SCANA Corporation (NYSE:SCG)
Analyst Day Meeting Conference Call
June 05, 2012 08:00 am ET
Kevin Marsh - Chairman & CEO
Ric Pérez - President & COO, Westinghouse Electric Company
Rusty Harris - President & COO, PSNC
Kenny Jackson - VP, Rates & Regulatory Services
Jimmy Addison - EVP & CFO
Jeff Archie - SVP, SCANA Corporation, SVP & Chief Nuclear Officer, SCE&G
Steve Byrne - President & COO, Generation and Transmission, SCE&G & SVP, SCANA
Great to have everybody here today; I appreciate those of you who showed up in person as well as those of you who are joining us on the webcast. We are excited about sharing our story with you today at the analyst presentation and you'll certainly have a chance to ask questions from our team when we get through.
As we get started, I want to make sure I make my attorneys happy right out of the box and I am not going to read the Safe Harbor statement. I think you've seen this before. But I need to say we may make some forward-looking statements today and if we do, we talk about the factors in the statement could have an impact on that, but I also encourage you to look at our filings with the SEC and all the information we provided you there.
I assumed my new responsibility as a CEO last December from Bill Timmerman, and I think most of you know that the transition just completed and what I tell people is I have ridden down the SCANA road with Bill and the Board for many years and late last year we pulled the SCANA breadth into the rest area and they gave me the wheel and set me and my team and back out on to the road on highway and I have to tell you that we’ve gotten on the interstate and we shifted into the fast lanes and were moving comfortably down the road. So I think we got the transition complete and we filled all of our internal positions as a result of the change that we made internally; and we weren’t required to go outside to fill those positions. We have a lot of good folks inside; I think that’s a great lot of planning to do in some forward-looking events that we knew were coming and I made sure we made that a smooth transition.
What I want to tell you today first of all is we have a plan, not just for today, but into the future. And our plan today is to share with you parts of that plan, some of the most critical components of that plan to give you a chance to ask us questions later about those. But I would say first of all that our strategic plan from a broader perspective is to talk about our mission and our vision to provide energy and related products to retail markets in the Southeast and that we are a company that's focused on working together professionally to serve our customers reliably and shareholders profitably.
More specifically, our plan is underwritten with our goal to be an industry leader in safety, system reliability, customer service, cost effective operations, competitive rates, environmental stewardship, new nuclear construction, human resources and shareholder return and that list may seem a little bit long, but our view is these attributes are essential for both our short-term and long-term success. And I am confident in our ability to deliver on our plan, because we have a strong diverse and experienced team.
Over the past few years we focused our presentations to you primarily on new nuclear activities and our related financings. And you won’t be disappointed this year; we’re also going to talk about those things.
This is my area – the focus area, I’ll kind of slip onto next slide. Okay; you are going to hear a lot from other people today. We are going to talk about nuclear activities including comments from Ric Pérez who is with us today, the President and COO of Westinghouse. And then after the break, we are going to shift gears and talk a little bit more about some of the other operations in the company. And you’ll hear from Rusty Harris who is President of PSNC Energy, our natural gas subsidiary in North Carolina. You’ll get an overview from SCANA’s Rates & Regulatory Services Group from Kenny Jackson and then we will close with comments from Jimmy Addison our CFO.
Through these presentations we plan to continue our practice of providing transparency of our operations and an effort to provide predictability of our results. So I appreciate your attention this morning and before we get into the formal presentations, we are going to start with a short video of our Success In 2011.
Good morning. Can you hear me? Alright, sounds good. My name is Jeff Archie; I am the Chief Nuclear Officer for SCE&G. So it’s a pleasure to be in New York. I was here last year speaking to you, had a good time then and hopefully we’ll have a good time today and for the rest of the week that I plan to spend here on vacation here in New York, I like the city. So I am going to spend some extra time here.
I have worked for the company this month for 34 years. So I notice I didn't have a cake in the back for me, but 34 years this month. I started as a college intern when I was at the University of South Carolina, in Engineering Program. I have enjoyed my work at V.C. Summer; I have spent my whole career with SCE&G at the V.C. Summer plant. We lead a very, very well qualified very professional group there at V.C. Summer and Kevin made a note of the fact that we are going to talk about new nuclear, but really and truly at the end of the day we put a lot of focus on all of our nuclear business.
So I want to talk to you this morning about the existing plant. And some of the things that we are doing there, I will tell you just cliff note version is that things are going very, very good. We have been in the commercial operation since 1984. We have always done well operationally and we are continuing to do well operationally. So I will share some points with you about that.
And finally, I just want to say thank you for the team back home. We have an excellent team at V.C. Summer Unit 1. Dan Gatlin is our site Vice President at Unit 1, doing a superb job, has a very, very strong team there. So again, we enjoy what we do. I enjoy what I do and we are passionate about making sure that we are industry leaders and we are passionate about the work we do day-in and day-out. So again, a pleasure to be here with you and then we’ll go on with the presentation.
If you were here last time, you’ll remember I started talking about safety and I tell you that safety was the most important thing that we do; the number one priority for our organization and that continues; safety is our number one priority. We don’t just like to talk about it, we like to demonstrate it. Anybody can talk about things, but we like to demonstrate what we are doing and we like to demonstrate good performance, excellent performance in the safety area.
One thing that’s key for me is that the behavior set we demonstrate in safety really mimic the behaviors that we expect to see in all things that we do from a business standpoint as it relates to the operations of our plant. But we’ve done well in safety. We have a holistic view of safety. We look at industrial safety, where logical safety as well as nuclear safety, so we call it three legged stool, all parts of that are very, very important. And I am going to start off by giving you a few insights on industrial safety and how we are doing in that area.
Industrial safety, OSHA recordable injuries, those are some of the things that we track. OSHA recordable injuries, those injuries that require some medical attention perhaps assignment of prescription drugs; we have had no OSHA recordable injuries in the last year. We had one injury last year in 2011; that injury occurred in the May timeframe, so it’s been a complete 12 month, really 13 month almost period now that we’ve not had an OSHA recordable. And that’s good and that’s a big deal.
But even bigger than that, we have not had a loss time or work restricted injury since 2005. So what that says is that those injuries that may be aren’t so significant that are OSHA recordable’s we’re doing well in that area, but those injuries also that create situations where folks miss work or folks come to work and they can’t perform all the activities that they would typically perform in their job haven’t had an injury of that type since 2005. We think that’s a big deal and that is a sign to all SCE&G employees.
We have had a few relatively minor injuries with some of our contract work force. Our contract work force looks like security at our plant. We have some craft work force out of contract. So again, we have had a couple what I would call shots on goal in that area where we are working really hard to improve the performance, because we won’t have excellent performance not just with our existing employees, our permanent employees, but also excellent performance with our contract employees as well.
And speaking of no loss time or restricted work cases, we are so proud of that that we have this clock that’s placed on a prominent area in our plant where everybody has to walk past it when they come in. We call it our safe work hours’ clock and basically it accumulates all the hours that our folks are working without a loss time or restricted work case. And when we took the shot obviously you can see there, it was 8.9 million safe work hours. We have exceeded now 9 million safe work hours, so everyday is a new record for us, so we are doing excellent in that area.
We were talking just now about industrial safety; I want to talk a little bit about radiological safety. Radiological safety is also an area that gives an extreme amount of focus and oversight from us. With this chart, I just want to point out that number one, we track it. We have goals; we’ve set goals for the amount of dose that our employees are coming and contract employees, the dose that they pick up in a given year.
So we’ve set goals for that. We talk about it everyday. We have leadership meetings every morning. Sometimes, also in the afternoon and in those leadership meetings, we talk about how we’re doing in this area. We track our performance; we coach our employees on our performance. We make sure that if we have gaps in performance that we’re out being engaged and making sure we’re closing those gaps to make sure that not only we meet our goals, but then also, most importantly that we keep our employees safe from a radiological standpoint.
Our goal this year is 4.1 Rem. Last year, we actually picked up, our employees picked up 3.74 Rem; 1 Rem is 1000 mRem, so that’s 3,740 mRem and that’s kind of put that in perspective. We had approximately 1,103 employees that enter what we call the radiation control area last year and if you do an even distribution of that, 3,740 mRem across those 1,103 employees, you get about 3.5 mRem per employee. 3.5 mRem per employee is about 1% of what we normally pick up as individuals in the environment. So we normally just from natural occurrences of radiation, we normally pick up about 300 to 310 or so mRem a year and 3.4 or 3.5 Rem per employee from an occupational standpoint is outstanding.
And since we’re talking about performance, I will tell you in this area, we are the third lowest dose plant in the country, so our employees have picked up the third lowest dose of any nuclear plant anywhere in the US, so again we are very, very proud of that and we are going to continue to work on those kind of things for very large scale protection; it’s very, very important to our business also.
We are also passionate about protecting the environment, as part of our mission protecting health and safety of the public, also protect our environment. We monitor a lot in fact we are monitoring and taking samples around the site before even starting operation and we have 1,300 locations, 1,300 samples that we annually collect and analyze each year. We got about 19 locations on the site proper that we monitor and then over 40 locations off the site that we monitor and we do this on an annual basis.
We have never picked up any thing on site or offsite that exceeds NRC or EPA standards and limits, so again we are doing excellent in this area. And our program and the instruments that we use are very sensitive, obviously the tragic events in Japan last year in March and the accident there at Fukushima, we were able to pick up the radiation that was seen from that accident, we were able to pick it up on our monitor just well as the number of other plants obviously in the US were able to see that. We were able to pick up, real isotopes from the accident in Chernobyl. So again, our instrumentation is very, very sensitive and we monitor our site; we monitor the community on a continual basis.
We do things like we test livestock at the farms and locations of our neighbors around the plant. We test their gardens. We even grow our own gardens. We have a couple of gardens on site, those gardens are strategically located downwind of the site where the prevailing winds but traditionally blow but we test vegetables, make sure that we are monitoring anything that maybe a parent there and again we've never picked up anything beyond EPA or NRC levels.
So, again a very good story. We test drinking water. Any major water source that has an interface or an impact with the plant, we test that water. So Columbia, South Carolina the capital of the state is about 25 miles south of the site. We test their drinking water because their drinking water is taken out from Broad River and Broad River is near our plant site and the potentials there of any discharges that come from our plant going to the Broad River. So we test the drinking water in Columbia and we also test the drinking water there in Jenkinsville and the local community were I grew up by the way I don't think I mentioned that I grew up in the community there where the site is.
So we test the drinking water in Jenkinsville and again no issues noted. And we make sure we are being very compliant in our behaviors when we do that.
And finally, I want to talk a little bit about nuclear safety. We have talked about industrial safety, ecological safety, nuclear safety. I really think that when we talk about the nuclear industry and what contributes the most to nuclear safety is our people and making sure that we have good people, making sure that we have a strong nuclear culture in our plants and making sure that our folks are qualified.
And I guess the best indicator of how we are doing in that area is what other folks say about us. We have a lot of inspections, a lot of benchmarking trips, a lot of peer visits, folks that come to our plants to monitor what we do. And when they come to V.C. Summer they say things like V.C. Summer nurtures and sustains in environment where employees are comfortable in identifying issues to management.
Bottom line is if you tell us about issues then we can go off and we can do something about those issues. So we want our employees to be very transparent and those things that they identify letting us know what those issues are so we can out and address it.
Employees feel safe to challenge decisions. I have been challenged by our employees when they didn’t think that maybe we were headed in the right direction or maybe they heard that I was going to go off and do something or when our site V.P. was deciding to go off and implement an operational decision and they had some questions about it so they challenged those kinds of things and that’s a healthy culture. We want to see those kinds of things.
We also want to know that our leadership and our employees are very aligned. I want folks come into our plant and they talked to our employees, our employees tell them things like safety is the number one priority. Almost to a person they will hear that from our employees. Other important parts of our business that we make sure that our employees are aware of and they support us on, our employees speak to those things so when outside peers come in they know that our organization is very, very aligned and I think that contributes greatly to a strong nuclear safe culture.
And finally we want our folks to be qualified and well trained. So we do value training and not only the training that we do on our sites but we also value the training that’s done by the local colleges and universities that support our employee pipelines. We have a number of very healthy programs in the state to provide qualified employees to us. In areas like operations we have established operator training program, non-licensed operator training program at Midlands Tech College two-year institution there in Colombia, Aiken Technical College down in Aiken. It's done a tremendous job for us in producing Rad Protection Specialist. We hired a number of those folks and brought those folks into our plant.
And for Calhoun Tech has produced instrument and control technicians for us, really assisting in the mid-90s. If you go to my ISE shop today, most of my technicians there came from this program at Orangeburg-Calhoun Tech. University of South Carolina now I also want to make note of Clemson University as well. We have a lot of engineers that work at our plant from both those very fine universities. We have great partnerships there.
The University of South Carolina has a Masters program in Nuclear Engineering. So that’s been very beneficial to us from a pipeline perspective. So again, great relationships with the colleges and universities, and last but not least, South Carolina State University.
We believe diversity is important. South Carolina State University is a (inaudible) received. So it provides us a very, very good pipeline to be able to recruit and hire minority engineers to come into our workplace and they’ll contribute to our operation day in and day out. So a lot of good relationships, a lot of good partnerships and I think that is one of the key things that contributes to nuclear safety and our nuclear power plants having good qualified people and having the right culture.
Okay, we talked about safety. Also important to our business is availability and reliability. At the end of the day, you can be very, very safe that we also want to make electricity. That’s also very important. So we want to be reliable. We want to have good equipment reliability and just a couple of bullets here to demonstrate the performance that we’ve had in this area V.C. Summer set a power generation record of 8.8 million gross megawatt hours in 2010. That was again a record for us. It was very good.
Also V.C. Summer's capability factor is 91%. If you look at our performance over the last three years, we produced about on average about 90%, we produce a 100% of what we are capable of producing 90% of the time and when we you look at our history over the last three years its kind of hard to get that out initially.
The 90% of the time we are producing a 100% of what we are capable of producing and that's a good mark and I would like to talk about that because dependent on whether the losses there might be some things that challenge you from the capability standpoint but we want to day in and day out be able to produce a 100% of what we are capable of producing from generation standpoint.
We also make sure that we are doing the right level of upgrades to our plant to make sure that we ensure equipment reliability. You see a couple of pictures here, the picture to the right top corner is new main transformer that we installed a few years ago that gave us an opportunity also to have a spare transformer on site, you may have heard in industry there were some challenges with pieces of equipment like main transformers and then some utilities have been challenged by not having a spare, but we have new main transformer now, we also have a spare on site so that's a good thing. And that improves and helps and enhances our equipment reliability.
Here the larger picture here on the left is a generator output breaker. The generator output breaker that we had installed at the site had been in place obviously since we started up. We were running into some obsolescence there so we were able to make that change out of couple of outages ago. So there have been a number of different capital investments that we have made in unit one and it's showing up as it relates to equipment reliability and performance at our station.
We want to make sure the plants available and equipment reliability helps us get there. So this is always going to be an ongoing process. Everywhere we are filling outage, we take opportunities to make capital improvements through our plant so it's an ongoing process and we are addressing it in a variety of ways but we are being very successful in that area.
I want to switch gears and talk a little bit about spent fuel storage. You know when our plants were built, our spent fuel pools were designed to be temporary storage facilities and the government was going to take our spent fuel beyond those spent fuel pools that were on site and then permanently store that fuel.
But most of you know that plant has not quite worked out as we thought it would when we built our plant. So we are now not just our plant but a number of utilities and some utilities have already gone down pretty far down this path. We are developing and building permanent storage of our spent fuel on our site. So we've already started that process. We need to be in a position to transfer spent fuel pool from our temporary wet pool storage to our direct dry cask storage and we need to be able to do that in the 2015 timeframe.
Our pool will be full; our temporary pool will be full in 2017. So it makes us very focused in being able to meet our goal of 2015 for what we call our first campaign of moving spent fuel from the temporary storage facility to the permanent storage facility that we are building on site. So this project is well underway, a lot of good people are working on it and we are making good progress.
This is what it's going to look like once it's built. This is an artist rendition of what it would look like. You see that there's a firm that will surround the concrete over packs each of these concrete over packs will have a canister inside. The canister inside is what we [load] the spent fuel assemblies into; each canister holds about 37 assemblies. We will fill those canisters again bring those canisters over and make sure that they are stored in a concrete overlap that is also sealed and they can be stored there indefinitely.
So that's the plan, that's what we are working on but again just wanted to point that out to you we are making progress in permanent storage of spent fuel at V.C. Summer. Now switch gears just a little bit and talk about Fukushima. You know when we talk about the things that our site has focused on safety, equipment reliability, the projects that we are working on protecting the environment, all those things are a daily focus but quite candidly every plant, every utility in the country is also placing a lot of focus on learning the lessons from Fukushima.
