A Matter of Public Necessity

gas_pipelineEastern Virginia and eastern North Carolina need more natural gas, and the Atlantic Coast Pipeline is the most cost-effective way to to deliver it, say the four pipeline partners.by James A. Bacon

Two years ago, four electric and gas utilities announced the formation of a joint venture, the Atlantic Coast Pipeline. The 600-mile project, the partners said, would connect Virginia and North Carolina with the Marcellus and Utica shale basins, tapping abundant natural gas supplies to benefit residential customers, spur economic development, and enable power companies to shift generation from dirty coal to cleaner-burning gas. If all went according to schedule, the pipeline would receive a Certificate of Public Convenience and Necessity from the Federal Energy Regulatory Commission (FERC) in the summer of 2016.

The project is rolling forward but it has encountered delays: A FERC ruling is not expected until next year. Intense opposition has arisen in Virginia mountain communities through which the pipeline would cross. Foes have raised concerns about the threat of gas explosions, harm to rare species, disruption to viewsheds, and pollution of rivers, streams and water supplies.

There is no legitimate public need to build the pipeline, opponents argue. Virginia and North Carolina can get plenty of natural gas through existing gas infrastructure. In their view, the ACP represents a bold play by four monopoly utilities — Dominion Virginia Power, Duke Energy, Piedmont Natural Gas and Southern Company Gas, owner of Virginia Natural Gas — to leverage their buying power to create a captive pipeline that will generate higher investment returns than they could get from their own regulated businesses.

FERC cannot approve any pipeline project “unless it is absolutely necessary,” said Joe Lovett, executive director of Appalachian Mountain Advocates in a press release issued last week in conjunction with a study disputing the need for the pipeline. “In cases like this, where the government allows for-profit companies to take private property — family farms, people’s homes — that protection is especially crucial. … The pipelines are not needed, so there should be no eminent domain for private gain.”

Pipeline foes have been hammering home this message to regulators and the public. ACP officials counter that the argument is based upon a profound misunderstanding of pipeline economics and how the project originated. The four partner companies issued Requests for Proposal in 2014 and compared the proposals — real submissions, not theoretical alternatives thrown out by pipeline foes. Plain and simple, company spokesmen say, the ACP best met the utilities’ needs. The four partners backed the venture because it made the most economic sense.

The story of how the Atlantic Coast Pipeline came to be has never been told to the public. Given the way the debate was focusing increasingly on the pipeline’s public necessity, I thought the public could benefit from a clearer understanding of the thinking behind the enterprise. At my request, Aaron Ruby, a spokesman for Dominion Transmission, managing partner of the ACP, set up a phone-conference interview with executives from the four partner companies. During a 45-minute interview, they made several key points:

  • Duke and Piedmont foresaw an increasing demand for natural gas. Totally dependent upon the Transco pipeline, they wanted to diversify their sources of gas supply and transport. In 2014 they issued an Request for Proposal.
  • Thinking along parallel lines, Dominion Virginia Power issued its own RFP around the same time.
  • Instead of building separate pipelines, Duke, Piedmont and Dominion agreed that joining forces in a single pipeline would be far more economical than any other alternative. By signing up Virginia Natural Gas and Public Service of North Carolina as customers as well, the proposed pipeline would enjoy economies of scale that no one else could match.

The natural gas revolution

The Obama administration has presided over a regulatory makeover of the electric power industry. In March 2011 the Environmental Protection Agency (EPA)  proposed regulations designed to reduce electric utility emissions of mercury and other toxic chemicals. The so-called Mercury and Air Toxic Standards (MATS) compelled many power companies to shut down their oldest and dirtiest coal- and oil-fired plants and replace them with generators powered by cleaner-burning gas. By 2014, electric utilities were in the midst of implementing MATS when the EPA rolled out its Clean Power Plan (CPP), which aimed to achieve a major reduction in carbon-dioxide emissions blamed for global warming. The CPP gave state regulators leeway in how to achieve the cuts by means of such strategies as energy conservation and efficiency and switching to natural gas and renewable fuels.

Meanwhile, thanks to the fracking revolution, natural gas production was booming in the Ohio-West Virginia-Pennsylvania area where the Marcellus and Utica shale fields were concentrated. The price of gas had plummeted, and it looked like supplies would stay abundant and relatively cheap for a long time. East Coast markets were served by a relatively small number of gas pipelines, most notably the massive Transco pipeline system that delivered gas from the Gulf Coast to markets as far north as New York. Connecting the Marcellus fields to East Coast populations centers was shaping up as a once-in-a-lifetime business opportunity for the gas industry, and by 2014 FERC was fielding an unprecedented number of pipeline proposals.

As utility planners in Virginia and North Carolina looked into the future, they had to figure out how to do two things: replace the old coal-fired power plants and accommodate economic growth in one of the faster-growing regions of the country. While they saw a role for solar and wind power, electric utilities also were responsible for maintaining the reliability of the electric grid. Because renewable energy sources are intermittent, not always generating electricity to match demand, planners leaned toward natural gas, whose production they could dial up and down as needed.

In the winter of 2013-2014, a North American cold wave known as the polar vortex drove home the urgent need for more gas. A change in the jet stream sent temperatures plunging and natural gas consumption soaring in the East Coast. “We saw winter peaks that were eye-popping to us,” said Greg Workman, Dominion’s director of fuels. “The winter peak eclipsed our previous winter and summer peaks.”

In Hampton Roads the gas supply was put under so much strain that Virginia Natural Gas (VNG) had to curtail supplies to many industrial customers. While those customers had backup sources of power and paid lower prices for their gas in exchange for their interruptible status, the incident drove home how vulnerable the region was to extreme weather events.

The Durham-Piedmont RFP

From Duke Energy’s perspective in mid-2014 as it phased out its coal-fired plants, the future of energy was in natural gas. The utility had four gas-fired facilities at that time, and it was planning construction of two more. “We’ve seen considerable growth in the Carolinas — [utility] gas consumption has grown 26 times over the past 15 years to more than 200 bcf (billion cubic feet),” said Joe McCallister, Duke’s director-natural gas. The forecast is for utility consumption to reach 360 bcf in a decade.

Over and above anticipating the need for more gas, said McCallister, Duke wanted a more reliable, diversified supply. Gas flowed south-to-north on the Transco pipeline system, delivering Gulf Coast gas as far north as New York City. Duke wanted to tap the Marcellus region, which would open up new suppliers, create more competition, and enable the company to take advantage of seasonal fluctuations in gas prices. The utility also wanted to protect North Carolina consumers from supply interruptions in the Gulf, which was vulnerable to disruption by hurricanes or industrial accidents.

Joint planning was a necessity. While Transco delivered gas to North Carolina through its 11 bcf-per-day transmission system, Duke relied upon Piedmont’s distribution system to get the gas from the Transco trunk line to Duke power plants. Conversely, Duke was Piedmont’s largest customer.

Piedmont also was forecasting continued growth in commercial and residential demand for gas in its Carolina markets, said Frank Yoho, chief commercial officer for Piedmont. The company had wanted since the 1980s to bring “strategic pipeline infrastructure” to the eastern part of the state. Piedmont could not generate sufficient demand from residential and commercial customers alone to justify building a major pipeline on its own. But Duke’s shift from coal to gas changed the equation. Said Yoho: “Duke’s power generation got us over the hump.”

In April 2014 Duke and Piedmont broadcast a Request for Proposal (RFP). The RFP specified the delivery of gas to multiple points in Piedmont’s distribution system and specified the delivery of gas within narrow pressure parameters in order to meet the needs of the new generation of highly efficient combined-cycle gas plants.

Duke and Piedmont received multiple proposals. However, they say they cannot discuss the losing bids, the details of which are protected by confidentiality agreements.

One possible bidder is Transco. Supplying 100% of the gas in North Carolina, the Transco “pipeline” is really a massive system of three to four pipelines (depending upon location) running parallel to one another in the same corridor. As competitors build pipelines in Pennsylvania and Marcellus gas began displacing Gulf gas in northern markets, Transco began developing the capability to move gas north to south. Also, recognizing the desire of customers to diversify their gas suppliers, Transco planned the Atlantic Sunrise pipeline, now under construction, to connect with Marcellus gas in northeastern Pennsylvania. That project, which will draw up to 1.7 billion bcf daily from eastern Pennsylvania, is scheduled for completion in 2017.

Despite its massive capacity, Transco’s capacity is fully contracted for, said company spokesman Chris Stockton. Moreover, serving a new customer in Virginia or North Carolina likely would entail adding new pipe and compressor stations, as it did when the company built a $300 million lateral line to reach Dominion’s new gas-fired power plant in Brunswick County.

Could Transco meet the needs of more power plants? It depends on the volume, said Stockton. “If a customer came to us, we would develop a project to meet that need. … Any expansion would require capital investment on Transco’s end.” How much would it have cost to meet Duke’s needs in North Carolina? Stockton was not willing to speculate.

The others come on board

As Duke and Piedmont were analyzing their alternatives, Dominion Virginia Power was just a few months behind in issuing an RFP. Dominion’s appraisal of the future of natural gas as a power source and the longevity of the Marcellus shale play was similar to Duke’s.

“A lot of market influences in the 2013 time period made us think about new gas supply strategies,” said Workman, Dominion’s director of fuels. The company anticipated a need to operate its existing gas plants at higher utilization rates and the need to build new plants. Also, it was clear that the shale revolution was not going away. “The technological barriers had been pierced. Costs made a quantum shift, which would last many years in the future.”

