The Peninsula’s Infrastructure Bottleneck

The Virginia Peninsula, utility bottleneck

The Virginia Peninsula: utility cul de sac

by James A. Bacon

I don’t envy the poor blokes in charge of economic development for the Virginia Peninsula. The Newport News-Hampton-Williamsburg area has major infrastructure issues — constrained electricity, water and gas capacity — that are hindering economic growth. Any one of these deficiencies would put the 500,000-person sub-region of Hampton Roads at a competitive disadvantage in the economic development game. The concurrence of all three knocks it out of the running for recruiting a broad swath of new industrial prospects.

The Peninsula has landed no new investments so far this year, and only one industrial expansion worthy of a gubernatorial announcement: a $25.7 million expansion of a PrintPack facility, creating 50 new jobs. There was no new-company news last year either, although TE Connectivity and Canon USA did announce expansions.

Hampton Roads lagged the national averages during the current economic recovery, due in large part to a slowdown in military spending. If the Peninsula wants to diversify its economy, it will need to attract new industry. To do that, it must address its infrastructure bottlenecks.

Electricity. In the previous post (“What’s the Hold-up on the Surry-Skiffe’s Permit?”) I noted that the Peninsula faces the likelihood of recurring blackouts next summer after Dominion Virginia Power is compelled to shut down its two coal-fired boilers at the Yorktown Power Station. Even if Dominion gets the go-ahead from the U.S. Army Corps of Engineers (ACOE) to build a controversial high-voltage transmission line across the James River, it will take a year or longer to complete construction. While there will be sufficient capacity from other transmission lines to supply the region with electricity most of the time, hot summer days will put the regional electric grid under severe strain, in which a single mishap could trigger an uncontrolled, cascading blackout. To prevent a worst-case scenario PJM Interconnection, which governs the 13-state transmission grid of which Dominion is a part, will require the company to implement controlled blackouts during periods of peak demand. If temperatures are as warm next summer as this year’s, there could be as many as 20 such incidents.

The ACOE cannot say when it will complete its permitting review process, in which it must balance economic considerations with harm to priceless cultural and historic resources. Local conservation groups and their national allies say that running a transmission line across the James River near the original Jamestown colony would blight the viewshed of the cradle of American history. If ACOE turns down the permit request, the likely fallback option would be extending a high-voltage line from the Chickahominy River to Williamsburg, but Dominion rejected that option previously because of the disruption it would pose to historical and environmental resources as well as residential neighborhoods.

Water. At least there are potential solutions to the Peninsula’s electricity straitjacket. There is no obvious remedy for the region’s constrained water supply. Hampton Roads draws much of its water from an aquifer complex lying under Virginia’s coastal plain. At present, industrial and municipal users are draining the aquifer system faster than it can be replenished by rainfall. Although the underground water should last another 50 years at current rates of usage, it will not be sustainable if big new users start drawing from it. Accordingly, the Department of Environmental Quality has placed tough conditions on any industrial customer filing for a water permit.

Difficulty in acquiring new permits will make it challenging for water-intensive industries to locate in eastern Virginia, states a recent report by the Joint Legislative Audit and Review Commission (JLARC). (See “Amidst Abundant Rain, Eastern Virginia Still Faces Water Shortages.”)

“About 85 percent of local economic developers responding to a JLARC survey reported that availability and affordability of water were important factors for at least one new project during the past three years,” the report says. Survey respondents told JLARC of three incidents in which projects did not materialize due to water permitting issues.

Natural gas. The entire Hampton Roads region, both north and south of the James, is constrained by limited supplies of natural gas. While supply is adequate for the present, Virginia Natural Gas (VNG) had to cut supplies to its interruptible customers (who enjoyed a lower rate in exchange for accepting supply cuts in extreme cases) during the freezing conditions of the so-called Polar Vortex in 2014. VNG is not currently in a position to accommodate new industrial customers requiring a steady, uninterruptible supply of gas.

