A bill

 

TO AMEND THE SOUTH CAROLINA CODE OF LAWS BY ENACTING THE "SOUTH CAROLINA ELECTRIC COOPERATIVE CONSUMER PROTECTION AND WHOLESALE MARKET ACCESS ACT" BY ADDING ARTICLE 29 TO CHAPTER 27, TITLE 58 SO AS TO PROVIDE DEFINITIONS, ESTABLISH REQUIREMENTS FOR GENERATION AND TRANSMISSION COOPERATIVES FOR MAJOR CAPITAL EXPENDITURE CONTRACTS OR AGREEMENTS, AND ESTABLISH AN OVERSIGHT AND APPROVAL PROCESS BY THE PUBLIC SERVICE COMMISSION; TO REQUIRE GENERATION AND TRANSMISSION COOPERATIVES TO FILE PROPOSED RATES AND TERMS OF SERVICE TO DISTRIBUTION COOPERATIVES FOR APPROVAL BY THE PUBLIC SERVICE COMMISSION AND TO REQUIRE TRIENNIAL WHOLESALE RATE REVIEWS BY THE PUBLIC SERVICE COMMISSION; TO ESTABLISH THAT DISTRIBUTION COOPERATIVES HAVE A RIGHT TO PETITION THE PUBLIC SERVICE COMMISSION FOR EXIT SETTLEMENTS FROM WHOLESALE POWER CONTRACTS WITH A GENERATION AND TRANSMISSION COOPERATIVE AND TO PROVIDE PROCESSES AND STANDARDS FOR EXIT SETTLEMENTS; TO PROHIBIT GENERATION AND TRANSMISSION COOPERATIVES FROM TAKING CERTAIN UNILATERAL ACTIONS WITHOUT THE PUBLIC SERVICE COMMISSION'S APPROVAL; TO REQUIRE THE OFFICE OF REGULATORY STAFF TO REPRESENT DISTRIBUTION COOPERATIVES' INTERESTS BEFORE THE PUBLIC SERVICE COMMISSION IN PROCEEDINGS DESCRIBED IN THIS ARTICLE; TO REQUIRE GENERATION AND TRANSMISSION COOPERATIVES TO FILE AN ANNUAL FINANCIAL REPORT WITH THE PUBLIC SERVICE COMMISSION; TO AUTHORIZE THE PUBLIC SERVICE COMMISSION TO PROMULGATE RELATED RULES AND REGULATIONS; TO ADDRESS HOW THE ARTICLE MAY NOT BE CONSTRUED; AND TO REQUIRE SANTEE COOPER'S COOPERATION IN CERTAIN CIRCUMSTANCES.

 

Whereas, the electric distribution cooperatives in the State of South Carolina purchase electric power and energy, transmission service, and certain related energy services from Central Electric Power Cooperative, Inc. (Central), pursuant to wholesale power contracts that extend through December 31, 2058; and

 

Whereas, distribution cooperatives are currently parties to wholesale power contracts that do not contain exit provisions or exceptions to the distribution cooperative's all requirements purchase obligation; and

 

Whereas, the terms of prior wholesale power contracts between the distribution cooperatives and Central were extended in 2013 to December 31, 2030, and again extended to the current term of December 31, 2058, to permit Central and the Public Service Authority, also known as Santee Cooper, to recover the costs of the investment in the construction of Units 2 and 3 at the V.C. Summer nuclear generating station in Jenkinsville; and

 

Whereas, under the terms of loan agreements and other security agreements, the Rural Utilities Service of the United States Department of Agriculture, a lender to Central, has oversight and approval rights for reviewing the operations, compliance with financial covenants, and the rates set by generation and transmission cooperatives, but lacks sufficient staffing and resources to provide effective oversight; and

 

