South Carolina Electric & Gas and Santee Cooper in late July halted construction on the new 1,117-MW reactors at the V.C. Summer nuclear plant in Fairfield County, S.C.
SCANA Corp.'s thinly veiled threat of bankruptcy and the potential for blackouts, while ratepayers plead for relief, could come to a head in early 2018 as lawmakers and regulators in South Carolina plot the best path forward following the abandonment of the V.C. Summer nuclear expansion.
SCANA utility South Carolina Electric & Gas Co., or SCE&G, and project partner Santee Cooper, known legally as South Carolina Public Service Authority, decided on July 31 to halt construction of the two new 1,117-MW reactors in Fairfield County after determining it would cost more than double its original price tag and not meet the deadline for federal production tax credits. Executives also blamed the bankruptcy of lead contractor Westinghouse Electric Co. LLC, which has shouldered the project owners' blame for cost overruns and project delays.
The South Carolina Office of Regulatory Staff and lawmakers contend the utilities hid their concerns and ignored red flags that warned of "fundamental" problems with the project.
The Public Service Commission of South Carolina held hearings Dec. 12 and Dec. 13 on petitions to strip revenue from SCE&G and order refunds for more than $9 billion in sunk costs tied to the scrapped reactors.
The ORS submitted a petition in late September requesting the nine rate hikes SCE&G has implemented to recover costs for the V.C. Summer project be halted, representing an immediate 18% reduction in customers' electric bills. SCE&G's attorney warned the PSC at a Dec. 12 hearing that stripping the utility of nearly $450 million in annual revenue from the revised rates would set forth a "quick cascade of events that would lead to insolvency, financial crisis and ultimately a bankruptcy filing."
Friends of the Earth and the Sierra Club are seeking "reparations for the unjust and unreasonable rates" SCE&G has collected from ratepayers.
"I have all kinds of thoughts that run through my mind. I have friends who struggle in paying their power bill. I don't have to go any further than my own family to know that," PSC chairman Swain Whitfield said at the Dec. 13 hearing.
Whitfield said he also has concerns about the solvency of the utility and the impact on electricity reliability, especially in the wake of a storm, and the inability to pay its bills and workers following a bankruptcy filing.
"They don't think they should suffer a bit from the consequences of their mismanagement," Robert Guild, an attorney for Friends of the Earth and the South Carolina Chapter of the Sierra Club, testified at the Dec. 13 hearing. "They want everything. And they tell you that if you do anything, other than what they propose, the sky will fall, we will freeze in the dark or sweat in the hot summer sun. And yes ... we won't get our lines repaired during the ice storm or next hurricane. But, you know, I think that's a decision you're going to have to make."
The PSC on Dec. 20 rejected SCE&G's motion to dismiss the petitions filed by ORS and the environmental groups. The commission ordered its staff to schedule a hearing on the request for rate relief so parties may present evidence on what they view as "fair and reasonable electric rates for ratepayers and SCE&G." Regulators also directed ORS to "carry out a thorough inspection, audit and examination of SCE&G's revenue requirements" within 30 days to help regulators determine whether the utility's rates are fair and reasonable, and whether SCE&G's financial concerns have merit.
SCE&G plan 'stops short'
SCE&G on Nov. 16 revealed its plan to mitigate the impact of the V.C. Summer abandonment, which includes immediately reducing electric rates by about $90 million annually, or 3.5%, while requiring shareholders to absorb approximately $2.9 billion in net nuclear construction amortization costs through lower earnings over 50 years. Shareholders also would fund the purchase of a 540-MW combined-cycle natural gas plant.
Some lawmakers balked at the proposal and Wall Street said it "certainly stops short" of gaining support from key stakeholders.
Meanwhile, legislators in the South Carolina House of Representatives and state Senate have filed legislation that guts cost recovery for the V.C. Summer project, authorizes refunds and implements sweeping changes in state regulatory oversight.
The South Carolina General Assembly will consider these bills after it convenes on Jan. 9, 2018.
Risks vs. reward
Although the abandonment of the nuclear project has caused significant fallout, including tension between legislators and utility executives, nervousness among investors and even criminal investigations into alleged project mismanagement, there are still some South Carolina leaders who want to revive the reactors.
"I think all of us are hopeful that the project is going to go forward," state Sen. Brad Hutto, a member of the V.C. Summer Nuclear Project Review Committee, said in an interview with S&P Global Market Intelligence. "That may be wishful thinking. But I mean we do see, I see anyway, that the decision to invest in nuclear was sound when it was made and it continues to be sound."
Another potential path to V.C. Summer's revival is a sale of the project's owners.
SCANA's stock closed at $37.39 on Dec. 21, dropping nearly 10% from the prior day, making it a prime target for a buyout.
"To be honest, the relationship between the company and the rest of the state has devolved so much that probably the answer is some kind of a takeover," Jay Rhame, portfolio manager of Reaves Utilities ETF at Reaves Asset Management, said in a Dec. 21 interview. "You just need new people in and new relationships. Jumping in front of a lot of potential liabilities is going to be tough [for a prospective buyer]. So, it may not be a quick process but ultimately I think that's the answer."
Duke Energy Corp., Dominion Energy Inc., Southern Co. and NextEra Energy Inc. are reported to potentially have an interest in SCANA.
South Carolina Gov. Henry McMaster has identified Duke, Dominion and Southern as companies his office is in discussions with about buying Santee Cooper or acquiring the utility's portion of the scrapped reactors. NextEra also is believed to be in the mix with South Carolina investment company Pacolet Milliken Enterprises Inc. and Washington, D.C.-headquartered Twenty First Century Utilities LLC exploring the purchase.
Management has not publicly acknowledged interest in Santee Cooper or SCANA. Duke Energy Chairman, President and CEO Lynn Good told investors in November that the Charlotte, N.C.-headquartered company has "no interest" in the unfinished V.C. Summer nuclear units.
Guggenheim Securities LLC analyst Shahriar Pourreza has indicated a packaged deal for the utilities might be the best way to gain stakeholder support and protect ratepayers.
"You can't treat one set of ratepayers advantageously and forget the other percentage of the ratepayers," Pourreza said in a recent phone interview. "You kind of have to have both of them involved."
Steering the ship
So far, the most immediate repercussion from the failed nuclear expansion is the shakeup of leadership at SCANA and Santee Cooper.
Former Santee Cooper President and CEO Lonnie Carter announced his retirement in late August and has been replaced by interim President and CEO James Brogdon Jr. The governor has called on Santee Cooper Chairman Leighton Lord to resign or be removed from the board of directors. Lord, however, is reportedly fighting the move.
SCANA Chairman and CEO Kevin Marsh and Senior Vice President Stephen Byrne now plan retire at the end of the year, with SCANA Executive Vice President and CFO Jimmy Addison set to take over as CEO.
It remains to be seen, however, whether the change at the top will steer the utility in a new direction.
Before Marsh's departure, Glenrock Associates LLC analyst Paul Patterson said that he does not view a shakeup of executives at SCANA as "a solution to anything."