When Dominion Virginia Power was exploring alternatives to the Surry-Skiffes transmission line, it studied the option of converting the Yorktown coal boilers to natural gas. The company issued a Request for Information from the gas transmission companies serving Virginia (including sister company Dominion Transmission), according to Glenn Kelly, in charge of generation system planning for Dominion. VNG submitted the lowest cost proposal, which would have supplied 300,000 dekatherms per day to connect with the giant Transco interstate pipeline, add some compressors, widen the right of way, and lay new pipe. The project would have cost an estimated $70 million a year over a 20-year contract — some $1.4 billion in all. Dominion ruled it out as uneconomical.

The proposed Atlantic Coast Pipeline (ACP) would link Virginia and North Carolina energy markets with the Marcellus gas fields; a spur would run down to Hampton Roads and plug into VNG’s gas distribution system in Chesapeake. VNG has contracted for 75,000 dekatherms daily to accommodate the next eight years of normal population and economic growth.

Could VNG accommodate a new industrial customer on the Peninsula? Most likely, yes, unless it were on a scale of a power plant or petrochemical facility, says Ken Yagelski, managing director of gas supply for Southern Company Gas, which owns VNG, The ACP has some spare capacity not contracted for, which, assuming it is built, it could deliver as far as Chesapeake. VNG then would move the gas through its lower-capacity distribution system from Chesapeake to the Peninsula, which it could do thanks to the construction in 2010 of the 100,000-dekatherms-per-day Hampton Roads Crossing (HRX). Depending upon the circumstances, VNG might have to invest in new compressors, however, so it is impossible to say ahead of time whether any particular scenario would be economically feasible.

Of course, accommodating a big new industrial customer assumes that the ACP will be built. That project faces intense opposition in the Staunton-Wintergreen area where landowners are concerned about the impact of the proposed pipeline on water supplies, wildlife habitat, viewsheds, safety and property values. Foes say Virginia can meet its future electricity needs through a combination of renewable energy, energy efficiency and load management, none of which require acquiring peoples’ property against their will through eminent domain. The Federal Energy Regulatory Commission (FERC) is expected to rule on the ACP next year.

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20 responses to “The Peninsula’s Infrastructure Bottleneck

  1. As with any challenge, the situation on the Peninsula contains the seeds of massive opportunity. More than any community in Virginia, the Hampton Roads region is facing the consequences of rising sea levels and is planning to spend billions to deal with it. They are also confronted with issues that are concerning communities throughout the nation, such as water shortages, access and affordability of energy (electricity and natural gas), transportation congestion, water quality, economic vitality, etc.

    In this area the flame of freedom was first planted, then kindled, early in our nation’s history. Much can be done here to renew America’s prosperity and freedom for a new era. The old solutions have served us well and have gotten us this far, but their consequences now outweigh their benefits. It is time for a fresh perspective and this region would be a perfect place to demonstrate a better way of doing things.

    I will take your issues in reverse order, because I think it is important to identify how Dominion is misleading the public about the value of the Atlantic Coast Pipeline. In your article, you indicate that Dominion rejected the Virginia Natural Gas proposal to obtain 300 Bcf/d via a connection to the Transco pipeline for $70 million per year as “uneconomical”. Yet, according to the tariff Dominion filed for the ACP ($1.7249 Dth/d), to obtain the same amount of gas using the Atlantic Coast Pipeline would cost over $188 million per year; more than 2 ½ times more!

    Dominion could still make money, by providing gas via the DTI line that’s serves the peninsula. This probably would require modifications, but could be done along an existing right-of-way at a much lower cost than the ACP. This line connects to Dominion-owned natural gas storage in Pennsylvania and could connect to the Transco corridor. The 1.3 Bcf/d expansion of the Columbia Gas pipeline that connects to VNG in Chesapeake could also be used to supply the region. Modifications would also likely be needed; again on existing right-of-way at a cost much lower than the ACP.

