Federal Courts to Decide Whether Atlantic Coast Pipeline is a Boon-Doggle

With Supreme Court case over, courts again weigh whether Atlantic Coast Pipeline is needed

From an Article by Sarah Vogelsong, Virginia Mercury, June 23, 2020

Last week, the Supreme Court handed a victory to the Atlantic Coast Pipeline when it ruled that the U.S. Forest Service had the authority to allow the project to cross beneath the Appalachian Trail. But the end of that battle has seen the revival of another, more fundamental conflict: whether the pipeline really is needed.

“The Atlantic Coast Pipeline is needed now more than ever for our region’s economy and our path to clean energy,” wrote Dominion spokesperson Ann Nallo in an email to the Mercury Friday. “Communities across Hampton Roads, Virginia and eastern North Carolina are experiencing chronic shortages of natural gas. They urgently need new infrastructure to support military bases, manufacturing and home heating.”

Not everyone agrees. Since 2017, when the Federal Energy Regulatory Commission granted the pipeline a certificate of public convenience and necessity, the project has been dogged by legal challenges. Many have been successful, particularly in the Richmond-based 4th Circuit Court of Appeals, which has overturned key permits from agencies including the U.S. Forest Service, U.S. Fish and Wildlife Service and Virginia Air Pollution Control Board.

Nor has the project’s central permit — the 2017 FERC approval — gone unchallenged. In 2018, eight cases from environmental groups and landowners were consolidated in the D.C. Circuit Court of Appeals to dispute the necessity of building the 600-mile-long pipeline from West Virginia through Virginia and into North Carolina.

That case was paused after the Supreme Court agreed to take up the Cowpasture case over the pipeline’s Appalachian Trail crossing. But with the high court’s June 15 ruling, the D.C. Circuit will now again have the chance to grapple with the issue.

The revival of the FERC approval challenge also comes as Dominion is petitioning FERC to extend the pipeline certification another two years, citing “unforeseen delays in permitting.”

The company has said it expects its missing permits to be resolved and construction to resume by the end of 2020, with the pipeline entering service in early 2022. On a May 5 investors call, Dominion executives, including CEO, president and chairman Tom Farrell, repeatedly said that a productive tree-felling season between November and March would be key to keeping the project on its most current forecasted schedule.

Justifying need is problematic for ACP owners

Meanwhile, the FERC litigation that was back-burnered by the Cowpasture case is heating up again. In those proceedings, opponents represented by the Southern Environmental Law Center are contesting FERC’s certification not only on environmental and eminent domain grounds, but also on the grounds that the commission’s review of its necessity was flawed.

These parties argue that FERC’s 2017 approval of the project was “arbitrary and capricious” because the commission based its determination of need for the pipeline solely on the existence of six “precedent agreements” — contracts that lock a customer into purchasing a certain amount of gas from a pipeline developer before the project is built.

Such ‘precedent agreements’ have long been used as justification for pipeline development. As the Office of the Federal Coordinator for Alaska Gas Transportation Projects wrote almost a decade ago, these contracts represent “a delicate dance between builders and shippers.”

“A pipeline developer that has signed enough ‘precedent agreements’ with enough shippers for enough of its pipeline capacity holds strong evidence that the market is willing to pay for the project,” the 2011 brief explained. “The developer then can seek formal government permission to build the pipeline and go to financial markets for construction financing — two steps usually needed before construction can begin.”

But in the case of the Atlantic Coast Pipeline, opponents say ‘precedent agreements’ aren’t enough because all six of the agreements were struck with monopoly utilities, almost all of which were affiliated with pipeline developers at the time of FERC approval.

“The parties on each side of the contracts are affiliates,” said Southern Environmental Law Center attorney Greg Buppert. “A Dominion affiliate is building the pipeline. A Dominion affiliate is contracting for capacity on the pipeline. So they’re not truly arms’ length transactions, and there’s an incredible financial incentive to get these projects in the ground.”

In this case, the incentive for utility investors is particularly high: a 15 percent return on billions of dollars in investments, far above the normal rates of return authorized by state utility regulators. “For Dominion and Duke investors, this was always a very good business arrangement,” said Buppert. “They stand to make a lot of money.”

In this view, the logic underpinning the project’s justification is circular: the companies that represent the demand for the pipeline’s gas are the same companies that stand to make large profits from supplying it. And because monopoly utilities are guaranteed to recoup their costs from their captive customers under traditional ratemaking principles, the risks are low.

Dominion, however, contends that legally, “precedent agreements remain the gold standard for proving market need.”

“There is no better evidence of market demand for a service than binding commitments to purchase the service once it becomes available,” a natural gas subsidiary of the company argued in a brief filed in the D.C. Circuit.

And whether those agreements are with affiliated companies makes no difference, Dominion said: in 2019, in a ruling against an array of opponents to the Mountain Valley Pipeline through Virginia and West Virginia, the D.C. Circuit concluded that “the fact that Mountain Valley’s ‘precedent agreements’ are with corporate affiliates does not render FERC’s decision to rely on these agreements arbitrary or capricious.”

“For more than three years and in coordination with more than a dozen other agencies, the Commission reviewed every detail of the project and provided extensive opportunities for public participation,” said Dominion spokesperson Nallo. “The commission addressed all of the important issues that were raised and left no stone unturned. After exhaustive review, the commission concluded that the project serves an important public need and that the public benefits far outweigh its minimal impacts on the environment.”

Changing circumstances need to be considered

While opponents of the pipeline have long argued that there’s never been a solid basis for the Atlantic Coast’s construction, they say recent economic and legislative developments have only strengthened their stance.

“FERC has an obligation to look at the changed circumstances, the changes that have happened since it approved the project in 2017,” said Buppert. “For energy, those changes have been significant.”

In Virginia, the largest change has been the spring 2020 passage of the Virginia Clean Economy Act. The sweeping new law, which represents the most progressive climate legislation to come out of the South yet, commits the state to transitioning its electric grid to 100 percent renewable sources by 2050, with Dominion’s target set for 2045.

Pipeline capacity has also grown in the intervening years with expansions of existing systems in Virginia, such as that owned by Transco, said Buppert.

In light of these shifts, on June 1, the Southern Environmental Law Center filed a separate request with FERC to require that a supplemental environmental impact assessment of the Atlantic Coast Pipeline be completed.

Besides Virginia’s move away from fossil fuels, other factors requiring reexamination cited by the SELC include landslide and sedimentation problems documented along the pipeline’s path, new state recognitions of environmental justice populations at the proposed Buckingham Compressor Station site, and growing understanding of the severity and impacts of climate change.

“In light of this substantial new information, the commission’s prior environmental review of the ACP is stale and fails to address significant effects of the project,” the petition concludes.

NOTE: This story was updated to clarify that the “precedent agreements” for the ACP are not temporary but are long-term 20-year contracts.

Tagged as: ACP, Dominion Energy, guaranteed return, natural gas, pipeline, precedence agreements