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Dominion Resources: Investing in the expansion of its transmission network [free access]

January 11, 2016

Dominion Resources (Dominion), headquartered in Richmond, Virginia, was established in 1983. It is one of the largest producers and transporters of energy in the US. At present, it has a portfolio of approximately 24,400 MW of power generation capacity, 6,490 miles (10,445 km) of electric transmission line network, and 12,200 miles (19,634 km) of natural gas transmission network and gathering and storage pipeline network. The company serves about 2.5 million franchise retail customer accounts in Virginia and North Carolina through its 57,000-mile (91,770-km) power distribution network.

 

The company has formed three subsidiaries—Dominion Virginia Power (DVP) (engaged in the power transmission and distribution [T&D] business]; Dominion Energy (engaged in the gas T&D business); and Dominion Generation (engaged in the power generation and trading business). In 2008, it also formed Dominion Gas Holdings under Dominion Energy to expand its natural gas business.

 

DVP was incorporated in 1909 as a Virginia public service corporation, which generates, transmits, and distributes electricity for sale in Virginia and North Carolina. In Virginia, Virginia Power conducts business under the name Dominion Virginia Power and primarily serves retail customers. In North Carolina, it conducts business under the name Dominion North Carolina Power and serves retail customers located in the northeastern region of the state, excluding certain municipalities. In addition, Virginia Power sells electricity at wholesale prices to rural electric cooperatives, municipalities, and wholesale electricity markets.

 

Dominion is currently focusing on expanding its network by taking up more and more capacity-addition projects and is also taking a keen interest in upgrading its ageing infrastructure. Dominion, under its six-year investment plan for 2015–2020, plans to spend USD19.2 billion to build new energy infrastructure in the areas served by it.

 

Existing Network

Dominion carries out its T&D business through its subsidiary DVP, which had 6,400 miles (10,304 km) of electric transmission line network at 69 kV and above voltage levels in Virginia, West Virginia, and North Carolina as of December 2014. During the six-year period from 2009 to 2014, DVP’s transmission network grew at a compound annual growth rate (CAGR) of 1.3 per cent.

 

The company has been operating in the service area of PJM Interconnection since 2005. Dominion’s 500 kV loop serves as the intersection between the western and eastern regions of PJM Interconnection’s service area. The company serves 2.5 million residential, commercial, industrial, and government customers in Virginia and North Carolina.

 

Table 1: Growth in Dominion’s transmission line length (km)

 

2009

2010

2011

2012

2013

2014

Total

9,660

9,821

10,143

10,143

10,304

10,304

Annual growth rate (%)

-

2

3

0

2

0

Source: Dominion Resources.

 

Financial performance

In 2014, Dominion Resources earned a net income of USD1.31 billion, witnessing a fall of nearly 23 per cent from USD1,697 million in 2013. However, during 2009–14, the net income of the company increased at a CAGR of 0.4 per cent.

 

 

Table 2: Dominion Virginia Power’s key financial indicators (USD million)

 

2009

2010

2011

2012

2013

2014

Operating revenues

14,798

15,197

13,765

12,835

13,120

12,436

Operating expenses

12,229

11,964

10,885

9,977

9,804

9,715

Operating earnings

2,569

5,700

2,861

1,774

1,881

2,003

Net income

1,287

2,808

1,408

302

1,697

1,310

Source: Dominion Resources.

 

DVP contributed nearly 61 per cent of the total revenue and 65 per cent to the net income of the company in 2014.

 

Meanwhile, DVP’s operating revenues witnessed a rise of nearly 4 per cent from USD7.3 billion in 2013 to USD7.6 billion in 2014. However, its net income fell by nearly 25 per cent from USD1.1 billion in 2013 to USD0.85 billion in 2014. During 2009–14, DVP’s operating expenses and earnings increased at a CAGR of 0.1 per cent and 18.2 per cent respectively.

 

Table 3: Dominion Virginia Power’s key financial indicators (USD million)

 

2009

2010

2011

2012

2013

2014

Operating revenues

6,584

7,219

7,246

7,226

7,295

7,579

Operating expenses

5,836

5,578

5,641

5,234

5,215

5,855

Operating earnings

748

1,641

1,605

1,992

2,080

1,724

Net income

356

852

822

1,050

1,138

858

Note: *Data for the year 2015 are estimated based on CAGR.

