The following comments were submitted to FERC in response to Dominion’s answer to issues raised by many individuals and groups concerned about the need and impacts of the Atlantic Coast Pipeline (ACP).

A. The Need for ACP and the Supply Header

There remain serious questions about the need for the ACP and its benefits to the public which have not been satisfied by Dominion’s answers submitted to the Commission on December 4, 2015.

In its policy statement of February 9, 2000, clarifying the Statement of Policy issued September 15, 1999, the Commission explained “that as the natural gas marketplace has changed, the Commission’s traditional factors for establishing the need for a project, such as contracts and precedent agreements, may no longer be a sufficient indicator that a project is in the public convenience and necessity.” In the original 1999 Statement of Policy, the Commission states that “in considering the impact of new construction projects on existing pipelines, the Commission’s goal is to appropriately consider the enhancement of competitive transportation alternatives, the possibility of overbuilding, the avoidance of unnecessary disruption of the environment, and the unneeded exercise of eminent domain.”

The Commission continued, saying “that it was considering how best to balance demonstrated market demand against potential adverse environmental impacts and private property rights in weighing whether a project is required by the public convenience and necessity.”

In its discussion of the Drawbacks of the Current Policy, under “Item 1 Reliance on Contracts to Demonstrate Demand”, the Commission noted that “The amount of capacity under contract also is not a sufficient indicator by itself of the need for a project, because the industry has been moving to a practice of relying on short-term contracts, and pipeline capacity is often managed by an entity that is not the actual purchaser of the gas. Using contracts as the primary indicator of market support for the proposed pipeline project also raises additional issues when the contracts are held by pipeline affiliates. Thus, the test relying on the percent of capacity contracted does not reflect the reality of the natural gas industry’s structure and presents difficult issues.”

And “finally, by relying almost exclusively on contract standards to establish the market need for a new project, the current policy makes it difficult to articulate to landowners and community interests why their land must be used for a new pipeline project. All of these concerns raise difficult questions of establishing the public need for the project.”

Nearly all of the Customers identified for the ACP are affiliates of the developers of the pipeline. There is little surprise that they would notify the Commission that “they strongly support the Project”.

What is the True Need for Additional Natural Gas Supply?

The ICForecast Strategic Natural Gas Outlook predicts the compound annual growth rate for residential and commercial uses of natural gas in Virginia will be 0.1% between 2014 and 2035. Since Dominion has emphatically stated that no gas flowing through the Atlantic Coast Pipeline will be used to produce LNG, any additional gas supply to Virginia is needed only to fuel new power plants.

Dominion identified plans for future power plants in its Integrated Resource Plan, filed July 1, 2015, with the Virginia State Corporation Commission (SCC). Two new natural gas combined cycle generating stations were proposed, each with a capacity of about 1585 MW. Neither plant has an identified location, nor is approved for construction by the Virginia State Corporation Commission. The first electric generating station that will require additional gas supply in Virginia is proposed to begin service in 2022; the second in 2030. Units of this size require approximately .250 Bcf/d of natural gas. Several other gas combustion turbines are planned over the next 15 years. These much smaller units handle peak loads and smooth out variations in supply from solar and wind generation. However, they run only about 10% of the time and do not require nearly as much natural gas as do the combined cycle units.

Energy efficiency is less expensive than adding new generation of any type and could postpone or erase the need for these new gas plants. As could more rapid adoption of affordable, zero carbon emitting sources of generation such as solar.

Dominion is building a 1358 MW natural gas combined cycle plant in Brunswick County Virginia, due to begin operation in the summer of 2016. They are also planning to develop a 1600 MW natural gas combined cycle plant in Greensville County (4 miles away), slated for operation in 2019.

To gain approval of these pipelines (FERC Dockets CP13-30 and CP15-118), Dominion Virginia Power committed to 20-year Long-Term Firm Transportation Service Agreements with Transco. Expected costs are $298.7 million for the Brunswick pipeline and $190.8 million for the connection to the Greensville plant. Approximately 96% of the capacity of this new pipeline is assigned to the Dominion power plants.

In its description of the Atlantic Coast Pipeline project, Dominion said that it will connect both the Brunswick and the Greensville power plants to the Atlantic pipeline. Making it appear that the existence of the Atlantic pipeline is essential to the long-term operation of those facilities. The Friends of the Shenandoah believe it is disingenuous for Dominion to make a commitment for gas supply in order to gain approval of the Transco projects, and then make the same commitment in order to gain approval of the Atlantic Coast Pipeline (ACP). In a footnote (#33) to their answer to Interveners, Dominion replies, “Access to one pipeline, of course, does not mean that an alternative means of supply is not necessary or desirable. VPSE, as the supplier of those power-plants, has committed contractually to ACP and the views of certain environmentalists obviously provide no reason for the Commission to question that contractual decision.” They go on to say that a 20-year contractual commitment does not necessarily “represent genuine market demand”. If it is common for customers of project developers to make insincere promises in order to gain approval of projects, then how is the public to trust that there is truly market demand for any natural gas pipeline proposal?

The existing Transco connection to these plants provides supply from both the Gulf Coast region as well as the Marcellus in case there is a supply disruption in one region or another. Dominion is asking their ratepayers to support a multi-billion dollar investment, with all of its associated disruption, in order to add one more backup supply for its plants after the ratepayers have already purchased a belt and suspenders from Transco.

The need for additional gas supply to Virginia, in whatever form or amount that might exist, is served at a significantly lower cost by existing pipelines with far less disruption of property and sensitive areas. The existing pipelines traverse the breadth of Virginia, rather than the single corridor proposed for the ACP.

Threshold Tests

In consideration of the public convenience and necessity, the Commission assesses potential adverse impacts on three primary interests: 1) the applicant’s existing customers, 2) the interests of competing existing pipelines, including any subsidies of the proposed project, and 3) the interests of landowners and surrounding communities.

Existing Customers

The intention of FERC policy is to assess the effects of the expansion of a pipeline on the existing customers of that pipeline. As a new development, the ACP has no existing customers. However, the developers of the pipeline have used their affiliates to prove the need for the ACP and be its primary customers. Therefore, those affiliates are intimately connected with the economics of the project.

Dominion Transmission, through its affiliates, will ultimately supply natural gas as fuel to produce electricity for sale by Dominion Virginia Power, a regulated utility in the state of Virginia. Assuming the price of the natural gas is constant, the difference in fuel price between scenarios would be attributed to the cost of transportation in the pipeline. Any higher costs from transportation in the ACP compared to other alternatives would automatically be passed on to Dominion ratepayers as a fuel cost adjustment without further regulatory review.

Transportation costs in new pipelines are typically based on incremental costs, plus the rate of return authorized by FERC. Generally, new construction would result in higher transportation costs compared to using existing pipelines for which the original investment has been substantially repaid.

Dominion has decided to connect two if its power plants to the ACP rather than relying on the pipeline (with redundant supply) that was recently built to serve them. This requires nearly 300 miles of pipeline construction and billions of dollars of investment. These higher costs will add to the price of fuel and be automatically passed on to ratepayers. The ratepayers gain no benefit from these higher costs; reliable gas service already will be provided by the new Transco spur.

Additional costs may accrue to the ratepayers in the development of the new plants proposed for 2022 and 2030. By limiting their connection to the ACP, rather than the existing statewide network of Transco and Columbia Gas pipelines, higher transmission costs might result or longer and more expensive than necessary gas supply spurs could be required.

These unnecessary added costs to existing customers are usually the purview of the Virginia State Corporation Commission (SCC), with input from the Consumer Protection group of the Virginia Attorney General’s Office. However, the federal authority, invested in FERC in this case, has usurped the state authority and the normal regulatory oversight that protects the interest of “existing customers” in this instance cannot occur. FERC is the only authority that can give this issue consideration and it is recommended that they do so as part of their overall review of the project. The adverse economic effects on existing customers should definitely be weighed against the purported benefits of the project.

