Saturday, August 4, 2012

No restart date yet for SONGS reactors

Reports of a late Fall return to service are pro-forma

Image Source: Smart Animation by Real Illusion
Breathless news media reports last week that Units 2 & 3 at the San Onofre Nuclear Generating Station (SONGS) would restart in late Fall are off the mark.

The dates, Nov 18 for Unit 2, and Dec 31, for Unit 3, are fill in the blanks information provided by Southern California Edison (SCE) to the California Independent Systems Operator (Calif ISO), which manages the state's power grid.

The rapid response from the utility to get the story right is an effective communication strategy and puts to rest claims by anti-nuclear groups that rival those of circus barkers who advertise the presence of dancing giraffes in an effort to sell tickets to a sideshow.

Jannifer Manfre,a spokesperson for SONGS, said in a clarification statement that the dates are "placeholders" for planning purposes only. In fact, state energy officials are making contingency plans in case neither reactor at SONGS returns to service in 2013.

According to Manfre, SCE is required to provide the information but also says "they are not forecast or restart dates."

Calif ISO spokesperson Stephanie McCorkle told wire services that the dates provided by SCE are required for planning purposes but are not firm dates for restart. She said that the utility will only have that information once the NRC gives its approval.

SCE got in hot water with the NRC earlier this year when its CEO provided similar information at an investor briefing. The regulatory agency got testy with SCE thinking that the utility was getting out in front of its headlights. The NRC has told SCE it cannot restart either reactor until the agency is convinced the utility has completely addressed the problems with the steam generators. That includes identifying all the problems and making repairs. Only then will the NRC make a determination that the reactors can be safely restarted and operated by the utility.

Potential for a full head of steam?

On Aug 2 SCE CEO Ted Craver said that the utility has no specific time frame for responding to the requirements in the NRC's 'Confirmatory Action Letter' nor any potential start up dates.

"To forecast dates is inconsistent with prudent decision making," Craver said.

The use of the word "prudent" is rate related and a 'hard hat' signal to the California Public Utility Commission, and to investors, which may deter adverse rate decisions and lawsuits.

Additionally, Craver said the two reactors may never operate at full power again unless the utility replaces the damaged steam generators it has now.

The reason for this statement is that Mitsubishi Heavy Industries (MHI) incorrectly calculated the rate and pressure of steam moving through the equipment. In fact, the steam was found by SCE and the NRC to be moving through the tubes at two-to-three times the numbers provided by MHI which were used to design the units. The challenge for SCE is to figure out how much steam can realistically be pushed through the tubes without the risk of leaks. That number will determine the power level for the reactors and the amount of electricity the utility can produce for customers.

Craver clarified that Unit 2 may be able to restart sooner than Unit 3 because steam tube problems are much less extensive there. Unit 3 has problem tubes and damaged tubes. He said Unit 3 will need more repairs to prevent tube-to-tube wear. Even if Unit 2 is restarted, it will have to be shut down midway through the fuel outage cycle for inspections. That's an expensive extra step due to the costs and the fact the utility isn't generating electricity, or revenue, during the extra outage.

In terms of exploring all options, Craver said SCE is looking at engineering options for what repairs, if any, would allow the reactors to operate at full power. While SCE has plugged a combined total of more than 1,300 tubes in the steam generators for Units 2 & 3, neither has reached the threshold of degraded power from having too many plugged tubes.

Putting costs in perspective

In terms of costs, Craver discounted exaggerated reports of costs spiraling out of control. However, the numbers are not trivial. So far he said $48 million has been spent on engineering inspections to determine the condition of steam generator tubes. Tube that were damaged, or which had excessive wear, were then plugged taking them out of service.

Craver said another $25 million is the estimate of new spending to restart Unit 2. He did not provide details on what work scope is associated with that number and did not provide an estimate of costs associated with repairing and restarting Unit 3.

A future financial issue for SCE is that the California Public Utility Commission may initiate a review of the revenue associated with current rates, which assume the reactors are operating with a full head of steam. SCE has spent $117 million so far on replacement fuel for non-nuclear power to keep the lights on for its customers in Los Angeles and San Diego.

Cost recovery options?

It is not clear whether SCE will be able to recover some or any of these costs from its customers. Also, SCE will be looking at its contract with MHI to determine how to recover repair costs. The 'all-in" cost of installing the steam generators in 2010 was $670 million, but the contract provides a warranty less than one quarter of that amount or $137 million. The fact that MHI erred in its calculations used in the design of the steam generators will likely push the issue of liability into the realm of legal experts, litigation, or mediation/arbitration.

