Columbia Regional Business Report
January 22, 2018
By Melinda Waldrop
Dominion Energy concedes its proposed acquisition of SCANA won’t satisfy all the players in the ongoing V.C. Summer nuclear debacle. But the company says its proposal is the best and — outside of a widely criticized proposal by SCANA subsidiary S.C. Electric & Gas Co. Inc. — only offer on the table.
“What we’re proposing won’t be perfect for everybody,” Chet Wade, Dominion’s vice president of corporate communications, said. “We just can’t see how we can get to perfect for everybody. What we can offer, we believe, is something much better.”
Dominion President and CEO Tom Farrell made rounds at the Statehouse last week, attempting to sell legislators on the Richmond, Va.-based company’s proposed $14.6 billion acquisition of Cayce-based SCANA. SCANA, parent company of S.C. Electric and Gas, which co-owns the V.C. Summer project, has been under fire after the twin 1,117-megawatt reactors were abandoned in July. SCE&G and partner Santee Cooper had poured $9 billion into the reactors’ decades-long construction.
SCE&G customers continue to pay for the abandoned reactors as part of an 18% project-related increase in their electricity bills. SCANA sought and received nine rate increases during the reactors’ construction under the controversial Base Load Review Act, a 2007 law that allowed the increases before the project was completed.
Farrell painted a dire picture of SCANA’s future if the Dominion deal did not go through, including the possibility of bankruptcy. Senators and their House counterparts greeted that bleak scenario with skepticism.
The results of an audit by the S.C. Office of Regulatory Staff released Friday found a 35% possibility of bankruptcy for SCANA and its subsidiary if the 18% rate increase, which amounts to about $37 million a month, is suspended as part of reform or repeal of the BLRA.
The audit cited the negative effects of a bankruptcy filing on SCANA shareholders, as well as third-quarter 2017 dividend payments to those shareholders that “would seem to cover most, if not all, of the amount of the lost revenue from the 18% charge” among factors in that determination.
“The elimination of the 18% charge might mean the suspension of dividends but not the immediate need to file bankruptcy,” according to a memorandum assessing the likelihood of bankruptcy filed by commercial law firm Nexsen Pruet.
The dealbreaker
Farrell told the S.C. Senate that an outright repeal of the BLRA would make a deal untenable. Wade said Dominion is open to changes that would keep the law from applying to any future utility projects, but “if you try to do a retroactive rollback, we won’t be here. … We don’t see how we could make that work. I don’t know how anyone, quite frankly, could make that work.”
If a repeal leaves SCANA in dire financial straits, future investors’ interest in South Carolina may wane, Wade said.
“What comfort level will other businesses have in South Carolina?” he said. “South Carolina’s done a terrific job of creating a great business environment, but what are the consequences of that?”
Frank Knapp, president and CEO of the S.C. Small Business Chamber of Commerce and a member of the Stop the Blank Check Coalition, formed in 2016 in opposition to V.C. Summer-related rate increases, doesn’t share that view.
If SCANA doesn’t go bankrupt, “they will still be profitable,” Knapp said. “They will still have profit-sharing. They can still run their company and provide electricity and still do all these things. They just won’t be quite as profitable. … We think the Base Load Review Act needs to go away. It just needs to go away. We certainly don’t need it for any future $9 (billion) or $10 billion energy projects.”
Dominion’s proposal would reduce the average SCE&G customer’s rates by 5%, or more than $7, a month. A $1.7 billion-plus write-off of existing V.C. Summer capital and regulatory assets would eliminate all customer costs related to the project over 20 years. That’s faster than the 50- to 60-year period proposed in a November offer from SCE&G, which would have reduced annual rates by 3.5%.
Dominion has also promised a $1.3 billion cash payment to refund SCE&G ratepayers within 90 days of the stock-for-stock merger’s completion. The utility would work with state regulators to determine refund amounts based on usage.
A residential customer with an average $150 bill could get around $1,000, Wade said.
“It’s probably between six and seven months’ worth of what an electric bill is,” said Wade, who said Dominion has proposed using 2016 rates for that calculation. “And of course it’s all affected by weather and your own personal uses. But it’s in that range. And you don’t have to use it for your electric bill. It’s not going to be a bill credit. It’ll come to you and you do with it what you want.”
‘It’s the most sure thing’
Legislators have questioned whether the Dominion deal is the best deal ratepayers can get. Wade says it is and that the company welcomes a thorough examination of the offer by legislators, ratepayers and SCANA shareholders, who would have to approve the merger. It is also subject to approval by the public service commissions of South Carolina, North Carolina and Georgia, among other bodies.
“In the Legislature, and with other elected officials and policymakers, I think they are cautious,” Wade said. “They want to see the proof in the pudding. That’s what we’re asking people to do, is to take a really good, hard look at it, and to give a hard look to the alternatives, to think through the alternatives. We think if they do that, they will, we hope, come to the same conclusion that we have: that this is truly the best opportunity.
“It’s the most sure thing. Certainty in business is very important, and so to have some sense of not having this hanging over the state’s head for potentially years is something that businesses would like.”
Wade also echoed Farrell’s position that Dominion is not interested in acquiring project co-owner Santee Cooper, a state-run utility saddled with $4 billion in project-related debt.
SCANA CEO Jimmy Addison told the S.C. Public Service Commission last week that the company’s board approved the Dominion merger on Jan 2. Addison called the deal, expected to close by the third quarter, “the right way to go.”
Wade said the merger would bring benefits to South Carolina that go beyond rate relief.
Dominion is a larger company with more resources than SCANA, Wade said, and has experience operating nuclear reactors like the still-functioning Unit 1 at V.C. Summer’s Fairfield County station. He said the company is also a leader in the growing renewable energy market, with two recent solar farms in Jasper County contributing to its total of 1,350 megawatts in service, under construction or in development — the sixth-largest total among U.S. electric utilities.
“We want people to understand that we’re not trying to force anyone’s hand,” Wade said. “We came in with a proposal that we think makes it better, (but) it’s a puzzle. Every piece of this needs to fit together.”