Lawmakers aren’t supporting NextEra’s bid to purchase Santee Cooper because they want 2 million South Carolinians paying higher rates and upward of 700 of them laid off. And certainly not because they’re happy with the idea of getting stuck with a multimillion-dollar bill for obligations NextEra won’t assume, and having to approve a disturbing work-around of the Public Service Commission and some massive tax breaks.
The attractive thing about the bid is the fact that it includes a $541 million settlement of a class-action lawsuit filed by Santee Cooper customers.
So the possibility that Santee Cooper could reach its own settlement changes everything.
As The Post and Courier’s Avery Wilks and Andrew Brown report, Santee Cooper, Dominion Energy and plaintiffs’ attorneys have inked a tentative deal that would require Santee Cooper to rebate its customers $200 million and for Dominion Energy to kick in another $320 million. That’s on top of Santee Cooper’s reform plan, which slashes operating costs in order to pay off its remaining $3.6 billion in debt from the failed V.C. Summer nuclear construction project while still offering lower rates than NextEra proposes.
It’s hard to imagine that NextEra’s $9.4 billion bid could hinge on a $500 million component, and in fact it wouldn’t: It’s not the money that’s important to lawmakers. It’s the fact that the lawsuit could be settled before a court could render a decision.
That’s because if a court rules against Santee Cooper, spokeswoman Mollie Gore told me Thursday, “we will be out of business.”
Jessica S. Cook et al v S.C. Public Service Authority (aka Santee Cooper) et al claims that state law doesn’t allow Santee Cooper to charge anything for the $4 billion it spent on two unfinished nuclear reactors because they aren’t "used and useful" — the usual requirement for utilities to charge ratepayers for their expenditures.
Since Santee Cooper is a state agency and not regulated, it wasn’t covered by the constitutionally questionable Base Load Review Act that allowed project partner SCE&G to bypass "used and useful" and charge customers for the reactors, and its central legal argument is that state law lets it charge whatever rates it needs to pay its bills.
If the suit goes to trial and Santee Cooper loses, it would be required to repay the $670 million it's already charged plus the remaining debt. And since it couldn’t charge customers — this is the existential threat that preceded and in part precipitated the Legislature’s decision to create that other existential threat — it would have no way to generate the money.
Absent legislative intervention, Santee Cooper would be plunged into bankruptcy and forced to default on the nuclear bonds.
Now, just as when SCE&G was trying to make everybody believe it would be forced into bankruptcy if the Legislature didn’t let it keep charging 10 percent profit on its debts from the state’s biggest-ever business failure, a Santee Cooper bankruptcy wouldn’t be the end of the world. No one’s power supply would be interrupted, and utility workers probably wouldn’t lose their jobs. Big investment companies and other bondholders probably would absorb most of the cost that ratepayers are now on the hook for.
But it would be a messy, protracted process with a lot of questions we can’t answer with any certainty: Would a federal bankruptcy judge replace a utility board that’s appointed by a governor? Would the judge force all or parts of Santee Cooper to be sold? And if so, would her priorities for a sale be in the interests of ratepayers?
While it’s clear that a default wouldn’t hurt the state’s credit rating, it could hurt South Carolina’s reputation as a good place to do business.
Santee Cooper’s reform plan doesn’t say what it would do if it loses the lawsuit. When I asked the utility’s best friend in the Legislature what the contingency plan was, Sen. Larry Grooms told me Thursday that the lawsuit had to be settled.
Mr. Grooms acknowledged that without a pre-trial settlement, “the whole state will just be rolling the dice over what happens next.” But he says there is “a way out of the doomsday scenario.” State law requires Santee Cooper to pay 1 percent of its annual revenue to the state general fund. Mr. Grooms says the Legislature could increase that annual requirement by the amount it would take to cover the refunds and pay principal and interest on the bonds. Since it would fund a state-imposed fee rather than nuclear debt, Santee Cooper could collect that money from ratepayers.
I have no idea whether that would even be constitutional, but it sure sounds like robbing Peter to pay … Peter. Of course, so does the NextEra plan. Santee Cooper’s proposed settlement, on the other hand, could actually benefit Santee Cooper’s customers — assuming the Legislature is willing to lock in reforms that the utility has proposed, and add some more on top of them.