As part of the ad hoc committee charged with studying the future of Santee Cooper, I’ve received a crash course in the workings of our state’s government-owned power company. And my conclusion is this: Santee Cooper’s assets should be sold to an investor-owned utility (IOU). This is partly based on principle — I believe the state should not own a power utility any more than it should own a cell phone company or a trucking firm. But there is a more pragmatic reason.
Absent a sale and the infusion of new money, Santee Cooper ratepayers will remain on the hook for $15 billion in principal and interest bond payments over time. The state Constitution prohibits the use of tax dollars to pay down this revenue-bond debt, which leaves no option but to increase to punitive levels the rates paid by Santee Cooper’s customers (and by the customers of the electric cooperatives, like Palmetto Electric, that buy power from Santee Cooper).
The committee has retained an international consulting firm with expertise in energy issues to assist with an analysis of the purchase offers received from IOU’s. But as important as this is, we must bear in mind that a much broader challenge still exists. We don’t have just a Santee Cooper problem in South Carolina; we have an electricity monopoly problem.
Whenever the producer of something has a monopoly and the consumer has no choice, the quality of goods and services decreases while prices rise. But in South Carolina, instead of allowing competition from multiple producers to give consumers choices, the legislature has given the big utilities (Santee Cooper, Duke Power and SCANA) service-area monopolies and guaranteed them a 10.2 percent return on invested capital — even when they make poor decisions.
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Predictably, these big utilities pursue capital-intensive projects in order to maximize their return. That’s why, despite a steady decrease over the past decade in the wholesale price of power in our country, retail rates charged by the utilities in our state have soared.
It doesn’t have to be this way.
There are ways to bring free enterprise to the production and sale of electricity. States in the Northeast and Midwest separate “generation” (i.e. the producing of power) from “transmission and distribution” (i.e. its delivery to customers). This allows customers to choose from a menu of different types of power (e.g., wind, solar, biomass, natural gas, nuclear, hydro, etc.) provided by a number of companies at competitive prices.
As for the delivery, a Regional Transmission Organization (RTO) or Independent System Operator (ISO) is set up, with the RTO/ISO managing the grid and unleashing competition by providing open access to it. About 60 percent of the U.S. electric power supply is managed by RTO’s or ISO’s, and consumers benefit from the lower prices that competition brings.
If the only thing the legislature does is sell the assets of Santee Cooper to an IOU, it will have failed. Simply swapping a public power provider that has a monopoly for a private one that has the same monopoly does not address the underlying problem.
We must also do the harder work of unleashing the free market in energy production — something the large utilities with their legislatively granted monopolies will pay their lobbyists obscene amounts of money to prevent.
That fight is coming, and it is up to the public to insist that their elected representatives empower consumers rather than a handful of politically connected utilities.
Sen. Tom Davis represents Beaufort and Jasper counties in the South Carolina Senate; TomDavis@scsenate.gov.
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