Category Archives: natural gas

The gas stove culture wars come to Virginia

by

Gas stoves have been in the headlines a lot recently. On the heels of a studyquantifying their contribution to childhood asthma, Consumer Product Safety Commission member Rich Trumka, Jr. issued a tweet suggesting the agency might take them off the market, a comment he later walked back. 

Too late: cue the outrage from the right. “If the maniacs in the White House come for my stove, they can pry it from my cold dead hands,” tweeted Rep. Ronny Jackson, R-Texas. A number of people tweeted back that they were eager to see this happen, but then it turned out no one in the White House actually wants to ban gas stoves, anyway.

What kind of stove you use might seem an odd contender for a culture war issue, but the outrage beast needs constant feeding. The ranting leaves no time for anyone to point out that electricity powers the great majority of U.S. stoves, methane gas isn’t even an option in much of the country, and — eh — we Americans don’t really cook that much, anyway. If we were arguing over microwave ovens, more of us would have a dog in this fight.

But the mere fact that you never gave your stove much thought before does not excuse you from taking sides now. If you are a Democrat, you must drool over induction stoves, even if you aren’t sure what they are or how they work. If you are a Republican, you must support burning fossil fuels in the kitchen and weep for the plight of Michelin-starred chefs whose restaurants you can’t afford to go to (and indeed, many of whom have been won over by induction, the ingrates). 

One of the difficulties the gas industry faces in politicizing stoves is that it wins over the wrong people. An Energy Information Agency map shows the percentage of households that cook with gas is highest in a bunch of blue states like California and New York, and lowest in the deep-red South and the Dakotas. 

The reasons are pragmatic, not political. Gas utilities in rural states like North Dakota are much less likely to have invested in the expensive network of distribution pipelines needed to bring service to far-flung communities. The rural geography problem affects much of the South as well, but weather is a factor, too. Since furnaces, not cookstoves, are the big fuel users, the relatively warm winters of the South make it a less lucrative market than the colder North. Thus, electricity dominates heating as well cooking in southern states. 

If gas companies have chosen not to serve areas where they would make less money, who can blame them? On the other hand, with gas furnaces increasingly unable to compete with more efficient heat pumps, they now risk losing their northern customers to electric alternatives. Either they sit and stare into the abyss of an all-electric future in which they are obsolete, or they have to do what they can to slow their inevitable decline.

And so they set out to convince state legislatures to prevent local governments from barring new gas hookups in their communities, as many left-leaning cities have been doing in the interests of climate and health. Gas stove diehards are the industry’s unwitting (and sometimes witting) poster children.  

On the face of it, the gas industry has been successful: at least 20 statescontrolled by Republican legislatures have enacted gas ban preemption laws. Sadly for the gas utilities, the wins have occurred in those southern and rural states where they don’t have as much business to protect anyway. 

That’s what makes Virginia an important next target. Almost one-third of Virginia households are customers of natural gas utilities, and only a handful of rural Virginia counties have no gas service at all. There is certainly room for growth. Yet a number of urban and suburban localities have adopted climate goals that call on their governments to lower greenhouse gas emissions. The gas industry fears these localities may decide banning new gas hookups could be one step towards the goal. 

The risk seems slight. Virginia is a Dillon Rule state, meaning local governments have only the authority delegated to them by the General Assembly. Given the difficulty Virginia localities have had even getting authority to ban single-use plastic bags (they still can only tax them, not pry them from your cold, dead hands), it seems unlikely they would seek, or get, authority to ban new gas hookups any time soon.

Indeed, when the General Assembly first considered legislation to preempt gas bans last year, the focus was on the City of Richmond and the incompatibility of the city’s 2050 carbon-neutrality pledge with its continued operation of its own gas utility. The city itself didn’t seem to be thinking that far ahead, and climate activists have since complained that Richmond is more intent on upgrading its gas infrastructure than in phasing it out. Still, the gas industry had a target to point to.

The House was willing to adopt the full gas preemption ban, but a Senate committee reworked the legislation to focus on the problem at hand. The law that passed imposed a requirement that any municipality with a gas utility notify its customers and put the utility up for sale before exiting the business. All parties pronounced themselves satisfied, declared victory and went home. 

This year the gas industry has no threat to point to but is nonetheless again trying to get the preemption bill passed. The bill language includes a kind of culture war code term, a declaration that “energy justice” means you have the right to buy gas if you can afford it and the gas company has the right not to supply you if you can’t, or if serving you isn’t profitable for the company. 

The better description for this, surely, is the free market, which is quite distinct from justice. So, is it justice or merely irony that even if it were to pass, many Republicans who voted for the bill still wouldn’t get gas service for their constituents because serving rural areas is not in the interests of the industry? 

As it did last year, the Republican-led House has passed the industry’s bill along party lines. In the Democratic-controlled Senate, though, matters get interesting. This year the gas industry secured a Senate patron, Democrat Joe Morrissey. Though Morrissey is hardly popular in the party, he is still at least one Democratic vote for the bill in a closely divided chamber. 

It seems obvious enough that the preemption ban is on the wrong side of history, at a time when our burning of fossil fuels is already causing climate chaos. It’s also not going to stave off the inevitable for long. Building electrification will continue. Over time, more consumers will choose heat pumps and induction stoves over methane gas, not for political reasons but for health reasons and because the technology is better. 

But if we agree the gas industry will lose out in the end, is it really a big deal if Virginia localities are barred from doing something they don’t seem to have authority to do anyway?

Well, actually, yes. Even if Virginia localities can’t make a blanket prohibition on new gas connections, it’s not hard to imagine that a locality might choose to reject a particular gas connection to a particular construction project or subdivision where the gas line would cross parkland or wetland, or be problematic for some other very specific, very local and very legitimate reason. 

Virginia’s balance of power has always recognized that land-use decisions should be made at the local level. This legislation hands a cudgel to the gas industry and developers to override a legitimate local land use decision.

For that, legislators should have a better reason than taking sides in a culture war.

This article was originally published by the Virginia Mercury on February 7, 2023.

Note: A reader in rural Virginia pointed out that the legislation also protects users of propane, which is a common heating fuel in rural areas that are not served by methane gas utilities. I didn’t address propane because although the bill addresses it, it’s really peripheral to the point of the legislation. The gas industry lives and dies on methane, not propane, and propane is so often used for heating in rural areas that there’s little chance of any rural locality wanting to ban it. So no, that still is not a reason to support the bill.

Washington Gas loves its customers too much for their own good

by
Shows a lit gas stove ring
Choose your fuel source carefully: you are likely to have to live with your decision for the next 10-20 years. Image: iamNigelMorris, CC BY 2.0 , via Wikimedia Commons

Washington Gas has been emailing its Virginia customers this month to offer them rebates if they buy new gas appliances, including home heating equipment (up to $700) and water heaters (up to $400). What the message doesn’t say is that this is a terrible deal. Customers will be able to get far bigger incentives if they wait until January and buy electric equipment instead.

Under the just-passed Inflation Reduction Act (IRA), Uncle Sam will provide tax credits of up to $2,000 per year for electric heat pumps that provide both heating and air conditioning as well as heat pump water heaters. Lower-income customers will be able to access upfront discounts of up to $8,000 for a heat pump, $1,750 for a water heater, $840 for an induction stove, and other amounts for additional upgrades. If you’re converting from gas and your electric panel isn’t sized to handle the extra electric load, the IRA will help with an upgrade. (For a full rundown of rebates and tax credits for homes, see this list from Rewiring America.)

It used to be that gas furnaces were more efficient and cheaper to operate than most electric heating options, but today the reverse is true: An EnergyStar heat pump uses energy more efficiently and costs less to operate than a fossil fuel furnace or boiler. A heat pump water heater, which I’d never even heard of until recently, is more efficient than either gas or a standard electric hot water heater and, again, saves money on operation.

Advances in heat pump technology and induction stoves, concerns about climate change and growing awareness of the dangers of burning fossil fuels indoors mean the switchover from gas to electricity would have happened without the IRA. But the IRA’s rebates are expected to goose the transition and transform the building sector.

Many consumers haven’t heard about the IRA’s rebates yet, and they may not have given much thought to home electrification. They need this information, but they sure won’t get it from their gas company.

