What a difference a year makes.
On Sept. 12, 2022, Dominion Energy’s stock price stood at $82.12 per share. On Oct. 30, 2023, just over a year later, Dominion’s stock price had fallen to $40.23 per share, a decline of over 50% and a loss of over $30 billion in market value.
In most private companies, results like this would cause management heads to roll.
But not at Dominion Energy. Management has remained the same. Most importantly, the official word from the company is that the largest gamble the company has ever taken — the $10 billion Commercial Virginia Offshore Wind Project (CVOW) — is “on time and on budget”.
Really?
What do investors know about Dominion that the public does not?
Let’s first take a look at what has happened to the other offshore wind projects that the Biden Administration has green-lighted for the East Coast.
In New York, the developer of three of the primary offshore wind projects has demanded a 40% rate increase to its Power Purchase Agreement before it will proceed any further. The New York authorities at first flatly rejected the request, then weeks later, offered the developer “conditional” contracts at a higher price. The “conditions” have not been publicly disclosed.
In Rhode Island and Connecticut, all wind developers joined in a letter to the Biden Administration demanding further subsidy increases in the (preposterously named) Inflation Reduction Act before they would continue, and bluntly stated that unless their demands were met, “walking away is a real option.”
In Massachusetts, the Spanish developer Iberdrola did walk away from its development contract and paid a fine of $48 million. Management declared the project to be “unfinanceable”.
In New Jersey, the largest wind developer in the world, Orsted, declared it was abandoning its two major projects, citing inflation, interest rate increases, and supply change “challenges”. Orsted is taking a write-down of over $5 billion for the year.
What about Dominion’s turbine supplier, Siemens Gamesa? Turbines are the lynchpin of the whole offshore wind experiment. They are very complex machines, requiring giant magnets, rare earth minerals, and pinpoint engineering. Dominion’s construction and operations plan calls for the installation of 174 of Gamesa’s new, untested, giant 14 MW turbines.
Siemens Gamesa turns out to be in dire financial straits, primarily caused by warranty claims from existing customers based on faulty turbine components. Siemens stock has nosedived by 40%. It also sought and was granted a bailout from the German government to the tune of €16.5 Billion. The company has said the turbine problems “will take years to fix.” (Gamesa also announced, last week, the abandonment of its $200 million wind blade manufacturing facility planned for Hampton Roads.)
No wonder Dominion’s stock price has imploded. Erecting a 10 billion dollar wind project with non-performing turbines would be a disaster.
Investors know what Dominion has refused to admit. The CVOW is a risky gamble — financially, operationally, and increasingly, politically.
How did Dominion get into this mess?
It started in late 2020 when Dominion lost to cancer its longtime, revered, and respected Chairman and CEO, Tom Farrell, who died at the young age of 66.
New management took over — not experienced utility veterans, but rather a new group with expertise in ……. politics — and specifically Democratic Party politics.
Dominion quickly pivoted from opposing the Democratic Party-sponsored Virginia Clean Economy Act (VCEA), which contained strict solar and wind mandates, to aggressive support. This was seen by new management as a clever maneuver that earned them praise from environmental groups and the Democratic Party, plus assuring them billions of extra revenue over and above its legally guaranteed rate of return on expenditures.
The success of this cynical ploy also depended on continuous Democratic Party control of the Governor’s office, which at that time seemed certain since Democrats had occupied the office for the previous twelve years.
But then “oopsie moment” No. 1 occurred. Republican gubernatorial candidate Glenn Youngkin upset Democrat Governor Terry McAuliffe.
Damage control was needed. The problem was quickly solved by lacing the Youngkin Administration with Dominion supporters. Problem solved.
But then “oopsie moment” No. 2 arrived. The offshore wind program — the centerpiece of the VCEA — needed approval by the State Corporation Commission (SCC). The SCC, in a completely unexpected and noble act of consumer protection, ruled that Dominion must provide a “performance guaranty” for the project. In order to protect consumers against an energy shortfall, the Commission imposed a penalty on Dominion if its wind turbines failed to produce electricity at least 42% of the time — an amount that Dominion claimed it could easily achieve.
Dominion then threw a temper tantrum. President Robert Blue declared that Dominion would scuttle the project if such a penalty were imposed. The hissy fit worked. The SCC backed off, declaring that because the VCEA tied its hands, there would be no performance guaranty after all.
But then “oopsie moment” No. 3 arrived, and it was a big one. Interest rates on debt soared, supply chain problems multiplied, and banks became leery of lending. Political opposition also became a factor. Lead by citizen groups like “Save LBI” in New Jersey and by political leaders like Congressmen Mike Smith and Jeff Van Drew, as well as non-profits such as CFACT, the Heartland Institute, and the American Committee for Ocean Protection, the tide of public opinion regarding offshore wind began to shift against it.
This left Dominion all alone as the only significant East Coast wind developer still willing to move forward. And Dominion still insisted the project was “on budget and on time.”
To which investors in Dominion stock replied, “We’re not buying it”. Dominion’s stock price tumbled.
Dominion is in trouble. The market can’t be fooled easily. The 50% drop in its stock price tells the story. When management decisions are made through the prism of short-term political opportunity rather than sound, long-term utility fundamentals, the result is the VCOW.
But in this whole sorry story, one fact is undeniably true: the Commonwealth of Virginia desperately needs a healthy, confident, successful Dominion Energy. The citizens of Virginia deserve as much. The price and reliability of electricity affect everything. Without affordable and reliable electricity, the possibility of Virginia becoming, in Gov.Youngkin’s words, “the best place to live, work, and raise a family”, is doubtful.
If Dominion abandoned the CVOW, not only would its stock price improve dramatically, but Instead of being tethered to a sickly, failing, subsidy-dependent energy future, Dominion would be free to move forward as a reliable, healthy, cost-effective supplier of electricity powered by nuclear and natural gas – indeed the very company that it once was.
As long as Dominion management is tied to Democratic Party ideology, this outcome is, admittedly, aspirational. And as the law now stands, ratepayers are responsible for every dollar spent by Dominion on this boondoggle. So Dominion plows on despite danger signs everywhere.
The current energy situation in Virginia is sad to see. On a personal note, I want Virginia and Dominion Energy to succeed. As Chairman of the Virginia Port Authority in the 1980s, I helped create the current VPA, which has been an enormously successful economic development engine for the Commonwealth. With an affordable and reliable energy policy, Virginia could become a regional economic powerhouse, profitably selling electricity to those States in the North East which still cling to the fantasy of “net zero” economies.
The CVOW is Virginia’s worst policy mistake since “massive resistance” in the 1940s and ’50s. Those of us who believe in reliable and affordable energy will continue to fight for the change of direction that Dominion so clearly needs.