Continuing Legal Uncertainty Dooms Atlantic Coast Pipeline

Published on July 06, 2020 by Hil Anderson

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The Atlantic Coast Pipeline (ACP) project was suddenly canceled over the July 4 weekend by two major utility companies, who cited a still-uncertain legal environment that had already delayed the project more than three years and nearly doubled its original cost.

Dominion Energy and Duke Energy said in a joint statement issued on Sunday that the hard-fought effort to link West Virginia’s natural gas fields with consumers in the Mid-Atlantic region was being scuttled despite a high-profile victor decision on permitting that was issued by the U.S. Supreme Court late last month.

“This announcement reflects the increasing legal uncertainty that overhangs large-scale energy and industrial infrastructure development in the United States. Until these issues are resolved, the ability to satisfy the country’s energy needs will be significantly challenged,” said the statement from Thomas F. Farrell, President, Chairman and CEO of Dominion Energy, and Lynn Good, Duke Energy Chair, President and CEO.

At the same time the cancellation of the ACP was announced, Dominion revealed that it had agreed to sell its entire gas pipeline network to the investment firm Berkshire Hathaway Energy, led by Warren Buffett, in a deal valued at $9.7 billion, including $5.7 billion in debt relief and $4 billion in cash. The sale includes around 900 billion cubic feet of gas-storage capacity as well as 7,700 miles of transmission and storage pipelines.

“This transaction represents another significant step in our evolution as a company, allowing us to focus even more on fulfilling utility customer needs and positioning us for a bright and increasingly sustainable future,” said Farrell.

The two utilities said they would continue to concentrate on greening its energy portfolio with a mix of renewables and nuclear power while continuing to retire its coal generation in order to meet future targets for reduced carbon emissions.

Sustainability appeared to become more attractive to Dominion and Duke as the ACP became bogged down in a stubborn legal challenge from environmentalists and other activist organizations. The utilities notched a major win in a closely watched case before the Supreme Court when the justices voted 7-2 in late June that the procedure for obtaining a critical permit to bury the pipeline beneath a relatively short crossing of the Appalachian Trail.

The victory, however, was tempered by an earlier ruling by the Ninth Circuit Court of Appeals in San Francisco on the permit-process for the Keystone XL Pipeline in Montana. The May 28 ruling indicated the Ninth Circuit was unlikely to overturn a lower-court ruling that had called into question the authority of the Army Corps of Engineers to issue permits for pipelines that cross streams and wetlands, the two utilities said.

The ruling and the likelihood of fallout reaching the ACP was enough to convince Dominion and Duke that the project, originally launched in 2014, was no longer tenable as its cost estimates had increased to $8 billion from an original estimate of between $4.5 billion and $5.0 billion. The target date to enter service had also been pushed back to 2022. “This new information and litigation risk, among other continuing execution risks, make the project too uncertain to justify investing more shareholder capital,” the statement said.

“We regret that we will be unable to complete the Atlantic Coast Pipeline,” Farrell and Good said. “For almost six years we have worked diligently and invested billions of dollars to complete the project and deliver the much-needed infrastructure to our customers and communities.”

The ACP was envisioned as a means of delivering gas from West Virginia into Virginia and North Carolina. The 600-mile ACP featured runs of 42-inch pipe through parts of West Virginia and Virginia and culminated with a 36-inch line in North Carolina. The route would have also featured various smaller lateral lines and a trio of compression stations, and would have delivered around 1.5 billion cubic feet per day.

Gas will still play a role in the energy mix for the two utilities, however, as they continue with plans to wind down their use of coal generation in the coming years while expanding the use of renewables. In late June, Dominion announced completion of the Coastal Virginia Offshore Wind pilot project off Virginia Beach. The project is the first offshore wind farm in federal waters and includes two turbines and 12 megawatts (Mw) of capacity.

Dominion also has an ace in the hole in the form of three nuclear power plants, including two currently serving its Virginia territory. Duke can rely on its stake in the 2,300-Mw Catawba Nuclear Station in South Carolina, which is licensed through 2043 and is already seeking another 20-year extension from federal regulators.

Good said, “While we’re disappointed that we’re not able to move forward with ACP, we will continue exploring ways to help our customers and communities.”