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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--In the end, multibillion-dollar cost overruns and the years-long delays in construction killed plans to add two new units to the Virgil C. Summer Nuclear Power Station in Jenkinsville, South Carolina. Originally budgeted at about $15 billion in 2009, plans to add about 2,200 megawatts (MW) of new electric generation capacity at an existing nuclear plant ran into numerous obstacles. But the final straw appeared to be Westinghouse Electric Corporation's Chapter 11 bankruptcy and decision to exit the nuclear construction business earlier this year. For more on that, see March 30, 2017, article - U.S. Nuclear Power Project Developers Weigh Options in Wake of Westinghouse Bankruptcy.
Last week, Westinghouse's corporate parent, Toshiba, reportedly offered to contribute $2.2 billion to finish construction of the Summer units, but co-owners South Carolina Electric & Gas (SCE&G) (Cayce, South Carolina), a unit of SCANA Corporation (NYSE:SCG) (Cayce), and Santee Cooper (Moncks Corner, South Carolina) said that would not be enough. On July 31, the owners decided it would cost more to finish the project that to abandon it now. The utilities said they would file abandonment papers with the South Carolina Public Service Commission (Columbia, South Carolina).
In a statement Monday, SCE&G said it was taking the decision "after considering the additional costs to complete the units, the uncertainty regarding the availability of production tax credits for the project, the amount of anticipated guaranty settlement payments from Toshiba Corporation, and other matters associated with continuing construction, including the decision of the co-owner of the project, the South Carolina Public Service Authority (Santee Cooper), the state-owned electric utility, to suspend construction of the project."
SCANA Chairman and Chief Executive Kevin Marsh added: "We arrived at this very difficult, but necessary, decision following months of evaluating the project from all perspectives to determine the most prudent path forward. 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."
Santee Cooper owns 45% of units 2 and 3, while SCE&G owns the other 55%.
"It's the right decision at the right time," Michael N. Couick, president and chief executive of the South Carolina association of electric cooperatives, told the Associated Press. "But it was also the right decision to start construction of the nuclear generators in the 2007-2008 time period, contrary to many critics with convenient 20/20 hindsight."
The abandonment of Summer units 2 and 3 is expected to save Santee Cooper customers nearly $7 billion in additional costs to complete the project, including projected interest during construction, the utility said. No comparable number could be found for SCE&G's, but given its higher ownership share of the project, its savings are expected to be even higher.
In a statement, Santee Cooper said it has spent approximately $4.7 billion in construction and interest to date for its 45% share of the two new nuclear units. But the most recent analysis showed the project would not be finished until 2024, four years after the most recent completion date provided by Westinghouse. Coming on that late would strip the project of its federal tax credits, which would push Santee Cooper share of the project to $11.4 billion.
South Carolina utility regulators gave the project the final green light in April 2012. At that point, in-service dates were projected to be 2016 (Unit 2) and 2019 (Unit 3). At that time, Santee Cooper's Board approved a $5.1 billion budget, representing its 45% share of the joint project and additional transmission needed for the Santee Cooper electric system. In October 2015, the Board approved an amended Westinghouse contract that included an option to fix its share of the costs at $6.2 billion, and the Board approved fixing the price at $6.2 billion in June 2016.
The most recent analysis, anticipating the rejection of the contract by Westinghouse in bankruptcy proceedings, showed the final cost for Santee Cooper to complete the project would be $8 billion for construction and approximately $3.4 billion for interest. The schedule delays increased the projected interest costs 143% over the original plan.
Prior to Westinghouse's bankruptcy and exit from the nuclear construction business, the project was scheduled to be complete by 2020. The bankruptcy filing and other delays pushed back the in-service date several added years to 2024, Santee Cooper said.
In its statement, majority owner SCE&G said "completion of both units would be prohibitively expensive." According to the utility's analysis, the additional cost to complete both units beyond the amounts payable in connection with the engineering, procurement and construction (EPC) contract "would materially exceed prior (Westinghouse) estimates, as well as the anticipated guaranty settlement payments from Toshiba. Moreover, the units would need to be online before January 1, 2021, to qualify for production tax credits, under current tax rules. SCE&G's analysis concluded the units could not be brought online until after this date."
