NukeGate: Regulators Issue Order Approving Dominion-SCANA Deal

After unanimously voting a week ago to approve the sale of crony capitalist South Carolina utility SCANA to Virginia-based Dominion Energy, members of the much-maligned S.C. Public Service Commission (SCPSC) put their terms in writing this week.

In a 127-page order (.pdf) issued late Friday, commissioners affirmed the conditions they imposed last week on this $15 billion deal – including Dominion accepting $112 million in disputed costs related to a botched, $10 billion expansion of the V.C. Summer nuclear generating station in Jenkinsville, S.C.

Assuming all of the “i’s” were dotted and “t’s” were crossed correctly, this would be the last regulatory hurdle the merger must clear in order to take effect.

This scuttled V.C. Summer project – dubbed #NukeGate – was a collaboration between SCANA and government-run utility Santee Cooper.  At virtually every step, it was incentivized and empowered by state lawmakers and government regulators who allowed SCANA to socialize more than $2 billion in investment risk related to the construction of the two abandoned nuclear reactors (a figure that will balloon to $4.3 billion by the time everything is paid off).

To recap: In 2007, SCANA and Santee Cooper announced their intention to build a pair of next generation, pressurized water reactors in Fairfield County at a cost of $9.8 billion.  These reactors were supposed to have been operational in 2016 and 2017, respectively.  The money was spent, but the reactors were never finished … and the utilities couldn’t afford the additional $10-16 billion required to complete them.

Last July, Santee Cooper pulled the plug on the project – killing an estimated 5,600 jobs in the process.  Not long thereafter, it soon became clear that executives at both utilities knew the projects were doomed – yet continued to request (and receive) rate increases from regulators regardless.  In fact, Santee Cooper proposed a rate increase related to the project just eight days before pulling the plug on it … forcing SCANA to abandon its plans to try and complete at least one of the two unfinished reactors.

(Click to view)

(Via: SCANA)

A defining failure of government intervention in the marketplace, the fallout from #NukeGate has spawned what we have referred to as “a multi-layered maze of criminality, corporate intrigue, political maneuvering and high-stakes legal battles.”

While the criminal investigations, corporate intrigue and politicking will no doubt continue, the SCPSC’s ruling marks the end of the first skirmish in a broader energy war unfolding in the Palmetto State.

Bigger battles loom …

Approval of the Dominion-SCANA deal was accompanied by a rate reduction that will lower the average monthly residential power bill for customers of SCE&G, a SCANA subsidiary, by 15 percent – from $147.53 per month to $125.26 per month.

That’s more relief than was envisioned by state lawmakers when they inserted themselves into this process (again) back in January.  However the larger rate cut means there will be no up-front rebates, which was a top selling point of the original Dominion plan.

“For reasons that are both pragmatic and legal, the Commission has decided that SCE&G’s customers will be best served by adopting (the 15 percent cut) and approving SCANA’s proposed merger with Dominion Energy,” commissioners wrote in their order, adding that the Dominion-SCANA deal would “provide immediate and sustained bill reductions to customers coupled with strong assurances that SCE&G will continue to operate as a financially sound, reliable, and responsible utility going forward.”

We concur.  In fact, a week before the voting we encouraged the SCPSC to accept the 15 percent cut and approve the merger.  While we never endorsed Dominion’s deal (we believe the company could have done more in the long-term for ratepayers), of the options on the table for regulators this was by far the best choice.

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Not everyone agreed with us, obviously.  On the eve of the vote, the Palmetto Promise Institute (PPI) – a South Carolina think tank founded by former U.S. senator Jim DeMint – endorsed a proposal submitted by the embattled S.C. Office of Regulatory Staff (ORS).

This proposal would have provided ratepayers with a larger 20 percent reduction in their bills – but it would have scuttled the Dominion deal, nullified any relief provided via a recent class action settlement and rekindled a constitutional lawsuit against the state (a case it is doubtful South Carolina would have been able to win).

In rejecting this recommendation, the SCPSC noted that SCANA “could not absorb future financial shocks without impairment of its solvency” and that the utility “could lose access to capital to support its operations entirely in adverse market conditions.”

Ultimately, the ORS deal “would be insufficient to support SCE&G’s creditworthiness and financial stability.”

Commissioners also accepted our logic regarding the potentially dire legal consequences of accepting the ORS proposal.

“The possibility of a successful challenge to the (20 percent cut) on constitutional or statutory grounds is a significant risk to customers,” commissioners wrote in their order.

In fact, they correctly described it as  “an all-or-nothing risk for customers.”

“The incremental, short-term benefits ORS claims would be provided to customers by the (20 percent cut) do not justify the risk, uncertainty, and loss of long-term benefits that could result from rejecting (the 15 percent cut),” they wrote.

That’s accurate …

(Click to view)

(Via: SCANA)

Thanks to a decade’s worth of negligence on the part of these utilities, lawmakers, regulators and government “watchdogs,” there was never going to be a “right” answer following the abandonment of this project – only the “best” answer.

And like it or not, this is probably it … absent lawmakers picking up the gauntlet we threw down for them back in April and completely eliminating the nuclear surcharge that led to the recent rate increases.

Which they declined to do …

“We favor engaging the free market to gain the maximum amount of ratepayer relief the markets will bear – and the courts will allow,” we wrote last month, repeating our refrain throughout this process.

Of course we acknowledge in the very next breath that “in the aftermath of this command economic debacle (ratepayers) will never be made ‘whole.'”

South Carolinians have paid – and will continue to pay – higher power bills than their counterparts across the country because Republicans and Democrats at the S.C. State House believed that they knew best when it came to decisions about energy policy.

They still believe that …

In fact, government remains not just an overseer but an active participant in the energy economy via its ongoing ownership/ management of Santee Cooper, a model of incompetence, corruption and cronyism that we believe lawmakers should unload at the very first opportunity.  Or at the very least stop mismanaging.

Which leads us to the what we hope will be the ultimate outcome of this disaster: An acknowledgment that government has no business either running a utility or socializing investment risk related to utility projects, and a commitment to never again meddle in this marketplace again.

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