Whereas, Central has previously provided exit cost calculations for distribution cooperatives pursuant to an internally adopted policy that produced exit payments based on lost revenues which were substantially inflated, including calculations based on lost revenues that produced, in the aggregate, exit payments to Central that far exceeded the book value of its assets and liabilities, and were not based upon the distribution cooperative's existing obligations to the generation and transmission cooperative; and

 

Whereas, the Federal Energy Regulatory Commission (FERC) has determined that the use of lost revenues to calculate exit payments from distribution cooperatives is not in the public interest and FERC's findings have been confirmed by a recent appellate decision rendered by the Tenth Circuit Court of Appeals; and

 

Whereas, Central's utilization of the lost revenues methodology to calculate exit payments from distribution cooperatives is not in the public interest; and

 

Whereas, Central has informed the distribution cooperatives that it does not have sufficient electric capacity and energy to meet its obligations under the wholesale power contracts and will not have sufficient firm electric capacity and energy to meet the projected requirements of its distribution cooperatives until 2031; and

 

Whereas, Central's inability to satisfy its supply obligations to the distribution cooperatives is having, and will continue to have, a significant negative impact on the economic development of the State of South Carolina; and

 

Whereas, the South Carolina Public Service Commission has the institutional expertise, authority, and resources to provide effective regulatory oversight which serves the public interest; and

 

Whereas, the General Assembly finds that Central's current governance structure, based upon one member, one vote, is contrary to the public interest of the State of South Carolina; and

 

Whereas, the General Assembly further finds that wholesale power delivery through long term wholesale power contracts that do not contain exit provisions or exceptions to the all requirements purchase obligation are contrary to the public interest of the State of South Carolina. Now, therefore,

 

Be it enacted by the General Assembly of the State of South Carolina:

 

SECTION 1.  This act may be cited as the "South Carolina Electric Cooperative Consumer Protection and Wholesale Market Access Act."

 

SECTION 2.  The General Assembly hereby finds and declares that electric distribution cooperatives in South Carolina have an obligation to serve their member-consumers at the lowest reasonable cost consistent with reliable service.

 

SECTION 3.  Chapter 27, Title 58 of the S.C. Code is amended by adding:

 

Article 29

 

South Carolina Electric Cooperative Consumer Protection and Wholesale Market Access

 

    Section 58-27-2900.  The purposes of this article are to:

    (1) establish a fair, transparent, and judicially enforceable process by which the commission may oversee a distribution cooperative's modification or exit from a wholesale power contract with a generation and transmission cooperative and ensure that any resulting payment does not include lost revenues by the generation and transmission cooperative; and

    (2) protect South Carolina ratepayers from excessive, imprudent, unjustified, or anticompetitive wholesale power costs incurred by generation and transmission cooperatives.

 

    Section 58-27-2910.  As used in this article:

    (1) "Distribution cooperative" means an electric cooperative organized pursuant to Chapter 47, Title 33 that purchases wholesale power from a generation and transmission cooperative for resale to its member-consumers.

    (2) "Exit settlement" means either an agreement negotiated by a generation and transmission cooperative and a distribution cooperative or an adjudicated action pursuant to this article which establishes, at a minimum, the financial terms, conditions, and obligations under which a wholesale power contract is materially modified, amended, or terminated to enable the distribution cooperative to terminate its membership in the generation and transmission cooperative.

    (3) "Generation and transmission cooperative" means an electric cooperative organized pursuant to Chapter 49, Title 33 that owns or leases electric generation resources, purchases and resells electric power and energy, and transmits wholesale electric power and energy to distribution cooperatives.

    (4) "Major capital expenditure" means a single expenditure or series of related expenditures by a generation and transmission cooperative for:

       (a) the ownership, acquisition, construction, or long-term lease of an electric generation resource in an aggregate amount of fifty million dollars or more; or

       (b) additions, improvements, repairs, or modifications to any generation resource leased or owned by a generation and transmission cooperative in the aggregate amount of fifty million dollars or more.

