Wednesday, June 13, 2012

Southern contends with costs at Vogtle

Who really owns them and why remains open to dispute
This is my updated coverage from Fuel Cycle Week, V11:N476, for 6/7/12 published by International Nuclear Associates, Washington, DC
ProjMgtFlowSouthern Co. through its subsidiary Georgia Power, together with its equity partners, is in negotiations with the consortium of Westinghouse and The Shaw Group over $400 million in costs attributed to schedule delays, design changes, and construction change orders for the twin 1,100 MW AP1000 reactors being built at its Vogtle site.

The utility has not agreed to the $400 million in proposed adjustments to the $6.1 billion contract price, its 45.7% share of the total of 14 billion in costs for the two new nuclear reactors. Steve Higginbottom, a spokesman, told FCW the utility is taking a hard line.

“Georgia Power has not agreed with any of these proposed adjustments or that the owners have any responsibility for costs related to these issues.”

What has been characterized as a cost overrun in the mainstream news media is in fact a major vendor dispute and a headache for all concerned. Higginbottom says there are three broad categories of possible cost increases resulting from submitted and potential change orders.
  • Pending change orders submitted by the consortium
  • Design changes made by the consortium during the Design Control Document (DCD) review process.
  • Costs associated with possible delays in the commercial operations date.
The “so what” question about costs
What’s at risk is who will pay them? Georgia is a state that supports “construction work in progress” or CWIP. It means Southern can come submit a rate case to the Georgia Public Service Commission (PSC) for reimbursement of costs as the reactors are being built. The practice saves hundreds of million in interest costs. Reviews are done in six month increments.

The problem for Southern is that if the EPC consortium succeeds in pushing these costs on their customer, Southern will have to either eat them or add them to a future rate case which will set off a contentious public debate over whether it is a “prudent action.”  And this is where the rubber meets the road. Southern and its equity partners do not want these costs showing up in a rate hearing.
Anti-nuclear groups have already extrapolated the $400 million to include the other equity partners claiming the total cost overrun is more than twice that amount at $900 million. The figure has made its way into media headlines.

Higginbottom disputes it. He calls it a number “prepared by others” and says it has no relevance to the cost issues at hand.

It is in Southern’s interests to contain the costs. The firm doesn’t want to eat them any more than the consortium does hence the reason the two groups are at loggerheads.

The Georgia PSC has already fired a warning shot across Southern’s bow. PSC Chairman Tim Echols said May 9 that he’s concerned Southern may ask ratepayers to foot the $400 million bill.

What’s driving the DCD costs?
Of the three cost categories, the second and third groups are explicitly called out by Higginbottom as being types of costs that Georgia Power does not agree to accept. In the 10-Q filed May 7 with the SEC, the company says the outcome of failed negotiations with the consortium may result in litigation.

What’s not clear is what’s driving either of these new costs. Design changes that took place during the DCD process, leading up to the NRC license, could have resulted from several factors. Southern won’t say when these design changes took place or what they were for. The design control document (DCD) went through 19 iterations before being accepted by the NRC.

One possible reason for the changes is that the NRC said in its review of one or more iterations prior to the 19th revision that data on components or design did not meet regulatory requirements, or, were incomplete. Georgia Power believes the responsibility for costs associated with these changes are the responsibility of Westinghouse and The Shaw Group.

Another possible reason is that the consortium, as vendors, changed some things through their procurement process resulting in new components being ordered to save money, construction time, etc. Paradoxically, an effort to save money may have wound up costing more.

Shaw was tagged by the NRC last January over its quality assurance program. Since then, both the company and the NRC say this issue is largely resolved. Dave McIntyre, a spokesman for the NRC, told FCW “the staff found the manufacturing process at Shaw to be acceptable.”

Problems in the basement no bargain
For proprietary reasons, George Power won’t go into detail about what’s in the $400 million in disputed costs that could affect the third category which is the completion date for each reactor. Two recent findings by the NRC about construction at the Vogtle site  have risen to the top on the short list of possible cost drivers.

Vogtle-new-nuclear-plant-foundation-workThe first is the rebar, or steel reinforcing rods, that is eventually covered with concrete in the foundation and primary containment structure. The second is the basemat which is the concrete floor on which the rest of the entire reactor structure sits.

