Dominion’s Proposed Six-Year, Virginia Infrastructure Spend: $11.7 Billion

Source: Chmura Economics & Analytics

by James A. Bacon

Dominion Resources proposes to expend $11.7 billion over the next six years on energy infrastructure serving Virginia, including new generating plants, electric transmission lines, a gas pipeline and environmental clean-up, the company announced today. Of that amount, an estimated $5.7 billion will be spent in Virginia, producing a direct and indirect economic impact averaging $1.68 billion per year over the six-year period.

“Our growing Commonwealth requires an expanding and reliable energy infrastructure,” said Paul Koonce, CEO of Dominion’s Energy Infrastructure Group and president of Dominion Virginia Power. “Our capital investment program over the next six years is designed to meet that need and achieve environmental goals of the federal Clean Power Plan.”

Governor Terry McAuliffe weighed in with a favorable comment upon the investment program. “In order to build the new Virginia economy, we must have low-cost, diverse and reliable energy resources. These investments not only build upon an already solid foundation for economic growth in Virginia, they also create tens of thousands of jobs and produce billions of dollars in capital that benefits the Commonwealth today.”

Only one project on the list, construction of the Brunswick County gas-fired generating plant, has received regulatory approval. Others are at various stages of development, from being “on the drawing board” to moving through the regulatory process, according to Dominion spokesman David Botkins. Especially controversial are the proposed Atlantic Coast Pipeline, a natural gas pipeline; continued pre-construction development of the proposed North Anna 3 nuclear power plant; and several proposed electric transmission lines; all of which are opposed by landowners and/or environmentalists. Also controversial, because of potential impact on rate payers, is a proposal to put vulnerable electric distribution lines underground.

Assuming all the projects go forward, the economic impact on Virginia would be considerable. According to a study commissioned by Dominion and conducted by Chmura Economics & Analytics, Dominion’s capital investment would inject $771 million directly into Virginia’s economy in the first year, 2015, and would generate an additional $579 million in indirect and induced impact for a total impact of nearly $1.4 billion. Total impact would peak in 2017 at $2.5 billion and then level off around $1 billion annually in subsequent years.

About half the impact would come from construction spending, the press release stated, while “the rest would result from growth in other sectors of the economy as spending spread.”

Frank Rambo senior attorney with the Southern Environmental Law Center, responded in an email communication that Dominion should reallocate its investments from capital-intensive projects, which “produce high shareholder profits at the ratepayers’ expense,” into more labor intensive energy resources such as renewable technologies and energy efficiency. A shift from an over-reliance on natural gas to clean energy, he said, “will not only create more jobs but also help lower electric bills and create healthier communities.”

Bacon’s bottom line: The impact of Dominion’s proposed energy projects on Virginia’s economy would be considerable. More important than the short-term stimulus of the design, engineering and construction work is the necessity of expanding the capacity of Virginia’s energy infrastructure to meet the anticipated growth of Virginia’s population and economy — a critical point made in the press release by Virginia Chamber of Commerce CEO Barry DuVal. That benefit, not captured by the Dominion numbers or the Chmura study, would dwarf the impact of the capital expenditures themselves.

However, not all energy projects are created equal. Some offer a higher risk-adjusted Return on Investment than others. Is it worth $808 million to keep open the option of a third nuclear power unit at the North Anna power station that even Dominion concedes would cost rate payers $19 billion — with no guarantee that the project ever will be built? Is it worth spending $1 billion to bury roughly 20% of Dominion’s local distribution system to reduce the number of electric outages and shorten recovery times during major storm events?

Perhaps more fundamental is the question of what kind of electric grid Virginia wants to build. Dominion’s vision of the energy future is one in which Dominion continues to play a major role, building the power plants (including nuclear, natural gas, solar and wind), the electric grid, and the natural gas pipeline to supply the gas, all embedded in the larger, multistate PJM Interconnection system in which Dominion would swap electric power with out-of-state power producers as needed to meet peak demand and ensure reliability. Dominion’s critics envision a decentralized future with more wind and solar generated by independent, small-scale power producers less dependent upon large-scale transmission lines that shuttle electric power long distances. The costs and benefits of the competing visions are all but impossible to estimate with econometric models.

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6 responses to “Dominion’s Proposed Six-Year, Virginia Infrastructure Spend: $11.7 Billion”

  1. LarrytheG Avatar

    If Dominion is guaranteed a profit – is there really any risk/reward dynamic?

    seems like Dominion could choose a really bad path because there is no real down side to doing it.

    Some would say that Dominion has kept prices down to this point – and I would agree.

    But I’d also point out that keeping prices down by burning coal did not require great business accum – just steady as you go.

    that’s changing now and choices made today may have decades-long consequences.

    Wind and solar are not stand-alone fuels and base-load from Nukes won’t complement wind/solar – only natural gas will.

    but if we build multiple pipelines to the Marcellus shale and suck it all out , cause a glut, and use that glut to justify exports … there’s a real question as to what happens downstream if gas gets depleted and very expensive.

    Is that a business concern of Dominion and others who are vying to pipeline the oil east?