Construction of the ACP through West Virginia and Virginia is not necessary for North Carolina to have access to sufficient supplies of natural gas. North Carolina can maintain the option of accessing additional supply from about the same location as proposed with the ACP or they can select a better option. Their interests are unaffected if no new pipeline is constructed through Virginia.

Existing Pipelines and Subsidies

The added costs that existing customers must bear automatically from higher gas transportation charges associated with the ACP compared to existing alternatives, is a form of subsidy. These customers are captives of the affiliates of the developers and absent state regulatory oversight; they have no say in whether they pay more in order to subsidize the construction and operation of the Atlantic pipeline. This subsidy is extracted from the existing customers by the affiliates of the developers with no offsetting advantage since reliable gas supply is available to them through lower cost means.

Construction of the Atlantic pipeline definitely has an adverse effect on the interests of existing pipelines. The Transco spur being built to supply Dominion’s Brunswick and Greensville plants costs $489.5 million and Phase I is scheduled for operation in late 2015. Dominion has stated in its application for the ACP that it will elect to connect both of these plants to the Atlantic pipeline. If the ACP becomes the primary source of supply, then the Transco spur will have lost a customer for 96% of its capacity. The developer (Transco) will have invested nearly $490 million in the new pipeline and almost immediately lose 96% of its ability to repay that investment as Dominion reneges on its 20-year agreement to purchase natural gas delivered by the Transco spur. This certainly qualifies as a “significant adverse effect on an existing pipeline”.

If Dominion maintains the Transco pipeline as its primary source, then 300 miles of 42” pipeline would be built unnecessarily through West Virginia and Virginia, only to serve as a backup for a new pipeline which already includes a backup source of supply. Customers of Dominion’s affiliate would likely pay for this unnecessary expense and gain no value from it, which amounts to a huge subsidy of the ACP.

On a much larger scale, the landscape of the nation’s natural gas transmission system has shifted significantly with the increased output of gas from the Marcellus. As take-away pipelines are added for the Marcellus supply to gain access to the national network of gas transmission pipelines, the historical movement of gas from south to north will shift. Especially along the 1,800 mile multi-pipeline Transco corridor going from the Texas and Gulf Coast production areas along the Atlantic Coast to beyond New York City. Much of the supply will now come from the Marcellus zone in Pennsylvania and move directly to the areas of demand in the Mid-Atlantic States and the Northeast. This allows additional supply from the Marcellus to flow southward to serve Virginia and the Carolinas by reversing the flow of pipelines no longer being used to move gas from south to north in the Transco corridor. This scenario makes optimum use of existing pipelines, which have plenty of available capacity to handle this flow of gas, as described by the Department of Energy, in their “Natural Gas Infrastructure” report issued in February 2015.

The existing network of Transco and Columbia Gas pipelines that spreads throughout Virginia has access to gas supply from the Transco corridor and can easily and inexpensively distribute it to wherever it is needed in Virginia. North Carolina can also access this supply of additional gas either from the Transco spur corridor which parallels the Virginia – North Carolina border, where the ACP is proposed to enter North Carolina; or directly from the main Transco corridor in the west-central portion of the state. This allows North Carolina users the ability to select connections which have the lowest costs and least impacts.

Failure to utilize existing pipelines with adequate capacity to carry the volume proposed for the Atlantic pipeline would under utilize a low-cost resource, overbuild new capacity, and cause unnecessary disruption to landowners and sensitive environmental, recreational, and historic areas and cause the taking by eminent domain from landowners who would otherwise not voluntarily grant the right for a pipeline to exist on their property. This is definitely an adverse effect associated with the ACP that can be avoided by using existing pipelines.

Clean Power Plan

In its response to Interveners, Dominion makes the assertion that the “construction of ACP is essential to these states’ ability to comply with the Clean Power Plan”. This is not supported by independent studies. The Advanced Energy Economy Institute (AEE Institute) contracted with ICF International (a firm hired by Dominion for the ACP) to perform an assessment of the potential impacts of the Clean Power Plan (CPP) on required gas pipeline capacity. Three scenarios were assessed including: the Reference Case, which is a business-as-usual future without the CPP; the basic CPP Case, which assumes each state will meet its emissions target by 2030; and the Low Gas Price Case CPP Case, which assumes the same emissions target as the basic CPP Case, but with natural gas prices 20% lower than expected.

Modeling results show that under the Reference Case, natural gas demand continues to grow through 2030. Under the CPP Case, there is a temporary increase in natural gas demand above the Reference Case as a result of the shift from coal to gas-fired power plants. Incremental demand then declines over time as additional renewable energy and demand-side resources become available. Because this incremental demand is small, even if coal to gas switching occurs at a higher rate, such as under the low future gas prices case, the modeling shows that it would not cause a significant increase in new pipeline requirements.
This report further finds that compliance with the CPP, even under an unlikely scenario of unexpectedly high gas usage, would only modestly increase gas infrastructure needs, in the range of 3% to 7% nationwide.

Gas consumption in the South is projected to increase in both CPP cases. This area (including Virginia) is relatively close to the Marcellus and Utica shale gas production areas. The study notes that most of the pipeline capacity needed to get Marcellus/Utica supply to southern markets (South Atlantic, Gulf Coast industrial facilities, and LNG export terminals) can be met by reversal of existing pipeline capacity, which can be done at a relatively low cost. The study references plans that are in place to repurpose much of the Northeast’s existing inbound pipeline capacity to transport gas out of Marcellus/Utica. The repurposing of existing pipelines reduces the amount of new pipeline construction required to meet market growth, according to the study.

The CPP Case requires an additional 4% in pipeline expansion beyond what is already added in the Reference Case between 2016 and 2020 and no incremental requirement beyond the Reference Case additions after 2020. The first power plant for which Dominion requires gas service is proposed for operation in 2022. The only other new baseload power plant requiring new gas supply is proposed for 2030.

In the past ten years new natural gas pipelines constructed in the U.S. have totaled about 487,000 inch-miles, costing approximately $56 billion. Previous studies by the EPA and the Department of Energy (Natural Gas Infrastructure Report), as well as the AEE Institute study, suggest that the need for new natural gas pipelines required over the next 15 years (2016-2030) will be less than what was added in the past ten years, with or without the CPP.

All of these studies support the conclusion that sufficient natural gas can be supplied to the Virginia region by reversing the flow of existing pipelines, without the need for the construction of a new gas supply pipeline to serve Virginia. Independent studies confirm that the Atlantic pipeline is not required for Virginia and North Carolina to have sufficient supplies of natural gas in order to meet the requirements of the Clean Power Plan.

Alleged Economic Benefits of the ACP

Dominion has stated that no intervener “has provided any basis to challenge the fundamental conclusions of these studies that ACP will create enormous monetary benefits.” We have some experience preparing similar studies and guiding the efforts of nationally renowned experts in the assessment of the socioeconomic effects on communities from the construction of multi-billion dollar utility projects. Below is a summary of the major shortcomings that exist in the studies performed by Dominion’s consultants.

ICF Study

ICF International was retained by Dominion to identify potential economic advantages related to the Atlantic Pipeline. Our main objection concerns the fundamental assumption that supports the economic benefits described in the study. ICF assumes that a temporary lower price at the Dominion South Hub would apply over the life of the pipeline. All evidence suggests this price differential will not exist by the time the Atlantic pipeline is projected to begin operation.

The essential premise that drives all of the ICF cost savings calculations is that the price of natural gas from the Dominion South Hub in the western Marcellus would be $1.61 /MMBtu cheaper than gas sourced from other locations, represented by the price at Henry Hub; and the cost differential would grow steadily over the 20 year period of the study.

