ACP Cost Overrun Could Run to $1 Billion

The Atlantic Coast Pipeline, originally estimated to cost about $5 billion to $5.5 billion, now is expected to cost between $6 billion and $6.5 billion. That estimate comes from CEO Lynn Good of Duke Energy, one of the pipeline’s four corporate partners, in a Tuesday earnings call, as reported by the Richmond Times-Dispatch.

“Due to delays and more stringent conditions in the permitting process, ACP now estimates total project costs between $6 (billion) and $6.5 billion,” Good said. A Duke spokesman affirmed that the pipeline still remains “the most competitive of all the options we evaluated in the early planning phases” and that “consumers in the region will realize significant energy cost savings.”

ACP spokesman Aaron Ruby said he could not confirm Good’s estimate. “We’ll have more information to provide with our financial disclosure next week,” he said.

“It’s no surprise that the cost of the Atlantic Coast Pipeline keeps going up,” said Buppert, an attorney with the Southern Environmental Law Center. “Dominion and Duke chose a route with dozens of complex problems through some of the steepest, most undeveloped lands in the Southeast.”

The big question to Virginians is how much, if any, of this added cost will be passed on to rate payers. At some point, Dominion Energy Virginia (a subsidiary of Dominion Energy, which is the managing partner of the pipeline) will have to file with the State Corporation Commission for permission to build its fuel procurement contract into the rate base. The SCC will have to determine whether the costs embedded in the contract were prudently incurred. That hearing ought to be very interesting.

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26 responses to “ACP Cost Overrun Could Run to $1 Billion

  1. I’ve just had politician after politician after politician parrot the utility line that my bills are going to go down, down, down over the next couple of years. Were they trying to mislead me?? Hey, Rube!

    The Dominion “Never Regulate Me Again” legislation was on the House floor for final passage today but it went by for the day….big show Monday.

    • We had Gov Northam give his first WTOP “Ask the Gov” program the other day. His “pipeline” and “Dominion bill” positions were never discussed. It was pretty boring compared to Gov McAuliffe’s more manic and partisan style, which might be good thing.

      Gov McAuliffe’s first such program, he ended the ill-fated hybrid vehicle tax on the air.

  2. “The big question to Virginians is how much, if any, of this added cost will be passed on to rate payers. At some point, Dominion Energy Virginia (a subsidiary of Dominion Energy, which is the managing partner of the pipeline) will have to file with the State Corporation Commission for permission to build its fuel procurement contract into rate base. The SCC will have to determine whether the costs embedded in the contract were prudently incurred.”

    Would anybody really be surprised if Dominion already wrote the legislation required to take this out of the SCC’s hands and a second bill to put the contract overages into the rate base?

    The only real question is which of the General Assembly members has those pre-written bills already in the in-boxes of their private (not subject to FOIA) email servers.

  3. If the SCC would be looking at what gas actually does cost for existing pipelines and allows no higher costs – things might start to unravel.

  4. First, we are told that the ACP is crucial for our future.

    Second, we are told it is $5 billion and 500 miles long

    Third, Dominion can’t seem to identify actual customers for it in Virginia, even though eminent domain needed to build the pipeline is supposed to be based on “public need.” You can’t just take over land from someone for business, profit-making potential.

    Four, The pipeline expands more into North Carolina where they may be consumers.

    Five, SCANA teeters towards bankruptcy after its big nuke project in South Carolina doubles in price and is shut down. SCANA rate payers will be stuck with the price tag.

    Six, Dominion Energy wants to buy SCANA. Tom Farrell admonishes the South Carolina legislature that South Carolina ratepayers had better pay for the nuke fiasco or Dominion will take its marbles and head back to Richmond. Dominion’s takeover proposal does have some price payback for ratepayers.

    Seven, The ACP cost suddenly goes from $5 billion to $6.5 billion. If it has lined up so many customers, then there should be no big increase in project cost. Right? SO, who is actually going to be using the gas this pipeline would provide. Isn’t the biggest need for gas in the Northeast not the SOutheast.

    Eight: Fair question: are we being had?

    • Peter, I don’t think the escalation in the cost estimate for ACP has anything to do with the demand for the natural gas. I’m not sure why you’re conflating the two issues.

