A schematic from the application for the proposed 14.7 megawatt turbines for the CVOW, with measurements. Click for larger view.

by Steve Haner

A similar article was published this morning by the Thomas Jefferson Institute for Public Policy.

Testimony filed by the State Corporation Commission staff on April 8 opened a slight possibility that the Commission could reject Dominion Energy Virginia’s proposed $10 billion Coastal Virginia Offshore Wind project off Virginia Beach. It all depends on how the SCC decides to calculate the CVOW’s levelized cost of energy (LCOE), the dollar cost of every megawatt hour of electricity it produces plus the transmission costs.

When the 2020 General Assembly adopted the Virginia Clean Economy Act and related legislation, it set a cap on that key LCOE measure, which is used to compare the costs of various methods of making electricity.

If the utility failed to stay under the LCOE cap, the SCC would have the authority to reject the proposal as imprudent and unreasonable. If the project remains below the cap, legislators mandated approval by the SCC, despite any other doubts about its prudence and without considering less expensive alternatives.

The cap set was $125 per megawatt hour, after deducting the value of the very large tax credits granted for wind projects under federal law. In the application it filed late last year to build the facility, Dominion estimated the LCOE (after the tax credits) at about $83 per megawatt hour. But Katya Kuleshova of the SCC’s Division of Public Utility Regulation challenged several of the assumptions in her testimony and noted that if the assumptions prove wrong, that number rises substantially.

If a combination of the many assumptions – actual construction cost and schedule, energy output from the installed turbines, the assumed 30 years of steady operation – prove too optimistic, then the cost of energy can exceed that $125 per MWH target, she wrote. She also challenges Dominion’s failure to include $1.7 billion in future decommissioning costs, and questions whether at least some related energy-storage batteries should have been included.

It is Staff’s position, therefore, that the future energy storage investments should be included in the LCOE calculation of the CVOW Commercial Project, to the extent they are necessary to preserve the facility’s energy output and sell it at commercially optimal times.

Without enough storage, there may be times the turbines are pumping out electrons that are merely wasted. If that happens, she argued, none of those should be counted as useful output when calculating the “capacity factor” of the turbines, the percentage of the potential output which is achieved over time. Dominion claims the capacity factor will exceed 43% and the turbines will be operational 97% of the time. And it will be consistent over 30 years in a harsh marine environment. Reasonable?

Perhaps the largest hole she pokes in the LCOE, however, is based on the undisputed fact that with this project, Dominion will have far, far more generation than it needs for years to come. When drawing on this project, other viable power plants will be idled, “cannibalized,” in a term Kuleshova uses. That will impose costs that also should be considered in calculating the LCOE value it brings to the system.

System or incremental LCOE of the CVOW Project, calculated based on the Project’s net energy addition to the system and accounting for dispatch cost savings of the fossil-fueled generation units, would exceed $125/MWh in 2027 dollars in all scenarios tested by Staff. (Emphasis added.)

Unfortunately, most of the details of her analysis are based on data the utility has labeled as extremely sensitive or confidential, so her numbers are also either redacted or contained in sealed documents. The most important energy investment in Virginia’s history is being made with customers kept in the dark. Testimony from other witnesses is also riddled with redactions, and much of the May hearing will likely be behind closed doors.

Kuleshova also details the risks being imposed on Dominion’s 2.6 million Virginia ratepayers, again almost all of it hidden behind secrecy, with pages and pages of inked-over text.

Dominion proposes to build 176 turbines, each capable of generating 14.7 megawatts of electricity, 27 miles off the coast of Virginia Beach. It hopes to start construction next year and be fully operational for 2027. The case has already built up a massive file of documents and exhibits. Public comments are being taken here until May 16.

If approved, the costs for the project will begin to appear on customer bills this September in a new stand-alone rate adjustment clause (RAC). It starts small but ramps up quickly during the construction process and should peak in 2027 to just over $170 annually for a residential customer using 1,000 kilowatt hours in a month. This RAC will work differently, with customers credited for certain avoided costs. Thus, after plant operation begins the bill charge may start to decline.

Tracking earlier testimony from the Office of the Attorney General, the SCC staff goes into detail arguing that the claimed customer benefit (measured as net present value) is really negative, and substantially so. One key issue is how to account for the presumed “social cost of carbon,” which Dominion is treating like a specific cost imposed directly on its customers only. Kuleshova wrote:

Total customer benefits of the CVOW Commercial Project are lower than the Project’s cost if the social cost of carbon benefit is considered a separate societal benefit. Further, if the IFC (renewable energy certificate) price forecast is used as a source for REC proxy values, total customer benefits calculated by Staff are approximately half of the Project’s cost, and the Project’s (net present value) becomes approximately negative $1.6 billion.

