Shareholder concerns weigh on SCE&G’s nuclear plant decision as customers wait, worry

Shareholder concerns weigh on SCE&G’s nuclear plant decision as customers wait, worry

Charleston Post and Courier
June 28, 2017

By David Wren

A settlement agreement that caps the amount of money South Carolina Electric & Gas customers will pay for the troubled V.C. Summer Nuclear Station could pit the power needs of consumers against the profits of company shareholders.

Under the agreement — approved just months before the project’s lead contractor, Westinghouse Electric, filed for bankruptcy protection — SCE&G customers will pay no more than $7.7 billion toward the utility’s share of construction costs for two reactors at the Midlands power plant.

Anything above that amount would be paid by shareholders of SCANA Corp., the utility’s parent company.

Initially seen as a way to rein in escalating costs, the agreement could wind up costing investors billions of dollars following revelations that Westinghouse never had a detailed construction schedule to back up its V.C. Summer cost estimates.

That has some consumer advocates worried that SCE&G’s parent will base its decision on whether to finish the reactors more on the impact it could have on shareholders than whether it’s the best thing for customers.

“They’re a private company — I imagine they have to be concerned about their shareholders,” said Frank Knapp, president and CEO of the S.C. Small Business Chamber of Commerce and one of the people who helped negotiate the agreement. “Of course, that means don’t cost the shareholders any money.”

If the reactors are scrapped, the $1.4 billion that SCE&G customers have already paid toward the project would be lost, and the utility still would need to find — and pay for — new sources of electricity for expected increases in demand.

SCANA isn’t saying specifically what factors are being considered as it and project co-owner Santee Cooper face an Aug. 10 deadline to decide whether to build one or both reactors or to scrap the project altogether.

“We are examining all of the relevant information to determine the most prudent path forward for the project,” SCANA spokeswoman Rhonda O’Banion said in a statement.

“Once we’ve finished our evaluation, we plan to go before the Public Service Commission of South Carolina for a complete and thorough review of the results,” O’Banion said. “Until then, we will not be publicly discussing details of the project evaluation.”

While Santee Cooper is a party to the settlement agreement, its terms only impact SCE&G customers. All told, both utilities were expecting to pay a combined $14 billion for the two reactors before the Westinghouse bankruptcy threw all financial figures in doubt.

If the price tag exceeds the roughly $6.3 billion that Santee Cooper had expected to pay for its share of the reactors, customers of the Moncks Corner-based utility likely would be on the hook.

Both utilities are negotiating with Westinghouse and its parent, Japanese conglomerate Toshiba Corp., to cover some of the extra expenses, but neither company has made any commitment.

Dukes Scott, executive director of the state’s Office of Regulatory Staff, said SCE&G needs to stand by the guarantees it made to customers in the settlement agreement. Dukes said his agency, which represents the public’s interest in utility regulations, would fight any attempt to modify the agreement or have SCE&G customers pay more for the reactors.

“As far as the fixed price is concerned, there is no higher dollar amount that we would accept,” he said.

Knapp said he wouldn’t be surprised if SCE&G asked the Public Service Commission to modify or even cancel the agreement if the utility proceeds with construction at costs expected to be billions more than previously estimated.

“We anticipate that might happen, but there is going to be one heck of a fight,” Knapp said. “I don’t think the Public Service Commission wants to have that battle. This is a binding legal document.”

SCE&G already has raised customers’ rates by about 20 percent to help pay for the new reactors. Santee Cooper has increased customers’ rates five times since 2009 and is considering two more rate hikes over the next two years largely to pay for the project, which is billions of dollars over budget and years behind schedule.

SCE&G, Santee Cooper, the state’s electric cooperatives and others agreed to the settlement in September; regulators approved it two months later. By late December, Westinghouse was sounding warning alarms about the nuclear project’s costs, but the contractor still hadn’t provided SCE&G or Santee Cooper with documentation needed to assess the reactors’ financial condition.

Westinghouse filed for bankruptcy protection in March, sticking SCE&G with a settlement agreement that most likely won’t cover the project’s true costs.

The construction schedule for the reactors also is in doubt. Westinghouse had claimed they could be finished by the end of 2020, but Santee Cooper and SCE&G are revising that timeline.

If both reactors aren’t finished by 2020, the utilities could lose about $2.3 billion in federal tax credits for nuclear power production. That money is supposed to be returned to customers. Congress is considering legislation that would extend the deadline for the tax credits.

V.C. Summer’s co-owners on Monday extended the deadline to make a final decision on the project’s future by 45 days, to early August. Lonnie Carter, president and CEO of Santee Cooper, said he hopes the utility is able to make a decision before then.

Meanwhile, the utilities combined are spending more than $30 million a week to keep construction going at the project’s site near Jenkinsville.

Santee Cooper is South Carolina’s largest power provider and the ultimate source of electricity for 2 million people across the state. In addition to its retail customers, Santee Cooper provides power to the state’s electric cooperatives. SCE&G provides electricity to more than 500,000 customers in 25 South Carolina counties.