SCE has insurance through the Nuclear Electric Insurance Ltd (NEIL)organization, which is also facing the potential for massive claims from the Progress Energy Crystal River reactor that has a damaged containment structure. It has been out of service since 2009.

Both SONGS reactors began operations in 1982 and their NRC licenses come up for a 20-year extension in 2022. The fact that both reactors have plenty of life left in them, from a regulatory perspective, means that SCE has an incentive to pursue a path to get them to operate again at full power. This option could include replacing the steam generators rather than repairing them. The latter option carries the penalty of lost income from operating at less than full power for a a decade or longer.

Cost estimates increase for repairs at Crystal River

Damage to the containment structure
at Crystal River
The Tampa Bay Times reported Aug 2 that repair costs at the Crystal River nuclear plant are expected to increase. Current estimates are in the range of $900 million to $1.3 billion.

The information was provided by Duke Energy CEO Jim Rogers in an interview. Rogers told the newspaper that no decision has been made whether to repair or retire the reactors. The containment structure was severely damaged during a steam generator replacement project.

The Nuclear Electric Insurance Ltd has stopped payments for the repairs and replacement power and is conducting its own review of the situation.

According to the Tampa Bay Times, Lynn Good, Duke Energy's CFO, said that the cost estimates for repairs were developed in 2011. She said engineers are now revisiting that analysis, but declined to offer a new figure.

Rogers told the newspaper that the cost estimates he's seen so far are higher than the 2011 numbers. He said that while repairs are "technically feasible, issues remain that will affect the decision to repair or close the plant."

Those issues are more likely on the financial side. Unlike all of Duke's other reactors in the combined firm, Crystal River is still operating under its original license which expires in 2016. The NRC is unlikely to renew the license of a reactor with a breached containment structure if Duke cannot complete the repairs in time.

Duke Energy merged with Progress in July. Financial numbers for the combined firm will be reported for the first time in 3Q2012. The lack of revenue from the Crystal River plant contributed to a steep drop in earnings reported by Progress from $176 million in 2Q2011 to $63 million for the same period in 2012.

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Friday, August 3, 2012

Brazil pushes back Angra 3 startup to 2016

Problems with procurement and finance said to be causes of the delay

Brazil's Angra 3
(conceptual image via Merco Press)
Brazil's Angra 3 nuclear power plant being built by state owned Centrais Electricas Brasileiras (EBR) is not expected to enter revenue service until 2016 according to a DowJones wire service report.. The 1,400 MW plant was scheduled to have a hot start by December 2015, but that milestone has been pushed back seven months to July. EBR's press office called the change "a small delay."

Lurking below that ordinary sounding press statement are two problems that could point to deeper issues. The first is a court suit based on a procurement protest for $1 billion in electrical and mechanical equipment has stalled efforts to stay on schedule. Second, there are reports that Germany, which had been on tap to provide export credits to finance the project has pulled them because of that government's wholesale retreat from nuclear power.

The procurement issue involves a Brazilian firm that claims it was excluded from bidding on the project. A court agreed and now EBR and the firms involved must work out a solution.

In terms of export credits, according to a translation of documents from the German parliament, Green Party members launched a determined drive to stop the (euro) 1.3 billion package last April.  The group said the design of Angra 3 was not tested with regard to safety issues raised by the nuclear crisis in Fukushima, Japan.

"The Federal Government has not decided on the export credit guarantee for the completion of the Brazilian nuclear power plant “Angra 3”. An additional report requested after the events of Fukushima has revealed that there is a lack documents on some essential security aspects. Thus the operator’s stress test of the plant has not been completed. "

Brazil will have to find another source of funding if the export credits are called off. Areva, which is providing the engineering and construction services for Angra 3, helped get the export credits in 2009. The French state owned nuclear giant has since encountered problems of its own in terms of raising capital for its uranium enrichment projects. It is unlikely Areva would to be able to finance the Brazilian project. However, Areva has pointed out to the German government it employs more than 5,000 people in Germany and some of them work on the Angra 3 project.

This isn't a new issue for Germany or Brazil. The two nations have had an on again/off again relationship relative to nuclear cooperation since 1975. The U.S. has intervened in it, diplomatically speaking, because of a desire to prevent either Brazil or Argentina from pursuing the capability to produce nuclear weapons. A January 2009 assessment of nonproliferation issues between the two countries shows a number of issues that are labeled as "unresolved" by Carnegie Endowment.