Washington Gas is pushing its gas appliance rebates now for an even bigger reason, though, and one that makes it especially important that customers give them a pass: Installing an expensive new gas furnace locks you into the company’s fond embrace for the life of the furnace, no matter how high natural gas prices go.

It’s true that electric appliances will further tie you to your electric utility (unless you have solar panels), and electricity rates have been going up as well. But electricity rates are going up mainly because fossil fuel costs have skyrocketed. Dominion Energy Virginia, for example, cited a 100% increase in the price of natural gas when it asked for a rate hike this summer. As the electric grid gets greener year by year, lower-priced wind and solar energy will have a moderating effect on electricity prices. Your gas utility, on the other hand, will never have anything to sell you but gas.

It gets worse. Gas companies have to maintain their network of pipelines and other infrastructure regardless of how many customers they have. Those costs will be spread over a shrinking rate base as more and more customers switch over to electricity, raising rates for the remaining customers. If you buy a new gas furnace now, you will be trapped in that shrinking pool of customers, paying ever more to maintain pipelines.

Today, Washington Gas charges customers a flat “system charge” of $11.25 per month, plus supply and distribution costs based on how much gas is used that month. Customers who electrify their homes escape the monthly system charge and gain the convenience of dealing with just one utility. But the real savings come in not being part of a shrinking rate base paying an ever-larger share of the gas company’s fixed costs.

That makes Washington Gas’s rebate offer doubly dangerous for customers who don’t know about the IRA. Someone whose old gas furnace is on the fritz might see the email and decide to use that small rebate to buy a new gas furnace, when they would be far better off keeping the old one limping along for a few more months. Come 2023, they would then reap the benefit of an electric heat pump with a much larger rebate or tax credit.

Consumers are set to save a lot of money and energy under the IRA’s incentives for home electrification — but not if they get locked into fossil fuels first.

This post was originally published in the Virginia Mercury on October 28, 2022.

Getting gas out of buildings is critical for climate action, but the recipe isn’t easy

by

I grew up with brothers, so I knew from an early age that the surest way to make friends with guys was to feed them homemade cookies. I took this strategy with me to college, commandeering the tiny kitchenette tucked into the hallway of my coed dorm. The aroma of chocolate chip cookies hot out of the oven reliably drew a crowd.

One fan was so enthusiastic that he wanted to learn to make cookies himself. So the next time, he showed up at the start of the process. He watched me combine sugar and butter, eggs and flour.

Instead of being appreciative, he was appalled. It had never occurred to him that anything as terrific as a cookie could be made of stuff so unhealthy. It’s not that he thought they were created from sunshine and elf magic; he just hadn’t thought about it at all. He left before the cookies even came out of the oven.

I felt so bad about it, I ate the whole batch.

Cookies are practically health food compared to other things we consume without really understanding the dangers. 

It’s not just food. Plastic packaging, chemical additives, PFAS, phthalates and numerous other chemicals enter our homes and bodies without our conscious acquiescence, causing havoc for ourselves, our children and the rest of life on earth. It’s hard to know the risks, harder still to avoid them. So maybe you carry reusable bags and water bottles, buy organic if you can, and otherwise, try not to think too hard about it.

Where ignorance is bliss—or at any rate, a state of mind sufficient to keep you from a complete mental breakdown — you could be excused for feeling ‘tis folly to be wise. Why not just eat the cookies?

Well, because sometimes reading the ingredients can make a difference. Public pressure has been the major driver of government action on climate, particularly in decarbonizing the electric sector. People saw the recipe for their power supply and recoiled at all that fossil fuel. Short of installing solar panels on their rooftops, individuals in most states have little control over their source of electricity. It was a collective outcry that led to nearly half of all states setting carbon-free electricity targets. 

It seems odd, then, that we have not seen the same outcry when it comes to fossil fuel use in buildings, including natural gas in homes. As our electricity gets cleaner, buildings must become all-electric on the way to a fully decarbonized energy economy.  

Turns out, that’s a tall order. About 48 percent of American homes use natural gas for heating, and many also have gas appliances like stoves and hot water heaters. Starting in 2019, a few cities started banning new gas connections in an effort to speed the transition to all-electric homes. But in response, the gas industry persuaded legislatures in 20 states to prohibit localities from enacting such bans. (An industry effort to “ban the bans” in Virginia failed mainly because no localities have tried to go that route.)

For now at least, the industry seems to have public sentiment on its side. Natural gas is truly the chocolate-chip cookie of fossil fuels: it heats the air reliably, chefs love it and it’s lower in calories—I mean, carbon—than coal. Even the name sounds benign. What can be wrong with something “natural?” 

Disillusionment sets in only when you read the recipe. (“First, frack one well…”) Understanding the harmfulness of the ingredients is the key to getting people to insist on all-electric homes and businesses. The primary component of natural gas is methane, a greenhouse gas far more potent than CO2. Methane leaking from wellheads, pipelines, compressor stations and storage facilities contributes alarmingly to climate change. Older cities are riddled with leaking distribution pipelines running through neighborhoods, especially those housing low-income and non-White residents. Occasionally, they explode. 

Those beloved gas stoves leak methane even when turned off, and burning gas in buildings causes high levels of indoor air pollution. Cooking with gas releases respiratory irritants, including nitrogen dioxide, ultrafine particulate matter (PM 2.5), carbon monoxide and formaldehyde. The effect is particularly harmful to children, with studies showing children living in homes with gas stoves are 42 percent more likely to suffer from symptoms of asthma.

It used to be that gas outperformed electricity in buildings, but no longer. Recent advances in technology mean electric heat pumps provide heating and air conditioning efficiently and effectively even in very cold climates. Every gas appliance has an electric counterpart. Even for cooking, gas has met its match in electric induction stoves, which have been winning over chefs nationwide. In a few years, we will wonder why we ever allowed open flames in our kitchens.  

Cost and convenience also favor all-electric buildings. An electric heat pump instead of both a gas burner and electric air conditioning means only one system to maintain and one utility bill instead of two. 

The question isn’t why homeowners would give up gas, but why builders still include it. Clearly, no one is reading the recipe.

With so much gas infrastructure already in place, and so little public awareness of the dangers, getting the gas out of buildings will be a slow process. In Virginia, gas companies continue to propose pipeline projects that would actually increase supply, in the hopes of locking in new customers. This is, to use the technical term, nuts. Those pipelines will have to be abandoned within a couple of decades, not “just” because the climate crisis demands it, but because consumers won’t keep buying.

Certainly, it will take time for most people to grasp how harmful methane is and how superior the alternative is. Once consumers begin insisting on all-electric buildings, however, gas utilities will enter a death spiral as they are forced to raise prices for remaining customers, who will then switch to electricity, too. 

At that point, electrification of the building sector will be complete, and we will begin to close the (cook)book on gas.

This article originally appeared in the Virginia Mercury on July 7, 2022.

Dear readers: Many of you know that although I write independently of any organization, I also volunteer for the Sierra Club and serve on its legislative committee. The Sierra Club’s Virginia Chapter urgently needs funds to support its legislative and political work towards a clean energy transition. So this summer I’m passing the hat and asking you to make a donation to our “Ten Wild Weekends” fundraising campaign. Thanks!

What new Virginia laws reveal about how the natural gas industry sees its future 

by
Photo credit Malopez 21 via Wikimedia Commons

Natural gas is having a moment. The war in Ukraine spotlighted Europe’s heavy reliance on Russian gas and the challenge of replacing it with new supplies from elsewhere. Suddenly the Biden administration, after talking so much about the need to get off fossil fuels, wants to expand oil and gas production and boost exports of liquified natural gas. 

The president still intends to address the climate crisis, just not right now. The sudden shift brings to mind St. Augustine’s prayer: “Lord, make me virtuous, but not yet!”

Don’t be fooled, though. In fact, natural gas is facing an existential crisis. Back when it was cheap, it wasn’t profitable; now that prices are high, U.S. consumers have better alternatives. Europeans will want to import our expensive LNG only until they have other options. Today’s tight supplies obscure the big-picture reality that the gas industry is in the fight for its life. 

The fracking industry likes to bill its product as the cleaner and cheaper alternative to coal in generating electricity. And indeed, advances in fracking technology produced a years-long glut of gas, driving prices so low that gas overtook coal as the top fuel in U.S. power generation beginning in 2015. Gas made up 38.3 percent of electricity in 2021 compared to coal’s 21.8 percent. 