    Although much cheaper than the ACP, this alternative natural gas infrastructure still has a risk. Within the next 10-15 years all sources of conventional generation will be undercut in price by renewables and storage. Building new power plants and pipelines are likely to result in stranded costs and higher bills for ratepayers. Using energy efficiency, solar, some storage, and perhaps some combined heat and power facilities in commercial and industrial buildings would provide a decreased load and local electricity generation that could avoid the need for the Surry-Skiffes Creek transmission line. These projects can be ramped up quickly and provide solutions as fast as building a new transmission line. Energy efficiency and solar are zero carbon emitters which provide a positive solution to climate change that is costing this area billions.

    Naval Air Station Oceana has used energy efficiency in over 100 buildings to save over $6 billion per year. If a thriving energy efficiency and solar installation industry developed in the region, it would become very attractive to federal installations, new business and industrial customers, and create thousands of long-term jobs. New industries are looking to locate in areas that would have stable low-cost energy and innovative policies.

    Water could be made more plentiful by allowing rainwater collection and grey water use in commercial and industrial buildings. Parking lots and roadways could be made more permeable or developed with storm water collection plantings that would allow more rainfall to recharge the aquifer rather than being shunted through storm drains into the bay. Sewage treatment could also be shifted to more local and natural methods that also recharge the aquifer.

    There are many possibilities. Much of it has already been developed. The Governor and the local politicians want more jobs and economic activity, but they promote only projects that have short-term bursts of high employment, mostly for people who don’t live here. We would be much better served by projects that could use local skills in a sustained way.

    I have said all of this before, but I will keep saying it until people realize that we do have choices that cost less, create more jobs, and result in less harmful impacts.

  2. I think what tzoser has to say here – makes me wonder if Jim is merely parroting what Dominion’s viewpoint is or is he actually doing some truly independent due diligence?

    I still maintain that all of this is a private for-profit venture that does not merit eminent domain and that is it is truly a public necessity then the venture should be a regulated monopoly for a SINGLE pipeline NOT multiple ones – and an obvious question is – why should the ACP be the one rather than others or the approach outline by tzoser?

    tzoser comments raise a lot of questions … that Jim should address…

    I have less and less confidence that what Jim is writing is truly independent and objective… and instead is the world as Dominion views it.

  3. Below is a map of the existing natural gas pipelines serving the region. It pertains to the first comment above,

    The Dominion Transmission Leidy South line brings gas out of Pennsylvania and Dominion’s storage areas into Virginia. It branches off to Cove Point and a portion continues to the Peninsula.

  4. Tzoser, you said, “According to the tariff Dominion filed for the ACP ($1.7249 Dth/d), to obtain the same amount of gas using the Atlantic Coast Pipeline would cost over $188 million per year; more than 2 ½ times more!”

    Could you clarify? What would those charges cover — just the natural gas supplied to VNG? to the Brunswick and Greensville power stations? To all Virginia customers of the ACP?

  5. Tzoser, I agree with you that the 10- to 15-year time horizon could bring about an era of cheaper solar energy that could undercut the gas plants with 40-year lifespans. The trick is meeting the immediate needs of the Peninsula. Now, rightly or wrongly, the U.S. electricity regulatory structure compels Dominion to meet strict reliability standards to prevent another cascading blackout. Dominion answers to NERC and PJM.

    The problem with solar is that it is not dispatchable — it generates electricity when the sun shines, not when needed to meet peak electricity demand. Dominion’s problem on the Peninsula is meeting peak demand about 20 days a year. And it has to find a solution that can be put into place by the summer of 2017. Solar won’t help with that problem.

    Longer term, solar will play a much bigger role in Virginia’s electricity mix. It is worthwhile having a discussion on how to make that happen. I have proposed a number of small-bore solutions on this blog on how to make Virginia more receptive to solar. But you can’t ignore the reliability issues, which, due to geography, are particularly ticklish on the Peninsula.

  6. totally wrong thinking here. If you BUILD SOLAR .. AND.. back it up with natural gas – you will need a WHOLE LOT LESS natural gas.

    what you’re saying, in essence, is if a fuel cannot be used as a primary fuel then it has no value…as a dependable fuel and that’s simply not true.

    for instance, if you built SOLAR – you might still be able to operate with coal – by using it ONLY when solar is not available. This is pretty much what a lot of islands are doing now days. They are building wind and solar – so they can reduce how much fuel oil they have to burn.

