The Atlantic Coast Pipeline is looking like a riskier investment every day

April 20, 2020 12:01 am

A sign on State Route 663 near Union Hill Baptist Church in Buckingham , one of several in the area opposed to Dominion Energy’s Atlantic Coast Pipeline. (Robert Zullo/ Virginia Mercury).

By Thomas Hadwin

When announcing the Atlantic Coast Pipeline, its owners, including Dominion Energy, said the project is essential for us to have the energy we need, will save us millions of dollars each year, foster economic development and be a windfall for shareholders.

Events since the announcement demonstrate that none of the claims are likely to be true.

The application to the Federal Energy Regulatory Commission (FERC) says that 80 percent of the ACP is reserved for power plants in Virginia and North Carolina and claims the ACP is essential to supply them.

However, we no longer need as many new plants as first proposed. If built, they would require less than half of the capacity originally announced as the main reason to build the pipeline.

Recently, Dominion Energy Virginia announced that building more gas-fired power plants “is no longer viable.”

Duke Energy’s electric utilities in the Carolinas have also cut their original requirements. Opponents argue that even current plans depend on exaggerated forecasts of future demand and are far too reliant on long-term use of gas-fired generation.

Proposed gas-fired plants will likely continue to decline. The economic shutdown caused by the coronavirus has reduced electricity demand. A Wood Mackenzie study predicts it might take up to several years before usage returns to present levels. When the ACP is scheduled to begin operation, S&P Global reports there will be 35 percent excess generation in the region from which Virginia draws its power; growing to 60 percent excess by 2027. Duke Energy’s utilities forecast capacity beyond what is needed for reliability.

If additional gas supply is needed, there is a better way to provide it. In August 2018, Dominion informed FERC that the Transco pipeline has sufficient available capacity to meet all of what Duke’s utilities were expecting to get from the ACP and more.

Other Transco expansion projects added even more capacity. Local gas distribution companies in North Carolina owned by Duke and Dominion reserved new capacity from Transco, which has been their primary supplier for decades. New power plants built in North Carolina could as easily connect to Transco as they could to the ACP, proving the Atlantic Coast Pipeline is unnecessary for an adequate supply of energy in the region.

To benefit shareholders, Duke and Dominion were enticed by the high rate of profit authorized for interstate pipelines. It is 50 percent higher than what their utilities receive for building power plants. Benefits were intended for shareholders, but the pipeline was advertised as a savings for utility customers.

The ACP study that advertised millions per year in savings used flawed assumptions and failed to consider the cost of using the pipeline.

Based on filed rates and the current estimated cost for the pipeline, Dominion’s Virginia utility must pay $6 billion over the 20-year contract with the ACP and $2 billion is owed by its North Carolina gas subsidiary. Duke’s gas company and two electric utilities are obligated to pay the ACP over $18 billion for the first 20-year contract. Virginia Natural Gas must pay more than $3 billion.

Gas is purchased separately and is priced about the same at the various production zones that serve the region. Differences in delivered gas prices are mainly due to differences in pipeline transportation costs.

ACP contracts must be paid in full regardless of how much capacity is used.

Dominion has ample reserved pipeline capacity, but ratepayers will be asked to repay the full $6 billion. Duke’s next gas-fired power plant might not be needed until at least the mid- to late-2020s, if ever. Yet, ratepayers are expected to repay contract costs in full as soon as the ACP begins operation. Existing pipelines provide more capacity at a fraction of the cost compared to the ACP.

New capacity can be reserved in small increments, as needed, rather than paying for huge amounts from the ACP far in advance of when it might be used.

Burdening customers with $30 billion in higher energy costs for an unnecessary pipeline hampers job creation and economic development rather than boosting it, as advertised.

Continued investment in the ACP looks increasingly risky. Eight permits have been vacated. Even with a favorable ruling from the Supreme Court about the Appalachian Trail crossing, without a flurry of revised permits issued this summer, construction is unlikely to resume soon. Reissued permits must meet court requirements. No valid air quality permit exists for the Buckingham Compressor Station.

Legislation recently passed in Virginia requires Dominion Energy’s utility to show the ACP is necessary to maintain reliability and is cheaper than other alternatives before costs can be passed through to ratepayers.

Testimony to the State Corporation Commission last summer explained that the utility has sufficient pipeline capacity for reliable operation of its gas generating fleet without the ACP.

The proposed Atlantic Coast Pipeline route. (Image via

Transporting gas using the ACP would cost at least five times more than Dominion’s most expensive existing pipeline contract. Does the project make sense to investors if only some or none of the contract costs can be recovered from ratepayers?

Does it make any sense for ratepayers to pay billions for an unnecessary pipeline?

Gas production is in disarray. Demand is down, a surplus of supply continues, driving prices down. Many producers are on the verge of bankruptcy. This could lead to consolidation of the industry in the hands of a few well-capitalized firms who would be able to reduce supply in order to increase prices. This would add to the price of electricity from gas-fired generators, decreasing demand for both gas and electricity.

Building more gas infrastructure such as power plants and the pipeline bucks current trends. States are establishing policies to reduce carbon emissions, encourage energy efficiency and generate electricity from clean sources. Synapse Energy Economics reported that Duke and Dominion “are thus far taking minimal actions to decarbonize their electricity systems” despite what they say in their PR materials.

The economic shutdown caused by the coronavirus will create a huge demand for capital from ailing companies and a stricken populace. It is unwise and unconscionable for Duke and Dominion to burden families and businesses with higher utility bills for their own private gain while our citizens and their companies attempt to recover from a massive economic shock.

The Clean Economy Act awarded Dominion a windfall in profits for developing wind and solar facilities, as well as energy efficiency measures, throughout Virginia over the next 30 years. North Carolina’s policies might soon catch up. Energy companies must adjust to the times.

If scarce capital must be allocated, investing in renewable energy and modernizing the grid would reduce risks
and give more reliable returns than investing in the ACP. Projects of this type would serve customers better and
re-align the interests of the shareholders with those of the ratepayers.

Duke and Dominion executives should reassess the prudence of pouring billions of dollars more into the ACP. Annual meetings will occur soon. People should make their voices heard. Current events demonstrate that it is time to change course.

Thomas Hadwin worked for electric and gas utilities in Michigan and New York. He led a department which was responsible for the site selection and approval of multi-billion dollar projects working with state and federal
agencies, among other things. He is currently working to help establish a 21 st century energy system for
Virginia. He lives in Waynesboro.

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