Inside the pivotal moments that led SC legislators to slash SCE&G's power bills
A week after SCE&G abandoned the construction of its $9 billion nuclear reactor project in Fairfield County, utility chief executive Kevin Marsh got a phone call from, arguably, the most powerful man in S.C. state government.
That Friday, a seething Senate President Pro Tempore Hugh Leatherman gave Marsh an ultimatum: Withdraw SCE&G's petition to charge its customers at least $2.2 billion more for two unfinished nuclear reactors by 5 p.m. Monday or the Florence Republican would call the state Senate into a special session on Wednesday, and Marsh and SCE&G would not like what happened next.
Marsh pushed back, Leatherman recalled Friday, saying Wall Street investors and credit agencies would punish Cayce-based SCANA, the parent company of SCE&G. But just before the Senate leader's 5 p.m. Monday deadline, Leatherman got a call back. Marsh told him that SCE&G would withdraw its rate-hike petition — giving S.C. lawmakers time to investigate how the effort to add two new reactors to the V.C. Summer Nuclear Station had failed and who should pay for that debacle.
That mid-August 2017 exchange between Leatherman and Marsh was one of a handful of defining moments over the past 11 months that led to the S.C. Legislature passing a historic law last week to temporarily slash SCE&G’s power bills by 15 percent.
The new law, expected to spark a lawsuit from SCE&G, nearly would wipe out the monthly charges that the utility is continuing to charge its customers for the unfinished V.C. Summer reactors. The law also sends a message to the S.C. Public Service Commission, which sets utility rates, that it should side with electric customers when it decides, in December, who should pay off the billions of dollars left in construction debt — SCE&G's customers, shareholders or both.
But lawmakers did not pass the new law easily.
It took nearly a year of State House hearings and legislative debates, plus a steady drip of news coverage unraveling the project’s failure and what lawmakers say was a cover-up of the Fairfield County project's woes by SCE&G and its junior partner, the state-owned Santee Cooper utility.
Along the way, there were other key moments.
The new law was passed only after Gov. Henry McMaster pressured Santee Cooper, the project's minority partner, to release a long-secret February 2016 study that — even after being scrubbed of some of its harshest criticisms — revealed major flaws in the project that were hidden from legislators, state regulators and the public.
Finally, lawmakers moved to slash SCE&G's rates only after being assured by experts and studies that doing so would not force the utility into bankruptcy, as it had claimed.
“We worked through a process like none other I’ve been involved with in my time in the House,” House Speaker Jay Lucas, R-Darlington, said Friday. “I can’t remember a tougher issue.”
The Bechtel report
In August 2017, not long after the V.C. Summer expansion was abandoned, Senate Judiciary Committee chairman Luke Rankin, R-Horry, received a tip from someone he calls a “credible source” but still will not name.
The source said there was a secret study by the California-based Bechtel Corp. that detailed the construction flaws with the effort to build two new V.C. Summer reactors and blamed SCE&G, in part, for mismanaging the multibillion-dollar venture.
The state Senate’s special nuclear committee questioned the utilities’ officials about the study at an Aug. 22, 2017, hearing. Santee Cooper leaders acknowledged the study existed. But the utilities also didn’t hand it over, with SCE&G contending the document was protected by attorney-client privilege.
Over the first weekend of September, Gov. McMaster pressured Santee Cooper to cough up the study. After some resistance, the state agency did, giving the public its first access to a February 2016 document that showed the V.C. Summer expansion project suffered from flawed construction plans, faulty designs, inadequate management of contractors, low worker morale and high worker turnover.
An earlier version of the report, drafted in fall 2015, had been even more critical. Barring major changes, it said, the project wouldn’t be finished in time to collect $2 billion in federal tax credits needed to offset its costs. But that analysis was scrubbed before the final report that, eventually, was published.
State Sen. Mike Fanning, a Democrat whose Fairfield County district includes the V.C. Summer construction site, said he had to pull over his pickup when Senate staff called to brief him on the Bechtel report because he was trembling with rage.
“There was nothing but anger,” Fanning said Thursday. “We thought we knew this much, but it was 10 times worse than we could possibly imagine.
"It was the smoking gun. … They had been taking advantage of my community.”
The House and Senate committees formed to study the project’s failure already were furious with SCE&G. In earlier hearings, the utility's executives had blamed the project’s failure on its lead contractor, Westinghouse, refusing to apologize or acknowledge any fault on their part.
“They sat behind those enormous piles of paper and, basically, said that everything was fine, but we lost $2.5 billion, and it’s not our fault,” said state Rep. Kirkman Finlay, R-Richland, who was on the special House committee. “They ‘thoughtfully and prudently’ lost $2.5 billion.
"That, in my mind, summarized the farcical nature of their position.”
Lawmakers pounced on the Bechtel report as proof of SCE&G's deception, using it to convince their colleagues the doomed project had been kept alive so the utility could continue to milk its customers of their hard-earned money and so utility executives could continue to collect their nuclear-related bonuses.
“That was the impetus for the House to continue to dig and continue to ask questions and continue to work,” Speaker Lucas said.
“This all smelled of bad faith,” Rankin said.
‘Everyone felt the gun to our head’
The House and Senate’s special committees held close to a dozen hearings on the failed V.C. Summer project, questioning utility officials as well as state regulators.
