The State
April 15, 2019
SCE&G customers could save up to $1 billion on their power bills over the next 20 years — that is, if the S.C. General Assembly approves a different way to pay off the utility’s debt from the failed V.C. Summer nuclear plant construction project, state regulators say.
But that proposal, called “securitization,” is heavily opposed by Dominion Energy, the Virginia-based power giant that purchased SCE&G in January on the premise it could charge the utility’s 730,000 electric customers $2.3 billion more for the unfinished plant in Fairfield County.
A bill filed by Senate Majority Leader Shane Massey, R-Edgefield, would allow the S.C. Public Service Commission, which sets utility rates, to strip away Dominion’s ability to make a profit off the V.C. Summer debt.
“This is really the last opportunity to get more savings for SCE&G customers,” Massey said, previewing a debate bubbling up this month in the Senate Judiciary Committee.
Massey’s proposal would re-open the question of how much SCE&G customers must pay for their utility’s mistakes at V.C. Summer, the $9 billion power plant project that SCE&G and state-owned Santee Cooper abandoned in July 2017 after years of budget overruns and construction delays.
But the bill faces questions of whether it’s even legal and a tough road to passage, in part because Dominion and many S.C. lawmakers would prefer that question remain settled.
After a month-long hearing last year, the PSC in December approved Dominion’s offer to purchase SCE&G and charge its customers another $2.3 billion for V.C. Summer. Dominion began the takeover in January.
Lawmakers meddling in that deal now would retroactively and illegally make the deal unprofitable for Dominion, the company says. Some lawmakers agree.
“To me, we’re changing the rules to the game after the game has been played,” said state Sen. Brad Hutto, D-Orangeburg.
Massey disagrees, saying the proposal is no different from the law the General Assembly passed last year to temporarily slash SCE&G’s electric rates. The Edgefield Republican says the debate comes down to protecting ratepayers or corporate profiteers.
“It’s gonna be a tough fight on this,” Massey said. “I recognize that. They (Dominion) stand to lose a billion dollars worth of profit that they’re getting from customers. I fully expect them to fight. And they will convince some legislators to fight for them.”
Securitization 101
Securitization is about as complex as its name implies, but it has been used before elsewhere.
Like refinancing a home to take advantage of lower interest rates, securitization lowers what customers have to pay for a utility’s debt by reducing the financing costs.
To pass off a massive debt, normally, a utility would raise electric rates high enough to pay for the debt itself, the interest on that debt, and a little extra in profit each month to send to the utility’s investors.
That means ratepayers end up paying more than a utility construction project is worth, with millions of dollars flowing from ratepayers to shareholders.
For example, of the $2 billion that SCE&G customers had paid in higher power bills for V.C. Summer by March 2018, $529 million of it went to shareholders of SCE&G’s parent company, SCANA, not to paying down the debt.
However, under securitization, much of those added costs would be stripped out. The utility essentially would issue bonds for the debt, and the bonds would carry lower interest rates that make them cheaper to pay off. Customers also would save from not having to fund shareholder profits.
Utilities across the country have used securitization to finance storm damage, environmental cleanup and power plants that were either unfinished or shuttered early. For example, Florida Power & Light Company has used it for the costs of severe hurricane seasons in 2004 and 2005.
A Michigan utility, Consumers Energy Co., used securitization in 2014 to retire seven coal-fired power plants and three gas-fueled plants early because of new environmental regulations.
Perhaps the most notable recent case also involves a nuclear power plant.
In 2015, the Florida Legislature passed a law allowing securitization for the costs of Duke Energy’s Crystal River nuclear plant after it closed in 2013 because of structural problems. The plan is expected to save customers more than $700 million over a 20-year span.
Saving money in SC
However, unlike at least 20 other states, South Carolina has not passed a law allowing securitization.
That became a sticking point in last November’s V.C. Summer hearing, when the state’s utility watchdog — the Office of Regulatory Staff — recommended the project’s costs be securitized and the PSC didn’t have the authority to make that ruling.
Dominion also fought securitization during that hearing, threatening to withdraw its offer to buy out SCANA and lower its electric rates if the PSC heeded Regulatory Staff’s recommendation.
A securitization proposal would not refund the more than $2 billion SCE&G customers have been charged for the project, but it could lower rates in the future.
Securitization could save customers anywhere from $400 million to $1 billion — hundreds of dollars per household — over the next 20 years, according to Regulatory Staff, which is charged with representing ratepayers.
“ORS believes that securitization can work to the financial benefit of the customers,” agency director Nanette Edwards told The State recently.
Several other firms agree.
Before the Dominion deal was approved, Bates White Economic Consulting, a financial firm based in Washington, D.C., found in a July 2018 analysis that securitization “could potentially lower the overall costs” for customers.
Last October, an analyst for Mizuho Securities, an investment bank, wrote that the “securitization scenario has the highest likelihood of adoption (by the PSC) given that it maximizes benefits for ratepayers.”
But at the PSC hearing, Dominion chief financial officer Jim Chapman testified securitizing such a large amount of money could hurt the utility’s credit rating and drive Dominion out of town.
And in a Feb. 20 letter to lawmakers, Dominion warned securitization “would severely undermine” the Dominion deal and create regulatory uncertainty.’
The fight to come
Massey’s securitization bill passed a Senate subcommittee on Thursday, the first of several steps before it can become law. But it faces a difficult road to passage.
After missing an April 10 deadline to pass either the House or Senate, the bill likely can’t become law until the General Assembly reconvenes in January 2020.
And some lawmakers say they are skeptical of passing a bill that would apply to a case that a judicial body — the PSC — has decided already.
“That’s where I struggle with the legislation,” state Sen. Ronnie Sabb, D-Williamsburg, said at the subcommittee hearing on the bill Thursday. “It’s almost like the Supreme Court deciding an issue, and we decide we’ll change the law to change the outcome of the decision.”
Ahead of a Senate Judiciary Committee hearing on the bill, possibly later this month, Dominion lobbyists are pushing for a revision to ensure the bill doesn’t affect the Dominion-SCANA deal or V.C. Summer debt.
If passed, it would allow securitization for storm costs and other purposes.
Massey said he will fight that amendment to try to pass a clean bill, which he doesn’t view as applying to the company’s profits retroactively.
“We’re not making them reimburse what they’ve already stolen,” Massey said. “It would just change the rates moving forward.”
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