August 11, 2015
Small Business Chamber Calls for Evaluation of SCE&G Rate Increases
31% Higher Electricity Rates in 7 Years Costly to Consumers
Statement of Frank Knapp Jr., president and CEO of the South Carolina Small Business Chamber of Commerce, regarding the Base Load Review Act relating to SCE&G nuclear power plant construction.
Since 2002 either I or the South Carolina Small Business Chamber of Commerce have been an intervenor in every general SCE&G rate case before the SC Public Service Commission. It was and is important that someone be at the negotiating table to exclusively watch out for the interests of small business ratepayers. This intervention has saved small business SCE&G customers millions on their utility bills over the years.
However, we have never intervened in the Base Load Review Act process. And we haven’t officially done so this time.
But it is now time for small businesses to weigh in on this process.
In 2007 when the Base Load Review Act was introduced in the state legislature and passed, consumers were promised that if they paid for the construction related financing costs of the proposed two new nuclear reactors in Fairfield County as they were incurred, this would reduce the overall cost to consumers for the new power plants by approximately $4 billion during the life of the plants.
If the company was to build the nuclear plants to meet the energy needs of its customers, the Base Load Review Act certainly seemed to be the vehicle needed for an expensive process compared to the traditional method of a power company building a plant with its own resources and at the completion of the project recovering the related costs of the construction and financing through Public Service Commission approved rate increases.
So today we are not second guessing the Legislative decision of 2007. We also acknowledge that the future carbon emissions-free electricity to be generated by the nuclear plants will be instrumental for South Carolina to meet our state’s goal laid out by the EPA for reducing carbon emissions under the new Clean Power Plan. The South Carolina Small Business Chamber of Commerce supports the new EPA rules that are critical in protecting our small business tourism economy from severe inundation threats of rising seas resulting from unrestrained climate change.
But since the Base Load Review Act began being used in 2008, SCE&G rate increases have totaled over 31%, if the Public Service Commission approves the pending Base Load Review Act rate hike next month. Over half of this increase will have been under the Base Load Review Act for the construction financing of the nuclear plants, which are now about $1.3 billion over the original budget due to construction delays and overruns. The first of these plants was originally to go online starting in 2016 but now will not do so until possibly 2019 or later. Consumers will be expected to continue to pay higher and higher electricity rates well beyond what they were told. And every dollar SCE&G customers pay above original projections is a dollar that doesn’t go to their local economies and their local small businesses today. So SCE&G small business customers are losing twice. Their electricity bills are higher than expected and their customers have fewer dollars to spend with them.
It is thus time for a reassessment of the Base Load Review Act as it relates to the ongoing nuclear power plants in Fairfield County to better inform both the Public Service Commission in its decision-making process and the South Carolina General Assembly in possibly revisiting the Base Load Review Act and/or providing other relief to the SCE&G customers.
We join AARP of South Carolina in asking for an independent analysis of how the Base Load Review Act has performed for the benefit of the customers as related to these new plants. Georgia has a similar law and has recently completed such a process for their nuclear plants under construction.
This independent cost-to-complete economic evaluation found that Georgia Powers’ estimate of the economic value of continuing to fund the on-going construction and financing of their nuclear plants was too high. Even Georgia Power’s own assessment acknowledged that the consumer benefit of completing their construction under the current funding process had dropped by $2 billion from the previous year due to construction delays and reduction in fuel savings.
A cost-to-complete study for the SCE&G nuclear plants should mirror Georgia’s and more.
How much of the originally projected $4 billion in ratepayer savings over the 40-year life of the new SCE&G nuclear plants has been eroded today due to construction delays and overruns? At what point would it be in today’s customers’ interest to cease the funding of on-going construction financing costs and approval of cost overruns and instead require SCE&G to complete the construction on its own dime and then ask the Public Service Commission for the appropriate rate increase? This is the traditional way power plants have been built and funded.
The Public Service Commission also has the authority to reject SCE&G requests for additional cost overruns under the Base Load Review Act which specifically calls for “protecting customers of investor-owned electrical utilities from responsibility for imprudent financial obligations or costs.”
The Public Service Commission deserves an independent economic assessment to answer the question of whether SCE&G has been “prudent” in incurring all costs associated with the construction. The consumers definitely need an answer to this question.
Did SCE&G error in entering into a contract with its consortium supplier that capped liquidation damages, the penalty to the supplier for failure to perform on time, at $86 million, which is less than one percent of the originally estimated construction cost? SCE&G is already exercising the entire $86 million in penalties and now has absolutely no financial leverage over its supplier to stay on schedule. Therefore there is and has been only one loser for past and future delays and added costs—the ratepayers. After the penalty, the consortium supplier gets paid even if behind schedule and having cost overruns. SCE&G will be reimbursed for all its costs plus receive a hefty profit—a perverse incentive for SCE&G not to complete the construction on time and on budget. Was this a prudent contract for the customers and if not, shouldn’t the customers be protected from responsibility for these imprudent financial obligations or costs resulting from an imprudent contract?
In general are schedule delays and overruns prudent costs to be passed onto present customers? What percent of current SCE&G customers will pay more now for schedule delays and cost overruns but won’t be around for the full 40-year life of the plants?
And certainly wouldn’t it be more prudent for increased costs due to schedule delays and overruns be the responsibility of the SCE&G shareholders that can demand accountability from the company? Is it really prudent to reward SCE&G with more profits as a result of higher costs from the delays and overruns on a project it controls?
In addition to the issue of prudent costs, the South Carolina Legislature needs some answers on economic issues.
What has been the cost to local economies due to reduced consumer demand for goods and services? The consumers are sending extra dollars to SCE&G today and in the future versus having their money to use for other expenditures. How much have the construction delays and overruns when paid by the customers hurt local economies?
These questions need to be answered. The customers deserve an answer and to have future regulatory actions taken to benefit them. While the Public Service Commission might not have authority under the Base Load Review Act to ask for a comprehensive “cost-to-complete” report, it should press the issue.
The Legislature needs to revisit the Base Load Review Act.
Surely our elected officials expected SCE&G to foresee all the construction costs and have only these fall under the Base Load Review Act. Surely the Legislature didn’t expect the Public Service Commission to automatically approve cost recovery for delays and overruns under the Base Load Review Act instead of recovery of these non-projected costs after the plants go on line. Surely the Legislature expected SCE&G to have a prudent contract with suppliers that included sufficient penalties for overruns and delays. Surely the members of the General Assembly did not intend to pass a law that didn’t give the Public Service Commission the authority to protect the consumers from a 31% increase in electricity rates in only 7 years.
Our state legislators should call for a comprehensive “cost-to-complete” economic evaluation to answer all these questions and issues raised. They should also assess whether the mounting costs to SCE&G customers resulting from the Base Load Review Act they passed in 2007 now require a revision in the law and possibly even some legislative fix to give the SCE&G customers some needed relief.