Dominion Energy to Acquire SCANA Corp. in $14.6 Billion Deal

SCANA halted work on the V.C. Summer Nuclear Power Station in July. Photo Credit: Post & Courier

Dominion Virginia Energy has agreed to acquire the troubled Cayce, S.C.-based SCANA Corp. for $14.6 billion in cash and stock, the two companies announced today. The deal is contingent upon numerous regulatory approvals and preservation of a South Carolina state law that allows the company to recover customer payments for two unfinished nuclear reactors costing $9 billion.

Delays, cost overruns and ultimately the abandonment of the V.C. Summer Nuclear Power Station in Fairfield County, S.C., left SCANA with a massive liability that has roiled South Carolina politics for the past year. According to the Post & Courier, South Carolina regulators and lawmakers are considering whether customers of SCG&E, a SCANA subsidiary, should continue to pay $37 million monthly for work done on a power plant that will never be completed.

The Dominion acquisition would stabilize the utility’s finances. The Richmond-based energy company has promised to make a $1.3 billion payment upon completion of the merger worth $1,000 to the average residential electric customer, reduce current electric rates by 5%, and write off $1.7 billion in V.C. Summer assets. The write-off would make it possible for rate payers to meet the remaining obligations on the nuclear plant in 20 years instead of 50 to 60 years.

Preliminary response in South Carolina to the deal was cautiously positive but noncommital. Gov. Henry McMaster praised the sale offer as “progress,” reported the Post & Courier. “This sounds like a better deal for ratepayers,” said state Rep. Micah Caskey, a Republican critic of SCANA. “But is this the best deal? I don’t know.”

The transaction will have no direct impact on Virginia rate payers. SCANA will be treated as a wholly owned subsidiary of Dominion Energy, comparable to Dominion Virginia Energy. There will be no co-mingling of assets, and both will answer to their own state regulatory bodies.

However, the deal does have implications for the proposed Atlantic Coast Pipeline.

“SCANA is a natural fit for Dominion Energy,” said Dominion CEO Thomas Farrell in a press release. “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.”

If the merger goes through, observes the Dominion press release, Dominion Energy and its subsidiaries would have a natural gas pipeline network totaling 106,400 miles and would operate one of the nation’s largest natural gas storage system with 1 trillion cubic feet of capacity.

As currently envisioned, the Atlantic Coast Pipeline would terminate in North Carolina just north of the South Carolina border. Back in October, Dominion confirmed that it might extend the ACP south of the border, although it noted that such a project would have have to run the complete federal and state regulatory gamut to gain approval.

Bacon’s bottom line: Any such expansion should end widespread speculation that Dominion’s secret motive in building the pipeline is to ship natural gas to its soon-to-open Cove Point facility in Maryland for export. Clearly, Dominion is eyeing southern markets. According to the Post & Courier, the company plans to buy a $180 million natural-gas power plant in South Carolina to make up for some of the electricity the nuclear plant was expected to produce. The newspaper did not speculate whether that plant might be supplied by gas from the ACP or from competing pipelines. In either case, South Carolinians undoubtedly will experience the same debate over gas vs. renewables as we have seen in Virginia.

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18 responses to “Dominion Energy to Acquire SCANA Corp. in $14.6 Billion Deal

  1. Well, if as I believe the current regulatory holiday in Virginia is generating a bundle of excess cash for Dominion Energy’s holding company, making this M and A move possible, it is hard to say it is totally unrelated to the situation here. And I note with great interest that the bidding opens with a major rebate to retail customers….and a write off of sunk nuclear costs NOT being passed on to ratepayers.

    • Well said. We Va. get to be the state with low energy cost but high profit margin, such that we do not see the benefits. I feel the same way about gasoline prices here in NoVA…the fact that Va. gaso taxes are low, we just end up paying more profit margin. I say raise the gaso tax in NoVA and we see no change in pump price. Not sure what the analogy is for electric, but I am thinking on it.

