The Williams Capital Group has cut SCANA Corp.'s stock back to "sell" based on the increasing potential for South Carolina lawmakers to enact a rate cut and recent negative developments on the regulatory side.
"The problems for SCANA continue to escalate, in our view," Williams Capital Group analyst Christopher Ellinghaus wrote in a May 28 research report.
In addition to a rate reduction, the analyst wrote that lawmakers are "looking for even more onerous ways to create unpleasant liquidity and rate issues for SCANA."
The firm cut SCANA's price target to $30 from $33.50.
The South Carolina House of Representatives and state Senate still have not resolved their impasse over how much to cut SCANA utility South Carolina Electric & Gas Co.'s rates following the abandonment of the more than $9 billion V.C. Summer nuclear expansion. However, it appears House members in a joint legislative conference committee have "capitulated" to the Senate's preferred 13% rate reduction, with the main issue remaining over whether to apply the new rates retroactively or prospectively, Ellinghaus wrote.
The House members reportedly prefer a retroactive rate reduction dating back to Aug. 1, 2017, the day after the nuclear abandonment. This would involve implementing a customer rate credit of about $300 million for the remainder of this year, but senators worry this would be unconstitutional.
"While too early to tell if the proposal will be included in the final legislation, it is an example of how the legislators are attempting to cause SCANA as much pain as they believe they can legally," Ellinghaus wrote. "The ultimate outcome of legislation could be worse than just the headline rate cut. The issue that makes the legislative outcome even more uncertain is the very short amount of time remaining for the conference committee to resolve the remaining differences."
The South Carolina General Assembly returns June 27 for a special session for a potential vote on unresolved issues, including the V.C. Summer legislation.
On the regulatory side, the South Carolina Office of Regulatory Staff on May 23 filed a motion compelling state regulators to order SCE&G to produce all copies of a controversial V.C. Summer audit and related documents as part of its probe into whether the abandonment was prudent.
"At worst, ORS is building a case for finding the V.C. Summer abandonment imprudent based on cause. It certainly appears that ORS is building a case on multiple fronts, including poor project management, dishonesty and possible illegal activity," Ellinghaus wrote.
Any adverse legislation or regulatory order has the potential to kill Dominion Energy Inc.'s offer to acquire SCANA.
Williams Capital expects SCE&G's rates to be cut and Dominion to abandon the merger.
"We do not expect the deal to be relevant for much longer," Ellinghaus wrote.
