Rising energy costs and data centers at the heart of NextEra’s Dominion offering

ByTech Word News

NextEra Energy’s proposed acquisition of Dominion Energy would make it the nation’s largest power and utility company and put it at the center of national debates about why electricity bills are rising and how the country should meet the seemingly insatiable energy demands of data centers.

The deal, announced Monday, would bring together energy operations serving about 10 million customers in Florida, Virginia and other Southeast states. NextEra will also own nuclear power plants, renewable energy projects, transmission lines and pipelines from Maine to Hawaii.

Companies and some analysts say bringing all these operations under one corporate roof will bring big benefits, including lower costs and faster additions of new electricity sources.

But who will reap those rewards from this deal, which values ​​Dominion at more than $120 billion including debt, is the big question. Even before the war, fuel prices had soared in Iran, as anger grew over rising energy prices, especially electricity. Household electricity prices are rising approximately 34 percent as of 2020. At least part of this increase can be attributed to the rapid growth of data centers used to develop artificial intelligence.

Most energy industry experts don’t expect electricity rates to drop, but say policymakers can do a lot to stop their rapid rise. The first sign of their willingness to do so will come when the federal and state governments consider NextEra’s purchase of Dominion. Regulators could try to block the deal or impose conditions aimed at keeping electricity rates under control.

Hard to say for sure.

NextEra, based in Juno Beach, Fla., said Monday that if its deal is approved, it will offer Dominion’s roughly four million customers in Virginia, North Carolina and South Carolina $2.25 billion in credits over two years. That works out to about $550 per customer.

Customers would also “benefit from the shared expertise and best practices of America’s leading regulated utilities, laser-focused on low customer bills, customer service, storm resiliency and reliability,” NextEra CEO John Ketchum said in a statement.

NextEra declined to make Mr. Ketchum available for an interview.

But some analysts and consumer groups have said the promissory notes are a temporary package for a deal that could leave the larger NextEra with excessive market and political power. In states where it has significant operations, the company could eventually ask regulators to allow it to raise electricity rates, said Marissa Gillett, a senior fellow at the American Economic Liberties Project, a nonprofit group that works on the concentration of corporate power.

“Anticipating anger and fear from customers, the companies are pledging $2.25 billion in temporary loans,” Ms. Gillett, who previously chaired the Connecticut Public Utilities Regulatory Authority, said in a statement. “They think that a large number of people will make people happy.

Another analyst, Jonathan Lesser, president of consultancy Continental Economics, said the savings from mergers and acquisitions are often overstated or primarily benefit investors of the companies involved.

“A lot of times you’ll see utility mergers promise rate cuts as an incentive to get the merger through,” said Mr. Lesser, who is also a senior fellow at the National Center for Energy Analysis’ research group. He added: “Do I think there are any savings from the merger in the long run? No, not at all.”

NextEra, which owns Florida’s largest utility, has sought to buy other utilities for years. But increasing demand from data centers created an opportunity for it to make one of its biggest and most ambitious plays.

Based in Richmond, Virginia, Dominion is attractive because it serves the world’s largest cluster of data centers, known as Data Center Alley, in Northern Virginia. But it has been slow to provide enough power to meet the demands of tech companies and other businesses looking to relocate to Virginia, said Jigar Shah, a former Energy Department official in the Biden administration and a clean energy entrepreneur.

“If you’re a governor, you really want a partner to help you win business on the economic development front,” Mr. Shah said in an interview with The New York Times. In a LinkedIn post, he described Dominion as “like a fixer upper”.

Dominion declined to comment on Mr. Shah’s statement.

Other industry experts noted that NextEra has moved relatively quickly to add new power sources, large battery installations, power lines and other equipment needed to service data centers. That experience will help it if it is allowed to buy Dominion, said Jon Wellinghoff, former chairman of the Federal Energy Regulatory Commission.

“It’s a lot about data centers,” said Mr Wellinghoff, who is now chief regulatory officer at Voltus, which supplies power to the electricity grid from batteries and other equipment installed in businesses and homes.

The energy and energy services business has been full of M&A announcements and rumors for months, though none as big as the NextEra-Dominion deal.

BlackRock, the world’s largest asset manager, bought Minnesota Power last year. In March, it announced that a consortium led by one of its subsidiaries would buy AES, an energy company with power companies in the Americas and power plants and other equipment around the world.

The deal fever is largely due to expectations that demand for energy will grow rapidly due to data centers and the rise in the use of electric cars, heat pumps and other devices that run on electricity rather than fossil fuels.

Dominion’s acquisition of NextEra may also prompt other companies to make deals because they fear they will be too small to compete effectively.

“I think it will also lead to more consolidation,” Mr. Wellinghoff said.

But trying to ride the AI ​​boom has a big potential downside. If fewer data centers are built, or if they require less energy than expected, energy companies that grow too fast can be left with significant debt and insufficient revenue. This, in turn, could raise electricity rates even more, as those costs would have to be spread over fewer customers.

Mr Shah said these and other deals would face close scrutiny from regulators, particularly in state governments. Virginia recently elected Democrat Abigail Spanberger as its governor, in part because she promised to address skyrocketing energy costs. NextEra previously failed to win approval for several large deals, including takeovers of major utilities in Hawaii, North Carolina and Texas, either because regulators or the target company rejected its plans.

“There’s not a lot of decency there,” Mr. Shah said of NextEra’s failed effort.

NextEra did not respond to requests for comment on its previous proposals. And Ms. Spanberger’s office did not respond to requests for comment on the deal.