Morningstar | Nuclear Project Rate Battle Overshadows Scana's Core Business Growth
We are reaffirming our $56 per share fair value estimate for Scana after the company reported earning $0.22 per share in the second quarter, down from $0.88 per share in the second quarter of 2017 primarily due to rate cuts associated with its abandoned new nuclear project and lower taxes.Scana reserved $109 million pretax due to South Carolina Act 258 that cut customer rates 15% effective April 1. We already incorporate the rate cuts in our fair value and earnings estimates, assuming they remain in place the rest of 2018. Earnings through the first half are running ahead of our forecast due to favorable weather and customer growth. Management has not provided earnings guidance.
Scana's core business growth demonstrates the earnings upside Scana could realize once it resolves the new nuclear rate recovery issue. Electric customer count was up 1.3% and gas customer count was up 2.9% year over year in the quarter, among the highest customer growth rates in the U.S. We expect this growth potential is a reason Dominion is willing to offer substantial nuclear project-related rate concessions to receive acquisition approval.
Our fair value in part incorporates a 75% probability that regulators will approve Dominion Energy's all-stock proposed acquisition. This results in a $1 per share uplift to our standalone fair value estimate based on our $84 per share Dominion fair value estimate. We expect South Carolina regulators to rule on the merger by year-end with hearings starting Nov. 1.
The quarterly results support our $68 per share best-case scenario if regulators reject the Dominion deal and the courts uphold the 2007 Baseload Review Act that allows Scana full recovery of all nuclear project invested capital.
SCANA is a holding company. Through its regulated subsidiaries, the company is engaged in the generation, transmission, distribution and sale of electricity in South Carolina and in the purchase, transmission and sale of natural gas in North Carolina and South Carolina. Through its non-regulated subsidiary, the company markets natural gas to retail customers in Georgia and to wholesale customers in the southeast. In addition, the company's subsidiary, SCANA Services, Inc. provides primarily administrative and management services to the company's other subsidiaries.
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