This article was originally published in the Index-Journal on March 21, 2018.
It’s been called the largest financial disaster in South Carolina’s history.
But just how devastating could things get for Santee Cooper customers if they’re left fully exposed to the utility’s multi-billion debt load borne out of the failed VC Summer nuclear generation project?
A first-of-its kind study released Tuesday by the Palmetto Promise Institute seeks to provide those answers — and, as the report says, they’re “hard to fathom.”
Over the next 38 years, residential customers could see yearly increases of between $166.99 to $751.03 — with an average hike of $194.49. Meanwhile, Santee Cooper’s largest 28 industrial users could face monthly increases of $80,000.
In all, Santee Cooper is carrying $7.5 billion in outstanding debt — more money than the state’s total 2017-18 budget.
Santee Cooper, along with SCANA Corp., invested $9 billion into the mothballed nuclear facilities. Virginia-based Dominion Energy in January announced a merger with SCANA that included a $1.3 billion cash payment to its customers and a $1.7 billion debt write-off.
“Having ratepayers pay the debt would be nearly criminal. Many of them, already challenged economically, do not deserve to be saddled with the additional costs due to the failure of Santee Cooper,” Oran Smith, a senior fellow at the Palmetto Promise Institute and co-author of the report, said during a conference call on Tuesday. “We believe Santee Cooper must be sold.”
It seems unlikely that that the institute’s worst-case scenarios will come to pass, as Gov. Henry McMaster and state lawmakers have said divesting South Carolina of Santee Cooper is critical.
Residential rates for Santee Cooper customers are going to rise, not only because of V.C. Summer but because of the utility’s ongoing struggles to match its load capacity with customer demand,” Smith said. “We believe an outright sale of Santee Cooper would have the benefit of getting the government out of the electricity business but factually, it would prevent the state taxpayers from having to eat the debt.”
Ellen Weaver, president and CEO of the Palmetto Promise Institute, said the nonprofit shifted its focus to address the uncertainty around Santee Cooper’s future.
“Our primary areas of focus to this point has been education and tax policy but as we planned our research agenda for 2018, we knew we couldn’t ignore one of the biggest public policy and financial crises in our state’s recent history,” she said.
Economists Katie Sobczyk Player and Michael Maloney co-wrote the 49-page report with Smith.
Santee Cooper financed its portion of the nuclear project “entirely with debt and bond issuances,” Player said.
“In a market economy, we have a pecking order of who should bear the risk of business failure, and its the investors who should bear this risk. In most private business, there are stockholders and bondholders, and stockholders are the first ones to take the hit,” Maloney said. “Bondholders are the ones that should bear the risk because they have been paid for this risk in the past, and they’re diversified and bear the risk most cheaply.”
Utility reform has topped this year’s legislative agenda, with the public clamoring for change.
A Winthrop University poll conducted from Feb. 17-25 found that 57 percent of respondents supported the Dominion deal, while 48 percent backed repeal of the Base Load Review Act.
The BLRA was created in 2007, when the General Assembly gave utility companies building new power plants authority to increase rates annually for customers as a way to finance them, and recoup the debt if the facilities were never finished.
Since 2009, the BLRA allowed South Carolina Electric & Gas Co., and its parent, SCANA, to collect nearly $2 billion from ratepayers for costs related to the scrapped nuclear venture.
In January, the state House of Representatives voted 119-1 to gut the measure, preventing SCE&G and SCANA from charging $27 a month to its customers for the mothballed nuclear projects.
Against that backdrop, Smith said, the Palmetto Institute’s research should be taken seriously as the debate about Santee Cooper’s fate continues.
“Instability of Santee Cooper and it’s looming $4.5 billion in debt for nuclear assets that generate no electricity is harmful to real people at the meter and to economic development in paychecks,” he said. “Santee Cooper has endangered economic development by antagonizing an industry that it has been charged with serving.”