The Attorney General’s expert set it even lower. Like the calculation of levelized cost of energy, however, there is no firm guideline or agreed-upon industry standard for what to include and what to exclude in the cost-benefit NPV formula. The two SCC judges (the 2022 Assembly failed to fill a vacancy) will decide.

Despite the finding that using different but still reasonable assumptions, the project might exceed its legislative cost target, the SCC staff did not recommend that the Commission reject the application. Neither did Attorney General Jason Miyares, the consumer’s representative at the table, despite his evidence that the project is unneeded for energy purposes, the customer benefit numbers are wrong, and lower cost approaches were ignored.

Miyares, the SCC staff, and other parties have asked the SCC to impose a cost cap on the project, and to find some way to put the cost of any construction delays or overruns back on the utility. There are also solar projects previously approved where if the energy production, as measured by the capacity factor, falls too low, consumers are protected from the downside cost.

Whether the Commission will impose such financial risk on the utility with a project of this size is a good question. Avoiding shareholder risk was the point of the 2020 legislation, although few legislators are sophisticated enough to recognize that and happily put their constituents at risk.

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26 responses to “SCC Staff: Dominion May Exceed Wind Cost Cap”

  1. DJRippert Avatar

    Good to see Miyares looking out for the ratepayers instead of Dominion. It’s about time that somebody in the state government thinks about the people paying the bills instead of the fat cats raking in the profits.

    1. Stephen Haner Avatar
      Stephen Haner

      Well, he stopped short of asking the SCC to deny it. But there is still time and more info to come out.

  2. The idea of imposing a cost cap seems perfectly reasonable to me. If Dominion is confident in its cost projections, it shouldn’t have a problem. If management’s projections turn out to be wrong, then shareholders, not ratepayers, should bear the cost.

    1. DJRippert Avatar

      If that were the deal I can’t imagine Dominion agreeing. Let’s be honest – this “carbon neutral” by 2045 (23 years from now) was nothing more than virtue signaling by the Democratic General Assembly and Democratic governor. The only way this Rube Goldberg policy was going to work was for the ratepayers to indemnify the shareholders. Nobody has any idea of the economics of offshore wind at scale. When the Dems decided to play to their green base somebody had to take on the risk. And Michel Bills along with Dominion Energy didn’t spend $13m+ in campaign donations to see their “carbon neutral” fantasy die on the horns of who takes the risk.


  3. David Wojick Avatar
    David Wojick

    This may well be the first time LCOE gets a legal definition. If so then very important.

    1. Stephen Haner Avatar
      Stephen Haner

      Ms. Kuleshova’s treatise is a fascinating read for wonks. Dominion knew what it was doing when it offered up an LCOE assessment as a proxy for “reasonable and prudent” because the subjectivity is through the roof. The Commission could start a docket just on that question, what elements are part of it and how do you measure them. Until the project is built and has a few years of operation completed, any LCOE is just a WAG. A six month shutdown for blade cracks (as happened to Block Island) and it all goes to pot.

      Dying to read the unexpurgated version, with all the gory numbers. Need to find a way to break that damn seal.

      1. David Wojick Avatar
        David Wojick

        Yes but in the meantime some of her arguments are fascinating. New iron LCOE is actual predicted generation, so how much curtailment is predicted? And the point about forced curtailment of other generators being a cost is one I have made.

        They need to model total system performance over the life of the OSW. Wow! As we know the system as planned does not work and that should surely show up. Dominion might like to add some demand growth but then storage gets worse.

  4. Eric the half a troll Avatar
    Eric the half a troll

    So if I understand things properly, failure of Dominion to move the offshore wind project forward does not relieve the requirement that they be carbon neutral by 2050. Seems like delaying the project or nixing it completely only increases demand on RECs (which also end up being paid by end users)…. isn’t this correct?

    1. Stephen Haner Avatar
      Stephen Haner

      It is 2045 for Dominion, 2050 for APCo. 🙂 Solar, onshore wind, remain options, and the RECs could prove far more cost effective than this boondoggle. In five years we may have small modular reactors (maybe not cheap, either.) This boondoggle could be a PPA (should have been) or at least a shared project with some other utility/state. Doing this and paying for it this way is not needed to meet the RPS, should they remain in place.

    2. Stephen Haner Avatar
      Stephen Haner

      It is 2045 for Dominion, 2050 for APCo. 🙂 Solar, onshore wind, remain options, and the RECs could prove far more cost effective than this boondoggle. In five years we may have small modular reactors (maybe not cheap, either.) This boondoggle could be a PPA (should have been) or at least a shared project with some other utility/state. Doing this and paying for it this way is not needed to meet the RPS, should they remain in place.

