A Thumb On The Scale for ACP?

Weather normalized summer peaks for Dominion compared to earlier and current projections by the company. Source: Southern Environmental Law Center

A witness to whom Dominion Energy Virginia had vehemently objected, Gregory Lander of a company called Skipping Stone, had his time on the stand anyway at the State Corporation Commission Tuesday. His testimony might still be stricken, but the two commissioners and everybody else in the room heard it and then a lengthy cross-examination underlined it.

If he is correct the entire integrated resource plan filed by the giant utility, a process ordered by the General Assembly to plan the utility’s future, had a fundamental flaw. One single input in a model had a ripple effect in its choices for future generation, some of which it hopes to support with the controversial Atlantic Coast Pipeline.

The three-day hearing on the integrated resource plan, which will stand for two years, opened with SCC Chairman Mark Christie deferring a ruling on the motion to exclude some of Lander’s testimony. He said the decision on the ruling would be announced with the full decision.

Christie also repeated what has become a standard SCC disclaimer on IRP cases. It is just a planning document, any future plants will need a full commission review, “and just because you admit evidence does not mean it’s a finding of fact.”  He also added that before the ratepayers are billed for gas from the ACP the cost will need to be judged reasonable and prudent in its own case.

A little background: Dominion uses a modeling system called Plexos that uses information such as the expected new demand, generating units which might need to retire, various types of generation and their costs and environmental expectations to design its future system. As engineers say, and it was said again this week at the SCC, all models are wrong but some of them are useful.

The five future generation configurations included in the integrated resource plan used the model with different inputs, many of the variations dealing with future carbon regulation. According to Lander, and this was apparently confirmed in interrogatories, the cost of transporting natural gas through the ACP to Dominion generators was simply left out. SCC staff witnesses pointed to the same omission.

The commodity cost for gas was plugged in, but the cost of getting that gas to the plant was not. This omission made the choice of natural gas more cost-competitive and perhaps skewed the model in favor of gas. It put a huge thumb on the scale.

It is the transportation charge for the gas which will include the cost recovery, plus profit, for the construction of the project. Lander claims that will add up to $3 billion to ratepayer costs over 20 years. Opponents claim gas from the ACP will be more expensive than from existing pipelines. Lander was an expert witness hired by Appalachian Voices, an anti-pipeline group.

The IRP cannot be found reasonable and prudent, Lander told the judges, if an important cost like fuel logistics is set at zero. “The model is making choices that are not reflective of total costs.” He said that instead of building new gas combustion turbine units, included in the plan to complement all the intermittent solar also planned, the company should just keep some of the other fossil fuel units it plans to retire early and run them less often.

Lander was also an entertaining witness, taking it upon himself to respond to a formal objection made by Dominion attorney before either judge could chime in, and peppering the lawyer with his own questions. “You don’t get to ask the questions,” chided Judge Judy Jagdmann. Dominion pushed back hard on the idea that an environmental witness would be suggesting they keep an oil plant in operation. He responded that is also makes no sense to strand a viable asset and using it buys time “to let renewables catch up.”

These hearings are slow, dry and technical, filled with acronyms and often a mystery to people outside of the business. The various parties have different goals and agree sometimes, disagree sometimes, and poke each other on cross examination. As of late this afternoon, day three, it was still underway.

Unnoted ironies abound, as when an environmental witness argued that the SCC staff is under-estimating solar capacity factors going forward because this has been a wet year. Uh, isn’t a central claim of climate change alarmists that this is the new normal? In pre-filed documents Dominion dismissed wind turbines as difficult to build in mountainous terrain, the same terrain where it is building hundreds of miles of pipeline.

One point of unanimity: Everybody ganged up on Dominion over its forecasted healthy growth in demand for the next 15 years.

Several witnesses noted that Dominion’s load forecasts have been wrong for years, and if demand is truly flat and will remain flat, Dominion may not need to build any new generation for a while. “Load growth drives generation planning” said William Cleveland of the Southern Environmental Law Center.

Dominion actual summer peaks (not weather normalized) and previous and current projections (rising lines).  Actual still doesn’t match projections, although they did have a higher 2018 peak missing from the chart.  Source: SCC

The two charts illustrating this article show Dominion’s actual summer peaks compared to its current and former forecasts, one a weather-normalized load forecast for Dominion. The point of taking out weather as a factor is you can see if something else is producing growth, such as a stronger economy or major changes in population. To the extent those are identified, usage is often trending down and more energy efficient machines and appliances proliferate.

