NextEra, Santee Cooper have plans for the SC utility. Where do they differ?
South Carolina lawmakers are weighing whether to sell Santee Cooper, the 86-year-old state-owned power utility, to Florida-based NextEra, handing over control of its more than 1,600-person workforce and roughly 2 million direct and indirect customers.
They have a lot of factors to consider now that they have in hand a state report evaluating NextEra’s bid to buy Santee Cooper, Virginia-based Dominion Energy’s plan to manage the utility and Santee Cooper’s own plan to reform itself.
Whether through a change in ownership or not, reform is widely seen as necessary after the utility racked up $4 billion in losses tied to a failed effort to build two nuclear reactors at the V.C. Summer nuclear generation station in Fairfield County.
The biggest contrasts in proposals are in the plans to sell the utility to an investor-owned power company, or leave it as is to allow current management to guide reforms. One big incentive for selling to NextEra is the company plans to immediately pay off the utility’s more than $6 billion debt, including the remaining $3.6 billion associated with the now abandoned nuclear project.
If Santee Cooper stays a state entity, the utility says it too has a plan increase state oversight of projects moving forward and to pay off $3.6 billion of debt over 12 years, an amount that equals the remaining debt from the V.C. Summer project. Its remaining debt would be paid over a longer period of time while taking advantage of favorable interest rates, according to its reform plan.
Last week, The State sat down with Santee Cooper CEO Mark Bonsall and NextEra’s Michele Wheeler, who would be the chief operating officer for the entity Santee Cooper would become if sold to the Florida-based power company. The two answered questions about their proposals and how they would impact rates for customers, the publicly accessible lakes, existing employees of the utility and the state’s movement toward renewable energy, among other issues. Here’s what they said:
What happens to the lakes?
Santee Cooper owns Lake Marion and Lake Moultrie, which provide more than $400 million annual tourism impact including from fishing tournaments and boating on the lakes, according to Santee Cooper officials.
About 65 of Santee Cooper’s employees have responsibilities around the lakes, including maintaining 42 miles of dams and dikes that were created when the river was dammed to create a hydroelectric facility.
The lakes also have 450 miles of shoreline and more than 600 residential leases, where people have built homes, and 50 commercial leases for businesses such as for bait and tackle shops.
Santee Cooper provides aquatic weed control, mosquito control, forest management, lake management and flood control, said Santee Cooper spokeswoman Mollie Gore.
Two drinking water treatment plants located on the lakes sell wholesale water that serves 200,000 customers in the Lowcountry.
“They’re tremendous resources,” said Bonsall, the Santee Cooper CEO. “They are a source of potable water, and the reliability of water supply to the region. They’re also just a magnet. The tourism impact is absolutely fantastic.”
If NextEra buys Santee Cooper, the investor owned utility will also acquire the lakes.
But not to worry, said Wheeler, NextEra’s vice president for regulatory and political affairs who, under a sale to NextEra, would become the CEO of the newly acquired Santee Cooper and would work from Moncks Corner, where the utility is based.
Wheeler said the company has no plans to change anything about how the lakes are operated, including the lease agreements.
Wheeler also said NextEra has experience to inform managing the lakes.
According to the Department of Administration’s report, NextEra owned and operated 29 hydroelectric facilities and seven water reservoirs in Maine from 1999 to 2012. As part of its ownership, NextEra was required to maintain more than 300 public recreation sites.
“We have made a commitment ... there will be no change to the lakes. None at all,” Wheeler said. “We’re hoping we could even improve the situation. What we’re hearing is everyone is very happy. We’re not going to touch the leases.”
NextEra also has set aside money in its plan to make improvements that will be required for a federal license renewal around the lakes for improvements to address fish and other wildlife issues, she said.
However, NextEra does not run a water drinking water treatment plant.
Despite that, Wheeler is confident NextEra will be able to handle the water supply.
“On the water utilities themselves, we’re looking at them as another utility business, and our skill set can be used to help manage those utilities,” Wheeler said.
Santee Cooper already has the expertise in house to run its drinking water business.
“The water business is not one, unless you can corner the market, you’re going to make a lot of money in, “ Bonsall said. “It’s a very unique specialized skill set you need that’s not easy to find.
Bonsall also said that, from a philosophical standpoint, water resources and utilities are in line with the public service mission of public utilities, including a commitment to the people who know and manage the lakes.
“You should hang on to your intellectual property if you possibly can in the form of people who know those lakes and know the chemistry and biology,” he said.
What happens to Santee Cooper employees?
Both the Santee Cooper and NextEra plans would reduce the 1,675-person workforce.
However, NextEra has charted out a much more aggressive reduction, cutting employees by 705 people over 5 years.
Company officials said they determined how many jobs they could eliminate by asking its own employees with similar functions to see how many workers they would need to accomplish the same tasks within Santee Cooper.
“We feel strongly that your utility should not be the big job provider in the state,” Wheeler said. “That’s just a bloated organization. We feel your utility should be a job enabler. We should be bringing more businesses to the state.”
