With legal and political challenges mounting, Santee Cooper’s debt rating ticked down two notches because of the heightened risks facing the South Carolina-owned electric and water utility.
Fitch Ratings lowered its rating to A-minus from A-plus on Santee Cooper’s $7.14 billion of outstanding debt, $4.2 billion of which is related to last year’s cancellation of a twin nuclear reactor project at the V.C. Summer Nuclear Station.
The downgrade stems from “pronounced legal and political risk,” which includes a pending legal claim in court by Central Electric Cooperative, which is challenging its obligation to pay for a portion of the debt related to the nuclear project, Fitch analyst Kathy Masterson said late Wednesday.
Central Electric is Santee Cooper’s largest customer, contributing about 60% of revenues to the agency, formally known as the South Carolina Public Service Authority.
Fitch, which placed its ratings on negative watch in March, said it has revised the outlook to negative reflecting the potential for another downgrade “possibly by multiple notches” if Santee Cooper is legally or legislatively unable to collect costs related to the nuclear debt.
“This could occur if Central Electric Cooperative ceases making payments during the ongoing legal dispute or in the event of a final legal determination or settlement in favor of Central's claim,” Masterson said, adding that Santee Cooper currently has the legal authority to recover nuclear-related costs from customers.
Masterson said Central’s legal claim is a manifestation of the overarching issue stemming from the substantial the amount of debt incurred for the abandoned reactors for which no asset will be produced.
“Santee Cooper's reduced financial flexibility, in conjunction with other credit characteristics such as Santee Cooper's elevated leverage and ongoing political and legislative discord, is factored into the current rating action,” she said.
The rating downgrade also reflects ongoing concerns related to governance dysfunction brought on by political uncertainty, Masterson said.
“We are maintaining and projecting strong financial metrics, which the report notes, and so the rating decision is disappointing,” said Santee Cooper spokeswoman Mollie Gore.
Since suspending construction on the reactors, Gov. Henry McMaster has said he wants to sell the utility, a move that would require all debt be defeased.
McMaster, who ascended to become governor in 2017 after Nikki Haley resigned to become ambassador to the United Nations, won a full four-year term in the Nov. 6 election.
This year, state lawmakers proposed various bills that would have affected Santee Cooper’s governance and authority to impose rates. Those bills failed, although the legislation could reemerge in 2019, Fitch said.
Lawmakers created the Public Service Authority Evaluation and Recommendation Committee, whose members include McMaster. The committee recently hired Virginia-based ICF International to solicit and analyze non-binding indicative bids for the committee to study.
Pending litigation along with uncertainty over rates and governance led Moody’s Investors Service in August to downgrade Santee Cooper’s revenue bond rating to A2 from A1, while retaining a negative outlook.
S&P Global Ratings in August affirmed its A-plus rating and negative outlook, although S&P downgraded Santee Cooper’s debt rating to A-plus from AA-minus last year after co-owners of the V.C. Summer project stopped construction.
