South Carolina Lawyers Weekly
Almost a year to the day after first making details of its proposal to acquire SCANA Corp. public, Richmond, Virginia-based Dominion Energy completed the merger, capping a tumultuous 12 months of legal maneuvering and absorbing South Carolina’s independent utility company.
The $14.6 billion deal will provide ratepayers of former SCANA subsidiary S.C. Electric & Gas refunds in the form of monthly bill reductions of more than $2 billion over a 20-year period and make permanent a rate reduction of approximately 15 percent. The merger also closes the books on SCANA, which fell on troubled times in the wake of a failed nuclear project, and brings a new look to SCE&G, now a wholly owned subsidiary of Dominion.
The $2 billion in rate relief is the amount SCE&G’s 730,000 customers shelled out to pay for abandoned nuclear reactors at the V.C. Summer nuclear power station in Fairfield County, as well as the amount of a settlement reached in a class action lawsuit against SCE&G and SCANA in November. The settlement also calls for the $115 million originally set aside for executives who lost their jobs in the merger to instead be distributed to SCE&G ratepayers.
A spokesperson for Dominion, Ryan Frazier, said there may be other contractual “change-of-control benefits,” but Dominion shareholders, not SCE&G customers, will be on the hook to pay those.
The lawsuit settlement must still be approved, and several groups, including the Friends of the Earth, the Sierra Club, and the S.C. Small Business Chamber of Commerce, have filed petitions for rehearing or reconsideration of the merger approval. The S.C. Public Service Commission (PSC) gave the deal the final regulatory nod it needed on Dec. 21, and the merger was completed on Jan. 1.
Though federal investigations, V.C. Summer-related lawsuits, and the logistics of various payouts still loom in 2019, the merger’s completion marked a resolution to a large part of the V.C. Summer saga, which began in 2008 with plans to construct twin, 1,117-megawatt nuclear reactors at the facility. The project was presented as a way to provide a reliable power source for the future growth of SCE&G and project co-owner Santee Cooper, a state-owned utility with around 2 million customers.
The reactors were originally projected to be online by 2016, but the project was plagued by delays and cost overruns and dogged by allegations of mismanagement. SCANA asked for and received nine rate increases, raising customers’ bills by a total of 18 percent, from the PSC to cover rising project costs under the Base Load Review Act (BLRA), a controversial 2007 state law that allowed rates to be raised before the reactors were completed.
Faraway factors also hampered the project. In March 2011, a tsunami touched off a disaster at the Fukushima Daiichi nuclear plant in Japan, causing three reactors to melt down and souring nuclear energy’s once-promising future as alternative energy sources such as wind and solar gained steam.
Amid mounting problems with several of its nuclear construction projects that contributed to Japan-based parent company Toshiba’s financial struggles, V.C. Summer project contractor Westinghouse declared bankruptcy in April 2017. That was followed by separate announcements from SCE&G and Santee Cooper in July 2017 that the reactors’ construction was being abandoned after the two companies had poured $9 billion into the project. The decision stunned state regulators and cost nearly 5,400 workers their jobs.
Public outrage grew with the September 2017 release of a report, completed by engineering company Bechtel, which pointed to a lack of management and accountability between the project principles and found fault with Westinghouse’s design for constructing the reactors.
The report touched off a firestorm of criticism, and a copy was requested in a subpoena sent to Santee Cooper by the U.S. Attorney’s Office for the District of South Carolina in September 2017. SCE&G also received a subpoena from that organization, as well as one from the Securities and Exchange Commission in October 2017.
Those federal investigations, along with a suit filed against Santee Cooper by its largest customer, Central Electric Power Cooperative, have yet to be resolved. The PSC has also yet to weigh in on how SCE&G must distribute the approximately $1 billion it received from the sale of Toshiba’s V.C. Summer-related debt in a $1.84 billion deal with Citibank in September 2017.
Dominion announced details of its proposed acquisition of SCANA on Jan. 3, and began a public relations blitz to convince state legislators and residents that its plan was the most viable solution. Its original proposal, which called for a permanent SCE&G rate cut of 7 percent and an average $1,000 upfront refund, was not readily embraced by state politicians.
Legislators, already convening commissions seeking answers to the V.C. Summer failure, passed laws repealing the BLRA and fixing a temporary rate reduction of 15 percent in SCE&G bills. Part of the June 2018 legislation also prevented the PSC from ruling on the Dominion proposal until December, with lawmakers saying that much time was needed to fully consider the deal’s ramifications.
The PSC was one of several bodies, including the regulatory commissions of Georgia and North Carolina, where SCANA also did business, upon whose approval the deal was contingent. Federal agencies including the Federal Energy Regulatory Commission joined SCANA shareholders in giving the proposed merger the nod as the PSC began a weeks-long evidentiary hearing in November.
As that hearing, which featured a parade of SCANA executives and at-times dramatic testimony, continued, Dominion twice amended its acquisition proposal. On Nov. 20, Dominion filed a revision that, inclusive of project costs amortization and tax reform refunds, would lower the average SCE&G customer’s bill to $125.26 a month — just below November’s monthly bill average of $125.34 and a reduction of approximately 15 percent from May 2017, when the average SCE&G ratepayer shelled out $147.53.
Frazier said that plan, favored by regulators, lawmakers, and large industrial customers, was better for the state’s economic development. The “levelized” plan ultimately won PSC approval and paved the way for the merger’s finalization.
Dominion, which now has 7.5 million customers in 18 states, also added SCANA Energy in Georgia and PSNC Energy in North Carolina to a portfolio that includes the operation of 1,500 miles of gas transmission pipeline in South Carolina and Georgia resulting from Dominion’s 2015 purchase of Carolina Gas Transmission Corp.
Frazier said Dominion, which had warned that legislation preventing it from recouping any V.C. Summer-related costs would scotch the deal, didn’t consider leaving the negotiating table.
“We never got to that point,” he said.
Going forward, Frazier said Dominion will work with nuclear regulators and Santee Cooper on V.C. Summer site management. While Dominion has proposed a management agreement in which it would oversee certain administrative functions for the state-owned utility, Frazier said Dominion has no interest in purchasing Santee Cooper. Transferring control to a private company would result in higher rates for customers, Frazier said, because Santee Cooper would forfeit its tax-exempt status and lose the high bond rating driven by its state ownership.
Former customers of SCE&G won’t see much difference in 2019 and beyond in their bills, but “the difference is what you won’t see,” Frazier said. “Had SCANA and SCE&G had to go it alone in this environment, there could have been future problems with financial stability and reliability.”