These are key questions when the General Assembly was persuaded to set a goal of 5,000 MW of new renewable generation, which may force the early retirement of viable existing plants that ratepayers still have to pay for in full. It also is key when thinking about possible extensions to the operating licenses of Dominion’s four nuclear reactors. A Dominion executive testified they are keeping the estimated price of those extensions secret because they don’t want to influence future bidders.

Anybody in the nuclear business has a damn good idea what it will all cost, and Bacon’s Rebellion contributor Tom Hadwin noted a media report setting it at $4 billion. One billion per reactor sounds very optimistic. Dominion has a better estimate but just refuses to tell its ratepayers.  The SCC and all the attorneys who have signed the non-disclosure agreement know it.

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20 responses to “A Thumb On The Scale for ACP?”

  1. LarrytheG Avatar

    Excellent article Mr. Haner.. fascinating… and I’m wondering what the work product of the IRP is other than kabuki theatre… 😉

    I think looking at the actual demand versus prior forecasts is telling and it’s no surprise that no more combined cycle plants are planned… what’s less clear is what Dominion is planning to do with peaker plants – and whether or not they would site them next to the ACP – across Virginia… to modulate solar…

    But we have no idea what they are really planning.. the IRP is not it.

    1. Steve Haner Avatar
      Steve Haner

      Dominion is pretty clear that a more concise “short term action plan” embedded in the document is what they really plan to do. They’ll be back at the GA next year…..

      I wasn’t sure I’d get a story out of being there yesterday, but when Dominion’s lawyer decided to cross examine Lander, an older gent with a cane who just oozed with experience and guile, I thought – okay this is a mistake. It wasn’t really clear from his written testimony what was going on but she helped him explain it.

  2. Mr. Lander has many years in the natural gas pipeline business. His figure of a $3billion cost to ratepayers is based on an estimate of Dominion’s negotiated rate with the ACP from his experience on other pipelines. My estimate of a $4 billion cost to ratepayers for the ACP is based on the published rates. Although negotiated rates are a bit lower than the published rates, they are confidential and I felt I did not have the breadth of experience with pipeline rates, that Mr. Lander has, to make my own estimate of what the negotiated rates might be.

    Dominion provided information in last year’s IRP case that said they did not conduct any analysis of the need for the ACP. The gas prices in the commodity forecast that is used to select future resources do not include the cost of transporting the gas.

  3. Dominion has filed its last annual IRP pursuant to the old law. So demand that the filing be redone, taking the cost of gas transportation properly into account (along with all the backup data to support the reasonableness of those gas transportation projections, including the ACP cost embedded therein). There is nothing in that law, to my knowledge, to prevent the Commission from asking for updates, corrections etc. and keeping this docket open for the next year or so, even three, with further hearings triggered by each significant update. Then when the three years are up, restart. Let’s understand that the breadth of the regulatory process is for the Commission to define, within the strictures fixed by the GA, which don’t address what to do when the initial IRP filing is fatally flawed — or even not so fatally, but less than adequate, in the Commission’s (and a few protesters’) opinion. Who says the IRP is not a continuing basis for examination of Dominion’s planning process?

    1. I agree Acbar. That is what I recommended in my comments to the SCC. Since this IRP did not conform to the new requirements of the GTSA, it should not be officially accepted as complete by the SCC until it does meet all of the requirements. That way it can serve as a template for future IRPs. This year’s IRP is just a facsimile of the ones in years past. There are no big additions planned. We have time to get things right.

      First. Dominion needs to bring its forecasting process up to date. It relies on 30 years of data. Those first twenty years outweigh more recent experience. There was a discernible break in the growth in electricity demand in Virginia since 2008. Without a significant revision in the process, Dominion’s forecast will be far over-estimated, as it has been for at least ten years.

      The load forecast is the foundation of the resource planning process. Without a reliable target it is not possible to make good resource allocations. Bad forecasts lead to overbuilding.

