Dominion Energy says it will walk away from its agreement to purchase SCANA if it can’t keep collecting most of the $37 million a month that SCE&G is charging for its unfinished nuclear reactors.
Legislators are itching to stop those collections, but legislative action isn’t the only thing that could kill the deal that SCANA says is its only hope for survival.
Technically, a third of SCANA shareholders could kill the deal, but they’d have to be insane to do that. And if they did, they’d deserve it if bankruptcy wipes out the entire value of their stock.
The bigger danger — potentially more likely than the Legislature killing the deal — is that the S.C. Supreme Court could kill it.
We’ve talked about this before, but it was in a very different context, so here’s a refresher: S.C. Solicitor General Bob Cook issued an opinion in the fall that said the Base Load Review Act — the 2007 law that made it nearly impossible for regulators to stop SCE&G from charging customers for the abandoned nuclear project, and making a profit on those charges — almost certainly violates South Carolina’s Constitution.
Based largely on Mr. Cook’s logic, Attorney General Alan Wilson and the Office of Regulatory Staff joined several environmental groups in asking the Public Service Commission to stop the charges, and in some cases to make SCE&G refund what customers have already paid.
The commission is expected to rule on those requests by summer, and regardless of the decision, someone will appeal. So ultimately, even if the Legislature doesn’t change the law, the state Supreme Court could decide that all or part of it violates the state constitution.
When Dominion CEO Tom Farrell met earlier this month with The State’s editorial board, I asked him what would happen if he convinced the Legislature not to change the law, and convinced the PSC to approve the terms of the deal, and got all the other approvals he needed, but the Supreme Court hadn’t ruled on the constitutional question. “The question needs to be settled,” he said. “That could fall inside one of the closing conditions. We’ll have to take a look at the circumstances.”
Translation (I think): The deal won’t close until the court rules.
Of course, the Legislature looks more and more determined to change the law, and even if that is done through negotiations with Dominion, a new law almost certainly will trigger another lawsuit, or lawsuits.
As Mr. Cook’s opinion noted, the whole idea of utility regulation is “achieving the proper balance between protecting the interest of the utility’s shareholders and the interest of the customers.” In the words of our state Supreme Court, rates cannot be “so low as to be confiscatory to the utility or so high as to be burdensome to the utility’s customers.”
Mr. Cook concluded that allowing SCANA to charge us for all the money it spent on the abandoned reactors (and potentially a 10 percent profit on that money) amounts to an unconstitutional taking of private property for private use — i.e., to enrich stockholders. But making the utility pay the full cost for a project that the state deemed necessary could be seen as a taking of the utility’s property — that is, the money it invested. As a result, he wrote, a regulatory decision “must balance consumer and investor interests and must be careful not to effect a taking on either side of the equation.”
Now, it’s possible that the Legislature could make changes to the law that hit the constitutional sweet spot — which I suspect might be along the lines of allowing SCE&G to recoup the money it invested but not make a profit off that money. Dominion says it has to recoup $3.3 billion that SCANA invested in construction plus that 10 percent return on investment, or profit. A spokesman says the extra $4.5 billion I came up with for profit using an online calculator is too high, but that he doesn’t have the correct figure yet; I have no doubt it’ll be in the billions.
Dominion would have to decide whether to go along with giving up the profit — perhaps by reducing the value of SCANA shares — or walk away.
One thing that could factor into that decision is a final complication that I suppose you could think of this as a fourth way the deal could fall apart. Let’s assume everything goes the way Dominion hopes it will go. Let’s assume the Legislature doesn’t change the law, or changes it in a way Dominion agrees to. Let’s assume the Supreme Court rules that the new law is constitutional, and Dominion closes the deal.
Maybe utility customers will be satisfied. Or maybe they’ll be outraged — and vote dozens of House members out of office.
If so, the first thing the House will do in 2019 is pass a bill that makes it impossible for Dominion to collect another penny for the nuclear plants, and orders Dominion to rebate the other third of the money SCE&G customers already have paid for the nuclear reactors. Senators, worried about their own re-election prospects two years later, would probably follow suit. Because there’s simply nobody, anywhere who can make any promises about what the South Carolina General Assembly will do in the future.
Here are some other pieces I’ve written about this that you might find helpful:
Ms. Scoppe writes editorials and columns for The State. Reach her at firstname.lastname@example.org or (803) 771-8571 or follow her on Twitter or like her on Facebook @CindiScoppe.