Should Choice of Supplier Extend to Natural Gas?

Artist rendering from the Chickahominy Power LLC website.

by Steve Haner

Should there be retail choice for natural gas? The developers of a proposed natural gas-fired merchant electricity plant are testing the waters with a proposal to bypass their local monopoly supplier by building their own one-customer pipeline to another source.

In the electricity arena, this is an old issue as large industrial or commercial uses have agitated for the right to seek lower-cost competitive suppliers to Dominion Energy Virginia or Appalachian Power Company. The battle has raged at the General Assembly and in front of the State Corporation Commission.

Under state law a large-enough customer can opt out of the monopoly power company under certain conditions. Similar mega-customers exist in the natural gas arena, but there is no comparable provision in state code allowing them to choose alternative gas suppliers.

The proposed Chickahominy Power LLC plant in Charles City County, which will also be ready to burn hydrogen to produce electricity if and when hydrogen is available for that, has many certificates and permits it needs from the state. The war on fossil fuels crowd did its best to block the permits but has failed, so far.

It also has a wholesale market for the 1,650 megawatts of electricity it will produce, and in general the expansion of merchant generation not built and controlled by the monopoly utilities is considered an economic boon. The 2020 Clean Energy Economy Act, among many other things, will require the use of more purchased power agreements by the utilities.

What Chickahominy lacks at this point is an agreement with Virginia Natural Gas, service which might require a new 24-mile connection. This was to be one of two such plants in Charles City served by a planned expansion of the VNG pipeline in Virginia, but that project was mobbed by environmental opposition and abandoned by the utility last year.

As an alternative to VNG, a separate but related corporate entity called Chickahominy Pipeline LLC has drawn plans for an 83-mile-long, 24-inch pipeline that would cross several Virginia counties and connect directly with Transco to the west near Charlottesville. About 40 miles could follow existing easements or rights of way.

Over the summer Chickahominy Pipeline started contacting landowners where its pipeline might run for permission to survey their land, sparking the first round of media stories. In September it filed a petition with the SCC seeking a declaratory judgement that the project would not be regulated as a utility. The petition is being opposed at the SCC as a breach of the VNG monopoly by its own staff, VNG and some of those county governments. The retail choice question is squarely before the Commission.

In its September 3 SCC petition, the company claimed that the terms now offered Chickahominy Power by VNG are “impracticable and unfeasible.” Why is not specified in the record, nor does VNG make any assertion about the fairness or reasonableness of whatever terms it has offered. That was noted in the SCC staff testimony which took a stand against the petition:

In the instant case, there is simply insufficient evidence contained in the record for the Commission to determine that VNG cannot serve the Facility. In fact, it appears, that VNG has significant facilities in extreme proximity to the proposed Facility. Should VNG be able to fulfill its legal obligation to serve the Facility through existing infrastructure, it is likely many environmental and economic impacts may be avoided.

Henrico, Hanover and Louisa counties, in a joint brief, express deep concern for the health of VNG and other monopoly gas suppliers if major customers can leave. They raise the issue that always comes up with electricity, that the departure of these big users can raise the costs for other customers who have no choice and must be billed more to cover operations and infrastructure.

The wrinkle here, of course, is Chickahominy claims no plant will be built at all if it must use VNG. It is not an existing customer seeking to leave and creating stranded costs.

It will also be interesting to see how Hanover and Henrico react when the Richmond City Council carries out its proposal to close Richmond Gas Works and eliminate the ability of their citizens to choose gas. That is also a recognized monopoly territory, one the counties may soon seek to break. So far, both counties appear to be dead silent on protecting their constituents from that threat.

The home county for the project, Charles City, filed an October 12 letter with the Commission in support of the project as an economic asset, and tweaked the environmental opponents:

…we find it hypocritical that they cite “environmental justice.” The advanced technology to be deployed by the Chickahominy Power project will put immediate pressure on older and far more polluting power plants to retire earlier than they would otherwise. We all share the air in Virginia so that is a desirable outcome.

The essentially private pipeline Chickahominy proposes to build would not seek or accept other customers, and its petition points to a state law it asserts means that limitation alone removes any SCC jurisdiction. The application of that statute is hotly debated in the record and will likely be a topic at a November 3 hearing. The full SCC case file is here.

Even with a favorable ruling from the SCC, the project faces major obstacles. If indeed it is not a public utility, it doesn’t have any right to take easements for the pipeline under eminent domain, and hundreds of parcels are involved. Several of its current permits have ticking time limits, and Tuesday Virginians might return to power Democrats increasingly hostile to fossil fuels in all forms.

In a different political environment, a legislative debate on extending the concept of retail choice into the natural gas arena would be an expected development. But we are deep in a nationwide war on fossil fuels — all fossil fuels — so any proposal to make it easier or cheaper to use them will necessarily draw added controversy.