Santee Cooper: Doomsday Draws Nigh

Likely downgrade looms over government-run utility …

Two months ago we ran a report on the doomsday scenario emerging at Santee Cooper, the government-run energy utility that currently finds itself at the center of South Carolina’s ongoing #NukeGate debacle.

Our report – which you can read here – was based on a study of the utility prepared by former U.S. Senator Jim DeMint’s think tank: Palmetto Promise Institute.  According to this group, Santee Cooper ratepayers could see their annual bills soar by anywhere between $167 and $751 over the next four decades as a result of the state-owned entity’s spectacular mismanagement of an expansion project at the V.C. Summer nuclear power station in Fairfield County, S.C.

That’s some serious cheddar, people … and it’s money that will be flowing out of the Palmetto State’s economy with absolutely nothing to show for it.

How come?  Because ratepayers remain on the hook for this failed command economic experiment … one that has placed them in debt to the tune of billions of dollars.

That hole is about to get deeper, too … a development that could further complicate efforts by S.C. governor Henry McMaster to unload Santee Cooper in a fire sale.

According to Moody’s, Santee Cooper was placed “under review for downgrade” this month regarding its A1 rating on $7.4 billion in outstanding revenue bonds.  According to the agency’s investors’ service, this rating action “reflects continued uncertainty around Santee Cooper’s ability to maintain a self-regulated cost recovery framework” as well as Moody’s “growing concern that legislative actions may lead to some form of permanent rate reduction at Santee Cooper.”

Really?  Last time we checked, lawmakers were still dancing around this issue.

Anyway, the review also referenced that the utility is at “increased litigation risk” and has a “weakened balance sheet owing to the creation of a substantial intangible asset.”

That’s for damn sure …

Along with embattled Cayce, S.C.-based crony capitalist utility SCANA, Santee Cooper was able to effectively socialize more than $2 billion worth of investment risk associated with the construction of two next generation nuclear reactors near Jenkinsville, S.C.  This socialization was made possible thanks to the now notorious Base Load Review Act (BLRA), which was advanced by liberal state lawmakers and allowed to become law in 2007 by former governor Mark Sanford.

As we all know, these two utilities spent ten years building (or as it turns out, not building) these reactors a cost of $9.8 billion.  Unfortunately the project wasn’t even half-completed – with the cost to finish it reportedly ranging anywhere between $9-16 billion.[/timed-content-server]

Clearly, the reactors are not being built – yet ratepayers are still on the hook for them.

Drowning in debt, Santee Cooper pulled the plug on the project last summer – killing an estimated 5,600 jobs, squandering billions of dollars in investment and throwing the state’s energy future into chaos.  The government-run utility’s decision has also prompted a flood of lawsuits and criminal investigations – as well as a full-court press by lawmakers to try and undo the damage they did (or at least give that impression to voters).

Just eight days before it bailed on the project, Santee Cooper announced massive rate increases on customers tied to “costs associated with nuclear construction and other system improvements.”  Also, after the project collapsed it gave its former leader a multimillion-dollar, taxpayer-subsidized golden parachute – even though documents released last summer showed its executives (and SCANA’s leaders) knew more than two years ago that the project was doomed.

So far, Santee Cooper has been able to avoid the level of scrutiny assigned to SCANA … but that’s likely to change soon (especially in the aftermath of a downgrade).

Moody’s review is ongoing, and it is not immediately clear when the agency will pull the trigger on a final decision.

“They typically take some time to complete,” one financial analyst told us, referring to such reviews.

In the meantime, here is the Moody’s downgrade review document …

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(Via: Moody’s)

Obviously a downgrade would result in higher interest rates, with the associated costs passed on to ratepayers.

And yes, rate increases tied to higher borrowing costs would be in addition to considerable rate increases already looming on the horizon.

“All is not well in Moncks Corner,” one lawmaker told us, referring to the site of Santee Cooper’s corporate headquarters.  “The day of reckoning is coming.  They’ve managed to skate through so far without coming under the klieg lights, at least compared to SCANA.  But Santee Cooper is a bloated, rotting entity, and ratepayers and policymakers are in for a shock when Santee Cooper comes in for serious scrutiny.”

Indeed …

This news site proposed selling Santee Cooper a decade ago when it would have netted billions of dollars to taxpayers.  Unfortunately, fiscally liberal “Republican” lawmakers thought they knew better … just as they thought they knew better when it came to building a pair of nuclear reactors on the backs of ratepayers.

Once again we would ask the painfully obvious question: Are these the people we should trust to extricate our state from this mess?


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