SCANA Corporation (NYSE:SCG)
June 05, 2013 8:00 am ET
Kevin B. Marsh - Chairman, Chief Executive Officer, President, Chief Operating Officer, Chairman of Executive Committee, Chairman of South Carolina Electric & Gas Company and Chief Executive Officer of South Carolina Electric & Gas Company
Jeffrey B. Archie - Senior Vice President, Chief Nuclear Officer of SCE&G and Senior Vice President of SCE&G
Jeffrey S. Merrifield - Senior Vice President of Business Development for Power Group
Stephen A. Byrne - Senior Vice President
Don Russell Harris - Senior Vice President
Jimmy E. Addison - Chief Financial Officer and Executive Vice President
Kevin B. Marsh
Good morning. Hope everybody's doing well today. It certainly is nice weather. You had forced to come into town, I think my memory brings me up back up here when it was around 100 degrees and I run down the road trying to figure out how to stay cool, I can't complain. This time, it's been very good and I appreciate the reception.
I'm Kevin Marsh, Chairman and CEO of SCANA Corporation. I want to welcome everybody to our Analyst Presentation today. Those of you that are here in person, as well as those that are joining us on the webcast, I think we've got a good line up to tell you everything we know about that's going on in the company today that will hopefully answer most of your questions. We look forward to sharing the story. Those of you that know us well that have followed us for years, as well as those of you that may have -- are here for the first time, we're glad to have you and glad to share our story with you.
If we go about sharing information, I've got to go through the Safe Harbor statement. But I'm not going to read the thing line for line, I've said this many times before [Audio Gap]
The mic just went off up here. Okay.
We'll share our story. We will be making some forward-looking statements. We'll be talking about current activities, as well as what we see coming in the future. And I would encourage you to look to the Safe Harbor statement, as well as those items I've identified in the filings we've got with the Securities and Exchange Commission. Certainly, we got the risk and uncertainties that face our business as well as the other factors we tried to outline here, so I would encourage you to look at those and stay abreast as those we'd make additional filings.
With that in mind, we'll go ahead and get started.
Our mission has not changed. For a number of years, we talked about our mission to provide energy and related products to retail markets in the Southeast. We continue to be focused on doing that. Our vision is to make sure our companies are working together. We've got committed people, professionally, to serve our customers reliably and our shareholders profitably. We've had this mission and vision for a number of years now. It certainly has served us well, it enables us to focus day-to-day on what we're trying to accomplish.
The foundation of what we do on an annual basis and week-to-week and day-to-day is our strategic planning process. This is a very robust process and helps try to align our business unit strategies and our management will help us achieve the financial and operational goals we've set for the business.
One of those would be our new nuclear generation strategy. We didn't just stumble into the idea about building new nuclear plants. We started on that evaluation probably around 2005. And as a result of that process and additional analysis we did after that, we decided to get into new nuclear projects. And this will allow us to meet the continued growing demand on long-term for electricity needs in South Carolina with a clean, reliable and safe energy source for many years to come.
On the environmental side, when you combine our environmental activities along with our generation strategy, we put ourselves in a position whereas we build the new nuclear units. And by the time those new units come online, we'll be able to retire 6 of our older coal-fired facilities. These facilities, many of which had been in service for over 50 years, have served us well, but do present some challenges from an environmental perspective with new rules and regulations that continue to come out. But when new plants come online, we'll have a system that's over 60% nonemitting, and we'll have reduced our CO2 emissions by more than 50% compared to our 1995 levels.
One of the benefits of our strategic planning process and the business unit plans that we put together is to have flexibility in those plans, so we can respond to issues that come up during the year to make sure we can try to get those earnings goals and continue to meet all the goals and accomplishments we've set for the year.
One example of that would be what we went through last year. We have the business in Georgia, which is unregulated that's very weather-sensitive. And we had a record-setting mild winter period last year, so our earnings were less than what we anticipated early in the year, so we had an earnings plan to come out of that ditch. We pulled all our business units together. We talked about what we can do with the flexibility in our plans to control those costs. And I was pleased to see that our team pulled together to help us accomplish those goals and make up some of the shortfall we had in Georgia.
Our employees get most of the credit for making this happen. They're very focused, they understand the goals, these reached way down into the organization. And they should have a vested interest, because they continue to own 11% of the outstanding common stock for the company.
And I'm with my senior management team that has an average of over 24 years of service with SCANA. I looked around our table last night as we had dinner, and I was trying to figure out who's pulling that average down, because I know we got a lot of people in that 30-, 35-year range. But it's a great team, it's a lot of fun to work with, and then they're very focused on making sure we can achieve our plans.
Let me show a short video here talking about some of the highlights and accomplishments for the year.
Kevin B. Marsh
Over the past 12 months and a short video, but I hope you get some feel for that, the level and involvement our employees have in making sure we are successful as a company. It's been an exciting time, we certainly got exciting times ahead and we look forward to continue to share those successes with you.
I'll talk just a minute about some company milestones we've achieved during the past year.
2012 was a very busy regulatory year for us. We had a number of cases before the Public Service Commission. Those went extremely well. We finished the year off with the last electric base case -- base electric case, where we got an ROE of 10.25%. This was an important case for us because we had a number of small issues and deferred items that had been hung up on the balance sheet that we wanted to take care of from a regulatory perspective. And we were able to bring all those issues to the commission, in this case. We got those resolved in a favorable manner, and we got a return that we think is fair. We continue to operate in a very constructive regulatory environment.
That doesn't mean we get everything we want. I interpret that to say we have the pleasure of working with an office of regulatory staff which is related to the commission. They're our interconnection between what we do and what we present to the commission in the form of cases.
They're very knowledgeable, they have a lot of history in the industry, and they understand the issues. We can have very professional conversations with them. They get very good debates sometimes, but we end up with people that understand what we're talking about some of the time. We hope they reach a settlement on which we have on most of our major cases, since also the regulatory staff has put into place. We've got a good understanding, we've come up with good resolutions for us and for the customers. Their challenge is to look at not just for the financial health of the utilities, but also look out for the customers and for the economic development opportunities for the state of South Carolina. So they got a 3-legged stool they got to sit on every day, and it's been good to work with them to understand what the issues are. So we continue to have that net-positive environment.
Part of our planning process in 2012 was to look hard at our natural gas distribution businesses. You'll hear more about this later, as we have Rusty Harris present on what we're doing there. But we align both PSNC Energy in North Carolina and SCE&G operations in South Carolina under one leader. We think that will be important as we continue to grow this big piece of our business and look for opportunities to do that cost-effectively.
And we finally did settle the equity forward we've had out there for a number of years. That settled out for 6.6 million shares and brought in about $200 million of new common equity to the company to support our construction.
You heard some of these milestones on the nuclear side. We did pour the first nuclear concrete for Unit 2. This was the first nuclear construction concrete poured in the U.S. in over 3 decades.
We are proud to have been able to do that. Shortly thereafter, we placed a CR-10 module in the nuclear 2 -- Unit 2 Nuclear Island. And then shortly after that, we placed the containment vessel bottom head on that CR-10 module.
Steve will have what we affectionately refer to as the baby pictures a little bit later in the presentation. I think you'll enjoy seeing those. If we could just get them to continue to work as fast as they did in the video, I think we'll have a great time schedule ahead of. But we want to make sure we get it done right and is done on time and the right way.
Financially, we increased our credit facility from $1.5 billion to $1.8 billion. This is our backup facility for our commercial paper line. This was important to us because, as you'll see in Jimmy's presentation, we're headed into the 3 biggest years of the nuclear project. Over those next 3 years, we'll be spending about $1 billion a year. It is important for us to have these backup lines in place for those financings.
Early this year, we increased our long-term earnings growth rate from 3% to 5%, to 3% to 6% over a 3- to 5-year period. This was important for us because Jimmy and I both remember well on the day we decided to lower it from 4% to 6% to 3% to 5%. You fairly asked us a lot of questions about that. We told you the reasons for that. We want to make sure we understood the economy. We knew what the growth scenarios would look like on our system. We're now at the point where we see that positive growth coming back, and we certainly have more confidence than we did 2 or 3 years ago in that growth, and we believe that supports along with the capital investments we're making in all of our businesses, raising the upper limit on that from 5% to 6%. And we'll be reaffirming that today, as well as we've reaffirmed our guidance range of $3.25 to $3.45 per share with a target of $3.35 for 2013. You'll hear a lot more about all this as we go through the presentation today.
What we have on task for you today. When I get through, you're going to hear it from Jeff Archie, a long-term employee of the organization. He's one of those in that 30-plus-year category. I think, Jeff, you can check that off. He's our Chief Nuclear Officer, you'll hear about our nuclear operations from him. Then we'll have Lasse Petterson, who's the Executive Vice President and Chief Operating Officer for CB&I, our new partners as part of the consortium working on the nuclear plant; and along with Jeff Merrifield, who's the Senior Vice President from the Global Business Development in the CB&I Power Business unit, as well as a former NRC Commissioner who's been with us for a number of years on the project. We're glad to have both of them here today talking about the project from their perspective and what they bring to the team.
Steve Byrne, you've heard Steve many times, our Chief Operating Officer at SCE&G, also talking about the new nuclear construction. We'll take a short break, then we'll hear from Rusty Harris, as I mentioned, our Senior VP of Gas Distribution; and Jimmy Addison will wrap up, our Chief Financial Officer. And then we'll take time for a conclusion and any questions you might have. So I look forward to a great day. I know you'll have a lot of questions. Jot those down. If we don't answer those during the presentation, we'll try to catch those at the end. I look forward to talking with you as we move through the presentation.
Thank you, and I'll turn it over to Jeff.
Jeffrey B. Archie
Good morning. I appreciate also being here and I appreciate the weather here in New York. Last night, I had a chance to look back at my daughter who lives here in New York now, and she asked me to join her at a beer garden, German beer garden in the city. And Kevin and I will tell you I did not pull down the average age of that group at that beer garden.
There are a couple of takeaways for me. One, I don't remember teaching her how to drink beer, and I don't remember teaching her how to drink good beer. But she did a lot of that last night, I had a great time. I went to stay for about 15 minutes, but I'm always happy to be here in the city I enjoy, New York, and it's always a pleasure to come talk to you about our nuclear business.
Kevin talked about baby pictures that Steve's going to show you later on as it relates to our construction project. Well, if that's the baby, this is the big brother, Unit 1. This is our V.C. Summer Unit 1 plant. Went online commercially in 1984. About 660 employees, permanent SCE&G employees, and another 200, 250-or-so contract employees, long-term support at the facility.
I want the 2 new units that we're building to grow up to be just like this one, because this one has set a standard not only in our company, but also in the industry as being as an excellent performer, has been a sustained excellent performer ever since coming online. When our peers come in and take a look at our operation, they say that our folks have an unwavering commitment to safety. And safety is the guiding principle that guides everything we do at V.C. Summer Unit 1.
So I'm going to talk to you a little bit about the performance at Unit 1, and I'll also talk to you about how we're trying to transfer that culture and that performance into the operational mindset that we want to make sure that we institutionalize at Units 2 and 3.
Talking about safety. In our industry, what we've learned is that if you're very good in the area of industrial safety, you're also going to be good in the areas of nuclear and radiological safety. So we pay a lot of attention to industrial safety. Our focus is obviously on nuclear, radiological and industrial safety. And I'm going to show you some statistics relative to how we're doing in the industrial safety area, it gives you a little bit of a preview to the fact that we're also doing very, very well overall from a safety standpoint at V.C. Summer Unit 1.
2013 year-to-date, no lost time or restricted cases. And that equates to 10 million safe work hours, when you consider the fact that we had our last lost time or restricted work case for an SCE&G employee back in 2005. So that's not just luck. It has to do with the behaviors, it has to do with the coaching and the oversight that our organization provides in the safety area, and we're very proud of that. So that continues and our employees are doing a very, very good job. We've had one OSHA-recordable injury this year. We had a gentleman that was going down a stairwell, slipped, bumped his elbow on the rail, had some swelling, had a prescription that was written for him to address that. So that was our one OSHA recordable. But prior to that, we had not had an OSHA recordable in 650 days. So again, for our SCE&G employees, very, very proud of that. From a supplemental standpoint, our contract employees that are supporting us on the project, we also pay a lot of attention to them. Safety is about all of us, not just SCE&G employees. So in 2013, year-to-date, we've had no lost time injuries in our supplemental area and we've had 2 OSHA-recordable injuries in 2013. Again, good performance. We're paying attention to that area as well. Because again, it matters overall for everyone how we're doing in the area of safety.
And to demonstrate that point, this is a clock that we have in the entry area, portal area, where our employees come into the plant every day. And we are looking at, from a continuous basis, our lost time of events, our standing in that area. The first row, you'll see -- shows how we're doing in the SCE&G area for our permanent employees. The second row deals with our CB&I employees that we have assigned to Unit 1 for long-term workforce there at the station, long-term maintenance. So we're tracking that. We're also looking at our security organization, as well as our contractors that are helping us in the protection area.
But the thing that we're riling around here is everyone counts with safety. We want to make sure that from a cultural standpoint, we're not just focusing on our own employees, but we're focusing across the board on everybody that does work at our site. And again, this focus is on industrial safety here, but it's the same for radiological safety, the same for nuclear safety. If we're doing well in those areas and ultimately from an operational standpoint, we think we have a very, very good opportunity to be successful.
We're also paying attention and focusing on the safety of our construction project. I will tell you that I have personally been very impressed with the work that the project team has done on the construction project as it relates to safety. No lost-time accidents year-to-date. If you look at the project, accumulatively, since the project started, we've only had 2 lost-time events at the construction site, 11 OSHA recordables, 1 year-to-date. So again, for a project of this size, construction project of this size, we're doing very well. CB&I is very much aligned with the principles that we feel are important from a safety perspective. So I suspect that our performance in safety on the construction site is going to continue to be very, very good.
I added some information here on first-aid cases and near misses, that's important. And just as we do at Unit 1, we pay attention to the low-level issues. We want to make sure that if there's a first aid, even though there was not a significant injury, we want to understand why. We want to trend that information and make sure that we're coaching on those behaviors that will preclude challenges even at this level. Near misses, we're looking at that similarly. Again, if we identify the issues and behaviors that cause these problems, then we'll make sure that we stay ahead of those things that could be more significant from a probability standpoint. So we try to stay ahead in looking at low-threshold issues, and we also like to see the numbers fairly high, because that means folks are reporting. That means folks are telling us those things that are unusual, those things are happening. And we want our organizations to talk to us, to let us know those things that we need to be aware of so we can put those corrective actions in place to address those issues.
So a lot of discussion about Unit 1. What we're doing there, the culture that we have at Unit 1. So the challenge is, how do we transfer that culture from Unit 1 to the operational culture that we want to have in Units 2 and 3? That's a challenge. And it's one that we've taken very seriously and we're looking at resolving it in a very systematic way.
