Dominion and its partners in the Atlantic Coast Pipeline (ACP) have made what appears on the surface to be an enticing proposal. They have said that we need a greater supply of natural gas in Virginia to fuel our power plants and our economy. The developers say they must build a 550-mile pipeline to make this possible and that the pipeline will provide many jobs and financial benefits. They ask us to take their word that this is the best option and that they should receive rapid approval with little review in order to get the project underway so that it will be available in time.
Upon inspection, we find that the first power plant that requires a new supply of natural gas in Virginia is not scheduled for operation until 2022, the next one is proposed for 2030. So what is the rush? We have plenty of time for thorough deliberation of the options.
If the ACP is approved, Dominion claims that thousands of jobs and millions of dollars will benefit the states through which the pipeline will pass. A developer of a similar pipeline through West Virginia and Virginia has admitted that it is likely that just 10% of the workers will come from the area in which the pipeline is built. This means that just a few hundred workers are likely to be hired from West Virginia, Virginia, and North Carolina rather than the thousands that have been advertised. Most of the skilled workers will come from other regions in the U.S. and will send their paychecks home. The main period of pipeline construction in any one area will last just 6-8 weeks. This is not long enough to require area businesses to add more long term employees or for the money to circulate throughout the local economy. Only businesses such as motels, gas stations, bars, fast food restaurants and convenience stores are likely to benefit, and then just for a short time. All but perhaps 5% of the construction material will be purchased from outside the 3-state region.
The economic models that were used to create the millions of dollars of projected benefits were developed for situations considerably different from pipeline construction and vastly overestimate the benefits to our local economies.
The tax benefits accruing to local jurisdictions along the pipeline route are stated as if they are a net addition to local government coffers. It is not clear if there will be any net tax benefit. The added property value of the pipeline could be offset by reduced property values for the many parcels in or adjacent to the pipeline right-of-way. Higher local expenses for road degradation from the construction traffic, extra police protection, and other extraordinary services could also offset pipeline tax revenues. Developers have painted an image of tax windfalls which may prove to be more illusory than real.
The ACP is intended primarily to transport natural gas for power plants. The traditional residential and commercial uses of natural gas for water and space heating are expected to be essentially flat through 2040. The ACP is a wholesale pipeline for large users such as utilities, not for supporting the growth of communities and businesses along its path.
The need for additional natural gas supply in Virginia is to fuel a possible new plant in 2022. Finding ways not to use energy (energy efficiency) is far cheaper than building a new gas-fired power plant and saves all ratepayers money when the peak load is reduced. Many believe that solar power, which does not require any fuel, will also be less expensive than gas combined cycle plants within 5-7 years. But assuming more gas supply to Virginia is needed, the question remains – is the ACP the best means to supply it?
Two new gas-fired combined cycle plants are being built in Southside Virginia. The Brunswick facility is scheduled for operation in 2016, the Greensville plant is proposed for 2019. A spur from the Transco pipeline is nearing completion and will serve these two plants for an investment of $490 million. Dominion has said that it prefers to use the ACP to provide the gas supply to these plants, but the ACP will require about 300 miles of new pipeline construction and a cost of more than $3 billion to reach these two plants.
The ACP developers say that they have long-term commitments from customers wanting to receive natural gas deliveries from the Atlantic pipeline and these commitments are adequate to prove that the ACP is necessary. Nearly all of the purported customers are also subsidiaries (affiliates) of the same holding companies that own the developers of the pipeline. Dominion’s willingness to renege on a 20-year Long Term Supply Agreement with Transco after just a few years of operation of the new pipeline highlights that these commitments are not binding. They are often used by developers to gain approval to construct a new pipeline and are not indications of the economic need for a project, although they are often considered as such by FERC.
If 96% of the new Transco spur will go unused if supplanted by the ACP, will Dominion ratepayers have to pay for both pipelines? Since the gas transport fee is part of the fuel cost and is automatically passed through to ratepayers, can Dominion and Duke force their utility subsidiaries to pay for the ACP even if it is more expensive than other alternatives?
The ACP developers say the Atlantic pipeline is the only realistic alternative, but that is seldom the case. If the Dominion’s utility subsidiary (Dominion Virginia Power) was free to choose or if they were directed by the SCC to select the lowest cost choice for reliable natural gas supply, what might that be?
Currently, natural gas drillers in the Marcellus are continuing to drill, even if prices are below their production costs, in order to generate the cash necessary to service their debts. U.S. natural gas prices declined more than 40% in 2015 compared to a year earlier largely due to excess production in the Marcellus. As yet, there are not enough takeaway pipelines serving the Marcellus production area to move all of the gas into the existing gas transmission system. This “stranded” gas must sell at a discount to the national price in order to find a market. By 2017, this situation will be remedied by the addition of new takeaway pipelines. Dominion has forecast hundreds of millions of dollars of financial benefits for the Atlantic pipeline as a result of this price differential, but it will likely disappear well before the ACP is projected to be in operation. If some price advantage remains for Marcellus gas, the lower price would be available whether the gas is transported by existing pipelines or the ACP.
