Episode 14: What does the Atlantic Coast Pipeline's cancellation mean for Virginia energy?

For the last six years, Dominion Energy has been working to build a natural gas pipeline from West Virginia to Hampton Roads. But just a few weeks after winning a Supreme Court case to regain permits for the project, the pipeline was cancelled--leaving Dominion is out more than three billion dollars already spent. This week, we sat down with Richmond-based journalist Peter Galuszka and New York Times Renewable Energy Correspondent Ivan Penn to understand why Dominion pulled the plug--and what it might mean for the future of energy in Virginia.

Nathan Moore: This is Bold Dominion, an explainer for state politics in a changing Virginia. I’m Nathan Moore.

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Well, I guess Dominion will have to chalk this one up in the “seemed like a good idea at the time” column… The Atlantic Coast Pipeline project is dead. For the last six years, Dominion Energy has been working to build a natural gas pipeline from West Virginia to Hampton Roads. But grassroots opposition and cold, hard economic changes combined to make this massive project untenable. And now Dominion is out more than three billion dollars that it already spent on the pipeline.

Peter Galuszka: Well, let’s just call it imperial overstretch.

NM: That’s Richmond-based journalist Peter Galuszka. He says Virginia’s lax energy oversight and campaign finance laws have emboldened Dominion to have a bullying attitude over the years. And to get involved in investments and projects that have nothing to do with providing electrical service to Virginia customers. We’ll hear more from Peter in just a moment.

In the second half of this episode, we’ll hear from New York Times renewable energy correspondent Ivan Penn. He’ll take us through the economics behind the big decisions that utility companies make.

But now, reporter Peter Galuszka walks us through Dominion’s decision to cut the pipeline project -- and what that could mean for Dominion’s role in Virginia going forward. 

PG: You know, this has sort of been in the cards for a while, I mean, maybe from two years ago, it's been--the pipeline's been around for six years. But, you know, there’s been a number of different tea-leaf things. Number one, was that people really realized that the need for the gas isn't really there. It's dwindling. Secondly, Dominion is partnered--had been partners with Duke Energy and with the Southern Company, a big Atlanta utility. And earlier this year, the Southern Company dropped out. And then the CEO of Duke was saying she was saying things such as "well, we don't know..." And so finally, after keeping things looking happy for a while, ACP just announced suddenly that it's over. And it's an $8 billion pipeline, and they've already spent about a billion-eight on it. In a related or somewhat related development, Dominion announced it was selling just about all of its natural gas resources across the country to Warren Buffett's group for, what, 9.7 billion. So it's a big change. It's a thunderclap.

NM: So I know Dominion now is kind of trying to save face where it can. It's blaming the environmentalist obstructionists and saying it's concerned about the future of energy resilience in America and all this kind of thing. Why does it say it pulled the plug?

PG: Basically, and this is really somewhat disingenuous if you look at the long-term. So about two years ago, they started this not too subtle effort at rebranding themselves, which I found to be somewhat amusing. Because all of a sudden they were into it wind, they were into solar, they're announcing project after project and they took out ads all over the place and big state newspapers, full page ads saying "We're the green company now." At the same time, they were continuing pumping money and effort into the pipeline. And now they're saying, "well, we're really green, you know, hey, we have this pilot project off the coast of Virginia Beach, we're going to have a huge wind farm out there. We're going to be the leading when utility in the country." Then all of a sudden, when they finally find a way out of the pipeline, which was really eating them alive, they said, "Oh, well, this is because we've changed," which, you know, believe that? 

The thing was, is that the pipeline used--at the time--Dominion's really strong-arm policies and approaches. One of the things they did, for example, they just sort of announced the pipeline out of the blue and in areas around Charlottesville around that area, and also in the mountains and elsewhere, they just said, well, we're we're going to survey your land, whether you like it or not, if you say no, we're going to sue you. They wanted to steamroll everybody. They went to FERC, the Federal Energy Regulatory Commission, which has never really been known to turn much down and got approval from there. 

And then luckily, the homeowners, the environmentalists mounted a very clever and long-lasting defense through attrition. And as they stalled things, the pipeline costs went from like 5 billion to 8 billion, and then it just became unviable.

NM: You know, so you said that the pipeline proposal has been around for about six years. And I remember years ago, when you and I were talking about this. I remember you saying that if the pipeline opponents can drag this out long enough, and eventually maybe Dominion will just scrap it, which turned out to be prescient.

PG: Well, it wasn’t really that prescient when you consider--because this happens, a lot of times with big infrastructure projects for energy. One of the lead organizations in the fight was based in Charlottesville, was the Southern Environmental Law Center. And it was really their regular legal challenges that forced the issue, and its hard work really leads to results.

