Dominion Energy sees value in Scana's nuclear meltdown. The Richmond-based energy outfit is acquiring the South Carolina utility in a $7.9 billion stock swap. Cleaning up the financial waste from Scana’s abandoned atomic plant will stretch Dominion financially, but provide customers hungry for its natural gas.

Scana has struggled mightily since pulling the plug on two nuclear reactors in July 2017, following the bankruptcy of the company that was building them, Westinghouse Electric. Of the $5 billion Scana had poured in, only $2.2 billion is being repaid by Westinghouse’s parent, Toshiba. Meanwhile Scana is under pressure to refund customers who had already been paying higher bills to cover the construction costs. The fallout prompted Chief Executive Kevin Marsh to step down at the end of 2017.

Dominion hopes to clear out much of the wreckage. The company, which owns utilities as well as natural gas storage and transmission businesses, is offering total cash rebates of about $1.3 billion to electric customers of Scana’s South Carolina Electric & Gas subsidiary, and a 5 percent cut to energy rates. It also will absorb a $1.7 billion write-off for which customers otherwise would have been on the hook. Dominion chief Thomas Farrell says he will walk away from the deal if politicians try to squeeze out any more.

The $3 billion of commitments turn a relatively modest acquisition multiple of just under six times Scana’s projected EBITDA into an effective multiple of a tad over eight times. And taking on Scana’s debt will leave a company with net debt of around five times the coming year’s forecast EBITDA. Dominion will cushion the blow by issuing equity to cover much of the $1.3 billion in cash rebates. It also plans to pay down debt with cash flow from its midstream gas business.

In return, Dominion gets Scana’s utility business, which has a return on equity of a little over 10 percent. It also gets an entrée into the fast-growing Southeast. And it gets somewhere to pump its gas, since Scana needs alternatives to fill the 2,100 megawatt power gap left by its nuclear pullout. That may not make it a good deal – the rise in Scana’s market value on Wednesday was roughly half the fall in that of its acquirer. But Dominion is at least brave for striding into the reactor.

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CONTEXT NEWS

- Dominion Energy on Jan. 3 announced an agreement to acquire Scana in a $7.9 billion all-share merger, valuing the South Carolina-based utility at $14.6 billion including debt.

- The Richmond-based energy group will offer just under 0.7 shares of its common stock for every share of Scana. Based on Dominion’s 30-day average price, the deal values Scana at $55.35 a share, a 42 percent premium to the stock’s Jan. 2 closing price.

- Scana abandoned two partially built nuclear reactors in July, the cost of which had already partly been charged to customers. Dominion has offered to pay back $1.3 billion of that within 90 days of the completion of the deal.

- It also promised to reduce the utility’s rates by 5 percent and to write off $1.7 billion of capital devoted to the nuclear plant, which otherwise would have been collected from Scana’s customers.

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(Editing by John Foley and Martin Langfield)

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