It was a significant event for our industry. Our plants are safe but learning from the events at Fukushima give us an opportunity to be safer here in the US. So I am going to touch on just a few things here to let you know the big picture was what's going on.
First off, I would like to show the shot because this is an actual shot of one of the tsunami waves that impacted the site. And you see that tank on the right side that larger tank when the tsunami hit in March of 2011 this is what it look like and this what that tank look like after the tsunami wave hit.
You can see that, that look to be about a 500,000 gallon tank, we know that the wall thickness, the steel wall thickness of the tank was about a quarter inch steel and you can see that it was lifted from its foundation, it was twisted and it was buckled. So again this is just one small example of the massive damage that occurred on that Fukushima Dai-Ichi site in the wake of the tsunamis that hit it.
Just to talk very briefly about the timeline of events that occurred or the sequence of events that occurred there. First there was earthquake; the earthquake was 9.0 magnitude earthquake on the Richter scale that occurred about a 112 miles offshore from the Fukushima site.
There was really gullible to no damage in the plant from the earthquake, so in light of the fact that it was the largest earthquake that Japan had ever seen. The effects on the plant were initially fairly minimal, it did impact offsite power. So the plant lost offsite power at that point, but the emergency systems on site started just as they were designed to do, the diesel started, so everything was being maintained for a period of time.
But then the tsunami hit. The tsunami took out not only the offside power but it also took out the AC power within the plant itself, it submerged the diesel generators, it damaged the electrical distribution systems in the plant. So the plant had no AC power once the tsunami is hit. I want to know concerning
I want to note concerning our plant at V.C. Summer we are 400 feet above sea level 120 miles from the coast. So tsunamis are not a threat for us. So the real lesson here for us is not the tsunami effects but the real lessons come in, in terms of how the plant and how the organization responded to that event.
There is lots of debris on the roadways just a lot of devastation all over. So emergency resources could not respond to the plant, could not get to the plant without that backup emergency equipment, portable equipment it delayed in the opportunity to cool the core. So the fuel overheated and once the fuel overheated they started to have more significant issues. They incurred core damage, fuel damage and whenever you have fuel damage, there is a generation of hydrogen. Hydrogen can be explosive in the right concentrations with the right mixtures with air. So they had hydrogen explosions. They lost the containment and once the containment was lost then there was an opportunity for radioactive contaminations to spread outside the plant site.
And as you know, it spread over large, large areas. So, very significant event that really started when they lost all AC power both from offsite as well as within the plant from their diesels. Now I want to point these events out because these are three events that happen in the US last year. And while they were not nearly at the magnitude of the event that happened at Fukushima, they were very challenging events for our plants.
Browns Ferry and Tennessee was hit by tornadoes. The tornadoes took out all offsite power. They did maintain their onsite power hire because their diesel did start. So they didn’t completely lose AC power at Browns Ferry but again a very challenging event caused by Mother Nature similar to what happened at Fukushima and other events caused by Mother Nature.
Fort Calhoun impacted by the Missouri River flooding. The design basis of Fort Calhoun did consider flooding but it didn’t consider flooding for 90 days. So this plant was impacted by flooding, high water levels for an extended period of time.
What they were able to do was foresee the prospect, forecast of flooding coming at them. They were able to start to put up barriers and bunds to preclude the flooding and the floodwaters from getting inside of areas where they had very vital equipment like their switchyard. So they were able to maintain offsite power because they were able to respond as an emergency response organization to preclude that water from entering their switchyard.
And then on August of last year the North [Atlanta] plant they were impacted by an earthquake beyond their design basis. Again the damage in the plant was fairly minimal to none. Our plants are build from a very robust perspective, a lot of conservatism is design into our plants.
So even though the earthquake was beyond their design basis there was little to no damage at the plant. So I bring these issues up to say that in our plants in the US are very, very safe and our plants are able to withstand fairly significant external events like those events are listed here, but what Fukushima will do for us is make us safer and that’s why it's important and that's why the industry is rallying around those lessons learned on Fukushima because Fukushima if we implement the lessons learned correctly, Fukushima will help us to be safer.
So safe plants being even safer going forward. So here is what we are doing. I am going to kind of show you the industry perspective what the NRC is doing and then what we again are doing as an industry to respond to the regulatory changes that NRC has submitted that we have to respond to. The initial thing that the industry did was we got together, we put together a strategic plan to pretty much outline how we were going to address the events at Fukushima, that strategic plan was developed in a document we call the way forward document the bullets, the seven bullets that you see there just kind of lay out the organizational areas that we wanted to go out and attack. Nuclear Energy Institute, Institute of Nuclear Power Operations, Electric Power Research Institute, all banded together and they're collaborating to make sure that we're addressing the right areas.
We've got the focus in the right areas. And we started this effort prior to any mandate or any directions from the Nuclear Regulatory Commission. So from an industry standpoint, it was important for us to take those first steps to make sure that we were doing the right things for our industry here in the U.S. in addressing the events at Fukushima.
INPO, Institute of Nuclear Power Operations, which was formed after Three Mile Island and is an agency or an organization that provides oversight of our existing plants. INPO did a few things that I felt were significant. They first made sure that we, as license holders, went out and we made sure that we validated the capabilities and readiness of the design features that we already have in our plants.
So in other words, they want to make sure that the emergency response design features that we already have were functional or capable of doing the things that they were designed to do. They also made us go out or asked us to go out and investigate how or what we'd do in an event beyond design basis. So, give us some feedback and validate your performance in that area, how are your plants designed, are you capable of dealing with events beyond design basis.
INPO also had us go out and assure that we had the right level of protection for our spent fuel pools, making sure we had the right spent fuel cooling, making sure we had the right level of inventory make-up for our spent fuel pools. And finally, what would be our response to a loss of all AC power? We know we're going to do some things going forward. We knew that we were going to, from a strategic standpoint, make some changes.
But today, what is your -- what would be your response to an extended loss of AC power, and how could you extend your coping time to be able to offset a loss of AC power. So INPO mandated that the industry go off and do those things. And again, we started this process long before the NRC mandated us going out and doing any other actions. So I felt that was good from an industry standpoint.
And finally, the other key thing that INPO has done -- and this is a public report that INPO put boots on the ground at Fukushima, sent folks over. We also sent folks from the industry over with INPO, and we really started working with the utility there, Tokyo Electric, to try to understand really what happened. Now let's get away from the media reports and let's go there and find out what happened, get accurate information and put together real solid timelines on the events that occurred there.
And that's going to be very valuable to us as an industry here in the U.S. because it gives us facts, and then we can base our actions going forward on the facts that we've been able to gather. So INPO's done a good job in this area. I think they've been very, very proactive. They've driven the industry to be very proactive, and they're still continuing to work with TEPCO to get the facts and provide support to TEPCO. And by the way, TEPCO has been very, very supportive of the INPO effort there in Japan.
So that whole process is going very, very well. I'll talk just a bit about the NRC. After the event, the NRC commissioned a panel of experts to take a look at the events from Fukushima. The purpose of that review was to inform the NRC on any regulatory changes; policy changes that maybe the NRC needed to consider and submit to the industry as a result of the events in Japan. They completed their report in July of last year and the recommendations were provided to the NRC.
The NRC took those recommendations, maybe added a few things to those recommendations, and then prioritized those recommendations and those recommendations were presented to the industry in three tiers, with tier one being the most important, having the highest priority from a corrective actions standpoint. So those are the things that we're working on currently, but tier one recommendations that came from the NRC task force, which we term as the NRC Near-Term Task Force.
The next two slides detail or at least give a description of the tier one recommendations. I'm not going to go through all of these, but just suffice to say here that all of these are currently being addressed. There's a lot of dialog that's going on between the industry and the NRC. So when we talk about focus, those things that we're doing today, these are keeping us busy.
Leadership within our industry, at our utility, SCE&G, we're spending a lot of time working with the rest of the industry, and we're all in lockstep in working with the NRC to make sure we draw the right conclusions, and we go off and we implement the right actions going forward from the recommendations that came from expert panel. And this, again, is just another slide that gives descriptions of some of those recommendations.
Coming out of those recommendations, the NRC did take some regulatory actions. They did two things. One, they issued what are termed as 10CFR50.54(f) letters. These were request for information. NRC wanted us to go off and investigate, walk down, analyze certain features in our plants, and then provide that information back to the NRC. And what that does for the NRC is it will inform their regulation or any potential regulation changes they decide to implement going forward.
So again, we as an industry and we at SCE&G are actively a part in working on these 50.54(f) letter requests. NRC also issued there orders. These are things that have to be done. They're in the choice and terms of implementing these three orders. The three orders were to look at mitigating strategies and develop mitigating strategies for beyond design basis events, extreme beyond design basis events. The second order was to take a look at our spent fuel pools and make sure that we have enhanced instrumentation for monitoring level, making sure that we're monitoring inventory in those pools.
So that was another item that we have to go off and do. And then finally, one order that was specific only to boiling water reactors -- our plant there at V.C. Summer is a pressurized water reactor. But for boiling water reactors, there was an order that required those plants to go and harden their vents. There was a problem with venting the containment at Fukushima. So NRC has asked our BWRs here in the States to harden those vents. And that does not apply to V.C. Summer since we're a pressured water reactor.
So what we're doing is we're working on those strategies along with the rest of the industry to respond to beyond design basis external events. We're also, as a part of that, looking at our strategy and looking at what we'll have to have in place to protect portable equipment that we'll procure to support the strategies for responding to beyond design basis events. And finally, we're working with vendors and contractors to develop systems for better monitoring of water level in our spent fuel pools. So those are all items that we're currently working on. And again, these are mandates that were submitted to the industry via orders from the NRC.
And the final section I want to talk about here is what we're doing to get ahead, again, of the order for developing strategies for beyond design basis events. The industry has come up with a strategy that we call the FLEX Proposal. And really what it means is flexible and diverse utilization of temporary equipment, utilization of various strategies, utilization of organizations to ensure that we can support our plants when they are impacted by beyond design basis events.
The strategy is laid out to make sure that our installed equipment does what it's designed to do, so making sure that our installed equipment does respond to the emergency. The second piece of the strategy is to make sure that we have portable equipment that's available to us and on-site that can back up that emergency equipment that's installed at our plants.
So in other words, if we have a pump that's designed to move water from one location to another for cooling, if we lose that pump then we need to have backup pumps or we need to have portable pumps on-site to be able to replace those pumps, to be able to keep that flow going. So those are the kinds of things that we're doing. And we've already procured equipment that's part of the FLEX strategy. All utilities were required to have that equipment in place or at least ordered by the end of March, and we were a part of that initiative.
And finally, we're still working on this piece of it but we're going to establish regional response centers, so we will have equipment on our sites. But if there's another utility that has a problem, say for instance, in the southeast perhaps it's not a bad thing to have a regional facility that can also provide equipment and provide help to that utility if they have a challenge with their own backup equipment. So we're doing all of those things as part of the FLEX proposal.
When you hear the industry talk about that, it's something that we're still developing. It's something that we're still working through with the NRC. But we think it's the right kind of strategy to be able to address beyond design basis events. So lastly here, just a few pictures of what we have already done, what we already have on-site. This is one of our pumper trucks.
This truck is able to take water from Lake Monticello, which is a lake there at the plant, and if we needed to move that water into our plant we can do that using this pumper truck. We bought this truck really after 9/11. A lot of this strategy was employed after 9/11, so with the FLEX strategy we're just building on what we had already started as a result of 9/11. We'll need additional pumper trucks. We've ordered one additional one and when we get the new units built, we'll have a total of three, one for each unit, and then we'll have one backup.
So that's an example of the kind of equipment that we're buying as part of this FLEX strategy. One of the things that they ran into at Fukushima was, even when they got temporary equipment there at the site, how do you deploy it. Hoses and cables, for instance, there was a lot of difficulty in being able to deploy long stretches of hoses or long stretches of cable, and it took a lot of people. So what we have already started doing is training and demonstrating for ourselves that we can deploy the emergency equipment, the temporary equipment that we will have on-site.
So this is just a shot of the number of operators that it takes to unravel about 2,000 foot of hose. So we're going through actual demonstration to make sure we can do those kinds of things. We have already started purchasing temporary generators. This is one that we currently have on-site. One of the things that we'll have to look at going forward is now where do we store it. Where we have it currently may not be suitable for storage under the new regulation for temporary equipment.
So we already have the generator, we're buying more, but now we're also working with the industry on how that equipment needs to be stored. And finally, communication was a challenge at Fukushima. So we have worked as an industry to be able to have portable repeater towers. So this is a tower that was owned by our company. It has a number of repeaters on it. It can support a number of radios. And again, a lesson learned from Fukushima because communication was a challenge there once they lost power.
So in conclusion, we have validated that our initial response capabilities are in place and we've done that as an industry, and we've done that at V.C. Summer. We're in the process of reanalyzing our external hazards, reanalyzing the potential effects of a seismic event, reanalyzing the potential effects of flooding. All utilities are working on these issues and we're doing so at V.C. Summer as well.
Development strategies to respond to beyond design basis external events, and making sure that we understand how these events may impact our emergency response capabilities. So in a nutshell, a lot is going on related to Fukushima. Again, it's now a demonstration of what we are going to do. We were learning a lot about the event but now we're in the process of demonstrating what we are going to do. And V.C. Summer is very much in lockstep with the rest of the industry in performing these activities.
So that concludes my presentation. Thank you. And I'd like to introduce Ric Pérez. Ric Pérez is the President and COO of Westinghouse Electric. Thank you.
Well, good morning. I'm going to change it up a little bit. Jeff gave you some of the background on unit one. And you're going to hear a little bit different perspective from me. But I really would like you to keep in mind a lot of stuff you heard from Jeff because I'm going to close with a little bit of a, at least, a contention that I have about the importance of unit one to units two and three. But we're going to talk about units two and three at V.C. Summer.
And really, I'm going to touch on three things today and you'll hear it kind of reprise throughout the day. Number one, we're going to talk about the China AP1000 construction and why I think it's a significant item relative to de-risking the construction at V.C. Summer 2 and 3. Number two, we're going to give you a snapshot of some of the recent construction progress we've had, some of the challenges and how we've dealt with them.
I think it's a precursor, if you look at leading indicators, as to why we have confidence in the ability to successfully deliver units 2 and 3. And then finally, I'm going to give you a little bit of a snapshot, a little bit of inside the ten perspective, how the interaction goes between the owners, the constructors and also the reactor suppliers, and how are those interactions on a day-to-day basis, as important as they are in any industrial construction activity, they're magnified in a nuclear construction kind of framework and how that interrelationship we think is working at V.C. Summer and why we believe it's important for the future.
So I want to give you a little -- let's start with China. This is going to give you a time-lapse perspective on the background of the actual pictures of the first unit, the first lead to AP1000 in China, the Sandman 1 unit. This gives you a snapshot of roughly the last 36 months of construction. So as you can see it develop, you can see a significant amount of advanced work in the civil and mechanical aspects of the plant. I will discuss later kind of where we're at as far as the equipment.
But if you look at the project, you'll see that we've moved into -- fundamentally finished all civil activity and we're moving right now into the major aspects of installing commodities, the piping cable, cable, HVAC. And the major installation of major nuclear components will start this month and will proceed through the summer. You also note that we finished all the construction and the fabrication of the fuel. We've been very blessed that our fuel facility right in Columbia, South California, where we've recently expanded to support all the AP1000's throughout the world.
There's been an industrial relationship with the SCANA Corporation for almost three decades. And we're very proud that roughly about 20% of our workforce is actually in the area. But the bottom line is this, Sandman 1 is still on track to actually produce electricity by the end of 2013. Now I'll give you a little bit of glimpse on some of the aspects of construction and fabrication. As reactor designer, where my main focus is the equipment supply.
In the background you will see in these slides a collage of the AP1000 components that are being built for China. We have now completed all the major primary components for the AP1000s in China, and they are identical to the plant, to the components that we will use at V.C. Summer. So all of them now have been manufactured once through. It's a significant reduction risk for fabrication for the V.C. Summer site.
So the key milestone is if you think of some of the activities have actually impacted other nuclear facilities, we recently submitted and are now erecting the plant reference similar for Sanmen 1. We completed last month the testing and completed endurance proof of principle of the reactor cooling pumps that will be used on the AP1000s; with actually kind of the unique features of the plant. They actually provide a lot of the lessons learned from the naval propulsion reactors that are used across the world and specifically applying it to commercial nuclear plants.
And last but not least, the Digital I&C up for Sanmen 1, all the reactor protection system is complete and we will be delivering the I&C this summer. The simple fact is this. And that is that all the major components for China, they've got are complete and that's significantly de-risk the activities as we go into V.C. Summer 2 and 3.