Transco supplied about 90% of the gas to Virginia. Ironically, Transco’s shift to bi-directionality was causing issues for Dominion. As Marcellus gas flowed south in the system and Gulf gas flowed north, the two gas flows bumped heads, so to speak, in Maryland and Virginia, creating a “null point.” The null point was not static but moved about depending on who was taking gas off the system and who was putting it in, but the movement made it difficult to maintain gas pressure nearby within tight parameters. “We saw some operational pressure issues — a real red flag,” said Workman. “It was strategically important to have a pipeline built that we had some say in where it got built and what part of our system it touches.”

In June 2014, Dominion issued its own RFP. One of the companies to respond was Dominion Transmission (DTI), a sister company under corporate parent Dominion Resources. DTI also had responded to the Duke-Piedmont RFP. It soon became apparent that there would be tremendous advantages to combining the two projects, building one larger pipeline instead of two smaller ones. Within short order, the conversation expanded to include Virginia Natural Gas and Public Service of North Carolina, regional gas distributors experiencing similar issues to Piedmont Natural Gas.

“We have been in the market for a couple of decades looking for a chance to bring gas into Hampton Roads,” said Jim Kibler, president of VNG. Hampton Roads is situated in a natural gas cul de sac served by Columbia Gas and Dominion Transmission. A major project, the Hampton Roads Crossing, provided some flexibility by allowing the company to move gas between the Peninsula and south Hampton Roads, but it didn’t address the company’s overall supply constraints. Said Kibler: “Proposals for bringing in more gas were never economic for our customers.”

For the gas distribution utilities, the Atlantic Coast Pipeline was a game changer. Where Transco ran through the Carolina and Virginia Piedmont, west of Charlotte and Raleigh, the ACP route would take it east of those two major metros, and a lateral line would connect with Hampton Roads, bringing additional gas to regions that either have no service or are under-served.

“The beauty of the ACP is that we’re able to aggregate our load with those other customers, and the result is far more economical than any of the alternatives we explored in the past,” said Kibler. “We don’t have any other options. … We’ve explored Columbia and Dominion but those vintage pipelines are not easily expanded. You can’t simply add compressors. You have to twin them” — laying down a parallel pipe — “and those rights of way are too narrow.”

Having access to two pipelines gives Duke, Dominion, Piedmont and VNG access to a greater diversity of gas suppliers, thus giving them an opportunity to buy the gas at lower prices and better terms. The ability to tap both Gulf and Marcellus gas supplies also allows them to play off seasonal variations in prices. In Southern markets served primarily by Gulf gas, demand and prices peak in the summer. In Northern markets served increasingly by Marcellus gas, demand and prices peak in the winter. Located midway between, Virginia and North Carolina are geographically positioned to take advantage of those differentials, Workman said.

Also, the shutdown of the Colonial Pipeline Co. gasoline pipeline due to an accident in Alabama vividly illustrates the economic risk of industrial accident. Experts predicted that the disruption to gasoline prices could send prices 20 percent to 30 percent higher in some Southeastern states.

“Our regulators and customers do not want us to put reliability at risk,” said Yoho with Piedmont. “We run infrastructure so that for the customer at the end of the system on a cold winter day, the heat comes on when they turn on the thermostat.” Two pipelines allows a greater diversity of suppliers. “We’d rather have a portfolio of suppliers, not just from a gas perspective but a pipeline perspective. To ensure grid reliability, we want diversity, we want geographic options. ACP fits perfectly with that overall risk management.”

Workman made the same point: “What we do for our customers is manage risk. One of the key tools of risk management is diversity — of power plants, pipes, and suppliers.”

The nature of the industry is undergoing a tectonic shift, says Kibler. Historically, the people who built pipelines were enterprises who thought they could line up enough customers to cover the cost and make a profit. But that’s changing. “The market was not maturing fast enough for us. We were talking to everyone we could talk to, and no one was coming forward. Today, utilities are the forefront.”

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64 responses to “A Matter of Public Necessity”

  1. Peter Galuszka Avatar
    Peter Galuszka

    So, the publisher of a blog partly sponsored by Dominion gets a 45-minute, exclusive interview with a bunch of power company executives who try to explain why a $5 billion project in which Dominion has a huge financial interest is so necessary.

    Two questions. Why is it simply assumed that some new rules to cut mercury emission from coal-fired generating plants mean that only natural gas-plants can replace the output? Whatever happened to renewables? You won’t find that many in Virginia since Dominion has not exactly embraced them. The state is far behind its neighbors on solar and wind. Next, a lot of these coal plants that these executives claim were to be shut down by new mercury rules and by the CPP (which hasn’t taken effect yet) even though many were 50 or 60 years old and were too old to operate efficiently. This is pure double talk.

    Next, when we wade through this RFP stuff, readers are kept from of really knowing what alternatives for gas really were:

    “Duke and Piedmont received multiple proposals. However, they say they cannot discuss the losing bids, the details of which are protected by confidentiality agreements.”

    So, in other words, the message is “trust us” but you understand we can’t really discus this for legal reason and BTW, and we had a really cold spell a few winters ago.

    This is nothing more than a paid advertisement for Dominion and its ACP partners masquerading as an insightful news story. Why didn’t Dominion make these people available to real journalists and the general public before? Why do they need the filter of a sponsored blog?

  2. “Why didn’t Dominion make these people available to real journalists and the general public before?”

    Because the “real” journalists never asked.

  3. Peter Galuszka Avatar
    Peter Galuszka


    This “real” journalist has.

    1. Sour grapes, Peter?

  4. The dominant theme here is the desire by these four electric utilities to avoid being held hostage by a monopolist: Transco. Obviously that’s ironic! Why do they care? Because they try to keep the cost of fuel for electric generation as low as they can. They make no profit on the cost of fuel, which is passed through the ” fuel adjustment” in electric rates, but they make much of their profit from generation only when they generate — i.e., they are “dispatched” at a competitive wholesale price. Undoubtedly they make a profit through the rates they would charge as the pipeline owner, a different aspect of this.

    Bottom line, in effect, Transco can and does hurt their ability to compete profitably in the generation business. And they are supported by some other businesses that also chafe at Transco’s dominance in the region. This is the competitive market at work. Why are we attacking competition, here? Because some people don’t think competition is enough reason to allow condemnation. But I think lower electric rates matter, too.

    1. LarrytheG Avatar

      re: ” This is the competitive market at work. Why are we attacking competition, here? Because some people don’t think competition is enough reason to allow condemnation.”

      You can’t be serious, I hope. Can you imagine the “free market” and “competition” at work given the power of eminent domain?

      I can’t believe you actually said that – guy .!!!

      And where are the guarantees that this gas will ONLY be used to plants that produce electricity – and nothing else?

      1. Of course there’s no such guarantee. That’s why it’s before the FERC to decide. But come off your own high horse — we’ve allowed condemnation since the concept was developed in the early industrial revolution, in both England and the States, during the explosion of canal building in the 1830s. Do you think those canal builders didn’t make a profit? Hell yes; but it was in the public interest that those waterways were developed. And the competing railroads. And the toll roads. And the shipyards. And the electric and gas and water infrastructure. We need this stuff for modern life and I won’t apologize for it. What’s more, I want the rates I pay for electricity to reflect the most fuel competition possible. ‘Knee-jerk Peter’ notwithstanding, there’s an important public policy issue here.

        1. LarrytheG Avatar

          we “allowed” it and there were many abuses and they have been rolled back. Have you heard of KELO?

          how about the new rules for VDOT?

          using your logic – you’d allow Walmart to use eminent domain because it would “save you money”….

          you could use that standard for ANY business and there are good reasons why we do not and why a much higher standard has to be met because even the Govt itself is allowed to use eminent domain without strong justification that there is no other way to provide for the need other than taking one’s land.

          Now – if you were to tell me that the gas would ONLY be used to generate electricity – I MIGHT be persuadable but I bet that’s not what is proposed, right?

          this is mealy mouth stuff here.. people playing games with words and phrases.. rather than going right at the core issue which is plain and simple… is this gas to be used ONLY for a public necessity or is it a business venture?

  5. LarrytheG Avatar

    This article is Grade A BS – there is no justification for the use of eminent domain and it’s been pointed out many times here that the Rocky Express pipeline – 3 times longer than this one acquired more than 95% of it’s right-of-way via willing seller/willing buyer.

    Jim Bacon spends quite a bit of time talking about the “free market” here on everything from payday loans to health insurance then when t comes to this – he labors long and hard carrying water for DVP’s disingenuous and misleading “we have no choice but to condemn people’s property” company line.

    Saying you can’t us existing rights of ways because they are “too narrow” is an example of how lame their argument is. You CAN do that – other pipeline companies do just that – they have to go through the process of doing that – yes -but it’s STILL an easier path than a brand new right-of-way -unless of course you are Dominion and “have no choice”.

    The obvious bias in these Dominion articles is astounding… This Blog is being used to PROMOTE the interests of Dominion…

    1. Pardon me for bringing more facts and perspectives to the table. Virtually none of the information in this article has been published before. I guess that’s doing a real dis-service to the public.

      Dominion has laid out its case. You can do the public a favor by critiquing the argument. But crying “bias” without explaining where the bias is, or why Dominion’s case for public necessity is unpersuasive, is just a waste of everybody’s time.

