Senate Energy Solutions: An Analysis

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In mid-November, the House prefiled and fast-tracked through committee six bills developed by the special energy investigatory committee, appointed by the House speaker (you can read our analysis of those bills here).

Last week, the Senate prefiled its own version of legislative energy “solutions” – and like the House bills, it fails to truly reform the system and dissolve the legislative stranglehold on the energy industry. And despite the constitutional prohibition on multiple-subject bills, the Senate’s version is an omnibus bill dealing with everything from ratepayer relief to the structure of Santee Cooper.

In addition, Sen. Hugh Leatherman prefiled a bill prohibiting Santee Cooper from spending its share of the Toshiba settlement funds from the two abandoned nuclear projects until the Joint Bond Review Committee (JBRC) gives its approval. The JBRC is a six-member committee composed of three lawmakers from each chamber selected by the House Ways and Means Committee chairman and the Senate Finance Committee chairman – in other words, it is completely controlled by two legislative leaders. This bill would basically allow those two lawmakers to determine how and when Santee Cooper is allowed to spend the settlement funds.

While this is meant as a stopgap measure while energy “solutions” are being hammered out, permission to spend funds should not come down to two lawmakers. It should also be noted that JBRC review is a standard part of the South Carolina appropriations and procurement process – one of the many ways in which legislative leaders dominate the functions of state government.

Though the Senate’s approach to solving the energy crisis was more or less developed by the Senate’s special investigatory committee (selected by the Senate president pro tem), the committee never came to an official consensus or issued a formal report of its findings regarding the problems which led to the costly V.C. Summer fiasco.

Nevertheless, the Senate’s energy omnibus bill – co-sponsored by the two energy investigatory committee chairmen – tackles six different subjects: Ratepayer relief; the base load review act (BLRA); the Public Service Commission (PSC); the Office of Regulatory Staff (ORS); Santee Cooper; and the Public Utilities Review Committee (PURC). Below is an analysis.

 

Part I: Ratepayer Relief

The Senate’s approach is straightforward: The bill prohibits any further rate increases for BLRA plants that are not generating power. And effective January 1, 2018 (which will be before this bill likely even has a committee hearing), it requires that Santee Cooper remove the V.C. Summer costs (estimated at 4.3 percent) from their rates, and that the PSC remove the estimated 18 percent from SCE&G’s nine rate hikes from consumers’ power bills.

As with the House version, it is uncertain whether this will survive a court challenge, as SCANA technically remained within the parameters of the BLRA throughout the duration of project. SCANA therefore may still be entitled to recover costs for the abandoned plants despite the Senate’s proposal.

 

Part II: The Base Load Review Act (BLRA)

The Senate’s bill would prohibit the PSC from accepting or considering a BLRA application after November 21, 2017 (a retroactive provision should the bill pass), effectively preventing its use for any future construction projects. The bill also strikes the language allowing cost recovery for abandoned projects and allows prudency determinations for preconstruction cost recovery to be reopened if the utility withheld relevant information from regulators.

It also adds a new condition for cost recovery: In addition to staying within schedule and budget, the utility must provide all relevant information to regulators. If the utility does not, the original base load review order could be challenged, with the burden on the utility to prove that the plant should be deemed “used and useful” and the prudency of the decision to incur any costs.

Finally, the bill would require that the utility file annual reports with the General Assembly as well as quarterly reports to the ORS. This provision is basically an admission that the existing system – which in theory should keep lawmakers thoroughly informed as to the job performance of energy regulators – does not work. However, as supervision is an executive function to begin with, the real issue is that the legislative branch itself cannot effectively execute proper oversight and accountability of state agencies and commissions. The bill does nothing to address this issue.

Finally, as with the rate recovery issue, it is unclear whether retroactively changing the conditions for cost recovery would hold up in court.

 

Part III: The Public Service Commission (PSC)

This legislation loosens the conflict of interest language, allowing a PSC member to serve even if he (or an immediate family member) is currently receiving retirement income from a business regulated by the PSC. This exception would give legal permission for direct conflicts of interest in the membership of the PSC.

The bill would also reduce the membership of the PSC from seven members to five; increase their pay to the equivalent of a circuit court judge’s salary; and provide for the complete replacement of the existing PSC. Also, the PURC would no longer be allowed to make exceptions to the qualifications for PSC candidates required by state law.

The PSC’s power would also be increased: It would no longer have to rely on the ORS to conduct any needed inspections or audits, and would be able to compel the provision of information from other state agencies and parties to proceedings. If information relevant to the proceeding came to light within six months after a PSC order was issued, the PSC must reconsider the matter and could retroactively revise the order. If, however, the information was fraudulently withheld, the time limit for reconsideration would be four years. It should be noted that this provision applies to all proceedings before the PSC, not merely those under the BLRA.

