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Santee Cooper’s Future: Is The Real Battle Over The Management Agreement?

And does Dominion Energy have a built-in advantage in that fight?

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In the ongoing war for the state of South Carolina’s energy future, Virginia-based Dominion Energy has already won a huge battle.

The company’s successful acquisition of crony capitalist utility SCANA last December was a major coup – one that did not come easy.

Now, though, the battle lines have shifted to the future of Santee Cooper – state government’s debt-addled, atrociously managed, scandal-scarred power provider.

SCANA and Santee Cooper were partners in #NukeGate – the spectacular collapse of a government-subsidized project that was supposed to bring two new nuclear reactors to Jenkinsville, S.C. These reactors were supposed to have been operational in 2016 and 2017, respectively, at a cost of $9.8 billion.

That didn’t happen, though …

The money was spent, but the project was never finished – and the two utilities couldn’t afford the estimated $10-16 billion price tag necessary to complete it. On July 31, 2017 Santee Cooper finally pulled the plug on the boondoggle. Shortly thereafter, it was revealed executives at the utilities knew the project was doomed for years and didn’t warn the public.

The matter remains under criminal investigation …

Last month, state lawmakers passed a bill that puts the future of this government-owned utility squarely in the hands of governor Henry McMaster – at least temporarily.

(Click to view)

(Via: S.C. Governor)

The compromise – H. 4287 – is widely viewed as setting the stage for an up-or-down vote in the S.C. General Assembly no later than April 15, 2020. That vote would be an “aye” or “nay” on the sale of Santee Cooper to a bidder chosen by McMaster (above) over the next seven months.

But the bill lawmakers approved is actually much more involved than that … and while the media (including us) has focused on secretive, competing bids to purchase Santee Cooper by suitors said to include Florida-based NextEra Energy, Charlotte, N.C.-based Duke Energy, Greenville, S.C.-based Pacolet Milliken and New York City-based LS Power, the real fight could be over a part of this bill no one is talking about.

While the secretive bidding component of the Santee Cooper bill has garnered the most ink, the legislation is not limited to a sale proposal. In fact, it specifically charges McMaster’s administration to “concurrently present a recommendation by its professional service experts of one bid for sale and one management proposal that the professional service experts consider to be in the best interests of the state.”

You read that right … there is not just one up-or-down vote coming down the pike related to Santee Cooper, but two: A vote on the proposed sale of the utility and a vote on a proposed management agreement.

Both of those concurrent proposals will be selected by McMaster’s administration in total secrecy, too, with only the particulars of the “winning” bids disclosed to the public.

We have consistently objected to that secretive process, arguing that negotiations over the two competing proposals be conducted in the sunlight. Anything short of that is, in our mind, an “invitation to corruption.”

Actually, there are three doors through which lawmakers can conceivably walk next year.

In addition to the two recommendations submitted by McMaster’s administration, Santee Cooper will submit its own proposal “for reform, restructuring, and changes in operation.” Our guess is that will be the least credible of the alternatives given the dire straits in which the utility currently finds itself, but you never know …

So …which door will lawmakers decide to walk through?

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We don’t know … but we believe people should be paying much closer attention to the battle over a possible Santee Cooper management agreement, a solution this news outlet has belatedly and reluctantly come to acknowledge as the best pathway forward for the crippled, government-run utility.

At least for the time being …

Why do we say that? From a policy standpoint, we believe if Santee Cooper were to be freed from state control and managed by a private sector entity for a certain, specified period of time – that such a transitionary phase could potentially “rehabilitate” this asset to a point where it might be sold for something close to what it was worth prior to #NukeGate.

That would be the best-case scenario …

The worst-case scenario? Allowing the state to continue running this asset into the ground on the backs of ratepayers.

Practically speaking, the management agreement component of this debate is worth watching because the votes are still not there to sell Santee Cooper outright. We keep hearing the S.C. Senate is three votes shy of the magic number it needs to unload the asset, however when we started asking senators last month about which of their colleagues remained uncommitted to a sale we heard at least six names mentioned.

That is not a good sign for supporters of a sale … who are working in an environment in which they have zero margin for error.

(Click to view)

(Via: Santee Cooper)

So far, the only company to publicly affirm its interest in a management agreement for Santee Cooper is Dominion. This proposal has actually been on the table since last October – although its details have yet to be publicly discussed.

We are also told Dominion’s proposed management agreement is likely to be far more competitive than any bid submitted by its rivals due to various efficiencies it can achieve as a result of its purchase of SCANA – something its chief executive officer Thomas Farrell II hinted at in announcing the offer last fall.

“We would like to offer a proposal to Santee Cooper to enter into a unique management arrangement that we believe will save Santee’s electric customers hundreds of millions of dollars in overhead, fuel and capital related costs, providing significant cost savings on an ongoing basis for years to come,” Farrell wrote.

“Acceptance of this proposal would preserve South Carolina’s ownership of Santee Cooper’s valuable assets, thereby keeping Santee Cooper an independent, state-owned entity focused on serving its electricity customers,” Farrell added.

Filings submitted by the company to the S.C. Public Service Commission (SCPSC) at the time offered a bit more insight on the proposal.

“By operating and managing Santee Cooper as part of its extensive utility operation, Dominion can achieve efficiencies, rationalize structures, and generate extensive economies of scale,” the company’s SCPSC filing noted.

No details regarding other management agreements have been provided … yet.

Again, we suspect much of the media attention over the coming months related to the Santee Cooper debate will focus on proposals to sell the company – especially when the McMaster administration makes its sale recommendation next year (no later than March 15, 2020).

But given the ongoing reticence within the legislature to sell this asset outright, the real battle could wind up being over a proposed management agreement. And in that fight, not only does Dominion have a head start on the competition – it may be able to leverage its new asset (SCANA) into an offer the state cannot refuse for Santee Cooper.

-FITSNews

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