BRADENTON, Fla. – With no generating asset to show for more than $4 billion of debt, the South Carolina Public Service Authority’s Santee Cooper lost its only double-A rating.

S&P Global Ratings downgraded the state-run agency’s bonds to A-plus from AA-minus, a move sparked by the SCPSA’s decision to pull out of constructing two new nuclear reactors at the V.C. Summer plant.

This June 2017 photo shows one of the two nuclear reactors that will not be completed in South Carolina.
This June 2017 photo shows one of the two nuclear reactors that will not be completed in South Carolina. SCE&G

“We believe Santee Cooper has diminished debt issuance and rate-raising capacity, weakening credit quality,” said analyst Jeff Panger.

S&P affirmed its A-1 commercial paper rating on the utility, and said the outlook remains negative.

Santee Cooper has $7.7 billion of outstanding bonds, including more than $4 billion issued to finance its 45% stake in the nuclear units.

On Tuesday, Moody's Investors Service affirmed its A1 rating on the bonds, while maintaining a negative outlook.

Fitch Ratings currently assigns an A-plus to the bonds, which have been on rating watch negative since February.

Santee Cooper’s Board of Directors voted to suspend the project on Monday, saying the agency had determined that continuing to invest in the two new units would cost an additional $6.7 billion and the reactors would begin operating in 2024, four years later than projected.

The prime contractor, Westinghouse Electric Co., which had agreed to a fixed price contract late last year, filed for bankruptcy in March to shed billions in debt it incurred due to the South Carolina project and another at Plant Vogtle in Georgia.

According to S&P, the projected new commercial operating date of South Carolina’s reactors would disqualify Santee Cooper for production tax credits currently set to expire Dec. 31, 2020.

The tax credits were an essential component of making the project economical, S&P said.

The negative outlook, S&P said, reflects the substantial operational and financial uncertainties the utility faces as it develops a strategic plan to address its decision to suspend construction of the nuclear facilities and the corresponding stranding of $4.7 billion that has been spent to date.

“We could revise the outlook to stable if the utility develops a strategy that mitigates the financial impacts of stranded debt on rates, financial flexibility, and credit metrics while outlining power supply plans that do not meaningfully add additional debt,” Panger said.

Santee Cooper did not immediately respond to a request for comment.

S&P also downgraded to A-plus from AA-minus its rating on the South Carolina Central Electric Power Cooperative, and maintained a negative outlook.

The cooperative, which serves 771,000 retail customers in the state through its 20 members, has a long-term, take-or-pay contract with Santee Cooper for bulk energy.

Under the arrangement, S&P said the cooperative’s credit quality is influenced by its agreement to pay a pro rata share of Santee Cooper’s generating resources, including the two reactors that will not be completed.

Santee Cooper’s majority partner in the nuclear project, South Carolina Electric & Gas, is under review by the state’s Public Service Commission.

On Thursday, the commission said it may consolidate a complaint filed by environmental and taxpayer groups with a petition to suspend the nuclear reactor work filed by SCE&G, a 55% owner of the project.

In related developments, a bipartisan group of South Carolina state lawmakers angered by Santee Cooper and SCE&G’s plan not to complete the project said Thursday that they will revisit a 2007 law allowing investor-owned utilities to charge customers higher rates to pay for construction of nuclear reactor and coal plants.

Gov. Henry McMaster plans to request that the General Assembly hold hearings into the collapse of the V.C. Summer project, according to The State newspaper.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.