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

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?

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.