by Steve Haner
First published this morning by the Thomas Jefferson Institute for Public Policy.
The big risk with Dominion Energy Virginia’s planned offshore wind extravaganza has always been that either the wind out in the Atlantic blows too little or it blows too much. Too little and the ratepayers are paying an inordinate amount for intermittent electricity; too much (a major hurricane say) and the turbines could be damaged or destroyed.
Because the monopoly utility will own the project, not a third party energy developer, all that risk lands on its ratepayers. The State Corporation Commission sought to protect Virginia ratepayers from the risk. That was the point of its imposition of a performance standard on the project tied to its overall energy output.
That is the risk Dominion’s leadership refused to accept, threatening to kill the $9.8 billion project entirely. It was not an idle threat.
Now Virginia Attorney General Jason Miyares (R) has a new proposal which protects Dominion and its shareholders from that risk after all, putting it back squarely on the utility’s 2.5 million customers. Instead, the person charged by law as the protector of Virginia consumers is focused on the risk of construction cost overruns.
Given the massive profits it will reap over the possible 30-year life of the project, it is not surprising Dominion is willing take some risk on that front. Should the project cost exceed $10.3 billion (note: that is already a 5% cost increase) and reach $11.3 billion, Dominion shareholders will split the additional cost with its ratepayers.
Even if consumers only have to finance an additional $1 billion to build it, that still increases Dominion’s potential annual return on equity by about $100 million per year. An additional billion from its own coffers puts only a small dent in decades of profit.
With this approach, Dominion gets all those profits no matter how much power it produces, and consumers will fund any energy deficit. The SCC could impose sanctions for poor energy production if Dominion’s own negligence is to blame, but too much or too little wind won’t hit its bottom line. It will only hit customer energy bills.
The SCC’s hands are also tied on project cost overruns unless they approach $14 billion. Only then can the SCC step in and try to shut the boondoggle down. Should it do so, ratepayers will still be on the hook for amounts spent at that point. Again, were this a third party developer’s project, the construction cost risk would never be on the customers.
This is not progress. Unfortunately, with the Attorney General joining with the Green New Deal advocates to endorse it, and with the praise already heaped on it by Governor Glenn Youngkin (R), it enters the regulatory arena with a full head of steam.
Some background: When we last visited this issue, the SCC had approved the wind project with its condition that Dominion would bear additional costs if it failed to hit output targets, specifically a 42% capacity factor. Dominion sought and got reconsideration of that, and all the parties filed another round of arguments. The public added more comments, one from the Thomas Jefferson Institute. That was followed by several weeks of silence, a sign that somebody was negotiating behind the scenes.
The deal emerged October 28, late on a Friday afternoon. Miyares got to announce it first with great fanfare. He called it “historic” and touted “unprecedented consumer protections.” You can read the document here, with pages 9-12 being the actual stipulation. Basically, five parties have signed on: Miyares, Dominion, two environmental organizations, and Walmart, the state’s largest employer and a huge Dominion customer.
The two judges of the SCC are not obligated to accept this stipulation and reverse their earlier stance. Missing from the agreement are other parties, including the SCC’s own staff, another entity charged with protecting consumers. Also missing are Clean Virginia, another major environmental group, and the Virginia Committee for Fair Utility Rates, representing industrial customers. The SCC may seek their reaction before deciding.
Every signatory to the deal, with the possible exception of Miyares, was basically in support of building this project all along because they all accept the premise that fossil fuel energy is a threat to human existence. That includes Walmart. If ten years from now Virginians regret the construction of this project and its impact on their electric bills, history will record Miyares as the political leader who kept Dominion from pulling the plug.
A good element of the stipulation involves accounting for any additional financial subsidy to the project provided by the Biden Administration’s Inflation Reduction Act. If that does lower the final construction cost, the benefit should flow to consumers. That would likely have been the SCC’s position anyway, but it is good to have that written into any final order.
In the last General Assembly, every Republican member of the House of Delegates voted to kill this project, or to at least remove the legislative provisions that made it mandatory. Several Republican senators would have voted the same way if Senate Democrats hadn’t killed the bill in committee. The House Republicans also voted in a different bill to fully restore the SCC’s regulatory authority to say yea or nay on its prudence.
In his recent energy plan document, Governor Youngkin spoke eloquently about the need to restore SCC independence and oversight. Yet now once again we have a deal written in closed rooms by lobbyists and lawyers with varied motivations seeking to circumvent a valid SCC proposal to protect consumers. An Attorney General who wrote a strong brief praising that SCC proposal has now undercut that position, for no other possible reason than to keep the project alive.
Support for this negotiated settlement flies in the face of those legislative efforts and eliminates any chance of a similar debate in 2023. It belies the claims of trust in SCC oversight. For reasons they should explain in more detail, Virginia’s top Republican leaders remain all-in on offshore wind.