Henry Hub is a distribution hub in Louisiana which interconnects with nine interstate and four intrastate pipelines. The price at Henry Hub is generally considered to be the primary price set for the North American natural gas market, especially for futures trading. Hubs in other regions usually set similar prices, although differences can exist (often temporary) where there is a significant difference in supply or demand. The Dominion South Hub is near where thousands of miles of gathering pipeline that Dominion has recently installed in Pennsylvania and West Virginia terminate in large gas storage facilities and natural gas liquids processing plants, which are also owned by Dominion.

A lower price has existed at Dominion South over the past few years compared to Henry Hub. This is due to overproduction in the Marcellus and the lack of sufficient takeaway pipelines to get the Marcellus production into the nationwide natural gas pipeline system.

Drilling in the Marcellus began in the early 2000’s when natural gas prices were high and capital was inexpensive and easy to get. Drillers, accustomed to the long slow decline of production in conventional gas wells, were surprised to find that production declined significantly within the first few years with shale gas wells. Saddled with debt and with lower than projected revenues, drillers kept drilling just to create cash flow to pay their loans. Over 1000 new wells must be drilled in the Marcellus each year to maintain production levels. Technology advanced so more wells could be drilled from a single drilling rig, making drilling more productive and less expensive. This high level of drilling activity expanded supply by 5.2 billion cubic feet per day (Bcf/d) in the past year, while demand grew by only 0.9 Bcf/d. Normally, production would be curtailed until supply more closely matched demand and the price increased. But the need for cash flow prevailed and more wells were drilled.

This oversupply brought down natural gas prices nationwide, but especially in the Marcellus. The rapid increase in production outran the volume of existing takeaway pipelines to bring the Marcellus supply into the gas transmission system. The Marcellus production area became an island in the national gas system and this “stranded” gas could only find a market if sold at a substantial discount to the national (Henry Hub) price.

Pipelines are being developed to connect Marcellus production to existing transmission pipelines, so this situation is expected to be remedied before the Atlantic Coast Pipeline is in operation. Over 18 Bcf/d of additional takeaway capacity is expected to be in service in the Marcellus by the end of 2017, according to the Oil Price Information Service. Producers are eager to get a higher price for their gas and are embracing plans to reverse flows in existing pipelines which will move their gas to markets that will support a higher price, such as areas in the Southeast. Adequate access to the existing national transmission system will bring prices in line with prices at other locations such as Henry Hub.

ICF mistook the lower price of the Marcellus gas due to oversupply and transportation constraints as a characteristic of Marcellus gas – as if it were cheaper to produce compared to gas from other sources (it is not). In fact, independent studies expect that production of affordable gas in the Marcellus will peak in 2018. Additional gas will be available only at higher prices. So rather than selling at less than Henry Hub prices, it is quite possible that price increases in Marcellus gas will begin a national trend of higher natural gas prices.

Since the fundamental premise of the ICF study has been invalidated, there is no need to discuss other flawed assumptions in the study. We recommend that the Commission consider that none of the economic benefits described in the ICF study apply to the Atlantic pipeline since the calculations of those benefits rest on an assumption that has been shown to be incorrect.

If the Commission chooses to accept that a price advantage exists for natural gas produced in the Marcellus, there is no reason to conclude that the ACP must be constructed in order to take advantage of this price differential. Access is being developed to existing pipelines which are being repurposed to reverse flow and move gas to serve markets in Virginia and North Carolina. The same price advantaged Marcellus supply can move through these existing pipelines at a lower cost to customers than would be provided by the ACP. Any economic advantage that would be assigned to the Atlantic pipeline would be even greater for the alternative of using existing pipelines, without the attendant environmental disruption.

Chmura Study

Chmura Economics & Analytics was retained by Dominion to identify potential benefits of construction of the Atlantic pipeline. The project includes the construction of over 550 miles of natural gas pipeline, three compressor stations and related facilities, at an estimated cost of $4.6 billion (now $5.1 billion). The Chmura study identifies three main contributors of economic benefits: 1) one-time effects of pipeline construction, 2) benefits from ongoing pipeline operation, and 3) ripple effects – indirect and induced effects resulting from the direct effects of construction and operation.

One-Time Impact from Construction

Eight percent of the total cost of the pipeline will be used to acquire access to land for the right-of-way. The remaining 92% will be spent on materials and labor for constructing the pipeline, compressor stations and other related facilities. A pipeline requires specific materials for its construction. The pipe, special valves, compressors, the monitoring equipment and most of the other material needed to build the pipeline will be provided by suppliers outside the states in the construction area. Only 5% of the equipment needed for compressor and M&R stations will be purchased from within the three-state region affected by construction, according to Chmura.

Chmura does estimate that 50% of the construction labor will come from inside the states affected by construction. This assumption is 500% higher than the number estimated by another pipeline developer in the region (10% of the workforce to be hired locally for a West Virginia to Virginia pipeline project). Pipeline crews are typically hired from a national base of skilled employees experienced in handling the specialized tools and equipment needed to build the pipeline. Dominion has admitted that the ACP is the largest pipeline with which it has been involved. It is understandable that they would be heavily reliant on experienced subcontractors from outside the region to insure proper and timely construction of the pipeline. Workers from outside the region will spend the minimum necessary to meet their daily expenses and send the rest back home to their families in the states where they have their permanent residence. Therefore, only 10% of the monies spent on construction labor and perhaps less than 5% of the amount sent on equipment for the pipeline will actually benefit people in the construction zone of the project.

There is likely to be very little indirect and induced benefits from pipeline construction. The models such as the one used by Chmura typically utilize a multiplier to calculate the overall benefit of new jobs in a region. The models assume that if a local business were to hire a new employee, they expect the salary would be spent mostly in the local area for food, housing, transportation and at local stores, banks, restaurants, etc. The models project that each dollar of the new employee’s income might move through the local economy and generate an extra dollar or two of benefit to other businesses and their employees, and indirectly cause creation of new jobs. But Dominion’s jobs aren’t like a new local job, although the high estimates for indirect and induced local economic activity stated by their consultants seem to assume they are.

The construction process will consist of the following: construction surveying, clearing, grading, topsoil segregation (if applicable), trenching, pipeline stringing, welding, x-raying and weld repairs (if necessary), coating (if needed), lowering in, back-filling, hydrostatic testing, clean-up and surface restoration and reseeding, if appropriate. The bulk of construction activity occurs over a 6-8 week period in any particular location. The group responsible for each phase of construction would stay in a town only for a few days paying for hotels, gas, bar tabs, groceries and fast food – then move on; replaced in a few days or a few weeks by the crews for the next phases. This is hardly a bonanza for a local economy and local employers are unlikely to add staff to serve a group that stays in town for such a short time. Therefore, the actual value of the indirect and induced economic benefits of construction could be closer to 5% or so of the values identified by Chmura. Few if any additional jobs are expected to result from indirect or induced effects of pipeline construction.

Impacts from On-Going Operations

Again, it is difficult to make specific comments and a proper restatement of the numbers produced by Chmura because the precise methodology and assumptions used are not identified. However, general comments can guide the Commission in recognizing that the economic benefits described are far overstated.

We do not dispute that 24 people in West Virginia, 39 in Virginia, and 18 in North Carolina will be permanently employed to operate the pipeline. This is the primary direct benefit of pipeline operation.

Chmura claims $69.2 million per year in total annual economic benefits from the operation of the pipeline. Nearly all of this benefit is created using by the value of the gas in the pipeline (gross sales of the ACP) which is then run through the magic multiplier to create extra multiple millions of indirect benefits and added jobs. The only true value provided by the pipeline is its transportation service. The value of the gas is independent from the pipeline. This same gas can be transported without the ACP in existing pipelines. Its value is only realized when it is used to create electricity or heat a home.