      The cost increase reflects the fact that the pipeline will be longer than originally envisioned due to all the twists and turns it has to make to avoid sensitive areas, and the tightened environmental controls in areas of steep-slope construction.

      • It’s not really a conflation. However, it is more subtle than, perhaps, Peter explained.

        The cost overruns have to be borne by some entity. There are three choices – the ratepayers, the shareholders or the customers of the natural gas. Let’s suspend our disbelief for a moment and assume our state government will actually protect the ratepayers. That leaves the shareholders and the customers. If Dominion passes along the overrun to the customers they will do so by raising the price of a commodity product. That could certainly dampen demand. Of course, this will be worse if the usual additional overruns crop up.

        Peter’s later comment about the economics of natural gas are more important. I’ve seen Dominion build and abandon the Cove Point gas dock in the middle of the Chesapeake. They say they now want to use the docks for export instead of their original use to import gas. There are considerable issues with that including the need to build a liquidification plant on the property. If Dominion decides it doesn’t want to use Cove Point, what happens? It just rots in the bay? Same question for the pipeline. Virginia should insist that Dominion dismantle the pipeline and dispose of it if it ever becomes idle.

  5. The ACP is longer than originally proposed because of ACP decisions. When the route was adjusted to avoid sensitive habitats in West Virginia it went farther south into Bath County. The ACP would have been about the same length if it had continued eastward from that point. But Dominion elected to make a 90-degree turn back northward to connect to the original route making the mileage of pipeline in Augusta County greater than in any other county.

    This had something to do with their need to thread the needle through a specific area just west of Wintergreen in order to avoid some federal (or Congressional) authorizations. This is where the pipeline drills through the Blue Ridge to go under the Blue Ridge Parkway and the Appalachian Trail.

    Dominion and Duke have reduced by about half the number of proposed large gas-fired power plants that they hope to build since the pipeline was announced. None have been proposed to state regulators other than in the long-term planning documents submitted each year. All of these plants could be served much more cheaply by connections to Transco, if they are actually needed.

    Dominion has made presentations to customers of its gas operations in South Carolina for the past several years showing the ACP going over the border into South Carolina, connecting to their recently purchased gas transmission system and ultimately connecting to the Elba Island LNG facility just over the border in Georgia. Eminent domain is not allowed to be used for facilities built to supply gas for export.

    We have 180 Bcf/d of gas transmission pipeline capacity in the U.S. today. Our peak usage is 93 Bcf/d (in 2017).

    The cost to ratepayers for reserving Dominion’s capacity on the ACP is $200 million per year for 20 years (based on published rates). The earliest proposed date for the single gas-fired power plant that might need the ACP is 2025.

    In the IRP hearing, Dominion has said that they will consider the ACP to be a “strategic resource” and ask for reimbursement for the $1 billion during the five years before there is any possible need for the pipeline.

    Documents supplied to the SCC by Dominion for the Fuel Factor hearing show that existing pipelines can transport gas 3-8 times more cheaply than using the ACP. Existing pipelines serving Virginia and North Carolina are adding capacity, by the end of this year, considerably greater than the amount provided by the ACP.

    My concern is that because of the reluctance of Virginia policymakers to hear the whole story of this misadventure, the pipeline will get built before the SCC will make its determination about passing through the costs. Without full protection of Virginia land and waters because of DEQ shortcuts approved during the McAuliffe administration, we will make a great mess in our state for a project that is unnecessary and very expensive. It will be of value only to Dominion Energy shareholders and a burden for Virginians.

  6. re: ” You can’t just take over land from someone for business, profit-making potential.”

    Apparently folks don’t agree with that .. and we’re the only two who see that as a serious question.

    All you have to do is claim your project “serves a public need”… just that phrase … no matter how much it costs… to “serve” that need…or if you make a profit serving that “need” or you get to charge whatever it cost you to build it to “serve that need”.

    The whole idea of imminent domain is turned on it’s head.

    • That is not true. The claimant must be one of a short list of specific types of corporations authorized to condemn (the most common types are railroads, toll roads, and electric or gas utilities) or the government itself (e.g. for highways, schools). And if not the government, the corporation must demonstrate the public need to a regulator or a court. Typically the regulator is charged with determining whether the project as a whole is in the public interest, and then the regulator or court weighs the need for one particular route over another, one particular property or another.

