BRADENTON, Fla. – Amid mounting state and federal probes into the handling of South Carolina’s unfinished twin nuclear reactors, the co-owners said they took steps to shed some of the related risk from shuttering the project.
The South Carolina Public Service Authority’s Santee Cooper and investor-owned South Carolina Electric & Gas monetized all but one payment each of the $2.17 billion they expected to receive in a settlement from Toshiba Corp. over the next five years.
Toshiba guaranteed the payments after its subsidiary Westinghouse, the prime contractor for the South Carolina nuclear project, filed for bankruptcy in March. Toshiba’s own financial problems raised doubt about whether it would make the guarantee payments.
The state-run Santee Cooper and SCE&G sold their interests in the Toshiba guarantee to Citibank NA on Wednesday, each receiving 91.5% of their share of payments upfront.
Santee Cooper’s 45% share of the monetization was $831.2 million. The utility also expects to receive the first payment of $67.5 million from Toshiba next month.
“We will use this money to benefit customers by offsetting rate increases in the short term, offsetting debt over the long term and paying our portion of mechanics liens” on the project, Leighton Lord, chairman of Santee Cooper’s board of directors, said in a statement.
Analysts at S&P Global Ratings and Moody's Investors Service viewed the monetization as a positive credit factor.
“We had concerns that Toshiba, given its lack of access to the debt and equity markets, would be able to make all of the settlement payment so that getting a large chunk upfront rather than spread over five years is a good thing,” said S&P analyst Jeff Panger.
S&P’s outlook on Santee Cooper’s A-plus rating returned to stable from negative Thursday because the utility had shown new projections since canceling the nuclear project that provided greater clarity on its financial metrics, rates, debt and future power supply needs. Panger said the revision would have taken place even without the monetization.
S&P’s decision to return Santee Cooper to stable was based on its view of current circumstances and the utility’s projections over the two-year outlook horizon in which the utility forecast the need for a lower generating capacity, according to Panger. The lower load, coupled with the decision to suspend work on the two nuclear units, alleviates the need to issue additional debt, he said.
“As such, we expect that debt ratios will improve against both current measures and projections pre-dating the project suspension,” Panger said.
Facing a firestorm from the public and politicians after terminating the project, Santee Cooper’s board voted Aug. 11 to suspend rate increases for two years. After that, rate increases are likely to resume.
The South Carolina Public Service Authority has $7.7 billion of outstanding bonds. Of the outstanding debt, $4.4 billion was issued to pay for Santee Cooper’s share of the two unfinished reactors at the V.C. Summer plant.
Moody’s analyst Dan Aschenbach said the upfront cash payment from the monetization eliminated risk that would have persisted over the next five years and strengthened Santee Cooper’s internal financial position with liquidity now more than 500 days.
“We view the successful completion of the Toshiba parental guarantee monetization as a credit positive for Santee Cooper, as it eliminates counterparty risk with Toshiba, strengthens the utility's liquidity, and provides funding to mitigate future rate increases or for debt reduction,” Aschenbach said.
Moody’s assigns an A1 rating to the utility’s bonds, and maintains a negative outlook.
Currently, Santee Cooper has independent rate-setting authority. Aschenbach, however, said there are questions about whether the degree of ratepayer anger across the state over the failed nuclear project could result in constraints being placed on Santee Cooper’s unregulated rate-setting capability or - in the worst case – if the utility could be ordered to issue refunds to customers.
SCE&G, the majority partner in the uncompleted project, is facing a potential claw back of rates it charged customers to pay for its 55% share of the work. The rates were approved by the state Public Service Commission under a law passed by the Legislature called the Base Load Review Act that allowed higher charges for the nuclear project.
On Tuesday, the South Carolina office of regulatory staff requested that the PSC issue an order immediately suspending all rates SCE&G is collecting in conjunction with project under the act, and to ordering customer refunds if the act is struck down.
In a filing with the Securities and Exchange Commission Thursday, SCE&G said that it believes the regulatory office’s request is “illegal and unconstitutional and outside the statutory powers” of the PSC. An affidavit by SCE&G chief financial officer said if the PSC approved the request the company’s electric retail revenues would be reduced by approximately $445 million annually.
In addition to the emerging dispute over rates, both Santee Cooper and SCE&G have received federal grand jury subpoenas and have been named in numerous class-action suits involving the terminated project.
Another controversy concerns a consultant’s assessment report by Bechtel on the status of the V.C. Summer project done in February 2016 that was only released earlier this month by Gov. Henry McMaster’s office, even though Santee Cooper marked the document “confidential, attorney-client privileged.”
The 132-page assessment said there were “significant issues” facing the nuclear project, including problems with plans, schedules, management, contracts, and engineering designs.
The environmental group Friends of the Earth on Wednesday released new aerial photographs of the abandoned reactors at the V.C. Summer that it said showed no protection from the weather.
“Almost two months after the project was halted, the V.C. Summer reactor construction site still looks like it was abruptly abandoned with no shut-down plan,” said Tom Clements, senior adviser to Friends of the Earth. “Not only was SCE&G grossly negligent during construction of the project, but the photos of the site reveal that the company also exhibited imprudent behavior in abandoning the project without proper closure plans."
S&P also revised its outlook on Central Electric Power Cooperative to stable from negative Thursday, and affirmed its A-plus issuer credit rating.
Central Electric receives more than 80% of its energy needs from Santee Cooper under a cost-of-service contract that extends through 2058, paying a pro rata share for existing resources, including the suspended nuclear project.
