S&P Global Ratings on July 7 raised its outlook on Dominion Energy Inc. and its subsidiaries to positive from stable after the company announced a deal to sell its gas transmission and storage assets to Berkshire Hathaway Energy for $9.745 billion.
The sale will allow Dominion to reduce its debt by about $5.7 billion. The rating agency expects Dominion to use the remaining proceeds for share buybacks.
Dominion also announced plans to cancel its Atlantic Coast natural gas pipeline project, citing ongoing delays from legal and regulatory challenges and increasing cost uncertainty. In February, Dominion expected the project costs to go as high as $8 billion, from $5.1 billion in 2015. Duke Energy Corp., co-owner of the project, has determined an approximately $2 billion to $2.5 billion pretax hit to its 2020 earnings as a result of the cancellation of the project.
The rating agency also affirmed a BBB senior unsecured issue rating and BBB+ issuer credit rating for Dominion and its subsidiaries, including Virginia Electric and Power Co., Questar Gas Co., The East Ohio Gas Co., Dominion Energy South Carolina, Inc., SCANA Corp. and Public Service Co. of North Carolina Inc.
In a July 6 conference call with the investors, Dominion Chairman, President and CEO Thomas Farrell II said that the company will continue to "aggressively" pursue renewable energy, storage, nuclear license renewals, electric vehicle infrastructure and energy efficiency programs.
The shift to low-risk state-regulated businesses strengthens Dominion Energy's business risk profile by reducing risk and focusing the company's growth on its lower risk regulated utility strategy, according to S&P Global Ratings.
Under the transaction, Berkshire Hathaway Energy will acquire 100% of Dominion Energy Transmission Inc., Questar Pipeline Co. and Dominion Energy Carolina Gas Transmission LLC along with 50% of Iroquois Gas Transmission System LP.
The deal includes a 25% ownership of Cove Point LNG, an export, import and storage facility in Maryland. Dominion will own 50% of the facility, while Brookfield Asset Management Inc. will own the remaining 25%. Berkshire Hathaway Energy will operate the facility once the transaction closes.
Moody's also released an issuer comment on July 6 describing the sale of the natural gas assets to focus on low-risk businesses as credit positive.
In a separate research update, S&P affirmed Berkshire Hathaway Energy's issuer credit ratings at A with a stable outlook, following the deal announcement. The rating agency said it expects Berkshire Hathaway Energy's business risk profile to remain excellent and core financial ratios to continue to be toward the lower end of the range for its significant financial risk profile.