Among others, he's met with leaders of the Department of Mental Health, the Department of Health and Human Services and the State Ports Authority.

In each case, the governor has questioned the effectiveness of these agencies and whether they're as lean as they should be.

A few weeks back, it was Santee Cooper's turn.

Sanford wasn't worried about whether the utility is a bloated bureaucracy, but he did create waves by coming in with suggestions that would require a striking restructuring of the way it does business.

Sanford asked about Santee Cooper's real estate holdings, the purpose of its advertising, its role in economic development, its debts and its contributions to charity.

The biggest bombshells, however, came when the governor asked Santee Cooper officials about giving up a greater share of their operating revenues to the state's general fund.

Aren't Santee Cooper's rates, which can be 10 to 40 percent less than those of investor-owned, or privately run, utilities, the result of tax breaks that are the equivalent of a subsidy, the governor asked.

Couldn't, and shouldn't, Santee Cooper cut its interest expenses to make a bigger contribution to the state, Sanford queried.

He never revealed how much bigger he thought Santee Cooper's contribution should be, but he said Santee Cooper could save money by slowing its push to expand generating capacity.

"The fact is that 70 percent of your business is making sure that some guy can operate his VCR for a little less than he'd otherwise be paying," Sanford told Santee Cooper executives at the July 17 meeting. "I think the economic benefits of that to the state are at best marginal."

For a utility that's been run in pretty much the same way since 1939, the suggestions made by the governor at Santee Cooper's Moncks Corner headquarters would mean a huge break from the past.

John Tiencken, the chief executive officer of Santee Cooper, didn't give Sanford the answers he was hoping to hear.

For starters, Tiencken told the governor that Santee Cooper's rates are lower because the company is more efficient than other utilities. Sanford countered that the lower rates are possible only because of the utility's status as a state agency exempt from certain taxes, not because of its greater efficiency.

In an interview in his office a few days after his meeting with Sanford, Tiencken defended how the utility is run. He said Santee Cooper has accomplished precisely what it was established to do when it was created: make sure that the South Carolina residents it serves get the cheapest power possible.

A PUBLIC WORKS PROJECT

When Franklin D. Roosevelt was elected president in 1932, much of rural South Carolina still lit homes with gas lamps. Power companies at the time were reluctant to spend the money to string lines to small communities far from their plants. Moving to lift the nation out of the Great Depression, Roosevelt's New Deal quickly changed the landscape.

As part of a program of nationwide public works projects, Roosevelt's administration bankrolled the Pinopolis dam, and the S.C. Public Service Authority (Santee Cooper's formal name) was born.

Although lawmakers in Columbia have little control over its operations, Santee Cooper was set up as a state agency in order to qualify for federal funds. That also lets Santee Cooper escape property and income taxes, allowing the company to charge less for its power than investor-owned utilities.

The federal government paid the bill for thousands of miles of power lines to be strung in South Carolina. The lines connected to 20 power cooperatives, groups of residents that were obliged to buy their electricity from Santee Cooper.

Santee Cooper now generates power for 1.6 million customers and supplies water to 102,000. The company runs two hydroelectric stations, four coal-burning generators, a natural gas-fired station and a "green," methane-burning complex. The company owns a third of a South Carolina Electric & Gas nuclear plant in Jenkinsville and operates turbine units in Myrtle Beach and on Hilton Head Island.

About 70 percent of its revenue comes from residential customers, while military and industrial users make up 30 percent.

Every year, Santee Cooper contributes about 1 percent of its gross operating revenue to the state, pouring about $10 million into the $5.4 billion general fund last year.

It also contributes to the state indirectly as an engine for economic development. Although it can't alter its rates for a specific customer as SCE&G can, Santee Cooper has been a major factor in courting companies such as Nucor Corp. and Alcoa Inc. to build plants in the state.

In ticking off its successes, Tiencken points to Santee Cooper's top-level bond ratings, its reliability in providing uninterrupted service and its increasing efficiency. In the past nine years, Santee Cooper has trimmed its staff by 7 percent while boosting production by 50 percent. Tiencken also is proud to manage the lakes he grew up fishing, and he is proud to head the company where both of his parents worked.

TAXPAYERS VS. RATEPAYERS

To Sanford, the Santee Cooper model is outdated.

With power companies blanketing the state, Sanford says Santee Cooper should spend less on building new generating plants and "feel-good" advertising and let investor-owned utilities pick up the slack.

Sanford says Santee Cooper should help taxpayers more by focusing on economic development, particularly by courting big industrial companies looking for a home.

"What is the strategic advantage that comes to the state of South Carolina as a result of being in the residential electric business?" Sanford asked Santee Cooper officials at their meeting with him.

The governor said the utility should work harder for South Carolina's 4 million or so residents, about 65 percent of whom aren't served by Santee Cooper's cheap electricity.

Tiencken and his executives countered that economic development, while a major component of the utility's operations, is a byproduct of its primary mission.

Because it receives no state or federal money, Santee Cooper's obligations are to its ratepayers and its bondholders, Tiencken said.

Taxpayers finish third.

