House Legislative Energy Solutions: An Analysis

South Carolina energy bills

THE HOUSE ENERGY COMMITTEE DRAFTED SIX BILLS TO “FIX” THE SYSTEM. HERE’S WHAT THOSE BILLS WOULD DO.

UPDATE: The full House Judiciary Committee passed all six bills with no major substantive changes. As these bills have now been through the full committee process, they will be placed on the House calendar for debate when the legislature convenes in January.

Meanwhile, the Senate energy investigatory committee spent the day debating various energy proposals. While there is a good bit of divergence between the House bills and the Senate’s approach, both would simply tweak the existing system rather than enacting major reform. The actual bills will be drawn up by Senate staff and assigned to the Senate Judiciary Committee once they are prefiled.

 

The House Utility Ratepayer Protection Committee concluded its investigation into the V.C. Summer nuclear project and the energy regulatory structure with several policy proposals. These proposals were drafted into six bills, which were prefiled on November 9 and assigned to the House Judiciary Committee. They were passed unanimously by a Judiciary subcommittee last week and the full Judiciary Committee will consider them today. If passed, the House will be able to debate and vote on the bills as soon as session begins in January.

Below is a general overview of the six bills and how they would change the existing energy regulatory structure.

 

H.4375 – Guts BLRA, Attempts to Provide Ratepayer Relief

This bill attempts to provide relief to ratepayers for the costs of the failed nuclear construction project. Since the Base Load Review Act (BLRA) was written to guarantee the debt SCANA incurred for the project, it is questionable whether a legal path exists to retract that guarantee, as the debt was incurred in good faith and within the parameters of the law as it stood at the time. However, this legislation is an attempt to do just that.

First, the bill would revert the rate determination standards back to pre-BLRA law. In other words, when the Public Service Commission (PSC) is determining rates and charges for plants and projects, it cannot consider the BLRA. Utilities would now be unable to recover costs until the plant is actually providing power to customers.

The bill goes on to define “imprudent” as a lack of caution, care and diligence, and provides examples and elaborations (such as not disclosing reports, bad management, etc.). The burden of proof is placed squarely on the utility and prudence is no longer assumed. Further, the utility would now be responsible for the actions of any contractors or subcontractors.

From the effective date of the bill (if passed), no more costs could be recovered for an unfinished plant, and Office of Regulatory Staff (ORS) must petition to remove any such costs from electric rates. During the proceedings, the PSC could impose an interim rate which cannot include costs for unfinished plants.

The bill strikes all the provisions of the BLRA that would allow any utility to request a Base Load Review Order or revised rates during construction – effectively shutting the doors on any new BLRA projects. The bill defines/redefines a host of terms – for instance, “capital costs” would no longer include costs for unfinished plants or projects suffering from schedule/budget overruns, or costs from a plant if the utility could not prove prudency of a challenged action or decision. Withholding material information would also disqualify the costs from eligibility for recovery by the ratepayers.  If any element of the project is deemed imprudent, all project costs are disqualified from recovery through rate hikes.

Under this bill, costs for an abandoned plant could only be recovered if actions for the entire project, as well as the individual project elements and decisions, are deemed prudent – a new, stringent standard that would be extremely difficult to meet (if not impossible).

The bill further requires utility quarterly reports of BLRA projects to be filed under oath and gives ORS independent access to the construction site. It also requires the PSC to explain their actions in orders regarding utility prudency, in case of court challenge. Also in an effort to build a case for anticipated litigation, the bill Includes language emphasizing that this bill meets the original intent of the BLRA and is in compliance with the constitution.

 

H.4380 – Ordering a Refund to Customers for Abandoned Nuclear Project

This bill instructs the Public Service Commission (PSC) to order a refund to ratepayers for the V.C. Summer nuclear construction project. The wording of the bill makes the refund conditional upon a finding by the PSC that the project costs were the result of imprudence, poor management, etc. Should this bill pass (and be upheld in the courts), the PSC must order a refund of the costs paid by customers for the abandoned project, which may take the form of credit over a term that is “just and reasonable.”

As with the previous bill, the likelihood of a court challenge is high if this legislation passes into law.

 

H.4377 – Tweaking the Public Service Commission

This bill tweaks the laws governing the Public Service Commission (PSC). Most significantly, it provides for complete replacement of the seven-member commission in 2018 and restarts the staggering of their four-year terms. The bill also exempts Public Utilities Review Committee (PURC) members and their staff, and members of legislative review committees from the laws restricting ex parte communications – in other words, as long as pending matters before the PSC are not being discussed, PURC members and reviewing lawmakers could freely question commissioners. It also requires continuing education for commissioners and their staff, with the curriculum being approved by PURC.

