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Critics Question Rate Increases for Nuclear Plant

A state law that allows utilities to charge their customers years in advance for the construction of a nuclear plant is being used to fleece ratepayers for an expansion project at the V.C. Summer nuclear plant in Fairfield County, critics contend.

Last month, the federal Nuclear Regulatory Commission gave approval to Cayce-based South Carolina Electric & Gas Co., which owns 55 percent of the plant, and state-owned utility Santee Cooper, a 45-percent owner, to build two reactors at the plant near Jenkinsville, about 30 miles northwest of Columbia.

The first of the two 1,117-megawatt reactors is expected to begin operating in 2017, with the second to go online in 2018, utility officials said this month. The project is expected to involve up to 3,000 construction workers over the next three or four years, with 600 to 800 permanent jobs in place when the new units are in operation, according to SCE&G.

Total cost of the project is estimated at approximately $9.8 billion.

The NRC’s approval of construction and operating licenses for V.C. Summer was only the second time since the year before the 1979 Three Mile Island near-meltdown in Pennsylvania that federal regulators have given the go-ahead for a nuclear plant construction project. In February, the NRC approved the construction of two reactors at a site in Waynesboro, Ga., about 100 miles southwest of Columbia.

Kevin Marsh, chairman and CEO of SCANA Corp., the parent company of SCE&G, said in a story last month in The State newspaper that the V.C. Summer project when completed will allow customers to “begin to enjoy the long-term benefits of clean, reliable, non-emitting energy,” noting that the utility is required to meet government clean-energy standards.

NRC spokesman Roger Hannah told The Nerve that the commission considers only if the proposed plan for V.C. Summer met federal regulations, not whether the plant is needed or is the best option for the state.

The Base Load Review Act (BLRA), passed by the S.C. General Assembly in 2007, allows utilities to seek annual rate increases through the state Public Service Commission to help offset construction financing costs of a nuclear plant before the plant is completed.

"The BLRA effectively reduces the cost of building nuclear power plants in South Carolina by allowing the state's regulated utilities to adjust rates annually during construction of such plants to recover related financing costs," SCE&G said in a 2010 press release.

SCE&G rates have been raised four times over the past three years: .4 percent in April 2009, 1.1 percent in November 2009, 2.3 percent in November 2010, and 2.4 percent last November, according to published information by SCANA.

The rate increases over the 2.5-year period were projected to bring in a total of $130.4 million, according to SCANA. The company plans to seek additional annual rate hikes averaging slightly more than 2 percent throughout the decade under the Base Load Review Act, SCE&G said in its 2010 press release.

In its application to build the reactors, the utility projected that the incremental rate increases over the life of the project would total 37 percent, according to media reports. There are no rate caps under the law.

In a prepared statement in February announcing the company’s 2011 earnings, SCANA attributed SCE&G’s nearly 4 percent increase in annual earnings ($316 million in 2011 compared to $304 million in 2010) to “higher margins from base rate increases under the Base Load Review Act, which were partially offset by higher interest expense, property taxes, depreciation, and share dilution.”

‘Socialistic Project’

Contacted recently by The Nerve, Tom Clements of Columbia, an environmentalist who works with the national Alliance for Nuclear Accountability, said SCE&G has been allowed, under the law, to overcharge its customers, noting that profits are built into rate increases approved by the PSC.

The law allows a “preapproved” 11 percent return on nuclear expenditures, according to published information by SCANA.

Clements also said ratepayers likely would be stuck with the construction bill for the V.C. Summer project if it falls through.

“It’s a perfect example of where the free market is not at work,” Clements said. “This is a socialistic project that passes the benefits to the company and puts all the risk on the back of the ratepayers.”

“What everyone says is how beneficial this will be,” he continued. “But what they don’t realize is that whenever this project is completed, there will be even greater rate increases, which will, in turn, cause people to conserve energy usage, which will make it necessary to raise pricing again.”

The Alliance for Nuclear Accountability (ANA) describes itself on its website as a network of 35 local, regional and national organizations “representing the concerns of communities in the shadows of the U.S. nuclear weapons sites and radioactive waste dumps.” It has offices in Washington, D.C.; Santa Fe, NM; and Columbia, were Clements is listed as the organization’s nuclear nonproliferation policy director.

Representatives of SCE&G did not respond to repeated requests by The Nerve seeking comment for this story. The utility serves about 664,000 electric customers and 317,000 natural gas customers in South Carolina, according to the utility’s website.

The Alliance for Nuclear Accountability isn’t the only group that has questioned rate hikes for the V.C. Summer project. For example, the South Carolina Energy Users Committee, a group of industrial users of electricity and natural gas, several years ago challenged the Public Service Commission’s determination of recoverable capital costs under the Base Load Review Act.

In August 2010, the S.C. Supreme Court sided with the industrial group, ruling in a 3-2 vote that the Public Service Commission violated the law by allowing SCE&G to include more than $438 million in “contingency” costs for the construction project, and adding inflation to the contingency costs.

“Thus, under the Base Load Review Act, a utility, such as SCE&G, can recover its capital costs related to the nuclear facility,” the majority of justices wrote. “The General Assembly did not leave any room for doubt as to what type of costs qualify as capital costs. … Contingency costs are not included in the statutory definition of recoverable capital costs.”

Defending Rate Hikes

Santee Cooper spokeswoman Mollie Gore declined an on-camera interview to answer The Nerve’s questions about possible rate increases by the state-owned utility in connection with the V.C. Summer project.

But she said off-camera that raising rates in the future to offset its share of the project costs is neither “unfair nor unheard of,” adding that the utility is considering a rate increase in October.

“Nuclear power remains the only base load generation that is emissions free, and as such it is a critical part of Santee Cooper’s plans to diversify our generating fuel portfolio and continue providing low-cost and reliable electricity to our customers and for the benefit of the state,” Gore said in a written statement to The Nerve.

Santee Cooper is not covered by the Base Load Review Act, according to Gore and Dukes Scott, executive director of the S.C. Office of Regulatory Staff, the state agency charged with representing the public’s interest in regulating utilities.

The utility is the state’s largest power producer, serving more than 163,000 retail customers in Berkeley, Horry and Georgetown counties; and also is the primary source of power distributed by the state’s 20 electric cooperatives to more than 700,000 customers statewide, according to Santee Cooper’s website.

To reduce its financial obligations in the V.C. Summer project, Santee Cooper is seeking to decrease its ownership share of the plant to 20 percent from 45 percent, Gore said. The utility has signed a letter of intent with Duke Energy, and that “discussions are continuing with Duke and with other utilities about potential interest,” she added.

Duke Energy operates nuclear power plants in Oconee and York counties. Headquartered in Charlotte, the utility serves more than 4 million electric customers in the Carolinas, Indiana, Ohio and Kentucky, according to its website.

S.C. Sen. David Thomas, R-Greenville and a co-sponsor of the Base Load Review Act, told The Nerve in a recent interview that the law is needed to help attract industry to South Carolina.

“The importance of nuclear energy is vital to the state,” he said. “And for business to come into the state, they need assurance that South Carolina will have the means to supply the energy for these incoming industries.”

Asked about whether SCE&G’s rate increases for the V.C. Summer project were entirely justified, Thomas said there might have been “some misuse of the privileges,” though he declined further comment.

Reach Geer at KatieG@thenerve.org.

Alternative Energy Legislation State Agencies

SCE&G S.C. Office of Regulatory Staff Santee Cooper U.S. Nuclear Regulatory Commission South Carolina Energy Users Committee S.C. Public Service Commission Alliance for Nuclear Accountability V.C. Summer nuclear plant Base Load Review Act Sen. David Thomas