Dominion Continues Coal-to-Gas Switch with $4.4 Billion Deal

February 2016, Vol. 243, No. 2

Dominion Resources Inc., the power utility based in Richmond, VA, is the latest U.S. utility to expand its operations, reaching out west by offering to buy the gas company Questar Corp. of Salt Lake City, for about $4.4 billion in cash.

Dominion announced the offer on Monday, the same day it reported a 15% decline in operating profit during the fourth quarter of 2015, due primarily to weaker demand for gas because of a mild autumn in its current operating locale on the U.S. East Coast.

Eventually, though, Dominion says it believes the value of its acquisition of Questar will grow as the Western states it serves seek to reduce expenses and begin to comply with various new regulations, including several imposed by the federal government, to reduce their use of coal to generate power and switch to cleaner-burning gas.

The sale will add nearly 31,000 miles of gas distribution and gas transmission pipelines to Dominion’s existing infrastructure, as well as 56 Bcf of gas storage facilities. Dominion’s electric power generation also would total about 24,300 megawatts.

Questar now has nearly 1 million customers, virtually all of them in Utah, with some also in Wyoming and Idaho. It also has 1,700 employees. Dominion now operates in 14 eastern states.

“Dominion’s reputation among its peers and analysts is unmatched,” Questar CEO Ron Jibson said in a statement. “We’re proud to become part of America’s most-admired gas and electric utility.”

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Dominion said it expects the sale to close by the end of the year, pending the approval from Questar shareholders and clearance from the Federal Trade Commission. If necessary, both companies said they also will seek approval from the Utah Public Service Commission, the Wyoming Public Service Commission and the Idaho Public Utilities Commission.

Thomas Farrell, Dominion’s CEO, said that acquiring Questar’s gas assets will generate about $425 million a year to his company’s bottom line before interest, taxes, depreciation and amortization. He said they’ll “improve Dominion’s balance between electric and gas operations and provide enhanced scale and diversification into Questar’s regulatory jurisdictions.”

The Dominion-Questar merger, if approved, would be the latest in a spate of recent expansions by utilities seeking to maintain profits in an era of plunging energy prices and a lowering reliance on coal to generate power.

In October, for example, Duke Energy offered $4.9 billion in cash to buy Piedmont Natural Gas. Both companies are based in Charlotte, NC. And in August, Southern Co. announced it will merge with AGL Resources to create a utility that will have the second-largest number of customers in the U.S. market. Both Southern and AGL are based in Atlanta.

By Andy Tully, Oilprice.com

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