$D Dominion Energy is downgraded to Neutral from Buy with a $72 price target, cut from $79, at BofA Merrill Lynch following the Federal Energy Regulatory Commission's decision that MLPs no longer will be allowed to recover an income tax allowance in cost-of-service rates.
The firm says the FERC ruling casts doubts on Dominion's dropdown ambitions into Dominion Energy Midstream Partners (DM -3%), which could affect the valuation of midstream assets and make the accretion math on the acquisitions potentially more challenging.
The company's decision not to file for an involuntary rate reduction will prompt a Section 5 investigation at FERC, delaying any effect on rates, BAML believes; since a large portion of the MLP is owned by Dominion, the MLP assets can continue to collect taxes at a lower rate of 21%, impacting EPS by $0.10, the firm says.
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