No Real Pipeline Story Here, But Read on If You Must

The public relations battle over the Atlantic Coast Pipeline continues unabated even as managing partner Dominion Energy edges closer to beginning construction of the 600-mile project. The latest flap surfaced in the Richmond Times-Dispatch this morning after the State Corporation Commission agreed, over Dominion’s objections, to accept expert testimony by natural gas industry analyst Gregory Lander in a hearing on Dominion’s Integrated Resource Plan.

Lander, who was retained by environmental groups opposed to the ACP, concluded that the pipeline will cost Dominion ratepayers between $1.6 billion and $2.3 billion. That conflicts with Dominion’s estimate, based upon an earlier study by its own consultants, that the pipeline will save rate payers $377 million annually. Dominion’s estimate will be harder to maintain now that the Duke Energy, an ACP partner, has acknowledged that the cost of project has escalated from $5 billion to between $6 and $6.5 billion as the company adjusted its route and incorporated environmental protections to accommodate the demands of landowners and environmentalists. But that cost increase doesn’t come close to accounting for the discrepancy between the two estimates.

The Southern Environmental Law Center trumpeted the SCC decision to accept the Lander study as a big victory. “This is proof positive that Dominion’s pipeline will not cut costs to customers but instead increase our bills,” said SELC attorney Will Cleveland. “It’s further evidence that Dominion’s original promise – that the pipeline would save customers money and spur job growth in the Commonwealth – has disappeared.”

The Times-Dispatch made the Lander testimony the lead of its story. But I’m thinking that reporter Robert Zullo is reading too much into the SCC decision. Sure, Dominion tried to prevent the SCC from considering the Lander study, but SCC proceedings are full of filings and counter filings. It’s what utility lawyers and environmental lawyers are paid to do.

Moreover, it is silly to read into the SCC’s decision to accept expert testimony into the public record an implication that the SCC is prepared to accept that testimony’s main conclusions. As Zullo quoted SCC spokesman Ken Schrad as saying, “the order merely allows the testimony to be part of the record in proceedings on the plan, which the commission determined is ‘reasonable and in the public interest.”

“That’s not saying it’s right, wrong or indifferent,” Schrad said of Landers’ testimony.

As Zullo further reported: “Last year, pipeline opponents urged the SCC to issue an order requiring the Dominion entities to file an application for the approval of the [natural gas contract with the ACP]. The commission dismissed the petition, stating that if the deal creates unreasonable costs, the remedy is to deny the utility the ability to recover them from customers in a fuel proceeding.”

At some point, the ACP will be built and will start supplying gas to Dominion Energy Virginia. Dominion will petition the SCC for a fuel rate adjustment. That rate hearing will be where the rubber meets the road. Dominion will submit its evidence, environmentalist and consumer groups will submit their evidence, all sides will get an opportunity to critique one another, and the SCC judges will weigh the testimony and decide whether a rate adjustment is justified and, if so, how much.

Zullo knows this — indeed he alluded to it in his article. But he’s a reporter like any other, and he hyped the clash between the SELC and Dominion. Otherwise, it looks like, there wouldn’t have been much from the IRP hearing to report.

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16 responses to “No Real Pipeline Story Here, But Read on If You Must”

  1. Steve Haner Avatar
    Steve Haner

    First, a disclaimer – I am no longer a Wintergreen property owner. As the trees along the ACP route began to fall, the deed of sale was being recorded. We did not sell because of the pipeline. The buyer didn’t seem concerned about the pipeline (admittedly a couple of miles away.) I am still not opposed to the pipeline on the basis of safety, etc. I still think it is appropriate to use eminent domain for transportation and energy infrastructure.

    Second, I agree with Dominion that the testimony is just that and the SCC did not conclude that the testimony was correct in all points or that it rebutted the testimony on the other side. But it was Dominion apparently that sought to keep the testimony out of the record, to silence that witness, and its own motion turned this into a legitimate story. I suspect a motion to suppress an expert witness is rare.

