DOMINION ENERGY’S buyout offer would be good for SCE&G customers. But would it be good enough? And even if it is, would the public policy price the utility giant demands in return be too high for our state to pay?
Like just about everything else important in South Carolina, that’s a decision that will be made by the Legislature, whose members are focused on delivering as much relief as possible for SCE&G and Santee Cooper ratepayers.
These are not easy questions to answer, because there are so many things we don’t know yet, and so many things we will never know for sure unless we try them — possibly to disastrous results.
Worse, that whole “possibly to disastrous results” outcome runs through all the proposals legislators are considering to reduce the amount customers end up paying for the two utilities’ failed attempt to build two nuclear reactors in Fairfield County.
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The two extreme options for payment are for customers to cover the entire cost or for the utilities to cover the entire cost — that is, for the utilities to refund the $2.5 billion customers already have paid to cover interest charges, and not charge for any of the remaining $9 billion construction cost.
It’s possible customers could end up on the hook for most or all of Santee Cooper’s cost. But customers aren’t going to pay SCANA’s entire cost — SCANA had backed away from that idea even before Dominion made its offer.
It’s not realistic to believe that SCE&G customers can escape any more payments and even get back the money they already paid.
A lot of people believe that SCE&G customers can escape any more payments, and even get back the money they already paid, but that is simply not realistic. Even if legislators were willing to impose a certain death sentence on SCANA, it’s hard to imagine that the courts would allow that to happen.
The challenge for legislators is to determine the most relief they can get for SCE&G customers without derailing the merger. Or, if they do derail the merger, getting the most relief without crippling SCANA. Or provoking a lawsuit that our state would spend an obscene amount of money fighting and likely lose. They face a similar challenge in protecting Santee Cooper customers, but with different variables that I’ll explore in a later column.
This summer, SCE&G proposed to continue charging residential customers an average of $27 per month for the abandoned reactors, for 60 years. In November, the company proposed lowering the surcharge to $22 per month, for 50 years. Dominion says it will drop the surcharge to $20 per month, then drop it more each year until it goes away after 20 years. Dominion also says it will give the average customer a rebate of $1,000.
Dominion’s offer would reduce the average customer’s additional nuclear surcharge from $13,200 to at most $3,800.
Those monthly reductions look small, but they add up: The initial proposal would have cost a total of $19,440 per customer. The November offer dropped that to $13,200, and Dominion’s offer would cost the average customer at most $3,800, once you take the rebate into account.
That’s a huge reduction, but it still means paying for reactors that won’t produce any power. And Dominion says the deal is off if the Legislature changes the 2007 Base Load Review Act in a way that affects the financials. Essentially, that means we can change or even repeal the law for future projects, but we have to let SCE&G keep charging customers for the abandoned reactors. And that is a difficult concession to make with such an awful law.
Utilities had been allowed to charge customers for unfinished power plants before the Base Load Review Act; that’s not what’s so awful about the law. What’s so awful about the law is that it 1) allows utilities to earn a profit on failed reactors and 2) makes it nearly impossible for regulators to reject rate increases once they initially declare a construction project “prudent” — even if imprudent decisions are made later during construction.
Lawmakers will have to decide how much they’re willing to gamble with our state’s energy and economic future.
I think we need to change those provisions, but we have to consider what changing them gives us compared to what it could cost.
Eliminating additional rate hikes to pay for the abandoned reactors isn’t essential if regulators can hold Dominion to its promise not to seek any more rate hikes for the reactors. Dominion does intend to keep collecting a profit on the abandoned reactors, although the profit would be much lower since the investment being recovered would be much lower and the recovery time would be substantially lower. That’s why the overall charge to customers would be less than a third what SCE&G proposed in November.
NOTE: An earlier version of this column incorrectly said that Dominion did not intend to keep collecting a profit on the abandoned reactors.
Dominion says it can’t afford to spend any more on the deal, and notes that a credit watch was placed on its bonds when it announced the merger. SCANA CEO Jimmy Addison says no other utility contacted him about a merger or buyout, on any terms. And he insists that the much less generous November offer is the most SCANA could afford and remain solvent.
Maybe all of those statements are true, and maybe they’re not, and the only way to find out for sure is for the Legislature to change state law to require the utility to pick up more of the cost. That could result in Dominion agreeing to pay more — or walking away from the deal. Which could result in SCANA finding a way to absorb more of the cost — or filing for bankruptcy. Or being taken over in a hostile deal that could eventually lead to much, much higher rates, and diminished service.
All of which means that lawmakers will have to decide how much they’re willing to gamble with our state’s energy and economic future.
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.