TVA: Watts Bar 2 Cost Overruns Soar by $2B; Operation Delayed to 2015

Completion of the Tennessee Valley Authority’s (TVA’s) second Watts Bar reactor will cost nearly double the $2.49 billion price estimated in 2007 and take much longer than the projected 60-month completion timeframe, a construction review undertaken by the federally owned corporation has revealed. TVA management pointed to mismanagement and faulty execution as reasons for the discrepancy.

Watts Bar Unit 2, located near Spring City, Tenn., was to be the first new U.S. commercial reactor of the 21st century when it came online, as expected, later this year. But the TVA said last week that findings from a seven-month-long construction review would require additional funding of $1.5 billion to $2 billion, putting the total estimated cost of completion in the range of $4 billion to $4.5 billion. The estimated time to complete the project is between September and December of 2015.

Southern Co.’s two Westinghouse AP1000 reactors at Plant Vogtle in Georgia and SCANA Corp.’s two AP1000s at its V.C. Summer plant—both which recently received combined construction and operating licenses from the Nuclear Regulatory Commission—are expected to be in service between 2016 and 2019.

In 1985, nuclear plant construction costs that rose due to inflation and new regulatory requirements (stemming from the 1979 accident at Three Mile Island) prompted the TVA to reevaluate plans and ultimately cancel construction at three sites (Phipps Bend, Yellow Creek, and Hartsville) and defer construction at two others (Watts Bar and Bellefonte). The TVA ultimately resumed construction of Watts Bar I in 1990, leading to completion in 1996.

The TVA decided to complete work on Watts Bar 2 in 2007. When work was stopped in 1985 on Watts Bar 2, it was considered about 80% complete with a total investment of about $1.7 billion. The Detailed Scoping, Estimating and Planning (DSEP) study conducted in 2007 found Watts Bar 2 to be effectively 60% complete, because parts had been salvaged for use at Watts Bar 1 or at the TVA’s Sequoyah nuclear plant. Today, the Watts Bar 2 project is considered about 70% complete.

But last year, as the TVA suggested in public statements that Watts Bar 2 was unlikely to begin commercial operation in 2012 or meet its budget, the TVA began preparing a new "estimate to complete (ETC)" analysis to provide ranges for costs and schedules to finish the work at Watts Bar 2.

Four major factors resulted in the extended schedule and higher cost estimates, the ETC suggests: project leadership, original estimate, project execution and project oversight.

Foremost among them is that "The capabilities of management and the project organization were not adequately matched with the unique characteristics of the Watts Bar Unit 2 project, resulting in an improper understanding and evaluation of the complexity of the project," the utility says in a white paper. "Further, warning signs about schedule and costs did not appear to have been recognized or heeded due to insufficient oversight."

Another mistake was that Watts Bar Unit 2 relied on lessons learned from the restart of Browns Ferry 1 in 2007—a boiling water reactor—rather than the completion of Watts Bar 1—a pressurized water reactor—a decade earlier, the TVA says. The two plants have different reactor designs, and Watts Bar 2 is a construction project while Browns Ferry a maintenance project, the TVA noted.

Finally, project execution was flawed. "The DSEP was an example of inadequate, front-end project planning and incomplete definition of the scope of work. Construction was allowed to begin in some cases before engineering was complete," it says.

“Based on the findings to date, we will be asking the TVA board of directors to approve the continued funding and the extended construction time for Unit 2 at Watts Bar Nuclear Plant,” said Tom Kilgore, president and CEO. Kilgore stressed that even with the estimated added cost, “Unit 2 at Watts Bar will still be a competitive, reliable generation source for the people of the Tennessee Valley.”

The initial DSEP done on the unit in 2007 and approved by the TVA board appeared “aggressive but doable” at that time, he said. “Our estimates on time and cost were wrong. While our intentions were well founded, our execution and progress reviews were not.”

Mike Skaggs, TVA senior vice president for Nuclear Construction, who started the construction review in October 2011, said it had shown “walk downs to support the initial estimate were not completed. Management was misaligned, and planning was poor.” Corrective actions would address “the root cause findings and help deliver on the cost and time estimates,” he added.

“We now have a high-confidence cost estimate and milestone schedule,” Skaggs said. “The safe and quality cost-effective completion of Watts Bar Unit 2 is an integral part of achieving TVA’s energy goals as set out in the Integrated Resource Plan. And, we have added contingency and an allowance for addressing Fukushima impacts.”

Sources: POWERnews, TVA