Power Play

Like other businesses and residents across the state, local manufacturer Carolina Starches is in for quite a shock if a nearly 10 percent hike in electric rates is approved by July for 655,000 South Carolina Electric & Gas Co. customers.

The North Charleston paper ingredient maker will be hit with an extra $3,500 a month in power costs if the South Carolina Public Service Commission approves a 9.52 percent increase in electric rates requested by the Columbia-based utility.

"In this market environment, any price increase of this magnitude is problematic," Carolina Starches co-owner Steve Brower said.

Brower won't lay off any of his 21 employees if the phased-in rate hike takes full effect by July 2011, but the more than $40,000 in additional electricity costs each year means profit margins will be lower and he won't be adding any new employees.

"I recognize they have environmental obligations, but the timing of this increase is really bad," Brower said.

That sentiment appears to be widespread and growing.

"I have never in my life seen such an arrogant, ill-timed and tone-deaf filing," Isle of Palms resident John S. Thompson wrote in a letter of protest to the Public Service

Commission. "SCE&G is obviously imperious to the economy and the current financial plight of their customer base."

The Columbia-based utility filed for the increase in January to pay for more than $700 million in what it called environmentally mandated improvements to its coal-fired power plants around the state and its dam near Columbia.

The higher rate request is not for new construction at SCE&G's jointly owned V.C. Summer nuclear facility with Santee Cooper north of Columbia. That annual rate increase of about 2.5 percent over the next decade has already been approved, and SCE&G customers are already paying it, a move SCE&G said will save $1 billion in construction costs and $4 billion in electric rates because the new nuclear units are being paid for while they are being built.

The latest rate hike, if approved, will be phased in over 18 months, starting in July, boosting residential power bills for the average SCE&G customer by about $140 a year by July 2011. For businesses and industries, the overall rate is a bit lower, but the annual sting will hurt greatly.

The Medical University of South Carolina can expect to pay about $1 million more per year for electricity. The city of Charleston's bill will go up by about $412,000 a year. In North Charleston, the city will fork over about $183,000 more to keep the lights running annually.

"I don't believe people are going to stand for this," utility customer Jenny Lind McRae of Aiken wrote in her letter of protest.

"I'm 87 years old and live on a pension and (Social Security)," customer George Kammerer of North Charleston wrote. "If you give the power company a raise on electricity, you will hurt the elderly."

They are among a growing chorus of customers who say SCE&G's request, especially its timing, is all wrong.

"It is time to say to this utility you need to find ways to cut costs inside your company like the rest of us," Ben Levinson of West Columbia wrote. "You cannot expect us to keep supporting your lavish ways."

Even the Intertech Group, a global conglomerate based in North Charleston that invests in large utilities as part of its business, opposes the rate hike, though it has not filed an official letter of protest.

"We are in no way opposed to utilities making a fair rate of return, but the SCE&G request is way out of the norm," said Robert Johnston, vice president of strategy for the Intertech Group. "This does not impact us in a major way, but it does impact the state in a major way."

The state's economy cannot take such a hit, Johnston said.

"With the current economic environment, (SCE&G) needs to do everything it can to defer, eliminate or postpone the request," he said. "The state is in serious financial difficulties, unemployment is at a record or near-record high. SCE&G needs to do everything it can to cut costs internally."

SCE&G customer Byron Davis of Isle of Palms said, "I don't know of any business in America that can get away with a price increase like that. They need to figure out a way to reduce costs in other areas to offset that."

The Post and Courier requested an interview with SCE&G President Kevin Marsh, but a spokesman said he was unavailable.

Company spokesman Scott Grigg said the company has done all it can to contain costs, including delaying the rate hike request by a year because of the poor economy last year.

He said salaried employees, including corporate officers at the SCANA-owned utility, have not received a general pay raise since 2008, though some salaried and corporate officers have received bonuses. The company also has eliminated 263 contractor jobs, a 34 percent reduction in its non-nuclear contract workers, but it added 43 new employees during the past 12 months, 40 of them for the new nuclear project, he said.

