South Carolina Electric and Gas customers are paying an extra 18 percent, $27 per month on average, on their bills for two abandoned nuclear reactors in Jenkinsville. Any deal by lawmakers resulting in less than an 18 percent rate cut is equivalent to a bailout.
If SCE&G’s parent company, Cayce-based SCANA were any ordinary business, it would have been chased out of the marketplace by now by stronger utilities offering better rates.
But SCANA and its subsidiary aren’t ordinary. Because of the way utilities are regulated in S. C. and many other states, SCE&G holds a monopoly over area customers who want to keep the lights on.
And here’s the kicker—the Senate is planning to let SCE&G get away with some of its Summer-approved rate hikes for fear a full repeal would face legal challenges. The utility’s possible inability to repay money borrowed to finance the project under an 18 percent reduction is another fear Senate leaders have.
Alternatively, the Senate’s proposal—set for debate after senators return from break the second week of April—pulls out 13 percent of the rate increases since 2011, when it became apparent the utilities knew the project was in danger, according to Senate leaders. That rate would expire in December, when regulators would make a final decision on any proposed mergers.
The proposal’s passage depends on a counter offer by Virginia-based Dominion Energy, which in January proposed a merger with SCANA that included a $1,000 refund to the average residential customer and $10 in monthly rate relief.
If it clears the Senate, the proposal will face opposition by the House and Gov. Henry McMaster, who are pushing for stripping out all the nuclear charges. That’s the right position, I believe, though I’m not optimistic customers will see Summer-nuclear rates fall to zero, ultimately.
Commissioned by lawmakers, a financial review of the extent to which SCE&G could survive a rate reduction found the utility could withstand up to an 18 percent reduction without negatively impacting SCANA’s ability to borrow. The consulting group, Bates White performed the analysis.
Approximately 20 percent of the $445 million the company collects from customers annually goes to paying bonds issued to fund the nuclear project. That’s approximately $5 of the $27 monthly surcharge paid by the average SCE&G customer. The other $22 goes shareholders.
We’ve been here before. Exactly 10 years before, when federal policy makers approved a borrowing package to keep banks afloat.
To date, 977 lenders and manufacturers nationwide have collected a taxpayer-funded $626 billion to stay afloat following the 2008 banking crisis, according to a database by the investigative news site propublica.org.
On a nationwide scale, taxpayers were required to prop up institutions that used risky lending practices and cheap debt—all to keep them from failing.
Most legislators have expressed their aversion to letting SCANA fail for fear of its impact on the state—including ratepayers, who would likely shoulder the burden of the project in the end.
Yes, it seems they think SCANA is “too big to fail.”
But keeping SCANA afloat doesn’t prevent them from mishandling prospective projects.
A 2011 report by the federal Office of the Special Inspector General said it this way—government bailouts reduce market discipline and give parties “less incentive to monitor vigilantly those institutions that they perceive won’t be allowed to fail.”
Like the banks, SCANA, if propped up, will have little incentive to apply moral business practices to customers in the future.
The federal report cautioned against the non-financial costs. “Those costs include the damage to Government credibility that has plagued the program, as detailed in SIGTARP’s (Special Inspector General for the Troubled Asset Relief Program) October 2010 Quarterly Report, the failure of programs designed to help Main Street rather than Wall Street, and perhaps TARP’s most significant legacy, the moral hazard and potentially disastrous consequences associated with the continued existence of financial institutions that are “too big to fail.”
The parallels between the decade-old federal crisis and the state crisis are startling. Lawmakers should learn from the bank bailout—not find ways to emulate it.
Ten years after the banking industry crisis, another crisis might be brewing, some banking experts say.
If history has anything to say about it, customers will have to pay something for SCANA’s missteps. Whether or not that’s moral is another story.
And if history has any more to say about it, there’s little to prevent potential mishandling—at ratepayers’ expense—from happening again.