SCE&G said it would look to gas-fired generation to replace its share of Summer units 2 and 3, estimated to be about 1,210 MW of total capacity.
"Ultimately, our project co-owner Santee Cooper's decision to suspend construction made clear that proceeding on our own would not be economically feasible," SCANA chief Marsh said July 31. "Ceasing work on the project was our least desired option, but this is the right thing to do at this time."
"Many of our employees have worked extremely hard over the years to build these new units," he continued. "That's one of the factors that makes this decision particularly difficult. We are deeply grateful for all their contributions and will do our best to support those affected by these changes. We also recognize the impact that our path forward will have on customers, communities, shareholders and the nuclear industry as a whole."
"Our belief in the benefits of nuclear generation--not just for the state, but for the nation--hasn't changed," Marsh said. "As we have been doing for more than 30 years, we will continue providing customers with a valuable, low-cost, non-emitting source of generation through our operating nuclear unit at V.C. Summer."
The Summer abandonment decision leaves Vogtle units 3 and 4 as the only current nuclear generation project under construction. Principal owner Georgia Power (Atlanta, Georgia) recently replaced Westinghouse and made the utility's corporate sibling, Southern Nuclear, project lead. The Vogtle unit additions, now about 65% complete, will continue to move forward. Both units are expected to be brought online in 2020.
Georgia Power recently began to feel financial penalties over construction delays at Vogtle. The Georgia utility regulators indicated they will levy sizable additional financial penalties, a 300-basis reduction in its return on equity, if the units were not generating electricity by the end of 2020. For more on that, see January 5, 2017, article - Georgia Power Hit with Financial Penalties for Construction Delays at Vogtle Nuclear Plants. That ultimatum was laid down three months before Westinghouse declared bankruptcy.
"The nuclear renaissance that began with such optimism a decade ago is ending with a whimper with the Summer announcement," said Andre' Wesley, Industrial Info's North American research manager-Power. "It's a shame, really, because every resource planner, and nearly every utility regulator, expresses support for the idea of fuel diversity. But in the end, if it's too expensive, operators are forced to do with what is proven and affordable."
The timing of the Summer abandonment comes less than one month after President Donald Trump called for a comprehensive study of the nuclear power industry, with the goal of reinvigorating the sector as part of his call to establish U.S. "energy dominance." For more on that, see July 5, 2017, article - Trump Calls for Study to Revive U.S. Nuclear Energy.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
Last week, Westinghouse's corporate parent, Toshiba, reportedly offered to contribute $2.2 billion to finish construction of the Summer units, but co-owners South Carolina Electric & Gas (SCE&G) (Cayce, South Carolina), a unit of SCANA Corporation (NYSE:SCG) (Cayce), and Santee Cooper (Moncks Corner, South Carolina) said that would not be enough. On July 31, the owners decided it would cost more to finish the project that to abandon it now. The utilities said they would file abandonment papers with the South Carolina Public Service Commission (Columbia, South Carolina).
In a statement Monday, SCE&G said it was taking the decision "after considering the additional costs to complete the units, the uncertainty regarding the availability of production tax credits for the project, the amount of anticipated guaranty settlement payments from Toshiba Corporation, and other matters associated with continuing construction, including the decision of the co-owner of the project, the South Carolina Public Service Authority (Santee Cooper), the state-owned electric utility, to suspend construction of the project."
SCANA Chairman and Chief Executive Kevin Marsh added: "We arrived at this very difficult, but necessary, decision following months of evaluating the project from all perspectives to determine the most prudent path forward. 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."
Santee Cooper owns 45% of units 2 and 3, while SCE&G owns the other 55%.
"It's the right decision at the right time," Michael N. Couick, president and chief executive of the South Carolina association of electric cooperatives, told the Associated Press. "But it was also the right decision to start construction of the nuclear generators in the 2007-2008 time period, contrary to many critics with convenient 20/20 hindsight."
The abandonment of Summer units 2 and 3 is expected to save Santee Cooper customers nearly $7 billion in additional costs to complete the project, including projected interest during construction, the utility said. No comparable number could be found for SCE&G's, but given its higher ownership share of the project, its savings are expected to be even higher.
