SCANA : SCE&G Files BLRA Status Report for 4th Quarter, 2015

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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 December 31, 2015

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. 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.

   
   

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

   As discussed in the prior report, on October 27, 2015, the parties amended the Engineer, Procurement and Construction (EPC) Contract to reflect a settlement agreement that (a) resolved substantially all outstanding EPC Contract disputes; (b) released Chicago Bridge & Iron (CB&I) from membership in the Consortium; (c) set new deadlines, incentives and penalties for completion of the Units; and (d) made other changes to the terms of the EPC Contract (the "Settlement"). The Settlement also included a provision providing SCE&G with an irrevocable option, until November 1, 2016, and subject to Commission approval, to further amend the EPC Contract to fix the total amount to be paid

   to Westinghouse Electric Company, LLC (WEC) and Stone & Webster for its entire scope of work on the project (excluding a limited amount of work within the time and materials component of the contract price) after June 30, 2015. Further, the Settlement was conditional upon WEC acquiring the outstanding shares of CB&I-Stone & Webster, which was done as of December 31, 2015.

   
   

   As the Settlement envisioned, WEC engaged Fluor Corporation (Fluor) as the new construction manager for the project to fill that role in place of CB&I. Fluor, however, will be a contractor to WEC and not a member of the Consortium, as CB&I was. On January 4, 2016, which was the first business day following the effective date of the Settlement, the on-site construction workforce that CB&I acquired from Shaw Group became employees of a new WEC subsidiary corporation, WECTEC. The direct craft labor personnel in that group are in the process of being hired into Fluor. A number of field engineering and other field non-manual employees will remain as WECTEC employees but will be seconded to Fluor for this project.

   
   

   To aid in the transition, WEC and Fluor convened 25 work stream review teams which met during the period to evaluate key aspects of this project and the sister AP1000 construction project, the Southern Company's project to construct Vogtle Units 3 & 4. The goals of these 25 work stream review teams were to streamline processes, eliminate inefficiencies and identify means to increase the levels of productivity and accountability for key work processes. SCE&G personnel participated on multiple work teams as did personnel from Southern Company. As a result of these efforts, WEC and Fluor are moving to standardize and simplify work packages for construction activity related to the nuclear islands (NIs) for the four units, streamline the process for the transfer of equipment between suppliers and contractors, and minimize design changes being communicated to module and submodule vendors.

   
   

   During the period, SCE&G initiated a new Project Management Organization (PMO) to provide direct oversight of the WEC PMO that was organized last quarter. The SCE&G PMO mirrors the structure of WEC's PMO. It is led by a SCE&G Project Manager as a single point of accountability to oversee the schedule and cost aspects of construction oversight activities of the New Nuclear Deployment (NND) group. SCE&G's PMO leadership is instituting new approaches to align and focus resources and activities to assist Fluor to better organize work at the site. It will oversee the Integrated Project Schedule (IPS), and provide project management for non-EPC Contract related construction activities.

   Fluor is in the process of updating the construction schedule for the Units to reflect the changes due to the Settlement and its review of the work streams. The activities associated with the transition, specifically achieving the anticipated improvements in efficiency and productivity, along with meeting the new construction schedule when issued, are principal focus areas for SCE&G. Schedule mitigation will be required to meet the substantial completion dates agreed to in the Settlement.

   
   

4. Structure of Report and Appendices

   The current reporting period is the quarter ended December 31, 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.

   
   

5. Construction Schedule and Milestones
Milestones. There are 146 specific Base Load Review Act (BLRA) milestones for reporting purposes. As of December 31, 2015, 109 milestones have been completed. Of the remaining 37 milestones, 35 milestones have been delayed by eight months or less. Construction Costs and Cost Forecasts. As of December 31, 2015, the Company has spent approximately $283 million less than it originally planned to spend as forecasted in the capital cost schedule approved in Order No. 2015-661. The present cash flow forecast indicates that the Company will be able to complete the Units for $5.5 billion in 2007 dollars.




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 November 2015 for the period of January through June 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

$241 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 @ 12/31/15 (Five-Year Average Escalation Rates)	Projected @ 09/30/15 (Five-Year Average Escalation Rates)	Change
Gross Construction	$7,096,778	$6,855,784	$240,994
Less: AFUDC	$291,755	$280,680	$11,075
Total Project Cash Flow	$6,805,023	$6,575,104	$229,919
Less: Escalation	$1,335,360	$1,328,466	$6,894
Capital Cost, 2007 Dollars	$5,469,663	$5,246,638	$223,025