ECSC CEO Mike Couick Discusses what factors led South Carolina to choose new nuclear construction in 2006.
By RON AIKEN
With study, the past is easy to understand.
This decision led to that one, this law to that change — it unfolds, sometimes, as if its trajectory could or should have been easy to see. Hindsight, after all, is 20/20.
The problem with pronouncing judgments over decisions whose consequences seem obvious years afterward is that each decision must be weighed in its original moment, whether and how it took into full consideration the best available knowledge at the time, said Mike Couick, president and CEO of the state association of electric cooperatives.
During a conversation with Couick about the past, present and future of the two new nuclear reactors under construction at the V.C. Summer Nuclear Station, Couick gave a broad overview of how closely tied the energy industry is to the changing federal guidelines and unpredictable presidential priorities. As a service to Quorum readers, what follows is Couick’s detailed description of how changes in the federal approach to energy priorities, ranging from the establishment of the Clean Air Act in 1970 to Pres. Donald Trump’s pledge to withdraw from the Paris Climate Accord, have affected the $14 billion Jenkinsville project.
“Fuel choices by the federal government have a big impact on energy technologies. When the Clean Air Act was amended in 1970 and pollutants were regulated, Santee Cooper’s electricity generation mix was 68 percent coal.
In 1978, the Power Plant and Industrial Fuel Use Act says we’re running out of natural gas, so we’re going to prohibit the use of electrical generation using natural gas solely. You have to use something else, and primarily, that’s going to be coal.
So, the federal government as a matter of policy said, ‘Go coal.’
In 1990, the Clear Air Act was amended to include acid rain (both times under Republican presidents, it should be noted). In 2007, the Supreme Court says the EPA can regulate greenhouse gases including CO2. That same year, natural gas fracking becomes commercially viable.
But in 1978, you had this rush to coal because natural gas was running out and nuclear energy was expensive. Then, fracking comes, and the energy companies say what we’re able to produce may be limitless. But it only becomes commercially viable in 2007.
When you looked at our choices of what to do in around 2005-2006, at the same time the Base Load Review Act was being contemplated, natural gas was not yet practical. We were being told by the federal government, ‘You may well have to move away from coal, because for every ton of coal you burn, it produces three tons of CO2.’ You get the message that CO2 is a problem, and natural gas is not a solution. So, what’s left?
Wind and solar are great, but they’re not always available, and there wasn’t commercially viable storage at that time or even now. It’s getting there.
So, what are you left with? You’re left with what the co-ops and others worked on, which is energy efficiency. We also chose to work with SCANA and Santee Cooper to say, ‘What would it take to build the next generation of nuclear in this country?’
There were only two states in the country that seemed to have the political will to do it, and that was Georgia and South Carolina. That’s where the Base Load Review Act came from.
I joined the state association of electric cooperatives in 2005. In 2006, the General Assembly allows Santee Cooper to join with SCANA to build V.C. Summer Units 2 and 3. SCE&G and Santee Cooper already coordinated and co-owned Unit 1: two-thirds SCANA, one-third Santee Cooper.
We’d had this tremendous growth in the economy at the time, and it seemed we ought to do something to address future base load demand. What you saw with nuclear after the 1970s is a plague of regulatory uncertainty because of the dynamic federal regulatory framework in the 80s. Nuclear units were never finished. The reason they weren’t finished, according to the people who worked in that era, is that the rules would change, and as the rules changed, the designs changed. It ended up where you never finished and investors were snake bit.
The utilities were going bankrupt, so shareholders became hesitant to put large amounts of money into something on that scale. So, the South Carolina legislature passed the Base Load Review Act, which had the provisions about recouping construction costs through pre-completion rate increases as a guarantee. This was also at about the same time that the federal government changed the way it regulates nuclear units.
On the federal side, it becomes this thing where you get your design approved at the time you submit it, and that design is OK’d pretty much forever, subject to certain limitations. In other words, we’re not going to keep changing the rules on you.
On the state side, we needed something that said if you start building according to an approved design, that the shareholders would not be at risk if you continued to follow that design through. Whether you finish or not, that was to give shareholders certainty and the only thing that could attract capital to what would otherwise be a highly speculative investment.
What is sometimes forgotten in South Carolina is that we have a Base Load Review Act, but we’ve also got Act 175 of 2004. Act 175 says that our Public Service Commission (PSC) is a judicial body, but we’re counting on the Office of Regulatory Staff (ORS) to have active and ongoing enforcement of PSC orders.
They must work together to be successful. You can’t have the Base Load Review Act and not have Act 175.
Now, going back to subject of choice. In 2009 under the (Pres. Barack) Obama administration, they make an endangerment finding on CO2. They say that’s the first leg of regulating carbon. The Supreme Court had said you can’t avoid regulating carbon. The Clean Air Act says you’ve got to regulate carbon.
Obama starts to follow that opinion. They make the endangerment finding. They say CO2 creates risk and threatens the public health and welfare.
In 2014, Obama proposes the original rules for CO2 emissions in South Carolina. Under the original rules, you do not get any benefit for building the non-emitting power plants going in at Jenkinsville. You get no credit for that effort. So, we sent 182,000 emails from SC co-op members saying, ‘Why are we building these nuclear units if we’re not going to get credit?’ Because it’s our best way of avoiding CO2 emissions.
