SCANA Corp. is seeking to write off a $1.5 billion tax deduction as it abandons plans to build two new reactors at the V.C. Summer nuclear power plant outside of Columbia, S.C.
Company executives outlined the cost recovery plans in the utility's Aug. 3 earnings call, three days after SCANA subsidiary South Carolina Electric & Gas Co., or SCE&G, halted the construction of two 1,117-MW AP1000 reactors after its partner, state-government run utility Santee Cooper, legally known as the South Carolina Public Service Authority, voted to also suspend the project. Both utilities came to the conclusion in separate prudence reviews for the already over-budget and behind-schedule project after construction contractor Westinghouse Electric Co. LLC filed for bankruptcy on March 29.
SCANA CEO Kevin Marsh put the utility's dilemma in perspective. Instead of finishing the V.C. Summer expansion project at an anticipated construction cost of nearly $10 billion for SCANA's 55% share, Marsh said the utility will take a $1.1 billion guaranteed payment from Toshiba Corp., Westinghouse's majority stakeholder, along with an anticipated $1.5 billion in tax deductions to "whittle" down approximately $5 billion of already-spent capital costs to a reduced bill of more than $2 billion for customers to cover.
According to a Aug. 1 analysis report by Moody's Investors Service, SCANA's plan to deduct the full tax basis of its nuclear investment, and the resulting $1.5 billion of tax deductions, would help offset the cost of other SCE&G investments. As a result, the utility does not expect to request a rate increase for several years, said Moody's.
"If it can't be used for its intended purpose, then you can deduct it for tax purposes. But we're confident in that tax position," explained SCANA CFO Jimmy Addison. "That revenue that's coming in from that abandonment is going to be taxable income. So certainly, the costs associated with it should be a taxable deduction."
SCE&G filed on Aug. 1 with state regulators a petition to recover $4.9 billion of the V.C. Summer project's capital costs. Under abandonment provisions of South Carolina's Base Load Review Act, SCE&G is seeking to amortize the $4.9 billion over 60 years, beginning with the next retail electric base rate.
The state Public Service Commission has until Feb. 1, 2018, to rule on the abandonment petition, followed by a decision later on SCE&G's request for revised rates that are slated to be effective in April 2018.
SCANA achieved second-quarter 2017 earnings of $121 million, or 85 cents per share, up from $105 million, or 74 cents per share, for the corresponding quarter in 2016. Operating revenues were up year over year to $1 billion, compared to $905 million in the second quarter of 2016, while operating income increased by $28 million to $249 million, compared to $221 million in the second quarter of 2016.
SCE&G's earnings were $216 million, or 88 cents per share, compared to $113 million, or 79 cents per share, in the second quarter of 2016. Higher electric gas and gas margins and lower operations and maintenance expenses were somewhat offset by a rise in the utility's capital program, including interest expense, depreciation and property taxes.
Addison said continued growth at SCE&G helps meet the utility's stated goal of earning a return of return of 9% or higher, with SCE&G earning a return on equity of 9.24%. SCE&G is allowed by regulators to earn up to 10.25%.
SCANA's North Carolina utility, known as PSNC Energy or Public Service Co. of North Carolina Inc., posted earnings of $2 million, or 1 cent per share, compared to breaking even the year before. According to SCANA's presentation, SCANA invested $278 million in its South Carolina territory so far in 2017 and $203 million in North Carolina.
Scana Energy Marketing Inc. posted earnings of $1 million, or 1 cent per share, compared to break-even earnings posted a year before.
SCANA reaffirmed its 2017 GAAP-adjusted weather-normalized EPS guidance of $4.15 to $4.35, with an internal target of $4.25. Addison said, "Our long-term GAAP-adjusted, weather-normalized annual growth guidance target remains unchanged as we plan to deliver 4% to 6% earnings growth over three to five years using a base of 2016's GAAP-adjusted, weather-normalized EPS of $3.97 per share."