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Santee Cooper CEO says bondholders, contracts could hamper utility sale

As South Carolina's governor pushes the sale of Santee Cooper, lawmakers appear in the dark on the value of the state-owned utility and are beginning to grapple with "complications" that must be considered before an agreement can be reached.

House Speaker Jay Lucas and Senate President pro tempore Hugh Leatherman sent a letter to Gov. Henry McMaster on Oct. 11 seeking information on "any and all valuation studies" conducted on the potential sale of Santee Cooper. The House and Senate leaders noted that the South Carolina General Assembly also will hire an outside expert to assess the valuation of Santee Cooper.

"In order to approve its sale, the General Assembly and our state's citizens must know the true value of Santee Cooper. We cannot allow this investment to be sold at a fire sale price if we firmly believe that is not in South Carolina's best interest," Lucas and Leatherman wrote in their letter to McMaster.

Santee Cooper, known legally as South Carolina Public Service Authority, and project partner South Carolina Electric & Gas Co. announced July 31 that they had decided to halt construction of two new 1,117-MW reactors at the V.C. Summer site in Fairfield County. The decision has led to tense legislative hearings, criminal allegations and demands for rate relief.

McMaster has since pushed for the sale of Santee Cooper or even part of the utility to offset V.C. Summer costs, hinting at interest from four investor-owned utilities.

Santee Cooper President and CEO Lonnie Carter on Oct. 11 appeared before a special Senate committee reviewing the abandonment of the nuclear expansion project and the potential sale of the public utility.

"Santee Cooper can be sold. But there are complications that would have to be dealt with," Carter said.

The outgoing executive, who believes that Santee Cooper should not be sold to an investor-owned utility partly because it is more "heavily leveraged" and offers lower rates, said there are "numerous" obstacles to a transaction.

"First of all, there's the issue of what does it take to clear the debt," Carter said.

Santee Cooper owns $4.4 billion of outstanding revenue bonds related to financing and construction costs of the Summer units, the CEO noted.

"As you can imagine, a bondholder is now going to be concerned about anything that's done that might impair their revenue stream," Carter said. "It's likely that if you materially impact the revenue stream in any way, then you will likely have to call all of the bonds."

The CEO added that there would likely be a $1.5 billion premium tied to paying off the bonds.

Santee Cooper also provides electricity to several electric distribution cooperatives in the state through a wholesale power contract that runs through 2058 with Central Electric Power Cooperative - S.C.

Carter said he does not think Central has a contractual right to prevent a sale of Santee Cooper but was unclear on whether the co-op could take a pro rata share of generation assets.

The company also is in the middle of relicensing a hydroelectric station and manages or owns thousands of acres of lakes, wildlife habitat and undeveloped land preserved for economic development.

'Nothing protects the customers'

Carter said the state itself has no obligation to pay Santee Cooper's bonds, noting that the utility sets its rates to cover the bonds.

Santee Cooper has implemented five rate increases since 2009, with 4.3% of the 15.7% overall rate hike tied to covering revenue bonds issued to finance the construction of unfinished units 2 and 3 of V.C. Summer, according to Carter.

Sen. Mike Fanning pointed out that while the state and Santee Cooper are essentially protected from the debt obligations, "nothing protects the customers."

Fanning, who represents Fairfield County, said there was a regulatory system in place for SCANA Corp. utility SCE&G's revenue increase requests.

"At least there was a system in place. A system that did not work and failed miserably, but there was a system in place where SCANA did at least have to go and present requests to [the Public Service Commission of South Carolina] and have those rates approved," Fanning said.

Santee Cooper's board approves bond issuances and revenue increases with "no check" on the debt or rates, the senator added.

"How can we possibly make a case to the citizens of South Carolina that we need Santee Cooper, a public entity that has fewer checks on it than even SCANA does, that we need them to save us from this ever happening again?"