    It is our own TomH who has raised my awareness and answered my questions on this issue, who has clarified to me that there is a charge for the gas and a separate charge for the transportation of that gas. I fully believe that more supply will keep the price of gas competitive. But that does not transfer automatically to the cost of the transportation. There Dominion might try to unfairly impose costs in excess of what competitors would charge.

    Given the SCC now has far less to do with the other aspects of Dominion’s business, since the General Assembly has chosen to become the regulator-in-chief, it should have plenty of time to play with the fuel cost adjustment. Bring popcorn, and do not expect a full and fair report here at Dominion Pravda.

    1. I think it’s alpropriate, too, but fercrisakes the local communities along the alignment should have the benefit of getting natural gas service. And, they should have been more thoughtful about the alignment; exiting the mountain tunnel at Wintergreen’s entrance/exit is a big FU. I don’t know what Wintergreen did to deserve that or why some Dominion executive doesn’t like Wintergreen but that alignment is unreasonable.

      And why was Dominion allowed to cut trees already when there is still a snowballs chance in hell that the pipeline could be blocked? Those trees can’t be put back without a LOT of glue.

  2. LarrytheG Avatar

    I think now we see why Dominion wants the GA to take over regulating Dominion. Pretty Brazen.

    I do not agree with the use of Eminent Domain for ANY purpose – energy or otherwise – unless it is to actually serve the public via a regulated utility – as opposed to a for-profit company and when you wonder about Dominion’s charges for transportation for the gas – that’s exactly the issue.

    Second – if you have multiple competitors trying to build multiple pipelines when only one is needed – how do you justify taking property from people that may never be used for a pipeline if only one of the competitors will actually build a pipeline and the others not?

    this is WHY a fair and equitable process with regard to the use of eminent domain for a true – public purpose that actually does deliver lower costs is needed. Otherwise – any/all companies that say they want to build a pipeline – can end up taking property… what happens if a pipeline company gets approved to build a pipeline – and has the right of eminent domain .. how long does that right last? If they take property but don’t build on it – does it go back to the original property owner?

    VDOT got whacked in court a few years back by taking property – not using it – then selling it to the highest bidder rather than give it back to the original owner.

  3. No real story?

    Mr. Lander is a long-time gas industry consultant who has provided cost and market information to a wide variety of clients.

    His estimates are based on detailed comparisons of the cost of transportation using the ACP compared to other pipelines and the projected cost of gas in the ACP’s supply zone compared to gas from other zones. A similar analysis was never done by the ACP or by FERC.

    His conclusion results from the net cost difference of delivered gas using the ACP versus other alternatives that serve Virginia and the Carolinas.

    The report commissioned by Dominion that claims $377 per year in savings has several major flaws. It appears the analysis did not include the cost of transportation using the ACP. The report says the maximum cost savings in gas price is $1.61 /mcf, which is less than the $1.88/mcf that is the tariff approved by FERC to transport it. The report also assumed the price in the West Virginia supply zone would become cheaper over time compared to other sources of supply.

    The second assumption flies in the face of all the history of gas production in the U.S. Whenever adequate takeaway pipelines exist to bring all of the production from a lower cost supply zone to market, the prices equalize between zones. The difference does not increase at the lower-cost zone as suggested by Dominion’s report.

    By the end of 2018, well in advance of the estimated in-service date for the ACP, many new pipelines currently under construction will be available to tap more than the full production potential of the entire Appalachian Basin.

    It will take at least five years for production to catch up with pipeline capacity, maybe longer, according to BTU Analytics, a respected industry consultant. By then the current sweet spots will have been exhausted and gas will be much more expensive to extract.

    In the last 20 years we have added 180 Bcf/d of gas transmission pipeline capacity in the U.S. Our peak usage in 2017 was about half of that (93 Bcf/d). The Energy Information Administration reports that in 2017, U.S. electricity use declined by 2.1% and gas used to generate electricity declined by 7.7%.

    The “energy dominance” scenario promoted by the current administration relies on exports as the primary source of growing demand for gas. This will considerably increase our domestic prices for gas. This scenario will require us to use 100% of our proven reserves of gas and 70-80% of our unproven reserves of gas.