Both issues involve the NRC’s review of construction work. Dave McIntyre, a spokesman for the agency, told FCW the license amendment request for the basemat relates to tolerances regarding its thickness. The NRC is reviewing a requested change in tolerances, but won’t make a decision until next October.

The big issue regarding the rebar, which was revealed in April, is more serious. The NRC said in an inspection report that Southern Nuclear “departed from the referenced certified design without NRC approval.”

McIntyre says Southern has two options. The first is rip out some or all of the rebar that is in place and install new steel correctly. The second is submit a license amendment request, or LAR, to get acceptance of the rebar that is in place accepted by the NRC.

Rebar results in delays
According to a review of the cost issues gaining attention by the Georgia Public Service Commission, William Jacobs, an independent construction monitor hired by the PSC, says some of the rebar will have to be removed, replaced according to the correct specifications, and in compliance with industry standards for concrete related to the basemat reinforcement.

Southern’s Higginbottom told FCW that the firm is working with Westinghouse to revise the construction drawings to comply with the requirements in the DCD.

Jacobs notes that the decision to remove some of the rebar, rather than contest the NRC report, came after lengthy negotiations between Southern and its EPC contractors.

Jacobs claims this path forward could add a three month delay, from June to September, for pouring concrete. No concrete can be poured in the affected construction areas until the NRC inspector signs off on the rebar.

Jacobs also warns that in his assessment, which is heavily redacted due to the proprietary design information in it, that the Vogtle project could be up to 12 months behind schedule when you take the rebar and basemat issues into account.

Southern disputes the analysis telling FCW “the company believes the targets related to schedule and cost to customers are achievable. With Unit 3 coming on line in 2016 and Unit 4 in 2017.”

Jacobs estimates the change in completion time will be about seven months, from April 2016 to November 2016 for Unit 1, and from April 2017 to November 2017 for Unit 2.

While the seven month change in the commercial operation date (COD) still has each unit coming online in the same calendar year, in a $14 billion project, a schedule delay of even a few months can run into significant money.

Jacobs’ judgment about schedule juggling
There’s a another question about Southern’s claim. It is based on a separate element of Jacobs’ report that there is no integrated schedule for the entire project taking it to completion. He says it is being managed in 60-to-90 day increments.

Jacobs’ judgment is that the causes of project delays, responsibility for them, and for their associated costs, must be resolved before all parties, the equity partners, and the EPC consortium, can agree on an integrated schedule.

The lack of an integrated schedule also has downstream implications for future cost issues. Jacobs writes that design engineering packages, which drive procurement, are running late. However, without an integrated schedule, it is impossible to tell what these delays cost.

Finally, Jacobs says that even without an integrated schedule, he estimates the commercial operation dates for the two reactors will be pushed back by seven months each.

Southern believes it can make up the lost time, but Jacobs is not so sure. He writes that a first of a kind project “of this magnitude and complexity” can’t be managed effectively with 60-to-90 day forecasts or over the long term.

If the EPC consortium prevails, either through negotiations, or as an outcome of litigation, then two predictions in Jacobs’ report will come to pass. He wrote the company will need to request an increase in the certified cost and a change in the certified schedule which will be later than the current completion date.

Southern VP for Nuclear Construction David McKinney appears to agree. He told AP on June 2 the current completion dates can’t be sustained “without some kind of potential adjustment if these cost pressures continue to mount.”

Southern spokesman Higginbottom told FCW any cost overruns would be balanced against $2 billion in cost savings from lower than expected interest rates, lower commodity costs, and production tax credits. He adds in the possible benefits of a federal loan guarantee, but at this point few are betting on it.

No loan guarantee in sight

Two years ago, when U.S. President Barack Obama announced with great fanfare the $8.3 billion federal loan guarantee for the Vogtle project, only a few fiscal experts knew how hard it was going to be to execute it.

The reason is the loan guarantee term sheets don’t apply equally to each of the equity partners in the Vogtle project. There is no umbrella limited liability company or other corporate entity that owns the new reactors or the financing of the project.

Instead, each equity partner brings financing to cover construction costs based on its respective share. Southern, through its Georgia Power utility subsidiary, owns 45.7% of it.

