Fitch: Revised Construction Cost Estimate Raises SCE&G Risk

NEW YORK--()--The preliminary cost estimate of construction delays at South Carolina Electric & Gas Co.'s (SCE&G) V.C. Summer nuclear construction project is well above Fitch Ratings' previous expectation, further heightening regulatory and financial risk.

The estimated cost increase follows the delay in the construction schedule announced in August 2014. Following the announcement, Fitch changed SCE&G's Rating Outlook and that of its parent Scana Corp. (SCG) to Negative from Stable.

The revised schedule was largely due to the delay in the delivery of sub-modules to the construction site. Fitch expects to resolve the Negative Rating Outlooks once the cost increase and construction schedule are finalized and the South Carolina Public Service Commission (PSC) determines if the added costs are recoverable and the revised construction schedule acceptable.

Lack of regulatory support for the increased cost and revised construction schedule will most likely result in a downgrade. Even with full cost recovery, Fitch may consider a downgrade if financial recovery is delayed much beyond 2018. The plan for financing the additional cost will also factor into the ultimate rating decision.

The preliminary cost estimate of the construction delay provided by the construction consortium of Westinghouse Electric Co., LLC and the Chicago Bridge and Iron Co., N.V. is $660 million for SCE&G's 55% share of the project. The cost estimate excludes owners' costs associated with the delay, which could be substantial, or any mitigation from the liquidated damages provision of the engineering, procurement and construction (EPC) contract.

Fitch expects SCE&G to contest the cost increase associated with the construction delays and to ultimately arrive at a negotiated settlement that is somewhat less than the $660 million cost estimate, similar to what transpired in a previous cost dispute. However, if unable to reach a settlement, litigation is possible, which could linger for an extended period. In any event, SCE&G will be responsible for the additional owners' costs, which have not been disclosed.

Still to come is a detailed re-basing of the construction schedule. The preliminary schedule revision announced in August 2014 indicated a substantial completion date of V.C Summer Unit 2 to late 2018 or early 2019 with unit 3 to follow 12 months later. The previous schedule for substantial completion was March 2017 for V.C. Summer Unit 2 and May 2018 for V.C. Summer Unit3. It is uncertain when the revised schedule and cost estimate will be finalized.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Recovery Ratings and Notching Criteria for Utilities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=722085

Rating U.S. Utilities, Power and Gas Companies (Sector Credit Factors)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=735155

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Contacts

Fitch Ratings
Robert Hornick
Senior Director, Corporate Finance, Global Power
+1 212 908-0523
Fitch Ratings
33 Whitehall Street
New York, NY 10004
or
Philippe Beard
Director, Corporate Finance, Global Power
+1 212 908-0242
or
Kellie Geressy-Nilsen
Senior Director
Fitch Wire
+1 212 908-9123
or
Media Relations:
Brian Bertsch, +1-212-908-0549 (New York)
brian.bertsch@fitchratings.com

Contacts

Fitch Ratings
Robert Hornick
Senior Director, Corporate Finance, Global Power
+1 212 908-0523
Fitch Ratings
33 Whitehall Street
New York, NY 10004
or
Philippe Beard
Director, Corporate Finance, Global Power
+1 212 908-0242
or
Kellie Geressy-Nilsen
Senior Director
Fitch Wire
+1 212 908-9123
or
Media Relations:
Brian Bertsch, +1-212-908-0549 (New York)
brian.bertsch@fitchratings.com