Morningstar | Nuclear Rate Cut Legislation Weighs on Scana's Earnings, but Core Growth Still Strong
We are reaffirming our $56 per share fair value estimate for Scana after the company reported earning $0.47 per share in the third quarter, down from $1.16 per share on an adjusted basis in the third quarter of 2017. We continue to believe Scana offers the most attractive risk-reward opportunity in the utilities sector with the stock trading at a 33% discount to our fair value estimate and a 29% discount to the implied value of Dominion Energy's proposed acquisition terms as of late October.The impact from South Carolina Act 258 and subsequent regulatory approval of a 15% rate cut reduced earnings $0.56 per share in the quarter, in line with our expectations. We estimate the nine-month impact starting from the April 1 implementation could reduce 2018 earnings as much as $1.45 per share.
We previously reduced our fair value estimate in June when the legislation passed to reflect these lost earnings. The rate cut expires when state regulators rule on long-term rate recovery for the abandoned V.C. Summer new nuclear project, likely by year-end.
Earnings through the first nine months are running ahead of our forecast due to favorable weather and customer growth. Management has not provided earnings guidance. Electric customer growth continues to top 1% and gas customer growth remains near 3%, among the highest in the industry. We expect this growth potential is one reason Dominion has offered substantial customer rate concessions as part of its acquisition proposal.
Our fair value estimate continues to include a 75% probability that regulators approve Dominion's all-stock acquisition and customer rate adjustment proposal. This results in a $1 per share uplift to our stand-alone fair value estimate based on our $84 per share Dominion fair value estimate. Regulatory hearings related to the acquisition and customer rates begin Nov. 1 with a required ruling by Dec. 21.
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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