Alarms on nukes fiasco sounded years ago

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If only we’d seen that coming

By ROBERT MEYEROWITZ

When Santee Cooper and SCE&G pulled the plug on their shared project to build two nuclear reactors in Jenkinsville at the beginning of last week, it was a “wow” moment and rightly so. For one thing, several thousand employees were thrown out of work with no warning.

Yet with the benefit of hindsight, this fiasco was like a freight train that had been steadily approaching for years, a speck in the distance, a slightly bigger speck in the distance, slightly bigger… “is that a train?” — and then, one day it arrived all hiss and clang, right on time.

“No one anticipated what kind of a catastrophe this would turn into,” Senate Minority Leader Nikki Setzler told the Associated Press late last week.

Keep in mind that Setzler said this despite his having co-sponsored the 2007 Base Load Review Act, the law that positioned SCE&G parent company SCANA to risk so much on the project, where it was the majority partner, while insulating itself from loss and enriching its shareholders.

That’s what economists call a moral hazard. And it shouldn’t have been hard to see before last week that it posed at least a potential problem.

Along the same lines, the seven members of the state’s Public Service Commission, which regulates SCE&G, said they were “blindsided” by the project’s failure.

As the media feasts on the carcass of what was once the V.C. Summer nuclear project, and politicians point fingers, perhaps it’s a good time to take a look back at what could have been known — starting with a piece written for The Nerve by Katie Geer in 2012.

Then, the federal Nuclear Regulatory Commission had just approved SCE&G’s and Santee Cooper’s plan to build the reactors.

“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,” Geer wrote, citing critics’ contentions.

Tom Clements, an environmentalist with Friends of the Earth, has been in the news lately as he pushes for refunds for SCG&E customers who have been paying for the failed project.

Clements was in Geer’s story in 2012, too — warning that ratepayers would be stuck with the construction bill if it failed:

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

No shoes for you

A year after Geer’s piece, in June of 2013, reporter Corey Hutchins took a run at the reactor project for Free Times. Entitled “Nuclear Island,” Hutchins’s account set the stage thusly:

By 2009, a relatively small private utility company owned by SCANA, South Carolina Electric & Gas, along with the state-owned utility Santee Cooper, had proposed building two new nuclear reactors at a facility called V.C. Summer, about 30 miles outside Columbia in Jenkinsville. The estimated cost was $10 billion.

Fast-forward to 2013, and things aren’t looking so hot for the industry nationwide or around the world.

In between, there was the nuclear reactor disaster at Fukushima, in Japan. At the same time, fracking took off, making natural gas more competitive with the cost of nuclear energy.

“If South Carolina continues to embrace a power source that others are leaving behind, are we the last state hanging on to a dead idea?” Hutchins wondered.

Now, fast-forward to the V.C. Summer moratoriums and the answer may be, yes, pretty much — or at least, arguably we were, which is part of how Santee Cooper and SCE&G, and more to the point, their customers, got into this mess.

There were other omens in 2013. From Hutchins in Free Times:

The Sierra Club of South Carolina points to Santee Cooper trying to sell off its commitment to the two new nuclear reactors as a reason the new plants should be abandoned.

“That’s the handwriting on the wall,” says the group’s lawyer Bob Guild. …

Perhaps the staunchest critic of the new nuke site is Mark Cooper, who has… testified in front of the state’s Public Service Commission about the issue. The former consumer advocate says the reason South Carolina is going forward with the nuclear option is because we’re a utility-friendly state lacking a viable consumer activist movement, and our State House and regulatory boards are packed with people in the tank for the industry…

He said South Carolina ratepayers have gotten hosed by the utility companies, and he recommended plant owners could save ratepayers as much as $10 billion over four decades if they canceled the nuclear project and developed alternative energy instead…

Cooper explained his reasoning. It mainly has to do with the Base Load Review Act, which put ratepayers rather than shareholders on the hook financially for going full bore into a nuclear future no matter what.

Cooper likens it to buying a pair of shoes. In our capitalist economy when you sell a pair of shoes at a shoe store, the capitalist has taken 100 percent of the risk in stocking those shoes in the hope he or she will sell them. The idea is that the return on the investment and equity is the reward you get for taking the risk that the shoes won’t sell.

With South Carolina and its nuclear project, it’s like utilities have asked the customer to pay in advance with no guarantee of ever getting any shoes.

“It’s not the way our capitalist economy is supposed to work,” Cooper says.

It’s moral hazard.

Ask again later 

Both the Nerve and Free Times pieces depended on outside critics who believed they could see all too clearly, years ago, that V.C. Summer was bound to end in tears before supper.

One of the more curious documents from before the project went belly-up, however, was issued just days before the meltdown.

Ron Aiken, the former Nerve journalist who now operates the investigative website Quorum, published a lengthy interview with Mike Couick, the CEO of the state association of electric cooperatives, on July 27, entitled “Apocalypse How?”

Couick has more of an insider’s perspective. The state’s electric co-ops are Santee Cooper’s customers.

In Couick’s telling, there were incentives and market forces equally at work, with no decisive point in the past when it all went south. Rather, there were times when it was still promising.

One problem, though, was the uncertainty in the transition from the Obama to the Trump administrations, Couick said:

In 2009 under the Obama administration, they make an endangerment finding on CO2. They say that’s the first leg of regulating carbon. The Supreme Court had said you can’t avoid regulating carbon. The Clean Air Act says you’ve got to regulate carbon…

In 2014, Obama proposes the original rules for CO2 emissions in South Carolina. Under the original rules, you do not get any benefit for building the non-emitting power plants going in at Jenkinsville… So, we sent 182,000 emails from SC co-op members saying, ‘Why are we building these nuclear units if we’re not going to get credit?’ Because it’s our best way of avoiding CO2 emissions.

