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.
