SCANA : SCE&G Files BLRA Status Report for 2nd Quarter, 2016

V.C. Summer Nuclear Station Units 2 & 3

1. Introduction and Summary
2. 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. 2015) 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 and 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.

3. Structure of Report and Appendices

   The current reporting period is the quarter ending June 30, 2016. 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.

4. Transition as a Result of the October 2015 EPC Amendment

   On April 4, 2016, Fluor Corporation (Fluor) completed the process of transferring craft employees at the Jenkinsville site to its employment and continues to recruit and hire additional craft labor. To mitigate delays in the construction schedule, Fluor continues to operate a 2-6-10 and 1-5-10 schedule, i.e., construction crews are scheduled to work six ten-hour days for two weeks, then five ten-hour days for one week.

   The current staffing for the night shift is approximately 425 craft workers. Fluor plans to expand to a full night shift of more than 1,000 craft workers as workers are hired and trained. In the second half of 2016, Fluor plans to fill over 700 craft worker positions. While labor is generally available in the relevant market, the recruiting and retention of craft labor continues to present challenges to the hiring plan.

   While attrition is lower than is typical for most large construction projects, it still complicates Fluor's ability to maintain a sufficiently large pool of qualified craft workers. The current attrition rate is approximately 3% per month.

   Because labor recruiting and retention are a principal factor for schedule mitigation, Fluor is evaluating means to improve both of these areas. Staffing is a key focus area for the project.

   Westinghouse Electric Company, LLC (Westinghouse or WEC) and Fluor continue to conduct a series of Functional Area Assessments (FAAs) defining actions to streamline processes and implement performance improvements. Changes identified in the first round of FAAs are being implemented. Fluor's integration into the project continues with the assignment of key personnel to project management functions and with changes in roles and reporting structures to increase clarity regarding the division of responsibility among leadership teams and functional areas. SCE&G's new Project Management Organization (PMO) aligns SCE&G's project management oversight with Westinghouse's and Fluor's efforts. It has been implemented and is working effectively.

   Fluor's review of the Integrated Project Schedule (IPS) continues and will incorporate changes due to the October 2015 Amendment to the EPC Contract (Amendment), the FAAs, and the analysis of schedule mitigation plans. These changes are anticipated to focus principally on the scheduling and sequences of construction activities within the current Guaranteed Substantial Completion Dates (GSCDs). Changes in the IPS are not anticipated to affect the GSCDs themselves which are contractually established.

5. Dispute Review Board

   The Amendment provides for the creation of a Dispute Review Board (DRB) to hear commercial disputes between SCE&G and WEC. The DRB is in place. The Amendment also provides for future payments under the EPC Contract to be based on the completion of specific construction milestones. By terms of the Amendment, SCE&G and WEC were to agree upon a construction milestone payment schedule within five months of the execution of the Amendment or submit the issue to the DRB. SCE&G and WEC agreed to extend their discussions through July 2016 but were unable to reach agreement during that time. On August 1, 2016, SCE&G referred the matter to the DRB. Unless the parties agree otherwise, the DRB has 60 days from the referral to establish a schedule. The parties may continue discussions during this period. The dispute relates only to the timing of payments; the total amount to be paid is not in dispute.

   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).

   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
Milestones. There are 36 BLRA milestones left to complete with 35 milestones delayed by fourteen months or less compared to the schedule approved by the Commission in Order No. 2015-661. No milestones were completed during this quarter. Construction Costs and Cost Forecasts. Spending through December 31, 2016 in current dollars is forecasted to be approximately $337 million less than the capital cost schedule approved in Order No. 2015-661. These cost forecasts include the cost increases agreed to in the 2015 Amendment to the EPC Contract as well as the exercise of the Fixed Price option that the Amendment grants to SCE&G and its partner in the project, Santee Cooper. Cost Comparisons. In Order No. 2009-104(A), the Commission recognized that forecasts of Allowance for Funds Used During Construction (AFUDC) and escalation would vary over the course of the project and required those forecasts to be updated with each quarterly report. Escalation indices were issued in May 2016 for the period of July through December 2015 and have been used in forecasting the construction costs for the project that are presented here. Chart A below compares the current capital cost forecast to the forecast presented in the last quarterly report. This chart shows an increase in Gross Construction Costs of

$494 million over the life of the project. With each quarterly update, a quarter that had been subject to the five-year escalation rate becomes subject to the one-year rate. The figures reported on Chart A also include the effect of calculating escalation on an updated cash flow projection for the project.

Chart A: Reconciliation of Capital Cost ($000)

Forecast Item	Projected @ 06/30/16 (Five-Year Average Escalation Rates)	Projected @ 03/31/16 (Five-Year Average Escalation Rates)	Change
Gross Construction	$7,687,177	$7,192,883	$494,294
Less: AFUDC	$338,127	$297,301	$40,826
Total Project Cash Flow	$7,349,050	$6,895,582	$453,468
Less: Escalation	$528,518	$1,348,337	($819,819)
Capital Cost, 2007 Dollars	$6,820,532	$5,547,245	$1,273,287

Chart B compares the current capital cost forecast to the forecast on which the Commission relied in adopting Order No. 2015-661. The cost of the plant in future dollars has increased by approximately $860 million since Order No. 2015-661 was issued.

[Chart B begins on the following page]