November 15, 2019 Read More →

Cost overruns pose new concerns for Dominion’s long-delayed Atlantic Coast Pipeline

S&P Global Market Intelligence ($):

Already estimated to be more than three years behind schedule and billions of dollars over an original budget for the 1.5-Bcf/d Atlantic Coast natural gas pipeline project, Dominion Energy Inc.’s Atlantic Coast Pipeline LLC faces the critical task of resolving cost-sharing arrangements with its shippers.

Those talks, referenced during Dominion’s third-quarter earnings call Nov. 1, amount to another uncertainty for the project in addition to the regulatory and legal challenges that have caused the delays. Dominion has met with customers regarding the “equitable resolution of project cost increases” and expects to reach an agreement in principle by the end of December, Chairman, President and CEO Thomas Farrell said on the call. He added that he is confident that “the result will satisfactorily balance customer rates with project returns.”

It was unclear whether current agreements between pipeline and customers cap the cost increases that would be borne by shippers. Dominion declined [Nov.] 13 to address this or whether there is a point at which the developers might consider abandoning the project if the cost is too high or the return too low.

Atlantic Coast will have to decide if it is willing to proceed if the shippers reject the attempted contract restructuring, said Gary Kruse, director at energy research firm LawIQ. The 600-mile Atlantic Coast pipeline is a joint venture of Dominion, Duke Energy Corp. and Southern Co. Gas that will be operated by Dominion. It is designed to boost takeaway capacity from the Appalachian gas-producing region to downstream markets.

“The situation is somewhat more complicated here because the joint venture partners also are affiliates of some of the shippers,” Kruse said. “So, the overall ‘best result’ for the corporate parent may not be what would have happened if only the shipper’s or pipeline’s best interest was involved.” In the end, the talks might focus more on the schedule than on the money, Kruse said. “I anticipate the timing of the projects will be the decisive factor, and if everyone can live with 2022, then they will somehow work out what that means from a monetary basis.”

For now, Dominion is holding to its current timeline and cost estimate as it pursues a Supreme Court appeal of a lower court ruling involving U.S. Forest Service authorizations for the pipeline to cross the Appalachian Trail. At a price tag of up to $7.8 billion, Atlantic Coast promises to be one of the most expensive U.S. natural gas pipeline projects. At the time the operator filed its permit application with the Federal Energy Regulatory Commission in September 2015, it was estimated that Atlantic Coast Pipeline would enter service by Nov. 1, 2018, at a total cost of $5.1 billion. Since then, opposition from environmental groups and court challenges have pushed the project’s timeline off track again and again.

More ($): Customer rate talks are another wildcard for gas Atlantic Coast Pipeline

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