Big energy getting bigger

Robert Armstrong (0:06)

Pushkin.

The AI boom runs on two things, money and electricity. And as it turns out, electricity runs on money too. Today on the show, the huge NextEra dominion deal, deal making and AI, electricity and money, and everything else. I'm Rob Armstrong, and this is Unhedged, the Markets and Finance podcast from the Financial Times and Pushkin. I am joined on the show today by two fan favorites and show regulars, James Fontanella-Khan and Oliver Badnews Barnes. Gentlemen, welcome back to the show. Now is the part of the show where I get your titles wrong.

James Fontanella-Khan (0:55)

Go for it.

Robert Armstrong (0:56)

So Oliver, you are the US deals impresario, I believe is our...

James Fontanella-Khan (1:02)

Correct.

Robert Armstrong (1:03)

Okay. And you are a grand high priest, JFK.

James Fontanella-Khan (1:07)

Of deals.

Robert Armstrong (1:08)

Of all finance. Is that right?

Actually, you should say your real titles.

James Fontanella-Khan (1:16)

US Finance.

Oliver Barnes (1:17)

Serious.

James Fontanella-Khan (1:19)

US Finance editor.

Oliver Barnes (1:21)

And I am the US deals correspondent. The atmosphere in here is electric.

James Fontanella-Khan (1:25)

Yeah.

Robert Armstrong (1:28)

Let's start by just, there's been a big deal in utilities. And it's always a bit of a big ask for a financial journalist to make the utility industry interesting.

Oliver Barnes (1:41)

How dare you say that?

Robert Armstrong (1:42)

Tell us about what this deal is and why it is interesting. I'll let you start, Oliver.

Oliver Barnes (1:47)

It's interesting first in its scale. It's the biggest deal of the year. It's an all stock acquisition. It's kind of framed as a combination or merger, but really it's an acquisition. It's NextEra, the world's largest listed utility group by MarketCap, buying Dominion.

The deal is, it values Dominion about $67 billion equity value, around $120 billion enterprise value.

Robert Armstrong (2:16)

Okay, place these for me geographically. Where are these monsters located?

Oliver Barnes (2:20)

Sure, so NextEra, their kind of home base is in Florida. They own a subsidiary called Florida Power and Light, and that serves around 10 million customers in Florida.

Robert Armstrong (2:32)

This is the grid, the power generation or both?

Oliver Barnes (2:36)

Both. Their home turf is Florida and Florida Power and Light, and then Dominion basically has a real foothold in Virginia and the Carolinas.

Robert Armstrong (2:47)

But they don't touch.

In other words, the footprints, the geographic footprints, don't touch. But they're nearby, but not overlapping.

Oliver Barnes (2:55)

But now, they don't overlap, but they will now be contiguous.

So like now, if this deal closes, you know, NextEra will control half of the eastern seaboard of the US.

If to frame it in a proper empire building way. But in essence, right, like, there are two elements to these businesses, right? In their core, they're regulated utilities, providing power to, you know, everyday Americans, businesses, up and down Florida, up and down the Carolinas in Virginia. But then there's another part to the business, which is the power generation element of it. So if you look what's grown NextEra so much, it's not just this core regulated utility part, it's the fact that they operate in almost every US state as a power generator. And they're a huge renewable energy generator. They benefited a lot from Biden's Inflation Reduction Act agenda and Green Push. And now obviously that's fallen by the wayside somewhat. They have to pivot towards this other huge opportunity outside regulated utilities, which is data centers.

Robert Armstrong (3:59)

Of course, we're going to focus a lot on the data centers here. I want to just make sure I have the kind of regulated, unregulated distinction correct. My understanding is the government allows you to have a monopoly supplying power in a certain area.

And in return, your profits are limited to a certain amount.

Oliver Barnes (4:19)

Correct.

Robert Armstrong (4:20)

Right, broadly speaking. Whereas unregulated, you're just a company that makes energy and selling it to whoever's out there buying it.

Oliver Barnes (4:26)

And there's also rules, and don't get me too into specifics here, but there's also rules about how much of a company's revenue streams can come from regulated versus unregulated. So in a way, it can't get too lopsided. So part of actually the logic of this deal for NextEra is also they kind of rewrite that maths of like the balance of regulated versus unregulated.

Robert Armstrong (4:49)

James, we have to do something now to make Oliver stop talking, so let me ask you a question.

James Fontanella-Khan (4:54)

I love hearing Oliver's voice.

Oliver Barnes (4:56)

It's like every day for him, every hour.

Robert Armstrong (4:59)