A few years ago, back before the nuclear “renaissance” had fizzled down to construction of four southern reactors taking advantage of utility-friendly Public Service Commissions (PSCs) that allow the utilities to treat their customers as private banks, there was a lot of boasting in the industry that this time they knew how to get it right.
The spiraling cost overruns and lengthy schedule delays that were emblematic of reactor construction in the 1970s and 1980s would be a thing of the past, the industry promised. New modular construction techniques and, of course, “lessons learned” would ensure that the renaissance reactors would be built on-time and on-budget.
In June, we reported that Georgia’s Vogtle reactors are at least two years behind schedule and that construction delays are adding about $2 million per day to the project’s already overbudget cost.
Yesterday, South Carolina’s SCANA announced at least a year’s delay in the construction of its two Summer reactors near Columbia, SC. When the project was first approved by the PSC in 2009, the first reactor was scheduled to be online by April 1, 2016. Now the date is late 2018/early 2019. And that delay will be accompanied by new–as yet unknown–rising costs. Ratepayers already have suffered through six rate increases for the project and a seventh is pending before the PSC. And that won’t be the end of it.
South Carolina’s Savannah River Site Watch (SRS Watch) has been following the Summer project more closely than anyone–apparently including the investment community–and has repeatedly been more on target with its assessment of the project than anyone, including SCANA itself, the PSC, and everyone involved with the nuclear power industry.
SRS Watch issued a statement on this latest development this morning; we’ve modified it just a little and think it’s well worth reading, not only for its assessment of yesterday’s announcement, but even more so for its thoughts about what lies ahead for South Carolina ratepayers:
Columbia, SC – In a stunning announcement, South Carolina Electric & Gas (SCE&G) has revealed that the nuclear reactor construction project at the V.C. Summer site has been delayed again, adding an additional year or more to the project, which will result in significant cost increases.
SCE&G officials stated on Monday afternoon, August 11, that the completion of the first new reactor at the V.C. Summer site, unit 2, has been delayed from the current date of late 2017/early 2018 “to late 2018 or the first half of 2019” and that associated cost increases are unknown. The second reactor, unit 3, is now delayed another 12 months.
The news was revealed in a four-minute presentation by Steve Byrne, Chief Operating Officer at SCE&G and Jimmy Addison, Chief Financial Officer at SCANA. The presentation was followed by over 30 minutes of questions by representatives of investing firms.
“We have warned from the start of this risky project that it would face significant delays and cost increases so there is unfortunately no big surprise in SCE&G’s stunning news,” said Tom Clements, director of Savannah River Site Watch (SRS Watch). “SCE&G rate payers, already facing seven rate increases to pay in advance for the nuclear project, will likely take it on the chin due to the cost increases due to the announced delays,” he said.
The SCE&G project involves construction by Chicago Bridge & Iron (CB&I) of two Westinghouse-design AP1000 nuclear reactors, an experimental design that has never been built or operated before. In a parallel project, Southern Company is building two AP1000 reactors at the Vogtle site in Georgia (across the river from the Savannah River Site).
According to Savannah River Site Watch, the cost for the expected delay could be in the range of $500 million or more. It is unclear how much of the additional costs will be passed on to SCE&G customers and how much the company or the construction “consortium” (Westinghouse and Chicago Bridge & Iron) will bear. SRS Watch warns that given the trend for delays since the project began that more such delays can be anticipated as the project continues, adding costs that the company may attempt to pass on to rate payers.
In the February 27, 2009 order by the South Carolina Public Service Commission in which the project was first approved, it is stated “the anticipated commercial service date for Unit 2 is April 1, 2016.” The just-announced delay means that the project is now 2 ½ to 3 years or more behind schedule after 5 years of construction, or about a 6-month delay for every year of construction.
SCE&G officials stated on Monday that they were informed on August 1 of the schedule delays by the construction consortium (Westinghouse and CB&I). SCE&G attributed the delays to problems with securing properly manufactured modules for the nuclear project, especially with key modules manufactured by Chicago Bridge & Iron at its Lake Charles, Louisiana facility. Due to chronic problems at the facility, it has been under close scrutiny by the Nuclear Regulatory Commission but problems persist.
SCE&G and the consortium are now discussing a firmer schedule and who will be responsible for cost overruns. The company expects to come to a conclusion of the negotiations by the end of 2014.
SCE&G officials confirmed that they will have to go to the PSC to ask for approval for the delay as it falls outside of the 18-month delay period allowed by the PSC when it approved the project. Likewise, SCE&G will have to seek approval for cost increases and will attempt to saddle its rate payers with any costs not deemed the responsibility of the consortium. PSC approval for delays and cost overruns is not guaranteed and can face intervention by concerned parties representing aggrieved rate payers.
SCE&G filed in late May for the seventh rate increase for the nuclear project, as allowed by the Baseload Review Act (BLRA). The annual pay-in-advance rate increase, only for financing costs, has not yet been approved but is expected to be near 3%, bringing the total amount for the new nuclear project in the bill to around 13%. That cost is not reflected in the bill as the company is attempting to keep rate payers in the dark about advance charges for the troubled project.
If the first unit comes on line in late 2018, SCE&G customers would have been hit with eleven pay-in-advance rate increases to pay for the financing costs of the nuclear project and will not even be owners of the new reactors in spite of paying for it. When capital costs go into the rate base, more negative impacts to rates will occur but the impact is unknown at this time.
“The law that forces SCE&G customers to pay in advance for the nuclear project is unjust and the announced delays confirm that the anti-consumer law should be repealed,” said Clements.
On Monday, August 11, SCE&G filed its quarterly report to the Securities and Exchange Commission (SEC) in which it revealed the delays and stated that “SCE&G anticipates that the revised schedule and the cost estimate at completion will be finalized in the latter half of 2014.” An update on the project is to be filed with the PSC on August 14 and it is anticipated that the language in that filing will be similar to that in the SEC report. It is believed that the reason for the August 11 conference call was due to the SEC filing and what was revealed in it.
In response to a question by an investor, SCE&G stated that it had informed two credit rating agencies on Monday about the delays and that it will take a while before any impact on credit ratings are known.
In 2008, Clements spearheaded an intervention before the South Carolina Public Service Commission against the project and argued that efforts should be first focused on conservation, efficiency and alternatives and not a costly nuclear project. “It is clear that the soundest options for South Carolina energy planning remain conservation, efficiency and sustainable alternatives and not a nuclear project that is proving to be far too risky and costly,” said Clements. “SCE&G’s announcement of schedule delays and unknown cost increases serves as more proof that putting the nuclear horse before the conservation and efficiency cart was the wrong way to go.”
To listen to the archived SCANA call, go to www.scana.com, click on “investor relations,” click on “webcast and presentations,” click on “Discussion of New Nuclear Construction Schedule” and register and choose media by which to listen to archived call. The presentation by SCE&G is about 4 minutes, total call time with Q&A from investors is about 40 minutes.
Director, Savannah River Site Watch
August 12, 2014
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