Tax Payments

The tax benefit calculations appear to assume that the entire construction payroll will be susceptible to personal income tax in the states of West Virginia, Virginia, and North Carolina. This overstates the tax benefit by perhaps as much as 900%. When an employee works part of the year in a state outside of their permanent residence, most states have reciprocity agreements whereby the individual pays the entire tax on their income in their home state. Given that only about 10% of the workers employed during construction will reside inside the three-state region, the tax benefits to those states are significantly overestimated.

Chmura assumes that the corporate income tax will be paid on the full amount of ACP profits. Corporate profits are reduced by adjustments such as depreciation, which will be substantial for the $5 billion ACP, so that little or no corporate income tax will be paid at least for the first 30 years or so.

Dominion has also touted its significant amount of property tax payments that will flow to counties in the pipeline corridor. The method of calculation used to estimate these amounts is not clear, but they are presumed to be accurate. However, they are communicated as if they are a net benefit. These payments could be offset to large degree by reductions in tax payments from property owners due to their lowered property values because they are located on the pipeline right-of-way or close to it. Additional public expenditures for police protection, road repairs, damage to public water supplies and a host of other issues could be associated with pipeline construction. So it is not clear that there will be a net economic benefit in many communities along the construction corridor.

Chmura Study Summary

Our comments regarding this study are not aimed at criticizing the modeling tool used by Chmura. It and others like it have been refined over time based on research and professional practice. Our main criticism is that it was used inappropriately in this instance. The tool was designed to estimate the effects of development in a specific location, such as a “big box” store, a new factory, or forest service activities. In these cases, much of the material is purchased locally, the local trades are involved using local labor, and the long-term workers are drawn from the surrounding area. Construction occurs over months or years, all in the same location. The multipliers for indirect and induced benefits are well researched and usually provide a fairly reasonable estimate of what might result from a typical new development.

The moving carnival of pipeline construction has little resemblance to this type of construction. Most of the materials and labor come from outside the area. Activity occurs in short bursts and lasts but a few weeks. There is little reason for most existing businesses to increase staffing to accommodate pipeline construction activities. A few types of businesses will experience short periods of higher business activity. But the communities will not see the extended benefits and multiplier effects experienced with other types of new development.

Friends of the Central Shenandoah believe that the economic benefits purported for the Atlantic pipeline are based on flawed assumptions, as we have identified, and as a result, are vastly overstated. We hope the Commission and staff will use our comments and their experience with other projects to gather more specific information from Dominion so that a much more accurate evaluation of the potential benefits of the Atlantic proposal can be developed to compare against its significant impacts.

B. Other Existing and Proposed Pipelines Cannot Replace the Need for ACP

In Part A we questioned the need for ACP. The residential and commercial demand for natural gas in Virginia is expected to be flat (0.1%/yr) for the next 25 years. Additional gas supply to the state is not required until a power plant is proposed to go online in 2022; the next major plant is not scheduled until 2030. Many factors are at work, including low cost energy efficiency measures, better means for demand response, and more rapid development of solar generation, which could postpone or erase the need for this new gas-fired generation and therefore the need for more gas supply.

In this section, we must consider the best way to supply additional gas, if that need exists. Dominion advises us not to second-guess their commercial decisions. We understand that the 100-year old utility business model is eroding because of the decoupling of energy use from economic growth. Advances in energy efficiency, renewables, distributed generation, and advanced grid technologies are making it difficult for utilities to meet a changing environment that could challenge their ability to maintain an adequate return to shareholders. Some utilities are seeking to adapt to this 21st century environment, while others are extending the 20th century habits that have made them successful. One of the primary methods is to invest in capital intensive projects that have a long-term revenue stream. Especially if that project yields a higher rate of return, such as is offered by FERC, compared to the lower returns granted by state regulators. Once a project receives regulatory approval, long-term returns are essentially guaranteed; particularly if your affiliates are your customers. This is good fortune for shareholders even though the higher costs must be borne by ratepayers.

It might make commercial sense to locate a supply header in an area where Dominion-owned gathering pipelines terminate in Dominion-owned storage facilities and for gas to be transported over a Dominion-owned pipeline to be used in Dominion-owned power plants. Many intelligent, capable people are on Dominion’s staff. They have likely optimized the choices for commercial gain. However the question before us is – does this option best serve the public convenience and necessity?

The issue of eminent domain is also somewhat reduced. In 2013, Virginia added an amendment to its state constitution regarding eminent domain. This change was intended to limit the abuses of the law for the forced taking of private property solely for commercial gain. The barriers to obtaining the right to exercise eminent domain are lower at the federal level.

As identified earlier, the Commission noted in its 1999 Policy Statement, that in the course of its deliberation about whether a project fulfills the public’s convenience and necessity, the “Commission’s goal is to appropriately consider the enhancement of competitive transportation alternatives, the possibility of overbuilding, the avoidance of unnecessary disruption of the environment, and the unneeded exercise of eminent domain.” We ask that the Commission bears these issues in mind when evaluating alternatives to the ACP.

In our Petition to Intervene submitted November 3, 2015 we identified an alternative to ACP that provides a greater supply of natural gas, has far less disruption of the environment, no need for pipeline construction in Virginia, three miles of new pipeline in West Virginia, and a significantly lower cost than the Atlantic pipeline.

The 18 Bcf/d of new takeaway pipelines proposed to be in place by 2017 will allow Marcellus production to access the existing national gas transmission system. As this occurs, much of the Marcellus production will travel directly to markets in the Mid-Atlantic and Northeast. This major shift in the flow of natural gas will free up pipeline capacity in the Transco corridor that has been dedicated to moving gas from south to north. These pipelines are being repurposed so they can facilitate the flow of gas southward from the Marcellus to supply gas to Virginia, North Carolina and elsewhere. The Department of Energy, in its Natural Gas Infrastructure Report (February 2015), recognizes this plan and documents that there is sufficient capacity in existing pipelines to meet the projected needs in Virginia and the Carolinas. Reversing flow in existing pipelines gives the security of sourcing gas from both the Marcellus and the Gulf Coast, saves money and avoids environmental impacts. This option also avoids overbuilding new pipelines when the long-term need for them is uncertain.

Dominion recognizes that such flow reversals are occurring but they state that existing pipelines do not replace the need for the Atlantic pipeline. Their reasoning is that their customers (their affiliates) support the need for ACP as evidenced by their contracts. It is understandable that Dominion prefers a project which yields them much higher profit and makes use of their existing gathering pipelines and storage facilities in West Virginia. If Dominion could identify a pipeline corridor where all existing landowners would voluntarily accept the pipeline right-of-way, Dominion’s commercial interest might win out. However, on the identified corridor for the ACP numerous landowners oppose the disruption of their property by the pipeline, as do many public stewards of recreational, historical and cultural areas affected by construction. To gain the right to access the property of unwilling owners Dominion must show that the Atlantic pipeline best serves the public convenience and necessity. We believe the public interest is far better served by using existing pipelines.

Dominion argues that Atlantic Sunrise has its own customers. If Dominion’s easily discarded 20-year commitment for gas supply via the new Southside Transco spur is any indication, promises made to gain approval for pipeline construction are not ironclad. We identified the Atlantic Sunrise project to show that capacity greater than ACP was being brought into the existing Transco system. This project also has its supply header in the highest production area of the Marcellus (northeastern Pennsylvania). Billions of cubic feet per day of production traveling via new takeaway pipelines will be transported from the Marcellus, much of which will supply the Transco system. The Leidy extension and other projects will also be bringing greater volumes of natural gas into the Transco system. Gas developers in the Marcellus are suffering from low prices and overproduction. This is a perfect time for customers to negotiate firm long-term supply agreements on favorable terms.

