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Fitch downgrades SCANA, SCE&G credit ratings as temporary rate cut stands

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Fitch downgrades SCANA, SCE&G credit ratings as temporary rate cut stands

Fitch Ratings downgraded SCANA Corp. and subsidiary South Carolina Electric & Gas Co. by one notch based on "the absence of injunctive relief blocking the recently enacted 14.8% electric rate cut."

The rating agency on Aug. 8 lowered the long-term issuer default ratings, or IDRs, of SCANA to BB from BB+ and of South Carolina Electric & Gas, or SCE&G, to BB+ from BBB- as part of an "across the board" downgrade, with the exception of SCANA's short-term debt rating. All of SCANA's current credit ratings by Fitch are below investment-grade, while SCE&G's issuer rating and short-term debt (commercial paper) rating also are now at "junk" status.

Fitch also downgraded the ratings of SCANA subsidiary Public Service Co. of North Carolina Inc., or PSNC, by one notch to BB+, based on the rating linkage with its parent. The rating agency also downgraded the short-term IDRs of SCE&G and PSNC to B from F3.

"The ratings reflect the sharp deterioration in the legislative and regulatory environment in South Carolina since abandonment of the new nuclear project in July [2017]," Fitch wrote in its report. "In addition to [H.B. 4375's] legislatively mandated 14.8% rate cut, changes to definitions and statutory components of the state's utility regulation are likely to result in diminished regulatory support, in Fitch's opinion."

SCE&G disclosed the downgrade in an Aug. 10 filing with the Public Service Commission of South Carolina.

A federal judge on Aug. 6 denied SCE&G's attempt to halt a temporary rate reduction tied to cost recovery for the abandoned V.C. Summer nuclear expansion. The utility is seeking expedited consideration from the U.S. Court of Appeals for the Fourth Circuit to appeal the U.S. District Court's decision.

SCE&G has said the "experimental rate" enacted by South Carolina lawmakers and ordered by state regulators amounts to a revenue reduction of approximately $31 million per month. The utility said the rate reduction and other aspects of a new state law constitute "an unlawful taking of private property" and deny the utility due process.

The experimental rate is retroactive to April 1 and will be in effect until the PSC rules in December on Dominion Energy Inc.'s proposed acquisition of SCANA or final cost recovery of the scrapped V.C. Summer reactors.

"If allowed to stand, Fitch considers the magnitude of the cut to be detrimental to SCE&G's and [SCANA's] credit metrics, even after consideration of [SCANA's] 80% reduction of the common dividend," the rating agency wrote. "If the PSC issues an order in December 2018 with a permanent cut of a similar magnitude, additional downgrades may be warranted."

Fitch added that if Dominion and SCANA are able to complete their merger "as originally envisioned," it could stabilize the credit metrics for SCANA and SCE&G.