WASHINGTON — The South Carolina Public Service Authority, the state’s largest issuer in 2009, expects to sell $300 million of Build America Bonds Tuesday for a nuclear power plant expansion, as the agency continues a transition away from coal power.
Known as Santee Cooper, the state-owned utility supplies electricity to nearly one-third of the state.
Coal-fired electricity accounted for about 65% of Santee Cooper’s power generation this summer, down from 70% last year.
As coal-generated electricity faces increasing economic and regulatory challenges, the authority in 2008 scrapped plans for a coal power plant in favor of a $5 billion, two-unit nuclear facility next to the existing Summer Nuclear Station in Fairfield County.
In October 2009, Santee Cooper sold $418.6 million of tax-exempt and taxable bonds to begin financing the nuclear plant expansion.
Tuesday’s transaction, which will be the authority’s first BAB deal, will price in one series with a 40-year maturity. Citi and Goldman, Sachs & Co. are the lead underwriters with Bank of America Merrill Lynch and Morgan Stanley as co-managers.
Haynsworth Sinkler Boyd PA is bond counsel. McNair Law Firm PA will represent the underwriters. Barclays Capital Inc. is the financial adviser.
The bonds are rated AA-minus by Standard & Poor’s, AA by Fitch Ratings and Aa2 from Moody’s Investors Service.
Under the Summer expansion plan, Santee Cooper will acquire a 45% ownership in the two new nuclear units, which are expected to be completed in 2016 and 2019. South Carolina Electric and Gas will own the rest of the final project. Santee Cooper is expected to spend $1.4 billion through 2012 for its portion of the project.
Fitch noted that Summer may reduce its ownership stake and financing contribution to the expansion projects if electricity consumption is lower than expected.
With usage down amid the economic slump, in April Santee Cooper canceled construction of a new coal-fired energy plant.
Coal prices soared in 2008, leading the authority to transition to other energy sources.
Santee Cooper was able to buy coal at spot prices 2009 below normal rates to build its inventory. This strategy helped keep costs down for the year and partially offset price hikes that hit in 2008.
The authority expects coal prices will “remain stable” in the near term, according to bond documents.
Also in 2009, the U.S. House of Representatives passed a cap-and-trade bill, which played into Santee Cooper’s decision to invest in nuclear power. That bill was never voted on in the Senate.
However, upcoming coal regulations from the Environmental Protection Agency will have a cost impact on Santee Cooper, said Mollie Gore, a spokeswoman for the authority.
“Fuel diversity is something we’re focused on here,” she said.
Last November, Santee Cooper approved an average 3.4% base rate increase for all customers. A second rate hike for 2010 was postponed.
As of Aug. 31, the Public Service Authority’s residential electricity rates were second-highest among four providers in South Carolina.