The 2019 session of the South Carolina General Assembly ended in disappointing fashion for those hoping the Palmetto State would finally sell Santee Cooper – its debt-addled, atrociously managed, scandal-scarred power provider.
Not to mention nowhere near an actual sale …
A fresh round of legislative wrangling is set to commence this week as senators and state representatives attempt to iron out differences between their preferred bid solicitation proposals – hoping to get something on the desk of governor Henry McMaster later this spring.
Last month the S.C. House passed H. 4287 – a bill aimed at setting up a framework for unloading this toxic asset. Senators amended this legislation considerably, and now a panel of six leaders – including House speaker Jay Lucas and Senate majority leader Shane Massey – will try to negotiate a final compromise as part of a conference committee process.
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(Via: Travis Bell Photography)
For McMaster (above) to get a shot at signing the bill, both the full House and full Senate would have to approve this compromise.
Even then, though … selling Santee Cooper remains an uphill battle. And a long way off …
Once worth billions of dollars, Santee Cooper is now billions of dollars in debt given its proximity to #NukeGate – the spectacular collapse of the V.C. Summer nuclear generating station expansion project in Jenkinsville, S.C.
To recap: In 2007, state leaders embarked on a catastrophically mismanaged bid to build a pair of next generation nuclear reactors using billions of dollars in government debt – while simultaneously socializing the investment risk of a private partner, SCANA.
This investment risk socialization (nearly $2 billion) was accomplished via the now-notorious “Base Load Review Act.” This piece of special interest legislation – approved by the state’s Republican-controlled legislature – provided for the project to be paid for in part by consumer rate hikes.
What happened next is history …
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(Via: High Flyer)
In the summer of 2017, Santee Cooper pulled the plug on these reactors – a bombshell announcement made just one week after its politically appointed board proposed fresh rate increases related to their construction. Shortly thereafter, the utility gave its former leader a multimillion-dollar, taxpayer-subsidized golden parachute – even though documents released in September 2017 showed he and others knew in 2016 (and perhaps earlier) that the project was doomed.
Incidentally, Santee Cooper has been paying for this former CEO’s massive legal bills as it stares down the business end of a criminal investigation.
First things first: There are still not enough votes in the S.C. Senate to unload this toxic asset.
By our count, the Senate remains at least three (and possibly as many as five) votes shy of the number necessary to sell Santee Cooper. Which means all these negotiations over the terms of the sale are moot … at least for now.
Also remember: The Palmetto State has already undergone one secretive bidding process related to the contemplated sale of Santee Cooper.
Which produced nothing but another round of secretive bidding …
Under the current version of the latest “compromise,” the S.C. Department of Administration (SCDOA) – part of McMaster’s cabinet – would be tasked with reviewing “serious offers” to either purchase, partially purchase or manage Santee Cooper. After choosing what it believes to be the best offer from the bunch, McMaster’s agency would submit this “winning” proposal to the S.C. General Assembly – which would then cast an up-or-down vote.
Unfortunately, none of the details related to the competing bids – only the winning bid – would be made public.
Which means there would be no way of knowing for sure whether the bid McMaster’s administration selected was the best one.
Given the secrecy surrounding this process, that is unacceptable.
As for the timing of this non-transparent process, House leaders want deadlines put in place – specifically a December 31, 2019 deadline for SCDOA to make its recommendation and a one-month deadline thereafter for lawmakers to vote “aye” or “nay” on it.
Senate leaders do not want to put any time limits on the process.
Meanwhile, House and Senate conferees are expected to argue about which investment bankers, attorneys and analysts would be involved in the bidding process and eventual sale – including an ongoing debate over the continued use of Virginia-based consulting firm ICF, which handled the first round of secretive solicitations.
Expect that drama to intensify in the weeks ahead …
Speaking of drama, House leaders are also rebuking efforts by the Senate to involve state regulators in this process – specifically the much-maligned S.C. Office of Regulatory Staff (SCORS).
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The biggest battle? What could wind up happening in the event the “winning bid” for Santee Cooper included net proceeds from its sale (i.e. an offer that resulted in money accruing to state government over and above the utility’s debt and any relief provided to ratepayers).
Assuming there are proceeds, House leaders want that money to accrue to the state’s general fund. Senate leaders, on the other hand, have suggested using the money to shore up South Carolina’s disastrously managed black hole of a pension fund.
Of particular interest? The dispute over the possible proceeds of a sale could color how Santee Cooper suitors submit bids.
“Each bidder will have to decide if this section is an indication of the General Assembly’s desire for cash on top of the debt relief,” a source closely tracking the legislation told us.
The problem? Offering cash in addition to debt retirement will impact rates for Santee Cooper customers – as well as customers of the corrupt network of cooperatives who receive power from the utility.
Assuming bidders were to pay off debt and assume ownership of the asset, rates would likely be lower than if a significant cash payment were added to the bid. In that case, the “winning bid” would likely assume higher rates being imposed on consumers.
“This pits the Santee Cooper customers against state taxpayers,” our source explained.
Well … assuming you believe taxpayers’ interests are going to be protected by state lawmakers. In reality, it pits the interest of Santee Cooper ratepayers (and co-op customers) against the insatiable appetite of the bureaucratic state in South Carolina.
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(Via: Travis Bell Photography)
So … which of the Santee Cooper’s numerous suitors are benefiting from the protracted showdown?
So far, speculation regarding Santee Cooper’s proposed sale has centered around the following four companies: Florida-based NextEra Energy, Charlotte, N.C.-based Duke Energy, Greenville, S.C.-based Pacolet Milliken and New York City-based LS Power.
Meanwhile, Dominion and other suitors have put forward proposals to manage the asset.
“All suitors had to take two steps sideways to eventually move ahead,” a source closely following the negotiations told us. “They all traded concessions because the votes weren’t there for an outright sale yet.”
According to our sources, NextEra was exceedingly pleased with the decision to put the bid solicitation process in the hands of McMaster’s administration – which has been conducting offline negotiations with NextEra for months.
“They are super confident again,” one source told us, referring to NextEra and its army of South Carolina lobbyists.
Should they be, though?
We think not. Against the current backdrop of compromise legislation – which hopes to elicit a “winning bid” for Santee Cooper – there are a host of potentially pernicious realities gathering like storm clouds.
Chief among them? The perception that Santee Cooper is capable of being “rehabilitated” over the short-term (six to seven years) into a far more viable – and valuable – asset.
(You know, the sort of asset it was over a decade ago when this news outlet first proposed unloading it).
“There is no good business case for selling Santee Cooper right now,” one proponent of a management agreement for the utility told us. “This is a damaged asset – one that needs to be rebuilt and rehabilitated. There is no cash windfall (associated with) selling it now, but that windfall might be there again in a few years with reform and better management.”
Stay tuned … this long and winding road clearly has a ways to go before it reaches a destination.
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