COLUMBIA, SC — Cutting SCE&G’s rates will make it harder for the Cayce-based utility to borrow and will threaten its financial health, witnesses for SCE&G told a federal judge Tuesday.
However, another witness testified SCE&G could withstand the rate cuts.
That testimony, before U.S. District Court Judge Michelle Childs, came as a two-day hearing resumed on SCE&G’s motion to block a 15-percent temporary rate cut passed by state lawmakers last month.
Childs did not rule on SCE&G’s motion Tuesday but said she expects to do so soon, before Aug. 7, when the rate cuts are set to take effect.
Atlanta-based certified public accountant Ian Ratner and economist Robert Glenn Hubbard testified the temporary rate cut would slash investors’ return on equity, make it harder for SCE&G parent SCANA to attract and keep investors, and make it more difficult for it to borrow and maintain a healthy cash flow.
“SCE&G will have to deal with impending cash problems and will likely need to cut back on capital expenditures,” Ratner said.
Hubbard and other experts said that cash shortage would lead to electric service that is less reliable. He also said retroactively reversing an existing law — as the S.C. Legislature has done in passing the rate cut — likely would reduce the willingness of other utilities and businesses to invest in South Carolina.
Attorneys representing state lawmakers called their own financial expert, who pointed to a March 22 analysis by the Bates White economic consulting firm saying SCE&G could afford to cut its rates.
That firm determined S.C. lawmakers could slash SCE&G’s power bills at least 13 percent without forcing the embattled utility into bankruptcy. Even more could be cut from SCE&G’s electric rates — which increased nine times over the past decade to bankroll the failed nuclear construction project — if the utility cuts its dividends to shareholders and other costs, according to that analysis.
Earlier Tuesday, SCANA’s shareholders approved selling the embattled Cayce-based utility to Virginia-based Dominion Energy. However, that deal is contingent on a number of regulatory approvals, including allowing SCE&G to continue to charge its customers for the failed V.C. Summer nuclear project.
SCE&G argues it has the right to charge its customers for the V.C. Summer project even after it abandoned efforts to build two new nuclear reactors in Fairfield County a year ago.
Attorneys for SCE&G argued state lawmakers unconstitutionally targeted the utility to punish it for the project’s failure with their retroactive rate cut. The utility also claims the rate reduction and other aspects of the new law constitute an illegal confiscation of private property and deny the utility the due process required under law.
SCE&G and state-owned utility Santee Cooper, its junior partner in the nuclear project, abandoned the V.C. Summer Nuclear Station expansion a year ago Tuesday after the bankruptcy of the project’s main contractor, Westinghouse.
SCE&G ratepayers already have paid more than $2 billion toward the cost of the two unfinished reactors.
SCE&G is suing the Public Service Commission, seeking to stop enactment of the rate-cut law.
Under a 2007 state law, SCE&G’s 700,000-plus customers now pay $27 a month on average to finance the half-finished reactors, originally expected to cost $9 billion. While the project has been dead for a year, SCE&G has kept the additional charge on its customers’ monthly bills — bringing in an extra $37 million a month.
“That is our money collected lawfully … under binding, final orders” from the PSC, which signed off on the project, said attorney David Balser, who is representing SCE&G. “There is no clawback provision in the Base Load Review Act.”
Balser said the new law “retroactively changes the rules of the game” to cause “incalculable harm” to SCE&G’s finances.
Attorneys representing state lawmakers and the Public Service Commission — who have asked SCE&G’s lawsuit be dismissed — contend the utility only can recover its costs so long as the plant is constructed or being constructed, in accordance with set construction schedules.
“It’s not a blank check,” said attorney Matthew Richardson, who is representing the state Senate.
The attorneys also argued the roughly $270 million SCE&G would lose under the temporary rate cut amounts to only a small part of the utility’s 2017 operating revenues of more than $4.4 billion.
“The act was just a poke, not a punch,” Richardson said.
The attorneys argued any predictions of harm to the SCE&G are speculative and disingenuous, when it has handed out $82 million in dividends to its shareholders in each of three quarters after abandoning the nuclear project and set aside another $110 million in severance pay for executives for aiding their utility’s sale.
SCE&G’s financial woes are of its own making, centered around its mishandling of the nuclear project, now the subject of a criminal investigation amid allegations of fraud, Richardson argued. He added SCE&G still can seek legal remedies from the PSC and state courts, and many of the issues it raises are state utility law issues pending before the PSC.
The rate cuts ordered would be retroactive to April and would extend from the August to the December billing cycles.
“Shareholders will still get a profit,” Richardson said, providing them a diminished 5.16 percent rate of return on their equity. “This is a temporary and partial rate relief to ratepayers” who have shouldered $2 billion in costs for the failed project, while “shareholders received full and increasing dividends.”