By Will Davis
On April 12, executives of SCANA Corporation and South Carolina Electric & Gas (SCE&G)—two of the owners of the V.C. Summer nuclear plant expansion, which is presently in progress adding two Westinghouse AP1000 units to the older, existing unit on site—delivered an ex parte briefing to the Public Service Commission (PSC) of South Carolina. The information given was quite detailed, but we present the major points here to expand on our coverage of the Westinghouse reorganization.
Progress at V.C. Summer
According to materials provided by SCANA, between April 2016 and February 2017 the site staff has expanded from 3940 workers to 5168 workers, measured on an equivalent full-time job basis. Construction progress on the units is as follows: engineering, 95.5-percent complete; procurement, 87.3 percent; construction, 33.7 percent; startup processes, 8.3 percent. The total estimated project completion now stands at 63.4 percent.
To make these units useful, the owners had to add or modify transmission lines for their grids; work on this project stands at 85-percent completion for transmission structures (towers, etc.), while the installation of actual wires stands at 79 percent complete.
Impact of Westinghouse Reorganization
In prepared remarks to the South Carolina PSC on April 12, SCANA and SCE&G chairman and chief executive officer Kevin Marsh observed that “Westinghouse’s announced goal in bankruptcy is to isolate its other businesses from new nuclear plant construction,” with the other businesses being such lines as nuclear fuel and plant services, which are all profitable. He added, “For that reason, we anticipate that any plan to complete the units will include Westinghouse in some capacity, but not as a leader role as construction manager.”
Marsh said that the options for the project include completing both units (but with different construction contracting, expecting that Westinghouse is likely to modify or drop the engineering, procurement, and construction/EPC contract in bankruptcy), completing one unit and deferring the other; completing one unit and cancelling (abandoning) the other; or else even cancelling and abandoning both units. “All things being equal,” he said, “our preference would be to complete the units for the benefits that they would provide to our system.”
Looking at what would happen if Westinghouse did drop the EPC contract, Marsh said that “If Westinghouse rejects the EPC contract on which our current cost estimates are based, Westinghouse and Toshiba will owe us damages.” More on this would come out later.
Marsh also said that work is underway to attempt to push out the required completion dates for the units in terms of eligibility for $2.2 billion worth of production tax credits. Marsh explained that while Westinghouse’s present timeline shows completion of the units prior to the legal deadline of January 1, 2021, it is “prudent to protect the eligibility for credits even if the current deadlines are missed.” South Carolina’s House and Senate representatives have introduced legislation to eliminate the hard deadline.
Costs Come to Fore
Jimmy Addison, executive vice president and chief financial officer of SCANA, told the assembled PSC that while Westinghouse did acquire an $800-million line of credit, it is prevented from using any of that credit on the nuclear construction projects. The project (and, in fact, the other AP1000 project in Georgia) is instead moving along. It is funded by the owners of the sites under an interim agreement intended to last 30 days, in which the owners are directly paying Fluor (the construction manager Westinghouse brought in after it merged Stone & Webster into its new WECTEC subsidiary), paying Westinghouse’s subcontractor, and even Westinghouse’s internal costs. Addison observed that Westinghouse has stated that the cost “associated with completing the two AP1000 projects above what it could contractually require the V.C. Summer and Vogtle project owners to pay is approximately $4 billion.” (Emphasis added.) Addison told the PSC that recently, Westinghouse revealed that the portion of this $4 billion assigned to the V.C. Summer project is $1.5 billion. Addison hastened to add that these figures are Westinghouse’s figures, and that they have not been examined and verified by the owners of the plants. The $4-billion overrun is due, he said, to the fixed or firm price contracts Westinghouse re-negotiated with the plant owners at the time of the Stone & Webster merger and creation of WECTEC.
“Bankruptcy,” Addison said, “gives Westinghouse the ability to reject or walk away from these fixed price obligations.” However, he added that if this happens the owners will have the right to collect damages from Westinghouse and/or Toshiba, which has provided a parental guarantee for Westinghouse debts.
These damages, he explained, “are capped at 25 percent of the payments we have made to Westinghouse at the time it breaches the EPC contract.” Addison said that he thinks the cap will be about $1.7 billion, although that could grow as the interim agreement payments are made.
According to Addison, the monies could be made up from dissolution of Westinghouse’s profitable businesses in bankruptcy. He also said that the V.C. Summer owners could obtain monetary value from the sale of the AP1000 patents and rights. He said that both site owner groups would likely seek to recover damages through the bankruptcy court by sale of Westinghouse businesses and assets if Westinghouse drops the EPC contract.
Byrne Weighs In
Steven Byrne, executive vice president of SCANA, added in his remarks that the interim agreement, under which the owners are evaluating Westinghouse’s schedule and financials, as well as directly funding the projects, is set to expire April 28, 2017, but it “can be canceled on five days’ notice by the owners of the V.C. Summer project.” According to Byrne’s remarks, it appears that termination of either owners’ agreement (Summer or Vogtle) would halt the AP1000 construction since the two owner groups are jointly funding all of Westinghouse’s internal engineering costs to keep the projects moving, and some other arrangement would have to be made by one owner to fund all of that should the other back out. Byrne said that Westinghouse has agreed not to reject the EPC contract until at least the time that the interim agreement expires.
Byrne went on to describe the in-depth analysis of Westinghouse’s facts and figures on the projects now allowed through the agreement and the bankruptcy, which previously had been considered proprietary to Westinghouse and which was protected by it. It is clear from Byrne’s testimony that the owners of Summer will not have a solid idea about the prospects for completing the project until the successful completion of the examination of Westinghouse (and Fluor) information—which may still require an extension of the interim contract agreement period, if Westinghouse and the bankruptcy court agree to allow it.
While many other comments were made on April 12 before the PSC, it is clear that the next hard date to watch in this saga is the April 28 expiration date for the interim agreement. At that time, either an extension of the agreement will be put in force, or the “gloves will be off,” as it were, and Westinghouse and the bankruptcy court will make a move. Certainly, this will be a date to watch.
Will Davis is a member of the Board of Directors for the N/S Savannah Association, Inc. He is a consultant to the Global America Business Institute, a contributing author for Fuel Cycle Week, and he writes his own popular blog Atomic Power Review. Davis is also a consultant and writer for the American Nuclear Society, and serves on the ANS Communications Committee and the Book Publishing Committee. He is a former U.S. Navy reactor operator and served on SSBN-641, USS Simon Bolivar.