    Will any financial harm come to Dominion if twenty years from now – the price of gas skyrockets and electric bills go up – and using wind and solar comes with a hefty price to back them up ?

    Should we export natural gas?

    is that something that should play into any longer-term plan for electricity?

    1. “Wind and solar are not stand-alone fuels and base-load from Nukes won’t complement wind/solar – only natural gas will.”

      You are right, but I think a better way to look at it is, wind and solar AND nuclear are all essentially non-dispatchable generation types (all three are run full-out whenever available, largely because the MARGINAL cost of operating all three is so cheap), and what we need is generation of another type to complement all of them — e.g., natural gas. It’s true, renewables generation like wind creates a problem for nuclear sales at night; but our current percentage of nuclear generation is low enough that available nuclear plus wind on the Grid almost never exceeds Grid demand; matching up the remaining dispatchable resources to the demand curve is the operator’s challenge and PJM seems able to deal with that.

    2. “If we build multiple pipelines to the Marcellus shale and suck it all out , cause a glut, and use that glut to justify exports … there’s a real question as to what happens downstream if gas gets depleted and very expensive.”

      Yes, and keep on asking that question. But I suppose Dominion thinks the pipeline will pay for itself with, or even without, any exports before the shale gas runs out, and the cost of any gas-fired generation built based on that supply will have been fully amortized. I still think new nuclear power has a [distant] future, once easy-to-reach shale gas resources are consumed and/or carbon-taxed out of the picture.

  2. They can drop the $808 million on North Anna 3 as far as I am concerned. I favor wait and see approach until after 2030 on nuclear. 2030 is not that far away in the sense of planning. But I believe Gov McAuliffe and probably other elected officials strongly support the nuclear (it’s the $$) so that is probably why Dominion can justify keeping it on the books. Maybe a study to determine best locations for nuclear in Virginia is valid. I have much trouble seeing us build a new technology on an earthquake fault.

  3. Jim, you mention different visions of the “energy future,” Dominion’s “in which Dominion continues to play a major role, building the power plants”, or a more “decentralized” one with “more wind and solar generated by independent, small scale power producers less dependent upon large-scale transmission lines that shuttle electric power long distances.”

    There are two distinct thoughts combined here and I’d like you to keep them separate. First, will future electric generation construction likely become decentralized and less grid-dependent? Second, should Dominion itself build a lot of it?

    On the first point, I think it’s clear that there will be more “distributed” (customer-built or small-site specific) generation in the near future and a much higher percentage of it will be renewable resource driven. But I’m not at all convinced that will reduce (much less eliminate) the need for Grid transmission expansion. A good analogy here is the shift from the traditional small vertically-integrated business that used to produce goods at one site, designing, bringing the raw materials into inventory, manufacturing, and shipping out the goods, to a modern model where the design is done at headquarters, manufacturing is done elsewhere using just-in-time shipping of parts and materials, and shipping is done directly from dispersed manufacturing or warehouse storage sites. How did we move to that dispersed model? It took a massive transportation network, with an overlaid communications network. That is what the Grid is and does: it allows the local distribution utility, and ultimately its customers, to buy electricity from anywhere, including customer on-site generation, and it allows sellers (independent generators) to locate wherever fuels are cheap and the electricity highway (transmission) is nearby, always assured they will get the best price they can for their output at the time it’s generated.

    Debate over whether renewable-resources distributed-generation will increase or decrease the need for big transmission lines is far from resolved, but the early evidence is we will need more, not less, transmission. Wind and solar are intermittent resources; they are great when they are running but they must be backed up. Currently wind power is concentrated in the Midwest where the wind blows most steadily, and it fully loads those big transmission lines to take that power eastward at night — except when the wind doesn’t blow. Distributed solar is a better fit with the typical eastern load-curve, but on those days when the sun doesn’t shine, you still have to bring the power in from conventional generation elsewhere. Hydro, another renewable resource, is intermittent in another sense — it is a limited resource that can be consumed much faster than the lake refills naturally, so you have to ration it for use when its flexibility is most valuable and system operators will pay the biggest premium for it. Now, imagine a world where many residential and small business customers have small on-site solar generation capability — how will the Grid operator handle the swings in usage that result from something as simple as a cluster of thunderstorms passing overhead? It’s going to be complicated, and there is still going to be a place for fossil-fueled generation, increasingly of a sort that can be ramped up or down quickly, and lots of transmission for the flexibility to handle the worst-case scenarios. Also, in the short run, the development of larger scale solar units (like that Accomack plant) in locations where land is cheap will require new intermediate-voltage transmission upgrades where current lines can’t handle it.

    Second, should Dominion be the builder? Dominion says it has to be the builder because it can’t trust the market to provide? That’s a long-obsolete argument; PJM’s market resources dwarf Dominion’s now. Dominion makes more money from building a rate-based generating plant in Virginia than from a plant built anywhere through its non-regulated subsidiary? Perhaps — but any disadvantage to ratepayers there is something the SCC should and can deal with. Dominion needs to build new generation locally because existing transmission can’t deliver from alternative sources? See above; that’s a transmission more than a generation issue, the Grid layout today is far from optimal.

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