So I am going to segway a little bit now into the United States. We've captured over 10,000 lessons learned from China and I am not even going to try to touch on all of them. But I will give you one little snapshot. You’ll see in a lot of the pictorials very visual aspect of the plant which is the completion of the containment building. It’s a significant aspect of this plant and the containment building probably is three times thicker than any containment building in the United States today. We just finished the bottom hemisphere, where it kind of looks like an egg-shell at the bottom at Vogtle. We finished that containment bottom head at roughly half the amount of man hours and time that took us to do at Sanmen and I will give you a little bit of an insight. We are actually ahead of schedule in delivering that at V.C. Summer 2.
But I will also make it clear we are going to learn new lessons at infrastructure in United States. As you are probably aware, we are building these plants under a new regulatory regime in the United States that is defined by Part 52. We recently did go through some learnings in that area in making what we thought were some simple modifications to the base map rebar at Vogtle 2 – Vogtle 3. That we learned quickly from the NRC was a slight change that required us to really come back to strict compliance the original design certification document. Now fortunately we’ve learned that lesson early, we’ve really drilled now into both our engineering and our construction workforce that needs to strictly adhere to the design certification document.
Building the plant very different than ‘70s and ‘80s it’s going to feel a lot more like we operate the plant. In other words the kind of contact of operation for construction work force is going to be a lot different than the industrial kind of contact of operation you may see in different other parts of the industry. It’s going to require a significant adherence to the kind of nuclear standards that we see on Unit 1. So just remember that concept of the fact that the contact of operations on Unit 2 and 3 were very much be an aspect of what we need to learn and master as we build these units successfully in the United States.
Now as part of that, one of the questions you may ask is what’s different from the ‘70s and the ‘80s till today? Well, one of the things that you will see in this slide is fundamentally a learning that came from the Petrochem and offshore markets where the concepts on how to rapidly deploy industrial construction we’ve learned significantly over the last two decades as contrasted to the nuclear construction of 70s and 80s. And the basic premise of rule thumb is this. You can erect large civil and mechanical structures, a lot faster, a lot more reliable, a lot less labor intensive than fieldwork if you are able to mend, to fabricate significant parts of those civil and mechanical structures away from the construction opening.
Rule of thumb, for about eight hours of field labor, you can replace that with about three hours of staging at the site with prefab component as contrasted to about an hour of fabrication at a knowledgeable facility or another fabrication facility. But I would content to you with that that’s only one aspect of what's different, okay. For nuclear, this is really a twofer for us. Number one, we’re able to significantly control the quality of construction and component in a factory a lot better than we can in the field side or in the whole construction opening. Secondly, the regulation under Part 52 is very different for discovery of issues, first of kind issues, compliance issues in fabrication that isn’t construction.
So the twofer that module build gets you, number one is obviously speed, reliability, quality, but the ability to manage regulatory certainty and the module fabrication process is significantly different than we did in 70s and the 80s.
So when you ask that, you know, legitimately say, where are you on V.C. Summer 2 and 3? Well, we just recently have supplied over 10 sub-modules to the station and here in this pictorial, you will see a little bit on top of the slide from the design aspects of modules there are literally buildings that are erected in floor and wall sections and this foreground you see one of the actual sub-modules that were shipped to V.C. Summer site and which are now in the process of being configured for erection at the V.C. Summer site at the module assembly building on site.
We’ve had challenges with the module fabrication; there is no question, especially with our facility in Lake Charles, Louisiana. But we believe all those startup issues now are behind us, most recently about two weeks ago we finished and an NRC audit of that facility which went very well and you would know the remains production first of the kind type of reliability issues that we are concerned about, we are seeing very good quality coming out the factory and I will show you here in a second, we believe there is a lot more flexibility with what is done in the factory and also as a combination, as a balance of what you’ll see that we can do at the site at the module erection facility. So at the end of day, we believe there is lot of flexibility relative to what we actually manufacture away from the site and potentially how we’re able to optimize that with the erection on the site.
Well, certainly kind of giving you another PowerPoint, I think this picture really helps a lot, so what I am going to show you now is a little bit of demonstration of how the module assembly facility and the assembly of modules is going to work. So in this slide, in this animation you are going to see a [Technical Difficulty] factory and get assembled at the station.
This pictorial, this animation replicates really exactly what we are going to do at V.C. Summer and as I indicated that the 20 of these pieces are already at the site right now; we will actually start production welding on CA20 by beginning of next week. But fundamentally, you see the sub modules coming in. They get assembled again as nuclear fabrication, not as nuclear construction and as we bolt them together or weld them together they get moved away from the site and placed in the construction opening.
So significantly reducing the amount of volatility that you have in the traditional or what we saw in the 70s and 80s about discovery inside construction. We are able to do this away from the site, away from the construction opening in a much more controlled fashion with the regulator assuring that we have first hand quality before we go into construction; again, a big significant change from the 70s and 80s.
Now this wouldn't be a nuclear presentation if I didn't show you an order chart. So I was requested by SCANA to give you a little bit of perspective of the leadership at Westinghouse. Its important to also recognize that as a company in the United States even though the nuclear program relative to new construction in the United States has been somewhat stalled the last two to three decade, as a company especially as you look at the addition in the 1990s of the Westinghouse businesses from ABB, we've been able to maintain a construction work force and perspective especially in the Korean and Asian businesses for the last several decades.
And our team today, these are the key seven operations managers at least on the top at Westinghouse, represents over 200 years of nuclear experience, about half of us like myself have worked at Westinghouse all our careers, I have my 31st year at Westinghouse. And the other combination comes from other nuclear companies including even some utility guys. Importantly too, the two gentlemen that you see in the corner, Tom Sliva and Bill Fox are specifically the two executives that we have dedicated to the V.C. Summer 2 and 3 construction. Both of them have over 30 years of experience in nuclear industry.
Tom brings a huge amount of experience dealing with the NRC and I will tell you that will be a significant difference, the ability to deal with the regulator in a constructive fashion and be able to deal through issues discovery, how you deal with contact of operations of the work force, that and how you manage that relationship with the regulators is essential and Tom brings that expertise to bare.
Bill Fox, who runs our construction activity, the Shaw partner and it’s activity has honed his experience specifically in the outage modification business for the last 30 years, so replacing steam generators, some of the components that you saw from Jeff that have been updated, that's where Bill’s been focused for the last 30 years. And the reason why that's important is that's what this feels like. This does not feel like you are building a gas turbine or you are building an industrial facility somewhere. This feels like an operating plant. So we joke about it a little bit, but the concept of it’s an outage for the next four years. That's how it feels like not it’s because of the pressure, but because of the attention to detail and the kind of conduct that we have to have.
This slide, I just want to emphasize that over the last really three years, this team of SCANA, Santee, Westinghouse and Shaw have been working very closely as we went through the licensing process in the United States. It’s not about that we just started in March when the acceptance of or the granting of a combined operating license was given to SCANA. The relationship and the interactions with Kevin’s team has been very intimate over the last three years. We’ve had to actually manage in a very transparent fashion.
I will give you an example, the design certification Westinghouse received, design certification amendment that we received in December which ironically was the amendment to the original design certification. In those roughly 30 months, we went through the amendment we had over 60, six-zero public meetings with the NRC in which the public was able to interact the amount of transparency and interaction is much different than the ‘70s and ‘80s. And now when you add the first time mandatory hearings that both the Southern company and SCANA went through for the COLs, I would content over a 100 different meetings were in public interaction and public discourse occurred as we prepared for these licensing processes.
Now what’s important about that? What’s important about that is, over the last two and half years we’ve prepared ourselves for what we are going to face in the next four. We are building these plants both at Southern and at SCANA in a (inaudible), you will hear about a lot of challenges, just undoubtedly we are going to have them and we will have to deal with them transparently just like we did with the licensing process. The good thing is that licensing process did hone us to prepare ourselves for construction.
Now we will go through some more lessons learned, but I am very confident that the kind of interaction if you look at how we have been able to settle some of the issues associated with the delays in the COL and some of the changes in the design going forward, we’re able to quickly deal with those things and the plant construction is proceeding well and is proceeding effectively.
So I am going to close with this. There is a couple of things that are important to recognize as you look at V.C. Summer 2 and 3 and contrasted for some of you, I look around the room and as some of you were here in the 70s and 80s and I am sure you’re probably thinking, hey okay, this could be déjà vu again. But I am going to content to you three things that I think are very different. Here is the key one.
70s and the 80s, when the United States developed its nuclear program, there are roughly 104 nuclear that exist today in United States, there wasn’t an equivalent fleet in Japan and Korea and France. We’re first. Now there are great things about being first and there is a real pain in the neck about being first, okay? The world’s reversed. We find ourselves today where a developed nation like China can actually accept the safest reactor technology in the planet and been able to deliver that and use the US design technology provide that. In contrast, they’re first.
So we’re able to pay some of the lessons learned that we’re achieving in China and let’s be honest, some of the headaches that we have in China and learn from them as we acquire those in United States. The world’s much different than it was in the 70s and the 80s. This requires or this gives us an opportunity to really learn from each other.
Second thing I would contend is that fabrication focus. The concept of using modular build sounds sexy and it is. You get engineers that start drooling over the stuff; but at the end it is not just about the technology; it’s how you use modular fabrication to really change the game, because I would contend to you a nuclear build especially what we are seeing in Finland, we are seeing in France, the big difference in United States in this technology is that it leverages the fact that fabrication -- it’s all about fabrication in the United States, it’s not about actual construction and as a matter in fact the rule is, if you can fab, fab it, it don’t build it in a whole, because it is a twofer. It’s twofer relative to regulatory certainty; it’s a twofer relative to cost; it’s a twofer relative to being able to actually manage the product, so able to de-risk the project by fundamentally changing the game in construction.
Now here is the last one and grasp this, listen if you don’t hear anything else from me grasp this. The reason why Jeff led today okay in this presentation was very clear, the big difference between the 70s and the 80s is the fact that there is an established nuclear in our country, in our industry. Recognizes and this industry any utility you would that’s effective and makes a difference in nuclear and that it’s able to leverage nuclear and provide extra value for the company, people matter and experience matters.
If you ask me today why do I have confidence that we are going to build two or three successfully; it’s very clear; we don’t have to think about it for a second it’s because we’ve got 30 years of excellent operation in either one. I mean just to be clear right, the Westinghouse Three-Loop pressurized reactor, we were able to deliver in the 1980s at V.C. Summer and the fact it’s operated effectively now for over 25 years; it’s the foundation. It’s the right to build that we have. When I mentioned to you the conduct of operations for construction, the same conduct of operations that Jeff has to emphasize and Dan Gatlin has to emphasize and how we run Unit 1.
The fact that Unit 1 effectively has been able to manage through two decades almost three decades of operation with a lot of challenges and still be able to be excellent in the face of both the stakeholders and the regulator is foundation that's going to make 2 and 3 successful. Yes, the technology is sexy, yes the fabrication helps but at the end of the day do you have the conduct of operations, do you have the oversight, do you have the skill set to actually manage a construction project like this within a framework and a new regulatory structure that is different than the 70s and 80s.
And the answer to that and I think the commitment you see both myself and a lot of the gentlemen from SCANA, the answer to that is yes. And so I want to thank you for hitting that snapshot of new build at V.C. Summer 2 and 3. I'll be able to answer questions later. I would like to turn it over to Steve Byrne. Thanks.
Thanks Ric. We will have an opportunity for Q&A at the end of all the sessions and hang in there because when I am finished we are going to take a break. So we are going to throw a lot of information at you today. We recognize that so there will be a break after my session. Ric talked a little bit about the team that from the consortium’s perspective of Shaw and Westinghouse is managing our project and he talked a little bit about a guy named Bill Fox. Now Bill Fox is the Shaw Construction VP who is responsible for building our plants. So he spends most of his time at our site.
We like Bill Fox because he is from a town in South Carolina called Lancaster which our CFO happens to be from and they call it the Lancaster Area or LA. And he also went to school at the University of South Carolina, so he is vested in our community, so we feel very good about having people like Bill Fox on our project. And he has been on the project since we started so that’s very positive for us.
This is a picture of the Sanmen unit in China and we do have a relationship with the Chinese. We do feel very fortunate to have open access to their plants. Our general manager for construction Alan Torres is in China as we speak and he will be touring both the Sanmen site and the Haiyang site and probably their module assembly facility as well.
So we get unfettered access to their plants and as a return for that we allow the Chinese to come to our plants last year and the year before and they get to learn some things from us. They are not as accustomed to that we do very well here in the west things like we cause corrective action procedure used and compliance those kind of things. So it’s really a win-win it helps to make the industry overall safer and then we get unfettered access to their plants during the construction process, so it’s a really good relationship for us.
And now I will talk a little bit about generation, talk some about nuclear generation. I will talk some about our thoughts on hydro generation. This is our strategy, our strategy is to set ourselves up for the long-term and the way we do that as [skill] diversity. We don’t want to put all of our eggs in one basket and it has become obvious to us that we need to gradually move away from coal. Coal certainly has become a four letter word so we are changing our generation mix such that we are lot less dependent on coal and lot more dependent on natural gas and nuclear energy and you will see that in some of the pie charts that we are going to show you in just a few minutes.
You probably are familiar with all these rules. We’re certainly becoming more and more intimately familiar with them. The first one on here, the Cross-State Air Pollution Rule, as you are probably aware, has been stayed. So the requirements under that are probably going to impact us. We are just not exactly sure when. So the Clean Air Interstate Rule is now back in effect of which looks at things like NOx and SOx.
The one that has been problematic for our older, smaller units is the Mercury and Air Toxics or MATS. That one effective April 16, and we have generally a three-year compliance timeframe and EPA has let us know that you can probably get another year after that and then possibly even another year after that if you ask very nicely.
So we are making plans to comply with the Mercury and Air Toxics Rule but it’s obvious that you will not be able to comply with that without a lot of pollution control equipment on your plants. When you have a plant that’s 50 or 60 years old and its 90 or 100 megawatts, the economics don’t work out.
And unlike, things like Cross-State Air Pollution Rule, Mercury and Air Toxics really is plant specific. I can’t take a system of operating perspective to the Mercury and Air Toxics. It’s plant specific. So its not like they tell me I can emit X number of pounds of something on my whole system and say take each one of your plants and there is a rate that you can emit. So Mercury and Air Toxics is problematic for us as it will be for any utility that has heavily invested in coal.
And we’ve got a couple of other rules here that are a little bit further out that we’re also very concerned about, that also flavoring the way that we’re shaping our generation mix. All right, so the generation mix. This is what we put out by dispatch that means that if I run the nuclear plant more than our coal plant you are going to see nuclear higher in these numbers.
So you can see on the upper left hand side of the screen that in 2011 we were about half coal. You can see that we were about 19% nuclear and about 28% gas. So in 2011 gas prices in recent months we ran on gas generation quite a bit but that still about almost 50% coal and you can see as we bring on the nuclear generation in 17 and 18 by 2019 we ought to be about 56% nuclear by dispatch.
So, we wait for the nuclear plants run them all the time about 24% by coal and 14% natural gas. If the price of natural gas stays where it is out in 2019 or 2020, we will run more gas and less coal. So the gas at the expense of coal, and you can see the next in here we got little bit of hydro and little bit of biomass.
So this is how we dispatch our system, this is what our low dispatchers would do to dispatch the plants. This is by nameplate capacity, so this is if I just took the total number of megawatts and divide the nuclear by the total what I would come up with today that is only 11%.
So our company right now is about 11% nuclear. As we execute our plan, you can see on the bottom there that we ought to be about a third, a third, a third between coal, gas and nuclear. So from a fuel diversity perspective that’s it, okay.
So if coal becomes much cheaper and there is no Co2 regulation we can depend on coal. We are not banking on that, if the price of natural gas stays low, we will depend on natural gas, okay. And as we are anticipating base plant and nuclear plant we all have about 30% capacity in nuclear so about a third of third of third between the three major fuel sources.
Alright so our Integrated Resource Plan or IRP is a document that we file with our Public Service Commission annually. We recently filed that document and in it called for our generation strategy, okay. And that generation strategy called for some plant retirements and then fuel switching.
So we did say that we are going to retire 190 megawatt coal facility by the end of this year and that we will switch fuels at one of our coal facilities by the end of the year from coal to natural gas. So that's the plant that can operate on either coal or natural gas. Historically, we've operated on coal because we designed for coal and coal was generally cheaper but now since natural gas has come down so much in price, we will swap that plant and we will retire the coal facility there and we'll run on natural gas.
As you can also see here on the slide that we have a number of other coal facilities that again are older, smaller that we will switch the fuel from coal to natural gas at least for a period of time which will bridge the gap until we get to the nuclear generation.
Now, I emphasize that this is the plan and plans can change. So if regulation changes, if the price of gas changes, you know if things change, we can change plans so that's the beauty of this. So adding the nuclear generation gives me a lot of flexibility with what I can do with those coal facilities, okay.
