If you can tear yourself away from the news about twin giant hurricanes leaving huge swaths of destruction and chaos in their wake in Texas and Florida, there is a man-made disaster taking place in South Carolina.
It is the failure of one of the largest capital construction projects in the U.S. Every time another newspaper headline appears about what went wrong at the V C Summer project, the dark implications of what it all means for the future of the nuclear energy industry get all the more foreboding.
What we have learned this week is that it appears that some, if not all, of the principals at both SCE&G and Santee Cooper knew and documented to greater or lesser degrees as long as three years ago that the project was a train wreck in the making that was racing towards a derailment of epic proportions.
Now instead of looking forward to a triumph for completion of two massive nuclear reactors generating 2300 MW of CO2 emission free electricity, the nation will get endless political fallout, and lawsuits, which will dominate the the complex contractual debris, left behind like storm damage from a hurricane, for years to come.
Anyone who advocates for nuclear energy as a way to “decarbonize” the electricity generation sector of their home nation will have to understand what went wrong at V C Summer.
The failure of the V C Summer nuclear reactor effort has global implications for every other country that wants to build nuclear reactors as CO2 emission free source of electrical power. Opponents of these projects at the policy level in government have a ready made boogey man in the tangled mess left behind by the decision to cancel the V C Summer project.
The surprise is that there are no surprises. All of the faults that caused the project in South Carolina to come to an early halt are with failures to follow project management schedule and cost control standard practices that have been known since Admiral Rickover supervised the construction of the first nuclear submarines in the 1950s. Gantt charts were developed as a project management innovation in 1910.
The colossal failure has multiple actors who are to blame starting with Westinghouse, but don’t use up all your lambasting on that firm. CB&I as a key supplier comes in for a fair share of blame as do all the state and federal agencies that have regulatory and oversight responsibilities for a project of this magnitude.
Bad News Ahead
Here’s the latest news. This past week in South Carolina the State Newspaper reports;
“For parts of three years, the Santee Cooper power company urged partner SCE&G to address growing problems with the utilities’ failing nuclear expansion project — but SCE&G was either slow to respond or failed to comply with the requests, records show.”
The “so what” of this report is that at least one of the utilities involved in the now cancelled knew that things were not going well, and not just yesterday, and that corrective actions were needed, but had not taken place
The question which is now in front of the South Carolina Public Utility Commission, rate payers, and SCE&G’s investors to what extent that utility will have to eat the billions in costs associated with the now failed project. The PUC is especially in the cross hairs of public interest as it has some explaining to do about its failed role in oversight of the “prudence” of costs and associated progress at the project.
It is hard not to draw the conclusion that mind warping mismanagement is the root cause of the failure of the project. It raises again the question of why Westinghouse, with decades of nuclear energy project management under its belt, ignored it and plunged into the construction phase with an incomplete design, and no documented project management or cost baseline information that it was willing to share with its customers.
What About Toshiba?
Some culpability might also be assigned to Toshiba which, as the parent firm for Westinghouse, had a role in giving Westinghouse direction on how to proceed at both V C Summer and Vogtle.
Recall that Toshiba wasn’t been able to file a fully audited financial balance sheet after admitting in 2015 it cooked its books and overstated its earnings by $1.5 billion. This raises questions about whether the firm’s management associated with this overt act of financial malfeasance has some role in the financial disaster at Westinghouse? Scana’s CEO thinks so having accused the firm using exactly this word of being culpable for the Westinghouse failure a year before it filed for bankruptcy.
What we do know is is that once the alarm bells went off in Tokyo, Toshiba began pouring money into Westinghouse, $900M last January. When Westinghouse came back to the well with another bucket, it turned out to be dry. Toshiba’s stock took a hit and the firm began to question whether nuclear energy should continue to be one of the pillars of its business strategy along with computer chips.
Then in June 2017 Westinghouse lost in Federal Court in an effort to recover $2 billion from CB&I for for delays in components as the main supplier to V C Summer. In the end a Westinghouse bankruptcy was the only choice for the firm.
Toshiba has since agreed to multi-billion dollar settlements with the utilities as Vogtle and V C Summer. The payments are due in October. All of of the US firms involved are holding their collective breathes that Toshiba will pay off. Even so the money won’t go nearly far enough to cover current costs nor make it feasible, at least for V C Summer, to finish the job.