    Both Dominion and Duke are well aware of the declining need for new large gas-fired power plants. They have cut the amount of new combined cycle plants in half since the ACP was announced. None of those still projected are supported by growth in demand, nor are they approved by state regulators.

    That is why for the past three years, Dominion’s gas executives in South Carolina have been publicly discussing the concept of extending the ACP over the border to connect with Dominion’s gas system in South Carolina, and ultimately to the Elba Island LNG facility in Georgia.

    In the SCC hearing mentioned in the RTD article, Dominion said the ACP would be considered a “portfolio asset”. They would expect to be compensated for the full cost of the firm transportation contract with the ACP. Based on published rates, this would be $200 million per year for Dominion customers. The new power plant that would require gas from some source would be at least five years in the future. In just five years, Dominion is asking to be paid at least $1 billion for the ACP that will provide no value whatsoever. The existing plants have long-term agreements with existing pipelines that are considerably cheaper than what the ACP would provide.

    This is what the SCC is referring to when they say they will decide on the merits in a Fuel Factor case. Unfortunately, this would not occur until the pipeline is already built. Even though it would have no value to Dominion customers, the land, water and communities of Virginia would have been disrupted solely for the private gain of the pipeline owners and the benefit of overseas customers.

    There is still time to avoid this unnecessary project. But the policymakers and regulators would have to be willing to evaluate the pipeline on its merits rather than stories told by its owners about how good it will be for all of us.

  4. djrippert Avatar

    Larry makes a good point, philosophically speaking. How much does this pipeline benefit Dominion Virginia customers and how much is for the benefit of Dominion, Inc (or whatever they call the unregulated company)? Even if we accept that eminent domain is acceptable for a combined regulated / unregulated purpose it seems that the payback to the landowners and communities along the route should be quite different fro regulated vs unregulated. When a for-profit builder develops land that is already zoned for that type of development the cry goes out for “proffers, proffers and more proffers”. The pipeline has to compensate the landowners it affects but why should that be the end of it? Whatever percentage of the pipeline is attributable to the parts of Dominion not regulated in Virginia should be treated just like a developer. The environmental damage, safety risks and scenic destruction of the land should entitle the communities along the route to demand proffers. A renovation fund for public schools near the pipeline? Guaranteed hiring of people from the communities along the pipeline along with an educational “set aside” for those people based on how many hours they work on the pipeline (a la the GI Bill, sort of).

    Dominion seems to be getting off very, very easy on this.

    1. … or even a royalty for the amount of gas that passes through.

  5. LarrytheG Avatar

    The claim is that the gas will attract more economic development – but notice that’s not the plan in the areas where the pipeline crosses many communities – only near the other end.

    You’d think especially in the places that are economically distressed that Dominion could easily sweeten the pot and essentially give “proffers” and “incentives” that offer the potential of industry and jobs in those distressed areas.

    but nope… those folks become the “donors” for other locations that WILL be given access to the gas .. why?

    The pipeline could be a “win-win” for any locality – even landowners in it’s path… instead of a “take” … and, in fact, it would – it it were a for-profit venture that had to use willing seller/willing buyer.

  6. DJR, I agree Larry makes a good point, but a number of things are getting mixed up here. First, the VSCC is in charge of siting electric transmission lines and highways and local gas lines but NOT interstate gas pipelines. That, in its infinite wisdom, Congress federalized back in the 1930s and assigned to what is now the Federal Energy Regulatory Commission. The FERC must grant a certificate of public necessity (COPN) and if it does so, a federal right of eminent domain is granted for (and solely for) the purpose of building the pipeline. It has done so here, to the applicant, a subsidiary of Dominion Energy.

    Now we can argue till blue in the face about whether FERC should have granted that COPN, used the right criteria, admitted the right evidence, followed the right precedent, etc., but the fact is that it did. Any timely appeals of that fact go from FERC to the US Ct. App for the DC Circuit — not to the Virginia court system.