In a statement, Santee Cooper said it has spent approximately $4.7 billion in construction and interest to date for its 45% share of the two new nuclear units. But the most recent analysis showed the project would not be finished until 2024, four years after the most recent completion date provided by Westinghouse. Coming on that late would strip the project of its federal tax credits, which would push Santee Cooper share of the project to $11.4 billion.
South Carolina utility regulators gave the project the final green light in April 2012. At that point, in-service dates were projected to be 2016 (Unit 2) and 2019 (Unit 3). At that time, Santee Cooper's Board approved a $5.1 billion budget, representing its 45% share of the joint project and additional transmission needed for the Santee Cooper electric system. In October 2015, the Board approved an amended Westinghouse contract that included an option to fix its share of the costs at $6.2 billion, and the Board approved fixing the price at $6.2 billion in June 2016.
The most recent analysis, anticipating the rejection of the contract by Westinghouse in bankruptcy proceedings, showed the final cost for Santee Cooper to complete the project would be $8 billion for construction and approximately $3.4 billion for interest. The schedule delays increased the projected interest costs 143% over the original plan.
Prior to Westinghouse's bankruptcy and exit from the nuclear construction business, the project was scheduled to be complete by 2020. The bankruptcy filing and other delays pushed back the in-service date several added years to 2024, Santee Cooper said.
In its statement, majority owner SCE&G said "completion of both units would be prohibitively expensive." According to the utility's analysis, the additional cost to complete both units beyond the amounts payable in connection with the engineering, procurement and construction (EPC) contract "would materially exceed prior (Westinghouse) estimates, as well as the anticipated guaranty settlement payments from Toshiba. Moreover, the units would need to be online before January 1, 2021, to qualify for production tax credits, under current tax rules. SCE&G's analysis concluded the units could not be brought online until after this date."
SCE&G said it would look to gas-fired generation to replace its share of Summer units 2 and 3, estimated to be about 1,210 MW of total capacity.
"Ultimately, our project co-owner Santee Cooper's decision to suspend construction made clear that proceeding on our own would not be economically feasible," SCANA chief Marsh said July 31. "Ceasing work on the project was our least desired option, but this is the right thing to do at this time."
"Many of our employees have worked extremely hard over the years to build these new units," he continued. "That's one of the factors that makes this decision particularly difficult. We are deeply grateful for all their contributions and will do our best to support those affected by these changes. We also recognize the impact that our path forward will have on customers, communities, shareholders and the nuclear industry as a whole."
"Our belief in the benefits of nuclear generation--not just for the state, but for the nation--hasn't changed," Marsh said. "As we have been doing for more than 30 years, we will continue providing customers with a valuable, low-cost, non-emitting source of generation through our operating nuclear unit at V.C. Summer."
The Summer abandonment decision leaves Vogtle units 3 and 4 as the only current nuclear generation project under construction. Principal owner Georgia Power (Atlanta, Georgia) recently replaced Westinghouse and made the utility's corporate sibling, Southern Nuclear, project lead. The Vogtle unit additions, now about 65% complete, will continue to move forward. Both units are expected to be brought online in 2020.
Georgia Power recently began to feel financial penalties over construction delays at Vogtle. The Georgia utility regulators indicated they will levy sizable additional financial penalties, a 300-basis reduction in its return on equity, if the units were not generating electricity by the end of 2020. For more on that, see January 5, 2017, article - Georgia Power Hit with Financial Penalties for Construction Delays at Vogtle Nuclear Plants. That ultimatum was laid down three months before Westinghouse declared bankruptcy.
"The nuclear renaissance that began with such optimism a decade ago is ending with a whimper with the Summer announcement," said Andre' Wesley, Industrial Info's North American research manager-Power. "It's a shame, really, because every resource planner, and nearly every utility regulator, expresses support for the idea of fuel diversity. But in the end, if it's too expensive, operators are forced to do with what is proven and affordable."
The timing of the Summer abandonment comes less than one month after President Donald Trump called for a comprehensive study of the nuclear power industry, with the goal of reinvigorating the sector as part of his call to establish U.S. "energy dominance." For more on that, see July 5, 2017, article - Trump Calls for Study to Revive U.S. Nuclear Energy.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