NM: What I've been struck by over the years on this one, is that there really were three different sort of interwoven strands of grassroots opposition. There were the environmentalists, of course, which you can expect. But then there was also a group of real racial justice advocates because of the proposed compressor station in Union Hill, a historically black community in Buckingham County. And then there were the property rights crowd, the "don't mess with my land," kind of, you know, typically more right-wing advocates. I mean, how did these come together? And how did it all play out?

PG: Well, you know, you've got a common enemy, you band forces. And that seems to happen. Take for example, the social justice people.  Union Hill in Buckingham County, is a largely African-American community and Dominion wanted to put a large compressor station right there. And, you know, typically you can--this happens over and over again in the country, that a big, you know, annoying energy infrastructure projects always go where poor people live. So that is a big victory for them. And as far as the property right owners, I mean, a lot of them for example, are retirees who are well-off who wanted vacation homes or retirement homes in bucolic Virginia, and find they're going to be right on top of a pipeline, and also the Wintergreen crowd of affluent people, condos and golfers and skiers were very upset because the pipeline would go right by the entrance to Wintergreen. So you're right, you're three disparate groups that banded together, and they all worked together. And that's one reason the pipeline's dead. But I think the big reason is economics.

NM: Well, the grassroots groups, you know, caused enough of a headache and made things drag out long enough to where the economics change.

PG: Absolutely. And that's the thing. I mean, don't forget, you go back six years. What's that? 2014? What happened in 2014? Fracking. Fracking really took off in the Marcellus Shale fields in West Virginia and Pennsylvania,  and to some extent, Ohio and the price points were right for it. And so they brought it in and people were making lots and lots of money. Of course, fracking is kind of a lot messier than traditional drilling. 

But in any event, they were a victim of their own success. Because what they did was they brought in so much gas that the gas prices lowered--a fracking well costs maybe 12 million, whereas a regular gas well's a million--so they had to find, you know, people to pay the loans to fund it. Well as the gas prices crashed, because there were so much, you know, they couldn't pay their loans. And one of the biggest telling factors for just a few weeks ago, Chesapeake Energy, or the original pioneer cracker, they went bankrupt. So once again, you drag things out long enough, the economics of energy change, they always change.

NM: I'm struck, Peter, by how we've seen in the last five years, maybe a little more, in Virginia, a real expanding loss of faith in Dominion, to do the right thing. And you see that in a number of arenas, both obviously, the opposition to the pipeline, which is very public and spread. But also then in terms of our state politics, we're a contingent of the Democratic Assembly candidates and now members refused to take political campaign contributions from Dominion. You know, what's--what's going on?

PG: Well, let's just call it Imperial overstretch. I hate to use that word, but it's true. I mean, you know, Dominion for so long, because of Virginia's lax ethics laws, you could take as much money as you wanted from Dominion, as long as you reported it. And so that's what happened. I mean, they were just pumping, you know, hundreds and hundreds of thousands of dollars into various campaigns. And this emboldened Dominion to take on a really kind of bullying attitude. 

For example, coal ash removal. They needed to remove coal ash from a number of plants, coal fired plants. Dominion wanted to do it it's minimalist, cheapo way without putting liners under the ash pits, they just were going to de-water them, put them through some cleaning, then dump them back in the river. And people were really upset about that. 

In other examples, Dominion insisted on putting a high-tension high-voltage line right across the James River, near Jamestown, which angered a lot of people. And in each occasion, Dominion would pack up its horses and run stuff through the State Water Control Board and the Air Pollution Control Board before people knew what was going on. And finally, this caught up with them. And, you know, with the changes in the state becoming more blue, aspiring politicians started saying "Enough's enough. I don't want to be tarnished with them anymore." Which is one reason two years ago, you have this rebranding effort.

NM: So the rebranding kind of plays into some new legislation that's passed. And I was reading in Virginia Mercury this week that, you know, the piece they ran posits that it's not just the opposition. It's not just the economics you and I've already talked about, but also that with the Clean Economy Act in Virginia, the new legislation that takes effect right like this month, Dominion can now replace a lot of their profits from natural gas with profits from the Clean Economy Act. How so?

PG: Because what happens is the Clean Economy Act sort of postulates a number of reductions in carbon. And it's going to do so under a guaranteed rate of return for Dominion, which can be--don't hold me to it, 10 to 14%. And so that's what Dominion wants. They want to say, "Oh, we want to be a regulated utility again." And because, you know, "We're guaranteed our profits, and that's nice!" And yet people are going to have to pay for that.

NM: The Clean Economy Act in the discussions earlier this year, was often counterposed, with more of a Green New Deal approach, which was, you know, a more progressive tack on economic restructuring around green industry, but really just sort of economic justice, you know, writ large. You know, what's the chance of a Green New Deal approach taking root in Virginia?

