SCANA needs to sell assets to pay off its nuclear debt

By Grainger McKoy Jr.
Posted 2/13/18

SCANA's board of directors has historically announced their first-quarter dividend payment to shareholders each year on or about Feb. 20. This means that in about a week, they will probably announce plans to funnel to their shareholders 78 percent …

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SCANA needs to sell assets to pay off its nuclear debt

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SCANA's board of directors has historically announced their first-quarter dividend payment to shareholders each year on or about Feb. 20. This means that in about a week, they will probably announce plans to funnel to their shareholders 78 percent of the revenues ($87.5 million) they were permitted to collect from you under the Base Load Review Act in the 90 days since they last declared dividends in October.

A quick primer on dividends: Paying dividends to shareholders is a completely voluntary act by a company. SCANA can do whatever it wants with its money: pay dividends, paint the executive lunch room, contribute to lawmakers' campaigns, hire lobbyists, give refunds to customers, etc. Sky's the limit!

Lots of great and not-so-great companies don't pay any dividends. Warren Buffett's Berkshire Hathaway is one of the former. Dividends are a way to encourage investment in slower-growing companies (like an electric utility) versus faster-growing companies (like Google or Facebook). They are a way to share the bounty of excess returns (returns in excess of the cost of creating those returns: cost of capital, goods and labor) with shareholders.

The math looks like this: SCANA collects $1,230,000 a day in BLRA revenues from you. It pays out $970,000 a day in dividends to its lucky shareholders. So that leaves $260,000 a day it uses for other corporate purposes (some of which are listed above). SCANA says it needs this $260,000 per diem or it will go bankrupt, ostensibly because it won't be able to pay interest charges on its debt.

Mismanaged companies cannot pay dividends - for long.

There is insurmountable, widely reported evidence in this newspaper and others that SCANA executives hid qualified, critical third-party analysis of how bad things were going at V.C. Summer from its regulators. For years. Time after time, it made decisions that represent the height of imprudent-ness. For this, Wall Street praised it.

The simple, ugly fact is that SCANA is gouging its customers solely to fund its dividend and support the price of its stock. It is rewarding its shareholders in spite of management non-performance. "Oh," you say, "Westinghouse dropped the ball and the AP1000 reactors never had a chance since their drawings were not complete. And besides unlicensed engineers were approving drawings and generally mucking things up for everybody."

"Oh," I say then how can the Chinese possibly be loading fuel into their four AP1000s as you read this? I am sure they will be blamed for stealing or bribing Westinghouse for the "real" plans to build the reactors. The reality is that really, really bad things happen to non-performing executives in China. In the U.S., not so much. I actually met with SCANA's Steve Byrne, Jeff Archie, Ron Dollens and the rest of their team (all good guys - you'd want to grab lunch or a beer with any of them) in 2012 just before they left to tour the Chinese AP1000s. I wonder what they learned?

The $87.5 million question is this: is SCANA's board so shameless that it will once again shower its shareholders with a dividend that is completely funded by revenues from a bungled project? Maybe you can speak with its chairman Maybank Hagood just down the road in North Charleston. He won't take my call, but maybe he will take yours: (800) 922-2287.

The path forward should be: sell off non-core assets (i.e. natural gas distribution operations in North Carolina and Georgia, a fancy HQ in Cayce complete with fake rock-strewn streams, Pine Island and other peripheral property) to pay off the nuclear debt. SCANA would become a smaller, less-indebted, non-dividend-paying company. One that wouldn't be able to afford to charter a plane for a celebratory flight up to the Nuclear Regulatory Commission in D.C. to get a piece of paper when a postage stamp would suffice. But still a South Carolina company.

Grainger McKoy Jr. is a serial entrepreneur living with his wife and son in Pawleys Island.