Charleston City Paper
August 26, 2015
Power Play
By Paul Bowers
SCE&G’s nuclear project is behind schedule and $1.2 billion over budget
For the seventh time in seven years, S.C. Electric & Gas is seeking to increase the rate on your electric bill to help pay for construction of a nuclear power-generating facility near Jenkinsville, S.C., that is running years behind schedule and a billion dollars over budget.
For SCE&G customers like Ruth Rambo, a Charleston resident living on a fixed retirement income, it’s a familiar story.
“It has not been a well-run corporation,” Rambo says of SCE&G. “This corporation directly impacts us, and when you’re on fixed income, there is a different ratio that happens to your budget when something goes up a dollar.”
Customers of SCE&G have seen their residential electric bills rise by about 50 percent in the last 10 years, from an average cost of about $97 per 1,000 kWh in May 2005 to $146 per 1,000 kWh today. The $49 difference is due to 26 separate rate adjustments, including six for the nuclear project that led to a total increase of about $20. The latest proposed increase would bump up the cost for residential ratepayers by $4.01.
Since SCE&G is a publicly regulated utility, each rate increase must be approved by the Public Service Commission, a statewide body appointed by the General Assembly. Many of the rate increases were tied to changes in fuel costs, but in 2009, SCE&G started requesting rate hikes under a state law called the Base Load Review Act (BLRA), which has allowed SCANA to finance the V.C. Summer Nuclear Generating Station through rate increases.
The stated purpose of the BLRA when lawmakers enacted it in 2007 was to “provide for the recovery of the prudently incurred costs” associated with new coal or nuclear plants. Under the act, SCE&G can apply once a year for a rate increase to help cover the costs of construction. SCE&G is also seeking approval for an updated construction and cost schedule that would reflect the Summer project’s deadline and budget overruns.
Frank Knapp, president of the S.C. Small Business Chamber of Commerce, says the BLRA has shielded the utility company and its investors from financial risk while offloading the mounting cost of the nuclear construction project on ratepayers.
“Where is the motivation for SCE&G to stay on schedule and stay on budget?” Knapp says. “Well, there is none for that company because they’re always going to be not only reimbursed, but they’re also going to make a 10.5, 11-percent profit on top. I want that gig, where I get rewarded even if I’ve let things go.”
In response to criticism of the latest rate hike request by groups including the S.C. Small Business Chamber, the AARP, the Sierra Club, and CMC Steel South Carolina, Eric Boomhower, a spokesman for SCE&G’s parent company SCANA, says that using the BLRA to pay financing costs on the project up front will save ratepayers money in the long run.
“Paying financing costs while construction is ongoing, as opposed to waiting until the project has been completed, lowers the cost of building the new units by about $1 billion, which in turn reduces the amount customers will pay through rates for related costs such as the cost of capital, depreciation, property taxes, and insurance associated with the project,” Boomhower says.
Behind schedule
When the V.C. Summer site goes online, it will provide 2,234 megawatts with no greenhouse gas emissions. As a result, SCE&G predicts that its carbon emissions will be 50 percent lower in 2020 than they were in 2005.
In the meantime, the project is falling behind schedule.
In October 2014, the companies under contract to build the two new reactors at the Summer site announced that the project would cost $1.2 billion more than the original 2008 estimate of $9.8 billion. SCE&G, which will co-own the nuclear facility with Santee Cooper, estimates that its share of that cost increase will come out to $541 million, adjusted for inflation.
One of the two units on the site was originally slated for completion in April 2016, the other in January 2019. The revised construction schedule would place the completion dates at June 2019 and June 2020, respectively.
In its petition to the Public Service Commission, SCE&G says the project is blowing deadlines and budgets due to problems with the contracting companies that are assembling parts for the massive project. Specifically, the utility company blames “delays related to structural submodule production at the CB&I [Chicago Bridge & Iron Company] facility in Lake Charles, La.; revised schedules for the production of shield building panels at the Newport News Industries facilities in Newport News, Va.; and other changes in construction, construction oversight, and operational readiness requirements.”
SCE&G’s contract with the consortium — the group of companies working on the project — allows the utility to charge the consortium up to $86 million for missing construction deadlines under a “liquidated damages” clause. Boomhower says SCE&G already anticipates “meeting that $86 million cap,” but the damages won’t have to be paid until after the deadlines have passed. As for the budget overruns, Boomhower says SCE&G has taken the position that consortium members Westinghouse and CB&I will be “contractually liable for costs associated with the delay.”
Knapp and the Small Business Chamber, meanwhile, are joining the AARP in calling for an independent analysis of how the BLRA has benefitted ratepayers during the nuclear construction project. He also questions whether SCE&G should have included a stronger enforcement clause in the paperwork with its contractors.
“The liquidated damages clause was basically the punishment, the stick that SCE&G had to keep that consortium on schedule and on budget,” Knapp says. “They’ve already now exercised that, so now what do we do? Do we have to send them flowers and say, ‘Please get it done’? They have no stick. They have absolutely no stick to make them do anything.”
No stick to hold
When the S.C. House of Representatives was weighing the merits of the proposed Base Load Review Act in the spring of 2007, Rep. Jim Merrill (R-Berkeley) was skeptical.
“My primary issue with it is what’s coming to bear now,” Merrill says. “Having people now pay exorbitantly high prices to fund construction for future-generation needs, when sometimes their estimates are a little bit specious, is absurd … I thought it was unfair.”
Energy companies wield significant influence in Palmetto State politics, as they consistently rank among the top campaign donors in the state. According to the campaign finance website Follow the Money, SCANA has given $221,000 to South Carolina candidates this year, more than the S.C. Senate Democratic Caucus ($171,000), the S.C. Manufacturers Alliance ($168,000), and the S.C. Chamber of Commerce ($141,000).
The members of the Public Service Commission are appointed by state lawmakers. The PSC has never denied a rate increase request from SCE&G under the provisions of the Base Load Review Act.
Merrill says he thinks the Statehouse should reassess the laws that have allowed for steadily increasing utility rates, but in the meantime, he’ll be looking to make some changes when four of the eight Public Service Commission members reach the end of their terms in 2016.
“We have a problem, and the General Assembly should address it, but like so many things, you almost have to have a crisis in order to get people’s attention,” Merrill says. “It’s hard for the general public to sustain that. They don’t have a cadre of lobbyists. It’s probably proceeding exactly the way they [SCE&G] want right now.”.