And as opposed to coal facilities they will become gas facilities at least for a period of time. So this is our Integrated Resource Plan filed at the end of last month with our State Public Service Commission. Alright, so we have license in hand when we were here last year, we said that we thought would be becoming soon and soon was stretched out a little bit. We are the first subsequent or as COL combined operating license.
So, Vogtle was the first COL, they were the reference for [RCOL]. We are the first subsequent COL. So this is that Code of Federal Regulations Title 10 on Energy part 52 coming full circle. So we now have a construction and operating license. So I don't have to go back and apply again for anything else.
We've got the construction operating license. So that aspect of it is finished. So we like the fact that, that has in Ric's term derisk to the project. We've got the license on March 30, when we called the NRC and said if the commission actually does what they say they are going to do and vote it on March 30 at 1:30 PM when can you have the license signed out to us. They said probably about 5:00 PM on Friday.
We said we will be there. So, we don’t want to take the chance and go through the weekend. We loaded in the plane and brought it home. And we started pouring stipulated concrete the following Tuesday. So we do not want to waste anytime. So license is in hand, that's a good thing, a big milestone for us.
We often times get asked what's going on with our partner, Santee Cooper, as you are likely aware Santee is a 45% partner in this project with us, okay. So we are 55% the state utility Santee Cooper is 45%. Because of the way the economy has impacted, Santee’s load they want to divest themselves of some of their 45% interest. They are still very interested in nuclear; they are still a one-third partner in our existing nuclear plant and have been for 30 years.
They just want to have a little less than 45%. So they are being courted by three different entities to buy a portion of the plant and that is Duke, South Mississippi Electric, and American Municipal Power or AMP. And you can see here that therefore varying percentages of the project and in general it’s a letter of intent currently with further negotiations ongoing for a purchase power agreement with an option to buy and AMP is just an option to buy. So we anticipate that we will have one or more of these entities as partners with us in this project going forward.
Little bit about the economic benefit particularly to the State of South Carolina building a big nuclear project. We anticipate that we’re going to have about 800 full time employees, engineers, mechanics, operators, chemists so these are going to be relatively well paid jobs, stable jobs. That 800 in addition to the folks we have at unit number one. So the 800 represents the unit two, three workforce. At peak construction, we think we will have around 3,600 employees dedicated to construction. Currently, we have about 1,500 about 1,300 from Shaw and Westinghouse and there are subcontractors in about 200 SCE&G folks currently at the site dedicated to the new nuclear project.
The County stands to benefit significantly from the tax base of these new units. I am not sure what the schools are going to look like with an additional $60 million a year in property taxes but they can probably gold plate the floors. College programs, they have benefited significantly from new nuclear, Jeff already talked about the fact that the University of South Carolina has a gradual level of nuclear engineering program and the South Carolina State has an undergraduate level program.
Attendance in those programs has increased significantly since the announcement of new nuclear construction. And the technical college system in our state has launched new programs and those are full. So it’s been a real boon for the technical college and the university system in our state as well.
And the large components that Ric Pérez talked about coming in from overseas are all coming in for the most part through the Port of Charleston. That’s a good thing for the port and it’s a good thing for the truck drivers and the rail operators that will bring the things, the 120 miles of the coast in England to our side in beautiful downtown Jenkinsville, South Carolina.
Alright, so what's going on at this site right now. We’ve just finished testing the world’s largest heavy lift derrick. Okay, it’s a derrick-mounted crane and correct down every time because the regulation for derrick about this big, regulation for crane are about this big so it’s a derrick.
We’re testing the simulators. I’ll show you pictures of those simulators in just a minute. We’re completing the lower bowl and this is a picture of that lower bowl from the containment vessel. Ric talked about the fact that it is much thicker than traditional container vessels. It’s about an inch and three quarter thick steel. I'll think about that. That’s very thick steel. That’s very difficult to work with and we’re fortunate that we learned a lot of lessons and welding this lower bowl from the Chinese and Ric gave you some statistics on how much faster we were welding this together than the Chinese were because we learned those lessons.
So this is the lower bowl. So the containment vessel itself consists of a lower bowl and then three stackable rings. So you fabricate the bowl and the rings outside of the excavation. We lift it with the heavy lift derrick and we’ll put it into the excavation and then we will weld them together, okay. So, and then finally we’ll put the top closure on top of the containment once all the major components are inside and then the concrete structure will go outside of this containment vessel.
We’re also erecting our switchyard. The switchyard has to be finished relatively early in the project because we need to back feed the project with power from the switchyard. So sometime early the mid-next year, we will be finished with the switchyard. We’re receiving sub modules from Shaw Modular Solutions in Lake Charles, Louisiana.
We are erecting the cooling towers; we'll forced draft cooling towers. We will not have big hyperbolic natural draft cooling towers. We are going to have the low profile forced draft cooling towers. And we are now pouring segregated concrete. The top activities listed in black on the slide are all what are called pre-construction that means I didn’t need a license to do those.
Only the bottom one is considered a construction activity and needed a license to do that. So we have been working at this for a number of years now. So here is the plan, we are going to pour dental concrete on Unit II and dental concrete is just as it sounds, if you have cavities you have to get them filled in. So we have a lot of little cavities in the rock and when we drill corridors through the rock to sample it, it left a hole and we had to fill all those holes.
So dental concrete on Unit II is largely complete, we then go into a leveling mat which again is just as it sounds you want everything to level as it comes up so you pour a leveling mat. So that is in progress in Unit II. On top of that we will pour what is called the mud mat which is about 6 inch thick concrete. We'll put a vapor barrier down and then we will pour the last part of another roughly 6 inches, okay, So that points towards the foundational work, on top of that we will then pour a rebar cage. That rebar cage will have the basement concrete poured over it, okay. Now that basement concrete pour is what people generally call first concrete or first nuclear concrete but we will have lots of concrete before we get to that, okay. A lot of concrete pour.
We anticipate that we will pour that first nuclear concrete or the basemat pour roughly in August of this year. And it's about a six-foot thick floor, so it's done in multiple lifts. And at the same time, we're completing the blasting on the Unit 3 excavation, and we will then set the steel crate that will hold the lower bowl as a module that's called CR-10. So CR-10 will be set on top of the basemat, and then we can set the lower bowl in that hole. And we'll show you some pictures of that in just a minute.
All right, so now we get to baby pictures. This is a shot of our site from March of this year. And what you can see on this page outlined in yellow are the excavation for Unit 2, which is where we're pouring the concrete now. You can see the excavation of Unit 3. We're still blasting Unit 3, so we have excavated through the dirt or red clay. We've reached solid rock and we're blasting the rock, and then we remove the rock from the excavation.
Between the two excavations, you can see the heavy lift derrick. That heavy lift derrick is big enough that it can reach both excavations. And I'll show you the schematic in a minute, but you can just make out the rails. It travels 360 degrees around on a rail. The containment vessel lower bowl, you can see the fabrication area near the bottom of the picture here.
You get a glimpse of a portion of the switchyards at the very bottom of the picture, and then the module assembly building where Ric showed you the short video clip of the modules being assembled, those will be assembled inside of this module assembly building. And again, that's a lesson learnt from China to do things indoors if you can. So this is what the site looked like in March of this year, roughly about the time we got our license issued to us.
A slightly different view of the plant site, I like to show this one because this is the contractor parking lot. You can see that it's barely full. So we are providing a lot of jobs for folks from the local area. And you can see we've got two concrete batch plants here. Each batch plant is capable of providing all of the load for the major pours. But once you start those pours, you don't want to stop, so you want to have two concrete batch plants. This also prevents us from having concrete trucks going through neighborhoods around the plant.
So this is good to be self-contained. And on this overhead, you can also see the basements for the cooling towers. They're going up, and again, the module assembly building. The containment vessel lower bowl, I said that most of our components come in from the Port of Charleston. And this plate steel, again, a inch and three quarter thick plate steel, comes from IHI in Japan, and they are in the Tokyo area. And we have seen no supply chain issues from the earthquake and tsunami in Japan.
So fortunately, our vendors in Japan have been unaffected by it. You can see here that it's basically one plate per truck. It comes up to the Port of Charleston. We have some rigging. You can see that each piece as a slot in the puzzle, and it finally a company called Chicago Bridge & Iron does the automated welding that puts it together. So they're just about complete with that lower bowl now. I said after the lower bowl, you put rings on, and these are the ring sections.
So we've already started to receive some of the rings sections also from IHI in Japan, again, in through the Port of Charleston. This is on-site, so you can see we align the rings and then we'll start welding the seams here shortly. So the ring sections are already going together. This just shows you the power block excavations. On the left-hand side is Unit 2, and this is before we got into any of the concrete pours. So this is basically the nuclear [round].
This is where the reactor will go. You can see here we're blasting and removing some of the rocks on the Unit 3 excavation on the right-hand side of that slide. This is actually concrete pour in Unit 2. So this is (inaudible) concrete, the down concrete is important. You can see this is formed for some of the leveling mat. So this is a nuclear island side. That's where the reactor components will go. This is the turbine island side where the turbine components will go.
Another overhead, where you can see looking through the crane, you have the containment vessel lower bowl here. You can see the excavation on the corner of Unit 3. And if you look through the crane, you can just make out where the ring section is. So we're fortunate that we have a site that's pretty well laid out. We've got enough real estate that if we need to stage or store something, we can do that. So the tabletop area where the plants go is really compact.
We do have a lot of area. We can spread out if we need to. This is another aerial shot where you can see the basin for the cooling tower. Shaw did all of the basin work and then they turned it over to another company EvapTech, who are experts in construction of cooling towers. And we're going to use the same kind of cooling towers that our partner Santee Cooper uses at their Cross Station in South Carolina. So their engineer that worked on that unit is helping us with the cooling towers here.
And as I said, we have a module called CR-10 that will hold that lower bowl. And you can see here on the left-hand side of the picture, this is the CR-10 module that's just about finished assembling. We will pick that up with the heavy lift derrick, place it on top of the basemat, and then we'll be able to set the lower bowl in it, and then we'll pour around it. So this will actually become hard as a foundation at that point.
Switchyard, this is probably the biggest switchyard I have ever seen. It's almost 30 acres. It will have about 12 lines connecting us with offsite. Some of those will go to the Unit 1 switchyard. Some will go offsite to a partner, Santee Cooper. But again, this switchyard should be finished first quarter, second quarter of next year, and then we will back-feed the construction site from this switchyard. The switchyard construction is going very well.
Pike construction, Pike Electric out of Mount Airy, North Carolina is doing that. You can also see in those pictures some of the new transmission lines that are being erected. And in general, our transmission is going very well because we chose to go on existing ride-away as opposed to seeking new ride-away, except for one six mile section. So our transmission build-out is going very well. This is just a view of the module assembly building.
It's about 120-feet tall and about the size of a football field inside. And we will be able to build the two largest modules at the same time side-by-side in this building. So it's sized for that. When the modules are complete, we'll take the side of the building, roll a transporter in, move the modules, CA-20 module for example that you saw in the animation from Ric's presentation.
We'll move it outside of the building, and then the heavy lift derrick will pick it up and be able to place it in the excavation. This is the heavy lift derrick. We actually -- BIGGE Crane Corporation just happens to be the constructor. So when we call it the BIGGE Crane, it is the biggest in the world, but it is the BIGGE Corporation that manufactured it. It is actually strapped to the ground through this back pole here, and you can see that here.
So instead of stacking counterweights on the back of the crane, as would typically be the case for construction projects, we've poured the concrete in the ground and we strap it the ground through a big universal joint that goes here, and it travels -- this carriage here travels 360 degrees around on a rail. And again, the boom section here, 560-foot long and so it can reach both of the excavations.
I like to show this picture because it gives you a little bit of scale, because in the yellow circle at the bottom right-hand side of this slide you can see a school bus. That school bus is probably a quarter mile in front of the heavy lift derrick. And this picture was taken from probably three quarters of mile to a mile away from the derrick. So you get some idea as to the size of it. You can just see Unit 1 in the background of this picture. Well, if you look at the school bus relative to the size of the crane, you get some idea of the scale.
It is a big beast. This is suitable for framing postcards, the heavy lift derrick at night. And so we talked about a simulator. We will have two simulators on-site. You just look at the number of operators that we will need, and to avoid doing 24/7 training, we need two simulators. So the simulators look a lot different than our existing simulators. Our existing simulators are a lot of analog dials and switches and strip chart recorders and things that people like me were trained on.
And these are more like a big video game that my kids would excel on, that I would probably struggle with. But they are mouse-driven. They're not touch screen. From a human factor's perspective, a mouse is better than the touch screen. The temptation to just touch something quickly is too great, but if you have to move it over and then click on it, you're a little bit more deliberate, so it's actually safer.
So we will generally drive this with mice because significantly you have to have redundancy, so we'll have mice instead of a mouse. But a lot of 70-inch TV screens, center section dedicated, the others the operators can put whatever they would like to see up there within reason. But we'll have two operators and a control room supervisor in this control room. We call it a Limited Scope Simulator because some of the instrumentation and control systems are still being designed.
So what we want is we want the ability to train our operators, and if some of those systems are designed, we'll incorporate them into this, and it will eventually be a full engineered simulator and we will do some gap training on what the operators didn't see. But I want to start training now. We don't want to send people to the simulator in Pittsburgh, so we want to be able to train at the site. So we've got the simulator a little earlier than we had originally anticipated.
But both simulators are installed at our training facility in Jenkinsville. Manufacturing schedule, these are the big components, the major stuff. If it's in green, it's already started. So for our major components, most of them have already started. A few of them are finished. And the ones that have not started are in blue, and you can see that those generally are going to be Unit 3 things, turbine generator and control rod drive mechanisms. So most of our major components manufacturing has started.
Now, where are those components manufactured? And it truly is a worldwide venture. We are getting parts and pieces from certainly where we can source in the United States, we'll source in the United States, and there are a lot of very important parts coming from here. But when you talk about things like ultra-large forgings, the big steel or metal components, there's only two places in the world currently where we can get those. That's Japan Steel Works in Japan and Doosan in South Korea.
So a lot of our parts, pieces and components are coming from Doosan in South Korea because we investigated both, we sent our engineers to both, and they liked the Doosan facility better. So that's why we made the decision to go with Doosan. So those parts and pieces being fabricated around the world, in general, going very well. We've already started to receive some on-site, but this truly is a worldwide venture. This is a heat exchanger.
We call it a feedwater heater, but it's just a big heat exchanger, again, coming from Japan in through the Port of Charleston. And this has already been taken up to the site and is being staged at the site now. And these are condenser components. So these are big pieces that were railed to the site. I got a chance to see those being offloaded at the site a couple of weeks ago. So these components are in their staging area at the site, ready for installation.
So in general, when the parts and pieces are finished, we want them shipped to the site. We don't want to take that risk that something might get delayed in shipping. So we want everything at the site so it's at our disposal as opposed to being at the manufacturer. This is the reactor vessel for Unit 2 at the top and Unit 3 at the bottom. And this is at the Doosan facility in South Korea. And you can see that these are openings on the top left for control rod drive mechanisms that will go through the reactor vessel head.
This is the vessel actually going undergoing post weld heat treatment. And then you can see here, this is a steel vessel that's clad with stainless. So it's carbon steel clad with stainless. This is a cladding process for Unit 3 reactive vessel. And again, on the bottom right, that's again the Unit 3 reactor vessel. So the components are being fabricated at Doosan. We are getting some components from Italy. This is a passive residual heat removal, heat exchanger being fabricated in Italy.
You can see some of the two big components there. And this construction again is going very well. This is, again, in Italy at the Mangiarotti facility. So these are big tanks that we're going to use. It will store pressurized water that we'll be able to inject if you lose power. So these tanks, again, are going very well and they're being fabricated in Italy.
So a summary of our construction, the construction on our site is progressing very well. Our COL was issued to us, so we now have the license in hand. We have not seen any supply chain issues from the tsunami or the earthquake in Japan. And we are very fortunate that we are building in a supportive nuclear state that has a cost recovery mechanism that allows us to recover cost as we're constructing. So much, much better than building in some other parts of the country. So very, very fortunate there.
At this point, we're going to take a break. We're going to take 15 minutes. So how about coming back at just past 10 o'clock and we'll restart with the program.
Onto the second session, I’ll give you few minutes to get into the seats. And you all had listened to Jeff talk about his 30 plus years of service at the company and (inaudible) that they didn’t have a cake, it’s at the back of the room; but I am going to have to remind you that last year I have the distinct players were given two 50 years service awards to employees in the company so Jeff you still come in and you get to about 50 years we’ll see about giving you a cake.
And those guys have got the 50 years service awards are still working. They won’t retire, they are still actively employed today so we got in the end the commitment there. We want to shift gears a little bit on the second part of the program and talk about something other than nuclear. Certainly, you can tell that nuclear is critical to what we are doing. We spend a lot of our time and our effort making sure that that's going right and its going extremely well and that's taken about a 1,000 of our employees. We still got close to another 5,000 of working on day-to-day activities serving the customers that we already have owned the system today making sure we do things right in the way we like to do them and have that great customer service.
