New nuclear power plants led by subsidiaries of Southern (NYSE: SO) and SCANA (NYSE: SCG) are “entering the crucial construction cycle for the projects” and it seems likely there will be additional delays, according to an analysis by UBS Investment Research.
In an Oct. 4 assessment for clients, UBS Analysts Julien Dumoulin-Smith and Steven Fisher said they recently visited the development sites for Vogtle Units 3 and 4 in Georgia and V.C. Summer Units 2 and 3 in South Carolina.
“Overall, we are incrementally cautious on the development timelines for both projects, seeing potential slippage in development of critical path modules along the latest articulated timelines,” the UBS analysts said. Nevertheless, “we sense a broader continued support from regulators to see the project through (both minimizing public scrutiny) and accepting the inevitability of higher costs from delays.”
The next 24-to-36 months are crucial, the UBS analysts go on to say. “While we’ve remained on the sidelines, the potential for liability for further delays makes us incrementally concerned,” they added.
Both Southern and SCANA use the same lead contractor team led by Chicago Bridge & Iron (NYSE: CBI). CB&I merged with the Shaw Group several months ago. Both also use Westinghouse Electric and its AP 1000 reactor design.
The two nuclear plant power companies have wrestled with both logistic and litigation issues concerning their vendors. SCANA recently attributed a delay in its Summer timetable to delivery of “sub-modules” from CB&I’s facility in Lake Charles, La.
“It remains clear that the Lake Charles site is still experiencing challenges with timely delivery of parts and CBI is undertaking a lengthy process,” to improve things, the UBS analysis said.
Both companies continue to evaluate new manufacturing sites including Newport News, Va., and elsewhere in the Southern states. Moreover, work is being shifted to on-site development, with both SCANA and Southern seemingly taking early delivery of components in order to adequately complete critical path items on site, up to NRC specification, the UBS analysts said.
On the positive said, UBS sees a “strong likelihood” for a settlement between Southern and CBI on pending Vogtle 3 and 4 litigation issues, maybe by the end of 2013.
“Lastly, we sense a significant improved operating relationship between CBI and SO/SCG,” the UBS analysts said.
The UBS analysts reviewed a recent move by the Georgia Public Service Commission and its impact on Southern utility Georgia Power. The Georgia PSC has allowed the utility to combine its Vogtle cost management report for the first half of 2013 with its second-half 2013 report. The document must be filed by Feb. 28, 2014.
It appears the primary reasons for not filing the latest case relate to both a desire to keep pending litigation out of the filing (hopefully producing substantially lower capital cost inflation) and to minimize disclosures given continued discussions with litigants on a settlement, according to UBS.
UBS also sees “real potential” for Southern reaching a deal with the U.S. Department of Energy by year’s end on long-sought final approval of a federal loan guarantee for Vogtle 3 and 4. Drawdowns of the new funding source would begin immediately in 2014 if successful.
Southern has said it can complete the Vogtle units without the federal backing and SCANA never sought a loan guarantee for the new Summer units.