    (5) "Major power purchase agreement" means a valid and binding contract or agreement, or series of related contracts or agreements, for the purchase or procurement of electric power and energy by a generation and transmission cooperative involving electric capacity of fifty megawatts or more.

    (6) "Wholesale power contract" means a binding and valid contract between a generation and transmission cooperative and a distribution cooperative for the provision of wholesale electric power and energy, transmission services and other related services, including any all requirements power supply agreement.

    (7) "Santee Cooper" means the South Carolina Public Service Authority.

 

    Section 58-27-2920.  (A) No generation and transmission cooperative operating in this State shall undertake, commit to, or execute any contract or agreement that constitutes a major capital expenditure without first obtaining approval from the commission. The generation and transmission cooperative shall file an application for a proposed major capital expenditure with the commission. This application must include:

       (1) a full description of the proposed generation resource or modifications, additions, or improvements to an existing generation resource, including capacity, fuel type, expected useful life, and projected cost;

       (2) a detailed cost-benefit analysis demonstrating the necessity and economic prudence of the expenditures as compared to other alternatives;

       (3) the anticipated impact on wholesale rates charged to each distribution cooperative over the useful life of the new generation resource or the modifications, additions, or improvements to an existing generation resource; and

       (4) such additional information as the commission may by rule require.

    (B) No generation and transmission cooperative shall commit to or execute any major power purchase agreement without prior approval by the commission. The generation and transmission cooperative shall file an application with the commission demonstrating that the proposed agreement is in the best interest of its distribution cooperatives and their member-consumers, including a comparison of the proposed contract terms to prevailing wholesale market prices or other alternatives.

    (C) The commission shall approve a major capital expenditure or a major power purchase agreement upon a finding that the proposed major capital expenditure or major power purchase agreement is prudent and in the public interest. In making this determination, the commission shall consider:

       (1) the cost of available alternatives, including wholesale market alternatives;

       (2) the projected impact on rates charged to distribution cooperatives over the useful life of the major capital expenditure, or the length of the contract term of the major power purchase agreement;

       (3) the reliability and adequacy of the generation and transmission cooperative's power supply resources over the useful life of the major capital expenditure or major power purchase agreement; and

       (4) the projected aggregate effect of existing and proposed financial commitments, including debt incurred by the generation and transmission cooperative, on rates charged to distribution cooperatives.

    (D) The commission shall either approve or deny an application within one hundred eighty days of the filing of a complete application.

 

    Section 58-27-2930.  (A) All wholesale rates, rate schedules, charges, and terms of service proposed by a generation and transmission cooperative for electric service to its distribution cooperatives shall be filed with the commission no less than ninety days before the proposed effective date. No such rate shall take effect without prior written approval of the commission.

    (B) The commission shall approve a proposed wholesale rate upon a finding that the rate is just, reasonable, and in the public interest. In evaluating a proposed wholesale rate, the commission shall:

       (1) review the actual and projected costs of power supply, capital investment, operations, and administration of the generation and transmission cooperative;

       (2) compare the proposed rate to prevailing rates charged by other utilities in the region and wholesale market rates for comparable power supply services; and

       (3) identify and disallow any cost that is the result of imprudent management, unnecessary expenditure, or an expenditure not in the best interest of the distribution cooperatives.

    (C) The commission may, in its discretion, permit a proposed wholesale rate to take effect on an interim basis, subject to refund, pending final commission action.

    (D) The commission shall conduct a comprehensive review of the generation and transmission cooperative's wholesale rates at least once every three years, regardless of whether a new rate filing has been submitted. The generation and transmission cooperative shall provide all financial records, cost studies, and other information requested by the commission in connection with such review.

 

    Section 58-27-2940.  (A) Any distribution cooperative that is party to a wholesale power contract with a generation and transmission cooperative shall have the right to petition the commission for an adjudicated determination of an exit settlement. Such an exit settlement may materially modify or terminate an existing wholesale power contract between a generation and transmission cooperative and a distribution cooperative to permit the distribution cooperative to terminate its membership with the generation and transmission cooperative. This right shall exist notwithstanding any provision of the wholesale power contract to the contrary.