This separation of equity shares creates a cascading series of loan guarantee issues. First, the guarantee coverage is allocated based on partner shares of the expected $14 billion in costs. Second, each equity partner winds up with its own risk premium for its share of the coverage—and these numbers turn out to vary quite a bit.

According to Energy Department documents released May 23 to anti-nuclear groups under a Freedom of Information Act request, Georgia Power would be assessed a credit subsidy fee of 0.5- 1.5% for its 45.7% share. Oglethorpe Power (31.6%) could be hit with a fee of 2.5-4.3%, while the Municipal Electric Authority of Georgia (22.7%) could see fees as high as 5-11%.

None of the equity partners have signed off with DOE for their part of the loan guarantee. Southern spokesman Higginbottom told FCW completion of the two reactors doesn’t depend on getting the loan guarantee, but the company will take it if it can get it.

”Southern Company’s exceptional financial strength and 30-year history of safely operating nuclear plants make it a solid, credit-worthy candidate for the DOE loan guarantee.”

It seems unlikely the other equity partners would sign up a loan guarantee at higher rates than offered to the anchor partner.

In statements released after this article went to press, both sides said they would continue to negotiate on the issues to seek an equitable solution for loan guarantees for the project’s partners.

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Energy Sec. Chu rescues USEC

It was the Huntsman who kissed Snow White to wake her up

movie poster art snow white and the huntsmanIn a popular movie now in theatres, and in a twist to the fairy tale, the Huntsman is ordered to take Snow White into the woods to be killed. But he winds up becoming her protector and mentor in a quest to vanquish the Evil Queen. In the traditional fairy tale, a handsome prince wakens the sleeping princess with a kiss. In this movie, the Prince’s kiss is a dud, but a follow up act by the rough hewn huntsman does the trick.

For months analysts who follow the world of commercial uranium enrichment for nuclear fuel have been expecting USEC (NYSE:USU) to succumb to the evils of financial collapse. With a stock price of less than a dollar, and the perils of delisting from the NYSE hanging over its head, the firm was on the verge of slipping into a deep and perhaps permanent slumber.

DOE to the rescue  Yet, through apparently heroic measures, the U.S. Department of Energy, usually known for its bar room brawling with applicants for loan guarantees, has adroitly steeped up to the challenge of rescuing USEC from the clutches of its creditors.

DOE had previously repeatedly denied USEC a coveted loan guarantee to build the 3.5 million SWU/year uranium enrichment plant. So there are two things going on here. First, role ambiguity about DOE's views about USEC have come to an end, and the agency has stepped up to addressing the future of the uranium enrichment technology itself.

U.S. Energy Secretary Steven Chu announced June 13 that the Obama Administration reached a major milestone in its efforts to secure an  domestic uranium enrichment capability for national security purposes. 

The Energy Department, USEC Inc. and the newly organized American Centrifuge Demonstration, LLC, have signed a set of agreements that will enable the research, development and demonstration (RD&D) project at the American Centrifuge Plant (ACP) in Piketon, Ohio, to move forward.

The RD&D at ACP will be managed under a new governance structure that strengthens the roles of other project partners including equity stake firms Babcock and Wilcox (B&W) and Toshiba Corporation, which will provide additional project management support and personnel for the program.

StevenChu“Today, after months of hard work, I am pleased to announce that the Obama Administration has reached a major milestone in our efforts to advance the technology at the American Centrifuge Plant and strengthen U.S. national security,” said Secretary Chu. (right)

“Over the last several months, we have been preparing our demonstration facility for installation of a full-scale commercial cascade with related plant infrastructure. With this RD&D agreement in place, we will move rapidly to build additional AC100 machines and related support systems to complete the demonstration cascade," said John K. Welch, USEC president and CEO.

Government aims to take the risk out of the project  As part of the program, the Energy Department, USEC and American Centrifuge Demonstration, LLC (ACD) will work to reduce the technical and financial risks of the ACP project.  The RD&D project will integrate all aspects of the technology, including centrifuge manufacturing, operations and reliability, to demonstrate how the centrifuges and support systems operate as a whole at commercial scale.

