Dominion building its position on Southeast gas pipelines, analyst says

The Dec. 16 announcement that a Dominion (NYSE:D) business is buying Carolinas Gas Transmission (CGT) from SCANA (NYSE:SCG) has implications for Dominion strategy for the Environmental Protection Agency (EPA) Clean Power Plan, according to UBS Global Research.

As a growing holder of natural gas pipeline assets, Dominion will be poised to cash in on coal-to-gas switching under the EPA proposal, UBS said.

CGT is SCANA’s FERC-regulated open access, transportation-only interstate gas pipeline company whose system consists of approximately 1,500 miles of pipe measuring up to 24 inches in diameter operating in South Carolina and southeastern Georgia.

The two parent companies also announced that Dominion was purchasing SCANA’s telecommunications company, Spirit Communications. SCANA said it negotiated a three-year rate moratorium with Dominion so that that CGT’s transportation rates will not increase soon.

“With the Clean Power Plan poised to see substantial switching to gas from coal, we see the acquisition as part of D’s [Dominion’s] strategic expansion into owning the Southeast pipeline experience – and is likely linked towards a forthcoming expansion of its Atlantic Coast pipeline,” UBS said in a commentary by Analyst Julien Dumoulin-Smith.

The Atlantic Coast pipeline will be a 550-mile project that Dominion plans to develop with partners Duke Energy (NYSE:DUK), Piedmont Natural Gas (NYSE:PNY) and AGL Resources (NYSE:GAS).

“The existing network is ~40 miles away from the present end point of the Atlantic Pipeline (although this appears poised to further south from its currently contemplated footprint on further expansions),” UBS said.

UBS believes that Dominion is shaping its plans to be benefit from the carbon restrictions that would result from the EPA rule proposal.

Dominion will acquire CGT from SCANA for $429.9m. UBS expects Dominion will eventually place CGT into its master limited partnership, Dominion Midstream.

UBS also said in its analysis that any potential purchase of SCANA itself by Dominion “remains largely off the table pending meaningful ongoing nuclear construction risk.”

SCANA is, of course, developing the V.C. Summer 2 and 3 nuclear units in South Carolina. The nuclear units are being built with minority partner Santee Cooper.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.