First, we think it's very, very important to stay true to our values as it relates to culture. So we're doing all those fundamental things that we need to, as we're bringing new folks on, making sure that they have that insight from us on what a strong nuclear safety culture looks like, and also making sure that they understand our SACRED values that we live to within our SCANA organization. We're going to leverage the opportunity to bring in a diverse leadership team. Obviously, all of our leaders can't be transferred from Unit 1 to support our operations at Units 2 and 3. But there is some opportunity to bring in folks from the outside that can diversify the skill sets and the leadership skill sets that we have already in-house. So we're using the industry to help us with that, but we're also using our own organization, through aggressive succession planning, to have folks available to be embedded into the leadership organizations for Units 2 and 3. Again, to make sure we have a strong leadership team there to manage operations going forward.
We value training. If you look at those things that are most important to us, relative to our performance going forward and our performance in the past, it's also rooted in strong training programs. So we want to make sure we have a highly skilled and competent workers, and we are invested in training in a fairly big way. Many of you may not know, but 10% of our staff there at Unit 1 works in the training organization. We have a training facility, state-of-the-art, that -- there on-site, 126,000 square feet, again, that supports training.
We also have 3 simulators. We've always had 1 simulator for the existing plant. And now, we have 2 new simulators that are supporting training activities for our 2 new units. So that's what investment looks like to us. We think that's important and we're going to continue that commitment as we go forward.
Talk a little bit about our staffing strategy. Really, what that slide is to mimic for us is the fact that we need to have a diverse strategy for staffing. If we were trying to staff our plants using only folks from the industry, there's not enough of those folks out there. We're trying to staff our plants using only folks from the Navy, there's not a lot of folks out there. But with a diverse strategy, I think we can be very successful in making sure not only we have the numbers to staff our plants going forward, but also we have that foundational element there that we need to build the right culture for those new units.
So we're bringing in folks from the industry. We're also leveraging the folks that we have at V.C. Summer and within the SCANA organization, the Navy, and other pipelines that we're developing to make sure we can bring in the right workers. And I'm going to talk a little bit more in detail about the category here, because those are folks that are new to nuclear that we're developing through our 2-year and 4-year colleges and universities.
And again, we're going about it in a very systematic manner. When we started this process, we needed to know what does our workforce need to look like, how many folks that we're going to need and what kind of skill sets are we going to need. So we started to identify the workforce needs. Now from an education standpoint, if we're going to be bringing in folks that are new to nuclear, what kind of educational background do we need them to have? What kind of skill sets do they need to have? And what schools can we partner with to be able to support developing those skill sets that will be important for us when we bring in folks on board. So we went off and did some work on that. We started on this quite candidly many years ago. We developed partnerships with a number of our local schools. I will tell you that at a down economy, when we went to a school and said, "Hey, we want to give you money. We want you to help develop our workforce," they kind of welcomed us with open arms. So that was not a hard sell. But the partnerships and the relationships have been tremendous, and we have gotten a lot of benefit and seen a lot of benefit from that effort.
And then we have to have a pretty robust recruitment strategy. It sounds interesting that you put so much resource into training the students and making sure the students are going to be successful. But then we have to also recruit them, because they become students that are in high demand, and not only for our industry, but folks outside of our industry. Folks really need the kind of the skill sets that we're building for our plants and they don't have to be in the nuclear industry. It could be Boeing or it could be other industries there that are in our state. So we have to have a rigorous recruitment strategy to make sure that folks understand that we want those folks to come on board with us and we want them to be a part of our team. So we're doing a lot of work with that.
Also doing a lot with internships. We're partnering with the schools, we're making sure that we're identifying some of the best students and to bring those students into the workforce as interns. We're spending time on advisory committees, making sure that, again, rigorous to aligning to the curriculums that we have helped build. We're maintaining that rigor and adherence throughout the program. So a lot of engagement, a lot of work that we're doing to make this pipeline be very successful for us.
And here's a slide that I thought would be good to kind of show you how it's all working. When we look at engineering resources, we're leveraging the universities and the industry to bring those folks in. Looking at staffing our operations, staff there at the 2 new units. We're leveraging some of our technical schools. We have a very, very good technical school there locally at Columbia. This is really supporting us in this area, but we're also supplementing that pipeline through folks that we bring in from the Navy and the industry.
The Navy has been a very reliable pipeline for us for many years, by the way, so this is not a new initiative on our part. This is just reinforcing something that's worked well for us in the past.
Training. We're bringing in a lot of training instructors. We have those folks in-house for the most part now. But again, we've mined the Navy and the industry to have those folks come on board with us.
And the technical colleges, the Navy and the industry, is also providing a lot of our technicians and our craft workers. We're able to also focus a lot on bringing in folks that are local to our community, especially in the craft area. And we found that when we can bring in folks that are local to our community, then those folks tend to stay with us longer. They're the 30- and 35-year employees, like myself, that grew up 2 miles from the plant.
And this just shows the number of partnerships we have out there. Again, we have involvement with each and every school on this list. We even go across boarders there in South Carolina. We've had a relationship when we brought in kids from North Carolina State. We also mined some of the talent there at Georgia Tech. So not just within the state, but across state lines as well. We're being very engaged in making sure that we have the pipeline for our staffing that we need for the long-term.
So once we have done the work in developing the candidates and hiring the candidates, there is the matter of the touch points that we have in-house to make sure that we start to indoctrinate our new hires into our culture.
So we have a corporate orientation program, a fairly significant touch point where we have our corporate leadership teach our new candidates our SACRED values, our SCANA values, our code of ethics, our company policies. So we spend time with new employees, just as most other companies would, quite candidly, in making sure that they understand what our culture is like there within our company.
I think what may be somewhat different for us though in our station is that we also have station orientation where our managers, general managers, come in, and they also spend time with every new employee that comes in-house. We call it our new employee orientation. We talk to them about those issues in the industry from the past that have really shaped our industry, and we give them our perspective on that. We talk to them about our programs and the need to adhere to our programs, the need to adhere to procedures. And we also talk to them about those things that we will do as a management team to ensure that our new hires are successful.
And we've gotten some rave reviews from folks that have come on board with us. They think that this is a very, very good program. They appreciate folks at the level of a site vice president or a general manager or a plant manager, spending the time with them to get them oriented into our culture, and that really gets the relationship kicked off in the right way.
The training is important. Accredited training is important. We have accredited training programs. We work with INPO and the national training institute there, the National Academy for training at INPO, and making sure that our accredited programs are healthy. We have 12 training programs that are accredited by the academy. Those training programs were identified shortly after Three Mile Island, when the industry really recognized that we needed, as an industry, to spend more time in development and training of our personnel. So the industry went out and identified the 12 most important programs and accredited those programs through the National Academy, and we just received our initial accreditation for our 6 operator programs back last October 2012. So that was also another significant milestone that we don't talk so much about, but very, very important from a staffing standpoint and the development standpoint for our plants. We obviously have the opportunity to interface with the NRC in licensing our operators. So we've already started that process. We have a license class ongoing now for the new unit, Unit 2. And we're engaged with the NRC in discussions to make sure that we'll be ready to have those folks -- they'll be ready to receive those folks from a testing standpoint, and we'll be on track with getting those folks trained and getting them licensed to operate our plants.
So how are we doing? The lower graph here or the lower chart here on the right shows our present staffing level and our target in coming years in bringing folks on board. We're looking to hire nearly 800 additional folks to support the 2 new units and we've gotten off to a really, really good start. But quite candidly, we have a ways to go. So with the systematic approach that we're using, we think we can be very, very successful. I mean, look at the diversity of folks that we're bringing in. We are bringing in folks from the industry, from the Navy. We're bringing over folks from our V.C. Summer and SCANA organization. I think the thing that we've been most surprised at, however, is the success that we've had in those folks new to nuclear that we've been able to develop, we've been able to work with the schools on, to get them to the point where they can make a seamless transition into our organization. We want folks to be ready to work earlier. And through the partnership that we've had with the colleges and universities in our local communities, we've been able to get those folks ready to come on board, and that process has worked pretty seamlessly.
So I think this is an area that deserves some focus. I wanted to talk to you a bit about it. As I said before, when we get done with the construction, when we're ready to bring these plants online, I would be incredibly happy if we operated at the same level that we're operating now at V.C. Summer Unit 1, because we have had a significant amount of success there. The culture is what we want to see. We've been able to sustain that culture and we've had a lot of success from a performance standpoint at Unit 1.
So we'll stay on task with this. We'll continue to update you on how we're doing in this area. But so far, so good. And I appreciate being able to share this message with you this morning.
I want to invite up now, Lasse Petterson. He's the Chief Operating Officer for CB&I, and he's going to share some information for -- with you relative to CB&I and our partnership with them. Thanks.
Lasse J. Petterson
Well, thank you, Jeff. Good morning. I'm Lasse Petterson, CB&I's Chief Operating Officer. And I'd like to thank Kevin and his management team for the opportunity to come here and present to you today.
First of all, our Safe Harbor statement. These forward-looking statements as made during this presentation, I'll refer you to our Safe Harbor statement in the printed copy of the presentation.
In mid-February, CB&I acquired The Shaw Group. And after that acquisition, I think it's safe to say that CB&I is one of the most complete energy infrastructure-focused companies in the world, and a major provider of U.S. government services.
CB&I was founded in 1889 and we have businesses more than -- have been in business for more than 125 years, and we now have more than 50,000 people on all continents in the world.
Safety is a core value in CB&I. And as Jeff was saying, good industrial safety is also a very good foundation for a good nuclear safety culture.
In 2012, CB&I completed more than 70 million hours of work. Performing construction work on the challenging conditions and areas such as Papua New Guinea, in China, in Colombia, Serbia, Saudi Arabia, Angola, Venezuela, as well as in Australia, U.K., U.S. and Canada. And with a lost-time-incident rate of 0.01, and we had no fatalities.
And just to prove that 0s are possible, our oil and gas business unit executed 40 million hours last year without a lost-time incident.
Our safety management system is behavioral-based, using employee observations to encourage employees -- employee-to-employee interaction and communication to ensure a safe working environment.
For every 3 hours worked in the field, we have 1 observation. And that gives us a vast array of data that we analyze and for safe and unsafe acts and conditions. And then we feed that back to our workforce and supervision to make sure that we keep our safety environment and keep our people safe.
The system also enforces accountability. It encourages employee engagement, generates an open work environment. It includes continuous improvements and lessons learned processes, and it has a very strong focus on training our first-line supervision. And every supervisor being hired by CB&I, within the first months of employment, go through a full week course in safety and how to execute the work safely.
And as you may imagine, ensuring a uniform and strong safety management throughout the entire company is a key priority in this ongoing integration process I'll be going through these days.
CB&I has a market capitalization now of $6.8 billion and our backlog is around $26 billion, currently.
And before the acquisition of The Shaw Group, our backlog was about 20% of it in the U.S. and 80% outside the U.S. Now after the acquisition, it's evenly balanced between U.S. and internationally, 50-50.
We also maintained our risk profile on contracts, which is now 50-50 between lump sum and reimbursable and hybrid contracts.
The picture that you see here is from the refinery expansion project that we are doing for Ecopetrol in Cartagena, in Colombia. The project was contracted as an EPC contract to expand the refinery with 150,000 barrels per day capacity. All the work has been self-performed. And by that, we mean that we have self-performed entire work scopes, including doing our engineering in our Houston offices. We fabricated 84 modules at a fabrication shop down in Bowman, Texas, transported them through the sites where we now are constructing all the process modules and also the tanks for the project.
Seeing our technology group has delivered license technology to the project as well.
In the process, we have trained 12,000 Colombian crafts and supervision in safety, and also enhanced their work skills in order to perform the work to the quality standards that we require.
The project is now at our peak construction phase. We have more than 12,000 people at the site. And today, the project has executed 40 million man hours without a lost-time incident.
We call this graphic on the screen our dream harbor, as it shows all the key end markets that we participate.
We have a large focus on LNG, where we currently are engaged in more than 14 projects on onshore and offshore LNG developments.
We have a large engagement in the oil sands and gas processing. And this is probably an area that will expand now in the U.S., and I said probably, but it will expand in the U.S., as well as in the petrochemical part of the business.
Refining. I already given you a good example of how we perform our work there. And we have also our portfolio offshore and oil -- offshore oil and gas fields developments where we are designing both fixed and floating platforms. Now, our harbor has grown more crowded as we are now moving in to major power plant supply, both fossil and nuclear, and also plant services, and our government solutions group that include infrastructure and environmental services.
With all these businesses, we have about 50,000-strong employee base. It's a diverse array of skill sets and capabilities that enable both businesses to operate -- those businesses to operate effectively and successfully. As I said, we perform most of our work with our own employees in our self-perform execution model, which gives continuity of employment, which has positive effects on safety and productivity. And also, availability and control of craft labor gives flexibility on schedule and certainty of financial outcome.
As I said, the CB&I has been in business for more than 125 years. And you can see here, on all continents of the world. And it gives us the capability to further expand our power and the services business to new markets. It also gives us the ability to service our key clients in all countries they are engaged in, or planning to expand into, giving them certainty of services and also the quality and safety levels that they require.
Just a few words on our organization structure in CB&I. We have 4 individual operating groups and those are: technology; engineering, construction and maintenance; fabrication services; and government solutions.
And our technology group provides licensed technology and has about 70 processes in our portfolio, spanning petro chemicals, gas processing and refining. And they also provide catalyst and special equipment, as well. Our engineering, construction and maintenance group provides engineering, procurement and construction, EPC contracts, for major energy infrastructure facilities, as well as comprehensive and integrated maintenance services. Fabrication services group provides modules, piping solutions and storage tanks and vessels, and includes our heritage CB&I business of steel infrastructures. Our government solutions group provide a wide range of environmental and infrastructure services to local, state and federal government clients.
Now more specifically to our engineering, construction and maintenance operating group. We execute projects all over the world and the more the challenging location, the more reasons for using CB&I. We have major engineering operators -- operating centers in Houston; Baton Rouge; Charlotte; London; Hague; Brno, Czech Republic; Singapore; Perth and New Delhi in India.
And our contracting model provides flexibility in contracting from reimbursable to hybrid to lump sum contracting. And I -- we strongly believe that our self-perform execution model gives certainty of outcome, both with regards to safety, quality, schedule and financial results.
A good example of one of the projects that we are engaged in, in Australia is here at the Gorgon LNG project out on Barrow Island. It's a project for Chevron. The total install cost of the project is in the $50 billion range. It has 3 LNG trains which will eventually produce 15 million tons of LNG per year. And as you can see there on the picture, there's 2 tanks being constructed. Those are being constructed by CB&I on an EPC lump sum basis. And CB&I is also doing all the construction work on the mechanical and E&I part of that project. The project is on its way to producing the first LNG end of next year, and that will be a major milestone for us. At peak, we will be engaged in some 4,000 people out on the Barrow Island executing this project for, of course, our client, Chevron.
And I would now like to introduce Jeff Merrifield, who will present to you our operating -- our power business unit.
Jeffrey S. Merrifield
Lasse, thank you. Thank you very much for the introduction. And thank you, all, for attending today. I also want to make a comment to thank Kevin Marsh and his team here in SCANA.
We have an opportunity, as CB&I's power business unit, to work with a variety of nuclear utilities, both here in the U.S. and around the world. And I think the presentation that you all are going to see today really underscores the fact that you can't judge things by their size. So like you can't judge a book by its cover.
