Certain questions come up time after time about Santee Cooper debt and the possible sale of the company. Understandable. The Santee Cooper situation is not typical. The massive debt is not typical.
Seven questions come up a lot.
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 a 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: Does Santee Cooper have an “A” financial rating?
Answer: The Santee Cooper financial rating relies in a 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-.
Said a financial publication, “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: 5: 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 6: 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 7: 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.
And a bonus question: 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.
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