Dominion Raises Cost of ACP to $7 Billion, Pushes Back In-Service Date

Dominion Raises Cost of ACP to $7 Billion, Pushes Back In-Service Date

February 4, 2019

Diane Leopold

The expected cost of Atlantic Coast Pipeline (ACP) has gone up as legal challenges drag out the anticipated completion date, lead developer Dominion Energy said February 1. Dominion put the cost estimate between $7 billion and $7.5 billion, excluding financing costs, with partial service starting in late 2020 and full in-service in early 2021.

Those are compared with previous figures, from just a few months ago, of service beginning in late 2019 and full service in mid-2020, at an estimated cost between $6.5 billion and $7 billion.

The cost estimate for the related Supply Header project was put at $650 million to $700 million, with a plan to begin service in late 2020, Dominion said in a statement.

ACP customers desperately need the project to be built and “we are committed to it,” Diane Leopold, president and CEO of Dominion Energy’s Gas Infrastructure Group, said at the Natural Gas Roundtable February 4.

Leopold addressed questions on ACP and other initiatives at Dominion, including an upcoming announcement on sustainability and how the company integrates environmental, social and governance (ESG) factors in its operations. The company is working on a methodology to address transparency on ESG issues and allow “apples to apples” comparisons among energy companies, along with developing renewable natural gas (RNG) resources, she said.

Dominion expects ACP and the Supply Header project to contribute toward operating earnings in 2020 and for decades to come, officials said during a February 1 earnings call with analysts. The financial community has seen the costs of ACP rise as legal challenges and permitting delays halted construction in December 2018, with at least one analyst questioning whether the cost of ACP and a separate project, Mountain Valley Pipeline, will both be completed to take advantage of price differentials for moving gas out of the Marcellus and Utica Shale areas.

A $7 billion cost for ACP could translate into rates for shippers between $1.30/MMBtu and $2.60/MMBtu, which would exceed the cost differential to move gas from another basin, said Sanford C. Bernstein & Co. LLC in a recent research note. Such a scenario presents the possibility that “only one of these projects will ultimately get done,” Midstream Analyst Jean Ann Salisbury said.

Dominion officials are committed to completing the ACP project and are working with customers to set rates based on costs that provide a fair return for investors, they said during the conference call. A cost a bit above $7 billion would translate into a basis differential of about $1.79/MMBtu, which would allow a return for shippers and the pipeline, said Thomas Farrell, chairman president and CEO of Dominion.

Construction of ACP has been on hold since early December 2018 following a series of court decisions and suspensions of federal permits, including those by the U.S. Fish and Wildlife Service, the U.S. Army Corps of Engineers, and the U.S. Forest Service. Oral argument on several of the legal challenges at the U.S. Court of Appeals for the Fourth Circuit is scheduled for later in the first quarter.

The 600-mile project is designed to move roughly 1.5 Bcf/d from West Virginia to parts of Virginia and North Carolina. About 300 miles of the ACP and related Supply Header project is in Virginia. It is being developed by Dominion, Duke Energy, Piedmont Natural Gas, and Southern Company Gas, with precedent agreements from six shippers, five of which are affiliated with project owners.

“We remain highly confident in the successful and timely resolution of all outstanding permit issues as well as the ultimate completion of the entire project,” Farrell said in a statement. “We are actively pursuing multiple paths to resolve all outstanding permit issues including judicial, legislative, and administrative avenues,” he said.

Leopold reiterated some of the same points during her remarks at the Roundtable event. The pipeline is needed and even with the higher costs “it’s still profitable,” she said.

On the ESG issues, she mentioned how Dominion is part of Environmental Protection Agency voluntary methane challenge program to reduce methane emissions throughout its operations, with steps that have prevented about 10 Bcf of methane from entering the atmosphere since 2010. The ESG methodology will be released soon and include steps to address air and water protection, environmental justice issues, and the social contract pipelines and natural gas companies have to operate, Leopold said.

Besides improving emissions within Dominion, the company is working with customers to minimize their carbon footprint, and a recent initiative with Smithfield Foods Inc. to capture methane emissions from hog farms in North Carolina, Virginia, and Utah. The amount of gas being captured is not large right now, but it is being used to improve sustainability and learn about the RNG process, which can include capturing methane from agricultural uses, wastewater treatment plants, landfills and food processing facilities, Leopold said.

Dominion’s Align RNG program with Smithfield, which was announced at the end of November 2018, is moving beyond the early stages and showing the companies involved how to convert methane for use in the natural gas distribution system to make natural gas more of a sustainable energy resource as sectors of the economy emphasize carbon reduction, Leopold said.

By Tom Tiernan TTiernan@fosterreport.com

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