power estimates the aggregate liability, through July 31, 2017, of the Co-owners for the removal of subcontractor liens and payment of other EPC Contractor pre-petition accounts payable to total approximately $400 million, of which our proportionate share would total approximately $120 million. As of June 30, 2017, approximately $354 million of this aggregate liability had been paid or accrued. On June 9, 2017, Georgia Power and the other Co-owners and Toshiba entered into a settlement agreement regarding the Toshiba Guarantee (the Guarantee Settlement Agreement). Pursuant to the Guarantee Settlement Agreement, Toshiba acknowledged the amount of its obligation under the Toshiba Guarantee is $3.68 billion (the Guarantee Obligations), of which our proportionate share is approximately $1.1 billion, and that the Guarantee Obligations exist regardless of whether Vogtle Units No. 3 and No. 4 are completed. The Guarantee Settlement Agreement also provides for a schedule of payments for the Guarantee Obligations, beginning in October 2017 and continuing through January 2021. In the event Toshiba receives certain payments, including sale proceeds, from or related to Westinghouse (or its subsidiaries) or Toshiba Nuclear Energy Holdings (UK) Limited (or its subsidiaries), it will hold a portion of such payments in trust for the Co-owners and promptly pay them over as offsets against any remaining Guarantee Obligations. Under the Guarantee Settlement Agreement, the Co-owners will forbear from exercising remedies in respect of the Toshiba Guarantee, including drawing on the Westinghouse Letters of Credit, until June 30, 2020, unless certain events of nonpayment, insolvency, or other material breach of the Guarantee Settlement Agreement by Toshiba occur. If such an event occurs, the balance of the Guarantee Obligations will become immediately due and payable, and the Co-owners may exercise any and all rights and remedies, including drawing on the Westinghouse Letters of Credit without restriction. In addition, the Guarantee Settlement Agreement does not restrict the Co-owners from fully drawing on the Westinghouse Letters of Credit in the event they are not renewed or replaced prior to the expiration date. On August 10, 2017, Toshiba released its financial results for the first quarter of fiscal year 2017, which reflected a negative shareholders' equity balance of approximately $4.5 billion as of June 30, 2017. Toshiba also announced the existence of material events and conditions that raise substantial doubt about Toshiba's ability to continue as a going concern. As a result, substantial risk regarding the Co-owners' ability to fully collect the Guarantee Obligations continues to exist. An inability or other failure by Toshiba to perform its obligations under the Guarantee Settlement Agreement could have a further material impact on the net cost to the Co-owners of Vogtle Units No. 3 and No. 4, and, therefore, on our financial condition and results of operations as well. Additionally, on June 9, 2017, Georgia Power, acting for itself and as agent for the other Co-owners, and the EPC Contractor entered into a services agreement, which was amended and restated on July 20, 2017 (as amended and restated, the Services Agreement), for the EPC Contractor to transition construction management of Vogtle Units No. 3 and No. 4 to Southern Nuclear and to provide ongoing design, engineering, and procurement services to Southern Nuclear. On July 20, 2017, the bankruptcy court approved the EPC Contractor's motion seeking authorization to (i) enter into the Services Agreement, (ii) assume and assign to the Co-owners certain project-related contracts, (iii) join the Co-owners as counterparties to certain assumed project-related contracts, and (iv) reject the EPC Agreement. The Services Agreement became effective upon approval by the Department of Energy on July 27, 2017 and will continue until the start-up and testing of Vogtle Units No. 3 and No. 4 is complete and electricity is generated and sold from both units. The Services Agreement is terminable by the Co-owners upon 30 days' written notice. Georgia Power and the other Co-owners are continuing to conduct a comprehensive schedule and cost-to-complete assessment, as well as a cancellation cost assessment, to determine the impact of the EPC Contractor's bankruptcy filing on the construction cost and schedule of Vogtle Units No. 3 and No. 4. As of June 30, 2017, our total investment in the