The cooperative agreement provides a framework for a cost-shared multiyear RD&D effort to build out and test the first cascade and plant systems at ACP. 

DOE will provide approximately $88 million under the initial phase by taking title to and disposal responsibility for a quantity of depleted uranium tails from USEC. The project participants will provide an additional $22 million in the first phase of the project, representing a 20 percent cost share. 

DOE takes title to intellectual property  The agreements the Department of Energy has signed with ACD and USEC include significant taxpayer protections, including ownership of the centrifuges and other equipment, rights to intellectual property (IP) and technical data, and step-in rights for the Department to take over the program if necessary, should the private sector be unable or unwilling to commercialize the ACP technology.

The Department will immediately take ownership of the systems, equipment, and IP and will lease the equipment to USEC for the purposes of the RD&D program.  Under the agreement, if ACP is commercialized, DOE will transfer title of the equipment back to the ACP participants.  The Department has also put in place a series of technical milestones and performance metrics that will enable the Department to monitor progress and effectively oversee the project.

USEC deal by the numbers The cooperative agreement between USEC and DOE defines the scope, funding and technical goals for the program. The total investment in the program will be up to $350 million, with DOE providing 80 percent, or $280 million, and USEC providing 20 percent, or $70 million, of the total.

The RD&D program will support building, installing, operating, and testing commercial plant support systems and a 120-machine cascade that would be incorporated in the full commercial plant in Piketon, Ohio, which is planned to operate 96 identical cascades.

The program will enhance the technical and financial readiness of the centrifuge technology for commercialization and support more than 1,000 direct jobs during the RD&D program.
USEC and DOE will initially provide $110 million in cost-shared funding for the program. This is intended to last through the end of November.

DOE’s portion of the funding will come from taking the disposal obligation for a quantity of depleted uranium tails from USEC, releasing $87.7 million in cash for use in the RD&D program that USEC had previously committed as security for future tails disposition obligations.

USEC will continue to work with Congress and DOE to pursue opportunities for funding the balance of the RD&D program. Appropriations bills providing FY 2013 funding have been approved by the House of Representatives and the Senate Appropriations Committee, but have not yet been passed by either chamber.

Paradoxically, none of this might have happened if Areva had moved forward with its plans to build a $3 million SWU/year uranium enrichment plant in Idaho. The French state owned nuclear giant suspended its capital construction effort last December as part of a strategic review of global commitments.

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Sunday, June 10, 2012

Japan PM Noda raises the stakes to restart reactors

In a nationwide speech he tells the country they are "indispensible"

Prime Minister Noda
The message of Japanese Prime Minister Yoshihiko Noda about restarting the nation's nuclear reactors is as clear as the sound of temple bells at noontime.  In a stark appeal on national television, he said the loss of energy from the closed power stations could bring rolling blackouts and economic chaos to the country.

Taking his case directly to the people, and over the heads of provincial political leaders who have been seeking air cover on the nuclear energy issue, Noda said the reactors must be restarted to meet two critical needs.

They are economic prosperity and national security.  In effect, he placed the fate of the nation on the balance beam that mediates the swing of public opinion. So far, it has been running heavily against restart.

What Noda seeks is explain why the nation must summon its courage and face its fears with resolution. It is a personal appeal which is the antithesis of the normal gray bureaucratic pronouncements of Japanese political leaders.

This is a distinctly Japanese message which leverages fundamental values in the country's culture. Noda is bringing to bear the dignity of his office, a stoic attitude, and, most importantly, he is seeking to leverage the resilience of the Japanese people facing disaster to come to grips with an energy crisis.

In his ten minute speech he tells the Japanese people they cannot maintain their standard of living without the 50 commercial reactors that provide 30% of the nation's electricity. He dismisses claims that conservation measures will be enough.

His trump card is that the nation's security cannot be trusted to the shifting sands of oil supplies from a volatile Middle East. Worse, those fossil fuels are expensive and have plunged the county into its first trade deficit in three decades.

Toru Hasimoto
The most important near-term milestone is to get two nuclear reactors at the Ohi plant in the Kansai region. Provincial political leaders have mixed responses. Osaka Mayor Toru Hasimoto, a high profile political leader, who has waffled for and against the reactors, now says he can support turning them on for the summer months.

