WE ARE ALL justifiably angry about the SCE&G nuclear meltdown. But we’re also pretty confused about the fine and not-so-fine details about the company’s failed attempt to build two new nuclear reactors along with Santee Cooper. So I’ve put together a Q&A that addresses some of the most common misconceptions I’ve seen in emails, on social media, in letters to the editor and even in news articles here and elsewhere.
Why did SCE&G withdraw its petition to abandon the project? Does this mean we’re off the hook to pay any more for the reactors?
We’re absolutely not off the hook. The petition asks permission to abandon the project and, more importantly, to charge customers for the money SCE&G has spent on the project (up to $4.9 billion plus a return on investment). State law requires the Public Service Commission to rule on the petition within six months, but lawmakers and regulators wanted more time. SCE&G withdrew the petition to eliminate the deadline, but made clear it plans to refile later. Perhaps the company figured that legislators will agree that it made the right decision once they study the situation; perhaps it figured that not granting this small concession would make legislators angrier, and increase the chance that they would change the law in ways SCE&G would not like.
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Why does it cost $4.9 billion to shut down the nuclear project?
It doesn’t. That $4.9 billion is actually the amount of money SCE&G wants ratepayers to pay the utility to reimburse it for what it has spent on the project so far.
I keep reading that SCE&G wants ratepayers to pay another $2.2 billion. What’s that about?
Actually, the company is asking for $4.9 billion — which is the money we talked about in the previous question, which some people have characterized as the cost to close down the project. SCANA hopes to receive $2 billion in tax credits and $700 million that Toshiba — parent company of the project’s main contractor — has promised to make up for falling behind on construction. If it gets all that money, that will bring the $4.9 billion down to $2.2 billion. But the request to the PSC asked permission to charge us the full $4.9 billion.
So the most we could have to pay is another $4.9 billion, and that’s only if SCE&G doesn’t get the tax credits or the Toshiba money, right?
Absolutely not. Whether the amount we’re asked to repay turns out to be the full $4.9 billion or just $2.2 billion or something in between, that’s just the beginning. The law says SCE&G is entitled to a “return on investment” — which you could think of as either interest or profit on the money it has put into the project. SCE&G is expected to ask for a 10.25 percent rate of return, with the money charged to us over 60 years. We can’t find experts to give us a projection of what that will cost, but my rudimentary knowledge of return on investment tells me that it is extremely conservative to say it will be more than double that initial figure.
What happened to that $1.4 billion that we’ve already paid in higher rates?
That money was used to pay down interest on the part of the $4.9 billion that SCE&G borrowed. The $4.9 billion would be a lot higher if we had not paid that.
Why did the PSC keep approving rate increases when the project kept going over budget?
That’s not precisely what happened. The annual rate increases are not the result of cost overruns; the law actually anticipated that rates would go up every year, and the PSC had little if any authority to reject any of those.
The cost overruns are handled through a separate process, where SCE&G requests permission to change its cost and time projections. The PSC had some discretion on whether to accept those changes, but I’m still not clear on how much. In many cases, the Office of Regulatory Staff had already raised questions about some cost projections, and SCE&G had backed down from them, before the request ever went to the PSC. Those change orders have not resulted in higher rates yet, but they eventually would have, if the project had been completed, because the change orders are what would have allowed SCE&G to spend twice as much as originally projected.
How did SCE&G and Santee Cooper get their assumptions so completely wrong, and why was the project approved?
You have to remember that in the early part of this century, natural gas prices were soaring, energy needs were skyrocketing, and the federal government was cracking down on coal plants. Across the nation, everybody except nuclear opponents thought nuclear reactors were the best solution. At the time of its application, SCE&G’s projections for its energy needs looked reasonable; so did Santee Cooper’s, though maybe less so. Then three things changed all that: fracking brought us dirt-cheap natural gas, conservation measures started catching on, and the recession slowed the growth of energy needs.
What did the 2007 Base Load Review Act do for SCE&G?
The law made it easier for SCE&G to do things that previous laws already allowed. It could already raise customers’ rates to help pay for plants during construction; this law made those rate increases nearly automatic. It could already charge customers for any of its own money the company invested in new plants, even if the plants were never completed; this law made that process easier as well, and also guaranteed that it could charge us for a “return on investment” — essentially profit on the money it had invested.
What did the 2007 Base Load Review Act do for Santee Cooper?
Absolutely nothing. Since Santee Cooper is a state-owned utility, it is not regulated. It only needs the approval of its board of directors to raise rates, for any reason it sees fit.
And that, of course, is an entirely different subject, which might deserve even more discussion than SCE&G.
Ms. Scoppe writes editorials and columns for The State. Reach her at email@example.com or (803) 771-8571 or follow her on Twitter or like her on Facebook @CindiScoppe.