Uranium history and outlook

Until 2009 Brazil got its commercial nuclear fuel by shipping domestically mined uranium to other nations for enrichment to 3-5% U235.  Cameco in Canada did the conversion to UF6 and Urenco in Europe did the enrichment task. Brazil began its domestic industrial level enrichment at a small plant at Resende in 2009. Capacity will be added through 2015 to supply fuel to the completed Angra 3 reactor. The country is aiming for self-sufficiency in uranium supplies and nuclear fuel production.

The country's estimated reserves place it in the global top ten in terms of nations with active mining of the metal. The government controls all exports, but does not promote it to the dismay of private mining firms who think its uranium deposits may rival those of Australia.  These claims could be home grown hype since the government's long standing policy has been it doesn't care how much ore is there as long as it stays in Brazil. The exception is a military regime in the early 1980s secretly exported uranium to Iraq and the disclosure of that act remains a source of suspicion about Brazil's nuclear intentions.

On the other hand, in 2011 Brazil offered to guarantee commercial nuclear fuel to Iran if it would ship its growing inventory of enriched material to Turkey for safekeeping. The U.S. rejected the idea, but the offer resulted in a huge increase in exports of Brazilian beef to Iran.

Brazil's future nuclear plans

The country has two operating nuclear reactors with a combined capacity of about 1.9 Gwe. They meet about three percent of the nation's needs for electricity. The country gets 70 percent of electric power from hydro sources. Vast areas of the country have no electricity.

Prior to the events in Fukushima, the government said it wanted to build at least five, and as many as eight, new nuclear power plants by 2030. Since then it has pushed this program back to a start date of sometime after 2020, but it has not abandoned its plans.

In May of this year energy minister Marcio Zimmerman said a new energy plan will indicate a start date for new nuclear projects in 2022, a two year delay caused by consideration of Fukushima safety issues.

Brazil's neighbor Argentina has two operating CANDU PHWRs, for a total of 935 MW, with a third 600 MW PHWR expected to come online in mid-2013.  Plans for additional reactors are not complete though two more PHWRs are on the government's list for action.

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Thursday, August 2, 2012

CB&I surprises investors with $3 billion takeover of Shaw

Stockholders will receive $46/share, a 72% premium

Chicago bridgeChicago Bridge & Iron (NYSE:CBI) agreed to acquire The Shaw Group (NYSE:SHAW) for $3.04 billion in cash and stock on July 30. The surprise move extends CB&I’s growth into the U.S. power generation market particularly nuclear energy.

CB&I CEO Phillip Asherman told financial wire services the acquisition is designed to diversify the firm’s offerings in global energy infrastructure with a strong presence in U.S. energy markets.

CB&I said it would finance the deal with cash and debt. It will pay a premium at $46/share for Shaw stock which closed at $26.61 on July 27. The new firm will operate under the name CB&I Shaw. It will have a $28-30 billion backlog of projects and employ over 50,000 people.

Shaw had revenue of $6 billion in 2011, but reported a $175 million loss. CB&I had revenue of $4.6 billion in 2011 with net income of $255 million. About 90% of CB&I’s revenue comes from the oil and gas industry and a total of 80% of all revenue is from projects outside the U.S. Acquiring Shaw substantially increases its domestic footprint.

The transaction is expected to close in the first quarter of 2013. Asherman will remain as CEO and Shaw CEO J.M. Bernhard, Jr., will leave the firm.

Wall Street surprised

The acquisition came as a surprise to financial analysts who follow the construction industry. CB&I had been buying up other firms, but none as large as Shaw. Some analysts questioned why CB&I bought the whole company when it could have just acquired a controlling interest, and a position in the U.S. power sector, through buying some of the shares of the firm.

According to data compiled by Bloomberg, it is the largest deal of its kind in these industries so far in 2012 and has the highest premium paid for stock of the firm being acquired in such a deal. The average premium for firms in these industries in 2012 is 10%. In this deal, if it closes at the numbers as announced, the premium will be 72%.

Bloomberg also reported that CB&I’s offer to Shaw is about 26 times earnings before the usual deductions. A survey by Bloomberg of similar deals in the past decade in these industries shows an average of 8.3 times earnings.

CB&I CEO Asherman defended the deal in a conference call with investment analysts. He said the combination of the two companies makes it one of the largest firms of its kind targeting energy industries. Also, he said that CB&I feels that cost challenges at U.S. nuclear projects will be resolved over time.

