Charlotte Business Journal

Lawyer disputes claim that rate cut could send SCANA into bankruptcy

By John Downey

Wednesday, 13 December, 2017

A lawyer for an industrial power customers group downplayed the possibility that S.C. Electric & Gas could be forced into bankruptcy if regulators cut almost $450 million a year in rate charges for the now-scuttled V.C. Summer Nuclear Station expansion.

Scott Elliott, representing the S.C. Energy Users Committee, told the S.C. Public Service Commission he is “skeptical that an 18% rate cut would send them into a tail spin.”

He accused the utility of crying wolf. He reminded the commission that several years ago, during a hearing for a rate increase related to Summer, SCE&G sought $8,000 in additional costs to install a sewer line at the site that had been inadvertently left out of construction plans. When commissioners balked at paying for mistakes SCE&G made, Elliott said, the company’s lawyer at the time insisted that refusing even just $8,000 would “send a terrible message to the markets” and could make it difficult to get future financing.

Elliot conceded regulators would need to “unravel those (rate) costs very carefully and probably very slowly.” But he disputed the assertion of the utility’s lawyer, Belton Zeigler, that simply ordering that those payments end could cause immediate solvency problems for SCE&G.

Dismissal sought

The S.C. Public Service Commission completed a hearing Monday on a petition from the S.C. Office of Regulatory Staff — a state agency set up to balance the interests of customers, utilities and state economic development. At issue is whether the commission should suspend some $37 million in monthly payments that SCE&G collects from customers for its share of the abandoned Summer project.

At issue in the current hearing is SCE&G’s contention that the petition should be dismissed. 

The ORS says the increases should be cut back because the S.C. Attorney General's Office said the Base Load Review Act — the state law that allowed SCE&G to charge customers for a project still under construction — was “constitutionally suspect.” Elliott argued that regardless of the constitutionality of the law, SCE&G had violated the conditions set by the commission for recovering costs under the law and thus had to give up the rate increases.

When SCE&G and Santee Cooper proposed the project in 2007, it was expected to cost about $9 billion to build two 1,117-megawatt reactors at the existing 960-megawatt Summer nuclear plant. By the time the project was abandoned July 31, the estimated cost had ballooned to more than $20 billion.

Smaller cut

SCE&G parent <>SCANA Corp. (NYSE: SCG) at first announced it intended to charge customers for its roughly $4.9 billion share of the $9 billion that had been spent on the Summer project. The company has since said it will not charge customers for any of the brick-and-mortar costs of building the project. 

But rather than just cutting rate increases tied to Summer, it proposes a more complicated solution. It will file a rate proposal in January that will cut rates 3.5%. It will also propose building a 540-megawatt natural gas plant and 100 megawatts worth of solar to replace the power Summer would have provided. And it will propose paying for that new construction itself, not charging customers.

SCE&G contends that will make its customers whole for the costs of Summer without what it says would be the dire financial consequences of the large cut in rates.

Zeigler stood by his financial assertions in his final argument to the commissioners. He argued that a decision to rescind the seven rate increases the commission granted since the project started could push SCANA into insolvency.

'See what happens'

Eliminating the revenue would throw off SCANA’s debt ratios. Much of SCANA’s short-term debt has covenants that require the company to maintain appropriate debt ratios. The rate rescinsion could make it impossible for SCANA to maintain those ratios.

A violation of the covenants would not only mean that SCANA could not borrow more money, all of those debts would become immediately due. The company would not have the cash to pay and would be forced into bankruptcy, he said.

He accused those of calling for the rate reduction of saying “we don’t know what the consequences will be, but lets cut the rates and see what happens.”

Elliott argued that no matter what the consequences are, the commission had to act. He said that the commission could mitigate any financial problems in how it implemented the rate reduction. But he said the law required some action from the commission.