      A private company cannot just march in someone’s home and claim unilaterally it wants to do a project for profit “in the public interest” and condemn their land for it. Even a utility has to obtain a ruling by the regulator that the project is in the public interest first, and that a particular route is best. What HAS happened is a private company goes to a local government or a regional authority and talks it into declaring a project such as, say, a new housing or office development will eliminate slums and generate tax revenues and therefore is “in the public interest,” and then the government condemns the land for it and hires the private developer (which could never condemn private land on its own) to build it. Such non-utility “economic development” projects have become highly controversial and I’m not defending them here.

  7. There already exist – companies and existing pipelines on land already condemned that serve a public need and there is capacity for more – and if more right-of-way is needed – it’s additional to existing corridors – not brand new corridors that essentially become competitors to existing companies and corridors.

    The entire logic behind public need is to allow condemnation of land – ONLY TO THE EXTENT that there is a need that cannot be satisfied through existing providers and markets.

    No one has proven than Transco cannot meet that need and there is no choice but to seek a new provider AND to give that provider the power of eminent domain.

    A legitimate new pipeline would have companies and localities signing up to be served.. and it would be that demand that would drive the “need” …

    instead we have a proposal that will “serve needs” but few if any actual signed contracts and instead we have the typical assemblage of “pro-growth” organizations – who basically are supporting Dominion to serve a market that other competitors like Transco could also easily serve.

    People who self-identify as Conservatives who support free markets and competition – support a govt picking winners and losers… i.e. picking Dominion over Transco…

    Using that criteria – virtually any company that provides a product that the market wants – would also be entitled to use eminent domain.

    For instance, you’d allow Amazon or Facebook to look at where they want to be – and then utilize eminent domain to acquire the site – because they are ‘serving a public need”…

    this was the entire proposition in the KELO issue that then ignited a political revolt – from Conservatives – .. and those same Conservatives right now are apparently just fine with Dominion’s proposal … which is virtually identical to the original Kelo proposal in it’s essential proposition.

    Right now – today – many counties and cities are reluctant to use ED to even acquire land for schools , roads, and fire stations… they only use ED as a last ditch effort when there are no other feasible sites. The thousand mile long Rockies Express Pipeline did that with 99% of the right of way acquired by willing buyer/willing seller.

    You’d NEVER see a company like Walmart wanting to use ED because they serve a “public need” …. i.e. there is a market demand for their products – the “need” has to be something the market would not provide.

  8. Jim,,
    Maybe I didn’t make my point. Once a big utility goes all-in on a project, it is enormously difficult for them to make adjustments or even drop it. Their reputation and their investors’ money is at stake.My guess is that this was what Dominion has done. Seven or eight years ago, fracked gas was a big play. Now, not so much. But Dominion pressed apparently without considering the popular opposition. Now, it seems, the economics have changed. Fracked gas was so successful in a business sense that it stymied and left hundreds of rail cars loaded with sand for fracked drilling and other supplies at rest throughout the country. It may be coming back but the glory days are gone. So what are they going to do? Say, big mistake my bad?

    • You mean that Dominion could

      1) build something like an eyesore of a natural gas importation dock in the middle of the Chesapeake Bay and then
      2) discover that the economics of gas changed and then
      3) leave the unused monstrosity sitting in the middle of the bay?

      That could never happen, could it?

      Dominion should be forced to file a plan to dismantle the pipeline in an ecologically intelligent way in the case that it is no longer used to carry substantial volumes of natural gas. The cost to dismantle and dispose should be borne by the shareholders.

      • Interesting concept. But why couldn’t the policymakers in Virginia enforce the federal water quality act authority that has been delegated to it and require full adherence with federal law in the construction of the pipeline? That would make it very difficult, if not impossible, to construct the pipeline in a way that met full 401 water quality standards.

        Or what if the SCC publicly stated that by following existing requirements, they will limit the pass through of costs to transport gas to the lowest market price that currently exists in the state? This would reduce the cost recovery to the ACP by 3-8 times. Even having to build a lengthy connection from the unknown, un-sited proposed power plant to existing pipelines would allow gas to be transported much cheaper than using the ACP.

