Proposed buyer for SC-owned Santee Cooper would cut 700 jobs, acquire debt

South Carolina lawmakers now have three options for deciding the fate of Santee Cooper, the state-owned utility that racked up $4 billion in debt associated with a failed nuclear construction project in Fairfield County.

The most far-reaching of the three proposals unveiled Tuesday would sell Santee Cooper to NextEra, a Florida-based electric utility giant, for a complex multi-billion dollar package of cash, acquisition of present and future debt and a pledge for a four-year freeze in electric rates to Santee Cooper’s 2 million ratepayers. Santee Cooper generates about $1.9 billion in revenue each year.

NextEra’s proposal would also result in reducing Santee Cooper’s current workforce of 1,675 employees to 970 by 2025 — a laying off of 705 employees.

The second proposal was from Dominion Energy, another energy giant, which proposes to keep Santee Cooper largely intact but managed by Dominion.

Finally, Santee Cooper submitted its own plan to reform itself. Key components of this plan include a pledge to reduce its workforce from the current 1,675 workers to 1,514 by 2028, but doing so not through layoffs, but through retraining employees, attrition and retirements.

The S.C. Department of Administration selected Dominion’s proposal as the best for third party management of Santee Cooper, and NextEra’s as the best for an outright sale of Santee Cooper. The total number of proposals was not made public.

Those options were outlined in a much-anticipated report, released to the public and lawmakers Tuesday, that gave details of the three proposals to buy, manage or reform and allow Santee Cooper to remain publicly owned and operated.

The report, by the S.C. Department of Administration which solicited proposals on Santee Cooper’s future, was the result of the colossal 2017 failure of the $9 billion V.C. Summer nuclear project.

That nuclear venture was a joint endeavor by SCANA, a former S.C. energy company, and Santee Cooper. Its failure left both companies deeply in debt to the tune of billions. Last year, SCANA was acquired by Dominion, and the future of surviving nuclear partner Santee Cooper has been hotly debated ever since.

Driving the debate is the question of what plan will best protect Santee Cooper’s roughly 2 million customers from shouldering even more of the cost of the now-abandoned nuclear project, which will never generate power for them.

Supporters of Santee Cooper, founded during the Great Depression in the 1930s to provide power to rural areas, also say the decades-old utility is worth saving and that keeping it state owned is the only way to ensure ratepayers are protected from rate hikes down the line.

But on Tuesday, S.C. Gov. Henry McMaster, an early advocate of selling the utility, said he favors Santee Cooper’s sale to NextEra.

Talking to reporters, McMaster said the General Assembly “must act quickly” to sell Santee Cooper, adding that NextEra not only has the best financial package, it is “a fine company.”

“The reactors are not being built. This debt was going to be paid through selling electricity made by those reactors. They’re not going to be built, so where are we going to get those billions of dollars to pay those loans off?” McMaster said.

The three options facing lawmakers were detailed in a more than 100-page report, put together by the state Department of Administration with help of outside consultants.

NextEra’s bid to purchase

NextEra’s bid to purchase Santee Cooper includes taking on Santee Cooper’s debt up to $6.859 billion and paying the state $500 million in cash when they acquire Santee Cooper. Its bid is complex, full of legal and financial terms and will no doubt likely be thoroughly vetted by lawmakers in upcoming public hearings on Santee Cooper’s future.

It is not known whether NextEra’s bid was final or whether the company is open to counter-proposals from the Legislature.

In addition to laying off or shedding 705 workers over the next five years, NextEra also:

▪ Said it would change Santee Cooper from a state-owned utility to a private NextEra subsidiary called SCP&L. The inititials stand for Santee Cooper Power & Light.

▪ Pledges a temporary rate freeze of four years for customers and nearly $1 billion in relief to customers through refunds or rate reductions. But NextEra also is proposing a 42% reduction in workforce — a loss of 705 people — as part of its bid.

▪ However, that four-year rate freeze would be subject to certain conditions, and NextEra said in its proposal it wanted the ability to be able to bill rate payers after four years to collect if various “unforeseen events” occurred during the four-year freeze.

▪ Would provide $941 million in customer refunds or rate credits within 180 days of purchasing Santee Cooper. That figure includes $541 million to customers who for years were hit with higher bills to pay for the doomed nuclear power plant. That $541 million is aimed at settling an ongoing ratepayer lawsuit against Santee Cooper, NextEra said.

