Editorial: Make shareholders share in nuclear burden

Post and Courier
March 23, 2018

The numbers are startling.

If nothing changes, the average SCE&G customer will have to pay about $7,430 over the next six decades for two nuclear reactors that will never generate power. Under a proposal from Dominion Energy — which is seeking to buy SCE&G parent company SCANA — that cost would be slashed to $2,773 over two decades, according to paperwork filed this week with state regulators.

That’s more than a 60 percent decrease. But it’s still not a good enough deal.

Even under the Dominion proposal, customers would be expected to pay not just for the concrete and steel that went into the failed reactors, but for a guaranteed quarterly 10 percent return for shareholders. That’s simply unacceptable.

Investment is, by its nature, risky. Sometimes investments make money; sometimes they lose it. In the case of the two V.C. Summer reactors, the investment was an incredible flop — to the tune of more than $9 billion.

Were SCANA any normal company subject to market realities, its investors would have had to eat that cost. They would have lost spectacular sums of money. But SCANA is decidedly not a normal company and, under South Carolina law, ratepayers are on the hook instead — at least to the extent that SCANA can prove its expenditures on the reactors were “prudent.”

And that qualification matters a lot. It could be the difference between customers owing $10.3 billion (the full cost of the reactors plus financing expenses) or $0.

Multiple reports and corporate communications obtained by Post and Courier reporters and environmental groups Friends of the Earth and the Sierra Club suggest that many of SCANA’s decisions regarding the reactors were anything but prudent. In fact, it appears that utility officials misled state lawmakers, regulators and investors early and repeatedly even as they realized the project was falling apart.

Several ongoing investigations — including criminal ones — are likely to conclude that significant costs were imprudently incurred, meaning that SCANA should not be able to pass them along to customers. That could easily turn out to be a better deal for ratepayers than the offer on the table from Dominion.

But no matter what happens, SCANA shareholders should be expected to share the burden. There simply cannot be any guarantee that an investment will continue to generate a healthy return even when a project fails so badly. It’s not the way free markets work.

Nevertheless, SCANA shareholders earned $120 million in dividends last year alone, all paid for by the ratepayers, as The Post and Courier reported today. They’ve made about a half-billion dollars in return on the money collected for the nuclear project so far.

In fact, the total value of SCANA dividends has increased by about 50 percent since 2009, when the nuclear project got underway. That’s because the more money state-regulated utilities spend, the more money they make. A 10 percent return on a $9 billion nuclear facility is a lot bigger than a 10 percent return on, say, a $100 million natural gas plant or a $10 million solar farm.

But those economics hurt customers, who end up paying higher rates even when cheaper alternatives are available.

No one is asking shareholders to pay for the nuclear disaster. At the least, however, they should accept that the return on their investment will be significantly lower for the foreseeable future — say 0.5 percent instead of 10 percent — just like customers might have to pay elevated bills for decades. It’s not losing money; it’s just not making as much of it.

That’s the minimum that can be expected in the wake of one of South Carolina’s largest-ever economic disasters.

It’s good to know that the Dominion offer would save SCE&G customers quite a lot of money compared to the status quo. But it’s still worth holding out for a better deal — particularly one in which shareholders share the burden.


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