    You are drinking the Dominion “not dispatchable” Kool Aid guy… back off a notch and think about using SOLAR when you CAN and gas when solar is not available. Doing that, you may cut how much gas you need in half and thus existing gas pipelines might well be sufficient.

  7. If you BUILD SOLAR .. AND.. back it up with natural gas – you will need a WHOLE LOT LESS natural gas.

    That’s true, Larry. But you’ll also spend a WHOLE LOT MORE CAPITAL building and maintaining backup facilities. The fuel savings have an economic value, but so does the capital expended.

    • you’re not building backup facilities when you build gas turbines. they’re built primary generators… in Brunswick and Greenvilles .

      you’re not building anything extra – except for the solar – which easily pays for itself ROI quickly – and allows you to run the gas plants LESS .

      you’re making excuses here.. guy.. if a new technology for gas was developed to make gas more efficient – burn less gas – you’d be all in favor of that capital investment, right?

      so why not a capital investment that saves fuel with solar?

  8. I agree with you entirely. Utilities are required to meet reliability standards and they take them very seriously. Historically, they have always responded by increasing supply. But as you have noted, adding supply in either more generation or more transmission can require a large initial investment that might not be fully returned because other technologies are likely to provide lower cost solutions in the next 10-15 years.

    Utilities are in a difficult spot. The traditional answers don’t work so well anymore and the new options and not yet fully cost effective or dispatchable. Yet, we want our utilities to keep prices low and reliability high. It is not an enviable position to be in. The only states that are making headway in finding new solutions are those where the legislature and regulator are willing to chart a new path in collaboration with the utilities and will make sure the utilities are kept whole. That is not currently the case in Virginia.

    My recommendation is to use energy efficiency to plug the 5-10 year gap until the new technologies further reduce in price and storage gets cheap enough to make solar dispatchable. Efficiency provides generating capacity 2-3 times cheaper than new combined cycle plants and is equivalent to baseload generation being available 24/7. I believe that this can be provided most rapidly and effectively by third-party energy service companies. They could significantly reduce the peak in this area within the next 12-18 months with an aggressive program, far cheaper than building a new transmission line. A lower peak would save all ratepayers money; although not until after 2022 because Dominion is allowed to keep all savings until the next rate review.

    The combined heat and power units could be built by Dominion, if they so desired. They might even be allowed to put them in the rate base. These units would still be vulnerable to increasing natural gas prices, but less so since they are 80-85% efficient. Small to medium sized units could probably be installed in less than a year. The larger industrial scale units might take a bit longer.

    This would be new territory for Dominion and the regulators and the typical slow decision making process could spoil the plan. Third-party energy service companies could begin right away, especially if some incentives were offered. Dominion would lose revenues if others put in new generation. But Virginia law allows Dominion to recover their cost of energy efficiency projects, plus a rate of return and recovery of any lost revenues.

    I am just talking concepts here. I don’t know how much of a reduction would be needed to solve the transmission problem on peak days. I am proposing this option because it is proven and available and can be discussed positively and rapidly rather than being drawn out like the present situation with the possibility of no satisfactory solution.

  9. You are drinking the Dominion “not dispatchable” Kool Aid guy… back off a notch.

    It’s easy for you to talk about “not dispatchable Kool Aid” when you’re not in charge of maintaining the reliability of the electric grid, and your ass isn’t on the line if unplanned blackouts occur. Any sane energy policy will balance the imperatives of cost, reliability and sustainability.

    People of good will can have an informed debate about what impact aggressive sustainability policies will have on cost and reliability.

    It doesn’t help the discussion to dismiss reliability concerns as mindless drinking of Kool Ade. And I can tell you it certainly does not make me more receptive to your arguments when you insinuate that I am “parroting” Dominion’s viewpoint.