However, that lawsuit is headed for trial in April, and lawyers for the plaintiffs have claimed their losses were in the billions.

▪ Would acquire Santee Cooper’s water system and Lake Marion and Lake Moultrie, two large lakes in the center of the state created when Santee Cooper was formed.

▪ Would not assume some $525 million of existing pension and related liabilities on Santee Cooper’s books. The State of South Carolina could use the $500 million cash proceeds received from NextEra for the sale to pay off the employee-related pension and other costs.

▪ Said its bid would be financed by $5.4 billion of equities from NextEra, $2.7 billion of new utility debt by the newly-created SCP&L and $1.3 billion in special bonds authorized by the General Assembly.

NextEra also committed itself to retiring a Santee Cooper major coal-fired electric plant, the Winyah station in Georgetown County, as well as bringing online 800 megawatts of solar energy by 2024 at a to-be-announced location and 50 megawatts of battery storage near the solar facility.

Dominion’s management bid

The proposal by Dominion, a large Virginia-based, investor-owned energy company, said its proposal would come at little cost to South Carolina. It proposed:

▪ Installing three or more top Dominion employees to fill key management positions at Santee Cooper. While the utility is requesting reimbursement for the employee costs, Dominion would not take a management fee.

Since Dominion already serves some 700,000 customers in South Carolina, the top Dominion executives at the helm of Santee Cooper would have “opportunities to pursue synergistic efficiencies and savings” with Dominion, while reporting to Santee Cooper leadership.

▪ Dominion’s plan predicted “minimal incremental cost to the State, its taxpayers, and the customers of Santee Cooper.” And it said that if its plan were to be adopted, it should be done in conjunction with Santee Cooper’s own reform plan, which does advocate various cost-cutting and debt reduction initiatives.

Santee Cooper’s reform plan

Santee Cooper said its proposal was a combination of “operational changes and cost-cutting actions” that would achieve “accelerated debt repayment,” allow it to switch to natural gas and renewable resources and reduce its use of coal.

Santee Cooper would also reduce its workforce from 1675 employees in this year to 1,514 employees by 2028; however, the utility pledges to achieve those reductions through retirements, attrition and retraining of employees.

As a state agency, Santee Cooper’s records and meetings are subject to the S.C. Freedom of Information Act, and Santee Cooper said its proposal would allow it to make improvements to matters like “oversight and transparency.”

Moreover, Santee Cooper said, if its plan was adopted, it would seek oversight and review for pricing, rate hearings and major projects from the — ORS (Office of Regulatory Staff) and the S.C. Public Service Commission. As a state agency, Santee Cooper has largely been immune from state oversight about bills and future projects.

Its plans would allow it to lower customer rates by $2.3 billion over a 20-year period, Santee Cooper asserted.

An energy battle commences

Now the matter moves to lawmakers for consideration.

The proposals pit the interests of two powerful investor-owned energy companies against each other — Dominion, which recently made a significant investment in the state’s energy sector, and NextEra, which has no holdings in the Palmetto State yet. Both are publicly traded, with stock listings on the New York Stock Exchange.

Asked Tuesday about Dominion’s offer to manage Santee Cooper, McMaster said NextEra’s offer to buy the utility was “far superior.”

At this point, it’s unclear from lawmakers, who only got the report when it became public Tuesday, what choice they will make.

The House Ways and Means Committee and the Senate Finance Committee have 30 days to recommend a path forward of what to do with the utility.

That process begins with a joint meeting on Thursday between the two committees. At that meeting, the Department of Administration will give a presentation to legislators about the report. The House Ways and Means Committee then plans to have discussions of the report beginning the last week of February.

“Even with our 30-day time constraint, and the budget process picking up in committee, I am confident this ad-hoc committee will work with diligence and vigilance,” said House Ways and Means Chairman Murrell Smith. “I look forward to leading the next step forward on this incredibly important issue.”

Senate Majority Leader Shane Massey, R-Edgefield, said he hopes to get to the Santee Cooper debate soon, but now is the time to read the report and hear from experts.

“The only responsible position I think at this point is for people to digest what the details are of the report and then make a decision based on that information,” Massey said.

Lawmakers have been debating whether to sell Santee Cooper since 2017, when the utility and its partner, SCE&G, announced it was pulling the plug on a $9 billion plan to build two nuclear reactors at the V.C. Summer nuclear plant in Fairfield County.

