On June 2, the first containment ring was positioned at Summer Nuclear Unit No. 2 under construction in Jenkinsville, S.C., by South Carolina Electric & Gas Co. The project is three years behind schedule, a credit negative for SCE&G and the South Carolina Public Service Authority, Moody's said Thursday.

BRADENTON, Fla. — New nuclear units under construction in Jenkinsville, S.C., will be substantially complete about three years later than anticipated, and the delay is a credit negative for the South Carolina Public Service Authority, Moody's Investors Service said Thursday.

The authority, also known as Santee Cooper, has issued $2.5 billion of revenue bonds since 2008 to fund its 45% share of the project costs, said analyst Dan Aschenbach. The bonds are rated A1 with a stable outlook.

The project currently is estimated at more than $10 billion, and the delay likely will increase costs, said Moody's.

Two new nuclear units are being built at the Virgil C. Summer Nuclear Station by investor-owned South Carolina Electric & Gas Co., or SCE&G, which owns 55% of the project. SCE&G is a subsidiary of SCANA Corp.

The completion delay is credit negative for the investor-owned companies and Santee Cooper "because it will likely increase the cost to complete the already expensive project, inflate customers' electricity bills and, for SCE&G, raise regulatory intervention risk - all of which could reduce future cash flow coverage of rising debt levels," said Aschenbach, who co-authored Thursday's report with analyst Susana Vivares.

The consortium designing and building the units expects substantial completion of Unit 2 in late 2018 or the first half of 2019, with Unit 3 substantially complete in 2020, SCANA senior vice president Steve Byrne told analysts in a conference call Monday. Unit 2 was originally expected to be complete in April 2016.

Byrne said the new timeline is preliminary and the cost estimate related to the delay is expected later this quarter.

The new cost estimate is expected to be "something I'm not going to like, and [the consortium will] use that as one peg for negotiations," said Byrne. "And we've seen this before."

As of June 2014 the project is 38% completed.

"The consortium has not provided us with any updated cost data, and the owners have not accepted a new schedule or responsibility for any delays," Santee Cooper spokesman Mollie Gore said when asked for a comment on SCANA's announcement Monday. "Consortium entitlement will have to be established before Santee Cooper would be in a position to negotiate any increased project costs."

The state-run utility has contingency funds in its budget that can accommodate a significant adjustment, said Gore.

Santee Cooper estimated its total construction cost at $5.1 billion in offering documents earlier this year. The utility expects to fund its remaining $2.6 billion cost with bonds that will be issued through 2018, and proceeds from selling 5% of its share in the project to SCE&G.

SCANA currently estimates its construction cost at $5.3 billion, according to a filing with the Securities and Exchange Commission on Monday.

Both SCANA and Santee Cooper could see risks increase from the latest delay in completing the new nuclear reactors, Moody's said.

The most important risk is the prospect for rising regulatory problems over customers' tolerance to absorb new nuclear-related costs in an environment of low natural gas prices, and when the timing to recover new expenses will fall outside the legislative time frame for recovering costs related to nuclear units, said analysts.

As a public power electric utility with rate-setting autonomy, Santee Cooper is insulated from regulatory approval risks for cost recovery.

"However, the utility shares in the construction risk and potential rate pressure with SCANA," analysts said. "Santee Cooper has mitigated some of the early rate pressure through a restructuring of its debt…[and] has in its forecast a contingency that incorporates $600 million of additional costs, a credit positive."

Santee Cooper's bonds are rated A-plus by Fitch Ratings and AA-minus by Standard & Poor's, both with stable outlooks.

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