      1. LarrytheG Avatar

        “publishing” Dominion’s scripted rationale for their proposal is not exactly a pubic service.. just a PR effort… and yes, clearly biased as it continues to ignore and not respond to questions raised right here.

        In other words – you promote their view – then say you can’t answer questions and comments and they sit silent.

        that’s not an honest dialogue.

        If Dominion is going to use you to promote their viewpoint – and refuse to respond to questions – then what objective role are you performing here?

        this is just wrong.. on several levels. I’m disappointed and more convinced than ever that you’ve gone sideways in your journalistic ethics.

    2. Larry, Calling something “Grade A” BS does not constitute an argument. Crying “bias” without showing where the bias exists does not constitute an argument. Making irrelevant comparisons to my coverage of payday loans and health insurance constitutes an irrelevant distraction, not an argument.

      Why don’t you apply your energy to critiquing the facts and arguments that Dominion lays out? I’ve done the public the service of putting Dominion, Duke and the others on the record in a forum where anyone and everyone can dissect their assertions..

      1. LarrytheG Avatar

        no – you’re giving them a forum without them responding to questions and comments and you’re apparently of the view that this is a legitimate journalistic endeavor.

        I just strongly disagree with you – and this seems to be a pattern that has been evolving over the last year or so.. just not understanding what has happened to your objectivity.

  6. Peter Galuszka Avatar
    Peter Galuszka

    Yes, this is really blatant, but Bacon does not make the crucial point — is ACP needed by the public enough to deploy eminent domain?

    He utterly fails to make his case. Instead we get this:

    “Plain and simple, company spokesmen say, the ACP best met the utilities’ needs. The four partners backed the venture because it made the most economic sense.”

    So, the ACP might fit nicely with the strategic plans of four utilities so they can make money. They claim that they can get cheaper gas deals than just through Transco, which somehow never came up as a big problem before. In fact, these same four utilities have long touted their relatively cheap rates.

    When they try to give you a sense of the public (“public” being a very important word here) need, you get this mealy-mouthed, it depends on what future customers might pop up.

    Thus, they — and their trusted scribe Jim Bacon — fail to establish any public need for this boondoggle.

    1. I agree with you, that is the issue. But the rest of your argument is not argument but amounts to ‘shooting the messenger,’ which is not what this blog is about.

    2. The question you raise– “Is the ACP needed by the public enough to deploy eminent domain”–will be answered by the FERC in deciding whether or not to issue the certificate to construct. Jim’s article lays out the applicants’ case very well, in my view. Whether this case is sufficient to convince the FERC in the face of the opponents’ objections and cases time alone will tell. I don’t view this piece as advocating one way or another.

      Tom has apparently spend a good deal of effort to lay out the opponents case in his comment below.

      Larry seems to believe in his comment just above that the fact that privately owned, profit seeking companies are involved in the project automatically removes the use of eminent domain as a right of way acquisition tool and in this he is thoroughly mistaken. Every interstate gas and electric transmission (or near enough all of them) has been built by private industry acting in the public interest as confirmed by some regulatory agency. The government itself simply cannot do this work on its own. When it obligates companies to conduct public business, it grants them certain privileges to use eminent domain if needed to discharge those obligations. Duke, Piedmont, VNG and DVP all have the obligation to provide service to customers in their respective service areas.

      Larry notes that the “Rocky Express” line developers acquired “95%” of their rights of way via willing seller willing buyer transactions. I expect that a large portion of the ACP right of way, if it is permitted, will be acquired in this way also.

      1. LarrytheG Avatar

        re: ” profit seeking companies are involved in the project automatically removes the use of eminent domain as a right of way acquisition tool and in this he is thoroughly mistaken.”

        Nope – did not say that. I asked what is the criteria that separates any/all for-profit companies seeking to use ED from those that are justified. What justifies it?

        re: ” expect that a large portion of the ACP right of way, if it is permitted, will be acquired in this way also.”

        since that seems to be a major sticking point – where is that statement from VDP and why are they not right now negotiating with that posture instead of taking people to court over surveying?

        1. You said “there is no justification for the use of eminent domain” and you’ve said in this forum many times that private companies should not be enabled to use eminent domain. You later posted something about Walmart in this thread.

          Now you are changing tack, saying you are only asking “what is the criteria that separates any/all for-profit companies seeking to use ED from those that are justified.” I’ve already answered that. Public utilities are obligated to provide service to all persons in their service area. That is what justifies their use of eminent domain if necessary. The government requires them to devote property to the public service.

          Suppose a gas line is running down a privately owned driveway to provide service to your neighbor. He grants an easement to run the line out to his house. You want gas, too, but the neighbor won’t allow the line to pass his property. So, you are stuck if the gas company can’t acquire the right of way to come through the neighbor’s property to serve you.

          Walmart doesn’t have a public obligation to provide you with any service, although it’s usually in their interest to do so. Nor does Walmart need to install linear facilities to get service to you–you go to their store. If they are open, and you haven’t dropped any bad checks on them, they will be happy to sell you anything. But they don’t open whenever you demand it. They can always refuse to serve you if you’ve bounced a check with them. Or for any other non-discriminatory reason.

          1. Rowinguy,

            I don’t have a legal background, but I do realize that eminent domain is an important doctrine. As such we should be careful that it is not abused. It is administered differently in Virginia than it is at the federal level (as it will be with the pipeline). It is difficult to divorce the concepts underlying its use from the emotions surrounding the issue to which it is applied.

            My understanding is that the spirit of eminent domain is to not allow the opposition of a few to affect a project that benefits the greater public good. In the case of a pipeline, developers usually claim that the supply of natural gas serves the greater public good. But with the ACP the issue is a bit more complex.

            Let’s remove the argument and just assume the following:

            1. Existing pipelines can provide sufficient gas to the region.
            2. Existing pipelines are cheaper for the users of the pipeline.
            3. Existing pipelines cause less damage than a new pipeline.

            Would a new pipeline meet the test of “serving the greater public good” if it provides something that is already available, and at a higher cost, with greater disruption? Would a disinterested party say that this situation met the criteria to “take” property from an unwilling seller?

            We are not judges here. But rights of the individual have taken quite a battering in the last 15-16 years. Where do we make a stand, so that some protection will exist against those who control the levers of government and use that control for private gain?

      2. I don’t view this piece as advocating one way or another.

        Thank you for pointing that out.

    3. “Bacon does not make the crucial point — is ACP needed by the public enough to deploy eminent domain?”

      Can you read English? Or do you have an ideological filter that screens out inconvenient information?

      “If all went according to schedule, the pipeline would receive a Certificate of Public Convenience and Necessity from the Federal Energy Regulatory Commission (FERC) in the summer of 2016. …

      “There is no legitimate public need to build the pipeline, opponents argue. Virginia and North Carolina can get plenty of natural gas through existing gas infrastructure. In their view, the ACP represents a bold play by four monopoly utilities — Dominion Virginia Power, Duke Energy, Piedmont Natural Gas and Southern Company Gas, owner of Virginia Natural Gas — to leverage their buying power to create a captive pipeline that will generate higher investment returns than they could get from their own regulated businesses.”

  7. I don’t have much time to address this today. You have seen many of my points before, but these issues deserve rebuttal.

    “In Hampton Roads, the gas supply was put under so much strain that Virginia Natural Gas (VNG) had to curtail supplies to many industrial customers.”

    A post mortem by FERC, PJM and others of the Polar Vortex showed that the cause of the curtailment in Hampton was due to poor gas dispatch procedures causing too little gas to flow even though there was sufficient capacity in the pipelines. The gas dispatch time of day and the electric daily auctions did not correspond, so many power plants had to take a 24 hour supply of gas when they needed only a 2-3 hour supply. This reduced flow to local distribution companies such as VNG. Attempts are being made to align the natural gas and electric dispatch timing to avoid such conflicts in the future; especially since more natural gas is being used by power plants.

    A new power plant in Chesapeake would require additional gas supply. Using the ACP requires 400 miles of new pipeline to be constructed in order to serve Chesapeake. Dominion and Columbia Gas already serve the area. The Dominion pipeline north of the area has been significantly expanded to bring gas from Dominion’s natural gas storage areas in Pennsylvania to northern Virginia then over to Maryland and down to Cove Point.

    The distance from Northern Virginia to Chesapeake on the existing right-of-way is certainly less than 400 miles. Modifications could be made on this line that would be less expensive and cause less disruption than building the ACP. Columbia Gas is expanding by 1.3 Bcf/d (slightly less than the 1.5 Bcf/d of the ACP). Some of that flow could head to Chesapeake with modifications to the existing connections without building a $5 billion pipeline. Representatives of Columbia Gas have not answered inquiries to explore this issue in more detail.

    “Despite its massive capacity, Transco’s capacity is fully contracted for . . . Transco planned the Atlantic Sunrise pipeline, now under construction, to connect with Marcellus gas in northeastern Pennsylvania. That project, which will draw up to 1.7 billion Bcf/d daily from eastern Pennsylvania, is scheduled for completion in 2017.”

    I spoke with Transco representatives as well. They did say that they cannot report the massive amount of unused capacity in their southbound pipelines that the DOE reported unless it is assigned to customers.

