Morningstar | Scana Loses Initial Court Skirmish, but No Impact on Our Outlook
We are reaffirming our $56 per share fair value estimate for Scana after a federal court judge on Aug. 6 denied the company's request to stay a 15% temporary rate cut related to its abandoned nuclear project. We consider this a minor setback with minimal impact on shareholder value in what we expect will be a long, winding legal journey.We already assumed Scana would lose these initial court challenges and that the 15% rate cut would go into effect. The South Carolina Legislature overrode the governor's veto on June 28 to enact the rate cuts, which will be in place until state regulators issue a final decision on long-term nuclear project rates and Dominion Energy's proposed acquisition. We previously cut our 2018 earnings estimate by $1.45 per share related to the rate cut, resulting in a $1 per share cut to our fair value estimate.
We continue to incorporate a 75% likelihood that regulators will approve Dominion's acquisition proposal. This adds $1 per share to our fair value estimate based on our $84 per share fair value estimate for Dominion. We don't expect Dominion to withdraw its offer based on the latest court ruling or the outcome of potential appeals related to the temporary rate cut.
With the stock trading near $40 per share as of early August, we believe the market is assuming regulators reject the Dominion deal and set rates at a level in line with the 15% temporary rate cut. If this happens, we likely would cut our fair value estimate to $40 per share. We value Scana at $69 per share if regulators approve full nuclear project rate recovery per the state's 2007 Baseload Review Act. Dominion's all-stock acquisition proposal values Scana at $48 per share as of Aug. 6, but we expect Dominion would withdraw its proposal if regulators reject its rate plan.
Dominion Energy is a holding company. Through its subsidiaries , the company is engaged in producing and transporting energy. The company's operations are conducted through its subsidiaries: Virginia Electric and Power Company, which is a regulated public utility that generates, transmits and distributes electricity for sale in Virginia and North Carolina; and Dominion Energy Gas Holdings, LLC, which serves as the intermediate parent company for the company's Federal Energy Regulatory Commission-regulated interstate natural gas transmission pipeline and underground storage systems in the eastern and Rocky Mountain regions, as well as for the liquefied natural gas import/export and storage facility.
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