But when the Legislature reconvened in January, the 32 legislators of the two special committees found many of their 130-plus other House and Senate colleagues had not kept up closely with the nuclear fiasco — especially those whose constituents are served by other utilities.
Nuclear-focused lawmakers spent hours briefing their less-focused colleagues, pounding home the idea that SCE&G had defrauded helpless S.C. power customers who now needed a champion in the Legislature.
“People didn’t really understand the ins and outs,” said state Rep. Peter McCoy, the Charleston Republican who led the House’s special nuclear committee and regularly shared news articles about the fiasco with the rest of the House's majority GOP Caucus. “But our legislative body was engaged on the issue. Everybody was attentive to it, wanting to learn more.”
Still, some lawmakers were hesitant to bring the hammer down on SCANA, SCE&G’s parent company, once the darling of South Carolina’s business community. Lots of lawmakers in both chambers didn’t want to be responsible for bankrupting the former Fortune 500 company, a major political power and donor.
That hesitancy was compounded when Virginia-based Dominion Energy swooped in on Jan. 3, offering to buy SCANA and offer SCE&G’s electric customers a $1,000-a-household partial refund for the nuclear project and rate cuts worth $10 a month.
The deal proved popular with S.C. residents, who yearned for their $1,000 checks. But it came with a catch: Dominion insisted lawmakers not touch SCE&G’s rates. That was because the Virginia utility wanted approval to charge SCE&G's customers another $3.8 billion over the next 20 years to pay off the nuclear project's construction debt.
Dominion and SCANA both warned lawmakers of the consequences if they slashed SCE&G’s rates. A rate cut could sink SCE&G’s credit rating, they said, launching a domino effect that would bankrupt the Cayce-based utility, and kill the Dominion deal and its $1,000 refunds.
“Everyone felt the gun to our head,” Sen. Fanning said. “I don’t think they (Dominion) realized that South Carolinians don’t want anybody putting a gun to our heads.”
While Dominion’s warnings rubbed some lawmakers the wrong way, they lacked proof the claims of catastrophe were exaggerated.
On Jan. 19, however, the Office of Regulatory Staff, the state agency that polices utilities, released a report saying cutting SCE&G’s entire 18-percent nuclear surcharge would result in just a 35 percent chance of the utility's bankruptcy. SCE&G slammed the report as bogus, adding, even if it were accurate, a rate cut wasn’t worth the gamble.
But in a closed-door meeting later that month, House staff presented House leaders with pages of financial data that indicated SCE&G and its parent company, SCANA — which still was paying handsome quarterly dividends to its shareholders — easily could withstand a rate cut, several lawmakers told The State newspaper on Friday.
“That was a big deal for us,” said state Rep. Russell Ott, a Calhoun Democrat who was vice chairman of the House nuclear committee. “Now, we could 100 percent say that, 'These rates need to be cut.' ”
However, the state Senate — worried about the constitutionality of cutting SCE&G’s bills — needed more convincing.
It ordered a financial analysis from a Washington, D.C.,-based firm. In late March. That firm said SCE&G’s rates could be cut at least 13 percent, if not the full 18 percent of the nuclear surcharge, without endangering the utility's finances.
“People now felt like they had the other side of the story,” Sen. Fanning said. “That’s what pulled the gun away from the head.”
Legislators’ resolve grew after they saw Dominion’s multimillion-dollar advertising campaign, promoting the benefits of its proposed SCANA buyout. That campaign whipped up public support for Dominion’s offer.
But it backfired with lawmakers because it neglected to mention that Dominion planned to charge the typical SCE&G household about $4,000 for the useless reactors over the next 20 years after paying them a $1,000 refund.
“It solidified the group of us together,” Fanning said. “We knew Dominion was only preaching half the story.”
“They made a very poor tactical decision by going the route they went on the media blitz, in my mind, spreading false information … trying to turn public sentiment on the General Assembly,” Rep. Ott said. “That really had a negative impact on legislators.”
‘Everybody was very serious’
Ultimately, the final barrier to passing the rate cut was the legislative process itself.
The House had passed several proposals to cut SCE&G's rates by the full 18-percent nuclear surcharge. But the Senate only was comfortable with cutting the utility's rates by 13 percent. Meanwhile, McMaster demanded the House’s 18 percent rate cut, promising to veto any bill that left SCE&G customers on the hook for any part of the cost of the two unfinished reactors.
The dispute over the differing House and Senate rate cut proposals could not be resolved in the Legislature’s last week in May, requiring a special session in late June. In the intervening weeks, House and Senate negotiators met three times publicly, with each side failing to persuade the other.
That changed during two days of intensive behind-the-scenes talks that began last Monday.
After visiting the hospital room of state Rep. Katie Arrington of Summerville, the 1st District GOP congressional nominee badly injured in a June 22 car crash, Speaker Lucas drove to Columbia on Monday and met with Senate Minority Leader Nikki Setzler, D-Lexington.
They phoned in other House and Senate negotiators to work out a deal that ultimately took the form of a 15-percent rate cut. The proposal also would strengthen the state regulatory agencies that failed to protect S.C. power customers from the V.C. Summer project's rate hikes.
Said Setzler, “It was very clear that everybody was very serious about what they were doing, in trying to reach a resolution of a very complicated and difficult issue to which there is no good solution.”
Thursday, the last day of a two-day special session, legislators passed their solution.
This story was originally published June 29, 2018 at 10:57 PM.