South Carolina has six weeks to answer a $2B question about the future of its nuclear project

South Carolina has six weeks to answer a $2B question about the future of its nuclear project

Charleston Post and Courier
November 20, 2017

By Thad Moore and John McDermott

The owners of South Carolina’s unfinished nuclear power plant have a $2 billion decision to make — and just six weeks to make it.

But with time winding down, SCANA Corp. and Santee Cooper aren’t on the same page. The governor, lawmakers and consumer advocates are split on the issue, too.

The question is whether two partially built reactors in Fairfield County are done for good, or if it’s worthwhile to maintain them in case the project’s prospects improve. The answer will determine what becomes of South Carolina’s $9 billion bet on nuclear energy.

The state-owned power company Santee Cooper, which was responsible for 45 percent of the failed project, wants to button up the emptied construction site at the V.C. Summer Nuclear Station and preserve the site, equipment and all, in case a buyer comes along.

SCANA, the owner of South Carolina Electric & Gas and the lead investor in the project, would rather let it all go to seed and be done with it.

At stake is a massive federal tax deduction that would cover a big chunk of SCANA’s costs and lower the financial exposure to its customers.

The Cayce-based utility believes it can claim a $2 billion write-off by completely abandoning the unfinished reactors, a move that ultimately would trim the bill to SCE&G ratepayers — if the Internal Revenue Service approves the plan.

And that’s not a guarantee.

Taxing matter

The write-off would tack onto to a proposal the company laid out Thursday, when it offered to eat most of the costs and roll back part of the rate hikes that have been financing the project. SCANA spokeswoman Rhonda O’Banion said the tax maneuver would help “lower the nuclear portion of customer rates by half over the next few years.”

The catch: In order to claim the federal deduction, the company must first demonstrate to the IRS that it has walked away from the work site forever, giving up all hope of finding a buyer or restarting construction.

But Santee Cooper, a government-run utility, isn’t interested in writing off the project so quickly because it doesn’t pay taxes. And it’s under pressure from the governor and state legislators who want to see the reactors finished or customers refunded.

The utilities have a short window to reconcile a sharp divide. SCANA has said the potential value of its write-off will dwindle by $200 million if it waits past Dec. 31 to claim it. And Congressional Republicans are pushing toward a tax reform plan that could make the deduction even less valuable by cutting corporate tax rates.

James Swan IV, a top SCANA accountant, told state regulators this month that the company wants to pull the trigger on its tax move now, “while the rates are still high.”

Santee Cooper isn’t on board yet, though. And it says its talks with SCANA have only just begun.

“Santee Cooper intends to either sell our share in the project or sell equipment from it, to generate revenues that will offset customer costs for the project. Preserving the equipment and site is important to maximize either of those opportunities for us,” spokeswoman Mollie Gore said in an email. “We are just beginning to talk about some of the options.”

SCANA insists that it’s pressing forward. Come New Year’s Eve, the company is planning to pull the plug on the dehumidifiers and heaters protecting the equipment, and it will send its maintenance crew away. As it sees it, plans to expand V.C. Summer will officially die when the band strikes up “Auld Lang Syne.”

Keep it or kill it?

Gov. Henry McMaster and state lawmakers aren’t so sure. They’re holding onto hope that the unfinished project — or at least its equipment — will find a buyer one day.

And they could see to it that the reactors are maintained: Moncks Corner-based Santee Cooper is owned by the state, and its board answers to the governor.

“We’re not going to allow those facilities, the work that has been done, to fall into disrepair. It’s going to have to be maintained,” McMaster said Tuesday. “Even if they’re not completed right away, they can be completed later, so it’s very important that they be maintained and not fall into disrepair.”

Consumer advocates and SCANA watchdogs who had criticized the nuclear project for years, meanwhile, are siding with the utility owner’s tax move. They feel it’s the only option right now that would ease the pain for ratepayers.

The company said the write-off would cover 40 percent of its spending on the project. The financial maneuvering could deliver SCE&G electric customers far more savings than the proceeds of a recent legal settlement it received from its lead contractor.

“SCE&G maybe has the better plan for the consumer in this case,” said Frank Knapp of the S.C. Small Business Chamber of Commerce, which has fought the way the company financed the V.C. Summer project.

Lynn Shuler Teague of the League of Women Voters of South Carolina is a reluctant supporter, too. It would be a risky move if the two reactors had a chance of being completed, but that is unlikely, she said.

“Trying to get the best possible tax write-off is probably the best strategy,” Teague said last week. “It is very sad that it has come to this.”