The question in South Carolina of who pays for the costs of the project is an issue for the lawyers for the South Carolina PUC and rate payer groups. Some of them have already filed lawsuits seeking to prevent the utilities involved in the project from passing along the costs of the projects to them in the form of increased rates for a project that now will never be built.
Why Can’t We Manage Large Energy Projects?
Also, with regard to poor project management practices, Westinghouse appears to be no better than the Department of Energy which has failed miserably with its major capital projects in some cases by putting mid-level civil servants in charge of multi-billion dollar projects.
In turn historically they have deferred to the contractors hired by the government since the federal agency’s staff have limited capability to conduct effective oversight of the work. DOE’s failures are due to the fact that it failed to monetize the risks by hiring and paying people on its side of the house, who have this kind of experience, what they are worth. A GS-14 salary falls way short.
Perhaps one of the most serious divergent moves by Westinghouse at the V C Summer project was to sign a fixed price contract for a first of a kind construction of a new nuclear reactor design. Anyone else who has worked large construction projects would think twice about accepting this kind of risk.
According to the State newspaper report effective project management oversight was the key ingredient that was missing in action at V C Summer. An email from a key executive at Santee Cooper said the project had been hurt by “an incompetent engineering firm’’ and a “disingenuous contractor.’’
As far back as May 2014, Santee Cooper told SCE&G the companies needed help from an independent manager to oversee the V.C. Summer reactor project according to documents released by the state-owned power company.
A Nov. 28, 2016, email from Santee Cooper executive Lonnie Carter to SCANA’s top executive, Kevin Marsh, questioned the company’s ability to handle the multi-billion dollar project. SCE&G is a division of SCANA.
“SCANA’s project management team …. does not have the comprehensive skills and depth of experience necessary in engineering, scheduling, project controls and construction to manage a large new build project with complexities.’’
Bechtel’s Report on What Went Wrong
And there is a second source which indicates problems were getting more worrisome as long as 19 months ago.
After Gov. Henry McMaster started looking for political cover from outraged ratepayers in August, he overrode the objections of lawyers from Santee Cooper, which is an agency of the South Carolina state government, and finally released a report by Bechtel late last week. The report outlined indications of trouble at the nuclear construction site which became apparent as early as 2016.
The Bechtel study said the V C Summer nuclear project “suffered from flawed construction plans, faulty designs, inadequate management of contractors, low worker morale and high turnover.”
According a summary by World Nuclear News of Bechtel’s project assessment report for V C Summer, there were significant issues facing the project:
- While the consortium’s engineering, procurement and construction plans and schedules are integrated, the plans and schedules are not reflective of actual project circumstances;
- There is a lack of a planned vision, goals and accountability between the owners and the consortium;
- The detailed engineering design is not yet completed, which will subsequently affect the performance of procurement and construction;
- The issued design is often not constructible, resulting in a significant number of changes and causing delays;
- The oversight approach taken by the owners does not allow for real-time, appropriate cost and schedule mitigation;
- The relationship between the consortium partners (Westinghouse Electric Company (WEC)) and Chicago Bridge & Iron (CB&I)) is strained, caused to a large extent by commercial issues.
Bechtel, which wrote the report, had a minor role as a contractor at the V C Summer project, and was not the EPC there. Since then the utilities at the Vogtle project in Georgia have hired Bechtel as the EPC as part of the decision to finish the twin reactors there.
V C Summer is a Lost Opportunity for the Global Nuclear Industry
Getting back to the main EPC role for the project, why did Westinghouse, which had the potential with success at V C Summer and Voglte to build AP100s for decades in the US and elsewhere, squander its once in a generation opportunity by cutting corners?
The other lesson learned from this set of circumstances is that at least in the US, this is very likely the last time a nuclear reactor vendor will also serve as the engineering procurement and construction (EPC) manager. Westinghouse says that when it emerges from bankruptcy proceedings, it will be a vendor of nuclear reactor components, but it will never again manage the construction of one.
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I’m not sure if the consequences are quite as drastic and global as you imagine, though there’s sure to be some impact regardless of location, but I think you’re right on the money when it comes to impact in the western world. A lot of this echos similar challenges around the Finnish EPR build with friction between contractors in a consortium creating some problems and exasperating others. While I sympathize with Westinghouse’s desire to get away from the EPC role I think it’s being short-sighted and naiive, if Westinghouse isn’t willing to take responsibility for the construction of it’s reactors, who will? Can there ever be a successful US nuclear build industry without vendors that are willing to tackle some of the most challenging and risky aspects in construction.
