IPPToday #129: Dominion Energy acquires US utility Scana for US$14.6 billion
- SCANA Corporation
Related M&A Transactions
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Dominion Energy, Inc. and SCANA Corporation have announced an agreement for the companies to combine in a stock-for-stock merger. Including assumption of debt, the value of the transaction is approximately $14.6 billion.
SCANA shareholders will receive 0.6690 shares of Dominion Energy common stock for each share of SCANA common stock, the equivalent of US$55.35 per share, amounting to approximately US$7.9 billion based on Dominion Energy's volume-weighted average stock price of the 30 trading days prior to 2 January 2018.
The agreement also stipulates significant benefits to SCANA's South Carolina Electric & Gas Company subsidiary electric customers to offset previous and future costs related to the withdrawn V.C. Summer Units 2 and 3 project. This involved adding two nuclear reactors to the Virgil C. Summer Nuclear Generating Station in Fairfield County, South Carolina, which has been in operation since 1984.
Construction of Units 2 and 3 began in 2013, majority-owned by South Carolina Electric and Gas. However in March 2017, the EPC contractor Westinghouse Electric Company filed for bankruptcy. With estimated costs spiralling to US$24 billion, SCANA decided to abandon the project in July 2017. South Carolina Electric and Gas filed a Petition for Approval of Abandonment with the Public Service Commission of South Carolina.
The project had cost US$9 billion before being scrapped. In response, after the closing of the merger and subject to regulatory approvals, Dominion Energy will:
- Make a $1.3 billion cash payment within 90 days of completion to all customers, worth US$1,000 for the average residential electric customer. Payments will vary based on the amount of electricity used in the 12 months prior to the merger closing.
- Reduce rates by an estimated additional 5% from current levels, equal to more than US$7 a month for a typical SCE&G residential customer. This will be funded through a US$575 million refund of amounts previously collected from customers and savings of lower federal corporate taxes under recently enacted federal tax reform.
- Write off more than US$1.7 billion of existing V.C. Summer 2 and 3 capital and regulatory assets. This allows for the elimination of all related customer costs over 20 years instead of over the previously proposed 50-60 years.
- Complete a US$180 million purchase of natural-gas fired power station (Columbia Energy Center) at no cost to customers to fulfill generation needs.
In addition, Dominion Energy will donate US$1 million a year to SCANA's communities for at least five years, and secure SCANA employees' employment until 2020.
SCANA will operate as a wholly owned subsidiary of Dominion Energy. It will maintain its significant community presence, local management structure and the headquarters of its SCE&G utility in South Carolina.
The transaction will be accretive to Dominion Energy's earnings upon closing, which is expected in 2018 upon receipt of regulatory and shareholder approvals. The merger will also increase Dominion Energy's compounded annual earnings-per-share target growth rate through 2020 to minimum 8%.