Dominion Energy and NextEra Energy were named the top picks to manage or buy the state-owned utility Santee Cooper, in an analysis released on February 11 by the South Carolina Department of Administration. However, the report detailed controversial legislative demands by NextEra and little benefit to Santee Cooper ratepayers. The two investor-owned utilities are vying for a chance to take over Santee Cooper after the legislature directed the Department of Administration (DOA) to evaluate whether to sell the troubled utility or keep it under state control.
A sale to NextEra would leave the state of South Carolina holding liability for pensions and ongoing litigation, among other risks, and require the state legislature to shield NextEra from accountability, as first reported by the Charleston Post and Courier. Santee Cooper also submitted a plan to reform itself after the utility accumulated $4 billion in debt from the failure of the V.C. Summer nuclear plant expansion.
Dominion’s prospective management role would potentially create conflicts of interest and opportunities for self-dealing, including through the expansion of the Atlantic Coast Pipeline project of which the company is the majority owner.
NextEra Demands Legislators Submit to a New Base Load Review Act
NextEra Energy submitted a $9.46 billion bid to purchase Santee Cooper but made familiar demands of legislators before it said it would close the deal. Namely, NextEra would require the legislature pass a bill to pre-approve 2400 megawatts (MW) of new generation and would preclude any party from challenging the need or location of the generation.
The move signifies NextEra’s potential unfamiliarity with South Carolina, considering the financial and political fallout from dealing with a similar legislative requirement, the 2007 Baseload Review Act (BLRA). The much-maligned BLRA shifted the risk for building new power plants onto ratepayers by pre-approving the need for generation and allowing utilities to collect those costs in advance. NextEra, while not asking for advance collection for power plants, demanded legislative pre-approval for its construction plans as a way to circumvent the South Carolina Public Service Commission.
South Carolina Electric and Gas (SCE&G), now owned by Dominion Energy, and Santee Cooper asked for regulatory approval to build V.C. Summer Units 2 and 3 in 2008. The units were never finished, but because of the BLRA, customers picked up the tab. The debt balloon caused by the V.C. Summer failure led to Dominion’s purchase of SCANA, the former parent company of SCE&G, and the push to reform or sell Santee Cooper. While Santee Cooper is often critiqued for its part in the V.C. Summer debacle, the South Carolina legislature created and passed the BLRA responsible for pushing the public utility to the brink of insolvency.
World’s Largest Renewable Energy Company Chooses Gas Instead
NextEra routinely brags that it is the largest developer of renewable energy in the country, but its plan for the purchase of Santee Cooper relies heavily on fossil fuels. NextEra’s proposed legislation would mandate its construction of 1250 MW of new gas-fired generation, a 300 MW addition to an existing gas plant, 800 MW of solar, and 50 MW of battery storage, all by 2024. By comparison, Santee Cooper’s Reform Plan would add 1500 MW of solar and 950 MW of gas-fired generation spread over 20 years, with the option to forego some of the gas if conditions change.
NextEra has failed to set an absolute carbon reduction goal or commit to a net-zero emissions goal, even as peer utilities have now done so. Some utilities, including PSEG, Consumers Energy, and NIPSCO, pledged to forego all new gas plant development.
NextEra’s History with Failed Acquisitions
NextEra’s recent acquisition attempts have met fierce resistance, because regulators ruled that the company had not been adequately concerned with ratepayers’ interests and lacked commitment to existing state renewable energy policies.
In 2014, NextEra attempted to purchase the Hawaiian Electric Company (HECO). Over the course of two years, NextEra failed to convince regulators in Hawaii that its $4.3 billion takeover proposal would benefit consumers. According to a July UtilityDive report, Hawaii regulators believed NextEra failed to show “good faith” and its promises of its “best efforts” were “too broad and vague.”
The Hawaii Public Utility Commission ultimately voted to reject the takeover. The commission said, “The Applicants [NextEra] failed to demonstrate that the Application is reasonable and in the public interest. In reaching this conclusion, the Commission focused on five fundamental areas of concern: (1) benefits to ratepayers; (2) risks to ratepayers; (3) Applicants’ clean energy commitments; (4) the proposed Change of Control’s effect on local governance; and (5) the proposed Change of Control’s effect on competition in local energy markets.”
After the rejection in Hawaii, NextEra set its sights on Texas.
NextEra’s attempt to purchase a majority stake in Oncor, Texas’s largest transmission and distribution electric utility, ended with a scuffle between the company and regulators. First, in April 2017, NextEra’s $18.7 billion bid was rejected. Weeks later, the utility filed a request for a rehearing. NextEra called the commissioners’ actions “arbitrary and capricious decision-making and an abuse of the Commission’s discretion,” and further said the regulators violated Texas law because the commissioners didn’t have the authority to block the deal.
In June 2017, the Texas PUC rejected the offer a second time, in part, due to concerns about Oncor’s future independence from NextEra. The regulators also wanted Oncor’s financials to remain separate from NextEra’s in order to protect Oncor’s credit rating.
In the rejection order, the Texas PUC stated that NextEra “failed to meet its burden.” The final order also stated, “under NextEra Energy’s proposal, the tangible benefits of the proposed transactions to Texas ratepayers are minimal in comparison to the status quo.”
Potential for Self-Dealing and Conflict of Interest by Dominion
Dominion’s bid to manage Santee Cooper was vague with promises of potential savings but did not materially differ from Santee Cooper’s self-reform proposal. The South Carolina DOA selected Dominion as the top bidder for the management contract because it chose not to charge a management fee and DOA believed there was an opportunity for cost savings. Neither DOA nor Dominion provided any detail about the source of the savings. Dominion’s projected savings were so nebulous, DOA removed them from an apples-to-apples comparison of the management bids.
Rather than ratepayer savings, Dominion could be eyeing a South Carolina expansion to its plagued Atlantic Coast Pipeline (ACP). Some advocates have been sounding the alarm for years on what they believe to be Dominion’s plan to extend the ACP into South Carolina. Currently, the ACP stops just 21 miles from the South Carolina border. The ACP is currently projected to cost $8 billion, up from the original $4.5 billion to $5 billion estimate, leading to fears among advocates that Dominion’s management of Santee Cooper could lead to a repeat of the V.C. Summer debacle.
Santee Cooper publicly admitted the ACP could be a source of gas for a proposed combined cycle gas unit. Dominion’s CEO Tom Farrell told the Charleston Post and Courier, “We would like to bring the pipeline to South Carolina if the demand is there. […] I am hopeful that it will come.” Dominion’s control of Santee Cooper could help it mount a case for gas “demand” from an expanded ACP – despite uneconomic costs compared to clean energy alternatives.
DOA, for its part, worried that Dominion employees placed at Santee Cooper may be incentivized to look out for the former’s best interests as much as those of the latter, and acknowledged the Dominion proposal was unlikely to provide any meaningful benefit unless the Santee Cooper Reform Plan were also adopted simultaneously.
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