Sierra Club Challenges SCE&G Ratehikes for New Reactors

S.C. Sierra Club Calls for Cancellation of V.C.Summer Nuclear Units in Favor of Less Costly Alternatives

New Analysis Shows Choice of Nuclear Will Cost Ratepayers Billions More Than Other Options

Columbia, SC. – The Sierra Club will make the case next week at a Public Service Commission hearing that South Carolina Electric & Gas (SCE&G) ratepayers would save billions of dollars over the next forty years if the construction of the V.C. Summer Nuclear Plant Units 2 & 3 is stopped and SCE&G meets its ratepayers’ needs for electricity with less costly alternatives.
Sierra Club expects to make this case with the testimony and exhibits to be offered in evidence by utility expert Dr. Mark N. Cooper, at the SC Public Service Commission at hearings set to begin Tuesday, October 2, 2012, in the review of SCE&G’s request for recovery of a $283 million cost overrun on the Summer 2 & 3 nuclear reactor construction project under South Carolina’s advanced cost recovery law or “Base Load Review Act (BLRA).” Dr. Cooper is a Senior Fellow for Economic Analysis at the Institute for Energy and the Environment of Vermont Law School and has testified in over three hundred state and federal utility proceedings.
“The S. C. Sierra Club has asserted all along this is the least prudent choice for the utility to make”, said Chapter Chair Susan Corbett. “As we predicted, costs are rising, and the project makes even less sense now in this economy, with other energy choices being more competitive”.
The Sierra Club will seek to convince the Public Service Commission that it should require SCE&G to submit a thorough review of the economic prudence of cancelling construction of the new reactors in favor of meeting ratepayer needs for electricity with less costly alternatives. A preliminary review of the current cost of the same alternatives considered by SCE&G in its initial justification for the nuclear project indicates that ratepayer savings over the life of the project could be as much as $8 billion.
The Club has engaged Dr. Mark Cooper, a nationally known utility and rate analyst, to testify regarding his study of the project and his conclusion that more prudent decisions should be made in regards to producing energy for S.C. “We asked Dr. Cooper to analyze the opportunities to save ratepayers money by cancelling this project in favor of less costly energy efficiency and alternatives”, said Corbett.
Even though the BLRA guarantees the utility recovery of costs that have been found to be prudent and spent in the past, the BLRA explicitly requires forward looking prudence review of cost overruns. Moreover, the underlying practice of utility law, which was not altered by the BLRA, requires the Commission to ensure that costs that have not been incurred yet continue to be just, reasonable and prudent. Prudence in the marketplace is a potent, vigilant disciplinary force that requires constant evaluation of projects and the application of this principle in utility regulation is straightforward. When things change prudent managers and investors take notice and reevaluate their plans or adjust their portfolios in light of the new knowledge. Prudence review must be ongoing, particularly when outcomes are uncertain or large changes happen quickly. The commission continues to have the responsibility and duty of ensuring that the costs of the project that have not been spent, the “going forward” or “to go costs” are prudent.

“We expect the PSC to make choices in favor of the public ratepayer, not be a rubber stamp for utility decisions”, say Corbett. “We intend to show it would be in the ratepayers’ best interest to halt this project now and switch to a different option, saving ratepayers billions of dollars. In this economy, this can mean the difference between being able to pay your electric bill or not”.
Dr. Cooper identifies a number of factors that show the continued construction of the reactors is no longer prudent. “If the company had done a better job of properly evaluating risk into the original cost projection, the commission might not have been misled into approving the project and should not absolve SCE&G from any responsibility for cost overruns. More importantly, what we know about the cost of reactors compared to alternatives is quite different today than it was four years ago. Declining demand and less costly alternatives have reduced the need for expensive new reactors “, Dr. Cooper has determined.
With the second cost overrun in two years, the SCPSC should be concerned about the pattern of cost overruns, especially given the dismal record of the industry. In the current proceeding, the company has not prepared the analyses necessary to evaluate the cost of continuing the Summer 2 & 3 project compared to alternatives. The relative economics of Summer 2 & 3 have deteriorated so dramatically that the revenue requirement would be much lower if ratepayers paid off the prudent sunk and abandonment costs (as is required by the BLRA) and the utility provided electricity with lower cost alternatives that are available. The results are preliminary because the company has not provided a complete analysis to demonstrate that completing the reactors is prudent. Therefore, the main recommendation is that the Commission should not approve the request for a cost overrun of $283 million and require SCE&G to prepare a complete evaluation of the alternatives.
Many of the cost overruns have not yet been incurred; they are projections of what the project will ultimately cost. Since they have not been incurred, they are not guaranteed recovery under the BLRA. Indeed, three quarters of the costs of the project have not been incurred yet, although there might be “break-up” fees for cancelling the project.
Because the BLRA guarantees the recovery of the sunk costs, time is of the essence. “The sooner the PSC reviews the prudence of the project, the more the people of South Carolina could save, if the Commission concludes the project is no longer prudent. The company has spent less than $2 billion and proposes to spend almost a billion dollars per year over the next three years on the project. Therefore, this is the key moment to make a prudence determination and the cost overrun proceeding is the right venue in which to do so”, says Corbett.
The PSC will offer an evening public comment opportunity, to speak about the project, 6 PM Tuesday October 2, 2012, at the Commission Hearing Room, 101 Executive center Drive, Columbia, SC 29210. I-20, Exit #63 – Located just off Bush River Rd.

Testimony and exhibits pre-filed at the PSC are available at:

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