South Carolina lawmakers want binding bids for Santee Cooper

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South Carolina state lawmakers plan to get binding bids to privatize Santee Cooper, a move that may rid the state of the public power agency and the debt it sold to finance its share of a failed twin nuclear reactor project.

It won't happen this year. A final decision won’t made until next year’s legislative session.

Getting bids is one step in the process that will be used to determine the fate of the state-owned agency, known formally as the South Carolina Public Service Authority.

By then, Santee Cooper will be entering a third year in unsettled political territory as it continues to defend itself against lawsuits filed by ratepayers and bondholders, in addition to its own recent complaint against the nuclear project’s former contractor, Westinghouse Electric Co.

The Legislature is in special session this week to conclude work on the state budget and to define the process that will determine Santee Cooper’s future.

Members of a joint conference committee announced Tuesday that they reached an agreement to allow the state Department of Administration to hire consultants to conduct a competitive bidding process for the sale of some or all the public power agency.

The conference report was approved by the House on a vote of 103-3, and in the Senate by 39-2.

The report ironed out differences between the two chambers in House Bill 4287, which also includes a provision that allows companies to submit management proposals showing that they can improve the efficiency and cost-effectiveness of Santee Cooper's electric operations.

Santee Cooper also will be required to submit a proposal to the DOA as an alternative to a sale or management proposal that details its own plans for reforming the agency.

According to HB 4287, all interested companies can submit bids and management proposals — not just those that responded to expressions of interest taken by the Public Service Authority Evaluation and Recommendation Committee last year.

While that committee of four senators, four representatives and Gov. Henry McMaster voted to move forward with a similar sale process in late February, its work became mired in controversy during this year’s regular session when some lawmakers grew concerned that the committee was on a one-sided quest to sell the utility instead of considering all options.

McMaster has argued on numerous occasions that Santee Cooper must be sold so that its customers aren’t responsible for paying off debt for the utility’s 45% share of the failed reactor project at the V.C. Summer Nuclear Generating Station.

Dan Aschenbach, a former analyst for Moody's Investors Service who recently opened his own consulting firm, AGVP Advisory, recently wrote an opinion piece that said state officials need to carefully consider the value in keeping Santee Cooper.

Aschenbach said in an interview Monday that he reviewed non-binding proposals submitted to the joint committee last year that indicated some firms would purchase Santee Cooper, take out its approximately $8 billion in outstanding debt, and lower utility customers’ rates from 2% to 14%.

“It’s not clear that a private company can come in and provide the savings they’re looking at,” Aschenbach said.

The only area he found to support lower costs mentioned in last year’s non-binding proposals, he said, would require a shift to using more natural gas. However, the proposals didn’t detail how the fuel would be transmitted to South Carolina or what it would cost.

Judah Rose, executive director of the consulting firm ICF International, told the committee in February that more due diligence would be required to project additional costs to upgrade South Carolina’s transmission grids and other facilities before the state could issue a request for binding proposals and properly evaluate costs.

That work stalled when lawmakers created two new committees during this year’s session to work separate concerns about dealing with Santee Cooper.

Aschenbach said the fact that the proposals dealt with the utility’s debt is positive for bondholders, although he pointed out that the state has said all along that the debt must be paid off.

Focusing on natural gas might not be a good long-term strategy for the state’s energy supply, he said, because it’s vulnerable to future price spikes. Natural gas is also a fossil fuel that he said won’t help the state reduce its carbon footprint much to comply with federal requirements.

Natural gas “has about 50% of the carbon content that coal has,” Aschenbach said. “And it could make electric generation just as expensive as building a new nuclear unit, which is carbon neutral.”

He said it also has been shown that nuclear reactors are reliable 90% of the time when they are in operation.

South Carolina should take another look at restarting construction of one or both of the new reactors at the Summer site with a new partner, he said, adding that the project was about 37% complete when Santee Cooper stopped work on it in July 2017.

The decision to scrub the project by Santee Cooper and lead partner in the failed project, South Carolina Electric and Gas, came about three months after Westinghouse, the prime contractor for the South Carolina project and a similar twin reactor project in Georgia, filed for bankruptcy in March 2017.

Santee Cooper later determined that it would be too expensive and it would take too long to complete the project. The Georgia project is still under construction with a new lead contractor.

Westinghouse, which emerged from bankruptcy in August 2018 when it was sold for $4.6 billion to Brookfield Business Partners, filed a complaint in its Chapter 11 reorganization case in April claiming that Santee Cooper is improperly withholding equipment worth millions of dollars that it owns.

On May 14, Santee Cooper filed a federal lawsuit against Westinghouse and Brookfield in the Charleston division of the U.S. District Court for South Carolina. The suit requests that the court find that Santee Cooper has sole title to the property that it purchased to construct the two nuclear units at V.C. Summer.

Santee Cooper said the property includes machinery, computer hardware and its associated software, apparatus, components, articles, materials, systems and structures that it has paid to preserve.

Westinghouse received approximately $1.48 billion in equipment milestone payments for the project, which experienced significant delays “caused by Westinghouse’s failure to complete work as promised,” Santee Cooper said in its 15-page complaint.

“As a part of the bankruptcy, Westinghouse asked for permission to collect certain identified items that it owned from the…site,” said the suit. “The owners granted the requested permission [and] Westinghouse retrieved certain identified construction equipment that it asserted it owned, which had been left when they walked off the site.”

Westinghouse never claimed during its bankruptcy case that it owned any of the equipment, Santee Cooper said, adding that a claim wasn’t made until after Brookfield acquired the company.

Santee Cooper said it has spent $1.5 million to place the equipment in a secure location, and another $5 million annually will be spent to maintain and preserve the items until they can be sold.

The new lawsuit was disclosed the same day it was filed on the Municipal Securities Rulemaking Board’s EMMA filing system. The case number is 2:19-cv-01432.

The Westinghouse lawsuit is the latest legal challenge for Santee Cooper.

At least two class action lawsuits have been filed: one in Hampton County, South Carolina, and the other in the U.S. District Court of South Carolina’s Beaufort Division.

In mid-April, an investor in Santee Cooper’s mini-bond program filed a federal lawsuit contending that the unrated debt was sold at artificially deflated interest rates at a time when details about its troubled nuclear project were hidden from the public.

The suit alleges that the South Carolina Public Service Authority, and Lonnie Carter, the authority’s former chief executive officer, violated anti-fraud provisions of federal securities laws by failing to disclose pertinent information to investors about the failing nuclear reactor project.

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