According to Engineering News Record, CB&I had $6.8 billion in new contracts in 2011 and The Shaw Group had $3.7 billion in new work the same year. Taken together, their combined total of $10.5 billion would rank them at the number three position behind Flour ($26.9B) and Bechtel ($47.2B)

Stock swings

stretched thin financiallyUntil the deal was announced, there had not been much movement in the stock price of either firm.

After the deal was public, investors expressed doubts about the wisdom of the deal and its price by dropping CB&I’s stock in one day from $41/share to $35/share.

At market close Aug 2 CB&I was trading at $35.37 against a 52-week range of $23.88-$47.74.

By comparison, Shaw’s stock surged from $26.61 to $41.49 on July 30 against a 52-week range of $18.98-$43.70.

Shaw losses in 2011 related to energy projects

Energy analysts said that the fixed price nature of large capital infrastructure projects creates risks of losses from cost overruns. This is what happened to Shaw in 2011.

Shaw recorded financial results in 2011 of a loss of $175 million, compared to profits in 2010 of $82 million, and it came about from several factors.

A lawsuit in the power sector over a project dispute cost the company $38.7 million after tax. The dispute with Xcel Energy, centers on a coal-fired power plant in Pueblo, Colo.

The firm lost $29.4 million on loans made to the developer of two new ABWR nuclear reactors at the South Texas Project.

Cost increases and schedule delays on an Asian ethylene project cost $118.1 million after tax. Labor cost increases on a U.S. coal project cost the firm $44.2 million after tax.

CB&I's U.S. nuclear business

Nuc_Logo-01_1_-255x198

CB&I has been building liquefied natural gas ports, but has no experience as the lead EPC firm for a new nuclear facility. According to the company's website, it has built containment vessels for a number of U.S. nuclear plants.

CB&I has been awarded a contract by Westinghouse for two nuclear containment vessels for Georgia Power in Waynesboro, Georgia. CB&I’s contract includes project planning, design, engineering, procurement, fabrication, assembly, installation, testing, and painting.

CB&I has renewed its nuclear certifications, including the N, NA, NPT and NS Certificates of Accreditation and the N, NA, and NPT Certificates of Authorization from the American Society of Mechanical Engineers.

Shaw's nuclear business

Shaw is the EPC contractor for Southern’s twin 1,100 MW Westinghouse nuclear reactors being built in Georgia and two similar reactors for Scana in South Carolina. In China Shaw is supporting the construction of four AP1000s. In the U.S. Shaw is already contending with schedule delays and cost issues at both sites.

Securities analysts point out that both U.S. projects are in very early stages and that cost control and schedule performance have a long way to go before it will be known if Shaw will make a profit on them.

Shaw has a lot of predictable and steady revenue from technical services provided to about 40 U.S. operating nuclear reactors and to coal and natural gas power plants.

Shaw had previously announced sale of its 20% stake in Westinghouse back to Toshiba. When that transaction closes it will wipe the firm’s slate clean of debt. The transaction was announced in September 2011, but has been delayed until early 2013. The reason is bondholders from the original deal rejected a request for early redemption.

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Revisiting Reprocessing in South Korea

The U.S. doesn’t want to hear about it

spent fuel canistersThe Cold War is over but North Korea has another nut job for a political leader, this time it is an untested youth still shy of his 30th birthday.  Claims by the U.S. that South Korea must not pursue uranium enrichment and reprocessing because of the unpredictability of its northern neighbor are getting little traction in Seoul these days.

The reason is South Korea is a major user and exporter of civilian nuclear energy. It wants energy security and to recover the energy value in a growing inventory of spent fuel from its reactors.

According to World Nuclear News South Korea is now a major world nuclear energy country. Today 23 reactors provide one-third of South Korea's electricity from 20.7 GWe of plant. The government says it intends to provide 59 percent of electricity from 40 units by 2030. 

Nuclear energy remains a strategic priority for South Korea, and capacity is planned to increase by 56 percent to 27.3 GWe by 2020, and then to 43 GWe by 2030. It won a $20 billion contract to supply four nuclear reactors to UAE.

nuclear_fuel_cycleComes now the request by the South Korean government, first aired in October 2010, to revise the bilateral cooperation treaty with the U.S.

It has been in place for over 40 years and It is a cornerstone of U.S. / South Korean diplomatic relations.

How will the U.S. deal with South Korea’s demands and what might happen if the two allies cannot reach an agreement?

Read the full details at ANS Nuclear Café online now.

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