De­bate on Fu­ture of S.C. Util­ity

The Bond Buyer - - Front Page - By Shelly Sigo

Pres­sures are mount­ing on South Carolina to jet­ti­son San­tee Cooper, the state’s largest power provider.

The South Carolina Club for Growth, a con­ser­va­tive group that ad­vo­cates for free mar­kets, has launched a statewide ra­dio cam­paign urg­ing peo­ple to tell law­mak­ers that they should sell the state-owned pub­lic util­ity.

A sale, the or­ga­ni­za­tion said, would free ratepay­ers from pay­ing back $7.14 bil­lion of out­stand­ing debt, half of which was spent on San­tee Cooper’s share of two nu­clear re­ac­tors scut­tled last year by it and co-owner South Carolina Elec­tric & Gas, a sub­sidiary of in­vestor owned SCANA Corp.

“It’s time for South Carolina’s lead­ers to pur­sue a quick, mar­ket-based sale of San­tee Cooper that pro­tects cus­tomers and tax­pay­ers from fur­ther pain,” the Club for Growth said on its web­site. “There is no sce­nario in which San­tee Cooper and its un­der­ly­ing as­sets will rise in value. In fact, its prob­lems are only go­ing to fes­ter.”

A state com­mit­tee is al­ready in­ves­ti­gat­ing whether to sell San­tee Cooper, for­mally known as the South Carolina Pub­lic Ser­vice Au­thor­ity.

Ear­lier this year, the Leg­is­la­ture cre­ated the Pub­lic Ser­vice Au­thor­ity Eval­u­a­tion and Rec­om­men­da­tion Com­mit­tee, which has hired Vir­ginia-based ICF In­ter­na­tional to so­licit non-bind­ing bids of in­ter­est in pur­chas­ing the pub­lic util­ity.

Bids will be eval­u­ated based on a se­ries of cri­te­ria. The most weight will be given to how the pur­chase im­pacts cus­tomers’ rates, the amount of the bid, and plans for tran­si­tion­ing the or­ga­ni­za­tion, its pen­sions and salaries.

Other fac­tors will ex­am­ine each bid­ders’ tech­ni­cal ca­pac­ity to op­er­ate a util­ity re­li­ably and safely, fi­nan­cial ca­pa­bil­ity, the im­pact on San­tee Cooper’s cur­rent lo­ca­tion in the Monck’s Cor­ner area, plans for eco­nomic

devel­op­ment, gen­er­a­tion di­ver­si­fi­ca­tion, and plans for em­ployee re­ten­tion.

The com­mit­tee, com­posed of Gov. Henry McMaster, four sen­a­tors and four rep­re­sen­ta­tives, is ex­pected to make a rec­om­men­da­tion about whether to sell the util­ity to the full Leg­is­la­ture dur­ing its ses­sion, which be­gins Jan. 8.

McMaster, a Repub­li­can who has said on numer­ous oc­ca­sions that San­tee Cooper should be sold, won a full four-year term as gov­er­nor in the Nov. 6 elec­tion. He as­cended from the lieu­tenant gov­er­nor’s of­fice to be­come gov­er­nor in 2017 after Nikki Ha­ley re­signed to be­come am­bas­sador to the United Na­tions.

The gov­er­nor has threat­ened to veto any at­tempt by the util­ity to raise rates, and has said that ratepay­ers shouldn’t have to pay for money spent on re­ac­tors that will never be used.

Ear­lier this year, McMaster ap­pointed former South Carolina At­tor­ney Gen­eral Char­lie Con­don as the new chair­man of San­tee Cooper’s Board of Di­rec­tors. The state Se­nate chal­lenged the ap­point­ment in court be­cause Con­don had not been con­firmed.

The South Carolina Supreme Court ruled last week that McMaster had au­thor­ity to ap­point a board chair­man when the Leg­is­la­ture wasn’t in ses­sion.

“Char­lie Con­don will be a tremen­dous as­set at San­tee Cooper and I know he will lead with the trans­parency and ac­count­abil­ity that the peo­ple of South Carolina de­serve from their pub­lic ser­vants,” McMaster said after the rul­ing. “It is crit­i­cal that we have a steady hand at the helm while we de­ter­mine the best path for­ward for San­tee Cooper and its cus­tomers, and the Supreme Court’s rul­ing en­sures that we will have just that.”

San­tee Cooper isn’t aware of any of­fi­cial pur­chase of­fers that have been sub­mit­ted to the state, Shawan Gil­lians, the util­ity’s trea­surer and as­so­ciate gen­eral coun­sel, said in a pre­sen­ta­tion to in­vestors last week.

“If San­tee Cooper were sold, a con­di­tion prece­dent to the clos­ing of such a sale would be the re­tire­ment or de­fea­sance of all out­stand­ing debt, both tax-ex­empt and tax­able,” Gil­lians said.

If there is a sale, the util­ity’s largest whole­sale cus­tomer, Cen­tral Elec­tric Power Co­op­er­a­tive, has the right to ter­mi­nate its long-term power pur­chase agree­ment with San­tee Cooper, she said.

Cen­tral Elec­tric pro­vided about 59% of San­tee Cooper’s rev­enues in 2017 and is un­der con­tract to pur­chase power from the state util­ity through 2058.

San­tee Cooper Se­nior Vice Pres­i­dent and Chief Fi­nan­cial Of­fi­cer Jeff Arm­field, who plans to re­tire in April, said the util­ity con­tin­ues to pro­vide “re­li­able and com­pet­i­tively priced power” to more than two mil­lion re­tail and whole­sale cus­tomers while main­tain­ing a strong fi­nan­cial pro­file.

