S.C. law from ’07 puts ratepayers on hook for failed nuke projects

S.C. law from ’07 puts ratepayers on hook for failed nuke projects

Spartanburg Herald Journal
September 14, 2017

By Bob Montgomery

A law passed 10 years ago with support from area lawmakers will likely put some of the cost of Duke Energy’s abandoned Lee Nuclear Station project near Gaffney on South Carolina customers.

The Base Load Review Act of 2007 requires the Public Service Commission to approve a rate increase if a utility can justify its capital costs associated with an abandoned project. As a result, ratepayers could see their electric bills rise.

Although Duke Energy has not yet sought a rate hike in South Carolina to recover an estimated $500 million to $600 million it has spent in planning and regulatory costs, officials said Duke should have little trouble getting approval for one.

“Allowing utilities to recover costs has always been the norm,” said Travis Knight, professor of nuclear engineering at the University of South Carolina. “Otherwise, you’d be foolish as a utility to go into a market to make those investments. There had to be some protection for the companies to do that.”

Knight said when the law was passed, the goal was to give utilities certainty and to recover costs through incremental rate increases.

The Base Load Review Act was approved by unanimous consent in the state Senate and by 104-6 in the House.

Then-Gov. Mark Sanford did not sign the bill, warning that it did not provide enough protection for ratepayers. But the bill became law anyway.

State Sen. Harvey Peeler, R-Gaffney, said at the time, most senators didn’t expect any nuclear project would be abandoned.

“I remember cautioning senators … about Duke pulling the plug,” Peeler said, referring to Duke’s cancellation of a previous project decades earlier. However, he said he voted with the majority.

“You could have laid down in front of the train (to stop the bill),” he said. “But we were and still are supportive of nuclear power.

“Ultimately, if they built it, ratepayers would still pay for it. Looking back, if I knew then what I know now, we put a lot of trust in oversight that I don’t think we should have. Ronald Reagan was right. Trust but verify.”

The Base Load Act has been routinely discussed by lawmakers since late July, when SCANA Corp. announced that S.C. Electric & Gas and partner Santee Cooper would abandon construction of two nuclear reactors at V.C. Summer in Fairfield County. The company cited cost overruns and the bankruptcy filing of its plant designer, Westinghouse Electric Co.

In late August, Duke Energy also cited the Westinghouse bankruptcy in announcing plans to cancel the Lee project in Cherokee County.

Duke is seeking a rate increase in North Carolina that would raise residential bills an average of 16.7 percent to recover costs related to its coal ash cleanup and modernizing its power plants.

However, Duke has not yet announced if it will seek a rate increase in South Carolina to recover costs from the abandoned Lee project, according to spokesman Ryan Mosier.

“That will happen in a future rate request proceeding in South Carolina, but not this year,” Mosier said.

An official with the S.C. Office of Regulatory Staff recently told The Herald-Journal the earliest Duke ratepayers might be paying for Lee project costs would be next summer.

SCE&G ratepayers are already paying higher bills to cover some of the billions spent on the failed V.C. Summer project through a series of rate hikes approved since 2009.

Besides Peeler, other area senators who voted for the act were Jim Ritchie, R-Greenville, Spartanburg, Union; John Hawkins, R-Spartanburg; and Glenn Reese, D-Spartanburg, who is still in the Senate.

House members who voted for it include Bob Walker, R-Landrum; Doug Smith, R-Spartanburg; Olin Phillips, R-Gaffney; Mick Mulvaney, R-Indian Land; Dennis Moss, R-Gaffney; Harold Mitchell, D-Spartanburg; Joe Mahaffey, R-Greer; Lanny Littlejohn, R-Pacolet; Keith Kelly, R-Spartanburg; Guy Davenport, R-Spartanburg; and Mike Anthony, D-Union.

Walker is now a Spartanburg County councilman; Mulvaney is the White House budget director. Moss and Anthony are still in the state House.

Walker said he recalled the bill sought to ensure South Carolina’s energy needs for decades, while helping utilities control costs.

“I don’t think anybody had any insight that Westinghouse was going to be declaring bankruptcy,” he said. “I would say based on the information we had at that time, the decision was probably made on a sound basis.”

Only six representatives voted against the act, including Rep. Robert L. Brown, D-Charleston.

Brown said he opposed the measure because he didn’t think ratepayers should be forced to pay for incomplete or abandoned nuclear projects.

“I didn’t think it was fair,” he said.

He said the legislation was too tilted in favor of the utilities.

“That’s what happens when we say South Carolina is business-friendly,” Brown said. “That’s exactly what they mean.”

Brown said he believes the act should be repealed.

Frank Knapp of the S.C. Small Business Chamber of Commerce said the Base Load Review Act basically created a “blank check” for utilities by putting ratepayers on the hook for failed projects.

He has been leading a coalition called “Stop the Blank Check,” which seeks either to repeal or amend the act to place the burden on utility shareholders — at least until the plant is up and running — before seeking to recover some costs from ratepayers.

He said it was understandable why lawmakers voted for the bill.

“I’m sure they’ll regret their decision,” Knapp said. “It wasn’t necessarily because it was a bad bill. It was simply written in a way with the perverse incentive for a utility to run up the cost and not worry about it because the ratepayer will pay for everything.”

Knight, the USC professor, agreed that lawmaker support for the bill made sense.

“I think this was the way to go, raison d’etre, to reduce cost in the long run,” he said.

Looking ahead, he said since electricity travels across state lines, the federal government could step in and reboot the abandoned projects.

“We the ratepayers would benefit in the long run,” he said.

http://www.goupstate.com/news/20170914/sc-law-from-07-puts-ratepayers-on-hook-for-failed-nuke-projects