Judge refuses to dismiss SCE&G’s suit to block 15% rate cut for customers

A federal judge Thursday denied motions by legislators and utility regulators to dismiss SCE&G’s suit to block a 15-percent rate cut for the utility’s 700,000-plus S.C. electric customers.

U.S. District Court Judge Michelle Childs now will consider SCE&G’s motion seeking a preliminary injunction to block the rate cuts.

Attorneys for the Legislature and the S.C. Public Service Commission had asked Childs to dismiss SCE&G’s lawsuit, forcing the utility to cut its customers’ rates.

In her order, however, Childs said SCE&G has “plausible allegations” that the Legislature and PSC acted unconstitutionally in ordering the utility to lower its rates. She added the utility had a right to sue in federal court.

SCANA had no reaction to the judge’s order. However, a securities analyst said the ruling was positive for the utility. Meanwhile, an attorney for legislators downplayed the importance of SCANA’s victory in court, saying it was “just the first step.”

“I still expect the court to uphold the ratepayer protection laws that were passed this legislative session,” S.C. House Speaker Jay Lucas said in a statement. “It is preposterous that SCANA could walk away unscathed from this nuclear fallout and claim to experience significant financial harm while the company has set aside nearly $110 million in golden parachutes for its executives.”

Childs’ order came after a two-day hearing this week on SCE&G’s lawsuit to block a temporary 15-percent rate cut, passed by state lawmakers at the end of June.

During that hearing, SCE&G’s lawyers called financial experts as witnesses who testified the temporary rate cut would slash investors’ return on equity, make it harder for SCE&G parent SCANA to attract and keep investors, and make it more difficult for it to borrow and maintain a healthy cash flow.

Attorneys representing lawmakers called their own financial expert, who pointed to a March 22 analysis by the Bates White economic consulting firm saying SCE&G could afford to cut its rates.

SCE&G argues it has the right to charge its customers for the V.C. Summer project under a 2007 law, even after it abandoned efforts to build two new nuclear reactors in Fairfield County a year ago.

SCE&G also claims state lawmakers unconstitutionally targeted the utility to punish it for the project’s failure by passing a retroactive rate cut. That rate cut, they argued, constitutes an illegal confiscation of private property and denies the utility the due process required under law.

SCE&G ratepayers already have paid more than $2 billion toward the cost of the two unfinished reactors. Customers now pay $27 a month on average to finance the half-finished reactors, originally expected to cost $9 billion.

Attorneys representing the PSC and state lawmakers argued any predictions of financial harm to SCE&G are speculative and disingenuous. They note SCANA handed out $82 million in dividends to its shareholders after abandoning the nuclear project and set aside another $110 million in severance pay for executives for aiding the utility’s pending buyout by Dominion Energy.

If allowed to stand, the temporary rate cuts would begin with the first billing cycle that starts next Tuesday. The rate cuts would be calculated based on each customer’s electricity usage and charges going back to April and would continue until December, when the PSC is set to rule on SCE&G’s permanent rates.

Childs is expected to rule on SCE&G’s motion for a preliminary injunction blocking the rate cuts before Tuesday.

An SCE&G spokesman declined to comment Thursday on the judge’s order.

Matthew Richardson, an attorney representing S.C. Senate President Pro Tem Hugh Leatherman, downplayed the judge’s order and the impact it could have on lawmakers’ attempts to provide cut rates for SCE&G’s customers.

“This is just the first step,” Richardson said in an email. “This was just whether the federal court could hear the constitutional claims against the PSC commissioners.”

However, investors in SCANA’s stock reacted positively to the ruling.

SCANA stock, which nosedived from $71 a share in June 2017, rose more than $1 a share to $41.35 in trading Thursday, up more than 2 percent.

“Generally, it’s viewed as a positive investor reaction,” utility analyst Paul Fremont with Mizuho Securities said of Child’s order. “They (SCE&G) live to fight another day.

“Right now, the focus for investors would be mostly on whether they’re successful or unsuccessful in getting the judge to issue an injunction,” Fremont said. “Had the judge accepted the motion to dismiss, that would have been game over. ... So that clearly would have been a deciding negative factor.

“Now, we just need to wait and see what the judge does on the injunction.”

Also, on Thursday, the utility released its earnings for the second quarter. The utility said it had profits of $8 million, compared to $121 million during the same three months in 2017, before the nuclear project was abandoned.

SCANA attributed the earnings drop to setting aside $109 million for state-ordered rate cuts stemming from the failed nuclear project. Higher legal costs and financial advisory fees, as well as federal tax reform, also hurt earnings, the utility said.

SCANA, which had operating revenues of $4.4 billion in 2017, estimates the temporary rate cuts would cost it roughly $270 million a year.

Santee Cooper customers face higher bills due to nuclear debacle

Residential customers of Santee Cooper, SCANA’s junior partner in the failed V.C. Summer nuclear project, typically will pay more than $6,000 for that utility’s share of the $9 billion cost of the failed nuclear project.

That is roughly $13.33 a month through 2056 — or $160 a year over the next four decades.

However, Santee Cooper interim chief executive Jim Brogdon said, in a letter to The (Charleston) Post and Courier’s editorial board, the monthly charge will vary year to year based on when the utility’s debt comes due.

That $6,000 total compares to nearly $2,800 that SCE&G’s customers will pay on average over the next 20 years if that utility is sold to Dominion Energy. If that buyout is finalized, Dominion has said it will offer SCE&G’s electric customers, who already have paid more than $2,000 toward the cost of the nuclear project, a refund of $1,000 a household, on average, and cut electric rates by $10 a month.

This story was originally published August 2, 2018 at 11:30 AM.