The NextEra Energy (NEE) and Dominion Energy (D) merger likely faces a lengthy regulatory review in Virginia, RBC Capital Markets said in a note emailed Tuesday.
The companies announced an all-stock deal on Monday that would create the largest regulated electric utility in the world. Dominion's shareholders will hold a 25.5% stake in the combined entity.
The expected statutory timeline in Virginia is up to six months, Dominion Chief Executive Robert Blue said during a conference call on Monday, according to a FactSet transcript. "If we expect to file in July, then you're looking at a decision from the Virginia (State Corporation) Commission in January," he said.
RBC expects the Virginia commission to take the full time before deciding on the application, in line with how it has handled past deals, analyst Stephen D'Ambrisi said in the note. Dominion unit Virginia Electric and Power Co.'s size relative to companies involved in prior mergers is another reason this regulatory process may take time.
The companies said they plan to offer $2.25 billion in bill credits for Dominion customers in Virginia, North Carolina and South Carolina over a two-year period after the deal completes.
That move is aimed at trying to get ahead of "potential regulatory pushback," D'Ambrisi said.
Regulators are also expected to scrutinize the combined company's New England Power Pool position for potential divestiture requirements, RBC said.
NextEra's Seabrook facility in New Hampshire and Dominion's Millstone facility in Connecticut control more than 10% of the New England Power Pool's generating capacity, according to the RBC note.
RBC reiterated its sector perform rating on Dominion's stock and raised the price target to $72 from $66 to reflect the implied deal consideration.
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