South Carolina Electric & Gas is unlikely to be forced into bankruptcy if lawmakers force the power company to stop charging customers for its failed nuclear project, according to a new government analysis.
The S.C. Office of Regulatory Staff, a utility watchdog agency, said Friday that a bankruptcy is "unlikely" and that SCE&G could cover the cost of a rate cut by shutting off its dividend payments to investors.
Rick Mendoza, a Columbia-based bankruptcy lawyer hired by the agency, wrote that a dividend cut "would seem to cover most, if not all, of the amount of the lost revenue." SCE&G charges electric customers $37 million a month for the unfinished reactors it was building north of Columbia — a charge that makes up nearly a fifth of their electric bills.
Mendoza, who is considered one of the state's most seasoned bankruptcy attorneys, said the odds of bankruptcy were roughly 35 percent. Reorganizing the power company would likely leave shareholders with nothing — a reality that Mendoza said "would reinforce the resolve" of the utility to avoid such a move.
"I have not been convinced that SCANA would go to go into bankruptcy," S.C. Senate President Pro Tem Hugh Leatherman said.
The findings could have bearing on the future of the state's energy sector. Lawmakers are debating whether or not to repeal the controversial 2007 law that helped finance the scuttled expansion of the V.C. Summer Nuclear Station — and lets SCE&G keep charging ratepayers for the abandoned project.
Executives at SCE&G and its owner, SCANA Corp., had said that repealing the law would force them into bankruptcy and leave South Carolina with a financially crippled electric utility. That's a situation with exceedingly little precedent in the electric business, where government monopolies typically ensure safe returns.
"We don't agree with all of the financial conclusions reached in the report," SCANA spokesman Eric Boomhower said in an email. "Even if the conclusions are accurate, a 35 percent chance of bankruptcy is too much of a risk to take."
Still, the findings were cheered by politicians who have sought to roll back the utility's nuclear rate charges since the project was called off in late July. The audit appeared to bolster their resolve Friday to unwind the decade-old law that enabled the project.
A repeal of that law — known as the Base Load Review Act — would also torpedo SCANA's plans to be acquired by Virginia-based Dominion Energy, a utility giant that offered $7.9 billion in stock to buy the Cayce-based company.
Gov. Henry McMaster reiterated his call for the power company to cut its nuclear rates, and Senate Majority Leader Shane Massey described the report as "yet another reason to question the credibility of SCANA, and now to some extent Dominion, for using this bankruptcy scare tactic to sell the deal."
House Speaker Jay Lucas concurred, saying in a statement that the audit "confirms suspicions that SCANA is determined to deceive ratepayers by manufacturing threats of bankruptcy."
State Rep. Peter McCoy, who chairs the House panel investigating the nuclear debacle, likewise said he wasn't surprised by the audit's findings. His committee voted last year to cut SCE&G's rates, moving the measure to the House floor.
"They've tried to put the fear of God into legislators about bankrupting such a huge business in our state if we act to try to protect the ratepayers," said McCoy, a Charleston Republican. "They just don’t want the gravy train to stop."
Still, Leatherman, considered South Carolina's most influential politician along with Lucas, is not calling for a full repeal of the Base Load Review Act. The Florence Republican questioned if the state might run into legal issues by doing away with with the law and could blunt future economic development prospects.
Leatherman said he could see winning refunds of the nearly $2 billion the SCE&G customers have paid for the unfinished reactors, which he called the worst debacle in his nearly four decades in the state Senate.
"We need to take care of the ratepayers," he said.
SCANA and Dominion have pitched a partial reduction of the nuclear rates while fighting to prevent a full rollback.
Dominion has proposed cutting about a fifth of the rates tied to the V.C. Summer project, and it has offered to refund $1.3 billion to customers, which would cover about two-thirds of the money ratepayers have already paid into the project.
The analysis released Friday by the Office of Regulatory Staff adds a new dimension to the Legislature's debate, marking the first comprehensive look at what could happen if the nuclear rates were nixed. The state's utility regulators at the Public Service Commission are also considering a measure to halt charges for the nuclear project.
Dominion and SCANA also contend that requiring a rate cut would cause problems even if bankruptcy isn't in play.
Credit-rating agencies say they will downgrade their confidence in SCE&G's ability to repay its debt, which would make it more expensive for the company to borrow money. It would also hammer the company's already weakened stock, making it harder to raise funds through the stock market. Those costs would ultimately be passed onto customers, the utilities have said.
SCE&G has already taken a beating from credit analysts and Wall Street investors as its nuclear project collapsed and a political uproar followed. Financiers have been spooked by the possibility of lawmakers and regulators sticking the company and its investors with its share of the $9 billion project.
SCE&G owns more than half — 55 percent — of the unfinished reactors at V.C. Summer. The rest belongs to Santee Cooper, a government-owned utility that sells electricity to cooperatives around the state. Both power companies racked up billions in debt that customers could ultimately have to pay off.
Jamie Lovegrove and Andy Shain of The Post and Courier contributed to this report.