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State OKs rate increase to cover SCE&G’s financing costs for new reactors

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Staff Report
colanews@scbiznews.com
Published Sept. 24, 2015

State regulators have approved an average 2.6% increase in electricity rates for S.C. Electric & Gas Co. Inc. to recover financing costs of two reactor units the utility is building at V.C. Summer Nuclear Station about 25 miles northwest of downtown Columbia.

The new rates will be effective for bills rendered on or before Oct. 30, the utility said. SCE&G filed in May for the rate hike under provisions of the state’s Base Load Review Act, enacted in 2007 to allow the state’s regulated utilities to adjust rates during construction of nuclear power plants to recover related financing costs.

Wednesday’s unanimous vote by the Public Service Commission marks the eighth time SCE&G has received the state’s OK to raise rates under the act since the utility won approval in 2009 to build the two 1,117-megawatt units at the Fairfield County facility.

SCE&G’s share of the project is 55% while its partner, state-operated Santee Cooper, is paying the remaining 45%. The two utilities currently operate a reactor unit at the V.C. Summer station that went into commercial operation in 1984.

The rate increase will yield about $64.5 million in additional revenue for SCE&G, the principal subsidiary of Cayce-based energy provider SCANA.

As a result of the commission’s vote, SCE&G rates will increase as follows:

  • 2.59% for residential customers. The monthly bill of a customer using 1,000 kilowatt-hours of electricity would increase $3.71, going to $149.58 from $145.87.
  • 2.68% for small commercial customers.
  • 2.78% for medium commercial customers.
  • 2.38% for large commercial/industrial customers.

The rate increase was opposed by various groups who charged that the state law is “anti-consumer.”

The law shifts all costs and risk from SCE&G and its shareholders to SCE&G’s customers, according to a statement issued by Savannah River Site Watch, which labels itself as a public interest group.

“By 2020, when the first of the new units might be operable, the advance-payment portion of the SCE&G bill — just to pay for financing costs — could reach a shocking 25%,” according to Tom Clements, director of the group.

In March, the utility notified regulators that the new construction schedule submitted by the contractor anticipates the first of the new units will be completed by June 2019, with substantial completion of the other unit in June 2020 — nearly two years behind the original schedule for the project.

The revisions in the project’s completion have resulted in an estimated cost increase of nearly $1.2 billion, pushing the total price to about $11 billion. SCE&G said its share of the added costs, including those associated with construction delays, could total as much as $698 million.

When the project was announced in 2008, SCE&G and Santee Cooper estimated the project would cost $9.8 billion.

Clements has been a critic of the law since SCE&G first sought approval to build the units, claiming that it leaves consumers unprotected from cost overruns that would drive up the cost of electricity.

On Sept. 15, the Office of Regulatory Staff notified the commission that it planned to hire a CPA firm to conduct an independent analysis of whether the revised rates provision under the state law is “cost beneficial to the customer.”

Accountants will be asked to compare the estimated capital costs and operational costs of the new units under the act “versus accumulating the cost of capital over the period of construction,” the letter said.

Dukes Scott, executive director of the Office of Regulatory Staff, said his agency remains supportive of the construction of the new units as well as the state law that allows regulated utilities to raise money to invest in nuclear infrastructure.

“Nevertheless, with the construction delays and budget increases that have occurred, it is reasonable to determine whether the revised rates provision — which provides for recovery of the financing costs (or cost of capital) on an annual basis — is to the customers’ benefit,” Scott said in the letter to the commission.

SCE&G argues that paying financing costs while construction is ongoing, as opposed to waiting until the project has been completed, lowers the cost of building the new units by about $1 billion, which in turn reduces the amount customers will pay through rates for related costs such as the cost of capital, depreciation, property taxes and insurance associated with the project. SCE&G estimates this will save its customers approximately $4 billion in electricity rates over the life of the new units.

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