This article was originally published by the Post and Courier on July 19, 2018.
I’ve spent my career buying, revitalizing, developing and sometimes selling businesses. For better or worse, the numbers always tell the true story. If I’m not committed to fiscal responsibility and smart financial management, my company fails — and the last thing I would do is loan money to others.
That’s why I was recently confounded by news that state-owned, debt-laden electricity provider Santee Cooper has awarded a $3.25 million loan to Laurens County Development Corp. and another smaller loan to the city of Clinton. While I’m sure these are both important projects, I struggle to fathom how a utility that is more than $8 billion – that’s with a “b” – in debt, is doling out cash.
Santee Cooper’s vice president of corporate services recently said that “Promoting economic development is an integral part of Santee Cooper’s mission.” In fact, economic development is an important part of any utility’s mission – that’s key to creating and expanding its customer base.
But with fewer than 200,000 direct customers to share the burden of Santee Cooper’s billions in debt from the failed V.C. Summer nuclear project, and uncertainty and litigation surrounding whether the remaining 800,000 or so statewide electric cooperative customers will also contribute to paying down the debt, it seems to me that the last thing Santee Cooper should be doing is handing out money.
The uncertainty around Santee Cooper’s position is bad for everybody. It’s bad for Santee Cooper, bad for its customers, and it’s bad for the state of South Carolina. Moody’s Investors Service is currently reviewing Santee Cooper’s bond rating for a potential downgrade. We should know the result of that review by the end of June.
In the meantime, both Fitch Ratings and S&P Global Ratings revised their outlooks on Santee Cooper’s bonds down to “negative” from “stable” earlier this year. All of these ratings reflect on the potential impacts of pending legislation and their outlooks on the ability of Santee Cooper to recover the $4.4 billion of outstanding bonds for V.C. Summer costs, which they’ll have no assets to show for.
This situation is particularly painful for Santee Cooper customers, or at least it will be down the road. Maybe the reason we haven’t heard more of an uproar from customers is because Santee Cooper delayed planned rate increases.
A cynic might hypothesize Santee Cooper delayed the rate increases the utility knows it needs in order to ride out – yet again – the firestorm of calls for a sale of the state-owned utility, and then pick back up, doing exactly what it wants to do, with no oversight from the Public Service Commission, the Office of Regulatory Staff, or any other authority except its own Board of Directors.
For the sake of Santee Cooper’s customers – including employees of businesses I have helped establish and run – South Carolina can’t let this happen again. A recent economic analysis by a South Carolina policy organization found that Santee Cooper customers will indeed feel the pain.
Since Santee Cooper has no shareholders and no form of income except for the rates paid for the electricity it provides, its customers are the only ones on the line. According to that Palmetto Promise Institute economic analysis, each and every Santee Cooper customer is on the hook for almost $1,300 per year, for the next 38 years. That means the average residential customer can expect to pay more than $49,000 toward V.C. Summer nuclear costs. Businesses can expect to pay much more.
And while this whole scenario is bad for Santee Cooper and its customers, it’s truly ominous for the S.C. economy. Energy uncertainty is a death knell for economic development. Electricity cost is one of the largest factors for a business. It’s also a major factor business owners and developers consider in locating facilities that bring jobs, tax revenues, and other indirect and induced spending produced by their investment.
Despite what they’ve done in the past, and given Santee Cooper’s current position, it’s not likely that the utility will be enticing businesses by providing low rates or finding funds to devote to economic development. In fact, downgraded ratings make borrowing new money even more expensive, continuing the utility’s downward cycle.
There’s not much time left to act. For the sake of economic growth and for those in our state who get their electricity from Santee Cooper, I hope that the Legislature keeps a close eye on loans the utility is making, moves forward with a process for considering a sale of Santee Cooper and puts it in the hands of a company that can write off the debt and start our energy landscape with a clean slate, post-V.C. Summer.
John Cattano is a South Carolina businessman and real estate developer based in Columbia. He is a former treasurer of the South Carolina Republican Party.