On July 31, 2017, South Carolina Electric & Gas Company (SCE&G) announced that it would cease construction of two new nuclear reactors at the V.C. Summer Nuclear Station in Jenkinsville, South Carolina. SCE&G, which is a principal subsidiary of SCANA Corporation (SCANA), further announced that the company intends to promptly file a petition with the Public Service Commission of South Carolina seeking approval of its abandonment plan.
According to the company’s press release, this decision was reached by SCE&G after considering the additional costs to complete the new nuclear reactors, the uncertainty regarding the availability of production tax credits for the project and the amount of anticipated guaranty settlement payments from Toshiba Corporation (Toshiba). SCE&G’s decision was also influenced by other matters associated with continuing construction including the decision of the co-owner of the project, the South Carolina Public Service Authority (Santee Cooper), the state owned electric utility, to suspend construction of the project.
Based on these factors, SCE&G concluded that it would not be in the best interest of its customers and other stakeholders to continue construction of the project.
Overview and Analysis Following the bankruptcy filing of Westinghouse Electric Company, LLC (WEC), SCE&G and Santee Cooper each began a comprehensive process of evaluating the most prudent path forward for the new nuclear reactors. The project owners worked with WEC and Fluor Corporation, as well as other technical and industry experts, to evaluate the project costs and schedules.
Based on this evaluation and analysis, SCE&G concluded that completion of both new nuclear reactors would be prohibitively expensive. According to SCE&G’s analysis, the additional cost to complete both reactors beyond the amounts payable in connection with the engineering, procurement, and construction contract would materially exceed prior WEC estimates, as well as the anticipated guaranty settlement payments from Toshiba. Moreover, in order to qualify for production tax credits under current tax rules, the new reactors would need to be online before January 1, 2021. SCE&G’s analysis concluded that the new reactors could not be brought online until after this date.
SCE&G also considered the feasibility of completing the construction of Unit 2 and abandoning Unit 3 under the existing ownership structure and using natural gas generation to fulfill any remaining generation needs. This option provided a potentially achievable path forward that may have delivered SCE&G a similar megawatt capacity as its 55% interest in the two reactors and provided a long-term hedge against carbon legislation/regulation and against gas price volatility. SCE&G had not reached a final decision regarding this alternative when Santee Cooper determined that it would be unwilling to proceed with continued construction. Consequently, SCE&G determined that it is not in the best interest of customers and other stakeholders for it to continue construction of one reactor.
Based on the evaluation and analysis, and Santee Cooper’s decision, SCE&G has concluded that the only remaining prudent course of action will be to abandon the construction of both Unit 2 and Unit 3 under the terms of the Base Load Review Act (BLRA). Accordingly, normal construction activities at the site will cease immediately and efforts will be shifted toward an orderly transition of winding down and securing the project property. SCE&G plans to use the anticipated payments resulting from the settlement of Toshiba’s guaranty to mitigate cost impacts to SCE&G electric customers.
Abandonment Proceeding On August 1, 2017, SCE&G will fully brief the Public Service Commission of South Carolina and thereafter initiate the abandonment proceeding. In accordance with the BLRA, SCE&G intends to seek an amortization of the project costs and a return at the weighted average cost of capital on the unamortized balance until fully recovered. SCE&G plans to use the anticipated proceeds from the Toshiba settlement and benefits derived from tax deductions to mitigate rate increases and lessen the impact on its customers for several years.
Background SCANA Corporation—which is headquartered in Cayce, South Carolina—is an energy-based holding company principally engaged, through subsidiaries, in electric and natural gas utility operations and other energy-related businesses. The Company serves approximately 718,000 electric customers in South Carolina and approximately 1.3 million natural gas customers in South Carolina, North Carolina and Georgia.
SCE&G is a regulated public utility engaged in the generation, transmission, distribution and sale of electricity to approximately 718,000 customers in South Carolina. The company also provides natural gas service to approximately 362,000 customers throughout the state.