Billboard image (above) courtesy of Twitter.com
A $30 billion dollar financial disaster in Georgia has begun to spill over the Florida border, into Jacksonville City Hall, the Florida legislature in Tallahassee, and even Governor Rick Scott’s office and the 2018 governor’s race. A Georgia nuclear power plant construction project, known as “Plant Vogtle,” once tantalized Jacksonville City Hall so much that they allowed JEA, the city’s electric authority, to enter into a contract to purchase electricity from the plant. The JEA negotiators were so ga-ga for what looked like cheap nuclear power at the time, that they forgot to negotiate protections for ratepayers into the agreement.
Unfortunately, it was all a mirage. In the ten years since the deal was inked, JEA’s share of the cost to build the nuclear facility has increased from $140 million to $2.5 billion, and that doesn’t count the actual price JEA would pay for electricity, which would add another $1.5 billion. Lawyers on all sides are filing lawsuits. It’s gotten so bad that Moody’s downgraded both the JEA and Georgia Power’s credit rating because of the cost overruns.
But now Georgia’s governor, Nathan Deal, has entered the fracas. In a letter to JEA and other “investors,” Deal urged them to stick it out, to flush more good money after bad.
Deal’s argument is a classic illustration of “sunk cost fallacy,” wherein investors have a hard time walking away from a bad deal because they have so much money invested already. That flawed logic generally leads to additional bad investments, making the original problem even worse, ultimately leading to utter financial ruin. The correct logic is:
In economics, a sunk cost is any past cost that has already been paid and cannot be recovered. For example, a business may have invested a million dollars into new hardware. This money is now gone and cannot be recovered, so it shouldn’t figure into the business’s decision making process.
But nevermind logic, or even financial considerations. Deal wants Florida ratepayers to stick with the deal because “walking away at this point would be breaking our promise.”
But he makes no mention about the promises made to Florida citizens that the electricity purchased from Plant Vogtle would be inexpensive, or that construction costs would tally less than $200 million when the actual price is twenty times as high.
Florida State Senator Debbie Mayfield has already called for an audit of the City of Jacksonville-owned JEA to try to better understand the liabilities. Now, with Deal’s involvement, some are now calling for Rick Scott to weigh in as well:
— AG Gancarski (@AGGancarski) September 19, 2018
It’s only a matter of time before the issue gets picked up in the Florida governor’s race as well.