Cost and rates rising for US reactors under construction

In Georgia and South Carolina, which are regulated energy markets, the construction of four 1150 MW Westinghouse nuclear reactors are being financed by a pay-as-you-go plan that passes along the costs of building them to rate payers. This plan saves money in the long run, as much as a billion or more per reactor, in terms of interest costs, but not everyone likes the plan. It becomes especially difficult when costs go up faster than anticipated which produces intergenerational disputes over facilities that will have service lives of 6-80 years.

South Carolina rate issues

A $70 million a year rate increase has just been filed with the South Carolina Public Service Commission which is part of a plan for rate hikes over a ten year period ending in 2018. The funds from the rate increases will pay for construction of two new nuclear reactors to be operated by South Carolina Electric & Gas (SCE&G) at its V.C Summer station.

The alternative to the pay-as-you-go plan, called “construction while in progress” or CWIP for short, is at least a billion or more in financial costs. If the utility had to wait for recovery of the costs until the plants were in revenue service, the costs of the units would be substantially higher and the financing costs, spread over the service lives of the units, would increase rates in later years. Overall, the overall savings are estimated by the utility at be about $4 billion over the service lives of the two plants which will provide a combined 2.3 Gwe of power for at least six decades.

The increase for the average residential rate payer is about $4/month for the current request.

Significantly, SCE&G did not apply for federal loan guarantees for the project.

In August 2014 Steve Byrne, CEO at SCE&G, said that completion of the first nuclear unit would be delayed until late 2018 or the first half of 2019. Unit 3 is expected to be completed 12 months later. In this case, the word “completion” means the utility can begin start-up testing of the plant. It doesn’t mean the unit is connected to the grid and producing power and revenue for the utility.

The major source of the delays is problems getting components from Chicago Bridge & Iron’s Lake Charles, Louisiana, facility. The company is reported to be moving the fabrication of some of them from that site to multiple locations.

Southern points a finger at CB&I

SCE&G isn’t alone in its ire over delays in the supply chain caused by CB&I. Southern Company told the Georgia Public Service Commission in late May that the cause of delays in building the plant rest with CB&I and Westinghouse.  According to media reports, David McKinney, a VP at Southern, told the Georgia Public Service Commission that it does not actively manage the construction of the reactors. That responsibility, he said, rests with the vendor, Westinghouse, and its supplier, which include CB&I.

Like South Carolina, the two new reactors are being built under the CWIP plan.  This means cost overruns put pressure on the rate setting regulatory agency to seek justifications for rate increases when costs go up. It also means pressures mount for someone to eat the costs when the customer claims the supplier is to blame for the delays. This state of affairs produces lawsuits which may not be resolved for some time. Once the lawsuits are filed everyone involved more or less clams up.

This hasn’t stopped Southern from telling the Public Service Commission is isn’t an active manager of the actual building of the plants. This assertion appears to be open to debate, and it is a crucial issue since the degree to which Southern is actively involved can affect its liability for the increased costs.

Opponents of the reactors want the work stopped, the utility to cut its losses, and build gas fired plants instead. Southern counters that finishing the reactors is a better deal given their long expected service lives.

There’s a “high probability” the nuclear plants under construction in Georgia will be delayed even longer than the three years already announced by their owners, according to an analysis reported by The Associated Press.

According to the documents, sourced to the George Public Service Commission by AP, the first new reactor in Georgia was supposed be complete in April 2016, with the second reactor done a year later. In January of this year, Georgia Power announced the consortium designing and building the plant, Westinghouse and Chicago Bridge & Iron Co., predicted the construction schedule would be delayed by more than three years.

While Southern applied for and inked a federal loan guarantee for $8.3 billion of the costs, it still faces liabilities for cost associated with construction delays. The longer it takes to build the plant, the more financing charges accumulate that have to be paid regardless of whether a supplier is eventually found by the courts to be at fault.

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