IF SCE&G customers get refunds for the $1.7 billion we’ve already paid for two now-abandoned nuclear reactors, it probably will be thanks to a legislative panel that designed sweeping changes to the South Carolina Constitution nearly a half-century ago.
Eight words in the West Committee’s recommendations — approved by voters in 1970 — might have rendered unconstitutional the 2007 Base Load Review Act that encouraged runaway spending by promising utilities they could not only charge their customers for abandoned nuclear reactors, but also turn a profit on their failures.
That possibility raises all sorts of new concerns about the Legislature’s role in creating this debacle, because it suggests that lawmakers passed a law that was not only bad public policy but also in direct violation of a strong consumer-protection provision that is written into our state constitution.
It’s hard to imagine any circumstances under which either the Legislature or the Public Service Commission will allow SCE&G parent SCANA Corp. to collect a 10 percent return on its $4.9 billion investment in the failed nuclear construction project at the V.C. Summer facility in Jenkinsville. And it looks increasingly likely that state officials will conclude that SCANA misled regulators so much that they will require the utility and its stockholders to cover some or possibly even all of that $4.9 billion, rather than passing the cost on to ratepayers.
But if the S.C. Supreme Court strikes down the 2007 law that shifted the burden of failure from stockholders to ratepayers, as an attorney general’s opinion suggests the court would, that would raise the consequences to a whole new level. SCE&G could be forced to reimburse the money it has been collecting in our monthly bills since 2008. Although that’s not nearly as much as the company’s own investment, it could be devastating, because the cost would be cumulative.
It’s easy to miss the significance of the West Committee’s one-sentence provision on utilities, which says simply: “The General Assembly shall provide for appropriate regulation of common carriers, publicly owned utilities, and privately owned utilities serving the public as and to the extent required by the public interest.”
And in fact, it seems likely that the public — and possibly a lot of legislators — overlooked its significance at the time it was added to our state constitution. (Some things, it seems, never change.) To the extent that they even mentioned it, newspaper articles from 1970 focused on the fact that the new utilities language in the constitution would contain a lot fewer words than the previous language, in keeping with the overall effort in that year’s batch of constitutional amendments to shorten the document. (While brevity was indeed one goal, the West Committee’s big recommendations were letting governors serve two terms, stripping state legislators of the power to run their home counties and strengthening the power of the Supreme Court — none of which would be adopted until years later.)
But as Solicitor General Bob Cook explained in an attorney general’s opinion last month, the words “to the extent required by the public interest” (those are the eight vital words) were chosen quite deliberately. Although the first part of the sentence was modeled on a provision in the Kentucky constitution, the West Committee “insisted on adding the language ‘to the extent required by the public interest,’” which was “intended by the Committee to be a limitation upon the power of the General Assembly.”
Because of the way courts have interpreted “public interest,” Mr. Cook argues, that amendment essentially wrote into our state’s constitution the longtime practice of allowing utilities to charge ratepayers only for investments that were “used and useful” — which, for instance, nuclear reactors generally would not be until they started producing electricity. This could be a problem for SCE&G because the Base Load Review Act upended the whole “used and useful” concept, by requiring any nuclear construction project that received initial approval by the Public Service Commission to be treated as if it were “used and useful” — even when it was neither. As it is now.
The attorney general’s opinion raises additional constitutional concerns about the Base Load Review Act. But when it comes to utility law, the courts have been evolving in the way they interpret constitutional prohibitions on taking private property (in this case, ratepayers’ money) without just compensation.
“Public interest” requirements for utilities, on the other hand, are firmly established. Article IX, Section 1 of our constitution “ensures that the ‘public interest’ must be protected in any regulation of utilities by the General Assembly,” Mr. Cook explains. “As one authority has written, public ‘utility regulation does not exist for the benefit of the utility companies; Its purpose is to protect consumers from monopoly power.’” Indeed, our state Supreme Court has ruled that because of that provision, a utility may not “exploit the public it serves.”
Unless the court changes its mind, that means I’ve been wrong all those times I said that corporations don’t have the same obligation to the public that Santee Cooper and the Legislature and the Public Service Commission and other governmental entities have. While that’s generally true about corporations, it apparently is not true of utilities. At least not in South Carolina.
Here are some other pieces I’ve written about this that you might find helpful:
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.