Question 1: How much is the Santee Cooper debt?
Answer: There have been debt numbers of $8 and $9 billion discussed since the middle of 2017. (One source) Santee Cooper recently testified before the SC Senate and ran a letter to customers that said its debt is $7.2 billion. Whatever the number, billions are a lot of debt. $7.2 billion. Some $1 million a day is added in costs of the debt.
Question 2: Whose debt is it, anyway?
Answer: The debt belongs to Santee Cooper, to the customers. The debt was incurred by the decision of Santee Cooper.
From the South Carolina Code about the SC Public Service Authority (Santee Cooper): “Credit and taxing power of the State and its subdivisions shall not be involved; liability for payment of securities: Nothing contained in the provisions of this chapter shall, at any time or in any manner, involve the credit and taxing power of the State, or of any of its political subdivisions; nor shall any of the securities or other evidences of indebtedness authorized to be issued in and by this chapter ever be or constitute obligations of the State or of any of its political subdivisions; nor shall the State or any of its political subdivisions ever be liable or responsible, in any way, for the payment of the principal or interest of or on such security or other evidences of indebtedness.”
As a Santee Cooper spokesperson told WMBF-TV (Myrtle Beach) News recently, “…taxpayers are not responsible for Santee Cooper debt. We are able to recoup that through rates.” Santee Cooper owns the debt…customers, not South Carolina taxpayers, own the debt.
Question 3: Won’t the State of South Carolina come to the rescue and write a check for the debt?
Answer: The South Carolina legislature and the Governor could make the decision to try and pay. Neither has advanced a proposal to write a check from the taxpayers of South Carolina to those who hold the debt of Santee Cooper.
Question: 4: Can rates go up at Santee Cooper to cover the debt?
Answer: Rates can go up. A rate increase at Santee Cooper is decided only by Santee Cooper’s own board. There is no oversight such as the Public Service Commission on behalf of customers and the public.
Question 5: Who approves Santee Cooper rate increases?
Answer: Santee Cooper has its own board of directors that approves rate increases; it is not subject to state regulatory oversight by the Public Service Commission or the Office of Regulatory Staff. The Santee Cooper Board has virtually no external accountability.
Question 6: Does Santee Cooper have an “A” financial rating?
Answer: The Santee Cooper financial rating relies in large part on its ability to easily raise rates on customers. Essentially, Santee Cooper can raise its rates, whenever it wants, to pay the debt. Analysts like knowing who is on the hook to pay it back, in this case, Santee Cooper’s customers. Even with that ability, Fitch ratings lowered Santee Cooper’s rating two notches, from A+ to A- in 2018.
As stated in Bond Buyer magazine, “Any move that prevents South Carolina’s public power agency from raising rates to pay its debts in reaction to the abandoned VC Summer nuclear reactor project could negatively impact ratings…”
Question 7: How could a for-profit company reduce rates?
Answer: An investor-owned utility that buys Santee Cooper could pay off the debt from the VC Summer project, subject to review by the state utility commission. This reduces the base on which rates are determined, providing lower rates to customers.
ICF International, a Virginia-based consulting firm that wrote the report received by the South Carolina government estimates that a purchase that assumes the Santee Cooper debt would account for an average of 72 percent of the cost reductions, with the remaining 28 percent coming from efficiencies in operations and power generation fuels.
Santee Cooper is not able to take such an action since it is a public entity.
Question 8: What are the criteria for the prospective buyers of Santee Cooper and are there any prospective bids?
Answer: Yes, there are prospective bids that meet the criteria originally laid out by the SC legislature for a potential sale. According to the consultant report about a possible sale, bid consideration criteria to purchase Santee Cooper are:
- A minimum amount of electric utility experience
- Be investment grade
- Maintain the Federal Energy Regulatory Commission license and lakes
- Full debt defeasance or assumption of the debt
- Use no state funds
- Acknowledge Central Electric under the Coordination Agreement
The measure that passed the South Carolina House of Representatives says that buyers must maintain lakes Moultrie and Marion and all of Santee Cooper’s other recreational assets; agree to partner with the state on economic development; assume Santee Cooper’s debt while reducing rates; and, protect Santee Cooper’s employees and retirees.
Question 9: What about Santee Cooper jobs and local presence?
Answer: From the report, issues were identified for the state’s consideration, particularly related to the trade-offs between local impacts including job impact and lower customer rates:
- Job impacts: Reduction in current Santee Cooper jobs is anticipated in some proposals. In all such cases, participants included retraining, severance and/or other programs to assist displaced workers. It’s important to consider potential trade-offs between fewer employees and greater savings to ratepayers and/or higher tax receipts to state and local governments.
- Moncks Corner impacts: All keep Moncks Corner, some keeping essentially all current HQ activities there while others utilize it as a regional operations center.
- Economic Development impacts: Fuller review is required to assess how planned payments in lieu of taxes (or directly as property taxes), community and economic development programs including loans and grants; payroll taxes; sales taxes; state income taxes and franchise fees stack up against Santee Cooper’s 1 percent payment of operating revenues equivalent to nearly $20 million annually.
Question 10: Why sell Santee Cooper?
Answer: State-owned Santee Cooper is billions of dollars in debt and its customers will have to pay higher rates to pay off it off under the current organizational structure. Selling Santee Cooper to an investor-owned utility that will pay off the debt will remove that burden from South Carolina consumers. A sale will provide the resources to build a clean, reliable and affordable energy structure for South Carolina’s future.
A sale allows the State of South Carolina to govern versus run a utility company.
Question 11: Where did the debt come from?
Answer: More than $4 billion of debt has been from Santee Cooper’s share of the failed VC Summer nuclear project. An additional $4 billion is from the cost of operating the utility.
