Debt adds up daily for Santee Cooper because of the VC Summer nuclear project shutdown and other operations. It is a million dollars a day just from the interest that is adding up. ECC has written about the debt for some time.
The main point ECC has made about the debt is usually the amount: $9 billion. The secondary point is time: Whether it can be handled quickly through a sale of Santee Cooper or gets paid off a little bit for a long time. Time and timing matters, yet Santee Cooper debt hangs over the heads of customers, even while the legislature can change that decisively.
Here’s one way to look at that from a vantage point of a credit card customer, maybe like many average citizens. A credit card company allows a person to borrow as much as the card limit and pay back different amounts, as long as the minimum is paid each month. Paying the minimum is not paying off the debt. The balance can easily build up, and up. It is called revolving debt.
Santee Cooper debt is adding $1 million a day on that $9 billion. One report estimated that each customer of Santee Cooper would owe more than $6,000 from the failed nuclear project and other Santee Cooper debt.
Consider this: The average total American household debt is $5,700. (Source)
Debt has interest costs. Money costs money. The longer the loan takes to be paid, the more money ultimately gets spent. One way to stop the amount of interest from growing is to pay off the balance.
Not all debt is bad and ECC knows that. Debt is part of the business toolbox, no matter whether it is a company like McDonalds or Microsoft, or an organization like a state government or nonprofit (think Red Cross or Salvation Army). Debt can be positive when it advances growth. Debt can also be a detriment when it stifles the borrower, when it gets too large and overpowering.
$9 billion is owed by the customers of Santee Cooper. Large, overpowering, stifling?
This debt built during a time of easy money following the recent Great Recession. Borrowing was easy, and not all that costly compared to the past. Said another way, if this debt was created at a time when interest rates were low and business was good, what happens to the debt and payment of the debt when interest rates go up, and business turns sour?
The chief financial analyst at Bankrate said this about household debt in a MarketWatch story on February 13: “Economically, we’re not always going to be in such a good spot. Now is the time to be paying down debt and boosting savings so you can better weather an economic storm, whenever that should arise.”
Some business analysts warn of a coming downturn and its potential implications:
- Headline from February 15: “5 red flags for the economy: Are they signaling a slowdown or even a recession?” USA Today.
- CNN’s Business Desk said on December 18: “Fears of an economic slowdown — or even recession — have turned a spotlight on the debt that businesses piled up during the past decade, when borrowing costs were historically low.”
- Headline from February 15: “Spending’s slumping, manufacturing’s slowing, and delinquencies are rising. Warning signs for the US economy are piling up.” Market Insider.
- From a news item from December 31: ““However, if we look deeper beneath the surface, it becomes evident that the ‘health’ of the economy had been predicated on extremely cheap credit, ultra-low rates, an essentially unlimited supply of debt…” Seeking Alpha business website.
- Finally, Bond Buyer magazine published a quote this week from the Dallas Federal Reserve chief: “In the event of a downturn, highly indebted companies may be more vulnerable to seeing their credit quality deteriorate…”
These are a few opinions about the future from various financial sources.
What if we are in the “good times” right now? This money is owed when there has been a positive business environment. If the financial environment for business and families deteriorates, the $1 million is added debt each day, and the total debt ($9 billion now) can feel not just like revolving debt, but going around in a revolving door for Santee Cooper customers and the State of South Carolina.
With debt, time adds up, and so does money. Timing matters, too. What is your interest in debt?
Tick, tick, tick…