Westinghouse clashes with Georgia Power over nuclear plant cost overruns

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The judge called it a "highly choreographed 'race-to-the-courthouse' " of immense consequence. At stake is $900 million, and the question of who is to blame for delays and cost overruns at the first nuclear construction project in the U.S. in 30 years.

Cranberry-based Westinghouse Electric Co., developer of the AP1000 power plant, and Georgia Power, the utility that commissioned two of units for its Vogtle Power Station in Waynesboro, Ga., have been at odds over construction costs for two years.

The project, originally estimated to cost $14 billion, is now between 18 and 21 months behind schedule and $900 million overbudget.

Westinghouse and its construction partner, Stone & Webster, have had to make a number of changes to the original design plan that was the basis for the 2008 contract with Georgia Power and several other part-owners. According to Westinghouse, those changes and their costs were the result of new regulations by the Nuclear Regulatory Commission, including a requirement finalized in 2010 that buildings that house nuclear reactors must be able to withstand an airplane crash.

Georgia Power, which is owned by Atlanta-based Southern Co., says deficiencies in Westinghouse's designs and the contractors' execution of the work racked up the overruns. Therefore, Westinghouse should pay the costs.

At first, the companies in the Vogtle consortium held internal negotiations. Then came the mediation stipulated in their contract. When that ended, at the pre-arranged hour of 8 p.m. Nov. 1, 2012, "The events that ensued are the kind scarcely encountered outside the pages of a law school exam," wrote Colleen Kollar-Kotelly, a U.S. district court judge in the District of Columbia.

At exactly 8:00:01 p.m. that day, Westinghouse clicked submit, electronically launching a lawsuit against Georgia Power in a federal court in Washington, D.C. Simultaneously, an attorney for Georgia Power walked into a federal court in the Southern District of Georgia and handed the clerk a lawsuit that bears a written time stamp of 8 p.m.

The parallel lawsuits dragged on for almost a year without much progress as each side tried to establish itself as the true plaintiff. In September, Judge Kollar-Kotelly put an end to the race. The dispute will be hashed out in the Georgia court.

The risk of being first

Many things at Vogtle are being done for the first time.

It's the first time a modular nuclear plant is being built in the U.S., where parts are fabricated elsewhere and assembled on site. Regulations governing the design of the shield building, which houses the reactor, have been changed since the Sept. 11, 2001, terrorist attacks, as have other rules.

"Progress at Vogtle is continuing well," said Sheila Holt, a spokeswoman for Westinghouse. "Disputes of this type are not unusual for the magnitude of this project."

While Vogtle is the first AP1000 project in the U.S., Westinghouse is further along in installing new AP1000 plants in China, and Ms. Holt said the company is applying lessons learned there to its work in Georgia.

While $900 million is a significant sum, it's still a small fraction of the cost overruns experienced during the construction of existing nuclear plants. Those, on average, ran 200 to 300 percent over budget. Vogtle is 16 percent over.

But the project is only half done.

In August, Southern Co. warned shareholders in its quarterly report that other issues with construction, fabrication and delays are likely, as are additional claims by Westinghouse and Stone & Webster, a division of Amsterdam-based CB&I. More litigation is possible, the company cautioned, which "could result in increased costs either to the owners, the contractor, or both."

That same month, the independent monitor who oversees the construction project for the Georgia Public Service Commission expressed hope that new management at Westinghouse would strike a more cooperative tone. Danny Roderick was named CEO at Westinghouse in September 2012 and in May 2013, Mark Marano was brought in as the new president of the Americas region.

"The [monitor] has observed an attitude of increased cooperation and focus on the critical path schedule activities," Williams Jacobs, the independent market monitor, and Steven Roetger, an analyst for the commission testified in August. "Whether the new management team can successfully maintain the current schedule given the challenges that lie ahead remains to be seen."

Mr. Jacobs and Mr. Roetger also told the commission that it's not clear if the revised schedule, which pushes the opening of the units to the end of 2017 and the end of 2018, is "reasonable and achievable" and that additional capital costs may result from schedule delays, additional financing and litigation-related expenses.

Learning from each other

It would seem that the more nuclear plants that are built, the more is learned about nuclear construction management and the lower the cost overruns and delays. But the history of the nuclear industry in the U.S. defies that logic, said Sola Talabi, a risk manager with Westinghouse.

To be fair, a new nuclear project may be the hardest large-scale construction venture to keep on schedule and on budget, because of the cost, the regulations, and the infrequency of such events. That's why researchers at Carnegie Mellon University and Mr. Talabi, who recently completed his Ph.D. at CMU, are hoping to launch a center to develop guidelines for managing such projects. The theory is, if you can make it with nuclear, you can make it anywhere.

Westinghouse is not behind the effort to establish the Infrastructure Development Efficiency and Learning center (Ideal), although Ms. Holt said the company would welcome such research.

The culprit behind budget overruns is often bad estimation, Mr. Talabi said.

"If you don't estimate your projects -- or at least the risks -- properly, you manage them as a series of emergencies, which is the most expensive way to manage anything," he said.

He wants to model the Ideal center after the Institute for Nuclear Power Operations in Atlanta, which was established after the accident at Three Mile Island to foster information sharing between nuclear operators. Ideal is envisioned as the construction and deployment side of the same coin.

"Another blowup where we misjudge the cost of a power plant by 50 or 60 percent will kill the industry," said Paul Fischbeck, a professor of social and decision sciences at CMU and Mr. Talabi's adviser who is working with him to launch Ideal.

Mr. Talabi cited two reasons why something like Ideal hasn't been done before: competition and litigation.

"Half the players in the industry are usually suing each other one way or another," he said.

"Within the consortium, sometimes we don't share," he said about the nuclear industry in general. "Think about that. I'm the engineer, you're the architect and [he's] the builder. And I'm holding my cards close to my chest because I know at the end of the day, I know we're going to end up suing each other."

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Anya Litvak: alitvak@post-gazette.com or 412-263-1455 First Published October 19, 2013 8:00 PM


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