The acquisition of Dominion Energy by NextEra Energy would make it the largest utility and electric power company in the country, placing it at the center of the national debate over why electric bills are soaring and how the country should meet the seemingly insatiable energy demand of data centers.
The deal, announced Monday, would combine utility operations serving about 10 million customers in Florida, Virginia, and other southeastern states. NextEra will also own nuclear plants, renewable energy projects, transmission lines, and pipelines from Maine to Hawaii. The companies and some analysts argue that bringing all these operations under one corporate roof will lead to major benefits, including lower costs and faster integration of new power sources. But who will benefit from this deal, which values Dominion at over $120 billion including debt, is a big question. Even before the war in Iran sent fuel prices soaring, anger was growing over rising energy costs, especially electricity. Residential electricity rates have increased by about 34% since 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 do not expect electricity rates to fall, but say policymakers can do much to stop their rapid rise. An early sign of their willingness to do so will come when federal and state governments review NextEra’s acquisition of Dominion. Regulators might try to block the deal or impose conditions aimed at keeping electricity rates in check.
What impact will this deal have on electricity rates and bills?
It’s hard to say for sure. NextEra, based in Juno Beach, Florida, said Monday that if the deal is approved, it will offer about four million Dominion customers in Virginia, North Carolina, and South Carolina $2.25 billion in bill credits over two years. That amounts to about $550 per customer. Customers will also benefit from “the shared experience and best practices of leading regulated American utilities, focused on low bills, customer service, storm resilience, and reliability,” said John Ketchum, CEO of NextEra, in a statement.
NextEra declined to make Mr. Ketchum available for an interview.
Is it just about data centers?
NextEra, owner of Florida’s largest utility, has sought for years to acquire other utility companies. But the growing demand from data centers created an opportunity for it to execute one of its largest and most ambitious deals. Dominion, headquartered in Richmond, Virginia, is attractive because it serves the world’s largest data center hub, known as Data Center Alley, in northern Virginia. However, it has been slow to provide enough power to meet the needs of tech companies and other businesses wanting to relocate to Virginia, said Jigar Shah, a former Department of Energy official during the Biden administration and renewable energy entrepreneur.
[…]Other industry experts have noted that NextEra has moved relatively quickly to add new power sources, large battery plants, power lines, and other equipment needed to power data centers. This experience will be useful if it is allowed to acquire Dominion, said Jon Wellinghoff, former chairman of the Federal Energy Regulatory Commission.
“It’s largely about data centers,” said Wellinghoff, who now serves as regulatory head for Voltus, a company that supplies power to the grid via batteries and other equipment installed at businesses and homes.
Will this deal lead to further consolidation in the utility sector?
The utility and energy sector has been buzzing for months with announcements and rumors of mergers and acquisitions, but none as significant as the NextEra-Dominion deal. BlackRock, the world’s largest asset manager, acquired Minnesota Power last year. In March, it announced that a consortium led by one of its subsidiaries would buy AES, an energy company with utility operations in North and South America and power plants and other equipment worldwide.
The wave of acquisitions and bidding wars is largely driven by expectations of rapid energy demand growth, fueled by data centers and increased use of electric cars, heat pumps, and other equipment powered by electricity instead of fossil fuels.
NextEra’s acquisition of Dominion could also push other companies to pursue similar deals, fearing becoming too small to compete effectively. “I think this will also lead to more consolidation,” Wellinghoff said. But riding the AI boom wave carries a significant potential risk. If fewer data centers are built, or if they require less power than expected, utilities growing too fast could find themselves with heavy debts and insufficient revenues. This, in turn, could further increase electricity rates, as such costs would have to be spread over fewer customers.
Mr. Shah said this and other deals will face close scrutiny from regulators, especially at the state level. Virginia recently elected Abigail Spanberger, a Democrat, as governor partly because she promised to address rapidly rising energy costs. In the past, NextEra failed to gain approval for several major deals, including acquiring large utilities in Hawaii, North Carolina, and Texas, because regulators or the target company rejected its plans.
“There is a lack of ability to relate to patients there,” Mr. Shah said about NextEra’s failed attempts. NextEra did not respond to requests for comment on its previous proposals, and Ms. Spanberger’s office also did not respond to requests for comment on the deal.
