COLUMBIA — Two of South Carolina's major electric utilities announced Monday that they were pulling the plug on a decade-long, multi-billion dollar attempt to build two new nuclear power reactors in Fairfield County.
The decision by Cayce-based South Carolina Electric & Gas and state-run Santee Cooper to drop the long-awaited power projects offered a less-than-glamorous end to an endeavor that was supposed to usher in a new age of nuclear power in the United States.
But the failure of the two utilities to finish the project, which suffered from repeated construction delays and skyrocketing costs, could still leave electric customers paying off the giant check. Here is what you need to know about the impact of Monday's decision:
Why did the utilities decide to build two new nuclear power plants in South Carolina?
SCE&G and Santee Cooper decided to add two new nuclear reactors at the existing V.C. Summer plant near Jenkinsville in Fairfield County around 2007. At the time, the utilities argued that nuclear power was the best way to provide carbon-free electricity to their customers, even compared to natural gas or renewable energy sources.
The plants had the possibility of becoming the first new nuclear plants constructed in the United States in three decades. The utilities saw them as an avenue to supply the bulk of the power in South Carolina over the next century.
And with SCE&G covering 55 percent of the plant and Santee Cooper taking 45 percent, the ownership would be solidified in South Carolina.
How did the utilities pay for the expansion?
The proposal to construct the costly power plants that were supposed to provide electricity to South Carolinians for decades also was spurred on by the promise of federal tax credits that Congress approved in 2005. Those credits offered the possibility that the final cost of the plants would be drastically reduced, as long as they were completed by the end of 2020.
Santee Cooper turned to low-interest bonds to finance their share. SCE&G financed their majority ownership from various sources, but they had an ace up their sleeve too.
State lawmakers in South Carolina's legislature passed another law — known as the Base Load Review Act — that gave investor-owned utilities, like SCE&G, the ability to charge electric customers for the nuclear units as they were being built.
That law, which the utilities pushed through the Legislature, was supposed to reduce the financing costs for the plants, saving customers money over the life of the project. Their electric bills would increase, however, to cover the mounting interest payments.
It also placed almost all of the risk in building the two reactors onto ratepayers.
The federal and state policy incentives, coupled with the threat that President Barack Obama's administration would regulate carbon pollution from coal-fired power plants to combat climate change, made the construction of the nuclear plants attractive to some utilities.
The projects went ahead in 2008, following the approval of the Santee Cooper board and the Public Service Commission — the state agency charged with regulating for-profit utilities.
What went wrong?
In the years following the approval, SCE&G began to report the need to change some of the design features of the plants, which were the first of their kind along with two proposed units in Georgia and others in China. The company had to get approval for design changes from the federal Nuclear Regulatory Commission, which is charged with regulating nuclear construction in the United States.
At the same time, reports began to surface that showed that there were issues with the way contractors were constructing parts of the plants' large modular units — the steel building blocks of the project. Kevin Marsh, CEO of SCE&G parent SCANA Corp., and Santee Cooper CEO Lonnie Carter both placed blame on the contractors.
Costs continued to escalate. The construction schedule was changed over and over again. The completion dates were marched further back to late 2020.
Santee Cooper officials now acknowledge that almost all of their assumptions about the market for nuclear power in 2008 are now flawed. Natural gas prices dropped significantly. Demand for electricity in South Carolina didn't grow anywhere near what they had projected. And a Donald Trump presidency all but ensures that carbon regulations aren't going into effect.
The final nail in the coffin came in March, when the lead contractor on the project, Westinghouse, filed for bankruptcy protection. Westinghouse's demise ensured that the only way the project would continue is if SCE&G and Santee Cooper finished it on their own.
Based on Santee Cooper's presentation Monday, the projected costs that had started out at a little less than $10 billion had ballooned to roughly $25 billion. The units, according to the presentation, wouldn't be completed until 2023, ensuring the plants wouldn't qualify for the federal tax credits that expire in 2020.
That exorbitant price made the nuclear units untenable for the Santee Cooper, but SCE&G said in a statement that it had considered finishing one of the units, before backing out as well.
What does the failure of the nuclear plants mean for electric customers in South Carolina?
If you are an electric customer of SCE&G, Santee Cooper or one of the many electric cooperatives that is supplied by the state-run utility, you can likely expect your power bills to continue to increase.
While the partnering utilities said they would use a nearly $2.2 billion settlement with Westinghouse's parent company to offset some costs, customers may have to pay for the steel and concrete that has already been sunk into the ground near Jenkinsville.
The projects are effectively canceled at this point, but the utilities have already spent roughly $9 billion in their pursuit of building the plants, and they will want to recoup their money.
In the case of Santee Cooper, they only have their customers to turn to when they need to pay a bill. They spent more than $4 billion in bond revenue on the project and somebody has to pay.
SCE&G is a little different. It could turn to their shareholders — the ones who made money from rate increases as construction was underway — to cover the cost of the failed projects. But they aren't likely to advocate for that path.
The Base Load Review Act — the same state law that initiated the nuclear projects — gives them the ability to charge customers even now that the project is being scrapped.
The only way SCE&G will cover those costs is if somebody can prove to state regulators or a court that the company knowingly made unwise management decisions as the project progressed.
On top of that, SCE&G officials have said in the past they would likely seek to build a new gas-fired power plant if the nuclear units went bust.
That would mean SCE&G customers, whose bills have already increased by an average of $27 per month because of the construction, could be paying for two abandoned nuclear reactors in addition to a new gas plant somewhere else.