    The Natural Gas Act and FERC administrative precedent under which this took place does not provide for an allocation of a project to public and private uses. I think you have a valid point that a portion of this was “private” and should be treated as one of those old franchise arrangements where the locality extorted conditions in exchange for granting the right to steal to a monopoly corporation. Ever read Frank Norris’ masterpiece, “The Octopus”? But 1901 was back when railroad regulation was radical; today it’s the cable/broadband companies. The SCC, by the way, was created in the Virginia Constitition of 1901. There never was a monopolist who couldn’t abuse the privilege. But there was never a COPN process that couldn’t be abused in return. And the reason Congress got involved and federalized the process for interstate gas pipelines was because the States got too greedy and started attaching conditions and demanding proffers so onerous that any further development of interstate gas transportation was imperiled, just as we were passing through a Depression and gearing up for war.

    I agree, private property taken by eminent domain for a public project ought to be returned if the project is abandoned. That’s easy to say: but what if the property has been desecrated or cleared of buildings and timber or trenched through before return? Should the prior owner have the reciprocal obligation to return (with interest) the compensation already paid? What if that cash is already reinvested? What if the prior owner has already made a killing selling adjacent land to speculators; should that be returned also? There are all sorts of potential winners and losers in a COPN abandonment situation.

    TomH has it right, the utility rate process behind this pipeline is leveraged to rip off an inadequate customer base in the short run, then add customers and make the pipeline into a cash cow. There were objections raised about inadequate customers for this pipeline; that argument, unfortunately, had to be made to federal regulators whose bias is towards getting new national infrastructure built, not towards abating local impacts. But the objections were made, and they didn’t refuse the COPN. I think it’s obvious that when the time comes for gas service to any new gas generation in SC, an extension of the ACP is likely to be the way to deliver fuel to it; but that will be based on the situation at that time and supposedly did not influence the FERC’s decision to allow the ACP a COPN at this time.

    And so now we are going to ask the SCC, with no jurisdiction whatsoever to do so, to reexamine all this? Not a chance. The SCC will accept the costs of natural gas transportation for what they are, post-ACP, as the baseline for determining through its IRP process what Dominion ought to to do to ensure a reasonably reliable electric supply to its customers 10-20 years out. There are many, many questions that should be asked within the context of an IRP; and we can hope that the SCC will have the political fortitude to ask them, though that is increasingly, apparently, unlikely given the General Assembly’s heavy hand on the scale.

    As for getting into all this in the context of a fuel rate review proceeding, forget it. Surely, successful objections would be raised immediately about federal preemption of the ratemaking process. And there is grounds for saying that a fuel rate review is not the place for examining anything so long range as the decision to build a particular kind of infrastructure in the first place.

    Logically, the only grounds I see making headway are that Dominion should not, in the near term, build another gas fired generating unit because its cost of operation, taking into account the cost of the gas transportation involved (ACP or not), would be grossly more than the projected purchase alternatives available to Dominion on the grid. This should be raised in a State COPN proceeding to consider the construction of the new plant. Projected grid prices for the next 20 years are readily available from PJM and many other State commissions, and were even supplied by Dominion in its last IRP. But, THAT argument has not been made in Virginia, successfully at least, because of the GA’s infatuation with Dominion’s desire to build for itself, at ratepayer expense, whether solar or gas, as though it were a standalone electric utility out in the wilderness! Logic, we come to realize, has little to do with direct GA regulation of the State’s largest electric utility, gas pipeline utility, private corporation, and chief political benefactor.

    1. djrippert Avatar

      I more or less understood what you wrote. Fundamentally, this is a federal mater. So, how does that square with Jim Bacon’s article, especially …. “The latest flap surfaced in the Richmond Times-Dispatch this morning after the State Corporation Commission agreed, over Dominion’s objections, to accept expert testimony by natural gas industry analyst Gregory Lander in a hearing on Dominion’s Integrated Resource Plan.” And then, later in the article, “At some point, the ACP will be built and will start supplying gas to Dominion Energy Virginia. Dominion will petition the SCC for a fuel rate adjustment. That rate hearing will be where the rubber meets the road. Dominion will submit its evidence, environmentalist and consumer groups will submit their evidence, all sides will get an opportunity to critique one another, and the SCC judges will weigh the testimony and decide whether a rate adjustment is justified and, if so, how much.”

