Scana Presents Compelling Risk/Reward Trade-Off

We are reaffirming our $56 fair value estimate for

We continue to think Scana represents an attractive risk-reward opportunity.

The testimony shows a gap remains between what Dominion has called its best and only rate plan offer and other proposed rate plans. We think the Office of Regulatory Staff, or ORS, proposal is the most important to watch.

Dominion's plan effectively front-loads the customer benefits through nuclear rate refunds and rate freezes. ORS' plan includes a sharp initial rate cut--from $445 million annualized to $86.2 million--but no nuclear rate refunds and the option for Scana to request non-nuclear base rate increases. ORS also proposes Dominion pass along $70 million of merger savings and federal tax cut adjustments, but we don't think this is a deal breaker.

If regulators reject the Dominion deal, there are several proposals presented in the testimony. Our $68 per share bull case valuation assumes regulators approve near-full nuclear project rate recovery per the state's 2007 Baseload Review Act, as Scana presents in one scenario. Our $32 per share bear case scenario follows other intervenors' proposals that Scana deserves no nuclear project rate recovery.

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