The Virginia Electric and Power unit of Dominion Resources (NYSE: D) did an inadequate job of seeking outside alternatives to its proposed, 1,358-MW Brunswick County power project, said independent power producers and state officials charged with reviewing this project.
Various parties, including Virginia Electric and Power d/b/a Dominion Virginia Power, filed post-hearing briefs on May 28 at the Virginia State Corporation Commission. Dominion is seeking commission approval for the $1.3bn, gas-fired Brunswick County project to meet future power needs, including a hole in its capacity portfolio from the impending retirement of coal-fired units at the Chesapeake and Yorktown power plants. The company filed this application last November.
One May 28 filing was from the PJM Power Providers Group and the Electric Power Supply Association (collectively called P3), which represent independent power producers (IPPs). In addition to P3, respondents participating in the case include the Virginia Committee for Fair Utility Rates, the Sierra Club and the Chesapeake Climate Action Network (collectively called the Environmental Respondents), independent power producer Doswell Limited Partnership, the state Attorney General and commission staff.
P3 pointed out how Doswell, one of the three non-utility generators (NUG) that Dominion contacted as it was deciding how to fill this capacity need through a “limited solicitation,” described how there was no structure to the solicitation, there was no opportunity to negotiate with Dominion, and how it did not appear that the solicitation was a serious effort to consider competitive alternatives to Brunswick.
P3 also said that relying on a market price forecast as a proxy for market purchases may be appropriate for an integrated resource plan (IRP), which is a planning document, but is inappropriate for a certificate of public convenience and necessity (CPCN) proceeding like this one, where ratepayers are asked to invest over a billion dollars and commit to a specific resource.
“The record in this case clearly demonstrates that Dominion has failed to meet its burden to adequately consider actual market alternatives to the proposed Project,” P3 wrote. “Therefore, absent a broader solicitation of true market alternatives to the proposed Project the Commission should deny the Company’s application for a CPCN for the Brunswick County Power Station.”
Doswell says a new commission mandate required outside solicitations
Doswell, in its May 28 brief, said: “This proceeding is unique in that it involves the first CPCN application submitted by Dominion since the Virginia State Corporation Commission (the ‘Commission’) issued its order accepting Dominion’s 2011 Integrated Resource Plan (‘IRP’). In that order, the Commission expressly directed Dominion, in future CPCN proceedings like this one, to adequately consider third-party market alternatives to its own proposed generation investments. Although the Commission first articulated the ‘adequately consider third-party market alternatives’ standard in the 2011 IRP Order, Dominion was actually on notice of the need to present evidence derived from a competitive solicitation process in its self-build CPCN proceedings even prior to the issuance of the 2011 IRP Order.”
The commission held in the order approving the company’s Bear Garden power plant that evidence relating to the costs and other attributes of competitive alternatives, including contracts for purchased power, is relevant in determining the reasonableness and prudence of a generation investment proposed by Dominion, Doswell added. “The requirement that Dominion adequately consider and present evidence of third-party market alternatives to its self-build proposals, either from existing or new capacity, is critical to protecting ratepayers. Dominion earns a regulated return on its generation investments, but not on its purchases from third parties,” Doswell wrote. “Dominion therefore has an economic incentive to invest in generation infrastructure, even if it could purchase energy and capacity from third-party suppliers at a lower cost.”
Dominion has basically contended that it knows the PJM Interconnection power market so well that it didn’t need to issue a broad-based solicitation to check on prices for outside power, Doswell said. “If the Commission had considered the transparency of the PJM markets, and Dominion’s understanding of those markets, to be a sufficient mechanism for ensuring that a Dominion self-build proposal is in the best interests of its customers, there would not have been any need for the Commission to require Dominion to adequately consider and present evidence of third-party market alternatives in the first place,” Doswell said. “Moreover, Dominion acknowledges that it does not have any insight into the market that other load serving entities do not have, including utilities that conduct broad-based solicitations of market alternatives.”
Doswell noted that the three NUGs that Dominion did contact, including Doswell, had existing power purchase contracts with Dominion. There was no contact with other independent power producers. The combined capacity of those three NUGs is a total of approximately 900 MW.
“As a result, that solicitation was simply not designed to evaluate realistic, available alternatives to the 1,358 MW Brunswick Facility,” Doswell added. “Dominion did not seek any proposals from those NUGs to sell their existing generating facilities, or consider any available market alternatives from suppliers that do not currently have expiring contracts with Dominion. More significantly, Dominion did not consider any alternatives from suppliers that could have met the needs of Dominion’s customers from new generating capacity that may be available in the market. As a result, the universe of potential market alternatives that Dominion considered thorough the NUG solicitation was artificially limited from the beginning, and fails to support a conclusion that the Brunswick Facility is the best option for Dominion’s customers.”
