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Dominion’s Offshore Wind Farm

Bishop, California

December 20, 2022

The Southeast is one of the few areas of the country where utilities are in the generation business and make money by earning a rate of return on their "rate base" (generating assets primarily). So it makes sense that Dominion wants to build an expensive offshore wind farm -- it earns a return on the cost.

Other offshore wind farms in the US are owned by third parties -- the utilities buying their output are agreeing to buy the output at a specific price. In other words, the construction cost risk is not borne by ratepayers -- it's borne by the third party that owns the plant.

I'm glad the US is moving forward with offshore wind (albeit at a glacial pace). But I'm not sure Dominion's approach is a model we want others to replicate.

From the RTD:

A tough performance standard for Dominion Energy’s 176-turbine wind farm off the Virginia Beach shore that the company said would force it to pull the plug on the $9.8 billion project is now off the table.The State Corporation Commission agreed to replace it with a pact the utility worked out with Attorney General Jason Miyares and consumer groups.

The pact covers who pays for what if the project runs over budget.It replaces a performance standard that said Dominion would have to eat the cost if the wind farm did not reach a target production level and the company had to find other ways of meeting power demand.

The SCC — which set the performance standard in an order approving a new rider (a surcharge on power bills) to cover a first slice of the cost of the project — said the utility, the attorney general and the consumer groups agree that the new agreement adequately protects consumers. The agreement says consumers will foot the bill if the cost of the project rises from the current estimate of $9.8 billion to $10.3 billion. If the cost rises to between $10.3 billion and $11.3 billion, ratepayers and the company will split the cost. Dominion would pay 100% of costs from $11.3 billion to $13.7 billion.If the cost were to exceed $13.7 billion, the SCC would step in to decide what to do.

In its order, the commission said that if the project never becomes operational or is at some point abandoned, ratepayers would still pay for costs the company incurred — for instance, if Dominion abandoned the project at the end of next year, it could need to recover $4 billion of costs from customers.

The commission said its original order showed the project would have a significant impact on power bills, noting that the rider it approved would increase average monthly bills by $4.72, rising to $14.22 in 2027.

“The magnitude of this Project is so great that it will likely be the costliest project being undertaken by any regulated utility in the United States,” the SCC said. “And the electricity produced by this Project will be among the most expensive sources of power — on both a per kilowatt of firm capacity and a per megawatt-hour basis — in the entire United States,” it added.

The cost-sharing pact for budget overruns replaces a requirement that Dominion’s wind farm produce at least 42% of its net capacity factor, measured on a three-year rolling average.Dominion had said that was unreasonable because it would take time for the project to get up and running.Dominion said it appreciated the collaboration in reaching the agreement.“Coastal Virginia Offshore Wind has many benefits for our customers. It is fuel free, emissions free, diversifies our energy mix and is a transformative economic development opportunity for Hampton Roads and Virginia,” the company said.

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