Dominion Offers New Investment Option

Dominion Energy has launched a new financing program, Dominion Energy Reliability Investment, that will allow investors to purchase debt issued directly by the company.

The offering bears similarities to money market funds in that investors can put in and withdraw money freely. The big advantage is that they earn significantly higher interest rates — 1.75% for accounts with balances less than $10,000, $2.0% for balances over $50,000, and $1.8% for balances in between. But in contrast to money market funds, which invest in a diversified portfolio of notes, investors enjoy no diversification and do not benefit from federal regulations protecting money market funds, so they do take on a modicum of additional risk.

The program is administered by the Northern Trust Company, so Dominion presumably does pay an administrative fee. Otherwise, middleman are cut out of the transactions to the benefit of both Dominion and its investors.

The idea is not unique to Dominion. Duke Energy, and the financial arms of Ford, GM, Caterpillar and others all have comparable programs, says Dominion spokesman C. Ryan Frazier. The initiative provides “diversified and cost-competitive funding for capital investment programs,” he says.

The company prospectus states that the company can float up to $1 billion in notes outstanding.

Bacon’s bottom line: There is a fringe benefit to this initiative that may or may not have factored into Dominion’s thinking: Expanding the number of investors in the company enlarges its political constituency. Virginians who own Dominion stock often attend public hearings and speak on the company’s behalf. This new program creates a new investment vehicle that should appeal to a new class of investor. If those investors believe they are getting a better deal from Dominion than they can from bank CDs or money market funds, it is not a stretch to think they might be more favorably inclined to Dominion’s public policy positions.

Some observers might find this insidious. I’m perfectly OK with it. I think large companies should do more to expand the investor class and build support for America’s market-based economic system, and if they cut out big bank/big finance intermediaries in the process, all the better. Anything that helps Main Street over Wall Street is a good thing.