A FEW WEEKS back, I asked a stock analyst how it made sense that SCANA had issued $87.5 million in quarterly dividends on the same day it reported a quarterly loss of $445 million, as a result of its decision to abandon construction of two nuclear reactors.
Oh, that $445 million was a one-time cost, he explained, and SCANA is still a very healthy company, so there would be no justification for reducing or refusing to pay dividends. He was very patient, but he simply could not understand why I could not understand his point.
In most cases, his explanation probably would make sense.
But when you’re talking about a regulated utility whose ability to keep charging customers $444 million a year for its abandoned construction project is at least partially in the hands of elected officials — many of whom face voters this year who are outraged over having to pay the nuclear surcharge — it might not be a good answer. In fact, I don’t know that there is a good answer.
If legislative action scuttles Dominion Energy’s proposed purchase of SCANA, I suspect we will look back to SCANA’s Feb. 22 dividends announcement as the beginning of the end.
It was that announcement that triggered a slow awakening of SCE&G customers, many of whom had been sympathetic to SCANA’s warnings of bankruptcy and favorably inclined to Dominion’s promise of $1,000 rebates and much lower nuclear surcharges than SCE&G had planned to collect.
After SCANA’s board decided to continue business as usual for stockholders, it became increasingly apparent that the choice we were facing wasn’t really between a Dominion purchase and a SCANA bankruptcy. The real choice was between ratepayer relief and stockholder dividends. That is, whether the costs of the failed $9 billion nuclear construction project would be borne by ratepayers in their inflated power bills or by stockholders in their deflated dividend checks.
As I explained at the time: “During that same three-month period, customers paid $111 million for the nuclear surcharge. Which is to say that customers paid for all of shareholders’ dividends, and then some. Or that three-quarters of the nuclear surcharge could be eliminated if SCANA stopped paying dividends until its nuclear debt is paid off.”
Washington-based Bates White Economic Consulting, which understands finances way better than I do, reached much the same conclusion last month. In an analysis it conducted for the S.C. Senate, the company concluded that the Legislature could cut SCANA’s 18 percent nuclear surcharge to 13 percent without fear of bankruptcy. It said the most obvious way SCANA could absorb that loss was by eliminating dividends.
The analysis noted that SCANA has paid higher dividends than 50 percent of similar-size utilities over the past nine years, that it has been steadily increasing its dividends as a percentage of its revenues and that over the past three years, it has paid higher dividends than 75 percent of its peer group.
The argument against legislative action to reduce or eliminate the nuclear dividends is that Dominion could pull out of the deal, and take its $1,000 rebates with it. And that absolutely must be taken into account. But so must a clear look at what we’d be paying in return for those one-time rebates.
From the moment SCANA and Santee Cooper walked away from the nuclear construction project, we heard warnings that we have to protect the shareholders, who have been portrayed as retired rank-and-file employees and little old ladies who invested their life savings in their home-grown utility. And there is no doubt that there are many such people in our state. I’ve had dear friends who fit in the little old ladies category, and since the abandonment I’ve talked to a number of others, who were looking for assurances that the Legislature wasn’t going to take away their dividends.
I’ve also talked to stockholders — who almost certainly have better-diversified portfolios — who begin the conversation by acknowledging that buying any stock is a gamble, and that stockholders have to understand that they will pay the price if the company makes bad decisions.
Reducing or eliminating dividends wouldn’t just shut off shareholders’ regular income stream. It also would make SCANA stock less attractive, which would drive stock prices even lower. Those lower prices might not be a problem for people who have 20 years to hold onto the stock, but for retirees who figured they could always sell some shares if times got tough, that’s another blow.
But even if there is a compelling reason to protect the rank-and-file SCANA retirees and the little old ladies with big SCANA portfolios, we need perspective. And the perspective is that the vast majority of the $37 million that SCE&G customers are paying every month to cover the cost of dividends is going to people who are not South Carolinians.
SCANA and Dominion say they don’t know where stockholders live, but at a hearing earlier this year, Sen. Nikki Setzler, who co-chairs the Senate’s V.C. Summer review committee, noted that individuals own just 8 percent of SCANA stock. Even if we assume that they’re all South Carolinians, that leaves 92 percent of the stock owned by non-individuals.
Mr. Setzler told me he got his information from CNN/Money, which shows that the biggest owner of SCANA stock, at 10 percent, is the Vanguard Group. It also shows that 37 percent of the shares are held by mutual funds and 34 percent by institutions.
That means a lot of us probably do own a tiny little bit of SCANA, through our mutual funds. We probably wouldn’t feel the loss of dividends. We would, however, feel the reduction of the nuclear surcharge.
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.