July 27, 2016
By Rodney Welch
A coalition of public interest groups announced a campaign last week to put pressure on South Carolina Electric & Gas to reduce the utility’s recently announced 3 percent rate hike.
Stop the Blank Check — a group comprised of the South Carolina Small Business Chamber of Commerce, the Sierra Club and the League of Women Voters, among others — announced plans July 18 to oppose requests by SCE&G, currently before the state Public Service Commission, for an $846 million cost increase to the ongoing construction of the utility’s two nuclear plants at the V.C. Summer nuclear plant in Jenkinsville, as well as to raise electricity rates by 3.06 percent to pay for construction financing costs of the plants.
Under the 2007 Base Load Review Act, state law allows SCE&G to make periodic rate increases to recover “financing costs” associated with the construction project — a project whose costs have continued to mount due to delays.
“The cost overruns simply increase the total costs of the project,” says coalition spokesman Frank Knapp, “which they have to get additional financing costs to cover.”
The original cost of the nuclear plants was set at $11.413 billion and has since gone up to $13.874 billion, a 21 percent increase.
Plans in 2009 called for one reactor to be completed by April 2016 and another by January 2019. The new dates, respectively, are now August 2019 and August 2020.
“We are further behind on the schedule than what we originally projected,” says SCE&G spokesman Eric Boomhower, citing delays due to licensing and manufacturing, as well as the fact that contractor Chicago Bridge and Iron left the project.
But state law limits the power of the Public Service Commission to reject these kinds of rate adjustments.
“There’s no subjective decision-making as it relates to the annual adjustments under the Base Load Review Act,” Boomhower says, “as long as everything we’ve filed for is appropriate from an accounting standpoint and prudent.”
Knapp says the coalition’s main focus is to try to pressure SCE&G to reduce its profit, or return on equity. That would in turn reduce the 3 percent rate hike.
“That’s [like] the interest on your mortgage. It adds a lot. Every tenth of a percent adds a lot of money … If you can reduce that return on equity, even by two-tenths, three-tenths, it would make a big difference in the actual rates.”
Although the periodic rake hike isn’t subject to a public hearing and requests for additional funding are, one issue could influence the outcome of the other.
“We want to create enough public angst,” Knapp says, “so that when it’s time for negotiation, primarily for this $846 million more they want, when we get into negotiation regarding that, it is conceivable to say, ‘Oh, could you reduce that rate on equity by 0.2 percent?’ So even though they are separate issues, they can basically be resolved as kind of a package deal.”
The message to SCE&G, Knapp says, is “You don’t need to make so much money on this.”
From the utility’s standpoint, periodic rate hikes actually save customers money in the long run.
“It actually reduces the overall cost of the project as opposed to allowing the costs to accumulate when we actually put these units into service,” Boomhower says. “The benefit of that to our customers is that over the life of the units, we will collect about $4 billion less from our customers than we would have to if we were just allowing those financing costs to accumulate and then folding it into a one-time increase once the units come into service.”
“We feel in this case, government is not working as it should,” says Lynn Teague of the League of Women Voters. “This is a regulated monopoly, and the way that the laws have been written — frankly by the utilities for the utilities — does not provide adequate consideration of the interests of consumers. … All the costs go to the ratepayers, not to the stockholders, and that’s not fair.”
While the Base Load Review Act permits rate increases, says Chris Hall, chair of the South Carolina chapter of the Sierra Club, “it does not allow SCE&G to come back and say, ‘We screwed up’ or ‘It’s taking longer than we thought’ or ‘It’s costing more money than we thought.’ And that’s what’s happening.”