Dominion Energy ’s proposed $7.7 billion bid for Scana Corp. is nothing short of masterful—a bold move to take advantage of its merger target’s and local politicians’ misfortune. At first glance, the all-stock deal comes with some unusually generous sweeteners meant to appeal not only to shareholders but, as is often the case in utility deals, to ratepayers as well. Dominion stock was off 4.7% around midday. But take a closer look.
Scana’s value has been dented sharply since last July after a subsidiary halted work on a nuclear-plant expansion. As regulated utilities are entitled to do, the company was collecting payments from customers to cover the multibillion-dollar costs of the plants over 50 years. But angry politicians threatened to halt the payments, sending the market value of Scana down by $4.8 billion between June and December, when speculation about a possible deal surfaced.
Dominion’s offer would pay affected customers around $1,000 on average or $1.3 billion in total within 90 days plus a 5% rate reduction, of which 3.5 percentage points is a rebate of $575 million that customers already paid for the failed plants. Much of that money is retroactive and thus is a lot cheaper after tax than it would have been in 2018. It also would write off $1.7 billion of the plants’ value, meaning it would stop collecting money for the plant from ratepayers after about 20 years, and spend $180 million to replace some of the power the nuclear plant would have generated. Those concessions are worth around $4 billion in nominal dollars but less in today’s money since the write-off affects foregone income in the distant future.
In exchange for that, Dominion is demanding that authorities affirm that customers will pay the remainder of the roughly $6 billion they still owed for the plants. South Carolina regulators and politicians, on the hot seat for the nuclear debacle, will have a hard time saying “no” to white knight Dominion as it waves $1,000 checks.
Added all up, Dominion is paying around $7.43 billion excluding debt for a company that would have cost it $14 billion last summer with a similar deal premium. A master stroke.
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