by James A. Bacon
With the acquisition of Questar Corporation, a Salt Lake City-based natural gas distribution and pipeline company, Dominion Resources is making a $4.4 billion bet that natural gas represents the energy future.
“Dominion expects the value of the Questar pipeline system to rise over time as Utah and other Western states seek to comply with the requirements of the U.S. Environmental Protection Agency’s Clean Power Plan and meet state-mandated renewable standards, with increasing reliance on low-carbon, gas-fired electric generation,” stated Dominion, parent company of Dominion Virginia Power (DVP), in a press release announcing the deal.
In the same statement, the company noted that it has committed $1 billion for three solar-generating facilities located in Beaver, Iron and Millard counties in Utah. “These solar facilities are backed by long-term power purchase agreements with local electric utilities,” the company said.
The announcements come at a time when the McAuliffe administration is wrestling with which strategy Virginia should pursue in meeting the requirements of the Clean Power Plan. The EPA gives states some flexibility in meeting its tough goals for reducing CO2 emissions from electric-generating plants. DVP has been leaning toward natural gas as the dominant fuel to replace coal, while keeping open the expensive nuclear option. The Sierra Club and other environmental groups are pushing for much more aggressive use of wind and solar, which emit zero CO2 but create grid-reliability issues when operated on a large scale.
Dominion and DVP contend that the giant Marcellus and Utica shale basins in West Virginia, Ohio and neighboring states will provide years, perhaps decades, of inexpensive natural gas. Although gas combustion does emit CO2, it creates far less than coal. The cost is lower than that of wind and solar, and the fuel source provides more flexibility. Critics counter that the price of gas is volatile and not necessarily the optimum long-term choice. Dominion prefers its DVP subsidiary to burn gas, however, in the expectation that DVP will purchase gas transported on the proposed Atlantic Coast Pipeline, of which Dominion is the managing partner, and utilize its gas storage assets in the Marcellus basin. Keeping the business all in the family, so to speak, will create more profit for the parent company.
The Questar acquisition suggests that Dominion’s top brass really does see natural gas as the energy future. Serving markets in Western states, Questar gains no benefit from its association with Dominion Virginia Power. Rather, as the company explained in its press release, “Questar would provide enhanced geographic diversity to Dominion’s natural gas operations. Dominion’s existing operations lie in the heart of the mid-Atlantic, whereas Questar’s system is the ‘hub of the Rockies’ and a principal source of gas supply to Western states.”
At the same time, Questar fits Dominion’s broad corporate strategy. “This addition is well-aligned with Dominion’s existing strategic focus on core regulated energy infrastructure operations,” said Thomas F. Farrell II. “Questar boasts best-in-sector customer growth in states with strong pro-business credentials and constructive regulatory environments. These high-performing regulated assets will improve Dominion’s balance between electric and gas operations.”
Market commentators had little light to shed upon the merger, noting mainly that stagnant demand for electric power due to energy efficiency has spurred a number of deals between utilities and natural gas distributors, which enjoy stable prices thanks to the supply glut from shale fields.
“Top-line growth in electricity is basically nil,” Kit Konolige, an analyst for Bloomberg Intelligence, said Monday. “They’re looking for a business on the gas side that’s similar to what they’re doing but, as they see it, would have better growth prospects.”