New York, November 11, 2012 --
Issue: Revenue Notes, Tax-Exempt Commercial Paper Notes, Series D and E; Rating: P-1; Sale Amount: $100,000,000; Expected Sale Date: 11/23/2012; Rating Description: Revenue: Government Enterprise
Issue: Revenue Notes and Taxable Commercial Paper Notes, Series DD and EE; Rating: P-1; Sale Amount: $100,000,000; Expected Sale Date: 11/23/2012; Rating Description: Revenue: Government Enterprise
Moody's Investors Service has assigned a P-1 short-term credit rating to the $200 millionSouth Carolina Public Service Authority's (Santee Cooper) Revenue Notes, including the Tax-Exempt Commercial Paper Notes, Series D and E and the Taxable Commercial Paper Notes Series DD and EE. Moody's has also affirmed the P-1 rating on the outstanding Sub-series A, AA, B ,BB, C and CC commercial paper notes. Also, Moody's has affirmed the Aa3 rating on the utility's outstanding $5.6 billion Revenue Obligations and affirmed the stable outlook.
The CP program is supported by the utility's strong internal liquidity and by revolving lines of credit amounting to $200 million split between Barclays Bank PLC (rated A2/P1) for Series D and DD ($100 million) that expires November 2015 and TD Bank (rated Aa2/P1)for Series E and EE ($100 million) that expires November 2015.
Santee Cooper has an existing commercial paper note program outstanding with authorization in the amount of $500 million. The existing program includes Sub-series A and AA ($250 million) with a JP Morgan Revolving Credit Agreement that expires September 15, 2014; Sub-series B and BB ($150 million) with Wells Fargo Revolving Credit Agreement that expires September 15, 2014; and Sub-series C and CC ($100 million) with U.S. Bank Revolving Credit Agreement that expires December 31, 2014.
The new revolving credit agreement is effective November 28, 2012 for Series D and E and Series DD and EE notes.
Santee Cooper utilizes commercial paper notes to fund its ongoing capital improvement program including the Summer nuclear expansion project.
The P-1 rating reflects the credit strengths of Santee Cooper including its strong financial position including strong internal liquidity; the liquidity support provided through the revolving credit agreements and the terms and conditions of those agreements.
Moody's has also affirmed the Aa3 credit rating on South Carolina Public Service Authority. Please see the separate Moody's credit report on South Carolina Public Service Authority dated October 2012 for additional details related to the utility's long-term ratings.
Aa3 RATINGS AFFIRMED RATIONALE
The Aa3 rating takes into consideration Santee Cooper's strong management of its operations; its sound competitive and financial position. Santee Cooper is an unregulated utility owned by the State of South Carolina (rated Aaa by Moody's). The utility is governed by an appointed board of directors and has been successful over its history in being fiscally isolated from the state. The utility has contributed to state policy through providing competitive and reliable power supply to wholesale and retail customers including some of the state's largest industrial customers. Santee Cooper has before it a major challenge to keep its competitive and reliable electricity supplier role secure as it navigates the transition to less carbon intense fuels including participation in the financing of two new nuclear units.
LONG TERM RATING OUTLOOK
While Santee Cooper's outlook is stable, it rests on the expectation that it will lower the financing and construction risks associated with the Summer nuclear expansion plan. Santee Cooper is currently a 45% owner of the Summer Nuclear Unit 2 and 3 expansion project which the utility expects to reduce to a 20% ownership interest. The expected success of the effort to diversify its risk is a critical aspect of the maintenance of the current rating level. Progress towards letters of intent (LOI) to reduce ownership interest and diversify risk to around 20% has taken place which is a credit positive. Another positive development since our last review was the Nuclear Regulatory Commission (NRC)'s certification of the AP 1000 design; approval of the COL and authorization to proceed to construction of the two new nuclear units. Relatively more certain NRC post Fukushima regulatory outlook also seems to be in place. Progress on the extension of the power supply agreement beyond 2030 with Santee Cooper's largest customer Central Cooperative is also noted.
What Could Change the Rating UP:
Given the size of the utility's capital program the current rating level remains appropriate.
What Could Change the Rating DOWN:
The rating could be lowered if Santee Cooper doesn't implement its plan to reduce the risk of its 45% ownership in the Summer nuclear expansion project to approximately 20% prior to the ramp up in construction spending. While the cash flow required for the project has been increasing, progress towards reducing the risk and lowering Santee Cooper's interest in the project has taken place. The rating could also be lowered should new NRC regulatory changes significantly impact the cost of the expansion program.
The rating could also be lowered if the Authority's debt service coverage ratio falls below the 1.50 -1.60 times level on a sustained basis. The rating could also be lowered if there were political interference in the way Santee Cooper operates, affecting its financial strength or operating flexibility.
*Competitive rates for wholesale and retail customers in the service area
*Strong management of capital plan
*Governing board sets rates without external rate regulation; customers bear fuel cost risk with a monthly fuel cost adjustment mechanism
*Below-average power production costs and strong generation performance*Authority is owned by the State of South Carolina (General Obligation bonds rated Aaa with stable outlook by Moody's); authority fiscally separate from state
*Regulatory risk has heightened as NRC reacts to concerns post Fukushima about safety of US nuclear fleet. Thus far new regulation has been reasonable and managed
*AP 1000 reactor design used in Summer Nuclear Units 2 and 3 has first-in kind engineering risk
*Customer concentration, with a significant amount of sales under long-term contract to 2030 to the Central Electric Power Cooperative (Central-not rated by Moody's), an association of 20 electric distribution cooperatives
*Significant exposure to environmental regulatory uncertainty since more than 70% of energy is from coal-fired generation
*Significant large industrial load-a customer class that is more susceptible to any future risks related to retail competition or customer relocation
*Construction risk is present as Santee Cooper implements its share of the substantial new nuclear generation plan
The methodologies used in this rating were U.S. Public Power Electric Utilities With Generation Ownership Exposure published in November 2011, and Rating Methodology for Municipal Bonds and Commercial Paper Supported by a Borrower's Self-Liquidity published in January 2012. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
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Dan Aschenbach Senior Vice President Public Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Michael G. Haggarty Senior Vice President Public Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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