BRADENTON, Fla. – The fate of the public power agencies that issued billions of dollars in bonds for troubled nuclear reactor projects is in the hands of Georgia regulators and South Carolina lawmakers.

The Georgia Public Service Commission now plans to make a final decision Dec. 21 - not in February as previously planned – as to whether construction can continue on two nuclear reactors at Plant Vogtle, where thousands of workers are on the job.

Georgia's Plant Vogtle's four nuclear reactors in November 2017
Georgia regulators will decide Dec. 21 if workers will finish two new reactors at Plant Vogtle, shown in the foreground in November 2017. Georgia Power Co.

In South Carolina, where construction of two new reactors at V.C. Summer Nuclear Station was abandoned, lawmakers filed nearly a dozen bills targeting Santee Cooper, including one to sell the agency and another placing it under the state’s Public Service Commission. That move would also ban the state-owned utility from imposing rates to cover the costs of the abandoned reactors.

“Should South Carolina lawmakers enact the legislation in its present form, it would be a significant credit-negative development for Santee Cooper,” said Moody's Investors Service analyst Dan Aschenbach.

The March 29 bankruptcy filing of primary contractor Westinghouse Electric Co. threw the projects into disarray.

The GOP tax bill pending in Washington, D.C., sparked the change in the Georgia PSC’s schedule to decide if construction can continue at Plant Vogtle.

Investor-owned Georgia Power Co., the 45.6% owner and lead company for the twin reactor project, suggested moving up the decision-making process.

If the PSC decides to kill the project, a decision Dec. 21 would put GPC in line to receive millions of tax benefits that may not be available next year due to tax law changes.

That wouldn’t be the case for the tax-exempt co-owners of the project, the Municipal Electric Authority of Georgia, Oglethorpe Power, and Dalton Utilities.

They would be left with billions in debt and no asset.

“If the decision were to be made that it is in the best interest of customers to cease the construction of Plant Vogtle Units 3 & 4, making that determination prior to Dec. 31, 2017 would preserve the company’s ability to utilize the current higher federal tax rate under what is known in simple accounting terms as an abandonment deduction,” Georgia Power President Paul Bowers said in a Dec. 6 letter to PSC Commission Chairman Stan Wise.

If the project is abandoned, Bowers said his company would realize “an approximately $150 million larger tax benefit” under the current 35% tax rate, considering the company’s taxable income and limits on deductions.

“These benefits would offset project costs and be passed along to customers through the traditional rate-making process,” he said.

Although the PSC does not regulate the public power owners involved in the Plant Vogtle project, they agreed to continue financing the reactors only if Georgia Power received approval for its expenses and completion schedule from commissioners.

MEAG Power owns 22.7% of the new units under construction and has issued $2.85 billion of taxable and tax-exempt bonds to fund its share of the cost. Oglethorpe has issued $1.5 billion of debt to fund its 30% share. Dalton is self-funding its 1.6% ownership share.

Before the PSC makes a final decision on the overall project, commissioners will decide whether to approve $542 million in expenditures sought by Georgia Power for construction costs between Jan. 1 and June 30.

PSC staff said that $498 million of the expenses are for liens and other paid pre-bankruptcy petition amounts owed to Westinghouse’s contractors, and should be deemed unreasonable.

If the commission agrees with staff, only $44 million of Georgia Power’s expenses would be verified and approved, a move that could in itself be a deal-breaker for the project.

Georgia Power and the co-owners of the Plant Vogtle project expect to receive $3.2 billion on Friday from the Toshiba Corp., a final payment that would relieve them of the risk that Westinghouse's Japanese parent company won’t make good on its guarantee.

To date, the co-owners have received $455 million in guarantee payments for the reactors under construction at Plant Vogtle, for which Westinghouse was the primary contractor.

If the project is suspended, the Toshiba payments could be used to pay down debt and limit rate increases in electric bills.

If the PSC approves continued construction, Georgia Power has said the total estimated cost to complete the reactors is $9.45 billion, of which is $4.5 billion is its share.

MEAG has said it will need $1.4 billion in additional financing to complete its share of work, and expects about $985.3 million will be financed in the public capital markets. The remaining cost is expected to come from Federal Financing Bank lending through a 100% loan guarantee backed by the U.S. Department of Energy.

In South Carolina, where the aftermath of the Westinghouse bankruptcy led to the August cancellation of a similar twin nuclear project because it would cost 75% more than originally planned, state lawmakers filed 11 bills aimed at the state-owned South Carolina Public Service Authority, known as Santee Cooper.

Santee Cooper issued $4 billion of bonds to finance its 45% ownership share of the V.C. Summer project. Investor-owned South Carolina Electric & Gas Co. was a 55% owner.

The authority is self-regulated, but House Bill 4376 would put Santee Cooper under the jurisdiction of the South Carolina Public Service Commission, requiring new or revised electric rates to be submitted to regulators for approval.

The legislation also would bar Santee Cooper from implementing new rates or altering current rates to cover costs related to the nuclear reactor project abandonment, Moody's Aschenbach said.

“A fundamental underpinning of Santee Cooper’s credit quality is a record of timely, self-regulated rate-setting that allows the utility to maintain sound financial metrics such as debt service coverage while providing competitive electricity rates," he said, adding that regulatory oversight would add an additional step and potentially restrict its ability to raise rates.

With the legislation calling for a prohibition on Santee Cooper’s ability to recover abandonment costs, he said debt service payments on about $4 billion of outstanding nuclear-related revenue bonds would become more difficult.

Moody's analyst Dan Aschenbach
Dan Aschenbach

Santee Cooper’s current plan is to recover nuclear-related debt service costs by raising rates after 2021. Before 2021, the utility planned to use an $898.7 million upfront cash payment it received from the monetization of the Toshiba guarantee to mitigate abandonment costs.

The utility, which serves both wholesale and retail customers, has announced a cost-reduction plan aimed at mitigating the size of any future rate increase needed to recover the costs of the shelved nuclear reactors, said Aschenbach.

“We expect Santee Cooper’s debt service coverage ratio to average 1.40 times between 2018 and 2026 after payments to the state’s general fund,” he said. “An inability to fully cover debt service costs with rate increases, absent other revenue or expenditure cuts, risks jeopardizing the timely and sufficient payment of principal and interest.”

On Monday, the Santee Cooper Board of Directors approved a $2.1 billion budget for 2018. It includes $1.7 billion for the electric system, $9.8 million for the water systems, and $378.6 million for capital expenditures. About 42% of the electric system budget is for fuel and purchased power.

The approved budget does not include the use of Toshiba settlement funds until July 1, 2018, to ensure compliance with potential legislative proposals, the agency said in a statement.

The board’s resolution requires the Toshiba funds be used for debt reduction measures “to ensure the resulting savings are passed on to Santee Cooper customers.”

“In our 2018 budget, we focused on reducing costs while maintaining excellent service for our customers,” said interim President Jim Brogdon. “We’ve been able to achieve overall annual cost reductions of $40 million and will continue to work toward more efficiencies.”

Santee Cooper said it expects about 150 employees to retire by June 30, and that it will achieve cost reductions by eliminating some of those positions. Other cost reductions measures include deferred capital projects.

Other bills pending before the South Carolina Legislature call for hiring experts to do a valuation of the Public Service Authority and terminating its current board of directors in order to reconstitute the board under new regulations. The annual session begins Jan. 9.

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.