      The IRP is also totally focused on what the utility plans to do. There is no consideration of how much energy efficiency or customer-sited solar will occur over the next 15 years that could offset the need for more utility-owned resources. The IRP should guide the decisions on the need for grid improvements to integrate distributed energy resources. We cannot have a state-wide plan without a statewide view.

  4. LarrytheG Avatar

    Well, a cynic might conclude that when Dominion won’t even admit that the cost of gas is the gas plus transporting it … as well as “planning” that seems to have a good amount of “might do” and generally lack of specifics… the whole affair comes across as a dialogue NOT based on actual evidence and facts being used to support planning.

    That’s the flavor I got out of Mr. Haners vignette of the meeting.

    Some of this comes across as Dominion “probing” the SCC and opposition on the issues to see where there is significant and credible pushback – and not.

    I suspect the lower cost of frack gas went into the calculation that a new pipeline carrying much lower price gas would result in gas being no more expensive than it was before. But there are existing pipelines with their capital costs already amortized that are competitors and one would presumably have much more profit in moving the gas. I had also speculated earlier than Transco/MVP apparently thinks they CAN build new pipeline AND make a profit by selling gas WITH contracts with Dominion for their power plants.

    One presumes that investors don’t proffer BILLIONS of dollars on not one but two pipelines without something that convinces them there is a good ROI… it sure looks like a lot of money chasing not much demand.

  5. LarrytheG Avatar

    errata: ” Transco/MVP apparently thinks they CAN build new pipeline AND make a profit by selling gas WITHOUT contracts with Dominion for their power plants.”

    to add more… One might think that of the two pipelines that the MVP has better economics… better prospects and the ACP much more uphill…

    Transco has been doing pipelines for a long time and no doubt has competent expertise on the planning economics. The ACP, no doubt, could hire expertise also but this has been Transco’s core business for decades.

    Just looking at the two routes… very different and it appears that Transco’s route runs down valleys more than over mountains and the MVP then connects with existing pipeline in the east – and if not mistaken – the ACP would connect with Transco pipelines that already feed it’s combined cycle plants.

  6. Steve Haner Avatar
    Steve Haner

    The “all in” price (commodity plus transport) for ACP gas used by Dominion remains to be seen. Tom and others claim it will be substantially higher than the alternatives, but I still think if it is, the SCC has the power to reject that price – at least to prevent it from being passed on to ratepayers. Judge Christie made that comment about applying the reasonable and prudent standard more than once as the issue kept coming up.

    But the cost of transport won’t be zero. That skewed any modeling badly. But it also skewed it in favor of solar, some told me, because solar with its low capacity factor needs backup. Lots of interesting discussion around the Bath County storage facility, too. Based on what I heard about its operations, building another one of those even further away from Dom’s territory is six different kinds of stupid.

    1. LarrytheG Avatar

      so does the SCC currently monitor the commodity price of fuel – coal and gas that Dominion buys to power it’s generators? I see on many of my electric bills (not Dominion but REC) a “fuel adjustment” line item. I really have no clue what this means but have always assumed it was an extra add on – over and above what the base rate had assumed.

      From that I got the idea – that the base rate was based on some fuel cost assumption and if it was too low that REC was allowed to recover the overage via that line item amount on my bill.

      lots of ignorance and I got my share.. and one of the reasons I value the dialogue here …

      so what say the knowledgeable here ? Is Dominion allowed to stipulate one fuel cost on their base rate then recover any additional over what was estimated originally?

      I’m quite sure that Dominion knows the answer and probably the SCC but beyond that it does not appear to be common knowledge. My bet is if you asked 100 people about that line item on their bill – only 1 or 2 would actually know the ins and outs of it and the rest of us – some vague idea based on the wording…

    2. In the IRP, Dominion predicts the price of gas in the DOM Zone will be $2.87 per Dekatherm (Dth). The published rate for transportation on the ACP is $1.88/Dth (ACP and supply header). Mr. Lander estimates that the negotiated rate could be as low as $1.40. Neither the published rate or Mr. Lander’s estimate takes into account the $1.5 billion increae in the price of the ACP. The fee to transport gas on the ACP would add at least a 49% to 65% premium to the price of gas. A cost that is not considered in the resource allocation model.

      Transportation via Transco to Brunswick and Greensville adds $0.52 to the price of gas. Transportation on other existing pipelines in Virginia is less than that.

