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Arizona Offers Preview Of Palmetto State Utility Fight

Furious deregulation battle underway in the Grand Canyon State …

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We recently wrote a column on the looming battle related to South Carolina’s energy future …

Hold up a moment … wasn’t that battle decided earlier this month when state regulators approved a $15 billion merger between crony capitalist utility SCANA and Virginia-based Dominion Energy?

Eh, sort of … partially …

Assuming the fine print checks out, the future of SCANA would certainly seem to be well in hand.  However, the future of state-owned Santee Cooper – an abysmally managed, government-run utility that provides much of its power through a corrupt, politically incestuous network of energy cooperatives – remains very much up in the air.

No offers are currently on the table to purchase this debt-addled entity, nor for that matter does there appear to be a willingness on the part of state lawmakers to sell it.  For more than a year, South Carolina governor Henry McMaster has been making noise about unloading this toxic asset, but so far there has been no indication anyone is serious about wanting to buy it.

One so-called “serious” offer made the rounds back in March – but this secretive proposal would have involved a massive taxpayer-funded bailout.

That’s a non-starter …

Assuming a credible private sector offer were to emerge, lawmakers would first have to agree to it – which also appears to be a non-starter.  Sources tell us fiscally liberal state senator Larry Grooms has vowed to block the sale of the utility via a filibuster, and several of his colleagues in the chamber tell us he has the votes to make good on that vow.

“In other words, this would-be transaction is currently lacking an interested buyer and seller,” we noted back in October.

Had lawmakers unloaded this asset eleven years ago when we initially proposed doing so, they could have walked away with billions of dollars.  Instead they chose to plunge the state headfirst into a costly, failed experiment in the nuclear power business – the notorious #NukeGate debacle.

(Click to view)

(Via: SC High Flyer)

To recap: State lawmakers socialized billions of dollars in investment risk over the last decade related to the construction of two next generation, pressurized water reactors at the V.C. Summer nuclear generating station in Jenkinsville, S.C.  These reactors were supposed to have been operational in 2016 and 2017, respectively, at a cost of $9.8 billion.

They weren’t, though …

The money was spent, but the project wasn’t finished – and SCANA and Santee Cooper couldn’t afford the estimated $10-16 billion price tag necessary to complete it. SCANA wanted to try and finish one of the reactors, but on July 31, 2017 Santee Cooper pulled the plug on the boondoggle – quashing those plans and killing an estimated 5,600 jobs in the process.

The immediate fate of SCANA and Santee Cooper in the aftermath of #NukeGate is just one part of a much more complex equation, though.

“An even bigger and broader battle is expected to unfold over the nature and composition of the state’s energy marketplace itself,” we wrote last month.  “That is the real battle … and it is one that will be fought from year-to-year, decade-to-decade.”

Speaking of decade-to-decade, this battle has been waged for the last quarter century on the other side of the county, where the Arizona Corporation Commission (ACC) has been entertaining various deregulation proposals since 1994.

Five years ago the independently elected ACC rejected a proposal to allow “retail electric competition,” one of the many terms for deregulation or “demonopolization.”  The commission is taking up the issue again in 2019, though.

As of this writing, thirteen states (and the District of Columbia) feature fully implemented “energy choice” – impacting a total of 16.7 million residential consumers (or roughly 13 percent of residential customers across the country).

(Click to view)

(Via: Getty Images)

Has expanded choice resulted in lower energy bills?  Not always.  In some cases it has. However in others (Houston and New York, for example), power bills have actually gone up.  Meanwhile in California, a poorly conceived experiment in partial deregulation was an unmitigated disaster – leading to the recall of former governor Gray Davis in 2003.

There is little in the way of scholarly work on the subject, but a 2017 report (.pdf) published by the University of Kentucky found that deregulation “generally shows small or no changes to residential retail prices.”

Some initial savings were documented, but the report concluded that “if savings do not keep pace with electricity prices in the long run, then the short-term effects may be negated,” meaning that “deregulation may not be as beneficial as it appears from this study.”

Opponents of deregulation also cite prohibitive start-up costs – including access to power generation and transmission capabilities.

Our view?  Like state senator Tom Davis – who is poised to be the lead advocate for deregulation in the Palmetto State – we believe in choice.  The more options available to consumers in the marketplace, the more likely consumers will see efficiencies and savings.  In fact, anyone extolling the virtues of a monopolistic approach to energy should look no further than the #NukeGate debacle – or for that matter the Palmetto State’s government-run school system.

Choice is good … the question is how to implement it in such a way so as to avoid potentially calamitous market manipulations, or situations in which government winds up picking winners and losers via the awarding of taxpayer subsidies to select industries.

We cannot replace one form of crony capitalism with another, in other words.

This news outlet looks forward to educating ourselves – and our readers – on this unfolding debate as we dig into the data over the coming weeks and months.

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