Can South Carolina's Santee Cooper buy 100% of an LLC without violating the constitutional ban on the state being a joint owner?

Official title

Opinion on whether a constitutional limitation against joint ventures in Art. X, Section 11 applies to Santee Cooper's acquisition of the membership interests in Cherokee County Cogeneration Partners, LLC.

Requester

Requested by Pamela J. Williams, Chief Public Affairs Officer and General Counsel, Santee Cooper.

Plain-English summary

Santee Cooper, South Carolina's state-owned electric utility (the South Carolina Public Service Authority), planned to buy Cherokee County Cogeneration Partners, LLC, a Gaffney company that owns a natural-gas combined-cycle power unit, for $17 million. The deal would give Santee Cooper 100% of the LLC's membership interests. Its general counsel asked the Attorney General's office two questions: does Santee Cooper have statutory authority to make the acquisition, and does the state Constitution's ban on the government being a "joint owner" of a company (Article X, § 11) block it?

The office agreed with Santee Cooper's own proposed answers: yes to authority, no to a constitutional problem.

On authority, Santee Cooper's Enabling Act (Section 58-31-30) lets the agency acquire "any property, real, personal, or mixed, or any interest therein," along with power houses and generating facilities, and to do all acts "necessary or convenient" to carry out its powers. Even though the Act does not mention buying LLC membership interests by name, the office concluded a court would likely treat those interests as "property" and find the acquisition within Santee Cooper's broad powers, much as the Supreme Court in Cooper v. S.C. Public Services Authority read the "necessary or convenient" language broadly.

On the Constitution, Article X, § 11 bars the State or its subdivisions from becoming "a joint owner of or stockholder in" a company. The office explained that the courts read this as requiring a literal joint ownership or partnership with another entity. Because Santee Cooper would own 100% of the LLC, not share ownership with anyone, the office concluded there is no "joint venture" and the provision is not triggered. The office stressed it cannot find facts in an advisory opinion and based its analysis on the facts Santee Cooper presented.

What this means for you

Santee Cooper and other public power authorities: On the facts presented, the opinion treats the acquisition of all of an LLC's membership interests as within Santee Cooper's enabling-act authority and as not creating a prohibited joint ownership, because full sole ownership is not joint ownership with another party.

Government bodies weighing the Article X, § 11 limit: The opinion describes the controlling rule as requiring an actual joint ownership or partnership between a public body and a private entity. Under the cases it cites (Johnson v. Piedmont, Brashier v. SCDOT, Chapman), holding sole title, or contractual control short of shared ownership, has not been treated as unconstitutional joint ownership.

Santee Cooper customers and county residents: The opinion addresses only the legal authority and constitutional question on the facts described; it does not pass on the wisdom or the price of the purchase, and it notes the deal remained subject to required regulatory approvals.

Common questions

Does Santee Cooper have the power to buy a private company's LLC interests?
According to this opinion, yes, on the facts presented. Santee Cooper's Enabling Act (Section 58-31-30) authorizes it to acquire property and interests and to do what is necessary or convenient to carry out its powers, and the office concluded LLC membership interests fall within that authority.

What does the Article X, § 11 "joint owner" ban actually prohibit?
It prohibits the State or its political subdivisions from becoming a joint owner of, or stockholder in, a company. The opinion explains the courts require a literal joint ownership or partnership with another entity for the ban to apply.

Why doesn't buying 100% of the LLC count as a joint venture?
Because, as the opinion puts it, Santee Cooper would not jointly own anything with anyone else; it would own all of the membership interests itself. With no co-owner, there is no joint ownership and the prohibition is not implicated.

Did the AG approve the purchase itself?
No. The opinion is limited to the legal questions on the facts Santee Cooper provided, and it states the office cannot determine facts in an advisory opinion. It does not evaluate the merits, price, or required regulatory approvals.

Background and statutory framework

Santee Cooper is a public corporation in the nature of a quasi-municipal corporation that exercises governmental functions as an agency of the State (Creech v. South Carolina Public Service Authority, 200 S.C. 127, 20 S.E.2d 645 (1942)). Its Enabling Act, Section 58-31-30, grants broad powers, including to acquire any property or interest therein (§ 58-31-30(A)(4)), to acquire generating facilities (§ 58-31-30(A)(7)), to generate and sell power (§ 58-31-30(A)(8)), and to do all acts necessary or convenient to carry out its powers. In Cooper v. S.C. Public Services Authority, 264 S.C. 332, 215 S.E.2d 197 (1975), the South Carolina Supreme Court, while noting the agency's powers are strictly construed, read the "necessary or convenient" clause as an exception broad enough to imply powers like harvesting timber on the agency's lands.

