An old saying is, “How do you want it – good quality, fast, or cheap? Pick two, because you can’t have all three.” Every homeowner who’s ever hired-out a project knows if you demand high-quality delivered on a rapid timeline you are going to pay a high price. But if you want it fast, and don’t care about the quality, you can get it cheap. You’ve been there.
That is Santee Cooper right now: Pay down debt, keep rates kind of the same, or maintain and improve the system? Pick two.
Same exact argument. Can’t have it all as it sits right now. We’ll look at the choices, but need an important business term out there first:
Opportunity costs represent the potential benefits an individual, investor, or business misses out on when choosing one alternative over another. Because by definition they are unseen, opportunity costs can be easily overlooked if one is not careful.”
The opportunity of keeping Santee Cooper has costs. Here’s an image – a party balloon. Squeeze the balloon in one place and another part grows, squeeze that place and another part of the balloon gets big. That happens until it pops. That is the Santee Cooper dilemma. Here are those pressure points of the Santee Cooper balloon:
Debt for Decades
Santee Cooper is in debt by more than $6 billion over half of which is attributed to the failed nuclear plant and the best-case scenario – according to Santee Cooper – is that it will be paid off by 2055.
That debt – and the obligation to pay it off – constrains Santee Cooper’s ability to do other things. Just as a homeowner can’t renovate their house if they are deep in debt, Santee Cooper can’t use its own resources to operate and fix things, let alone renovate, or modernize (more on that to follow).
Their admission that they’ll be paying off the massive debt for another three decades either constrains their ability to do other things – or they must get money from “somewhere else.” Debt is one part of the balloon. Santee Cooper has two choices for additional funds, more debt, and the coop and direct serve customers, that’s all folks!
That “somewhere else” could be a reach into customer pockets. Santee Cooper can – once its court-imposed rate freeze expires – raise customer rates to pay off debt and cover expenses. That’s why its ability – like almost no other utility – to raise rates without regulatory approval– is so essential to its survival.
In South Carolina utility rates are regulated by the Public Service Commission. Except Santee Cooper’s. They get to set their own rates, and to survive they need to keep playing outside the rules everyone else must follow.
That means Santee Cooper rates will reflect reality at some point. Debt will get have to be handled. Rates are one part of the balloon.
Money for modernization
But Santee Cooper needs money not just to pay the debt and not just to operate – but also to modernize.
Power companies have long shopping lists to upgrade their systems. Sixty percent of U.S. distribution lines are beyond their 50-year life expectancy, with $1.5 trillion to $2 trillion by 2030 to modernize the grid just to maintain reliability. Current grid investment trends may create gaps in funding of $42 billion for transmission and $94 billion for distribution by 2025. (Source)
Santee Cooper’s coal and gas fueled generating stations use outdated technologies. Time to upgrade or retire. All four coal fired Winyah units are slated to retire by 2027, one of the Cross coal plant units is mothballed; the other three Cross units may be in the next ten years. In addition to operating and shutdown costs, Santee Cooper needs to purchase or build replacement power.
Beyond power itself are the issues of cyber security updates and that investment. A fast-moving target.
Santee Cooper has to go shopping if it wants to maintain, let alone excel. It can’t buy everything in the store.
The energy future will take real money and that is faced by all utilities. Even ones with faulty balance sheets. Updating the system is one part of the balloon.
The South Carolina Legislature can determine where that money will be found. Customer bank accounts are the leading candidate now. Or sacrifice service and modernization of the power system. Or create a clean slate by selling the company.
It is a choice…
What opportunity costs will be fully understood and addressed? With Santee Cooper: Pay down the debt, keep rates kind of the same, or maintain the system. Pick two. Otherwise … POP.