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News About What Went Wrong at VC Summer Gets Worse

hurricaneIf you can tear yourself away from the news about twin giant hurricanes leaving huge swaths of destruction and chaos in their wake in Texas and Florida, there is a man-made disaster taking place in South Carolina.

It is the failure of one of the largest capital construction projects in the U.S.  Every time another newspaper headline appears about what went wrong at the V C Summer project, the dark implications of what it all means for the future of the nuclear energy industry get all the more foreboding.

What we have learned this week is that it appears that some, if not all, of the principals at both SCE&G and Santee Cooper knew and documented to greater or lesser degrees as long as three years ago that the project was a train wreck in the making that was racing towards a derailment of epic proportions.

Now instead of looking forward to a triumph for completion of two massive nuclear reactors generating 2300 MW of CO2 emission free electricity, the nation will get endless political fallout, and lawsuits, which will dominate the the complex contractual debris, left behind like storm damage from a hurricane, for years to come.

Anyone who advocates for nuclear energy as a way to “decarbonize” the electricity generation sector of their home nation will have to understand what went wrong at V C Summer.

The failure of the V C Summer nuclear reactor effort has global implications for every other country that wants to build nuclear reactors as CO2 emission free source of electrical power. Opponents of these projects at the policy level in government have a ready made boogey man in the tangled mess left behind by the decision to cancel the V C Summer project.

The surprise is that there are no surprises. All of the faults that caused the project in South Carolina to come to an early halt are with failures to follow project management schedule and cost control standard practices that have been known since Admiral Rickover supervised the construction of the first nuclear submarines in the 1950s.  Gantt charts were developed as a project management innovation in 1910.

The colossal failure has multiple actors who are to blame starting with Westinghouse, but don’t use up all your lambasting on that firm. CB&I as a key supplier comes in for a fair share of blame as do all the state and federal agencies that have regulatory and oversight responsibilities for a project of this magnitude.

Bad News Ahead

Here’s the latest news. This past week in South Carolina the State Newspaper reports;

For parts of three years, the Santee Cooper power company urged partner SCE&G to address growing problems with the utilities’ failing nuclear expansion project — but SCE&G was either slow to respond or failed to comply with the requests, records show.”

The “so what” of this report is that at least one of the utilities involved in the now cancelled knew that things were not going well, and not just yesterday, and that corrective actions were needed, but had not taken place

The question which is now in front of the South Carolina Public Utility Commission, rate payers, and SCE&G’s investors to what extent that utility will have to eat the billions in costs associated with the now failed project. The PUC is especially in the cross hairs of public interest as it has some explaining to do about its failed role in oversight of the “prudence” of costs and associated progress at the project.

It is hard not to draw the conclusion that mind warping mismanagement is the root cause of the failure of the project. It raises again the question of why Westinghouse, with decades of nuclear energy project management under its belt, ignored it and plunged into the construction phase with an incomplete design, and no documented project management or cost baseline information that it was willing to share with its customers.

What About Toshiba?

Some culpability might also be assigned to Toshiba which, as the parent firm for Westinghouse, which had a role in giving Westinghouse direction on how to proceed at both V C Summer and Vogtle.

end projectRecall that Toshiba wasn’t been able to file a fully audited financial balance sheet after admitting in 2015 it cooked its books and overstated its earnings by $1.5 billion. This raises questions about whether the firm’s management associated with this overt act of financial malfeasance has some role in the financial disaster at Westinghouse?

What we do know is is that once the alarm bells went off in Tokyo, Toshiba began pouring money into Westinghouse, $900M last January. When Westinghouse came back to the well with another bucket, it turned out to be dry. Toshiba’s stock took a hit and the firm began to question whether nuclear energy should continue to be one of the pillars of its business strategy along with computer chips.

Then in June 2017 Westinghouse lost in Federal Court in an effort to recover $2 billion from CB&I for for delays in components as the main supplier to V C Summer. In the end a Westinghouse bankruptcy was the only choice for the firm.

Toshiba has since agreed to multi-billion dollar settlements with the utilities as Vogtle and V C Summer. The payments are due in October. All of of the US firms involved are holding their collective breathes that Toshiba will pay off. Even so the money won’t go nearly far enough to cover current costs nor make it feasible, at least for V C Summer, to finish the job.

The question in South Carolina of who pays for the costs of the project is a question for the lawyers for the South Carolina PUC and rate payer groups. Some of them have already filed lawsuits seeking to prevent the utilities involved in the project from passing along the costs of the projects to them in the form of increased rates for a project that now will never be built.

Why Can’t We Manage Large Energy Projects?

Also, with regard to poor project management practices, Westinghouse appears to be no better than the Department of Energy which has failed miserably with its major capital projects in some cases by putting mid-level civil servants in charge of multi-billion dollar projects.

