Santee Cooper removed from watch negative amid sale talks
BRADENTON, Fla. – Amid an ongoing controversy about selling South Carolina-owned Santee Cooper, Fitch Ratings removed the public utility from negative rating watch citing the decision to cancel a nuclear reactor project.
Fitch affirmed its A-plus long-term rating on the public power agency, formally known as the South Carolina Public Service Authority, and returned the outlook to stable.
The action affects $7.4 billion of revenue obligations, according to analyst Kathy Masterson.
“The removal from negative watch and the assignment of a stable outlook reflect Fitch's view that Santee Cooper's decision to suspend nuclear construction will limit near-term credit risk and capital requirements, as well as Fitch's expectation that disciplined rate-setting will support financial performance,” Masterson said.
Lower than anticipated energy needs and lower cost of alternative generation should help stabilize margins and reduce leverage over time, she added.
Santee Cooper has issued nearly $4.4 billion of debt – comingled in its portfolio - to pay for its 45% share of the two reactors at the V.C. Summer plant.
On July 31, the utility said it would not complete the reactors because of significant cost increases primarily due to the bankruptcy of the prime contractor, Toshiba Corp.-owned Westinghouse Electric Co.
The cancellation prompted Gov. Henry McMaster to call for the state’s utility to be sold. He has urged state lawmakers to back his plan, and reportedly has obtained interest from four utilities.
McMaster’s office did not response to questions Thursday about the status of the governor’s sale.
“I have alerted each [of the interested utilities] that the state will not consider any proposal which saddles the ratepayers or taxpayers with any of Santee Cooper’s $4.3 billion nuclear construction debt,” the governor wrote in a letter to lawmakers obtained by The Post and Courier newspaper.
Fitch said the decision to suspend nuclear construction has ignited controversy across the state and has drawn the scrutiny of legislators and regulators.
“Fitch views proposals regarding the sale of Santee Cooper as credit neutral to bondholders, given the expectation that privatization would require the repayment or defeasance of all outstanding debt obligations," Masterson said.
Santee Cooper's credit quality could be weakened to the extent any scrutiny results in some financial constraint or the introduction of additional procedural hurdles to Santee Cooper's independent rate authority, she said.
Both chambers of the South Carolina Legislature have opened investigations into the failed nuclear project, and have taken testimony from Santee Cooper as well as majority owner South Carolina Electric & Gas, a subsidiary of investor owned SCANA Corp. The legislative session starts in January.
“Fitch views disruption to Santee Cooper's statutory, autonomous rate-setting authority as unlikely at this time and such a change in law is not reflected in the rating,” Masterson said. “However, the by-product of the current environment could pressure Santee Cooper to keep rates as low as possible within its autonomous rate authority at the expense of financial margins.”
Masterson said it believed that Santee Cooper’s board will “act to preserve the utility's current financial profile” for bondholders.
On Aug. 11, Santee Cooper announced that it would not implement planned rate increases in 2018 and 2019 due to its decision to suspend work on the nuclear project.
At the time, an agency spokeswoman said Santee Cooper would continue to meet all debt obligations and maintain its “financial integrity and strength.”