Source: Dominion Resources.

 

In 2014, Dominion incurred USD5.6 billion in capital expenditure, registering a CAGR of 7.7 per cent since 2009. Of this, USD1.65 billion was spent on strengthening the transmission network of the company, which was about 30 per cent of its total expenditure and 53 per cent of the total capital expenditure of DVP.

 

Table 4: Dominion’s capital expenditure (USD million)

 

2009

2010

2011

2012

2013

2014

Dominion Resources

3,837

3,422

3,652

4,145

4,104

5,551

– Dominion Virginia Power

2,488

2,234

2,090

2,288

2,533

3,107

– Capex on T&D network

841

1,038

1,091

1,158

1,361

1,652

Note: Capex – capital expenditure; T&D – transmission and distribution

Source: Dominion Resources,

 

Future plans and investments

Under Dominion’s six-year investment plan 2015–20, the company is expected to spend approximately USD8.9 billion from 2015 through 2020 to upgrade and add new T&D lines, substations, and other facilities to meet growing electricity demand within its service territory and to maintain reliability.

 

DVP is likely to utilise a capital expenditure of over USD2.33 billion from 2015 through 2017 to upgrade or add a new transmission network of which USD847 million was allocated for the year 2015, while USD758 million and USD728 million were allocated for the years 2016 and 2017 respectively.

 

Table 5: Dominion Virginia Power’s planned capital expenditure (USD million)

 

2016

2017

Total

Transmission

758

728

1,486

Total

5,622

         4,629

10,251

Source: Dominion Resources.

 

Table 6: Project-wise planned capital expenditure on transmission (USD million)

Project

2016

2017

Surry–Skiffes Creek Project

66

25

Elmont–Cunningham Rebuild Project

62

31

Warrenton 230 kV

55

14

Richmond SOC Office

42

5

Substation security project

86

89

Reliability Upgrades

119

119

Other projects

303

422

Maintenance

23

23

Total planned capital expenditure on transmission network

756

728

Total planned capital expenditure of Dominion Virginia Power

1,494

1,478

Source: Dominion Resources.

 

The company plans not only to spend on constructing new transmission lines but also on upgrading the existing ones. In this regard, DVP plans to place about 4,000 miles (6,440 km) of historically outage-prone electric power lines underground by 2026, which is about 11 per cent of its power distribution lines. DVP will also spend money to bury 350–400 miles (563−640 km) of lines a year. Some of the major projects that the company plans to complete by 2018 are the Haymarket 230 kV Transmission Line and Substation Project; the Surry–Skiffes Creek Project; and the Poland Road 230 kV Transmission Line and Substation Project.

 

The grants for most of its electric lines contain rights-of-way (ROW) that have been obtained from the apparent owners of real estate or on publicly owned property, where permissions to implement are being revoked, thereby challenging the company to complete the project within the scheduled timeframe. A major example of this ROW issue is the Surry–Skiffes Creek Project, on which work has been struck due to environmental reasons and delays in receiving approval from US Army Corps of Engineers.

 

Table 7: Dominion’s key transmission projects

Project

Voltage

Length (km)

Scheduled start-up 

Cunningham–Elmont 500 kV Rebuild Project

500

82

2018

Dooms–Bremo Rebuild Project

230

                   69

2017

Dooms–Lexington Transmission Line Rebuild Project

230

63

2016

Surry–Skiffes Creek 500 kV and Skiffes Creek–Whealton 230 kV Project

500 kV / 230 kV

32 km (230 kV) and 13 km (500 kV)

2018

Warrenton–Wheeler–Gainesville Project 

115 kV and 230 kV

NA

2018

Haymarket  Line and Substation Project

230

8.2

2018

Poland Road Transmission Line and Substation Project

230

6.4

2018

Pacific Line and Substation Project

230

                     3

2018

Yardley Ridge Transmission Line Project

230

3.2

2018

Norris Bridge Transmission Line Rebuild and Relocation Project

115

3

NA

Source: Dominion Resources.

 

Outlook

Though Dominion Resources has taken up the task of upgrading its existing infrastructure along with the addition of a new transmission network, it will continue to face challenges due to changing regulatory requirements and ROW issues, which in turn will burden the company financially and restrict its expansion plans.