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#NukeGate: SCANA Files Federal Lawsuit

The protracted legal battle South Carolina cannot afford is upon us …

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Actions have reactions …

Days after South Carolina lawmakers passed a new law partially repealing a nuclear surcharge they approved a decade ago, one of the beneficiaries of that largesse filed a lawsuit challenging the constitutionality of the measure in federal court.

And guess what … it’s a suit we expect the company will win.

According to a news release issued Monday morning, crony capitalist SCANA “filed a lawsuit challenging the constitutionality of a South Carolina law significantly reducing company revenues from electric rates authorized by state law and previous orders of the Public Service Commission of South Carolina (SCPSC).”

In the suit, SCANA’s subsidiary – SCE&G – “seeks a declaration that the law is unconstitutional and asks the court to issue an injunction prohibiting the SCPSC from implementing the new law.”

The lawsuit was filed in U.S. district court in Columbia, S.C., and is the latest escalation of #NukeGate – the Palmetto State’s spectacularly failed command economic intervention in the energy industry.

As we exclusively reported last week, legislative leaders reached a deal that they insist will undo the damage they did over a decade ago when they permitted two utilities (one of them owned by the government) to squander more than $10 billion on a pair of now-abandoned reactors in Fairfield County, S.C.  Of that sum, $2 billion was collected directly from ratepayers – essentially socializing a significant chunk of the investment risk related to this doomed project.

We’re referring, of course, to the notorious Base Load Review Act (BLRA) – legislation advanced by liberal state lawmakers and allowed to become law in 2007 by former governor Mark Sanford.  Under the terms of this glorified handout, SCANA and government-owned utility Santee Cooper were allowed to impose an eighteen percent “nuclear surcharge” on ratepayers – a charge they are still paying.

In fact Santee Cooper – which is drowning in debt and the focus of a major federal investigation – filed a suit with the S.C. Supreme Court last month seeking to affirm its right to “set and collect rates sufficient to cover all of its expenses, including debt obligations.”

The two reactors were supposed to have been operational in 2016 and 2017, respectively, at a cost of $9.8 billion.

That obviously didn’t happen …

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The money was spent, the reactors simply weren’t completed … and the utilities couldn’t afford the $10-16 billion price tag necessary to finish them.  Eleven months ago, Santee Cooper pulled the plug on the project – killing an estimated 5,600 jobs and throwing the Palmetto State’s energy and economic future into chaos.

After months of bloviating, lawmakers temporarily cut the surcharge from 18 percent to 3.2 percent – retroactive to April of this year.  However, it is not clear whether they had the legal authority to take such action.

The argument SCANA is making is simple: Lawmakers approved the law that socialized the investment risk for this project.  Not only that, they were responsible for the agencies overseeing this investment.

Trying to protect ratepayers years after the fact by taking some of that investment back is certainly commendable … it just may not be legal.

“In addition to the reduction of SCE&G’s electric rates previously approved by the SCPSC from approximately 18 percent of an average residential customer’s bill to approximately 3.2 percent, the new law supplies definitions of key terms that would heighten the evidence required to establish SCE&G’s ability to recover its costs associated with the new nuclear project,” the company’s statement continued.  “In its lawsuit, SCE&G asserts the rate reduction and other aspects of the new law constitute an unlawful taking of private property, deny it due process of law, and constitute an unlawful bill of attainder, all in violation of various provisions of the United States Constitution.”

In other words, this is exactly what we predicted would happen … and exactly what several state senators were leery of when they agreed to a compromise last week with the S.C. House of Representatives.  Senators had argued that cutting the surcharge rate below five percent would invite a constitutional challenge – which is exactly what just happened.

Many months ago, this news site explicitly warned that “the uncertainty from a protracted court fight could cost the state billions of dollars in economic activity and tens of thousands of jobs.”  Hell, it already is costing jobs.

Accordingly, we pushed from the very beginning of this process for “a reasonable settlement that maximizes ratepayer relief, within the confines of what the courts will accept and the markets will bear.”

Lawmakers, per usual, did not listen …

In contrast to the legislative “solution,” a deal is still (barely) on the table from Virginia-based Dominion Energy.  Under the terms of this proposal, the nuclear surcharge would be lowered from 18 to 11 percent over the next seven years and from 11 percent to zero over the next 12 years.  Of course Dominion’s offer includes something lawmakers cannot provide – $1.3 billion in upfront relief to ratepayers.

That’s roughly $1,000 in upfront cash to each SCANA customer …

Based on our calculations, it would take at least seven years for the House plan to hit that threshold of relief – and that’s assuming the SCPSC doesn’t raise rates again in the future (as it is their prerogative to do).

Furthermore, we are told SCANA went to lawmakers during their negotiations last week and significantly sweetened the pot beyond what Dominion has offered – but were rejected.  How much additional ratepayer relief did this “pot-sweetening” include?  It’s not clear – and lawmakers aren’t talking.

Guess we will have to wait until the discovery associated with this lawsuit to find out …

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