Atlantic Coast Pipeline cancellation hits Dominion Q2 financial results

Houston — Dominion Energy reported a substantial second-quarter loss as it accounted for the cancellation of plans to complete the 1.5 Bcf/d Atlantic Coast Pipeline that would have fed Appalachian Basin natural gas to markets in the US' mid-Atlantic region.

It also announced it will replace CEO Thomas Farrell on Oct .1, acknowledging the upcoming transition back to a regulated utility-focused business from the diversified energy infrastructure company that Farrell had heralded was the right time to implement previously designed succession plans.

Farrell will become executive chairman, although he said during an investor conference call that there was "no established time frame" for him remaining in that role. Robert Blue, executive vice president and co-chief operating officer, will become CEO.

The July 31 disclosures cement the ramifications of and plans to address the sweeping changes across the company, following the decision earlier in the month to offload substantially all of Dominion's gas pipeline and storage assets to Warren Buffett's Berkshire Hathaway and pull the plug on the $8 billion Atlantic Coast Pipeline that it was building with Duke Energy.

"We did get quite a bit of feedback from across the spectrum," CFO James Chapman said of the strategy shift. "That feedback has been pretty good. But, it is a change — a material change —for Dominion."

Company officials will be engaging with the market in the coming months to better explain the moves, he said.

"Everyone really wants to spend more time and make sure they get it and understand the dynamics," Chapman said.

Due largely to an accounting charge to reflect the cancellation of the pipeline and the impact on the affiliated Supply Header project, which is in limbo but may still go forward, Dominion reported a net loss for the April-June quarter of $1.17 billion, or $1.41/share, flipped from a profit of $54 million, or 5 cents/share, in the same period a year ago.

ACP was designed to run 600 miles through West Virginia, Virginia, and North Carolina, delivering gas to end-users including utilities that serve individuals and businesses. It had been beset by numerous legal setbacks that had halted construction on key portions of the route and, while the developers recently won a significant Supreme Court ruling in one of the disputes, they determined it would be too costly to move forward on a project that had already ballooned from an initial estimate of $5.1 billion.

During the investor call, Farrell was asked whether the gas needs of customers in Dominion's utility service territory had changed since the decision to cancel ACP.

"The need has not changed at all," Farrell said. "That need will now go unmet."

Farrell was also asked if EQM Midstream Partners' Mountain Valley Pipeline, which has also faced legal challenges from landowners and environmental groups, could play a role in meeting some of those gas needs.

"Not that we can see," he said.