    The 1.7 Bcf/d from Atlantic Sunrise will flow to Virginia and the Carolinas all the way to Alabama. Different pipelines (there are several in the corridor) will have appropriate compressor modifications and take-off points along the corridor to suit service requirements. The “customers” of Atlantic Sunrise are all natural gas producers or gas marketing companies in search of end users. The ACP writes that off as “fully subscribed” but any shipper contracted with the ACP could have access to that gas and transport it at a far lower cost than using the ACP.

    Dominion’s own filings with FERC show that Virginia ratepayers would pay over $200 million a year more to ship natural gas via the ACP to Brunswick and Greensville than it costs to use the connection to Transco. It is nearly always cheaper to use existing pipelines compared to building new ones.

    “How much would it have cost to meet Duke’s needs in North Carolina?”

    An alternative has been identified to serve North Carolina. A connection would be made to the Transco corridor and travel along 105 miles of the Cardinal pipeline corridor (owned by Transco and others) to the south of Raleigh. From there about 90-100 miles of pipeline would be developed on the new right-of-way identifed by the ACP to serve their customers in North Carolina. This option would require just 200 miles of pipeline (half on existing right-of-way) compared to the 600 miles required for the ACP. This would result in far lower costs and substantially less disruption than the ACP, while providing the same service to North Carolina customers.

    “Having access to two pipelines gives Duke, Dominion, Piedmont and VNG access to a greater diversity of gas suppliers, thus giving them an opportunity to buy the gas at lower prices and better terms.”

    The Transco pipeline takes its primary supply from northeastern Pennsylvania. This area is the most productive and lowest cost region in the Marcellus. Supplying the two Southside plants from this region rather than the supply zone used by the ACP would save ratepayers $91 million per year if the current price differentials remain between the two regions.

    Existing pipelines are already interconnected and allow access to a diversity of gas suppliers. Both Transco and Columbia Gas are connected to the Gulf Coast production zone. Columbia Gas takes its supply from a similar area as that used by the ACP. It will soon connect to the Transco line in Virginia. These existing pipelines will provide the option of obtaining gas from the lowest cost zone in the Marcellus, the Western Marcellus zone that the ACP is using and the Gulf Coast region, certainly enough choices to give natural gas users “an opportunity to buy the gas at lower prices and better terms.” And they will transport the gas at a significantly lower cost than any new pipeline.

    Power plants have been fueled by natural gas for 50-60 years. Never has there been a requirement to connect them to two different pipelines. With the interconnections that exist between existing pipelines today, there is no reason to do so. The explanations provided by the ACP sound reasonable to the uninformed consumer. Especially when they hear “lower prices”. Owners of the ACP have not been straightforward in their communications with the public about how many hundreds of millions of dollars per year ratepayers must pay in order to use the ACP compared to existing alternatives.

    A report was recently issued by Synapse Energy Economics, a highly respected organization in Cambridge MA. They evaluated all of the peak load forecasts of the natural gas distribution companies in Virginia and the Carolinas, plus the new power plants proposed by Dominion and Duke in their IRP’s through 2030. The inflows and outflows of all of the natural gas pipelines entering and leaving the region were assessed, along with planned expansions and upgrades to the existing pipelines. Adding local natural gas storage resources, supplies were compared to demand. Even when assuming a high gas usage scenario, the capacity of existing pipelines were more than sufficient to meet the forecasted peak loads.

    It is understandable that Dominion and Duke want to have their own pipeline. But they should not be allowed to force utility customers to pay more for its use or require private landowners to unwillingly give up their land for the developers private gain.

    The extremely high 14-15% return on investment allowed by FERC for natural gas pipelines (much higher than the return for any other type of utility project) is luring utility holding companies into the gas transmission pipeline business and is causing the potential overbuild of pipeline capacity by 40% more than is needed to transport the maximum output of the Marcellus.

    FERC is not following the NEPA requirements in fully assessing the need for these projects. Accepting precedence agreements for supply, especially from captive subsidiaries, does not indicate a market need. Utility customers asked to pay hundreds of millions per year more for the ACP would not agree that there is a market need for a pipeline that increases their bills when lower cost options are readily available.

    1. Tom, Thank you for arguing facts and logic rather than engaging in ad hominem attacks. If you would care to cast your critique in the form of an op-ed, I would be happy to publish it as a full-fledged op-ed. Jim

      1. Thank you, Jim. I will consider that. Although, I am a little concerned that BR readers have heard me go around and around on this too much already. But it is an important topic and many different viewpoints should be considered.

        Right now, I’m trying to finish my comments on Dominion’s IRP. The pipeline is a symptom of our current energy policy. If we took a more balanced view of alternatives to load growth and an overreliance on natural gas generation, perhaps we would look at this pipeline issue a bit differently.

        We also need to consider a different role for our utilities. They are an essential component in a 21st-century energy system. But they should not be the only ones to design it. We need to keep them financially healthy to develop the grid and providing transactional services for distributed generation and other energy services.

        The current headlong rush to build natural gas infrastructure could leave us with significant stranded costs when the disruptive technologies of energy efficiency, solar and storage undercut the costs of recently built combined cycle plants (and perhaps pipelines) in 2025-2030.

  8. I appreciate Jim’s attempt to tell us how the concept of this project got started. I always want to know who started a proposal, and why? Many times that answer is not disclosed.

    There is an irony here that the green advocates want to say that a nat gas pipeline is bad because of minimal acreage lost, but can you imagine how many USA acres we are devoting to wind and solar? If the natural gas industry can kindly work hard to prevent future accidents, the natural gas footprint will be amazingly small, clean, and a good economic neighbor for the host towns. In 2 words highly desirable.

    Eminent domain vs. giving landowners a share of the profit (like wind) is problematic – I do not have the answer except to say the focus needs be on doing the project properly in a manner that does not make it a bad neighbor. If we focus instead on giving money to landowners, then we lose focus on doing the project properly…it becomes sort of legal bribe money. In some cases compensation may be warranted.

    1. Dominion did not do anything different than the customary practice in the gas industry. The “open season” has been used for many other projects.

      The reversal of flow in the Transco pipeline that allows it to serve the southeast did not occur until after 2014. In fact, Dominion helped pay for some of the modifications that made the southbound flow possible in order to supply the Brunswick plant.

      I suggest you inform yourself about the amount of acreage that is affected by construction. The amount of acreage required for access roads and storage yards and staging areas is about equal to the construction right of way itself, not to mention the huge areas required for the horizontal drilling that will occur in many locations along the route. Check out

      The blasting necessary for laying the pipelines through much the region in western Virginia will disrupt water supplies for individuals and communities. In karst formations, sediment and contamination from construction activities can be transported more than 10 miles from the location of the construction activity. It has happened already with pipeline construction in western Virginia.

      Most people have seen years old natural gas right-of-ways in farmland or other areas and think that there is not much disruption. I have seen pipeline construction and it is far different from the minimal disruption that you imagine from viewing finished rights-of-way.

      1. Here are a few images of pipeline construction:


        This is a 42″ pipeline under construction in Nebraska.


        This is a stream crossing for the Millenium Natural Gas Pipeline.

        1. I doubt that this would be considered “best practices” for protecting water quality.


          Do you notice an obvious lack of erosion protection on these steep slopes?


          The Virginia Department of Environmental Quality failed to respond to the requirement of producing a water quality management plan to cover ACP construction in Virginia. They came within a day or two of defaulting on their obligation under the Clean Water Act to protect Virginia waterways. Only a letter from Dominion saying their application was incomplete saved the DEQ from this massive dereliction of duty.

  9. Peter Galuszka Avatar
    Peter Galuszka

    I think it is entirely appropriate to shoot the messenger in this case. Jim’s connections to Dominion are suspect and the fact that he openly admits them doesn’t make the relationship pure. Also, in this post, Jim offers absolutely no push-back or other thinking (besides setting up Joe Lovett as a straw man) that others manage to come up with on this blog. How about the point that a Cambridge consulting firm found there’s sufficient pipeline capacity to 2030? Why doesn’t Jim mention that? If he had offered us a balanced, in-depth look, I would have applauded it. Instead, we get unabashedly sponsored content and we’re expected to go along with it, because Jim is Jim , a good guy, wink-wink. Utter crap. He ought to get rid of the Dominion sponsorship pronto and try to salvage himself. Bacons Rebellion has lost a lot of respect and Dominion knows damn well what it is doing.

  10. LarrytheG Avatar

    I don’t think you “focus’ on “giving money” to landowners any more or less than any other business proposition that a business might make to procure land for their venture.

    you make it sound like a developer buying raw land is “giving money” to the land owner.

    And this is just one aspect. What if there are several companies vying for the same opportunity. Do you classify all of them as deserving of eminent domain as an argument for “competition” that “serves the public”?

    this whole line of “reasoning” borders on bizarre… in my view.

    Tell me why – once more – that we have to build a pipeline this long to serve a power plant when there are many existing places closer to the gas to site such plants?

    why do we build not one but two gas plants in southside Va where there is no growth or increased demand for electricity? If Duke needs the gas – why go east instead of south into NC?

    and why is the ACP ‘better” than the Mountain Valley pipeline which looks to be a direct competitor?