But competition from ever-cheaper wind and solar have stalled the gas industry’s growth in the power sector. Today utilities are more interested in building renewable energy and battery storage than new gas plants. Natural gas was projected to make up only 16 percent of new U.S. electricity generating capacity in 2021, compared to 39 percent for solar and 31 percent for wind. 

High prices will exacerbate this trend. Natural gas prices today are higher than at any time since 2008, having more than trebled in just the past two years. The rise began well before the war in Ukraine, and now international market demand has pushed it higher. This is good for fracking companies that spent the last 10 years losing money, but from a utility’s perspective, price-stable renewables just look better and better. 

Graph of 5 years of natural gas prices in US dollars.
Natural gas (USD/MMBtu) https://tradingeconomics.com/commodity/natural-gas

Fortunately for the gas industry, making electricity is just one use for its product. Methane remains the dominant fuel for heating buildings, with about half of U.S. homes and businesses using it for space heating, water heating, cooking and other appliances. It is also a feedstock for many industrial operations, including fertilizer and plastics manufacturing. Protecting the first use, and expanding the second, are critical to staving off obsolescence. 

That explains three pieces of legislation passed in Virginia in the past two years, all modeled on bills enacted in other states. One, which I’ll discuss in a minute, originally would have prohibited local governments from banning new gas connections within their jurisdiction, protecting the industry’s access to new retail customers. Another sets up a way for gas companies to include methane from pig waste lagoons and other non-fossil sources in their pipelines, allowing them to claim green credit — and subsidies — for marketing what they call renewable natural gas. 

Finally, 2021 legislation promotes “advanced recycling” of waste plastics — using a process called chemical conversion to turn plastic into other plastic or into fuel and then burning it — in part to forestall efforts to phase out single-use plastics like Styrofoam food containers and plastic bags. As a technology, chemical conversion is inelegant, being energy-intensive and highly polluting. As a business, the economics are questionable (and the main company benefiting from the law canceled plans for a facility in Virginia). But as PR, the reframing is brilliant. Why not expand plastics production forever if we can turn the waste into fuel or new plastic?

Indeed, the success of the law can be seen in Gov. Glen Youngkin’s new executive order ostensibly promoting recycling while overturning a previous order from Ralph Northam that required executive agencies to give up single-use plastics by 2025. General Assembly members are also falling for the propaganda, proposing via the state budget to delay the ban on polystyrene food containers that was to have taken effect beginning next year. 

Banning the bans: the gas industry fights building electrification

RNG and plastics are important for the gas industry, but protecting its market share in the building sector is central to its future. Ultimately it is doomed to failure. All-electric buildings are a requirement for a fully decarbonized economy, and their health and safety advantages make a compelling case for localities that want to help meet climate targets by preventing new homes from being connected to gas lines. Some cities in solidly blue states have banned new gas hook-ups; elsewhere, red state legislatures are passing laws to ban the bans.

Public support for these bans will grow as people learn more about the hazards of using gas in their homes. Read enough stories about methane leaking from underground pipes and in homes (and occasionally exploding and setting fire to buildings), or about the health impacts of indoor air pollution from gas heaters and stoves, and you may wonder why we ever thought it a good idea to have open flames in our homes. Yet once a house is built with a gas furnace and appliances, it is much harder for a homeowner to go all-electric. 

To be clear, though, no Virginia jurisdiction has sought to ban gas connections, and it’s not clear whether they could do so in a Dillon Rule state like Virginia. Right now, a law to keep them from doing so sounds a little on the hysterical side, like prohibiting people from walking tigers off-leash. 

Indeed, the proponents of HB1257 could cite only a much narrower threat. The City of Richmond recently committed itself to achieving net zero greenhouse gas emissions by 2050. Unlike almost any other city in Virginia, Richmond owns a gas utility that serves its residents and businesses. Sometime in the next 28 years, if the city is serious, it will have to sell the utility or shut down gas service, forcing customers to look elsewhere if they want gas. 

The gas industry and its industrial customers used this far-off threat as a pretext for a Virginia ban-the-ban bill. In its original form, HB1257 (Kilgore) declared it the right of every person to access natural gas, calling this “energy justice,” and explicitly forbidding any public entity from doing anything to interfere with this sacred right. (Oh, except that gas utilities don’t have to supply gas even to willing customers if they can’t make money doing so, and they are free to cut off service to anyone who can’t pay their bills. Justice stretches only so far as profit permits.) 

The Republican-led House passed the whole bill, but the Democratic-led Senate pared it back to deal just with a locality that gets out of the gas utility business, requiring that it give three years’ notice and try to sell or auction off the utility. The final version omits the “energy justice” language that was such an inspiring tribute to George Orwell, but it solves the “immediate” problem in Richmond. 

But it’s not likely that we have seen the end of legislative efforts in Virginia to ban local restrictions on natural gas connections. The gas industry needs to lock in new customers now, because its future is looking very bleak indeed. 

This column originally appeared in the Virginia Mercury on April 21, 2022.

With a framework for Virginia’s energy transition in place, here’s what happens next

by

workers installing solar panels on a roof

One expected effect of the Clean Economy Act will be a boom in solar jobs across Virginia. Photo courtesy of NREL.

With Democrats in charge, Virginia passed a suite of bills that establish a sturdy framework for a transition to renewable energy in the electric sector.

At the center of this transformation are the Clean Economy Act, HB1526/SB851, and the Clean Energy and Community Flood Preparedness Act, HB981/SB1027. Other new laws direct further planning, make it easier for customers to install solar, improve the process for siting wind and solar farms, and expand financing options for energy efficiency and renewable energy.

Gov. Ralph Northam has signed some bills already, and has until April 11 to sign the others or send them back to the General Assembly with proposed amendments. Once signed, legislation takes effect on July 1.

I assume the Governor has other things on his mind right now than asking the General Assembly to tinker further with a bill like the Clean Economy Act, though bill opponents may be using the virus pandemic to argue for delay. That would be a self-defeating move; as the economy restarts, Virginia is going to need the infusion of jobs and investment that come with the build-out of clean energy. And one of the strongest arguments in support of our energy transition, after all, is that it will save money for consumers.

So what happens after July 1? How does this all work? Let’s look at the way these major pieces of legislation will change the energy landscape in Virginia.

Virginia joins RGGI, and CO2 emissions start to fall. 

Virginia’s Department of Environmental Quality has already written the regulations that call for Virginia power plants to reduce emissions by 30 percent by 2030. The mechanism for achieving this involves Virginia trading with the Regional Greenhouse Gas Initiative, a regional carbon cap and trade market.

The regulations have been on hold as the result of a budget amendment passed last year, when Republicans still ruled the General Assembly. After July 1, DEQ will be able to implement the regulations, with the commonwealth participating in carbon allowance auctions as early as the last quarter of this year or the first quarter of 2021.

In addition to joining RGGI, the Clean Energy and Community Flood Preparedness Act also allows the commonwealth to earn money from the allowance auctions. The Department of Housing and Community Development will spend 50 percent of auction proceeds on “low-income efficiency programs, including programs for eligible housing developments.”

The Department of Conservation and Recreation will get 45 percent of the auction proceeds to fund flood preparedness and climate change planning and mitigation through the Virginia Community Flood Preparedness Fund. The last 5 percent of proceeds will cover administrative costs, including those for administering the auctions.

Energy efficiency savings become mandatory, not just something to throw money at.

Two years ago, the Grid Transformation and Security Act required Dominion and Appalachian Power to propose more than a billion dollars in energy efficiency spending over 10 years, but the law didn’t say the programs had to actually be effective in lowering electricity demand.

This year that changed. For the first time, Virginia will have an energy efficiency resource standard (EERS) requiring Dominion to achieve a total of 5 percent electricity savings by 2025 (using 2019 as the baseline); APCo must achieve a total of 2 percent savings. The SCC is charged with setting new targets after 2025. At least 15 percent of the costs must go to programs benefiting low-income, elderly or disabled individuals, or veterans.

The EERS comes on top of the low-income energy efficiency spending funded by RGGI auctions.

Dominion and Appalachian Power ramp up renewables and energy storage. 

The Clean Economy Act requires Dominion to build 16,100 megawatts of onshore wind and solar energy, and APCo to build 600 megawatts. The law also contains one of the strongest energy storage mandates in the country: 2,700 MW for Dominion, 400 MW for Appalachian Power.

