Any move that prevents South Carolina’s public power agency from raising rates to pay its debts in reaction to the abandoned V.C. Summer nuclear reactor project could negatively impact ratings, said S&P Global Ratings.
Analysts issued the warning Wednesday after the state House of Representatives voted to block SCANA Corp. from recovering costs for the failed reactor project in customers' bills. Investor-owned SCANA and its subsidiary, South Carolina Electric & Gas, owned 55% of the two scuttled reactors.
The South Carolina Public Service Authority, also known as Santee Cooper, owned 45% of the shuttered project. S&P’s A-plus rating on the bonds is underpinned by the state-owned power agency’s autonomous power to set its rates.
“In our opinion, were the legislature to take a similar action to limit Santee Cooper's ability to pass through its costs to ratepayers, or to place the authority under Public Service Commission rate-setting jurisdiction, it would likely have a negative effect on our ratings on the utility,” said analyst Jeffrey Panger.
More than half of Santee Cooper’s $8.3 billion of outstanding debt is associated with the abandoned reactors. Bonds issued for the project are co-mingled with the authority’s other debt.
S&P lowered the rating from AA-minus in August after Santee Cooper announced suspension of work on the twin nuclear reactors. The outlook is stable. The downgrade reflected the decision to stop the project, the significant amount of rate-supported debt with no productive asset to show for it, and Santee Cooper's exposure to political fallout.
“In our opinion, we are now seeing the latter,” Panger said.
Gov. Henry McMaster has proposed selling the state-owned utility in the aftermath of the nuclear debacle. A sale would require legislative approval.
If lawmakers agreed to sell Santee Cooper, S&P said it believes that could require the utility to redeem its tax-exempt debt, a move that would lead S&P to withdraw its ratings.
“However, we also believe that the possibility of a sale is remote,” Panger said.
Santee Cooper's debt is subject to a covenant that bars the sale of the utility to a taxable, for-profit buyer unless the purchaser redeems its tax-exempt debt, a requirement that S&P said “creates a significant barrier in selling the authority.”
S&P said Florida-based NextEra Energy Inc., North Carolina-based Duke Energy Corp., Georgia-based Southern Co., and Virginia-based Dominion Energy Inc. reportedly have shown interest in acquiring Santee Cooper, in addition to a privately held investment company and some electric cooperatives. None have made a formal purchase offer.
“We view the debt redemption requirement as being at odds with the value a purchaser would pay for a utility with so much debt for an incomplete nuclear project,” Panger said. “We will continue to monitor the situation for any credit implications, and will likely take a rating action if the authority's ownership status changes, or if its rate-setting autonomy is impaired.”
Earlier this year, McMaster renewed calls to sell Santee Cooper after SCANA and SCE&G announced a proposed all-stock merger with Dominion Energy.
In the pending deal, Dominion said it would provide SEC&G customers $1,000 cash payments at closing and a 5% rate reduction as partial recompense for charges they paid toward for the reactor project. The deal would still require customers be charged for certain nuclear-related costs but over 20 years instead of the previously proposed 50-60 years.
“Under the proposed agreement between SCANA and Dominion Energy, SCE&G ratepayers will get most of the money back they paid for the nuclear reactors and will no longer face paying billions for this nuclear collapse,” McMaster said then, calling it progress in his quest to hold utilities responsible for the failed project.
Still unresolved, he said, is the problem of the state’s 700,000 electric cooperative customers “who face the prospect of having their power bills skyrocket for decades” because of the power contracts they have with Santee Cooper obligating them to pay a portion of the nuclear-related debt.
“The only way to resolve this travesty is to sell Santee Cooper,” McMaster said.
Santee Cooper is a component unit of the state created in 1934 by the Legislature. It supplies power to more than 2 million South Carolinians, including 20 electric cooperatives in the state.
The V.C. Summer nuclear project collapsed last year after the prime contractor, Toshiba-owned Westinghouse Electric, filed for bankruptcy to shed its contract for the South Carolina project and a similar twin-reactor project at Plant Vogtle in Georgia.
Santee Cooper and SCE&G determined that it would be too costly to finish the work, while partners in the Georgia project decided to complete theirs.