Article X, § 11 of the South Carolina Constitution forbids the State or its political subdivisions from becoming a joint owner of or stockholder in any company, while expressly allowing the General Assembly to authorize Santee Cooper to jointly own electric generation or transmission facilities with privately owned utilities. The opinion follows a line of cases reading the ban to require literal joint ownership: Johnson v. Piedmont Municipal Power Agency, 277 S.C. 345, 287 S.E.2d 476 (1982); Gilbert v. Bath, 267 S.C. 171, 227 S.E.2d 177 (1976); Chapman v. Greenville Chamber of Commerce, 127 S.C. 173, 120 S.E. 584 (1923); Brashier v. SCDOT, 327 S.C. 179, 490 S.E.2d 8 (1997); and distinguishing Nichols v. South Carolina Research Auth., 290 S.C. 415, 351 S.E.2d 155 (1986), where an agency planned to take ownership interests in private entities. A prior 2010 opinion reached the same conclusion about a Santee Cooper guarantee.

Citations

Constitutional and statutory provisions: Article X, § 11; Section 58-31-30 (including § 58-31-30(A)(4), (A)(7), (A)(8), (A)(20)); S.C. Code Ann. § 12-37-10(6); S.C. Code Ann. § 33-44-101(6); S.C. Code Ann. § 33-44-501(b).

Cases: Cooper v. S.C. Public Services Authority, 264 S.C. 332, 215 S.E.2d 197 (1975); Creech v. South Carolina Public Service Authority, 200 S.C. 127, 20 S.E.2d 645 (1942); Johnson v. Piedmont Municipal Power Agency, 277 S.C. 345, 287 S.E.2d 476 (1982); Gilbert v. Bath, 267 S.C. 171, 227 S.E.2d 177 (1976); Chapman v. Greenville Chamber of Commerce, 127 S.C. 173, 120 S.E. 584 (1923); Brashier v. SCDOT, 327 S.C. 179, 490 S.E.2d 8 (1997); Nichols v. South Carolina Research Auth., 290 S.C. 415, 351 S.E.2d 155 (1986).

Source

• Landing page: https://www.scag.gov/opinions/opinions-archive/opinion-on-whether-a-constitutional-limitation-against-joint-ventures-in-art-x-section-11-applies-to-santee-cooper-s-acquisition-of-the-membership-interests-in-cherokee-county-cogeneration-partners-llc/
• Original PDF: https://www.scag.gov/media/i1wjskum/03403558.pdf

Original opinion text

o

Alan Wilson
Attorney General

October 3, 2023

Pamela J. Williams, Chief Public Affairs Officer &
General Counsel
Santee Cooper
P.O. Box 2946101

Moncks Comer, SC 29461-1601

Dear Ms. Williams:

You note that “Santee Cooper is preparing to enter an agreement to purchase [Cherokee

County Cogeneration Partners, LLC],” which is located in Gaffney, South Carolina in Cherokee
County. The purpose of the purchase is to generate electricity. By way of background , you
provide the following information:
In an effort to meet its power supply needs to serve customers across South Carolina,
Santee Cooper identified the opportunity presented by the acquisition that is the
subject of this inquiry. The Company owns a natural gas-fueled, combined-cycle 98MW unit (the "Unit") and maintains all necessary land rights, asset rights, permits,

and contracts for the Unit's operation. The Company sought a purchaser for itself or
its assets. Based on extensive due diligence, Santee Cooper and Central concluded
the Unit constitutes a near-term capacity option that would allow Santee Cooper to
provide and maintain safe and reliable electric service in a cost-effective manner.
The Company currently is owned by Cherokee Generating, LLC ("CG, LLC"), a
Delaware Limited Liability Company. Santee Cooper and CG, LLC, have agreed to
the form of a Purchase and Sale Agreement C'PSA") through which Santee Cooper
would acquire 100% of CG, LLC's membership interests in the Company, the Unit,
related business interests, and the real property upon which the Unit operates for the
price of $17 million. The Company also is a Delaware Limited Liability Company,
but CG, LLC could be converted to a South Carolina LLC as a closing condition, if
Santee Cooper so requests. Upon closing the acquisition under the PSA, Santee
Cooper intends to keep the current name, ownership of assets, and liabilities[ ] of the
Company. The PSA also is subject to a number of conditions including the receipt of
all required regulatory approvals.[ ]

You pose the following legal questions:

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Pamela J. Williams
Page 2

October 3, 2023

(1) Does the South Carolina Public Service Authority ("Santee Cooper") have the
statutory authority to acquire 100% of the membership interests in Cherokee
County Cogeneration Partners, LLC (“the Company”), which is located in
Gaffney, South Carolina, in Cherokee County?
(2) Does the constitutional limitation against joint ventures in Article X, § 11, apply

to Santee Cooper's acquisition of 100% of the membership interests in the
Company?