Another milestone that must be completed is to extract the discredited Nuclear Industrial Safety Agency from the METI, the trade ministry, and set it up as an independent and strong nuclear regulatory commission.  Japan's parliament has agreed to create a five person commission with legal guarantees of independence on staffing, budget, and regulatory powers including enforcement.

Noda said he does not want to restart all the reactors at once, but on a case-by-case basis. However, he also said he does not favor a policy of just using the reactors to meet seasonal high uses of electricity. He said they are needed to assure economic stability for the long term.

A second, and even bolder program, was revealed by officials close to the prime minister's office.  According to a report in the English language version of the Yomiuri Shimbun, Noda wants to replace reactors that can't be restarted for safety reasons with advanced LWR designs that have the latest improvements.

One of the problems Noda faces is that there are conflicts between the government and the nation's nuclear utilities over which safety improvements should be taken first and how quickly they should be put in place. The lack of a nuclear regulatory agency to set these priorities adds to the confusion.

The opposition to restarting the reactors remains a strong force in Japan's political firmament.  Last week a group of 117 lawmakers from Noda's own party signed a declaration urging him to go slow on restarts.

Yukio Edano 
Interestingly, Yukio Edano, who was the spokesman for former Prime Minister Kan, has also been out in the provinces talking to officials there. Edano heads the trade ministry and has been on the receiving end of some big hits from Japan's major corporations about the need for reliable electricity supply. Otherwise, they say, they'll take their operations offshore leaving behind tens of thousands of unemployed Japanese workers.

Those responses come in response to his defense of his prior employer's position (PM Kan) that all nuclear reactors should be eventually permanently closed. That's what Edano said in April, but now he appears to be coming around to Noda's realist views on energy issues.

Goshi Hoshano, the prime minister's go to guy for all things nuclear in Japan, told him that what provincial politicians want is air cover for support of restarting the reactors. 

What Noda sees is that the business community is on-board, but the heavy lifting with the general population, via his dramatic speech, is what the prefecture governors want to give their consent to restart the nuclear power stations.

Panel raps former PM for meddling

One thing Noda hasn't done is spend much time pointing a finger of blame at his predecessor Naoto Kan. That's because plenty of other people are doing it for him.  On June 9 the chief of a panel appointed by the Japanese parliament issued an uncharacteristically harsh criticism of the performance of the previous government during the early days of the Fukushima crisis.

Shuya Nomura
The Mainichi Daily reported in its English language version that Shuya Nomura, a member of the panel, said, "The excessive intervention by the prime minister's office induced confusion at the accident scene."

The panel said the government's response was "haphazard."

Another issue which has generated political heat for the former prime minister is a statement by Nomura that Kan would have allowed TEPCO to evacuate its staff from the crippled reactors. Kan has tried to take credit for convincing the panel he was responsible for the opposite effect, which was to keep the workers on site to contain the situation and aid in disaster response.

The workers stayed and worked facing unimaginable hard conditions to try to bring the tsunami ravaged site under control. What they brought to the job are the same values that Noda seeks to harness for his message to the Japanese people

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San Onofre to stay shut down through summer

When the plant restarts, it could be at reduced power levels

Placement of steam generator in a PWR
In a statement to the media, Southern California Edison (SCE) (NYSE:EIX) said that CEO Ted Craver announced the utility expects to deliver a plan to the NRC to restart the Unit 2 reactor by the end of July.

A plan to restart Unit 3 will take longer perhaps a month later. The NRC must approve the plan for each reactor before the utility can power them up again to generate electricity.

As things stand now, both units are likely to remain offline throughout the summer. Craver said there is no deadline to restart the reactors and that safety, not timelines, will determine when SONGS is back on the grid. The NRC announced a public meeting for Monday, June 18, to provide a status report to the public.

The reactors have been shut down due to excessive wear in the bundles of tens of thousands of tubes that make up the steam generators which transfer heat from the reactors to turbines which drive the generators to make electricity. SCE officials have said the greater than expected wear is taking place because the flow of steam in the tubes is causing vibration causing them to rub against each other and the supports that hold them in place. However, it isn't clear why this is happening or so early in the operational life of the units.

