If SCE&G drops reactors, who pays?

SCE&G customers have paid more than $1.4 billion thus far for two nuclear reactors under construction in Fairfield County.

But those customers might not get what they paid for if recent financial troubles at Westinghouse Electric, the lead construction contractor at the V.C. Summer Nuclear Generating Station, cause the project to be abandoned.

If the project is abandoned – a possibility discussed last month – those customers might not get their money back. They also could be charged more for the abandoned reactors for years.

Westinghouse Electric Co. has said it plans to finish the job. And SCANA, the parent company of SCE&G, said it expects Westinghouse to do just that.

If Westinghouse pulls out, SCANA officials say they will consider several options, including taking on the task of completing the reactors.

Another option could be abandoning the project altogether.

On a call with investors and analysts last month, SCANA chief executive Kevin B. Marsh said the Cayce-based utility is not advocating abandoning the project.

“We’re not saying we’re at that point,” Marsh said. “But it is one of those items that is on the list if you go through the evaluation, should Westinghouse decide to exit the project.”

The two reactors, under construction for eight years, are expected to help SCANA and the state-owned Santee Cooper utility meet customers’ energy needs for decades. The reactors would join an existing reactor at the Summer nuclear station near Jenkinsville.

SCE&G is responsible for 60 percent of the construction project. Santee Cooper is responsible for the rest.

“We expect Westinghouse and (its parent company) Toshiba will continue to support our contract and complete Summer Units 2 and 3 in accordance with” an agreement reached last year, said Mollie Gore, Santee Cooper’s corporate communications director.

But the project is several years behind schedule and $2.46 billion over budget. The latest completion date for both reactors is December 2020, just under two years behind the original completion for the project.

Controversial law

To help pay for the now $13.8 billion project, SCANA took advantage of a law passed by the General Assembly in 2006.

The Base Load Review Act allows utilities to charge customers for construction projects before the facilities, which are being built, are finished. SCE&G says paying the finance costs upfront will save its customers $1 billion in construction costs.

But, critics say, the Base Load Review Act, which does not affect Santee Cooper, does not protect SCE&G’s ratepayers.

“AARP has expressed concerns over and over about the rising cost and rate impact of V.C. Summer on ratepayers,” said Teresa Arnold, AARP South Carolina state director.

“The Legislature should repeal the Base Load Review Act, which transfers too much risk from the company to the ratepayer,” said Arnold. “Although this was not legislators’ intent, it has become ratepayers’ reality. Had this legislation not been enacted, we would not be in this situation. The onslaught of rate increases due to the act are burdensome to consumers, with no end in sight.”

State officials have given no indication a repeal is being considered.

“Legally, (ratepayers) have nothing to stand on,” said Lucas Hixson, a Chicago-based independent nuclear researcher.

However, Hixson says, case studies available in 2006 would have warned South Carolina against forcing ratepayers to fund the nuclear construction upfront.

Building new nuclear plants is so expensive and time-consuming that it demands enormous upfront investment, Hixson said. As a result, it is hard for companies to line up financing.

“But they are very happy to do it with the ratepayers’ money under the guise that it will save you money in the long term,” Hixson said.

SCANA, with the approval of state regulators, began charging customers for the reactors’ construction eight years ago.

Since then, the charge has been increased nine times and has brought in more than $1.4 billion, according to the state Office of Regulatory Staff, or ORS, charged under state law with representing the public’s interest in utility regulation before state and federal bodies, the courts and the S.C. Public Service Commission.

SCE&G’s residential customers using 1,000 kilowatt-hours are currently paying an average of $147.53 a month for their power bills. Of that amount, $27.03 – or 18.32 percent – is attributable to the Base Load Review Act, according to the ORS.

Reactors are crucial for SCANA

In October 2015, as critics complained about the project’s rising costs, ratepayers received good news when Westinghouse agreed to a new fixed-price contract that capped the remaining cost of construction. Any costs that exceeded that agreement would be Westinghouse’s responsibility under the contract.

Ratepayers would face little additional liability.

But turmoil surrounding the project surfaced again last month when Toshiba, parent company of Westinghouse, announced it would take a $6.3 billion loss because of Westinghouse. Toshiba also announced it eventually would get out of the nuclear construction business.

But Toshiba and Westinghouse said they planned to finish the two reactors at Jenkinsville and two more under construction in Georgia. Those four are the first reactors to be built in the United States in more than 30 years.

SCE&G notes that last week the Nikkei Asian Review reported that Westinghouse chief executive Jose Gutierrez said his company still plans to complete the four U.S. reactors under construction, including the two at V.C. Summer and two at the Southern Co.’s Vogtle nuclear generating plant in Waynesboro, Ga.

“In the article, (Gutierrez) said that withdrawing from the project is not an option Westinghouse is contemplating,” SCE&G spokeswoman Rhonda O’Banion said in response to questions about the Summer project.

“We can’t speculate on the facts and circumstances that would exist if Westinghouse were to exit the project in the future, but would evaluate our prudent options at that time,” O’Banion said.

Marsh, the SCANA CEO, said abandoning the new Summer reactors would be a last-case option for his company.

“We would certainly like to finish these projects. They’re critical to us over the long term and (to) meeting customers’ needs and the growth we expect to see in the state of South Carolina over the long term.”

Nuclear power advocates, including the Nuclear Energy Institute, say the projects under construction have benefits that extend beyond South Carolina, although the Palmetto State has the most to gain.

“The expansions of Summer plant and Plant Vogtle are massive endeavors, but they will provide massive benefits,” said Matt Crozat, senior director of policy development for NEI, an advocate for nuclear energy facilities.

“These are projects that will be a huge part of the Southeast’s electricity infrastructure for a long time – probably for the remainder of this century. They will produce reliable and affordable power and supporting jobs and economic activity that can sustain rural communities in a way that few other facilities can.”

The American Nuclear Society – which represents about 11,000 people who work in nuclear technology, from research and design, to power plant operators and medicine – acknowledges the plants under construction “have some issues.”

But, said ANS immediate past president Gene Grecheck, “It’s important that we recognize they are blazing the trail for the future, and the owners, regulators and constructors are all learning a very valuable lesson ... that will make sense when the next plants are built.”

If the U.S. nuclear industry loses the know-how to build plants and generate nuclear energy effectively, “someday, when the (energy) crisis hits,” the country will have to depend on expertise from somewhere else in the world, said Grecheck, who has more than 40 years’ experience in the nuclear industry.

SCE&G charges could remain

If the challenges faced by Westinghouse cause it to pull out of the project and the construction effort to be abandoned, SCANA can ask the state Public Service Commission for permission to continue charging its customers for the costs it has incurred. The PSC can grant permission if SCANA “proves that the decision to abandon construction was prudent,” said C. Dukes Scott, executive director of the S.C. Office of Regulatory Staff.

The PSC would decide how long SCANA could continue billing its customers to recover costs for the plants.

Under the Base Load Review Act, the only way SCE&G could be refused permission to recover its costs from ratepayers is if the utility had information to anticipate or avoid imprudent costs at the plant but failed to do so, Dukes said.

Supporters of the Summer project called for patience as the work unfolds.

“Nuclear plants are capital-intensive up front, but will provide long-term price stability as a low-cost source of electricity for at least 60 years,” said Crozat of the NEI. “They supply clean, affordable and dependable electricity that meets about 20 percent of U.S. demand.”

This story was originally published March 2, 2017 at 7:15 PM with the headline "If SCE&G drops reactors, who pays?."