A rare high-profile utility takeover

11 January 2018

Dominion Energy, Virginia’s largest utility, has announced a takeover of holding company SCANA.

SCANA's principal operating subsidiary, South Carolina Electric & Gas, is the main privately owned electric and gas company in South Carolina, and it also owns as a gas utility in North Carolina, and a gas retailer in Georgia, reports https://oilprice.com/.

SCANA has been in the news lately and not in a good way. This past July it and partner Santee Cooper cancelled construction of the two nuclear reactors planned for the V.C. Summer power station in Jenkinsville, SC.

Large, privately owned electric utilities seldom become available for purchase. Like a water damaged painting by an old Italian master, prospective buyers know their purchase comes warts and all so to speak.

This proposed transaction is rather complicated and is designed to appease a number of diverse audiences. For Dominion Resources this is an all equity transaction. Dominion will however incur the additional debt formerly held by SCANA. The total transaction value is about $14.6 billion. Dominion's Board of Director's has agreed to exchange each SCANA share for two-thirds of a Dominion Resources common share or approximately $55.32.

Before the deal's announcement a share of SCANA common stock sold at around $37.50. The deal price is below SCANA’s highs but close to where the stock price was right before the nuclear project cratered. So, SCANA's shareholders appear to do ok in this proposed transaction. And corporate bond holders who invested in SCANA's ill-fated project will still receive payment of principal and interest. Hence, no expected complaints from them either.

But what about utility customers in South Carolina? They've been for paying for this project even though it is not likely to ever produce electricity. The new owners have promised electricity customers a $1.3 billion cash refund (within ninety days of transaction closing). Consumers have paid close to $1.6 billion so far in nuclear construction and related costs over the previous nine years (by our calculations). A refund along the lines promised seems just.

Dominion's management also promised to reduce electricity prices for South Carolina customers by an additional 5 percent price decrease or $575 million. This amount is what customers save by not paying for an equity investment return on the cancelled nuclear project plus the not inconsiderable income tax savings generated by new tax law.

All in all, this seems like a deal any regulated utility would strike with its state PUC-after a financially staggering nuclear power plant cancellation. Share the tax savings with consumers and forego the return on investment related to the cancelled nuclear project. A merger regardless of the generosity of terms is not required for any of this. But for SCANA's shareholders Dominion's takeover bid beats most of the alternatives.

Electricity customers in South Carolina remain obligated for debts incurred by SCANA for its ill-fated nuclear project. The passage of the 2006 Base Load Review Act (BLRA) by the South Carolina General Assembly is a political embarrassment. This law permits cost recovery for new power plants while they are being built, not like in the old days when state regulators would only permit customers to be charged for new investments after they were competed and had entered commercial service.



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