Energy Central Professional

 

What’s ‘reasonable and prudent’ when it comes to Dominion offshore wind project’s costs?


Virginia Mercury  

 

    Dominion Energy is seeking to approval to build what will be the largest offshore wind power project in the United States off the coast of Virginia Beach, pitched by the company, some lawmakers and business groups as key to positioning Virginia as a hub for an industry on the cusp of a boom.

    But with hearings beginning this week before state utility regulators, the attorney general’s office, as well as some environmental and consumer protection groups, are wary of giving Virginia’s largest utility a blank check to recover cost overruns from ratepayers for what’s estimated to be a nearly $10 billion project.

    Citing “significant risk faced by customers by this project,” the Virginia Office of the Attorney General is one of several parties to the case calling on regulators to impose more stringent guardrails on the price tag of the 2.6 gigawatt Coastal Virginia Offshore Wind project to be built 27 miles off the coast of Virginia Beach.

    “There does not appear to be a mechanism explicitly in place that limits Dominion’s ability to recover project overruns,” said Maximilian Chang, an energy consultant hired for the case by Clean Virginia, an advocacy group founded by Charlottesville hedge fund millionaire Michael Bills in 2018 to counter Dominion’s influence in Virginia politics.

    “In this situation, I am concerned that Dominion may not have a strong inclination to control project costs and may be inclined to incur project overruns knowing that the company may be able to recover” them, he said in testimony filed with the State Corporation Commission.

    Dominion, however, has argued that measures like cost caps, performance guarantees and independent monitoring are unnecessary in light of SCC oversight and an express policy mandate to develop offshore wind laid out by the legislature in the 2020 Virginia Clean Economy Act.

    “It is clear from” state code “that all prudently incurred costs from the project are recoverable from customers and the VCEA repeatedly states that an offshore wind facility like this project is in the public interest,” said Dominion Senior Vice President of Project Construction Mark Mitchell.

    “There is no reason to treat the generation fleet differently today and in the future than it has been in the past, where reasonableness and prudence have been the proper standard for judgment,” he said.

    Regulators will take up the question of whether Dominion’s plans, which call for 176 turbines, three offshore substations and major onshore and offshore transmission additions, are “reasonable and prudent” beginning this week, with a decision expected by August.

    Utility calculations find that the project would increase the monthly bill of the average residential customer, defined as someone who uses 1,000 kilowatts of power every month, by $1.45. The cost would be reviewed on an annual basis.

    One possible outcome has already emerged. On Wednesday, the Sierra Club, SCC staff, Dominion and the Nansemond Indian Nation filed an agreement with the commission where the parties agreed that the project, with an updated cost of $9.65 billion, met the VCEA’s statutory requirements for approval. The “Proposed Stipulation” also included reporting commitments from Dominion as well as new diversity and equity targets and commitments for hiring.

    Not all of the participants in the case are on board with the compromise. The attorney general’s office did not sign onto the agreement, nor did Clean Virginia, Walmart or the Southern Environmental Law Center.

    Victoria LaCivita, a spokesperson for the attorney general, declined to comment on why the office chose not to be part of the agreement, saying it would address its position at the SCC hearing Tuesday.

    A climate solution

    Offshore wind development was a key piece of the 2020 Virginia Clean Economy Act, Democrat-championed legislation that committed the state’s two major electric utilities to becoming carbon-free by 2050. (The law also assumes that nuclear energy will remain a foundational part of the state’s energy portfolio.)

    Under that law, the General Assembly declared that it was “in the public interest” for Dominion, which holds the lease for the federal area where offshore wind can be developed off Virginia’s coast, to develop an offshore wind farm with a capacity of between 2.5 and 3 gigawatts. (A gigawatt is enough to power roughly 750,000 homes)

    The provision, and the criteria the VCEA laid out for Dominion to get regulatory approval for its offshore wind project, proved one of the most controversial parts of the landmark law because of fears among some Republicans and more progressive Democrats that it would provide the politically powerful utility a blank check to build out a project then projected to cost $8 billion.

