Dominion Energy, Inc. announced an agreement to sell a 50% noncontrolling interest in the Coastal Virginia Offshore Wind commercial project (CVOW) to Stonepeak through the formation of an offshore wind partnership. Under the terms of the agreement, Dominion Energy will retain full operational control of the construction and operations of CVOW.
Robert M. Blue, Dominion Energy chair, president and chief executive officer, said: "The Coastal Virginia Offshore Wind project continues to proceed on-time and on-budget and consistent with our previously communicated timing and cost expectations. A competitive partnership process attracted high-quality interest resulting in a compelling partner for CVOW. Stonepeak is one of the world's largest infrastructure investors with more than $61 billion in assets under management and an extensive track record of investment in large and complex energy infrastructure projects including offshore wind. Their significant financial participation will benefit both our project and our customers.
"This transaction achieves several key objectives including: (1) adding an attractive, well-capitalized, and high-quality partner; (2) establishing robust cost-sharing that provides meaningful protection from any unforeseen project cost increases; and (3) improving our quantitative and qualitative business risk profile through the creation of a highly credit-positive partnership. We have reviewed the transaction with our credit-rating agencies and expect the transaction to be viewed as a significant credit-positive, which will ultimately benefit our customers. A financially healthy Dominion Energy with a strong credit profile and balance sheet is optimally positioned to attract the capital we need to provide an exceptional customer experience and support the Commonwealth of Virginia's economic and environmental goals."
Transaction Structure
Stonepeak will invest in a newly formed subsidiary of Dominion Energy Virginia. Subject to State Corporation Commission of Virginia (SCC) approval, the subsidiary will be a public utility in Virginia entitled to recover its prudently incurred costs of constructing and operating the project under the existing Virginia offshore wind rider program. Cost-recovery will utilize the capital structure of and cost of capital at Dominion Energy Virginia.
Dominion Energy will retain full operational control of the construction and operations of CVOW. Dominion Energy expects to consolidate the partnership for accounting purposes. Stonepeak will own a 50% noncontrolling equity interest and will have customary minority interest rights.
The transaction requires approvals from the SCC and the North Carolina Utilities Commission, as well as certain consents from the Bureau of Ocean Energy Management and other regulatory agencies regarding the assignment of certain contracts and permits needed for the partnership post-closing. The transaction is expected to close by the end of 2024 after all required approvals and consents have been received.
Under the terms of the agreement, at closing Dominion Energy expects to receive proceeds of approximately $3 billion, representing 50% of the CVOW construction costs incurred through closing less $145 million (the initial withholding). If the final construction costs of CVOW are $9.8 billion or less, excluding financing costs, Dominion Energy will receive $100 million of the initial withholding. Such amount is subject to downward adjustment with Dominion Energy receiving no withheld amounts if the total costs, excluding financing costs, of CVOW exceed $11.3 billion. The transaction is expected to improve the company's estimated 2024 consolidated FFO-to-debt by approximately 1.0% and reduce the company's overall financing needs during construction.
Following closing, Dominion Energy and Stonepeak will each contribute 50% of the remaining capital necessary to fund construction of CVOW, provided the total project cost, excluding financing costs, is less than $11.3 billion (mandatory capital contributions). This represents 50/50 cost-sharing up to 15%, or nearly $1.5 billion, higher than the project's current project budget ($9.8 billion) and up to 20%, or nearly $2.0 billion, higher than the project's current pre-contingency budget ($9.45 billion).
For project costs, excluding financing costs, between $11.3 billion through $13.7 billion, if any, Stonepeak will have the option to make additional capital contributions. If Stonepeak elects to make additional capital contributions for project costs, excluding financing costs, in excess of $11.3 billion, if any, Dominion Energy will contribute between 67% and 83% of such capital with Stonepeak contributing the remainder. To the extent that Stonepeak elects not to make such contributions, Dominion Energy will receive an increase in its ownership percentage of the partnership for any contributed capital based on a tiered unit price for membership interests in the partnership as set forth in the agreement.
The 2.6-gigawatt CVOW, the largest offshore wind farm in the US, is on schedule to generate enough clean, renewable energy to power up to 660,000 homes once fully constructed in late 2026. CVOW will consist of 176 turbines and three offshore substations in a nearly 113,000-acre lease area off the coast of Virginia Beach.
McGuireWoods LLP and Morgan Lewis served as legal advisors. Citi and Goldman Sachs & Co. LLC acted as co-financial advisors for the transaction.
Additional information related to the transaction can be found in materials included on the Investor Relations website at investors.dominionenergy.com.
