Power surge Cost overruns at nuclear plant a growing part of SCE&G customers’ bills

Using one of the largest cranes in the world, South Carolina Electric & Gas Co. and its partners placed the first containment vessel ring at the V.C. Summer nuclear plant near Jenkinsville on April 13. Two remaining rings and the top head will follow to complete the robust containment vessel, which will house the reactor vessel. The completed structure will weigh about 4,000 tons.

The state legislation allowing South Carolina Electric & Gas Co. to charge customers for two new reactors at its nuclear power plant years before they are completed has been compared to making payments on a new car without knowing the final price and before it leaves the assembly line.

The monthly payments continue to rise, but it’s not certain whether the customer making those payments will ever drive the car.

At least now, SCE&G’s customers have an idea how much the expansoin of the V.C. Summer Nuclear Station is costing them each month. The state’s Office of Regulatory Staff, which represents the public’s interest in utility issues, this month said SCE&G’s customers are paying an average of $23.16 each billing period — or 16.1 percent of their total bill — toward building the Midlands nuclear plant.

And that’s likely to increase if the state Public Service Commission approves the company’s request to boost the project’s cost by another $852 million to $14 billion — more than $4 billion higher than original cost estimates.

SCE&G is using a state law called the Base Load Review Act to finance the nuclear project near Jenkinsville.

The law allows the utility to charge its 700,000 customers for construction as the project proceeds. Typically, utilities finance construction through bond sales that are repaid after the project is completed.

SCE&G says its method will save customers billions of dollars in future utility rates during the life of the nuclear units.

But critics like Frank Knapp, president and CEO of the state’s Small Business Chamber of Commerce, say the act “has turned into a blank check” for SCE&G.

The utility is allowed by state regulators to take up to 10.5 percent of the construction costs as profit. And Knapp says the pay-as-you-go method is unfair because some customers now paying for the project will leave the utility’s service area before it comes online.

SCE&G is a partner in the nuclear project with Moncks Corner-based Santee Cooper. State-owned Santee Cooper is financing its 45 percent share of construction through bonds, although customers are seeing rate increases to cover interest payments on the debt. Santee Cooper’s board voted in December to increase rates by 3.7 percent in both 2016 and 2017, in part because of V.C. Summer’s cost overruns. It was the utility’s first rate increase since 2013.

Meanwhile, SCE&G has raised rates each year since 2009 for a combined 16.9 percent hike to help pay for the nuclear project. Those charges are on top of regular rate increases and other costs passed on to customers, such as a nearly $10-per-year hike this spring to cover projected shortfalls in the utility’s pension costs.

“The amount that SCE&G customers are unjustly forced to pay in advance for the nuclear project has become a significant burden,” said Tom Clements, director of utility watchdog group Savannah River Site Watch.

SCE&G also has asked the state’s Public Service Commission to approve what the utility terms a new “fixed price” contract that would set the final price for construction at $14 billion. That request follows SCE&G’s decision last year to replace the project’s contractor with Westinghouse Electric Co., which has subcontracted with Fluor Corp. as the on-site construction manager.

“The fixed price option provides substantial value to our customers, investors, and the company by limiting the risk of future cost increases,” said Kevin Marsh, chairman and CEO of SCE&G parent SCANA Corp.

Santee Cooper spokeswoman Mollie Gore said the utility’s staff is still studying the fixed-price option, but initial estimates show it could save the utility’s customers hundreds of millions of dollars.

“There are a lot of benefits to it,” she said.

Clements said the fixed price is anything but fixed, because the cost can increase due to SCE&G-approved change orders “or based on changed circumstances,” according to the utility’s filing with regulators.

“The claim that the cost is fixed is very misleading as it’s clear that there can be future cost increases, all of which would be passed on to the consumer if allowed by the Public Service Commission,” Clements said.

Dukes Scott, executive director of the Office of Regulatory Staff, has said he is skeptical that the fixed-price option will really freeze cost overruns. Knapp calls the measure a “fake fixed price.”

“Yes, there is guaranteed great value of the fake fixed price option, but only for SCE&G and its investors, not the customers,” Knapp said. “Every time SCE&G is approved by the Public Service Commission to increase the cost of building the nuclear plants, the utility and its investors make more money on the backs of the customers.”

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The small business chamber, the South Carolina Energy Users Committee and the state’s electric cooperatives have filed to intervene in SCE&G’s request for the fixed-price contract and construction cost increase. If they are granted intervenor status, those groups would become a formal party of record to the proceeding, giving them the right to present testimony and cross examine witnesses.

Construction delays also could lead to rate increases if the new units are not in service by the end of 2020. SCE&G plans to receive $2.2 billion in federal Production Tax Credits, but those credits — part of the Energy and Policy Act of 2005 — expire if the units aren’t up and running by Dec. 31, 2020.

“Failure to meet that date could result in large additional rate impacts for customers of SCE&G, Santee Cooper and the electric cooperatives,” Clements said.

Santee Cooper provides electricity to the state’s 20 electric co-ops, which supply all 46 counties.

The construction schedule included in SCE&G’s petition to the Public Service Commission shows Westinghouse has guaranteed substantial completion of the first new unit by August 2019 and the second one by August 2020.

Both SCE&G and Santee Cooper say they are confident the new construction team will finish the work on time. Michael Crosby, Santee Cooper’s senior vice president of nuclear energy, said during a board meeting Friday that the Fluor-led team is hitting all of its milestones for this year and will be ramping up employment to match the construction schedule.

The Public Service Commission has scheduled an Oct. 5 hearing to consider SCE&G’s request for the fixed-price contract and construction cost increase, with a decision expected by the end of this year.

SCE&G provides electricity and natural gas to Charleston and Dorchester counties and parts of Berkeley County.

Reach David Wren at 843-937-5550 or on Twitter at @David_Wren_