SCANA Corp. and Santee Cooper missed out on almost $200 million in September when they sold a group of hedge-fund investors the right to collect billions from the company responsible for building them a pair of nuclear reactors.
At the time, the power companies said they were taking the bird in the hand: The investors would pay more than $1.8 billion right away. It was money that would start to fill in the financial crater left behind by a pair of abandoned nuclear reactors in the Midlands.
In return, the investors would have the right to collect $2 billion over the course of years. They'd have to get it from Toshiba Corp., the Japanese owner of Westinghouse Electric, which designed the reactors. If Toshiba could withstand its financial turmoil, they'd land a tidy 9 percent gain five years from now.
Turns out, they won't be waiting that long.
Toshiba will pay up early, the company announced late Tuesday. It plans to cut its last check later this month, meaning the hedge funds will land a $171 million profit in the space of about three months.
Their profit comes from a pool of money intended to pay down part of the staggering $9 billion tab SCANA and Santee Cooper racked up in their effort to build a pair of reactors at V.C. Summer Nuclear Station, a power plant north of Columbia. Electric customers are expected to pay most of those costs.
SCANA and Santee Cooper have vowed to use the Toshiba money to cover some of the costs their customers are stuck with. They said they decided to cash in early to avoid the risk of financial trouble at Toshiba.
But less than two months after the power companies sold their rights to the settlement, Toshiba said it was looking for billions of dollars in new financing to pay it out immediately. The company said it was worried that fluctuations in the exchange rate between the Japanese yen and the U.S. dollar could pile onto what was already a "huge amount of debt."
SCANA, the Cayce-based owner of South Carolina Electric & Gas, says it didn't know Toshiba was thinking about paying up early.
"We are not privy to such Toshiba business discussions and decisions," spokeswoman Rhonda O’Banion said in an email. "SCE&G intends to utilize the net value of these payments to mitigate the cost of the abandoned project to customers."
Moncks Corner-based Santee Cooper, which provides power to the state's electric cooperatives, said it preferred the certainty of a smaller, upfront payment to the uncertainty of waiting for a bigger check. And it says it still hasn't heard anything firsthand about Toshiba's speedier payments.
"Our knowledge about any change in Toshiba's intentions regarding settlement payouts is limited to news articles," Santee Cooper spokeswoman Mollie Gore said in an email. "We have no independent knowledge about Toshiba's ability to, or commitment to, accelerate the payments."
The decision to cash in was cheered by politicians and consumer groups who have otherwise been critical of the utilities since they killed the V.C. Summer project in July. As recently as Tuesday, Gov. Henry McMaster called it a "good move by SCANA and Santee Cooper."
Toshiba's decision to pay early hands a nine-figure win to a pair of hedge funds that were willing to bet that the company was good for the money.
Santee Cooper and SCANA sold the settlement to New York-based Citibank, but Reuters reports that the rights landed with Boston-based Baupost Group and New York-based Blackstone Group.
Citibank and Blackstone declined to comment on the transaction. Baupost couldn't immediately be reached for comment Wednesday.
Now, South Carolina's utility watchdog agency says the issue needs to be aired out before the state Public Service Commission, which oversees SCE&G. The Office of Regulatory Staff, which represents the public interest in utility cases, has already asked the commission to decide how SCE&G spends the Toshiba money.
Regulatory staff director Dukes Scott says a key question will be why South Carolina's utilities sold their settlement while their counterparts in Georgia decided not to. A group of Peach State power companies is also building a pair of Westinghouse-designed reactors near Augusta.
Georgia Power, which owns the largest stake in that project, says it will receive the balance of its settlement with Toshiba by the end of next week.
"Did Georgia Power know something that SCE&G didn't know?" said Scott, who said his office would raise the question before regulators. "It is a regulatory matter that needs to be addressed."
Andrew Brown of The Post and Courier contributed to this report.