We work for some very large utilities, but there is no utility that exceeds the capability and commitment of SCANA to do things right, and I say this as a former NRC Commissioner. Their extraordinary track record of performance at operating Unit 1, as well as their commitment to work collaboratively with us as a contractor to get these new units online and operating use is extraordinary. And we are blessed to have them as a client.
The other comment I would make, I am one of the individuals who was brought on as a result of the acquisition of The Shaw Group by CB&I earlier this year. I, and the remaining -- I and the 900 individuals who are in our Charlotte office, I think we have been very pleasantly engaged in that arrangement. I have to say, as a new CB&I employee, the strength, the capabilities, the commitment to safety and the tremendous operational performance of our new company is really helping to bring us forward and to do even better. And so I have to say, as a personal matter, it's been a tremendous early couple of months and certainly expect that to continue.
My role today is to talk a little bit about what we are doing in our power business development unit. I'm going to talk principally about the work that we conduct in nuclear power. But we do want to mention for completeness, beyond being the largest nuclear EPC provider in the United States, we have historically, over the last 10 years, been the largest provider of new coal generation in the United States, air quality control systems and that continues to be a major business line for us. And we are also constructing a number of gas power plants, both combined cycle and simple cycle units. So while nuclear power is our focus today, we provide EPC services for a wide variety of large power generation facilities.
This slide talks a little bit to the completeness of the capabilities. But I think, even starting before this, as Lasse mentioned in his slides, our government services unit has tremendous capabilities in the area of permitting. One of the things we talk about in the context of EPC providers is really doing, for lack of a better world, cradle-to-grave services. And I think we are in the most well-placed position to do that of any of our counterparts here in the United States or internationally. And it starts from that government services capability to do initial site assessment to help understand what the power needs are of the client utility, conducting the permitting necessary to site that plant, having the ability to go in, engineer, procure and construct that plant, as well as during the lifetime of that facility, whether it's assessment, engineering-wise, of the components, major operates. We've been the leading provider of power uprates in the nuclear industry. Maintenance, Lasse mentioned our capabilities, we are the large provider of nuclear maintenance in the United States and that has been a very important element of our business.
Dry fuel storage, we put in the first dry fuel storage facility in the United States. That continues to be a major piece of business for us. And then ultimately when that plant is complete, we have been 1 of the largest providers of decommissioning services, having conducted a decommissioning at both Maine Yankee and Connecticut Yankee. So from the standpoint of a full-scale capability and what we can provide to utilities, that certainly is well within our wheelhouse.
In terms of some of the leadership, Lasse mentioned that CB&I is 125 years old. And if you go back to the legacy parts of the power organization, the Stone & Webster corporation, which was really the essence of Shaw's power capabilities, would also be celebrating its 125th anniversary this year. So an extraordinary number of large generating facilities, whether be they hydro, geothermal and gas, nuclear, or coal and otherwise, come within the capability of the legacy CB&I in that regard.
As it relates to the prior fleet of nuclear power plants, existing operating nuclear power plants, we were fortunate enough to having have built 18 of those, totaling almost 16,000 megawatts. So a long and proud legacy in that regard.
As I mentioned, power uprates. A lot of time, we have spent an extraordinary amount of time working with utilities in the plants, to look at balance of plant, to look at heat performance, and have been infinitely involved with almost 4,000 megawatts of new generation with the current fleet. That's an important commitment to our nation's energy security, and we're very proud to be -- have a part of that.
I want to talk in a little bit more detail about the AP1000, and our relationship with Westinghouse. But it's important to remember that we are not a 1-legged stool. We have been involved in building both pressurized water reactors, boiling water reactors with a variety of companies in that arena. We have also been involved with some of the CANDU activities in Canada and elsewhere. So we have a broad range of expertise in the nuclear arena that is not limited to 1 technology or 1 company.
We are, however, very proud to have been part of the effort and have been awarded the first nuclear EPC contract in the United States in 30 years. And I have to say, as a former NRC commissioner, when I was on the other side of the fence, it was a proud moment as well, that we can move forward and allow our country to continue to build new safer forms of nuclear power.
You'll see pictures later on. Steve Byrne has the baby pictures. We were very proud of having placed that first basemat, and really initiating the rebirth of nuclear construction in the United States earlier this year.
A legacy part of our company, which is -- adds to that level of capability, is our steel plate structures. And that portion of the company, have been involved in significant activities associated with containment structures, having built 130 of them around the world and at 75% of the operating nuclear plants in the U.S. So that gives us yet another very strong part in the ongoing operation of the fleet.
Additionally, reactor pressure vessels which unfortunately, they don't manufacturing the United States anymore. But CB&I had been involved with 40 of those -- 41 of those around the world. So an important part of our historic legacy.
This just captures in pictorial form some of the areas in which we're particularly proud of the work that we've conducted. Major component replacement, that's principally with the U.S. fleet, although we would certainly be prepared to assist folks around the world. Power uprates, the leading power uprate provider in the last 10 years, and one that we hope to continue to see going forward. Although, given circumstances, that has slowed down a bit in the last year or 2. Plant support services, be they engineering to provide those services or in the maintenance activities, both come within our wheelhouse.
One I hadn't mentioned is enrichment. We were the designer of the LAS [ph] facility that is going to place in -- out west. We were also had been involved in other enrichment activities down the road. And so that adds to the breadth of capabilities that we can bring to the table.
Thermal performance. I talked about ISFSIs and the fact that we have designed and built a number of those around the country. Licensing, engineer of choice, all among those that bring the panoplies capabilities that we have to the table.
Going to Westinghouse. This is actually, as some of you may know, this is a relationship that dates a long time back. Stone & Webster, our legacy company, with Westinghouse, built the first civilian nuclear power plant in the United States at the Shippingport, Pennsylvania project in the 1950s. So that relationship between those 2 companies goes back a very long way and is one that continues in a very healthy regard today.
Bringing that forward, obviously, we have been working together with Westinghouse on the deployment of the first series of AP1000 units. Those began with the work that we are currently conducting in China at the Sanmen and Haiyang sites, as well as more units, we hope, going forward in China, as well as the 2 units we're building for SCANA and the 2 units we're building for southern company down in Georgia.
Going forward, we hope certainly there will be other, both domestic and international, opportunities to further deploy the AP1000. But I think what is important for us today in the work that we're conducting for SCANA, is having that number of plants under construction allows us the ability to take and borrow the things that we are learning in China as we construct those units, and they will be nearing their -- first ones will be nearing their completion within the next year or so. We are allowing those opportunities to really enhance the work that we're conducting in South Carolina. And so, as we -- as you'll see pictures of our placing bottom heads, as you will see pictures of the work that we did and the placement of the first basemat, all of that benefited from work that we conduct in that regard.
One, and I wish in retrospect, I put a picture on it today, that we typically use, is the modular assembly building. That is a facility where we will bring in the submodules from our Lake Charles facility in Louisiana, and assemble those into large modules that will go into placement at the site. That is not a facility that occurred at our -- at the units that we're involved with in China. That was -- that came from the things we learned. Taking construction had been -- and fabrication had been an outside environment, putting it in an inside environment, allowing us to go from horizontal welding to vertical welding, using more manpower in China versus using more machinery in the United States, those are all innovations that we were able to learn along the way. So it really has given us a much greater ability to make sure that, as we go along, we're continuing to improve on the work that we conduct. Whether it's safety wise, whether it is operationally, those are all important benefits coming from this fleet of reactors we have going forward.
In terms of focus on the site, this slide speaks a bit to the division of the areas of responsibility for Westinghouse versus the role that is played by CB&I. Overall, as you can see, the consortium responsibility falls to Westinghouse. It is their reactor, after all. And they are the ultimate design authority for the AP1000 and all of the parts and pieces that go into the nuclear steam system supply in that design, many of the detailed nuclear systems, 32 of which they had specific design authority, containment design of the early buildings and then the procurement of those nuclear steam system supply components.
On our part, we are really the constructor. Bill Fox is our project director at the SCANA site, an individual, again like many of us, with 30-plus years of capabilities, tremendous strong manager, has worked very, very well with his Westinghouse counterparts. Our responsibility is really the balance of plant systems, whether it is the annex, radioactive waste facilities, diesels. We're involved with, obviously, the cooling towers that we built at the site. And the panoply of underground and other operational equipment, those really od fall on to our -- into our daily work.
The containment vessel itself, as was mentioned by Lasse, our steel plate systems was involved in the design and, ultimately, with the fabrication and installation of that vessel. And you'll see some pictures of the bottom head of that going in a few minutes.
Fabrication of structural and mechanical modules and piping systems. The structural and mechanical modules come from a purpose-built facility we have in Lake Charles, Louisiana. And then piping systems, many of those principally come from a piping and fabrication facility that we have in Laurens, South Carolina. The combination of the 2 companies, legacy CB&I with plate structures, the legacy Shaw with the piping systems, really give us a vertical integration that is unique in the EPC field. And in fact, one thing I always note, piping-wise, many of our competitors are major clients in piping systems. So those give us an ability to really handle and get our hands around the deployment of the systems and deploy it in a way that is timely and safe. And we're very pleased with having those capabilities in-house.
And finally, we do have responsibility for the procurement of the commodities at the site, and certain non and trivalous [ph] equipment. We will be doing the -- we have done the site-specific design construction and ultimately startup support to get that plan up and operating as anticipated.
One note here I do want to make, and this relates to some of the comments that Jeff made in his slides. This is an extraordinary effort to deploy a lot of people, to have a lot of work completed on time and on budget. At peak, we anticipate somewhere between 3,000 and 3,500 people will be on site conducting that construction. We've had, with SCANA, cooperation, coordination with a variety of colleges, universities and trade schools in the North and South Carolina area. Had a discussion yesterday with Bill and I asked him -- Bill Fox, "How are you doing with welders?" I know that's been a question of a lot of folks in the industry. We're doing very well. We are where we need to be. We've got the focus on that one. And we're certainly are working with local trade schools. And with our new company, which brings in a tremendous training and supply capability as well, to make sure we meet that.
So all in all, had I given this presentation a year ago, I would have talked about many of these same issues. But there's no question that the combination of the companies together this year makes us stronger. It us greater depth. It gives us greater ability to do things in a quality way. And certainly, as I'm sure you've gleaned from Lasse's comments, the commitment to safety is one that is in all of our minds, and hopefully, will put us in a position of being better and better each and every year as we go.
So I thank you, and I'll -- right now, I turn this back over Steve. I'll turn it over to Steve Byrne. Steve?
Stephen A. Byrne
Well, good morning. We are running a little bit ahead of schedule, but don't get too excited. Because not only do I have a lot of baby pictures, I have baby videos to show you as well.
Pleased to be back in New York. Anticipate that this will be an annual fixture for me, at least till we get these projects completed.
The consortium that Jeff was just talking about is a consortium, that when we started this, it was Shaw and Westinghouse. And so, when I talked about consortium going through this presentation, it's going to be Chicago Bridge & Iron and Westinghouse. So like I say consortium, it's those 2 companies. We genuinely deal with them as 1 entity. Okay, so they are 1 entity to us.
I want to first talk about our generation plan, all right. So I have responsibility for not just the nuclear units and the new build, but all of our generation assets. We have a lot of legacy coal facilities. We have some natural gas facilities. We've actually got run-of-river hydro units, who were operating in the 19-teens. So they've been around for over 100 years and still operating very well, by the way. But our plan for generation going forward is to position ourselves to be in compliance with all of the very stringent EPA regulations that are coming out, and those that we foresee. And our best hedge to those kinds of regulations, whether it's the next thing on heavy metals, whether it's SO2, NO2, mercury, CO2, whatever that may be, is to build non-emitting sources. And nuclear provides us that opportunity.
So that's one of the reasons why we're so excited to be building nuclear plants, when very few other people in the country are. I'm very fortunate to be building in an of the country that is very supportive of nuclear.
You may have seen this slide in the past, or a slide very similar. It outlines what our generation portfolio looks like, first by dispatch. And dispatch means that's how we actually run the plants.
So for example, if nuclear is non-emitting and is low cost, you obviously want to dispatch that one first. So as a result of that, between nuclear and our hydro assets, we only have about 60% of our generation being non-emitting by the time the 2 new nuclear units come online. If you look at a balanced portfolio, which is what we like, the balance of fuels, when the 2 new nuclear plants come online, absent the hydro, we'll be about 1/3 nuclear, 1/3 coal, and 1/3 natural gas.
What that does is it affords us the opportunity to switch to that fuel that is in favor at that time. Whether that's environmentally in favor or from a cost perspective or a supply perspective, we'll be able to swap to that fuel. So I think it positions us very well to move forward.
Now in 2012, we submitted an integrated resource plan to our state Public Service Commission. This is something we do on an annual basis. And in that 2012 plan, was reiterated our 2013 plan, to comply primarily with the Mercury and Air Toxics Standard or MATS, we're going to have to retire a number of our older fossil fleet. We identified 6 plants that we're going to retire, and that plan called for some of those plants to be converted into gas prior to eventually retiring those units.
One of the units, we did retire at the end of 2012; one of the units, we converted over to natural gas from coal at the end of 2012. So that left 4 remaining units. Now the plan for handling those 4 remaining units and comply with the MATS standard is multifaceted. First of all, we can look at waivers to the MATS requirements. Now the MATS implementation or compliance date was April of 2015. The first year waiver, you can get from a authority. So in our case, that would be the state's Department of Health and Environmental Control. The second year extension, you would have to get from the federal authorities. That would be the Environmental Protection Agency. So we did seek the first year extension for 4 of those fossil units, for those smaller coal units, and received that 1 year extension.
The other things we can do is we can switch to gas and we can purchase power on the market, something that we felt might be difficult to do. So in looking into the justification for the EPA waiver, we had to go out and survey the market to see if power was going to be available or otherwise. And we found out that we -- when we put out an RFP, we got more responses than we had anticipated and the pricing came back more favorably than we anticipated. So the power was available, the power was out there.
So that meant that the second-year extension was not likely from the Environmental Protection Agency. And we said that if we can extend that power purchase into next year, would it be beneficial to continue running some of those plants or shut them down? Indeed, we were able to get those favorable terms into 2014 as well. So that means that the 2 units at our Canadys Station, which were coal units, roughly 50 years old, it would be economical to shut those units down. So the business case said that we should retire those units businesses early.
So in the -- in our plan, we would intend to retire 2 of those units by the end of this year. So by the end of 2013, 2 of the Canadys units will be retired. That's something that will be difficult for our employees at that facility, who have served this company, our customers, and the community well for about 50 years. And obviously, to that county that it's in, it will be a significant impact. So we did not make that decision likely. But we did announce that yesterday morning at the plant site.
Nuclear construction cost. This graphic really is designed to show you what the AFUDC is relative to the total project. As you can see by the green bar at the top of this graph, the AFUDC, because of the mechanism we have for cost recovery in the state of South Carolina, is not a significant part of this project. Unlike when we built in the '70s, '80s, when the AFUDC would be a significant portion of a completed nuclear project. And we have our agreement with the consortium that at an EPC contract, engineer, procure, construct contract, which has a number of different cost categories, 4 of which are either fixed or firm, and that 3 which are variable and will flow with the market. And then we internally have a couple of different owners cost categories. So right now, we're looking at in excess of 2/3 of our EPC contract being in the fixed or firm category.
