Duke, Dominion scrap plans for $8 bil natural gas pipeline

The planned $8 billion Atlantic Coast natural gas pipeline project is dead, and Dominion Energy is selling its natural gas business to Berkshire Hathaway Energy for nearly $10 billion.

The two announcements, both made on Sunday, reflect the difficulty companies are facing in completing gas pipeline projects, as well as trend among utilities to place a greater emphasis on their regulated businesses.

Investor-owned Dominion Energy and its partner Duke Energy on Sunday announced the cancellation of the 600-mile Atlantic Coast Pipeline project, citing ongoing delays and increasing cost uncertainty.

“This announcement reflects the increasing legal uncertainty that overhangs large-scale energy and industrial infrastructure development in the United States. Until these issues are resolved, the ability to satisfy the country's energy needs will be significantly challenged,” Thomas Farrell, Dominion’s chairman, president, and CEO, and Lynn Good, Duke’s chair, president, and CEO, said in a joint statement.

The cancellation of the pipeline project, which was slated to run through West Virginia, Virginia and North Carolina and underneath the Appalachian Trail, came despite a victory last month when the Supreme Court, in a 7-2 opinion, overturned a lower court ruling that found the U.S. Forest Service did not have the authority to grant a special-use permit to allow the allowed developers to build a segment of the pipeline beneath the Appalachian Trail.

Despite the Supreme Court win, Duke and Dominion cited more recent court cases, specifically, a ruling by the United States District Court for the District of Montana that blocked a Nationwide Permit 12 under the Clean Water Act for the Keystone XL Pipeline and May 28 ruling by U.S Court of Appeals for the Ninth District that declined to vacate the ruling of the Montana district court.

Court challenges since the Atlantic Coast Pipeline was first announced in 2014 have increased the projected costs of the project from about $4.5 billion to $8 billion and pushed the slated online date from mid-2018 to 2022.

The utility partners had envisioned the Atlantic Coast Pipeline as a way to bring natural gas from Pennsylvania shale fields into their territories to provide fuel for gas-fired generation to replace retiring coal plants, among other uses. The partners said companies had signed up to take about 90% of the pipeline’s capacity.

Berkshire Hathaway Energy transaction

Under the Dominion-Berkshire Hathaway Energy transaction, which includes more than 7,700 miles of gas pipelines and about 900 billion cubic feet of gas storage, Berkshire Hathaway Energy will acquire Dominion Energy Transmission, Questar Pipeline, Carolina Gas Transmission, and a 50% stake in Iroquois Gas Transmission System. Berkshire Hathaway Energy will also acquire 25% of Cove Point LNG. Dominion will retain a 50% stake in Cove Point, with Brookfield Asset Management owning the remaining 25%.

The $9.7 billion deal includes the assumption of about $5.7 billion of debt and an approximately $4 billion cash payment to Dominion on closing.

The sale of most of Dominion’s gas business “represents another significant step in our evolution as a company,” Farrell said. Going forward, the company said as much as 90% of the utility’s future operating earnings will come from its state-regulated electric and gas utilities. The non state-regulated assets Dominion is retaining, such as its stake in the Cove Point LNG facility and its zero-carbon dioxide emitting nuclear and solar power fleet, “represent high-quality, long-term contracted, regulated-like assets with virtually no direct commodity exposure,” Farrell said.

Dominion said about $3 billion of the proceeds from the sale to Berkshire Hathaway would be used to buy back shares.

Duke coal generation retirements

Duke noted that since 2010, it has retired more than 6,500 megawatts (MW) of coal plants and plans to retire at least another 900 MW by year-end 2024, as well as shortening the book lives of another approximately 7,700 MW of coal capacity in North Carolina and Indiana.

In a statement, Duke affirmed its commitment to clean energy. “In our recent Climate Report, we shared a vision of a cleaner energy future with an increasing focus on renewables and battery storage in addition to a diverse mix of zero-carbon nuclear, natural gas, hydro and energy efficiency programs,” the utility’s CEO said in a statement.

In a separate statement, Farrell, Dominion’s CEO, said that over the next 15 years the utility would “invest up to $55 billion in emissions reduction technologies including zero-carbon generation and energy storage, gas distribution line replacement, and renewable natural gas. In addition, between 2018 and 2025 we expect to retire more than four gigawatts of coal- and oil-fired electric generation.”