Santee Cooper, the junior partner owning 45% of the project, lost about $4 billion in the failed project and has about $3.6 billion in debt remaining. Dominion bought SCANA, SCE&G’s parent company, last year.

Since shortly after the announcement, McMaster began pushing for the sale of Santee Cooper, saying the state should get out of the utility business. Critics of selling the utility have argued that keeping it state owned could protect the utilities customers against rising costs associated with the remaining debt.

Santee Cooper in total has about $6.9 billion of debt, including the $3.6 billion associated with the nuclear project. The utility has 189,780 retail customers, and also provides electricity to 20 electric cooperatives, 13 cities, and more than 25 large industrial customers. In all, Santee Cooper directly or indirectly serves 2 million people in South Carolina.

Santee Cooper also has been working to pay off its debt, recently reaching an agreement with Westinghouse, the former lead contractor on the nuclear construction project, on how to divide equipment at the site.

Ron Aiken, a spokesman for the state Office of Regulatory Staff, said the purchase of Santee Cooper by NextEra would not need approval from the S.C. Public Service Commission, nor would any deal for Dominion to run Santee Cooper.

Santee Cooper is not regulated by the PSC, but Dominion is. NextEra would become regulated by the S.C. PSC if the sale goes through.

NextEra, in a statement later Tuesday, said it is pleased the Department of Administration chose the company as the recommended bidder to buy Santee Cooper outright.

“While there is a lot more work to be done before the state determines the best path forward, we view South Carolina as an extremely attractive state to do business in and look forward to being considered to deliver a more affordable, highly reliable and cleaner energy future for South Carolina and Santee Cooper customers.’’

In an interview with The State, company spokesman David Reuter said the company hopes to stabilize rates with its plan to acquire Santee Cooper.

The company would offer severance packages to the approximately 700 employees that would be let go, he said. The downsizing would occur because the company is moving toward using cleaner forms of energy, he said.

“When you do that, it does require fewer employees,’’ Reuter said. “We will have a detailed plan for employees of Santee Cooper and make sure that as we go through the process, we are doing the right thing by all of those individuals.’’

The option to sell the utility to NextEra may face opposition from some legislators who have Santee Cooper territory in their districts.

“I really expected the NextEra offer to be better than it was,” said state Sen. Larry Grooms, R-Berkeley.

Grooms said if Santee Cooper is sold, there wouldn’t be an entity to make the contribution to the state’s pension system Santee Cooper usually makes. That money would then have to come from taxpayers.

Santee Cooper, under its plan continues to contribute to the retirement system to pay for the benefits as the cost of paying those benefits would be baked into ratepayers’ bills, Grooms said.

Taxpayers would also have to backfill the $20 million a year payment in lieu of taxes to the state’s general fund, Grooms said.

State Sen. Kevin Johnson, D-Clarendon, said he is looking forward to reading through the report, but said he is in favor of keeping Santee Cooper a state-owned utility, but with needed reforms.

“I think Santee Cooper has played a major role in many economic development projects over the years,” Johnson said referring to work done around Lake Marion. “I think Santee Cooper does a lot with the local economy, I’m concerned with what would happen with all the leased lots and all those types of things.”

Travis Miller, a utilities’ analyst with Morningstar Inc., questioned why any investor-owned utility would want to buy Santee Cooper, given its debt and the potentially small return investors would realize. But he said NextEera is big enough to pull off such a deal.

“NextEra is definitely the cream of the crop and could get it done if anybody could get it done,’’ Miller said. “That said, we’ve run the numbers over the last year, and we don’t see how any investor-owned utility, including NextEra, can .... add value for shareholders.’’

“The amount of debt relative to equity is just so large that it’s very difficult to fund that in a way that can grow earnings.’’

Miller said, however, that having a company run Santee Cooper might be more attractive. The report’s recommendation of Dominion as the top choice to operate Santee Cooper “could be a good outcome for Dominion and possibly Santee Cooper customers.

“Customers would get the benefit of Dominion’s huge operational scale in the region. Dominion would get the benefit without making large investments.’’

NextEra, which is larger than Dominion, is the parent company of Florida Power and Light, one of the nation’s largest regulated utilities. Florida Power serves some 10 million customers in the Sunshine State. NextEra operates in more than 30 states, including Georgia and New York.