It is very likely that firm contracts for natural gas are available using existing pipelines, but Dominion is reluctant to abandon the commercial advantage of building its own pipeline. Only a comprehensive, even handed review by the Commission will reveal what is in the public’s best interest.

The WB Xpress project was identified because it adds 1.3 Bcf/d of additional capacity in 2018 to the Columbia Gas transmission system in West Virginia and Virginia. This additional capacity is gained by installing a new compressor station and other upgrades and just 2.9 miles of new pipeline and 26 miles of replacement pipeline in existing corridors. Adding capacity to the Columbia Gas system would provide greater supply to the overall Virginia natural gas network and to the Chesapeake, Virginia region as well. The main Columbia Gas line feeds the existing AGL (Virginia Natural Gas) line which supplies the Chesapeake/Norfolk area. Using the greater capacity in the Columbia pipeline avoids the need to construct a 77 mile 20” pipeline on new right-of-way that is part of the ACP project.

Using the additional capacity in the Transco and Columbia gas pipelines serves Virginia better than the ACP. These existing pipelines cover most of the state. The locations of the two new gas-fired power plants which are prompting the need for the ACP in Virginia have not been identified. If the need for them is approved by the SCC they can be located wherever in the state they best serve the load and grid reliability. The ACP limits this flexibility and could increase costs for transmission and gas supply spurs compared to the option of using existing pipelines. Gas for commercial and industrial expansion in Virginia is far easier to access using existing pipelines. Dominion has set an extremely costly threshold for tapping into the ACP, making it uneconomic for most businesses except utilities and very large industries.

Virginia and West Virginia are better served by accessing more natural gas supply using existing pipelines. West Virginia has no access to gas in the ACP; but it is exposed to the disruption of construction. With additional existing Columbia Gas pipeline capacity, West Virginia gains greater supply with minimal disruption. Using existing pipelines avoids construction of nearly 300 miles of pipeline and the cost of transporting gas to the final customer is less than using the Atlantic pipeline.

The interests of customers in North Carolina are also benefited. The additional natural gas provided by reversing flow in the Transco system is easily accessible to North Carolina customers. They can connect to the Transco supply via the right-of-way in southern Virginia that roughly parallels the North Carolina border near where the ACP is proposed to cross. Or they can link to the main Transco corridor in west-central North Carolina. They can choose the options with the lowest costs and fewest impacts. The choices for North Carolina customers are as good as or better than those offered by ACP. There is no need to build the Atlantic pipeline to properly serve the requirements for additional gas supply in North Carolina.

Using existing pipelines meets the projected needs for additional gas supply in Virginia without requiring additional investment and environmental disruption. We have identified the possibility for much higher gas prices and the many factors such as energy efficiency and more rapid solar development that could postpone or perhaps entirely eliminate the need for more gas-fired baseload power plants in Virginia after 2020. Existing pipelines adequately deal with both the higher and the lower demand scenarios. If the Atlantic pipeline were to be approved, we would be exposed to the disruptions from construction and the cost of the pipeline whether or not it was needed in the future. Developers invest in pipelines, but the residents who are electric and gas customers pay for them. The Atlantic pipeline involves higher costs, far greater environmental impacts, the unnecessary use of eminent domain, and greater risks than supplying future gas demand using existing pipelines in Virginia.

C. Increased Development of Renewable Energy Cannot Replace the Need for ACP

The U.S. energy industry is entering a period of fundamental change. For the past 7 to 8 years, electricity use has been flat or declining in the U.S., although the economy has increased about 8 percent. Even utility executives realize that the historical linkage between energy use and the economy has changed. Duke Energy’s CEO Jim Rogers noted, “we are not going to reach [forecasted] 2019 [load] levels until 2030 despite an economic rebound since 2008. In past decades, for every 1 percent growth in gross domestic product, there was as much as 5 percent growth in demand for electricity. But those days are gone.” He also said that “We are on the way to seeing a decoupling of the growth of demand for electricity with the growth in GDP. That will have a profound implication for how we think about our business.”

A report by the AEE Institute, “Competiveness of Renewable Energy and Energy Efficiency in U.S. Markets”, investigated the contribution of these new technologies to future load growth and energy use. One of the first points the study raised is that we are very bad at forecasting how quickly renewable generation and energy efficiency will grow. The U.S. Energy Information Administration’s Annual Energy Outlook (AEO) is a widely used source of information on U.S. energy market projections. In the 2015 AEO, it was forecasted that the installed solar capacity in the U.S. would double by 2026. Based on actual projects already in the pipeline, nationwide solar capacity will double by 2016. Many have read the AEO projections and are acting on the assumption that renewables will not make a major contribution for years. In the past year, 50% of all additions to U.S. generating capacity have been from renewable sources. Solar and wind generation make economic sense today and will be used to an even greater extent in the future.

In order to compare the cost competitiveness of various generation technologies, Lazard, a financial advisory firm, developed a measure called the Levelized Cost of Energy (LCOE), which measures the average cost of electricity over the life of a project, including the cost of initial capital, operations and maintenance, fuel and financing. From 2009 to 2014 the LCOE of utility scale solar power fell by 78%. Solar power at utility scale (LCOE of $0.05-0.075 /kWh) is already cost competitive with natural gas combined cycle plants without any incentives factored in. Many experts predict that solar prices will fall by at least 50% more in the next 5-6 years.

Energy efficiency is clearly the lowest cost way of providing more energy, with an LCOE of $0.00 – $0.05 /kWh). Most commercial and industrial efficiency projects have a cost of $0.02-$0.03/kWh. Projecting the growth in energy efficiency is difficult because you need to measure something that is avoided (the energy you would have used without the efficiency measures). Many are becoming aware of the low cost and many benefits of energy efficiency. The Department of Defense has an aggressive program to improve energy efficiency and integrate solar generation into the energy plans for their bases around the world. Numerous military bases are in Virginia and the DOD programs will gradually reduce energy demand in the state. Massachusetts has recognized the benefits of efficiency and has established a plan to provide 30% of the state’s energy using energy efficiency by 2020. Similar savings are possible in Virginia with appropriate leadership.

We have already addressed that the CPP is not expected to require the construction of more pipelines in our region. Any additional gas required in the Southeast is expected to be provided by the reversal of flow in existing pipelines. In fact the CPP could result in less gas being used. Natural gas is only “less bad” compared to coal, as about 50% of the CO2 is emitted in a natural gas-fired plant compared to an equivalent size coal plant. Solar is cost competitive with natural gas power plants and energy efficiency options are much less expensive. Both have no carbon emissions. Since renewable generation and energy efficiency can be used as CPP credits, it is quite possible that the CPP will encourage more rapid adoption of these technologies and reduce the use of natural gas for power generation.

Many large companies are pursuing energy efficiency and renewable generation outside of the typical utility channel, so significant reductions in load growth may come as a surprise to utility planners. IKEA and Staples are cutting energy use and procuring renewable power. WalMart intends to meet all of its power needs with renewable energy by 2020. Technology companies such as Apple, Microsoft, Amazon and Google are moving quickly to power their data centers and the remainder of their organizations with renewable energy, as well as improving energy efficiency. Owners of commercial and industrial buildings are also making rapid strides using these technologies to lower their cost of doing business.

We have seen how far off the Annual Energy Outlook estimates are, despite the best intentions. Dominion’s plans are no different, colored by past experience and created by a certain viewpoint of how the future is likely to unfold. Certain trends are emerging, however. First, the cost reductions and adoption of solar is happening much faster than most people expected only a few years ago. Second, there is a greater realization of the benefits of energy efficiency. Experts have found that by spending more on efficiency, substantial cost savings occur by downsizing heating, cooling and pumping systems. As more successes are reported, more projects will be initiated. Third, over time natural gas prices are likely to increase, making electricity generated in gas-fired plants more expensive. As the prices of zero carbon alternatives such as renewables and energy efficiency continue to fall, gas-fired power plants become less competitive.

