Dominion’s buyout of SC’s SCANA increasingly in doubt

Don’t hold your breath waiting for those cash refunds from Dominion Energy.

The Virginia-based power company’s proposed buyout of troubled SCANA is in serious peril.

Wall Street investors are more doubtful than ever that the deal will become final after the S.C. House last week voted temporarily to block SCANA from charging its electric customers for a failed nuclear construction project. Dominion says that $37-million-a-month revenue stream must be part of its SCANA buyout.

Even if Dominion keeps its offer on the table, state senators are taking steps to slow down — until possibly February 2019 — a state commission’s approval of the $14.6 billion deal. Dominion has said it wants the deal to close in the fall.

Meanwhile, the Senate is trying to hire an financial advisory firm to help lawmakers evaluate the consequences of their actions – a process that could delay any Senate vote affecting the Dominion deal by up to two months or more, sources told The State Tuesday.

The recent developments only add to the unprecedented financial and regulatory uncertainty surrounding South Carolina’s energy future.

‘Counter ... or get out of town’

The firestorm began last July when SCANA’s SCE&G subsidiary and state-owned Santee Cooper said they had abandoned a $9 billion, decade-long effort to build two more nuclear reactors at the V.C. Summer Nuclear Station in Fairfield County.

SCANA’s stock price and reputation collapsed under the weight of State House hearings, federal and state investigations, and public blowback to the Cayce-based utility’s insistence on continuing to charge its customers higher power bills for the failed project.

In January, Dominion swooped in with an offer to buy SCANA and refund SCE&G electric customers about $1,000 of the $1,400 each household has paid thus far toward the failed project. The deal also would cut power bills by $7 a month and reduce — to $2.8 billion from $10.5 billion — the amount that SCE&G customers still owe for the Summer project.

That offer has been met with growing skepticism from S.C. elected leaders who don’t think SCE&G’s 700,000 customers should pay another dime for the unfinished power plant.

The deal, which Dominion has said is its best and final offer, faces a number of hurdles.

The Virginia utility needs a handful of approvals from state and federal agencies. It needs a resolution of lawsuits challenging the rate hikes that SCE&G levied to bankroll the nuclear project. It needs two-thirds of SCANA’s shareholders to approve the deal. And it needs S.C. lawmakers not to pass a law that would stop Dominion from charging SCE&G’s customers for the project over the next 20 years.

But state lawmakers are flirting with proposals that could kill the Dominion deal.

The House last week approved a plan that temporarily would stop the monthly nuclear-related charges. S.C. Gov. Henry McMaster also has vowed to veto any proposal that keeps S.C. power customers on the hook for the Summer reactors.

In his Jan. 24 State of the State address, McMaster doubled down on that promise. Afterward, state Sen. Mike Fanning, D-Fairfield, told The State “tonight is the end of the Dominion deal.”

“If I were Dominion, I’d either be scrambling to come up with a counter proposal or to get out of town because, basically, every single thing in that deal, he stood up there and denounced.”

‘Investors worried’

Wall Street investors have taken notice, sending SCANA’s stock price lower. Tuesday, SCANA shares closed below $38 a share, almost $12 less than Dominion’s buyout offer.

Investor trading this week indicates the market thinks the Dominion deal has a one-in-four chance of closing, the worst odds since the deal was announced last month, according to Keith Denninger, a merger analyst at Olivetree Financial.

Even AT&T’s acquisition of Time Warner, which is being challenged by the U.S. Department of Justice, is trading at higher odds than the Dominion deal.

“At this point, all of the new developments and continued uncertainties have investors worried that Dominion will either revise the terms of its offer, or go as far as terminating the deal,” Denninger said.

Credit rating agencies also have noticed.

Moody’s on Monday downgraded SCANA to below “investment grade,” citing the House’s vote last week and the likelihood the Public Service Commission will take a stronger stance against the power company in future rulings.

Dominion, however, says it remains confident it will seal the deal, even as state senators debate a proposal that would block the Public Service Commission from approving the buyout until next year.

“The longer it takes to achieve regulatory approval, the longer it delays having those benefits flow to customers, including the $1,000 payments to average residential customers and the rate reduction,” spokesman Chet Wade said Tuesday. “An extended delay also would amplify the potential damage to the state’s reputation as a good place to do business and increase the possibility of costly litigation. We will continue to work to educate policymakers and the public on the value of our proposal and the long-term importance to South Carolina.”

Senate Majority Leader Shane Massey, R-Edgefield, said Tuesday he can’t handicap whether the Dominion deal is dead. The utility still has the option to revise the deal and offer customers more rate relief, he said.

“They made, as a condition of this agreement, that they continue to get the same rates under the law that nobody in the state likes.”

This story was originally published February 6, 2018 at 7:05 PM with the headline "Dominion’s buyout of SC’s SCANA increasingly in doubt."