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Dominion: Cove Point Delay Impacted Guidance, But Progress on Scana Merger, ACP

Dominion Energy Inc. said the delayed opening of its Cove Point liquefied natural gas (LNG) export facility in Maryland was a drag on its guidance for the first quarter, but the company still posted a profit and was making substantial progress with its natural gas Atlantic Coast Pipeline (ACP).

Meanwhile, Dominion executives said they were optimistic that the company's proposed $14.6 billion acquisition of Scana Corp. will be completed by the end of the year. The merger is still contingent upon approval by Scana shareholders and blessings from regulators in North and South Carolina.

Last Friday, Dominion reported net income of $503 million (77 cents/share) in 1Q2018, compared with net income of $632 million ($1.01) in the year-ago quarter. It also reported operating earnings of $741 million ($1.14) in 1Q2018, compared to $611 million (97 cents) in 1Q2017.

On the same day, Dominion Energy Midstream Partners LP (DM), Dominion's midstream master limited partnership (MLP), reported net income attributable to the partnership of $57.3 million in 1Q2018, compared to $52.2 million in the year-ago quarter. The MLP also reported $110.1 million in operating revenue, down 15.4% from 1Q2017 ($130.2 million).

Richmond, VA-based Dominion said it spent $612 million on operating expenses for its gas infrastructure segment in 1Q2018, near the bottom of its $600-650 million guidance for the quarter. The company said that while farmout transactions and gas distribution were positive drivers in terms of guidance, the delayed in-service date for Cove Point was a negative.

Cove Point, the second U.S. facility to export LNG sourced from domestically produced gas in the Lower 48, officially entered commercial service last month. Dominion had originally expected to have the facility, which has a nameplate capacity of 5.25 million metric tons/year of LNG, entered into service by the end of 2017.

Additionally, Dominion spent $423 million on operating expenses for its power delivery segment and $748 million for its power generation segment. While the former figure was within guidance for the quarter ($395-435 million), the latter was slightly above guidance ($650-740 million), with merchant margins and operating expenses the main positive drivers.

Dominion said both Cove Point and ACP remain eligible for a drop-down to its MLP, but that such a move would not occur in 2018 "absent material improvement in MLP capital market and DM unit price. [We] will continue to recommend 5% quarterly increases in LP unit distributions subject to maintaining approximately 1.0x coverage ratio."

On ACP, Dominion reported that it had completed more than 200 miles of tree clearing for the project, and that construction was underway on compressor stations in North Carolina, Pennsylvania and West Virginia. The company also said it had submitted a filing with FERC to begin mainline construction in West Virginia, and would seek approval from the Federal Energy Regulatory Commission to begin mainline construction in North Carolina "in the near future."

Last month, FERC authorized work on contractor yards in North Carolina and West Virginia for the ACP, a 600-mile 1.5 Bcf/d pipeline designed to carry natural gas from the Appalachian Basin to the Southeast. Dominion said it was still awaiting approval of a final erosion and sediment permit from the Virginia Department of Environmental Quality. Dominion expects to enter ACP into service in 4Q2019.

During an earnings call last Friday to discuss 1Q2018, Dominion CEO Tom Farrell said its proposed acquisition of Cayce, SC-based Scana had received clearance from the Federal Trade Commission and the Georgia Public Service Commission.

"We expect Scana shareholder approval this summer," Farrell said, adding that regulators in North and South Carolina must also sign off on the merger. "We have participated in legislative hearings to explain our proposal to lawmakers, who are considering temporary changes to the South Carolina baseload review. Recent polling indicates very strong support for our proposal within the state."

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