What to watch as regulators decide if customers should pay for failed SC nuclear project

Post and Courier
October 31, 2018

By Andrew Brown

COLUMBIA — Fifteen months have passed since SCANA and its project partner Santee Cooper decided to pull the plug on two unfinished nuclear reactors in South Carolina after spending $9 billion on the failed endeavor.

But the work of South Carolina’s seven utility regulators on the Public Service Commission is just beginning.

On Thursday, the utility commission will kick off a weeks-long hearing that will decide who pays for SCANA’s 55 percent share of the project: the utility or its roughly 728,000 electric customers.

Attorneys for SCANA, the Cayce-based parent company of S.C. Electric & Gas, will face off against lawyers representing environmental groups, some of the state’s largest industrial businesses and the Office of Regulatory Staff — the state’s utility watchdog.

The high-stakes legal battle is one of the most complex and influential utility cases in South Carolina history — and possibly the country.

The public service commissioners — the government appointees who decide how much money many South Carolinians pay for water, electricity and natural gas every month — need to explore what led to the nuclear reactors being abandoned. They need to determine whether SCANA played a role in the project’s demise. And they have to figure out if SCANA’s executives misled the commission about the health of the project.

The commission also has to weigh an offer from Virginia-based Dominion Energy to take over SCANA, which has seen its stock drop by 40 percent since the project was called off last year.

Looming over everything is an expected court order that could completely upend the state law that SCANA used to charge customers $2 billion while the V.C. Summer power plants were under construction.

Here’s what to watch during the hearing.

The trail of evidence 

Less than a day after canceling the project, SCANA’s former chief executive, Kevin Marsh, announced the company’s plan to charge customers for the two reactors that would never produce a kilowatt of electricity. And in no uncertain terms, he informed South Carolina’s utility regulators where they should place the blame for that nightmare scenario.

“I would remind everyone that we are in this situation, not because the project failed due to construction efforts. It is failed due to Westinghouse not living up to its commitments,” Marsh said, blaming the project’s bankrupted contractor.

It didn’t take long for that storyline to start unraveling.

Legislative committees were formed. Lawmakers began to investigate. And soon word began to spread about a secret audit of the nuclear project that Bechtel Corp., a giant in the construction and engineering world, conducted in 2015.

SCANA’s executives claimed the audit was private and protected by attorney client privilege. But that didn’t stop Gov. Henry McMaster from forcing state-run Santee Cooper to turn it over.

Bechtel’s final report was explosive: It harshly criticized SCANA’s oversight. It noted disorganized warehouses and supplies. And it said the reactor designs were “often not constructible.”

As it turned out, it was only the tip of the iceberg. An earlier draft of Bechtel’s audit also raised serious doubts the reactors would be done by 2020 — the deadline for SCANA and its electric customers to cash in on federal tax credits worth roughly $2 billion.

That information, however, was scrubbed from the audit by an attorney in Atlanta, who SCANA paid $1 million to commission the analysis. SCANA’s lawyers now say Bechtel’s work is not the “smoking gun” that critics of the company say it is. They argue the audit was limited in scope and as a result was useless.

Unflattering emails, memos and letters from SCANA, Santee Cooper and Westinghouse are also likely to arise during the hearings. That correspondence dates back to 2013 — more than four years before the project was canceled.

Time to testify

For the first time in more than a year, the executives who oversaw the nuclear project are likely to testify in public about the $9 billion boondoggle.

That list is expected to include Marsh, former SCANA Vice President Steve Byrne and current CEO Jimmy Addison, who was SCANA’s chief financial officer.

All three executives were recently deposed as part of class-action lawsuits filed against SCANA by its ratepayers. But outside of that, the three men have avoided any public comments about the failed project since testifying in front of the legislative committees last fall.

Lawyers opposing SCANA are prepared to question the executives about Bechtel’s audit, their earlier testimony to the Public Service Commission and what they knew about the likelihood of Westinghouse going bankrupt.

They aren’t the only people testifying.

Two former SCANA employees who blamed the company’s executives for misleading the public, utility regulators and Wall Street investors are also involved. That includes Ken Browne, a former engineer who oversaw SCANA’s contractors on the project, and Carlette Walker, a top accountant who accused SCANA’s leaders in 2015 of propping up the project in order to cash in on their executive bonuses.

Even if they don’t take the stand, the earlier statements Browne and Walker made under oath are likely to be used as evidence against the former Fortune 500 company.

It’ll be up to the utility commissioners to decide who is more credible.

Feeling the pressure

Sorting out a failed $9 billion nuclear project is a big enough task, but the state’s regulators are also being asked to consider a roughly $14.6 billion takeover proposal by Dominion.

It’s a pitch the Virginia-based utility is pushing hard.

The company had initially offered rate cuts worth about $11 a month and a partial refund of the money ratepayers have put into the nuclear project — nearly $1,000 for the typical home.

For months, it didn’t budge off that offer. But behind the scenes, Dominion recently sought to pull together a settlement deal that would keep the V.C. Summer case from becoming a drag-out fight. It offered to cut bills by $21 a month in lieu of a refund check.

That would push SCE&G’s future power bills relatively close to where they are now after the Legislature ordered a temporary rate reduction. But under the terms of Dominion’s offer, ratepayers wouldn’t see any savings from federal tax cuts.

Even so, the new offer won the support of S.C. House Speaker Jay Lucas who brokered the settlement. Lucas said in a letter this week he thought bigger rate cuts would prove “unobtainable.”

That doesn’t mean Dominion won the buy-in from everyone. Frank Knapp, chief executive of the S.C. Small Business Chamber of Commerce, who is a party to the case, said groups like his weren’t on board with the proposal.

Dominion isn’t the only outside influence at play in the utility case.

All of the parties are anxiously awaiting a decision by a South Carolina judge that is expected to overturn the 2007 law that jump-started the V.C. Summer expansion project.

Circuit Judge John Hayes asked attorneys last week to draft an order that rules the Base Load Review Act unconstitutional. That pending court decision threatens to upend the entire hearing by the utility commission, which is relying on the act to determine who should pay for the scuttled project.

If the law is ruled unconstitutional, SCANA and its shareholders may have to eat every penny it spent at V.C. Summer and could be forced to pay back the $2 billion it collected from ratepayers for financing costs.

That’s yet to happen, but attorneys expect the judge to make a decision in the coming days.


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