What happens now?
Determining the future of Santee Cooper has been a challenge for South Carolina’s General Assembly for the past four years.
Although the state-owned utility’s fate is still being examined and debated by legislators, there is consensus for change. State senators, House members and ratepayers—including those served by the state’s electric cooperatives—want to make Santee Cooper a better, more accountable utility and prevent poor decisions from happening in the future. Whether that change results in another energy company purchasing Santee Cooper is still to be determined. However, lawmakers have already pushed the utility to work on consequential reforms.
As the march toward a changed Santee Cooper continues in earnest in the 2021 legislative session, South Carolina’s electric cooperatives want to protect their members, whether that means reforming or changing ownership of the utility that has supplied power for 80 years. Cooperative members make up 70% of Santee Cooper’s load, so their voices should be heard throughout ongoing and future discussions.
How we got here
The impetus for the change is, of course, the failed nuclear project at the V.C. Summer Nuclear Station in Fairfield County. Santee Cooper and South Carolina Electric & Gas (SCE&G) invested $9 billion in the construction of two nuclear reactors that were supposed to provide South Carolina consumers with carbon dioxide-free energy for decades to come.
Instead, the project ran way behind schedule and well over budget, forcing the two homegrown utilities to abandon it in 2017 before things got worse. (A similar project at Georgia Power’s Vogtle Electric Generating Plant is currently twice its projected budget and running five years late.)
Santee Cooper and SCE&G were left with lawsuits, criminal investigations and massive debt, while their consumers were saddled with the high costs of building a nuclear power facility without the benefit of any of its energy. Audits, hearings in both chambers of the General Assembly and investigative reporting by the state’s two largest newspapers revealed deceptive practices by SCE&G corporate executives and a lack of oversight by Santee Cooper, despite the project’s continually missed benchmarks.
At the beginning of 2019, Virginia-based Dominion Energy purchased SCE&G’s parent company, SCANA, and absorbed its debts. As the South Carolina General Assembly began the 2019 regular legislative session, they focused on what to do with Santee Cooper and how to protect the two million consumers—served directly and through electric cooperatives—from the initial $4 billion nuclear debt, which increases daily.
In March of that year, Senate President Harvey Peeler introduced legislation to explore the sale of Santee Cooper. It was a move championed in the House but met with resistance in the Senate. The resolution was adopted and became Act 95, adding language to also seek a reform proposal from Santee Cooper and a management proposal from interested entities along the way to becoming law. The process, managed by the Department of Administration (DOA), began in August 2019.
DOA reported recommendations to lawmakers the following February that included a management proposal from Dominion Energy and a bid to purchase from Florida-based NextEra Energy. The management option was quickly rejected by both chambers since it offered no plan beyond Santee Cooper’s own reforms to reduce the utility’s debt.
While lawmakers rejected both the NextEra initial offer to purchase and Santee Cooper’s initial plan to reform, there was interest among the members of the General Assembly in improving the two proposals.
NextEra’s original bid to purchase would have eliminated Santee Cooper’s debts, but it projected rates slightly higher than Santee Cooper’s reform plan rates. The proposal also didn’t fully fund Santee Cooper’s long-term liabilities, such as pension plans and health care costs for its retirees.
Perhaps the largest concern expressed by lawmakers was NextEra’s request for a pre-approved spending plan that would allow them to build electricity generators without going through the regulatory process. While the proposed solar and gas projects were not necessarily controversial on their own, access to such a regulatory loophole seemed too much like the controversial Base Load Review Act to members of the General Assembly.
Passed in 2007 when the state appeared headed toward energy demand shortages and higher regulatory costs tied to coal-fueled resources, the Base Load Review Act allowed utilities to raise rates to pay for nuclear reactors while they were under construction. The law is seen as one of the primary reasons for the nuclear debacle.
In 2020, the Senate gave Santee Cooper more time to improve on its reform plan. In its original submission, the plan pledged to reduce Santee Cooper’s workforce by nearly 10% through attrition, pay off the nuclear debt over a 12-year period and increase oversight of future projects. The utility also pledged to reduce its proportion of coal-fueled power production from 52% to 33% and more than triple its renewable resources mix without large capital spending.
Throughout this journey, electric cooperative leaders have encouraged a deliberative process toward finding the best solution for Santee Cooper ratepayers. While these efforts are not finished, the events of the past two years have helped reveal the kinds of changes that are needed at the state-owned utility and have resulted in a focus on producing a Santee Cooper which is optimized, reformed and increasingly accountable.
The pandemic forced the legislature to delay an ultimate decision on Santee Cooper, which leaders intend to accomplish by the end of the 2021 session. In the interim, Santee Cooper has settled a series of lawsuits, bringing into clearer focus projected finances and rate structures in the near future.
In July 2020, former state Supreme Court Chief Justice Jean Toal, who was assigned to oversee litigation surrounding Santee Cooper, approved a $520 million settlement with its ratepayers. The deal required a freeze on Santee Cooper’s rates for the next four years and disbursements to the consumers—including electric cooperative members. Ratepayers received those checks at the end of 2020.
