Published November 2, 2012
By Frank Knapp Jr. | Columbia Star
I am Frank Knapp, president and CEO of the South Carolina Small Business Chamber of Commerce, a statewide advocacy organization trying to make South Carolina a more small business friendly state.
On June 29 of this year, SCE&G filed for a general electricity rate increase. This is in addition to the even bigger rate hike SCE&G is asking for to pay for the two nuclear plants being built in Fairfield County. The rate increase we’re talking about calls for an average 6.6% rate hike with residential customers paying 7.35% more for electricity while small businesses would pay 4.19% more and larger businesses would pay 6% higher rates.
The new rates on their own would bring in about an additional $151 million to the company. SCE&G says it needs more money to operate even though SCANA, parent company of SCE&G, reported a 29% increase in earnings to $72 million in the second quarter this year compared to last year.
For those of you who aren’t familiar with how the utility rate making process works in South Carolina, let me take a little bit of time to describe it. All our power companies have a service area in which they mostly have a monopoly. In exchange for this protection from competition, the South Carolina Public Service Commission regulates the rates and operations of these companies.
The process goes something like this using SCE&G as the example. The company files its proposed rates with the S.C. Public Service Commission. This filing is to provide all the information the company says shows that the rate increase is justified.
All the documents are then reviewed by the S.C. Office of Regulatory Staff, which is responsible for making sure consumers and power companies are both treated fairly in the regulatory process. Other parties with a vested interest in utility rates also can intervene in the process to review the information and present their own analysis and opinions about the rate hike request.
After reviewing the documents and talking with other intervenors, the Office of Regulatory Staff determines whether it agrees with SCE&G or if it believes that any rate increase should be less. It then engages SCE&G and all the intervening parties in a discussion to see if there is an agreement on a recommended settlement.
If an agreement is reached, it will be presented to the Public Service Commission for its consideration. If no agreement can be reached, all parties will appear at a Commission hearing at which time all parties can participate by presenting testimony and cross examining witnesses. The Public Service Commission then makes its ruling on the matter.
What the South Carolina Small Business Chamber of Commerce is calling to the public’s attention today is information contained in SCE&G’s rate filing that we find shocking and revealing. I obtained this public information from the Office of Regulatory Staff because I personally am intervening in this rate case because I am both a residential and commercial customer of SCE&G. This is my fifth time I have intervened in San SCE&G electricity or gas rate hike case.
Included in SCE&G filing justifying its 6.6% average rate increase is documentation showing that the company provided its employees 166 “Zumba and body sculp” classes from a private trainer in 2011. While the total price for the classes was $6,640, the company assigned only $3,156 as a cost for this case to justify its rate hike. That cost was exactly 47.54% of the cost of each class. Why the company only wanted to charge the customer 47.54% of the cost in this rate case, I don’t know. But it shows that putting the cost of the Zumba and body sculp classes in this rate case was no oversight by SCE&G. It was intentionally done with some accounting thought.
Also included in the $1.4 million in unallowable expenses found by the Office of Regulatory Staff was $593.76 of liquor consumed by the SCANA Board at a January 2011 dinner at Ruth’s Chris Steak House in Columbia. Drinks included four Macallan 25 Scotches at $50 each.
At a subsequent dinner in August of 2011 at the same restaurant, SCANA Board members ran up a $643 alcohol tab including five $56-bottles of wine. The Office of Regulatory Staff had to do a lot of sleuthing to uncover exactly what was included in the cost of the dinners provided to the SCANA Board.
Why go through all that trouble? Because alcohol has always been an unallowable expense to charge off to the utility customers. The company might try to claim that this was just an oversight, but I understand that SCE&G has been called on the carpet for exactly this issue before. Their financial folks who put the rate filing together know the rules, so unless they were the ones drinking the $50 Scotches, their minds should have been clear enough to look carefully at restaurant bills and take out the alcohol charges.
Asking the SCE&G customers to pay for Zumba classes and alcohol is appalling and offensive.
While these costs are small compared to the total revenue sought by SCE&G, the company knows they are absolutely unallowable expenses to be included in a rate case. In fact, several years ago SCE&G tried to include the cost of massages in a rate case and the Office of Regulatory Staff rightfully threw that out.
Intentionally including these costs to justify a rate hike demonstrates a blind-eye toward their customers’ economic struggles. There is nothing wrong with Zumba classes for SCE&G employees, but the employees or the company should be paying for them, not the customers.
And in my opinion, SCANA Board members dining at one of the most expensive restaurants in Columbia and then telling SCE&G customers to pick up the check shows complete indifference to the economic plight of its electricity customers, the vast majority of whom will never be able to afford eating at Ruth’s Chris Steak House. For that matter just going out for a family dinner is out of reach for many SCE&G customers because they have so many other bills they must pay…like the electric bill, which for SCE&G residential customers is already 22% higher than Duke customers and 28% more than Progress Energy customers.
And I should add that every unnecessary dollar paid by a residential customer to SCE&G is a dollar that won’t be spent in a local small business to help grow the economy. And every unnecessary dollar paid by a small business to SCE&G is a dollar that can’t be used for paying higher wages to workers. This issue is not just about keeping SCE&G financially healthy. It’s about how to do that without hurting the state’s economy by asking consumers to pay more than is absolutely necessary.
It’s the role of the Office of Regulatory Staff to weigh these concerns and make recommendations to the Public Service Commission. So when SCE&G plays the game of including and hiding unallowable expenses in its filing, the company shows disrespect for the Office of Regulatory Staff. These are public employees doing their job to protect consumers and SCE&G. When they have to spend hours poring through submitted documents to find where the company is breaking the rules trying to get even more money from its customers, that is a waste of our tax dollars.
At the rate hearing set for November 27, I intend to bring up these issues. Plus I will also challenge SCE&G’s rate hike request for a much higher Return on Equity than the rate Duke Power currently has. SCANA is a profitable company because our regulators make sure that it is. Wall Street doesn’t need anywhere near the 10.95% Return on Equity that SCE&G is asking for in order to entice it to buy the company’s paper. Wouldn’t we all like to get even a 10% return on our investments?
The documentation about the Zumba classes and alcohol can be found on our website. Go to www.scsbc.org and look under issues. You’ll also find my complete statement there.