Dominion Energy to buy SCANA in $7.9 billion all-stock deal following failed nuclear project

Dominion Energy Inc. and SCANA Corp. announced an agreement Wednesday for the companies to combine in a $7.9 billion all stock deal.  Including the assumption of debt, the value of the transaction is about $14.6 billion. The deal comes as SCANA, a South Carolina-based utility holding company, struggles to cope with the aftermath of huge cost overruns stemming from its role as majority partner in a failed nuclear reactor construction project.

Richmond-based Dominion says the transaction would benefit customers of SCANA’s South Carolina Electric & Gas subsidiary (SCE&G), which have been on the hook for much of the costs of the partially completed reactors.  Dominion is proposing partial refunds and rate cuts to offset previous and future costs related to the halting of construction in July of two nuclear units at the V. C. Summer Generating Station near Jenkinsville, S.C.

The project got underway in 2008 with high hopes of jumpstarting a renaissance in clean nuclear power.  However, SCANA abandoned it last summer due to rising costs, work delays and the bankruptcy of its main contractor, Westinghouse Electric Co.

The merger also would broaden Dominion Energy’s reach in the Southeast. SCANA's operations include service to about 1.6 million electric and natural gas residential and business accounts in South Carolina and North Carolina and 5,800 megawatts of electric generation capacity.

“SCANA is a natural fit for Dominion Energy,” Thomas F. Farrell, II, chairman, president and CEO of Dominion Energy, said in a statement. “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 [another SCANA subsidiary] operations. This combination can open new expansion opportunities as we seek to meet the energy needs of people and industry in the Southeast.”

Under the terms of the transaction — which is subject to shareholder, federal and state regulatory approvals, — SCANA shareholders would receive 0.67 shares of Dominion Energy common stock for each share of SCANA common stock, the equivalent of $55.35 per share, or about $7.9 billion.

SCANA would operate as a wholly owned subsidiary of Dominion Energy and would maintain its local management structure and the headquarters of its SCE&G utility in Cayce, S.C.

SCE&G residential electric customers would get an average of $1,000 refunded on their bills, with Dominion agreeing to fund $1.3 billion of cash payments within 90 days upon completion of the merger. Customers could also expect what Dominion says would be a 5 percent rate reduction, equal to about a $7 a month savings for a typical residential customer.

The deal also calls for a more than $1.7 billion write-off of existing V.C. Summer 2 and 3 capital and regulatory assets, which would never be collected from customers. This would allow for the elimination of all related customer costs from the failed nuclear reactor project over 20 years instead of a previously proposed 50-60 years.

Dominion also agreed to the completion of the $180 million purchase of a natural gas fired power station (Columbia Energy Center) at no cost to customers to fulfill generation needs.

In addition, Dominion Energy would provide funding for $1 million a year in increased charitable contributions in SCANA's communities for at least five years, and SCANA employees would have employment protections until 2020.

“We believe this merger will provide significant benefits to SCE&G's customers, SCANA's shareholders and the communities SCANA serves,” Farrell said in a statement “It would lock in significant and immediate savings for SCE&G customers — including what we believe is the largest utility customer cash refund in history — and guarantee a rapidly declining impact from the V.C. Summer project.”

Farrell also noted what he described as “potential benefits to natural-gas customers in South Carolina, North Carolina and Georgia and to their communities. And, this agreement protects employees and treats fairly SCANA shareholders, many of whom are working families and retirees in SCANA's communities. The combined resources of our two companies make all this possible.”

Jimmy Addison, SCANA’s CEO, said in a statement that “Dominion Energy is a strong, well-regarded company in the utility industry and its commitment to customers and communities aligns well with our values. Joining with Dominion Energy strengthens our company and provides resources that will enable us to once again focus on our core operations and best serve our customers.”

Dominion said in a news release that the transaction is “contingent upon South Carolina approval of a proposed nuclear solution.” The company said it will seek approval from the Public Service Commission of South Carolina for the immediate customer payments, rate refunds and other conditions related to the resolution of the failed nuclear units.

“We believe it is in the best interests of all parties to reach an agreement on this critical issue,” Farrell said.  “Having certainty on this issue can act as a catalyst for economic development and it is essential for the Dominion Energy-SCANA merger to move forward. The availability, reliability and cost of energy are often the deciding factors when businesses consider investing — and we want businesses to have every reason to continue investing in SCANA's communities.”

The  Post and Courier in Columbia, S.C., reported Wednesday that the sale depends on keeping a South Carolina law that allows SCANA to collect customer payments for the two unfinished reactors, which cost $9 billion.

The newspaper said state regulators are considering whether SCE&G customers should continue paying $37 million a month for the canceled project. The utility already has asked federal regulators to withdraw licenses for the unfinished reactors. According to the newspaper, South Carolina legislators are expected to consider legislation next week that would eliminate payments for the project, which account for 18 percent of customers’ electric bills.

If the merger is completed, the combined company would deliver energy to about 6.5 million electric and natural gas distribution customers in eight states with an electric generating portfolio of 31,400 megawatts and 93,600 miles of electric transmission and distribution lines.

At its website SCANA says it has a workforce of about 6,000, serving more than 500,000 electric customers in 25 South Carolina counties and more than 1.3 million gas customers in South Carolina, North Carolina and Georgia.

Dominion Energy Inc. is one of the largest energy utility companies in the U.S. with 16,200 employees and operations in 18 states. It delivers electricity and natural gas to nearly 5 million homes and businesses.

The company has a market cap of about $50 billion, and a 22.50  price-to-earnings ratio.
By early afternoon Wednesday, SCANA’s shares had risen more than 22 percent, to $47.40 per share, while Dominion’s shares fell nearly 5 percent to $76.39.

McGuireWoods LLP served as legal counsel and Morgan, Lewis & Bockius LLP as tax counsel to Dominion Energy. Credit Suisse Securities (USA) LLC acted as the company's financial adviser for the transaction.