    Lots of questions here – asked more than once – and all we get is Dominions self-serving scripted viewpoints…

    I’m NOT opposed to the gas in any way, shape or form. I’m IN FAVOR of the gas and see it as a “good” thing but it needs to legitimately serve the public or it needs to honestly admit that it is basically a free-market venture in competition with other ventures – and no more or less a benefit to the public than WaWa building a new gas station someplace…

    1. The MVP is a producer-owned pipeline that ends at the Transco connection in Pittsylvania County VA. It is only 300 miles long rather than 600 miles for the ACP because it does not deliver gas to any end-users since no end-users have subscribed to use the gas from the MVP. FERC has always been willing to certify pipelines “built on spec” even when no customers have been identified.

      An important distinction should be made about the ACP. All but 6.7% of its subscribed capacity is for affiliates that are owned by the parent companies of the owners of the pipeline. Even FERC, in their guidelines, recognizes that contracts with affiliates of the owners of the pipeline do not fairly represent a “market need” for the pipeline. No in-depth assessment of the capacity of existing pipelines or of available alternatives has been performed by the ACP or by FERC.

      The MVP and the ACP are not both needed since they intend to serve the same market – new power plants in the region. In fact, neither pipeline is needed according to recent studies.

      1. LarrytheG Avatar

        these are pretty incisive comments TomH…

        and as usual – they probably won’t be responded to and all we will get is what Dominion wants to have said.

        It’s a one-way communication in BR.

        Jim says he can’t answer because he doesn’t know but then he turns around and tells us what DVP wants us to know.

        I’m frankly surprised that Jim does not see the conflict in this kind of dialogue… he’s providing DVP the ability to promote their point of view.. and they don’t respond to comments and questions. .. and Jim says he can’t because he does not know.


        and paleeze … don’t accuse me of wanting Jim to drop his Dominion sponsorship. On the contrary -he’s taken this duty – all I’m asking is that he do the right thing in encouraging Dominion to engage in a legitimate two-way dialogue.

        1. “I’m asking is that he do the right thing in encouraging Dominion to engage in a legitimate two-way dialogue.”


          I think you have made a crucial point. I worked for electric and gas utilities in two different states. I worked with many well-meaning people and I’m proud of that association. The utilities did not always see eye-to-eye with the public, especially those with extreme viewpoints. I was often caught in the middle of the arguments between the engineers and the environmentalists. We found that it was always better to have an open dialogue. The public learned from us and gave us more support. We learned from the public and designed better projects.

          This is one of the reasons I became involved with this issue. I was severely disappointed with Dominion’s lack of openness and dismissive behavior when dealing with the public. To me, it gave utilities, in general, a bad name.

          Every time I have made comments or requested more information about the issue of the need for this pipeline, the requests were dismissed or given the same incomplete PR response that Jim received. This is an import decision for the people of Virginia. It needs to be based on complete, factual information. I would encourage Dominion as the lead organization for the ACP to join in an open dialogue with complete disclosure so that their proposal can be properly analyzed.

    2. Larry- Above you said the secret word “Wawa”.
      A few weeks back we were visiting historic deeper South Jersey, and we found ourselves at the so-called the old “first WaWa” store. It is located on – I kid you not – Bacon’s Neck Road!


      1. LarrytheG Avatar

        Funny! Thanks for posting the pic! I think in Jim’s mind he prefers the imprimatur of “Rebellion” over “Neck”…


  11. Peter Galuszka Avatar
    Peter Galuszka

    How come acbar’ comments have been moved out of chronolgical sequence? And what sour grapes are you talking about? What is going on with this blog?

  12. LarrytheG Avatar

    re: “shooting the messenger” .. and “saving me money on the cost of electricity”.

    is the argument that we can get cheaper electricity if we lower the cost by taking land from property owners for less than what they want to sell for?

    that’s a heck of an argument.

    my view is that the right-of-way – is VITAL to serve a necessary public purpose that cannot be met in other ways.

    that’s more than “saving you money”.

    That’s sorta like saying WaWa be given the right to condemn property so that they can sell gas cheaper than if they had to pay market price for the land.

    I”d submit that – that kind of thinking is … a bit suspect.

    1. Please don’t ignore the point that the ACP is not “saving” anyone money on their electricity.

      Despite using misleading calculations to make it appear that savings will result from the ACP, Dominion’s own filings with FERC reveal the opposite. Please don’t go too far afield in conceptual arguments and overlook the facts of this case.

      Sufficient capacity exists to provide the natural gas needed in Virginia and the Carolinas according to the Department of Energy and independent consultants.

      The ACP will cost ratepayers far more and will disrupt land and landowners in Virginia unnecessarily.

      This is not a case of having to choose between having enough energy and reducing impacts. We can have enough natural gas, at a lower cost to ratepayers, without the disruption of the ACP by using existing pipelines. The ACP has never addressed this issue. The answers Jim relates from his interview still do not address the issue. It is the same response “we have customers” so the pipeline is needed. And no admission that those “customers” will do what the parent companies tell them to do.

      There is no independent calculation of available capacity, except by Synapse. There is no indication of an official inquiry about the availability of gas, its price, and the cost of transport by using the supplies provided by the Atlantic Sunrise project or other sources.

      Any citizen going to the bank for a loan would have to provide more justification than the ACP has provided for building this pipeline. They should be required to calculate the flows and capacities of existing pipelines, just as Synapse has. And show that they compared the prices from alternative sources that are available today.

      They have to do that before they are approved to build a new billion-dollar power plant. Why aren’t they held to a similar standard when building a $5 billion-dollar pipeline? Especially when the disruption is far greater and there is a cost penalty to the ratepayers.

  13. Peter Galuszka Avatar
    Peter Galuszka

    And thomg seems to know what he is talking about

  14. Peter Galuszka Avatar
    Peter Galuszka

    I mean tomh. Sorry

  15. VaConsumer Avatar

    How will it be possible for the SCC to justify making Dominion’s ratepayers reimburse it for the costs of expanding the Transco line serve the new gas facilities AND paying for redundant supply via its own pipeline? Costs to ratepayers of using the new pipeline will be significantly higher than costs of using the old Transco line and ratepayers are also on the hook for long term contracts to buy gas from Transco and use its pipeline. The official documents may not say that the ACP will give people lower electricity prices, but Dominion staff has tried more than once to convince me that even we electric cooperative customers will have lower prices because of the provision of the second way to get natural gas. Competition will make prices lower and we’ll get the benefit, they say. That logic has been employed widely with local governments and citizens throughout the process.

    If there will be competition for providing this gas, it would seem that half of what will be available will not be needed. It will be used for something. My guess is it will be exported. It will be easy to shuttle gas to Cover Point via the Buckingham Compression Station crossing. When extra miles were added to the ACP in Bath county the Buckingham Compression Station’s horsepower was increased – again – with the claim it was for the Bath addition. There’s another compression station a lot closer to Bath than Buckingham’s. Could that increase really be to push gas to Cove Point?

    If the companies had to negotiate fairly with every landowner and without the threat of eminent domain, getting totally voluntary agreements for easements, would it be economically feasible for the companies to build this pipeline? I suspect that without eminent domain they’d find they had to compensate landowners better AND guarantee more proof of safety – maybe even maintain the facilities at a higher level – to get those voluntary agreements. These companies get an advantage over other entities by having access to eminent domain. It was not intended to be used for private gain, but that’s what is happening here.

    If it was possible to only earn 5% return on equity locked in for 20 to 30 years, for investing in the pipeline (which is closer to real for most of us) instead of being guaranteed 14% for 20-30 years, do you think we’d be talking about a pipeline at all? Investors learn that to get higher potential return, they must take on more risk. However, that is not what is happening in this case. These investors are getting extraordinary guaranteed long term return and the risk all goes to the landowners and the communities. There is no justification for this in today’s market.

    If these pipelines were not being put in relatively unpopulated areas, the companies would have to use stronger pipe and would have to install more cut-off valves. Likewise, safety inspectors would not be able to put rural areas at a lower priority. If every community forced to host this infrastructure was provided the same safety standards – same thickness of pipe, same frequency of cut-off valves, same safety inspection levels – it would cost the companies more. By reasoning that fewer people and other things in the path of the pipeline means less loss if damage occurs, the companies are saving money while sacrificing those in the path of the infrastructure.

    As a country, we quickly figured out when electricity was new that we couldn’t afford to have multiple electric lines. Only one was needed to serve people and more people got access when lines were spread farther instead of hanging two or more sets of lines to compete with each other. Why do we now think we need multiple pipelines for natural gas? They, especially these new monster size pipelines, are far more expensive, disruptive and dangerous than electric lines. Why not invest available dollars in improving the existing pipeline infrastructure that experts tell us are sufficient to meet societal needs and plan for everyone to share it? There’s not as much profit for the companies so it’s not considered.

    The bottom line is that this is not being done for reliability or low costs for consumers or to meet basic needs or for any other societal benefit. It’s being done so the companies – and their investors – can make the most money possible by the most lucrative means available today. Take away that long term guaranteed extraordinarily high by market standards return on equity, use of eminent domain and lower standards in rural areas and we’d not be talking about new pipelines at all.

    Remember that folks, including JB, have determined that it’s unreasonable for our state retirement system to expect a long term rate of return on its holdings of 7 or 8%. Since that cannot reasonably be achieved they are calling for workers to shoulder more responsibility for funding their retirement, letting the state off the hook.

    How can we justify rewarding companies that build new pipelines so much earning? so much of our land? our sense of safety on our own property?

    1. How will it be possible for the SCC to justify making Dominion’s ratepayers reimburse it for the costs of expanding the Transco line serve the new gas facilities AND paying for redundant supply via its own pipeline? Costs to ratepayers of using the new pipeline will be significantly higher than costs of using the old Transco line.