The first new power plant requiring additional gas supply to Virginia is proposed for 2022. In the next seven years, the results of these trends will be much more apparent. It is very possible that greater energy efficiency and more rapid adoption of solar generation could postpone or replace this new power plant and thus delay or eliminate the need for the Atlantic pipeline. Dominion is asking the Commission to hurry a decision, bypassing thorough procedures, so that they can begin construction soon. We counsel the opposite approach. Because the future is unclear and much is likely to change within the next 5-10 years, we recommend that the Commission select the option of using existing pipelines which requires the least investment, the least environmental impact, the least disruption of people’s lives and property, yet still provides adequate gas supply should the high gas use estimates prove to be correct. If a lower need for gas comes to pass, the use of existing pipelines is also the best solution, since it easily allows surplus supply to be routed elsewhere, wherever there is a greater need. If the Atlantic pipeline is built and the demand for gas diminishes – then the investment is wasted, individuals pay for the mistake, the disturbance of the land and the anguish of unwilling landowners will be for naught. You cannot easily remove an unnecessary pipeline once it is constructed.

D. ACP’s Adverse Effects versus its Benefits

We believe that the benefits of the ACP do not outweigh its substantial impacts. The benefits have been erroneously and substantially overstated and its effects have been minimized and undervalued. A superior option exists to serve the same purpose which far better serves the public convenience and necessity.

Adverse Effects on Existing Customers

As we have previously discussed, the ACP is a new development and as such has no existing customers. However, Dominion and the other ACP partners have used their affiliates (subsidiaries of the same parent companies) to justify the need for the Atlantic pipeline. They speak with the same voice. These affiliates have existing customers who are adversely affected by the Atlantic pipeline. Transporting natural gas with the ACP is more expensive than using existing pipelines. This higher cost will be automatically passed on to the captive customers of the affiliates, without notice or an opportunity to object. Approval of the ACP is under federal jurisdiction and the state agencies normally charged with consumer protection are foreclosed from this proceeding. We recommend that the Commission calculate the difference between the higher gas transportation charges that will exist for the ACP compared to the lower transportation charges using existing pipelines, multiply this times the volume of gas that will be transported over the life of the Atlantic pipeline and add this substantial cost to the adverse effects of the ACP.

Adverse Effects on Existing Pipelines and Subsidies

The substantial extra cost paid by existing customers of the affiliates to transport gas via the Atlantic pipeline instead of lower cost existing pipelines amounts to an involuntary subsidy of the ACP.

Transco is building a new spur to serve the new gas-fired power plants being built by Dominion in Southside Virginia. Phase I of the pipeline is expected to begin operation in late 2015 to provide for pre-commercial testing of the Brunswick plant scheduled to begin service in 2016. Phase II makes a 4 mile connection in late 2017 to the Greensville plant that is under development. Dominion proposes to connect these two power plants to the ACP in 2018 and revoke its 20-year Transportation Service Agreement it made with Transco to secure approval to build the new pipeline. The Commission should consider that Dominion’s share of the capacity of the pipeline (96%) be multiplied times the $490 million (plus interest) that it cost to build the spur and consider this total as an adverse effect on an existing pipeline and an overall adverse effect of the Atlantic pipeline.

Pipelines in the Transco corridor are expected to be repurposed to move gas from the Marcellus to serve markets in Virginia and the Carolinas as identified by the Department of Energy in their Natural Gas Infrastructure Report (February 2015). The ACP proposes to usurp this intended role of the existing pipelines, and as such they will be underutilized. The economic loss from poor utilization of this existing resource should also be considered an adverse effect of the ACP.

Adverse Effects on Landowners and Communities

The Commission has a difficult task attempting to characterize the many varied and substantial impacts of ACP construction. Attempting to represent environmental impacts in a monetary fashion in a cost/benefit analysis has been a challenge ever since the National Environmental Policy Act was enacted many decades ago. Calculations are further complicated by the fact that there is no settled route for the Atlantic pipeline. So many options have been identified it is difficult to understand how to make the tally of the impacts.

Developers typically greatly underestimate the true nature of the impacts. They usually say they have minimized the adverse effects and the impacts are identified in the prices paid for land and easements obtained from landowners whether voluntarily or involuntarily.

The Commission has a multitude of responses from landowners and communities in public forums and comments sent to the Commission indicating the extent of disruption expected to be caused by construction of the ACP.

Even if a considerable effort is made to express the damages and disruptions caused by constructing and operating the Atlantic pipeline, we believe that a monetary amount can never fully express the value of the loss. Can a landowner whose family has been stewards of the land for generations, the character or access to which has been altered for the next 100 years, be properly compensated? What about communities that lose their cultural or historical heritage? How can the effects on an internationally known meditation center be expressed in economic terms when they are exposed to the sounds of compressors thumping away 24 hours a day? We have spoken to the managers of our municipal water supply. They express how fortunate we are to have such a reliable, high quality source of fresh water. When asked if the blasting or other effects of construction could affect the ancient aquifer, they respond that it is possible because it is such a complex system. If so, there is likely to be no way to remedy the damage and the valuable water source could be irretrievably affected. Many of the things that sustain us and make our lives meaningful cannot be expressed in monetary terms.

Purported Benefits of the ACP

ICF Study

All of the $377 million of net energy savings supposedly originating from the price difference between the Dominion South Hub compared to the national price at Henry Hub is based on an incorrect assumption, as previously discussed. The current lower price at Dominion South results from overproduction in the Marcellus and the shortage of takeaway pipelines to bring the gas to market. This stranded gas can only find a market at a significantly lower price than Henry Hub. By 2017, before the ACP is proposed to begin operation, adequate takeaway pipelines will be available to move the Marcellus production into the existing gas transmission system and the price differential will disappear. Therefore, there is no economic advantage related to this issue for the ACP and the indirect effects on employment, labor income, and state economic activity should be dismissed as well.

This removes $724 million and 2,225 indirect jobs from the benefits of the ACP. If for any reason, a price advantage is presumed to exist in the Marcellus, the same advantage would be available for gas moved by existing pipelines.

Chmura Study

It is difficult to recast a more accurate statement of benefits identified in the Chmura report because the data and methodology used to calculate the benefits is not clearly identified. However, general comments can be made that could help the Commission’s staff create a more realistic tabulation of these benefits.

One-Time Impact from Construction

Chmura assumes that 50% of the average of 1,557 people employed per year during the 2014-2019 period of construction will be hired locally. Another developer for a 42” pipeline between West Virginia and Virginia expects to employ just 10% of the workers from local sources. The 500% higher assumption for local labor greatly inflates the amount of local benefits.

Only 5% or less of the material used for construction will be obtained locally.

We believe the models used to generate indirect and induced benefits do not apply to the short-term transient nature of the pipeline workforce. The models usually assume that a new worker resides full time in the area of construction so that their entire paycheck will circulate throughout the community and have secondary benefits to other businesses and perhaps help create additional jobs. Workers from outside the area will send most of their paycheck home to their families. We suggest that very few indirect and induced benefits will accrue from one-time construction.

These more reasonable assumptions result in a few hundred local jobs coming from pipeline construction, with the indirect benefits limited to short bursts of additional sales for gas stations, grocery and convenience stores, motels and local bars that benefit from the temporary stays of the construction crews. This is in stark contrast to the thousands of jobs and hundreds of millions of dollars that Dominion claims will benefit the region that must suffer the impacts and disruption of construction.

Economic Impact of On-Going Operation

Twenty-four workers in West Virginia, 39 in Virginia and 18 in North Carolina will be permanently employed by the pipeline. We expect these workers to come from widely dispersed areas so that there is no concentration of new spending to create any appreciable indirect or induced effects.

