What happened
Actions of Dominion Energy (NYSE: D) It fell as much as 11.3% on Monday after the company announced two seismic changes in strategy. Dominion and partner first Duke Energy (NYSE: DUK) announced the cancellation of the pipeline on the Atlantic coast. Despite earning a decisive Supreme Court victory in June, which allowed the duo to continue the massive project, the threat of lawsuits and delays proved too difficult to overcome.
Second, Dominion Energy agreed to sell its natural gas transmission and storage assets to Berkshire Hathaway for $ 9.7 billion. The cash transaction includes the assumption of a debt of $ 5.7 billion, while the remaining $ 4 billion will be invested in share buybacks.
At 1:34 pm EDT today, the dividend stock had settled at a loss of 9.8%.
Image source: Getty Images.
And that
The Atlantic Coast pipeline was intended to send natural gas from the energy-rich Appalachian region to the energy-poor Midwest and Southeast. Originally estimated to cost between $ 4.5 billion and $ 5 billion, delays and lawsuits raised costs to nearly $ 8 billion.
One obstacle proved fatal: the pipeline had to cross the Appalachian Trail about 600 feet underground. While the United States Forest Service granted Dominion Energy and Duke Energy a permit to proceed, a lawsuit alleged that the permit was illegitimate. He was elevated to the Supreme Court, which last month ruled that the permit was legal. But the threat of more delays and lawsuits forced companies to reject their plans.
Dominion Energy hoped to take advantage of its vast natural gas transmission and storage assets in the region to complement the project. But with the cancellation of the pipeline, it made sense to divest assets and reduce operations.
While the move virtually guarantees that the company is participating with its ambitious offshore wind energy portfolio, the administration promised to use the $ 4 billion in cash proceeds to buy back shares. Given the nascent state of the offshore wind industry, that financial decision may prove questionable in the not-too-distant future.
Now what
After exiting natural gas storage and transmission, Dominion Energy is likely to focus its growth strategy on offshore wind energy. Individual investors will find new hurdles and opportunities in the next generation renewable energy source, but the business is at least in a geographic position to succeed.
Thinking more broadly, today’s news could have consequences far beyond Dominion Energy. For example, it could indicate problems for other pipeline operators trying to move excess natural gas from the Appalachians south.
It could also boost confidence in America’s fledgling efforts to boost what could become the world’s largest offshore wind energy market by 2030. If the national pipeline of projects develops as expected, then major US cities in the east coast could be increasingly powered by zero-carbon electricity by the end of the decade, with Dominion Energy playing a central role.
