Dominion Energy insists publicly it still opposes the Legislature's efforts to cut SCANA Corp.'s electricity bills as it seeks to buy the embattled South Carolina utility, but a Wall Street analyst says a rate reduction might not be the poison pill it was thought to be.
At least that was the takeaway Shahriar Pourreza, a managing director at New York-based Guggenheim Partners, had after meeting with the company's executives this week.
In a research note, Pourreza wrote that Dominion "may not be walking away as quickly as presumed." The company's management said it might not walk away from SCANA if lawmakers force it to temporarily trim its electricity rates to make up for its failed nuclear project.
Dominion wouldn't be willing to take a hit to its bottom line, Pourreza said, so to keep the deal alive, SCANA would likely have to cut its dividend payments to shareholders.
If Dominion was open to a temporary rate reduction, it would mark a significant shift in the company's posturing as it navigates the tangled process of buying SCANA, which owns South Carolina Electric & Gas.
Dominion has urged lawmakers for months not to touch electricity rates. The company has taken a hard line, saying that even a temporary reduction would be enough to kill its $14.6 billion deal to buy SCANA.
The company's official policy hasn't shifted. Dominion spokesman Chet Wade confirmed that Guggenheim met with executives at the company's annual meeting Wednesday, but he said there had been "no change from what we have always said." The company isn't going to buy SCANA if the deal would damage its credit.
Guggenheim's research note suggested a temporary rate cut might not water down its creditworthiness after all. Dominion reportedly suggested that SCANA could reduce its dividend payments to investors and save the deal.
"Whatever decision happens, it's going to be predicated on how SCANA reacts to the decision by the legislators," Pourreza said in an interview. "Theoretically they could walk. But they want this deal to work. They want this utility."
If the company's private thinking is changing, that could give lawmakers breathing room after months of debate over how to handle SCANA's $9 billion V.C. Summer nuclear project, which eats up 18 percent of its ratepayers' bills. That works out to about $27 a month for the typical home, or $37 million a month for all of SCE&G's ratepayers.
The state House and Senate agree that the company shouldn't be allowed to collect so much for the unfinished reactors while regulators decide the fate of SCANA's rates. But they can't agree on how low rates should go. In any case, the Legislature's reduction would only last until the end of the year.
The Senate has insisted that it isn't comfortable reducing rates more than 13 percent, fearing a deeper cut could lead to financial instability. In its meeting with Guggenheim, Dominion appeared to agree.
Pourreza wrote that the executives "actually went so far as to suggest a 13 percent rate reduction could be palatable" with a dividend cut.
The future of SCANA's payouts to shareholders is already in question while the company waits to see what — if anything — the Legislature does. It paid investors $350 million last year, and about a third of that sum was directly tied to the nuclear project.
Even if the SCANA-Dominion deal survives a rate cut from the Legislature, it could still be on treacherously thin ice. Dominion's plan, which calls for a partially reduce SCE&G's electricity rates would still need to win the blessing of the state's utility regulators, and it faces a minefield of legal challenges.
"It would likely become a matter of time before the next obstacle surfaced," Pourreza wrote. The investment firm described the deal as "an uphill battle if we've ever seen one."
Still, Pourreza's note suggests that Dominion might wait to see how things play out before walking away altogether.
But that step could still be weeks away. The legislative logjam continued Wednesday when negotiators from the two chambers met for the second time in Columbia. They reconciled most aspects of their utility legislation, but they're still at loggerheads over the rates.