Oftentimes, we hear about nuclear projects being over budget or costs being rampant. And I want to reinforce that, that is not the case with this project. If we look and when we first made the case to our state Public Service Commission to build these plants, that was in hearings held in 2008, largely based on cost justifications we did in the 2007 timeframe. That was approved by our state Public Service Commission in early 2009. And it was approved at a level of about $6.3 billion. Now that included the capital costs, it included owner's cost, escalation and AFUDC.
So about $6.3 billion was the upfront ask, and that was approved by our commission. Now you can see that there are some ups and downs here, largely based on some inflation indices that we opted to use, that were approved by our commission. But the bottom line here is that in our latest projection on the far right, which is the last one we had approved, our projection is to be about $5.8 million. So compared to that original ask, we are about $550 million under that ask. Now that may be largely due to very favorable conditions or terms and conditions we've been able to get out from the financings and then escalation coming in much lower than we had anticipated, but I'll take it. Well, sometimes you get -- sometimes you're good, sometimes you're lucky, and sometimes it works out both.
This is the total project budget. You can see that to date, we are about $2 billion into that spend. The total project, again, is about $5.8 billion. So we're running pretty close to what we had budgeted, a little bit under the budget at this point in time, but our projection is to come in at about $5.8 billion, which is what we had presented to our Public Service Commission last year.
We have gotten a lot of focus on things that have changed our approved license. When we applied for the license from the Nuclear Regulatory Commission, we were issued a COL. And the COL is a combined construction and operating license. So if you go back to the previous generation of plants, like our V.C. Summer Unit #1, those plants that were licensed in the '60s, '70s, '80s, maybe even into the '90s, it was a license to construct, then you got a separate license to operate. So there were 2 different opportunities for intervention and it really protracted the process.
So now, we have a license to construct and a license to operate. So with that operating license comes the burden that you have to construct to your licensing basis. And so whenever we want to make a change to that, depending on whether it's a set of information that we would call tier 1 or tier 2 STAR [ph], which means the NRC has to approve it before making the change. And we have to submit a license amendment request. If it's tier 2 information, that means we don't need prior approval from the Nuclear Regulatory Commission and we can do that with our own internal processes. So the -- if it's tier 1, or tier 2 STAR [ph] information, we have to get a license amendment from the NRC. We do that through a process called the License Amendment Request, or LAR. This is not a new process. We utilized it frequently on V.C. Summer Unit #1, and there are, on the operating fleet of nuclear plants, there are literally hundreds of these things submitted to the commission every year.
So that the LAR process is one that we're accustomed to. And we have submitted a number of those to the Nuclear Regulatory Commission for the new nuclear project. And if you look at our quarterly report that we submit and it's a public document to our Public Service Commission, we have added an appendix to that. The very last sheet in that report lists all of the License Amendment Requests that we have submitted to date. I think you'll see on the latest report we turned, there's about a dozen of those so far. Now we'll submit probably 50 to 60 License Amendment Requests, as we see it now, over the term of this construction project. So this is not a process that was unexpected.
And the slide outlines the kind of things that we would submit with that License Amendment Request. And that's a process that, depending on how quickly you need it, can take from months to a year to complete with the NRC. So this is a process that has been in place for many years.
Now new to the new nuclear construction, under the portion of the Code of Federal Regulations called Part 52, is a Preliminary Amendment Request. Now this says that we need to change more rapidly than the LAR process would allow. So when you're in a construction process, you don't want to necessarily stop every time you need an LAR. Particularly if it's something that's emergent, something that you discovered that's new.
So this process allows us to submit an LAR and at the same time, submit this Preliminary Amendment Request or PAR and the NRC does an upfront review of the documentation that we submit with that, and they will give us a no objection. And the no objection doesn't mean that they're going to approve the LAR. It just means their upfront review says that everything looks in order and they don't object to us continuing. So we are allowed, then, to proceed at our risk, while the LAR is being processed. So over a period of time, we'll be able to start the work in the field while we're waiting for the LAR to be approved, in anticipation that it will be approved as we have submitted it.
And so we have utilized this PAR process, I think, 4 times now. And I'm pleased to report that the Nuclear Regulatory Commission has done just what they have said they would do under this process. So in fact, the basemat pour that we did earlier this year that you've heard about, and you'll see some pictures and videos of it in a few minutes, was done -- we needed a License Amendment Request for some of the reinforcing bar that went into that basemat. And we were allowed to work on the reinforcing bar under the PAR, while the LAR was approved. And while the LAR was approved, we then poured that concrete over that reinforcing bar. So it's a process that has been demonstrated to work for us and a process that we had foreseen we would need during the construction process. And it's a little different than the operating fleet relies upon.
A couple of areas of focus. When we turn in our quarterly report to our in-state regulator, we identify areas of focus. And we have been carrying 2 areas of focus for some time now. One of them is relative to the simulator that we utilize. We have 2 simulators for the AP1000. They are constructed at the site. They're up and running. We are running validation procedures and scenarios on them. We're training operators on them. But it is a Limited Scope Simulator because some of the instrumentation and controls portions of the plant are still being designed.
And so, it's a normal process that you will start off with a Limited Scope Simulator, continually update it and, eventually, you'll have a Plant Reference Simulator. So that's something that's licensed to the plant and is used to qualify the operators on. And so, for a period of time, the Plant Reference Simulator did not look like it was going to support our schedule or our need for operators. It now appears that through a lot of work with the consortium and our folks, and in conjunction with Southern company, working with the Nuclear Regulatory Commission, it now looks as if that will support. But we're still carrying it as an area of focus, so we don't take our eyes off that one.
The other area of focus we've had is something that Jeff Merrifield talked about briefly. And that is the facility that assembles the submodules that eventually will build into big modules, okay? And that is, formally, you may have known it as Shaw Modules Solutions. And since Chicago Bridge & Iron has acquired Shaw company on Valentine's Day of this year, it is now known as CB&I Lake Charles. So that is the same facility that we're talking about.
And when I talk about modules, I'm not talking about something the size of this podium. The first large module that we're working on is a module called CA-20. And CA-20 is basically a 5- to 6-story building. It's about 70-foot tall, it's about 70-foot deep by about 45-foot wide. And it contains a large portion of -- or it is a large portion of the auxiliary building, including the spent fuel pool. And so that will come in 72 different submodules that are fabricated at the CB&I Lake Charles facility. We'll receive those submodules at the site by truck, we'll put them in our module assembly building and we will weld them together. And when it's finished, we'll have this large structure that weighs about 2 million pounds. And then we'll move it outside of the module assembly building, pick it up with a big crane and we'll place it on the basemat, okay?
So receipt of those submodules has been problematic for us. And the facility in Lake Charles has struggled. Some of it is normal startup-type things, because it is a new facility. It is a state-of-the-art facility. It's large. Anybody that's had a chance to go there would be very impressed with the facility. But they've had some startup issues. And then they've had some issues that we think go beyond normal startup issues. So they've had some documentation issues, some quality issues. They have been subject to fairly rigorous Nuclear Regulatory Commission inspections, and so have, have some inspection reports to deal with and answer. And so, the facility has been delayed in shipping us those submodules.
So that continues to be an area of focus for us and we've discussed with
March of 2017 for Unit 2. And what the state commission allows us to do from a scheduling perspective is we can accelerate the milestones by 24 months, but we can delay them by up to 18 months. And this is for all of 146-or-so milestones that we have outlined, the last of which, obviously, would be the in-service statement for the units.
Stephen A. Byrne
To feed the webcast. And they have routed it to another patch, so we should be up and running again on the webcast. And as I understand it, where we fell off in the webcast was Slide 47, so back to Slide 47, which was the areas of focus. I talked about 2 areas of focus that we have been reporting in our quarterly reports to our state commission and that is the Plant Reference Simulator. Though we now believe that, that is on a success path, we'll keep -- we're going to keep monitoring that. The other one was the facility formerly known as Shaw Modular Solutions in Lake Charles, Louisiana. And since the CB&I acquisition of Shaw is now called CB&I Lake Charles, they have had a number of problems at this CB&I Lake Charles facility. The consortium is working very hard to rectify the problems. We think that they're on a success path, but we certainly want to see an improved trend. So we go to Slide 48 now, so we should synced up with where we were before we dropped off.
We did ask the CB&I leadership team for a new schedule based on the module deliveries coming out of CB&I Lake Charles.
And indeed, they did that at the end of the month, so literally this is information that we got last Friday.
And if the schedule they have given is one that they have confidence in and the preliminarily review shows our in-service dates for unit 2 are going to move from the currently approved March of 2017 to the fourth quarter of '17 to the first quarter of '18. So they've given us a bit of a range.
The delay is due to submodules. And as it turns out, the limiting module -- so when we get these submodules in from Lake Charles facility, we build them into the larger modules. And what we're currently working on is a module called CA-20, and that evidently is not the critical path on this project. It's the next module CA-1 that is the critical path.
But we do believe that there's conservatism built into the submodule delivery schedule. And as evidence for that, we did receive the last couple of submodules from that facility early by at least a few weeks.
So we think that, that demonstrates that they're having the problems resolved. But from our perspective it's not yet a trend, so we're going to stay with the range until we find out something a little more indicative.
So to outline the way that our State Public Service Commission has approved our schedule. They approved it in 2009. They gave -- our latest current approved in-service state for Unit #2 is March of 2017. And they gave us a range around that. We're allowed to accelerate things by up to 24 months. We're allowed to delay things by up to 18 months. Now these schedules are relative to about 146 different milestones that we have in the project. But the last milestone obviously is in-service state for the unit.
So if we factor in the new dates that we have received on that module schedule, that range now takes us out but is well within the plus 18-month allowance that we have from our state regulators because that would move out to September of '18. So we're going to be well this side of September of '18. So we're still within our allowance, contingency allowance on the schedule from our State Public Service Commission. Now to try to put some balance around the cost, because I don't want people's minds to run rampant, we have done some evaluation of the potential cost of this delay. And I want to highlight that it's preliminary on our part but informed that what we know about the schedule and the contract and our other agreements with the consortium, and this is not a consortium number, I want to highlight that. But our bound on this is going to be at about $200 million or less. So the upper bound on that would be about $200 million over the course of the project.
So that's our SCE&G number, okay? So I wanted to make sure people understood that we're not talking about something that's really towards the right of that. We certainly think it could be less than that. So I wanted to put some balance on it.
Activities going out of the site, which you're going to see through this set of baby pictures, is that things with the site are going extremely well.
We are using the world's largest heavy lift derrick. Talked about simulators, we are training on our 2 simulators currently. We have placed the containment vessel lower bowl, and I'll show you that, and I'll show what the containment vessel looks like, so you can see how we're constructing that lower bowl.
We're welding on the containment vessel rings. The switchyard is energized. We are receiving modules for the first big module of CA-20. We're erecting the cooling towers. We are assembling our condensers. We have placed the mudmat and vapor barrier for Unit 3, which is the second new unit. Obviously, you've heard that we poured the Unit 2 basemat for the Nuclear Island, but we also poured the Turbine Island basemat. And we're about 90% complete with the basement walls or the lower-level walls for the Turbine building. And then we placed a module -- the first big module called CR-10 was placed, and I'll show pictures and a short video clip of that in just a minute.
Here's an aerial view of the site. What you can see from this picture is probably dated by about a year. But it gives you a good idea of what the site tabletop looks like. So you can see in the center there, we have the large crane. We call that the heavy lift derrick. The front boom on that heavy lift derrick is about 560-foot long, or tall on this case. The Unit 2 excavation is to the left of the crane. The unit 3 excavation is to the right of the crane. The crane travels 360 degrees on rails and can reach both of the units. The large rectangular structure you can see behind the crane is the Module Assembly Building that's on site, and we are going to be assembling at least 3 modules in parallel inside that building, and that process indeed is underway. And you can see in the foreground of the picture, where we had been assembling some of the ring sections and bottom head or lower bowl for the containment vessels. We've made some significant progress since this picture was taken, and we'll show you what that area looks like more in just a moment.
So the Nuclear Island. A lot of press about this nuclear and concrete pour. I want to show you the steps we went through to get there. Because the basemat pour is called first nuclear concrete, but that's a bit of a misnomer. By the time we got to the first nuclear concrete, we probably poured 15,000 or 20,000 cubic yards of concrete in this excavation.
So the first picture is prior to us getting our license. I was allowed to excavate before getting the license. I could put a form work because that's temporary, but I couldn't do anything permanent in the excavation until I have the COL in hand. So if you go back to March of last year, that's what the excavation looked like on top left prior to pouring in the concrete. Top right is infill concrete, which is just what it sounds. You're filling in the cracks in the crevices and the cavities. After dental concrete, comes leveling concrete because I want to make sure that everything is level. On top of leveling concrete, we'll pour a lower mudmat, and then we put down a vapor barrier. And on the bottom right, you can see mudmat on about half of the Nuclear Island and the vapor barrier on the other half. That's all complete. And then we pour the upper mudmat on top of that.
On top of the upper mudmats, we'll go to your reinforcing barrel or rebar cage. And at the bottom left, you can see what that cage looks like. And it's fairly thick with reinforcing bar. And that's the position that we're in prior to making that first nuclear concrete pour.
These are some pictures of what that first nuclear concrete pour looks like. So from top left to bottom right, you can see that we are pouring day and night. And we wanted to do this continuously because we did not want to put in any kind of a construction joint. So it's not like your driveway, where they pour a section, they have a joint, then you pour another section and have a joint. This is continuous. So we went for a little over 50 hours of continuous pouring on this. And we do have a video clip that's going to condense the in excess of 50 hours down to about a minute and 16 seconds, I believe it is. 1 minute and 47 seconds, all right.
So what you're seeing here is the start of that basemat pour. The large trucks that you can see with the articulated arms are concrete pumper trucks. So we'll bring concrete from the on-site batch plants. And you can see some of the concrete mixers running back and forth. So we had a continuous path from the concrete batch plants to this mixers into the pumpers. And the pumpers use the articulated arms, and they're actually are placing the concrete. And you can see we have an army of folks that are placing, and smoothing, and inspecting as the process goes along. You can see on the bottom left there some concrete trucks filling up the pumper. And this is obviously nighttime, so we lit up the skies over downtown Jenkinsville. And here's daybreak the next day. And in a few minutes, what you'll see is we actually had 4 of these articulated arm concrete pumping trucks. And you can see now the one that was at the bottom left, we moved that to a different location. So we started on the left and kind of worked our way over to the right. And everything in this process went extremely well. So we started off on the area of the auxiliary building where the CA-20 will go. The middle circular section is where the containment vessel will go. And then at the -- near the right-hand side of the screen, which is the last area that we poured, that's where the battery rooms for the AP1000 will go. So this is work 24/7, day and night, with a whole bunch of folks. We did try to keep the pressure off the team that was working this. So we did not want a lot of management oversight or media there. And we think it went off very well. And we are very pleased to get to that point. The next thing we did was wait for it to cure. So the concrete has to set up and cure. The curing process went very well. As you might imagine, we poured some test cylinders. You had to break those test cylinders to make sure that the strength is up to where it should be. And certainly all of those breaks went well. And when we reached the appropriate cure time and strength on the basemat, we placed our first large module.
