Atlantic Coast Pipeline (ACP) in WV, VA & NC
Commentary by Ivy Main, Virginia Mercury, March 20, 2019
In December of last year, regulators at the State Corporation Commission took the unprecedented step of rejecting Dominion Energy Virginia’s Integrated Resource Plan. Among other reasons, the SCC said the utility had inflated projections of how much electricity its customers would use in the future.
On March 8, Dominion came back with a revised plan. And sure enough, when it plugged in the more realistic demand projections used by independent grid operator PJM and accounted for some energy efficiency savings, the number of planned new gas plants dropped in half. Instead of eight to 13 new gas combustion turbines, the revised plan listed only four to seven of these small “peaker” units.
Yet there is a good chance Dominion is still inflating its demand numbers. Although the re-filed plan is short and vague, it appears Dominion isn’t figuring in the full amount of the energy efficiency programs it must develop under legislation passed last year.
SB 966 required Dominion to propose $870 million in energy efficiency and demand-response programs designed to reduce energy use and the need for new generation. But Dominion has proposed just $118 million in its separate demand-side management filing.
Moreover, the company has concocted a theory whereby it can satisfy that $870 million requirement by spending just 40 or 50 percent of it and pocketing the rest. Dominion argues that since the Virginia code allows a utility to recover lost revenue resulting from energy efficiency savings, it can simply reduce the required spending by the amount of lost revenue it anticipates.
It’s a great theory, suffering only from being wrong. But it does suggest that Dominion’s demand figures in the IRP are based on plans to spend just a fraction of the energy efficiency money required by SB 966.
If the SCC decides Dominion can’t withhold hundreds of millions of dollars in efficiency spending, that additional spending will have to be factored into demand projections. Thus the IRP’s demand projection can only go down — and with it, the number of gas plants that might be “needed.”
And yet even the resulting number is likely too high. Several of Dominion’s large corporate customers have been trying to leave its fond embrace to seek better renewable energy offerings elsewhere. (The SCC recently rejected Walmart’s effort to defect.) If they or others were allowed to leave, how much would that further reduce the need for new generation?
For that matter, those customers and many others, including many of the tech companies responsible for what demand growth there is, say they want renewable energy, not fossil fuels. Dominion claims the renewable generation will have to be backed by gas peaker plants, but energy storage would serve the same purpose and further reduce the need for gas. The SCC will rule on that question when — and if — Dominion ever requests permission to build one of those peakers. It is possible the utility will never build another gas plant.
That’s bad news for Dominion Energy’s other line of business, gas transmission and storage. With demand for new gas generation here evidently falling off a cliff, Dominion’s ability to rely on its customer base as an anchor client for the Atlantic Coast Pipeline becomes increasingly doubtful.
Dominion may actually have conceded as much in its re-filed IRP. In response to the commission’s order that Dominion include pipeline costs in its modeling of the costs of gas generation, Dominion merely stated, without discussion, that it is using the tariff of the pipeline owned by the ACP’s competitor Transco, which supplies gas to Dominion’s existing plants.
This statement continues a pattern of Dominion attempting to avoid any mention of the Atlantic Coast Pipeline in commission proceedings, lest it invite hard questions. But Dominion can’t have it both ways. If it will use Transco, it doesn’t need the ACP. If it plans to use the much more expensive ACP and just isn’t saying so, it has lowballed the cost of gas generation and is misleading the SCC.
(NOTE: Dominion claims the Atlantic Coast Pipeline will provide supply diversity that will benefit customers, but critics argue that there’s no way the new pipeline gas will be cheaper than existing sources after factoring in construction costs and profit.)
This is unfair to customers, and it may backfire on Dominion. The ACP received its federal permit on the strength of contracts with affiliate utilities, but Dominion hasn’t yet asked the SCC to approve the deal. Leaving the ACP out of the discussion in the IRP year after year makes it harder to win approval. When and if the company finally asks the SCC for permission to (over)charge ratepayers for its contract with the ACP, it will not have built any kind of a case for a public need or benefit.
This is not just a risk that Dominion Energy chose to take, it is a risk of the company’s own creation. It defied the Sierra Club’s efforts to have the commission review the ACP contract early on, knowing it would face vigorous opposition from critics. But since then, its chances for approval have only gotten worse. Back then, the pipeline cost estimate came in at $3 billion less than it is today, Dominion Virginia Power was halfway through a massive buildout of combined-cycle gas plants, and the IRP included several more big, new, gas-hungry combined-cycle plants.
Now the ACP’s cost has climbed above $7 billion and may go as high as $7.75 billion, excluding financing costs, CEO Tom Farrell told investors last month in an earnings call. Meanwhile, the IRP includes an ever-shrinking number of gas plants, to be served by a different pipeline.
One investment management company told clients in January the spiraling price tag may make the ACP uncompetitive with existing pipelines. And Farrell faced a host of cost-related questions in his call with investors.
But Farrell downplayed the risk when it came to a question from Deutsche Bank about the need for SCC approval. Managing Director Jonathan Arnold asked, “On ACP, when you guys are talking about customers, does that include the anchor utility customers, your affiliate customers? Does whatever you’re going to negotiate with them need to be approved by the state regulatory bodies?”
Farrell’s answer sounds nonchalant. “In Virginia, it’s like any other part of our fuel clause. It will be part of the fuel clause case in 2021 or 2022 along with all the other ins and outs of our fuel clause.”
Oh, Mr. Farrell, it is not going to be that easy.
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REGARDING the Commentary by Ivy Main:
I don’t understand some of the regulatory bits at the end, but it seems to me there is a question here, along the lines of, if the demand isn’t there, why does Dominion want to build the ACP?
The answer is that building pipelines is more profitable than anything else Dominion can do, with that guaranteed 14% profit (unless the VA regulators block it, which they could, and this article makes it look like VA regulators have been doing their job, who could have expected such a thing?) So it works out even if Transco is idled by the new pipeline.
But I suspect the real answer is something else, a word not spoken in polite company in Virginia but shouted repeatedly in gas industry conferences in Pittsburgh: EXPORT. That’s what the gas companies are hoping for, and Dominion hopes to facilitate. Dominion doesn’t need domestic customers if it can profit from gas export–but it doesn’t look good to talk about that while you’re charging your VA customers for the pipeline’s costs and ramming it through their backyards and across their rivers.
Mary Wildfire, Roane County, WV