  7. Steve Haner Avatar
    Steve Haner

    There is a separate fuel charge on the bill. Covers coal, gas, oil, uranium, etc. Also includes the cost of power purchased through PJM. It is set for a year and on a rolling basis is adjusted up and down on actual costs. It includes no profit factor for the utility – a pass through with an annual true up. The decisions about gas from the ACP will be made when Dominion is first starting to use it and must include it in the annual fuel cost review.

    1. LarrytheG Avatar

      re: “actual costs”… is it what the utility says is “actual costs” or what the market price is? If the utilities claim an “actual” price that is more than the “market” price?

      What keeps Dominion from claiming ACP gas is the “actual cost” when other gas available in the market is less costly?

  8. Steve Haner Avatar
    Steve Haner

    Like any other major user they buy commodities in long term contracts, hedge when they can, and maybe use the spot market on occasion. I’m pretty comfortable they are good at it and the results are reviewed annually – if something is way out of line it will be challenged. What they claim about ACP prices and how it compares will be of interest to us all….that’s where those magic words reasonable and prudent are supposed to come into play.

    1. It is not the price of gas that is the issue. It is the cost of transporting it.

      During the past few years, the price of gas from the West Virginia zone of the Appalachian Basin (represented by the Dominion South Hub) has been lower than the national price in Louisiana (Henry Hub). But it has been about the same price as the Leidy Hub in Pennsylvania which supplies much of the Transco system.

      The Warren plant gets its supply via Columbia Gas from a similar production zone as is proposed for the ACP. Transco supplies Bear Garden, Brunswick and Greensville (soon). There are no more combined cycle plants that will be built. Dominion’s major gas-consuming combined cycle plants are already well supplied with long-term transportation agreements using existing pipelines.

      Dominion wants the SCC to approve passing through its 20-year long-term transportation agreement with the ACP to its ratepayers. This will add $3 – $4 billion to DVP’s energy costs with no benefit to the customers. No plant in Dominion’s system would receive delivered gas (gas + transportation) at a lower cost using the ACP.

      My concern is that by waiting until a Fuel Factor case to make this decision, either the ratepayers or the utility will be harmed.

      Obviously, if the ratepayers are asked to repay the cost of the contract for a pipeline they don’t need, that is economic harm to them.

      However, if the SCC does not allow DEV to recover the cost of the contract, DEV, through is wholly owned subsidiary Virginia Power Services Energy (VPSE) is still contractually obligated to pay the ACP the full price of the contract for 20 years even if no gas is delivered. The North Carolina regulator could make the same ruling for Duke’s three subsidiaries.

      It appears that we are playing regulatory “chicken” for the failure of the owners of the pipeline to determine if the pipeline was actually needed, and the failure of FERC to perform any independent evaluation to check to see whether the pipeline developers were telling the truth about the need for it.

      We are headed for a lose-lose outcome. One that could be easily avoided. But something needs to be done soon. Investors and lenders have depended on the FERC certificate as a proof of need. They have been fooled like everyone else who expected a rational regulatory process for pipelines.

  9. I would not defend Dominion on anything. Even the 5000 MW of solar is probably because it costs consumers more, and profits Dominion more than other options.

    Cost of natural gas to household consumers is frustrating, even today. We as consumers do not see the $2-$3 well head price. Multiply that by a factor of 4x , and then multiply by 2 for admin costs, for which we get no service, to my knowledge. But the overall household cost is competitive with heat pump etc so there is no uprising. It just seem like a huge profit margin. I am thinking commercial customers get much sweeter terms.

    If you ask me, though, natural gas is not popular with utilities because it has less profit margin.

    1. TBill,

      Utilities do not earn any profit from using gas. The total cost (if determined to be prudent) is passed on to ratepayers (through the Fuel Factor) with no added profit.

      The profit is made from building a power plant that burns gas. The Greensville plant, in service early next year, will cost about $1.3 billion. With a 9.6% rate of return from its RAC, DEV will earn about $2.5 billion from this plant. DEV will be repaid in full for its fuel costs, repaid in full for the cost of building it, repaid in full for the cost of financing it, and will receive all of the proceeds from selling its energy at wholesale to PJM, plus the guaranteed profit from the RAC.

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