In addition, Fitch has downgraded
Proceeds will be used to fund a portion of the authority's ongoing capital improvement program. Final bond maturity is expected to approximate
The revenue bond obligations are secured by a gross lien on system revenues and are paid prior to operating expenses and other outstanding debt obligations, including commercial paper notes.
KEY RATING DRIVERS
EXTENDED PERIOD OF WEAKER PERFORMANCE DRIVES DOWNGRADE:
SOLID CUSTOMER BASE:
REALIGNMENT OF GENERATING CAPACITY: The authority is actively engaged in restructuring its power supply mix, by reducing exposure to coal-fired generation and adding to its natural gas and nuclear facilities. Management's plan to reduce its 45% ownership interest in the V.C. Summer nuclear plant expansion project (units 2 and 3), to a desired 20%, was not effectuated, and the authority has now decided to retain a 40% share of the project.
FINANCIAL METRICS LESS ROBUST: Major construction and financing for new generation have pressured financial ratios in recent years. Fitch calculated debt service coverage (DSC) was a reasonable 1.48x in 2013, Debt/FADS was highly elevated at 12.9 and equity to capitalization stood at a less than robust 23.1%. Financial metrics are expected to stabilize at levels commensurate with the new ratings.
OUTLOOK REVISION TO STABLE: The revision in Outlook reflects Fitch's view that
SIGNIFICANT CONSTRUCTION DELAYS: Any substantial changes to the Summer project schedule, design and/or budget could affect the authority's rating and Outlook.
UPSWING IN ELECTRIC DEMAND: A meaningful improvement in demand for electricity, that helps to diminish the authority's excess capacity and benefits financial metrics, would be viewed positively.
For 2013, coal generation based on fuel mix (summer) was the largest component at 53%; natural gas and oil at 16%; nuclear at 11%; purchases at 17% and other at 3%. Following the completion of the new Summer project, the authority's goal is to achieve a balanced generating portfolio approximating 30% each for coal, natural gas and nuclear.
The authority and Central successfully adopted an amendment to the existing Central Agreement on
SUMMER NUCLEAR PROJECT
In light of lower forecasted load growth (estimated at 1% annually) combined with the planned gradual loss of a portion of the Central load and a possible reduction or loss of the
STATUS OF CONSTRUCTION
Because of delays in the schedule for fabrication and delivery of sub-modules for the new units, SCE&G in
During the fourth quarter of 2013, the contractor consortium began a full re-baselining of the unit 2 and unit 3 construction schedules to incorporate a more detailed evaluation of the engineering and procurement activities necessary to accomplish the schedule. The result will be a revised fully integrated construction schedule that will provide detailed and itemized information. The authority anticipates the revised schedule and the cost estimate at completion for all non-firm and fixed scopes of work will be finalized in the third quarter of 2014. The authority believes that project owner costs (e.g. engineering, procurement and construction) remain well known and firm. The authority also has a sizeable contingency built into its cost estimate. However, what is less certain is sufficiency of record documentation at the
The authority currently estimates the total construction cost, assuming a 45% ownership interest in the Summer nuclear generating stations units 2 and 3, to be approximately
During 2013, wholesale rates averaged
DEBT RESTRUCTURING PLAN
Traditionally the authority has amortized its debt taking into consideration the potential termination of the Central contract in 2030 and the expected lives of its capital assets. With the recent extension of the earliest possible termination date of the Central agreement to 2058, the authority intends to extend the average life of its debt in order to better match its debt amortization schedule with the expected lives of its capital assets.
REVOLVING CREDIT AGREEMENTS SUPPORT CP PROGRAM
The service area, much of which is along the coast, has historically grown at a rate well in excess of the national average. Recently, the rate of growth has slowed considerably. Future sales growth is likely to be lower than historical rates, and is estimated at around 1% per year. In 2013, sales to Central accounted for approximately 59% of electric revenues.
The authority has a long-term power contract with
Additional information is available at 'www.fitchratings.com'.
The rating action was informed by information identified in Fitch's U.S. Public Power Rating Criteria and Revenue-Supported Criteria.
--'U.S. Public Power Rating Criteria' (
--'U.S. Public Power Peer Study Addendum -
--'2014 Outlook: U.S. Public Power and Electric Cooperative Sector' (
--'U.S. Public Power Peer Study --
--'Rating U.S. Public Finance Short-Term Debt' (
U.S. Public Power Rating Criteria
U.S. Public Power Peer Study Addendum --
2014 Outlook: U.S. Public Power and Electric Cooperative Sector (Calm Under Pressure)
U.S. Public Power Peer Study --
Rating U.S. Public Finance Short-Term Debt
Alan Spen, +1 212-908-0594
Chris Hessenthaler, +1 212-908-0773
Dennis Pidherny, +1 212-908-0738
Source: Fitch Ratings
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