By Rachel Adams-Heard, Katherine Chiglinsky and Gerson Freitas Jr.
Dominion Energy Inc., the second-biggest U.S. power company by market value, on Sunday said it’s selling substantially all of its gas pipeline and storage assets to Berkshire Hathaway Inc. for $4 billion. In a separate statement, Dominion and its partner Duke Energy Corp. said they’re killing the controversial Atlantic Coast gas pipeline along the U.S. East Coast, citing ongoing delays and “cost uncertainty.”
The moves come as utilities face increasing pressure from local governments, investors and environmentalists to quit the fossil fuel. While long heralded as a cleaner alternative to coal and heating oil, gas is now getting shoved aside in the fight against climate change as states including New York, California and Dominion’s home base of Virginia have all passed laws for utilities to be carbon free within decades.
“This transaction represents another significant step in our evolution as a company,” Dominion Chief Executive Officer Thomas Farrell said in a statement, citing the company’s goal of reaching net-zero emissions by 2050.
Dominion shares fell as much as 2.5% before the start of regular trading in New York.
The push away from gas positions Dominion as more of a pure-play state-regulated utility at a time when oil and pipeline operators have lagged the broader market. In the last year, an index of pipeline companies has fallen 36%, while the S&P 500 Index has gained 4.7%.
To be clear, Richmond, Virginia-based Dominion, which provides power and gas to seven million customers in 20 states, isn’t walking away from fossil fuel altogether. It will still sell gas to customers for heating and cooking. It’s retaining an interest in its Cove Point liquefied natural gas export terminal in Maryland. And 40% of the electricity the company generates comes from plants fueled by gas, coal and oil, according to its website.
“They’ll still be burning lots of gas for decades ahead in the core utility business,” Bloomberg Intelligence analyst Kit Konolige said in an email.
But pressure is mounting. The law Virginia enacted in April requires Dominion’s utility in the state to be to be carbon-free by 2045.
Atlantic Coast is the third U.S. gas pipeline project to scrapped or shelved this year. Williams Cos. opted not to reapply for a permit in May for a $1 billion pipeline extension after regulators in New York blocked it. And in February the Oklahoma-based company canceled plans for a pipeline that would have run from Appalachia to New York.
While the Atlantic Coast pipeline project won a key victory last month when the U.S. Supreme Court sided against environmentalists and upheld a crucial permit, the project still faced formidable opposition and costs. “That would indicate that that wasn’t a strategic decision as much it was as a practical decision,” said Paul Patterson, an analyst at Glenrock Associates LLC.
Deal with Berkshire
Dominion’s deal with Berkshire calls for the giant conglomerate to assume $5.7 billion in debt. The utility will use $3 billion of the proceeds to buy back shares. Dominion also cut its projected 2021 dividend payment to around $2.50 a share, reflecting the assets being divested and a new payout ratio that aligns it better with industry peers.
The transaction is expected to close during the fourth quarter. It will require the approval of federal agencies including the U.S. Department of Energy.
Berkshire is amassing more than 7,700 miles (12,400 kilometers) of natural gas storage and transmission pipelines and about 900 billion cubic feet of gas storage in the deal with Dominion. Warren Buffett’s conglomerate will also acquire 25% of Cove Point.With this transaction, Buffett has ended his period of relative silence on the acquisition front since the pandemic.
The Dominion deal is set to be Berkshire’s largest acquisition ranked by enterprise value since its purchase of Precision Castparts Corp. in 2016. It will expand the company’s already sprawling empire of energy operations, which currently has operations in states including Nevada and Iowa.