Customers Will Pay the Costs of the Unneeded ACP

Two recent publications explain in detail (using Dominion’s own data) why the economic benefits Dominion says the ACP will bring to Virginia won’t happen.  (But Dominion, Duke, Southern, and their shareholders will profit.)

Thomas Hadwin, worked for electric and gas utilities in Michigan and New York for many years, leading 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. In Power to the People on September 5, 2017, writes, To Understand Pipeline Economics, Follow the Money.

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), he explains that:

  • Data filed with FERC show the ACP will cost customers more than existing pipelines. “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.”
  • Dominion study shows savings from the ACP, but doesn’t tell the whole story.  Dominion’s calculations of ACP cost savings are based on a short-term phenomenon that was over in 2016, but was assumed to last until 2038; the calculations included a “magic multiplier” – and omitted the costs of transportation.
  • 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.”
  • 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…. 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.”
  • 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.”
  • 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? “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.”

On September 8, 2017, Institute for Energy Economics and Financial Analysis posted IEEFA Update: Atlantic Coast Pipeline Risk Is Being Borne Not by Dominion and Duke, but by Their Customers. “[I]n the three years since the Atlantic Coast Pipeline was first proposed, Duke and Dominion have revised their projections of future electricity demand substantially. By 2025, Duke’s forecast is lower by 10,800 gigawatt-hours (GWh) and Dominion’s by 7,700. These are not small numbers. For context, the 1,585-megawatt combined-cycle gas plant under construction by Dominion in Greeneville, Va.—a not-insignificant project—will generate 11,000 GWh per year. The total downward revisions in demand by Duke and Dominion—18,500 GWh —works out to about 400 million cubic feet per day of natural gas, a sizeable chunk of the pipeline’s daily 1,500-million-cubic foot capacity…. FERC considers a pipeline “needed” if the pipeline developer has found other companies willing to sign contracts to ship gas on the pipeline. Duke and Dominion have met this criterion—but only by contracting with their own utility subsidiaries to purchase the pipeline capacity, an investment risk ultimately borne for by the customers of those utilities.”

Whether it be politics, pipelines, or mystery stories, one gets answers by following the money. With the ACP, the utility companies and their stockholders get the money – and the customers pay more to line the pockets of the companies and shareholders.