A litigation settlement with contractor Westinghouse Electric Corporation last fall will allow Santee Cooper to receive most of the profits from selling the abandoned project’s leftover parts. A $2 million deal with holders of Santee Cooper mini-bonds was also reached, ending one of the last lawsuits the utility faced following the failed project. In November, Santee Cooper refinanced its existing debt with a $638 million bond deal that it claims will save ratepayers hundreds of millions of dollars. The deal also includes $100 million in new debt for capital projects.
Reform agenda
The South Carolina Legislature seems intent on fulfilling its promise to determine the future of Santee Cooper, preferably soon.
The General Assembly began the 124th legislative session with three working subcommittees focused on the issue, one in the House and two in the Senate. Both the House Ways and Means Committee’s Santee Cooper Oversight subcommittee and the Senate Finance Committee’s Santee Cooper Review and Policy subcommittee were created with the stated intent from their chairs to bring the utility’s uncertain future to a resolution this year, either with a sale or reform.
The Senate Judiciary Committee’s Subcommittee on the Oversight of Santee Cooper, which was created during the last legislative session, has thus far focused on vetting NextEra and its potential bid to purchase. However, members of the subcommittee have expressed a desire to eventually channel their efforts toward Santee Cooper reform.
While these evaluations are taking place, South Carolina’s member-owned electric cooperatives are committed to remaining a voice for consumers and ratepayers as the process moves forward, a role they are uniquely situated to fulfill.
“Cooperatives are proposing to lawmakers a layered approach for immediate reform at Santee Cooper, a combination of enhanced information, prioritizing consumers and increased oversight,” says Mike Couick, president and CEO of the state trade association for electric cooperatives.
Cooperatives have offered these specific proposals:
Prioritize consumers. Electric cooperative leaders have encouraged lawmakers to use the opportunity of reforming Santee Cooper to prioritize the interests of both its retail and wholesale consumers in their board room.
Currently, a Santee Cooper board member is obligated to act in the best interests of the utility by balancing two needs—economic development and the financial integrity of Santee Cooper and its ongoing operations. However, consumer interests—those of both direct-serve and wholesale consumers—should carry equal weight, says Couick.
“The financial integrity of Santee Cooper, appropriate investments in facilities and the promotion of economic development are laudable goals,” says Couick. “But we believe customer interests should carry equal weight, especially since cooperative members represent two-thirds of the utility’s electricity demand and have a massive stake in its outcome.”
Regulatory oversight. Electric cooperatives would also like to see state regulators take an increased role in the oversight of the state-owned utility by requiring Santee Cooper to go before the Public Service Commission before building any new, major power production facilities. Santee Cooper’s retail rate process should allow interested parties to intervene and provide information about the allocation of costs between rate classes. State regulators should also be able to take a more active role in evaluating proposals for investments.
Legislative oversight. Santee Cooper is ultimately accountable to the General Assembly. Due to the nature of Santee Cooper’s structure, its bond-centric financing and the obligations that come with it, there are limits to standard regulatory authority, making legislative oversight crucial. Cooperatives suggest the State Regulation of Public Utilities Review Committee (PURC)—created by the legislature with both legislator and public members—conduct an annual performance review of each member of the Santee Cooper Board of Directors, evaluate the actions of the board as a whole, and submit those evaluations to the General Assembly.
“What body performs legislative oversight is less important than the manner in which the oversight is performed,” asserts Couick. “For oversight to be effective, goals and benchmarks should be well defined, reviewed annually, and there should be accountability for failure to meet them. The stakeholders should be allowed to participate, and there should be input from independent expertise similar to what’s available through the Office of Regulatory Staff.”
A better informed board. Santee Cooper board members should be privy to all current information and perspectives when making decisions that will impact their ratepayers. That is why cooperatives are advocating for two additional ex officio seats on the Santee Cooper board that would be occupied by current trustees of Central Electric Power Cooperative, the wholesale power purchaser for South Carolina’s 20 local distribution cooperatives. Central trustees consist of the CEO and a board member of each distribution cooperative.
Next steps
If the General Assembly decides on additional consideration of a sale or management bids, cooperatives have advocated that they should have at least as much involvement in that process as they did in the Act 95 process, when Central participated in negotiations with potential buyers and Santee Cooper. The events of the past two years have led to significant changes since those negotiations ended, making them obsolete.
“From the beginning, we’ve advocated for fair and deliberate analysis of Santee Cooper and its future,” says Couick. “The journey so far has been educational, to say the least. I’m hopeful that we can put that data to good use.”
When the construction of two nuclear reactors at the V.C. Summer Nuclear Station was announced way back in 2008, it took about nine years to design, begin building and then abandon the incomplete project. We are now entering our fourth year of recovery from that failure.
We don’t know how much longer recovery will take, but electric cooperatives appreciate and applaud the General Assembly’s determined and consistent march forward. A positive consensus is building that ratepayer focus, enhanced oversight and accountability are needed for that recovery to occur.