South Carolina takes another step toward selling Santee Cooper
South Carolina lawmakers will dig deeper into selling state-owned Santee Cooper after receiving a report indicating high interest from companies willing to lower electricity rates and take out the public utility’s $8 billion in debt.
The Public Service Authority Evaluation and Recommendation Committee decided Wednesday that the consulting firm ICF should prepare a new proposal outlining the next steps to take in exploring a sale.
The decision followed a presentation by ICF Executive Director Judah Rose about the 15 non-binding proposals from 10 firms it received. They are interested in purchasing or managing Santee Cooper.
The companies have not been named publicly due to the preliminary nature of the committee’s work.
ICF focused the most attention on proposals that would lower wholesale rates and defease Santee Cooper’s debt. ICF estimated the debt totaled $7.9 billion in December. It consists of Santee Cooper’s tax-exempt, taxable and mini-bonds plus $3 million in short-term debt and penalties for early defeasance.
“If do we do nothing, [and] no proposal is accepted, rates at Santee Cooper are not going down,” said Gov. Henry McMaster, who has supported shedding the utility since it decided not to finish two nuclear reactors at the V.C. Summer plant in July 2017, leaving billions of debt without anything to show for it.
Rose agreed that Santee Cooper’s rates will rise as it pays off debt for the shelved reactors over the coming decades. Three complete proposals submitted to ICF said they would write-off the reactor debt, a move like a "sudden depreciation" that would enable them to offer lower wholesale rates than Santee Cooper will charge, he said.
“We’d call that a happy surprise,” McMaster said.
Rose, however, cautioned that there are uncertainties in the proposals to convert Santee Cooper from a publicly owned entity to an investor owned utility.
Those include the unknown cost of upgrades to South Carolina’s voltage system, which is lower than most other states. Upgrades will be needed if a buyer brought power into South Carolina that is generated in another state or if additional generation is needed due to growth.
“While South Carolina doesn’t need significant generation in the near term, it will need generation,” he said.
Rose also said there are no guarantees how long rates would remain lower than what Santee Cooper needed to charge. ICF said a sale would bring job losses to Santee Cooper. The firm’s summary report of the proposals said up to 500 employees could be affected.
Some committee members said they were not convinced, one way or the other, if the ICF report supported selling Santee Cooper.
The committee asked Santee Cooper and the electric cooperatives serviced by the utility to comment on the report. Committee members will submit comments and questions that will be used to guide ICF in developing a new proposal to further explore a sale.
"Santee Cooper appreciates the committee’s request for comments and will be providing those soon," said spokeswoman Mollie Gore.
Continued uncertainty over Santee Cooper’s fate underscores the negative outlook on the utility’s bonds, S&P Global Ratings said in a comment about interest the state has received from prospective buyers.
“The state has not decided to sell Santee Cooper as of yet, so we believe it is too early to assess the proposals' impact on S&P Global Ratings' credit ratings on the utility,” said analyst Jeffrey Panger. “However, we do believe that the report contributes to the general uncertainty surrounding Santee Cooper's future, as our negative outlook reflects.”
S&P assigns an A-plus rating to Santee Cooper’s bonds. It said it will continue to monitor the potential sale, and the legal and political issues the utility faces.