SCANA Corporation is one of South Carolina’s principal utility companies. On July 31, it announced to its investors that it is abandoning the construction of two nuclear power plants in the Palmetto State, citing rising costs that would push the total for the two facilities to over $20 billion. The abundance of cheap natural gas from American sources — thanks to the wonders of fracking — has altered the financial calculus and rendered new nuclear (or nucular, if you are a fan of George W. Bush) economically nonviable. The announcement leaves the Vogtle power plant in Georgia as the only new nuclear facility currently still under construction in the United States.
SCANA, via its subsidiary South Carolina Electric & Gas, has already sunk about $5 billion into the V. C. Summer nuclear facility in South Carolina, and its customers may be completely on the hook for those expenditures regardless of the fact that construction will never be completed and not one electron will be created from the venture. SCE&G customers have been dutifully paying for the project through surcharges on their utility bills since 2009. In most cases, being a utility means never having to say you’re sorry. Utilities are guaranteed a statutory rate of return even when they spend their customer’s money unwisely.
The day after the announcement, the company told state regulators they do not plan to refund any money to their customers. It says it will amortize the cost of closing and maintaining the facility — costs that could exceed another $5 billion — over the next 60 years, according to Electric Light & Power. But South Carolina legislators are not pleased with that plan.
According to the Charleston Post & Courier, a bipartisan group of legislators wants the stockholders of SCG&E and SCANA, to suffer the loss, not rate payers. “The bottom line, folks, is that it will cost additional money for us to get out of this problem, but the money should not come from the pockets of South Carolinians,” Rep. Russell Ott, D-St. Matthews, said. “Whatever has to be paid for going forward should be paid for out of the pockets of these utilities that ultimately got us into this mess.”
The schlamozzle is the result of wildly optimistic projections about the increase in demand for electricity made by company executives and planners — and sanctioned by state regulators — more than a decade ago. The chart below from Bloomberg shows the enormous difference between those projections and reality.
What will happen to the projects? SCANA chief executive officer Kevin Marsh said in a call with analysts on Monday that he wants to keep the equipment in operating condition in case someone in China, India, or the U.K. wants to buy it. Is that a realistic hope? Not really, says Chris Gadomski, a nuclear industry analyst for Bloomberg New Energy Finance. “The Chinese are developing a competitive product, the Brits are in trouble with their nuclear projects, and the Indians want to develop their own supply chain,” he says, making the most likely scenario that the South Carolina project will be “mothballed.”
Bringing mothballed reactors back to life is not unheard of. In 2016, the Tennessee Valley Authority turned on its Watts Bar 2 reactor after work had been suspended in 1985. In November of 2016, Franklin L. Haney bought the Bellefonte facility, an unfinished, decades-old nuclear plant in northern Alabama at auction for $111 million.
The Bellefonte plant came with two partially built nuclear reactors, one that’s about 55% complete and another about 35% finished. Haney still has to get the mothballed station into working order, find customers for its power, and qualify for a federal nuclear production tax credit. Maybe the same thing could happen in South Carolina. Some investor could come along and pay SCANA Corporation pennies on the dollar for the facility. “It makes more sense to let them sit in place, maintain them, and see if they can be revisited,” BNEF’s Gadomski says.
Source: Bloomberg
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