Dominion, ratepayer advocates propose settlement over potential wind project costs

By: - November 1, 2022 12:02 am

One of two wind turbines off the coast of Virginia Beach that comprise Dominion Energy’s Coastal Virginia Offshore Wind pilot project. The Virginia Attorney General’s Office is criticizing the massive cost estimates of a larger planned wind development in the same area. (Sarah Vogelsong/ Virginia Mercury)

Dominion Energy and groups advocating for ratepayers announced a settlement agreement Friday on who will bear responsibility for any increased costs associated with the Coastal Virginia Offshore Wind project.

The agreement, which was reached between Dominion Energy, the Office of the Attorney General, Walmart, the Sierra Club and environmental nonprofit Appalachian Voices, protects ratepayers from some increases in construction costs while removing a performance guarantee Dominion had criticized.

The Office of the Attorney General called the agreement “both a landmark and commonsense framework for balancing the need to build innovative, renewable energy projects with strong consumer protections.” 

The Coastal Virginia Offshore Wind project is a key part of Dominion’s plans to achieve a zero-carbon grid by 2050, as required under the Virginia Clean Economy Act.

The State Corporation Commission, which oversees Virginia’s public utilities, greenlit the $9.8 billion project in August but included a performance standard as a condition of its approval. 

The standard required the company to cover the costs of replacement energy if the wind farm didn’t produce 42% of the energy it is capable of producing. Performance would have been measured on a three-year rolling basis.

Dominion had previously requested that the performance standard be removed, claiming it would make the project “untenable” and reliant on factors out of its control, such as weather.

But while the SCC approval included ratepayer protections for underperformance, it didn’t provide protection for construction cost overruns, said Will Cleveland, an attorney with the Southern Environmental Law Center who represented Appalachian Voices in negotiations. 

Cleveland said the deal was a “substantial improvement” over what existing law allows.

Under state code, Dominion is allowed to recover construction cost overruns from customers up to a certain dollar amount as long as the increased costs are determined to be reasonable and prudently incurred.

But under the settlement agreement, customers only have to cover project costs of up to $10.3 billion. 

If costs are between $10.3 billion and $11.3 billion, customers and Dominion will share responsibility for overruns equally. 

If costs rise to between $11.3 billion and $13.7 billion, responsibility for overruns will be borne entirely by the company. Any expenses that run over $13.7 billion will require a future commission proceeding to determine how to recover costs.

A breakdown of the construction cost sharing proposal in a settlement agreement for Dominion’s Coastal Virginia Offshore Wind project. (State Corporation Commission filing).

Friday’s agreement also gets rid of a presumption that any costs Dominion incurs in construction are “reasonable and prudent.” Instead, Dominion will have to prove to the State Corporation Commission that additional costs were reasonably and prudently incurred before it can recoup them from ratepayers.

“It will be a much more robust record rather than just sort of a checkbox,” Cleveland said.

Residential customers can expect an average monthly bill increase of $4.72 over the course of the 35-year project, with a peak of $14.22 in 2027. Dominion spokesperson Jeremy Slayton declined to say what the company plans to do if the project doesn’t produce energy at its expected level. 

The terms of the agreement are “how we’re going to approach it,” he said.

Dominion Energy President and CEO Bob Blue said the project is on schedule and set to be complete in late 2026. Not including backup funding for emergencies, the company expects to have over 90% of the project costs fixed by the end of the first quarter of 2023.

“Offshore wind is expected to alleviate pressure on customer fuel rates for 30 years once the project is in-service,” said Blue. “Our customers expect reliable, affordable energy – and offshore wind is key for accomplishing that mission.”

In September, the SCC approved major monthly bill increases for Dominion customers because of rising fuel costs.

Andy Farmer, a spokesperson for the State Corporation Commission, declined to comment on the proposal. The SCC will have to approve the agreement before it can take effect.

No deadline for acceptance is included in the settlement other than a request for “expedited consideration.”

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Charlie Paullin
Charlie Paullin

Charles Paullin covers energy and environment for the Mercury. He previously worked for Northern Virginia Daily in the Northern Shenandoah Valley and for the New Britain Herald in central Connecticut. An Alexandria native, Charles graduated from the University of Hartford initially wanting to cover sports. He's received several Virginia Press Association awards for his coverage of crime, local government and state politics. Catch him in nature experiencing all the outdoors has to offer, and contact him at [email protected]

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