Lawmakers should reject Dominion's 'Trojan horse' deal

BY DANA BEACH
Posted 1/25/18

Editor's note: This column was originally published in the Jan. 18 edition of The Post and Courier.

The saga of South Carolina's nuclear plant financial meltdown continues. The latest installment features Virginia-based Dominion Energy with an …

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Lawmakers should reject Dominion's 'Trojan horse' deal

Posted

Editor's note: This column was originally published in the Jan. 18 edition of The Post and Courier.

The saga of South Carolina's nuclear plant financial meltdown continues. The latest installment features Virginia-based Dominion Energy with an offer we are told we can't refuse - a gift horse we shouldn't look in the mouth. But on closer examination, this horse resembles the one the Greeks delivered to Troy 3,000 years ago.

Who profits?

Dominion and South Carolina Electric & Gas parent SCANA claim the deal is fair and the only way to avert disaster. In fact, the transaction would result in the transfer of billions of dollars from SCANA customers to Dominion and SCANA shareholders. It would accomplish this by perpetuating the abusive regulatory arrangement that led to the largest financial disaster in South Carolina's history.

Although little has been written specifically about the financial aspects of the deal, some legislators (who, as a body, are responsible for the mess in the first place), seem skeptical about the extensively advertised benefits of the offer. Research by Wall Street securities analysts and other energy experts supports their skepticism.

Take, for example, Eric Selmon and Hugh Wynne, with Sector and Sovereign Research LLC, an investment research firm that focuses on the energy industry. Selmon and Wynne evaluated the Dominion proposal in a Jan. 4, 2018, report. Here is a summary of their reveiw:

"Dominion's offer for SCANA, were it to close on the terms proposed, would be materially accretive to Dominion's earnings. From the standpoint of SCANA ratepayers, however, it would be a far less attractive option than the securitization of SCANA's unrecovered investment in V.C. Summer. ..."

In a nutshell, the Dominion deal is great for Dominion shareholders. It's great for SCANA shareholders, and it's a disaster for SCANA ratepayers. But there are other ways of getting out of the mess that would be substantially better for customers.

Reject 'rebate'

Meanwhile, Dominion's sales pitch begins with the stunning offer of $1,000- cash money up front, payable to every SCANA customer within 90 days of closing. "Call this number now to receive your check!" To this, the old saying applies: "If something looks too good to be true, it probably is."

The catch is that the offer requires the Legislature to retain the law, the Base Load Review Act, that created the problem. That way, Dominion can charge South Carolinians for $3.5 billion that was wasted on the nuclear plant, on top of what we have been forced to spend on the debacle over the past 10 years.

The cash "rebate," totaling $1.3 billion, represents the money Dominion would save because of the lower federal corporate tax rate, money that shareholders are already due, regardless of ownership. And the trick is that Dominion would get it back from customers over 20 years.

SSR's Wynne describes the cash offer as, "a loan to ratepayers to be recovered over 20 years in higher electricity rates and carrying an effective interest rate of 9.7 percent." Senate Majority Leader Shane Massey, R-Edgefield, has called the payment a "payday loan."

Mark Cooper, a senior research fellow for economic analysis at the Institute for Energy and the Environment at Vermont Law School, summarized the deal this way in last week's "Utility Dive," a trade publication:

"It is a sweet deal for Dominion, but, penny for penny, it is what ratepayers would get anyway. Dominion's deal is essentially a sham ... "

What about rates?

Currently, SCANA customers pay approximately 18 percent of their bill for the failed plant - that is, for nothing. Under the Dominion proposal, this would decline by about 5 percent. Even if this were an acceptable reduction - and it's not - these are largely savings that ratepayers would be entitled to anyway, because of the change in the tax rate. Or they represent reductions in nuclear plant costs that have yet to be approved by regulators, and probably won't be.

The savings estimates assume that everything SCANA has done to date with the nuclear plant will be confirmed as "prudent" by the S.C. Public Service Commission, the regulatory agency that sets utility rates. But the Bechtel report pointing out major flaws in design and construction and SCANA's attempts to withhold and amend that report make it unlikely that the company's actions will be deemed to have been prudent, and therefore unlikely that the expenditures would be eligible for reimbursement anyway.

Bottom line

In essence, this deal adds up to savings that customers are entitled to anyway, or reductions to charges that may not have ever materialized. Furthermore, it locks in a stream of ill-gotten revenues over the coming two decades. Dominion's Trojan horse, promoted with full-page ads in newspapers around the state, is a masterpiece of smoke and mirrors.

The Virginia utility has offered a price that will raise SCANA's stock price by roughly 25 percent. This is good news for SCANA stockholders. Similarly, Dominion views this as a great deal for their own shareholders. Their slick public relations campaign, the scare tactics about SCANA's bankruptcy - Wall Street predicts a further decline in stock price but no bankruptcy - and their army of lobbyists in Columbia all confirm what analysts are predicting: the transaction will also enhance Dominion's stock value.

There is one basic reality we must keep in mind. In this transaction, Dominion is proposing to buy a stream of income from SCANA customers. But unlike a normal business operating in a free market, SCANA's stream of income is established by regulatory fiat - that is, it is set by the seven individuals, appointed by the Legislature, who sit on the PSC. By setting the stream of income, they also set the price Dominion will pay. Dominion has said as much.

With the Dominion offer, South Carolina faces a critically important decision that will determine the burden citizens must bear for the epically poor judgment of two utilities. Central to this decision is the question of whether we have the political courage and wisdom to repeal, in its entirety, the insidious law that led to the nuclear debacle, the Base Load Review Act, or whether we will succumb to pressure from Dominion and SCANA to continue business as usual.

Dana Beach is founder and executive director emeritus of the Coastal Conservation League.