NextEra takes $1.2bn charge as pipeline project comes under pressure


NextEra Energy has written down the value of a natural gas pipeline project in which it owns a stake, as costs spiral and the Democratic takeover in Washington muddies the future of new fossil fuel infrastructure.

On Tuesday NextEra reported a quarterly loss after it took a $1.2bn after-tax impairment charge against the Mountain Valley pipeline, which would deliver shale gas 300 miles from West Virginia to neighbouring Virginia, citing legal and regulatory challenges.

“Obviously, the project has taken longer and cost more than what we anticipated,” Rebecca Kujawa, chief financial officer, told analysts. 

The outlook for any new pipelines has grown cloudier, with President Joe Biden taking office with a pledge to drive down carbon emissions. Last week he scrapped the controversial Keystone XL oil pipeline from Canada.

He has picked Richard Glick, a critic of Mountain Valley’s permitting process, to chair the Federal Energy Regulatory Commission, which oversees interstate gas pipeline construction. A Ferc vote last week to allow Mountain Valley’s developers to bore under streams for a segment of the project ended in deadlock. 

A US appeals court in November issued a stay on important water-quality permits for the Mountain Valley project in a case brought by environmental groups. Ms Kujawa blamed the writedown on the stay and “a backdrop of obvious changes, including the change in the administration, including the change in control of the Senate”, in which Democrats took control after winning two seats in Georgia. 

Mountain Valley is one of the last surviving pipeline projects in the gas-rich Appalachian region. Last year, sponsors abandoned the Atlantic Coast pipeline after years of legal battles. Ferc last week declined to take action on a request by builders of the PennEast pipeline to split the project in two, which would have enabled construction to proceed in Pennsylvania. 

Florida-based NextEra’s shares have soared as investors embrace its role as a premier developer of clean energy projects. Last autumn it briefly overtook ExxonMobil in market capitalisation. 

Line chart of Change in past year (%) showing NextEra soars as investors warm to clean energy message

NextEra also holds a 31 per cent stake in the Mountain Valley project, which would carry 2bn cubic feet of gas a day. NextEra reported a fourth-quarter net loss of $5m, dragged down by the pipeline charge, compared to net profit of $975m in the fourth quarter of 2019. The shares fell 2.5 per cent to $84.86 at midday in New York.

Ms Kujawa said the impairment charge “does not change our commitment with our partners to put this project into service”. 

NextEra’s main businesses are electric utilities in Florida and a group that generates solar and wind power for third-party customers. 

The wind and solar business was booming, NextEra said. The company forecast building an average of 4GW of new wind capacity and 5.2GW of solar capacity for third-party customers in 2021 and 2022. This would account for 15 per cent of the nation’s new utility-scale solar capacity and a third of new wind capacity as projected by the Energy Information Administration. 

James Robo, NextEra chief executive, said that the trends were driven by economics, but he added: “We believe it is possible that the Biden administration, supported by a significant shift in public support towards taking action to address climate change, may act to further accelerate these shifts.” 

The gas pipeline industry maintains that its systems will be needed to back up intermittent sources of renewable power. 

“Over the last few years it’s become more challenging to build pipelines, but we remain optimistic,” said Amy Andryszak, chief executive of the Interstate Natural Gas Association of America. “It’s important to remember that any new project that’s developed is in response to demand and our projects are market driven, and they’re validated by Ferc.”

Separately on Tuesday, a Federal appeals court raised doubts about a controversial oil pipeline, Dakota Access, and affirmed an earlier decision to scrap a key permit.

The Energy Transfer company’s Dakota Access opened in 2017 and carries 570,000 barrels of oil per day from the Bakken oilfield in North Dakota to Illinois. The court said the pipeline could remain in operation while an environmental review was carried out.

Additional reporting by Myles McCormick in New York

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