The $4 billion question: Examining the issues

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In February of this year, we published an article in South Carolina Living (“The $4 Billion Question”) that outlined all of the steps electric cooperatives are taking to save you money in the aftermath of the failed nuclear expansion project at the V.C. Summer Nuclear Generating Station in Jenkinsville.

A lot has transpired in the last 60 days and it is important that you know the latest information. In case you missed the February article, here is a short recap of the situation followed by a summary of the most recent events and a look ahead at the next steps.

Santee Cooper, the state-owned utility that generates much of the electricity distributed by South Carolina’s not-for-profit electric cooperatives, is currently mired in $8 billion of debt and racking up $1 million in interest expenses every day. Half of this debt—$4 billion—is nonproductive debt incurred by the failed V.C. Summer project that ended in 2017.

Normally, the expense of building a new power plant is spread over the service life of the project and easily absorbed into the rates Santee Cooper charges for electricity, including the power purchased by your local electric cooperative. With the collapse of the nuclear project, however, co-op members and Santee Cooper direct-serve consumers are on the hook for this additional debt even though the project will never produce one watt of electricity.

Beginning in August 2017, a month after the construction stopped at V.C. Summer in Fairfield County, cooperatives made ourselves available to any interested party to discuss our contractual relationship with Santee Cooper, to share our interests in modernizing its fleet of power plants and to focus on the importance of protecting our members. Our goal: find the course of action that best protects co-op members from future decades of artificially high electricity bills caused by Santee Cooper’s nuclear debt.

In late 2017, when consumers brought a class-action lawsuit against Santee Cooper, a local cooperative, and Central Electric Power Cooperative (the wholesale power aggregator for the state’s 20 distribution cooperatives), we explored with their lawyers the common thread in their claims and our mandate to protect ratepayers. In spring 2018, Central filed a cross-claim against Santee Cooper challenging its ability to charge co-ops for the two unfinished nuclear units. The lawyers who initiated the class-action suit joined in this crossclaim on behalf of Santee Cooper’s direct-serve customers.

The stakes of this pending litigation are high. If Santee Cooper is allowed to charge cooperatives for part of its $4 billion in nuclear debt, the cost to co-op ratepayers could ultimately approach $6.3 billion with interest and other charges over time.

Back in the fall of 2017, Gov. Henry McMaster proposed the General Assembly sell Santee Cooper as a way to eliminate the debt burden, an idea that is under active consideration by a joint study committee of the S.C. House and Senate.

The General Assembly initiated the Public Service Authority Evaluation and Recommendation Joint Committee to study the Santee Cooper nuclear debt issue last summer. We have actively participated in the process as lawmakers evaluate what to do about Santee Cooper, and we supported the co‑chairmen’s inquiry into the operation of Santee Cooper.

The committee chose to find out whether any companies would actually want to buy Santee Cooper by hiring ICF International, a consulting firm, to evaluate preliminary bids. ICF received 15 bids from interested parties, and reported the results to the General Assembly on Feb. 1.

Seeking to shield members from unfair rate increases, electric cooperatives submitted our own proposals, but our bids were not scored by ICF because the cooperatives did not offer to pay off or assume all the outstanding debt of Santee Cooper, which was among the legislature’s top criteria. We didn’t propose to pay off the debt because we believe in the strength of our legal claim that Santee Cooper should not be able to charge us for the debt.

As the ICF process unfolded in the fall of 2018, we rejected offers to partner with other potential bidders. We chose not to negotiate with interested purchasers unless, and until, the General Assembly tells us to do so.

Prior to the ICF “test the market” process, it was assumed that no bidder could pay down all the debt and still lower rates. Cooperative leaders were delighted to see that at least four bidders represented they could do both. We are convinced that a continuing process of exploring these bids, negotiating details and resolving any uncertainties should continue. If all of the legislature’s issues are appropriately resolved, including substantial ratepayer relief, a sale ought to take place.

Looking ahead

The CEOs and the boards of member-owned cooperatives have a fiduciary duty—an obligation to act in good faith and trust—to their member-consumers. That fiduciary duty drives their wholesale power aggregator, Central Electric Power Cooperative, and the cooperatives’ state association to pursue only one objective regarding Santee Cooper—what is best for co-op members. What we know for certain is that keeping things as they are with Santee Cooper is not an option. Nor is any kind of “fine-tuning” around the edges of this shocking debt load.

The cooperatives’ contract with Santee Cooper is a valuable and essential piece of any sale. Co-ops are Santee Cooper’s largest customer, buying about 60 percent of the energy it produces.

Clearly, we have an interest in what happens next with Santee Cooper, but only the General Assembly can authorize the sale. Cooperatives intend to be a valuable resource to lawmakers as they consider their options. We share a common bottom-line goal with the General Assembly—rate relief for legislators’ constituents and our members.

The legislature continues to wrestle with what to do about Santee Cooper—sell all or part of the utility, or allow another entity to better manage the operations. As legislators contemplate their next steps, South Carolina’s not-for-profit electric cooperatives will remain fully engaged in that process. We are committed to finding a full solution to this problem.

Given the requirements initially established by the legislature, we think a full solution would include at least four concepts.

First, if Santee Cooper is sold, the deal must shield ratepayers from paying for the state agency’s massive debt burden. To that end, cooperatives don’t want—or need—to buy Santee Cooper if there are better deals for our ratepayers. The ICF report indicated there are better offers to buy Santee Cooper, so we have suspended our bids temporarily.

Second, a full solution must lead to the settlement of the lawsuit. No management agreement can do that. Furthermore, a management agreement—in which another company would be contracted to manage Santee Cooper—would not resolve the state’s interest in the debt being paid.

Third, a full solution requires the state and cooperatives to engage in a coordinated process, one where we are willing to share information.

And finally, a full solution demands a clean process that enjoys the full trust of the General Assembly and the public.

Decisions on this much money affecting this many people should not be made based on emotion. Let’s take a serious, numbers-first approach to our next steps.

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Get More

For the latest information on the issues surrounding Santee Cooper, visit sc-cap.org/santeecooper.

To download the February 2019 Legislative Directory issue, including the special report on Santee Cooper’s nuclear debt crisis, “The $4 billion question,” visit SCLiving.coop/2019-2020-legislative-guide.