Chmura assumes $69.2 million of annual benefits will result from pipeline. This huge sum results almost entirely from the value of natural gas in the pipeline (gross sales of ACP). This is an imaginative leap. The value of the gas is independent of the pipeline. The value of the pipeline is that it provides transportation services.

Tax Revenue

In its calculations, Chmura appears to have assumed that all construction workers will pay income tax to the states in which construction occurs. Typically, people who work part of the year in another state will pay all of their income tax to the state where they permanently reside. Again, flawed assumptions create exaggerated estimates of the benefits accruing to the region of construction.

The corporate income tax paid by ACP appears overestimated. It seems the entire amount of profits are assumed to be taxable. The amount of depreciation is deducted from profits before taxes are paid. ACP is unlikely to pay very much tax on their profits for the first 30 years or so of pipeline operation.

Property taxes paid to local governments by the Atlantic pipeline are likely to be greatly offset by lower taxes paid by landowners because the value of their property has declined because of the presence or proximity of the pipeline.

Summary

We are concerned that the benefits of the Atlantic pipeline have been greatly exaggerated due to faulty assumptions. We encourage the Commission to evaluate the calculations carefully to arrive at figures which more accurately represent what is likely to happen.

It is one thing to use inflated figures to drum up political and popular support. But numbers created for PR purposes should not be used as the basis for decision making for a $5 billion project that has significant impacts. The applicants’ process appears to have gone something like this: we make much more profit if we transport the gas in a pipeline that we own (even if it costs the ratepayers more); let’s get the subsidiaries of our parent companies (our affiliates) to say they need the pipeline and they can be our customers; when they agree to a contract we can show the Commission that there is a demand for the pipeline; we will create such large numbers to show the benefits of the project that no matter how great the impacts of the pipeline, the benefits will always appear to be greater; the Commission will approve our project because they usually do; then we can put it on people’s property who don’t really want it there; if our customers don’t actually need the gas, they can back out of their commitments; but by that time we will have built the pipeline and will have a long term stream of revenues – someone will have to pay for it.

We do not mean to be impertinent. These are serious issues. But earnest attempts at gaining more information or proposing alternatives for evaluation are dismissed out of hand with responses such as, “there can be no question that the ACP is needed”. Well, there are questions. That is why so many concerned citizens are involved in this process.

We believe there is a way to resolve the question. Choose a better option. The goal is to supply additional natural gas to where it is needed. The question is – whether the Atlantic pipeline is the best way to accomplish that. We propose a better way to serve the public’s convenience and necessity.

The ACP requires the construction of nearly 300 miles of 42” pipeline and 77 miles of 20” pipeline in West Virginia and Virginia. Doubling the amount of gas supplied using existing pipelines requires 3 miles of new pipeline and 26 miles of upgraded pipeline in West Virginia and no new construction to serve the needs in Virginia. North Carolina customers have as good as or better choices using existing pipelines than are offered by the ACP. Gas transportation charges will be lower with existing pipelines. And by choosing not to overbuild new capacity, the risk is reduced and we have maintained a much more flexible response to an uncertain energy future while preserving the ability to meet both high and low gas demand scenarios.

E. Programmatic or Regional EIS

Whether an EIS is prepared or not, the several proposals for delivering natural gas to the Virginia and North Carolina markets should all be considered in the context of the themes we have developed in these comments. The rush to develop new pipelines in this region is in response to an apparent abundance of low cost natural gas and an expected rise in gas demand.

We have identified that the apparent abundance is an artifact of the developers in the Marcellus drilling more wells in order to stay in business. Many of these companies have already declared bankruptcy because of lower than expected yields from shale gas wells and low market prices. There will be more to come. Independent studies performed by a University of Texas team and others show that the production of affordable natural gas ($4 mcf) will likely peak in 2018-2020.

Overproduction in the Marcellus brought down natural gas prices nationwide. The shortage of takeaway capacity to bring Marcellus gas to market lowered the price (at Dominion South) even more compared to the national price (Henry Hub). The current development of more takeaway pipelines by 2017 will bring the full Marcellus production into the existing gas transmission system and prices will equalize. None of these new pipeline proposals should be approved, including the ACP, by assuming that the unusual gas supply circumstances of the past five years will apply over the 60-80 year existence of these projects.

Dominion argues that the Mountain Valley Pipeline (MVP) and the Appalachian Connector have their own customers and will not compete with the ACP. That might be so on paper. However, the demand for traditional uses of natural gas in this region is expected to be flat for at least the next 25 years. The only need for more natural gas supply is to fuel power plants. The developers of the ACP are affiliates of the largest electric utilities in Virginia and North Carolina. What is the true market for the MVP or the Appalachian Connector if not the same one proposed for the ACP?

The predicted long-term increase in demand for natural gas to fuel power plants is an illusion similar to that of long-term supplies of low cost gas. It is based on a five-year long phenomenon that has been assumed to remain long into the future. Over the next five years, many aging coal-fired power plants will be retired because they are too expensive to retrofit to bring them into compliance with new air quality regulations. In many cases, the best replacements for these retiring units will be new natural gas fired units or conversions of coal plants to burn natural gas.

Beyond 2020, the need for additional natural gas combined cycle units will be to meet projected increases in electrical demand. But what if the increase in demand never occurs or there are better options to fulfill it. Trends in energy efficiency show that the low cost and many benefits of this option could substantially lower load growth or perhaps even cause it to decline. Rapid cost reductions in solar and the speed at which it can be deployed make solar particularly well suited to respond to the growth in peak loads which is the primary factor requiring more generation. Traditional utility planners continue to project the need for more gas-fired baseload power plants, but developments in the next few years may change their approach. The rapid evolution of our energy system is an issue we should be mindful of when making long-term choices for developing natural gas infrastructure.

When the Commission chooses to use existing pipelines for their lower cost, flexibility in meeting a wide range of demand, and far less environmental impacts compared to the ACP; this conclusion also should apply to the Mountain Valley Pipeline and the Appalachian Connector.

F. Analysis of Gas Production

If the Commission chooses not to consider the environmental effects of shale gas development, they should still carefully consider its geology and the prospects for long-term natural gas production at affordable prices. David Hughes, a geoscientist and expert regarding unconventional natural gas potential for the Geological Survey of Canada and now the Post Carbon Institute in the U.S., has developed an in-depth assessment of all drilling and production data from the major shale plays. His findings regarding Marcellus production are summarized below:

• Field decline averages 32% per year in the Marcellus. Over 1000 new wells are required each year just to maintain production levels.

• Three of the 70 counties account for nearly half of the play’s production, five counties account for two-thirds, and 12 counties account for 90%.

• Drilling is concentrated in the top counties which have the greatest economic payback; the cheapest gas is being produced now, leaving the expensive gas for later.

• Average well productivity increased between early 2012 and early 2014 as operators applied better technology and focused on “sweet spots”.

• The increase in well productivity over time peaked in 2014 and has fallen in the last half of 2014.

• Better technology is no longer increasing average well productivity in the top counties. This is a result of either drilling in poorer locations or from well interference – where one well cannibalizes another well’s gas.

• Geology appears to be trumping technology in Susquehanna County, which is the most productive area. Well density was 1.48 wells per square mile in mid-2014 with the assumption that 4.3 wells per square mile could be drilled; this may be overly optimistic.

• This declining well productivity is significant, yet expected, as top counties become saturated with wells, and will degrade the economics which have allowed operators to sell into Appalachian gas hubs (e.g. Dominion South) at a significant discount to Henry hub gas prices.

• There is a backlog of wells which have not yet been hooked to pipelines (often waiting for a higher gas price). This cushion can maintain or increase Marcellus production as they are connected even if rig counts continue to fall.