      This is a good question, and it was one that I explored when I interviewed Dominion officials.

      However, you are making an unsupported assumption — not necessarily a wrong assumption but an unsupported one — when you say that building a new pipeline will be more expensive than upgrading the existing Transco pipeline. As Transco’s spokesman confirmed to me, Transco would have to make significant capital investments to supply the gas that Duke, Piedmont, Dominion and VNG are looking for. How much, he couldn’t say. Because the RFP process is not an open one, as it is with public entities, we don’t know what Transco’s bid was — assuming it even submitted a bid.

      Duke, Dominion and the others argue that the increased flexibility of two pipelines, access to more gas-producing areas, access to more gas suppliers, and the ability to exploit seasonal price variations in different markets would allow them to save money on gas purchases.

      I asked for details. How did the anticipated savings in gas purchases compare to the added cost of building the ACP? They could not give me an answer. The tariffs for the ACP are confidential. (Making any comparison more complex is the fact that the utilities justify the pipeline not solely upon cost savings but by the value that comes from diversifying their supply portfolio. Diversification reduces risk from mishaps and price spikes.)

      Can we believe Duke, Dominion and the others when they say they’re saving money and reducing portfolio risk? They say they are unable to provide hard data to support their contention. Obviously, you are inclined not to believe them, as is your right.

      I neither believe them nor disbelieve them. I am just trying to get as much information into the public domain as possible so we can get closer to the truth of the matter. What I don’t know is if that proprietary data will be made available to FERC and the SCC so that there is at least some level of accountability.

      Assuming FERC approves the ACP, Dominion will approach the SCC asking the commission to pass through the costs of purchasing and transporting natural gas to the ratepayers. I would expect that Dominion will have to provide a detailed justification of its decision to go this route. In theory, if it fails to provide a convincing justification, the SCC will not provide the full rate relief it seeks.

      1. Jim,

        You raise excellent points. They are the issues we have been trying to gain more information about for over a year. They are supposed to be the issues addressed in the NEPA process that requires assessing the need for a project and its possible alternatives. For decades FERC has ignored this federal law and accepted customer contracts as proof of need. The citizens of the U.S. deserve to have their federal agencies conform to the law when evaluating multi-billion dollar projects.

        “However, you are making an unsupported assumption — not necessarily a wrong assumption but an unsupported one — when you say that building a new pipeline will be more expensive than upgrading the existing Transco pipeline.”

        Basic math tells the story. Pipeline tariffs are based primarily on the rate base (the depreciated cost of the pipeline) plus the allowed rate of return. The rate base for a new pipeline is much higher than a nearly fully depreciated one. That is why it is considerably cheaper to transport natural gas using existing pipelines compared to new pipelines.

        “As Transco’s spokesman confirmed to me, Transco would have to make significant capital investments to supply the gas that Duke, Piedmont, Dominion and VNG are looking for. How much, he couldn’t say.”

        This is the information that is supposed to be provided by the applicant, and must be included by the lead federal agency in the Environmental Impact Statement for the project. NEPA requires that the agency:

        a. Rigorously explore and objectively evaluate all reasonable alternatives, and for alternatives which were eliminated from detailed study, briefly discuss the reasons for their having been eliminated.
        b. Devote substantial treatment to each alternative, including the proposed action so that reviewers may evaluate their comparative merits.

        I have proposed that the 1.0 Bcf/d going to North Carolina could be provided to the same locations as the ACP with just 200 miles of pipeline rather than 600 miles of pipeline. This is not a detailed cost comparison, but it obviously would be a cheaper option.

        Location for the new Dominion plants in Virginia that will be connected to the ACP have not been identified. But the extensive network of expanded capacity existing pipelines in Virginia will provide many more opportunities for a good location than the single corridor for the ACP. Again, transporting gas on an existing pipeline is much cheaper than using a new one.

        “Duke, Dominion and the others argue that the increased flexibility of two pipelines, access to more gas-producing areas, access to more gas suppliers, and the ability to exploit seasonal price variations in different markets would allow them to save money on gas purchases.”

        I have already explained how existing pipelines provide the same opportunity for sourcing gas from multiple locations and transport that gas at a lower price. Existing pipelines can source gas from the western Marcellus (same as ACP), the Gulf Coast and the lower cost Northeastern Marcellus. The ACP can gain access to the Gulf Coast and Northeastern Marcellus gas supplies only by connecting with the Transco pipeline. The ACP is also proposing a connection to the Columbia Gas pipeline that also provides access to Gulf Coast supplies. The flexibility that the ACP says is solely provided by them, is obtained only by connecting to existing pipelines. The ACP has just a single supply header in the western Marcellus. It is extremely misleading for the ACP to say these flexibility advantages only exist with a second pipeline.

        “I asked for details. How did the anticipated savings in gas purchases compare to the added cost of building the ACP? They could not give me an answer. The tariffs for the ACP are confidential. ”

        This is troubling, Jim. They did not even give you a straight answer. The tariff for the ACP has been published in documents submitted to FERC. It is likely that ACP will ultimately have negotiated rates with its shippers that will be confidential, as they did with the new Transco connection. But we have published rates from Dominion that allows the comparison of the costs of both those pipelines to serve Brunswick and Greensville.

        “Can we believe Duke, Dominion and the others when they say they’re saving money and reducing portfolio risk? They say they are unable to provide hard data to support their contention. ”

        Their difficulty is that hard data do not support their contentions. The ACP contends that their pipeline is necessary in order to save ratepayers money by providing more flexibility in sourcing natural gas. They have touted $377 million dollars of annual energy cost savings to customers as a result of the ACP accessing less costly sources. Unfortunately, they have used a misleading comparison in order to support their argument. In their public pronouncements and filings with FERC, they have always compared the cost of gas at the Dominion South Hub to the national price at Henry Hub in Louisiana. Because of the oversupply of natural gas in the Marcellus, the price at Dominion South has been lower. But many of the supply hubs in the Marcellus are also selling below the Henry Hub price.

        The source of natural gas supplied by the Transco pipeline to Dominion’s new power plants is taken from northeastern Pennsylvania. It is by far the most productive region in the Appalachian Basin. Just three counties in this area supply 50% of all of the gas produced in the Marcellus. The Leidy Hub is an example of the pricing in this region. Pricing for June 24, 2016, shows a price of $1.90 for Dominion South representing the western Marcellus/Utica Zone (and the supply for the ACP). On this same date, hubs in the highest productivity area in the northern Marcellus were showing lower prices. A price of $1.40 /mcf at Leidy was available on the connector pipeline to the Transco transmission system. Obviously, gas prices are a moving target, but if the current price differential ($0.50/mcf) existed for an entire year, Dominion’s electric ratepayers would pay an additional $91 million for natural gas at Brunswick and Greensville as a result of Dominion trying to “save” them money by building their own pipeline.

        “What I don’t know is if that proprietary data will be made available to FERC and the SCC so that there is at least some level of accountability.”

        Hard data also exists to compare the price of transporting gas on existing pipelines thanks to filings with FERC regarding the new Transco connection to serve the Southside plants. Here is a comparison of the information provided to FERC.

        The rate of return used for the ACP assumes a debt structure of 50% equity and 50% debt. The FERC authorized rate of return on equity for the ACP is 14%. The proposed debt rate is 6.8%.

        Cost of Transportation Services to the Brunswick and Greensville Plants
        Transco ACP
        Total Rate Base $0.461 billion $4.986 billion
        Pre-tax rate of return 15.34% 15.00%
        Depreciation rate 2.61% 2.50%
        Daily Contract Demand 500,000 Dth/d 500,000 Dth/d
        Daily recourse rate $0.52785 /Dth $1.7249 /Dth
        Total ann. transportion cost $ 96.3 million $ 314.8 million

        The cost to deliver gas to the same two plants over existing pipelines is $218.5 million less in the first year compared to using the ACP. This extra cost can be automatically passed through to customers without their consent as part of the fuel charge on utility bills.

        This is precisely the information that is required by NEPA to describe alternatives to a proposed project. FERC should demand it if they are to meet the requirements of federal law. It is extremely disingenuous to say that this data is proprietary or does not exist; especially when Dominion was a party to both proceedings.

        “Assuming FERC approves the ACP, Dominion will approach the SCC asking the commission to pass through the costs of purchasing and transporting natural gas to the ratepayers. I would expect that Dominion will have to provide a detailed justification of its decision to go this route.”

        This information must be reviewed by the SCC now. The only way the ACP is profitable is through the higher prices paid by the customers of their utility subsidiaries. You cannot make a new pipeline cheaper for transporting gas than existing pipelines that are mostly depreciated. The math does not work. And you cannot argue that savings for accessing gas from more locations will make up the difference when the ACP can only access those additional locations through the use of existing pipelines.

        No organization is protecting the interests of Virginia ratepayers. If the SCC rules that ratepayers should not pay more in order for the owners of the ACP to profit they should make that ruling now before more money is wasted on this project. This issue must be addressed before a Certificate of Public Convenience and Necessity is issued by FERC.

