Moody's on Feb. 5 downgraded the ratings of SCANA Corp. and its subsidiary South Carolina Electric & Gas Co. following legislative action in the South Carolina General Assembly that temporarily halts recovery of investments in the abandoned V.C. Summer nuclear reactors.
The rating agency announced that it downgraded SCANA's senior unsecured debt and credit facilities to Ba1 from Baa3 and downgraded SCE&G debt to Baa3 from Baa2. Moody's also said it will continue the review for downgrade initiated Nov. 1, 2017. The downgrade removes SCANA from the "investment grade" category for Moody's.
The South Carolina House of Representatives voted 119-1 on Jan. 31 to pass an amended version of H.B. 4375 that prevents South Carolina Electric & Gas, or SCE&G, from collecting revised rates tied to V.C. Summer. SCE&G owns 55% of the unfinished reactors and recovers nearly $450 million annually from ratepayers for the project as allowed under the state's Base Load Review Act.
Temporary rates, absent nuclear cost recovery, would be in place while the Public Service Commission of South Carolina evaluates proper rate relief and Dominion Energy Inc.'s proposed acquisition of SCANA.
"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," Moody's senior credit officer Laura Schumacher said in a news release. "Although we recognize [HB 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."
Moody's noted that the Base Load Review Act "has been a key factor supporting SCE&G and SCANA's credit quality" during the construction of the multibillion-dollar V.C. Summer units with any weakening of the law's provisions likely having a detrimental effect on SCANA's risk profile and ability to recover nuclear costs. The rating agency also is concerned that SCANA and SCE&G will be forced to absorb more costs based on the initial negative reaction to Dominion's proposal to acquire SCANA and help ratepayers.
"The continued review of SCE&G and SCANA will focus on the companies' uncertain and rapidly evolving political and regulatory environment as well as the likely impact on their future financial profiles," Moody's said. "To the extent there is evidence of additional financial stress or adverse political or regulatory developments, ratings could be affected."
Moody's also placed the long-term ratings of SCANA local gas distribution utility Public Service Co. of North Carolina Inc. under review for downgrade based on "the absence of strong ring fencing type provisions that could serve to insulate it from potential financial distress at the parent."