Now the first module weighed about 550 tons. It's a structural steel. It was assembled or fabricated at the site, and then we lifted it with the heavy lift derrick into place. And this CR-10 module is a module that is going to support the containment vessel, which is kind of like the egg cup, if you will, before you place the egg in it. When we placed the CR-10 module, we'll then bolt it to the basemat, and we will pour concrete around it. So it actually becomes a part of the reinforcing structure once we place the lower bowl in it. I'm going to show you a brief video clip. And when I say brief, it lasts about 16 seconds, so don't blink too much. But it's going to be lifting the CR-10 module with the heavy lift derrick and placing it in the excavation on the basemat.
Stephen A. Byrne
There's the lift, there's the move, dropped, aligned and placed. Looks so easy.
Now here's what it looks like after placement. So you can see it sitting just in the center section, the circular section of the basemat. You can see obviously there's a lot more basemat in where these tents are in the foreground. That's where the first large structural modules CA-20 will go. In this picture also, you can see some of the condensers are being fabricated by Toshiba about outside of the excavation that will be lifted. In the background, you can see the -- beyond the CR-10 module, you can see some of the turbine building walls. They're going up.
So here's the containment vessel lower bowl. It was fabricated on site. It came in, in steel subcomponents. Chicago Bridge & Iron had the contract well prior to the merger to do this, and CB&I did a great job on the containment vessel. You can see that it's being moved with a couple of transporters just from its fabrication area to the place where the heavy lift derrick could reach it and pick it up. And just for some scale, we have an arrow drawn to a gentleman who's standing kind of in front of it. And so this was moved. We picked it up with the heavy lift derrick, and we placed it on the CR-10 module. And you can see some of the supports here. This looked like pipes. Those will actually bolt to the CR-10 module. And we should have a video clip, which again lasts a very short period of time of lifting this with the heavy lift derrick over the condensers and into the CR-10 module.
Stephen A. Byrne
There's the lift, clearing the condensers and lowering it carefully on the CR-10 module. Piece of cake. And this is what it looks like with the rigging still attached where you see the white on the -- around the top rim of the low bowl, and then you can see a kind of a rust color below that. Anywhere where it's not white, there will be concrete.
So we'll have a lot of concrete that's get poured around this as well. So inside this lower bowl will go now all of the reactor system components, things like the reactor vessel, the piping, the steam generators, pressurizer.
And I want to show you what the containment vessel will look like when it's finished. This is a schematic that shows you the bottom head portion of the bottom of this diagram. That's what we placed last month. And you can see that in that bottom head, we have some penetrations. So you have some equipment hatches and personnel airlocks. And then we have Ring 1, Ring 2 and Ring 3. Rings 1 and 2 are actually in fabrication at the site now. And then eventually, we'll put the top closure head on after all of the components are inside. And Ring 1 is actually 4 different courses of steel, Ring 2 is 4 courses and Ring 3 is 3 courses. So these will be very heavy lifts also. And Ring 1 will be placed on the bottom head we hope some time yet this year.
This is the fabrication area where the containment vessel is being fab-ed at the site. At the top left, you can see Ring 1 with the equipment hatch, the personnel hatch and a couple of other piping penetrations next to it. If we go around to the back of Ring 1 and fast forward a couple of months, you can see all 4 courses of steel are now on Ring 1. So Ring 1 is nearing completion.
The bottom of that slide shows a picture of the fabrication area where you can see Ring 1, Ring 2 with about 3 courses installed, and then you can see the lower bowl prior to us moving and placing it in CR-10 modules. So this area is fairly congested. And you can see, there's another pad that has been poured in front of Ring 1. That's for additional ring works should we need it.
Unit 3. The nuclear island for Unit 3 is coming along nicely. We have placed the dental concrete, the leveling concrete, the mud mats, the vapor barrier and the upper mud mats. So this is now ready for us to start work on the reinforcing bar cage, which we shall be constructing over the next couple of months. And we are still on schedule to pour the first nuclear concrete in this unit in about October time frame of this year. So another important milestone for us.
Turbine Building 3 and 2. I've said we were about 90% complete with the lower level or basement walls of this. So we're getting up to about grade level. The excavation on this is about 40 feet down, so we're just about grade level here. Turbine Building work is going very well.
Condensers. The condenser is like a large heat exchanger, which takes the steam from the turbine and it condenses it back into water so it can pump it back towards the steam generators again in a closed-loop system. So this obviously has to go in before all the turbine components will go in. Toshiba is the supplier for the condensers, and you can see the upper and lower shells of those condensers being fabricated on site, outside the excavation. And again, we'll use the heavy lift derrick to place these sometime in the near future.
Cooling towers. We are not going to use the large 500-foot tall hyperbolic cooling towers that people usually associate with nuclear, even though they don't -- they're not specifically nuclear. But we're going to use lower-profile forced draft or mechanical cooling towers. They're going to be about 60-foot tall. So in the picture on the top of the Cooling Tower 2 Alpha, that's about as high as it's going to get. It is nearing completion. The bottom right is actually the top deck of that same cooling tower, where you can see some of the fan blades. We'll have 16 different large fan blade sections. It's in white here on the bottom picture. And then we'll put shrouds around those just to direct the mist. And you can see 3 of the shrouds that are installed over those. So the cooling towers are coming along very well.
Two cooling towers per unit, and they will share a common return. So this is the foundation for that return before we pump it back to the condenser when the condensers are installed.
Switchyard. I've said that was completed. That was actually finished in the last quarter of last year and then turned over to SCE&G and energize the first quarter of this year. So the switchyard, which is about the biggest one I've ever seen, is energized, and we can back feed our units from this when needed, and we can do testing on it. The company that we used for -- actually, the company the consortium used for the switchyard was a company called Pike Electric out of Mount Airy, North Carolina. And when we executed our EPC contract to erect the off-site transmission lines, we used the same company. So there were no hand-off issues between the company erecting the switchyard and the company erecting our off-site transmission line.
And speaking of off-site transmission lines, what this picture shows is we have about 259 miles of 230,000-volt transmission lines to build. That is comprised of 3 large line segments. We did all of it about 6 miles on existing right-of-way, which certainly made the permitting process a lot smoother. What you see in the picture is the old super structure for off-site transmission line laying on the ground. And the new vertical poles there, that's all new construction. And that's the same things we'll see for that 259 miles of run to get the power from these new units out to our system and to Santee Cooper's system.
Another look at some of the off-site transmission lines. So the first section of this line is about 95% complete. Segment 2 is about 60% complete. And then the last section is still on the engineering and design phase, but Pike is doing a great job for us, and we anticipate this will be finished well before we need it to take power away from the site.
A little update on manufacturing schedule. We used to have this color-coded different colors. The green meant that it started, and you can see it's all green now. So all of the major components, where they're being fabricated in the U.S. or around the world, have started for both units. And this is just a look at where those major components are coming from. Certainly, we've been able to source many things from the U.S., but some things, you cannot get sourced in the U.S. Things like reactor vessels. So that's an ultra-large forging. You really got to go either to Japan or to Korea. And so we really have a worldwide supply chain.
A couple of the components. This is what we call an integrated head package. So on top of our reactor vessel head, you have things that have to penetrate the head like -- things like control rods, and they have to be supported by a structure, and that's what this integrated head package does. And it's integrated because when we do refuelings, you'll be able to take this thing off in one piece as opposed to our operating unit, Unit 1, where we have to disassemble the head to some extent before we can get to refueling. So this should make our refueling outages shorter. And this is being assembled in Idaho. This is Doosan in South Korea. They're building steam generators, which you can see at the bottom; and then a reactor vessel, you can see at the top. Reactor vessel is on the Pacific now, headed to the Panama Canal. Should come in through the Port of Charleston mid to late this month and make it's way up to the site.
The Mangiarotti facility in Italy, it's making a lot of tanks that the passive control systems for the AP1000 use. So fabrication of these tanks, you can see, is going well.
Toshiba is the parent company for Westinghouse. So no big surprise if they got the contract for the turbine generator and ancillaries. And you can see the -- some of the manufacture here. The low pressure alpha turbine, you can see it top right. That's actually at the site today and is already shipped to us. Low pressure bravo, you can see it being assembled there at the bottom of the picture. That is making its way to the site. So it's on the ocean now. And no delays from the tsunami or earthquake in Japan for any of the Toshiba facilities. So that's good news for us.
And I wanted to show you some of the logistics of getting some components to the site. This is a large tank that we call the Deaerator, and it literally strips oxygen from the feedwater system. It's about 140 feet long. It's 16 to 18 feet in diameter. It came in from -- ended at Port of Charleston by ship. It was transferred to a barge. We barged it through locks up to our Santee Cooper facility. Santee is our partner in this project. They have a facility on a lake. We offloaded it from the barge to this transporter, and the transporter has a pulling truck and a pushing truck, and it's their truck. And it made its way, 162 or 164 miles, to the site over about 5 days. Obviously, you can't do this at night, so you have to park it in the evenings. We had to have line crews with us to raise or lower distribution lines to get it under. And the picture at the top is actually I-95. So you can imagine how pleased you would have been if you'd have been on I-95 going either direction. When we closed that freeway, it came on an entrance ramp and off an exit ramp, straight across the median. So we had to do this kind of a crossing on I-95 and on I-77. But happy to report that the Deaerator is at the site today. So it made the journey successfully.
And now we're going to forgo the break that we had in the schedule since we've already taken a break, even though it was not necessarily planned. And we're going to go straight into Rusty Harris talking about gas. Rusty is our Senior Vice President for Gas Operations. Rusty?
Don Russell Harris
Good morning. It's good to be here, and I'm pleased to give you an update on SCANA's gas distribution businesses today, PSNC Energy in North Carolina and SCE&G gas operations in South Carolina.
Take a good look at my picture, okay? This is my one and only baby picture. I guess I could have drawn a picture of this project, but it wouldn't be very interesting, so we'll leave it as a baby picture.
You can see the title at the bottom of this slide is about growth and construction, because that's going to be a heavy emphasis of my presentation with you today, as well as the combination of bringing our 2 gas businesses into one group within SCANA, and I'd like to talk about that with you also.
Let me start with an update on PSNC Energy. We're celebrating a milestone at PSNC Energy this year, our 75th anniversary as a company on September 1. A major point in our history at PSNC Energy was becoming part of the SCANA family in the year 2000. And another milestone for us that we're celebrating this year is serving our 500,000th customer. I can remember when I went to PSNC Energy back in 2003, it was within a couple of years after that, that we celebrated 400,000 customers. So a lot of our growth has taken place in the last 10 years. And as you'll hear in a little bit, we're optimistic about our ability to continue to grow at a good rate.
We serve our customers with a little over 11,000 miles of pipeline, 600 miles of transmission main, and the balance is distribution main across our system. If you look at the pie chart on the right, this represents the allocation or distribution of our customer base at PSNC. And this is very typical of a distribution company. A vast majority of our customers, almost 92%, are residential, with about 8% commercial. And then we have about 1,500 industrial customers in North Carolina.
An important feature of our business in North Carolina is the rate structure that we have, and particularly, the Customer Usage Tracker that we employ at our business in North Carolina. We adopted the Customer Usage Tracker in 2008. And essentially, it is a decoupling mechanism that decouples customer usage from margins. A big reason we requested this mechanism to be put in place is to deal with the long-term trend that is occurring in the natural gas business, which is per household declining consumption. Our homes and businesses in North Carolina carry -- volumes of the gas consumed is declining at a rate of about 1.4% per year. And so this decouples our margins from that, from usage, and so there's a benefit to us in that regard. The way it works is that we true up our actual usage to the margins from our last rate case twice a year. And we will increase or lower our rates to either give back or collect any over or under-recovered amounts. And so I should say that the biggest driver of our margins for PSNC Energy now, because it's decoupled from usage, is how many customers do we have. And so that's a big part of our plan at PSNC Energy, is to grow our customer base of both residential and commercial.
And finally, one other benefit about the Customer Usage Tracker is that it removes the disincentive for us to encourage conservation among our customers. So when we employed the Customer Usage Tracker back in 2008, we also introduced a number of conservation programs to help our customers use natural gas more efficiently.
If you refer to the pie chart on the right, the important thing to note there is that the red and blue represent the residential and commercial margins, and that, that is the margins that the Customer Usage Tracker applies to. So about 88% of our margins at PSNC Energy are covered by the Customer Usage Tracker.
Let's talk a little bit about growth. If I went back to 2007 and '08 on this slide, you would have seen numbers like 15,000, 16,000, 17,000 net customer growth at PSNC Energy. But like most LDCs across the country when the housing market downturned, we saw our customer growth rate decline as well.
But since 2009, we've seen a steady increase in our growth on our system. The blue bars represent net customer growth. So these are new additions to our system, minus any attrition of existing customers. And this year, we are projecting to have a net addition of about 11,300 customers, which is about 11.9% in increased growth over 2012.
Another important line on this chart is the red line at the bottom. That represents the number of conversions. When we saw the decline in the new home construction back in 2009, we saw an opportunity at that time, with the favorable pricing of natural gas, to become more active in the conversion markets. So existing homes and businesses primarily utilizing propane, in some cases, electricity and converting those customers to natural gas. So you can see a nice steady increase in the number of conversions that we've been able to achieve. And this year, we expect to achieve about 2,400 conversions across the PSNC system.
This year, our new services that we've run year-to-date at PSNC are up 16%. So we feel very optimistic about our ability to meet this year-end projection that you see on this chart.
Just to -- the next slide really serves 2 purposes: one, to familiarize you with the markets that we serve in North Carolina; and also, to give you an idea of where the growth is occurring on our system. Our system -- our service area in North Carolina is not contiguous. It is separated into some distinct markets. To the central part of the state, we serve the Raleigh and Durham area, also known as the Research Triangle part of North Carolina. And then further to the west, we serve Asheville and some areas around Charlotte, such as Gastonia. 2/3 of our customers are in the Raleigh-Durham area. And that's important because that's where we're seeing the highest growth rates on our system right now, is in that area. Over in the western part of our system is a little below 2%. If you get over to Raleigh, it's closer to 3%.
And now I'm going to switch gears a little bit with you and talk about another important activity going on in North Carolina, and that is some increase in investment in our transmission pipeline system that we're undertaking in 2013 and '14. We got 2 big drivers behind our increased capital investment in our system in North Carolina. The first is that we're going to retrofit a number of high priority transmission pipelines to allow for inline inspections. Inline inspections is the technology that's used today to send a device through a pipeline, and it can tell you a lot of information about the integrity and condition of the pipeline. Many of our transmission pipelines, like many across the country, were built prior to this technology being developed, so they're not capable of passing the device through the pipeline. Currently, we have about 90 miles of pipeline that are capable of performing inline inspections, and our plan is to increase that number to about 350 miles of pipeline. So by retrofitting these pipelines, you remove the obstructions that'll-- and then allow you to send the device through the pipelines. So that's a big part of our project plan, is to retrofit these pipelines.