    “There’s always a balance. You want consumer protections. You want enough flexibility so the project’s able to be built out,” said Harry Godfrey, managing director of pro-renewables business group Advanced Energy Economy and a key negotiator of the VCEA. “This was a battle right out onto the floor of the General Assembly.”

    Despite concerns about ratepayer cost, most groups pushing for Virginia to decarbonize saw offshore wind as a necessary piece of the puzzle. Not only would it help diversify the commonwealth’s energy portfolio, they said, but its times of peak energy production — nighttime and winter in particular — would complement solar’s tendency to produce the most power during the daytime and summer, providing more stability to the grid.

    “It is essential that we have offshore wind as part of the resource mix to achieve the rapid decarbonization of the power sector,” said Will Cleveland, an attorney with the Southern Environmental Law Center.

    Regulatory staff and the Office of the Attorney General’s Division of Consumer Counsel have been more skeptical.

    “Staff concludes that the need for the proposed CVOW commercial project is driven primarily by the policy goals of the VCEA,” wrote SCC strategic planning specialist Katya Kuleshova. In looking at the project’s overall value, she concluded that the wind project “does not appear economic compared to the alternative” of building out large quantities of solar and batteries.

    Dominion and others say relying largely on solar would be not only difficult given growing political tensions over solar projects’ heavy consumption of land but would produce a less stable energy portfolio.

    The utility “needs to pursue an all-of-the-above approach to establish a new clean generation portfolio capable of reliably meeting customers’ energy needs year-round and around the clock,” wrote Mitchell in testimony. “No single resource will meet this need.”

    The State Corporation Commission
    The State Corporation Commission regulates Virginia electric utilities. (Ned Oliver/ Virginia Mercury)

    Calculating costs

    Still, the $9.8 billion price tag for the Coastal Virginia Offshore Wind project has given some ratepayers pause.

    “This project will be costly and we will not see the benefit,” wrote Nolan Griffin of Chester in one public comment to the SCC. “Not one electric bill will go down — at the end of the day it’s not going to benefit the middle or lower class.”

    Scott Norwood, an energy consultant hired by the Office of the Attorney General, also emphasized the project scale, noting “this cost is more than recent public cost estimates for a new nuclear plant and 2-3 times more expensive than capital cost estimates for new solar or wind generating facilities.”

    But Godfrey said it’s critical for policymakers to recognize that other forms of energy often come with hidden costs. The nation’s only new nuclear project, Southern Company’s Vogtle plant in South Carolina, is edging close to a $30 billion price tag for 2.2 gigawatts of energy — less than what CVOW will produce. Fossil fuel plants require large ongoing investments in fuel that are subject to market fluctuations. Prices on carbon, like those Dominion already pays as a result of Virginia’s participation in the Regional Greenhouse Gas Initiative and any prices Congress might choose to impose over the next few decades, could also increase the cost ratepayers bear for their operation.

    For natural gas plants, “there are costs that are not at all in the construction today that are very real parts of the economic impact that ought to be considered when we’re considering consumer risk,” he said.

    Dominion customers are already facing increased costs associated with the utility’s coal, oil and gas fleet. Last week, the utility filed a request to raise part of its rates to recover roughly $3.3 billion in fuel costs for this year and the next. The company estimates customer bills could rise between 12 and 20 percent as a result.

    “Offshore wind turbines have no fuel costs, which is especially beneficial now considering rising costs of fuel across the country,” said Dominion spokesperson Jeremy Slayton in an email.

    When it comes to customer risks, however, CVOW is unusual in one major respect: utility ownership.

    “Construction of an offshore wind facility as an in-house asset developed by a regulated utility is unique to Virginia,” wrote Kuleshova in testimony. “Every other state that has chosen to require offshore wind development does so through a power purchase agreement or offshore renewable energy certificate contracts, which necessarily limit the risks to ratepayers by shifting construction, operational and market risks from ratepayers to project owners.”

