The Santee Cooper Contagion Effect

An infection may be festering in South Carolina. Senator Wes Climer labeled it as a contagion. He busted a fallacy – that the state isn’t on the hook for Santee Cooper’s debt. It was part of the discussion in a March 30 Senate Judiciary Committee meeting.

Here’s how it played out.

“Ain’t no question that the state and taxpayers are not on the hook if a bond is defaulted.” That was said as a definitive statement: The state is not liable for any default of the South Carolina Public Service Authority – Santee Cooper – on its bonds. (Video Just after 2 hours an a minute on the March 30 Judiciary Committee March 30 link)

This was after a member wanted clarification on the state’s obligations for a “quasi-state agency” defaulting. This was in the same breath about voting on Santee Cooper and “see what sticks.”

That is when a big note of reason punctuated the discussion. Senator Climer said that the state (read that as taxpayers) may not be legally bound to bail out Santee Cooper, but a failure to respond says volumes about South Carolina. It could mean more costs to others.

Specifically, from the committee meeting: “If the state were not to intervene in such a situation and essentially bail out Santee Cooper, there is a real risk of a contagion effect on the remaining issuers of municipal debt in the state. The market may view a Santee Cooper default as a red flag that says South Carolina is not a safe place to invest our money.”

An April 2 Post and Courier editorial reflects on reform. It is titled, Santee Cooper can’t reform itself. But SC Legislature can. And must. Darned interesting editorial, too, since it says that the only way to make the state-owned utility fly right is for the state government to get much more involved. Policymakers have that time?

The P&C editorial notes that one reform bill stipulates “a requirement that the utility consider the interests of customers.”

Really! Legislation must make the utility customer oriented. How ludicrous does this sound?

At least the editorial says what is known – the utility cannot handle itself.

To the South Carolina General Assembly:

  • Is this a question of the state wanting to own an electric utility but not really own it?
  • Santee Cooper is a state agency: The South Carolina Public Service Authority. You own it and its behavior. Congrats.
  • If a state-run agency cannot handle itself, heaping on more bureaucracy is not the answer. It is the problem. Vacuous bureaucracy will be even more harmful.
  • You also own the ripple effect of Santee Cooper. That could be, as noted in the recent Judiciary Committee meeting, the impact on other municipal debt.
  • You own the image of this continuing debate on the view of South Carolina. Do policymakers realize this is happening? I recall being at an energy meeting in Washington, DC, and the name Santee Cooper came up. Eyes rolled. You have a reputation already.

The contagion is here. Don’t spread the disease. Inoculate the state. Sell the utility. Move on.