Delays, cost increases at nation's new nuclear projects

Jul 13 - The Atlanta Journal and Constitution

By Kristi Swartz, The Atlanta Journal-Constitution

Despite promises from the nuclear industry to regulators and consumers that they learned from mistakes of the past, the nation's first two nuclear reactor projects built from scratch in 30 years are headed toward hundreds of millions of dollars in cost overruns and months, if not years, of delays.

The impact of the early delays and budget increases at Georgia Power's Plant Vogtle and South Carolina Electric & Gas's Plant Summer will have on future nuclear projects is unclear.

Utilities' officials say the Georgia and South Carolina projects face extra public and private scrutiny because they are the first approved and their design will serve as prototypes for future plants.

The challenges include more than $800 million in overruns and a dispute over who should pay for them. The disputes are between the consortium of utility companies building Plant Vogtle and the project's main design and construction contractors, Westinghouse and The Shaw Group. Georgia Power, as the lead in the consortium building the plant, is responsible for $400 million of that amount, the contractors say. In South Carolina, SCE&G has asked to recoup from its customers $283 million, which include a $138 million settlement with Shaw and Westinghouse.

Customers could end up paying for any cost overruns at Vogtle if the charges are ultimately approved by Georgia's Public Service Commission.

In both cases, the dispute is tied to delays in getting federal licensing approvals for the new reactor design and then for the entire project.

The start date for SCE&G's first reactor has been pushed back to 2017 from 2016. A company spokeswoman said with such a large project "it's not unusual to have some schedule challenges along the way for a variety of reasons."

"The first time through the process is not going to be as smooth," said Scott Burnell, a spokesman for the U.S. Nuclear Regulatory Commission. A handful of reactors are still moving through the regulatory approval process. "We do expect as time goes on, the additional reviews that are in the pipeline will benefit from the experience the first time around."

One watchdog says the utilities and vendors were misleading about their declarations to be on time and on budget.

"They promised us this time it would be different. They were going to streamline it; they were going to get it organized in advance so that it would go smoothly," said Mark Cooper, a senior research fellow for economic analysis at the Vermont Law School's energy and environment institute.

Cooper has not been shy about criticizing the projects: "It's going to take longer than they admit. It's going to cost more than they admit."

Georgia Power says the project will cost $2.2 billion less than originally projected to operate over its 60-year lifetime because of a combination of tax breaks, fuel costs, low interest rates and other factors. Some of the disputes over who's responsible for delays and possible cost increases at Vogtle are still being worked out between Georgia Power and its vendors, the company said.

Georgia Power customers currently are paying the financing costs of Vogtle's twin reactors. They will begin paying the construction costs of the project when the reactors start producing power, currently scheduled for 2016 and 2017. Georgia Power says its $6.1 billion share of the $14 billion project has not increased and maintains that the project is on schedule.

Georgia Power continues to negotiate with its vendors but is adamant to not be responsible for the $400 million claim, which is tied to licensing delays. Additional disputes, known as change orders, between Georgia Power and its vendors have gone unresolved for months, but a company spokeswoman said some have been resolved.

The utility considers the change orders to be "expected and somewhat routine process." But an independent monitor for the project recently warned the project faces a busted budget and delays as much as seven months or more.

"I think ultimately the costs will go above the certified amount," William Jacobs, construction monitor hired by the PSC, testified in a recent hearing about Vogtle.

Company executives counter any claims that the process is broken.

"This [project] is not a guinea pig, this is a well-research, very thorough nuclear technology," Tom Fanning, chief executive of Atlanta-based Southern Co., Georgia Power's parent, said in an interview with The Atlanta Journal-Constitution. "[Nuclear] is the right long-term solution. We are going to have some short-term challenges because of it."

Nearly two dozen utilities at one point had told federal regulators they intended to build one or more nuclear reactors in the near future. Now, that amount has shrunk to fewer than a dozen. Most of the projects have been delayed or scrapped due to the lower than expected demand for electricity, the inability to secure financing or because the utility decided a cheaper alternative, such as natural gas, was easier.

Yet, Richard Myers, vice president of policy development for the Nuclear Energy Institute, said he expects more nuclear projects to be approved closer to the end of the decade and into 2020. The NEI is the industry's policy organization.

"I think by 2015, we'll have a better line of sight on where the markets are going, and we'll know more about [natural] gas prices and at what level they will stabilize," Myers said.

"We've never used the word "renaissance," he said when referring to the restart of the nuclear industry. "These projects are very large projects; it's probably best to build a few at first to be sure we can do it right."

At first glance the current path seems familiar. A partial meltdown at Three Mile Island in 1979 led to hundreds of costly safety changes at the nation's nuclear reactors. This time around, the disaster at Japan's Fukushima Daiichi plant created additional safety concerns for existing reactors in the United States as well as for the Vogtle and Summer projects.

"There's going to be concerns throughout the whole process ..." said David Parker, a financial analyst with Robert W. Baird & Co., an asset management and private equity firm. "That's why everyone is watching Southern and SCANA." (Cayce, S.C.-based SCANA is the owner of SCE&G.)

Industry officials say the Three Mile Island and Japanese disasters and subsequent results shouldn't be compared. The Three Mile Island accident highlighted hundreds of safety issues at the nation's reactors that had gone overlooked for some time. On top of that, each of the reactors was being built with its own, unique design and were well underway to being built.

That meant all or parts of projects had to be torn down and rebuilt in a time of skyrocketing construction costs and interest rates.

This time around Fukushima Daiichi plant raised some safety issues, but many already were addressed in the new, boilerplate reactor design that it being built at Vogtle and Summer. Instead, the delays at these projects have come from design, safety and license approvals that happened later than the utilities expected.

Before the new design was approved, however, the NRC had Westinghouse adjust it 19 times to meet safety standards. One of the concerns was over the security of the reactor's shield building.

After the design was approved in December, the NRC granted the licenses to Southern and SCANA for their utilities to start heavy construction work.

"Washington was just trying to hold their feet to the fire and said, "here's the rules, you have to meet the rules,'" Cooper at the Vermont Law School said. "It just took them 19 times."

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