Bill would create another legislative guarantee for utility debt
A bill currently in a Senate subcommittee would guarantee a refinancing of SCANA’s debt by authorizing a new ratepayer charge.
Under S.110, the Public Service Commission (PSC – the utility regulatory body accountable to lawmakers) could authorize SCANA to refinance its remaining debt from the failed nuclear project, or to refinance utility costs from natural disasters. The process is called securitization, and the debt would be guaranteed by law.
Essentially, the PSC would authorize SCANA to issue new bonds for this purpose through a “special purpose entity” (such as an LLC), and to charge a new ratepayer fee to pay those bonds. Once the PSC issued the securitization order, it could not amend or terminate that order or the new ratepayer charge (except to ensure the necessary amount is collected) – much like the Base Load Review Act, which tied regulators’ hands in favor of the utilities.
The bill would also create a covenant with the bondholders, making the charge untouchable by the state. The charge would be protected from:
- Future legislative action removing or amending the statutory guarantee
- Any action by the state or PSC that would damage the value of the ratepayer charge, or revise the amount of debt the bonds are intended to refinance, or
- Reduction before the refinanced debt is paid in full
Two existing state guarantees of utility debt are why ratepayers all over South Carolina are currently paying for nuclear plants that will never be completed. The Base Load Review Act essentially guaranteed the debt of a private utility by pledging ratepayers as the utility’s capital investors. That’s why SCANA’s ratepayers only received partial relief instead of having the V.C. Summer charge entirely removed from their bills.
The reason Santee Cooper customers – including the electric cooperatives all over South Carolina – have not received any relief from their 45% share of the V.C. Summer debt is because Santee Cooper’s enabling law contains a legislative bond covenant similar to the one proposed in S.110. This covenant promises that the state will not change or restrict Santee Cooper’s power to set rates. It further promises that Santee Cooper will charge what it needs in order to a) pay its expenses, b) operate its facilities, and c) pay its debt.
According to the US Supreme Court, a statutory bond covenant constitutes a contract, and the state cannot simply withdraw from that financial obligation on a whim (Article I of the Constitution prohibits states from passing laws “impairing the obligation of contracts”). Accordingly, the court in 1977 overturned a retroactive repeal of a bond covenant enacted by New Jersey.
Any attempt to back out of a legislative bond covenant would therefore almost certainly invite extensive – and expensive – litigation.
This bill would enact another legislative debt guarantee – despite billions of utility debt already owed because of two other legislative guarantees.
This bill is currently in a Senate subcommittee, where it has received several hearings.