This, then, became a case where government listened. When they sent out the revised EPA 111-D rules the next year, they gave us credit for building those nuclear units if they’re completed. That credit is worth a billion dollars a year. So, come August 2015, if you look at where we were, President Obama, EPA, the Revised Rule that is the result of intensive input from South Carolina, it says you’ve got to finish 2 & 3 up there at Jenkinsville, and if you don’t, it’s going to cost you a billion dollars a year forever, so to speak, for not having that in place to reduce emissions as required.
If you’d have stopped the clock and taken a snapshot of the day before the election in 2016, how smart is Jenkinsville? It’s worth a billion dollars a year to finish. You’ve got a fixed-price agreement negotiated by ORS that is being considered by the Public Service Commission. The Public Service Commission approves it on Nov. 28, 2016, with any new risk falling to the shareholders on the SCANA side.
So, what happens? Two things. A new president is elected and says he’s going to do away the Clean Power provisions related to the Clean Air Act, and he uses those words: ‘Do away with them.’ And then on Dec. 27, 2016, Toshiba alerts its investors that there’s problems in River City.
So, two things change. All of a sudden something that looks very smart changes into something that’s not unwise, it’s just uncertain because of Trump and the Clean Air Act.
Everything that Obama did, Trump has to undo in order to roll back the Clean Air Act. He’s either got to issue a new regulation under 111-D tied to the endangerment finding that Obama did, or redo the endangerment finding. Or, he needs to get the Supreme Court to change its mind on Massachusetts v. EPA.
Or he’s got to get Congress to approve an amendment to the Clean Air Act. Now, how certain are any of those things? We don’t know, and we may not know. The Paris Accords, Trump said he’s not a disbeliever in global climate change, he just doesn’t think we got the right deal.
Where does that leave me in knowing where he is on the Clean Air Act? I don’t know. So, is it worth a billion dollars a year still to finish Jenkinsville? Or not? Who knows?
With Toshiba and Westinghouse, if you bail out Westinghouse, please put them under house arrest with an ankle bracelet on them. Because there’s not been complete good behavior on their part.
Things that supposedly they were doing over the last couple of years, including a resource-loaded schedule, just have not proven to have existed. So yes, there’s fault. But rather than look backward and ascribing fault, as co-ops we want a price tag and a road map.
If you’re going to finish or abandon the reactors, what is the cost of that, and what does it look like? Because it takes a price tag and a road map for either direction. Both will have a certain amount of cost to them, a certain trajectory.
For the 10 years prior to 2007, the co-ops had a growth rate of 5.2 percent a year. Once the Great Recession hit, growth is flat. If anything, it may be 1 percent. So, things change on that scale that you can’t predict.
The Base Load Review Act, if you take it through the lens of where we were in 2006-2007-2008, it was a smart decision, particularly if you take into account Act 175.
What’s challenged things is the passage of time. Can you tell me what’s going to happen in five years on carbon? Can you tell me that fracking natural gas is never going to be outlawed because of an environmental group or others challenging it saying that fracking causes seismic activity or endangers our clean water supply?
So, if history teaches you anything, it’s don’t put all your eggs in one basket. Whether in investments for your own family or a corporation. If you look at where SCANA and Santee Cooper are, they’re probably in the teens, upper teens, of percentages for how much of their electricity is generated by nuclear.
Duke Energy is closer to 50 percent with older units. I’ve heard folks share that you ought to be a-third-a-third-a third (coal, natural gas, nuclear). I would modify that to target future investments at a third nuclear, a third natural gas, and a third made up of a combination of renewables (solar and wind), efficiency and storage to back up conventional generation.
Storage is the game changer. If you can store electricity, you don’t need to build a single new megawatt of generation.
In this industry, you can’t decide tomorrow that you’re going to have power tomorrow. It takes years, decades, to plan for growth.
If you think you can build it down the road when you need it you’re wrong. Predicting future demand is an art as much as a science, and no one can see the future. With perfect foresight, you’d have known the Great Recession was about to hit, you’d have known that Donald Trump was going to beat Hillary Clinton. You would have known that he was going to roll back parts of the Clean Air Act.
We only know what we know at the moment. We have to deal with what we know.
So, what do we know now? We know that growth has slowed down. We know that industry is still here in South Carolina, and industry in particular likes base load generation where it runs 24 hours a day, seven days a week. Industry benefits from that, because it’s low cost.
We know that we have a Clean Air Act subject to being amended, rolled back or changed from saying that you need to reduce carbon emissions. The only way to reduce carbon emissions on a large scale in South Carolina is some combination of energy efficiency and nuclear.
The single best investment to reduce carbon emissions is energy efficiency in homes, and the second-best investment is nuclear. You can’t save your way into not building nuclear pants. It’s impossible. We have researched an initiative to improve the energy efficiency of some 200,000 homes for our members, a huge effort, and it amounted to about half a nuclear unit.
The co-ops are customers in the project. We have the right to insist on a price tag and road map. Model out the replacement plan. What does it look like to not construct one or both? ORS and the co-ops are counting on this fixed-price agreement.
Technology is making things more efficient, but it’s also making more things, so there’s this point where more-efficient things don’t outdo or lessen the electrical needs of more things. If plug-in electric vehicles become a major component of our economy, as it seems they will be, that’s all about electricity.
There’s no monopoly on believing that there’s a single answer to this problem, and each side thinks they have that answer. We’ll only know the best way forward when we know the price tag and road map. Before we have that, there’s no way to know what direction is best. And sometimes, as we’ve seen, even the best way forward can look a lot different in a very short amount of time because the only constant is change.”