So we want to spend in our next presentation hearing from Rusty Harris who is the President of PSNC Energy, in North Carolina, a natural gas distribution company and talk about what they are doing and then you will here from Kenny Jackson who runs our Rates and Regulatory area and some of the regulatory activities that we've got and then we will close up with Jimmy Addison our CFO with some financial matters and then we will be glad to take your questions.
But at this point, I am going to turn it over to Rusty.
Good morning. Good to be here. It’s my first opportunity to present to this crowd so you all show me some mercy this morning that I am happy to be here. I have been with SCANA for 26 years; I am slightly over halfway to my (inaudible) I guess.
I am happy to talk with you this morning and tell you about PSNC Energy. We are a natural gas distribution company that's based in North Carolina and to just to give you a little background on our company we were founded in 1936 and over the years since 1936 the combination of various gas systems across North Carolina resulted in the particular market area that we have today.
In 2000 very significant event occurred and that was that we were acquired by SCANA Corporation and this has been a great thing for PSNC Energy, a very good combination of two companies with very similar values and has been a very successful part of the SCANA family. We serve just under 500,000 customers in North Carolina and as you can see from the pie chart, as you might expect a vast majority of our customers are residential 91.4%. We also serve about let’s say 40,000 or so commercial customers and 1,400 industrial customers in our market area.
And we do that through a network of pipelines, just under 11,000 miles of pipeline across our service area; 616 of which are transmission pipelines and then 10,300 miles of distribution main in our service area.
Our last base rate case occurred in 2008 and in that case through that order we were given and allowed return of 10.6% but as of the end of 2011 our actual return is 11.36% primarily because as you will see in little bit we’ve had some good net income growth, but our rate base hasn’t grown quite as rapidly. So 11.36% is our actual earned return at the end of 2011.
Just to familiarize you with the markets that we serve in North Carolina, we are blessed to serve some very good markets in the West of North Carolina, our Asheville region is a number of counties several of them were rural mountainous counties that we do get serve, the City of Asheville and some of the surrounding cities. And we have about 60,000 customers in that region. In the Gastonia region we have about 100,000 customers, a little over 100,000 and that’s the light blue area that market serves suburban areas north and west Charlotte, North Carolina.
And then further east in the Durham and Raleigh regions, Durham region a little over 100,000 customers the Raleigh region little over 200,000 customers, so combined, you know, roughly two-thirds of our customers are in the Raleigh/Durham area also know as the Research Triangle and it’s a great market to serve. It tends to be consistently one of the higher or fastest growing markets in North Carolina, home to the Research Triangle Park; three-grade research universities, U&C, NC State and Duke University. So it’s a great market for us to serve the North Carolina.
Kevin referred to, you know, the operating units and we pride ourselves at PSNC Energy on operational excellence. Just to point out a few of our accomplishments in the last several years, safety is very important to us; both employee safety, public safety. A lot of our employees work out in the field and what they do is they build, they operate, maintain pipelines; they call and they go peoples houses. They’re excavating pipes and working in trenches, moving heavy equipment around. So we face our fair share of hazards in the construction and maintenance work that we do.
We also draw about 8 million miles a year. So in order to protect the safety of our employees, it takes a dedicated effort by all of them and they do a great job. We’re consistently ranked in the top quartile of the Southern Gas Association, which is composed of all Southern Gas utilities when you compare our injury rate vehicular accident rate to those other companies, we always fare very well.
Another pillar of our operations is excelling in customer service and PSNC Energy has a long history of priding itself on providing great service to our customers. The J.D. Power and Associates, I am sure, you are familiar with that organization. They do a residential customer satisfaction survey annually of natural gas utilities and we have been ranked number one in the South, three out of the last four years in the J.D. Power residential customer satisfaction survey, so great results in the area of customer service.
And then finally, as I mentioned a lot of our work involved operating and maintaining the pipeline system; we want to do that very cost effectively and over the last five years we have averaged 25% annual increases in our operation and maintenance expenses. And all that helps us to achieve our net income results of PSNC Energy, but included in this chart from 2007 up to our projected net income this year and the early years of this chart we had our last base rate case that you can see it’s provided a boost to our next income and since that time we have been able to provide some growth in net income during a very tough economic times so we are very pleased with the net income growth we have been able to achieve at the PSNC Energy, as you can see, our projected 2012 net income at $48.8 million.
One of the unique features to our company in North Carolina and the regulatory environment in North Carolina guess I should say is the CUT mechanism, the Customer Usage Tracker. This is a decoupling mechanism that we have in place at both the natural gas companies in North Carolina. We adopted the CUT in our case back in 2008 and it does decouple residential and commercial customer usage from company margins and that’s important to us because as you can see from the pie chart in the red and the blue, the combined commercial and residential margins, this is from 2011 that represented about 88.5% of our total margins. So the decoupling adjustments apply to that amount of a margin; it does not apply to industrial usage and so that represents 26.4% from last year.
The way it works is we adjust, we file semi annually adjustments to our rates to true-up margins to either lower our rates if we've over collected or slightly increase our rates if we have under collected any amount and so it’s a very quick recovery of any shortfalls or averages from the rate.
And another feature of this decoupling mechanism is that it removes the distance in and is kind of natural to utilities to encourage conservation, so when we put this tracker in place we also put in place some conservation programs to encourage our customers to use natural gas wisely and we have seen a continuing trend of declining usage per household of about 1.4% prior year. So this usage tracker has insulated us from that decline, but decline also benefits our customers.
When you have a mechanism like that that decouples your margins from usage then customer growth becomes all the more important to us and someone talked with you a little bit about what we are seeing in the area of customer growth at PSNC and I essentially went back to the pre-economic downturn timeframe 2008 to start the chart, so you could see where we were in terms of adding new customers. The blue bars here represent net customer growth so and that's important, because if you want to grow your customers you have to add new customers and you've got to hang on to the ones that you have and we focus on doing both of those things well.
If I had gone back further you would have seen numbers similar to what you see in 2008. We have very robust growth across North Carolina in the housing market and you see that we have some pretty big numbers as far as net customer growth and then it dropped all, I think housing permits dropped around 70% in 2009 in North Carolina and we have seen some improvements since then most notably this year we've seen a 15% increase in the number of new services that we are installing in our service area. So some improved trend, but we've been able to increase that number over the last four years in large part because what you see on the red line at the bottom which are the number of conversions that we've done across our system.
We've got very favorable natural gas pricing these days. We compare favorable to alternative fuels and so we've intentionally gone, coming out, seeking out existing neighborhoods and areas to extend our pipelines to convert existing houses and businesses to natural gas and so in the last few years conversions have represented about 25% of the new additions that we've had on our system and that trend will continue this year. We are projected to convert about 2,400 customers in 2012.
Now a little bit about our industrial customers. We are very diversified as you can see from this chart and that’s really the main message from our industrial group is that we have a very diversified customer base. Our largest users tend to be people that have large furnaces such as glass plants and so we you do see that stone and clay glass and concrete that’s one of our largest industrial sectors. But also especially in the Raleigh-Durham areas I was mentioning earlier some significant educational institutions as Raleigh is the capital of North Carolina so we get a lot of government facilities as well. So that’s a big segment of our industrial usage. The universities in particular have made a conscious effort to shift more their on-site power generation from coal to natural gas and so that’s one reason you see that segment as big as it is.
And then the Chemicals is our third largest group. I thought you might be interested that the power generation was only represented by 2% of our total industrial usage on this chart that is on the increase in fact I checked for this year and year-to-date that number is more like 5% of our total industrial usage and we are connecting another power generation plant this summer to our system and if they use the amount of gas that they expect to use then I think that number will look more like 10% going forward at least for the next few years until we possibly may see other new plants as well.
We monitor economic development in our area very closely because both in terms of serving new industrial loads, but also the residual jobs that are created from these industrial announcements and they seems to be active here in North Carolina and this is a good thing. You see announcements in all regions of our State some of the larger ones would be the brewing companies over in Asheville area, have announced that two largest breweries are going to build facilities over in that area and the pharmaceutical industry is also very strong in the Raleigh-Durham area as well. So we’ve had a good year and we hope that that will continue to uptick in the housing market once these jobs get in place.
One area of natural gas that gets a lot of discussion these days is the potential for using natural gas as a transportation fuel and so we’re closely monitoring any developments in this area. I would described our role today primarily as a facilitator. We are educating our industrial and commercial customers particularly those that we think might make good candidates for use of natural gas as a transportation fuel. Those that have larger fleets that come back to us in centralized location; everyday they tend to make the best candidates. We help them develop their business plans. We make sure they’re aware of any incentives or tax credits that might be available.
We have seen some growth in this area, the largest area that we’ve seen comes in with refuse trucks. The picture you see here is one of our customers in the Asheville region that has converted their – actually they didn’t convert their trucks, but when they purchased new trucks, they purchased natural gas trucks for their sanitation trucks and those are fueling stations. So they bring these trucks in, connect them to the hose from the fueling station and then they refuel the trucks overnight. So that’s called a slow-fill refueling station. You can custom design a fueling station to refuel your vehicles really in any rate you want and you can do it as quickly as we would at our gas filling station. Those are more costly larger compressors to do that. So when you can most of them choose to let them fill out overnight because the stations are less costly that way.
We are also involved in ourselves with our own fleet in converting some of our trucks. We expect by the end of 2017 to roughly have about a third of our trucks using natural gas. We have three stations that we operate at our facilities right now that are open to the public and we certainly noticed an increase in traffic at those stations since the price of natural gas has reached some of its historic lows. We anticipate adding five to eight more stations in the next three years at our facilities and of course those will be open to the public as well. Local and State governments are also pretty good candidates of transit systems of common vehicles that we see filling up at our stations.
And I would like to close with just a picture for you of our capital budget. Our capital forecast is typically driven by what we expect to occur with respect to new business across our system and as well as reinvestment and our pipeline infrastructure. So both of these can change either from the economy or pipeline safety regulations can both result in changes to our capital forecast. But based on what we see right now the regulatory environment as well as the economic trends this is our forecast for ‘12 through ‘14 and anywhere ranging from $50 million to $60 million up to about $70 million in 2014.
So that concludes my presentation. And at this time, I would like to invite Kenny Jackson, our Vice President of Rates and Regulatory Affairs.
Thank you, Rusty. Good morning everyone. As Rusty said I am Kenny Jackson, Vice President of Rates & Regulatory Affairs for SCE&G and I have been with SCANA for about 33 years and I want to talk with you this morning, you've heard a lot of our previous presenters talk about capital investment.
As you can see the engineers they know how to spend money. So I am going to come before you and talk with you about how to get cost recovery of that. So what I would like to talk with you about is the regulatory climate in South Carolina high structures, the structure of it and talk with you a little bit about the Base Load Review Act and also talk to you about the Letter of Intent that we filed on the May 25.
The regulatory climate in South Carolina which I will spend most of my time on as you can see we have a public service commission; we have an officer of regulatory staff. Two separate state agencies, the Public Service Commission of course is made of seven commissioners, they serve four, three year staggered terms. They are elected by the Legislature of the General Assembly.
They offer regulatory staff with separate state agencies is headed up by an Executive Director. His name is Dukes Scott and he serves a six year term and a couple of years ago he got appointed for a second six year term. And he is appointed by the Governor.
In North Carolina the structure is very similar to South Carolina where you have seven commissioners. They serve staggered six year terms, used to be eight years and they changed it last year to six years, and of course appointed by the Governor with confirmation by the General Assembly. The public staff is very similar to the officer regulatory staff in North Carolina and in South Carolina. The Executive Director Robert Gruber, he served a six year term. He is appointed by the Governor with of course the confirmation by the General Assembly.
Now Georgia is very different where we have semi Georgia our gas operation over in Georgia and have five commissioners and they are elected state wide by the voters and they serve a staggered six year terms and they have commission staff much similar to what we use to have in South Carolina that supports the commission about a 100 staff members some in the utilities division, some in the administrative division.
So let me move on and talk more about South Carolina. Right now, we'll spend most of my time. We are structured starting back in 2004, the General Assembly passed Act 175 which removed the consumer [advocate] from involvement in utility proceedings and that of course starts where or as came into being with the Executive Director of the separate state agency.
And as you can see the ORS is supposed to balance the interest of the State of South Carolina, the consuming public as well as the financial integrity of the utilities. I deal with Dukes Scott, Dan (inaudible) quite a bit in talking about I tell they are legged stool and they should balance that three legged stool and may come to a surprise to you but we don’t always agree.
So that’s where I talk a little about balancing that three legged stool but the ORS and their function of course is to is to audit function, investigative function. And as you can see on the next slide, the Public Service Commission where I cannot talk with the Public Service Commission about any issue that’s before them or that may come before them.
I can talk with office of regulatory staff where you can see the arrow is going back and forth there between the company and office of regulatory staff. I can talk with them on a daily basis which a lot of times I do about any issue, but has to be very careful with the PSNC because if you got something before them but something that may come before them I really can’t talk whether we view them more like judges.
Now in an evidentiary hearing of course that’s where present the case, that’s where I present testimony, witnesses and so forth and that’s where our witnesses get to answer the questions from the judges or the commissioners in this case. Now, one way that I can speak with them is through what we call an Ex Parte briefing. I can request an Ex Parte briefing and the commission was set a date for that brief and I can come before them, bring my witnesses to talk with them about specific issues that I wanted to talk with them about.
And let me give you an example. Early in the year, back in March, we requested an Ex Parte briefing with the commission concerning our DSM, our energy efficiency program and we went before them, others can come and view the briefing, sign in at the briefing but only the commissioners can ask questions and we do a presentation and the commission can ask us any questions about that presentation.
So there is a way to get before the commission. If you have something going on that may not be involved or rate adjustment at the present time. You can come before them to an Ex Parte brief and talk with them about the subject matter.
Let's talk a little bit about the rate design and regulation as we move forward here. SCE&G's rate case is typically about every two to three years that’s going to be the way we’ve been doing things in the last since 2007 and bylaw the cases have to be resolved within six months.
All of our rate cases since 2005 I might add, have been resolved via settlement, working with ORS and the other interveners in our cases. We have what you call and annual fuel adjustment review and a purchase gas adjustment review. We just finished a fuel adjustment review back in the spring. I might add we had a small reduction in our fuel cost at that point in that proceeding and our PGA is coming up later this year.
Moving on down the table there, you can see that we haven’t allowed our ROE of 10.7%. As of our latest quarterly report that we are required to file with the commission, we are running 8.86%. Of course when we file the rate case of course we have historic test years that we look at and we are allowed to make what we call pro forma adjustments.
These are known and measurable changes to that test with period. If they can be verified, adjustments that we know are coming have already been initiated. We can go ahead and annualize into the test period. [Gas], we allowed 10.25% return on equity as of that December filing that we are required to do on a quarterly basis. We were running 9.48% and under the Rates Stabilization Act which we came back in 2005 on our last gas rate case, we can make annual filings.
We have to make annual filings by June 15 and if we are one 50 basis points below or above the 10.25 % allowed ROE, we have to adjust our rates accordingly get back to the 10.25. Last year and this year as you can see we are below the 10.25 we just have to see what the numbers come out to once we get our quarterly end for 12 months into March of this year. And we will file them on June 15.
We will see at that point whether we have to make an adjustment up or down on our rates. But that’s a historic task here also with known and would make measurable changes that we are allowed to make. On the new nuclear, you can see we have 11% ROE. We came under that back in our filing in 2008, it went with order that came out in early 2009 we were allowed 11% ROE on the nuclear construction and again that is our revised rates filing that we do every year on May 30.
We just made a filing on that and I am sure you have probably seen that but now we go through the process of the audit with ORS on that and we will move forward to see where that will end up.
I will talk a little bit more about that in just a minute. Let's talk about the Base Load Review Act and some of the key features of it. It’s a very, very important piece of legislation to us particularly, if you are building a nuclear plant. Upfront prudency on the plant you get that when you get a PSC order under the Base Load Review Act.
You have your annual revised rates adjustments that you are allowed to file which we did on May 30. You've got the pre-approved 11% return of equity which is what the revenue requirement is based on. And then at the very end when you are about to bring your plant online the in service cost, the depreciation, property taxes, O&M expense of operating that plant you get to project those or use projections to do what we call a final revised rates filing.
So that will happen of course later on when we bring you to online. Some of the actions to-date, the commission has affirmed the prudency of our decision to move forward with the nuclear. They did that back in the order in 2009. We had an issue, rate adjustment in that filing, about 0.4% and of course we have been filing revised rate adjustments on an annual basis since that time and just recently here in 2012 on May 30 we made a filing.