  16. Jim,
    You didn’t mention the information I gave you on the need for the pipelines. Remember the report I sent you about overbuilding of pipelines by IEEFA, in which it was clearly stated that the lure of high rates of return on investment, as much as 14% return, was driving pipeline developers to overbuild. The price of gas supplied by the ACP is much higher than the price of gas supplied by the Transco line. The Brunswick and Greensville gas plants are contracted to be supplied by the Transco line at a lower cost until such time as the ACP is connected. The Transco line has ample supply for the Hampton Roads area.
    Dominion did not discuss exclusion of competition from other natural gas suppliers. I think the entire article is bogus.
    Dominion’s market plan needs to change to reflect the reality that we can no longer use fossil fuels for a source of electricity generation. In 10 to 15 years, natural gas pipelines will be obsolete as renewable energy becomes the dominant source for power generation. By 2030, renewable energy is projected to be the dominant source of power in this country. Pipelines will become stranded assets and the ratepayers will pay the bill.

    1. KB, The article was too long as it was. I couldn’t address both sides of every point of contention. At some point, I will address the perspective of those who disagree with Dominion.

    2. KB, I would add one more thing. While FERC does allow a 14% ROE on interstate pipelines, that doesn’t mean that Dominion, Duke et al necessarily will earn a 14% return. Now, it’s theoretically possible that the utilities are engaging in self-dealing and plan to rip off ratepayers by paying ACP exorbitant tariffs. But the utilities will have to make their case to their respective public service authorities in order to recoup those tariffs. Because the tariffs are confidential, we just don’t know.

      In cases like these when utilities have what is in effect a captive pipeline, I personally believe that tariffs should be made public, so the public can see if any self-dealing was engaged in or not. At the very least, the tariffs should be reported to the regulatory authorities. I simply don’t know if that’s the case or not.

      1. “While FERC does allow a 14% ROE on interstate pipelines, that doesn’t mean that Dominion, Duke et al necessarily will earn a 14% return.”

        A study of 32 major pipeline companies by the Natural Gas Supply Association showed that 20 of those 32 recovered more than their allowed rate of return. One managed to achieve a 36% rate of return, far above the authorized rate. This does not mean that this will be the case with the ACP. It just shows that it is common for natural gas pipeline companies to achieve higher than the allowed rate of return.

        The 14-15% rate of return is already exorbitant. Especially in the case of the ACP where its income is assured by the customers of the captive subsidiaries.

        In an era of low single digit returns for a variety of standard investments, a rate of return this high severely distorts the market. It sends a price single that attracts developers far in excess of what is needed. If all of the proposed pipelines are built, there will be 40% more pipeline capacity than is needed to transport the maximum output of the Marcellus.

        This is not good public policy and should be intensely reviewed.

        As noted above, the tariffs are part of the public record, but not the ultimately negotiated ones. There is an argument for protecting a competitive advantage, however, at least initial published tariffs should be scrutinized to determine if the project is better than other alternatives. With the ACP, that does not seem to be the case. Costs to ratepayers and the disruption to private and public lands are worse with the ACP compared to existing alternatives.

  17. A good discussion, while I took time out for another life. Peter, don’t know why WordPress rearranged things. Larry, we should talk about the power of eminent domain in the abstract, or some other context that neither of us is so invested in. I’m sure you would concede the need for it in SOME situations.

    But to TomH: we should all be applauding that someone here is taking the hard look at Dominion’s IRP that it deserves — and, I assume, at the responding testimony and whatever comes out of the upcoming public hearing on it all — even if not just to write about it here. That IRP is a portentious document for Virginia and has already elicited some important reactions from other parties; ive been trying to get folks to focus on it, and I hope Jim will find a way to feature it again on the blog sometime. Having already expressed a few questions on these pages myself doesn’t make me competent to tackle the whole thing; my knowledge is far from complete and often dated and surely biased at times. So it goes with retirement!

    1. LarrytheG Avatar

      @Acbar – I totally support Eminent Domain. But the bar is high and I consider prior uses of it corporate abuses – and I’m not alone – the laws for ED have been tightened up over the years to include even VDOT.

      One example of modern-day abuse – two different companies – both seeking pipeline rights of way – and both are planning on making an Eminent Domain argument for right of way. How can that be?

      I keep pointing out that the Rocky Express pipeline – 4 times the length of this one was 95% acquired with voluntary agreements and the remaining 5% through ED. That’s a good threshold.

      And you should NEVER want one group of people saving money – at the expense of landowners who were forced to sell their land to keep costs down.

      and speaking of Mountain Valley – how interested would you be in the relevance of a long-winded article on HOW they put their consortium together to build their pipeline? Any more or less than a similar article about Dominion?

      How about we have a series of articles in BR about Mountain Valley and their proposal and planning? would that be exciting reading?

  18. LarrytheG Avatar

    I’ve asked this question several times and never have gotten a definitive response but instead have seen conflicting ones.

    Why does Dominion need gas for electricity generation in the Chesapeake/Portsmouth region if such plants can be built far away and still generate that power – IF there is sufficient powerline/grid infrastructure to transport it?

    Why – if there are already existing powerline rights-of-ways south and north of the James can they not be upgraded to higher voltage and new gas powerplants sited further west where existing pipelines and high voltage transmission corridors cross or are in close proximity ?

    these are questions that have been posed in response to articles written here outlining DVP “plans”. The responses to these questions have been largely absent despite Mr. Bacon’s apparently close access to DVP people … his response has been “I don’t know and I don’t know what DVP thinks”.

    Others here have pointed out that that plants do not need to be “near” to where the power is generated .. and Dominion itself proposes to build power lines over the James to do so.

    Further east – along the proposed route of the ACP – there are existing natural gas crossings to Hampton as well as powerline crossings near the former Chesapeake site and of which another company is proposing a plant – so I presume that such a plant is feasible – WILL SERVE a legitimate public purpose and be able to supply power to Hampton.

    What we are getting here with BR’s commentary – is basically what Dominion’s “plans” are and a “we don’t know” to any other plans and activities – as if the only “plan” that truly exists is Dominion’s.

    I would suggest that such a commentary is pretty narrow in focus and tends to favor Dominion’s version of what plans should be pursued as if it is their prerogative alone rather than others to include the public and rate payers at large.

    The irony is thick when the premise is the ACP is needed to “save money” but Dominion apparently opposes consumers saving money with residential solar… solar and wind turbines are ugly and “hard to site” but not a 42″pipeline and power lines over the James.

    can’t use existing rights-of-ways because they are “too narrow” but better to cut brand new wide swaths rather than widen the “too narrow” ones.

    Over and over – we get the Dominion perspective here and either no response or “I don’t know responses” to obvious questions …

    Finally – I am NOT an opponent of Dominion. They are a reputable company that has a vital mission in serving all citizens in Virginia.

    In this blog – we have had excellent discussions in no small part because we have a number of knowledgeable people commenting but even their questions are not seriously dealt with.

    So maybe a suggestion – some constructive criticism -How about soliciting from Mountain Valley – some of their views about their gas pipeline proposal and what purposes they see it serving ?

    I would think that would be a fair suggestion for any blog purporting to be a journalistic endeavor to more objectively inform folks on the issues and not just one perspective from one entity.

    1. “Why does Dominion need gas for electricity generation in the Chesapeake/Portsmouth region if such plants can be built far away and still generate that power – IF there is sufficient powerline/grid infrastructure to transport it?”

      Maybe I’m having a senior moment here and forgetting something obvious, but… Who says Dominion needs gas for electricity generation in the Chesapeake/Portsmouth area? Virginia Natural Gas wants more gas so it can sell to more customers. And one can assume that Matex wants gas in case it decides to proceed with the Chesapeake plant. I’m not aware of any plans on Dominion’s part to build a power station in the Chesapeake/Portsmouth area.

      1. LarrytheG Avatar

        The obvious question is how will peak power demands be handled in Hampton …?

        They’re proposing Surry power to replace Yorktown baseload.

        where is the peak load power? Is Matex doing it?

        and it terms of cost for gas – what happened to the free market and pricing gas on a supply/demand basis and let those who consumer it make choices about whether to pay more for gas or get more efficient heating or insulation or not?

        what happened to the free market and supply/demand for gas?

    2. How does the proposed powerline over the James River relate to these projects? It that still needed?

      1. LarrytheG Avatar

        Dominion says it is still needed – as opposed to – expanding existing power lines along I-64 to be higher voltage and powering them from a Richmond area gas plant that sits on the Transco pipeline or the ACL pipeline powering a combined-cycle gas plant near Chesapeake or Hampton.

        What we’ve gotten so far in BR is Dominions view of the need and their solution… which is by far not the only way to do it – just the way they want to do it – and the question is – is this their decision alone or does the public also have a right to be part of the choices – like, for instance, whether powerlines over the James near Jamestown is the ONLY possible alternative – and it’s clearly not and the ones that Dominion has cited as inferior alternatives do not include ones that would be existing powerline rights of ways along I-64 – not just through the Chickahominy lands.

