Florida-based NextEra Energy’s proposed $66.8 billion purchase of Dominion Energy is likely a portent of the future as power companies seek ways to increase electricity generation capacity and access to the nation’s power grid, according to two experts at the University of Virginia Darden School of Business.
But how the Dominion sale, if approved, and others that follow will affect residential and commercial customers’ bills is unknown, the experts say.
NextEra produces electricity from a combination of solar, wind, natural gas and nuclear power plants. By buying Dominion Energy, which operates in Virginia, North Carolina and South Carolina, NextEra gains access to more generating capacity, an expanding data center customer base and access to a 13-state regional power grid.
“This will be the second utility that they’ve acquired, as they also own Florida Power and Light – that’s the Dominion equivalent for the state of Florida,” said Mike Lenox, interim dean of the Darden School of Business, University Professor and the Tayloe Murphy Professor of Business Administration.
“My bet is that they want to acquire the generation assets that Dominion already has and then be positioned to build out the generation necessary for the data centers we have located here,” he said. “It’s a market opportunity with the acquisition of large generation capacity in a region with growing demand.”
NextEra has more than 12 million customers across Florida, while Dominion has about 3.6 million customers across three states. The rising demand from Virginia’s existing and planned data centers could be a key factor driving interest in the deal.
NextEra has signed agreements with Alphabet, owner of Google, to reopen a nuclear power plant in Iowa. Dominion has Alphabet, Amazon and Microsoft among its data center customers.
Ramona Dagostino, left, is an assistant professor at UVA’s Darden School of Business. Mike Lenox, right, is the interim dean of the Darden School, University Professor and Tayloe Murphy Professor of Business Administration. (Contributed photos)
“We are having a once-in-a-generation increase in demand for electricity, being driven by data center growth,” Lenox said. “Electricity output in the United States was relatively flat for the last 15 years, and then in the last few years it’s spiked with all these data centers coming onto the grid. If we don’t build out sufficient supply, that could lead to price spikes.”
According to Ramona Dagostino, an assistant professor at the Darden School, exactly how the acquisition will impact Dominion’s current residential customers is unknown.
“The NextEra-Dominion merger will still need to be reviewed by state and federal authorities, which means regulators may require divestitures to maintain competition,” Dagostino said. “NextEra has already planned bill credits for consumers, which shows that affordability cannot be ignored even as the industry focuses more urgently on meeting demand. Virginia itself has already put some guardrails up for data centers, so that the costs don’t spill over to retail to you and me, essentially.”
Dagostino said there is a “trilemma” in producing and distributing power, between electricity that’s available, affordable and produced in an acceptable manner. Data centers have moved the points away from acceptable to available and affordable.
She said there will likely be heated debates over the merger, but believes NextEra is not creating the problem. The problem with data center energy use, the need to expand generative ability and push more power down the grid to where it’s needed, already exists in Virginia.
“We are the data center alley. We are already seeing the pressure on customer bills. We already have huge demand needs. We are in the middle of the energy trilemma already,” she said. “The merger is shining a light on something that is already going on in Virginia.”