NextEra hopes to make its cuts without any layoffs. First, it would eliminate open positions and cut positions through attrition. NextEra would then offer early retirement incentives to employees. Employees also would have the opportunity to move to openings at other NextEra operations.
Layoffs would be the last resort, company officials say. While speaking to state senators on Wednesday, NextEra CEO James Robo said layoffs usually account for less than 10% of reductions.
But what workforce efficiencies NextEra can accomplish still need to be determined. Wheeler said the company wasn’t able to get information about Santee Cooper’s full workforce and what each employee’s role is. If the sale deal goes through, the company would quickly evaluate the workforce.
Employees who continue working with NextEra would be given credit for years of service when they join the company.
Hearing concerns that Santee Cooper employees who lose their jobs as a result of the sale to NextEra — and therefore would no longer be contributing to the state pension plan, while still being promised benefits upon retirement — Wheeler pointed to the more than $1 billion NextEra would give the state that could be used to help the state meet its obligations to those former employees. About half of the money would come through a direct payment upon closing and another $500 million or so expected to remain on Santee Cooper’s balance sheet that would go to the state.
The utility would no longer be contributing to the state’s pension fund for Santee Cooper employees, but those employees also would stop accruing benefits, she noted.
In a very different approach, Santee Cooper’s plan says the utility would reduce its workforce by 161 positions by 2028 through attrition, if allowed to remain a state-owned utility in control of itself. The utility also would invest in retraining existing employees to do other jobs in the company as power resources, such as the Winyah coal plan, are taken off line.
“That’s why you need: time to absorb and redeploy,” Bonsall said.
Energy generation mix
So what would the two plans mean for Santee Cooper’s mix of coal, nuclear, gas and renewable sources of power?
Both Santee Cooper and NextEra plan to shift away from coal energy generation toward renewable and cleaner sources of energy production. But NextEra’s plan to move away from coal is more aggressive and bolstered by a major investment in natural gas, which would become 70% of the utility’s power portfolio by 2024, assuming a sale goes through this year.
Both plan to close the Winyah coal energy plant. But NextEra would do it by 2023 while Santee Cooper plans to close it by 2027.
Currently Santee Cooper’s energy mix is 52% coal, 29% natural gas, 9% nuclear, 5% sustainable resources, and 5% purchased.
Under the reform plan Santee Cooper’s energy mix would be 33% coal, 30% natural gas, 10% nuclear, 17% sustainable resources and 10% purchased by 2033.
To achieve this energy mix, Santee Cooper doesn’t plan large capital expenditures. Instead, Bonsall said the company would pursue flexibility and build out power resources as needed, rather than commit to a big build out that carries high risks for customers. For example, the utility plans to work with solar developers to have them build out projects through which Santee Cooper can buy solar capacity.
Under that model, “All of the risk and ownership and operation is really on the developer,” Bonsall said.
The utility would build a natural gas plan and enter a purchase agreement with another power company to purchase power, Bonsall added.
NextEra’s approach is different in terms of its plan to invest capital expenditures.
It is planning to invest $2.3 billion, which includes building a natural gas plant in Fairfield County, near to the abandoned V.C. Summer nuclear plant. The company, which on its website boasts being the “world’s largest generator of renewable energy from the wind and the sun,” would develop its own solar farms.
It’s energy generation is slated to be 70% natural gas, 12% renewable, 11% nuclear and 8% coal by 2024.
NextEra also would minimize the use of the Cross coal generating station, and possibly close the coal plant in the future.
“Our goal will be to shut down all the coal,” Wheeler said.
However closing the plant is not in its plan at this point.
What about those rates?
According to a state analysis, NextEra’s rates are expected to be 10% lower than Santee Cooper’s planned rates for four years. NextEra’s rates are then expected to increase and be 5% higher than rates projected for Santee Cooper.
Both Santee Cooper’s Bonsall and NextEra’s Wheeler said the rates projected in the state report evaluating bids to buy, manage or maintain Santee Cooper are higher than what they think they can achieve for customers.
Assumptions of certain prices were accepted to evaluate bids in an apples to apples comparison, and NextEra officials believe the assumptions used for natural gas prices are higher than what they will actually be.
“One of the assumptions the DOA asked us to use was a gas curve that was higher than where we think gas is going to be. We do that in the generation mix, (and) it burns more coal,” Wheeler said. “We don’t believe those gas prices, we don’t expect to be burning as much coal as the DOA model would say that it is.”
Santee Cooper’s Bonsall said once a lawsuit filed by ratepayers over the V.C. Summer plant construction is settled, customers could end up paying less than projected for power.
“Our rate forecast doesn’t yet include any allowance for the Cook settlement,” Bonsall said, noting the settlement would end up bringing costs down for consumers, though he could not say by how much or how quickly. “Those monies will go to our ratepayers and Central ratepayers. We’re not showing that here yet. It’s very significant. It’s a difference.”
A Santee Cooper spokesperson Mollie Gore confirmed to The State that a tentative settlement has been reached that could lead to a formal settlement but that the settlement details are confidential at this point. However, on Friday, The Post and Courier reported that parties have reached a tentative agreement over the lawsuit amounting to a $520 million settlement.
