Santee Cooper: History, Crisis, and Accountability
When Santee Cooper partnered with SCANA to assume a 45% share in the assembly of two nuclear reactors, it borrowed billions of dollars to finance the project. Now that the project has been abandoned, Santee Cooper’s ratepayers will bear the burden of paying off the debt for a project that may never be completed. Santee Cooper serves both residential and industrial customers, but their largest customer base is the electric cooperatives (co-ops) in all forty-six counties. This means that South Carolinians all over the state face decades of paying off Santee Cooper’s share in the failed V.C. Summer construction project.
What is Santee Cooper and who do they serve?
The South Carolina Public Service Authority, known commonly as Santee Cooper, was created in 1934 during President Franklin D. Roosevelt’s “new deal” initiative in an effort to provide electricity to South Carolina’s farmers and small towns. Supplying energy to the entire state was, at the time, a massive undertaking beyond the capabilities and resources of private utility companies. As a public utility, Santee Cooper was able to receive loans and grants from the federal government, which outlined the intended purposes of the utility, including the creation of a state-wide energy system where smaller energy distributors (co-ops) scattered around the state purchased power at wholesale prices from Santee Cooper.
As the state’s largest energy supplier, Santee Cooper currently serves approximately two million people in all forty-six counties of South Carolina. In 2016, sixty-two percent of Santee Cooper’s revenue came from co-op customers, twenty-four percent came from retail residential customers, and the remaining fourteen percent came from large industrial customers. Santee Cooper does not receive state appropriations and is funded entirely by ratepayers. When Santee Cooper joined the V.C. Summer nuclear project, those costs were passed on to its customers.
Who controls Santee Cooper?
Unlike its partner SCE&G, which as an investor-owned utility is subject to oversight by the Public Service Commission and Office of Regulatory Staff and regulated by the provisions of the Base Load Review Act (BLRA), Santee Cooper is a state-owned and operated agency with virtually no external accountability.
The utility is governed by a twelve-member board of directors who have exclusive control over policies and rates. Board members are appointed by the governor, screened by the Public Utilities Review Committee (a ten-member board selected by two legislative leaders and comprised mostly of lawmakers), and then confirmed by the Senate. Once confirmed, they serve seven-year terms.
Santee Cooper is required to submit an annual report to an advisory board comprised of the governor, attorney general, state treasurer, comptroller general, and secretary of state, but the advisory board is basically powerless. Lawmakers have created a system in which Santee Cooper’s board of directors face no accountability for their decisions, and answer to no one for their mistakes. Members can only be removed by the governor, the advisory board, or a majority of the board of directors, but only for violating the law, a provable conflict of interest, or a similarly severe infraction. These criteria set an extremely high bar which ties board members’ job security to intent rather than performance. This means decision-makers at Santee Cooper who wield unchecked power in controlling the rates their customers will pay have little incentive to listen to them or to anyone else.
The board has the ability to borrow money through bond issuance, and has the power to regulate and approve rate increases independent of state oversight. Santee Cooper did not need the BLRA’s provisions to raise rates in advance and pass project costs on to ratepayers, and none of those decisions was subject to approval from an outside regulatory agency. During its nine-year run with the nuclear project, Santee Cooper raised customers’ rates five times, each increase approved solely by its board of directors.
Additionally, many of Santee Cooper’s rate adjustments are invisible to the customers. Their credit report states that “almost 75% of annual revenues are subject to automatic pass through adjustment for cost increases” – which means the utility has the ability to embed costs within its consumers’ rates that the consumers will never see.
The financial burden of V.C. Summers
Santee Cooper partnered with SCANA (the parent company of SCE&G) in 2008 to build the two V.C. Summer nuclear reactors, using its massive revenue stream and bonding ability to help fund the project. As the ORS Executive Director testified during the Senate’s first nuclear committee hearing, “Santee Cooper wasn’t an original partner in V.C. Summer. That happened because rates were going to have such a big impact that SCANA was encouraged to sell a third to [Santee Cooper].”
Despite the general impression that the nuclear reactors would be paid for entirely by customers as the project was being constructed, this was not exactly the case. The development and construction of two nuclear reactors would require a stream of capital far exceeding what could be reasonably paid for by customers. Santee Cooper borrowed heavily to finance its share of the project. Currently, the utility has an outstanding debt exceeding $7 billion, $4.4 billion of which is due to the nuclear project, and its customers are obligated to pay nearly all of it. Santee Cooper has claimed it will use the $976 million from its settlement with Westinghouse to mitigate the cost for customers, but considering Toshiba’s financial situation, that outcome is uncertain.
Unlike SCANA, whose shareholders hold equity in the utility and could bear some of the cost for the failed project, Santee Cooper does not have shareholders. When it sells bonds to generate additional capital, the debt it incurs must be paid by ratepayers because they are the only source of revenue the utility has. The $4.4 billion borrowed for the project is currently on a payment cycle through 2056, meaning that customers will very likely see additional rate increases over the next four decades.
Who can citizens hold accountable going forward?
The General Assembly bears full responsibility for Santee Cooper’s creation and unaccountable discretionary powers. Santee Cooper and SCANA are under two different regulatory structures, but lawmakers are entirely accountable for both.
While there has been talk of selling Santee Cooper, this can only happen by act of the General Assembly. Santee Cooper cannot even explore the idea of selling core electrical assets without lawmakers’ permission. If a buyer willing to assume Santee Cooper’s massive debts was found, the General Assembly would have to pass a bill authorizing the sale and placing the privatized utility under the jurisdiction of the Public Service Commission.
In Santee Cooper, lawmakers created a state monopoly with the extraordinary power to arbitrarily control consumer’s rates and obligate them to pay billions of dollars in debt. They are the only ones who answer to citizens, and are accountable for creating the system that has allowed this disaster to occur.