Once these new takeaway pipelines are in operation, the entire Marcellus production can gain access to existing gas transmission pipelines. When this occurs much of the supply to the mid-Atlantic and northeast will come directly from the Marcellus. Traditionally, much of this supply travelled from south to north from the Texas and Gulf Coast supply zones using pipelines in the Transco corridor to serve markets along the Atlantic seaboard. With much of the northeast demand supplied directly from the Marcellus, several of the existing pipelines in the Transco corridor would be available to reverse flow and bring natural gas from the Marcellus to Virginia and the Carolinas. This is the plan identified in the Natural Gas Infrastructure report published by the Department of Energy in February, 2015.
The figure below shows just one of the takeaway pipelines under development by 2017. The Atlantic Sunrise Pipeline has a capacity greater than the ACP and is just one of several projects that will bring Marcellus production into the Transco pipelines. Many of these pipelines convey natural gas from wells in Pennsylvania which comprise 90% of the Marcellus production.
The figure above shows that using existing pipelines, which are largely paid for, will provide gas supply to Virginia and North Carolina at same the locations proposed for the ACP.
Another project, the WB XPress, would provide 1.3 billion cubic feet per day (nearly the amount of the ACP) of additional capacity in the Columbia Gas system requiring just three miles of new pipeline and 26 miles of replacement pipeline in West Virginia and a new compressor station in Virginia and modifications to several existing ones. The project is expected to be in service the second half of 2018 at a cost $875 million dollars. Adding capacity to the Columbia Gas system would provide greater supply to the Chesapeake, Virginia region as well. The main Columbia Gas line feeds the AGL (Virginia Natural Gas) line which supplies the Chesapeake/Norfolk area. The Atlantic Coast Pipeline project proposes a 77 mile 20” pipeline on new right-of-way to connect the Chesapeake area to the Atlantic Pipeline just after it enters North Carolina. Using the additional capacity in the Columbia Gas system avoids the costs and impacts from this new construction.
It is obvious from the map that adding over twice the capacity of the ACP in the Transco and Columbia Gas pipelines provides Virginia with a multitude of options for siting the two new gas-fired plants when (and if) they are needed in 2022 and 2030. Compare the coverage of the Transco and Columbia pipelines in Virginia to a single corridor for the Atlantic pipeline. This would provide a great deal of flexibility for growth and development in Virginia without the disruption from new pipeline construction.
Pipelines serving North Carolina could connect over the same corridor planned for the Atlantic pipeline or by connecting to the Transco mainline running through North Carolina. Costs and impacts of using existing pipelines to serve North Carolina would be the same or better than with the Atlantic pipeline.
Developers of the ACP might argue that they do not possess firm reservations for capacity using existing pipelines as they do by utilizing a pipeline that they own. The producers in the Marcellus are eager to find committed long-term markets to supply with their surplus production. This is the very best time to obtain commitments for low cost supplies. If the ACP were not to be approved, the proposed customers of the Atlantic pipeline would find willing suppliers, if their demand truly exists.
One can see that Dominion and its partners would prefer to own the supply pipeline to their captive utilities. There are business advantages to paying themselves more rather than paying someone else less to transport the natural gas. However, the benefits accrue only to them. Ratepayers would pay higher transport fees for the ACP compared to existing pipelines; Virginia would have a poorer infrastructure for future economic development and power plant siting; West Virginia and Virginia public and private landowners would suffer greatly from the impacts of unnecessary new pipeline construction.
The spirit of eminent domain is to require a landowner to sacrifice their individual interest in order to serve the greater public good. In this case, the greater public good is better served both economically and environmentally by using existing pipelines. No rights to eminent domain should be granted to developers of the ACP.
The superiority of the option of using existing pipelines applies to the Atlantic Coast Pipeline, and to the Mountain Valley Pipeline, the Appalachian Connector and any other major new pipeline construction project intended to bring natural gas from the Marcellus into the Virginia and North Carolina markets. The Department of Energy states that adequate capacity exists in the existing pipeline system to serve this region throughout the multi-decade planning horizon of their studies.
We ask that the land, the landowners, and ratepayers of Virginia be respected by selecting the clearly superior option of using existing pipelines to supply the future natural gas needs of Virginia. Dominion and other Virginia utilities are needed for the important role of developing a more reliable and resilient grid for the 21st century that easily accommodates decentralized solar and wind projects which they or other parties develop. Dominion should seek out projects that benefit the ratepayers and residents of Virginia, as well as their shareholders. Setting the interests of shareholders against the interests of customers is not good for any business in the long run. There are numerous other important energy projects where Dominion can work for the good of all Virginians.