    Would you be any more receptive to my arguments if I accused you of drinking environmentalist Kool Ade and “parroting” the views of the Sierra Club?

    • there is NO RISK to reliability to have a gas plant but to harvest solar when available then have gas come online when needed.

      and no you could not legitimately accuse me of “parroting” the Sierra Club – because – I’m not…. you won’t hear me talking about not having gas plants at all and just relying on wind/solar which WOULD BE irresponsible and you also won’t hear me talking about battery technology because it’s not ready for prime time and again it would be irresponsible to propose that as a short-term response.

      but relying on gas to back up SOLAR is really no different than relying on GAS to back up a Nuke or Coal Plant if peak demand exceeds their capacity which is exactly what is done to ensure reliability.

      I’m talking about doing the same thing. Use gas for SOLAR the very same way you’d use it to come online when demand exceeds baseload.

      Over and over – you – and Dominion just totally ignore this idea and dismiss it by calling it “unreliable” because it’s not “dispatchable” – like repeating it makes it any more true …it’s not.

      Many islands in the world burn fuel oil for electricity -24/7 to generate electricity at a cost of 40-50 cents KWH. They are now installing wind/solar to use it when it is available so that every minutes they can do that – they’re not burning 50 cent kwh fuel.

      it’s STILL RELIABLE – the diesel generators still operate – but instead of 3 or 4 of them – it’s one or two or less.. for as long as they can do that then they bring on the other turbines come dark…

      it saves money – and it’s still reliable.

      why won’t that same approach not work in Hampton?

  10. I am largely sympathetic to the approach you lay out for a long-term energy policy, and the need to explore new concepts here in Virginia. In the case of the Peninsula, however, Dominion is under the gun to fix the problem immediately due to the imminent shutdown of the Yorktown units.

    It strikes me that utilities and environmentalists are largely talking past one another. I see no serious effort to build a consensus on how to move forward toward an energy grid for the 21st century. If we want more renewable energy, we need a different legal-regulatory framework. Environmentalists have laid out a vision for more energy efficiency and renewables, but they haven’t engaged with industry, rate payers or the utilities. Someone needs to create a forum where that conversation takes place.

  11. I gave testimony to the SCC a few weeks ago in the hearing regarding Dominion’s 2016 IRP. These are exactly the issues that I raised. I also said that we needed a broader planning framework other than just a plan from the utilities so that third-party distributed generation and energy efficiency could be brought into the planning process.

    I am also making a presentation to the Governor’s task force relating to carbon reduction to make a similar point. Other states are making rapid progress on this. Virginia is not even talking about it. I’m not sure that the business community is aware how much of a difference a modern energy system could make to our economy. We need to break down our barriers and start working together on this.

    I think the SCC feels constrained by the GA. The re-regulation bill that dismantled the SCC’s deregulation plan came from the GA and has limited the flexibility of the SCC in dealing with these issues.

  12. Dominion could install a few megawatts of battery capacity in the region. PJM is installing batteries cost-effectively right now. In addition to being used as peak load generation (they could be charged off-peak by solar or by nuclear at night), the batteries could also be used for voltage and frequency control and be paid by PJM as a grid resource.

    There are many different ways to deal with this issue. When we get stuck in a single either-or choice we limit innovation and have a much harder time gaining agreement.

  13. I am looking at the battery storage issue now. I have interviewed PJM about the potential for battery storage, and I’m trying to get an interview with Arlington-based AES, which has built an entire business unit around battery storage. I’m also looking into Dominion’s experiment with battery storage, which it used in conjunction with a solar installation at Randolph-Macon University. Apparently, that experiment did not go well, and I’m trying to find out why.

  14. Jim,

    The tariff for the ACP just covers the cost of transporting the natural gas. It is based on the per unit volume of gas moved, measured in dekatherms. The price of the gas itself is separate. It applies for transportation of gas anywhere along the ACP.

    The tariff is based on the depreciated value of the pipeline, which is why new pipelines are so much more expensive than existing pipelines that have been mostly paid for by previous users. Over time the depreciated value of the pipeline declines but operating and maintenance charges increase so the tariff is adjusted by FERC.

