The long-awaited state report about whether SCE&G would file for bankruptcy if it couldn’t charge us any more for its abandoned nuclear reactors doesn’t actually tell us whether SCE&G is likely to file for bankruptcy if it has to stop charging us. But it does offer some useful insight into the question.
Maybe the most important thing it does is put the company’s $37-million-a-month/$444-million-a-year nuclear surcharge in context.
As Columbia bankruptcy attorney Rick Mendoza explained in a supporting memo, once you factor in federal tax adjustments, the annual surcharge is almost identical to the amount of money SCANA paid in dividends last year. Or, put another way, SCANA could have absorbed most if not all of the nuclear surcharge by simply not paying dividends.
That’s the main reason Mr. Mendoza concluded for the state Office of Regulatory Staff that there was only a 35 percent chance that SCANA would file for bankruptcy if it has to stop collecting the nuclear surcharge. (He told me he did not use a mathematical formula to arrive at 35 percent: He simply was looking for a way to convey the idea that “it can’t be eliminated as a real possibility” but “it was not really likely.”)
I’ve been hearing a similar argument from readers and some lawmakers for weeks, and the numbers raise valid questions about whether SCANA should have continued to pay those dividends since it abandoned the project. But they don’t actually address the question of whether SCANA can afford to pay off the construction debt without our help.
As I explained in my last column, that $37-million-a-month charge only covers the interest payments on the $4.7 billion that SCE&G plowed into the abandoned reactors. The company still has to pay back much of that $4.7 billion.
Some legislators have started suggesting that SCE&G could pay down the construction debt through securitization, which allows utilities to essentially turn debt into very long-term, very low-interest bonds, in some cases guaranteed by the government. As I understand it, customers would still be charged for this, but the total charge would be much lower than the current proposal from either SCANA or Dominion, because this would strip out the 10 percent profit the companies want to add to the construction costs. Depending on how the Legislature changes the law or how the courts rule on the law, this could be something lawmakers need to allow in South Carolina. But I don’t understand it well enough to say any more about it right now.
Equally interesting was Mr. Mendoza’s narrative about what might cause SCANA or SCE&G to file for bankruptcy protection. I had assumed this could happen if either the court or the Legislature forced SCE&G to stop recouping some or all of its costs, or pay back the money it’s already collected from us.
But Mr. Mendoza focuses on the combination of that threat with “numerous claims by contractors, vendors, rate payers, regulators, consumer advocates, and shareholders.” He writes that “the many claims and threatened actions against them, and the … substantial costs to respond, address and defend them, imperil the viability of the two companies.”
You can read the Office of Regulatory Staff’s report, including Mr. Mendoza’s memorandums, dated 1/19/2018, on the Public Service Commission website.
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.