SC Attorney General questions law allowing SCE&G to raise rates

The S.C. attorney general’s office declared Tuesday that a 2007 state law that allowed utility giant SCANA to hike customers’ rates to pay for a bungled $14 billion, now-defunct nuclear power project is “constitutionally suspect.”

Also on Tuesday, the State Law Enforcement Division announced it would begin a criminal investigation of SCANA and its principal subsidiary, SCE&G.

SLED’s announcement was a response to a request by S.C. House Speaker Jay Lucas, R-Darlington. His request in a Sept. 25 letter alleged SCANA and SCE&G had possibly committed “criminal fraud through the concealment of material information” about the project’s “disastrous collapse.”

SCANA said later Tuesday it and SCE&G “intend to cooperate fully” with the SLED investigation.

In releasing his office’s opinion on the 2007 law, Attorney General Alan Wilson personally blasted the plan to build two nuclear power plants in Fairfield County by the state’s two largest power companies as “a money pit.” Power company ratepayers have “paid billions of dollars and got absolutely nothing,” he said.

The attorney general’s opinion and SLED’s opening an investigation were just the latest black eyes to the two major power companies involved – Santee Cooper and its partner SCANA – that were once among the most respected companies in South Carolina.

SCANA, a publicly traded investor-owned utility, has been the major decision-maker in the nuclear project and has received the most scrutiny. Santee Cooper – a state-owned utility and a junior partner in the project – has seen its image tarnished but Lucas did not allege in his letter that Santee Cooper had committed possible fraud.

Since August, news reports have disclosed that a federal grand jury is eyeing the failed nuclear project for possible criminal wrongdoing. Numerous civil lawsuits, too, accuse the companies of bilking ratepayers in an allegedly irresponsible quest to build the plants.

And earlier this month, Gov. Henry McMaster released a long-secret, highly critical report by an independent consultant that said the project had numerous major construction and design flaws, flaws so large as to jeopardize completion. The report, done for the companies by Bechtel and completed in February 2016, was released over the companies’ objections.

The attorney general’s 57-page opinion, requested by four S.C. House lawmakers, is yet another sign that years of civil litigation, State House wrangling and possible criminal proceedings lie ahead.

The opinion offers a possible but by no means certain legal framework for ratepayers to recoup their losses.

“This opinion is as clear as I had hoped,” said Rep. James Smith, D-Richland, one of the four lawmakers who asked for it.

Smith said the opinion likely will be the basis of a future state law aimed not only at preventing the two power companies from forcing ratepayers to continue paying for the defunct project, but also at forcing the companies to refund money that ratepayers already have forked over to the companies to build the project.

An attorney general’s opinion is not legally binding. A court could rule differently. But an attorney general’s opinion is regarded as a well-researched analysis of the law and often used as guidance by lawmakers.

The 2007 law passed overwhelmingly by the General Assembly, the Base Load Review Act, allowed the failed nuclear reactors to begin being built. Specifically, the law gave SCANA and SCE&G the authority to hike customer rates and use that money to pay for ongoing construction costs.

However, according to the attorney general’s opinion, since the nuclear project has failed, it is “constitutionally suspect” to allow SCE&G to continue to bill customers for the project’s construction costs.

The opinion says the South Carolina constitution does allow the General Assembly to regulate publicly owned and private utilities “to the extent required by the public interest.”

But, the opinion says, “It cannot be considered to be ‘in the public interest’ to charge ratepayers for capital costs of an unfinished and abandoned plant,” and, “It is not ‘in the public interest’ to increase the power bills of consumers who receive nothing in return.”

A Santee Cooper spokeswoman said Tuesday the Base Load Review Act does not pertain to Santee Cooper. State law allows Santee Cooper to “increase rates to cover expenses as outlined in our enabling legislation, and that could include costs related to nuclear,” she said.

So far, in nine separate rate increases, SCANA customers have been billed an extra $1.4 billion to pay for the ongoing costs to build the failed nuclear power plants, the opinion said. Other estimates of additional increases are in the $2 billion range. In all, the two companies have spent some $9 billion toward what’s estimated to be a $14 billion project.

The idea behind the law’s allowing the companies to bill ratepayers in advance was to prevent larger rate hikes once the nuclear reactors went online, the opinion said. The reactors were supposed to be finished in 2020.

The opinion pointed out that the 2007 law actually “rewards abandonment of nuclear projects” and can force ratepayers to pay the utilities’ costs “plus a substantial rate of return for investors without receiving any service from the plants.”

That provision may be seen by a court as an unconstitutional “taking” of property for private use, which violates the U.S. constitution and a similar provision in the South Carolina constitution, the opinion said.

The opinion also looked at whether it would be constitutional for state lawmakers to retroactively change the Base Load Review Act. The opinion concluded that if the Legislature does act it could do so constitutionally if lawmakers balance consumer and investor interests to avoid creating a “‘taking’ from either side.”

This story was originally published September 26, 2017 at 11:05 AM with the headline "SC Attorney General questions law allowing SCE&G to raise rates."