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    Dominion, Duke Cancel Atlantic Coast Pipeline

Summary

Dominion Energy also selling transmission, storage businesses to Warren Buffett group

by: Dale Lunan

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Dominion, Duke Cancel Atlantic Coast Pipeline

Dominion Energy and Duke Energy, sponsors of the planned $8bn Atlantic Coast Pipeline (ACP), which would have provided 1.5bn ft3/day of transmission capacity to markets in the US southeast, said July 5 they have canceled the project, citing “ongoing delays and increasing cost uncertainty which threaten the economic viability of the project.”

The same day, Dominion Energy announced that it had sold its gas transmission and storage assets to an affiliate of Warren Buffett’s Berkshire Hathaway in a transaction valued at $9.7bn, including the assumption of $5.7bn of debt.

It had told NGW as recently as July 1 the line would ensure lower prices for the region it will serve. "The Transco line is fully tapped and coming from an area with significant weather events, which result in price volatility. Particularly in the winter, gas prices tend to spike for a number of reasons. The ACP will fill the current need for another gas supply and is much less  susceptible to price volatility due to its sourcing from the Marcellus-Utica region."

Despite a 7-2 victory in June before the US Supreme Court, which vindicated the project and decisions made by permitting agencies regarding a portion of ACP which crosses the historic Appalachian Trail, other recent developments have created an unacceptable layer of uncertainty and expected delays for ACP, Dominion Energy and Duke Energy said in a joint statement.

“Specifically, the decision of the US District Court for the District of Montana overturning long-standing federal permit authority for waterbody and wetland, followed by a Ninth Circuit ruling on May 28 indicating an appeal is not likely to be successful, are new and serious challenges,” they said in news release. “The potential for a Supreme Court stay of the district court’s injunction would not ultimately change the judicial venue for appeal nor decrease the uncertainty associated with an eventual ruling. The Montana district court decision is also likely to prompt similar challenges in other Circuits related to permits issued under the nationwide program, including for ACP.”

Legal challenges to ACP’s federal and state permits – which Dominion says have significantly rewritten “decades” of permitting and legal precedent – have dramatically increased the cost of ACP, to $8bn in a recent guidance from initial estimates in the $4.5-$5bn range.

Additionally, Dominion Energy’s most recent estimates have pushed the commercial in-service date for ACP to 2022, a near-3.5-year delay “with uncertainty remaining,” it said.

“We regret that we will be unable to complete the Atlantic Coast Pipeline,” Thomas Farrell II, CEO of Dominion, and Lynn Good, CEO of Duke Energy, said in a joint statement. “For almost six years we have worked diligently and invested billions of dollars to complete the project and deliver the much-needed infrastructure to our customers and communities. Throughout we have engaged extensively with and incorporated feedback from local communities, labor and industrial leaders, government and permitting agencies, environmental interests and social justice organizations. We express sincere appreciation for the tireless efforts and important contributions made by all who were involved in this essential project. This announcement reflects the increasing legal uncertainty that overhangs large-scale energy and industrial infrastructure development in the US. Until these issues are resolved, the ability to satisfy the country's energy needs will be significantly challenged.”

In a separate statement, Farrell said Dominion Energy’s sale of its gas transmission and storage businesses is a reflection of the company’s desire to focus on its “premier state-regulated, sustainably-focused utilities” that operate in 20 states.

“Over the past several years the company has taken a series of steps – including mergers with Questar Corporation and Scana Corporation, and the divestiture of Blue Racer Midstream and merchant generation assets – to increase materially the state-regulated nature of our profile, enhance the customer experience, strengthen our balance sheet, and improve transparency and predictability,” Farrell said. “Our mission over that period has remained the same: providing round-the-clock affordable and sustainable energy, world-class customer service, and meaningful community engagement.”

After the sale – which includes more than 7,700 miles of natural gas storage and transmission pipelines and 900bn ft3 of operated gas storage capacity – Dominion expects that up to 90% of its operating earnings will come from its portfolio of state-regulated electric and gas utilities, particularly those in five key states: Virginia, North and South Carolina, Ohio and Utah. As well, it will retain its 50% passive interest in the Cove Point LNG facility in Maryland and its nuclear and solar contracted generation fleet.

Assets covered by the sale include Dominion’s ownership interests in Dominion Energy Transmission, Questar Pipeline, Carolina Gas Transmission, Iroquois Gas Transmission (a 50% interest), legacy gathering and processing operations and a 25% operating interest in Cove Point.

To reflect the sale, Dominion Energy has reduced its 2020 operating earnings guidance to $3.37-$3.63/share from $4.25-$4.60/share.