After the V.C. Summer Iceberg – Which lifeboat is safe?

Energy
January 2, 2020

Oran P. Smith, Ph.D

Senior Fellow

Kathleen Grace, Ph.D

Visiting Fellow, Energy

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Executive Summary

As the South Carolina General Assembly moves ever closer to receiving a report from the state Department of Administration on the future of Santee Cooper, the South Carolina Public Service Authority, it is time for a basic review of the current state of affairs with this state agency and the options available for its future.

As the chart adjacent indicates, this paper’s chapters will focus on the current situation at Santee Cooper post-V.C. Summer collapse, the responses of Santee Cooper to the crisis, and the options available to the legislature based on H.4287.

Of all the options put forth to date, only the sale of Santee Cooper has the potential to reduce or eliminate the enormous future costs to be borne by the ratepayers and provide the ability to protect ratepayers in the future.

Santee Cooper faces:

  • A mountain of debt with only ratepayers to turn to, even after funds received from Toshiba in the bankruptcy settlement.
  • A complicated federal and state legal situation with exposure to broad class-action plaintiff claims.
  • A generation fleet whose dominant base load assets—the Winyah and Cross coal-fired plants and the one-third interest in the V.C. Summer Unit 1 nuclear plant—produce power at go-forward total costs well above market value. Then there’s the environmental issue with coal.
  • A balance sheet, that if reconfigured to IOU standards, shows the utility is technically if not fiscally “insolvent”—having much more debt than the value of its functional, used-and-useful assets, which is made possible only by its self-regulation.

In response, Santee Cooper has proposed a host of maneuvers and questionable plans which do not reduce the debt burden significantly, will probably increase costs, and will continue to spend ratepayer funds at an alarming rate.

The legislature has set a menu of three options for the future of Santee Cooper. Self-help will yield more of the same, outside management  has not worked in similar circumstances. Neither self-help or new management will eliminate the requirement for Santee Cooper to charge its customers for not only the remaining roughly $4 billion in principal value of V.C. Summer 2 and 3 debt outstanding as of today, but over double that amount over time as the interest on that debt is also being charged to customers.

Only a sale will allow for the write-down of financial and operational costs of V.C. Summer 2&3 out of the rate base, which is ultimately necessary for ratepayer relief and taxpayer protection.