additional Vogtle units was approximately $3.7 billion. If construction continues on Vogtle Units No. 3 and No. 4, based on Oglethorpe's preliminary assessment, we expect our project budget to range from approximately $6.5 billion to $7.3 billion, including a contingency amount. These estimates assume commercial operation dates that range from mid-2021 to mid-2022 for Unit 3 and a year later for Unit 4. They also assume 100% recovery of our approximately $1.1 billion share of the Guarantee Obligations from Toshiba. Prior to the EPC Contractor bankruptcy, our project budget was $5 billion under the "fixed price" EPC Agreement. As the EPC Agreement has been rejected in bankruptcy, this preliminary budget range represents potential costs based on various assumptions regarding cost and schedule to complete the additional Vogtle Units. We anticipate Southern Nuclear will manage the project toward the lower end of our budget range; however, we are conservatively planning around the upper end of the range. The risk remains that cost and schedule could exceed the upper end of this range if we go forward with the project. We anticipate our total monthly costs, including interest during construction, through the remainder of 2017 to be approximately $70 million per month, which assumes we receive our proportionate share of the proceeds from the Toshiba Guarantee Settlement Agreement. Should construction continue, our total monthly costs will vary over time and will decline significantly as the project nears completion. If the Co-owners determine to suspend or cancel the Vogtle project, based on the most recent assessment results, the Co-owners' aggregate cancellation costs of the site are estimated to range from approximately $700 million to $800 million, of which our proportionate share would be approximately $210 million to $240 million. As of June 30, 2017, our total investment in the additional Vogtle units was approximately $3.7 billion. Depending upon the circumstances of suspending the additional Vogtle units, we would determine the appropriate accounting treatment for our investment in the Vogtle units. If the investment were to be written off, we would seek regulatory accounting treatment to amortize the investment over a long-term period which requires the approval of our board of directors, and we would submit the regulatory accounting treatment details to the Rural Utilities Service for its approval. We intend to continue working with Georgia Power and the other Co-owners to determine future actions related to Vogtle Units No. 3 and No. 4. Georgia Power has stated that it is working with the Georgia Public Service Commission in regards to this same determination. Georgia Power has stated further that it expects to include a recommendation regarding completion of the Vogtle units in its Vogtle Construction Monitoring report to be filed with the Georgia Public Service Commission in late August 2017. There have been technical and procedural challenges to the construction and licensing of Vogtle Units No. 3 and No. 4 at the federal and state level and additional challenges may arise if construction proceeds. Processes are in place that are designed to assure compliance with the requirements specified in the Westinghouse Design Control Document and the combined construction and operating licenses, including inspections by Southern Nuclear and the Nuclear Regulatory Commission that occur throughout construction. As a result of such compliance processes, certain license amendment requests have been filed and approved or are pending before the Nuclear Regulatory Commission. Various design and other licensing-based compliance matters, including the timely resolution of Inspections, Tests, Analyses, and Acceptance Criteria and the related approvals by the Nuclear Regulatory Commission, may arise if construction proceeds, which may result in additional license amendments or require other resolution. If any license amendment requests or other licensing-based compliance issues are not resolved in a timely manner, there may be further delays in the project schedule that could result in increased costs. If construction continues, the risk remains that challenges with labor productivity, fabrication, delivery, assembly, and installation of plant systems, structures, and components, or other issues could arise and may further impact project schedule and cost. The ultimate outcome of these matters cannot be determined at this time.