Beginning in 2020, Dominion and Appalachian must submit annual plans to the SCC for new wind, solar and storage resources. We’ll have a first look at Dominion’s plans just a month from now: the SCC has told the company to take account of the Clean Economy Act and other new laws when it files its 2020 Integrated Resource Plan on May 1.

The legislation provides a strangely long lead time before the utilities must request approval of specific projects: by the end of 2023 for APCo (the first 200 MW) or 2024 for Dominion (the first 3,000 MW). But the build-out then becomes rapid, and the utilities must issue requests for proposals on at least an annual basis.

In addition to the solar and land-based wind, Dominion now has the green light for up to 3,000 MW of offshore wind from the project it is developing off Virginia Beach, and which it plans to bring online beginning in 2024. All told, the Clean Economy Act proclaims up to 5,200 MW of offshore wind by 2034 to be in the public interest.

Dominion’s plans for new gas plants come to a screeching halt.

Before the 2020 legislative session, Dominion’s Integrated Resource Plan included plans for as many as 14 new gas combustion turbines to be built in pairs beginning in 2022. In December, the company announced plans to build four gas peaking units totaling nearly 1,000 MW, to come online in 2023 and 2024.

But that was then, and this is now. The Clean Economy Act prohibits the SCC from issuing a certificate of convenience and necessity for any carbon-emitting generating plant until at least January 1, 2022, when the secretaries of natural resources and commerce and trade submit a report to the General Assembly “on how to achieve 100 percent carbon-free electric energy generation by 2045 at least cost to ratepayers.”

Even with no further moratorium, Dominion will find it hard to sell the SCC on the need for new gas plants on top of all the renewable energy and energy storage mandated in the Clean Economy Act. Solar and battery storage together do the same job that a gas peaker would have done — but they are required, and the gas peaker is not. Meanwhile, the energy efficiency provisions of the act mean demand should start going down, not up.

Dominion has already signaled that it recognizes the days of new gas plants are largely over. On March 24, Dominion filed a request with the SCC to be excused from considering new fossil fuel and nuclear resources in its upcoming Integrated Resource Plan filing, arguing that “significant build-out of natural gas generation facilities is not currently viable” in light of the new legislation.

Fossil fuel and biomass plants start closing.

By 2024, the Clean Economy Act requires the closure of all Dominion or APCo-owned oil-fueled generating plants in Virginia over 500 MW and all coal units other than Dominion’s Virginia City Hybrid plant in Wise County and the Clover Station that Dominion co-owns with Old Dominion Electric Cooperative.

This mandate is less draconian than it sounds; it forces the closure of just two coal units, both at Dominion’s Chesterfield plant. Other Dominion coal plants in Virginia have already been retired or switched to using gas or biomass, and one additional coal plant in West Virginia lies beyond the reach of the legislation. Oil-fired peaking units at Yorktown and Possum Point were already slated for retirement in 2021 and 2022. APCo owns no coal or biomass plants in Virginia.

Although the exceptions might appear to swallow the rule, the truth is that coal plants are too expensive to survive much longer anyway. One indication of this is a March 24 report Dominion filed with the SCC showing its fuel generation sources for 2019: coal has now fallen to below 8 percent of generation.

By 2028, Dominion’s biomass plants must shut down, another victory for consumers. All other carbon-emitting generating units in Virginia owned by Dominion and APCo must close by 2045, including the Virginia City plant and all the gas plants.

As of 2050, no carbon allowances can be awarded to any generating units that emit carbon dioxide, including those owned by the coops and merchant generators, with an exception for units under 25 MW as well as units bigger than 25 MW (if they are owned by politically well-connected multinational paper companies with highly-paid lobbyists).

Solar on schools and other buildings becomes the new normal.

In December, Fairfax County awarded contracts for the installation of solar on up to 130 county-owned schools and other sites, one of the largest such awards in the nation. Using a financing approach called a third-party power purchase agreement (PPA), the county would get the benefits of solar without having to spend money upfront. The contracts were written to be rideable, meaning other Virginia jurisdictions could piggyback on them to achieve cost savings and lower greenhouse gas emissions.

Fairfax County’s projects, along with others across the state, hit a wall when, on Jan. 7, the SCC announced that the 50 MW program cap for PPAs in Dominion territory had been reached. But with the passage of the Clean Economy Act and Solar Freedom legislation, customers will be able to install up to 1,000 MW worth of solar PPAs in Dominion territory and 40 MW in APCo territory.

Fairfax County schools will soon join their counterparts in at least 10 other jurisdictions across the state that have already installed solar. With the PPA cap no longer a barrier, and several other barriers also removed, local governments will increasingly turn to solar to save money and shrink their carbon footprints.

Virginia agencies start working on decarbonizing the rest of the economy. 

In spite of its name, the Clean Economy Act really only tackles the electric sector, with a little spillover into home weatherization. That still leaves three-quarters of the state’s greenhouse gas emissions to be addressed in transportation, buildings, agriculture and industry. Ridding these sectors of greenhouse gas emissions requires different tools and policies.

Other legislation passed this session starts that planning process. SB94(Favola) and HB714 (Reid) establish a policy for the commonwealth to achieve net-zero emissions economy-wide by 2045 (2040 for the electric sector) and require the next Virginia Energy Plan, due in 2022, to identify actions towards achieving the goal. Depending on who the next governor is, we may see little or nothing in the way of new proposals, or we may see proposals for transportation and home electrification, deep building retrofits, net-zero homes and office buildings, carbon sequestration on farm and forest land and innovative solutions for replacing fossil fuels in industrial use.

Collateral effects will drive greenhouse gas emissions even lower.

Proposed new merchant gas plants are likely to go away. With Virginia joining RGGI and all fossil fuel generating plants required to pay for the right to spew carbon pollution, the developers of two huge new merchant gas plants proposed for Charles City County will likely take their projects to some other state, if they pursue them at all.

Neither the 1,600 MW Chickahominy Power Station and the 1,050 C4GT plant a mile away planned to sell power to Virginia utilities; their target is the regional wholesale market, which currently rewards over-building of gas plant capacity even in the absence of demand. The Chickahominy and C4GT developers sought an exemption from RGGI through legislation; the bill passed the Senate but got shot down in the House.

If the C4GT plant goes away, so too should Virginia Natural Gas’ plans for a gas pipeline and compressor stations to supply the plant, the so-called Header Improvement Project.

Other coal plants will close. Although the CEA only requires Dominion to retire two coal units at its Chesterfield Power Station, other coal plants in the state will close by the end of this decade, too. That’s because the economics are so heavily against coal these days that it was just a matter of time before their owners moved to close them.

Adding the cost of carbon allowances under RGGI will speed the process along. That includes the Clover Station, which Dominion owns in partnership with Old Dominion Electric Cooperative (ODEC), and the Virginia City Hybrid Electric plant in Wise County, Dominion’s most expensive coal plant, which should never have been built. 

The Atlantic Coast and Mountain Valley Pipelines find themselves in more trouble than ever. If I had a dollar for every time a Dominion or Mountain Valley spokesperson said, “Our customers desperately need this pipeline,” I would not be worried about the stock market right now.

The fact is that no one was ever sure who those customers might be, other than affiliates of the pipeline owners themselves—and that doesn’t exactly answer the question. With Virginia now on a path away from all fossil fuels, neither pipeline has a path to profitability inside Virginia any longer, if they ever had one.

 

A version of this article originally appeared in the Virginia Mercury on March 31. 

SCC cracks open the door on Dominion’s Atlantic Coast Pipeline costs

by

map showing VA and NC route of Atlantic Coast Pipeline

Costs to build the Atlantic Coast Pipeline are pegged at $7 billion. Partner Dominion Energy plans to charge captive electricity customers for the cost, regardless of whether the pipeline is needed. Image via the Federal Energy Regulatory Commission.

Dominion Energy Virginia employees were briefing a stakeholder group on the company’s Integrated Resource Plan (IRP) last Friday morning when text messages started popping up on phones all over the room: the State Corporation Commission had just rejected the IRP and ordered a do-over.

Awkward.