PG: Well, I think a whole Green New Deal approached, as you might say, by AOC, something like that will not fly in Virginia. I mean, it's just too progressive. So you know, got to look at things realistically--the Clean Economy Act is probably as good as it's going to get for a while, unless there's a bigger turnover and the General Assembly, and more progressive politicians are elected. Because I mean, much of the old structure with its, you know, very tight committee's abilities to, you know, destroy bills before they are born, that still exists. 

And Dominion, you know, is actually in an existential problem right now, and it really wants to preserve itself. I mean, in many ways it is--you look at it from a business point of view, it is a well-run company, it is profitable. I mean, it's taking a hit right now, but it's not a big one. And so, you know, they want to keep that going. And that's the tension. So I don't know. A really strong total Green New Deal approach is out there, but I don't see it.

NM: It does seem like while this is a setback, for sure--I mean, you don't invest billions in something, then lose it and not see the setback--but what I'm hearing is that Dominion will continue to be the central player in Virginia's energy future, but there will be just a more green portfolio or, I guess, the company is accepting a more sort of regulated monopoly structure versus the kind of freewheeling approach that the state has allowed all these years. Do you see a new fight brewing with the sort of central power networks versus more distributed networks?

PG: Yeah, I think that's coming. And as I say, a lot of the newer industries that have been coming to Virginia mostly from, you know, other states, especially the West Coast, they want green power, and they don't care about Dominion’s domination of politics here. They just, they don't. And, you know, people like Gates and the Apple people and Bezos and others, a lot of the future of Virginia's in data centers. And a lot of the new data center owners want green energy. So that's kind of going to change things a bit. And it's kind of interesting, because that's a consumer demand of a different sort. 

You know, I don't really see--as I say, Dominion is just too big to fail. I hate to say that, but it's true. And unless you see a major upheaval in the whole energy picture, it's going to remain.

NM: Peter Galuszka is a journalist based in the Richmond area.

In a moment, Bold Dominion producer Aaryan Balu sits down with Ivan Penn. He’s a renewable energy correspondent for The New York Times. He walks us through the economic questions that guide utility companies like Dominion. All that and more after a short break.

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In our last segment, we touched on how the Atlantic Coast Pipeline was ultimately defeated by the ever-present hand of economics. 

There are some complex economic incentives that govern how utility companies make decisions. And in recent years, those incentives have been leaning toward renewables. Bold Dominion producer Aaryan Balu talks with New York Times renewable energy correspondent Ivan Penn.

Ivan Penn: A decade ago, coal was upwards of 50% of our electricity generation. That has declined--in 2020, it even fell below 20%. And natural gas has filled the space. So now natural gas provides about 40% of our nation's electricity generation and the difference--that gap between what was the 50% on the coal fire generation and the 40% we have now in natural gas has been made up by renewable sources: solar, wind, and energy storage. So the basic idea was, Wwell, we have this growth in natural gas and the need to meet the demand when the renewables are unavailable. And so we need this extra natural gas capacity," was the argument that the utilities were making.

Aaryan Balu: Did the argument hold up? Was there really a need there?

IP: Well, so the pushback from the environmental community has been that, well, that need can be made up with renewable sources. The prices of energy storage--batteries, in particular, have fallen almost in line with the kind of price drops that we saw with solar over the last 10 years. And we saw solar soar because of that price drop. We now see that with storage, and the environmentalist are arguing that, well, yes, we can meet the energy needs with just renewable energy sources. So the environmentalist say, well, there are clearly examples and clearly technologies and increasingly affordable ways of meeting the needs without using natural gas and fossil fuels in general.

AB: The pipeline is announced in 2014. Six years later, they win a big Supreme Court case about it. So why was it canceled?

IP: The short answer is cost. Essentially, they said that it became uneconomic, especially at a time when, again, you have renewable prices continuing to drop: solar, wind and battery storage. If the price is too high to cover the cost of building this pipeline, providing the gas and generating the electricity--if that product can't compete in the electricity market, then you end up with what they refer to as a stranded asset, because it is unable to actually produce anything. So that's the fear. That's the danger. And so the major driver here is the economics.

AB: So with projected numbers, like four and a half, five billion, that's a huge number. How does that compare to other pipeline projects and how does that compare to, you know, forms of renewable energy?

IP: So there are a few complicated equations. There's what is referred to as the levelized cost of electricity generation. The pipeline itself is a separate variable. Typically what you look at when you look at the levelized cost of electricity, you're looking at "what is the cost of a solar farm and a wind farm versus a natural gas plant, a coal plant, a nuclear plant?" You're not necessarily doing a direct cost comparison between a solar farm and a gas pipeline, because they're apples and oranges. And then even when you're looking at generation sources, it's not apples and apples even then. 