    Clean Virginia is urging regulators to conduct a review of whether the utility ownership model is Virginia’s best course forward as it looks to develop an additional 2.6 gigawatts of offshore wind.

    “The commission should be aware that there are other procurement options available for the commonwealth to consider beyond what is being offered by Dominion,” wrote Chang.

    Dominion Energy offices in Richmond, Va. (Parker Michels-Boyce/ For the Virginia Mercury)

    Economic impacts and who benefits from them

    Decarbonization isn’t the only justification for CVOW Dominion is touting. The company is also casting the project as a major economic development boon for Hampton Roads and Virginia as states up and down the East Coast compete to become manufacturing hubs for the technology.

    CVOW is “a transformation economic development opportunity for Hampton Roads and could create hundreds of direct and indirect jobs during construction and more than a thousand jobs during operations to make Virginia a hub for offshore wind,” said Slayton.

    In testimony, SCC staff cast some doubt on the study Dominion drew those numbers from.

    Because the project will increase electricity rates, SCC utilities manager Mark Carsley found it could cost 1,100 jobs and $198 million in economic output. Consequently, he said, “any economic development benefits within the company’s service territory resulting from the proposed CVOW project largely will be equaled by the project’s economic development costs.”

    Dominion dismissed those findings, declaring they were based on an “overly simplified assumption” that households would decrease their spending in direct proportion to how much their electric bill cost.

    Dollars and jobs aren’t the only concern case participants have voiced when it comes to CVOW’s economic prospects. Ensuring those dollars and jobs are spread to communities equitably has also been a primary issue for the Sierra Club.

    “The diversity, equity and inclusion aspects are really inextricably intertwined with the overall development of the project,” said attorney Cale Jaffe. “You can’t look at the costs and benefits of a project like this without thinking about how those costs and benefits are allocated.”

    Under the 2020 Virginia Clean Economy Act, Dominion was required to provide regulators with plans for how it would prioritize the hiring and training of veterans, local workers and workers from historically economically disadvantaged communities. While the utility did, the Sierra Club criticized the proposal as insufficient.

    Following negotiations, Dominion agreed in the Wednesday stipulation to meet diversity targets in hiring workers for CVOW, with a goal of hitting a 40 percent benchmark by the end of 2026. It also agreed to establish an advisory committee to address supplier diversity and to hold at least 20 events focused on attracting diverse workers and organizations.

    “We felt there were meaningful commitments,” said Jaffe.

    As offshore wind expands in the U.S., those kinds of requirements will be necessary to ensure that a clean energy transition doesn’t reinforce existing inequities, he argued.

    “It’s important that we set the expectation and the targets on diversity, equity and inclusion now because that will set the bar for other projects going forward,” he said.


    The views expressed in content distributed by Newstex and its re-distributors (collectively, "Newstex Authoritative Content") are solely those of the respective author(s) and not necessarily the views of Newstex et al. It is provided as general information only on an "AS IS" basis, without warranties and conferring no rights, which should not be relied upon as professional advice. Newstex et al. make no claims, promises or guarantees regarding its accuracy or completeness, nor as to the quality of the opinions and commentary contained therein.

TOP


Copyright © 1996-2022 by CyberTech, Inc. All rights reserved.
Energy Central® and Energy Central Professional® are registered trademarks of CyberTech, Incorporated. Data and information is provided for informational purposes only, and is not intended for trading purposes. CyberTech does not warrant that the information or services of Energy Central will meet any specific requirements; nor will it be error free or uninterrupted; nor shall CyberTech be liable for any indirect, incidental or consequential damages (including lost data, information or profits) sustained or incurred in connection with the use of, operation of, or inability to use Energy Central. Other terms of use may apply. Membership information is confidential and subject to our privacy agreement.