Given the comparative success of Rosatom in recent years building nuclear reactors it might be worth taking a few notes there. From what I can tell Rosatom is capable of doing everything involved in a nuclear build though different aspects may come from different subsidiaries, I suspect that having everyone’s interests aligned and accountable to the Parent corporation Rosatom is part of why the Russian builds seem to lack the fireworks and corporate drama that seem to accompany western builds lately. Even Areva who on the surface appears similar to Rosatom in bringing a full set of competencies to the table got into trouble using unsuitable sub-contractors for the Flamanville 3 build.
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Best and most accurate summary of VC Summer fiasco. I lived it for 6 years.
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Given that Westinghouse had almost 20 years to develop the AP1000 (starting back in the ’90s with the AP600), it’s hard to believe that the design details were not worked out before the start of this large project. I knew some people who worked there, who basically said that Westinghouse didn’t apply very much resources to the development effort, as there were no paying customers. That’s understandable in some sense, but on the other hand it’s a pretty negative reflection on the state of the US industry when its premier company is unwilling to invest significant resources in its next product line. Compare that to how much Apple invests. Perhaps it’s because they didn’t really believe in nuclear’s future?
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While it’s not the entire reason, I will cede that lack of practice and experience does play a role. After all, other non-nuclear, large infrastructure projects (not subject to NRC or “nuclear grade” standards) are also experiencing large overruns. It appears that building things on smaller scale, making large numbers of copies, and thus gaining construction experience, is the best way to reduce costs. Unfortunately for nuclear, this is what we’re seeing happen with solar and wind. Costs are falling dramatically.
All this is a strong argument for the view that SMRs are basically the only shot nuclear has. In the developed world, at least, there is not enough electricity demand growth to justify a sufficient number of large projects to allow us to ever get good at it. Also, the financial consequences of a large overrun at a large project are so severe (bankruptcy, etc..) that it is unlikely that additional chances will be given.
Reactors need to be small enough so that demand is sufficient to require construction of a large number of copies. Also, the cost of each unit must be small enough that the companies involved can withstand single projects or units going badly. Companies should have the financial wherewithal to have the cost of a given unit quadruple (or at least double?). And yes, they should be able to offer a fixed-price (and take the associated risk). Ideally, they should actually have an inventory of already-built modules (I’m not kidding). The notion of Westinghouse giving a fixed price contract on a job where it couldn’t take a doubling in price is was complete joke.
While I believe that SMRs are probably the only shot we have, I have my doubts as to whether they can ever be economical, given the loss of economy of scale, w/o significant changes (reduction) in regulatory and fab QA requirements. The hope is that SMRs’ inherent safety and much smaller potential source term could provide sufficient justification for such reforms. My personal view is that we need to start over, from scratch. Perhaps looking to other industries for (regulatory) guidance. Given the lack of hazard, using the same level of rigor that is applied to, say, natural gas plants would be justified.
While taking a good long look at the NRC and it’s impact on cost is certainly a worthy endeavor given that the AP-1000 build at Sanmen in China is still running at least 30% more expensive then the VVER-1200 build in Novovoronezh ( which shared the AP-1000s FOAK challenges ) there’s certainly something going on with the western firms that are challenging their ability to build on a budget, Areva displays this problem more broadly.
Either way I’m not sure there’s much of a future for nuclear so long as a coupe reactors at Hinkley C for example is running estimates as high as 25 billion before major build challenges have even had a chance to prop up, though they may be giving themselves headroom in that.
It’ll be interesting to see how the Finnish VVER build turns out in that regards to how much regulation plays a role vs poor management and such.
I seem to recall reading that something like 90-95% of all components had been fabricated and delivered and were onsite ready for installation. Is that correct, or did I hear wrong? If it is correct, it doesn’t sound like there was a problem with the supply chain, at least as far as fabrication and delivery are concerned. If that is true, then the problem seems to be with onsite labor productivity, or unrealistic assumptions for meeting the onsite construction milestones. How much of that lost productivity resulted from incomplete designs, or regulatory ratcheting (i.e., aircraft impact assessment)?
There were significant delays with pipes, other components, which caused schedule delays and related cost increases. CB&I was sued by WEC for $2 billion in an effort to recover these costs. However, the Court ruled against WEC.