(L) Vogtle Units No. 3 and No. 4 Construction Project. We, Georgia Power, the Municipal Electric Authority of Georgia, and the City of Dalton, Georgia, acting by and through its Board of Water, Light and Sinking Fund Commissioners, doing business as Dalton Utilities (collectively, the Co-owners) are parties to an Ownership Participation Agreement that, along with other agreements, governs our participation in two additional nuclear units at Plant Vogtle, Units No. 3 and No. 4. The Co-owners appointed Georgia Power to act as agent under this agreement. Our binding ownership interest and proportionate share of the cost to construct these units is 30%. Pursuant to this agreement, Georgia Power has designated Southern Nuclear Operating Company, Inc. as its agent for licensing, engineering, procurement, contract management, construction and pre-operation services.

In 2008, Georgia Power, acting for itself and as agent for the Co-owners, entered into an Engineering, Procurement and Construction Agreement (the EPC Agreement) with Westinghouse Electric Company LLC and Stone & Webster, Inc. (collectively, the EPC Contractor). Stone & Webster was subsequently acquired by Westinghouse and changed its name to WECTEC Global Project Services Inc. (WECTEC). Pursuant to the EPC Agreement, the EPC Contractor agreed to design, engineer, procure, construct and test two 1,100 megawatt nuclear units using the Westinghouse AP1000 technology and related facilities at Plant Vogtle.

Under the EPC Agreement, the Co-owners agreed to pay a purchase price that is subject to certain price escalations and adjustments, including fixed escalation amounts and certain index-based adjustments, as well as adjustments for change orders and performance bonuses. The EPC Agreement also provided for liquidated damages upon the EPC Contractor's failure to fulfill the schedule and certain performance guarantees, each subject to an aggregate cap of 10% of the contract price, or approximately $920 million.

Toshiba Corporation guaranteed certain payment obligations of the EPC Contractor under the EPC Agreement (the Toshiba Guarantee), including any liability of the EPC Contractor for abandonment of work. In January 2016, Westinghouse delivered to the Co-owners $920 million of letters of credit from financial institutions (Westinghouse Letters of Credit) to secure a portion of the EPC Contractor's potential obligations under the EPC Agreement. The Westinghouse Letters of Credit are subject to annual renewals through June 30, 2020, and require 60 days' written notice to Georgia Power, as agent of the Co-owners, in the event the Westinghouse Letters of Credit will not be renewed.

Under the terms of the EPC Agreement, the EPC Contractor did not have the right to terminate the EPC Agreement for convenience. In the event of an abandonment of work by the EPC Contractor, the maximum liability of the EPC Contractor under the EPC Agreement was 40% of the contract price, or $3.68 billion, of which our proportionate share is approximately $1.1 billion.

On March 29, 2017, the EPC Contractor filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. To provide for a continuation of work at Vogtle Units No. 3 and No. 4, Georgia Power, acting for itself and as agent for the other Co-owners, entered into an Interim Assessment Agreement with the EPC Contractor and WECTEC Staffing Services LLC which the bankruptcy court approved on March 30, 2017.

The Interim Assessment Agreement provided, among other items, that during the term of the Interim Assessment Agreement (i) Georgia Power was obligated to pay, on behalf of the Co-owners, all costs accrued by the EPC Contractor for subcontractors and vendors for services performed or goods provided, with these amounts paid to the EPC Contractor, except that amounts accrued for Fluor Corporation (Fluor) were to be paid directly to Fluor; (ii) the EPC Contractor was to provide certain engineering, procurement and management services for Vogtle Units No. 3 and No. 4, to the same extent as contemplated by the EPC Agreement, and Georgia Power, on behalf of the Co-owners, made payments of $5.4 million per week for these services; (iii) Georgia Power had the right to make payments, on behalf of the Co-owners, directly to subcontractors and vendors who had accounts past due with the EPC Contractor; (iv) the EPC Contractor was to use commercially reasonable efforts to provide information reasonably requested by Georgia Power as was necessary to continue construction and investigation of the completion status of Vogtle Units No. 3 and No. 4; (v) the EPC Contractor was to reject or accept the EPC Agreement by the termination of the Interim Assessment Agreement; and (vi) Georgia Power, on behalf of the Co-owners, would not exercise any remedies against Toshiba under the Toshiba Guarantee. Under the Interim Assessment Agreement, all parties expressly reserved all rights and remedies under the EPC Agreement and all related security and collateral under applicable law.

The Interim Assessment Agreement, as amended, expired on July 27, 2017. The Co-owners' aggregate liability under the Interim Assessment Agreement totaled approximately $650 million, of which our proportionate share totaled approximately $195 million. As of June 30, 2017, approximately $552 million of this aggregate liability had been paid or accrued.

