By Imani Moise and Russell Gold
Dominion Energy Inc. has struck a deal to buy troubled energy company Scana Corp. in an all-stock transaction valued at about $7.66 billion and absorb some of the costs of Scana's failed South Carolina nuclear project.
Under the terms of the agreement announced Wednesday each Scana shareholder will receive roughly two-thirds of a Dominion share, or about $53.71 per share based on Dominion's Tuesday closing price. The Dominion price would represent a 28% premium from Scana's closing price on Tuesday. The companies said including debt the deal is worth about $14.6 billion.
Upon closing of the deal, the combined company will pay $1.3 billion to customers of Scana's South Carolina Electric & Gas Co. subsidiary, or about $1,000 per customer, to offset previous and future costs related to the withdrawal of operating licenses for the unfinished V.C. Summer nuclear reactors, which were pulled after the bankruptcy of nuclear project builder Westinghouse Electric Co.
The move comes more than a month after Scana said it would cover some of the construction costs from its failed nuclear plant project and roll back rates for its South Carolina utility customers, buckling under pressure from state regulators and consumer groups.
The South Carolina plant and a similar project being built in Georgia represented a next wave of nuclear construction in the U.S., using a new Westinghouse reactor design that was intended to curb the cost overruns that had plagued prior nuclear projects.
But both projects encountered massive cost overruns, which the utilities blamed on Westinghouse as well as contractors. Westinghouse parent Toshiba Corp. entered into settlement deals to pay utilities fixed sums and cap the liabilities associated with the beleaguered projects last year.
The Georgia project, an expansion of the Alwin W. Vogtle Electric Generating Plant being spearheaded by Southern Co., is still going forward despite costs that have ballooned to as much as $25 billion. It is the only remaining nuclear power plant under construction in the U.S., and would be the first built in the country in more than three decades.
Scana, based in Cayce, S.C., had collected more than $1 billion from customers to develop the plant before abandoning the project last summer. Since then the company has faced questions from local and federal political officials about when it knew the project was in trouble, and why it didn't take steps sooner to avoid cost overruns.
It was financially and politically hobbled by the failed attempt to build the South Carolina nuclear power plant. Facing investigations and legislative hearings, Scana's chairman and chief executive said last year that he would step down. The loss of political support for the company, which has roots going back 160 years in the region, damaged it and laid the groundwork for the sale.
South Carolina Gov. Henry McMaster called the proposed merger a step forward, but noted that it only addressed part of the political ramifications from the failed power plant, which also involved state-owned utility Santee Cooper.
"We are making progress. Under the proposed agreement between SCANA and Dominion Energy, SCE&G ratepayers will get most of the money back they paid for the nuclear reactors and will no longer face paying billions for this nuclear collapse," Mr. McMaster said. "But this doesn't resolve the issue. Over seven hundred thousand electric cooperative customers face the prospect of having their power bills sky rocket for decades to pay off Santee Cooper's $4 billion in debt from this. The only way to resolve this travesty is to sell Santee Cooper."
The companies said South Carolina Electric & Gas Co. residential customers will get a 5% rate reduction, equal to about $7 a month for the typical customer, compared with the 3.5% reduction proposed to appease regulators and frustrated customers last year.
Parts of these lower rates will come from savings due to the corporate tax cut in the recently enacted federal tax overhaul.
A South Carolina state official said last year that customers had already paid $1.4 billion for the plant, which comes to about 18% of a typical residential bill. This amount covers the financing cost amassed during construction over the past nine years. The full bill -- $10.4 billion -- was to be paid out over the next 50 years by South Carolina ratepayers. Dominion said it would pay off the cost of the abandoned nuclear project in 20 years.
Dominion Chief Executive Thomas Farrell said in prepared remarks that the company believed the proposal to be the largest utility customer cash refund in history.
Dominion said the deal, expected to close this year, would immediately boost earnings. The purchase helps the Richmond, Va.-based Dominion extend its reach in the eastern U.S.
Shares in Scana rose 24% to $48.26 in early trading, while Dominion shares fell 3.7% to $77.28.
Valerie Bauerlein contributed to this article.
Write to Imani Moise at email@example.com and Russell Gold at firstname.lastname@example.org
(END) Dow Jones Newswires
January 03, 2018 10:12 ET (15:12 GMT)