Junk bond rating issued for parent of SC nuclear plant, impact on Vogtle unclear

By David Pendered

The financial fallout continues over the troubled nuclear construction projects in the Southeast, as Moody’s Investors Service on Monday slashed the credit rating of SCANA Corp. and its subsidiary that had been building a nuclear plant in South Carolina. The new rating action cites the hardening political climate in the Palmetto State as detrimental to SCANA’s financial posture.

Plant Vogtle experienced cost overruns and construction delays. The Georgia PSC has authorized continued construction. File/Credit: Georgia Power

Moody’s cut SCANA’s credit rating to junk, or speculative grade. Moody’s cut the rating of SCANA affiliate South Carolina Gas & Electric to one level above junk bond status.

The implications in Georgia are not clear. The Georgia Public Service Commission voted Feb. 1 to not reconsider its decision in December 2017 to allow continued construction at the Plant Vogtle nuclear plant, which is behind schedule and over budget.

Meantime, Georgia Power, a partner in the Vogtle project, has touted a cost-reduction it is passing along to consumers. The reduction stems from changes in federal tax law, not in any concessions related to expenses at Vogtle.

Moody’s cited the changes in federal tax law when it reduced its outlook on Southern Co., Georgia Power’s parent, from stable to negative in a rating action issued Jan. 19. On Jan. 5, Moody’s affirmed the investment grade ratings of Southern and Georgia Power based on the PSC’s ruling. Regarding the Jan. 19 downgrade, Moody’s observed:

  • “The change in outlook to negative from stable for the 24 companies affected in this rating action primarily reflects the incremental cash flow shortfall caused by tax reform on projected financial metrics that were already weak, or were expected to become weak, given the existing rating for those companies. The negative outlook also considers the uncertainty over the timing of any regulatory actions or other changes to corporate finance polices made to offset the financial impact.”

In a statement released Jan. 5, Georgia Power President & CEO Paul Bowers commended the PSC’s decision and said it will put “downward pressure” on future electricity rates:

  • “Our responsibility is to our customers first and we remain focused on fulfilling our commitment to them to deliver a new energy source that will put downward pressure on rates for 60 to 80 years once the new units are on line.”

South Carolina lawmakers cited consumer protection as the central reason behind their support for the pending enactment of House Bill 4375. It suspends $37 million in monthly payments to SCANA while the collapse of the nuclear project goes through court review, according to a report by postandcourier.com.

South Carolina’s governor has said he will sign the legislation if it reaches his desk. The news account observes:

  • “The plan is to unburden more than 700,000 electric customers from paying for the abandoned reactors near Jenkinsville while utility regulators and the state’s court system determine whether SCANA or the state’s homeowners and businesses pay for the multibillion failure.”
Westinghouse AP 1000

Westinghouse Electric Co. describes the AP 1000 being built at Plant Vogtle as the, ‘safest and most economical nuclear power plant available in the worldwide commercial marketplace.’ File/Credit: theconstrutionindex.co.uk

Meanwhile, SCANA is looking for a way out of the quagmire.

On Jan. 12, the utility company filed an application for permission to become a wholly owned subsidiary of Dominion Energy. The application also seeks approval of what is called a “customer benefits plan” that is to accompany the merger. SCANA has contended the proposed merger would be threatened if the state suspends the $37 million in monthly payments.

Dominion is not in a rock-solid financial position. Moody’s has rated Dominion as Baa2 with a negative outlook. That’s just one step above the rating Moody’s provided for SCE&G in the recent rating action. The next step down on Moody’s scale is a junk bond rating, which is the new rating by Moody’s of SCANA, the parent company.

Moody’s didn’t take long to respond to the shifting political climate in South Carolina regarding the nuclear plant.

The Legislature vote overwhelming to pass the bill on a Thursday. Moody’s released its statement to downgrade the credit rating on a Monday. Further credit downgrades are possible, based on the outcome of an ongoing review process Moody’s started Nov. 1, 2017.

Here’s how Moody’s decision to downgrade the credit rating was described in a statement by Laura Schumacher, a senior credit officer:

  • “The downgrade of SCE&G and SCANA is driven by a political and regulatory environment that has become exceedingly contentious and uncertain, and our assumption that SCE&G will ultimately be required to make considerable rate concessions to move forward. Although we recognize H 4375 has not yet been signed into law, the bill has the full support of the governor, and at least some members of the Senate, which was contemplating similar legislation.”

 

David Pendered, Managing Editor, is an Atlanta journalist with more than 30 years experience reporting on the region’s urban affairs, from Atlanta City Hall to the state Capitol. Since 2008, he has written for print and digital publications, and advised on media and governmental affairs. Previously, he spent more than 26 years with The Atlanta Journal-Constitution and won awards for his coverage of schools and urban development. David graduated from North Carolina State University and was a Western Knight Center Fellow. David was born in Pennsylvania, grew up in North Carolina and is married to a fifth-generation Atlantan.

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