The bill concludes by stating that once the governor signs this bill, the PURC may start screening and nominating PSC candidates, and lawmakers may elect the new ones that will take office on the effective date of this act. In other words, this bill authorizes action that is to take place before the effective date of the law.

If anything, this bill increases the power of the PURC. It certainly does nothing to address the systemic problems of the current regulatory structure or to introduce customer choice into the energy industry.

 

H.4379 – Creates Utilities Consumer Advocate under Attorney General

This bill would create a new “Utilities Consumer Advocate” position within the Office of the Attorney General. The Attorney General would appoint the consumer advocate, could fire him at will, and set his salary. The Office of Regulatory Staff (ORS) would be required to assist the consumer advocate as needed with information, research, etc. The consumer advocate’s duties would include providing legal representation of consumer interests before state and federal regulatory agencies that fix utility rates or prices, although getting involved in proceedings would be at the consumer advocate’s discretion.

The ORS’s conflicted mission would be slightly reduced to representing the consumers, economic development and the preservation of reliable and high quality utility services (the financial integrity of the utilities would be eliminated from the ORS mission). ORS would now have subpoena power, which could be triggered at the request of the consumer advocate. The consumer advocate could also request ORS to conduct reviews, audits, etc. and make recommendations to the Public Service Commission.

It is unclear why this bill adds a new consumer advocate position to state government without replacing the existing consumer advocate agency (ORS), especially when the ORS’s function is mostly untouched by this bill. Moreover, the bill only removes a portion of the problematic language from the ORS’s mission (which is currently to advocate for customers, utilities, and economic development). Enough inherent conflict and vagueness remains to potentially cause future problems down the road should this bill pass.

 

H.4376 – Qualifications for Santee Cooper Board of Directors

This bill provides for the replacement of the entire Santee Cooper board of directors upon passage. It also slightly tightens the qualifications for board members and authorizes carry-over status, which means that board members continue to serve even after their terms are expired until their successors are confirmed.

Most significantly, it places Santee Cooper under the oversight of the Public Service Commission (PSC) by requiring the PSC to approve Santee Cooper’s new or revised rates and charges. Finally, the bill states that V.C. Summer project abandonment costs may not be included in Santee Cooper rates, with the exception that Santee Cooper must charge whatever is needed to pay their debt.

Requiring the PSC to approve Santee Cooper’s rate hikes is far from complete oversight and accountability, particularly considering that the PSC is controlled entirely by lawmakers. PSC oversight of Santee Cooper rates would have done nothing to prevent the nuclear construction fiasco, as the law made it difficult for the PSC to reject the project’s rate hike and schedule change requests.

 

H.4378 – Renaming the PURC

This bill changes the name of the Public Utilities Review Committee (PURC) to “Utility Oversight Committee” (UOC). It also increases the membership from 10 to 12, four of whom would be public members appointed by the governor. The remaining eight members would be appointed by:

  • the House speaker (two appointments)
  • the Senate president pro tem (two appointments)
  • House Labor, Commerce and Industry chairman
  • House minority leader
  • Senate Judiciary chairman
  • Senate minority leader

All six of these lawmakers may serve on the UOC themselves, or appoint a designee. One of each of the House speaker’s and Senate president pro tem’s appointments must be a member of the public – totaling at six lawmakers and six public members. The responsibilities of the PURC under current law would remain unchanged.

This committee – regardless of its title – is lawmakers’ primary leverage point over the entire energy regulatory structure. The changes made by this bill are primarily cosmetic: As long as legislative leaders appoint the majority of the committee members (regardless of whether those members are actual lawmakers or not), they are the ones who will control the committee.

 

Conclusion

It is unclear whether or not the courts would uphold the legislative attempt to retract the debt guarantee for SCANA which was provided by the BLRA. Aside from that, however, these bills would not materially change the current regulatory structure over the energy industry. The PURC would still be controlled by legislative leaders and would have the exact same oversight power – simply under a different name. In addition, the PSC and ORS would possess the same oversight structure that exists currently. While there would be a new consumer advocate under the Attorney General, it would not replace the ORS, amounting to increasing the overall size of government rather than eliminating ineffective elements.

When the major thrust of the House’s legislative solutions for the energy crisis is to tweak the system around the edges rather than giving up power, the inevitable conclusion is that lawmakers do not realize their system is broken. True reform starts with eliminating the legislative stranglehold on the energy industry, not adjusting the margins while preserving their own power.

The full Judiciary Committee will meet to discuss these bills on November 21. We will continue to monitor these bills and keep the public informed as to their status.

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