South Carolina PSC calls SCE&G 'imprudent' in vote on Summer

South Carolina PSC calls SCE&G 'imprudent' in vote on Summer

By William Freebairn, Washington

Published on - Wed, 16 Jan 2019 15:18:19 EST

South Carolina's Public Service Commission voted to declare South Carolina Electric & Gas' actions in connection
with its abandoned Summer nuclear plant expansion "imprudent," but the move has little immediate impact because
the regulators had already approved reduced cost recovery in connection with SCE&G's sale to Dominion.

The PSC had been asked by the state's Office of Regulatory Staff, or ORS, which represents ratepayers, as well as
critics of SCE&G's handling of the project, to reconsider its decision in December to allow the utility to recover
capital costs incurred before March 2015. The December approval rejected cost recovery for costs spent after that point
and allowed Dominion to take control of SCE&G.

Commissioner Elliot Elam, vice chairman of the PSC, proposed a motion January 14 calling SCE&G's actions
imprudent.

Under state law, a finding of imprudence could normally prevent a utility from recovering costs. The PSC last year
declined to find any SCE&G costs had been incurred imprudently.

Elam conceded during the PSC meeting that the issue of prudence "became no longer legally relevant" after the
December vote, because the commission had finalized then which Summer project costs could be recovered.

The motion said the PSC action was in response to requests from ORS and anti-nuclear and environmental groups that the PSC declare SCE&G had withheld or minimized information on challenges to adding two AP1000 reactors to the single-unit Summer station.

The project experienced delays and significant cost overruns that brought the budget for completing the reactors to around two times the initial $11 million estimate. SCE&G and 45% project owner Santee Cooper decided to abandon the project in 2017 after spending more than $9 billion on it, saying they could not assume further risk after contractor Westinghouse filed for bankruptcy reorganization. Westinghouse had provided a fixed-price contract for the construction of the units.

Finding SCE&G acted imprudently in the matter would "emphasize the need for all regulated utilities to be transparent in their dealings with ORS and this Commission," Elam said in his motion.

"This finding will go a long way in acknowledging that the regulatory compact between SCE&G and ORS and the commission was broken by SCE&G, and it also puts all other regulated utilities on notice that we take this matter very seriously," Commissioner Thomas Erwin said during the January 14 meeting.

The PSC has said it believes SCE&G did not disclose to the PSC and ORS material information about challenges to the project, including failing to provide reports and studies from 2015 on that questioned the ability to complete the two new reactors on time and within the approved budget, Elam said in his motion.

"Under any definition of the term prudence, the Company was imprudent in its actions in this case with regard to costs incurred after March 12, 2015," Elam said in his motion.

SCE&G officials have said repeatedly they shared all pertinent information about the status of the project, noting that responsibility for management rested largely with Westinghouse under the engineering, procurement and construction contract.

The PSC decision this week "affirmed its well-reasoned order approving the merger and the merger benefits proposal, finding both to be in the best interest of SCE&G customers," SCE&G spokeswoman Rhonda O'Banion said in an email January 14. The company is focused on integrating SCE&G and Dominion, which will provide further customer benefits, she said.

Petitioners had asked the PSC to specifically preclude SCE&G from later seeking to recover project capital costs incurred after March 2015, but Elam said there would be no legal basis to do so. The settlement of the SCE&G acquisition and the law on abandonment of power plant projects would preclude such an effort, Elam said in his motion. In addition, the state's legislature has passed a law that would terminate the Base Load Review Act, the legislation detailing how nuclear plant projects can recover financing and capital costs, Elam said.

PSC rejects further rate cut

The PSC action also rejected efforts by several anti-nuclear groups to provide refunds of costs incurred before March 2015. "Their claims for an earlier date are not supported by substantial evidence in the hearing record," Elam said in his motion.

Dominion agreed to provide customer refunds of about $1 billion in connection with the acquisition of SCE&G, and also agreed to reduce electricity rates by cutting the amount of spending on the project it would recover in the future from ratepayers. The total benefit to ratepayers could be $3 billion or more, Elam said.

"[I]t seems that the PSC may be prioritizing lip service over real customer protection," Chris Carnevale, the coastal and climate energy manager for the Southern Alliance for Clean Energy, said in an email January 15. The PSC action fails to protect customers from potential future projects that go over budget, he said. The alliance was one of the groups seeking further rate reductions related to the Summer expansion.

Tom Clements, a member of SRS Watch, a group that tracks environmental and safety issues around the US Department of Energy's Savannah River Site, said the PSC action did not reduce rates, but could send a message to utilities. "I don't think it has a big impact, but it does send a signal to utilities that their future behavior might be more closely scrutinized," he said in an interview January 15.

Setting rates even lower could invite legal and constitutional challenges, Ervin said during the PSC meeting. A US District Court last year ruled that the temporary reduction of rates approved by the PSC last year were not confiscatory, he noted. Lowering them below that level could result in a legal battle which "could take years to resolve," potentially delaying rate relief for customers, Ervin said.

The final resolution by the PSC in December appropriately addressed all issues in the proceeding and finally closes the book on the Summer expansion failure, Elam said during the PSC meeting. It represented the best balance of fairness to all parties, he said.

A full written order from the PSC has yet to be filed on the issue.

The PSC decision came after South Carolina House Speaker Jay Lukas, though his lawyers, submitted a response to the commission January 9 supporting a formal PSC finding of lack of prudency.