The failed expansion of the V.C. Summer nuclear site has created a delicate political situation for many legislators. When news broke that Westinghouse had gone bankrupt and the nuclear project was cancelled, House lawmakers knew they had to do something. Unfortunately, what they did violates the State Constitution, as I explained today during the debate on H.4375.
At the center of the issue is the Base Load Review Act of 2007. Under this law, SCANA, SCE&G, Santee Cooper, and electric cooperative customers were forced to pay nearly $2 billion in profit guarantees to the investors in the V.C. Summer nuclear site. Worse, the BLRA also provides for the full cost of the project to be collected from the ratepayers at the end ("upon completion or abandonment"), so in theory the worst rate increases could be yet to come.
The Speaker of the House, Rep. Jay Lucas, responded with six bills, dubbed the "Ratepayer Protection Package." The cornerstone of this package is H.4375, a bill aimed directly at the BLRA of 2007. Unfortunately, it's just too good to be true.
It's not just a repeal bill
H.4375 in its original form did a number of things besides shutting the door to future ratepayer-guaranteed profits. It attempts to roll back the existing rate increases that the legislature gave the electric utilities for V.C. Summer over the last nine years, and to eliminate the possibility of future rate increases to pay for abandonment costs. The bill came under fire, especially after a detailed analysis by Judge Billy Wilkins opining that the bill is unconstitutional.
In response, a replacement amendment (Amendment #3) was filed just before the vote on Wednesday, January 31st, purportedly fixing the constitutionality problems of the original bill. The problem, though, is that it didn't.
1. H.4375 changes previous law retroactively
The two most significant and most-frequently-used words in the 2007 act are "prudency" and "imprudency." Mysteriously, these two critical words were left undefined in the original act, so the Public Service Commission acted in their judgement with the information they had and ruled the V.C. Summer project "prudent," and granted nine rate increases.
Because of the possibility of further rate increases to recover the cost of the project "upon abandonment," H.4375 attempts to insert a very strict and broad definition of "prudency" into the bill, to disqualify any further rate increases for V.C. Summer.
Note the following:
- Section 1 of Amendment #3 inserts definitions for "prudency" into Article 4 of the BLRA
- Section 2 of Amendment #3 then repeals Article 4 and Article 5 of the BLRA
Wait, what!? You can't amend and repeal the same law at the same time, can you?
Well, Section 2 also includes the caveat that Articles 4 and 5 of the BLRA "continue to apply only to projects or plants begun pursuant to an order issued under Article 4..." In other words, additional rate increase requests to finish paying for V.C. Summer ("abandonment").
The problem here is that there are only two possible scenarios:
- Either the prudency definitions are repealed along with the rest of the BLRA, and are thus non-binding, or
- The prudency definitions are binding, because they apply to the law prior to its repeal.
In the former case, the bill does nothing to prevent the collection of additional rate increases. In the latter case, the bill violates Article I, Section 4 of the South Carolina Constitution, which states:
No bill of attainder, ex post facto law, law impairing the obligation of contracts, nor law granting any title of nobility or hereditary emolument, shall be passed, and no conviction shall work corruption of blood or forfeiture of estate.
(Note: "Ex post facto" is the legal term for retroactive.)
2. H.4375 assumes legislative powers not granted in the Constitution
Section 3 of Amendment #3 attempts to zero out the rate increases, which would result in an immediate reduction of electric rates. To establish the legislature's authority to set rates, the bill reads:
The General Assembly has determined that Section 1, Article IX of the Constitution requires that the General Assembly exercise its authority to set certain utility rates for the purpose of protecting the public interest...
However, Article IX, Section 1 of the SC Constitution actually only says the following:
The General Assembly shall provide for appropriate regulation of common carriers, publicly owned utilities, and privately owned utilities serving the public as and to the extent required by the public interest.
Note that there is nothing granting the legislature the direct authority to set utility rates! This is a misquoting and misconstruing of the Constitution in a way that grants more power to the legislature. "Shall provide for appropriate regulation" is not the same as "authority to set utility rates." This is no different than construing the constitutional authority to provide for a judiciary as being the authority for lawmakers to preside over judicial proceedings themselves or to dictate judicial outcomes.
This is actually an apt analogy, because the Public Service Commission is frequently described by legislators as a quasi-judicial body. The ethics rules for commissioners and the election process for commissioners also resembles that of judges.
3. H.4375 is a special law, prohibited by the Constitution
Section 3 of Amendment #3 also singles out specific companies. It reads:
This rate shall apply to all customers of the investor owned utility identified in subsection (A), which has imposed nine rate increases for the purpose of funding the V. C. Summer project.
Special laws are prohibited in Article III, Section 34, Subsection IX of the SC Constitution, which states:
The General Assembly of this State shall not enact local or special laws...where a general law can be made applicable, no special law shall be enacted.
Ironically, it would have been very easy to craft general language that would only apply to V. C. Summer without singling any company out, because it is the only BLRA project, and yet, they did not do it.
I believe that singling out V. C. Summer sets a very dangerous legislative precedent. What other acts might the legislature pass that single out a person or private company? The potential for abuse is tremendous, which is why the practice was banned in the highest law of this state in the first place.
An attempt at a clean repeal
I introduced Amendment #2 in an effort to remove the unconstitutional portions of the bill, and to see if the House would stand by its previous 2007 act, or repeal it.
The amendment was tabled. You can see how the vote went here:
Vote to table,
(This vote was not recorded in the State House journal. It takes 10 representatives to get a roll call vote, which I requested, but failed to get enough seconds. However, the Speaker called for a "division vote," which is a vote taken on the voting board without the "yeas and nays" being recorded.)
Who is really protected?
Given that the bill could immediately take away hundreds of millions of dollars from the companies involved in the V.C. Summer project, this bill would most certainly be challenged as soon as it is enacted.
Will the companies involved be able to survive the sudden blow to their revenue?
How would bankruptcy affect electric rates?
What would the economic fallout be for the next decade?
Even if the bill is struck down by the courts, and electric rates continue to climb, it will be long after the 2018 election cycle. I think the legislature is betting on that, and they are really the ones being protected by H.4375, not the ratepayers.
Honesty is the best policy
An honest response to V.C. Summer must start with the legislative leaders in the House and Senate. They have yet to own their role in creating this debacle or apologize for it. They should own up to the fact that there is no lawful way for the legislature to retroactively undo the damage that has been done.
Then, the legislature should repeal of the Base Load Review Act in its totality. No tricks, no retroactive shenanigans.
Third, we should cut off the legislature's control of the utility monopoly regulatory system, by:
- Abolishing the Public Utilities Regulatory Committee (recently rebranded as the "Utilities Oversight Committee")
- Abolishing the conflicted and ineffective Office of Regulatory Staff
- Re-establishing the executive branch's authority to oversee power utilities by appointing the Public Service Commissioners, with confirmation by the Senate, and
- Re-establishing an independent watchdog to look out for ratepayers.
Finally, we should follow the lead of other states like Texas that have ended the power utility monopoly system and allow companies to compete for customers in an open and free market.