Given the legal and regulatory uncertainties associated with Clean Power Plan, which requires Virginia to reduce CO2 emissions 30% by 2030, Dominion Virginia Power’s 15-year strategic plan filed in July 2015 is reasonable and in the public interest, the State Corporation Commission (SCC) ruled in a final ruling released today. However, the SCC also detailed substantial additional analysis it would like to see in the Integrated Resources Plan (IRP) Dominion files next year.
The electric company had filed four broad options for responding to the mandates of the Clean Power Plan, including one that relied heavily upon nuclear power. The power company did not recommend one option over the others in July because it did not know precisely how the Clean Power Plan would impact Virginia. While the Environmental Protection Agency has finalized Virginia’s CO2 emission targets since then, the state still has yet to choose between two possible approaches, whether to focus on the absolute volume of CO2 emissions or CO2 emissions on a kilowatt-hour basis. That decision could have significant impact on how power companies respond to the mandates.
Consumer and environmentalist groups had urged the SCC to reject the IRP on the grounds that the projected $19.3 billion cost for a third nuclear unit at the North Anna power station was excessive under any scenario. A project of that magnitude, the SCC noted, would roughly double the size of Virginia’s electric rate base.
While the SCC saw no need to amend the 2015 IRP, it noted pointedly that it views the IRP only as a planning document, “not as a document that will determine future Commission decisions on future resources or the recovery of specific expenditures.”
The commission instructed Dominion to take a very different approach to its 2016 IRP. With this ruling, the tight-lipped commissioners signaled what they see as the major issues facing Virginia’s electric power industry response to the Clean Power Plan.
Nuclear power. The proposed North Anna 3 nuclear unit tops the list. The company has incurred approximately $580 million in development costs through September, a portion of which has been passed on to rate payers already, and Virginia’s share of the final project cost could reach $19.3 billion in capital investment. If passed on to rate payers, wrote the SCC, “that investment would represent a large enough increase in electric bills for residential and business customers to impact Virginia’s economic climate.”
Acting as consumer counsel in evidentiary hearings, the Attorney General’s office raised what the SCC deems to be a “serious concern”: Should Dominion come to the SCC in a future hearing having already incurred billions of dollars in development costs on North Anna 3, will it cite the sunk costs “as a compelling reason for the Commission to approve the application”? Accordingly, the SCC ordered Dominion to answer the following questions in its next IRP:
- Why might Dominion believe that it should be entitled to recover from customers North Anna 3 costs incurred before being granted formal regulatory approval?
- Is there a dollar limit on how much Dominion intends to spend on North Anna 3 before seeking that regulatory approval?
- Without a guarantee of cost recovery, how much can Dominion spend on North Anna 3 without negatively impacting its fiscal soundness and cost of capital?
- Why does Dominion continue to spend money on North Anna 3 development costs? Is it mainly to seek Nuclear Regulatory Commission approval?
In the next IRP the SCC wants Dominion to “quantify the tradeoff between operating cost risks that may be increased and the cost savings that may be realized by delaying the construction of North Anna 3.”
In related matters, the SCC instructed Dominion to continue pursuing the feasibility of extending the operating licenses for its four aging nuclear units at the Surry and North Anna power stations. The commission wants to see a discussion in the next IRP of how much it will cost to renew the operating licenses and a timetable for the renewal process.
Clean Power Plan. The SCC ordered Dominion to model a least-cost, base-case plan for meeting the electricity needs for its service territory over the next 15 years as well as multiple plans compliant with the Clean Power Plan under both the mass-based approach and the rate-based approach. Dominion also needs to examine the cost benefits of trading carbon reduction credits from inside and outside the state.
Natural gas risk analysis. The SCC instructed Dominion to identify the risk that the operating cost of natural gas-fired generation might become excessive — presumably if the price of natural gas increases significantly from its current low level. The company also needs to analyze ways to mitigate that risk, whether through long-term supply contracts that lock in gas at a stable price, investing in gas reserves, or procuring long-term transportation and storage contracts.
Rate design. The commission ordered Dominion to continue studying Demand-Side Management electric tariffs to encourage CO2 reductions through conservation. For example, the utility should look at incentives to shift consumption away from periods of peak demand. For example:
A kilowatt consumed at 4 o’clock on one of the hottest summer afternoons when the system is facing peak demand is far more expensive than a kilowatt consumed at 10 o’clock that evening. The “4 pm kilowatt” may also produce far more in carbon emissions than the late-night kilowatt, since low-efficiency generating plans may have to be dispatched to meet the afternoon’s peak demand.
Third-party market alternatives. In future IRP filings, Dominion shall include a more detailed analysis of market alternatives, especially third-party purchases, that might provide long-term price stability. The company shall provide a comparison of purchasing power from other wind and solar power producers versus the self-build option.
Solar generation. Critics of the 2015 IRP challenged Dominion’s analysis of solar photovoltaic generation. Dominion concluded that the costs and issues associated with significant solar deployment — particularly the intermittent nature of electricity generation — are unknown and potentially substantial. In future IRPs, the SCC commanded, Dominion shall “develop a plan for identifying, quantifying and mitigating cost and integration issues associated with greater reliance on solar photovoltaic generation.”There are currently no comments highlighted.