Dominion Energy (D) and Duke Energy (DUK) on Sunday said they would scrap plans to build their $8 billion Atlantic coast pipeline (ACP) due to ongoing regulatory delays and rising cost uncertainty.
Despite last month’s favourable U.S. Supreme Court decision, recent litigation and execution risks together with increasing costs are threatening the economic viability of the project, the two companies said. Plans for the natural gas pipeline project running along the U.S. East Coast were initially announced in 2014 in response to a lack of energy supply across North Carolina and Virginia.
“We regret that we will be unable to complete the Atlantic coast pipeline. For almost six years we have worked diligently and invested billions of dollars to complete the project,” Dominion CEO Thomas F. Farrell and Duke Energy CEO Lynn J. Good said in a joint statement. “This announcement reflects the increasing legal uncertainty that overhangs large-scale energy and industrial infrastructure development in the U.S. Until these issues are resolved, the ability to satisfy the country’s energy needs will be significantly challenged.”
A series of legal challenges to the project’s federal and state permits has led to cost increases and timing delays. As a result, project cost guidance increased to $8 billion from the original estimate of $4.5 to $5 billion, the two companies said.
The decision comes as Dominion in a separate announcement said that Warren Buffett’s Berkshire Hathaway (BRK.A) will acquire its natural gas transmission and storage business assets for $4 billion and assume $5.7 billion in debt. The deal will not include the acquisition of the Atlantic coast pipeline.
Shares in Duke Energy have recovered some of this year’s losses but they are still trading down about 10% since the start of 2020. The stock was little changed closing at $81.84 on July 2.
Seaport Global analyst Angie Storozynski last month initiated coverage of the stock with a Hold rating, saying that in addition to operational issues, he sees Duke having below average earnings and distribution growth prospects, while exposed to “ongoing regulatory uncertainties”.
The rest of the Street is cautiously optimistic on the stock. The Moderate Buy consensus splits into 3 Buy ratings versus 5 Hold ratings. The $90.86 average analyst price target indicates shares are poised to appreciate 11% over the coming year. (See Duke stock analysis on TipRanks)
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