Your proposed answers are “yes” to the first question, and “no” to the second. Based upon the
information provided, we agree with you.
Law/Analysis

In Cooper v. S.C. Public Services Authority, 264 S.C. 332, 215 S.E.2d 197 (1975), our

Supreme Court, in a per curiam decision, adopted the order of the Circuit Court regarding the
There, the Circuit Court noted that Santee Cooper ‘“is a public
corporation in the nature of a quasimunicipal corporation, exercising certain governmental
functions as an agency of the State.’” (quoting Creech v. South Carolina Public Service
powers of Santee Cooper.

Authority, 200 S.C. 127, 20 S.E.2d 645, 648 (1942)).

In Cooper, the Court concluded that

Santee Cooper possessed the requisite authority in question.
As you note in your letter, Santee Cooper’s Enabling Act empowers the agency to:
•

“acquire ... any property, real, personal, or mixed, or any interest therein.” (§ 58-

31- 30(A)(4)).

•

“acquire ... power houses and any and all structures, ways and means, necessary,
useful or customarily used and employed in the manufacture, generation, and
distribution of . . . power, including . . . generally all things used or useful in the
manufacture, distribution, purchase, and sale of power.” (§ 58-31 -30(A)(7)).

•

“manufacture, produce, generate, transmit, distribute and sell ... mechanical
power within and without the State of South Carolina.” (§ 58-3 1 -30(A)(8)).

•

“do all acts and things necessary or convenient to carry out the powers granted to
it by this chapter or any other law.” (§ 58-3 l-30(A)(20)).

You also observe that the “Enabling Act does not specifically address Santee Cooper’s power to
acquire the membership interests in an LLC.” However, it is your argument that
[t]he general and enumerated powers, . . . reflect that Santee Cooper has this
authority in this context. In particular, pursuant to § 58-31 -30(A)(4), Santee Cooper
may “acquire . . . any property, real, personal, or mixed. Based on S.C. Code Ann. §
12-37-10(6), S.C. Code Ann. § 33-44-101(6), and S.C. Code Ann. § 33-44-501(b),

Pamela J. Williams
Page 3

October 3, 2023

the membership interests and assets of the Company represent property within the
meaning of § 58-3 1 -30(A)(4).

In Cooper, the question before the Court was whether Santee Cooper “had the power and

authority to (1) periodically harvest pulpwood and timber upon lands owned by it; (2) buy, sell
and dispose of by lease any property real, personal or mixed or any interest therein. . . .” The
Court noted that
[w]hile the powers of the Authority are to be strictly construed, it is expressly granted
the power ‘to do all acts and things necessary or convenient to carry out the powers
granted to it by (the legislature) . . . ’ This is somewhat of an exception to the general
law which olds ‘that powers merely convenient or useful are not implied if they are
not essential having in view the nature and object of incorporation. ’

See Creech,

supra, page 652. . . .

This Court finds that the power of periodically harvesting pulpwood and timber is

both necessary and convenient to the implementation of the duty and power of the
Respondent to reclaim and reforest its lands and is certainly implied, if not expressed,
under it legislative power to be exercised in the discretion of the Respondent.

264 S.C. at 337-38, 215 S.E.2d at 199-200.
Likewise, we believe there is ample authority in Santee Cooper’s enabling Act to acquire

the membership interests in an LLC. Not only would a court likely conclude that such interests
constitute “property” for purpose of § 58-3 1-3 0(A)(4), but as in Cooper, a court would likely
find that § 5 8-3 1-3 0(A)(4) is sufficiently broad to encompass membership interests. Such
power, as in Cooper, would be “necessary and convenient” to Santee Cooper’s enumerated

powers. See §§ 5 8-3 1-3 0(A)(7) and 58-31 -30(A)(8).
With respect to your second question - whether Art. X, § 1 1 is violated by Santee-

Cooper’s purchase of 100% of the membership interests in the Company - your contention is
that “Santee Cooper will not jointly own or jointly hold stock in anything with any other public
or private entity; it will own 100% of the LLC’s membership interests. Thus, no joint venture
will exist, and this prohibition is not implicated.” We agree.
Article X, § 11 of the South Carolina Constitution forbids the State or its political

subdivisions from becoming “a joint owner of or stockholder in any company, association, or
corporation.” The provision further provides that “[t]he General Assembly may . . . authorize the

South Carolina Public Service Authority to become a joint owner with privately owned electric
utilities, including electric cooperatives, of electric generation or transmission facilities, or both,
and to enter into and carry out agreements with respect to such jointly owned facilities.” Based
upon the information you provide, we do not conclude that the “joint owner” provision of Art. X,
§ 1 1 is violated.

