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Columbia Business Monthly

S.C.’s Nuclear Meltdown and Crony Capitalism

Aug 31, 2017 08:47AM ● Published by Emily Stevenson

By Phil Noble

I am a capitalist. The capitalist economic system has produced more – more goods, more good wages, more innovation, more wealth, more people worldwide who have been lifted out of poverty – than with any other economic system.

On a personal level, all my adult life, I have been a capitalist who worked for myself. I have started several small businesses and nonprofit organizations; I took the risk and some were more successful than others. In the ‘90s, I took huge risk with mine and my friends’ money with a cutting-edge Internet company. We were rewarded with huge success – for a while. At one point, my company had a valuation of $32 million, but before the story ended, I was fighting off foreclosure on my house – twice.

I understand economic risk and reward.

What we are now witnessing with the meltdown of the SCANA (SC Electric & Gas parent company) and Santee Cooper failed nuclear project is not about a failure of capitalism but a prime example of the worst of “crony capitalism.”

Exactly what is crony capitalism? BusinessDirectory.com defines it this way:

An economy that is nominally free market, but allows for preferential regulation and other favorable government intervention based on personal relationships. In such a system, the false appearance of “pure” capitalism is publicly maintained to reserve the exclusive influence of well-connected individuals.

This is precise description of the SCANA/Santee Cooper debacle.

Let’s begin with “favorable government intervention.” In 2007, the S.C. legislature passed the Base Load Review Act that changed existing law to allow utilities to charge consumers in advance for the construction of the nuclear facilities plus guaranteeing them a 10.25 percent profit – even if the project failed. Only one other state has such an advance payment provision so favorable to the utilities and it has since been substantially restricted.

Bill S.431, was written by the utilities lobbyist and their lawyers and passed the Senate in just two days without a single recorded vote. The House passed it in three days by a vote of 104-6. It became law two weeks later without Governor Sanford’s signature. In South Carolina, if the governor does not veto a bill, it automatically takes effect in two weeks.

Now, “based on personal relationships.” In politics, personal relationships can be re-defined as personal relationships based on political cash: i.e. campaign contributions, retainer contracts, consulting fees, etc.

According to a column in The State, when the Base Load Review Act was passed, the lead senator for the bill received $74,750 in campaign contributions from electric companies, and “the electric utilities and the nuclear industry made 619 contributions totaling $514, 956 to lawmakers in the legislative session leading up to the vote.”

When SCANA and Santee Cooper decided in 2008 to build these two nuclear facilities, one key factor was a tax provision that would allow SCANA to receive a huge multi-billion dollar tax windfall when the nuclear facility was up and running. As the delays lengthened, it became clear that the utilities were not going to be operational before the tax provision expired.

They went to work with the S.C. congressional delegation in Washington to get the deadline extended. A recent Post and Courier story detailed how all the current the members of the S.C. congressional delegation in Washington received recent political contributions averaging $70,000 each. Also, three of these politicians personally own stock in SCANA.

Next, the “preferential regulation.” The S.C. Public Service Commission, elected by the legislature, is charged with regulating utilities in our state and protecting the interest of the public. In fact, they have become a rubber stamp for whatever the utilities want. They approved the overall nuclear project and have passed each of the rate increases by SCE&G since the project was begun.

Over the last ten years, SCE&G has hit its customers with nine rate increases. Today, 20 percent of their customers’ bills goes to pay for the failed nuclear facilities. With the collapse of the project, SCE&G now want to stick rate payers with a bill of $2 billion (others say the final number could be as high as $8 billion) to cover the cost of their failure – for the next 60 years.

And last,to reserve the exclusive influence of well-connected individuals.” Both SCANA and Santee Cooper spent millions of dollars to maintain their “influence of well-connected individuals” – i.e. the legislature and other government officials. The public side of the spending is in campaign contributions, political party donations, numerous paid lobbyists, underwriting meals and receptions, event sponsorships, etc.

Just one small example: In the first quarter of 2017, Gov. Henry McMaster received $33,500 from Santee Cooper’s co-ops and in June, he received a $2,500 personal contribution from SCANA CEO Kevin Marsh. This does not include tens of thousands of dollars he has received from other utility employees, the utilities’ lawyers and other major suppliers and vendors.

The part of this spending that is not seen, are the retainer fees, consulting contracts and other payments to the members of the legislature and their families. Our state’s weak ethics laws don’t require disclosure. No one knows how many millions of dollars a year SCANA, Santee Cooper and the electric coops spend on these political payments.

Over the coming months and years, there will be lots of accusations, finger pointing, charges and counter charges, law suits and counter suits. But, there are two things we know now for certain.

1. The people with absolutely no responsibility for this disaster – the rate payers – are being asked to pay billions of dollars, perhaps for as long as 60 years.

2. Those who are responsible - SCANA, Santee Cooper and the politicians that passed legislation to enable this to happen (and got paid for it) – will all be blaming each other when they are all at fault.

This is as much a political scandal as a utility scandal as the politicians enabled it to happen – and got paid a lot of money in process.

We need big change and real reform in South Carolina - and this is a good place to start.

It doesn’t have to be this way.

We need big change and real reform - NOW.

 

Phil Noble has a technology firm in Charleston, is founder of World Class Scholars and writes a weekly column for the SC Press Association. Contact him at phil@philnoble.com and get his columns at www.PhilNoble.com

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