    • Dominion is taking on an expanded retail sales and service operation, along with a pipeline that fits well with its own plans, all just across the river from the Southern Company’s sprawling system (which extends from Georgia to Louisiana). These SC customers have inadequate generation; that means Dominion gets to build and/or buy generation to serve them. The purchase comes with SC losses that confer a tax benefit on the buyer. And, apparently, it comes with a huge “regulatory asset” in the form of future payments for costs sunk in those cancelled nuclear facilities.

      SCE&G is not in PJM but in the “Southeastern Electric Regions” zone, which is nominally an ISO but basically exists only to facilitate bilateral deals among the vertically-integrated utilities in the region. The Southeastern Regions do not have wholesale electric markets like those in PJM; nerly all wholesales sales are made directly to retail utilities like SCE&G or bilaterally to other retail utilities. This is a model that Dominion seems comfortable with. Indeed Virginia started down the path of spinning off utility generation into unregulated subsidiaries and adopting “retail access” over the PJM grid and DOM’s distribution system — then backed away and returned to the old vertically integrated model. I suspect Dominion will deal with its new SC need for generation by rate-basing it all, rather than building it “on spec” with 100% shareholder financing and with all the financial reward (and risk) going to shareholders. And I suspect this will only reinforce Dominion’s commitment to continue to finance new generation in Virginia in the same way, despite the fact that PJM makes the Northeastern/Midwestern wholesale markets readily available to every Virginia load-serving-entity for the asking. Virginians are paying extra for the resulting inefficiencies, and for financing new rate-based generation at a fixed rate of return rather than from competitive wholesale electricity markets.

  2. Again, Dominion makes a bold move that could favor its shareholders. SCANA is being sold at a discount because of the failure of the Summer nuclear plant. The losses from that failed project could provide a significant tax loss to shelter Dominion Energy profits accruing from other endeavors. U.S. taxpayers and South Carolina ratepayers will pick up the $9 billion tab for the failed nuclear project that will yield them no benefits, while the shareholders will enjoy higher returns.

    Strategically, Dominion sees that it is a short hop to connect the ACP to the SCANA gas transmission system in South Carolina that it purchased several years ago. Dominion has made presentations showing how the ACP could connect to the South Carolina system and how that system could connect to the Elba Island LNG facility, just over the border in Georgia.

    With substantial cutbacks in the need for gas-fired generation in Virginia and North Carolina, the ACP needs to find a market for the gas carried by the pipeline somewhere. South Carolina is such a market. The output from the abandoned nuclear plant will have to be replaced by energy efficiency, renewables, or new gas-fired generation, or a combination of these. If South Carolina is like most other states, the demand is not growing to the degree expected by those who proposed the nuclear plant.

    It is a mixed bag for ratepayers in South Carolina. Having a financially solid owner of the utility will be a relief. As will, the $1.3 billion payment from Dominion. But they will still pay billions for a power plant that will never generate any electricity.

    Also, just as ratepayers in Virginia and North Carolina, they will pay billions more to use the ACP rather than existing alternatives. Transco is the primary source of gas to South Carolina and a connection is planned from Transco to the Elba Island LNG facility. South Carolina is in Transco Zone 5, just as Virginia and North Carolina are. Gas can be delivered using the abundant capacity of the Transco system far cheaper than can the ACP. Any relief felt by South Carolina ratepayers today, might turn to dismay as billions of higher costs are extracted from them over the years to use the ACP compared to much cheaper existing pipelines.

  3. ……….as they say……….the devil is in the details.. and only Dominion and the seller know them and no I do not believe there is no financial risk for Dominion nor that Va ratepayers would be completely immune to things going sideways.

    I wonder how much debt will be taken on…and from what sources they expect revenue and profits to pay it back?

    But hey…the good news is that Dominion is fully engaged in the energy business, not about to get shrunk from 3rd party solar and the like and they do have a reputation for not being reckless… even if they do for being a little arrogant at times. I wonder if money flows equally well in the SC General Assembly and I bet they don’t have a VPAP !

