Day 11 of the PSC Hearing (11-15-18)

Day 11 of the PSC hearing delivered some important testimony from Dominion Energy witnesses.

The day started with a panel of Dominion witnesses: James Chapman (Dominion’s CFO), Prabir Purohit (Dominion’s Director of Mergers and Acquisitions) and James Warren (Dominion’s out-of-house attorney).

Mr. Chapman told that Dominion is a $79 billion company. He cautioned that securitization is not a magic bullet.

Mr. Knapp questioned Mr. Chapman about his opinion on securitization. But first he asked how much money Dominion spent in SC on TV, radio and newspapers in 2018.  He said that he had no idea of how much was spent and could not even give an estimate.  He was asked if he could obtain that number and provide it to Dominion CEO, Tom Farrell, for him to answer the question.

In response to Mr. Knapp’s question, Mr. Chapman said that the PSC could include securitization in some manner in its final order. Additionally, he said that securitization was heavily used prior to the Great Recession but had decreased in use since then.

Mr. Knapp recited the fact that 17 states have used securitization (Mr. Chapman said that he thought there were actually more than 20 states), the Florida Public Service Commission in 2015 directed a utility to use securitization to recover the construction costs of an abandoned nuclear project saving consumers $600-$700 million, and that this past August California lawmakers approved the use of securitization to enable the utility PG&E to cover their costs of lawsuits resulting form 2017 wildfires (liability that could be in the billions). Mr. Knapp asked why all these states thought the use of securitization was the best financing tool for their consumers, but Dominion doesn’t think it is good for SCE&G customers.

Mr. Chapman said that securitization works well for many purposes but is not appropriate in this case. He said that Wall Street would not be happy if SCE&G used the money from securitization to pay off bonds early (Mr. Knapp reminded him that there are financial penalties for doing so and therefore bond holders would get what they were promised).  Mr. Chapman also said that money from securitized bonds should not be used for certain purposes espoused by other witnesses (Mr. Knapp pointed out that his concerns could be addressed in the Commission’s order).  He said that the two important reasons that securitization was not appropriate for SCE&G were  1) investors would be reluctant to invest in a state with a hostile political climate that might jeopardize the payment of the bonds and 2) a $2 – $3 billion securitized bond issue was too great for the size of SCE&G and would result in the interest on bonds being high.

Mr. Knapp responded that once legislation that precludes a successful court challenge is passed by the General Assembly, investors in the bond would not have to be concerned about political climate. Mr. Knapp also pointed out that the ORS proposed allowable construction costs to be recovered was well below $1 billion.  Mr. Chapman admitted that this amount for securitized bonds was within the normal range for the financing tool.

Under questioning of Mr. Will Cleveland representing the Southern Environmental Law Center, Mr. Purohit was forced to admit that should the PSC find that SCE&G incurred costs imprudently, then SCE&G should not be allowed to recover those costs in Dominion’s Plan A.

In response to a question from Commissioner Hamilton, Mr. Chapman said that he would not rule out Dominion moving forward with the merger even if the PSC ruled for a rate reduction lower than the utility has proposed in its Plan B, a rate reduction that is lower than the 15% temporary rate rollback already in place.

The featured witness today was Mr. Tom Farrell, Dominion’s CEO. Mr. Farrell explained Dominion’s Plan A and Plan B proposals to benefit ratepayers if his company were approved for acquiring SCANA.  He characterized the planned merger as only financially adequate for Dominion.

Most interesting, Mr. Farrell said that he had not read the merger agreement with SCANA even though he signed it. Therefore, he was not very familiar with the specifics.

That agreement includes an indemnification clause that says Dominion will pay for all legal costs, civil and criminal, for SCANA executives. Mr. Farrell said that he never discussed this with Jimmy Addison (SCANA CEO) who he worked with on negotiating the merger agreement.

Day 12 of the hearing starts tomorrow with Mr. Farrell still as a witness.

Frank Knapp

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