Charleston Post and Courier
September 25, 2016
By David Wren
JENKINSVILLE — South Carolina Electric & Gas — the majority owner of the V.C. Summer Nuclear Station here — sought last week to shift the focus away from recent rate hikes and construction cost overruns, instead touting lower financing costs and a heftier tax credit payout that could be of bigger benefit to consumers.
“While people talk about the cost increases, you have to look at the whole picture,” said Kevin Marsh, chairman and CEO of SCE&G parent SCANA Corp.
When those finCharleston Post aance savings and tax credits are factored against the cost overruns, Marsh said, the utility is “close to where we said we would be” in terms of V.C. Summer’s overall costs.
One of the utility’s biggest critics, disagrees, saying SCE&G is trying to take credit for financial benefits it had nothing to do with.
“The lower interest rates were a function of the economy, and the tax credits are a function of the federal government trying to promote nuclear energy. Those things were going to happen anyway,” said Frank Knapp, president and CEO of the S.C. Small Business Chamber of Commerce.
“The only thing that was in SCE&G’s control was construction costs, and those are $2.5 billion over budget,” Knapp said. “Think how much better off the ratepayer would be if SCE&G had stayed on budget.”
SCE&G and its minority partner in the nuclear project, Moncks Corner-based Santee Cooper, last week opened the V.C. Summer site to media outlets for the first time since 2013.
The event was scheduled as the S.C. Public Service Commission gets ready to hear SCE&G’s requests for a rate hike related to financing the construction and an $831 million increase to the construction costs. If state regulators approve, the cost of building the two new units at V.C. Summer will top $13.9 billion — about 22 percent more than the $11.4 billion that was predicted when the project started in 2009.
Marsh compared the overruns to the unexpected costs that can occur when building a new home.
“Any project of this scope will have challenges and issues,” he said, adding that construction costs have increased by $2.5 billion because of regulatory issues, engineering challenges and the late delivery of parts.
Instead of focusing just on construction costs, though, Marsh said SCE&G customers should consider “the complete picture.”
For example, Marsh said SCE&G initially thought it would have to issue bonds paying up to 6.5 percent interest to cover the project’s capital costs. But the interest rate on those bonds came in at 5 percent or lower, and those rates were locked in for 30 years or more, saving $1.2 billion.
“Lower financing costs means lower rates for customers,” he said.
Also, the amount of federal Nuclear Production Tax Credits the utility expects to receive has more than doubled — to $2.2 billion from $1 billion. Those credits were established in 2005 to encourage investments in nuclear power, but only two projects — V.C. Summer and Southern Co.’s Vogtle project in Georgia — will qualify. The dearth of new nuclear projects means the two will share a larger portion of the available credits.
The credits are paid once reactors begin producing energy, and the reactors must be online by the end of 2020. That could create a tight timeline for the second new unit at V.C. Summer, which is scheduled for completion in August 2020. Industry groups are lobbying Congress to extend the credits beyond the Dec. 31, 2020, cutoff.
“I don’t see any reason why they wouldn’t be extended,” said Stephen Byrne, SCE&G’s president of generation and transmission.
Knapp of the Small Business Chamber said SCE&G shouldn’t tout tax credits that it might not receive, pointing to previous delays in construction as evidence the August 2020 completion date will be tough to meet. Under the current law, SCE&G would receive far fewer tax credits if the second reactor isn’t finished on time.
Regardless of how much tax credits are received, Marsh said all of them will be refunded to customers over an eight-year period.
“Just because the construction costs have gone up, there are other pieces that have a positive impact on what customers will pay,” he said.
A change last year in the makeup of V.C. Summer’s construction consortium also aims to save money.
Westinghouse Electric Co. bought previous construction manager CB&I Stone and Webster and then hired Fluor Corp. to oversee the remaining construction of the new reactors. That deal includes a fixed-price contract that largely limits any new construction costs to unforeseen legal, safety or regulatory changes.
“What we fixed is the price as we know it today, based on all the regulations that are in place and the scope of work that’s in place,” Marsh said. “We’re not expecting any changes in the scope of work and we don’t know of any regulations or new laws.”
Any further increases in construction costs would have to be approved by the Public Service Commission as part of an annual review required under the state’s Base Load Review Act. That legislation lets SCE&G charge customers for the financing costs related to construction as that construction is taking place. SCE&G has raised rates each year since 2009 for a combined 16.9 percent hike to help pay for the V.C. Summer expansion. Another rate increase of about 3 percent is pending before state regulators.
Dukes Scott is executive director of the Office of Regulatory Staff, which represents consumers in utility matters. He has said he is skeptical that the fixed-price option will really freeze cost overruns.
Knapp calls the measure a “fake fixed price,” adding that consumers have grown skeptical of SCE&G’s promises to rein in costs.
Marsh said customers should trust the utility to keep its word.
“Our team is honest,” he said. “We’ve been straightforward and honest about the challenges we’ve had on this project as we’ve presented those to the commission, and we’ll do everything we can to limit the cost of that fixed price.”
SCE&G customers are angry over the prospects of higher costs related to V.C. Summer, with more than 1,350 people notifying the Public Service Commission that they oppose any construction increases. More than 350 people have sent letters detailing their opposition. Many of those letter writers say they already are stretched thin financially and that SCE&G should be held more accountable for its cost overruns.
Despite the large number of SCE&G customers in the Lowcountry — including Charleston and Dorchester counties and parts of Berkeley County — the commission recently denied a request for a public hearing on the matter to be held in the Charleston area. Instead, the seven-member panel will hold one public hearing at its Columbia office on Oct. 4.
“The Public Service Commission has fallen down on its job by rejecting this request to hear from consumers who have suffered with numerous SCE&G rate hike requests,” AARP spokeswoman Teresa Arnold said in a statement.
Marsh said asking the commission to approve an increase in construction costs or rates is something he’d rather not have to do, and that such hearings are tough on the utility as well as customers.
“It’s not easy to go before the Office of Regulatory Staff or the Public Service Commission to explain why you need cost increases,” he said. “We’ve only done that when we think it’s absolutely justified to make sure the project operates safely.”