South Carolina Radio Network spoke with Dominion Energy’s Vice President of Southern Operations Dan Weekley on Monday. The company has reached an agreement to merge with South Carolina-based utility holding company SCANA. The deal comes as SCANA struggles to financially recover from last year’s failed nuclear expansion project at the V.C. Summer Nuclear Generating Station.
Weekley’s oversight includes operations in South Carolina.
SCRN: We’ll let you go first. Talk with us about this marketing campaign to push why you think this merger would be good for SCE&G’s current customers.
Weekley: First of all, we’re very excited about the offer we put out to combine with SCANA. We are very familiar with SCANA, have worked with them over a number of years. Listeners may interested to know that we actually acquired part of their gas company they sold to us about three years ago… We have facilities in 32 of the 46 counties around the state. We were pleased to put into operation South Carolina’s largest solar facility down in Jasper County.
We see South Carolina as on a very upward trend of economic development and we are interested in being a part of that. We have been monitoring what’s been going on as part of the nuclear debacle for a long time. It’s been hard not to see it… After the latest offer that SCANA put out to the policymakers back in the November timeframe, we approached them about combining as a company. When you look at this transaction, it’s very different than many transactions on a corporate level because a typical transaction focuses on the shareholder… We’ve looked at this very differently.
We’ve always tried to break this down into basically four buckets. The customers have always got to come first. The customers have been harmed by this (V.C. Summer) project. There’s no question about that. So we were looking for a way how we could get as much money back to the customers as quickly as possible. The next bucket is the employees. Across the SCANA Corporation, there are about 5,500 employees. So they’ve got to be dealt with in a fair way that gets them back to a period of stability, as well. The next group is the policymakers out there… that don’t want this level of uneasiness or unknown because they are the ones that are trying to promote this state regarding economic development and keeping it moving forward. So how do they balance that one of the state’s largest utilities is in tough financial shape. And then the last group is the shareholders of Dominion and SCANA, as well.
So you’re trying to balance all of those needs, versus just pulling out one group in a typical corporate transaction.
SCRN: And from a consumer’s point of view, how is this being balanced out for them?
Weekley: We looked at it as: what could we do from both an immediate and longer-term perspective? And the refund… we wanted to get as much money back to the customers as quickly as possible. Our offer would return more than 70 percent of what all the customers have committed to the failed nuclear project… With the refunds we’re trying to bring an immediate refund back to customers. And the way to calculate is, if your average electric bill is about $150 a month over the course of 12 months, you’re going to be in that $1,000 (refund) bracket. If it’s less than $150 on average, you’re going to be a little bit under that, or if you’re more it will be higher, obviously.
The next piece we tried to deal with is also referred to as the “abandonment piece.” The abandonment piece is about $1.7 billion that SCANA has spent on the next phase of nuclear that’s not currently (collected) in the rates. I wish we could just make all those dollars that have been contributed to the project go away, but that’s just not practical. So what Dominion’s offer will do, the $1.7 billion will be absorbed by the shareholders. And we commit that those dollars can never be put back in customers’ bills, whatsoever.
Under the current schedule — as the law stands today (without the merger) — SCANA customers will be paying for the project for the next 60 years. From a depreciation perspective, that was supposed to be the useful life of (the abandoned units). What Dominion has said, we will shrink that down and do it over the next 20 years. So we will basically pull out 40 years of depreciation. It’s really no different than for an individual homeowner who takes out a 30-year mortgage and looks to do it in 15 years. It’s always financially better to do it in 15 years, but the payments are going to be more.
So we’ve taken that a step further… and to make those numbers work, that means Dominion has got to contribute another $575 million to get that rate down.
Customers will get at least a five percent rate decrease. All of this is effective within 90 days of the deal being completed. A piece of that is the federal corporate tax change. We know that’s probably about 1.5 percent impact to SCANA’s customers, but we don’t know every single nuance of how that tax impact will affect SCANA. So what we have said, whatever that total impact is, we will pass it on to customers.
SCRN: The real sticking point in this state has been the Base Load Review Act, and that there are certain provisions Dominion believes need to stay in place for this deal to be realistic. But a lot of people are angry that the deal still requires rates go towards paying the debt from (the nuclear) project and specifically so shareholders can still make their money back. What is your response?
Weekley: That’s a question we get very routinely. That’s the 60-year vs. 20-year life. Yes, a piece of that is already in customers’ bills today… We are trying to accelerate and get rid of those fees as quickly as we can. What happens is, because we’re paying those dollars up front, that $575 million, the piece of the customers’ bills (paying off the debt) is flat for eight years. Then, after that, it goes down at a steady level until they’re totally eliminated in Year 20.
We have no opinion on what policymakers want to do for eliminating the (Base Load Review Act) so it can never be used again. But the fact remains, the money has been spent and it has to go somewhere. We often hear the point that shareholders should be paying more. Well, when you look at the shareholders’ value, they have lost more than $3 billion in value of SCANA stock over the last several months. There is no question they are contributing to the failed nuclear project, as well.
SCRN: Although, to be fair, if you had first invested in SCANA in 2007 (when nuclear work began), your stock would still be worth more than at that time.
Weekley: That’s why each shareholder invests in every company for their own reasons. Every investor I know is looking for growth. When you think about that, I don’t know how SCANA’s growth over that 10-year period has been. But, the one thing that it comes down to is: if you want South Carolina to remain on a good upward trajectory on economic development, you have got to have a strong utility partner behind it. And all of this unrest is a very difficult for the state to be in.
It often takes years for (major economic development deals) to be put together. And the weakened financial position of SCANA is not a good selling point. It’s just a very difficult position for the state to be in.
SCRN: Is this a deal where, if Dominion or somebody else does not come in and take over, are SCANA ratepayers facing a lot of turmoil going forward?
Weekley: I think, no matter what happens here, SCANA and their customers are going to be in a weakened position for a long time to come. You’ve often heard the CEO of SCANA Jimmy Addison testify that they are in a weakened position. When you look at their credit rating and the other financial aspects of the company, they are in a very difficult position. I heard him testify last week that the Dominion offer is about $2 billion more than they were in a position to put on the table to resolve some of the issues on going to nuclear, They are just not in a position to do that.
But one of the things that is getting people’s attention is… SCANA is really in a position where they have been downgraded to the point where they’ve got to go out and borrow cash basically to fund all of their capital projects. Their credit rating is to the point where they are listed as higher-risk. So what they have to pay in financial fees is going to be much higher. Those costs are passed on to the customers, as well. So there were even discussions about further rate increases just to fund their existing financial requirements out there. They are in a very difficult position.
SCRN: Many customers and lawmakers say that average $1,000 refund they’d be receiving would essentially be lost over the course of time in these higher rates than if they weren’t paying for the project. What is your response to them?
Weekley: What we’ve calculated is… yes, future payments are still going to be required for customers… But by going this path versus the existing (SCANA continuing on its own), customers would save $8 billion over the life of the project.