Grigg added that 77 percent of the $329 million for the federally mandated Lake Murray backup dam was paid for through tax credits the company earned on investments. That's about $254 million that was not passed on to customers, a savings of $1.87 on a monthly bill for the average residential customer.

Two cost-saving measures not adopted, like many other companies across the state during the recession, are unpaid furloughs and layoffs for SCE&G's 3,122 employees as of December, Grigg said.

"We have been reducing costs across the board so we won't have to do layoffs," he said.

As for salaries of the company's top officers, Grigg said an independent study in October 2009 found they are 5 percent below the median for the utility industry and 7 percent below the general industry median.

Their salaries and perks are still quite hefty.

For instance, in 2008, according to company documents, Marsh, SCE&G's president, earned nearly $1.9 million, including a bonus of roughly $75,000. Also, William B. Timmerman, president and CEO of SCANA, SCE&G's parent company, earned $4.7 million, including a bonus of $187,000.

"If you eliminated the salaries of all company officers, you would reduce customer rates by three-tenths of 1 percent or 32 cents a month for the average customer," Grigg said.

SCE&G filed its request two days after Florida's Public Service Commission unanimously denied Florida Power & Light Co.'s request for a 30 percent rate increase that would have cost customers $1.6 billion.

Because of the fizzling economy, Florida's PSC reduced the increase to about $75.4 million, a fraction of the original request that amounted to a rate hike of about 75 cents a month on a 1,000-kilowatt-hour bill.

"Utilities are just going to have to make do in these difficult economic times," Florida PSC Commissioner Nathan Skop told the Miami Herald after the ruling.

"Hopefully, that's a good omen of things to come," South Carolina Small Business Chamber of Commerce President and CEO Frank Knapp said of the Florida decision. "It's not a good time to raise rates. The public can't stand it, certainly not small businesses. This is just way too much. I am going to intervene in this request to see if we can't get the PSC to approve as little of a rate increase as we can."

Otis Rawl, president and CEO of the South Carolina Chamber of Commerce, which directly represents 1,900 businesses across the state and 18,000 members through local chambers of commerce, said the rate hike is not popular, but SCE&G, a chamber member, needs it.

"I don't think there is ever a good time for increases," Rawl said. "We can't have the best of both worlds. We are asking for the environment to be cleaned, and they have no authority to back away from that. ... We just have to live with what we got."

One of the biggest local companies expected to be hit by the proposed rate increase just as it finishes construction in July 2011 is aerospace giant Boeing, an SCE&G customer.

Electricity rates were not included in the massive incentive package to lure the $750 million 787 Dreamliner assembly plant to Charleston, according to Boeing spokeswoman Candy Eslinger.

If approved, the electric rate for large industrial customers will rise 9.2 percent by July 2011, but Eslinger said it is too early to tell what the financial impact will be on the new 610,000-square-foot assembly building -- roughly the size of 12 football fields.

The Charleston Metro Chamber of Commerce, which represents over 2,000 businesses, including SCE&G, blames government mandates, not the utility, for the rate hike.

"We should be asking the government if it should be pushing regulations at this time," Chamber President and CEO Charles Van Rysselberge said. "The government is what's causing this. They are constantly trying to tighten and tighten and tighten, and some of that becomes extremely expensive to do."

The chamber doesn't like to see any price increases, especially in tough economic times, he said, but "this is all a necessary part of doing business."

The state Office of Regulatory Staff will accept letters of protest and intervenors through March 22 and then audit SCE&G's books and analyze its needs. The hearing before the Public Service Commission is set for May 24, and a ruling is due by July 15.

"It's pretty large for that size company," Dukes Scott, executive director of the Office of Regulatory Staff, said of the proposed rate increase.

Reach Warren Wise at wwise@postandcourier.com or 937-5524.