SCANA Corp., a company reeling from a decision to abandon two half-built nuclear reactors at the V.C. Summer project in South Carolina, is getting a lifeline from Dominion Energy, one of the nation’s largest utilities.
The two companies on January 3 announced an agreement to combine in a stock-for-stock merger. The proposed deal is valued at about $14.6 billion, including assumption of debt.
If the transaction is approved by shareholders and regulators—as could occur in the third quarter of this year—SCANA would operate as a wholly owned subsidiary of Virginia-based Dominion Energy, maintaining its local management structure and headquarters in South Carolina. The combined company would operate 31.4 GW of generating capacity in 18 states from Connecticut to California, delivering power to about 6.5 million regulated customers in eight states.
However, the deal will need to overcome several hurdles before it is complete. Approvals are needed from SCANA’s shareholders, the Federal Trade Commission, the Department of Justice, the Nuclear Regulatory Commission, and the Federal Energy Regulatory Commission. Public service commissions in South Carolina, North Carolina, and Georgia must also review and approve the merger.
Dominion’s chairman, president, and CEO Thomas Farrell II meanwhile told investors in a January 3 call that his company could void the deal if South Carolina lawmakers or regulators took “any” action that adversely impacts the terms of the sale.
South Carolina regulators are looking into whether customers of SCANA subsidiary South Carolina Electric & Gas Company subsidiary (SCE&G) should continue paying for the project. When they return for the new session next week, the state’s lawmakers may also consider legislation that would repeal the Base Load Review Act, a law that allows SCANA to keep charging customers for the abandoned project.
Dominion and SCANA said, however, that they will now seek approval from the Public Service Commission of South Carolina for an immediate resolution to the withdrawn V.C. Summer expansion. “We believe it is in the best interests of all parties to reach an agreement on this critical issue,” said Farrell.
“Having certainty on this issue can act as a catalyst for economic development and it is essential for the Dominion Energy-SCANA merger to move forward. The availability, reliability and cost of energy are often the deciding factors when businesses consider investing—and we want businesses to have every reason to continue investing in SCANA’s communities,” he said.
Dominion stressed that agreement will benefit SCE&G electric customers as it will offset previous and future costs related to nuclear project.
Under the agreement, SCE&G customers will receive a $1.3 billion payment within 90 days after the merger is completed, as well as a 5% rate reduction from current levels. It would also involve a more than $1.7 billion write-off of V.C. Summer’s Units 2 and 3 capital and regulatory assets, allowing for the “elimination of all related customer costs over 20 years, instead of over the previously proposed 50-60 years.” As a merged entity, the two companies will also complete a $180 million purchase of the gas-fired Columbia Energy Center “at no cost to customers,” to ensure reliability.
Farrell also lauded the combined company’s potential, noting that SCANA is a “natural fit” for Dominion. “Our current operations in the Carolinas—the Dominion Energy Carolina Gas Transmission, Dominion Energy North Carolina and the Atlantic Coast Pipeline—complement SCANA’s, SCE&G’s and PSNC Energy’s operations. This combination can open new expansion opportunities as we seek to meet the energy needs of people and industry in the Southeast,” he said.
He also noted that the merger offers myriad benefits to SCANA shareholders, including “the largest utility customer cash refund in history,” and would “guarantee a rapidly declining impact from the V.C. Summer project.”
For SCANA’s freshly installed CEO Jimmy Addison—former CEO Kevin Marsh resigned on December 31 following the tumult of the failed nuclear expansion—the merger offers SCANA strength and resources, which “will enable us to once again focus on our core operations and best serve our customers.”
Mounting V.C. Summer Project Troubles
SCANA and its utility partner, state-owned utility Santee Cooper announced their decision to abandon the two-unit V.C. Summer nuclear expansion on July 31, 2017. The project to build first-of-their-kind AP1000 reactors was about 64% complete in May when it was put in limbo by key contractor Westinghouse’s bankruptcy filing. When it abandoned the project, SCANA cited cost concerns, noting that its share of costs to finish the project as 55% owner would have soared to $9.9 billion, while Santee Cooper, which owns the remaining 45%, said it would have needed to spend about $8 billion to complete construction, plus about $3.4 billion for interest. The decision to abandon the project would save customers nearly $7 billion, the partners said.
But backlash following the decision to abandon the project was swift, spawning several lawsuits brought by a variety of plaintiffs, including ratepayers, shareholders, and citizen groups. SCANA’s troubles intensified in September, when South Carolina’s attorney general’s office and state lawmakers urged state law enforcement to conduct a criminal investigation on how it handled the project. Federal agents are meanwhile reportedly scrutinizing whether SCANA failed to reveal information about the project to investors. The Securities and Exchange Commission, too, has subpoenaed records from SCANA and Santee Cooper.
Since July, SCANA’s shares have tumbled nearly 42%, though some industry analysts hold that the company’s financial metrics are improving. In a bid to boost profitability, SCE&G on December 28 filed a formal request with the NRC to withdraw the combined operating licenses for the V.C. Summer units to ensure it qualified for a 2017 tax deduction and capture about $2 billion for its customers. The company also notably offered to cede its abandoned interest in the project to Santee Cooper “for no consideration,” noting that if Santee Cooper chose to become the sole licensee, SCANA would support an application to transfer the licenses to the Santee Cooper.
South Carolina Gov. Henry McMaster has meanwhile pushed for the sale of Santee Cooper, South Carolina’s public electric and water utility that was created during the New Deal in the 1930s. In early December, the governor’s office was reportedly in talks with four potential buyers: NextEra, Duke Energy, Southern Co., and Dominion—all out-of-state utilities. And in late December, Santee Cooper board chairman Leighton Lord stepped down following three weeks of legal wrangling after McMaster fired him based on allegations that Lord hid critical information about the failed project.
On January 3, McMaster issued a statement saying Dominion’s proposed plan to buy SCANA amounted to “progress.”
SCE&G ratepayers “would get most of the money back they paid for the nuclear reactors and no longer face paying billions for this nuclear collapse,” he said.
“But this doesn’t resolve the issue. Over seven hundred thousand electric cooperative customers face the prospect of having their power bills skyrocket for decades to pay off Santee Cooper’s $4 billion in debt from this. The only way to resolve this travesty is to sell Santee Cooper. There is more work to be done but today we are headed in the right direction.”
—Sonal Patel is a POWER associate editor (@sonalcpatel, @POWERmagazine).