      It sounds like the SCC is all over this.

      Dominion said the pipeline would save ratepayers $400m. This guy Landers says it will cost ratepayers $2b. That’s an awfully big swing. What happens if Landers is right and there’s a $2.4b swing in benefits to ratepayers. Won’t it be the SCC that determines whether Dominion can recover the variance? Isn’t the SCC’s insistence in letting Landers read his testimony into the record a way for the SCC to put Dominion on notice that they won’t be able to claim that nobody knew the pipeline might end up costing the ratepayers rather than saving them money?

      You certainly know more about this than I do but once the pipeline is built don’t the chickens come home to roost with the state regulators? Unless, of course, the gas is exported I guess.

  7. Steve Haner Avatar
    Steve Haner

    I would be happier if there were more local taps on the main ACP line so communities along the way could develop retail gas distribution or a major industry could use it. The other line, the Mountain Valley line, is doing that.

    Okay, question for TomH. Brief me on the Mountain Valley line – in your opinion does its economic viability also depend on fat sweetheart contracts with related entities to make the math work? It is also going to paid for by unjustly pumping up utility bills? Do the economics differ? From the beginning I had suspected that FERC might not approve both of them, but apparently the argument was made both are viable projects. Is it also really a vehicle for export?

  8. To djrippert,

    One of the difficulties with the SCC process is that the ACP has 20-year contracts with the utility subsidiaries of the holding companies that own the pipeline. Based on published rates, these 20-year contracts will yield over $18 billion in revenue to the ACP over the first 20 years of operation, whether all of the contracted capacity is used or not. The SCC can only determine how much of the cost can be recovered from ratepayers in Virginia. The NCUC must deal with the same issue in North Carolina.

    The subsidiaries are still on the hook to pay the original contract unless the project is not built. If the GA sees that this would cost Dominion Energy Virginia, and ultimately its parent company, Dominion Energy, a lot of money, we could see more legislation that forces the SCC’s hand or reduces their authority as happened with the so-called Grid Modernization bill.

    The most likely way to halt the project would be for a win at the federal court level, which is possible; or for the FERC to have an objective rehearing of the case. Although requested by many, including Senator Kaine and several Virginia Congressmen, the appointment of three aggressive “build baby build” FERC commissioners make this option unlikely.

    The governor could also fulfill his campaign promise to be certain that the water quality certification process offers the highest level of environmental protection. It is not possible to construct a 42″ pipeline in steep terrain in a way that does not degrade water quality. Proper mitigation measures just do not exist. The most common solutions are about 40% effective at protecting water quality. The WV DEP (believe it or not) just shut down the Rover Pipeline for multiple water quality violations during construction. The identified method of pipeline construction does not meet 401 certification requirements, which is why the process is being avoided in Virginia and turned over to the Corps of Engineers 404 permitting process.

    Despite the billions in added costs to ratepayers, it is unlikely that the governor would take this path for the pipeline. He was faced with the same choice with the recent energy bill and was more than willing to pass billions in unnecessary costs on to ratepayers with no guarantee that they would receive a modern grid in return.

  9. To Steve Haner,

    The MVP has no economic viability. The math does not work. Of the 1.5 Bcf/d of pipeline capacity, just 0.5% of its capacity is allocated to a possible end-user of the gas. This is Roanoke Gas Company that is already well served by two pipelines.

    About 35% of the capacity is reserved by companies with utility subsidiaries, but these are in New York City, Florida and Washington, D.C. All of which can access gas much more cheaply from existing pipelines. One of the owners, Consolidated Edison, recently admitted to the New York regulators that the contract with the MVP has no value to its customers (ConEd originally failed to notify the NY PSC of its ownership interest in the project and the 20-year contract signed by its utility subsidiary).

    Almost 65% of the capacity is the responsibility of EQT, the largest gas producer in the Appalachian Basin. It has no known contracts with end-users of the gas. There are rumors of one contract for export, but I have not seen that confirmed anywhere. It costs about $1 to transport the MVP gas to its connection with Transco in Pittsylvania County, VA. When it merges with Transco it will be priced higher than the abundant supplies of gas available in the Transco system. The only market willing to pay higher prices at this time are the export markets.