Subsequent to the EPC Contractor's bankruptcy filing, a number of subcontractors to the EPC Contractor, including Fluor Enterprises, Inc., a subsidiary of Fluor, alleged non-payment by the EPC Contractor for amounts owed for work performed on Vogtle Units No. 3 and No. 4. Georgia Power, acting for itself and as agent for the Co-owners, has taken, and continues to take, actions to remove liens filed by these subcontractors through the posting of surety bonds. Georgia Power estimates the aggregate liability, through July 31, 2017, of the Co-owners for the removal of subcontractor liens and payment of other EPC Contractor pre-petition accounts payable to total approximately $400 million, of which our proportionate share would total approximately $120 million. As of June 30, 2017, approximately $354 million of this aggregate liability had been paid or accrued.

On June 9, 2017, Georgia Power and the other Co-owners and Toshiba entered into a settlement agreement regarding the Toshiba Guarantee (the Guarantee Settlement Agreement). Pursuant to the Guarantee Settlement Agreement, Toshiba acknowledged the amount of its obligation under the Toshiba Guarantee is $3.68 billion (the Guarantee Obligations), of which our proportionate share is approximately $1.1 billion, and that the Guarantee Obligations exist regardless of whether Vogtle Units No. 3 and No. 4 are completed. The Guarantee Settlement Agreement also provides for a schedule of payments for the Guarantee Obligations, beginning in October 2017 and continuing through January 2021. In the event Toshiba receives certain payments, including sale proceeds, from or related to Westinghouse (or its subsidiaries) or Toshiba Nuclear Energy Holdings (UK) Limited (or its subsidiaries), it will hold a portion of such payments in trust for the Co-owners and promptly pay them over as offsets against any remaining Guarantee Obligations. Under the Guarantee Settlement Agreement, the Co-owners will forbear from exercising remedies in respect of the Toshiba Guarantee, including drawing on the Westinghouse Letters of Credit, until June 30, 2020, unless certain events of nonpayment, insolvency, or other material breach of the Guarantee Settlement Agreement by Toshiba occur. If such an event occurs, the balance of the Guarantee Obligations will become immediately due and payable, and the Co-owners may exercise any and all rights and remedies, including drawing on the Westinghouse Letters of Credit without restriction. In addition, the Guarantee Settlement Agreement does not restrict the Co-owners from fully drawing on the Westinghouse Letters of Credit in the event they are not renewed or replaced prior to the expiration date.

On August 10, 2017, Toshiba released its financial results for the first quarter of fiscal year 2017, which reflected a negative shareholders' equity balance of approximately $4.5 billion as of June 30, 2017. Toshiba also announced the existence of material events and conditions that raise substantial doubt about Toshiba's ability to continue as a going concern. As a result, substantial risk regarding the Co-owners' ability to fully collect the Guarantee Obligations continues to exist. An inability or other failure by Toshiba to perform its obligations under the Guarantee Settlement Agreement could have a further material impact on the net cost to the Co-owners of Vogtle Units No. 3 and No. 4, and, therefore, on our financial condition and results of operations as well.

Additionally, on June 9, 2017, Georgia Power, acting for itself and as agent for the other Co-owners, and the EPC Contractor entered into a services agreement, which was amended and restated on July 20, 2017 (as amended and restated, the Services Agreement), for the EPC Contractor to transition construction management of Vogtle Units No. 3 and No. 4 to Southern Nuclear and to provide ongoing design, engineering, and procurement services to Southern Nuclear. On July 20, 2017, the bankruptcy court approved the EPC Contractor's motion seeking authorization to (i) enter into the Services Agreement, (ii) assume and assign to the Co-owners certain project-related contracts, (iii) join the Co-owners as counterparties to certain assumed project-related contracts, and (iv) reject the EPC Agreement. The Services Agreement became effective upon approval by the Department of Energy on July 27, 2017 and will continue until the start-up and testing of Vogtle Units No. 3 and No. 4 is complete and electricity is generated and sold from both units. The Services Agreement is terminable by the Co-owners upon 30 days' written notice.