One component of that Base Load Review Act addresses abandonment. It says that the burden of proof falls on the utility to prove as to why the decision to abandon a construction project was prudent, so but we do have that mechanism in there if we have to use that and looks like everything is going well in our project at this point.
Let's look at the history of the Base Load Review adjustments to the rates. As I said earlier about a 4% increase back in ’09 that was an issuance and as we add investment in that plant on an annual basis we are allowed to recover our financing costs and you can see in November of 2010, 2011 we all had additional adjustments and of course once ORS issues their audit on the current filing that we have before them, they will come in and file their report to commission and the commission will issue an order and of course right now where we do things with the Base Load Review Act, we filed on May 30. But the period under review that we are projecting our expenses out to is on June 30.
So we have a little bit of a forecast there. So when ORS will come in and do their audit, what they will look at is actual expenses at June 30 and that includes everything including capital structure. So you'll see some time that the number may change from where we originally filed, that doesn't mean we disallowed anything, it just says that they updated to the actual period under review and whereas we used them for projected numbers.
If you look at the blocks down at the bottom there, you can see the activity going on with the 2012 Base Load Review Act filings. Of course we have to do a quarter report every quarter with the commission in ORS, and you can see that the fourth quarter from 2011 we made that filing back in February and you can also see on May 15 of this year we did an updated cost petition which I will talk with you a little more about in just a moment. We also on May 15 did another quarterly filing of the status report along with that updated petition on May 15.
We also have the revised rates filing that we made on May 30. So we've got a couple of filings going there that I will talk with you about a little bit more but as you can see the rest of the year we’ve got two more standard report filings that we have to make and we also have the update here in the commission has already set our update petition for hearing on September 6, where we will put up witnesses, file testimony and then put forward our case.
Let’s talk a little about what’s happened with our construction budget concerning the new nuclear projects. Back in ‘09 when we got that order, you may remember that the original order back in March of ‘09, we had original cost of about $6.3 billion as cost of the project all in cost including inflation, AFUDC as well as the base cost of the project.
You can see that the spring core-to-core remove the contingency component which is $438 million subtracting that out along with the update filing that we made last year you can see that we added back a $174 million. Well any change to that budget or construction schedule we have to go back before the commission and put forward the reason why we need to do that. So with the change in the contingencies with the Supreme Court and now with the additional $174 million we have to file the petition update petition with the commission to go back and talk with them and explain why we needed to do that and get their support and get a new order issue.
But at the time, we did that we updated everything again, all of our current calculations including escalation, including AFUDC and as you can see the escalation and AFUDC went down at that point with inflation coming down and AFUDC rate coming down, it was a reduction to the overall cost of the project. So when the order came out to order 2011-345 you can see we are about $5.8 billion or 5.787 billion.
Now we come back and file on May 15 another update filing and as you can see, whereas to requesting an additional of $283 million in the base cost of the project. Again, we’re changing the budget, changing the schedule. So we have to come back before the commission to get approval for that because we do not have a contingency at this point.
As you can see, escalation, inflation continues to come down with the savings there of $290 million. You also see the AFUDC rate continues to come down, additional $18 million. So pending before the commission right now, you can see that we’re projecting the cost of the project to be $5.762 billion, which is pretty much right on top of the last order that we’ve got and it’s of course next to there shows the budget being the order 2011-345 and of course the projections being the latest projections that we filed on May 15 to show it at about $5.8 billion and you can see right at the very end out there in 2017, 2018 where the two lines come back together and are very close.
So that’s kind of a summary of how we got to where we are in the most recent filing that we just made. Again just to reiterate, the original projection was $6.3 billion when we filed back in 2008 and got an order in 2009 and of course the current projection now is about $5.8 billion.
Let's start a little bit about $283 million that the increase in the base cost of the project. About some changed orders that we’ve identified, we’re going with the consortium, primarily cyber security and the new healthcare law added about $6 billion. The transmission cost, some changes there added about $8 million, owners cost have added a $131 million and these are primarily driven by staffing plans , new identified IT needs and new facility needs.
We have done an intensive review of owners cost and we have a general manager who has been working for the last two years doing a significant review with his teams of owners cost and identifying every position, engineering slot you name it I think to come up with the additional $131 million we feel very good about where we are on the owners cost.
Last but not least, the $138 million which is the agreement we share with Westinghouse that we reached concerning this shield building as well as the COL delay and that totals up to $283 million. You can see that one other thing is not only with the EPC contract and milestone we have agreed to, they know an escalation factor on another portion of the another category of the contract instead of using Handy-Whitman, we have fixed it at another percentage level which is good for the project is much more known and you have to worry about the hand equipment bouncing around in the future.
So as you can see new substantial completion dates Unit 2 is March 15, 2017 and Unit 3 May 15, 2018. Just to summarize and you can find this information here and in Appendix 2 in our quarter report that was filed on May 15 and you can also find the line showing the rate increase projection and Exhibit G in the revised rates filing. As you can see getting the COL you see an uptick in the capital cost that we have in the spent and of course along with more capital cost expenditures come rate adjustments.
But the great deal I want to point out to you right now is out in 2017 and 2018, where you see rates coming down, primarily driven by the nuclear fuel cost. Nuclear fuel cost being much lower than the coal and natural gas prices that we are seeing today.
Nuclear fuel is still much lower and we expect it to be up in '17 to '18 to drive our fuel factor down on our rates, and thus our rates coming down. So this is something we really look forward to. And seeing the lower fuel, we can see it today in our fuel proceedings with our nuclear. When you're looking at less than $0.01 a kilowatt hour versus $0.025 or so for gas per kilowatt hour and maybe even $0.035 to $0.04 for coal. So you can see this huge differential in fuel costs when you bring those nuclear units online.
Let's look at the ROE trend that we're seeing. And while we are filing -- we had to file a letter of intent. And as you can see on this chart here, we are allowed 10.7% ROE. Our last test period was September of '09 where we were earning 6.82%. And you can see the uptick there to over '10, primarily driven by the rate increase that we got out of the last case. The numbers still hovered around 10% for some time there, and then you see a drop off there in June of 2011, down to 8.6%.
We're continuing to add net investment. When you add net investment, of course, you see appreciation increase. You also see property taxes increase. But one big factor there was in some of the previous quarters that we reported you had the benefit of what we call pre-EWNA weather. Weather was very positive and beneficial during that time period, and the EWNA started and kicked in August of 2010.
So once you started getting all of your test period or your period you're looking at under review, weather normalized, you lost the benefit of any beneficial weather prior to that point. So you see the returns around 8.60% and up into 8.86% tending to flatten out there. We're still adding T&D investment. We're still adding generation investment through capital projects that are always ongoing on our system.
One thing we're seeing though in the last few quarters there an uptake in what we call a cumulative deferred income taxes, which is a reduction to rate base. So that's tended to offset some of the increase in investment that we've made up until that point. So that's kind of where we are at December 2011. And again, we have filed a notice of intent with the commission that we will be filing a rate application.
Just to review with you real quickly the capital structure, this is the capital structure that we're using in the Base Load Review Act filing. Again, this is after March. As you can see the 11% ROE that we have in there that's allowed, this will change. This is at March. The Office of Regulatory Staff will come in and update the capital structure through June, and that will be the capital structure that will be used to determine the final revised rates calculation.
Let's talk a little bit about the revised -- the Base Load Review Act rate adjustments. We have two filings. We have an update filing to change the capital cost schedule, and we also have a revised rates filing under the Base Load Review Act. As you can see, on 5/15 we filed the update petition. From the time we filed it, the commission has six months to issue an order.
And you can see on May 30th, we filed the revised rates application. And the Commission has already determined the testimony date when our testimony is due for the update proceeding, which is July, the 26th. Then on July, the 30th, or as is revised rates report is due, it's due 60 days after we file. So July 30th, they have to file their report and their recommendation with the commission. On August, the 9th, ORS' testimony is due in the update proceeding.
And of course on September the 6th, we can expect -- the hearing has already been scheduled for September 6th concerning the update proceeding. On September the 30th, we expect the revised rates order from the commission. And of course 30 days later, those rates go into effect on October the 30th. And then of course, then you have the PSC orders due on the update petition that we filed back in May.
So that kind of recaps what we have going on under the Base Load Review Act, two very important proceedings for us there. Let's talk about the general rate case. At this point in time, we had an earnings call. Jimmy, our Chief Financial Officer, I think told you we were considering filing a letter of intent at that time. On May the 4th, I attended the -- Steve Byrne attended the South Carolina Energy Users Committee meeting in Charleston.
They invited us down to do a presentation. We reiterated to them -- this was a large industrial group in South Carolina. We reiterated to them that we were considering filing a letter of intent, just like Jimmy had revealed at the earnings call. And then of course on May 25th, we did file the letter of intent. So in the late June, July timeframe, we will file the application for a rate adjustment.
And from that point forward, up until about November, you can expect the discovery period settlement discussions growing up into that point. We are estimating -- these are our estimates right now. The commission will have set all of those dates. But we are expecting the hearing somewhere in the November timeframe. And of course, we would expect the PSC vote sometime in December, which will put it about six-month deadline, and then new rates would go effective in early January.
So that's kind of a recap on the regulatory side. And now I'll ask Jimmy Addison, our Chief Financial Officer, to come up and talk with you about the financings.
Thanks Kenny. And again, I want to thank you everyone for being here today, not only in the room but, as Kevin said when he started, also all of you that are on the web. We're close to the part you really want to get to, which is your Q&A. But hopefully, we'll answer most of those questions either through what you heard already or through the last few remaining slides.
My goal is not only to talk about the financials, as Kenny said, but I also want to close a little about other two major operating areas around the economy, both South Carolina and Georgia. We had Rusty spotlight North Carolina today. So I'm going to take a couple of slides and do that. All of maybe a dozen slides in total and we'll be on through this.
As far the business highlights, our plan has not changed. Kevin told you we're back on the interstate and we're moving in the fast lane where we were before. But all we really changed is the leadership, and really a few of us moving around on the bus. But we're in the same bus, we're in the same region, we know the region we're going to continue doing what we're doing, we've got good growth in all of our territories, coming back off of the housing recession.
I thought Rusty slide where you saw the new service adds was very representative of the South Carolina territory, as well with that bar chart just slowly making back up. Now we're back and up back to 2007, but nowhere is and maybe that was not a healthy sustainable level anyway. It's the lesson we probably learned. More than 50% of our CapEx supports nuclear. We'll talk about that in more detail.
And the EPC agreement with the consortium is more than two-thirds fixed now with the change Kenny mentioned a few moments ago. We continue to have a strong financial profile, investment grade credit ratings which we're very committed to, strong liquidity which we're very committed to. We're just not going to get back into a corner when we need capital. And a very balanced approach, a very transparent approach towards financing our growth.
Down the bottom, very familiar pie charts to you but very important ones, whether you look at earnings per share and total assets, our rate base if you will, we're really concentrated the regulated businesses in regions that we know, with regulatory mechanisms that we understand, and have a good deal of trust in both ways, as Kenny discussed. I want to spend just a minute on electric weather normalization adjustment.
Both of our territories have some mechanism if gas regulated businesses of weather normalization adjustment had been for a while. And our North Carolina business is wrapped inside this utilization tractor, as Rusty discussed. But we've implemented that in South Carolina in the electric business now, and the benefits are really listed over on the left. We removed the impact of abnormal weather from our margins, and that's fairly obvious.
But the real important thing for us, particularly during the construction period, is transparency and predictability. And we think that's what this really affords us. We don't have to worry about the really extreme quarter. And then, when we first implemented this, maybe we received a few ho-hums from some of you and maybe even from some of us and some of our employees.
But if you look on the right there, the graphical representation of what might happen between normal weather and abnormal weather, it really came home in this first quarter, this predictability and transparency, where our earnings would have been $0.13 per share lower had it not been for the eWNA. So that's just in the electric business. Certainly, it would have been substantially lower in the gas businesses too, but this electric increment we think adds a lot of stability there.
The way the process works on the bottom left is it's a real time adjustment. So fuel costs continue to get built as they are. So if it's 15 degrees in January in the south and abnormally cold, and we're running the plants a lot more, we're going to build the customer for the actual fuel cost on a real-time basis that month. And we're also going to adjust the margin component of the rate to a lower cost per increment because we're selling more units we don't need the same unit costs build to the customer.
But there is no deferral, there's no a year later we have to go before a regulator, it's all done real-time on the build that month on a cash basis. A little bit about the economy and our territories, and you've heard some of this already from others. Economic announcements in 2012, we have continued strong in South Carolina with another $125 million of investment. That's on the heels of $3.2 billion in 2011.
And I got the question from one of you at break, just what's driving that? And it's really coming together of a governor, department of commerce, the whole business community, SCANA included, plus the other investor-owned utilities and the other municipal and state-owned to really drive this economic growth. We're not afraid to reach out and compete for this business.
You'll see later we've got a real portfolio of businesses. We're not concentrated in any one segment, and that's really paid off for us here. Container volume at the Port of Charleston; the Port of Charleston has, in its history, been as high as the second highest volume port on the East Coast behind the port here in New York. I don't think it's quite there now but making a strong push.
And an interesting statistic is the economist in South Carolina will tell you that one in every five jobs in the state is somehow tied to that port, and that is very important. So this metric of volume being up 7% in Q1 of 2012 compared to 2011 is a strong metric. Residential building permits up almost 6% as well in March compared to a year earlier.
And over on the right, if you look at unemployment rates, although national rate has come down to around 8.1% as of the end of April, I think a slight tick-up here at the end of May, look back to 2009 and you'll see that the South Carolina rate was over 2% higher than the national rate, and compare it down to the end of 2011 where it's closed about half of that gap.
And then in 2012, it's back to less than three quarters of a percent gap, really driven by all this economic announcements that have gone on turning into real jobs. And then we've kind of further stratified the South Carolina economy into the areas we serve in our electric business in the far right column. And you'll see that that is actually almost a full 1% below the national unemployment rate now.
So a lot of good things are going on in the Southeast North Carolina, having extremely strong quarter in the first quarter that Rusty presented a few minutes ago. And we're really encouraged to hear about what's going on more recently in our territories. Here is a graphic presentation of it on page 118 for those of you following on the web. What's denoted in blue is our electric and gas service territories.
And generally, you might think -- for those of you in the room here, you might think of this region generally in the west and the south as our electric territory, and to the north and the east as our gas territory, where that's served by Progress and Santee from an electric standpoint. So a lot of strong announcements, certainly the anchor tenant being down in the Charleston area, with Boeing, but that's certainly not the only thing going on.
That's probably a third of all of the momentum we've seen in the last few months. And we're really pleased about the portfolio approach. This is similar but a little different than Rusty's slide in North Carolina. What's really encouraging in this is not any one area dominates. So we think just like our generation portfolio we think makes a lot of sense. Just like from an investment standpoint, the portfolio makes a lot of sense.
This is our investment in our businesses, and we think the portfolio approach is incredibly important. We've got a very favorable business environment in South Carolina. I've already mentioned incentives in attracting business. We've got a very low unionization rate in a right to work state. The location is important. When folks come looking at South Carolina that maybe aren't familiar with it, they go away impressed.
You may not be aware of this, but Charleston, South Carolina just displaced this past year, according to Condé Nast, San Francisco as the number one preferred tourist destination in the U.S. We're about to host the PGA Championship there in August. And folks that come there really enjoy the place, and many of them stay. As I tell many of my friends from the Midwest that are retired, down there are beach places.
So there's a reason you don't read about people moving from South Carolina to Ohio. It's a great place to be once you get there. And people tend to enjoy, and folks who make those decisions enjoy being there. Accessibility to that transportation, the ports is critical. I don't know how many time Steve mentioned it, but I bet at least a half dozen times he mentioned in his presentation that equipment is coming through the Port of Charleston.
And of course, reliable, affordable clean energy is critical to these businesses. If you saw in our video how important it was to Boeing. Over half of the energy generated in South Carolina today is from nuclear energy, and that's before we added two new units at V.C. Summer. And we've got a state that's clearly committed to energy expansion. We think we've got the best legislation in the country to support this expansion of new nuclear.
I don't plan to spend much time on this slide. It's a slide we typically keep in the deck because most of you need this information to update your models. But between Kenny and Rusty, I think they really covered all of these today. We've got a plan in place. Of course, with the electric base rate case Kenny has told you today, we plan to make a filing here soon and have new rates effective around the first of next year.
Of course, new nuclear, he's taken you through the BLRA. Kenny has talked about the gas, and I'll discuss that a little more in South Carolina in a few minutes. And then Rusty has given you a full briefing on PSNC. This is something that's been real important to us, on page 121, the past several years.
When the recession hit, we immediately pulled all of our leadership together and said, we've got to get our hands around our operating cost because we're no longer going to be supporting 2%, 4% or even 6% growth in the research triangle. We've got to pull back on the cost and make sure we keep things in the link here. So we recognized it immediately and we made adjustments, as you see there, on the line chart.
