Virginia’s high court passes on chance to stand up to Dominion for conflicts of interest on the Atlantic Coast Pipeline
The Virginia and North Carolina portions of the Atlantic Coast Pipeline route. Image via the Federal Energy Regulatory Commission.
Many Virginia leaders seem to have the notion that if our environment is being polluted and ordinary people are having their land destroyed, that must be good for business. And as a corollary, if a business wants to pollute the environment and destroy private land, that must be good for Virginia.
So maybe it shouldn’t surprise anyone that on Aug. 9, the Virginia Supreme Court joined the governor, the State Corporation Commission and most of the General Assembly in refusing to question the sweetheart deal under which Dominion Energy Virginia committed its captive ratepayers to purchasing billions of dollars of fracked gas shipping capacity on the Atlantic Coast Pipeline, of which Dominion itself is the largest partner.
The Supreme Court had the opportunity to hold Dominion accountable courtesy of Section 56-77(A) of the Virginia Code, known as the Affiliates Act.
The section requires public utilities to get prior approval from the SCC for any “contract or arrangement” with an affiliated company. The SCC had refused the Sierra Club’s petition to enforce the provision, saying it could review the deal when the pipeline is operational and Dominion tries to charge its customers for the gas, i.e., after the damage is done.
The Sierra Club took the SCC to court, arguing that the statute requires the SCC to examine whether the deal is in the public interest before the contract for pipeline capacity could be considered valid.
On its face, the Affiliates Act is clear. It requires public utilities to submit “contracts or arrangements” with affiliated companies to the SCC for approval before they take effect. You would think this would include any arrangement under which Dominion Energy Virginia buys capacity in its parent company’s pipeline. The Affiliates Act says the SCC should have held a hearing to examine whether the contract was in the public interest. Indeed, the SCC’s own staff of lawyers have taken this very position.
But the court allowed a dodge. You see, Dominion Energy Virginia didn’t contract directly with the ACP.
It has a very general ongoing contract with another Dominion affiliate called Virginia Power Services Energy Corporation that buys natural gas and pipeline capacity for the utility, acting as its purchasing agent. It was VPSE, not the utility itself, that signed the contract with the ACP.
The fact that a third affiliate acts as an intermediary shouldn’t matter, logically or legally — affiliated companies are members of one big happy family — but the court seized on this arrangement to create a clever loophole. It concluded that the SCC had approved the general inter-affiliate agreement between the utility and its sister company VPSE years ago, before the pipeline was proposed, before VPSE had signed purchasing contracts with the ACP, and before the Sierra Club or any other members of the public would have had a reason to object.
No matter, said the court, having approved the contract between the utility and its purchasing agent years ago, the SCC retained continuing oversight authority over any and all deals the purchasing agent might make on behalf of the utility in the future.
Let that sink in for a minute. According to the court, the SCC effectively approved the contract with ACP before it even existed. What that means is, the public, including all of us who buy electricity from Dominion and will be handed the bill for the pipeline capacity, have no ability to challenge the deal before the pipeline is up and running.
Recall that the only reason Dominion Energy and its partners got permission from the Federal Energy Regulatory Commission to build the pipeline was the fact that the companies showed they had contracts for almost all the pipeline capacity. According to FERC, this proved that there was public need for the ACP.
The fact that the contracts happened to be with the partners’ own corporate affiliates didn’t faze FERC any more than it fazed the SCC.
Earlier this month FERC denied a request that it reconsider its approval. Ironically this was a favor to the ACP’s challengers because it finally allowed them to appeal the matter to federal court. One of the issues that will likely be raised in that appeal is the wrongheadedness of approving a pipeline when the need for it relies heavily on inter-affiliate contracts that may or may not demonstrate actual demand from customers.
This is a question not just for Virginia and Dominion, but for the many gas pipelines under development in the U.S. Affiliate contracts can make it appear there is more demand for pipelines than there really is. Approving unneeded pipelines, in turn, means unnecessary environmental destruction, wasted resources, and (what our leaders rarely appreciate) higher energy prices.
In the year since the Sierra Club first petitioned the SCC to take action under the Affiliates Act, the case for regulatory scrutiny has only grown stronger. Dominion Energy says it has abandoned plans to build new combined-cycle gas plants, recognizing the growing dominance of wind and solar. That throws into question the economic case for sinking billions of dollars into new gas transmission, even as construction on the Atlantic Coast Pipeline is under way.
There is a strange disconnect when a gas pipeline developer like Dominion recognizes the end of the road for baseload gas plants. Yet its subsidiary utility, Dominion Energy Virginia, just filed an Integrated Resource Plan (IRP) that calls for a string of new gas combustion turbines, sometimes referred to as “peaker plants.”
This begs the question: Does the utility have a good reason to build more gas plants instead of joining the national trend towards using renewables-plus-battery storage to address peak demand? Or is it proposing the new gas plants because its parent company needs the utility to burn as much gas as possible to support an otherwise unneeded pipeline?
Even apart from its authority under the Affiliates Act, the SCC could investigate this question in the IRP proceeding this fall. At some point the commissioners will have to confront the fact that more natural gas, and more pipeline infrastructure, are a bad deal for Virginia consumers.
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