The Power of (Mis)information
Category: Industry News
We have been watching the sad events unfold in South Carolina, where former SCANA CEO Kevin Marsh agreed to plead guilty and pay $5 million in restitution for concealing the facts of the troubled V.C. Summer Units 2/3 construction from the utility’s board of directors, investors and state officials.
Marsh’s downfall, along with that of other executives at SCANA, was apparently rooted in a desire to avoid facing the reality that the V.C. Summer 2/3 project was facing significant cost and schedule overruns, as confirmed by experts who performed a deep dive into the project that was not made public for more than a year.
SCANA has since been acquired by Dominion, and Marsh and his former cohorts face significant time in jail and effective ends to their careers. And what of the project itself? SCANA abandoned its partially built, 2-unit AP1000 project, which has cast a pall on nuclear construction in the U.S. and left its customers with much of the bill in their electricity rates.
However, in Georgia, Southern Company continues to complete Vogtle 3 and 4, an identical project to V.C. Summer, despite a similar record of cost overruns, project turnover and other issues. Vogtle is already billions of dollars over its original cost estimate. Southern Company experienced a similar situation with its Kemper County IGCC Project, which resulted in significant rate disallowances, multiple lawsuits and the company taking charges against earnings.
Despite this history, Southern Company’s stock price has more than doubled in the 12 years since Vogtle and Kemper were announced. Tom Fanning, who was appointed as CEO in 2010, remains in his position. Despite these difficulties, Kemper County IGCC is in operation, though at reduced capacity, and Vogtle 3 and 4 are targeted to be in operation in 2021 and 2022.
When confronting the issues with the first-of-a-kind AP1000 program, SCANA and Southern Company took dramatically different paths. While SCANA’s executives concealed the overruns, Southern Company has been forthcoming about Vogtle’s issues, in part because the Georgia Public Service Commission has appointed a construction monitor to report the progress, delays and overruns included, on a quarterly basis since the project’s inception. Southern has even hired Bechtel, which performed the assessment of SCANA’s overruns, as its completion contractor.
However, Southern Company doesn’t fully escape criticism, as its forecasts of cost overruns have often been challenged by the Georgia Commission’s monitor. Nonetheless, this public accountability mechanism is working and providing the ratepayers of Georgia with the facts, even if they are unpleasant.
We have commented in past posts about the impact of optimism bias on the public’s view of megaprojects and how objective, unbiased project oversight should be used to ensure the facts, no matter how ugly, are reported and accountability for project outcomes – good or bad – is maintained. The differences between how SCANA and Southern Company have dealt with essentially the same information could not be more stark. The AP1000 program, once thought to be the future of the U.S. Nuclear Renaissance, will likely be limited to only Vogtle 3 and 4 in the U.S., and the U.S. will be deprived of a potential large-scale solution to decarbonization and replacement of aging nuclear reactors.
SCANA’s former executives, shareholders, customers and regulators have learned a painful lesson: bad news doesn’t get better with age. It is possible to imagine a much different outcome had SCANA’s executives been accountable to the public and its shareholders. The consequences of SCANA’s failures will also be felt for years to come by the U.S. nuclear industry. This episode should underscore how important effective, unbiased oversight of megaprojects is and why all projects of this type should want to have built-in accountability.