Duke Energy may ask for SC rate hike to recoup costs of nixed nuclear plant

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Big Upstate manufacturers stand ready to challenge Duke Energy if the Charlotte-based power company asks South Carolina regulators for permission to raise rates on its Upstate customers.

Duke announced Aug. 25 that it planned to cancel decade-old plans to build the two-reactor Gaffney plant.

Scott Elliott, a Columbia lawyer who specializes in utility regulation, has already picked out arguments he intends to make on behalf of manufacturing clients in opposition to the expected rate hike request.

Elliott represents the S.C. Energy Users Committee, a group of manufacturers that buy a lot of electricity. The group includes big Upstate employers such as BMW Manufacturing Co., Milliken & Co., and Michelin North America, as well as smaller ones such as Mount Vernon Mills.

Duke has not yet asked South Carolina regulators for a rate hike, but it has asked North Carolina regulators for one, and says it intends to do the same in South Carolina at some point.

In North Carolina, Duke Energy Carolinas, the Duke unit that serves the Upstate, proposes to raise rates by an average of 13.6 percent, according to paperwork the company filed in Raleigh on Friday, Aug. 25.

As part of its request to the N.C. Utilities Commission, Duke wants to collect an extra $53 million a year from ratepayers as reimbursement for nearly $542 million it spent developing a proposed nuclear plant in Gaffney that it now wants to cancel.

Duke planned the plant for more than a decade, spending hundreds of millions of dollars, but never started building it.

The power company isn’t saying exactly when it will ask South Carolina regulators for permission to raise rates in the Upstate.

Ryan Mosier, a spokesman in the utility’s South Carolina headquarters in downtown Greenville, said spending related to the development of new power plants “is a cost typically paid for by customers.”

Duke intends to seek “cost recovery in South Carolina” as part of a “future rate request proceeding,” but the filing won’t happen this year, Mosier told UBJ.

Duke is eligible to seek reimbursement from Upstate ratepayers of 23.8 percent of what it spent on the nuclear plant, or $128.5 million, said Dukes Scott, executive director of the Office of Regulatory Staff, the state agency responsible for protecting the public interest in utility matters.

Elliott, however, said he doesn’t think the power company is entitled to recover that much.

He said the S.C. Public Service Commission authorized Duke to spend no more than $350 million developing the nuclear plant in separate orders issued in 2008 and 2011.

In addition, Duke spent money preparing the site and that should not count as “pre-construction” costs, Elliott told UBJ.

“If they’re entitled to recover anything at all, it’s less than what they’ve spent, and probably substantially,” Elliott said.

It’s the second time Duke has canceled construction of a nuclear power plant on the same property.

Duke left behind a huge concrete bowl when it stopped building the first nuclear power plant in the mid 1980s amid soaring costs. Later the bowl was used to film underwater scenes from the 1989 movie “The Abyss,” directed by James Cameron.

Duke said its decision to cancel its latest plans for a nuclear plant in Gaffney was the result of the bankruptcy of Westinghouse Electric Co., the company that was to provide the nuclear technology and oversee construction.

Westinghouse filed for Chapter 11 protection as a result of soaring costs at nuclear plants it was building in South Carolina near Columbia and in Georgia near Augusta.

The “uncertainty” that resulted from the Westinghouse bankruptcy created an “unacceptable level of risk” for the Gaffney project, Duke told North Carolina regulators. Duke also said its most-recent cost estimate for the Gaffney plant was $12.9 billion.

Though Duke is now asking regulators for permission to cancel the Gaffney plant, it’s continuing to hold out the possibility of restarting the project one day.

The company told North Carolina regulators that federal licenses it obtained late last year to build and operate the Gaffney plant will not expire until 40 years after it builds a plant.

The licenses from the Nuclear Regulatory Commission mean Duke continues to have a “valuable option to construct carbon-free new nuclear generation in the future should circumstances change and construction become feasible and in the best interest of customers,” the company told North Carolina regulators.

Elliott said Duke is in a better position to be reimbursed for costs spent on the nuclear plant as the result of a law passed by South Carolina lawmakers a decade ago called the Base Load Review Act.

That law, for which Duke lobbied, shifted the risk involved in nuclear plant construction from shareholders to ratepayers by allowing utilities to recover construction financing costs up front, Elliott said.

The Base Load Review Act became the subject of a raging public controversy when two South Carolina utilities – SCE&G and state-owned Santee Cooper –announced earlier this year that they would halt construction of the VC Summer nuclear project in the Jenkinsville community near Columbia. Nine billion dollars was spent on the project and nearly 5,000 people lost their jobs. 

According to Elliott, SCE&G continues to collect $440 million a year from ratepayers to cover costs associated with the failed construction project, a situation he said was facilitated by the Base Load Review Act.

Rep. Bill Sandifer, R-Seneca, was the first co-sponsor of the Base Load Review Act, which shifted the risk for nuclear power plant construction to ratepayers.

Scott said South Carolina ratepayers so far have not contributed anything toward the costs of the Gaffney project that Duke wants to cancel.

State Rep. Bill Sandifer, a Republican from Seneca, was the first co-sponsor of the Base Load Review Act when it was adopted in 2007, Statehouse records show.

Sandifer continues to have a big influence on South Carolina utility regulation as chairman of the House Labor, Commerce and Industry Committee, which has jurisdiction over utility matters.

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