“We are also ac­tively de­fend­ing in state and fed­eral court our statu­tory obli­ga­tion to col­lect rates suf­fi­cient to pay debt ser­vice and fund op­er­a­tions,” he said. “In ad­di­tion, we have be­gun im­ple­ment­ing a debt re­tire­ment pro­gram to re­duce cost and off­set nu­clear project debt.”

San­tee Cooper is in­volved in sev­eral class-ac­tion law­suits, two of which con­cern the con­struc­tion and July 2017 sus­pen­sion of work on the nu­clear re­ac­tor project.

“An ad­verse fi­nal de­ci­sion on these two class ac­tions re­lated to the V.C. Sum­mer Nu­clear Units 2 and 3 may have a ma­te­rial ad­verse ef­fect on San­tee Cooper’s op­er­a­tions and fi­nances,” Gil­lians said.

In one suit filed in Hamp­ton County Court of Com­mon Pleas, Cen­tral Elec­tric filed cross-claims con­tend­ing that San­tee Cooper doesn’t have au­thor­ity to con­tinue to col­lect charges for the shut­tered nu­clear re­ac­tors, and that the util­ity breached its agree­ment with the co­op­er­a­tive.

Cen­tral is also ask­ing for 70% of the pay­ment San­tee Cooper re­ceived as part of a set­tle­ment from Toshiba Corp. after its sub­sidiary, West­ing­house Corp., filed for bank­ruptcy in March 2017.

West­ing­house was the en­gi­neer­ing, pro­cure­ment and con­struc­tion con­trac­tor for South Carolina’s twin re­ac­tor project, as well as a sim­i­lar project that is be­ing com­pleted in Ge­or­gia by Bech­tel Power Corp.

In 2017, San­tee Cooper re­ceived $895 mil­lion from the sale of its in­ter­est in the Toshiba set­tle­ment.

To date, the util­ity has used $627 mil­lion of the set­tle­ment to ac­cel­er­ate debt re­tire­ment gen­er­at­ing about $890 mil­lion of debt ser­vice sav­ings, ac­cord­ing to Gil­lians. Plans are to use most of the set­tle­ment by 2020 to re­duce the need for fu­ture cap­i­tal bor­row­ing.

On Nov. 7, Hamp­ton County Cir­cuit Court Judge John C. Hayes de­nied San­tee Cooper’s mo­tion to dis­miss Cen­tral Elec­tric’s cross-claims.

“If Cen­tral’s cross-claims were de­ter­mined ad­versely to San­tee Cooper, the ac­tion may have a ma­te­rial ad­verse im­pact on San­tee Cooper’s abil­ity to trans­act its busi­ness or meet its obli­ga­tions un­der the rev­enue obli­ga­tion res­o­lu­tion,” Gil­lians said.

In a sep­a­rate le­gal ac­tion, San­tee Cooper has filed a pe­ti­tion ask­ing the South Carolina Supreme Court to de­ter­mine its obli­ga­tions to set rates to cover costs, in­clud­ing those re­lated to the shelved re­ac­tors.

The court’s rul­ing is pend­ing. Gil­lians said San­tee Cooper has “solid” debt ser­vice cov­er­age of about 1.4 times, in­clud­ing sub­or­di­nate com­mer­cial pa­per and re­volv­ing credit agree­ments as well as its an­nual pay­ment to the state, which was $17.4 mil­lion this year.

San­tee Cooper has cash re­serves of more than $1 bil­lion, which rep­re­sents nearly 11 months of op­er­at­ing ex­penses, and $1.1 bil­lion of bank credit fa­cil­i­ties with five banks. About $334 mil­lion of the fa­cil­i­ties are cur­rently drawn or back out­stand­ing com­mer­cial pa­per.

“In light of our ex­pected re­duced cap­i­tal ex­pen­di­tures, re­cent rat­ing down­grade and the con­tin­gent fund­ing risk as­so­ci­ated with fa­cil­i­ties of this type, we are cur­rently eval­u­at­ing strate­gies that re­duce both the cost and the in­her­ent risk as­so­ci­ated with our cur­rent short-term fi­nanc­ing struc­ture,” Gil­lians said.

San­tee Cooper in­curred two rat­ing down­grades this year due to un­cer­tainty about its gover­nance and le­gal prob­lems.

On Nov. 14, Fitch Rat­ings low­ered its rat­ing to A-mi­nus from A-plus, while Moody’s In­vestors Ser­vice in Au­gust down­graded its rat­ing to A2 from A1.

S&P Global Rat­ings in Au­gust af­firmed its A-plus rat­ing. It low­ered its rat­ing to A-plus from AA-mi­nus last year after worked stopped on the V.C. Sum­mer project. All three rat­ing agen­cies have nega­tive out­looks.

San­tee Cooper’s debt-to-cap­i­tal­iza­tion is about 76%, and it pro­jects a steady de­cline to 69% by 2023 and 65% by 2027.

“These re­sults are achieved with­out sub­stan­tially higher rates than cur­rent lev­els,” Gil­lians said. “San­tee Cooper pro­jects an ag­gre­gate re­tail base rate in­crease of ap­prox­i­mately 7% be­gin­ning in years 2020 or 2021.”

The util­ity fore­casts mod­est sales growth through 2027 and cap­i­tal ex­pen­di­tures of about $250 mil­lion per year.

About 78% of cap­i­tal needs will be fi­nanced with in­ter­nal funds, while less than $600 mil­lion will be bor­rowed through 2027. ◽

Bloomberg News

South Carolina Gov. Henry McMaster has re­peat­edly called for the sale of the pub­lic San­tee Cooper util­ity.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.