Intentionally withholding information or misrepresenting before the PSC would be a felony, with fines determined by the courts. In addition, the bill would also give PSC jurisdiction over any joint projects and facilities between private utilities and Santee Cooper.

Finally, the conflicted mission of the ORS would be transferred to the PSC. It would now be required to balance consumer concerns, the financial integrity of the utilities, and economic development and job attraction/retention in its proceedings. This is a very concerning move. Those three interests – consumers, utilities, and economic development – are very often in direct conflict, as the ORS discovered in its oversight of the V.C. Summer project. From a practical standpoint it is impossible to do justice to all three considerations.

Moreover, the consumer interest is the only justifiable reason for the PSC to so heavily regulate utilities. Without that regulation, consumers would be entirely at the mercy of their respective energy providers. Although government regulation is a poor substitute for consumer choice (as recent events show), this regulation exists strictly to protect consumers, not to safeguard private companies’ business decisions or to serve as an economic development tool.

 

Part IV: The Office of Regulatory Staff (ORS)

The Senate’s proposal would clarify the mission of the ORS by striking the requirement that it consider utilities’ financial integrity and economic development in its oversight and advocacy, requiring it to only consider consumer interests. It would also add the conflict of interest exception discussed in the PSC section above to ORS as well, allowing the ORS director and employees to receive retirement income from businesses regulated by the PSC.

The bill would also add a consumer advocate position to the agency, alter the qualifications for the executive director, and give ORS subpoena power with a felony penalty for failing to comply. This approach is more streamlined than that of the House, but leaves the ORS under the control of the PURC and ultimately lawmakers. That reality is one of the primary reasons the current system does not work.

 

Part V: Santee Cooper

The bill would add additional qualifications to Santee Cooper board members, requiring them to have college degrees and background and expertise in energy, telecommunications, consumer protection and advocacy, water and wastewater, finance, economics and statistics, accounting, engineering, or law. These are the exact qualifications currently required of PSC members. Additionally, board members’ terms would be shortened from seven years to five, and Santee Cooper could no longer offer its own retirement programs – meaning that Santee Cooper officers and employees would only be covered by the state retirement system.

Santee Cooper would be required to notify the JBRC of any bonds they plan to issue, and to get JBRC review and State Fiscal Accountability Authority approval for any bonds exceeding 50 percent of their bonding capacity. Any joint projects or plants Santee Cooper co-owns with a private utility would be under the jurisdiction of the PSC. The bill also strikes the prohibition on inquiring into the sale of major assets without permission of the General Assembly.

While all state agencies should have oversight and accountability, that should come from the governor. Considering lawmakers’ track record in overseeing the rest of the energy system, giving them additional oversight over Santee Cooper is not the proper solution.

The bill would require all state agencies, boards, commissions, etc. to provide the Senate president pro tem and the House speaker with any information those legislative leaders may request as to internal affairs and activities. If that information is considered confidential or exempt from the Freedom of Information Act, the lawmakers would be required to honor it. Sharing FOIA-exempt information received under this provision would be a crime punishable by a fine or up to ninety days in jail.

While requiring agencies to share information for oversight purposes may seem innocuous on the surface, oversight is an executive role, not a legislative role. This provision would increase the legislature’s oversight power over state agencies in direct violation of the separation and balance of powers principles. The governor currently has the constitutional power to require information from state agencies; There is no need to expand that to lawmakers.

 

Part VI: The Public Utilities Review Committee (PURC)

The Senate bill does not change the power or jurisdiction of the PURC, but simply adds additional qualifications and slightly alters the existing membership structure. The membership would be increased from ten to twelve, half of whom would be members of the general public instead of being legislatively dominated. However, as the governor would have only two appointments and the remaining ten members would be appointed by the same three lawmakers who control the PURC now – the Senate judiciary chairman, the House speaker and the House labor, commerce and industry chairman – these changes are cosmetic at best.

The PURC is a primary source of legislative power over the energy system, and the Senate bill leaves that firmly in place. 

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The bill contains a statement that the General Assembly finds the bill in compliance with the one-subject requirement in the Constitution – a provision usually seen when bills clearly violate that provision. In addition, the Senate’s energy bill attempts to retroactively change the provisions of the BLRA by applying new law (if passed) to previous activity, and it expands legislative power over the energy regulatory structure while appearing to reform it.

True reform would introduce consumer choice, accountability to the taxpayers, and proper balance of power to the energy sector. Until that happens, the conditions which created the V.C. Summer disaster and placed South Carolinians on the hook for billions of dollars will still exist – and if the Senate bill passes as it currently stands, those problems will only increase.

The bill has been assigned to the Senate Judiciary Committee and no hearing has as of yet been scheduled. As always, we will continue to monitor it and keep the public informed as to its status.

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