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Ratepayers would suffer from reactors' financial meltdown

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VC Summer Nuclear Station

The only new nuclear reactors being added in South Carolina are at the V.C. Summer station (above) north of Columbia. Provided/SCE&G 

The eventual completion of two new nuclear reactors under construction at the V.C. Summer site in central South Carolina has never been more in doubt.

But one thing is clear, SCE&G and Santee Cooper ratepayers are going to be on the hook for a lot of money, no matter what happens.

In fact, customers of both utilities have already paid a lot through rate hikes to cover financing costs for the new reactors.

SCE&G customers have had their rates raised nine times so far as a result of the nuclear project, costing them more than $1.4 billion since 2009, according to the S.C. Office of Regulatory Staff (ORS), which acts as a consumer watchdog on the projects.

That money isn’t ever coming back, even if the reactors never get finished. And that possibility is currently on the table, according to SCANA, the parent company of SCE&G. The problem is that Westinghouse, the main contractor overseeing construction on the reactors, is filing for bankruptcy. Toshiba, which owns Westinghouse, stands to lose about $10 billion as a result. And even if Santee Cooper and SCE&G manage to get Westinghouse or another contractor to finish the work, the final price tag could be a lot higher than the current $14 billion budget, which itself is nearly $3 billion more than initial estimates.

SCE&G negotiated a fixed price agreement with Westinghouse last year, pinning any future overruns on the contractor rather than the utility and its customers. At present, it’s unclear how a Westinghouse bankruptcy might affect that deal.

And if seemingly inevitable delays push the project’s completion past 2020, the utilities could lose out on a $2 billion tax credit for nuclear plant production, which would drive up the cost to ratepayers even further. In short, it’s a meltdown. And ratepayers are most at risk.

That’s due to an incredibly misguided 2007 law that utilities sold lawmakers via claims that it would save customers billions by paying for major new power plant projects up front, rather than paying interest on borrowed funds over a period of years.

The idea made sense in theory. But provisions of the Base Load Review Act also shield utilities from virtually all financial responsibility if a project hits expensive or time-consuming snags — or doesn’t get completed at all.

Under the BLRA as currently written, SCE&G customers already pay about 18 percent of their monthly electric bills for two reactors that aren’t generating any power.

Rates will almost certainly go up even more, and they’re likely to stay up for a very long time. And that’s going to happen even if the new V.C. Summer reactors never generate a single watt of electricity.

In the meantime, SCANA executives got $937,000 in pay raises and bonuses in 2016 even as SCE&G’s nuclear-related problems mounted. A little belt-tightening is in order. Or a lot.

Ratepayers should be furious. And every South Carolinian still at risk under the BLRA should support a change.

A bill in the S.C. House would amend the BLRA in key ways to protect consumers. While it would unfortunately not get consumers out of the money pit created by the nuclear reactors currently under construction, the bill should still be a legislative priority.

Among other vital reforms, it would shift the burden to utilities to prove that their costs are prudent. It would prevent utilities from shifting blame to contractors when problems arise and add an extra layer of regulatory scrutiny for rate hikes not included in an initial budget.

Most importantly, the bill would also allow the ORS to petition for a change in a utility’s allowed return on equity, effectively a profit margin regulated by the Public Service Commission. SCE&G is currently allowed an annual return on earnings of 10.25 percent, for example.

Putting aside the perverse incentive that regulatory structure creates for utilities to spend more money on expensive things like new nuclear reactors, it’s absurd that the ORS doesn’t already have some authority to petition for change.

Obviously, a utility would never ask to earn less money.

South Carolina has a lot to gain from increased nuclear generating capacity. But the V.C. Summer reactors have reached a level of crisis and mismanagement that could cost many of the state’s ratepayers more than they can reasonably bear.

The BLRA must be amended. Customers must be protected.

And as SCE&G and Santee Cooper decide what to do with the V.C. Summer reactor project, they owe a clear and detailed explanation of how ratepayers’ interests are being best served.

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