    My point was that if the price for transporting gas to Yorktown was considered uneconomic by Dominion, how can they consider using the ACP to supply gas to their future plants as “economic” when it cost 2.6 times more?

  15. the other thing to mention is that gas plants do not get “stranded” the way that nukes and other baseload does because modern combined-cycle gas plants can come online quick and ramp done quick so those plants will never reach a point where we’ll not need ANY of their capacity… we’ll need it but maybe not 100% 24/7. That’s STILL way more cost-effective than having to run a Nuke 24/7 or take it 100% offline.

    I think if we have to choose between running gas -plants on a variable demand-need basis – 24/7 if far more flexible and adaptable than relying on Nukes alone nor Wind/Solar with batteries ….

    The environmental community is split on gas especially since it appears to emit far more methane that previously thought but the LAST thing we should be doing is changes that WILL undermine reliability… and I totally agree that reliability cannot be compromised…

    so my view is – burn the gas – because we must – but don’t burn any more of it than we absolutely have to – and use wind/solar as much as we can so we don’t have to burn that gas. If battery technology comes of age – then sure add that to the mix also to reduce gas even more …

    but DON’T put ourselves at risk by trying force wind/solar nor battery when doing so would seriously compromise reliability. Use those things opportunistically by all means but don’t screw up the grid going overboard on renewables or storage technology.

  16. Larry, you are on the right track. Just a few other considerations. Batteries are economic now for certain situations and are currently being used throughout the U.S. Batteries don’t screw up the grid, they make it more reliable. PJM is a leading example. But the cost will have to come down more for batteries to be used more widely. Battery costs will be 50% lower within 10 years and half again cheaper by 2030. By that time solar charged batteries will displace peakers. Solar plus batteries plus demand response will make solar essentially dispatchable at a price lower than any other alternative except energy efficiency.

    According to Bloomberg New Energy Finance, in high solar saturation areas such as California, midday power prices are increasingly influenced by gas-fired plants’ operating constraints. Things like ramping speed, and particularly the cost to start up and shutdown a unit are determining the power prices. If it is like that today, imagine how difficult it will be to operate a conventional unit profitably in 5-10 years.

    It does not make economic sense to build a 40-year life natural gas unit (peaker or combined-cycle) now. The utility will not be able to recover its cost without asking ratepayers to pay more.

    If we reduce the demand with energy efficiency we can use our current units plus solar (in Virginia – wind too in other locations) to reliably meet demand. The combustion turbines (peakers) can operate as you suggest. They can be retired along with the 60-year old nukes after 2030.

    This would provide Virginia with a low-cost, clean and reliable energy system. It sounds pie-in-the-sky today but it will come to pass faster than most people can imagine if we don’t obstruct the natural market forces.

  17. Utilities are aware of what these trends will do to their current business model. That is why utilities were caught proposing an amendment to the Florida Constitution that was misleading in its wording. At first glance it appeared to support more solar development when in fact it would severely slow it down.

    We must consider ways to reset the role of utilities so we can keep them financially healthy. Without a serious revision in the way Virginia electric utilities are regulated they have no choice but to propose projects that will favor their shareholders but harm the ratepayers. This is not a healthy situation. The declining cost trends are moving fast for the new technologies. Regulators and utilities typically move at a snails pace. We cannot afford to waste time expecting the future to be like the past. Utilities and the ratepayers deserve the best ideas we can muster. Several other states are well ahead of us and can give us a good idea about what to do first.

  18. if we came up with a new technology that allowed us to burn 1/2 the gas we do now – we’d be all over it , right?

    well.. that’s what solar does…

    and there is zero risk to reliability because you use the same gas plant that you needed and built originally – WHEN you need to and WHEN solar is not available.

    there is no magic here. It’s plain ordinary common sense… use the available technologies that are cost-effective – to reduce the need to burn fossil fuels – when you can – and when you can’t then do what you were doing already.

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