Why the SC law behind failed nuclear reactors is unconstitutional

You’ve probably heard by now that my office issued an opinion that the law at the heart of SCE&G’s and Santee Cooper’s failed nuclear reactors is constitutionally suspect. But you probably have questions about why and what this all means.

Let’s start with how we got here. No company had built a nuclear reactor in the United States in decades because the cost is huge, and investors weren’t willing to put their money into utilities to build them.

So S.C. lawmakers passed a law in 2007 called the Base Load Review Act. Other states, including Florida and Mississippi, passed similar laws. These laws allow utilities to start charging their customers more for power plants they’re building, even before the plants are finished. The idea was that if utilities could raise rates during construction, customers wouldn’t get hit with huge increases all at once when the plants were up and running.

But now we see the problem with the law: SCE&G and Santee Cooper customers have paid more than $2.2 billion in rate increases for nuclear reactors that have never produced any power and have been abandoned, and they continue to pay those higher rates every month. (Santee Cooper, which is owned by the state, is covered by a different law.) Utility investors got a guaranteed return on their money, but customers got nothing in return for theirs. The utilities and their investors actually were rewarded for abandoning the reactors because they continue to collect that guaranteed return. That’s not only wrong, but I think it violates the constitutions of our state and the United States.

Here’s why: When deciding how much utilities can charge their customers, our constitution requires a balance between investors and ratepayers. The Base Load Review Act gives everything to the investors and nothing to customers.

The U.S. Constitution also guarantees that the government can’t take something from you without due process. Once a project has been approved under the Base Load Review Act, customers are not allowed to question whether that project is a good idea or whether the utility is being careful and using normal judgment. In my opinion, that means customers’ money has been taken without due process.

The prohibition on “taking” also means the government can’t use a law or regulation to take your property without paying you for the value of it. The Base Load Review Act allowed SCE&G to take customers’ private property (their money) and gives it to a utility for a private use — payment to the utility’s investors. And the customers got nothing in return.

Before the Base Load Review Act, legal rulings said power plants had to be “used and useful” before utilities could raise rates to pay for them.

Even though SCE&G and Santee Cooper have decided not to finish their nuclear reactors, this case is not over. Under the Base Load Review Act, SCE&G can still raise rates to get back money it already put into the reactors and get a substantial return for investors. Yet customers get nothing. In my opinion, that clearly violates longstanding court rulings that require a balance between the interests of the power companies and the interests of their customers.

Several lawsuits have been brought by ratepayers against the utilities. State lawmakers have been holding hearings and are expected to take action when they return in January. They might repeal the Base Load Review Act; they’ll also discuss how to get refunds to customers.

My office is also taking part in a case before the Public Service Commission, asking the PSC to require SCE&G to stop charging customers the higher rates that were approved in order to build these nuclear reactors. We are working on our brief expanding upon our opinion and supporting a rate reduction.

The South Carolina Constitution specifically says that state lawmakers can regulate utilities “to the extent required by the public interest.” And the U.S. Supreme Court has ruled that the “public interest” includes preventing situations that put an excessive burden on consumers.

An attorney general’s opinion is just that: an opinion. But it’s based on extensive legal research and past cases and represents what I and the experts in my office think would happen if a court were to rule.

The intention of the Base Load Review Act was to protect ratepayers, but it ended up doing the opposite: robbing them of their hard-earned money and their power.