    (B) A distribution cooperative seeking an exit settlement shall file a petition with the commission that includes:

       (1) a description of the current wholesale power contract, including its service obligation; length of the contract term, including any prior extensions or proposed extensions; rates; pricing; and reliability provisions;

       (2) a description of the power supply alternatives available to the petitioning distribution cooperative including, but not limited to, proposed power purchase agreements, other power supply arrangements, or generation resources;

       (3) a calculation of the projected cost savings to the distribution cooperative resulting from the proposed exit settlement;

       (4) a proposed exit settlement including, but not limited to, a methodology for calculating the petitioning distribution cooperative's equitable share of the generation and transmission cooperative's outstanding contractual obligations, stranded costs, debt retirement, and patronage capital; and

       (5) such other information as the commission may by rule require.

    (C) Upon receipt of a complete petition, the commission shall:

       (1) provide notice to all affected parties, including the generation and transmission cooperative and all other member distribution cooperatives, and provide these parties the opportunity to submit written comments and to participate in an evidentiary hearing;

       (2) retain independent legal, economic, and engineering consultants to evaluate the proposed exit settlement and the accuracy of any costs asserted by the generation and transmission cooperative, the expenses of which must be paid by the generation and transmission cooperative and the petitioning distribution cooperative in an amount as ordered by the commission; and

       (3) issue a final order within three hundred sixty-five days of receiving a complete petition that either establishes the terms and conditions of an exit settlement or denies the petition with written findings.

    (D) In establishing an exit settlement, the commission shall apply the following standards:

        (1) the petitioning distribution cooperative's share of the generation and transmission cooperative's obligations shall be calculated on an equitable, cost-based methodology that reflects only legitimate, prudently incurred obligations attributable to serving the petitioning distribution cooperative's electric load;

       (2) no exit cost shall include inflated, speculative, or punitive elements or methodology including, but not limited to, lost revenues, and any proposed exit costs not based on actual or projected costs of the generation and transmission cooperative must be disallowed;

       (3) any exit cost calculation published or proposed by the generation and transmission cooperative shall be subject to independent review;

       (4) consideration of the capacity value, market value, and remaining useful life of generation assets in the determination of any stranded cost obligation whether such obligation results in a payment by the distribution cooperative to the generation and transmission cooperative or a payment by the generation and transmission cooperative to the distribution cooperative; and

       (5) the prohibition of any penalty, punitive surcharge, accelerated debt recovery mechanism, or other condition designed to coerce a distribution cooperative into foregoing or abandoning its right pursuant to this section.

    (E) A generation and transmission cooperative shall not, directly or indirectly, impose, accelerate, or threaten to impose any financial obligation, debt or capital recovery mechanism, or rate surcharge on a distribution cooperative as a result of the distribution cooperative exercising its rights pursuant to this section. Any of these actions shall constitute an unfair trade practice subject to commission enforcement under applicable law.

    (F) Nothing in this section shall preclude a distribution cooperative and a generation and transmission cooperative from reaching a mutually agreed upon exit settlement at any time. Such an exit settlement shall be submitted to the commission for its review and approval to ensure adherence to the standards established in subsection (D).

    (G) An exit settlement approved by the commission pursuant to this section shall be binding upon all parties and shall be enforceable in any court of competent jurisdiction in the State of South Carolina. The commission may assess civil penalties against any party that fails to comply with an approved exit settlement and the party failing to comply with such exit settlement shall be liable for all reasonable costs incurred by the enforcing party.

 

    Section 58-27-2950.  The South Carolina Office of Regulatory Staff shall represent the interests of distribution cooperative ratepayers in all commission proceedings described in this article.