    Clear now is they have their sights on Transco’s business…

    • Larry,

      There is no direct connection to the SCANA deal and Dominion Energy Virginia. But these two utility companies would both be subsidiaries of the same holding company, Dominion Energy. If the adventures in South Carolina end up draining capital and profits from Dominion Energy, that might put more pressure on Dominion Energy Virginia to provide greater contributions to the parent company. Poorer financial performance by Dominion Energy could lead to higher borrowing costs resulting in higher costs for DEV, so there could be a ripple effect. But there is no direct financial connection between the two. Any windfall profits from taking advantage of the financial disaster in SC would not be refunded to Virginia ratepayers. Even excess profits in Virginia are not refunded to Virginia ratepayers.

    • They don’t need a VPAP in South Carolina. Besides, Virginia’s VPAP is utterly useless as contributors donate to politicians like Dick Saslaw (who runs effectively unopposed every election). The Saslaw donates to PACs which donate to PACs which donate to PACs. Good luck figuring out where that donor’s money ended up.

      Why don’t they need a VPAP? Well, if I am reading this chart right … New Dominion / South Carolina will be limited to a $1,000 per candidate per election maximum for legislators and a $5,000 per candidate per election maximum for state-wide candidates.

      http://www.ncsl.org/Portals/1/Documents/Elections/Contribution_Limits_to_Candidates_2017-2018_16465.pdf

  4. What sort of merger approval is required? FERC? VSCC? SC PUC?

    An intervenor should be able to get restricted access to all the financials in order to determine the impact on ratepayers. Why don’t some of these bazillionaires fund intervention?

    • Yes, maybe and yes. Maybe more States, maybe the SEC. The financials of the utility in SC will be an open book, but they pretty much already are. Getting a look at DE’s inner workings will be more difficult, but its next 10K (a public document) should be fairly interesting reading.

      • check out the Wiki entry for Dominion… they’ve been buying and selling companies regularly over the last 20 years… very active.. and they made billions from some of their prior sales.

        but this is not a merger.. but yet another acquisition…and I suspect the top level holding company is not subject to the same regulations as the lower level state-level utilities subsidiaries.

        • The States and FERC and the SEC, etc., regulate “electric utilities.” A holding company may in fact own, and thereby control, entire electric utilities, but if it does not own or operate electric utility facilities directly or sell directly to retail electric customers, it is not an “electric utility.”

        • Larry,

          You are exactly right, Dominion Energy is not a regulated company but a holding company for many subsidiaries, many of which are regulated or partially regulated.

          They are financially astute and have learned that they can use low-cost capital to buy up long-term streams of guaranteed income. They have also learned to use the tax advantages of Master Limited Partnerships to magnify the cash flow benefits from natural gas pipelines.

          Dominion’s CEO told financial analysts that they could use the drops from their MLPs to return Dominion’s entire investment in the ACP within 3-4 years, instead of the 40-year period authorized by FERC.

          I am sure there was a bevy of financial specialists who helped structure the deal for the maximum benefit of Dominion. That’s how our system works. I don’t have a problem with that as long it involves private companies exposed to market forces.

          But what the huge utility holding companies (Dominion, Duke, Southern Company, NextEra, etc.) have learned to do is to manipulate the system of regulated utilities so that the risks and costs of these huge projects are borne by the ratepayers and the rewards go the shareholders (and executives).

          Look at the SCANA deal. Dominion bought it on sale. They received huge tax breaks (because of the assumed loss), state government guaranteed payments from ratepayers, and the acquisition of a future stream of payments from ratepayers. An even greater one if they can hoodwink the SC regulators to pass through the extremely high cost of the ACP, if they can get it built. The state is probably so relieved to have someone come in and clean up the mess that they made all sorts of deals.

          The SCANA shareholders are doing very well. They are getting paid a hefty premium above market price for their shares. That’s a great deal after their board and executives made such a mess of the Summer project and hid the problems from the public.

