SCANA seeks South Carolina PSC approval for cost increase on nuclear project

SCANA (NYSE:SCG) subsidiary South Carolina Electric & Gas (SCE&G) said March 12 that it has petitioned the Public Service Commission of South Carolina for approval to increase the cost and extend the timetable for the V.C. Summer 2 and 3 nuclear units being built in Jenkinsville, S.C.

As is the case with Southern (NYSE:SO) utility Georgia Power and its Vogtle Units 3 and 4 construction project in Georgia, the South Carolina utility is having issues with the contractor consortium of Westinghouse Electric and Chicago Bridge & Iron (NYSE:CBI).

The SCANA utility said talks continued with the contractor team, but the filing is necessary because several project milestone dates previously approved by the South Carolina PSC have now exceeded their allowable contingency time periods.

The construction schedule reflected in the petition, without consideration of all mitigating strategies, indicates a substantial completion date for Unit 2 of June 2019 and a substantial completion date for Unit 3 of June 2020.

These estimated completion dates are based upon information received from the consortium. “This petition includes incremental capital costs that total $698 million (SCE&G’s portion in 2007 dollars), of which $539 million are associated with these delays and other contested costs,” the SCANA utility said.

“The total project capital cost is now estimated at approximately $5.2 billion (SCE&G’s portion in 2007 dollars) or $6.8 billion including escalation and allowance for funds used during construction (SCE&G’s portion in future dollars),” SCANA said.

The state owned-South Carolina Public Service Authority, more commonly known as Santee Cooper, is SCE&G’s minority partner in the nuclear plant.

In making this filing, SCE&G does not waive any claims related to delay and other related contested costs with the contractor consortium, the utility said.

“Substantial progress has been made towards the completion of the units,” said SCANA Chairman and CEO Kevin Marsh. “As outlined in the petition, eighty five percent of the major equipment for Unit 2 has been received on site, the containment vessel bottom heads of both units have been set, and all three of the steel rings that comprise the vertical walls of the Unit 2 containment vessel have been completed or are near completion. Also, the first ring for Unit 2 has been set in place and a total of twenty three million man-hours have been worked with an excellent safety record,” Marsh said.

Marsh added “However, we are not pleased with the delays in the construction schedule for our new nuclear plants. These delays and related cost increases are principally due to design and fabrication issues associated with the production of submodules used in construction of the units. We continue to negotiate with Westinghouse and Chicago Bridge & Iron regarding the responsibility for delay costs associated with the submodules.”

The SCANA CEO goes on to say that with a construction project “of this scale “we knew there would be challenges along the way.”

“While some of the contractual project construction costs have increased, we have enjoyed lower escalation on the project to date, and we have locked in significantly lower long-term financing costs than projected on a large portion of the project’s debt financing,” said SCANA’s Marsh.

“We also expect more production tax credits to benefit our customers once the units are online. Our commitment to the Public Service Commission of South Carolina in 2008 was to keep them informed regarding changes in the construction schedule and related cost of the project,” Marsh said.

SCE&G filed its application for an order under South Carolina’s Base Load Review Act (BLRA) in 2008, which the SCPSC approved in 2009. Although the capital cost schedule for which approval is being sought includes higher costs than were approved in that original BLRA order, important elements of the costs to customers from the project have been reduced from the projections that were presented during initial approval.

  • Inflation has been significantly lower than originally anticipated and escalation is now projected to be over $200 million less than initial estimates
  • Interest rates have also been significantly lower than those incorporated in the original projections, resulting in approximately $1.2 billion of expected benefits to be realized by SCE&G’s customers
  • Fewer new nuclear projects than expected have been pursued in the United States, and SCE&G now anticipates that an additional $1.2 billion in fuel cost reductions will be realized by its customers through the application of the production tax credits, based upon current construction schedules and current tax law.

Based upon the March 12 filing date, SCE&G anticipates a hearing date this summer with an order due by Sept. 12, 2015.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.