The State
August 19, 2017
By SAMMY FRETWELL
COLUMBIA, SC
A state agency whose job is to look out for utility customers finds itself explaining whether it did enough to protect ratepayers from rising power bills that resulted from a bungled nuclear expansion project.
The S.C. Department of Regulatory Staff, a 71-person agency with a $13.3 million budget, is drawing scrutiny for what critics say was a tepid defense of SCE&G ratepayers who were charged about $2 billion for the costs of two new reactors. SCE&G abandoned the unfinished reactor construction project July 31 after hitting customers with nine rate increases to pay for the work.
Regulatory staff officials say they did plenty to help ratepayers. But state law also requires the department to weigh the interests of utilities against those of customers. The Office of Regulatory Staff initially supported SCE&G’s plan to charge customers through a series of rate increases.
“It’s a balancing process and it does draw some criticism,’’ said agency director Dukes Scott, a veteran of state government who has worked much of his career in utility regulation. “A lot of people don’t know I have that utility obligation.”
State Reps. Kirkman Finlay and James Smith, both members of a new utility committee, said that needs to change. The state’s consumers should get more attention, they say, with Smith suggesting that lawmakers consider bringing back a full-time consumer advocate to argue utility rate cases.
As it stands, the Office of Regulatory Staff is supposed to fight for consumers when rate increases are proposed. But the law also says the office must look at “the financial integrity of public utilities, and the economic development of South Carolina.’’
Those conflicting missions make it difficult for Scott and his staff to be as aggressive as they need to be in protecting consumer interests, say some lawmakers and environmentalists.
“We created a legislative and legal nightmare for them,’’ Finlay, R-Richland, said.
Legislators interviewed this past week said they’re not upset with the efforts of Scott, whom they call accessible and experienced. Instead, some lawmakers are not comfortable with the 2004 law that formed the agency.
“The idea that they are supposed to look out for customers and the financial well being of the utility seems juxtaposed,” Finlay said. “We need to have them looking out for the customer and the ability to deliver power – not whether the utility is financially viable.”
Finlay said he’s working on a bill requiring the Office of Regulatory Staff to emphasize consumer needs over those of investor-owned utilities. The Office of Regulatory Staff meets Wednesday morning with the House utility committee that Finlay and Smith serve on.
Smith, D-Richland, said lawmakers should discuss whether Scott’s office needs help from the state consumer advocate on utility rate cases.
The state consumer advocate formerly argued against rate increases proposed by utilities. The advocate focused on ratepayer interests. Scott said that was a similar mission to utility staff in North Carolina. But the South Carolina consumer advocate’s office lost its ability to argue utility rate cases when the regulatory staff agency was formed in 2004 as part of a Public Service Commission reform effort.
Some employees who worked for the PSC and also spoke on rate cases were transferred to the new agency in an attempt to avoid conflicts of interest, said state Sen. Thomas Alexander, R-Oconee, chairman of the State Regulation of Public Utilities Review Committee. Today, the Office of Regulatory Staff has other duties, aside from examining electricity rate requests. The agency also regulates private water and sewer companies and some taxi services, while keeping up with railroad safety. The state Energy Office also is housed within the Office of Regulatory Staff.
Questions about the Office of Regulatory Staff’s ability to protect electrical customers are among a host of concerns raised about the V.C. Summer nuclear construction project shutdown. Another major concern is a 2007 law that made it far easier for SCE&G to pay for the plants with ratepayer money.
SCE&G and partner Santee Cooper, a state agency not regulated by the PSC, abandoned the Fairfield County project four months after chief contractor Westinghouse filed for bankruptcy.
The two utility companies, which had for years expressed optimism about the twin-reactor effort, said the bankruptcy, rising costs, a lack of customer demand for power and uncertainty about their ability to pay doomed the project. They had been working for nine years on the reactor project but it was only 34 percent complete when work stopped. Collectively, the companies spent about $9 billion and hit customers with 14 rate increases.
Two environmentalists who opposed building nuclear reactors agree that the mission of the Office of Regulatory Staff needs changing, but they also questioned whether the department could have done more to protect ratepayers under existing state law.
Friends of the Earth adviser Tom Clements criticized Scott’s agency for supporting the project when the matter went to the Public Service Commission for a vote about a decade ago. The PSC approved the nuclear project.