The SCC has never rejected a Dominion IRP before, mostly because the plan doesn’t have a binding effect. It is simply a way for Dominion to show regulators how it might meet the needs of customers over a 15-year period. If the company actually wants to build new generation or implement new programs, it still has to get permission through a separate proceeding.

But the IRP is important in establishing the context for new generation or programs. The SCC’s order on Friday shows commissioners think the company has presented a picture so distorted as to be unreliable.

The SCC order gives Dominion 90 days to correct a list of items it says the company got wrong, from unrealistically high demand forecasts to overly-optimistic assumptions about solar energy.

The order also instructs Dominion to look at an option the company ruled out: building yet another big combined-cycle gas plant. The SCC says it doesn’t necessarily want Dominion to build such a plant, only that the company ought to construct a true least-cost scenario to compare all other options against, and a least-cost option might include more baseload gas.

Then, buried down in footnote 14, the SCC added this:

The record reflects that the Company did not include fuel transportation costs in the modeled costs of certain natural gas generation facilities. Tr. 610. For purposes of the corrected 2018 IRP, the Company should include a reasonable estimate of fuel transportation costs, including interruptible transportation, if applicable, associated with all natural gas generation facilities in addition to the fuel commodity costs.

Wait a moment. Did the SCC just ask Dominion about the cost to ratepayers of its Atlantic Coast Pipeline?

Or does it just want to see different kinds of natural gas facilities modeled on an apples-to-apples basis, which Dominion failed to do? Even if it is the latter, can the SCC really open the door on transportation costs at all without letting the $7 billion elephant into the room?

If that happens, Dominion will find this the most expensive footnote in company history.

Dominion says the footnote is absolutely not about the ACP, and the company is shocked that anyone might think that. In a statement quoted in Energy News Network, the company lambasted environmental groups for perceiving a link between fuel transportation costs and a pipeline that provides fuel transportation:

“Instead of supporting Dominion Energy and policymaker’s (sic) push for carbon-free generation, [the Sierra Club and SELC] are distorting the SCC’s official order to pander to their donor base without regard for the truth,” the statement said.

This begs the question of how Dominion plans to comply with the order without mentioning its parent company’s pipeline. The company’s hysterical attack on its environmental critics seems designed to beat back expectations for the ACP’s cost to ratepayers becoming an issue in the IRP.

Footnote or no footnote, the SCC really should look at those pipeline costs

Admittedly, dropping a bombshell in a footnote would be only slightly more surprising than the SCC taking up the pipeline question at all right now. Pipeline critics have been trying in vain for two years to get the SCC to examine the contract between various Dominion subsidiaries obligating Virginia customers to pay for 20 percent of the ACP’s capacity. This blatant self-dealing is central to the pipeline’s profitability.

The SCC has previously refused to question the deal, and the Virginia Supreme Court refused to force the Commission to do it. The SCC maintained at the time that it could wait for the pipeline to be built before it decides whether it is fair to charge ratepayers for it. But it doesn’t have to wait; the Supreme Court says the SCC can take up the question any time.

And it should, because the SCC’s very silence encourages Dominion to think it will get away with charging customers for a hefty portion of the $7 billion pipeline. It is long past time for Dominion to present its evidence on the ACP.

As the SCC’s IRP order found, “the load forecasts contained in the Company’s past IRPs have been consistently overstated” and the SCC “has considerable doubt regarding the reasonableness of the Company’s load forecasts.” These questionable load forecasts, of course, underpin Dominion’s case for the ACP.

William Penniman, an energy lawyer who served as an expert witness for the Sierra Club in Dominion’s 2017 IRP case, testified that, based on publicly-available ACP filings, the contract with the ACP could cost utility customers in Virginia over $200 million of fixed charges annuallyfor 20 years—over $4 billion over the 20-year life of the contract, whether or not it ships any gas at all. He also showed that, even if more gas were needed, other pipeline options were much cheaper than Dominion’s affiliate deals.

And, given that Dominion already has contracts with another pipeline company to serve the utility’s existing gas plants, the money paid for capacity in the ACP will be entirely wasted—unless, of course, Dominion builds a bunch of new gas plants or drops lower-priced transportation arrangements in favor of its costly affiliate deals.

The pipeline came up again in the 2018 IRP. Gregory Lander, a witness for the Southern Environmental Law Center pointed out that Dominion’s IRP merely embeds the costs of the ACP into its generation scenarios without quantifying or justifying them.

“In essence,” Lander testified, “the IRP asks the Commission to accept that the Atlantic Coast Pipeline is built and that ratepayers should pay for it without ever explaining to the Commission what those costs are and why they are justified in a least-cost planning exercise.”

Rather than challenging the expert testimony, Dominion sought to exclude it, hoping to keep all mention of the ACP out of the case. In another footnote in its IRP order, however, the SCC specifically admitted Lander’s testimony, without finding facts.

Dominion would prefer the SCC to consider the ACP a “sunk cost.” Dominion’s theory goes like this: Since the contract obligates the utility to pay reservation charges for roughly half of the ACP’s capacity regardless of actual usage, that expense shouldn’t be factored into the cost of building any new gas plant. Instead, it argues, the SCC only needs to consider the cost of paying for the fuel itself.

That’s like buying a Ferrari and then saying the only expense of owning it is the gasoline. (And meanwhile, the trusty station wagon is running just fine.)

If the SCC is finally interested in the ACP’s cost to ratepayers, Dominion’s IRP do-over will have to be just the first step in a more thorough analysis of what Dominion’s self-dealing will cost Virginia consumers. There is plenty of evidence to suggest that will not go well for Dominion.

But what’s up with the SCC and gas?

Footnote 14 is not the only oddity in the SCC’s order. On the one hand, the SCC rightly says a fair accounting of a gas plant’s cost necessarily includes all the cost of transporting the fuel. On the other hand, even before it sees the transportation costs, the SCC seems to assume that a new baseload gas plant would be the economic thing to build, were it not for pesky carbon regulations and the General Assembly’s measures to promote renewable energy.

A major theme of the SCC’s order is the commission’s desire to force lawmakers to confront their own profligacy in passing the giant 2018 energy bill that the SCC opposed. SB 966 allows Dominion to redirect billions of dollars in over-earnings away from ratepayer refunds to massive spending on grid projects like undergrounding wires, with only limited regulatory oversight. The SCC thinks this is going to be bad for customers, and it wants legislators to appreciate just how bad.

That’s understandable, but it doesn’t excuse the SCC’s insistence on regarding gas as a low-cost option. Even Dominion knows better.

Dominion just announced the opening of its latest huge new combined-cycle plant in Virginia. The Greensville station joins a glut of new gas plants fed by Appalachia’s fracking industry. The oversupply is so bad that our regional grid already has almost 30% more power supply than it needs to meet peak demand—and grid operator PJM doesn’t expect this situation to change any time soon.

Most of the other new gas plants in PJM are funded by private equity. If they go bust, utility customers won’t be the ones to suffer. But Virginia’s regulated monopoly system means customers are precisely the ones who suffer when a utility’s bet on gas goes sour.

So Dominion’s IRP instead envisions a steady build-out of smaller gas plants it hopes to justify as complements to new solar farms. The idea is that these combustion turbines, often called “peaker” plants, will provide electricity to fill in around the variable output of solar panels.

Yet peakers are idle most of the time, making them questionable investments as well. Other states achieve the same reliability results at lower cost using demand response and battery storage.

The Rocky Mountain Institute (RMI) issued a report in May of this year comparing new gas generating plants—both combined-cycle and peakers—to well-designed clean energy generation portfolios. In almost every case, renewable energy, storage and demand response already beat gas on cost, even without considering environmental benefits.

And moreover, the trends favor clean energy, as RMI’s press release stresses: “More dramatically, the new-build costs of clean energy portfolios are falling quickly, and likely to beat just the operating costs of efficient gas-fired power plants within the next two decades.”

So in telling Dominion to present a gas-heavy scenario as low-cost, the SCC is asking the impossible. Whether the Commissioners know it or not, Dominion isn’t the only one here presenting a distorted picture.

This post originally appeared as a column in the Virginia Mercury on December 14, 2018.

Dominion won’t build new baseload gas plants. So why is it still building the Atlantic Coast Pipeline?

by

gas pipeline protesters standing in front of solar panels

The message from several Virginians was clear at the opening of a new solar farm in Troy, Virginia last month. Protesters want Governor Ralph Northam to speak out against the ACP and the Mountain Valley Pipeline, both under development in Virginia.