 

    Section 58-27-2960.  (A) A generation and transmission cooperative shall not unilaterally:

       (1) extend the length or impose any condition that has the practical effect of the contract term of extending any wholesale power contract with a distribution cooperative beyond its original term;

       (2) propose to accelerate the recovery of capital costs without the commission's prior written approval.

    (B) The commission shall deny any extension that is not voluntarily agreed to by the distribution cooperative and that would unreasonably restrict the distribution cooperative's ability to exercise its rights under this article.

 

    Section 58-27-2970.  A generation and transmission cooperative shall file an annual comprehensive financial report with the commission no later than June 1. This report must disclose:

       (1) all capital expenditures made in the prior fiscal year and all projected capital expenditures for the subsequent five fiscal years, itemized by project;

       (2) all power purchase agreements entered into including, but not limited to, the length of the contract term, type of product, firmness of supply, and the contract price. Any contract price provided in the generation and transmission cooperative's comprehensive financial report shall be a trade secret and shall be protected from disclosure by the commission;

       (3) executive compensation, board of trustees per diem payments, administrative costs, and overhead allocations; and

       (4) wholesale rates charged to distribution cooperatives compared to regional utilities' rates for similar electric power services.

 

    Section 58-27-2980.  The commission is authorized to promulgate such rules and regulations as are necessary to implement and administer the provisions of this article, including rules and regulations governing:

       (1) the content and format of applications for approval of major capital expenditures and major power purchase agreements;

       (2 procedures for wholesale rate filings and commission review;

       (3) procedures for adjudicated exit settlements, including discovery, evidentiary hearings, and expert witness designation;

       (4) methodologies for calculating equitable cost allocations with respect to an exit settlement whether such cost allocations result in a payment by the distribution cooperative to the generation and transmission cooperative or a payment from the generation and transmission cooperative to the distribution cooperative; and

       (5) annual financial reporting requirements for generation and transmission cooperatives.

The commission shall initiate its rules and promulgation of regulations pursuant to this section no later than ninety days after the effective date of this article.

 

    Section 58-27-2990.  Nothing in this article shall be construed to:

       (1) impair the obligation of any existing bond, note, or loan covenant of a generation and transmission cooperative entered into prior to the effective date of this article, except to the extent necessary to give full effect to an exit settlement approved by the commission;

       (2) require the renegotiation of any wholesale power contract in effect as of the effective date of this article, except as may be ordered by the commission in an exit settlement; or

       (3) preclude the Rural Utilities Service of the United States Department of Agriculture from exercising any authority it possesses pursuant to federal law or any loan or security agreement.

 

    Section 58-27-3000.  To the extent that any exit settlement requires the modification of existing power supply or transmission agreements between the generation and transmission cooperative and Santee Cooper, the commission shall coordinate with Santee Cooper and may request that Santee Cooper provide such information as is necessary for the commission to perform its duties pursuant to this article. The commission shall have authority to require that the terms of any agreement between Santee Cooper and a generation and transmission cooperative that are incorporated into or otherwise affect wholesale rates charged to distribution cooperatives be disclosed and made part of the record in any commission proceeding pursuant to this article.

 

SECTION 4.  If any section, subsection, paragraph, subparagraph, sentence, clause, phrase, or word of this act is for any reason held to be unconstitutional or invalid, such holding shall not affect the constitutionality or validity of the remaining portions of this act, the General Assembly hereby declaring that it would have passed this act, and each and every section, subsection, paragraph, subparagraph, sentence, clause, phrase, and word thereof, irrespective of the fact that any one or more other sections, subsections, paragraphs, subparagraphs, sentences, clauses, phrases, or words hereof may be declared to be unconstitutional, invalid, or otherwise ineffective.

 

SECTION 5.  This act takes effect upon approval by the Governor and shall apply to all new wholesale power contracts, contract extensions, major capital expenditures, and major power purchase agreements occurring on or after the effective date of this act. However, the provisions of this act governing rate filings shall apply to rate filings made on or after ninety days after the effective date.

----XX----