“They could have said ‘We don’t approve of this’ and left if up to the PSC,’’ Clements said. “Their voice has weight that can influence the PSC.’’
Clements also questioned whether the agency could have helped stop proposed budget increases sought by SCE&G. Scott said his agency was actively involved in keeping budget changes to a minimum.
Columbia lawyer Bob Guild said Scott knows that plenty of legislators remain sympathetic to utilities, despite recent public statements about the need to protect ratepayers in the wake of the V.C. Summer abandonment.
“Dukes is a smart guy who understands the politics,’’ said Guild, who since the 1970s has argued in favor of public interest groups and against rate hikes at the PSC. “He understands the Legislature expects him to not be too tough on the power company.’’
Scott said his department supported allowing the nuclear project in 2008 because, at the time, atomic energy appeared to be the best answer to meet future power needs.
Natural gas was expensive and federal efforts to tax carbon were looming, making nuclear more attractive than natural gas or coal fired power plants, he said. Natural gas now is far cheaper and carbon taxes never materialized as envisioned, but his agency had no way to know that at the time, Scott said. SCE&G and its partner, Santee Cooper, have made similar points.
“We could have opposed it, but times were different,’’ he said.
Scott, a former utility regulator who has run the regulatory staff department since its inception, said his department did its best to protect ratepayer interests while balancing the needs of utilities. Scott said the regulatory department’s job was particularly challenging in the nuclear plant expansion effort because of another law, the 2007 base load review act.
That law was adopted to help speed construction of the V.C. Summer project and keep costs down for SCE&G as the company sought to build the nuclear reactors northwest of Columbia. The base load law made it difficult, if not impossible, for the Office of Regulatory Staff to challenge increases after the Public Service Commission had given its initial blessing to the project.
Even so, Scott said his agency brokered a deal that capped the amount SCE&G ratepayers would pay for some of the costs of the nuclear project at $7.7 billion. Guild said the deal was not strong enough to hold the line against future spending, but Frank Knapp, who heads the S.C. Small Business Chamber of Commerce, said Scott’s agency struck a good deal for consumers.
“Everybody was very pleased with the way ORS handled the situation,’’ Knapp said.
And earlier this month, the regulatory staff office opposed SCE&G’s project abandonment plan, which would have hit ratepayers with more costs to close out the project the company would not complete. SCE&G dropped the plan this past Tuesday.
But Scott, an affable Orangeburg native, said he welcomes any ideas to improve. Among them is the return of the consumer advocate, as Rep. Smith suggested, to help his agency with utility rate cases.
“Consideration of that would not be inappropriate,’’ Scott said. “I think we do a good job of representing the consumer, but this could give the public more confidence.’’
Because of different missions outlined in state law, the ORS and the Consumer Advocate sometimes have taken different paths when rate increases have been proposed. In the case of the regulatory staff office, agency officials sometimes negotiate privately with utilities and other interested parties before settling on a proposed rate increase that they then take to the PSC. Such agreements keep cases from going to court, which can be time consuming, and are encouraged under current state law.
The consumer advocate, however, often directly argued cases in public before the PSC. It then would appeal PSC verdicts that went against ratepayers.
The state consumer advocate job, headed for years by Steve Hamm, was at the center of many rate case disputes before the PSC in the 1980s and 1990s. The consumer advocate not only represented the public in power company rate cases, but also in telephone cases and other matters. The agency didn’t always defeat rate increase attempts, but it sometimes succeeded in reducing the amount of rate increases sought by utilities, said Ray Lark, a former deputy consumer advocate under Hamm.
“I think we were properly created and we were glad to be able to do what we did,” Lark said. “We were filling a needed function.”
In 1993, utilities that had sought rate increases received, on average, only about 64 percent of what they had asked for, the Consumer Advocate’s office reported that year. The agency handled 139 cases that year at the PSC. Hamm succeeded in two large utility cases in 1993. Those cases resulted in two phone companies refunding $12 million to customers, and in one case, cutting rates.
Clements and Guild said consumers need an agency whose primary mission is to represent their interests. Guild said he sometimes finds himself alone in opposing rate increases before the PSC.
“I’ve tried to represent ratepayers, but I’m just one guy and I just represent a narrow slice of ratepayers, which is conservation groups with clean energy interests,’’ he said. “I don’t have a budget and I don’t have a staff.’’
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