• Current drilling rates are sufficient to keep Marcellus production growing until its projected peak in 2018, followed by a terminal decline (which assumes gradual increases in price; sudden major increases in price could temporarily check this decline if reflected in significantly increased drilling rates).

• As for the massive investments in infrastructure on the assumption of cheap and abundant gas for the foreseeable future – CAVEAT EMPTOR.

In order to have an accurate, unbiased assessment of shale gas potential, a team of a dozen geoscientists, petroleum engineers and economists at the University of Texas at Austin spent more than three years on a systematic study of the major shale plays. According to an article in Nature, the team received a $1.5 million grant from the Sloan Foundation to accomplish the research.

The main difference between the Texas study and Energy Information Administration (EIA) forecasts relates to how fine-grained each assessment is. The EIA breaks up each shale play by county, calculating an average well productivity for that entire area. But counties often cover hundreds of square miles, large enough to hold thousands of shale gas wells. The Texas team, by contrast, splits each play into blocks of one square mile, a much finer resolution than the EIA’s.

Resolution matters because each play has sweet spots that yield a lot of gas, and large areas where wells are less productive. Companies try to target the sweet spots first, so wells drilled in the future may be less productive than current ones. The EIA’s model so far has assumed that future wells will be at least as productive as past wells in the same county. But this approach, the Texas team argues, “leads to results that are way too optimistic”.

Dr. Patzek, head of the University of Texas at Austin’s Department of Petroleum and Geosystems Engineering, and a member of the University of Texas research team, argues that actual production could come out lower than the team’s forecasts. He talks about it hitting a peak in the next decade or so — and after that, “there’s going to be a pretty fast decline on the other side”, he says. “That’s when there’s going to be a rude awakening for the United States.” He expects that gas prices will rise steeply, and that the nation may end up building more gas-powered industrial plants and vehicles than it will be able to afford to run. “The bottom line is, no matter what happens and how it unfolds,” he says, “it cannot be good for the US economy.”

Energy industry leaders and government policy makers have been swayed by the inaccurate statements about the size of the shale gas resource. They have also been misled by the temporary low price for natural gas and have accepted the notion that we will have an abundant, long-term supply of affordable natural gas. That’s a benefit if it happens, but what if it doesn’t? High natural gas prices would reduce the need for more gas-fired power plants, as they are replaced by lower cost alternatives or not needed at all. High gas prices would also promote greater energy efficiency and reduce the need for more electricity generated by gas-fired plants and the traditional uses of gas for space and water heating.

Decisions about the development of natural gas pipelines have long term consequences. We recommend a choice that considers this long view and best accommodates the many different possibilities.

G. Need for Hearing

Our experience with the public review of multi-billion dollar utility projects in other states and at the federal level always involved an Administrative Law Judge from the appropriate agency and allowed the parties access to all of the information and the right to cross examine witnesses. This led to an expensive and time consuming process, but it usually did illuminate the issues for final determination by the responsible agency.

Our concern is two-fold. First, is the Commission’s history of approving applications for projects because the developers say they are needed. This is usually supported by “long-term contracts” from customers (often affiliates of developers) that are supposed to signify that there is a “need” for the project. We hope that our comments and those of others, plus Dominion’s behavior regarding the Transco spur, raise questions as to whether such “contracts” should be used as the primary means of establishing need. We believe that the identified customers’ need for additional gas supply could be served at a lower cost and with far fewer impacts using existing pipelines. The existence of “contracts” does not prove that the ACP is the best available method to meet the need.

Second, adjudicatory hearings require the applicant to actually answer questions. Many of the questions regarding assumptions and alternatives that have been posed have not been met with information that more fully explains Dominion’s conclusions and how they arrived at them. Rather, some of the responses have been “there can be no question that . . .”, “obviously”, etc.

Perhaps a paper exchange can uncover adequate information to allow the Commission to reach a knowledgeable conclusion about the best means to serve the public convenience and necessity. But all parties must be committed to an open and objective exchange of information for that to work. Thus far in the proceeding that has not been the case.

H. Issues Raised by the North Carolina Utilities Commission

This section is most illustrative of what the ACP is all about. It is about money. It makes business sense for Dominion to own the pipeline they hope will supply its power plants. The same applies to Duke Energy. Together they own 85% of the pipeline. It is a competitive advantage to control their natural gas infrastructure and they prefer to pay themselves rather than someone else to transport the gas.

The North Carolina Utilities Commission (NCUC) is saying that pipeline developers are expecting to be paid too much. Dominion is asking for a 14% return on equity for the 50% of the pipeline that will be funded in this manner. The state approved rates of return for utility projects are usually about 10-11%. This 14% rate is a very attractive rate of return when investments backed by the U.S. government yield less than 2%. And the interest rates on the bonds for the remaining 50% of the capital necessary to fund the pipeline will yield in the mid-single digits. The Commission has limited the developers equity share to 50% of the pipeline expense because otherwise it would be too expensive for rate payers.

The developers of the ACP consider their utility affiliates to be the customers of the pipeline, but in reality it is the utilities’ customers, the ratepayers, who will pay more. Transporting gas in the Atlantic pipeline will be more expensive than transporting the gas in existing pipelines (that have already been mostly paid for). These higher transportation costs will be automatically passed through to ratepayers without regulatory approval or customer consent via the fuel cost adjustments on monthly utility bills.

Normally we encourage corporations to look out for their own best interests. That is how our economy runs. However, in this case the developers are asking others to sacrifice in order for them to gain. In our market economy we support transactions between a willing buyer and a willing seller. If Dominion could arrange a transaction that satisfied the ratepayers and the landowners whose property they want to use, the project would be supported. But the ACP as proposed will infringe on many areas where the landowners and communities don’t want it because it degrades their way of life and the area in which they live. The ratepayers don’t know they will pay more for it and no agency is involved in the federal process that will represent their interest.

Because the Commission can grant ACP the right to disrupt property without the owner’s consent, the Commission must carefully deliberate to determine if this proposal serves the public’s convenience or necessity; or if another alternative serves that in a better way.

III. Conclusion

We believe that a portion of the 18 Bcf/d of Marcellus gas supply that will gain access to the existing gas transmission network by 2017 can be transported southward using existing pipelines. The Department of Energy reports that pipelines in the Transco corridor can be repurposed to move gas from the Marcellus to markets in Virginia and the Carolinas. This also affords the opportunity to provide gas from the Texas and Gulf Coast production regions to offer a backup source of supply.

With an upgrade to the Columbia Gas system which requires only three miles of new pipeline, an additional 1.3 Bcf/d can be brought into the existing West Virginia and Virginia pipeline system. The statewide network of Transco and Columbia Gas pipelines in Virginia provides far more flexibility for utility and commercial and industrial expansion than is offered with the ACP, without requiring any new pipeline construction to serve the needs of Virginia.

Customers in North Carolina also benefit. The additional natural gas provided by reversing flow in the Transco system is easily accessible to North Carolina customers. They can connect to the Transco supply near where the ACP is proposed to cross, or they can link to the main Transco corridor in west-central North Carolina. They have the choice of options with the lowest costs and fewest impacts. The choices for North Carolina customers are as good as or better than those offered by ACP. There is no need to build the Atlantic pipeline to properly serve the requirements for additional gas supply in North Carolina.

Failure to utilize existing pipelines with adequate capacity to carry the volume proposed for the Atlantic pipeline would under utilize a low-cost resource, overbuild new capacity, and cause unnecessary disruption to landowners and sensitive environmental, recreational, and historic areas and cause the taking by eminent domain from landowners who would otherwise not voluntarily grant the right for a pipeline to exist on their property. A lower cost, lower impact, lower risk option to the Atlantic Coast Pipeline exists by utilizing existing pipelines. We strongly urge the Commission to accept it in place of authorizing the ACP.