The South Carolina Public Service Authority’s $7.4 billion in outstanding debt may be downgraded by Moody's Investors Service due to pending legislation, litigation, and a weak balance sheet.
The state-owned authority, commonly known as Santee Cooper, has been under fire since its July 31 decision to abandon the construction of two nuclear reactors at the V.C. Summer plant after spending $4.5 billion.
The authority’s A1 bond rating, A2 bank bond rating and the P-1 rating on outstanding commercial paper notes are under review for downgrade, Moody’s said.
“The rating action reflects the continued uncertainty around Santee Cooper's ability to maintain a self-regulated cost recovery framework, our growing concern that legislative actions may lead to some form of permanent rate reduction at Santee Cooper, increased litigation risk, and a weakened balance sheet,” said Moody’s analyst Dan Aschenbach.
The South Carolina Legislature’s session ends May 10 and a sweeping measure, House Bill 4376, is pending final committee review and a floor vote in the Senate.
The bill could result in the sale of Santee Cooper or placing it under the Public Service Commission’s oversight, a move that would endanger the agency’s ability to set its electric rates.
Santee Cooper recently filed its fiscal 2017 audit, which reclassified $4.2 billion from a construction work in progress to a regulatory asset.
That "results in a significant and permanent increase in the utility's debt ratio to over 130%, well above the average for an A-rated public power electric utility," according to Moody's.
“Legislative actions relating to the state's utilities' ability to recovery Summer-related [nuclear] costs along with the ongoing litigation between Santee Cooper and its largest customer add additional uncertainty to the utility's credit quality,” he said.
In a ratepayer lawsuit against Santee Cooper, Central Electric Power Cooperative filed a cross claim contending that Santee Cooper does not have the authority to recover costs from the cooperative related to the shelved reactor project.
Central Electric is a transmission cooperative that accounts for about 70% of Santee Cooper’s energy sales and 60% of its revenue.
Moody’s said its rating review will assess legislative actions taken prior to the end of the session and will examine Santee Cooper's management plan to mitigate exposure to the stranded nuclear asset. It also will evaluate Central Electric’s legal intentions and rights regarding its contract with Santee Cooper. The contract runs to 2058.
Santee Cooper has said it remains focused on cutting costs and working to offset debt related to the project.
Last week, Gov. Henry McMaster said he wants to end all ratepayer charges for the two reactors. He also wants to sell Santee Cooper. HB 4376 would evaluate a sale.
“There is no acceptable amount for South Carolinians to continue paying into the failed nuclear reactors at V.C. Summer,” McMaster said. “What I’m concerned about are the people of South Carolina who have paid their money, who had no choice to pay it, are not getting what they paid for.”
Santee Cooper has encountered public and political blowback since its decision to stop work on the reactors in conjunction with South Carolina Electric & Gas, an investor-owned utility. Combined, the two utilities spent about $9 billion.
The decision to terminate the project came four months after Toshiba-owned Westinghouse Electric Co. filed for bankruptcy in March 2017. Westinghouse was the prime contractor at V.C. Summer, and a similar twin-reactor project that is still under construction in Georgia.
“Our analysis showed that completing the units post-Westinghouse bankruptcy would cost our customers another 41% in rate increases by 2030, and another nearly $7 billion on top of the $4.5 billion already spent,” Santee Cooper said in its 2017 annual report. “The project had become uneconomical.”
Both Fitch Ratings and S&P Global Ratings revised their outlooks on Santee Cooper’s bonds to negative from stable in March. Both said they were concerned about the litigation between Santee Cooper and Central Electric Power Cooperative and the ability of Santee Cooper to recover nuclear-related costs.
Fitch and S&P assign A-plus ratings to Santee Cooper’s debt.