As we predicted it would yesterday evening, the administration of South Carolina governor Henry McMaster has submitted to state lawmakers its two preferred bids for the future of the Palmetto State’s debt-addled, atrociously managed, scandal-scarred government-run power provider, Santee Cooper.
First, Juno Beach, Florida-based NextEra Energy has been selected by McMaster’s Department of Administration (SCDOA) as the top proposal to purchase Santee Cooper – which has found itself billions of dollars behind the eight ball following its spectacularly failed intervention in the nuclear power industry (NukeGate).
This $10 billion project was supposed to produce a pair of next-generation nuclear reactors in Fairfield county, South Carolina in 2016 and 2017, respectively.
It didn’t …
The money was spent, but the project was never finished – and Santee Cooper and its private sector partner couldn’t afford the estimated $10-16 billion price tag necessary to complete it. On July 31, 2017 Santee Cooper pulled the plug on the boondoggle. Shortly thereafter, it was revealed executives at both utilities knew the project was doomed for years and didn’t warn the public.
As a result taxpayers are now out billions – including government debt and private investment risk that was essentially socialized by their “leaders” via the now-notorious 2007 “Base Load Review Act.”
SCANA – the private sector partner in the disaster – was sold last December to Virginia-based Dominion Energy, which was announced on Tuesday as the winning bid to manage Santee Cooper. Dominion has previously expressed its interest in managing Santee Cooper – and referenced its bid for the utility in an earnings call on Tuesday morning.
Additionally, lawmakers will consider a so-called “reform” proposal from Santee Cooper itself – although this news outlet has repeatedly warned of the utility’s reliance on smoke-and-mirrors propagandizing.
Meaning we believe lawmakers should take anything emanating from its Moncks Corner, S.C. corporate headquarters with an ocean of salt.
According to the SCDOA report (which you can read in its entirety at the end of this article), there is a “significant financial challenge” in purchasing the utility given its tax-exempt status.
“The privatization of Santee Cooper would entail (over 20 years) $5.3 billion of transition costs associated with a private owner’s loss of tax exemptions and higher cost of capital, early payment penalties associated with repaying Santee Cooper’s debt, satisfaction of pension and OPEB obligations that will shift from Santee Cooper to the State, and the prohibition on recovery from ratepayers of certain debt repayment costs incurred in connection with its proposed acquisition of Santee Cooper,” the report warned.
Nonetheless, it concluded that NextEra’s offer provides “rates close to those being offered by a reformed Santee Cooper, pays off all of Santee Cooper’s existing indebtedness, provides a roadmap and resources to settle the Cook litigation (a class action lawsuit against the utility), and provides cash consideration, together with the anticipated cash on Santee Cooper’s balance sheet at closing, to satisfy pension and OPEB obligations and other known liabilities and obligations that may face Santee Cooper or the State of South Carolina after the transaction closes.”
McMaster’s administration negotiated closely with NextEra, boasting in the report that it “was able to obtain from (the company) over $1 billion in additional benefits for ratepayers and taxpayers.”
According to the report, Santee Cooper’s reform plan is “a combination of operational changes and cost-cutting actions that … if properly implemented, would achieve accelerated debt repayment and defeasance, an increase in the use of natural gas and renewable resources to generate electricity, and a concomitant reduction in the use of coal.”
It would reduce the utility’s workforce from 1,675 employees this year to 1,514 employees by 2028. The reduction in force would ostensibly be accomplished “without layoffs, through a combination of retraining opportunities, retirements, and natural attrition.”
Dominion’s proposal would involve placing three or more corporate employees at Santee Cooper “to fill key management roles reporting to the Santee Cooper CEO.”
Alternately, Dominion was willing to go a step further …
(Click to view)
(Via: Santee Cooper)
“Dominion indicated willingness also to place a Dominion employee in the role of CEO of Santee Cooper,” the report noted.
Of particular interest? Dominion said it would not charge the state for its management services.
“Dominion would not charge a management fee (other than reimbursement of its costs),” the report noted. “The initial term of the Dominion Management Agreement would be ten years, but it could be terminated by either party upon a change of control of either party.”
Also, the Dominion offer is the only proposal which would not result in a reduction in the Santee Cooper workforce.
As for the NextEra purchase proposal, it would repay nearly $7 billion in outstanding Santee Cooper debt, “plus all defeasance or make-whole costs associated with the defeasance or repayment of such debt, which are estimated to be $1.05 billion.”
It would also pay $500 million to the state upon the closing of the deal, while also reimbursing taxpayers $15 million for the costs incurred during the bidding process. Another $100 million would be placed in an escrow account to address, among other items, “post-closing purchase price adjustments” including “accounting errors in Santee Cooper’s financial statements.” Most significantly, it would provide $941 million in customer refunds within six months of closing – $541 million to settle a class action suit and $400 million to “current wholesale and resale customers” of Santee Cooper.
All told, the NextEra option is a staggering $9.4 billion proposal – although the report did note it would result in a larger reduction-in-force at Santee Cooper (which would shrink from 1,675 employees to 970 employees by 2025).
(Click to view)
(Via: S.C. Governor)
In response to the release of the proposals, McMaster issued a statement touting the extent to which “the interests of South Carolina’s ratepayers and taxpayers – as well as our people’s economic prosperity – must be first and foremost in the minds of members of the General Assembly.”
“The politics of indecision is unacceptable,” McMaster said. “The time to act is now.”
On that count, we agree with him 100 percent.
Lawmakers have already spent the last two-and-a-half years dawdling and dithering in the aftermath of a disaster of their own making. Further delay is not just “unacceptable,” it is inexcusable.
To its credit, the S.C. House immediately rolled out a committee of lawmakers tasked with reviewing the proposals. That committee is led by House ways and means chairman Murrell Smith, and includes House majority leader Gary Simrill and House minority leader Todd Rutherford, among others.
WEB EXTRA: SCDOA REPORTReport-of-the-DOA-Regarding-the-South-Carolina-Public-Service-Utility
(Via: S.C. Department of Administration)
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