The abandoned nuclear reactor project at V.C. Summer contributed to a sharp dip in earnings for SCANA Corp., but analysts say the company should be able to weather reported losses — and even get most, if not all, of that money back.
SCANA announced third quarter earnings of $34 million, or 24 cents per share, on Thursday, compared to $189 million, or $1.32 per share, for the third quarter of 2016. For the first nine months of 2017, the company reported earnings of $326 million, or $2.28 per share, compared to $471 million, or $3.29 per share, for same period in 2016.
“These decreases are primarily attributable to an impairment loss of $210 million ($132 million, net of taxes), or earnings per share of 92 cents, associated with the abandoned nuclear project,” SCANA said in a news release.
Impairment loss is the decrease in an asset's net carrying value (acquisition cost minus depreciation) that exceeds future anticipated cash flow. Impairment occurs when a company sells or abandons an asset that is no longer beneficial.
The company also declared a regularly quarterly dividend of 61.25 cents per share on its common stock for the quarter ending Dec. 31. The dividend is payable Jan. 1, 2018, to shareholders of record at the close of business of Dec. 13.
Analysts, though, say the big picture for SCANA is not dire.
"If they can walk away with a $132 million loss, which is less than the earnings for one quarter — that ain’t too shabby," said Jim Austin, a lecturer in the finance department at the University of South Carolina's Darla Moore School of Business. "The worst-case scenario is they lost the majority of one quarter’s worth of earnings. That’s not devastating."
Indeed, the stock market seemed to take the earnings report in stride. As of 11 a.m. Thursday, SCANA stock was trading at $47.76 per share, up from the $47.26 at which it opened the day. The stock closed at $47.83.
“The market is very forgiving of one-time items. The income stream appears to be very much intact,” Austin said. “Stock generally trades off what you think the future earnings are going to be. The future earnings don’t look like they’re going to be negatively impacted.”
There's also a possibility the loss declared in the earnings report could be recouped under the Base Load Review Act, the 2007 law that allows principal SCANA subsidiary S.C. Gas and Electric to make a profit off any money it invested in the V.C. Summer project. SCE&G, which owns 55% of the project, spent around $4.9 billion of the combined $9 billion poured into the reactors. State-owned utility Santee Cooper owns the other 45%.
The BLRA allows ratepayers to be charged for that money, plus the interest SCE&G has to pay on it, plus the return on that investment, which currently is set at 10.25%.
Fallout from the failed project also drove SCE&G earnings down in the third quarter. The utility reported earnings of $42 million, or 29 cents per share, compared to $204 million, or $1.43 per share, for the third quarter of 2016.
"These aren’t actually losses," said Jocelyn Evans, a finance professor at the College of Charleston School of Business. "They’ve already paid for everything. These are losses on paper. These are non-cash losses."
The SCANA release said the company is unable to provide long-term generally accepted accounting principles guidance to investors “due to the pending treatment of the abandoned nuclear project. Long-term guidance will be updated, if needed, and communicated once the abandonment recovery has been addressed,” the statement said.
After months of rising costs and numerous delays surrounding the twin 1,117-megawatt nuclear reactors being built near Jenkinsville, contractor Westinghouse filed for bankruptcy in April, leading Santee Cooper and SCE&G to pull out of the project.
The Base Load Review Act allowed rate increases before the project was completed to cover those increasing costs. The act has come under fire in subsequent legislative hearings probing the project's demise, and S.C. Attorney General Alan Wilson has questioned its constitutionality. That volatile political climate has been compounded by a request filed with the Public Service Commission by the Office of Regulatory Staff requesting that a $1 billion payment SCANA received from Westinghouse parent company Toshiba to cover project overruns instead be distributed to ratepayers.
All of that may have factored into the declaration of $132 million in net loss — essentially the money SCANA has not yet recouped from the V.C. Summer project.
“They’re saying that they cannot fathom how the PSC could reverse their position on not only the fact that the law says you can recover (the money) in an abandonment, but they have already reviewed it and ruled on it,” Austin said. “(The PSC) would have to overrule their own ruling on that. Within the law, (SCANA) believes that it should be (approved), but because of the political pressure, they’re not 100 percent they’re going to prevail.”
Other factors also affected third quarter earnings, including warmer weather. While colder-than-usual weather increased earnings by 27 cents per share in the third quarter of 2016, SCE&G reported an increase of just 8 cents per share because of abnormal weather this quarter.
SCANA’s North Carolina-based retail natural gas distribution subsidiary PSNC Energy reported a seasonal third quarter loss of $2 million, or 1 cent per share, compared to a seasonal loss of $6 million, or 5 cents per share, in the third quarter of 2016. SCANA attributed the increase to higher revenues from a larger customer base and a 2016 rate increase, as well as lower operational and maintenance expenses.
As of Sept. 30, PSNC Energy served about 550,000 customers, a 2.6% increase from the previous year.
SCANA Energy Marketing, which markets natural gas in deregulated energy markets, reported third quarter earnings of $1 million, or 1 cent per share, compared to a loss of $1 million, or 1 cent per share, in Q3 2016.
The financial picture has gotten brighter for Santee Cooper recently. On Wednesday, Fitch Ratings removed the utility from its negative watch list and gave it a stable outlook, saying, "Santee Cooper's decision to suspend nuclear construction will limit near-term credit risk and capital requirements." The ratings agency also expressed its expectation "that disciplined rate-setting will support financial performance" and added, "Lower than anticipated energy needs and lower cost of alternative generation should help stabilize margins and reduce leverage over time."
Earlier this month, Standard & Poor's revised its rating of Santee Cooper from negative to stable, also citing the decision to pull out of the V.C. Summer project as a positive factor.