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Dominion focuses on Supreme Court fight to get Atlantic Coast to finish line

Dominion Energy Inc. plans to focus its attention in the coming months on getting a win at the U.S. Supreme Court for the company's stalled Atlantic Coast pipeline project, amid investor concerns about the project's future.

The game plan outlined by executives during a conference call with analysts on Wednesday — and the promise, for now, to keep to the company's latest timeline and cost estimate — came as the company reported an 88% drop in second-quarter profit on a big jump in overall operational expenses.

The power provider, midstream operator and LNG exporter has been relying on end-user-focused growth projects such as the 600-mile pipeline that is being designed to boost takeaway capacity from U.S. Northeast shale fields. Project costs have been high, especially with fervent opposition from environmental groups and ongoing challenges with government agencies and the courts. As of June 30, the total invested capital is $3.4 billion, the company said during the call.

"Our customers continue to need this project's capacity to serve their existing customers, move toward a low-carbon future and enable new economic development," CEO Thomas Farrell said on the call.

Dominion expects the Supreme Court in October or November to schedule oral arguments for the spring of 2020 on a challenge of a 4th Circuit US Court of Appeals ruling involving U.S. Forest Service authorizations for the pipeline to cross the Appalachian Trail, Farrell said. The company is pinning its current timeline to expectations that a positive decision will be issued no later than June 2020.

"We are confident that the 4th Circuit's ruling will be overturned," Farrell said. "And though at present we are not publicly discussing potential administrative or legislative alternatives, the options that have been described by the developers of the Mountain Valley Pipeline should be expected to be applicable to the Atlantic Coast Pipeline."

Asked whether Dominion would begin discussing administrative or legislative paths forward if the Supreme Court rejects the appeal, Farrell suggested the court fight is all Dominion is thinking about at the moment.

"We're completely focused on that right now," he said. The 4th Circuit decision "is a very poor precedent, we think, for energy policy in the United States, setting up a 2,000-mile-long barrier wall to bring energy resources from the Midwest and South, the western parts of the country into the East."

There are other legal hurdles that Dominion also has to contend with before it is able to complete the pipeline.

Earlier in July, the federal appeals court struck U.S. Fish and Wildlife Service, or FWS, authorizations related to four species potentially affected by the project.

Dominion officials said they hope to be able to resume construction on at least part of the pipeline route later this year, though resuming full construction will depend largely on the resolution of the Appalachian Trail dispute as well as the FWS dispute.

Provided the court fights are decided favorably on the schedule Dominion is targeting, the company said it remains confident it will be able to complete the pipeline by late 2021. Its current timeline is about three years behind the original in-service date of Nov. 1, 2018, as stated in Dominion's Federal Energy Regulatory Commission permit application in 2015.

Some analysts were skeptical Dominion that will be able to keep to its current timeline, regardless of what happens at the Supreme Court on the trail crossing dispute. The FWS authorizations issue may be just as pressing.

"To the extent that Dominion had hoped to restart construction this fall, we view this adverse ruling as precluding such activity unless and until the failures identified in the permits are addressed through a new permit," industry research firm ClearView Energy Partners said in a note to clients July 29. "Absent new permits that can survive judicial muster, construction on this project cannot resume."

Besides the pipeline, Dominion is also seeking to boost growth prospects from its continued export of LNG cargoes from its Cove Point liquefaction terminal in Maryland.

The terminal is one of five such facilities currently operating in the US, with a sixth preparing to start up and more than a dozen others under construction or being developed. One of the second-wave projects, Kinder Morgan Inc.'s Gulf LNG, received U.S. Department of Energy approval Wednesday to export cargoes to countries with which the U.S. does not have a free-trade agreement.

The Mississippi project recently received FERC permit approval, amid a push by the Trump administration to nudge LNG export capacity growth forward. But Kinder Morgan said it was still trying to secure sufficient commercial interest and that a final investment decision was a ways off.

Harry Weber is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.