Question 12: Are co-op customers also responsible for the debt?
Answer: Santee Cooper sells electricity to approximately 20 electric cooperatives (co-ops) in South Carolina. This makes these co-ops, and the residents and businesses they serve, Santee Cooper customers (sometimes referred to as “indirect customers”), subject to Santee Cooper rate increases.
Question 13: How much will Santee Cooper rates increase?
Answer: Santee Cooper rates have already increased 15.2 percent since 2012 to fund the VC Summer project, and rates could continue to rise 11.69 to 52 percent, depending on the timeframe and electricity demand. Santee Cooper representatives have stated that rates are only expected to rise 7 percent, but that percentage does not include all costs, such as fuel costs that are passed through to customers, noted in a South Carolina legislative meeting.
Santee Cooper currently has lower rates than some other utilities in the state. Whether those rates can stay low with massive debt is a question to consider.
Question 14: South Carolina electricity rates are low, and Santee Cooper rates are competitive. Can’t we afford to pay a little more and keep Santee Cooper the way it is?
Answer: Whether a bill is high or low has several facets. One, a rate is highly relative to a person’s income. People with higher incomes are likely to pay less of a percentage of their income on energy. Poorer customers often pay a larger percentage of their monthly budget on energy. “In the U.S., energy costs [not just electric] eat between 5 and 22 percent of families’ total after-tax income, with the poorest Americans, or 25 million households, paying the highest of that range. And lower energy prices don’t necessarily equate to savings,” says WalletHub. If finances are a challenge, home-owners have more of a challenge to cover the bills and are less likely to invest in energy-efficiency.
Two, poorer families may often have homes that have low energy efficiency – poor insulation, old heat or AC units, places where heat of cold can leak in and out. That increases an energy bill.
Question 15: Who owns Santee Cooper?
Answer: Santee Cooper is owned by the state of South Carolina. It was created in 1934 as part of President Franklin D. Roosevelt’s “New Deal.”
The State of South Carolina charter for the South Carolina Public Service Authority is here.
Question 16: How would a sale work?
Answer: The South Carolina Legislature created in 2018 a joint committee called the Public Service Authority Evaluation and Recommendation Committee to oversee the steps and possible sale of Santee Cooper. The committee solicited bids from potential buyers, and hired an independent outside consultant, ICF International, to evaluate the responses. In February of this year ICF reported back to the committee that at least four bidders have met the criteria for purchasing Santee Cooper.
The South Carolina Legislature is considering differing proposals for how to proceed. The House has passed a resolution calling for the joint committee to continue evaluating bids and negotiate a contractual offer with a buyer, which would then have to be approved by the legislature. A proposed Senate measure authorizes the Department of Administration to manage the bidding process. The legislature would still have to approve the final sale. The Senate has not yet approved this measure, and both the House and the Senate must agree on how to proceed.
Question 17: Who is ICF International?
ICF is a global consulting firm based in Virginia. It was founded in 1969 by a former Tuskegee Airman. With a focus on solving energy challenges in the public and private sectors, ICF expanded to help address the world’s environmental concerns in the 1980s while fortifying its engineering capabilities. ICF helped launch the Energy Star program and has Helping displaced residents and damaged communities recover from natural disasters like Hurricane Katrina.
ICF was hired by the South Carolina Legislature’s Public Service Authority Evaluation and Recommendation Committee in August 2018 when they began reviewing the potential for a sale based on criteria set by the legislature.
Question 18: How much would rates decrease if it is sold?
Answer: According to ICF: “Among the four responses evaluated, when estimated over 20 years, the levelized average Santee Cooper customer rate decrease projected is 2 percent to 14 percent lower than in the business as usual (BAU) case. This reduction averages approximately 6 percent or $5/MWh, i.e. decreases rates from $84/MWh to $79/MWh on average across the four proposals. Every $1/MWh approximately decreases customer costs by $25 million per year.” (ICF Report, page 19)
Question 19: Isn’t there an option to have someone else take over the management of Santee Cooper, without selling the utility?
Answer: An outsourced management has been mentioned; however, this would not resolve the debt issue, nor change how Santee Cooper’s rates are structured, leaving customers on the hook to pay the billions that Santee Cooper owes. An outsourced management puts different people in the same chairs with the same structure and debt (still owed by the customers).
Question 20: Don’t we need a South Carolina company to focus on South Carolina?
Answer: Santee Cooper has a rich history in South Carolina. Its employees and the families serve their communities. A sale of the company will not change that. A new company could add new dimensions to civic engagement.
However, the debt can be a deadweight that will prevent Santee Cooper from properly investing in new technology and infrastructure that South Carolina needs to continue to thrive. An ideal buyer would be able to lift the weight of debt and have the resources to invest in newer, cleaner and more sustainable energy for South Carolina.
Question 21: What would S. 678 do?
S. 678 calls for the South Carolina Department of Administration to conduct a competitive bidding process for the sale of Santee Cooper.
The Department must evaluate the bid responses and consider certain criteria, including:
- Financial capability of each bidder
- Bidder’s ability to completely eliminate all of Santee Cooper’s debts and bonds
- Agreement to provide meaningful short-term and long-term rate relief for all customer classes
- Provision of reasonable financial and other protections for Santee Cooper employees and retirees
- Proposed location for its headquarters post-acquisition
- Agreement to with all applicable federal and state environmental protections regarding Lakes Marion and Moultrie, their rivers and tributaries, and other recreational assets of Santee Cooper, including a covenant to maintain the present status quo regarding these lakes
- Agreement to partner with the state for future economic development projects.
The legislation establishes a process for the Department to present its findings to both the Senate and House of Representatives, each of which must approve a sale.