Georgia Power and the other Co-owners are continuing to conduct a comprehensive schedule and cost-to-complete assessment, as well as a cancellation cost assessment, to determine the impact of the EPC Contractor's bankruptcy filing on the construction cost and schedule of Vogtle Units No. 3 and No. 4. As of June 30, 2017, our total investment in the additional Vogtle units was approximately $3.7 billion.

If construction continues on Vogtle Units No. 3 and No. 4, based on Oglethorpe's preliminary assessment, we expect our project budget to range from approximately $6.5 billion to $7.3 billion, including a contingency amount. These estimates assume commercial operation dates that range from mid-2021 to mid-2022 for Unit 3 and a year later for Unit 4. They also assume 100% recovery of our approximately $1.1 billion share of the Guarantee Obligations from Toshiba. Prior to the EPC Contractor bankruptcy, our project budget was $5 billion under the "fixed price" EPC Agreement. As the EPC Agreement has been rejected in bankruptcy, this preliminary budget range represents potential costs based on various assumptions regarding cost and schedule to complete the additional Vogtle Units. We anticipate Southern Nuclear will manage the project toward the lower end of our budget range; however, we are conservatively planning around the upper end of the range. The risk remains that cost and schedule could exceed the upper end of this range if we go forward with the project. We anticipate our total monthly costs, including interest during construction, through the remainder of 2017 to be approximately $70 million per month, which assumes we receive our proportionate share of the proceeds from the Toshiba Guarantee Settlement Agreement. Should construction continue, our total monthly costs will vary over time and will decline significantly as the project nears completion.

If the Co-owners determine to suspend or cancel the Vogtle project, based on the most recent assessment results, the Co-owners' aggregate cancellation costs of the site are estimated to range from approximately $700 million to $800 million, of which our proportionate share would be approximately $210 million to $240 million. As of June 30, 2017, our total investment in the additional Vogtle units was approximately $3.7 billion. Depending upon the circumstances of suspending the additional Vogtle units, we would determine the appropriate accounting treatment for our investment in the Vogtle units. If the investment were to be written off, we would seek regulatory accounting treatment to amortize the investment over a long-term period which requires the approval of our board of directors, and we would submit the regulatory accounting treatment details to the Rural Utilities Service for its approval.

We intend to continue working with Georgia Power and the other Co-owners to determine future actions related to Vogtle Units No. 3 and No. 4. Georgia Power has stated that it is working with the Georgia Public Service Commission in regards to this same determination. Georgia Power has stated further that it expects to include a recommendation regarding completion of the Vogtle units in its Vogtle Construction Monitoring report to be filed with the Georgia Public Service Commission in late August 2017.

There have been technical and procedural challenges to the construction and licensing of Vogtle Units No. 3 and No. 4 at the federal and state level and additional challenges may arise if construction proceeds. Processes are in place that are designed to assure compliance with the requirements specified in the Westinghouse Design Control Document and the combined construction and operating licenses, including inspections by Southern Nuclear and the Nuclear Regulatory Commission that occur throughout construction. As a result of such compliance processes, certain license amendment requests have been filed and approved or are pending before the Nuclear Regulatory Commission. Various design and other licensing-based compliance matters, including the timely resolution of Inspections, Tests, Analyses, and Acceptance Criteria and the related approvals by the Nuclear Regulatory Commission, may arise if construction proceeds, which may result in additional license amendments or require other resolution. If any license amendment requests or other licensing-based compliance issues are not resolved in a timely manner, there may be further delays in the project schedule that could result in increased costs.

If construction continues, the risk remains that challenges with labor productivity, fabrication, delivery, assembly, and installation of plant systems, structures, and components, or other issues could arise and may further impact project schedule and cost.

The ultimate outcome of these matters cannot be determined at this time.