Utility giant Dominion Energy and gas turbine maker General Electric reportedly agree on a startling fact: there is no market for new baseload gas plants.

As recently as two years ago, Dominion’s utility subsidiary in Virginia had as much as 8,000 megawatts (MW) of new combined cycle gas plants on the drawing board. Combined cycle plants, designed to run most of the time, have become the dominant source of power generation in Virginia.

This year, new combined cycle plants are noticeably absent from Dominion Energy Virginia’s Integrated Resource Plan. Proposed instead are a series of smaller, peak-serving combustion turbines. Although the utility is proposing a bunch of them, they will have to compete with increasingly-competitive storage options for regulatory approval.

It’s not just Virginia. According to the Forbesarticle linked above, Dominion Energy has no plans to build any more combined cycle plants anywhere, due to competition from wind and solar.

Other utilities are also losing interest in combined cycle gas pants, as GE has learned to its chagrin. GE is cutting 12,000 jobs in its GE Power unit, says Forbes.

A new study from the Rocky Mountain Institute (RMI) shows why utilities are smart to avoid building new gas plants. RMI says that as early as 2026, cost declines for wind and solar will make it more expensive to operate natural gas infrastructure than to abandon it and replace it with new wind and solar facilities. When that happens, gas plant owners will be left with stranded assets.

Even in today’s market, RMI concludes gas is a risky investment:

RMI examined four case studies of proposed gas plants from utilities across the US. These cases included two combined-cycle gas turbine (CCGT) power plants, planned for high-capacity factor operation, and two combustion turbine power plants, planned for peak-hour operation. These power plants are proposed for a wide variety of regions with different resource availability, resource costs, climate- and weather-driven demand needs, and customer bases.

In all four cases, RMI found clean energy portfolios to be cost-competitive with proposed gas-fired generation, while meeting all required grid services and supporting system-level reliability. In three of the four cases, optimized, region-specific clean energy portfolios cost 8–60 percent less than the proposed gas plant, based on industry-standard cost forecasts and without subsidies. In only one case was the clean energy portfolio’s cost slightly higher than the proposed gas plant. However, further analysis revealed that modest carbon pricing (i.e., < $8/ton) or feasible community-scale solar cost reductions would easily reverse the result. Similarly, two more years of anticipated renewable and storage cost reductions would also eliminate the difference in cost between the clean energy portfolio and the gas plant.

All this is very bad news for the Atlantic Coast Pipeline. The ACP received approval from the Federal Energy Regulatory Commission (FERC) last year on the strength of supply contracts with the utility subsidiaries of Dominion Energy and Duke Energy, Dominion’s major partner in the pipeline. If these utilities don’t actually need the gas, the whole basis for FERC’s approval of the pipeline collapses.

No wonder Dominion Energy wants to extend its reach into South Carolina. Plans for new nuclear plants in the state recently imploded, potentially leaving a supply gap that new gas plants could fill.

And no wonder Dominion Energy Virginia continues to propose gas combustion turbines and ignore energy storage in spite of its cost declines. Dominion is scrambling to save the ACP.

How did Dominion get it so wrong? Recall that Dominion and its partners announced plans for the Atlantic Coast Pipeline in early September of 2014; the rationale for the pipeline would have relied on industry forecasts from 2013 and before. At that time, the gas industry was giddy about fracked gas displacing coal. While critics (including me) said new baseload gas plants would be giant concrete paperweights before they’d reached the end of their useful life, most utilities were drinking the fracked gas Kool-Aid.

In the intervening years, coal has certainly continued its exit (Donald Trump’s half-baked rescue plans notwithstanding), but solar and wind have become the cheapest source of electricity in the U.S., according to federal statistics. The cost of electricity from utility-scale solar farms has dropped by half since 2013, and by last year Dominion had identified solar as the cheapest source of new electricity in Virginia.

The problem for Dominion Energy is that the ACP is the only big trick it has now, after the failure of its own ambitions for new nuclear. Dominion doubled down on natural gas in 2016 when it paid 4.4 billion dollars for natural gas distribution company Questar, paying a 23% premium on the deal. It can’t back down from gas now. Either it has to spend 6 billion dollars (and rising) on this new pipeline, or admit its entire growth plan was based on a serious mistake.

Abandoning the ACP could make Dominion’s stock price tumble, giving it something else in common with GE. But as the saying goes, if you find yourself in a hole, you should really stop digging. In this case, literally.

For Dominion, the answer to every problem is more gas

by

Dominion Energy Virginia just released its 2018 Integrated Resource Plan (IRP), and the message it conveys could not be clearer: no matter what happens, the utility plans to build more fracked gas generation.

The IRP lays out five scenarios for meeting electric demand over the next 15 years, each one responding to a different set of assumptions. Yet weirdly, no matter which assumptions you choose, Dominion’s plan involves building a little bit of solar and a lot more gas.

Dominion Energy Virginia IRP; table showing alternatives considered

Dominion’s “Alternative Plans” (from page 24 of the IRP) prove to be very short on actual alternatives.

Everywhere you see “CT” in the table, that’s another gas plant–and they show up in every “alternative.” Assume no carbon tax? Great, Dominion will build gas. What if Virginia follows through on plans to cut carbon by joining the Regional Greenhouse Gas Initiative (RGGI)? No problem, Dominion will build gas. How about if the Feds impose a national carbon plan? Alrighty then, Dominion will build gas!

Seriously, folks, if fracked gas is always the answer, somebody isn’t asking the right question.

The question we’d like to see addressed is how the utility intends to help Virginia transition to a clean energy economy. The question Dominion seems to be answering is how to create a need for the Atlantic Coast Pipeline.

This isn’t a surprise; Dominion’s parent company, Dominion Energy, is the majority partner in the pipeline, and the pipeline’s approval was premised on the utility “needing” the pipeline to serve its gas plants. It’s a blatant conflict of interest that the SCC should have addressed by now, but it declined to do so. (The Sierra Club has taken the SCC to court over this dereliction of duty.)

Dominion would prefer we talk about its plans for more solar. It is true the 2018 IRP proposes more solar generation than the 2017 IRP did. Last year’s IRP revealed that solar had become the lowest-cost energy in Virginia, but it forecast only 240 MW per year. This year’s IRP shows solar increasing over the next few years to a maximum of 480 MW per year beginning in 2022 (about half of what North Carolina installed in 2016). To put that in perspective, Microsoft recently announced it was contracting for 350 MW of Virginia solar to be built in one fell swoop, to serve just its own operations.

Meanwhile, the IRP notes that Dominion’s newest combined-cycle gas plant, the 1,585 MW Greensville behemoth, will enter service next year. Running at full capacity, it would provide the equivalent amount of electricity to 13 years’ worth of planned solar construction, since the expected output of a solar farm is about 25% of its “nameplate” capacity. (To be fair, the Greensville plant will likely run at more like 75-80% capacity. But it follows three other new gas plants Dominion built this decade. Together the four plants add a total of  4,862 MW. And those are nowhere near all the gas plants Dominion operates.)

The fact that all of Dominion’s IRP scenarios look alike and rely heavily on gas seems to be intended to send a message not to the SCC but to Governor Northam. Dominion doesn’t like the carbon reduction rulemaking now underway at the Department of Environmental Quality, which aims to lower emissions from Virginia power plants by 30% between 2020 and 2030. So the IRP “assumes” Dominion will comply by purchasing dirtier power from states not subject to regulation, actually driving up both cost and carbon emissions. Meanwhile, it’s going to build gas no matter what.

Welcome to Dominion’s game of hardball, Governor Northam.

Of course, the IRP is only a planning document. The SCC may approve it but still reject a proposed facility when the utility asks for permission to build it. Market watchers will question whether Dominion will be able to justify all—or any—of the 8 proposed gas combustion turbine facilities in hearings before the SCC. Virginia has too little solar now to need combustion turbines for back-up, and by the time there is enough to challenge the capabilities of the grid, experts predict battery storage will be the better and cheaper choice.

But never mind that; for Dominion, what matters now is justifying the Atlantic Coast Pipeline.

