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SCE&G can absorb interim rate reduction through cutting dividends, study finds

Wall Street and investors may not like it, but South Carolina lawmakers have new ammunition in their push for rate relief for South Carolina Electric & Gas Co. ratepayers following the financial failure of the V.C. Summer nuclear expansion.

A recent analysis by economic consulting firm Bates White in Washington, D.C., concludes that SCE&G and parent SCANA Corp. can absorb at least a 13% interim reduction in rates "without significantly increasing the likelihood of insolvency" through cutting dividends.

The analysis, initially reported by The (Charleston, S.C.) Post and Courier, notes that SCE&G distributed $319 million in dividends to SCANA investors in 2017 and can achieve the 13% interim rate reduction by eliminating this dividend payment.

"This reduction could be achieved entirely through a reduction in SCE&G's dividend payment and thus sets the minimum rate reduction," the firm wrote in its March 22 analysis, which was commissioned by the South Carolina Senate.

SCANA announced Feb. 22 that it will pay a first-quarter dividend of 61.25 cents per share April 1, thus maintaining its quarterly dividend from 2017. This amounts to $344 million on an annualized basis passed along to investors.

"Dividend reductions are the expected response by any corporation to financial difficulties since equity investors take on that risk in exchange for the opportunity to earn a higher return," the analysis says.

South Carolina lawmakers are debating legislation that would at least temporarily strip nearly $37 million per month that SCE&G collects from ratepayers under the state's Base Load Review Act to recover costs for the scrapped reactors. This could add up to an annual loss of about $445 million in revenue for the utility.

This 18% rate reduction, outlined in an amended version of S.B. 954, would be in place until the Public Service Commission of South Carolina rules on petitions for rate relief and a customer benefits package pitched by SCANA suitor Dominion Energy Inc.

Dominion Energy announced Jan. 3 that it agreed to acquire SCANA in a stock-for-stock deal proposed as a lifeline to the South Carolina company and its ratepayers after the abandonment of the more than $9 billion nuclear expansion. Dominion's offer includes $1.3 billion of cash payments to all SCE&G electric customers within 90 days after closing and an additional rate reduction of about 7% to offset previous and future costs tied to V.C. Summer.

"It is clear our proposal is [the] best long-term solution for SCE&G customers and for South Carolina," Dominion Energy spokesman Chet Wade said in an email. "It is the only one that provides for immediate cash payments to customers — $1,000 for an average residential customer — and lower rates. It is the only proposal that ensures a strong energy partner that will be able to invest in further improvements in reliability, grid security and cleaner energy. And, ours is the only proposal that provides certainty and avoids risky, lengthy and expensive litigation that would further damage the state's reputation and ability to continue to attract and retain business."

Dominion Energy Chairman, President and CEO Thomas Farrell II also responded to the renewed potential for an immediate rate cut.

"If the legislature intervenes and enacts policy into law, such as amended S. 954, this materially changes the grounds for Dominion Energy's proposal," Farrell said in a written statement that was tweeted by a company spokeswoman.

SCANA also warned against the implementation of new rates through legislation.

"Any efforts to legislatively reduce SCE&G's electric rates would subvert the established regulatory review and approval process. Such action would raise significant legal issues and could cause significant financial harm to our company, which ultimately could have a detrimental impact on our customers," SCANA spokesman Eric Boomhower said in an email.

Lawmakers, however, have indicated they are willing to call SCANA's "bluff" that it could be heading for financial peril if its rates are cut and Dominion walks away from the deal table.

South Carolina Gov. Henry McMaster said at a March 28 news conference that he does not want customers of SCE&G and state-owned utility Santee Cooper, known legally as South Carolina Public Service Authority, to continue to pay for the abandoned V.C. Summer reactors.

"They did not create this mess. They did not create this disaster, this spectacle," McMaster said. "I do not want them to have to pay for the mistakes of these two entities."