Now you might say, well, what happened in 2010? Now that's not actually a bad thing. Kenny told you, we implemented new electric rates in 2010, and the regulator prescribed for us certain expenses that should go up in accordance with increased revenues. One of the best examples of that would be in a cool mechanism that we use for the outages in our fossil plants.
So we level out that accrual for those outages mostly because their occurrence is spring and the fall and the shorter months. We levelize across all 12 months and across multiple years. And those increased costs were supported by increased revenues. And additionally we had some increase in bad debts in 2010 on the spike of the recession and those have tampered since now.
This will continue to be a focus of our company. We've just had our most recent officers’ meeting of all the executives here from all three states. A couple of weeks ago this is a number one issue we spent on the balance of the morning discussing; it’s a strong cornerstone of Kevin’s leadership platform and we are going to stay focused on it.
Just a moment about SCANA Energy, our marketing business in Georgia, we've been in that business since the market deregulated over a decade ago. We continue to be the number two provider only behind the incumbent at the time of deregulation there; we’re severing about 460,000 customers and we are the provider of last resort and have been since that program was initiated back in 2002. We were recently extended for two more years so we will be a regulator provider through 2014. That's not a huge profit oriented piece of our business there, but we think it’s critical that somebody has and as a broad platform good customer service, good relationship with the regulators can perform that service for that critical piece of the market to keep everyone calm in the environment.
And the blue box on the bottom left, you’ll see the explanation of what happened to weather. This was the only piece of our business that we did not have some type of weather normalization adjustment and the first quarter was incredibly mild in the Southeast as it was here. But we were about $0.06 off of normal weather in this year’s first quarter compared to $0.02 benefit in weather in the prior quarter for an $0.08 swing.
And then down on the bottom right the final comment I will make about SCANA Energy is that the variable customer mix is now less than the fixed customer mix, so the customers came off of those incredibly half gas prices of $14, $15 back post the Katrina and Rita Hurricanes and gas prices started falling and we have been offering these fixed price contracts for quite sometime not just SCANA, but the market in general and customers said, I think I want some of that now and as prices have continued to come down more and more have elected that option. So that no doubt about that has squeezed margins for the entire market, but it seems to have levelized now at slightly less than half of the customers maintaining a variable price contract.
Just a minute here on historical total shareholder return, I know you all have this information, this is not new information to you, this is all public data. Here at SCANA over various periods of one, five, 10 and 20 years compare it to the various indices, both very broad and more narrow for our industry. But the reason I really wanted to put this slide in here is not because what’s on the page, but what’s not. Now reading a lot of reports how your summaries or other summaries about our company and I will read what we think this company should trade one-to-one on half returns below their peer group. And I just don’t quite get the disk and data.
You look backwards and you see that I don’t understand how that’s completely warranted, may be you might say, well, but we’re looking forward now and I would say yeah, but we had the same kind of information out there five years ago, so they should trade 1:1.5 turns below their peers. So I think you’ve heard from the other presenters this morning that we’re well down this trail now. We got two-thirds of this nuclear contract in fixed or fixed indexed type arrangements. We got the benefits of watching what's going on in China. We got a lot of things going on with the module construction. Certainly, there are still risks there, but at least we know what history has shown us here on page 123.
A little bit about our CapEx. I want to start off on this slide with really three comments and the first is down at the very bottom in the small writing, the note, and what has changed here is we’ve been able to update this slide now for the in-service dates changing from ‘16 and ‘19 to now 2017 and ‘18. So that has shifted the CapEx along with the agreement with the consortium around the delay from the NRC and several other matters that Kenny referred to, that has been incorporated in here as well.
So you will see that on the first green bar here on the normal line, you will see that we’ve roughly got about $0.5 billion a year on average that we’re investing in our ongoing businesses outside of new nuclear and then the nuclear about $2.7 billion over the next three year period, of course Kenny’s chart and our BLRA filings detail all of this new nuclear route throughout the end of construction cycle. But 2014 is our forecasted peak year. And then finally, the nuclear fuel acquisition takes not only for Unit 1, but beginning of the procurement process for Units 2 and 3 for that first load out in ‘17 and ‘18.
So to make this a little simpler, we’ve added a second page here in the presentation. That really shows what’s changed in this slide from the last time you saw it and what's changed is the shift, a reduction in 2012 in the CapEx needs generally driven by the delayed receipt of the COL and then you begin to see the increase of that out in 2014. Now overall, if you look out in the future years which you all have the information there is a net increase out in the future years, but there is a reduction in the near term. So we thought this type of presentation might make it easiest for your modeling.
And now how do we finance this; on page 126 here there is three real changes here that we want to emphasize today and for those of you following on the web you will just have the printed version for of you here in the room we’re going to add and make these three changes. Here is the original presentation that we’ve shown at our most recent first quarter call.
The first change is in the debt in 2012, we’re going to take this low interest rate environment and now having the COL in hand, having the agreement with the consortium and we’re going to increase this new issue that we had originally forecasted at about $200 million to about $250 million. And we’ll execute that sum sometime here in the second half of the year. We think it’s a good environment to go ahead and pull the trigger on them in the very near term.
The second thing we’re going to do is we’re exploring and likely going to delay this equity forward from the fourth quarter of 2012 to the first quarter of 2013 and that’s all driven the CapEx line from the push out in the capital from 2012 into future years. So we don’t have that all button dubbed yet, we think that’s very doable; we are extremely committed to pulling this forward down, we definitely need the capital. We are going to pull the capital down; it’s just we think we can probably delay it 60-90 days something of that nature just because we don’t need the cash at this point and there will be a small benefit from the increased EPS, less dilution in 2012 as well as in the beginning of 2013.
And then finally the third thing which is not so much of a change, but its the first time we've really disclosed this publicly is we are going to go ahead and tell you now that we even have more certainty around. We got the license in hand; we've got the agreement with the consortium. We want to tell you what our projection is from this point forward for our financing plan for the balance of the project and that’s what’s presented in the far right column estimated 2015 through 2017 and we've got our debt laid out there that follows the plan of 50-50 incremental financing and we also plan to run the new issuance of shares for the 401(k) and DRIP plans each year of ’15 through ’17 generating an additional $300 million in equity and based upon where we are now with the lower projected inflation, we now expect only to have to raise an additional $100 million in additional offerings of equity past 2014.
So to graphically present the remaining secondary offerings that we see, told you the first quarter through ’14 we had about $400 million. We now estimate there's only about $500 million in total equities raised beyond that it will be generated from the floor that's already in hand and as well as the benefit plans and the investor plus plan. So that additional $500 million in context of today's market gap is about 8%.
Now presuming that markets don't go haywire and that we continue to execute on our construction contract and the stock continues to increment overtime as we issue this we expect it will be even less than that, it might be less than 7.5% or so of our outstanding market cap. I know there has been a lot of concern about that in the past, how much overhang is there out there for this additional equity, how can a small company possibly build these two new units and we just wanted to present to you everything we know about our financing plan at this point, because it’s smaller certainly than some.
And then finally, I want to get around to earnings and dividends. The only thing that's really different on page 127 than the slide like this you've seen before is we have noted here on the fifth bullet that the equity forward will be pulled out into 2013 and that we've noted here under SCE&G Gas that we now do project a small rate stabilization increase later this year.
So we've got those two things that we know will positively impact earnings. We’ve got a complete commitment to O&M cost containment that I talked about earlier and those were the primary things that gave us the confidence to reiterate our earnings guidance of 305 to 325. We are maintaining our internal target of 317 per share. We have not lowered that despite the weather impact that we had in Georgia in the first quarter and we are all focused on delivering those results.
I got ambushed between our table and the restroom at the break saying I don't see anything on this slide about your long-term commitment to your 3% to 5% earnings growth. That’s just an omission; it’s not a plan change. I want to reiterate our long term growth over a three to five year period is also 3% to 5% and we apologize for not putting that on there, but you guys are on your toes I appreciate that.
And then as we execute on that that should afford us the opportunity to continue to deliver on our dividend policy of paying out 55% to 60% of that in cash dividends to our shareholders, dividends have always been critical. They seem extremely critical these days and we are comfortable with that range. We are slightly above that range now, our Board is very comfortable as is our executive team in recommending them that we can continue to grow our dividend back into that policy, so we expect to continue to grow our dividend and with the growth our underlying earnings we expect to be back within the top end of that range in the very near future.
So that’s everything I had today from a financing and economy on South Carolina and Georgia. I am going to turn it back over to Kevin now to start the Q&A.
Thank you, Jimmy. I appreciate your attention this morning. We’ve certainly given you a lot of information and I hope a lot of which you were looking for. But before I forget it, I want to make sure we invite you down for the analyst site tour which is on June 19th if you want to come, so some of what we talked about this but we will be glad to have you in contact our (inaudible) to make sure you get all the arrangements in place and look forward to having you down there.
So with that I would like to open it up for questions. I would remind you we are on the websites; I want to make sure you get a microphone for the question when they come and we will be available to answer those for you.
Thanks Kevin. Actually a couple of questions, the first one is for Jimmy on dividend policy and I guess you can answer this as Chairman of the Board. But if I take your 4% projected growth off your internal target that gets you to close to 330 for next year, a 60% pay out is the current dividend so can you answer what you are thinking about in terms of dividend growth going forward?
Well, we want to make sure we continue to grow at the rate of the core business. We have couple of dividend years, I think the last two before this year a little bit hit of what we had given in the past as we already continue during that period to show that we were going to maintain our dividend level and that’s something we’re going to cutback. If we grow back they took us out about 60% level, we are trying to get by close to that 55% level, so we are looking that on annual basis compared to the actual growth we see. We want to make those final decisions till we see what the economy does. The thing that’s been challenging for us, it’s finally, when we’re back on this path of continued growth. It seems virtual growth having seen is sustained at this point, but our dividend policy I am trying to make sure that we grow at the core rate of this business is still and we look to maintain that.
The second question is for Steve and for Ric, if you don’t mind, but Ric made a comment before at the outset that there were some cement changes that sparked an NRC license amendment possibility and they were unprepared for that. I think there is probably more to that story. Can you talk a little bit about them?
Yeah, sure, I will give you the summary of that. It’s a little different for both sites but I’ll just try to generalize it. The issue was associated with kind of an ease of construction type of approach and trying to open up some of the area and some of the base discussions that Steve discussed. Just to get a more flow of concrete. So the request of fundamentally just kind of opened up the design from we’re certified in the certified design document and there was discrepancy -- a difference of opinion between ourselves and the NRC relative to what was the fundamental design basis for their determination of the design document.
In other words, towards the actual construction code or was the actual drawing that was in the DCD. At the end, I mean, we took the position that was the fundamental construction code, their determination of their approval was based on that preliminary drawing that was in the design certification document. So there was difference of opinion obviously, they won the trump card, so we ended up and then actually change that. So a real different impact on both stations and V.C. Summer impact is lot less; we were actually fabricating the rebar case outside of the construction area. So it’s a much less of an impact but all the rest of the work both at Summer and at Vogtle continues on and Vogtle we’ll actually redo some of the rebar area; a lesson learned on that basically is strict compliance to the design certification document.
As you guys probably know in the previous under nuclear construction we were able to actually make design changes and yes two-step licensing process where you reconcile everything at the end. In this case, the design certification document basically trumps everything and therefore even though we can’t go back for license amendment type of processes. We have taken a rigid approach with both SCANA and with Southern to fundamentally stick to the design certification document and use that as the preeminent document and try to minimize any kind of changes as we fabricate or as we construct the site.
My follow-up question to that is if you do go outside the box like that and then NRC comes back and says no, who is on the hook for that in terms of the cost?
I would thank the position that we’ve got an EPC contract and that contract specifies very clearly how the construction is supposed to take place and we would expect them to build for us the design document as approved by the NRC.
Let me give you a feel for that; we just finished, we’ve done about 7,000 certified for construction drawing reviews in the last 60 days after the item, after we discovered this issue just to be sure and we've discovered less than a dozen that have the same kind of potential impact and of those roughly 12 with adjusted basically all of the two back to the original configuration. So we are seeing less than half a percent of any kind of similar issues. The good thing about Part 52 and the COL process is you really do have a lot of detailed designs done early and so we've been able now, we maintained basically a certified construction packages 12 months before we actually need them on the site.
So we actually get pretty early discovery and now that we've verified now we'll finish all reviews of next 12 months certified for construction packages by the end of June. So in other words we will have 12 months work ahead and all those packages will be reviewed by the end of June.
So we will have very high accomplishments when I have the same type of scenario. Now what we do, we will work through with licensees to make those design changes early. But hopefully we won't, we've so far we've seen we haven't seen anything that would indicate we've got a similar issue.
Just following up on that, in terms of these design changes, I mean should we think of these perhaps decreasing in potential as time goes on since I guess one of the things its a little bit surprising is how early these things seem to show up and then just getting a sense as to how we should think about you know, how those might change I guess. I mean is there any rule of thumb that we should think about as to the potential for these to show up again I guess for the 12 month period. That's the first question.
I am not sure I can answer exactly the way, but I will try. We will get early discovery, I mean the basic conduct of operation having 12 months of, roughly 12 months certified for construction documentation ahead of the work and field is really entailed to two things. One, we sure we man load the project well but than the other one is exactly to do what were you talking about. It’s an early discovery kind of process. So we don’t expect a lot of any big changes but on the other hand we have to be agile enough with the two owners that we do discover something or there is some kind of, as per reconciliation that’s needed that we interact with the staff very quickly. So I think unless you want to share anything but we’ve actually put together kind of an operating structure with the license seem to be able to deal with any kind of changes if we find them.
Let me just add that a lot of people think that this discovery was a bad thing, from our perspective it was good thing. It was a good thing for a couple of reasons, one is it calibrated the designer to the fact that the NRC is going to be scrutinizing the design control document. So in the case of this rebar you have rebar basically if you look at like fingers they just smash like this, and the cage sits down on top of concrete pour the basement around it. Well on design document at the edge of that cage where it would contact the wall section there was a hook. So the hook looks like this so you do a constructability review with the constructor and they say boys should it be easy we can do like this. And so they go back to the designer and say can we do this. The designer looks at it and look at the code and they say yeah we think you can do that.
Now it’s on a drawing this labeled as tier-2 star as you got Tier 1, you got Tier 2 and then you’ve got this nebulous tier-2 star. The NRC takes the view that if the drawings label is Tier 2 star, everything on the drawing is Tier 2 star.
The designer would say, that’s not the case, that’s not what we intended. So the other ancillary benefit of this is it has shown the NRC that there are some issues that they not have to deal within this. If their assumption is that everything is Tier 2 star, we’re going to inundated them with license amendment request. That is the last thing that they want. So it has brought the NRC designer and the owners together to say we need to work through a process to get through these things because they’re going to be more. Ric pointed out the fact that we’ve done a review after we found this one and we found a couple of other issues but there will be another one. There might be another one next week and we just need a mechanism work through them. So the NRC is amenable to working with us to find a solution to these problems or these issues. So my way of thinking, this has been a good thing.
Okay. And so I guess you should not think that they don’t want to be inundated with license amendments and you don’t think that’s a likely outcome?
I don’t believe that it is a likely outcome that as a result of the design changes, they’ll see, they’ll be inundated with license amendment request. Now we will initiate license amendment request. Now as we said here today, we’re aware and had been aware and have informed the NRC that we will be submitting a number of license amendment requests. So they’re prepared for those. The one on the rebar was one that they were not prepared for and it was probably a good question by the resident inspector at the facility that founded, but there will be other ones like that. We just need a mechanism to work through it.
Okay, then just on slide 106, we go over these updated cost filings, this escalation, which seems to be, I guess, mostly because of the inflation expectations going down. Could you give us a sense as to how much the inflation expectation supply is going down and where it stands out today? I mean how we are thinking about inflation and I guess how that change in that might impact things going forward I mean it just seems like that's a significant change and how should we think about that?
I think you have seen the economy slowdown over the past four or five years. It had a big positive impact on the plant. The simplest way I think to look at it is if you look at the estimated cost we took the commission back in 2008 and it was around $6.3 billion, the latest estimate we got now is $5.8 billion with all of the cost adjustments we have in there. The biggest piece of the difference between the $6.3 billion and $5.8 billion is lower escalation cost based on what we see today in the projection we got in the project. And I told somebody that the people say we write those into account, well in those account because we have enjoyed lower escalation since we started the project and we believe that will continue going into the future. We can't give you the exact amount, we know that it will change but as we sit here today that's the biggest piece of the difference between the $6.3 billion and $5.8 billion in the very things to-date.
Could you just give us a flavor of what the inflation number was and is right now I guess just what you got in terms of what that inflation number is?
It was in the original filing Kenny, do you recall those number?
