The Atlantic Coast Pipeline: should we still be investing in natural gas?
In an attempt to tap into the Marcellus Shale in West Virginia, Dominion Energy has been in the process of seeking approval for an $8 billion infrastructure investment. The Atlantic Coast Pipeline would transport natural gas from West Virginia as far as South Carolina.
The ACP was given approval to move forward in 2017 and Dominion hoped to begin construction that year with operations beginning in 2019. However, legal proceedings have stalled the process. In 2018, the US Fourth Circuit Court rescinded two approvals from the Fish and Wildlife Service and the National Park Service. The route would cross the Appalachian Trail and has created significant legal hurdles. The Supreme Court is slated to rule on the Fourth Circuit’s decision this year.
In advance of the release of its 2020 integrated resource plan (IRP), Dominion stated publicly that it would be uneconomical to invest significantly in gas power plants. This is largely due to the restrictions and expectations set forth in the Virginia Clean Economy Act and the falling costs of renewable energy projects. FERC, the federal agency tasked with reviewing and approving interstate projects like pipelines, stated that 80% of the pipeline’s capacity would be for Virginia and North Carolina. However, with Dominion’s revised views on natural gas investments, the pipeline seems less necessary.
In fact, a report by S&P Global estimates by the time the ACP is operational (or is scheduled to be), there would be 35% excess generation in Virginia, and up to 60% by 2027. Despite this, Dominion still contends the gas from the pipeline is still “urgently needed” to meet demand.
Part of this calculation is for commercial and residential uses of gas. However, Dominion and the largest North Carolina utility, Duke Energy, still have capacity in existing pipelines. In particular, the Transco Pipeline alone has enough capacity to serve any marginal increase in Virginia’s natural gas consumption.
The question then becomes, why does Dominion want to spend $8 billion to build the ACP if it will not need to use it? The answer to this is profit. As a public utility, Dominion’s rate return on any investment is guaranteed by its regulators, the Virginia legislature and the State Corporation Commission. The rate of return on pipelines, in particular, is 50% higher than that of power plant builds, at a set return on equity of 14%.
Once the ACP is functional, Dominion’s utility arm is liable for paying its full 20-year contract for pipeline capacity, regardless of whether its demand for natural gas significantly decreases over time. Who, then, pays for this contract? It is the Virginia ratepayer. This is the most nefarious aspect of this deal. Dominion will receive a guaranteed rate of return, it will receive the full $6 billion from its utility arm over the course of the 20-year contract, the cost of all of which will be borne by Virginians.
In the COVID-19 era, when individuals and businesses alike are struggling significantly, this needless expenditure seems only to serve Dominion shareholders. It is not necessary for the security of our grid and it certainly will not make electricity cheaper.
Dominion should, instead, focus its resources and energy on large-scale renewable projects, like solar and wind. The recent Virginia Clean Energy Act promises sizable returns on Dominion’s renewable investments, which, as opposed to the ACP, will in fact serve to strengthen our grid reliability, bring down costs for customers, and ensure a plentiful and long-lasting energy source for the Commonwealth.
