US nuclear construction project to be abandoned

01 August 2017

Scana Corporation subsidiary South Carolina Electric & Gas (SCG&E) yesterday announced its decision to cease construction of two AP1000 reactors at VC Summer. The announcement followed co-owner Santee Cooper's decision to suspend construction because of projected completion delays and cost overruns. Scana is to file for regulatory permission to abandon the project.

Summer unit 2, pictured on 9 June after placement of the unit's third and final containment ring (image: SCE&G)

Santee Cooper said its decision to suspend construction was based "in large part" on analysis of detailed schedule and cost data provided by project contractor Westinghouse and subcontractor Fluor Corporation after Westinghouse filed for Chapter 11 bankruptcy protection in March. That data, which has now been analysed by Santee Cooper and SCE&G, shows unit 2 will not be completed until December 2022 and unit 3 not before March 2024 - four years after the most recent completion date provided by Westinghouse.

Santee Cooper and majority partner SCE&G's original contract with Westinghouse had provided for substantial completion of Summer unit 2 by 2016 and unit 3 by 2019. In 2015 the contract was amended, fixing Santee Cooper's share of the cost at $6.2 billion. This was approved by Santee Cooper's board in 2016.

Santee Cooper said its most recent analysis, which anticipates the rejection of that contract as part of Westinghouse's bankruptcy proceedings, found that completing the project would cost the company $8 billion plus about $3.4 billion in interest, with schedule delays contributing to the increased interest. It has already spent $4.7 billion on construction and interest to date for its 45% share of the project.

"After Westinghouse's bankruptcy and anticipated rejection of the fixed-price contract, the best case scenario shows this project would be several years late and [cost] 75% more than originally planned," Lonnie Carter, Santee Cooper president and CEO, said. "We simply cannot ask our customers to pay for a project that has become uneconomical."

Santee Cooper has directed its management to preserve and protect the site and related components and equipment. "During the wind-down, Santee Cooper will also continue investigating federal support and additional partners to see if we can make the project economical again," Carter said.

The operating Summer unit 1 - also co-owned by Santee Cooper and SCE&G - provides the lowest cost electricity of all Santee Cooper's base load generation, the company said. However, since the companies applied to build the new units in 2008, its load forecast has slowed, in part due to energy efficiency programs, while natural gas prices have fallen and "the current political landscape has reduced the urgency for emissions-free baseload generation".

Santee Cooper chairman Leighton Lord said that although the cost of completing the Summer units was "simply too much for our customers to bear", generation diversity remained important to the company, which was proud of its role in the effort to "restart" the US nuclear industry. "Nuclear power needs to remain part of the US energy mix," he said.

Prudent course of action

SCE&G had been evaluating options including: continuing with the construction of both units; focusing on the construction of one unit, and delaying the construction of the other; continuing with the construction of one and abandoning the other; and abandoning both units. Yesterday, it said its evaluation and analysis had concluded that completion of both units would be "prohibitively expensive". According to SCE&G's evaluation, the company would face a total cost of $9.9 billion to complete its 55% share of the project. Even taking into account a $1.1 guarantee payment it is to receive from Westinghouse parent company Toshiba, this would "materially exceed" prior estimates.

SCE&G's analysis also concluded that the units could not be brought on line before the 1 January 2021 deadline to qualify for production tax credits under current tax rules.

The company said it had considered the feasibility of completing the construction of unit 2 and abandoning unit 3 under the existing ownership structure and using natural gas generation to fulfill any remaining generation needs as a potential path forward.

Scana Chairman and CEO Kevin Marsh told investors after the announcement that this option would have resulted in a combined cost that was less than that previously approved by the South Carolina Public Service Commission (PSC) under the fixed price option for completing the two nuclear units.

"Santee's decision to suspend construction of the project made further analysis of this alternative unnecessary as SCE&G concluded it would not be in the interests of its stakeholders and customers to continue construction of the project on its own," he said. The company had "reached out to other potential partners and pursued governmental support", but without success.

"Based on this evaluation and analysis, and Santee Cooper's decision, SCE&G has concluded that the only remaining prudent course of action will be to abandon the construction of both unit 2 and unit 3," the company said.

Marsh said the company had evaluated the project from "all perspectives" before reaching the "very difficult but necessary" decision.

"Many factors outside our control have changed since inception of this project. Chief among them, the bankruptcy of our primary construction contractor, Westinghouse, eliminated the benefits of the fixed-price contract to our customers, investors, and other stakeholders. Ultimately, our project co-owner Santee Cooper's decision to suspend construction made clear that proceeding on our own would not be economically feasible. Ceasing work on the project was our least desired option, but this is the right thing to do at this time," he said.

Normal construction activities at the site will cease immediately, Scana said. The company intends to formally brief the PSC of its decision today, after which it will initiate the abandonment proceeding. It is seeking an amortisation of the project costs over a period of 60 years.

Westinghouse progress

Westinghouse president and CEO José Emetrio Gutíerrez said the company was disappointed that the project would no longer go forward.

"The South Carolina economy is sure to feel the negative impact of losing over five thousand high-paying, long-term jobs, as well as not having available the reliable, clean, safe and affordable energy these units would provide. Also, at a time when other nuclear plants are being retired, the US energy sector is sure to feel the stunting impact of walking away from these two nuclear units," he said.

Gutíerrez made these comments as Westinghouse announced the submission of its five-year business plan, which it described as a critical milestone in the Chapter 11 bankruptcy process. The plan integrates the company's strategic initiatives, competitive landscape and market dynamics into a five-year financial forecast. Comprising strategic transformation initiatives resulting in savings of $205 million over the five-year term, the plan supports the operation of the company's core businesses as well as its New Projects Business. One component of these savings will be an "adjustment of the company's global headcount" of about 7% for the 2017 fiscal year.

Valiant effort

Maria Korsnick, president and CEO of the US Nuclear Energy Institute, said Santee Cooper and SCE&G's decisions were disappointing developments for the US nuclear industry, but applauded the two companies for their "valiant and visionary" efforts to embark on a new US nuclear construction program for the first time in over 30 years.

"While many factors have changed since these two companies started construction of the new nuclear units, one thing has not changed, and that's the value of nuclear as a safe, reliable, clean source of energy," she said.

"As a first-of-a-kind nuclear construction project of this size and scope, the project understandably encountered many economic, regulatory and other challenges along the way. SCE&G and Santee Cooper, however, have always managed those challenges impressively. It is unfortunate that circumstances beyond their control have led to this outcome today. All the more now, we must impress upon our energy policy decision makers the vital role of nuclear energy in America's energy portfolio. As America's need for electricity continues to grow, which means hundreds of new generating facilities will need to be built, clean and reliable nuclear energy will be an essential part of America's energy security," she added.

Construction began on the first of four AP1000 reactors in the USA - Summer unit 2 and Vogtle unit 3 in Georgia - in March 2013, with work beginning on Summer 3 and Vogtle 4 in November of that year. Work is still continuing at the Vogtle project, for which Westinghouse recently negotiated a long-term services agreement with co-owner Southern Nuclear Co.

AP1000s under construction in China are unaffected by the Westinghouse bankruptcy filing. Wang Binghua, chairman of China's State Power Investment Corporation, recently vowed that his company will make sure its first two AP1000 plants at Sanmen and Haiyang will start producing electricity by end of 2017.

Researched and written
by World Nuclear News