So figuring out the cost, you wouldn't necessarily look at a solar farm versus a pipeline. What you're factoring in as a utility is what are our costs to deliver electricity given that the pipeline costs X, building the natural gas plant costs Y. If you're just looking at, well, which sources are the cheapest generation? Solar and wind don't have any fuel costs. So you're taking fuel costs out of the equation. Your operating costs are lower. A solar farm doesn't require anyone but some people cleaning off panels, whereas a natural gas plant can have tens or hundreds of people operating that facility. So you can see the differences in what's going into those equations.

 But it's a little bit more complicated than just which one cost more or less, is that the other factor here is the wind doesn't always blow, the sun doesn't always shine. So there's what is called a capacity factor. 100% capacity factor would be a facility that can operate 24/7, non stop. Nothing is 100%, because at some point, they've got to close it down for maintenance, but you know, facilities like natural gas plants, coal plants, and a nuclear plant can have a capacity factors in the 80s and 90s. Whereas a solar farm would be more in the mid-upper 20s. Because they can't operate 24/7. These are the types of variables that are going into the equation that make it really complex to figure out which one comparatively makes economic sense. But it's difficult, again, to make that comparison to a pipeline because the pipeline is serving really a different kind of purpose than a generating source.

AB: What does this cancellation mean for energy in Virginia and beyond?

IP: Electricity costs are going to increase across the country no matter which way we go with things. Building new infrastructure, new generation sources, is going to cost money. And you have all these existing generating sources. When you're dealing with a utility company, if the state--like in the case of Virginia--is mandating the decreased use of fossil fuels, carbon emitting sources, and utilities then have to increase their use of renewable clean energy sources, that does not eliminate the cost that they already spent on existing facilities.

 Now, over time, you will see more and more of the benefits of a source again, like solar and wind that don't have the cost as high on the operations and maintenance side. But in the short term, you could see increases in costs as we transition to a more carbon free-clean energy electricity sector.

AB: So how likely are we to see the sort of transition happen?

IP: The transition is happening. I mean, what you see this year for the first time, we saw renewables exceed 20% of the nation's electricity generation. And as I mentioned, we also simultaneously saw for the first time, coal fall below 20%. So you're seeing the transition occur. Part of the transition has been natural gas replacing coal, renewables filling some of the gap. But now you're seeing the tension between renewables and natural gas. And most of that's going to be driven by the economics involved and the cost of energy storage. Once you have the storage part of the equation solved, then it's much, much easier to deal with the solar and when that can't meet the demand at any point in time. 

Part of Dominion’s argument for natural gas is that they need something that has a quote-unquote "on and off switch." Solar and wind don't have on and off switches 24/7 and most storage right now only provides a supplement for four to five hours. So if you have a big solar farm, you know, that covers you during the day, but you only have significant coverage on part of your night. You need storage that is capable of going throughout the period of time from when the sun's not shining to the next morning or, as an alternative: if you have wind blowing in one area of the country, when the sun stops shining in another area of the country, being able to deliver that electricity as an alternative to storage, so you're just moving electricity around based on where the sun is shining, where the wind is blowing at times of day. And so that's another way of approaching it. But that requires more transmission. You're gonna have to spend some money in one way, shape or form to be able to help this transition. All of the infrastructure just isn't there at the moment.

AB: The cancellation of this project--do you think this is a sign of change? Or is this just one blip?

IP: It's clearly--I mean, this is a major project. And it's clearly another sign that the economics for fossil fuels are continuing to hit headwinds. The utilities would argue that, well, that problem was created because the environmental community brought all of these legal challenges which caused delays. But some of that clearly also is because there is a case to be made that there are alternatives. 

You look at Dominion, Dominion is leading some of the renewable energy efforts. It just built two offshore wind turbines that are a prelude to a larger project. This is only the second offshore wind farm that we have in the United States. And the bigger project that Dominion is building will be the first in federal waters. So they are doing some very innovative projects on the renewable side. And so you can see that the transition is more significant today than was anticipated at this point in time. The pipeline just--the end of that project just highlights the fact that these renewable technologies have really hit a watershed moment.

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NM: Ivan Penn is the renewable energy correspondent for The New York Times. Thanks to him and also journalist Peter Galuszka for joining us on the show today.

My name’s Nathan Moore, and I’m the host of Bold Dominion. Huge thanks to our producer Aaryan Balu. Find this show online at BoldDominion.org. Go ahead and subscribe… it’s just a click away.

Keep social distancing, y’all, and I’ll talk with you in two weeks!