Dominion Energy (D 1.10%) had a date with the Supreme Court to discuss its Atlantic Coast Pipeline project. A decision won't be known for months, but the case is on investors' minds right now because winning or losing will have a sizable impact on Dominion's ability to get this project done. But this isn't the only thing the diversified U.S. utility has been doing or has on the drawing board. Though Wall Street is focused on the Atlantic Coast Pipeline, you should also make sure to watch what Dominion is doing in the waters off the coast of Virginia.
Some wins and losses
In April 2018, Dominion Energy opened the Cove Point liquefied natural gas (LNG) terminal in Maryland. It was only the second such LNG export terminal to open in the United States. The project was a $4 billion, multiyear investment backed by 20-year take or pay contracts. Impressively, the project went off with minimal problems, showing that Dominion is capable of successfully handling big projects.
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This is noteworthy because Dominion is running into material headwinds with the Atlantic Coast Pipeline project, the most notable of which is environmental pushback related to the planned path of the pipeline. When Cove Point opened up, Dominion expected the Atlantic Coast project to be done in late 2019. That has now been pushed out to late 2021, but even that date isn't firm, given that the Supreme Court is set to decide on key issues surrounding the pipeline. A loss would be a huge setback for Dominion. The cost of the pipeline at this point is expected to be nearly $8 billion -- much higher than originally planned.
What's notable with the Atlantic Coast Pipeline is that Dominion's project execution isn't the big issue. The biggest problems have been tied to environmental pushback. So the bigger takeaway from this project and Cove Point is that Dominion can build things as long as external factors don't get in the way, which is something that investors need to keep in mind as Dominion gears up for its next big project: a massive offshore wind farm.
Wind in the works
For anyone who watches the utility industry, offshore wind will likely raise an eyebrow. The big standout here is Cape Wind, which was a project to erect 130 wind turbines off the coast of Massachusetts. It would have been capable of producing nearly 500 megawatts of power. The project was first proposed in 2001, but after years of work just trying to get the project started it was dropped in 2017. Although there were many issues, the biggest problem was pushback from local residents and businesses. Residents didn't want their ocean views obstructed and fishermen were concerned the location would hurt their ability to earn a living.
After pulling the plug, Jim Gordon, the president of the company building the project, told The New York Times, "In my wildest imagination, I never envisioned just how exhaustive, how time consuming and how expensive this would be." That's not a great backdrop, but it isn't the end of the story. The Block Island wind farm off the coast of Rhode Island was the first to actually get built in the United States. It was a much smaller effort, with just five turbines and a capacity of 30 megawatts, but it proved that offshore wind isn't dead in the water (pardon the pun) in the United States.
Which brings us to Dominion Energy, which recently announced that its next big project would be an offshore wind farm off the coast of Virginia. It is expected to be the largest offshore wind project ever built in the United States, with a total cost of $8 billion and nameplate capacity of 2.6 gigawatts. This is not a small investment, and based on the history of offshore wind, investors should be keeping a close eye on the developments here.
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To help keep costs in check and the processes running smoothly, Dominion is first going to build a small 12-megawatt pilot project. That is expected to be completed by late 2020 and should be a relatively modest expense. However, it will be an important litmus test of the pushback that the larger project might receive. At this point, Dominion thinks it should be smooth sailing because the turbines will be far enough off the coast that residents won't see them, they aren't located in fishing areas, and there appears to be significant political support behind the effort.
Assuming that the pilot goes off without a hitch, Dominion plans on building the rest of the project in three phases around 800 megawatts of power each. The planned in-service dates are 2024, 2025, and 2026. Most of the costs here are well in the future, and aren't included in the company's current capital spending projections. Meanwhile, the phasing will allow Dominion to learn as it builds and, hopefully, use that knowledge to reduce costs as it goes along. The plan sounds pretty solid, but the fate of the project depends on the success of the much smaller pilot program.
Looking past the headlines
With the Atlantic Coast Pipeline in court right now, it's the project drawing the most attention at Dominion Energy. That makes complete sense. A ruling should come sometime around the middle of 2020. However, waiting in the wings is the offshore wind test project that is expected to be done by late 2020. While small, it will have big implications for Dominion's capital spending plans down the road. Investors should be paying close attention to the Atlantic Coast Pipeline, of course, but don't overlook the next big project. Even though it's set to start off small, it is, in the end, going to be just as large and important.