Pamela J. Williams
Page 4
October 3, 2023

In Op. S.C. Att’y Gen., 2010 WL 440998 (Jan. 1 1, 2010), we concluded that a guarantee
proposed by Santee Cooper to the United States Department of Agriculture on behalf of
Orangeburg County Biomass LLC did not violate Art. X, § 1 l’s “joint owner” provision. In that
opinion, we noted that neither the State nor Santee Cooper was “proposing becoming a joint
owner or stockholder in Biomass.” There, we referenced a number of decisions rendered by the

South Carolina Supreme Court regarding “joint ownership”, in support of this conclusion.

We

stated the following:
[w]ith regard to the issue of joint ownership, you argue the guarantee would not

cause Santee Cooper to become a joint owner with Biomass. In your letter, you cited
several Supreme Court decisions discussing whether particular arrangements between
a public body and a private entity constitute joint ownership in violation of section 1 1

of article X. In Johnson v. Piedmont Municipal Power Agency. 277 S.C. 345, 354
S.E.2d 476, cited above, the Supreme Court considered whether a joint municipal
agency may issue bonds to fund the purchase of an interest in a power plant owned
and operated by a private entity.
The taxpayers brining the suit argued the

arrangement for the sale and operation of the power plant constituted joint ownership
between the joint agency and a private entity.
Id. at 354, 287 S.E.2d at 481.
However, as you brought to our attention in your letter, the Supreme Court explained:
"The joint ownership clause of Article X, § 1 1 simply states that neither the State nor
any political subdivision may become a 'joint owner of or stockholder in' a private
company."

Id.

joint ownership.

Thus, the Court concluded that the arrangement did not constitute
Id.

You also cited to Supreme Court opinions holding neither a

long-term lease agreement between a hospital district and a private entity nor a
county's granting of exclusive control of its courthouse constitute a joint ownership
arrangement in violation of section 11 of article X.

Gilbert v. Bath, 267 S.C. 171,

227 S.E.2d 177 (1976); Chapman v. Greenville Chamber of Commerce, 127 S.C.
173, 120 S.E. 584(1923).

Further, in Brashier v. SCDOT, 327 S.C. 179, 490 S.E.2d 8 (1997), we note that the

Court rejected the argument that the State would be a “joint owner’ in the Connector 2000
Association, a nonprofit public benefit corporation.

According to the Court, the fact that

SCDOT could remove a director of the Association for cause or that, upon dissolution, the
Association’s assets would be distributed to SCDOT, did not create “joint ownership” in either

the Association or the Southern Connector. The Brashier Court explained as follows:
SCDOT is not a stockholder in Association. The agreements make it clear the
Southern Connector will be owned by SCDOT but operated by Association. “[T]his
Court has never held a public entity’s naked title to property operated by a private
entity resulted in unconstitutional joint ownership.”

Johnson v. Piedmont Mun,

Power Agency, 277 S.C. 345, 355, 287 S.E.2d 476, 481 (1982) (also noting public
entity had acquired neither stock nor any other form of ownership in private
company). At no time will SCDOT and Association jointly own anything, Nichols

v. South Carolina Research Auth., 290 S.C. 415, 351 S.E.2d 155 (1986), cited by
Appellant, is clearly distinguishable.

In Nichols, a state agency admitted that in

Pamela J. Williams
Page 5

October 3, 2023

carrying out joint ventures, it planned to procure ownership interests in private
entities. Id. at 421, 351 S.E.2datl58.
“This project is admittedly a complex undertaking, but complexity alone docs not
condemn it under our Constitution.”

Johnson, 277 S.C. at 354, 287 S.E. 2d at 481.

The State will not be a joint owners in any private entity.

327 S.C. at 188, 490 S.E.2d at 13. (emphasis added). These decisions clearly enunciate the rule
that the ‘‘joint owner” provision of Art. X, § 1 1 requires a literal joint ownership between the
State or its political subdivisions and a private entity. As the Court stated in Chapman, the words
“joint owner” arc what is important, and the Court is “not to be controlled by any unexpressed
spirit or public policy supposed to underlie and pervade the instrument.”

120 S.E. at 588.

In
short, according to the Court in Chapman, as well as Brashier, there must be a real “joint
ownership" or “partnership.” According to the information you provide, Santee Cooper is

purchasing 100% of the membership in Cherokee County Cogeneration Partners, LLC.

In our

view, such docs not contravene Article X, § 11.
Conclusion

Of course, this Office cannot determine facts in the issuance of a legal opinion. We must
base our legal analysis herein upon the information which you have provided.
Based upon the facts as you have presented them, however, we believe Santee Cooper
possesses the authority to acquire 100% of the membership interests in Cherokee County
Cogeneration Partners, LLC. Further, we are of the view that such acquisition docs not violate
the “joint owner" provision of Article X, § 1 1 of the Constitution. As you present the issue, and
as was recognized by as the Court in Brashier, at no time will Santee Cooper and the Company
“jointly own anything.” Thus, there is no “joint ownership.”
meprely,

<

Robert D. Cook
Solicitor General