In promoting its proposed Coastal Virginia Offshore Wind (CVOW) project, Dominion Energy Virginia has made many specific projections about its costs and performance. The State Corporation Commission is now being advised to convert one or more of them into binding promises, with financial consequences for the utility and its shareholders if the 176 turbines fail to meet expectations.
As noted in previous discussions, including part one yesterday, Dominion’s 2.6 million Virginia customers are fully exposed to any additional costs created if the construction schedule falters, if material costs explode, tax credits disappear or if the amount of energy provided over the next 25-30 years fails to meet targets. As also previously reported, no other similar project on the U.S. east coast is structured to put full risk on customers.
Virginia’s General Assembly created it that way. Many of the groups now offering advice on protecting consumers were supporting the bill at the time. But under the “better late than never” rule, their ideas now are worth exploring. The Commission had asked for this advice and got several responses in briefs filed June 24.
The most common suggestion is to create a performance guarantee built around what is called the capacity factor. Even the best power plants do not operate at full capacity 24/7/365. The actual power output divided by the full potential produces a percentage “capacity factor.” In its application and in hearing testimony, Dominion stated its two-turbine CVOW demonstration project achieved 47% capacity factor. For this much larger project and longer time period the company projected 42%.
Make that mean something, put some teeth behind that, advised the Consumer Counsel to Attorney General Jason Miyares, a coalition of environmental groups who filed as a team, Clean Virginia and retail giant Walmart. Wrote a member of Miyares’ staff on his behalf:
Consumer Counsel recommends that for the life of the CVOW Project’s commercial operation and beginning three years after February 4, 2027, customers be held harmless from any incremental cost and diminished benefit incurred due to any shortfall in energy production (and associated tax credits and renewable energy certificates) below an annual net capacity factor of 42% based on the CVOW Project’s combined nominal capacity rating of 2,587 MW (AC), with reasonable adjustment for energy losses, and as calculated on a three-year rolling average basis.
From Walmart, after recounting all the promises in Dominion’s paper filings and testimony, all under oath:
These representations by the Company should be more than words on paper, but a promised level of future performance that customers can rely upon. A performance guarantee provides that promise to customers, and it helps mitigate the risks of both construction and ultimate project performance. Accordingly, for the life of CVOW’s commercial operation and beginning three years after February 4, 2027, the anticipated date for the last turbine installation, the Commission should impose a performance guarantee based on a 42 percent capacity factor as calculated on a three-year rolling average.
In testimony filed by the SCC staff, also charged with thinking about consumer protection, a similar provision was proposed but at a lower capacity factor, more than 10% lower. It suggested financial consequences if capacity drops below 37% over a sustained period of time. In urging rejection of that low performance mandate, Walmart noted:
This (staff) proposal is based on the absolute lowest potential capacity factor modeled by Dominion in its levelized cost of energy analysis (38%), discounted further based on the estimated turbine availability factor.
A requirement for a 37% capacity factor rather than 42% represents about 3,000 megawatt hours (MWh) less guaranteed power production per day, 1.1 million MWh less per year, and about 28 million MWh less over the 25-year life of the project. Even if Dominion builds the project on budget, the lost value of 30 million megawatts of output is measured in billions of dollars.
The “availability factor” mentioned above measures how often during that 24/7/365 year of service some or more of the turbines are offline due to maintenance or equipment issues. Dominion’s promise there is 97% over all those years, something else that could be tied to a performance requirement.
Despite its own suggestion, the staff of the State Corporation Commission signed a stipulation with Dominion Energy and backed off a hard performance guarantee. It agreed that it would be sufficient to make the company report cost overruns or performance failings and then let the Commission deal with them at the time. Here is staff’s brief. No firm performance guarantee is in the stipulation, which the Attorney General and environment respondents did not sign.
The other frequent (but less unanimous) suggestion was to try to place a hard cap on the construction costs for the turbines and related transmission lines, onshore and off. Dominion’s official cost projection has ticked down to about $9.65 billion, which includes a $300 million contingency and allowances for currency fluctuations.
The problem here is that long standing utility law promises investors will recoup their reasonable and prudent expenses, and it is already the case that cost overruns (if any) will have to come to the Commission for review and approval. Legally it is unlikely the SCC could force the company to eat construction cost overruns.
Will the Commission kill a project over costs once construction is well advanced? Unlikely. More practical are suggestions that the SCC set some hard requirements that Dominion immediately report setbacks or issues. The stipulation doesn’t do that. But if the bad news comes quickly enough, perhaps the Commission could pull the plug.
From the environmental respondent’s joint brief:
The V.C. Summer nuclear debacle is a cautionary tale. There, even after South Carolina Electric & Gas (“SCE&G”) abandoned the project, it still claimed it could charge its customers about $3.33 billion in unrecovered construction costs. Even after Dominion sweetened the pot with various adjustments, South Carolinians are still paying roughly $2.77 billion for a project that will never deliver them a single kilowatt of electricity. Had the South Carolina Commission forced SCE&G into abandoning the project earlier (by denying recovery of unreasonable cost overruns), it could have saved ratepayers billions of dollars. Ratepayers deserve mandatory, rapid review of cost overruns, which Dominion refuses to give them in this case.
In its 95-page brief (about the length of three others combined) Dominion fiercely resisted a firm guarantee built upon the capacity factor, whether 42% or the lower 37%. It claimed the reporting requirements in the stipulation are sufficient and the SCC can deal with setbacks if and when they arise. It wrote:
As noted in the evidence, capacity factors (defined as the percentage of hours in the year of actual generation by the Project) for a wind or solar facility are influenced significantly by the weather. While the Company believes that the projected capacity factor for the Project is well-grounded and reasonable, future weather patterns, as well as certain other operational factors obviously are beyond the Company’s control. Any average capacity factor projection is also on a “life of facility” basis, which will vary annually…
Well, exactly. That is the risk in a nutshell. Sometimes there is no wind and sometimes too much. (A word search of all briefs found one mention of hurricanes, in the staff document.) But Dominion dismissed the proposals to shift the costs away from consumers:
… In terms of the calls for “doing more” in order to mitigate risk for customers, there is simply an absence of substantive recommendations and associated evidence in the record, beyond the terms of the Stipulation, which are permissible, appropriate, and justified for this Project.
As noted in the previous column, the real question is what steps two judges will take faced with a legislative mandate that showed no concern for ratepayer risk, reinforced by the defeat of a reform bill earlier this year? Will it do what the General Assembly refused to do?