"Our end-all and be-all is rural South Carolina. That's where we started. That's how we started," Tiencken told the governor. "We're not operating a business. We believe that we're performing and doing what we should be doing and how we should be doing it."

The average Santee Cooper customer would pay an additional $20 per month if forced to switch to an investor-owned utility, according to Graham Edwards, the chairman of Santee Cooper's board and its former chief executive.

But that's just an estimate. Santee Cooper's average residential customer now pays $74.28 a month for its power. The average SCE&G customer pays $86.97 each month.

Executives at Central Electric Power Cooperative Inc. declined to speculate how much their rates would change if they were forced to buy more power from investor-owned utilities such as SCE&G.

Tiencken and his team try to keep rates competitive by carefully figuring how much power they need day to day and year to year. Buying too little generating capacity causes spikes in rates. Buying too much eats into Santee Cooper's bottom line. Temperatures and population growth are projected. The cost of new plants are balanced with power rates and interest rates. And, at the end of the day, most of Santee Cooper's revenue goes to paying down its debt, reinvesting in existing plants and building new facilities. Tiencken calls it "moving the elephant one inch at a time."

"Obviously we have a great interest in what the state wants and what the state needs because we are an asset of the state and we think we should be involved in making the state's objectives a reality," Tiencken said. "However, we have very real obligations. ... We have to balance those interests with the interests of the state."

There are close to 2,000 public utility companies in the United States. Some contribute to their state's coffers; others don't.

Energy Northwest, a joint-operating agency of 18 public utilities in the Pacific Northwest, pays a privilege tax to state and local governments amounting to 1.6 percent of its revenue.

The N.Y. Power Authority, a state-owned utility, pays similar taxes but is under no obligation to give the state a set amount year in and year out.

Santee Cooper officials stressed that with a capital-intensive industry such as power generation, there's not much room for it to give more.

"You have to plant so much hardware and metal into the ground that investment has to have some reasonable certainty of return," Tiencken said. "If you don't have a reasonable certainty of return (to bondholders), then people aren't going to spend money on it."

Taking on more debt is not part of Tiencken's vision for the company. In fact, he's bent on reducing its current debt levels. About 70 percent of the company's assets were financed by bonds that need to be repaid. Tiencken wants to reduce that percentage to about 65 percent.

At the same time, the company is planning to meet the increased power needs of a growing population.

Santee Cooper now has about $2.7 billion in debt and plans to sink another $508 million in capital expenditures this year. Last year, Santee Cooper issued $921.7 million in bonds, capital that went to refunding bonds issued in the early 1990s; funding construction on a coal-burning generator that will start operating in 2007; and building a natural gas burning generator in Iva, a town in the northwest corner of the state.

Santee Cooper has spent about $280 million in recent years to meet higher environmental standards and to make its plants compliant with the Bush administration's recent tweaking of the Clean Air Act.

Sanford supports the idea of lowering Santee Cooper's debt, but he wants the eventual savings returned to taxpayers, not dedicated to construction of new plants.

"If you've got a stable business with certain demand, fairly consistent estimates in terms of capital need, why would you need to have a heavy debt load?" he asked. "Why wouldn't you lower that number so that you could pay a higher dividend back to the taxpayers of South Carolina, rather than to a coupon holder in New York or New Jersey?"

INFLUENCE ON THE BOARD

Making some of the bigger changes suggested by Sanford wouldn't come easily.

For starters, Santee Cooper officials said Columbia lawmakers would have to change Santee Cooper's charter for the company to raise rates or scale back service.

"If you can change the rules of the game, then you can look at what's best for the state," said Edwards, the board chairman.

Sanford may be looking to do just that. At his meeting with Santee Cooper officials, Sanford said the enabling statutes could be changed, and he hasn't ruled out the idea of pushing such a change in the General Assembly, according to Sanford spokesman Will Folks.

Currently, the state's only control over Santee Cooper operations resides in the governor's right to appoint its board of directors.

Although board members have seven-year terms, former Gov. Jim Hodges won the right to replace members at his discretion in 2000. Hodges promptly cleared the slate and tapped 11 new directors.

Since he took office in January, Sanford has appointed seven new board members, including Edwards.

As Sanford said earlier this year in addressing various agency board appointments, a good board "is not a rubber-stamp board but one that gets very much into management."

Claude Marchbanks, a former state representative and one of the board members Hodges ousted in 2000, said Sanford could end up with a "tremendous amount" of influence over Santee Cooper's operations. He warned the new governor to step lightly, though, and not to try to fix something that's not broken.

"You don't want the Legislature to wind up running the business. That could be detrimental," Marchbanks said. "Santee Cooper is a right arm for the state, and we should be very, very careful about changing its operations or the manner of its operations."

In the closing minutes of his meeting with Tiencken, Sanford asked whether Santee Cooper leaders would "meet perceptively" a request from Columbia to share a larger percent of annual operating revenue with the state.

The comment was first met with laughter around the room before Edwards broke in. "I don't believe that we can arbitrarily do that," he said.

Click here to return to story:
http://www.charleston.net/stories/080403/sta_04santee.shtml