        Announcements such as this would make the pipeline uneconomic to its investors, not just to the ratepayers, and avoid problems and exorbitant costs, before it is built.

        I don’t think we should try and harm Dominion in any way. Let’s just make them obey the current laws and do what is right for the customers of their subsidiaries.

  9. re: ” But Amazon itself cannot. As for a utility that’s granted the limited power to condemn, in my opinion the review process a utility has to go through effectively ensures transparency and generally prevents abuse. Not that everyone will agree with the regulators’ answer, but it will be reached in a written opinion based on the public record in open public hearings.”

    The Dominion Pipeline is a subsidiary , not a regulated utility, and actually a for-profit venture looking to sell product to whoever would buy it. Will the price of it be regulated like the Dominion Utility parent is regulated on ROI?

    We have heard of Crony Capitalism… which is .. favorable govt treatment for some businesses – as a competitive advantage over others.

    Transco has an existing business – serving demand for gas.

    What is going on is that Dominion is being allowed to use eminent domain to essentially build a duplicative enterprise – a competitive venture to Transco where they would, if approved, supplant Transco and Transco’s ability to expand their existing business.

    There is not enough demand for TWO pipelines. Transco was there first and built their business and would expect to expand their business when demand increased.

    What justifies Dominion taking over the pipeline business where Transco has been operating ?

    • Larry,

      The Natural Gas Act allows FERC to designate the Atlantic Coast Pipeline, LLC as a “natural gas company” for the purposes of constructing and operating a pipeline, even though they are not a regulated utility.

      The difficulty comes in when the federal regulator (FERC) does not follow the Natural Gas Act when it issues its Certificates of Public Convenience and Necessity. By failing to consider true market demand (necessity) and the economic consequences to ultimate end-users and communities affected by the pipeline (public convenience), FERC fails to meet the requirements of federal law. Relying solely on the existence of contracts signed with affiliates makes a sham out of this entire process.

      The regulatory process where “the review process a utility has to go through effectively ensures transparency and generally prevents abuse” that Acbar suggests, applies to the utility projects we were both involved in, but it is notably absent with FERC.

  10. Here’s a thought .. . $1+ million in pipeline cost means an additional $140,000 profits available every year. And sure it will add to the cost … maybe pricing the ACP gas out of the market, at least in the states. However, maybe since the buyers are sister companies, taking a loss on the sale of the gas could make an accounting loss look good somewhere else in the parent corporation … certainly save on taxes.

    A Duke spokesman claims that the pipeline remains “the most competitive of all the options we evaluated in the early planning phases.” Just when did this early planning process take place? Both onshore wind and utility sale solar are now listed with the lowest levelized cost among electricity generators. In some locations solar with storage is winning contracts over gas plants Maybe it’s time for a reevaluation of those predicted “significant savings”.

    Tom has described that using gas brought into the state by currently operating pipelines would be cheaper than gas plants contracting with the planned ACP using the ACP’s original construction price. More pipeline capacity isn’t needed and will be more expensive.

    Dominion has claimed building the ACP will benefit Virginians because the ACP gas is needed. The ACP has contracts demonstrating that ‘need’. Trouble is those contracts are with affiliated companies, other parts of the same parent company. FERC is on shaky ground allowing those future contracts to demonstrate ‘need’ as required for a pipeline permit. As Tom says, both Duke and Dominion have canceled plans to build some of those ‘needy’ plants that contracted for the ACP gas because the demand for electricity is no longer rising at the rate the parent companies have predicted.

    When a permit is granted to a pipeline company from FERC, the right to use eminent domain comes with that permit thanks to federal law, so how FERC accepts that demonstration of need is important. In some other areas FERC has been required to look at the whole area pipeline capacity to evaluate need. FERC rejected that approach for the ACP and the Mountain Valley.