          So who really pays for the years of bad decisions and limited disclosure? The ratepayers! They are being told to celebrate because now they will pay billions of dollars for nothing over 20 years, instead of the 50-60 years SCANA told them was necessary. And the politicians are patting themselves on the back for finding a new company willing to shear the sheep in a way that makes them look like heroes.

          Where were the regulators and the political leaders when the nuclear project was proposed? You only need a third-grade education to know that a nuclear project will cost much more and take far longer than they tell you it will.

          I have no difficulty with companies who use “sharp” methods to try and gain extra profits, when the customers have a choice. But families and businesses have little choice about their utility service unless they move. They depend on regulators to protect them. The supposedly “responsible” parties in South Carolina appear to have been vacationing on the same Island of Mutes that the Virginia regulators were banished to.

          Dominion has consciously chosen to concentrate more and more on regulated sources of income because they arrange to lower the risks and increase the returns that way.

          In 2006, 42% of Dominion Energy’s earnings were from regulated sources. By 2016, 90% of earnings flowed from regulated businesses. Much of the new earnings came from gas pipelines, etc. It is a considerable stretch to regard pipelines to be “regulated” by FERC in the same way that electric utilities are regulated by state utility commissions. Maybe that comparison was made after the rate freeze.

  5. Not surprised… though… Dom has been expanding into other states before this… and so they do have experience dealing with different states regulatory machinery.

    I AM surprised they took that Nuke which seemed like it was a smoldering financial mess

    still not use if they plan to operate the plant.. or they just took it to get other things they wanted.

    And yep.. probably a pretty good bet that SC ratepayers are going to get stung.

    • Dominion does not want to build the nuke. No one does. The costs are estimated at more than $25 billion to complete the project. And that is probably way too low. Think of NA3 when you read those numbers.

      The value of the project is in the write-off that someone else will pay for.

  6. Seems a bit more complicated than Dominion and SCANA …. and a political storm may erupt…but whatever the result it doesn’t look good for any ratepayer

    https://www.postandcourier.com/business/hedge-fund-investors-will-turn-a-million-profit-from-s/article_795070a8-f011-11e7-a9e8-977e8920eea8.html
    “It only took a few months for a group of hedge-fund investors to turn a nine-figure profit from South Carolina’s failed nuclear power plant. But they will have some skin in the game as the project’s contractors fight to be paid.”

    “That was the deal approved Tuesday by Santee Cooper, the Moncks Corner-based power company that owns just under half of the two abandoned reactors at the V.C. Summer station north of Columbia.”

    “The deal was simple: Citi would give the utilities a lump sum of cash right away, and in return, they would agree to a $171 million discount. Over the next several years, Toshiba Corp. would pay them back, and they’d slowly earn a profit.”

    “Santee Cooper voted Tuesday to let Toshiba pay early, essentially locking in the hedge funds’ profit. It wasn’t clear Tuesday if SCANA, the Cayce-based owner of South Carolina Electric & Gas, had yet signed off on the deal. The company didn’t respond to a request for comment.”

  7. Ha Ha.
    Now we know Dominion’s strategy all along.This isn’t to help Virginia ratepayers. It is to develop future markets in South Carolina and in LNG exports.And many unfortunate Virginias are going to have to see their property destroyed through eminent domian for the public good? Where?

    One of the most amusing parts of this blog post are the words:

    “Any such expansion should end widespread speculation that Dominion’s secret motive in building the pipeline is to ship natural gas to its soon-to-open Cove Point facility in Maryland for export.”

    Big news for you, Jimbo. Cove Point was NEVER really considered a beneficiary of ACP. Why? It’s already covered by Transco, plus a secondary pipeline that goes from central PA. to Virginia and Maryland.

    The prize now is an LNG facility in Georgia near Savannah and the SCANA gas system.

    Do you feel like you have been had? Id do.

  8. Oh dear! Either way the gas is planned for export, although the global price differential is no longer what it was 4 years ago.
    AND no matter how you look at it … eminent domain for export gas is really way out of line!

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