Critics have equated the process of regulated utilities seeking rate hikes from the S.C. Public Service Commission to a game — always asking far more than they need or expect to get. Given the ongoing discussions in our state about a sale of Santee Cooper, the public needs to understand the importance of this “regulatory game."
Since 2002 I have either intervened personally or supervised my organization’s participation in SCE&G’s five general rate cases. I am currently intervening in the Dominion rate case.
I have seen the regulatory game firsthand.
Utilities do traditionally ask for a higher rate hike than is eventually approved. But oversight provides significant impact. Starting in 2002, the PSC has cut every SCE&G general rate hike request by significant amounts: 43% in 2002, 50% in 2004, nearly 35% in 2007, almost 49% in 2010 and 63% in 2012.
The reductions in these rate increases being sought did not just magically happen, with the PSC simply picking out of thin air a percentage to cut. The rulings were the result of a thorough review of the documentation presented by the utility to justify its requests for more money.
Today, the S.C. Office of Regulatory Staff has primary responsibility for this review and making recommendations to the PSC.
The process will be the same for the recently filed 7.7% rate hike being sought by SCE&G’s successor, Dominion Energy.
ORS will review the data submitted to justify the rate increase. The agency will not only look at allowable expenses (i.e. storm damage, transmission line repairs, operational expenses, etc.), but it will also search for any unallowable expenses.
What would be an unallowable expense?
Two notable examples in a past SCE&G rate filing were charges for Zumba classes for employees and $50 drinks for board members at a high-end restaurant, just two of the more objectionable examples of the $1.4 million in unallowable expenses ORS found that year.
Clearly the regulatory game has been akin to a game of hide and seek. The utility might want to charge the customers for nonservice-related expenses or bad decisions that cost the company money. ORS combs through the voluminous documentation and flags what should not be passed on to the customers.
One of the unallowable expenses in this Dominion filing that ORS will be looking for is any attempt by the utility to try make the customers pay for the SCE&G nuclear debt, $2.7 billion, which Dominion promised not to charge to customers. I have full confidence ORS will uncover any such effort.
Who pays for the unallowable expenses uncovered by ORS? The shareholders of the company.
The good thing about this regulatory game is that it lets the sunshine in on the utility’s operations and expenses. In addition to ORS, any party, including the public, can engage. And most importantly, there is an independent panel, the PSC, ensuring rules are followed and handing down the final ruling.
Every utility should be subject to this game. It provides the best protection to the consumers by ensuring utilities cannot increase rates at will, without scrutiny.
Then there is Santee Cooper, the state-owned and run utility that South Carolina Gov. Henry McMaster has called a “rogue agency.”
Santee Cooper’s only source of revenue is its customers.
For every bad, costly decision its executives and board make – keeping highly expensive coal-fired plants instead of shifting to lower-cost renewables; paying millions a year for warehousing equipment for coal and nuclear plants that will never be built; running up a $4 billion debt for a nuclear plant that will never produce a single kilowatt hour of electricity; paying hundreds of thousands a year in retirement benefits for one state employee – the Santee Cooper board without oversight simply passes these costs on to its customers.
Santee Cooper ratepayers deserve the same kind of oversight that comes from the regulatory game, oversight that cannot be achieved with any reform of the state agency.
Santee Cooper simply must be sold to an investor-owned utility.
Frank Knapp is president and CEO of the South Carolina Small Business Chamber of Commerce.