The V.C. Summer abandonment plan could also ease some of the pressure on SCANA, which is charging SCE&G customers $37 million a month to pay for the unfinished reactors. Its electric ratepayers have seen their bills climb 18 percent to pay for the project over the past decade, and they haven’t gone down since it was canceled, raising a political uproar.

It sought to address the backlash last week by proposing to roll back about a fifth of its V.C. Summer-related rate increases. Lawmakers swiftly blasted the concessions, saying they didn’t go far enough.

The competing goals — saving money for customers and preserving the reactors they’re still paying for — has spurred some optimism that the state can have it both ways. Mike Couick, who represents South Carolina’s electric cooperatives, said he thinks “there are ways to thread that needle.”

“This is smart ratepayer analysis on behalf of SCANA. Trying to find dollars anywhere you can, I think, is sharp,” said Couick, who represents Santee Cooper’s biggest customers. “Part of being sharp is making sure that if there are win-win opportunities out there, then we allow for them.”

Earlier this month, regulators on the S.C. Public Service Commission asked if Santee Cooper could pick up the maintenance work at V.C. Summer by itself. SCANA appeared to leave that door open, but executives said they were leery of the idea. They fear risking the tax benefits if the IRS decides it’s not OK for Santee Cooper to mothball the site.

“It is not necessarily a fatal flaw if they were to do something different than we were to do, but it doesn’t help our story for them to be trying to preserve it,” Swan, the SCANA accountant, told regulators. “It’s hard to reconcile the idea of preserving the site and the idea of us claiming the abandonment.”

Santee Cooper, which estimates it would cost $15 million a year to maintain the site, is skeptical, too. Its spokeswoman said “it would be very difficult for Santee Cooper to handle this by ourselves.”

‘High threshold’

Lawmakers and some regulators appear wary of killing the project completely.

For starters, efforts to stop maintenance on the project run headlong into the governor’s attempts to sell Santee Cooper. McMaster says he wants a private buyer to restart construction or cover the debt racked up for the V.C. Summer project.

McMaster is said to be in talks with four Southeastern energy giants, though at least one of them, Charlotte-based Duke Energy, is adamant that it won’t complete the idled reactors in Jenkinsville. Efforts to sell the project haven’t yielded much interest either.

That’s because the project was waylaid by cost estimates that soared north of $21 billion — more than double initial estimates. And it faced mounting delays that threatened billions of dollars in critical federal tax credits.

“They’re not out there,” said Blan Holman, managing attorney with the Southern Environmental Law Center, a longtime critic of the V.C. Summer expansion. “It would be very surprising in today’s energy market for someone to be thinking about doing that in the near future.”

SCE&G and Santee Cooper halted construction in July after their lead contractor, Westinghouse Electric, filed for bankruptcy protection. The spiraling budget, they said, had grown too large, especially as the economics of energy shifted away from big nuclear projects.

Natural gas prices have plunged, and, thanks to the emergence of fracking technology, cheap gas is expected to last for decades. But some officials, such as state Sen. Mike Fanning, are still weighing the future of nuclear power in South Carolina against the tax benefit that SCANA is pursuing.

“If we get $2 billion, that’s all we’re going to get,” said Fanning, a Fairfield County Democrat whose district includes V.C. Summer. “You’re destroying the $9 billion investment. We’re still in a hole, and $2 billion doesn’t get us out of the hole.”

SCANA’s plan would also require approval from state regulators, who questioned the tax strategy at a hearing this month.

Among their chief concerns: There’s little precedent for a company to claim such a large tax credit by writing off an asset. Swan, the SCANA top accountant, acknowledged it’s not a sure bet.

“We have to truly and genuinely believe that we have no future plans for those assets and that those assets will not again be used in our business,” he told regulators last week. “So that’s a very high threshold, and there’s going to be an analysis by the IRS of the facts and circumstances as they exist. … We have to behave as if we mean it, and we have to — we actually have to behave consistently with that intention.”

Swan also said SCANA hasn’t received a letter from the IRS giving it the go-ahead.

“Why would you not do that, to ensure that you would be able to achieve the objective that you say this would produce?” state utility commissioner Robert Bockman asked at a hearing in Columbia.

Swan responded: “Yeah, I don’t know the answer to that, sir.”

Even if the company is allowed to claim the tax credit, it could take years to know for sure: The IRS would almost certainly open an audit, Swan said, and the issue could take as many as four years to resolve.

That raised questions for the Public Service Commission’s chairman, Swain Whitfield, who represents an area that includes the V.C. Summer plant.

“Could you not get your outside consultants or your experts to work with them so that there’s some more certainty in your going down —” Whitfield started to ask, before cutting himself off.

“I mean, all this effort, and as Commissioner Bockman said — to come up empty-handed in two years, I just don’t know that we can handle something like that in this state.”

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