Consumer advocate Tyson Slocum is far from alone in urging Virginia utility regulators to deny Florida-based NextEra Energy’s proposed $67 billion acquisition of Dominion Energy.
But he is the one energy expert whose public testimony points out that NextEra could be obligated to pay Richmond-based Dominion a $4.83 billion regulatory termination fee if the merger fails to secure necessary approvals.
“This termination fee (is) an additional reason for Virginia regulators to reject the acquisition,” Slocum wrote in his succinct 26-page filing with the State Corporation Commission. “The nearly $5 billion can be used in a variety of ways to provide direct benefits to (Dominion’s Virginia) captive ratepayers with zero risk.”
Slocum, energy program director at the watchdog nonprofit Public Citizen, said in an interview that 26 years of experience have taught him to dig into utility merger agreements “to find the thing everyone else skips over.
“This is free money. If I’m a Virginia regulator, it’s in the public interest to get a $5 billion windfall.”
In May, the two companies announced a proposal to spawn what would become the nation’s biggest regulated power company. Combined, it would serve about 10 million customer accounts in Virginia, North Carolina, South Carolina and Florida.
The proposal requires several layers of approvals from states and federal regulators.
It’s difficult to predict if the termination fee segment of Slocum’s testimony will gain traction when oral arguments on the merger case begin at SCC headquarters in Richmond on Nov. 17.
Already, at least 9,000 pages of testimony from Slocum and 38 other stakeholders have been submitted to commissioners for review, according to a rebuttal statement by Dominion CEO Bob Blue.
SCC spokesman Greg Weatherford said that although the commission doesn’t calculate pages of testimony, he wouldn’t dispute Blue’s estimate because “it seems realistic based on my review of the filings. If that isn’t a record, it has to be close to one.”
Virginia regulators face a Jan. 11 deadline to act on the application under the state’s six-month review period.
The acquisition requires approval from Virginia’s three-member SCC, as well as utility regulatory commissions in North and South Carolina. The Federal Energy Regulatory Commission and the Nuclear Regulatory Commission will review the proposal at the national level.
Slocum noted that the companies included the clause in the contract.
“I think Virginia is the linchpin here,” said Slocum, who testified on behalf of the Virginia Poverty Law Center, New Virginia Majority and the NAACP Virginia State Conference. “Maybe (regulators) tell NextEra to take a hike and Virginia lawmakers can figure out a suitable way to use that $5 billion in cash” to help ratepayers.
Termination fees now common
Regulatory termination fees are commonly included in merger deals to signal that the companies and shareholders are committed to completing a transaction.
Ramona Dagostino, an assistant professor at the University of Virginia’s Darden School of Business, compared the concept of such fees—at the simplest level—to the deposit a prospective renter would make to a landlord.
“If you walk away, you are the one who loses the deposit,” she said. “It essentially protects the other party.”
The fees are now “as common as bread and butter” across the board in all industries, she said, adding they have grown in popularity since the 2010s. And they can be layered and complicated because they are negotiated by lawyers “and they like to throw in all types of things,” she said.
Dagostino also emphasized that termination fees come in a wide range of dollar amounts.
“Its size can signal how parties feel (a deal) is going to go,” she said. “A large amount shows a commitment on your part and the other parties’ part that they’re doing everything possible so the regulator will approve the merger.”
Dagostino has written articles about the pending NextEra-Dominion transaction, but is not directly involved in the case. Nor has she studied the specific termination fee that Slocum referenced.
However, it’s certainly plausible that NextEra would have to pay Dominion if a regulatory body doesn’t approve the acquisition, she explained.
In this case, “if the seller is not able to secure regulatory approval by the deadline, the merger is over. NextEra would be paying the termination fee to Dominion.”
Utilities: Ratepayers won’t be shortchanged
In his Oct. 17 testimony, Slocum stated that Virginia ratepayers would lose out on at least two fronts if the transaction is greenlighted.
One, the deal will serve to boost profits for NextEra’s unregulated division—NextEra Energy Resources Division—as it builds a power supply to serve the record number of data centers in Dominion’s service territory. Relatedly, the merger wouldn’t benefit those ratepayers by capturing and sharing any of those profits.
The broad takeaway, he said, is that NextEra’s investors and shareholders benefit financially, while Dominion ratepayers are forced to bear all the risks.
Virginia law requires regulated utilities to serve the public interest, a mandate from the 1935 Federal Power Act, Slocum said.
“This merger does nothing to improve that guarantee to the public,” he said. “Shareholders are not part of that equation.”
Both Blue and NextEra CEO John Ketchum have repeatedly dismissed varied claims made by intervenors about the deal shortchanging Virginia ratepayers. They said they are confident the proposed transaction satisfies Virginia’s legal standard: that the combined company will provide adequate service to the public at just and reasonable rates.
“The Company has performed its public service obligations here in the Commonwealth responsibly and successfully for over a century now, throughout many periods of change,” Blue wrote in his Nov. 2 rebuttal testimony. “I do not believe the Commission should have any concern at all that this will not be the case going forward if the Merger is approved.”
In that same rebuttal testimony, both leaders touted how the pact aligned with joint recommendations proposed by SCC staffers and the Virginia Attorney General’s Division of Consumer Counsel to ensure financial safeguards and Dominion’s independence.
The utilities have accepted 101 of those 117 conditions as proposed by state regulators, and another 13 with modifications, according to testimony.
Both Blue and Ketchum have emphasized that a Virginia-wide listening tour prompted them to strengthen their original package of customer benefits over the summer.
The duo agreed to extend a shareholder-funded $10 monthly bill credit for Virginia households from two years to four years, essentially doubling the initial $1.78 billion deal sweetener.
Slocum dismissed the $3.56 billion in household credits as a short-term benefit to ratepayers that the larger termination fee would dwarf.
“There are literally suitcases of cash if (Virginia) denies this,” he said about the latter. “I say, let’s grab the suitcases of cash and get on with it.”
Reach Elizabeth McGowan at elizabeth.mcgowan@whro.org.