Post and Courier
January 3, 2019
By Thad Moore and John McDermott
It’s official: Dominion Energy now owns SCANA Corp., taking control of one of South Carolina’s largest companies after it was hobbled by one of the biggest financial fiascoes in state history.
The sale was finalized Wednesday.
Dominion’s purchase of the Cayce-based owner of South Carolina Electric & Gas was announced a year ago — almost to the day — at a moment when the state’s utility sector was in turmoil. Five months earlier, SCE&G had called off its massive expansion of the V.C. Summer nuclear plant after the budget ballooned out of control, and the state was in an uproar because the company expected to charge its customers billions for the boondoggle.
The end result will still cost ratepayers billions, but the final bill will be lower than initially proposed: Under Dominion’s ownership, SCE&G will collect $2.3 billion for the pair of unfinished nuclear reactors over the next two decades. Power prices will be essentially unchanged after the deal, locking in a temporary rate cut ordered by the Legislature last summer.
The deal won the blessing last month of South Carolina regulators, who heard three weeks of testimony about the proposed purchase and the collapse of SCE&G’s plans to expand the V.C. Summer Nuclear Station.
Regulators decided not to order deeper rate cuts, saying they preferred the stability of Dominion’s plan. It puts SCE&G in the hands of a much larger company — its new owner is a $47 billion energy giant — and it ensures that the utilities won’t sue the state.
“We will now hit the ground running with Dominion Energy and embrace change,” SCANA chief executive Jimmy Addison said in a statement.
Addison, who was the company’s finance chief during the nuclear project, will be embracing change, too. He will retire next month, making him eligible for a golden parachute triggered by the sale. His payout is worth an estimated $9.7 million, regulatory filings show.
Two former executives will cash in on the sale, too. Kevin Marsh, SCANA’s CEO during the nuclear project, received about $3 million from shares he’d previously earned but hadn’t accessed yet, and operations chief Steve Byrne will take in $1.1 million. Both executives retired after the V.C. Summer expansion failed in July 2017.
Those payouts will be made even though shareholders voted against giving executives golden parachutes, but SCANA says it’s “contractually obligated to pay” executives whose jobs are eliminated. They’ll be made by Dominion as part of the all-stock deal, which was valued at about $13.4 billion including SCANA’s debt the buyer will assume.
New company
In SCANA, Richmond, Va.-based Dominion will take control of a former Fortune 500 company that has some 2 million electricity and natural gas customers throughout the Carolinas and Georgia. The company — long one of the largest businesses in South Carolina — traces its history back more than 175 years to the Charleston Gas Light Co.
In South Carolina, Dominion will get a fast-growing market with more than 700,000 electricity customers in a regulated monopoly. It has promised to keep SCE&G’s headquarters in Cayce, pay employees through the middle of next year even if they lose their jobs, and put one of SCANA’s directors on its board.
It’s also taking control of a utility just beyond the path of its ambitious Atlantic Coast Pipeline project. The pipeline will take gas south from the mid-Atlantic, and it’s currently slated to stop just north of Dillon. Environmentalists and consumer advocates expect that the project will eventually reach into South Carolina, where SCE&G is planning to use gas for its future electricity needs.
The combination expands Dominion’s operations in Georgia and the Carolinas, where the company had already operated an electric utility serving 120,000 customer accounts in northeastern North Carolina and a 1,500-mile gas pipeline in South Carolina and Georgia.
The sale includes a name change for those businesses: SCANA will become the Southeast Energy Group. That division will be led by P. Rodney Blevins, a Dominion executive who will move to Cayce, and it will be staffed by a handful of SCANA executives.
SCANA finance chief Iris Griffin will run the division’s finances, and Keller Kissam, a Citadel graduate who previously was president and chief operating officer of SCE&G, will run its electricity operations. That means neither will get a payout tied to the sale.
Dominion CEO Thomas F. Farrell II said in a statement that his company “is pleased to add SCANA’s fast-growing, high-performing Southeastern businesses to our 18-state footprint.
“The addition of SCANA makes geographic sense and aligns well with our core, regulated energy businesses,” Farrell said. “These are well-run regulated operations that we expect will help improve Dominion Energy’s risk profile and growth outlook.”
Legal risk
Even so, Dominion is taking on some risk by closing the deal.
Santee Cooper, the co-investor in the failed nuclear project, sued SCE&G last week, saying that it had been “dismissive” of Santee Cooper’s concerns about the project’s viability and acted fraudulently. Santee Cooper, which is being sued by its customers, argued that SCE&G should have to pay their damages.
SCE&G denied the allegations, saying the complaint “lacks legal merit and ignores its accountability for the termination of the project and the significant losses suffered by both companies.”
Dominion will also face challenges to the regulatory decision that let it buy SCANA in the first place. Five groups have asked the S.C. Public Service Commission to reconsider its decision, a step that opens the door to a challenge before the state Supreme Court.
They include the Office of Regulatory Staff, the state’s utility watchdog agency, which asked regulators to formally decide that SCE&G lied to them. They pointed to a bombshell audit that was kept secret for more than a year while the project faltered and an internal study that suggested the reactors would cost far more than the utility was saying publicly.
“SCE&G then took every step it could to keep that information hidden,” the Office of Regulatory Staff said in its challenge. “The commission cannot conclude that such conduct was either prudent or acceptable.”
Dominion, for its part, thinks “the commission’s thoughtful, well-reasoned order speaks for itself,” company spokesman Ryan Frazier said.
Regulators are unlikely to overturn their own decision, and they’ve already voted not to make a formal finding that SCE&G intentionally misled them. But Frank Knapp, CEO of the S.C. Small Business Chamber of Commerce, suggested that SCANA’s sale could give regulators cover to go further.
Regulators were motivated, in part, to keep the Dominion deal intact. By Knapp’s count, their order made 10 references to the risk of scuttling the takeover.
“With Dominion finalizing its purchase of SCE&G, the PSC can correct its errors in its order without being concerned that they will make Dominion walk,” Knapp said in a statement.