This, then, became a case where government listened… They gave us credit for building those nuclear units if they’re completed. That credit is worth a billion dollars a year. So, come August 2015, if you look at where we were, President Obama, EPA, the revised rule that is the result of intensive input from South Carolina, it says you’ve got to finish [reactors] 2 and 3 up there at Jenkinsville, and if you don’t, it’s going to cost you a billion dollars a year forever, so to speak, for not having that in place to reduce emissions as required.

Essentially, Couick is saying the project was a good bet just two years ago based in part on the incentives and in part on projected power needs and regulation.

State Senator William Timmons wrote a column for the Greenville Journal last week in which he said changes in federal energy policy contributed to the decision to abandon V.C. Summer.

In the interview, published before the decision, Couick more or less concurred:

So, what happens? Two things. A new president is elected and says he’s going to do away with the Clean Power provisions related to the Clean Air Act, and he uses those words: ‘Do away with them.’ And then on Dec. 27, 2016, Toshiba alerts its investors that there’s problems in River City…

All of a sudden something that looks very smart changes into something that’s not unwise, it’s just uncertain because of Trump and the Clean Air Act.

For Couick, however, the Base Load Review Act wasn’t what precipitated problems. On the contrary:

The Base Load Review Act, if you take it through the lens of where we were in 2006-2007-2008, it was a smart decision…

What’s challenged things is the passage of time. Can you tell me what’s going to happen in five years on carbon? Can you tell me that fracking natural gas is never going to be outlawed because of an environmental group or others challenging it saying that fracking causes seismic activity or endangers our clean water supply? …

In this industry, you can’t decide tomorrow that you’re going to have power tomorrow… Predicting future demand is an art as much as a science, and no one can see the future. With perfect foresight, you’d have known the Great Recession was about to hit, you’d have known that Donald Trump was going to beat Hillary Clinton. You would have known that he was going to roll back parts of the Clean Air Act.

That same uncertainty likely surrounds discussion today, of what’s to be done in light of Santee Cooper and SCE&G pulling out of the project, whether or not the speakers realize it.

Governor Henry McMaster may be looking for ways to complete one of the two reactors that were abandoned, according to the Post & Courier, possibly by selling Santee Cooper, although such an idea on its face carries as much risk as promise, with the possible completion years away.

And state Senator Mike Fanning says McMaster might also be willing to consider “forcing state-owned Santee Cooper to reverse its decision to pull out of the project,” according to The State, which would require not just greater direct management of a state-owned utility but also the assumption of even greater risk, and perhaps a crystal ball.

But then, there’s always some moral hazard when the government spends your money.

Nerve stories are always free to reprint and repost. We only ask that you credit The Nerve.
  • Lyn Wilson

    Interesting that the same legislators who promoted the Base Load Act are now on the taskforce to figure out ‘why the project failed’. Also…if the seven members of the PSC were “blindsided” by the project failure, they all need to be replaced. It was readily apparent 4 years ago to anyone on the outside looking in that the project was on shaky ground and headed towards a breakdown. As a professional project manager, and a consumer, I am extremely disgusted with the incompetence and lack of oversight at all levels.

  • bargeman

    I spoke about this to the PSC several years ago. Also a speaker from Florida told about the years behind schedule, billions in cost overruns and at least 2 more years before it may go on line.

  • 1SC

    The warnings came much earlier. John Ruoff of SC Fair Share testified against the BLRA in 2007, noting many of the problems that have come back to hurt us. Further, those who say that the BLRA was a good idea are not acknowleding that the law hasn’t just permitted SCANA to charge borrowing costs up front, it also has provisions that make it much harder to use a company’s extremely imprudent management as grounds for denying rate increases. Many legislators didn’t understand what they were voting for because only one aspect of the bill was used to sell it. However, Couick and others in the business probably knew very well what they were asking for, and getting, in the BLRA. The provisions of Kirkman Finlay’s bill to amend the BLRA, H.4022, reflects the problems that led to those rate increases.

  • 1SC

    The warnings came much earlier. John Ruoff of SC Fair Share testified against the BLRA in 2007, noting many of the problems that have come back to hurt us. Further, those who say that the BLRA was a good idea are not acknowleding that the law hasn’t just permitted SCANA to charge borrowing costs up front, it also has provisions that make it much harder to use a company’s extremely imprudent management as grounds for denying rate increases. Many legislators didn’t understand what they were voting for because only one aspect of the bill was used to sell it. However, Couick and others in the business probably knew very well what they were asking for, and getting, in the BLRA. The specific provisions of Kirkman Finlay’s bill to amend the BLRA, H.4022, reflect the problems that led to those rate increases and the revisions needed to insure that ratepayers have reasonable rights under the BLRA.

  • John Bryan

    Maybe the Nerve should be renamed Cassandra: warning people who don’t listen, like Cassandra of Troy.

    • Robert Meyerowitz

      Heh. I very nearly referred to “Cassandras” in that story… 🙂

  • ELCID

    Both in this site and many others including The State News Paper OPED, there was a call from a professional engineer very familiar with the utility situations in SC to sell Santee Cooper in 2015. Before this disaster happened. Santee Lobbyist made sure that did not happen. Now we are hosed.

  • OldMarineFE

    This is, ALL OF IT, just another symptom of how corrupt the SC government has become. You will NEVER defeat the corrupt “gangs” that run roughshod over SC, UNLESS you organize and get a voting block together that can get the job done! In fact, just a few thousand angry and active SC citizens can and WILL make a BIG difference!

    Join the fight here, http://sccphub.net, clear & clean the swamp with the Constitution Party! IT CAN BE DONE!