Dive Brief:

• Dominion Energy announced the sale of its Questar Pipeline will close in the fourth quarter, advancing the company's shift away from non-regulated assets, executives said in the third quarter earnings call on Friday.
• According to estimates from financial services firm Edward Jones, over 85% of Dominion's earnings will be derived from regulated utility assets with the $1.98 billion sale of Questar to Southwest Gas. The company has already sold a significant portion of its gas assets along with canceling the Atlantic Coast Pipeline project last year.
• In addition, Dominion increased its cost estimate for its offshore wind plant by 25% to $10 billion.

Dive Insight:

More utilities are selling and spinning off non-regulated assets. Exelon Energy announced earlier this year it will spin off its nuclear operations and power generation from its six utilities. In 2020, DTE Energy announced plans to spin-off its non-utility gas storage and pipelines segment.

"I feel like the real market starts to reward you when you get north of 90% [of the earnings from regulated assets]... we do have companies that are fully regulated.. those companies certainly tend to get rewarded," Mike Doyle, senior equity analyst at Edward Jones, told Utility Dive.

Dominion has also sold off a significant portion of its non-regulated assets. Dominion expects its latest deal, for nearly $2 billion, including the assumption of about $430 million of debt, to close in the fourth quarter. 

The Questar sale is "a meaningful acquisition for Southwest Gas, but it's a smaller piece" for Dominion, Doyle said. However, "it kind of pushes them along that course towards ... a larger percentage of their earnings coming from regulated utility operations."

"Over the past few years, we've taken intentional and significant steps to effectuate fundamental change to lower our business risks, to maximize the recycling of capital into our attractive regulated utility businesses," Jim Chapman, executive vice president and chief financial officer, said during the earnings call.

Last quarter, Dominion CEO Bob Blue commented on the utility's decision to terminate its sale of Questar Pipeline to Berkshire Hathaway Energy, as a "logical outcome" due to uncertainty about approval from the Federal Trade Commission. Dominion had sold other gas transmission and storage assets to Berkshire's energy segment.

Dominion posted adjusted quarterly operating earnings per share of $1.11, compared to $1.08 per share from the same quarter in 2020. The company narrowed its 2021 operating EPS guidance range to $3.80-$3.90.

Dominion continues to progress on the nation's first, and currently only, offshore wind farm under development by a regulated utility, meaning cost overruns would be recovered from Virginia ratepayers.

The investor-owned utility is developing the 2.64 GW offshore wind project off the coast of Virginia, part of the utility's efforts to meet Virginia's Clean Economy Act, which passed last year and sets decarbonization standards for the utility sector.

The Clean Economy Act of 2020 sets a levelized cost of energy cap for offshore wind of $125/MWh over a project's lifetime, according to Dominion's Blue. Dominion's project will be $87/MWh with the projected increase in the wind farm's cost, and potentially lower if federal tax credits are extended — the offshore wind project plan and its commensurate cost projections are pending approval from state regulators.

"It's still early, but we estimate that further expansion to tax credits benefiting offshore wind would reduce the cost of our customers to $80 per megawatt hour," Blue said during Friday's call.

The "cost increase can be attributed to, among other things, commodity and general cost pressures, which seems to be the case across a number of industries right now; and the completion of the conceptual design phase for the onshore transmission route," according to Blue.