    A lawyer needs to explain to me why this use of ED is OK. An executive order signed by George Bush says that the federal government must limit its use of taking private property to “public use” with “just compensation” (both of which are phrases used in the U.S. Constitution) for the “purpose of benefiting the general public.” The order limits this use by stating that it may not be used “for the purpose of advancing the economic interest of private parties to be given ownership or use of the property taken.”‪ All this additional gas is primarily for the ‘economic benefit’ of ‘private parties’. Virginia would be better off with money spent to make buildings efficient and expanding on-site generation and microgrids, grids that add to our security from storms.

  11. Yeah… I keep forgetting there is State ED and Federal ED.. and in this case it is the Federal version and perhaps in a perverse sort of way if two competitors submit pipeline proposals for the same region – it’s a competitive process….

    I do not know if _any pipeline_ .. anywhere is a Federal jurisdiction or if the Feds handle the larger ones and the states the smaller ones… etc.. lots of ignorance here.

    However.. it does appear that things like powerlines – at least some sizes are handled by the State…

    I’m sure all parties have the requisite legal resources to navigate the process and we’re not hearing the opponents asserting the process itself is illegal.

    However – if Dominion and Transco have to go find financing in the Capital markets…. one would presume the prospective lenders of the money will be wondering if there are two competitors for pipelines if both of them are fiscally viable and not be loaning money if there are serious doubts that both pipelines can be built and operate profitably.

    So “regulation” is both Government and private equity markets..

    Probably a way to look at this from Dominion’s view is that they feel that it will be cheaper for them to build it and supply their own gas than it would be to have someone else sell them gas – at a profit.

    I’m not even sure if the Va SCC would have a role in deciding where Dominion obtains resources and what the pay for them… In fact, it could be that what Dominion pays is up to Dominion and they are actually allowed any costs they actually incur even if they are not the lowest available. Just a for instance.. when they buy coal – does the Va SCC involve itself to the extent they will approve or not the price that Dominion is paying for coal to power it’s plants? Does that type of thing also work with the procurement of other resources they use to produce electricity?

    You can bet Dominion knows… 😉

  12. In general, if the project, whether pipeline or transmission line, crosses state boundaries it is under federal jurisdiction. If it occurs within the boundaries of a single state, it is usually under the jurisdiction of state regulators. For example, if it connects to pipelines that pass through the state, it can be considered “interstate” even if it is constructed entirely within the boundaries of one state, such as the Transco Southside Expansion Project for Brunswick and Greensville.

    “Probably a way to look at this from Dominion’s view is that they feel that it will be cheaper for them to build it and supply their own gas than it would be to have someone else sell them gas – at a profit.”

    No this is not correct, but it is probably the way most people in Virginia see it. Dominion knows what they pay for gas and the fees to transport it. So does the SCC. The utilities must provide that information in each year’s Fuel Factor case.

    The utilities are allowed to recover the actual cost or the market price, whichever is lower, for all types of fuel. That is why Dominion is working so hard to prove that there is no alternative to the ACP (now using the FERC certificate as evidence). In this way, they hope to convince the SCC to allow them to fully pass through the much higher cost of using the ACP compared to existing pipelines.

    This is why the FERC process is so important. Even though they did not assess true market demand, or evaluate if capacity in existing pipelines was sufficient to meet it (as an independent consultant did) they did issue a certificate that said it is convenient and necessary. That puts a lot of pressure on the SCC to pass through the exorbitant costs to ratepayers, because they could be vulnerable to a court challenge by Dominion or action by the GA to circumvent their authority. One faulty decision (by FERC) could create a cascade of other bad choices.

  13. My essential point is that the pipeline will use the captive ratepayers of the utility subsidiaries to shoulder the risks and pay higher than market prices for gas delivered by the ACP, in order to provide a long term stream of profits to the holding companies (Dominion Energy, Duke Energy, and Southern Company) that own both the pipeline and the utilities that will pay to use it.

    The utilities do not benefit. They just collect and pass on the money.

    Increasing the cost of the pipeline by a billion dollars, will cost the ratepayers of the utilities even more. A bad deal got even worse. But the holding company shareholders get an even bigger stream of profits, if the pipeline is built.

    Even if the pipeline has no long-term value, it is guaranteed over $18 billion in payments from the 20-year contracts that have been signed. Someone will have to pay them, unless the pipeline isn’t constructed. This money is for reserving pipeline capacity only, whether it is used or not. Gas is purchased separately.

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