Panel to decide who pays nuclear plant cost overruns

This is the working reactor at V.C. Summer Nuclear Station in Jenkinsville,where SCE&G and Santee Cooper are adding two new units. (AP/File)

COLUMBIA — Challengers to a $283 million cost increase request by SCANA Corp.’s South Carolina Electric & Gas said last week the utility provider rushed into the $10 billion construction of two new reactors for its Jenkinsville plant amid ample cautionary signs to slow down or stop.

SCE&G, the state’s largest utility, rejected those claims, declaring that nuclear energy production remains the long-term, most cost effective technology available to fulfill the state’s existing and future energy needs, especially given the utility’s recent coal plant phase-out and what SCANA CEO Kevin Marsh said is the likelihood the price of natural gas won’t remain so low.

In a two-day hearing before the S.C. Public Service Commission, all sides in the battle over nuclear energy and power rate increases had their say, including the public. Now, the eight-member commission will review whether the cost increases the utility seeks are prudent and should be paid by ratepayers, making a decision probably by early November.

“Those are costs that are within the original budget presented to the commission,” Marsh said. “We’re $550 million below that ($6.3 billion). These costs we believe are necessary and prudent in order for us to operate this plant effectively and in a safe manner.”

The Supreme Court, in answer to a complaint by ratepayers, directed SCE&G to go back to the commission for any “contingency” spending the project requires, after denying the company an automatic $400 million contingency accessible without commission consent. Low financing rates for the project have SCE&G’s financial portion of the project at $5.8 billion instead of the $6.3 billion original cost, Marsh said.

Led by the Sierra Club conservation group and large-scale industrial energy users in the state, the challengers told the Public Service Commission that SCE&G ignored red flags ranging from design issues with their chosen reactor model to failure to do thorough cost analyses of the combination of alternative energy sources such as abundant and inexpensive natural gas that could have served the same purpose as a nuclear plant.

The result of ignoring those warnings and red flags has led to the new funding requests the conservationists call cost overruns. “They have not done their jobs as prudent managers, and the commission must get them to do their jobs as prudent managers — and right now, because if they spend another billion dollars, and you’ll never be able to change it,” said Mark Cooper, a nationally known utility and rate analyst. “This is the last chance.”

Cooper, who testified as an expert witness for the conservationists, said, “Guaranteed cost recovery is nirvana for utilities.” As a result, SCE&G officials signed on for project responsibilities without knowing the costs involved, then, out of deference to SCANA shareholders, moved quickly to transfer their risk to ratepayers, Cooper said.

“From my point of view the Baseload Review Act is being interpreted to shift all these risks,” Cooper said. “We got their attention. ... But that’s not enough. They gotta do it right.”

According to Cooper, the conservationists’ claims represent a fundamental question: In a capitalist economy, a person who has made a decision about a big investment gets up every morning and asks, “Does this still make sense?”

“Because if things have changed and it doesn’t make sense, they’re not going to be able to recover their costs in a competitive market. And that’s the standard we use for utilities. We haven’t changed that standard.”

The Baseload Review Act “carved out a safe harbor” for SCE&G to come back to the commission and ask for advance cost recovery, Cooper said, “but it didn’t change the underlying standard.”

The utility first asked the commission for additional funds, a $174 million cost increase, for the project in 2010.

“In 2010, they should have come in and said, ‘This doesn’t make any sense anymore,’ ” Cooper said.

But Marsh said the two new reactors and their costs still make great sense for power production and ratepayers.

“You see two groups of people here today,” Marsh said. “Some people are just opposed in general to nuclear power and they would like for the commission to cancel the project because they don’t think nuclear is the way to go. There are other people that believe that the nuclear plant should be canceled and we should go with natural gas supplemented by wind and solar energy.”

Marsh, who also has been in the nuclear business for more than 30 years, said his company considered all those options when it brought the nuclear plant proposal to the commission back in 2008.

“The foundation for the nuclear plant is that we need power that is available 60 percent to 70 percent of the time — what we call baseload generation, available 24 hours a day whenever you need it.”