First of Two Articles
By Stephen D. Haner
Virginia’s State Corporation Commission has now received a series of legal briefs offering opinions on what steps, under the law, it can take to protect Dominion Energy Virginia consumers from the massive risks facing its proposed offshore wind facility. Those risks range from cost overruns to poor energy output to failure.
All the parties asked responded that the SCC did have some authority to act and somewhat shift the risk. The utility had a more limited view. But the legal question is truly secondary, and the real question is will two judges take actions to protect consumers when their elected representatives left the customers so openly and knowingly exposed.
It is not even a full panel of judges, with one seat remaining vacant due to the political polarization of the General Assembly. The Assembly is remaining in perpetual session this year in part to prevent Governor Glenn Youngkin (R) from making a recess appointment to that crucial post. In that environment, will the two remaining judges be bold?
Or will they follow the law narrowly and let the elected political leaders who are behind this project, now evidently including Governor Youngkin, carry the political risk of delays, cost overruns, disappointing energy performance, or even failure in a major ocean storm?
Today’s column provides a discussion of the risks. Tomorrow a second column will address what consumer protections have been proposed. Named by the company Coastal Virginia Offshore Wind (CVOW), the project calls for 176 turbines, each 14.7 megawatts of potential generation, and related transmission connections, at a now-projected cost of $9.65 billion.
To read the briefs, most of them filed June 24, is to understand the scope of what the General Assembly majority that approved the 2020 Virginia Clean Economy Act did to its constituents. The environmental advocates have some stark descriptions of the risk.
This is from advocacy group Clean Virginia, in its brief signed by attorney Will Reisinger:
The CVOW Project presents additional risks based on Dominion’s decision to act as its own engineering, procurement, and design contractor, to own 100% of the equity of the completed facility, and to pass 100% of the risk of cost overruns to ratepayers…
The CVOW Project will also result in one of the largest single rate increases in the history of the Company. According to Dominion, Rider OSW in 2027 will result in a peak monthly bill increase of $14.21 for a residential customer using 1,000 kWh per month. Dominion estimates Rider OSW will result in an average bill impact, over the life of the project, of $4.72.7 8This is several times the rate impact of any other currently approved generation rider. Any cost overruns, construction delays, damage from extreme weather, or other performance issues could increase capital costs and consumer rate impacts…
As Clean Virginia witness (Maximillian) Chang testified, (see here for previous story), all other states pursuing large-scale offshore wind are doing so through power purchase agreements (“PPAs”) or other third-party financing mechanisms. In each of the major offshore wind projects to date, the developer owns the project and therefore bears the risk. The Commission noted the risks associated with utility ownership when approving the CVOW Pilot Project.
Clean Virginia also cites a Dominion executive who testified under oath about the company’s decision to be its own EPC (engineering, procurement and construction) contractor on the deal. That witness:
…agreed that EPC (engineering, procurement and construction) contracts mitigate risks such as materials, labor, and schedule risk. But according to Dominion Witness Mitchell, the Company determined the CVOW Project will be so large that no single EPC contractor could provide adequate financial assurance.
So the ratepayers are providing that assurance, with the blessing of the General Assembly and now the Youngkin administration.
The argument provided by retail giant Walmart, while including the usual corporate obedience toward the need to use wind power to protect the world from climate catastrophe, is also quite blunt:
As discussed further below, there is ample record evidence that: (1) the Company is well aware of the potential risks of the CVOW Project; (2) risks are inherent, particularly in a project of this size; and (3) despite these known risks, the Company only included a $300 million contingency in the total estimated project cost of $9.65 billion.
Walmart lists several known risks which are on the record:
- Although the Company touts the fact that “80.2% of Project costs are fixed” this is not entirely accurate. Even these allegedly “fixed price” contracts provide for the submission of change orders, which the Company admits can increase costs from those set forth in the contract.
- The SGRE turbine being used for CVOW has never been deployed in an offshore wind project. There is a single prototype turbine on land in Denmark.
- The designs for the various components, including the monopile and the transition pieces, have yet to be finalized.
- Dominion has recently experienced delays and cost overruns on two recent transmission projects. Transmission will be a significant component of CVOW.
- The Charybdis, the only required Jones Act compliant vessel in the United States, is scheduled to be in use on two projects prior to being available for CVOW, which could delay its use on the CVOW Project.
Then, unlike the other respondents, it includes several lines of redacted discussion of risks which have not been made public. Quite a bit of the record remains sealed and available only to those who sign a secrecy agreement. The risks not disclosed should concern Dominion ratepayers the most.
Briefs from both the Office of the Attorney General and a coalition of environmental groups also stress that 100% of the cost of the project will be extracted from customers, one way or another. The Consumer Counsel for the AG also notes that all other U.S. wind proposals in other states provide far more consumer protection. If the project runs over budget due to construction issues or delays, or fails to perform as promised, forcing additional energy costs, those too are passed to customers. Their briefs will figure more prominently in tomorrow’s second part, discussing possible mitigations the SCC should consider.
None of these groups opposed the passage of VCEA in 2020 (recall it was a Democrat, Mark Herring, serving as attorney general at that time) and only the Office of Attorney General (now under Republican Miyares) supported 2022 legislative efforts to restore Commission discretion. The assumption through all the briefs is the SCC must approve this application.
Stephen D. Haner is Senior Fellow with the Thomas Jefferson Institute for Public Policy. He may be reached at firstname.lastname@example.org.
- SCC Approves Dominion Wind Project, Cites “Will of the General Assembly” - August 8, 2022
- No MVP in this Trading Deal? - August 5, 2022
- Five Reasons To Reject Offshore Wind Project(The video shows Number Five) - July 22, 2022