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#NukeGate: Report Rocks State House

SCANA under fire again, although report raises more questions than answers …

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South Carolina state lawmakers – many of whom imposed massive rate increases on utility consumers across the Palmetto State over the past decade – are touting a new government report as justification for scrapping the 2007 law that authorized this multi-billion dollar fleecing.

Now they tell us, right? 

Want some more irony?  The report was issued by a state agency that utterly failed in its mission to protect ratepayers from the now notorious Base Load Review Act (BLRA), a spectacularly failed command economic intervention in the energy industry that has spawned multiple criminal investigations, civil lawsuits, corporate intrigue and a mushrooming political scandal.

The ongoing rate increases, which total more than $2 billion, were part of an effort to socialize the investment risk associated with the V.C. Summer nuclear power plant expansion project in Jenkinsville, S.C.  – a.k.a. #NukeGate.  This $10 billion project was abandoned back in July when Santee Cooper, a utility which is owned by the state, pulled out of the deal.  Santee Cooper’s crony capitalist partner in the project, Cayce, S.C.-based SCANA, has seen its stock crater in the aftermath of the debacle.

Meanwhile Santee Cooper – which could have been sold for billions of dollars a decade ago – is now in debt up to its eyeballs as governor Henry McMaster contemplates a “fire sale” of the utility.

As for SCANA, the utility claims it will go bankrupt if the BLRA – which was allowed to become law by former governor Mark Sanford – is repealed.  And rumors abound that Florida-based NextEra Energy wants to swoop in and scoop up both utilities in the event they go under.

Lots to keep track of, isn’t it?

A bid to purchase SCANA was submitted earlier this month by Virginia-based Dominion Energy, but many state lawmakers are opposed to that proposal.  Dominion has made it clear its $14.6 billion offer – which includes $1.3 billion in reimbursements to ratepayers and a modest reduction in their BLRA obligations – is final.  The company has also made it clear the offer will be pulled in the event the BLRA is repealed.

SCANA has said it won’t survive if that happens.

The new report – issued by the S.C. Office of Regulatory Staff (SCORS) – concludes that SCANA’s bankruptcy claim is not entirely accurate.  According to the agency, there is only a 35 percent chance SCANA would have to seek bankruptcy protection if the BLRA were to be repealed.

Specifically, the six-page document concluded that a “suspension of revised rates – a portion of the total revenues collected by (SCANA) – is unlikely to force bankruptcy.”

Here’s the report …

[tnc-pdf-viewer-iframe file=”https://www.fitsnews.com/wp-content/uploads/2018/01/ORS-Financial-Examination-1.19.18.pdf” width=”533″ height=”800″ download=”true” print=”true” fullscreen=”true” share=”true” zoom=”true” open=”true” pagenav=”true” logo=”false” find=”true” language=”en-US” page=”” default_zoom=”auto” pagemode=””]

(Via: S.C. Office of Regulatory Staff)

Lawmakers – including S.C. Senate majority leader Shane Massey – pounced on the SCORS assessment as further evidence SCANA was once again not being honest with them.

“I knew it was a bluff,” Massey tweeted, referring to SCANA’s bankruptcy claims.

Of course, the report fails to consider the potential legal ramifications of a BLRA repeal – including the costs of a protracted court battle and the negative exposure the state would likely face from the bond market if it effectively reneged on its word.

Nor does it address the key question of “when” the BLRA repeal would be timestamped.

“It is a certainty that V.C. Summer is the last project funded under the BLRA framework,” one lawmaker following the debate closely told us. “The question is at what point in time or under what conditions is the BLRA repeal made effective.”

That is an absolutely vital distinction …

Assuming lawmakers repealed the bill moving forward, where would SCANA make up the estimated $445 million in annual revenue it would lose?  The SCORS report suggests suspending dividends to shareholders is a viable option.

“A suspension of dividends may become a necessity,” the report concluded.

Such a suspension could “cause negative results … (h)owever it is expected that any negative effect would only be temporary,” the report added.

That’s a dubious conclusion if you ask us …

It’s worth noting many of the lawmakers embracing the SCORS report have previously ripped the agency for its failure to protect ratepayers.  They’ve also been harshly critical of the 2004 law that created SCORS in the first place, arguing this 71-employee, $13.3 million-a-year bureaucracy was never granted the authority and autonomy it needed to serve as an effective advocate for consumers against the unfair socialization of investment risk.

Our view: Why create it in the first place, then? 

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What does Dominion think of the report?

“SCANA says bankruptcy is a real possibility. The report says that is so,” Dominion’s vice president of corporate communication Chet Wade told us this week.  “We believe the report reinforces that our proposal, with the $1.3 billion in direct payments and $12.2 billion in total customer benefits, provides the surest positive outcome (SCANA) customers, communities and all other stakeholders.”

In a previous interview with this news site earlier in the week, Wade acknowledged his company’s deal wasn’t perfect – but said that the #NukeGate debacle was a “pretty rare case” and that Dominion had “laid its cards on the table face up in an effort to address customer concerns as best we could.”

“We can’t get to perfect for everybody but we’ve made an offer and we think it’s fair,” he said.  “We want people to give it a good hard look.  Nobody is being forced to accept our offer – nobody.  We’re simply asking people to think through all of these alternatives and what could – or would – happen.”

Our view?  The whole thing is a crap shoot … with billions of dollars hanging in the balance.

Our stomachs turn at the notion of continuing to pay out on a facility that will never produce a single kilowatt of power, however there are major risks to eschewing some sort of negotiated settlement on the socialized debt associated with it (whether that’s a deal with Dominion, NextEra or some other entity).

SCANA’s bankruptcy is already a one-in-three proposition (assuming you believe the SCORS report), and the legal uncertainty associated with the BLRA only adds to the haziness of the crystal ball.

“Has anyone stood up and said I will stake my future on it being held up in court?” one source eyeing the process told us this week.

That’s a damn good point …

Frankly, our hope is that state lawmakers – who are rushing to absolve themselves of their considerable culpability in regards to this latest command economic disaster – don’t get too cute in rolling the dice.  After all, their intervention is what has led South Carolina to this calamitous situation in the first place.

Can we really trust them to extricate us from it?

We believe additional ratepayer protections can be carved out as these negotiations move forward, but that is going to be a delicate dance requiring cool heads and concessions all around.

 

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