South Carolina cuts SCE&G rate 15%, imperils proposed Dominion-SCANA merger

Dive Brief:

South Carolina’s House of Representative on Wednesday passed a bill that calls for a temporary 15% rate cut for South Carolina Electric & Gas (SCE&G) customers. The state’s senate passed the bill in April.
The rate cut imperils the $14.6 billion Dominion-SCANA merger designed to bail out SCANA, SCE&G's parent company, from its subsidiary's failed V.C. Summer nuclear power project. In the run up to the vote, Dominion Energy CEO Thomas Farrell warned that lawmakers were playing a "high stakes game."
In the wake of the bill's passage, SCANA said it was "evaluating its options" because it believes the legislation is unconstitutional.

Dive Insight:

According to Farrell, the tradeoff for the legislature’s 15%, six month rate cut for SCE&G customers will be the loss of a merger that would pay out $1.3 billion to the utility’s customers — the equivalent of $1,000 for the typical residential customer — and a permanent 7% rate reduction.

Farrell in the past has said he would walk away from the deal if there were any changes to SCE&G’s rates.

His threats did not dissuade the lawmakers. The state’s house was nearly unanimous, 109-4, in passing the bill, which includes other energy provisions in addition to the rate cut. The senate passed the bill 37-2 in April.

The plurality of the vote could be important when the bill reaches the governor’s desk. Republican Gov. Henry McMaster has threatened to veto any bill that does not include a more generous 18% rate cut.

If McMaster follows through, it appears that the bill has garnered enough support to withstand his veto. Then, it remains to be seen if Farrell follows through with his threat.

The Dominion-SCANA deal is not popular with lawmakers or with some analysts, but it would help resolve the mess SCANA got into when SCE&G pulled the plug on what had become a $7.7 billion nuclear project. SCE&G’s partner in the Summer nuclear expansion was state-owned utility Santee Cooper, which spent about $6.2 billion on the failed project. SCE&G is seeking regulatory approval to recover about $5 billion in costs associated with the Summer project from ratepayers.

From the start, Farrell had warned that lawmakers’ attempts to limit SCE&G’s ability to recover costs associated with the nuclear project could scuttle the deal.

"I don’t agree that it would imperil the deal," analyst Katie Bays, senior vice president of energy and industrials at Heights Securities, told Utility Dive. "It is unlikely he would walk away because of an interim rate cut."

That is particularly true, Bays said, because SCANA could cover the $250 million reduction in cash from the rate cut by eliminating its $90 million/quarter dividend for the next three quarters.

The proposed merger is not popular in the legislature, but "no one in the legislature wants to blow up the Dominion deal," Bays said.

Right now, the legislature is involved in a sort of competition over who will appear to be the white knight and save ratepayers from the fallout from the failed nuclear project, Bays said. "The legislature doesn’t really want to let Dominion take all the credit."

Analyst Hugh Wynne at investment research firm SSR compared Tom Farrell to the character in a folklore tale. He "is like Br'er Rabbit after he’s punched a tar baby. He's stuck and he realizes he can’t win and now he’s looking for a face saving way to get out," he told Utility Dive via email.