NextEra-Dominion Merger a Test for Both Utilities

NextEra Energy is buying Dominion in an all-stock deal reportedly worth $66.8 billion. NextEra said in a press release on its website that this deal would create “the world’s largest regulated electric utility and North America’s premier energy infrastructure platform.”

The deal may end up benefitting ratepayers in some ways, although it remains yet to be seen how, said Vanessa Akhtar, a Managing Director and Head of Consulting at Kotter, a change management and strategy execution firm.

“Most, if not all, utilities are facing a brand challenge right now,” Akhtar said. “Customers want lower bills and they want to know they can reliably turn the lights on, heat their homes in the cold months, and run their air conditioning in the hot months. With more and more extreme weather events and growing inflation, maintaining reliability and affordability has been a real struggle.”

Furthermore, consumers are worried that the data center boom is going to exacerbate these issues.

“It’s critical for NextEra and Dominion to pay close attention to their customers as a critical stakeholder throughout this deal process – spending time in the communities they serve, hearing their concerns, and being transparent about what this merger will mean for them,” she said. “On the flip side of these challenges, there is real opportunity for NextEra and Dominion to leverage this integration to better serve customers. If done right, they can find significant O&M savings that can be passed on to customers.”

The emerging new utility will also be better equipped to manage and execute against large capital projects, ensuring those happen on time and on budget, growing the infrastructure to better serve their territories, she said.

For customers, the deal proposes $2.25 billion in bill credits spread over two years after closing for Dominion Energy's customers in Virginia, North Carolina and South Carolina, according to a release from NextEra. It is difficult to say at this point how this will pan out for customers, she said.

“There are still a lot of hurdles to get through to get all of the terms of the deal approved by regulators. The commitment to customer bill credits underscores the pressure on the industry to make energy more affordable. This has become more and more challenging with the fast pace of data center growth (and increased manufacturing), while also dealing with aging infrastructure, the push toward renewables, and ongoing supply chain challenges,” she said.

What effect this merger will have on existing plans for new projects for either utility also remains to be seen.

“But the combination of NextEra’s track record in meeting high generation thresholds and the anticipated massive data center growth in Dominion’s territory increases the ability for both companies to successfully execute projects that are currently planned. It will also be interesting to see if this gives them a leg up in negotiating and winning more contracts with hyperscalers who are looking for partners that can execute against anticipated growth at speed,” she said.

NextEra and Dominion would maintain their respective headquarters in Juno Beach, Florida and Richmond, Virginia with an operational headquarters located in Cayce, South Carolina.

John Ketchum will serve as chairman and chief executive officer (CEO) of the combined company, and Robert Blue will serve as president and CEO of regulated utilities and as a member of the board of directors. Edward Baine will be president and CEO of Dominion Energy Virginia, Keller Kissam will be president and CEO of Dominion Energy South Carolina and Scott Bores will be president and CEO of Florida Power & Light Company.

NextEra and Dominion executives should spend time now getting really clear on the current culture at both companies, what they want to ensure they preserve, and what they believe will need to change to make the integration successful, she said.

“Far too often, leaders ignore or under-emphasize the importance of readying the workforce and planning for cultural integration. When these are ignored, mergers struggle to realize the anticipated value articulated at the start of the deal,” she said.

As they look to get real value out of this transaction, the utility’s leadership will have an opportunity to really invest in preparing the workforce, she said.

“Not only do they need to help their employees understand what’s coming down the pike, including what will change in their day-to-day and what won’t, they should also invest in embedding a more adaptable culture,” she said. “They will also benefit from investing in building change capabilities broadly across the workforce. This will ready employees to navigate this current change and changes they can’t even predict yet that will emerge post-merger.”

Meeting the demand of new growth and increasing electricity demand is not a problem unique to Dominion or NextEra, but it will require a build-out of new infrastructure to increase both generation and transmission capabilities.

“NextEra brings deep experience to the table in terms of a diversified portfolio of generation capabilities, which has the potential to help meet the growth being driven by ‘data center alley’ in Virginia,” she said.

In addition, leaders at both companies should be thinking about how they can leverage this merger to look at streamlining and optimizing both supply chain (vendors, materials, etc.) and partnerships (e.g. construction contractors, etc.).

“If done well, they will be able to move much faster to address the disruptions facing the industry,” she said.