Dominion Energy has agreed to acquire from Southern Co. select marine liquefied natural gas (LNG) assets in a deal that supports a broader, more aggressive goal of achieving net zero emissions by 2050.
Dominion also plans to acquire Southern’s equity stake in the troubled Atlantic Coast Pipeline (ACP), boosting ownership in the natural gas project to more than 50%, management for the Virginia-based company said.
As part of the $175 million agreement with Southern, Dominion agreed to acquire “modestly sized” gas transmission and storage assets, including Pivotal LNG, a segment of the nonutility business that produces and delivers LNG as fuel for transportation in the Southeast, primarily from a production facility in Jacksonville, FL.
“The maritime industry is taking steps, encouraged by recent global regulation, to reduce its emissions footprint, which is expected to result in a material shift to LNG,” CEO Tom Farrell said Tuesday on a call to discuss fourth quarter earnings. “This expected growth in LNG as a fuel source allows Dominion an attractive opportunity to provide natural gas liquefaction and LNG distribution services to our growing list of maritime customers.”
This initial acquisition “will support a broader marine LNG strategy that would include Cove Point, where we are partnering with an existing export customer to redirect a portion of their liquefied natural gas inventory to provide LNG to constrained markets along the East Coast and to provide fuel for marine vessels under zero commodity risk take-or-pay contracts,” Farrell said.
The deal “does not and will not alter the existing 20-year take-or-pay export contract revenues or terms,” the company chief noted. “While modest initially, this market has the potential to support the significant decarbonization of the country’s marine industry, in addition to dramatically reducing pollution at our nation’s ports.”
Dominion expects to spend about $200 million on this strategy over the next five years, according to Farrell. “This is an innovative development of our long-term beyond Dominion Energy effort to help our customers new and old meet their emissions reduction targets.”
The company chief touted the progress Dominion already has made on emissions. The company had previously committed to cut methane emissions from its natural gas operations by 50% between 2010 and 2030 and carbon emissions from its power generating facilities by 80% between 2005 and 2050. Progress toward those goals already has been made; Dominion has cut carbon emissions about 50% since 2005 and reduced methane emissions by nearly 25% since 2010.
The new commitment “sets an even higher bar,” and achievement would be good for all its stakeholders, including customers, communities, employees and investors, according to Farrell.
“Our mandate is to provide reliable and affordable energy -- safely. We do that every day, all year long. But we recognize that we must also continue to be a leader in combating climate change. Our employees have always been problem-solvers in the work we do for our customers. I am confident we can use this same mindset to help solve this challenge and leave the world a better place for future generations,” Farrell said.
Under the net zero framework, Dominion is committing to decrease methane emissions by 65% by 2030 and 80% by 2040, from 2010 levels. Furthermore, the company has committed to invest in renewable natural gas (RNG) projects to capture methane from U.S. farms at least equivalent to emissions from the natural gas operations, which could make Dominion’s gas infrastructure area net zero 10 years before the overall company.
Dominion also is moving to extend licenses for its zero-carbon nuclear generation fleet, promoting customer energy efficiency programs and investing in wind and solar power, lower-carbon natural gas and carbon-beneficial RNG. “Over the long term, achieving this goal will also require supportive legislative and regulatory policies, technological advancements and broader investments across the economy. This includes support for the testing and deployment of such technologies as large-scale energy storage, hydrogen, advanced nuclear and carbon capture, all of which have the potential to significantly reduce greenhouse gas emissions,” the company said.
As You Sow, a nonprofit organization that promotes environmental and social corporate responsibility through shareholder advocacy, coalition building and innovative legal strategies, commended Dominion’s more aggressive climate initiative, especially as it covers both the electricity and natural gas sides of its business.
“While some utility net-zero targets cover only electricity generation, Dominion is acknowledging that the significant climate impacts of its natural gas operations must also reduce to zero,” said As You Sow Energy Program Manager Lila Holzman. As investors ramp up pressure on companies to address greenhouse gas emissions, utilities in turn are accelerating their climate ambitions, she said. “We look forward to understanding the company’s plans to achieve this new target, especially as it moves ahead with carbon-intensive projects like the Atlantic Coast Pipeline.”
While long-term targets are critically important, “investors are also asking utilities to focus on current investments in fossil assets with high potential for stranding,” Holzman said.
Supermajor BP plc on Wednesday also announced its intent to become a net zero company by 2050, fundamentally transforming the entire organization as it seeks to “keep up with rapidly evolving customer demands and society’s expectations.”
Underscoring its confidence in the successful completion of ACP, Dominion’s deal with Southern includes Southern’s 5% stake in the project, which would give Dominion a 53% stake with 47% for Duke Energy. Southern, however, would remain an anchor customer through local distribution company, Virginia Natural Gas.
Dominion CFO James Chapman said discussions have been ongoing between the project owners and the anchor shipper customers regarding the equitable sharing of the previously announced cost increases within the contract tariff. Dominion one year ago upped the projected cost to build ACP to around $8 billion, from $4.5-5 billion.
“Those negotiations have been productive, and we expect to formalize an agreement in the coming weeks,” Chapman said. “As part of those discussions, the major project customers have confirmed their willingness to take on higher project rates given the strategic importance of ACP as an alternative pipeline option to the region.”
Meanwhile, Farrell said Dominion remains “optimistic that the court will issue an order reversing the Fourth Circuit in the May or June time frame.” ACP’s sponsors appealed to the U.S. Court of Appeals to reverse the Fourth Circuit’s decision to throw out a critical approval required for the proposed 600-mile pipeline to cross through national forests and the Appalachian Trail.
The company is sticking to its timeline for construction to be complete by the end of 2021, with in-service in early 2022, pending a favorable biological opinion by the U.S. Fish and Wildlife Service by the end of June, according to Farrell.
“We continue to work with the U.S. Fish and Wildlife Service on a reissued biological opinion and are pleased that FERC reinitiated formal consultation” on Monday, Farrell said. “We applaud the Service for taking the time to consider thoroughly the feedback provided by the court during the prior judicial proceedings, and we believe an updated biological opinion will be issued during the first half of this year.”
Upon receipt of the updated biological opinion, Dominion intends to notify the Federal Energy Regulatory Commission, “and anticipate thereafter, the recommencement of construction across major portions of the pipeline,” Farrell said.
Dominion reported fourth quarter 2019 earnings of $1.1 billion ($1.32/share), up from $641 million (97 cents) in 4Q2018. Full-year 2019 earnings were $1.4 billion ($1.73), down from $2.4 billion ($3.74) in 2018. Operating earnings in 4Q2019 were $988 million ($1.18), up $396 million year/year. Full year operating earnings were $3.4 billion ($4.24), up from $2.7 billion ($4.05) in 2018.
Dominion expects first quarter 2020 operating earnings to be $1.05-1.25/share, and full-year 2020 operating earnings to be $4.25-4.60/share, compared with 2019 operating earnings of $4.24/share. Capital expenditures (capex) for 2020 are projected to be $8 billion, including $5.6 billion of growth capex and $2.4 billion of maintenance capex.