Another important driver in our capital investment plan is to upgrade and extend pipelines to increase capacity and ensure reliability. And a number of these projects are in the Raleigh-Durham area, and that is in order for us to both meet the current needs. There are a number of interruptible customers in that area that would like to take firm service from us, and this will allow us to meet that need, as well as to be in position to serve additional customers in the future in that growing area.
We thought this was an appropriate time to take this strategy and put it in place for 3 reasons that you see on the screen there. One is there's a climate of increasing expectations for pipeline safety, and we want to be proactive about how we address our ability to assess our system, and inline inspections will help us do that. It's also a good time because costs of financing are low. And we have low prices for natural gas, and we feel like that's a -- competitive price of natural gas is a good time for us to make these investments in our pipeline.
Hopefully, you can see some of the key features of this map. This just gives you an idea of where the -- some of our projects are taking place. And an important point here is that it is -- most of it is connected to this Research Triangle area that is within our market. So you see the cities of Raleigh and Durham indicated on this map, as well as some important customers of ours, the university systems that are in that area, NC State University, University of North Carolina and Duke University, as well as the Research Triangle Park, or RTP. Those are indicated on red on this map. And I'm not going to talk about these projects in detail, but each of these arrows are pointing you to locations where we are increasing the capacity of our pipelines in this area. So it will allow us to meet the current demand and also future growth in the triangle area.
The capital investment as far as this modification to our normal capital budget that we would have at PSNC Energy is indicated on this slide. The red represents the additional investment that we're making in these projects. So it's in the range of $85 million over this year and next year, and that is essentially like having a third year of capital spending at PSNC beyond what we would do over this 2-year period. So we plan to get these projects done, many of them are already underway, and have these projects completed by the end of 2014.
Okay. Now I'm going to switch over. I'm going to talk about our gas business in South Carolina, SCE&G. Actually, the gas business in South Carolina is where SCANA has its origins, Charleston Gas Light started in 1846 to provide manufactured gas and lighting to the Charleston area. So the true roots of the company trace back to the gas business. We serve about 325,000 customers in South Carolina, with about 9,100 miles of pipeline, 445 of which are transmission pipelines and the other 8,600 or so are distribution mains. And very similar to PSNC Energy, as you can see from this pie chart, similar distribution of customers in terms of residential, commercial and industrial. About 92% residential, 8% commercial, and we have around 450 industrial customers in South Carolina. We do not utilize the Customer Usage, [indiscernible] use a different rate mechanism. It's called the Rate Stabilization Act. And it was adopted in 2005, and it's also a very effective rate mechanism. The way it works is that we annually adjust our rates to keep our returns within a plus or minus 50 basis points of our allowed return of 10.25%. So if our returns drop below 9.75%, then we'd increase our rates back up to the point where it would support a 10.25% return. Or if we exceed 10.75%, we lower our rates back to the 10.25% level. And so it's a very effective and stable, as the name indicates, way for us to run our business in South Carolina. It effectively deals with not only changes in customer usage patterns but also recovery of both capital and operating cost. And because of the nature of that mechanism, it really applies to our whole business that we operate in South Carolina, so the full pie chart that you see on the right.
We've also seen similar trends, if you look -- remember the PSNC chart a few minutes ago and you look at this chart, there's some similarities in terms of the increasing growth that you're seeing. This year, we're projecting to add a net 6,000 customers in South Carolina. And if you look at the red line at the bottom, in excess of 1,000 conversions. So many of the same changes and improvements in new construction that we're seeing in North Carolina, we're beginning to see in South Carolina as well. Our new services that we've run in South Carolina have increased 12% this year.
This map represents our service areas in South Carolina. So essentially, we serve the whole state, except for the upstate area of South Carolina. And as you can see here, a lot of new activity. A lot of the growth and constructions are currently along the coastal areas. So the growth rates and the -- what we call the Eastern and Southern divisions is up -- is higher, and the central part of the state is improving. But it's not -- hasn't recovered quite to the level of the coastal part of the state.
Because of the RSA, one of the nice features of that is it allows us to plan our capital budget and try to do it in such a way that is very -- we try to keep it very steady. And so you can see here that our capital plan for SCE&G is quite level over the '13, '14 and '15 periods.
Now I'd like to talk a little bit about this change that we made earlier this year within SCANA to take our few LDCs and bring them into one group within SCANA. One important thing to recognize is that both of these LDCs have a great track record in a number of important areas. They are both well known for their safety performance and regularly are in the top quartile in performance in the Southern Gas Association rankings for safety. Both organizations have been recognized for awards related to customer service. In fact, PSNC Energy has been #1 in the J.D. Power residential customer satisfaction survey, #1 in the south 3 of the last 5 years. Earlier this year, in the J.D. Power business satisfaction survey, SCE&G was #1 in the nation and PSNC was #2. So we have a great culture around high levels of service to our customers.
And then finally, we are blessed in these 2 areas to serve some very good markets and expect sustained customer growth rates. So we have the 2 gas businesses. And what we are doing by combining them into one organization is we are identifying some functions that are performed within each of the 2 gas businesses, and these are some functions that we feel like we can pull out and we can operate more efficiently by providing a service to each of the LDCs. So we formed a gas services group. And some of the functions that we are consolidating within the gas services group are some IT functions. We're centralizing all the dispatching of our orders, our gas control centers. We're consolidating into one all of our safety and training program. We're consolidating some of our engineering resources, and -- so obviously, one of the drivers here is that it will allow us to gain some efficiencies. But we believe, beyond that, we'll also be more effective at implementing pipeline safety programs to comply with new regulations and that we'll be able to gain from best practices from each of the 2 LDCs and employ those best practices across the whole gas business.
So a lot of this work is underway. We've made a lot of progress in centralizing these functions. And I would say, by the end of this year, we expect that all of those functions you see on the screen will be consolidated into this gas services group.
Finally, I'd like to just mention a few things that I feel like are highlights of what we're seeing in our gas market, both in North and South Carolina. I get a lot of questions these days about what's happening with compressed natural gas vehicles. And we are seeing a lot of activity. I don't want to mislead you here, this is a very small market for us, but it's also one where there's a tremendous amount of activity. Some of it is external, meaning customers are coming to us and they want to convert fleets from other fuels over to compressed natural gas. A good example would be we've had a number of projects related to refuse trucks, where you can convert those over to natural gas and can save a good bit on fuel. Some of it is internal. At PSNC, we're converting about 1/3 of our fleet to run on natural gas, and that has allowed us to construct 9 natural gas fueling stations across North Carolina that we can make open to the public. So we've seen some increased usage from 5 public [indiscernible] stations. So there's a good bit of activity across both states in terms of compressed natural gas vehicles. And we're hoping that it is a market that will continue to grow and be something that becomes a significant part of our business in years to come.
Now the big highlight, we touched on this a little bit earlier, is the recovering housing market. Building permits in North Carolina within our market are up 30% this year. Within our markets in South Carolina, building permits are up 23%. So that's usually a pretty good leading indicator for us about what the housing market is going to do and what kind of new services we're going to be running in the future. And we're very excited about what we're seeing in terms of building permits.
And then finally, we are seeing increased usage for natural gas for electric power generation, both in North and South Carolina. And we've had, in some cases, triple-digit increases this year versus last in terms of usage of natural gas for power generation. So in conclusion, now that we're really looking at our gas businesses in terms of an aggregated -- from an aggregated view, we're a business with 20 -- over 20,000 miles of pipeline, and we serve over 800,000 customers in the Carolinas. And we are focused on these construction projects. And I told you about the PSNC Energy and extracting all the benefits that we can by coordinating our strategies between the 2 businesses in South and North Carolina.
And at this time, I'm going to turn things over to Jimmy Addison, our Chief Financial Officer.
Jimmy E. Addison
Thank you, Rusty. All right. Well, my goal here today is just to pull everything you've heard from the presenters before me together from a financial perspective and to talk a little bit about the economy, and then wrap up and get to your questions that Kevin will lead.
So first of all, we wanted to start off here with a kind of a contrast to where we were 3 years ago when we were really getting ramped up with the project. If we go back to Q1 of 2010, and I won't read all of these to you, you have them there in your pitch book -- but we did not have a COL. We did not have the settlement and haven't included the BLRA. Of course, we did not have first nuclear concrete. Contrast that with where we are today, with all of the information Steve shared with you, you've seen the pictures, the project is really taking hold and things are developing. A couple of things that haven't changed, though, are the supportive regulatory environment or our expected BLRA increases. You see that the average rate increase is right on top of what we projected when we started this project despite some of those rumors that are out there that Steve alluded to earlier. We continue to be very, very pleased with how things are progressing and now have of 5 of these increases under our belt.
A little bit about valuation. The share price is up about 1/3 compared to where it was in that same period 3 years ago. The remaining equity that we project we need to raise is about half of what it was at that same period 3 years ago.
And you see, that's really split between about $500 million from follow-on offerings of some type to about $450 million through our 401(k) and DRIP plans. Kevin said earlier, 11% of our company is owned by our directors, management and employees. It's very, very different than the others that you follow in this industry. I think the closest one to us has about half that much vested ownership in their companies. So we're very vested in it, and we're very focused on it. I think that's one of the reasons you tend to see us have very long careers with the same company. We like the values of the organization, we believe in it and we put our own money in it. As regarding financing, we've got $1.8 billion credit facility. Kevin alluded to it in his opening comments. We think that's very important.
A couple of data points about this. Our philosophy is to never need more than half of that, to keep a lot of liquidity in hand in case of some disruptive macro event in the market, which we've seen in the past. At this point in time, we only have about 1/3 of it encumbered through commercial paper. And in the fairly near future, we'll be reducing that further through some long-term bond issuances.
As far as remaining CWIP related to the nuclear project, contrasting to 3 years ago when we had over $5 billion, we estimate now it's about $3.5 billion, and we'll start accelerating the annual run rate per year at about $1 billion per year. So we'll start coasting down fairly quickly over the next 3 years.
And here's the graphical presentation of that. This is kind of the inverse of what Steve showed you earlier. This is kind of how I would look at it as what's left to finance. And you can see this steep decline in that over the next 3 years. So there will be a lot of activity on the project in the next 3 years. There will be a lot of financing over the next 3 years. Steve usually reminds us that it's been a fantastic time to build a nuclear plant during this very low inflationary period, hence, about $550 million less inflation to this point than we had anticipated. It's been a great time to finance it, too. And as Jeff told you, it's been a great them to hire the staff for it. So we really are in a real sweet spot here. We're about a $2.2 billion in that. We've got cumulative base load of review increases of $250 million that are in cash rights that keep that AFC down, as Steve mentioned to you earlier.
A bit about our rate base returns and our regulatory schedule. So in the pie chart on the top left is our rate base, we have about $7.75 billion. On the top block on the right, SCE&G's phase electric business were allowed 10.25% return. The earned return as of the end of the first quarter is close to 9.9%, and I'll go into that in more detail in just a couple of slides.
On our new nuclear business, of course, we're allowed an 11% return on equity. That is not debatable each year as we file for our increases that is set at the first hearing unless we, the utility, raise it based on market conditions. We do not anticipate any change in that at this point.
We've had incremental CWIP in the last year, just under $600 million, and then we expect to have a rate increase in November, just under 3% related to that.
In our gas businesses in the third block that Rusty just covered, we're allowed 10.6% and 10.25% in North Carolina and South Carolina, respectively, running those businesses very close to those returns and we do not anticipate an adjustment in the South Carolina gas business. This fall, under the RSA, because it is within that 50 basis point band, that's a combination of good customer growth and also effective cost control.
And then our regulatory schedule at the bottom, for the first time in several years when I've been before you, I can tell you that all of these are generally just standing items of what we're scheduled to be in front of the commission each year for a variety of fairly routine matters. There's nothing unusual like a base rate case in front of us at this point.
I want to shift gears and show you an animated format here on the screen, kind of how our -- the history of our company has worked over the last 10 or so years as it relates to our base electric business. And as I animate this, our allowed return, in fact, in 2004, when rates were in effect, it was 11.4%, and this is what's happened to our actual return during that next 3-year period. It was largely driven by very rapid customer growth during a very high growth time in the economy. New steel cost more than old steel. You end up with a rate case. We file a case. We got a new allowed ROE of 11%, and we operate the business for 2 to 3 years and we file a rate case. And much like the expanding economy during this past period, we had very rapidly expanding environmental regulations, had to put in a lot of environmental controls on plants, et cetera. We have a new allowed return of 10.7%, and we initially get up there somewhat close to that. We drift along and we filed another rate case. This was our old model. It resulted in us earning as close as 40 basis points to that allowed return and up on the top, an average GAAP over the entire 10-year or so period of about 131 basis points of "under-earning the allowed return".
Our new model during this next 3 peak nuclear construction years is to manage this base electric business to avoid a base electric increase based on what we can control. Now if something changes from Washington from environmental regulation or tax policy, we'll have to respond to that, as well as the entire industry. But our strategy based on what we can control is to really manage the business to avoid a rate increase, and we'd loosely define that as if we're earning above 9%, it's highly unlikely if the allowed market was still around 10.25%, then it would make sense to file a case. So we've defined that as our band. The major factors on the left, obviously, margin growth driven by how many customers you add and what's the average usage of every customer on the system, cost control and then capital that drives that denominator rate base. We're currently at around 9.9%. We feel very strongly that we're going to manage to meet this goal more than anything that's outside of our control. So this is central to our strategy over the next few years.
Now just a snapshot about each of the regulated businesses. The electric business, you see the growth rates over on the right bottom, we're at 1.2% as of April. That is the first time we've been over 1% since 2007, I believe, in our -- it was a normalized sales growth over a 12-month cycle presented on the bottom left, overall, at about 1.3%. Industrial is being the only group that's slightly down. We had 1 large industrial that had half of their facility out for half of the year during this 12 months due to a fire. That was back up in Q4, but we're using the 12 rolling months to give you a full cycle. So if your pro forma that in, you'll see down in the footnote there, the industrials would have been slightly up as well. So we feel good about average usage and very good about customer growth.
The gas business, as Rusty has already hit on this a great deal, but suffice to say, the SCE&G business up over 2% the first time in several years. PSNC up over 2.3%. Good growth driven by that housing expansion and the switching that we're primarily giving up propane.
The Georgia market, Georgia is not growing as rapidly as the Carolina's. I think, frankly, the Georgia market got overbuilt more than the Carolina's did during 5, 6 and 7, slower to recover, AGL is not expending the pipes. We're just one of the marketers there, but we are the second largest market. We've got 30% of the market share fairly stable over the entire period we've been in the Georgia market. Last year was a tough year for us, as Kevin mentioned in his opening comments, due to solely the weather. The first quarter of this year, statistically, the quarter, as a whole, has been very normal. I will tell you, in January, we had a dozen days that were in 70-degree weather. And in March, we had 19 days that were in the 30s. So the quarter, as a whole, statistically averaged in, if you had worn average clothing during that period, you probably had sunburn and frostbite. But as a whole, it produced what we expected in earnings for the quarter.