    Commissioner LaFleur used this lack of end-users as the primary reason for her to vote against issuing a certificate for the MVP.

    Local taps for both the ACP and MVP cost $3-$5 million, require a pressure reduction facility and a connection to the distribution system of the local utility authorized to sell gas in the area. Both pipelines advertise themselves as “open access”, but industrial parks and small communities cannot afford the price of a tap. The local gas companies will not pay for it because the residential densities or amount of industry do not allow an economic payback of their investment. The promise of taps have been used by pipeline developers as way to get local support for a pipeline, but any benefit to communities along the pipeline corridors is unlikely to materialize.

  10. LarrytheG Avatar

    I could sorta see why/how Dominion might want to build a pipeline funded from ratepayers if they could get away with it but the idea the MVP would not be economically viable leaves me with wondering exactly why and how of their plan unless it was to export it and even that seems like a bit of a long shot… although I do admit, as usual, my own ignorance and depend on Tom and Acbar and others to illuminate the issue.

  11. Larry,

    EQT sees the MVP as a way to monetize their gas reserves. As a group, gas developers are not profitable. Shipping much of the gas they produce on their own pipeline gives EQT a steady stream of income regardless of the price of gas. Having twenty year contracts for capacity provides steady income even if only a moderate amount of gas is shipped.

    The only difficulty is that EQT is responsible for 65% of the capacity payments. EQT has admitted in SEC filings that they don’t have all of the money needed to build the pipeline.

    A lot of what is driving this is the industry’s mindset. Their outlook is that gas demand will always increase. That more pipelines are always better. And that there will be an almost limitless supply of natural gas at reasonable prices.

    These things won’t all be true, of course. But if you weren’t an optimist you wouldn’t be in the oil and gas business.

  12. CleanAir&Water Avatar

    Some comments seem confusing … The testimony in question is currently in the record … Dominion was trying to have it removed! Is that a pretty revealing action showing how false their claims of savings are? Are they afraid that, in this ass backwards process, when the SCC is finally allowed to evaluate foisting those higher transportation costs off on Virginia customers, the regulatory agency might actually say no to an inflated rate adjustment? Or will the ACP confirmed income from capacity reservations on the pipeline be enough profit to make the pipeline a sound investment regardless of gas actually purchased for use in Virginia and the Carolinas?

    Tom tells us that Dominion and Duke are aware that their unlicensed and projected new gas plants are not supported by a growth in demand. “New research from Applied Economics Clinic, commissioned by Consumers Union, concludes a greater investment in energy efficiency would reduce new household energy demand by nearly 60%. A 60% reduction would help significantly cut Dominion’s need to build additional capacity, according to the research, and could save customers up to $1.7 billion over the next decade.” (1) Will the new investment law will bring us that kind of commitment to efficiency. Doubtful!

    So … corporate subsidiaries, our utilities, are on the hook to pay $18 billion for the pipeline without a rate adjustment regardless of whether or not they use that reserved capacity. Because our utilities are subsidiaries, the contracts for the gas can be canceled at any time, giving the pipeline owners the right to sell pipeline gas into the export market, even though the pipeline was built using eminent domain. The use of eminent domain would not have been allowed if the gas was originally only intended for export.

    Finally, export LNG market prices are higher than our national market price. That differential is closing, a reason to jump in as soon as possible, and get those trees cut and land prepared as soon as possible

  13. LarrytheG Avatar

    re: ” A 60% reduction would help significantly cut Dominion’s need to build additional capacity, according to the research, and could save customers up to $1.7 billion over the next decade.” (1) Will the new investment law will bring us that kind of commitment to efficiency. Doubtful!”

    Sure did not hear anything like that from Dominion on their desire to funnel excess profits into “Grid Modernization”, eh?

    Dominion is in the business of making money not saving consumers money.

    Dominion is not about to propose something that would actually reduce their revenues…

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