Dominion agrees to study viability of Wise power plant that’s not producing much power

With a coal plant that’s costing ratepayers millions but not producing much electricity, Dominion Energy has agreed to conduct an analysis of how it could make the Virginia City Hybrid Energy Center in Wise County economically viable in the future. 

“The company has acknowledged that the economics of the station are challenged at the moment,” said attorney Joseph Reid at a State Corporation Commission hearing this January. 

The Sierra Club’s Virginia chapter has pointed to the plant’s losses — the utility’s own estimates find it will cost ratepayers at least $472 million by the end of the decade and will produce only 6.3 percent of the power it’s capable of generating  — as a reason why the facility should be closed in 2023. 

“The company’s own analysis shows that VCHEC, if it continues to operate, will continue to lose money,” said Rachel Wilson, a consultant with Synapse Energy Economics hired by Sierra Club Virginia, in a November filing. “Dominion is knowingly asking its ratepayers to subsidize the uneconomic operation of VCHEC, perhaps for as long as another 20-plus years.” 

But Dominion has argued that economics are “just one factor impacting the prudence of a power station’s continued operation.” 

Virginia City “is a unique generating facility designed not simply to provide economic electric generation, but to meet certain legislative policy objectives and improve system reliability,” wrote Dominion Director of Integrated Strategic Planning Glenn Kelly in a December filing. 

“By design, these objectives should factor into the calculus for VCHEC’s continued operation alongside economic considerations,” he continued. 

In January, Dominion struck an agreement with the Sierra Club and State Corporation Commission staff to conduct an analysis “of a possible pathway towards economic viability” for VCHEC. State Corporation Commission judges signed off on it Feb. 23, giving Dominion nine months to complete its review. 

Besides asking the utility to evaluate whether the plant should be retired early, the final order calls for Dominion to analyze other uses for the facility, including as a site for solar, wind or energy storage resources.

Under the terms of the agreement, the utility must hold off on any major capital spending at the plant until the report is done “and a long-term decision about VCHEC’s continued operation has been made by the company.” 

For the State Corporation Commission judges who are charged with regulating Virginia’s electric utilities and who must regularly approve major investments at VCHEC and Dominion’s right to recoup those costs from customers, the question is whether the benefits the plant provides outstrip its costs to captive ratepayers. 

Complicating that calculus is the fact that Virginia City was built outside of Dominion’s service territory. Supporters of the plant point to the significant jobs and revenues it provides to Southwest Virginia and the fact that it burns waste coal pulled from so-called gob piles, heaps of previously unusable coal and byproducts from mining that are strewn around coal country. But the region doesn’t bear the plant’s costs — those are borne by Dominion customers in the eastern and central parts of the state. 

In a hearing this January, SCC Senior Hearing Examiner Michael Thomas broke the problems with the plant down into what he called “the good, the bad and the ugly.” 

The good, he said, was the economic and environmental benefits Virginia city offers, along with its strict air emissions controls — “It’s the newest, cleanest coal plant in operation in Virginia,” he said. “That’s a fact.” 

But the bad, he said, is that “we have a facility that was designed and constructed to operate 80 percent of the year and it’s operating somewhere down in the teens.” And the ugly is that VCHEC is losing hundreds of millions of dollars. 

“Now, is it ugly or is it really ugly?” he asked. “That discussion needs to be had in your report.”

Decarbonization and Virginia’s youngest coal plant 

The Virginia City plant has been controversial since its inception but has come under fire more recently because of the state’s ambitious decarbonization goals, which require the power sector to emit zero carbon by midcentury. 

While an earlier draft of the landmark 2020 Virginia Clean Economy Act would have required VCHEC to close by 2030, pressure from Southwest Virginia lawmakers secured an amendment allowing it to stay open until 2045. 

Del. Terry Kilgore, R-Scott, who now serves as House Majority Leader, was the only Republican in the House to vote for the Clean Economy Act, a decision he explained as the result of the negotiated closure date for VCHEC. 

Kilgore proposed a bill during the 2022 session that among many provisions would have forbidden VCHEC from being required to close before “the end of its useful life.” The language was later removed from the final version of the legislation. 

For the coalfields region of Southwest Virginia, which has long lagged the rest of the state in employment, income and other economic metrics, VCHEC looms large. The plant employs 167 full-time and contract workers and pays roughly $8.5 million annually in taxes to Wise County. Dominion says that in all, VCHEC provides “between $25 million and $100 million annually in regional economic benefits.” 

“Behind the facts and figures of VCHEC’s contributions to the local economy are employees with good jobs and crucial funding for schools, law enforcement, and other public services,” said Sen. Todd Pillion, R-Abingdon, in a letter to the State Corporation Commission. 

Southwest Virginia lawmakers and Dominion also point to the role VCHEC plays in cleaning up gob coal, which can be a major pollutant in waterways. Dominion says the plant has cleaned up over 4 million tons of gob since it began operation in 2012, with roughly 10 million tons remaining in the region. 

Will Payne, director of regional marketing campaign Invest SWVA, argued in a letter to regulators that elimination of gob piles is necessary to clear up lands “to robustly locate solar, storage and wind assets across the coalfields” as well as commercial and industrial sites. 

“Southwest Virginia’s economy will not grow and diversify without VCHEC in operation to permanently eliminate gob coal,” he wrote. 

But while there has been little dispute over VCHEC’s impact on water quality, its impact on air quality and carbon footprint remain problems for environmental groups. 

Even while running at low capacity, the plant accounts for over 4 percent of the state’s annual carbon emissions, according to emissions figures from the Regional Greenhouse Gas Initiative’s online carbon allowance tracking system. 

Besides economic and environmental arguments, Dominion has contended that keeping VCHEC running is essential to ensuring electric reliability and that customers will bear steep costs if the plant is closed early anyway. 

“The commission could determine an amortization period over which the company would recover these prudently incurred costs from customers,” the utility wrote in a filing, “but no matter how long the recovery period, the costs will be significant.” 

Still, regulatory staff have expressed skepticism about whether keeping the plant running makes financial sense. Over time, facilities require pricey capital investments to offset routine wear and tear, while environmental regulations are increasingly putting a price tag on carbon emissions that makes the burning of coal for electricity more expensive. 

“Given the regulatory climate at both the state and federal levels regarding greenhouse gas emissions, including carbon dioxide, and environmental regulations such as RGGI,” wrote utilities analyst David Dalton, “it may not be advisable to continue capital investment in a unit that the company’s analysis shows to be uneconomic to continue operating.” 

Nevertheless, he noted that economic viability is not the only issue at hand. 

“Retiring any unit, particularly a coal unit, is not a decision that should be taken lightly or made in haste,” he wrote.