I want to move in to just a little about the economy now. You see a portfolio view of our industrial customers in the box on the left. We have good diversity among those customers, not too dependent upon any one sector. In South Carolina, where our electric business is, has a very favorable business environment, great location, good reliable source of energy and great access to a very -- cost [ph] versus port in Charleston. You've heard Steve mentioned several of our components for the nuclear facility coming through that port.
I'm not going to list all of these for you, but I'm just going to animate these on the screen. You see the port down on the coast there, Charleston, over $5 billion of investments in the state over the last 2 to 3 years. And here are some of those large announcements, the cornerstone being Boeing with the 787 facility in Charleston. A lot going on in the entire industry with names you'll recognize there. When all of these plants are completed, South Carolina will be largest tire-manufacturing state in the country. BMW, of course, in Greer, have been there for quite a period of time, continues to expand, all the X5s were made at that facility. And anytime you're in Charleston, look over that port and you will see several hundred, if not thousands, of those X5s where they're getting shipped and hid as an export of the country.
And of course, [indiscernible] not on our economic development slide, [indiscernible] business and one of the largest economic development activities among the state as what you've heard about all morning with these expansion, about 800 full-time employees after construction and over 30,000 at peak of construction. And majority of those current contract employees are from the state of South Carolina, many from the region right around the plants. So very well-received in the state.
And just recently, in April, South Carolina unemployment rate hit the lowest mark in nearly 5 years. And on that point, you see the national rate contrasted to South Carolina's rate and also compared to the rate in our electric territory, and if I might focus here over to the box on the far right, at just prerecession, you can see that the territory we serve in our electric business was about 1.6% lower unemployment rate than the national average.
And you can see that we really lost that advantage during the recession. But you see that has now turned and we're starting to head the other way, really driven by those announcements, not just those large ones I highlighted, but a lot of other commercial expansion, et cetera, that is going on in the state during the last couple of years.
North Carolina, Rusty has hit on some of this as well, lot of good growth in North Carolina, including Rusty's favorite being Sierra Nevada Brewing Company over in Ashville.
Now let's switch gears to kind of the final section that I'm going to cover, the BLRA and the financings from our financial perspective. So presented here for you now are the last 5 BLRA increase, it's cumulative at $252 million. We've just filed for a $69.7 million increase just under 3%. ORS will perform their audit over the next couple of months, filed their report with Public Service Commission and we would expect to receive that increase ends with cash rates November 1.
So if you take the history of that through 2013 and put the projection of the next few years, '14 through the completion of the projects, you see that these 3 years are these 3 peak construction years, and hence, our strategy to avoid any kind of base rate increase during that period. The bars indicate the CWIP during the period and on the green line, the related projected customer increases.
Our CapEx chart, if you are familiar with seeing, we've got about $4.8 billion over the next 3 years to do in CapEx. Between the 2 green bars, you see highlighted, the new nuclear of about $2.8 billion or well over half of the total expansion. And then down in the bottom, in the blue box, we have broken this down at several of -- you guys request, on a June 30 12-month basis, so you can more closely correlate it to our BLRA filings in the future. We've also included in the materials for you on the following page, kind of a Delta chart. So this CapEx chart on Page 114 is the same one that we reviewed on the Q1 call, and this Delta page on 115 contrast that to what we have previously shown you at yearend. So not a large amount of change on an annual fiscal year basis, but if you look at the bottom, in the blue box, you can see the changes in the BLRA anticipated filings due largely to the slowdown in receiving the authorization to pour the first nuclear concrete.
The projected financing plan has not changed. We've got about $600 million of projected debt to issue during the balance of this year, $150 million of that for a refi. The only refi on the horizon for us either at SCE&G or at SCANA during the balance of the construction of the plants, and then about $450 million of new funding to fund the project this year.
In the equity side, for the balance of the year, we only anticipate doing the balance of what we have from the 401(k) and DRIP plants. We took the equity forward down in March, as Kevin summarized for you.
So with our strategy has not changed since the beginning, it's been 50/50 public debt and public equity. Here's the plan that fulfills that. We estimate there's about $500 million left to do in some type of follow-on equity. We've not made any decisions as to timing or type of methodology we've issued on under.
And then finally, I want to wrap up with earnings guidance and with dividends, our -- both our annual guidance and our long-term guidance have not changed. We'll reaffirm our confidence in those today. So our long-term guidance range, 3% to 6% over a 3- to 5-year period. Or annual guidance, 3.25% to 3.45%, our internal estimate is 3.35%, and we feel very good about that as to where we are through Q1. And our commitment is to pay out $0.55 to $0.60 of each dollar of net income in dividends. That policy has also not changed. It was adjusted over a decade ago with a vision towards this expansion and reinvesting back in the business, we did not have to raise as much external equity. The recession got us slightly outside of that policy, but we have succeeded in growing dividends over the last 3 years at about half the rate of our earnings growth, so we're very near to being back inside that policy and we expect to be back there most likely next year.
So that's the summary from financial and economy standpoint, I'm going to pause now, hand it back over to Kevin to start the Q&A.
Kevin B. Marsh
Thank you, Jimmy. Before we take questions, I want to take an opportunity to remind you that we are going to have an Analyst Day on site at the Newport facility. We invite everybody to come down. That is scheduled for October 2. I think you'd enjoy the tour, if you haven't been down there before. If you've been down there before, I think, you'd enjoy coming and see all the changes. So we'd love for you to come take that tour on the 2nd of October.
At this point, we'll be glad to take questions from the group. I'll be glad to fill those as we've got the team here to respond to questions you might have. I do want to make sure you get a microphone before you ask a question. So if have a question, make sure you've got the microphone before you start.
I wanted to ask you about the cost overrun, and first of all, is this solely because of the modular issue that you described earlier, the potential overrun? And is there any need to -- do you expect to actually incur that expense or was that the CBI expense? And is there any need for any regulatory review or process associated with that?
Kevin B. Marsh
All right. I think I got those 3. The first response would be the cost we gave you, the $200 million is associated specifically with delays related to the modular assembly that are coming to us from Lake Charles to the plant. That's the number that we -- based on our information of the contracts and our estimate of the work that would be required during the extended period of time would result in that amount of the $200 million. That's a preliminary number. Certainly, we've got to continue our discussions on the schedule, as well as the impact of the cost with CB&I, which we will do as we have with the previous issues we've encountered, our drilling and construction project. Those discussions I expect will take a period of time. There will likely to be some differences of opinion in terms of who will bear that cost. I think once we understand exactly what's driving that, what can be done to potentially mitigate the schedule from positive fashion and then understand what's already contractually in place, we can try to determine whose part of those dollars might come out of. With respect to going to the commission to raise the price of the project, that's something we would not undertake unless we reach a point where, based on the final determination of the cost and responsibility, that wouldn't result in additional cost to the company. At which time, we would have to go back to the commission and ask for those costs to be out of this as part of the capital cost to the project. If you go back, if you remember the slide Steve showed on the estimated cost of the project, it's made up of 3 parts: It's our capital cost; there's escalation associated with the project; and then there's a small amount of ASE. About $4.5 billion, I think, is the construction capital cost, about $1 billion in escalation, which drives this ASE on the project. So we've got an approved [Audio Gap] capital cost schedule that's given to us by the commission, that was last updated, an order that came out in late 2012, since some other adjustments we've made to the project. So if we have anything that happens in the project based on our agreement with the commission when we went forward and have the plants approved in 2009, if that capital cost schedule changes, we do need to go back to the commission and give them an explanation why and give them the chance to talk to management about that additional cost. That would be the process. Just like we've done in past, if we ended up with additional cost, we're going to have to bear it, it would require us to go back to the commission.
Okay. I just want to clarify 2 things about the cold units that you're going to be retiring by the end of the year. Number 1, are they fully depreciated? Or will there be any kind of rate base impacts?
Kevin B. Marsh
Depreciation, as you know, is an estimate that if we had the perfect one, that would be 0 on the book cost right now, but there will be some remaining book cost as we expect to do with those 2 remaining units, as we did with the first of the 3 units at our Candice [ph] plants that were retired earlier this year, it just shifts the plant and service to a retirement cost before continue to be carried in rates and amortize that over a period of time. So we expect to be able to continue to recover that cost.
Okay. And then in light of that, your rate base -- your low growth, excuse me, and Santee Cooper potentially losing some of their industrial load, have you reconsidered at all, your ownership and given that they're obviously trying to sell some of their ownership, would you reconsider potentially buying an additional stake from them?
Kevin B. Marsh
We are very comfortable with our 55%. We have no plans to change that percentage. We're not looking to market any of our 55% and don't have any plans to add to that. Based on what we see from the low growth and our integrated resource planning process, we're very comfortable with the 55%. Santee on the other hand does continue to look to try to reduce theirs. So they have a different model they look at compared to ours. I think they're looking a range of possibly between 15% to 20% reduction in their portion. They continue to have discussions on that, but we're not a party to anything they might sell.
Okay. And do I hear you right that you'll be replacing that power with PPAs?
Kevin B. Marsh
Yes, that's correct.
Good morning. I guess my first question is more directed towards CB&I. Just can you guys give us an update, I'll wait till you get up to the podium, but just kind of on the Lake Charles issues and kind where do we stand? And have they been completely resolved and then I have follow-up question as well.
Jeffrey B. Archie
Yes, the Lake Charles issue has just really fallen in what I would say are 2 baskets. One basket is a series of issues associated with the production of the modules and quality and the CB&I standards rule we're going to have. During the course earlier this year, we had a little bit of a pause in that production to go back to look at the documentation we had for the modules to validate that they met our quality standards. That process has moved through and Steve had indicated, we are back into a -- with a revised schedule, are shipping those modules either in accordance or ahead of that schedule, so we do believe we've made steps necessary to put us back in the position for success. The other basket are issues associated with the concerns raised by the Nuclear Regulatory Commission. There is -- I think, Steve have mentioned in his comments, there were concerns about the safety conscious work environment and some allegations that have been raised to meet the regulatory commission. Those issues were raised directly to our senior management. We have responded very aggressively to those concerns. As Steve mentioned, the President of the former Shaw Fabrication Manufacturer was not held over in our organization. We now have that organization under [indiscernible], who is our Executive Vice President, in charge of our steel manufacturing capabilities. We have put in additional -- we've sought and received additional support from both SCANA and Southern in terms of improving our methodologies in terms of tracking safety conscious work environment. We've had complete retraining of all of our staff. We've had senior management involvement there on a weekly basis to explain to our workforce the commitment of CB&I to the highest standards of safety conscious work environment allowing people to raise concerns if they have those. So in response to the NRC concerns, we couldn't agree detailed whether with the schedule of items that we would be working with them to make sure that we meet NRC expectations of that processes is going forward well. It is tracking within schedule that we committed to the NRC and we expect, as time goes on, we will get those issues behind us. Now the one thing I would say is from an NRC Commissioner is we recognize as a company, that this isn't something that you change overnight. We're committed to working with the utilities, working with outside consultants, working with the NRC to make sure that we can make this a sustainable process in the long haul. Our company is absolutely committed to safe culture, making sure that our products meet the standards and requirements of our customers, and we're going to do it right and we're committed to making it happen.
And just a couple more questions. As far as kind of labor issues, cost of labor, kind of tell us where we are there? Is that kind of meeting the project parameters or expectations or has that slipped or increased?
Jeffrey B. Archie
So I touched a little bit on that on my presentation. Those are tracking our expectations, both in terms of supply and cost, and I think our team at the site and [indiscernible] is very pleased with where we are right now in that regard.
Just 2 more questions. Just as far as the projects that you're doing in China, are they kind of keeping up to schedule as well or have you run into any issues there?
Jeffrey B. Archie
Just for clarification, for the purpose of the work that we're doing in China, we are -- our role there is engineer, procure and construction management. The actual construction is being undertaken by various Chinese construction companies in accordance with our owner -- the owner of whom we're working. That said, that process is working well. It is meeting the timeline and expectations we have. Those are very -- we believe those are very successful projects.
And then just one last question. The schedule that kind of SCANA outlined and you kind of outlined as well, which may or may not be updated, but should we kind of assume that's kind of the schedule for all the plants in the U.S. that are being built? Kind of that fourth quarter, first quarter 2018 type there?
Jeffrey B. Archie
The impacts we've had at Lake Charles, obviously, touching only on the work that we're doing for SCANA at the summer site, but also on the southern -- the work that we're doing for southern company at Global. Obviously, today, our focus on the southern company issues, I would say, the general matter of the schedule that they have out there is incorporative, I believe, of the changes that were indicated today.
Jimmy E. Addison
I'll add a couple of comments to what Jeff said. When we started these nuclear plants back in 2009, our commitment was to be as open and transparent as we could be relative to our knowledge of the projects to make sure everybody knew what we did in terms of where we were and the status, as well as the issues. As for what really led to the quarterly report we filed with the Public Service Commission on a quarterly basis that I looked at to scout the detail. And this issue on the marginal is something we identified early on in the process. So we've talked about that and we certainly had plenty of conversations, we've shown about it and it's why it was a very tough issue for us when we met with the executive team from CB&I when they came in. But that relationship, I think, is going well. Even in the past, this has not just been a concept of we've got some cost here, we're going to send you an additional bill and we expect you to pay those. It's been very interactive. We've had situations that have impacted the schedule. We work very closely together and you can see that now even more with the CB&I team. In fact, trying to find ways to mitigate that and minimize any cost as we go forward. So I want to make sure everybody understands even though we're talking about the push out of the schedule based on the modules, we don't see this an issue. It puts the success of these projects at risk. We're still very confident in these projects. We feel like we're going to be able to deliver these projects, they're going to do what they're intended to do and serve our customers for a long period of time. Certainly, nobody likes to hear anything that relates to additional cost, but I expect that we've got challenges between now and into these projects that we'll continue to work on. This is one of those challenges that we're going to be working with CB&I and try to minimize this number as low as we can and make sure we address it properly, a fair way for them under the contract, as well as our customers. I mean, our customers will ultimately pay for the cost of these plants, the regulatory process in South Carolina. So it's our duty, responsibility to work on that number and do the best job we can. If we end up having to go back to the commission, it would be something that we've got full confidence. It's the right thing to do and it's the right number once we spend all our time with CB&I going through that process. But these projects are not at risk, but because of the scheduled delay and we'll continue to move forward with the plants as well as we have.
Kevin, how should we, I guess, interpret the announcement with unit 2 today for the impact for unit 3? I mean, should we expect a similar delay in the schedule, cost impact or might those be mitigated?
Kevin B. Marsh
I think you'll see some additional schedule adjustments related to unit 3. There's obviously the beta with the ideal time between when you would finish unit 2 and unit 3, somewhere between 6 and 12 months. We have focused most of our time on unit 2, but we'll also be looking at unit 3. But I think it's reasonable to expect there could be some delays in unit 3. I think that we're now scheduled to come on in May of 2018. So it's likely to slip some from that date. But keep in mind, when we started these projects all in, they were supposed to be done in 2019. So while there may be some slippage in 1 and some slippage in unit 2 [Audio Gap] and unit 3, we'll still be -- will be well within that 2019 schedule if it was originally approved by the commission. Because when we updated some calls a couple of years, we actually accelerated unit 3, so we can get some efficiencies between the time between those units being built. So even if that schedule slips, I think we'll still be well within the original date approved by the commission.