Sierra Club takes State Corporation Commission to court over failure to review Atlantic Coast Pipeline deal

by

Photo credit Chesapeake Climate Action Network

Sierra Club is asking the Supreme Court of Virginia to require the State Corporation Commission (SCC) to review a key deal for shipping capacity on the Atlantic Coast Pipeline. The SCC has thus far declined to exercise its oversight authority over this arrangement, despite a Sierra Club petition filed last May urging that Virginia’s Affiliates Act requires the Commission’s review in this case. In Sierra Club’s appeal filed yesterday by attorneys with Appalachian Mountain Advocates, the law firm representing it in court, the Club argues that the SCC was wrong to reject its petition and seeks an order reversing the SCC’s decision.

The Atlantic Coast Pipeline (ACP) is being developed by a partnership called Atlantic Coast Pipeline LLC, whose largest shareholder – Dominion Energy – is parent company of the public utility Virginia Electric and Power Company, now operating as Dominion Energy Virginia (having changed its name earlier this year from Dominion Virginia Power). Under the arrangement noted above, Dominion Energy Virginia must, through one of its subsidiaries, purchase pipeline capacity on the ACP for a period of 20 years, with Atlantic Coast Pipeline LLC— the utility’s own corporate affiliate—bringing in tens or even hundreds millions of dollars per year in revenue. What’s more, Dominion is nearly certain to request that Virginia’s ratepayers ultimately foot the bill for this arrangement.

The utility’s deal with Atlantic Coast Pipeline LLC underpins Dominion Energy’s claim that the ACP has enough customers to justify its construction. Without that arrangement, Dominion and its partners would likely have had trouble getting approval from the Federal Energy Regulatory Commission (FERC) to build the pipeline.

Under the Virginia Affiliates Act, public utilities like Dominion Energy Virginia are required to submit their “contracts or arrangements” with affiliated companies to the SCC for approval before they can take effect, something the utility failed to do. But on September 19, the SCC rejected Sierra Club’s petition for an order holding that Dominion must comply with the Act and requiring a formal proceeding to determine whether the ACP deal is in the public interest.

Sierra Club and other critics contend that this arrangement is a loser for ratepayers because Dominion Energy Virginia already has all the pipeline capacity it needs: several years ago, it purchased 20 years’ worth of capacity from Transcontinental to service the same power plants that it now claims must receive gas—at a much higher shipping rate—from the ACP. As a result, the utility’s arrangement with Atlantic Coast Pipeline LLC will very likely increase, not decrease, electricity prices in Virginia. It is hard to imagine that if the SCC were to examine the facts of the deal, as the Affiliates Act requires it do, it would find that this expensive and redundant arrangement is actually in the public interest.

“We have grave concerns that Dominion’s deal for shipping capacity on the ACP will only serve to benefit the company’s bottom line, not the needs of the public,” says Andres Restrepo, a Sierra Club lawyer involved in the matter. “Luckily, the Affiliates Act is crystal clear: arrangements like Dominion’s must be reviewed and approved by the SCC before they can take effect. That’s why we’re confident that the Supreme Court will rule in our favor and require Dominion and its subsidiaries to comply with this critical review requirement.”

According to Restrepo, the Supreme Court will likely solicit briefing on the appeal and hold oral arguments during the first half of 2018. If Sierra Club is successful, Dominion would then have to file its agreement under the Affiliates Act, and the SCC would have to open a case docket and hold a hearing to consider whether the deal is in the public interest.

A ruling by the SCC rejecting Dominion’s plan could have significant ramifications. Namely, it would undermine the basis on which FERC approved construction of the ACP this fall. FERC approval for new pipeline rests on a showing that the pipeline is “needed,” and the Commission has recently found that such need exists where the project proponent has customer contracts for most or all of the pipeline’s capacity. Without valid contracts, this basis for a need determination vanishes.

Sierra Club and other pipeline opponents have asked FERC to reconsider its approval of the ACP, based in part on the question of whether Dominion and its partners have properly shown need. A decision by the SCC rejecting Dominion Energy Virginia’s deal with Atlantic Coast Pipeline LLC could prompt FERC to reconsider its prior approval.

An SCC ruling could also impact the ACP’s construction timetable and even its economic rationale. How will investors feel about spending $5 billion to build a pipeline through Virginia when most of its Virginia customer base has disappeared?

But first, the SCC must actually review the deal. In its September order rejecting Sierra Club’s petition, the SCC essentially said that it didn’t need to make a determination now; it could wait until Dominion comes to it asking to charge ratepayers for the ACP deal in future proceedings. But the Affiliates Act requires review and approval of inter-affiliate agreements before they take effect. Furthermore, any later proceedings to determine rate impacts would happen only after the pipeline had been built and become operational.

Yes, that’s nuts. Dominion seems to be willing to construct the pipeline now and gamble on SCC’s approval of cost reimbursement further down the road, but the rest of us—Virginia’s ratepayers—shouldn’t be forced into such a gamble. Virginians, who have to suffer the environmental destruction the ACP will cause in addition to likely impacts to their electric rates, deserve to have their needs considered now, just as the law requires, and not later, as Dominion would prefer.

The fact is simple: contrary to its ruling in September, the SCC must review Dominion Energy Virginia’s deal for ACP shipping capacity now to determine whether it is in the public interest. The Affiliates Act requires no less. Here’s hoping Virginia’s Supreme Court holds the SCC to its obligations and mandates a formal review process. After all, better late than never.

To Understand Pipeline Economics, Follow the Money

by

By Thomas Hadwin

I have worked for electric and gas utilities in other states, so I am interested in seeing a modern energy system developed in Virginia. I prefer to find solutions where everyone wins, but Virginia is currently split between those who want to protect our land and waters and those who want the lower cost energy and jobs they think pipelines will bring. We can find ways where all interests are served, but we will have to reshape the plans that have been proposed.

The promised economic benefits are what have motivated many political and business leaders to support the Atlantic Coast Pipeline (ACP). Let’s set aside the environmental issues and focus on the economics. In dealing with contentious issues, it’s often hard to find agreement on the “facts.” We can avoid disagreement by using information that the pipeline owners (Dominion Energy, Duke Energy, and Southern Company, the parent company of Virginia Natural Gas) have filed with the Federal Energy Regulatory Commission (FERC).

To show FERC that a new pipeline would be needed, the pipeline owners had their utility subsidiaries in Virginia and North Carolina sign 20-year firm transportation agreements with the Atlantic Coast Pipeline. FERC’s own guidelines say that this is not enough to prove true market need for a new pipeline, especially if the companies signing those contracts are owned by the pipeline developers. U.S. Department of Energy studies and reports from independent consultants show that existing pipelines can provide all of the gas we need in Virginia and North Carolina. Unfortunately, FERC has not requested any substantive data to prove the need for a new pipeline. Signed contracts are all that have been used to approve pipelines for the past several decades and it appears that this substandard practice will continue.

Dominion claims that the cost savings provided by the ACP are enough to prove it is necessary. Will the ACP actually save ratepayers money in Virginia and North Carolina? Enough to spur new job creation, as has been advertised? The truth is revealed by examining who pays for the $5 billion ACP, and how much it costs compared to other options.

Data filed with FERC show the ACP will cost customers more than existing pipelines

Pipelines charge a fee to transport natural gas. The gas itself is purchased separately. Traditionally, large users of natural gas, such as utilities, have signed long-term contracts to reserve capacity on a particular pipeline. These contracts must be paid in full, whether or not all of the capacity is used. Having the capacity reserved assures that natural gas can be delivered when it is needed and reduces the price volatility compared to paying for pipeline transportation only as it is needed.

Capacity reservations can be a good idea, but not when the cost of the long-term contract is far higher than other alternatives. Based on the fee and the capacity reservation filed with FERC, Dominion’s utility customers could be obligated to pay over $4 billion during the next 20 years to the ACP for the long-term transportation agreement.

Existing pipelines, currently serving Virginia, can transport the same or greater amount of gas as the ACP for a much lower cost, because existing pipelines have been mostly paid for by previous customers. Using gas prices from May of this year, which show a price advantage at the Dominion South zone (the source of supply used by the ACP), the total price of gas delivered by the ACP to Dominion’s Brunswick plant would be 28% more expensive than gas delivered by the connection to the Transco pipeline built in 2015. The fee to use the ACP is over three times more expensive than using the Transco connection. Using existing pipelines in other parts of the state would save even more money compared to the ACP.

