Regulators Back Dominion Takeover of SCANA
Credit to Author: Darrell Proctor| Date: Mon, 17 Dec 2018 19:53:02 +0000
Dominion Energy’s bid to purchase SCANA Corp. and its South Carolina Electric & Gas (SCE&G) utility, approved by South Carolina regulators on Dec. 14, could bring some stability to SCANA. Shareholders hope that’s the case; they’re excited about swapping their devalued SCANA shares for more valuable Dominion stock.
Workers, though, remain uncertain about their futures, fearing job losses with SCANA moving from local ownership to operating under the auspices of a Virginia-based company. On the flip side, workers also know new ownership could help the company’s bottom line and prevent job cuts, which Dominion has addressed in its merger agreement.
South Carolina’s Public Service Commission (PSC) unanimously supported Dominion’s offer for SCANA, despite protests from environmental groups and others who say the deal is not good for state ratepayers. SCANA CEO Jimmy Addison said the PSC’s decision put the companies “one step closer to a final resolution and the certainty that stakeholders have been hoping for.”
Thomas Farrell, Dominion’s chairman, president and CEO, in a statement Friday said his company was “encouraged” by the PSC’s unanimous support, “and awaits an order to review prior to making a final decision to close the merger with SCANA.”
The PSC’s final order on the deal is due by Dec. 21, but it could be appealed.
SCANA Will Be Dominion Subsidiary
The agreement means SCANA would operate as a wholly owned subsidiary of Dominion Energy, with SCANA’s headquarters remaining in South Carolina. The combined assets would encompass more than 31 GW of generating capacity in 18 states from coast to coast, with electricity being delivered to customers in eight states.
A key to the deal? Determining who is obligated to pay for the failed expansion project at the V.C. Summer nuclear plant, which began taking shape in March 2008 when SCE&G applied to the Nuclear Regulatory Commission for a construction and operating license to build two 1,100-MW AP1000 pressurized water reactors (Units 2 and 3) at the V.C. Summer site. Two months later, SCE&G and state-owned utility Santee Cooper announced they had reached an engineering, procurement, and construction contract with Toshiba-owned Westinghouse Electric Co. The reactors were originally projected to cost $9.8 billion.
The PSC approved the construction plan in 2009, and construction began in 2013. But after a series of delays and cost overruns—akin to the issues that have dogged a similar expansion at the Vogtle nuclear plant in Georgia, which resulted in the bankruptcy of Westinghouse—SCANA and Santee Cooper on July 31, 2017, said they were abandoning the expansion. The project was about 64% complete when SCANA and Santee Cooper shut it down, a move that resulted in multiple lawsuits and investigations by both South Carolina and federal government officials.
SCANA, with a 55% ownership stake in the project, cited cost concerns, saying it would cost about $9.9 billion to finish the reactors. Santee Cooper, which owns the remaining 45%, said it would spend about $8 billion to finish construction, along with an additional $3.4 billion in interest payments. Some reports put the total cost of finishing the project at about $25 billion.
The companies said abandoning the project would save ratepayers about $7 billion. SCE&G customers already have paid more than $2 billion toward the failed project through their monthly bills, with no electricity produced. The Charlotte Observer reported that SCE&G customers have seen electric rates rise by 18% since 2009 due to the nuclear project.
SCE&G customers have seen nine rate hikes to pay for the nuclear plant project; for them, the merger with Dominion would mean a rate cut of about 15%, or $22 per month, according to the purchase agreement.
The PSC in a directive about the deal said Dominion’s most recent offer “provides significant customer bill relief for SCE&G’s customers without damaging SCE&G’s creditworthiness or putting at risk SCE&G’s financial soundness or ability to provide reliable service to the Company’s customers.”
Stock-for-Stock Deal
The agreement between Dominion and SCANA was first announced in January 2018. The companies on January 3 said they would merge in a $14.6 billion stock-for-stock deal, including assumption of debt.
Dominion has said the agreement will benefit SCE&G customers, saying it will offset previous and future costs related to the nuclear project. The company, which has worked on the deal for months, originally offered SCE&G customers $1,000 rebate checks. South Carolina lawmakers earlier this year passed a temporary 15% rate cut for those ratepayers. The final deal approved by the PSC eliminates the rebate checks, and supports the $22 reduction in the average customer’s monthly bill.
South Carolina Gov. Henry McMaster said regulators made “the best of a bad situation” by supporting the deal. “Since we learned of SCANA and Santee Cooper’s decision to abandon the VC Summer Project, my goal has been to ensure that the customers bear no burden for the failings of others,” McMaster said in a statement. “The Public Service Commission—which I am confident has vigorously sought to make the best of a bad situation—has conducted a transparent, open process and has carefully deliberated the positions of ratepayers, the power companies, and the court.”
Consumer advocacy groups had sought a 20% rate cut for utility customers, which would equate to about a $30 reduction in the average monthly bill. Dominion officials said such a cut would cause them to abandon the agreement.
Though the rate cut was approved, SCE&G customers will still pay about $2.3 billion toward the project over the next 20 years.
Protecting Jobs
The PSC in approving the merger required Dominion to give one of its board seats to a current SCANA director. It also said SCE&G’s headquarters must remain in Cayce, South Carolina, and salaries of current employees must be protected through at least July 1, 2020, even if a worker’s job is eliminated.
Farrell said linemen working for the utility will not lose their jobs even after that July 1 date. Dominion officials have said some other workers could be laid off, or would receive incentives to retire, but have continually said that “significant layoffs” would not occur.
The company in a filing with the PSC said SCANA employees who do lose their jobs due to the merger would receive “fair consideration for other employment” within Dominion, whether in South Carolina or elsewhere. Dominion also said it would not change the pension program for current SCANA retirees. It also said it would increase SCANA’s charitable giving by $1 million annually.
“We are pleased with the opportunity to increase our presence in communities served by SCANA, expand our involvement in charitable giving and implement an EnergyShare-like program in South Carolina to assist low-income, elderly, disabled and veteran customers,” Farrell said in statement.
The PSC commissioners in backing the merger said they were concerned rejecting the deal could send SCE&G toward bankruptcy, and threaten power reliability in the state.
Said Commissioner Justin Williams: “While we don’t know what’s going to happen with those jobs down at SCE&G, what we know is … Dominion will have to come in bi-annually and give us a report, at least for the first three years, of what’s happening with employment. How many folks are accepting (severance) packages? What are the current state of affairs? So, at least we can keep a watchful eye.”
—Darrell Proctor is a POWER associate editor (@DarrellProctor1, @POWERmagazine).
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