Kevin, I don’t have them with me but they are on our website in the [BRA] quarterly filings and they are on Appendix there in the back up. I just don’t have them. Harris probably have something discuss with you afterwards.
We update those every quarter when we file. We show what's changed or what we think is going to happen for the remainder of the project.
Kevin, I (inaudible) not only, you were talking about the cost of the project coming down and Steve always says it's a great time to build because the cost are down and I always add in the great time finance, that $250 million that we talked about we will do in a few months based on the hedge we have in place, we project that cost of that 30 year fixed rate money will be less than 4.1%. That's compared to our fixed rate overall debt portfolio that's about at 6% which is not a bad number over our careers. That 4.1%, the more of this we can build now at these lower costs of financing these rates the customers will benefit for 60 plus years.
Going back to new nuclear questions, where and maybe this is a dumb question but where does accountability lie with regard to who is responsible for what when it comes to Shaw, Westinghouse and SCANA. And the reason I ask is the $138 million increase for the COL delay in the shield building, how much of that was materials breakdown, how much of that is because of redesign issues, etcetera?
The basic answer to start with is we have the EBC contract. We are showing Westinghouse for the construction of the plant. So the construction of the plant is in their core. But as that process goes forward, we work very closely with them to make sure we are doing it for way we believe it was designed and believe it the way the consortium should actually go forward based on the plan.
We had some disagreements out of the box on the shield building, some of the changes in the structural modules which is why we intend to have negotiations to settle that issue. We believe that's the biggest issue we've in front of us, we've got that behind us and now that that's resolved we are in a position to go forward. To think we are going to go from now to the end of the project for that some other issue that pops up I think is unrealistic, I mean that’s very complex design, it’s a very complex construction project involving counter obstacles as we forward. The key from my perspective is not that we will have a disagreement but how do we resolve that and I think if you could see the teams working together on a day-to-day basis our focus is on completing the project within the design cost that got out there.
Because we have issues, we will sit around the table and we'll try to negotiate and make sure we can keep those behind us and not accumulating it in front of us as we go down the road and our goal is to stay out of court, stay out of arbitration and make sure we can resolve amongst ourselves.
I think these issues will resolve because of the COL. You had the COL delay, you had the design modification, [Technical Difficulty] basis of the shield building and other things right upfront probably some of the biggest points you will see based on what we know today. So the fact that we work through those has got us in a position now where we've started the major part of the construction without those obstacles in front of us.
We could have some more issues down the road and we will have to discuss those and resolve those as we go forward but I feel very good about the way we are, I feel good about the attitudes of the team to make sure we can resolve these issues fairly, not just for us or for them but for the customers because at the end of the day it’s the cost that gets passed on to the cost of the new plant. So we are very cognizant of that and we are working very diligent to make sure we can minimize that for both sides.
So would you be able to provide some insight into the design modification issues. Was there a bigger number that was brought to you and you negotiated that downwards or is that something you can't disclose because we are seeing in Georgia similar issue arise with a number that's been put out there and there's potential for discussion?
I want to speak for Ric, but it maybe similar but different in terms of what they are going through in Georgia. I know from our perspective you know we look at the information that's brought to us and we cannot disclosed where we started if the negotiation we know that it was a big issue. It was something we’ve got lot of deposit for the project to get resolved and we are very comfortable with the way we resolved it. We think it’s a fair settlement for all parties and we will be presenting that to the commission and I am confident that commission once we present that information to them that will be in the filing and access to that we file the petition which should be approved we hopefully it'll get through by the commission.
And one last question with regard to the construction timeframe, the volatility of the weather, the variations from normal have increased. Is the construction schedule based upon normal weather or does it factor into the extremes because like major concrete pouring is happening in August and August tends to be a pretty heavy storm month down in the South so just trying to figure out, if those things have impacted into the time frame?
Yeah we factored in what we would anticipate for weather. So far on our project we probably had better than anticipated weather. We have lost very few days on the construction schedule so far to rain. Water is the biggest issue for us and probably the early summer from our perspective is the worst time for a thunderstorm. So like right now is the worst time.
So far the weather has been very cooperative with us. We do have chillers installed on the concrete batch plants because we do anticipate pouring concrete during some very hot months and we do want to be able to slowdown that pouring because you need the concrete to cure and if gets to hot you can get cracking. So we actually will cool down the mix as we mix it, so we are prepared for the adverse as well. And we did do we have done a couple of things we’d like Module Assembly Building to make sure that we construct those modules indoors to get it out of the weather, so that piece is really not dependent on the weather.
I guess, this is probably a combination question for both Ric and for Steven if you don’t mind. I mean, the two projects, one in Georgia and the one in yours, they are obviously different owners but it’s the same consortium, it’s the same design. I was just looking through some of the testimony filed in Georgia at the end of last week regarding that project. There was some very interesting commentary by the construction monitor that works for the commission. You know, some comments regarding like Shaw Modular System and some things I just don’t really understand regarding like he wrote some comments that [SMS] is not just the ability to meet required production of high quality modules. And he expresses pretty vocally some concerns that [SMS’s] ability to deliver and then you talked in detail about even though the project schedule has been updated due to delays in the COL that he still thinks about status and the timeline and the project there is very, very much unclear and that there is not, there is some scheduling issues. I am just curious that you all are saying some of the same issues with Shaw Modular Systems to be able to really deliver as projected and outside of what you’ve seen with the delay in the COL, there are other issues that can impact the schedules looking forward?
Yes, the Shaw Modular Solutions facility is obviously was constructed specifically for nuclear modules for AP1000 in Lake Charles, Louisiana. They’ve had some, what I would call startup issues at a new facility like a lot of new facilities would. Early on, in my estimation, they did not inculcate the facility with a nuclear safety culture, that they struggle with that for a period of time. I believe that they have those issues behind them.
They are late on delivering modules to us as they are for the project in Georgia. We have though now starting to receive modules. We have got 8-10 of the modules received, 20 on site and as Ric pointed out in his presentation we will start wielding those modules together, I think it’s next week.
So the modules are showing up, the modules that we get seen have passed their QA checks and our QA checks. So they are not delivering quality modules. They have had a couple of nuclear regulatory commission inspections at that facility. They had one inspection that was started and then terminated early because there wasn’t enough for the NRC to look at to complete the evaluation.
When they finished that they came out with the number of what we would call violations which is not to indicate that it’s a significant issue but they use that (inaudible) with violations. Shaw answered those violations made corrections to facility; they had another NRC inspection three weeks ago some time along those lines, and it turned out to be honest with you better than I had anticipated what it would.
So I believe that the Shaw Modular Solutions facility has there startup issues behind them and we are now starting to receive modules. They need to be a little quicker and when the modules are delivered to the site, we obviously have a lot of work to do with those modules. So CA20 for example will come into 72 different sub modules, a lot of them will be 70 feet long, then we have put those 72 sub modules into place and wield them together in our Module Assembly Building.
The original schedule I think was for five days a week, 10 to 12 hours a day. So they have the option to add a second shift and work weekend and I believe that they are putting those plans together now to see if they can make up for any time lost in the fabrication at Lake Charles, make that up on-site. So we're fairly satisfied that if they have their problems behind and as we think they do, that they'll be able to deliver the projects and produce them in time for their, what we would call their (inaudible), which is when the module needs to be finished, realize the building, and that large derrick will pick it up and put it in place. We think their problems are behind them.
Let me also give you a little bit of perspective. This has been big part of the discussion at both sites. The flexibility on the fabrication, there's two aspects and I'm not sure I came across as well as I would have liked in the presentation. Number one is we can't make a decision as to how much detailing we do on the site at the module assembly building you saw. We've got initial plan on how much we're going to do right now at Lake Charles.
If we feel with both owners that we need to accelerate throughput at Lake Charles, we can actually move some of the final detailing, things like some of the attachments that go in the outside that we're planning on doing in Lake Charles, we can move that to the module assembly area. In fact, so far our industrial engineering work we've done at the MAB at the site would indicate we can actually improve some of the delivery dates.
So we're looking at how we shift the work scope. Second thing I will say is we have addressed with both owners the potential of outsourcing some additional module work to separate fabricators. In fact, we have already done that on a couple of sub-modules. It kind of relieves the ability -- relieves the throughput, especially for the first two modules at the Lake Charles. So I think we've got some flexibility in that. We've been transparent with both SCANA and Southern and we're working through this.
Kevin, you can parse the question out as you feel fit. But you alluded to, obviously in the rebar issue, your coordination with the Southern Company. Can you just talk specifically about how you coordinate with them through the construction understanding? You've got different economic contracts with the constructors but -- or your vendors, but how you coordinate with them during construction and how that sort of helps you?
The short answer is we coordinate with them on everything. We -- at the upfront, we formed an AP1000 Owners' Group, which originally was envisioned that all of us will be moving forward at roughly the same time. So Duke was a party of that. Progress Energy was a party of that. (inaudible) or whatever they're currently called was a party of that. We were and Southern was. The reality is that there are just two of those that are moving forward.
So right now, the APOG Group, if you will, is being pushed by just the two of us. So we're now making decisions outside of those other owners who don't yet have (inaudible) contracts or are not constructing. I have my folks at Southern just about every day. They have their folks at my plant just about every day. So we do a lot of lessons learned together.
We participate in some regulatory interface groups, New Plant Working Group for example or New Plant Oversight Committee. They're intended to interface with the regulators. So we dominate those groups. Even though there are other members present that will be constructing we hope in the future, it's Southern and SCANA that really are pushing those groups.
So we cooperate with them on everything, save for the commercial issues in the separate contracts. So that's the only thing that's really off limits. But when we send training instructors up to Cranberry or just outside of Pittsburg to the Westinghouse training facility, it's 12 from SCANA and 12 from Southern in a classroom of 24. So we do things hand in glove with Southern and we're pulling for them.
That's great, and then a follow-up for Jimmy. On page 26, the financing plan, you have your dotted line around the equity box. I think the news Triangle alluded to potentially some changes there. Can you just talk about your current expectations and then sort of what could drive changes in that sort of future equity differentiating from the forward equity change that you're making to the first quarter?
Sure, that's page 126 for anybody following along there. And what we're suggesting there is that that's everything that's in a secondary. That's everything it would have to come outside of a structure to send process today due to the benefit plans. And most of you know that 12% of this company is owned by management, directors and employees. That's a big differentiator compared to a lot of others.
But that generates a substantial amount of equity each month. That's what's held out of paychecks. The Investor Plus Plan dividend reinvestment, those together generate $100 million a year. And the forward is going to generate about $200 million next year's first quarter. So all we're showing in the hashed box here is we estimate today, based upon primarily the biggest driver that would wary, would be the project inflation.
That's already down close to $1 billion, if you refer back to Kenny's slide. So that could change. As a fact when I testified to this, I said it will change. We don't know what it is. It's just a projection. Unfortunately at this point, it's come down a great deal. But our plan won't change. It's 50-50, debt and equity. So for every dollar change in that, if it's a dollar down, there'll be $0.50 each way. And if there's a dollar up, it'll be $0.50 each way, debt and equity. Thank you.
I think this question actually relates to Jeff because if he's done through his job, nothing else works. That's the most important guy in the room right now. You mentioned in your presentation about the employees' right to challenge management decisions. And of course, we hear about that and we hope that's true. And you never hear about until that happens and all sorts of things go wrong. Could you cite -- are you free to cite any example where an employee brought some matter up and management was forced to change its course or at least gave it serious consideration?
Well, again, we have opportunities to make a lot of operational decisions in a given period of time in operating the plant. We've had opportunities where employees have felt that they maybe challenging going into the given work areas, for instance, going into refueling outage. Now, that maybe initiated by the fact that it maybe hot in an area not radiologically hot, but temperature-wise it maybe hot.
Employees have the opportunity to challenge that. Sometimes it's not that we're trying to send them in an area that is not environmentally the right situation for them, but because they have been there and they know they can come back and let us know if we have not physically been in a given area. So I will tell you that quite candidly, it's a natural part of our culture.
Our employees feel very empowered to come to us and let us know whatever is on their mind. And we have we been or we always aren't right open to a policy where I don't have my door open everyday because I have to get some work done. But we do give employees opportunity to let us know what's on their mind. We don't like to term ourselves as a family but we do like to talk about ourselves being a strong team.
And sometimes we get contractors on site that do work for us that maybe don't adhere to that kind of culture. And our permanent employees will raise their hands very quickly and let us know that. So it also helps us to police and manage other folks that come on out to our site that maybe aren't there all the time. So I agree with you that it's said and then sometimes things happen.
And I'm not going to tell you that we won't sometimes have a shadowing goal where maybe there was a blind spot there. But I feel very, very confident that our employees feel very empowered to let us know what's on their mind. And I think they feel very, very confident that we will do something about it. I won't say branch our attention. So culturally, that's what I'm talking about when I talk about nuclear culture. It's very healthy at our plant.
I know Steve mentioned in his presentation about relationships with plant's employees on the construction in China. We've had some of their team members over here visiting our sites, seeing how we operate on a day-to-day basis. The last group that was here attended our nuclear oversight meeting and one of our Board meetings, and they were asked by a Board member, what was the one thing that just sticks in your mind about the way we operate the plants here in the United States?
The first response was they were overwhelmed that how people in the field can challenge management or anybody that's trying to drive a process to make sure they get to the right answer. That's the first thing they noted.
Is there any risk of a show cause order at PSNC?
I don't think so. I think we have some debate about that slide you've put it out there. I said Jimmy, someone might ask about this. When we file our updates on rate of return in South Carolina, we go through a process of making it look like it would look if we actually filed a case, which means you go through and make pro forma adjustments.
For example, if we gave a pay increase in January and you filed that pro forma result in March at the end of the quarter, you would annualize the impact of that rate increase for a full year or any property additions you had put in, you would annualize the depreciation in property taxes and all the pieces that would go with that. You tend to pull it down somewhere between 75 and 100 basis points.
In North Carolina, their rules require us to file it exactly as it comes off the book. They don't allow you to make any pro forma adjustments to that number. So if you were to take that number and adjust it for all the known and measurable things that are out there in terms of Rusty's construction program, property taxes, payroll adjustments, rate expenses that might have gone up during that quarter, and you annualize that, it would pull that number down about 75 to 100 basis points.
It's been our experience, somewhere in between there. So I don't think there's an indication that they would do a show cause. We've had situations where they've been that high and actually higher, and they've not done anything. Before they would do that, they would give us a chance to talk to them. They'd say, guys, tell us what's going on with this number. And once we show them those adjustments, it would likely not be an issue.
I have a few questions. I guess first for Jimmy or Kenny. In terms of the slide 110, about 184 basis points is under earnings there. How much margin would you need to close that gap?
It's usually about $40 million per 100. So you can factor that way not quite $80 million.
Okay. And in terms of the rate case, should we think about the test year being through maybe June, March of this year?
Probably calendar year 2011.
And then on the equity ratio, Jimmy, on the target, how should we look at your targeted equity ratio, the consolidated level, as well as at SCE&G?
Right, we expect the regulated company at SCE&G, we expect it to be in the 52% to 54% range. I think Kenny showed you one of his slides for the BLRA upcoming filing. It's right at 54%. It might drift down a little from that, certainly well after we do that debt deal, 250 or so here, but somewhere in that range of 52% to 54%. The regulators count all that, that's what we think we need to do to maintain those credit ratings. So that's critical.
At SCANA at the consolidated level, it's kind of the inverse of that. So we're looking to -- the debt level, the equity level there is more like 45% or 46%, and we expect it to be in a similar range as we go through this construction process. And of course at the end of construction, when things change, then when you start depreciating the new plants and you've got that non-cash expense, but you've got cash income, then that will change the situation. We'll decide what to do with that at that point in time.
And just final question on the growth rate that you talked about earlier, that's off of 2010, right? So when you say three, five years, that's looking through 2014?
That's right, off of those -- off that weather adjusted 292.
So as we go into next year and we look at it go-forward by one year, and that would encompass all of the peak years in the nuclear project, so should we look at the growth rate that's just more elevated? Just based doing the math, you get the investments, get 11% on that return, just all else equal, is that fair as we look into a year forward?
I think it's a fair question but the answer is really going to come back to what Kevin alluded to earlier, and that's what is the underlying growth. What's the underlying growth in the whole economy look like in our territories, and that's going to drive, is it at the upper end of that band, is it in the middle of that band.
Certainly if everything came together and we get back, if those blue bars and rest of this chart along with the others continue to grow with customer growth and industrial announcements, then we've got a high-class problem being on the upper end of that band. If they don't, then we're still comfortable with the band.
Other questions? If not, we certainly appreciate your attention today. We're excited to talk about our story. We know you have interest in that. We'd also invite you to stay for lunch. We've got lunch for you. We'll be glad to talk to you some at the table as we have that. Have a great day and I again appreciate your attention, also everybody on the webcast. Thank you.
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