State officials also criticize Dominion’s limited effort to seek outside offers
The criticism of outside parties like P3 and Doswell may be par for the course in a proceeding like this. But perhaps more worrisome for Dominion is that commission staff, while not as critical as P3 and Doswell, wrote in its May 28 brief that it is concerned about the limited third-party outreach.
“First, Staff agrees that there is a need for Dominion Virginia Power to increase its resource capacity portfolio,” said the brief. “However, Staff has some concerns about Dominion Virginia Power’s consideration of market alternatives to fill this need. Namely, Staff is concerned about the limited scope of Dominion Virginia Power’s solicitation of third-party suppliers and whether that solicitation process [produced] meaningful alternatives to the Brunswick power plant. Moreover, Dominion Virginia Power conducted its solicitation in March and April 2012, but took no additional action to ‘adequately consider third-party market alternatives’ as directed by the Commission’s October 5, 2012 Final Order in the Company’s 2011 IRP proceeding before filing its Application on November 2, 2012, in this case.”
Staff said that when undertaking its limited, informal contacts with the three NUGs, Dominion Virginia Power chose to consider only the extension of existing contracts beyond the next three to five years. “Nothing in the record indicates that in the spring of 2012 or thereafter, Dominion Virginia Power made any contact with a supplier regarding the construction of a new plant in the Dominion Zone or anywhere else,” staff added. “As such, even if the three NUGs had offered to extend their contracts at a price Dominion Virginia Power considered competitive, these extensions would not have created a single MW of new generation in the Dominion Zone in 2016. In other words, despite the Company’s clearly identified need and preference for additional, ‘iron-in-the-ground’ capacity in the Dominion Zone, Dominion Virginia Power made absolutely no effort to seek such additional new capacity from third-party market alternatives.”
The Virginia Attorney General’s office, acting as a consumer advocate, also criticized the utility in a May 28 brief. “[Dominion] has not met its affirmative burden to demonstrate that the construction of the proposed Brunswick County Power Station is the optimal choice for customers after adequately considering market alternatives,” the AG said. “Accordingly, Consumer Counsel recommends that the Commission dismiss Virginia Power’s application, without prejudice.”
Dominion says its efforts to evaluate outside capacity were comprehensive
Said Dominion in its May 28 brief: “The evidence demonstrates a compelling case that the Company did in fact properly consider and weigh all reasonable options to meet the need, including other generation technologies, market options, and demand-side resources, and that Brunswick provides a clearly superior result for customers compared to all of these alternatives.”
As for contacting only three NUGs, Dominion said: “In the Company’s business judgment, its existing NUG operators, with long-standing contracts and relationships and associated units that are partially if not fully depreciated, were optimal choices as market participants to solicit and determine if they could offer customer value competitive with Brunswick. The Company’s solicitation process was systematic and reasonable, and took into consideration previous Commission determinations and Staff comments. It was tailored to long-standing NUG/Company relationships, in which virtually all relevant information was known by these counterparties as a result of their pre-existing agreements. And the Company’s single-round bid process was based on its professional judgment as to how to obtain the best result for its customers.”
The company said it received multiple bids from the NUGs, and the largest NUG provider solicited – Doswell – confirmed in this proceeding that it gave the company its best and final price terms for extension. The offers were consistent with consultant ICF International‘s forecast of market prices, and the company’s evaluation of the NUG offers was thorough with results that were unambiguous, the utility added.
“None of these offers, either singly or in combination, constituted a preferred economic alternative to meeting future customer needs or to the construction of Brunswick,” it added. “At best, if all three of the NUG extensions were to be accepted, then the need for Brunswick could be deferred until 2019, but at a cost penalty to customers of $226 million. Given the clear nature of the economics, the Company’s analysis did not even reach ‘non-price’ issues, such as the value of new ‘iron-in-the-ground’ and long-lived utility-owned assets.”
In the end, Dominion said it does not believe that meeting its burden in this proceeding necessarily required an open-ended request for proposals (RFP) in addition to the multiple analyses and solicitations that it did conduct. “Rather, it believes that its burden is to demonstrate to the Commission’s satisfaction, based on competent evidence, that it has considered and weighed viable alternatives, given the facts and circumstances at hand, and that the proposed investment is reasonable, prudent and in the public interest,” the utility argued.