Construction of offshore wind turbines. (Ørsted)
Imagine you’re going into a pitch meeting to outline a proposal that could put your prospective client years ahead in its industry and be worth millions in consulting and development fees for your own firm.
It’s a can’t miss project, you tell the client. Once it’s up and running, you can enjoy not only market dominance but a favorable reputation as you lock in healthy, long-term revenues off a readily available but scarcely exploited commodity.
“Great,” the client exclaims. “So let’s figure out some reasonable performance metrics.”
The room falls silent. You could hear a gnat burp. Slack-jawed stares from your side of the conference table toward the prospective customers on the other side of it.
“Pardon me?” you stutter incredulously. “You actually want us to say in writing what we’re going to do and then be held accountable on how well we actually do it? You can’t be serious.”
Now imagine how quickly that meeting and the deal would collapse.
That’s not dissimilar from the position that Dominion, Virginia’s dominant electric power utility is taking with the State Corporation Commission’s attachment of a performance standard to the company’s $9.8 billion Coastal Virginia Offshore Wind project.
It’s Dominion insisting on a heads-I-win,-tails-you-lose approach to its ballyhooed green energy initiative. It involves anchoring 850-feet-tall wind turbines to the sea floor miles off the Virginia coast. The steady sea winds would turn the turbines and generate electricity that is fed through cables along the ocean floor onto land and the nation’s increasingly hungry power grid.
If the build-out goes smoothly and the project is wildly successful, then Dominion shareholders profit. But without the performance agreement, if things go south, the ratepayers, not the shareholders, will cover the utility’s bad bet.
Downside risk? That’s for suckers.
Such a tactic would be a nonstarter in the normal course of business. But remarkably, it might just work for a too-big-to-fail utility once accustomed to throwing its weight around and getting its way with government. Whether it flies this time is for the SCC to decide.
The SCC holds sweeping regulatory authority over a number of companies and industries that serve essential public functions in Virginia, including utilities. It imposed the performance standard as a condition of approving Dominion’s CVOW project in August. The standard requires the utility, not its customers, to cover the cost of buying replacement energy should the wind farm not produce enough electricity over time.
Dominion is having none of it. The utility asked the SCC to reconsider the standard, citing “untenable costs.” As the Mercury’s Charlie Paullin reported a week ago, Dominion’s most recent argument to the SCC came after several environmental groups, the office of Attorney General Jason Miyares and the planet’s largest retailer, Walmart, argued for the performance standard to stay in place.
In fairness, there’s a whole lot more involved in turning sea winds into megawatts than appearances may suggest. As former Mercury editor Robert Zullo explained in a story last week, pumping the extra current generated at sea into the grid is no plug-and-play operation. Major reconfigurations on land that will cost many billions of dollars have to be made to handle and distribute the power coming into the system from offshore wind farms.
Dominion also rightly notes natural and human-made vulnerabilities to offshore wind generating and transmission capabilities. There are also future public policy and market conditions that can affect the bottom line.
In a statement to the Mercury for this column, Dominion said the SCC’s accountability measure “creates an unprecedented layer of financial one-way risk to DEV (Dominion Energy Virginia). And it is inconsistent with the utility risk profile expected by our investors.”
There’s the tell: investors.
Dominion is a private business obligated to its investors. I probably have a little Dominion stock in my portfolio. So I hope all of us investors fare well. Dominion and its shareholders have experienced both ups and downs in the past few years. Who hasn’t? That’s part of investing.
But Dominion is also a regulated public utility that receives significant governmental protections many companies can never enjoy because it exists to fulfill an essential public need, namely supplying households and businesses with electrical power, something it generally does pretty well.
The customers who Dominion serves and who pay its ever-higher bills face “risk profiles” every day from which they can’t indemnify themselves. There was no magic cloak government could confer to shield them from the human and financial ravages the coronavirus pandemic wrought over the past two and a half years.
The Virginia Economic Development Partnership reported in December 2020 that one-fourth of the commonwealth’s businesses had closed permanently or temporarily because of the pandemic. From early April through New Year’s Eve of that year, COVID-19 killed nearly 5,100 Virginians, according to Virginia Department of Health data.
And we recall all too painfully the resulting tsunami of job losses and “financial one-way risk” to families that was aggravated by the Virginia Employment Commission’s inability to cope with record numbers of claims for unemployment benefits from 2020 well into this year.
There was no state safety net for the bend-but-don’t-break health care system that was stressed beyond its limits by the critically ill who flooded Virginia’s hospitals and created staggering death tolls for already frail nursing home residents. In the early weeks of the pandemic, the government wasn’t even able to procure sufficient basic personal protective equipment such as face coverings and gloves for health care professionals. For many, it was too much, and it drove them into other fields or into retirement. Some even found unemployment preferable to the daily horror and heartbreak of their jobs. The talent drain remains a significant problem for the industry.
Yet Virginia is expected to mitigate the pain for Dominion’s investors at ratepayers’ expense if its venture into the renewable energy space encounters choppy seas?
Dominion’s statement also notes that the varied risks and problems that confront its new venture come “at a time when fuel costs have increased dramatically.”
Tell us about it. We fill our tanks with gasoline and diesel, buy heating oil and pay your monthly bills. It wasn’t that long ago that a gallon of regular unleaded approached $5 in many parts of Virginia. It eased a bit over the summer, but OPEC’s extortionate move last week to cut production has reversed that.
The statement continues by saying that with other prices rising, that leaves “renewable energy as one of the few ways to alleviate inflationary pressures on electricity prices.”
That’s sensible and laudable. But it still doesn’t entitle Dominion to insist on an all-profit, no-risk approach to bringing green energy to the market devoid of measurable performance benchmarks.
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