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V.C. Summer Nuclear Station Units 2 & 3


Quarterly Report to the South Carolina Office of Regulatory Staff Submitted by South Carolina Electric & Gas Company Pursuant to Public Service Commission Order No. 2009-104(A) Quarter Ending September 30, 2015


  1. Introduction and Summary


    1. Introduction


      This quarterly report is submitted by South Carolina Electric & Gas Company (SCE&G or the Company) to the Public Service Commission of South Carolina (the Commission) and the South Carolina Office of Regulatory Staff (ORS). It is submitted in satisfaction of the requirements of S.C. Code Ann. § 58-33-277 (Supp. 2014) and the terms of Commission Order No. 2009-104(A). This report provides updated information concerning the status of the construction of V.C. Summer Nuclear Station (VCSNS) Units 2 & 3 (the Units) and provides the current capital cost forecasts and construction schedules for the Units as of the close of the quarter. All amounts set forth in this Quarterly Report are based on SCE&G's existing 55% interest, except where expressly stated to be based upon 100% of the cost.


      In Order No. 2015-661 dated September 10, 2015, the Commission approved updated construction and capital cost schedules for the Units. The current schedules and forecasts presented in this report are compared against those approved in Order No. 2015- 661.


    2. October 2015 Settlement


      On October 27, 2015, the EPC Contract was amended to reflect a settlement reached by SCE&G and Santee Cooper with the Consortium (the October 2015 EPC Amendment). The October 2015 EPC Amendment will become effective when Westinghouse Electric Company (WEC) completes its acquisition of the stock of CB&I Stone & Webster, Inc. (Stone & Webster) from CB&I but will lapse if the acquisition is not completed by March 31, 2016. The principal provisions of the October 2015 EPC Amendment include the following:


      1. Resolution of Current Disputes: Substantially all of the outstanding EPC Contract disputes will be resolved in exchange for an increase of $165 million in the fixed component of the EPC Contract and a credit to the target component of the contract price of approximately $27 million.

        SCE&G will make payment to WEC in twelve equal monthly installments beginning five days after the effective date of the October 2015 EPC Amendment. This does not add to the amounts discussed in paragraphs 13 or 14 below as there is a true up under either alternative selected.


      2. Substantial Completion Dates: The guaranteed substantial completion dates (GSCDs) of the Units will be revised as between the parties to August 31, 2019 and 2020.


      3. New Liquidated Damages Provisions: New provisions will govern delay- related liquidated damages and will cap liquidated damages at approximately $509 million in aggregate for both Units. For reporting purposes, this amount includes the amount that WEC is required to pay SCE&G if the Units do not qualify for Federal Production Tax Credits as described in paragraph 4 below. The current maximum is $86 million.


      4. Federal Production Tax Credit Completion Bonuses: The Consortium will earn a completion bonus for each Unit that is completed in time to qualify for Federal Production Tax Credits for new nuclear construction. The completion bonus is approximately $151 million per unit. If SCE&G does not qualify for Federal Production Tax Credits, then WEC will pay SCE&G $137,500,000 per unit. Also, a bonus for megawatts in excess of the contractual amount from the existing EPC is eliminated.


      5. Consortium Membership: Stone & Webster will continue to be a member of the Consortium as a subsidiary of WEC. However, WEC intends to engage Fluor Corporation of Greenville, South Carolina, or one or more of its affiliates, as a construction manager for the project.


      6. Parental Guarantees: WEC's parent company, Toshiba Corporation, will reaffirm its guaranty of WEC's payment obligations under the EPC Contract. WEC's payment obligations are joint and several obligations with Stone & Webster. SCE&G and Santee Cooper will waive and cancel CB&I's parent company guaranty with respect to the project.


      7. New Milestone Payment Schedule: The parties will develop a revised construction milestone payment schedule. This eliminates the contentious progress payment schedule in the existing EPC. While the parties are developing the revised construction milestone payment schedule, SCE&G will make payments of $55,000,000 per month for five months following the effective date of the October 2015 EPC Amendment. Thereafter, construction milestone payments will be based on the revised construction milestone payment schedule.
      8. Future Change Orders: The Change in Law provisions of the EPC Contract will be amended to include language designed to reduce the likelihood of future commercial disputes. The current Change in Law provisions have been the basis of a number of disputed claims by WEC/CB&I.


      9. Design Control Document Revision 19 (DCD 19): The amended EPC Contract will expressly state that the project scope includes providing Units that meet the standards of the NRC-approved design contained in DCD-19. This has been a basis of disputed claims between the parties.


      10. No Interim Lawsuits: The amended EPC Contract would eliminate any requirement or ability for the parties to sue each other before substantial completion of the project.


      11. Interim Dispute Resolution Board: A dispute resolution board and process will be created for resolving commercial claims and disputes.


      12. Equipment Warranties: Equipment warranties have been extended to two years past the GSCDs.


      13. The Gross Construction Cost Increase: SCE&G's gross construction costs are currently projected to increase by approximately $286 million over the $6.8 billion approved by the Commission in September 2015, and will bring the projected total gross construction cost of the project (including escalation and AFUDC) to approximately $7.1 billion.


      14. Fixed Price Option: SCE&G will have until November 1, 2016, to provide notice that they intend to exercise, subject to Commission approval, an irrevocable option to amend the EPC Contract to fix the cost for the entire scope of work on the project after June 30, 2015, at approximately

        $3.345 billion. This fixed amount excludes a limited amount of work within the time and materials component of the contract price. Exercise of the option is subject to regulatory approvals. The option cannot be exercised until after the effective date of the October 2015 EPC Amendment. If the option is exercised:

        1. The aggregate delay-related liquidated damages amount would be capped at approximately $186 million per Unit,

        2. The completion bonus amounts would be reduced to $83 million per Unit,

        3. Payments made by SCE&G pursuant to paragraphs 1 and 7 above will be deducted from the total project cost, and

        4. SCE&G's gross construction costs would currently be projected to increase by approximately $774 million over the amount approved in Order No. 2015-661.


          The costs and revised substantial completion dates associated with the October 2015 EPC Amendment will only become binding upon the effective date of that amendment. They are not reflected in the schedules provided in this Quarterly Report.


        5. Structure of Report and Appendices

          The current reporting period is the quarter ending September 30, 2015. The report is divided into the following sections:


          Section I: Introduction and Summary;


          Section II: Progress of Construction of the Units; Section III: Anticipated Construction Schedules;

          Section IV: Schedules of the Capital Costs Incurred Including Updates to the Information Required by S.C. Code Ann. § 58-33-270(B)(6) (the Inflation Indices);


          Section V: Updated Schedule of Anticipated Capital Costs; and Section VI: Conclusion.

          Appendices 1, 2, and 4 to this report contain detailed financial, milestone and other information updating the schedules approved by the Commission in Order No. 2015-661. For reference purposes, Appendix 3 provides a copy of the capital cost schedule for the project as approved in Order No. 2015-661. Appendix 5 provides a list of the License Amendment Requests (LARs) filed by SCE&G with the Nuclear Regulatory Commission (NRC).


          A confidential and a public version of this report and its attachments are being provided. Unless otherwise specified, all cost information reflects SCE&G's 55% share of the project's cost in 2007 dollars. Attached to the end of the report is a glossary of acronyms and defined terms used.


        6. Construction Schedule and Milestones
        7. Milestones. There are 146 specific BLRA milestones for reporting purposes. As of September 30, 2015, 109 milestones have been completed. Of the remaining milestones, 23 milestones have been delayed by between one and seven months and one has been accelerated.
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