    3. Stephen Haner Avatar
      Stephen Haner

      It is 2045 for Dominion, 2050 for APCo. 🙂 Solar, onshore wind, remain options, and the RECs could prove far more cost effective than this boondoggle. In five years we may have small modular reactors (maybe not cheap, either.) This boondoggle could be a PPA (should have been) or at least a shared project with some other utility/state. Doing this and paying for it this way is not needed to meet the RPS, should they remain in place.

  5. Moderate Avatar

    But how will the SCC or the AG manage to stand up to Dominion given the legislative messages over the last nearly 20 years that the GA makes these decisions, not the SCC? Legislators not realizing that by supporting Dominion’s asks that they have transferred costs from investors to rate payers isn’t going to change. No one who aspires to win another election believes they dare cross Dominion. With an unfilled seat, the SCC is in precarious position. Generally, politics win over numbers in Virginia.

    1. Stephen Haner Avatar
      Stephen Haner

      I see you’ve read some of my previous cynical posts. 🙂 Don’t shoot me, I’m just the piano player.

      1. Moderate Avatar

        Didn’t need to read your posts. It’s what I’ve observed myself. Not shooting you, just stating facts.

  6. Katya Kuleshova noted the Asset Retirement Obligation was not included in the LCOE calculations.

    On Dec. 9, 2021, Dominion answered my 2020 question if end-of-useful-life decommissioning costs were included in the plan and said “Once decommissioning is necessary, the process is anticipated to be the reverse of construction and installation, with project components transported to an appropriate disposal or recycling facility.”And also answered did it include the estimate for those costs: “Yes, an estimate of $814M in 2021 dollars has been included as an Asset Retirement Obligation in the Rider/CPCN application that was filed with the State Corporation Commission.”

    With a construction cost of $9.8 billion, $814M seems low, especially since it will also need to include “special care” in dismantling the foundations because of artificial reefs already seen forming at the pilot project. It’s quite possible Kuleshova’s estimate of decom. costs is more accurate and should be included in the LCOE.

    1. Stephen Haner Avatar
      Stephen Haner

      Yet the eventual retirement costs are included when the company projected its long term revenue requirement! The basis for what we are billed! Remembered in one place, forgotten in another 😉

  7. Nancy Naive Avatar
    Nancy Naive

    I can sum it up with two lines of dialogue from members of the GA.
    “Damn, it’s dark in here. Ow! What the hell are these things?”
    “Dominion’s car keys.”

  8. David Wojick Avatar
    David Wojick

    That schematic is interesting. Apparently there is no structural foundation, just a tube stuck into the seabed. If it is in drilled rock that is okay. But if it is soil there could be issues, depending on the type and strength. My civil engineering specialty was failure analysis of soil structures and foundations. These towers would only have to lean a little bit to make the generator useless and the wind forces are huge.

  9. Dominion’s “Achilles Heel” in all these rate-case shenanigans is that it chooses to place this generation in its retail rate base, earning a regulator-fixed (more-or-less guaranteed) rate of return on investment whether or not the units actually operate profitably. This contrasts with what most electric utilities do, which is, operate their generation through an unregulated subsidiary, entirely for profit, entirely at shareholder benefit (or risk, as the case may be).

    Here, we have Dominion overbuilding its generation needs. Let’s concede up front, any such ‘excess’ generation will nevertheless be dispatched by PJM if it is economical to run in the energy market and the sales proceeds will be credited to Dominion’s ratepayers since these units are in their rate-base. But those ratepayers are paying for all the investment in generation that’s in their rate-base. All of it. That includes, of course, all the old, less efficient, usually fossil-fueled units that don’t run very often, or perhaps almost never. If they weren’t in the rate base then you and I could say, Dominion took a gamble with shareholder funds by not retiring these units and it’s costing the shareholders; that’s just bad management. But these units are in the rate base, so the bad management is directly impacting ratepayers: through their retail rates they are paying DOM shareholders a regulated return on investment in redundant generating units. In regulatory-speak, some of that rate-based generation investment is no longer “used and useful.”

    SH says above, “with this project, Dominion will have far, far more generation than it needs for years to come. When drawing on this project, other viable power plants will be idled, “cannibalized,” in a term [SCC Staff] uses. That will impose costs that also should be considered in calculating the LCOE value it brings to the system.” Yes, exactly so, because this excess generation is in rate base. Why should Dominion rate payers pay Dominion shareholders a regulated, fixed return on investment in excess of what’s needed to serve them? All that existing rate-based investment that’s rendered ‘excess’ by Dominion’s recent, rate-based wind and solar building spree should be considered part of the cost of that building spree. Redundant rate-based investment clearly imposes unnecessary, not “used and useful,” carrying-costs on Dominion’s retail customers, and these costs should be included in the LCOE calculation at issue here.

