A decision by the 4th U.S. Circuit Court of Appeals has cast a lengthening shadow over the creditworthiness of the Atlantic Coast Pipeline.
Moody’s Investors Service, a national bond rating agency, said Monday that the planned 600-mile natural gas pipeline is “credit negative” for Dominion Energy and Duke Energy, the primary partners in a project now projected to cost up to $7.5 billion.
Moody’s already had rated the project “credit negative” because of mounting costs and uncertainty after a three-judge panel’s decision in December to overturn a U.S. Forest Service permit for the pipeline to cross beneath the Appalachian Trail.
But the rating agency’s concern intensified after the 4th Circuit’s dismissal last week of Dominion’s request for the full court to reconsider the panel’s decision and the company’s immediate announcement that it would appeal to the U.S. Supreme Court within 90 days.
“The appeals court’s decision and the subsequent appeal mean that a longer legal process will ensue, adding costs and uncertainty to when and how the project will be completed,” Moody’s said.
The two-page report also raised concerns about cash flow from the project for the two companies and another Dominion natural gas subsidiary.
The opinion does not change the credit ratings or outlook for Dominion, based in Richmond, or Duke, based in Charlotte, N.C., but instead “is indicative of the impact of a distinct event or development as one of many credit factors affecting the issuer,” the agency said.
Dominion spokesman Karl Neddenien said Monday: “Like other large companies, there are many factors that are considered in the company’s ultimate credit rating — an update on ACP is one small piece of a much larger evaluation.
“Dominion Energy maintains frequent dialogue with the credit rating agencies and is committed to its credit ratings and has demonstrated over the last many months that it is prepared to take steps to support its credit profile.”
Dominion also reiterated that it remains committed to the project, even though the cost has increased by more than $3 billion and the schedule has slipped by more than a year since the company announced the project with then-Gov. Terry McAuliffe in September 2014.
“Regardless of temporary delays, we remain committed to the Atlantic Coast Pipeline and are confident it will be completed,” Neddenien said. “This project is essential to meeting the basic energy needs of millions of Virginians and North Carolinians.”
Dominion now plans to break the project into two phases, with the first extending from a hotly disputed natural gas compressor station in Buckingham County to Lumberton, N.C., with a 70-mile spur to Hampton Roads from Southside Virginia.
The second phase would run from a supply pipeline under construction in West Virginia through two national forests in the Allegheny and Blue Ridge Mountains, where the pipeline would cross beneath the Appalachian Trail and the Blue Ridge Parkway on its way to Buckingham.
Dominion needs the Forest Service permit to build the second phase, but the appeal to the Supreme Court would delay completion of construction until early 2021. The company said it also is working on unspecified legislative and administrative decisions to allow the Forest Service to permit the pipeline crossing of the national scenic trail.
However, the company also cannot begin construction of the first phase until the Army Corps of Engineers reinstates suspended water quality permits for the project and the 4th Circuit decides an appeal of the permit issued by the U.S. Fish and Wildlife Service to ensure protection of endangered or threatened species.
The 4th Circuit threw out the first “incidental take” statement, part of the biological opinion issued by the federal agency, which had concluded the project would not pose an existential threat to four species in its path. The agency issued a new permit, which environmental organizations quickly challenged.
The appeals court issued a stay of the biological opinion for the entire length of the pipeline, not just the 100-mile stretch that Dominion says is at issue, so construction cannot begin until the case is resolved. A hearing is scheduled in early May.
“Resolution of this matter could allow construction of phase one to resume in the fall,” Moody’s said.
In the meantime, the additional delay for the Supreme Court appeal “will increase the negative pressure on both companies’ already weak cash flow ratios compared with peers,” the rating agency said.