New Virginia law could be Atlantic Coast Pipeline’s greatest barrier yet
April 16, 2020

HB 167 requires state regulators to consider whether pipeline capacity is needed for reliability before approving projects.

Virginia environmentalists are confident that a bipartisan ratepayer-protection measure championed by a House Republican will spell doom for Dominion Energy’s fiercely debated Atlantic Coast Pipeline.

Not surprisingly, however, Dominion is still convinced the $8 billion natural gas pipeline still has a bright future.

Democratic Gov. Ralph Northam signed HB 167 into law in early April, barely a month after the General Assembly wrapped up this year’s ambitious session. Both the Senate and the House of Delegates had voted unanimously to pass the legislation, introduced by Del. Lee Ware, R-Powhatan.

Briefly, Ware’s measure adds an extra level of scrutiny. It protects customers from paying for large new gas pipelines if utility regulators determine that the capacity of such infrastructure is not necessary for reliability and is not the least-cost way to meet electricity demand.

Peter Anderson of Charlottesville, senior program manager for Appalachian Voices in Virginia, applauded Northam and the legislature for ensuring that regulators now have the appropriate tools to prevent electric monopolies from gouging consumers by constructing unnecessary pipelines.

He decamped to Richmond in January for several months of hands-on tracking of measures from the smaller-scope HB 167 to the all-encompassing Virginia Clean Economy Act.

“We worked with him a little bit,” Anderson said about finding common ground with Ware. “He clearly has a position, that he’s pro-consumer protection and not anti-pipeline.” As environmental and social justice advocates, “we are anti-pipeline and pro-consumer protection.”

While Anderson is unsure exactly how the State Corporation Commission might interpret the new law, his layperson translation is this: “In the last fuel factor case, commissioners said Dominion’s existing pipeline portfolio is adequate for the size of its gas-fired power plant fleet. When you add this standard of review to that existing base of facts, unless new gas-fired plants are coming on line … costs for new gas capacity would be unnecessary.”

In 2019, Ware introduced a similar bill, HB 1718, that passed the House 57-40 but failed to emerge from a Senate committee. Dominion had strongly opposed that measure, insisting that regulators already had enough authority and that the existing content of the Atlantic Coast Pipeline contract shouldn’t be second-guessed.

However, a bipartisan coalition that coalesced around last year’s bill gave rise to the Virginia Energy Reform Coalition in May. Clean Virginia was just one of the coalition members backing HB 167 and other related measures.

Clean Virginia spokeswoman Cassady Craighill lauded Ware’s newest law for giving regulators the ability to shield customers from shouldering the ballooning costs of Dominion’s pipeline.

“The jig is up,” she said. “This $8 billion boondoggle is designed to pad the utility monopoly’s profits with a guaranteed rate of return, not to meet Virginia’s electricity demand.”

Utility spokesperson Rayhan Daudani disagreed. He said this year’s bill “was amended into a practicable form during the legislative process,” but didn’t elaborate.

Natural gas and the Atlantic Coast Pipeline play an essential reliability role as the Richmond-based utility moves to net-zero emissions by 2050, he said.

“It will support the rapid expansion of renewables by keeping the lights on when wind and solar are not producing electricity,” Daudani said. “We believe the contract costs associated with [the pipeline] will meet the regulatory standard for approval.”

If built, the pipeline would bisect Virginia for roughly 300 of its 600 miles to move hydraulically fractured natural gas from West Virginia to North Carolina.

Ware preserves oversight

Ware, a legislative force in the General Assembly since 1998, did not return a request for comment for this article.

Will Cleveland, a senior attorney with the Southern Environmental Law Center, said his advocacy organization “supported the bill from the get-go. Even with the amendments, it’s still a good bill.”

When Dominion approached Ware with a pair of amendments, the legislator tweaked them to make sure they preserved the State Corporation Commission’s autonomy and oversight, said Cleveland, who referred to the legislator as a “giant of a personality.”

One amendment made the law apply to pipeline contracts of 10 years or more and the other dealt with grid reliability and diversity of the power supply.

“Ware wanted the ultimate decision to rest with regulators,” Cleveland said. “He didn’t in any way, shape or form blindly accept Dominion’s amendments. He was  cautious in looking out for the ratepayer.”

While Cleveland said he doubts Dominion can meet the law’s threshold, it’s not 100% clear if raising the regulatory standard of review will be a fatal blow to the Atlantic Coast Pipeline.

In watchdogs’ perspective, the project got off to a shaky start when six natural gas shipping companies — all regulated utility affiliates of the pipeline’s sponsors — contracted for 96% of the pipeline’s capacity.

In Virginia, for instance, Dominion is the parent company of Virginia Power Services, a shipper that has contracted for 20% of that capacity.

Initially, pipeline owners Dominion (48% stake), Duke Energy (47%) and Southern Co. (5%) formed the Atlantic Coast Pipeline LLC. They intended for its upfront capital costs — first estimated between $4.5 billion and $5 billion — to be recovered through transportation rates from the LLC’s contracted shippers. In February, Dominion bought out Southern’s 5% stake.

That model is a cause for concern, Cleveland said, because instead of competing in the marketplace, it depends entirely on shifting cost and risk to captive customers. Those customers end up paying more solely to boost company profits.

Historically, state regulators — who decide whether those captive customers pay for a project — have not studied whether electric utilities have over-subscribed for pipeline capacity. Cleveland points to Virginia, where commissioners have never denied cost recovery to Dominion on these types of projects.

Thus, parent companies can guarantee profits on pipeline projects by directing their regulated utility subsidiaries to become pipeline customers, even if the utility doesn’t need more pipeline capacity.

“Lee Ware’s bill goes right to that shady arrangement,” Cleveland said.

Six years of fraught history

The pipeline was first announced six years ago and approved by the Federal Energy Regulatory Commission in October 2017. It has been the target of multiple complicated lawsuits, with one case even reaching the U.S. Supreme Court. During oral arguments in late February, high court justices tangled with whether the natural gas pipeline can lawfully cross a section of the Appalachian Trail in Virginia on federal land.

Over the years, construction delays and cost increases have caused financial analysts to downgrade it as an investment.

As co-founder and president of the Friends of Buckingham, Union Hill resident Chad Oba is hopeful that Ware’s law might help her group’s longtime grassroots effort to defeat the pipeline.

In the back of her mind, however, she said she worries that Dominion will find a way to prevail.

“We’re still trying to figure out exactly what it might mean for us,” she said about HB 167. “It could be something, it really could be. And wouldn’t that be good?”

Oba is still living off the fumes of a victory her nonprofit scored in its lawsuit against the pipeline and the Virginia Air Pollution Control Board.

On Jan. 7, a federal appeals court tossed out a state permit for construction of a pipeline compressor station that Dominion had approval to construct in Union Hill. The tiny rural community in Buckingham County, settled after the Civil War by free blacks and former enslaved people, has been tracked by pipeline opponents nationwide as a test case. It’s 70 miles west of Richmond.

Anderson, of Appalachian Voices, said affordable renewable energy and dropping demand for natural gas are reason enough to cast the pipeline’s future into further doubt. That’s amplified by the new Virginia Clean Economy Act, which calls for huge investments in solar, wind, energy storage and energy efficiency.

“It’s actually a great time to be an environmental advocate,” he said. “You don’t have to hear complaints that solar and wind are so expensive because it’s just not the case anymore. You can have cleaner power and lower bills.”