Is it reasonable to expect there'd be some sort of cost impact in addition to the $200 million expected to be in the 2 though?
Kevin B. Marsh
Yes, that will encompassed in evaluation as we go and try to refine that number with CB&I. That was encompassed in our original evaluation of the $200 million.
Jimmy E. Addison
Yes, just a point I wanted a point I wanted to add is that when Steve outlined that potential number for you earlier of $200 million, that encompass our assumptions around both units.
of $200 million?
Jimmy E. Addison
Steve, can I ask you a question about this critical module component, CA 1. Can you just elaborate on the timing of that? And then what exactly CA 1 is?
Jeffrey B. Archie
Yes, the CA 01 module is a structural module, which is 1 of the largest modules that we will construct for this facility. It goes inside of the containment vessel and it houses the reactor vessel, the steam generators, the pressurizer and forms a part of the refueling canal. So it's really the biggest module in the facility. It's -- some of those sub-modules are in fabrication now at the CB&I Lake Charles facility and so we should be receiving them shortly in our site. So we haven't started that fabrication on-site yet. And the reason that it becomes limiting is because even though our crane is the largest in the world, it has limits and it's a height limit. And so we place it at a lower level, you can place for ring section but you cannot place the next ring section before you have to have CA 01 lifted and placed in the containment vessel. These large structural modules really are steel with lots of supports. Ideally, you're going to have the piping run through them. That they're going to be about 3 foot between the steel plates on it and they will eventually be forms for concrete pour as well. So they provide the structure, they house piping and penetrations and other components and you put concrete and they are the forms for the concrete.
When is that process supposed to start? So when is the lift placing?
Jimmy E. Addison
The lift of CA 01 is some time in 2014. The exact date I don't have but we can get for you.
So once that happens, then the risk on the project is materially reduced, is that correct?
Jimmy E. Addison
Yes, I'm not [Audio Gap] I'm not sure that -- the schedule that we have outlined includes that increase. So it includes the current estimate for lifting CA 01. So the schedule that we outlined here, that range of Q4 of '17 to Q1 of '18 includes the delay in CA 20 and CA 01, but CA 01 is the critical part.
You've been building major projects over the last couple of years. Anywhere in the energy infrastructure chain has really benefited from a low interest rate environment. Can you talk a little bit about of the cost increases type of the schedule change, how much of that up to $200 million is incremental financing cost versus actual physical cost? A change in equipment, a change in labor, that type? That's the first question. And then the second question, just in terms of thinking about the overall project, is there a way to have a sensitivity of how total project cost would change for every, I don't know, 25 or 50 basis points change in interest rate sort of financing, debt financing costs?
Kevin B. Marsh
Let me take your second question first. I don't have a conversion table I could give you on the actual change in interest rates, but a lot of that would depend on the timing of the rate and what light term you might have on the bond issue. Generally, we try to do those over 30-year terms so we can benefit form the low rates as long as possible. But really dependent on the timing of when that was put into place versus the level of construction that have taken place at that time. On your first question, there are really 3 points that we seek that have an impact on cost increases as a result of the modular schedule delay. One would be EPC cost, these costs are defined in the contract. The second would be escalation on those costs and the third would be any owner's cost that we would incur from being on the projects site a little bit longer. So those 3 would make up the $200 million that we've talked about. I don't have a specific breakdown of those, but all of those were considered in doing the evaluation and we'll be looking at as we continue those discussions with CB&I. But I don't have a specific breakdown on those 3 components but that's where it would come from.
I have a question on the natural gas business in North Carolina. You've seen a huge growth in the number of customers over the past couple of years and yet your projected growth rates are like 1.5% to 2%. Could you talk about what's driving that customer growth and how that translates into demand growth?
Kevin B. Marsh
I'll let Rusty talk about that in his area.
Don Russell Harris
Well, the growth rate in North Carolina is primarily driven by new home construction. And as you saw on the slide that we've seen an increase in there. We expect this year to finish the year with somewhere in the neighborhood of 2.3%, maybe as high as 2.5% net customer growth in North Carolina. And hopefully, that trend will continue to increase in the housing market going forward, but that is by far the biggest driver. We do hope to continue a similar pattern for conversion to North Carolina as well. At least, we hope this year to convert about 2,400 customers and that, I think, that level of conversion should continue into the next 3 to 5-year period.
And then a separate question on the ROE slide. You talked about the base electric ROE trend and how you've been under earning your authorized ROE. And that you have a goal of trying to tighten that regulatory leg, but I'm not clear how you plan to do that or what the drivers are that's going to fundamentally change the historic patterns?
Kevin B. Marsh
There are probably several pieces to that in the slide that Jimmy presented going back several years. Some of the steep declines we saw after new rates went into effect where at periods prior to 2007, around 2007, where we had very rapid growth on our system, growth that was up on that 3% range on the electric side. That required us to put significant additional capital in place to meet that demand on the system, which really drove the bulk of the increases and related expenses associated with that. With that being gone at a period of time where we do see growth, but it's more of that 1% to 1.5% level on the electric side versus the 2.5% or 3% level, and a lot of that growth is coming from areas we had already run capital infrastructure to neighborhoods and areas that we expected to expand, so that was a come back and complete those homes or expand the neighborhoods where we see the growth coming from today, there is not as much need to run new services or new facilities under that area, other just to connect those homes to the grid. So the capital cost, we think, will be less than what we saw back then. The other thing we don't see today is the steep increase and environmental capital that really got us. In fact, we have the increase before the last one that came in 2012, where we have spent close to $1 billion on environmental mediation at our coal-fired plants, that's what really drove the decline in the rates at that time, the ROE at that time. So as we go forward, we will have some capital, we don't expect to see the significant expenditures on the environmental side with the retirement of these older coal-fired plants. Don't make a mistake, there will be cost control involved in this. We have talked about this for a couple of years with our team. We've spent a lot of time in 2012 trying to understand where those cost drivers would be and areas of focus for us as we move forward. A lot of that may be in personnel, our industry is like most utilities, we get a lot of people retiring over the next 5 years and we'll be looking to be careful about how we replace those positions or replace those at lower levels to capture as much O&M segments as we can from that perspective. We've been successful in doing that. We saw some of that in 2012. Our workforce other than the nuclear plant additions that we got for the new nuclear construction is down from where it was 2 years ago. That's a trend I expect to see continue if we're successful in managing those costs. And by doing that and balancing the capital with this new growth, we believe those are 2 of the biggest drivers in making sure we can stay out of the commission for the next 3 years. This takes a lot of work. That's what our planning process is for. I can assure you, our teams are engaged in doing that and we've spent a lot of time monitoring that on a regular basis to see where our status is. And as Jimmy said, we feel confident about that, for 2013, and we'll continue to work on the other years.
Okay. And then finally, last week, S&P put your credit rating on negative outlook, what would the impact be of a 1 notch downgrade on your financing cost?
Kevin B. Marsh
Jimmy just got through talking with the rating agencies, do you want to address that, Jimmy?
Jimmy E. Addison
Yes, we've just met with all 3 agencies yesterday. So we just met with all 3 of them yesterday and if you look at our ratings, we are higher rated at S&P than we are at Moody's for the SCE&G First Mortgage Bonds. I feel more comfortable after talking with them yesterday that they've got a great deal of confidence in the regulatory arena in Carolinas. They've got confidence in the management team. It's just the stress in the metrics that happens in 2 to 3 years out from this peak nuclear periods. So I think the key is going to be maintaining our focus on execution, executing the project as planned, delivering on the schedule that we've outlined for you here today. And hopefully, with a little patience from them, just as they can see that the metrics dipping in that 2 to 3-year period now, when we get into that period, they're going to see them going exactly the opposite way because of the cash that will be generated once these plants are online and the depreciation starts and we start to recover that. So that will turn the model completely opposite and change the ratios substantially. So I can't give any guarantees. It's their judgment, not mine. But I feel more comfortable about it now than I did just when they did the initial action.
If you have different ratings at Moody's and S&P, how much would it impact your financing cost? If S&P came down a notch, would it be not material?
Jimmy E. Addison
Well, I guess that would depend on the market and the market that we're in and the current estimate is probably not substantial, not a substantial impact and I'll take an estimate on that. There's plenty of bankers in the room, but I would guesstimate 10 to 15 basis points, something like that. Just a ballpark of it. Other questions?
Actually, and I know there's a good amount of wood to chop. But Jimmy, you just touched on this a little bit. A question about post construction. I just want to think about cash flow post construction. And is kind of the right way, just kind of the simplistic model or way to think about it is you'll be earning on $5.8 billion, you will have book depreciation, I don't know if that depreciated over a 40-year life, whatever that is, roughly around $150 million with the incremental when both units are on. But your tax depreciation could be very different than book and therefore, you'd be in a very cash favorable position from a tax perspective. Is there anything else we should kind of think about from a -- and literally, I know we're talking 6 years out, but kind of what a post construction cash flow profile looks like?
Jimmy E. Addison
Well, I think, a lot of that depends. And I'll let my accountants correct me here if I'm wrong, but I think we got a 60-year depreciable life on the nuclear plants, even on your licenses for 40, there's an expectation you would extend that by 20 years. So 60 years would be the book life of the properties. You will have an accelerated period for taxes and the difference will provide some healthy cash flows for the company. What the company looks like at that time, I think, really depends on what our growth model looks in 2018 when those plants are completed and come online. I'd say the additional construction, interim construction for peak periods where you got peak plants, I don't know exactly what new generation will be looking like then. There may be solar generation to fill some of the gaps. I don't know, based on other technological changes that allows us to do smaller generation bites on the system rather than the big nuclear plants that we've got today. That was necessary because we have a baseload need, we anticipated the cost for retirement of some of the baseload coal-fired plants and we needed something that's clean over the long-term. So while there will be cash coming in, I believe the growth positioning of the company at that time will define how that cash may be allocated for customer growth or potential of our new generation that maybe needed at the time will be very healthy based on what we see today based on the load growth, based on customer expectations that are in the Integrated Resource Plan. You might want spend some time looking at that. We can make that available to you based on what we see today. What we've seen from history, that can change very quickly. I know one of the concerns we've had is even though people say the economy is going to grow very slowly over the next 3 to 5 years as a general rule, all it takes is a positive spike in confidence and we can see that change very rapidly. So we need to be positioned to manage that as it comes forward.
And also kind of looking out towards the completion of the projects. Actually, I'm starting to model '17 and '18 so -- I did '17 already. But as far as rate recoveries, obviously, you're getting your BLRAs. But after the first unit is done, how would that work? And then when the second unit is done, as far as, I guess, it would to true up rate case, is that how it's going to work? Or does the BLRA kind of cover everything or can you just kind of explain those timing? And also, when you'd actually file those cases based on the completion of the project?
Kevin B. Marsh
Prior to the completion of each of the units, there will be an estimate of the cost that we'll have to file with the office regulatory staff in terms of what we think the ongoing operating cost will be that is covered on a base overview [indiscernible] would go on the rate at that time that unit comes online. I don't know the exact timing of filing before that unit were to come online, but I suspect at least beyond 6 months because the commission typically takes 6 months to look at it before you can put a new rate into effect. So I think you're safe in assuming we would not go any later than 6 months prior to that plant coming online. It will be the same process for unit 2 and for unit 3 based on the capital cost associated with the construction of each unit as we go forward.
Kevin B. Marsh
Yes, it would be.
Kevin B. Marsh
No, the initial adjustment for rates as a result to bringing online is covered by the BLRA for each unit.
Kevin, one follow-up. Can you talk about the commission and can you talk about, A, what changes to the commission, either the commissioner level or even key staff have occurred since the first BLRA kind of revenue increase was filed up until today? And then what do you expect going forward in terms of turnover at the PSC level?
Kevin B. Marsh
Well, we have staggered terms. If the commission agrees to a legislative process where they're qualified, they go to a legislative selection process. They -- we just have 4 commissioners that stood for reelection. Now one of those did not stand for reelection. So we had a new commissioner come on board. But for the most part, we've had a relatively stable commission since we rent and filed for the initial plans with the nuclear. I think there may have been one that's turned over during that time, the Chairman rotate every so often but the commission has been relatively constant. That's worked well for us. We certainly are very concerned about the commission to make sure we got consistency and leadership there so they understand the history of this project, as well as the challenges we've had with it going forward. And I would also expand that to include the Office of Regulatory Staff because under the rules in South Carolina [indiscernible], we communicate with the most because they're the link to the commission. We can't have day-to-day discussions with the commissioner. If we want to talk with the commissioners, we have to swear ourselves in and sit on the witness stand and present testimony. And so we have to have a close relationship with the Office of Regulatory Staff and so we've been very constant there, too. As I said earlier in my presentation, I think, we're fortunate in South Carolina because they've got an experienced team much like we've got in the company. Many of their teammates have been around during the first phases of initial construction of nuclear back in '70s and '80s, so they've got history, as well our history. So we have a good rapport in terms of talking about the challenges we've got. But I see stability in front of us now. I don't know if any pending changes that would lead me to believe there's going to be a significant turnover in commissioners. We just have the 3 reelected and 1 new that came on. I don't expect that will change the overall attitude of the commission at this point. Time will tell. Every time you go to commissions, you got to present your facts and support your case and we've been successful in doing that. I think the transparency that we provide through the quarter, the reports to the commission helps them understand what we're doing on a regular basis. We're not having to be in front of them. Steve will be in front of the commission later this year while we do an annual update specifically on the nuclear project to make sure they understand where we are and he gets the chance to talk to them, as well as anybody else we might need to bring in at that time.
Do you maintain the 11% ROE on the nuclear build after construction is completed?
Kevin B. Marsh
Once construction is completed, you would revert to your approved rate for your in-service facilities.
And that's all part of that final BLRA...
Kevin B. Marsh
That's all part of part of that final -- the 11% applies during the construction period. So when you convert and go to in-service, you go to your effective ROE.
Okay. And the other thing, just a clarification on the $200 million cost on the delay. Is that the entire cost of the consortium or is it standards only piece and then there's incremental?
Kevin B. Marsh
We believe that's our 55% share. And could impact us there on a preliminary basis.
Okay. But the consortium piece is larger than that?
Kevin B. Marsh
It would be. Yes, that 85% [ph] share would and the same would have the other 45% of that.
And the outline to plan for financing and recovery and everything assumes that there's no incremental cost? Or is that -- do you have enough latitude in your plans that you can absorb that?
Kevin B. Marsh
We've got enough latitude. If it were to come to fruition, and I'm going to make sure we understand that's a preliminary number, so it could be less than that and when we get through having discussions on how that's going to play out. But our plan would be robust enough to accommodate that. It wouldn't impact the finance siding.
Even in the worst-case scenario?
Kevin B. Marsh
Okay. I don't see any more questions. I want to thank you, all, for your attention today. I know we had a lot of material we needed to go through. I hope you've gotten your questions answered. I want to invite you to lunch. I think you need to go to the second floor to the Metropolis room. We certainly appreciate your attention. If you have any follow-up questions, we'll be around and we've also got the investor relations group who can answer those questions, you can have those. We appreciate your attention. Have a great day.
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