    And as for that argument that the public should not be allowed to see the cost data: This too is bogus precisely because it’s claimed by Dominion for costs related to rate-based generation investments. Submitting cost data to the SCC under seal was always intended to protect competitive information; that is, information relevant to the operation of generation for profit and at shareholder risk. This generation is operated for the ratepayers, who pay rates based directly on the generation’s investment and O & M costs. That’s what ‘rate-basing’ means. And regulated rates must be fixed openly, transparently, on the basis of current and forecast costs fully revealed. Dominion is not entitled to treat these as the costs of a for-profit, competitive enterprise conducted at shareholder risk and at the same time claim a regulated rate of return on that enterprise! From a regulatory point of view the contradiction is blatant. I fault the Commission for granting Dominion’s demands for “confidential” treatment of any cost data related to rate-based investment.

  10. LarrytheG Avatar

    Detailed analysis if not totally objective! I bet never has so much interest been at such a detailed level for prior Dom generation and process .

    re: ” In five years we may have small modular reactors (maybe not cheap, either.) ”

    Would there also be a similar level of attention and opposition?

    And Acbar touched on an interesting thing which is if Dom can sell excess generation to the highest bidders via PJM.

    There are so many moving parts to this issue that involve complex technical and regulatory processes that you need a scorecard to keep
    up and Haner is doing his best!


    1. Stephen Haner Avatar
      Stephen Haner

      1) It is a huge investment, up there with the nuclear plants and 2) people will be paying for it for 30 years. So the intense scrutiny is warranted. Dominion projects some off-system sales, and that’s good for ratepayers, but the SCC analyst had a point: It can offer the power to PJM, but if it is the wrong time of day, PJM can say “nah,” or if a cheaper alternative is also being offered at time PJM can say “nah”, and then that’s bad for ratepayers.

      1. LarrytheG Avatar

        offshore wind – wrong time of day?

        If all this comes to be, Dom will have a large and diverse mix of power to use or sell to their best benefit.

        I suspect as time goes by and demand for carbon-free electricity increases, it will fetch well in the market.

        At this point, unless someone tips over the apple-cart, Dom is in a win-win which they
        are very good at accomplishing with many of their projects as they know how to out-SCC the SCC much of the time.

        BTW – it’s increasingly clear the ACC was not about electricity! And Dom pulled the plug because without that demonstrated “public need”, it became clear it was more about a non-electricity market for gas.

        And Dom then SOLD their gas assets! They got out of the gas business altogether.

        Dom does not usually make mistakes so one does wonder what they know or think about the future of gas.

        1. energyNOW_Fan Avatar

          “Dom(inion) does not usually make mistakes” but they made a mistake an ACC, so that’s how we should know the OffShore Wind is sound decision? I am so convinced now.

          1. LarrytheG Avatar

            A fair point!

            But a series of 3 things happened.

            1. abandoned the ACC
            2. sell off most all of their gas field assets and
            3. mega offshore wind plus solar.

            a series of mistakes or forward thinking?

            If it is true that electricity demand is not going to grow and may even shrink and and also true that much of the world now thinks we must reduce our use of fossil fuels including gas then what would a utility company like Dom invest in?

            Have investors dumped Dominion stock?

            The climate skeptics and deniers look at these issues in a different light, no question.

  11. Bazza Avatar

    So there are a number of “facts” in this LCOE that are flat out falsehoods:
    30 years is not possible – the best land based turbines only last a maximum of 20-25yrs.
    43%? The best land based turbines operate at below 30%.
    97%? What are the minimum and minimum speeds the gearbox’s and blades can take. That should be obvious from the engineers.
    $1.7 billion for decommissioning? Lowball and should be included in total cost. Disposal is a massive problem, where and how to prevent massive pollution?
    Disturbing the sea bed with sonar – how else will engineers determine a suitable base?
    Fish, crustaceans, sea vegetation, worms, minute sea life and so on will be destroyed by the millions when building the bases of the turbines and laying the power lines connecting the turbines to land – large cables. EMF generated magnetic fields are hazards to all sea life.
    Large and small migratory birds, insects, butterflies and so
    on will be destroyed by the blades.
    Batteries? LOL there a zero batteries to store even five minutes of the power generated by ANY renewables – they do not EXIST.

    Whales in the North Sea have been dying due to Wind Turbines – research!

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