Duke no longer in nuclear talks with Santee Cooper, but SCANA increases ownership share

SCANA to increase its stake by 5% to help offset coal retirements

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Duke Energy (NYSE:DUK) said Jan. 27 that it is no longer in talks to buy part of Santee Cooper’s minority share in two new nuclear units now under construction in South Carolina, but majority owner and operator, SCANA (NYSE:SCG) is willing to increase its ownership stake.

In something of a surprise, Duke Energy Carolinas said in a Securities and Exchange Commission (SEC) filing that it is no longer involved in talks with South Carolina Public Service Authority, the formal name for Santee Cooper, about acquiring 5%-to-10% ownership in V.C. Summer units 2 and 3 now under construction near Jenkinsville, S.C.

Duke has been involved in talks with Santee Cooper since July 2011. In September, Duke President and CEO Lynn Good said she was not ready to place a timetable on when Duke will make a decision on the new nuclear investment.

The Sierra Club was sufficiently confident that Duke would buy a share of the new nuclear units that it actually issued an embargoed news release on an anticipated purchase announcement by Duke.

As it turns out, Duke isn’t buying part of V.C. Summer. Santee Cooper is, however, still going to be able to decrease its 45% ownership stake in the two 1,100-MW nuclear units now being built.

Santee Cooper and SCANA subsidiary South Carolina Electric & Gas Company (SCE&G), said Jan. 27 they have agreed for SCE&G to acquire 5% ownership from Santee Cooper.

When contacted for further comment, a Duke Energy spokesperson said the following: "We have worked diligently with Santee Cooper in evaluating the options of ownership in V.C. Summer. We were not able to reach an agreement. We wish Santee Cooper and SCE&G continued success in the completion of V.C. Summer units 2 and 3."

"Due to the confidentiality of our discussions with Santee Cooper, we cannot provide any additional information about the discussions," the Duke spokesperson said.

SCANA will buy 110 MW in stages

The Santee Cooper Board of Directors approved Jan. 27 the sale of 5% of V.C. Summer units 2 and 3 to SCE&G. Under the terms of the transaction, SCE&G will own 60% of the new nuclear units and Santee Cooper, 40%.

The 5% ownership interest would be acquired in three stages, with 1% to be acquired at the commercial operation date of the first new nuclear unit, which is anticipated to be in late 2017 or the first quarter of 2018, an additional 2% to be acquired no later than the first anniversary of such commercial operation date and the final 2% to be acquired no later than the second anniversary date of such commercial operation date.

The purchase price would be equal to Santee Cooper's actual cost of the percentage conveyed as of the date of the conveyance. Such cost is anticipated to be approximately $500m for the entire 5% interest based on current project cost. The agreement also provides that Santee Cooper will not transfer any of its remaining ownership interest in the two new units until both units have been completed. The transaction is subject to customary closing conditions, including receipt of necessary regulatory approvals.

Santee Cooper has been exploring opportunities to reduce its ownership level since 2011, to better match the new units' capacity with business needs when the units come online and still provide generating diversity that takes into account regulatory and fuel cost considerations.

The agreement also provides that Santee Cooper will not transfer any of its remaining ownership interest in the two new units until both units have been completed. The transaction is subject to customary closing conditions, including receipt of necessary regulatory approvals.

Santee Cooper has been exploring opportunities to reduce its ownership level since 2011, to better match the new units' capacity with business needs when the units come online and still provide generating diversity that takes into account regulatory and fuel cost considerations.

"The past few years have shown unprecedented volatility in base load fuel costs and increasing regulatory pressures on fossil-fueled generation,” said Santee Cooper President and CEO Lonnie Carter. “Today's action reduces our costs to customers somewhat, while still preserving an ownership level that will position us well for the flexibility we will need going forward," Carter said.

"The addition of approximately 110 MW from this purchase will help us replace a portion of 345 MW of older coal fired generation expected to be retired over the next five years,” said Kevin Marsh, chairman and CEO of SCANA. “This increment of nuclear power fits nicely into our updated Integrated Resource Plan, which is scheduled to be filed with the SC Public Service Commission in February 2014,” Marsh said.

"A 5 percent increase in our ownership of the new nuclear project will delay the need to build new gas fired capacity after 2020 with clean, non-emitting nuclear energy. Once the new nuclear units are completed and go into commercial operation, we would expect to pay for the additional 5 percent with internal funding without the need for long-term external financing," Marsh said.

Santee Cooper won’t search for additional partners

When reached late in the day a Santee Cooper spokesperson said her organization and Duke “worked very hard” but were not able to come to terms that were agreeable to all parties involved.

“It was a complex situation,” the spokesperson said. Santee Cooper is delighted that SCANA has agreed to increase its stake to 60%, the representative added.

Santee Cooper also won’t be looking for any more minority partners, the spokesperson added. “This is it,” the spokesperson said.

With the economy improving, tougher air pollution standards on the way and Santee Cooper having lined up long-term power agreements, the authority feels better now about owning 40% of the project.

Santee Cooper is moving closer to a “30-30-30” energy mix with 30% each coming from coal, natural gas and nuclear power with the remaining 10% coming from renewable sources, the spokesperson said.

Wayne Barber
About the Author

Wayne Barber

Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants.

Wayne can be reached at wayneb@pennwell.com.

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