Santee Cooper’s debt is huge, but Santee Cooper is not huge. ECC wrote about this more than a year ago, asking whether Santee Cooper is a zombie company.
The pandemic and business slowdown raise the issue of zombies again in the news. So ECC will, too.
“Zombie companies get their nickname because of their tendency to limp along, unable to earn enough to dig out from under their obligations, but still with sufficient access to credit to roll over their debts. They’re a drag on the economy because they keep assets tied up in companies that can’t afford to invest and build their businesses.”
That is from Bloomberg News’ column, America’s Zombie Companies Rack Up $2 Trillion of Debt.
As Santee Cooper limps along and rolls over debt, the question must be asked about being a zombie company. That’s true especially as the General Assembly votes to fix the problem or maintain Santee Cooper as an independent organization.
The status quo has not been pretty for zombie firms. “Not only are firms staying in a zombie state for longer than in years past, but of the roughly 60% of firms that do manage to ultimately exit zombie status, many nonetheless experience prolonged weakness in productivity, profitability and growth, leading to long-term underperformance,” says Pensions and Investments magazine.
Should zombie companies be propped up by the legislature, as some are asking lawmakers to do for Santee Cooper? After all, “‘zombie companies’ are unproductive, invest less and suck up resources that could otherwise be redeployed in more dynamic areas.” Source – the Financial Times just a few weeks ago.
A June 2019 S&P Global assessment of the company says, “We believe that customer and political displeasure with supporting $4.5 billion of nuclear debt dilutes the financial flexibility that we typically associate with autonomous rate-setting authority and automatic pass-through mechanisms.” The lifeline for Santee Cooper is the board’s ability to raise rates, to bill customers more, without any outside or independent review or oversight.
The General Assembly can opt for a free enterprise answer, a positive answer for a negative situation. The State of South Carolina can opt to run, not limp, to financial health, clean energy, and accountability for this utility. The State of South Carolina can remove itself from the utility business in favor of a company that has a clear track record of success, NextEra Energy.