South Carolina Electric & Gas Co. recently indicated its ratepayers will pay at least $3.8 billion for the scrapped V.C. Summer nuclear reactors, while Santee Cooper estimates its customers face a 7% to 8% rate hike to pay off its nuclear debt.
Dominion Energy Inc.'s plan to acquire South Carolina Electric & Gas, or SCE&G, parent SCANA Corp. includes a commitment to eliminate all investments in new nuclear development through amortization within 20 years. The merger agreement states SCE&G must be allowed to include $3.3 billion tied to nuclear investment in electric retail rates during the amortization period.
In response to a continuing audit information request from the South Carolina Office of Regulatory Staff, the utilities disclosed they expect a total of about $3.8 billion to be recovered from electric customers. This includes the return on the $3.3 billion in capital costs for the unfinished V.C. Summer units at a 10.25% ROE, and is net of a $1.3 billion customer refund and $575 million tied to a planned rate reduction of at least 5% to offset costs related to the failed nuclear expansion.
Base electric rates would be frozen until at least January 1, 2021.
Dominion Energy and SCE&G do not plan to charge ratepayers for the $180 million acquisition of the Columbia Energy Center combined-cycle natural gas plant.
If the merger is not completed, SCE&G electric customers could be on the hook for as much as $8.8 billion with the V.C. Summer capital costs amortized over 50 years at a 10.25% return on equity. SCE&G in November 2017 unveiled its plan to reduce rates by $90 million annually, or 3.5%, while requiring shareholders to absorb about $2.9 billion in net nuclear construction amortization costs through lower earnings over the 50-year period.
The merger agreement or SCE&G's nuclear settlement plan must be approved by the Public Service Commission of South Carolina. If neither plan is accepted, customers could end up paying nearly $10.2 billion for the abandoned nuclear expansion and the planned gas plant acquisition.
Buried in debt
SCE&G and state-owned utility Santee Cooper, known legally as the South Carolina Public Service Authority, decided July 31, 2017, to halt construction of the two new 1,117-MW reactors in Fairfield County with the project expected to cost more than $20 billion and not meet the deadline for federal production tax credits.
Santee Cooper, in its 2017 annual report, said the majority of its 45% share of the more than $9 billion already spent on the reactors was "financed with borrowed funds."
South Carolina lawmakers and the state's governor are seeking buyers for the utility to help pay off its debt, which includes more than $4 billion tied to V.C. Summer.
An analysis by the independent, nonprofit Palmetto Promise Institute concludes future annual Santee Cooper utility bills will increase substantially to pay off $7.5 billion in total outstanding debt by 2056.
"Our analysis suggests a likely additional 13.62% rate increase, which would mean the average annual electricity bill increases by $194.49," the economists wrote in the March 20 report. "In total, each average Santee Cooper residential customer would pay an additional $7,390.62 to pay their portion of the nuclear debt. Industrial customers could likely have their bills increased by as much as $80,000 a month."
The Palmetto Promise Institute contends the best way to prevent these rate increases is for the South Carolina General Assembly to sell Santee Cooper to an entity willing to assume its debt.
"In the opinion of the authors of this paper, having ratepayers pay the debt would be nearly criminal. The ratepayers of Santee Cooper, many of them already challenged economically, do not deserve to be saddled with additional costs due to the failure of Santee Cooper," the analysis states.
Santee Cooper spokeswoman Mollie Gore said the utility expects to increase rates by 7% to 8% through three of four separate adjustments to address the nuclear debt.
"We will continue to look for ways to reduce the debt outside of rates, and we have committed to no rate increases for any reason until at least 2020," Gore said.
Santee Cooper has implemented five rate increases since 2009 with 4.3% of the 15.7% overall rate hike tied to covering revenue bonds issued to finance the construction of the unfinished nuclear units.