Dominion Wins State Approval for $7.9 Billion Scana Takeover

(Bloomberg) -- Dominion Energy Inc.’s $7.9 billion takeover of a troubled South Carolina utility was approved by state regulators, clearing way for a deal that nearly collapsed over costs from a failed nuclear project.

The unanimous vote Friday comes nearly a year after Dominion proposed buying Scana Corp., which spent about $4.9 billion to expand the V.C. Summer nuclear plant then walked away when costs soared. Scana shares rose after the vote, closing up 6.3 percent. Dominion rose 1.1 percent.

The proposed takeover is North America’s largest pending utility deal. Debate over it dragged on for months in courtrooms and at the South Carolina statehouse. The key question for the state Public Service Commission was whether Dominion’s bid includes a generous enough rate cut to compensate Scana customers for being billed for reactors that will never produce a megawatt of power.

“They pretty much cleared the path for the acquisition,” said Paul Patterson, an analyst at Glenrock Associates. “The commission obviously didn’t want to deviate much from terms they thought were acceptable.”

Conditions imposed by state regulators include granting Dominion a 9.9 percent return on utility investments after the merger. The order also would require Dominion to keep Scana’s headquarters in Cayce, South Carolina. The companies said in a statement that they were “pleased” with the vote and look forward to reviewing the order.

Series of Bids

As part of its push to win over regulators, Richmond, Virginia-based Dominion made a series of bids to cut customer rates. Its latest offer to return about $1.9 billion in project costs to ratepayers had the backing of South Carolina House Speaker Jay Lucas.

The South Carolina Office of Regulatory Staff, which represents utility customers, pushed for a deeper rate cut. Dominion warned it would walk away if it were required to reduce rates too much.

Before voting in favor of the merger, South Carolina Public Service Commissioner Elliott Elam said it wasn’t clear Scana could continue to survive as a stand-alone company. “The plan that Dominion has offered will provide certainty,” Elam said.

Scana, South Carolina’s largest publicly traded company, launched the nuclear project in 2008, as U.S. electricity demand was peaking ahead of the global financial crisis. The downturn gave way to a decade of flat sales, squeezing nuclear reactors that struggled to compete with natural gas plants.

Scana pulled the plug on V.C. Summer in July 2017 after projected costs ballooned to more than $20 billion. State and federal investigations ensued. The chief executive officer who oversaw the project retired amid scrutiny from lawmakers. Since killing the project, Scana has lost about 25 percent of its value.

“The main thing it tells us is don’t build a nuclear plant,” said Kit Konolige, a utility analyst at Bloomberg Intelligence. “If your demand isn’t growing fast, having a big new power plant that’s going to be very expensive is going to be questioned -- even if everything goes well.”

With the demise of the V.C. Summer project, Southern Co. is the only U.S. utility trying to build a new nuclear plant.

©2018 Bloomberg L.P.