Santee Cooper defends decision to drop S.C. nuclear project

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BRADENTON, Fla. – South Carolina’s Santee Cooper defended its decision to stop work on two nuclear reactors in Fairfield County, saying that it is well-positioned to absorb the loss.

The state agency, officially known as the South Carolina Public Service Authority, said in a statement that its board of directors has a “proven track record of approving rate increases when it is prudent to do so.”

“Santee Cooper now needs substantially less debt than previously projected,” the agency’s statement said. “We have sufficient generating capacity through 2036.”

On Friday, two top state Senate leaders called for a special legislative session to consider prohibiting rate increases by the utilities involved in the cancellation of the nuclear project at the V.C. Summer plant.

The SCPSA confirmed that $4.4 billion of its $7.7 billion of outstanding bonds were issued to pay for its 45% stake in the two unfinished reactors. The authority has covenanted with bondholders to maintain rates and other charges to make debt service payments.

The project’s majority partner, investor-owned SCANA Corp.’s South Carolina Electric & Gas, told regulators that all options for completing one or both units depended on Santee Cooper’s participation. When Santee Cooper opted out, SCE&G said it had no choice but to halt the project.

The decision led S&P Global Ratings to downgrade the state agency’s bonds to A-plus from AA-minus, and to maintain a negative outlook.

Analyst Jeff Panger said, given the fact that there is no generating asset for $4.4 billion of debt, “We believe Santee Cooper has diminished debt issuance and rate-raising capacity, weakening credit quality.”

Santee Cooper said it was disappointed that S&P downgraded the bonds, and pointed to the fact that Moody's Investors Service “saw our decision as a credit positive.”

“Santee Cooper is well-positioned to manage through the process of winding down this project, and we have no reason to believe that our decision to suspend construction will limit our access to cost-effective debt markets,” the agency said.

Moody's affirmed its A1 rating Tuesday, maintaining a negative outlook. Analysts said they viewed the suspended project as a credit positive because it eliminates construction risk and will result in lower retail rates.

Triet Nguyen, head of public finance credit at New Oak, said in MuniCredit Insights on Friday that S&P’s previous rating was “too high” and the downgrade brought it to a more appropriate level.

Fitch Ratings assigns an A-plus to the debt, which places all three ratings at the same level.

Nguyen also said the suspension of construction at Summer removed a major source of credit uncertainty, and Santee Cooper’s decision to amortize the sunk costs over a 60-year period should lessen the potential rate impact on its retail customers.

“Of course, the outlook for the utility will now depend on how it plans to finance the stranded costs and how much it will have to pay to acquire alternative generating resources, all this in the face of increasing opposition from taxpayer and environmental groups,” he said.

The cancelled project, which employed a construction crew of about 5,000 who are now out of work, may have a significant economic impact on the local economy in Fairfield County, Nguyen said.

Fairfield County, which has a population of 22,700 and is located about 32 miles north of Columbia, had an unemployment rate of 5.6% in June, compared to South Carolina’s rate of 4%.

On Friday, state Senate Majority Leader Shane Massey, R-Edgefield, and Minority Leader Sen. Nikki Setzler, D-Lexington, sent a joint letter to the Senate president requesting a special legislative session to consider prohibiting rate increases by the utilities involved with the V.C. Summer project until lawmakers meet in regular session next year.

“We believe South Carolinians should have an opportunity to understand what has happened, and the General Assembly should have an opportunity to evaluate the facts, corporate responsibility, and the state’s energy policies before the utilities seek additional increases,” they wrote.

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Energy industry Revenue bonds Secondary bond market South Carolina Public Service Authority South Carolina