  19. Re ED — we have to strive for some consistency in how we apply such extraordinary powers of the State as the taking of private property for a “public need”. That is to say, who is the public, and what is the good for which the project is the ‘needed’ cure, and when are both sufficient to invoke ED. There are whole textbooks written on these philosophical questions and I’m no professor of law. What I do know, from hanging around this long, is that when a major project with lots of people and money and politics involved gets up a head of steam and there’s one landowner who won’t sell an essential parcel, the project usually wins. That flies in the face of our mythology of the defiant little guy protected by the Law, but I’m of two minds about it. We have become so unable to make infrastructure decisions in this Country that improvements just don’t seem to get done — and I’m not ready to simply settle in my rocking chair and say “life is good and fast enough, who needs improvements?” I’m tired of bureaucrats taking two years to say yes or no, sequentially, agency after agency, study after study reassembling the same facts for different emphasis. Technology and priorities change, the economy demands. Where did the notion of “human progress is good” go? And then — there’s the evocative picture of the pristine mountain valley placed alongside another photo of those assemblages of heavy equipment and raw dirt and the outrage builds. Progress at what cost? So — in spite of all the law and preferences and logic which can be brought to bear on this fraught topic, I’m not going to speculate what the “right” answer is for the exercise of ED except to say, “it depends.”

    1. LarrytheG Avatar

      @Acbar – the country is heavily crisscrossed with highways, pipelines, high voltage lines, etc…. it’s not like we’re shut down.

      West Virginia is torn asunder from “infrastructure projects”.

      Fracking is going great guns!

      so where is the hold-up?

      and as I showed – the Rockies Express got 95% of 4 times as much right-of-way without ED needing ED only for the last 5%.

      that shows that it can be done if the company is committed to fairly priced offers and not simply depending on ED to force people to sell.

      You ask who the “public” is.

      I ask what is a public purpose. Can WaWa or Exxon condemn a piece of land because they “serve a public purpose”?

      when you can explain to me the DIFFERENCE between Exxon wanting to condemn a piece of land – and a LEGITIMATE “need” to condemn land for a genuine public purpose – I might believe you more…. how about it? can you explain the difference between Exxon wanting to condemn land for a service station and a gas pipeline company wanting to condemn land for a public purpose – beyond their wish to “sell gas to the public”?

      how about it?

  20. CleanAir&Water Avatar

    A few things not mentioned so far … supply and demand of natural gas in this “once in a lifetime gas opportunity”.

    Supply … The rampant investor enthusiasm for shale gas and fracking, which seems to have been the primary motivator for the ACP, has turned south in some places. Marcellus Shale production could peak in just five years, plateau, and then tail off quickly, according to research by a team of petroleum engineers at the University of Texas. That is the pattern of shale gas production at other locations.

    While some problems with ‘fracking’ have been mitigated with better technology, but many complications remain. (Shale Gas Reality Check by David Hughes)
    • The rate of well production decline – typically 75-85% in the first three years.
    • Field production declines of 30 – 45% a year, which must be replaced with more drilling to maintain production levels
    • The EIA modeling system has results that have been wrong.

    Other fracking issues …
    • A new process that reuses the 2+million gallons of water it takes to frack one well helps, but the used water is toxic, includes radon, and cannot be returned to the water cycle. One solution was to re-inject it into the old wells. Studies in TX and OK have proved the re-injected water has caused the multiplicity of recent earthquakes.
    • Current price is too low to cover extraction costs. Driller bankruptcies have been occurring.
    • LNG overseas price discrepancy has shrunk. Futures prices remain fairly low. The rush to develop LNG export facilities has slowed.

    Demand … The second problem with the ‘great gas opportunity’ which made gas the primary substitute for old coal plants in some areas; the projected levels of demand for grid delivered electricity could be way off. Federal agency projections of reduced grid demand have not allowed for the very fast the growth of roof-top solar and efficiency building retrofits. A new paper from Georgia Tech concluded … ”Beside being the cheapest and the cleanest energy pathway, those reductions in demand are the equivalent of cutting natural gas plant expansions by up to 65%.

    Federal agencies and utilities are reviewing their projections of load growth. TVA Chief Financial Officer John Thomas told a conference of TVA executives in Chattanooga recently, “It used to be we could rely upon 3 to 4 percent annual load growth, so we were continually adding major new power blocks (from nuclear, coal, gas and hydroelectric generators) because we knew we would need them sometime in the future. With current changes and … the potential of even negative load growth in a few years — it makes all of us very concerned about making any long bets.”

    The ACP is counting on long term supply of gas from Marcellus and Utica as well as the fact that the “massive growth in demand” is there by the time the pipeline is built. Here is another view of the future …. NextEra Energy CEO Jim Robo said he expects energy storage will begin to replace gas peaking plants after 2020. (PV Tech Storage)

  21. LarrytheG Avatar

    Dominion have never made an explicit dollars and cents case for ratepayers for the ACP… they play PR games with words but nowhere is the prima facie case that would convince ratepayers that the ACP would benefit them directly on their electricity bills.

    where is that dollar and cents claim ?

    why should any person who uses electricity support the ACP?

  22. Dominion does not have to make a case to the ratepayers. They only need to convince FERC that it is needed. And traditionally, FERC assesses the need by seeing if a pipeline has customers to ship the gas. We’ll see if it makes a difference to FERC that nearly all of the customers for ACP are captive subsidiaries of the developers of the pipeline.

    So far no Virginia organizations, the SCC or the AG, have spoken up on behalf of Virginia ratepayers. It is not clear if this is because of ignorance of the huge extra cost ratepayers will have to bear to use the ACP instead of existing alternatives or some other reason.

    The North Carolina Utility Commission has intervened with FERC to argue that the high rate of return authorized for the pipeline will cause North Carolina ratepayers to pay far more than if the pipeline was built intrastate.

    It seems strange that a $5 billion investment that has great cost repercussions for Virginia ratepayers is proceeding along without notice from Virginia regulators. But as previously noted, the Virginia DEQ seemed perfectly content to forego their responsibility to enforce the Clean Water Act in regulating the construction of this pipeline. I have worked in several states and never have I seen such behavior on the part of state agencies. You could almost call it criminal neglect of their statutory duties. Citizens of Virginia are paying the salaries of these various agencies and are not receiving their protection.

  23. LarrytheG Avatar

    looks like problems with the landowners and the gas wells also:

    In gas drilling country, the honeymoon is over on royalties

    ” In Pennsylvania and other leading gas-producing states, a battle royal has developed over royalties, with landowners bitterly disputing the sums that some drillers have been taking from royalty checks already severely diminished by a collapse in prices.”


    Energy companies have sunk more than 1,000 wells in McLinko’s rural county since 2009. In the early years of the fracking boom, royalties could amount to tens of thousands of dollars per month. The money helped save many family farms.

    Then prices tumbled, the wells began producing less gas as they aged and residents began taking a closer look at their drastically shrunken checks. Many of them didn’t like what they saw: huge deductions for the cost of getting the gas from well to market.”


    1. CleanAir&Water Avatar

      Interesting article Larry.
      Awhile back I read of some Pa lease owners who felt hoodwinked because royalties varied widely depending on whether the property was part of what the drillers call a ‘sweet spot’, a section of the shale formation that produced considerably more gas than other areas. Now with the low prices I read that the drillers are only drilling what they know to be ‘sweet spots’. That may not be a great idea for the land owner who might want to wait and hope for a higher price, especially given a depletion rate that could leave them with nothing to sell when the price goes up.

      I see that there are groups out there with information for the lease owner to get a better picture of what the royalties will mean and Penn State’s Marcellus Center for Outreach and Research is keeping and making available data from all the wells.

      Lots of ways to look at this Gas Boom and it’s not living up to expectations.

  24. Peter Galuszka Avatar
    Peter Galuszka

    Is Bacon’s Rebellion in a time warp?

    To view these stories, it sure seems so.

    For starters, the entire U.S. shale gas fracking boom ended a few years back. Spot prices, though rising somewhat, have been well below $3 per million BTU for a while.

    Bunches of gas companies have gone bankrupt.

    And, note, Chesapeake Energy, the pioneer of fracking. It has been in deep trouble for several years and that is one reason why it is being accused of cheating people out of royalties. It narrowly avoided bankruptcy a few months ago.

    In the Marcellus Field, gas is already being rapidly depleted.

    It seems that Dominion and its ACP partners started the pipeline idea based on an obsolete dynamic.

    Not a surprise for big corporations. I remember in the late 1990s, telecom firms were so in love with fiver optic technology that they planned vast transoceanic cable projects that just about all went bust due to overcapacity.

    So where’s the “public need” for the ACP.

    Jim, why not get Dominion PR on your speed dial?




  25. CleanAir&Water Avatar

    Good to hear your thoughts. The similar ones in my earlier post and ones that I have said before have been ignored. I am not sure why, they came from legitimate sources, not just anti-frackers, though those complaints are legitimate too. NY state actually banned fracking on the basis of health issues.

  26. Peter Galuszka Avatar
    Peter Galuszka

    You are dealing with the Dominion echo chamber here. If you raise legitimate, well-documented matters, they will get ignored or you will be told you are too biased to be part of the conversation or they will deny what you say and then later state is as fact.If you are a journalist who asks questions, editors will get phone calls to raise questions about you.

    I have been dealing with these folks since at least 1974 as a journalist. They were really bad back then.Back in 1981, after I did a series of stories about their flawed nuclear program at The Virginian-Pilot, I got an offer with more money to go to the Richmond Times-Dispatch. In no time, their flaks got word to the editors there that I was bad news and could not be trusted. They hired me anyway.

    Others have had similar experiences. But Dominion isn’t getting its way as they have for decades. There’s significant push-back from well-organized property owners who have brains and don’t buy what they are told and from well-financed environmental groups who had find expertise to challenge them. The playing field is more level.

    The Web, email and social media make it harder for them to control the message despite their “sponsorships.”

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