The ACP will be one of the most expensive pipelines on the East Coast. The fee to transport gas using the ACP is over 60% of the current price of natural gas. If this seems like a lot to pay just for transportation, it is. A fee this high raises the delivered price of gas compared to what can be delivered by other pipelines.

Dominion study shows savings from the ACP, but doesn’t tell the whole story

The study used by Dominion to publicize the presumed $377 million per year cost savings from the ACP examined a short-term phenomenon that was over in 2016, but was assumed to last until 2038. The calculation of savings during that anomalous period was extended over twenty years and subjected to a magic multiplier to increase the apparent savings even more. But the study left out one important factor, the cost of transportation. If the FERC rate for using the ACP to transport the gas was added to the savings in the price of gas during this especially favorable period, there would be no savings, just added costs.

The ACP is more expensive than using existing pipelines

As new takeaway pipelines are added in 2017-2018 to the production zone used by the ACP, it is expected that the gas price in this zone will equalize with other regions, so that the difference in the price of delivered gas will be due mainly to pipeline transportation costs. This will put the ACP at a considerable disadvantage to other alternatives. Using the ACP to deliver gas over the long-term is far more expensive than using existing pipelines.

Long-term agreements with existing pipelines cost money too, and differences do occur from time to time between production zones. An independent analysis identifies that using the ACP in Dominion’s territory compared to existing pipelines will create a net cost to ratepayers of $1.6 to $2.3 billion over the next 20 years. Perhaps about half that amount would be an extra cost to Virginia Natural Gas customers to use the ACP rather than connections to existing pipelines during that same period. In general terms, the ACP would add about $3 billion in costs to Virginia energy consumers over the next 20 years. The ACP will raise energy costs and therefore, diminish job creation, exactly the opposite of what has been claimed.

Can existing pipelines deliver the gas? Dominion’s actions say yes.

Dominion argues it can’t get enough gas from other pipelines, but its actions indicate otherwise. The ACP’s FERC application identifies that the Columbia Gas Pipeline can deliver Dominion’s full allotment of gas from West Virginia to Virginia for use in power plants. Columbia Gas is adding about 87 percent of the capacity of the ACP to its system in the region. Transco is adding 400 percent of the capacity of the ACP to its corridor moving southbound through Virginia and North Carolina. Dominion says the capacity being added to the Columbia Gas and Transco systems isn’t available. Yet Dominion obtained capacity from Transco for use at the Cove Point LNG plant that it claims is “unavailable” for use in power plants.

Cabot Oil & Gas Corp., the gas supplier over the Transco Pipeline to Cove Point, plans to increase production by 1.7 Bcf/d (more than the capacity of the ACP) in the next two years. Dan Dinges, Cabot’s CEO, says Cabot is getting calls “from various people looking to secure . . . long-term supplies . . . and we are definitely answering those calls.”

It certainly appears that Dominion could receive its full allotment of 0.3 Bcf/d using existing pipelines, much cheaper than using the ACP, if only it was willing to ask.

Gas service to southeast Virginia and to North Carolina could be accomplished with connections to existing pipelines, mostly over existing rights-of-way, at a fraction of the cost and impacts associated with the ACP. Southeast Virginia could obtain as much, or more, natural gas using a connection to existing pipelines, entirely over existing rights-of-way. The region could have its own source of supply for 80 years for a fraction of the price it would pay for the 20-year contract with the ACP.

North Carolina would receive as much, or more, capacity to supply the same customers in the same locations as proposed by the ACP. A connection to Transco would be made over 105 miles of the Cardinal Pipeline corridor, then connect to the last 90 miles of the ACP right-of-way to serve the same delivery points. This shorter pipeline would meet the same needs but save North Carolina residents billions of dollars compared to the ACP and avoid disruption of West Virginia and Virginia mountains and pristine streams, as well as national forest lands.

Connections to the Transcontinental Pipeline corridor serve the same customers in North Carolina as the ACP, saving billions.

With demand for natural gas slowing, rushing to build the ACP risks making a costly mistake

Dominion and Duke have been scaling back the number of gas-fired units that require service from the ACP and pushing back the expected dates for initial operation. Just this year, the two companies cut in half the number of large gas-fired power plants needed in the next 15 years. The first unit is not needed until 2025, in Virginia. There is no need to rush through the regulatory process. We have time to do a thorough evaluation of the need, costs and impacts of new pipeline projects.

Growth in U.S. natural gas use has slowed markedly, further undermining the ACP’s need argument and the artificial sense of urgency to gain regulatory approvals. An industry analyst says, “With domestic demand gains slowing across power burn, residential, commercial, and industrial, the North American gas market must find new levers to pull. It is likely that the biggest demand lever for the U.S. gas market over the next five years and beyond will be LNG exports.” This statement indicates that the rapid growth in natural gas use is not shaping up as policymakers were led to believe. The industry is looking to greater LNG exports as a way to increase natural gas prices and rescue Wall Street’s failing investments in natural gas developers.

As the red line of the chart shows, pipeline capacity in the Appalachian Basin is growing much faster than the supply of natural gas.

The Appalachian Basin is not producing enough gas to fill all of the pipelines that are currently in front of FERC for approval. The production of natural gas would have to increase by 50 percent in the Marcellus/Utica shale plays to fill the pipelines currently proposed over the next several years. Rather than reducing the number of pipelines built, the industry is suggesting that we need to drill for more gas.

Australia tried to use its ample reserves of natural gas to increase domestic use and LNG exports. They converted many factories to natural gas in hopes of creating more jobs. Instead of greater prosperity, domestic gas prices rose 3-4 times in 10 years, factories closed or converted back to coal, and utility bills skyrocketed.

Learning from others’ mistakes: Florida’s example

The ACP is not the only pipeline project to overestimate demand. Further south, Sabal Trail, the most recent pipeline to go into operation, is running at 25% capacity, all of it taken from existing pipelines. This new pipeline, in rapidly growing Florida, was promoted as being absolutely necessary to meet growth in natural gas demand by its utility holding company owners, NextEra and Duke Energy. Yet, total natural gas usage in Florida is down 4% over last year, undercut by cheaper renewables.

If Virginia’s families and businesses lose, who wins?

It can be puzzling to understand why utility holding companies want to build a pipeline if it isn’t needed. It seems unlikely that an unregulated, private corporation would invest billions of dollars in a project the market doesn’t support. The answer has to do with the way the utility subsidiaries are compensated. Our utilities get paid more when they build more. Today, there is little reason to build new power plants, because demand for electricity is no longer growing nationwide, even though there is growth in our economy and population. Demand for electricity in Virginia is growing only because of new data centers and Dominion’s studies show that growth from that source will taper off by 2023.

FERC offers a 50% higher return for gas pipelines than for interstate transmission lines. The holding company executives are making what they see as a prudent decision to chase this extra money, while revenues from their utility subsidiaries are flat, and shift the risk and higher costs to the utility ratepayers.

A choice that is good for the shareholders but bad for the ratepayers is not one that we should encourage. A company cannot be successful in the long run setting the interests of its owners against the interests of its customers. If Dominion builds the pipeline and successfully convinces the SCC to pass on the full costs of the 20-year agreements to the ratepayers, customers will pay billions more for no benefit. This would give them a reason to do less business with Dominion in the long run (using energy efficiency and self-generation with solar to reduce their usage). The higher costs due to the pipeline would create a less healthy state economy and a less healthy utility.

We need to create different approaches where everyone can benefit. To do that, we must reset the role of our utilities and pay them differently so they can prosper when they serve us better, as other states are doing.

Given that the economic benefits we have been promised will not materialize, we should ask the state and federal regulators to fully analyze the need for this project and make a thorough assessment of its impacts. We have the time. The process could take two more years and still not affect the operation of any of the new power plants in Virginia or North Carolina that were used to justify the pipeline.

 

Thomas Hadwin

Waynesboro, VA

Thomas Hadwin worked for electric and gas utilities in Michigan and New York.  He led a department which was responsible for the site selection and approval of multi-billion dollar projects working with state and federal agencies, as well as assuring that all company facilities complied with existing environmental regulations.  He founded a computer and telecommunications business about which the Wall Street Journal wrote an article describing its innovative business model.  As a “healer of businesses” he helped ailing companies throughout the U.S. get back on their feet.  He is currently working to help establish a 21st century energy system for Virginia.