Charleston Post and Courier
July 30, 2017
With two new nuclear reactors billions of dollars over budget, years behind schedule and in danger of being abandoned entirely, one would think that SCE&G would be reeling financially, far beyond even the dramatic stock dip its parent company SCANA suffered on Friday. At least that would be the case for any company that so spectacularly bungled a multi-billion dollar investment.
But SCE&G is not a normal company. And according to numbers released late last month, investors earned a healthy 9 percent for the year ending March 31.
In other words, SCE&G has so far remained comfortably profitable despite the fact that the perpetually problematic construction of two new reactors has reached such a level of crisis that the company may be forced to quit the project entirely.
Part of the problem is that unlike most businesses, SCE&G has an incentive to spend as much money as possible regardless of whether increased expenditures are actually needed or wise.
That’s because the state Public Service Commission (PSC) regulates the percentage of return on investment the company can earn, but not the actual dollar value. Right now, SCE&G is allowed to earn up to a 10.25 percent return on common equity.
Ten percent of a multi-billion dollar nuclear reactor investment is a lot more than 10 percent of a $250 million natural gas plant, so the utility has an obvious financial motive to go big rather than playing it safe.
Worse, in 2007, the state Legislature passed an incredibly misguided piece of legislation that removed any remaining barriers to that perverse financial incentive to spend more money by forcing ratepayers to shoulder all of the financial risk involved in massive new capital projects.
The Base Load Review Act means that SCE&G can charge customers up front for financing costs related to the new nuclear reactors — and any future generating projects — and keep charging them well into the future even if those new plants never generate a single watt of electricity.
And given the bankruptcy of the nuclear project’s chief contractor Westinghouse, that looks like a very real possibility. SCE&G and project partner Santee Cooper are expected to announce in the next few days whether or not they will complete the reactors.
Already, SCE&G customers pay nearly 20 percent of their monthly bills to finance construction on the new reactors. They’re going to keep paying more no matter what — either for a few billion dollars in construction costs if the projects are abandoned or for as much as $20 billion if they’re completed.
Meanwhile, SCE&G shareholders can probably expect the same roughly 10 percent return every year while ratepayers suffer.
A bill currently before the Legislature would amend the Base Load Review Act to hand greater regulatory power to the PSC and remove some of the financial risk ratepayers currently bear. Lawmakers should speed its passage, especially if SCE&G decides to ditch the reactor plan and build something else instead.
The door should be closed to any similar mistake.
Utilities should know that their top responsibility is to the ratepayers of South Carolina, and build generating capacity with customers — rather than profits — in mind.