In turn historically they have deferred to the contractors hired by the government since the federal agency’s staff have limited capability to conduct effective oversight of the work.  DOE’s failures are due to the fact that it failed to monetize the risks by hiring and paying people on its side of the house, who have this kind of experience, what they are worth. A GS-14 salary falls way short.

Perhaps one of the most serious divergent moves by Westinghouse at the V C Summer project was to sign a fixed price contract for a first of a kind construction of a new nuclear reactor design.

According to the State newspaper report effective project management oversight was the key ingredient that was missing in action at V C Summer. According to the State newspaper report, an email from a key executive at Santee Cooper said the project had been hurt by “an incompetent engineering firm’’ and a “disingenuous contractor.’’

As far back as May 2014, Santee Cooper told SCE&G the companies needed help from an independent manager to oversee the V.C. Summer reactor project according to documents released by the state-owned power company.

A Nov. 28, 2016, email from Santee Cooper executive Lonnie Carter to SCANA’s top executive, Kevin Marsh, questioned the company’s ability to handle the multi-billion dollar project. SCE&G is a division of SCANA.

“SCANA’s project management team …. does not have the comprehensive skills and depth of experience necessary in engineering, scheduling, project controls and construction to manage a large new build project with complexities.’’

Bechtel’s Report on What Went Wrong

And there is a second source which indicates problems were getting more worrisome as long as 19 months ago.

After Gov. Henry McMaster started looking for political cover from outraged ratepayers in August, he overrode the objections of lawyers from Santee Cooper, which is an agency of the South Carolina state government, and finally released a report by Bechtel late last week. The report outlined indications of trouble at the nuclear construction site which became apparent as early as 2016.

The Bechtel study said the V C Summer nuclear project “suffered from flawed construction plans, faulty designs, inadequate management of contractors, low worker morale and high turnover.”

According a summary by World Nuclear News of Bechtel’s project assessment report for V C Summer, there were significant issues facing the project:

  • While the consortium’s engineering, procurement and construction plans and schedules are integrated, the plans and schedules are not reflective of actual project circumstances;
  • There is a lack of a planned vision, goals and accountability between the owners and the consortium;
  • The detailed engineering design is not yet completed, which will subsequently affect the performance of procurement and construction;
  • The issued design is often not constructible, resulting in a significant number of changes and causing delays;
  • The oversight approach taken by the owners does not allow for real-time, appropriate cost and schedule mitigation;
  • The relationship between the consortium partners (Westinghouse Electric Company (WEC)) and Chicago Bridge & Iron (CB&I)) is strained, caused to a large extent by commercial issues.

Bechtel, which wrote the report, had a minor role as a contractor at the V C Summer project, and was not the EPC there. Since then the utilities at the Vogtle project in Georgia have hired Bechtel as the EPC as part of the decision to finish the twin reactors there.

VC Summer is a Lost Opportunity for the Global Nuclear Industry

Getting back to the main EPC role for the project, why did Westinghouse, which had the potential with success at V C Summer and Voglte to build AP100s for decades in the US and elsewhere, squander its once in a generation opportunity by cutting corners?

The other lesson learned from this set of circumstances is that at least in the US, this is very likely the last time a nuclear reactor vendor will also serve as the engineering procurement and construction (EPC) manager.  Westinghouse says that when it emerges from bankruptcy proceedings, it will be a vendor of nuclear reactor components, but it will never again manage the construction of one.

Original Post

Dan Yurman's picture

Thank Dan for the Post!

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Discussions

Darius Bentvels's picture
Darius Bentvels on Sep 11, 2017 11:02 pm GMT

The looming questions: Will Vogtle
– succeed before 2025?
– cost <$ 25 billion?

Nathan Wilson's picture
Nathan Wilson on Sep 12, 2017 6:12 am GMT

Lack of experience is a serious problem; no surprise there. When SpaceX decided to enter the space launch business, they did not start out with a mainstream-sized rocket. Their first rocket had only about 5% of the mass of their current work-horse.

Similarly, small reactors (SMRs) will be the cheapest way to rebuild the necessary nuclear industry experience. First of a kind projects will still involve numerous mis-steps and screw-ups, but they’ll be less costly to fix. Some day, we may even be able to out-compete the Chinese nuclear industry (as we currently out-compete their rocket, jet plane, and computer software industries).

Bob Meinetz's picture
Bob Meinetz on Sep 12, 2017 4:08 pm GMT

Nathan, no disagreement here. Dan cites a state newspaper report, which cites a Santee Cooper executive’s email, which passes the buck:

“SCANA’s project management team …. does not have the comprehensive skills and depth of experience necessary in engineering, scheduling, project controls and construction to manage a large new build project with complexities.”

I’ve often been frustrated when searching for someone with experience on first-of-a kind projects like mine…they’re so hard to find!

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