Craver told the Los Angeles Times June 7 that there is a lot more wear on Unit 3 than Unit 2. He said the new steam generators, installed in 2010 at a cost of $617 million, were designed to prevent vibration.

Design defects?

Raising the issue of "design defect" is a
legal strategy aimed at cost recovery
In what appears to be the first public pointer by SCE to one of the causes of the problems, Craver said "implementation of the design doesn't appear to be meeting specifications."

By raising the issue of "design defects," SCE is pointing a finger in terms of liability at Mitsubishi which designed, built, and installed the steam generators. The steam generators supplied to SONGS have more tubes in them, are made of a more corrosion resistant alloy, and use a different support structure.

If design defects turn out to be a major contributing cause of the problem, it could take SCE off the hook for things like the installation or plant operations.

The question of the cause of the outage will also play a significant role in future rate hearings. It will determine whether SCE will be able to recover some or all of the costs, including for replacement power, from rate payers.
The Bloomberg wire service reported June 8 that SCE stated in a filing to the SEC, Edison International said Mitsubishi's ceiling on liability was $137 million based on the purchase contract for the steam generators. The repair costs so far are estimated to be $65-85 million.  The cost of replacement power is running at about $2.5 million a month.

Like for like replacement?

Swapping new lamps for old?
The issue of design differences has raised the issue of whether the replacement of the steam generators was a case of "like for like" equipment and the degree to which the NRC fully reviewed the differences. The agency has said it was fully informed, but anti-nuclear groups have tried to leverage this issue as an argument to have the reactors shut down permanently.

NRC Chairman Gregory Jaczko, speaking at a press conference in Charlotte, NC, said the rules under which steam generators are installed might need to be updated based on lessons learned from SONGS. He said the agency is conducting a review of whether SONGS operated within agency guidelines when it modified the designs.

Operators shut down Unit 3 on Jan. 31, after a tube leak in one steam generator was identified; Unit 2 had been shut down for a scheduled maintenance outage. Both reactors have remained safely shutdown.

On March 27, the NRC issued a Confirmatory Action letter documenting actions that Southern California Edison officials have agreed to take prior to seeking permission to restart the reactors.

Tubes taken out of service
Between March 13 and 21, 129 steam generator tubes were pressure tested. Eight tubes failed acceptance criterion – indicating that they could rupture during some operating conditions. The integrity of steam generator tubes is important because the tubes provide an additional barrier inside the containment building to prevent a radioactive steam release.

Since March 1,317 tubes have been taken out of service - 510 at Unit 2 and 807 at Unit 3.  CEO Craver said that about a third of them were plugged due to excessive wear and the rest as a preventative measure.  There are 9,700 tubes in each steam generator and there are two for each reactor making a total of about 39,000 tubes.

The short-term plan at SONGS, once the NRC gives the OK for restart, is to run the reactors at lower power levels to decrease the rate of steam flow. Craver says that in the long term, the utility may opt to replace the plugged tubes or replace the steam generators entirely. According to industry experts, after about 6-8% of the tubes in a generator are taken out of service, the plant will experience a reduced power output.

Clam bake or not?

State energy officials and firms that manage the electrical grid in Southern California have publicaly worried that the lack of the 2,200 MW that are usually available from the San Onofre Nuclear Generating Station (SONGS) could lead to rolling brownouts or even blackouts in Los Angeles and San Diego.  The energy officials says that their primary concern is a prolonged heat wave.

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Good News for Nuclear Energy for June 10, 2012

US reactor deal for Gujarat?

coolhandnukeIndia and the US may ink a deal to build 1100 MW Westinghouse AP1000 nuclear reactors at Mithi Virdi in Gukarat, India.

The deal may be made possible, despites India’s supplier law, because the U.S. Nuclear Regulatory Commission (NRC) issued a safety certification for the design last December.

The Indian Department of Energy and the Nuclear Power Corporation of India Ltd. (NPCIL) have agreed that this decision could open the door for negotiations with the vendor.

If all goes well, Indian officials say, the project could begin as early as 2013 with the first of two planned reactors entering revenue service by 2019.

Read the full details at CoolHandNuke online now.

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