John Mc Dermott
The heavy lifting isn’t over. In some ways, it could be just beginning for the various players immersed in the long-delayed $14 billion project, especially South Carolina Electric & Gas.
For the moment, much of the focus is on Westinghouse Electric, the engineering, procurement and construction contractor at the rural V.C. Summer project site. Questions about its role have been swirling since late December, when parent company Toshiba Corp. dropped a post-holiday bombshell by announcing it will take a write-off that’s expected to total at least several billion dollars. The exact figure will be disclosed Tuesday.
“We are in regular contact with Westinghouse and Toshiba on this matter and will continue to monitor activities very closely,” said Rhonda O’Banion, spokeswoman for V.C. Summer.
The troubles at the Japanese conglomerate are tied in large part to the diminished value of CB&I Stone & Webster, the contractor that was brought in to expand the South Carolina plant and build another near Augusta. Westinghouse, which designed the AP1000 reactors that will power both sites, agreed to buy that business in 2015 to resolve disputes with SCE&G and Georgia Power over construction delays and cost overruns.
The two utilities, and much of the rest of the industry, are awaiting more details, including updated financial projections. Toshiba has not disclosed any hard numbers, saying only that its Westinghouse division “has found the cost to complete the U.S. projects will far surpass the original estimates, mainly due to increases in key project parameters.”
Adding to the anxiety is that the S.C. Office of Regulatory Staff has been rebuffed in its requests this year to look at a revised construction schedule for V.C. Summer.
“They won’t let us see it, and that has heightened our concern about what’s going on,” said Dukes Scott, executive director of the agency, which represents consumers in utility rate cases. “That uncertainty is very frustrating and puzzling to us.”
Call for clarity
The impact of Toshiba’s problems on the South Carolina project should become somewhat clearer this week.
The Tokyo-based company will face the music Tuesday, and officials at SCANA Corp. in Cayce will be all ears. Afterward, the SCE&G parent will discuss and “take into account relevant information” that the Westinghouse owner discloses during its own previously scheduled conference call with investors on Thursday.
It’s the latest turn in the costly and time-consuming effort to extend V.C. Summer’s original 40-year lifespan. The nuclear plant, which is 45 percent-owned by state-run Santee Cooper, came online north of Columbia in January 1984. For its encore performance, it’s being outfitted with two new reactors to meet projected demand in South Carolina and to offset the dwindling number of coal-fired electric generators around the state.
The project has kicked up its share of controversies. Among them was a new law that allowed SCE&G to raise rates by almost 17 percent over 10 years during the construction phase rather than recoup its costs after the work is done. Critics have said that gave the utility a “blank check,” but the company has maintained that its “pay as you go” financing approach for V.C. Summer will save consumers money in the long run.
What’s not in dispute is that the nuclear expansion is at least two years behind schedule and will cost about $4.2 billion more than originally projected, a toxic financial combination that helped stoke the crisis that’s now unfolding at Toshiba.
The best-case scenario is that construction will be completed in August 2020, when the second Westinghouse unit is set to go online under the latest schedule, and come in at or under the most recent budget figure.
Beyond that, it’s anyone’s guess, though no one is calling for what could be rightly described as “the nuclear option” – abandoning the expansion and leaving billions of dollars of so-called stranded assets in the ground in Fairfield County.
“SCANA, the residents of South Carolina and all of the government entities have a lot at stake in terms of completing the project,” said Travis Miller, who follows SCE&G and its parent as director of utilities research at Morningstar Research Services. “So I’d expect, given their interests are all aligned, the parties will find some way to complete the project.”
SCE&G’s 707,000 electric customers can breathe easier because they’re insulated from any further rate hikes tied to unanticipated expenses at V.C. Summer. SCANA agreed last year to cap the construction tab and assume responsibility for most future overruns as part of a regulatory settlement with the S.C. Small Business Chamber of Commerce and other members of an opposition group called “Stop the Blank Check.”
The state Public Service Commission approved the terms of the deal in November, weeks before Toshiba went public with its financial woes.
“SCE&G is responsible for finishing that project with a cap on the costs,” said Frank Knapp, CEO of the Columbia-based small business chamber. “So if it’s going to cost more … it’s not going to be passed on to the consumer.”
Westinghouse’s role at the Jenkinsville job site also is up in the air, prompting SCE&G to take steps behind the scenes, just in case the contractor can’t hold up its end of the bargain. At a legislative meeting about the nuclear industry in late January, state Sen. Tom Young of Aiken asked utility executive Steve Byrne about “what impact, if any, would the potential bankruptcy of Toshiba … have on the project,” according to a written transcript of their exchange.
“Let me just say that Westinghouse is working the project and we do have some contingency plans in place to complete the plant on our own should something like that happen,” said Byrne, chief operating officer at SCE&G. “We would then act as the general contractor, and we’re escrowing the proprietary information … we would need in order to do that now. … From that perspective we think we can complete the plants on our own.”
If it comes down to that, he added, the change isn’t expected to trigger any major disruptions. Byrne noted that construction giant Fluor Corp. has been overseeing the project for more than a year and would remain on the job. Also, “most of the major equipment … is already at the site,” he told lawmakers. “I would say 90 percent of the major equipment is already there, so from a procurement perspective we feel pretty comfortable.”
Byrne also said that a bankruptcy or other financial restructuring at Toshiba “doesn’t necessarily mean Westinghouse stops working with the plant or the facility.”
“It looks like they’re taking some steps to shore up Toshiba, and my personal opinion is that the Japanese government and the Japanese banks won’t let Toshiba fail,” he said. “But that remains to be seen, so we’ll see what they have to say the 14th of February.”