Introduction

Duke Energy and Dominion Energy recently cancelled their Atlantic Coast Pipeline (ACP) project, a natural gas pipeline planned to traverse West Virginia, Virginia, and North Carolina. Dominion coupled this announcement with another that it would be divesting its natural gas transmission and storage segment.

The Atlantic Coast Pipeline was initially planned to begin in Wesr Virginia, travel through Virginia, and then on to North Carolina. The ACP would be capable of delivering about 1.5 million dekatherms (equivalent to 1.5 billion cubic feet per day) of natural gas through access to multiple U.S. supply basins.

Key Details

• The utilities announced the pipeline in 2014^[1], and including project exit costs, Dominion and Duke will have spent an estimated $4.3–$5.3Bn^[2] in the development and construction of the ACP project
• During the development phase, the ACP project encountered numerous regulatory hurdles, primarily related to state and federal environmental permits^[3]. The impacts of these and other hurdles include:
  • Significant cost increases – projected project costs nearly doubled from their original estimate of $4.5Bn to $8Bn^[4]
  • Project delays – the pipeline’s projected in-service date was pushed back by three years from 2019^[5] to 2022
  • Further uncertainty around future financial and timeline impacts
• In parallel to this announcement, Dominion made public that it would sell its natural gas transmission and storage segment to Berkshire Hathaway^[6], underlining the utility’s shift toward its state-regulated businesses—notably its downstream natural gas and increasingly clean energy focused utility segments^[7].
• As Dominion highlighted in its presentation of the sale to investors, a strategic theme the divestiture supports is the utility’s commitment to net-zero carbon and methane emissions by 2050, as the sale will enable Dominion to immediately reduce its emissions footprint^[8].

The Divestiture Implications

• Both decisions highlight the impact of environmental issues on a utility’s decision making.
• The cancellation of the ACP project by Duke and Dominion demonstrates how environmental-permitting challenges drove regional risk to pipeline development^[9].
• Dominion’s divestiture demonstrates how some utilities may position their businesses to meet environmental targets and refocus toward state-regulated segments.

[1] CNN, Energy companies cancel construction of Atlantic Coast Pipeline, https://www.cnn.com/2020/07/05/us/duke-dominion-energy-cancel-atlantic-coast-pipeline/index.html

[2] Charlotte Business Journal, Duke Energy, Dominion abandon the $8 billion Atlantic Coast Pipeline, https://www.bizjournals.com/charlotte/news/2020/07/05/duke-energy-dominion-abandon-the-atlantic-coast-p.html

[3] Construction Dive, $8B Atlantic Coast Pipeline project canceled due to legal uncertainties, https://www.constructiondive.com/news/supreme-court-ruling-advances-8b-pipeline-project/579974/

[4] Duke Energy, Dominion Energy and Duke Energy cancel the Atlantic Coast Pipeline, https://news.duke-energy.com/releases/dominion-energy-and-duke-energy-cancel-the-atlantic-coast-pipeline

[5] Oil and Gas Journal, Atlantic Coast Pipeline hires main construction contractor, https://www.ogj.com/pipelines-transportation/article/17250126/atlantic-coast-pipeline-hires-main-construction-contractor

[6] Dominion Energy, July 06 2020 8K SEC Filing, https://d18rn0p25nwr6d.cloudfront.net/CIK-0000715957/b951da4d-8add-45e4-9b20-4bee407d5780.pdf

[7] Dominion Energy, Dominion Energy Agrees to Sell Gas Transmission, Storage Assets to Berkshire Hathaway Energy– Strategic Repositioning Toward ‘Pure-Play’ State-Regulated, Sustainability-Focused Utility Operations, https://news.dominionenergy.com/2020-07-05-Dominion-Energy-Agrees-to-Sell-Gas-Transmission-Storage-Assets-to-Berkshire-Hathaway-Energy-Strategic-Repositioning-Toward-Pure-Play-State-Regulated-Sustainability-Focused-Utility-Operations

[8] Dominion Energy, July 6 2020, Dominion Energy Investor Update Call Transcript, p 4-5; https://s2.q4cdn.com/510812146/files/doc_downloads/2020/07/2020-07-06-DE-IR-Dominion-Energy-Investor-Update-Conference-Call-Transcript-6-July-2020-9_00-AM-ET-vTC.pdf

[9] Dominion Energy, July 6 2020, Dominion Energy Investor Update Call Transcript, p 3; https://s2.q4cdn.com/510812146/files/doc_downloads/2020/07/2020-07-06-DE-IR-Dominion-Energy-Investor-Update-Conference-Call-Transcript-6-July-2020-9_00-AM-ET-vTC.pdf

Additional Contributing Author: Mike Kerrigan