Dominion Energy (D), the third largest utility by market capitalization, continues to trade near year-ago levels as the pressure on utilities mounts. Utilities (XLU) (IDU) have been weak since mid-December 2017 on concerns of overvaluation, less beneficial tax reforms, and rising interest rates. Dominion Energy stock could see renewed weakness going forward, as its deal to buy SCANA (SCG) is facing obstacles.
Deal or no deal?
According to a Bloomberg report dated February 6, 2018, investors might be losing confidence in the execution of the Dominion-SCANA deal due to regulatory uncertainty. Bloomberg cited the widening gap between SCANA’s current share price and the per share price that Dominion offered to pay as evidence of falling investor confidence in the deal.
South Carolina legislators are against Dominion Energy’s proposal to recover SCANA’s now-abandoned V.C. Summer nuclear plant’s cost from ratepayers. However, both Dominion and SCANA management believe that the merger will be completed late this year.
Challenges mount for SCANA
SCANA abandoned its half-constructed V.C. Summer nuclear power plant last year after the project cost zoomed beyond $20 billion. Since then, SCG stock has corrected by more than 55%.
On February 6, 2018, credit rating agency Moody’s downgraded SCANA and its principal rate-regulated subsidiary, SCE&G (South Carolina Electric & Gas), to “Ba1” and “Baa3,” respectively, on regulatory concerns relating to the rate recovery of its abandoned nuclear project.
Dominion Energy agreed to buy troubled SCANA for $7.9 billion in a stock-for-stock deal in January this year. Dominion has gained more than 4% in the last one year, outperforming broader utilities. Read Why SCANA Is a Strategic Fit for Dominion Energy for more information.