Since Virginia Electric and Power d/b/a Dominion Virginia Power has failed to show adequately considered actual third-party alternatives to its proposed Brunswick County Power Station, the Virginia State Corporation Commission (SCC) should deny the company’s application to build the project, according to a hearing examiner with the SCC.
The case involves the company’s November 2012 application for the approval and certification of its proposed plant and related transmission facilities/infrastructure.The company also seeks the approval of an associated rate adjustment clause (RAC) designated as Rider BW, according to the June 13 report by A. Ann Berkebile.
In March 27 prefiled staff testimony, SCC staff found that the transmission lines, as well as two 500-kV switching stations, are needed to interconnect the company’s proposed 1,358MW – nominal – power station.
In her report, Berkebile said the company also failed to establish that the project is required by the public convenience and necessity and failed to establish that the project is not contrary to the public interest.
The request for a certificate of public convenience and necessity (CPCN) and for the approval of Rider BW should be denied and the company should be directed to refile the application if, after conducting an evaluation of actual third-party market alternatives to the project, the company determines that the Brunswick plant is the best option for ratepayers, she said.
“Dominion believes that the best way to provide reliable electricity at reasonable cost for our customers today and well into the future – and to replace two old, important coal-fired power stations that are closing by 2015 – is to build the natural gas-fired Brunswick County Power Station and have it operating by 2016,” company spokesperson Jim Norvelle told TransmissionHub on June 14. “We will respond to the SCC hearing examiner’s report more fully by July 3.”
The company noted that the hearing examiner’s report is a recommendation and is not binding on the commissioners, who will make the final decision.
Dominion presented studies in its application that indicated that the decision to build Brunswick, instead of to supply customers through wholesale market purchases, would produce about $1.3bn in savings over the project’s life for ratepayers.
The company also said that it evaluated the extension of long-term contracts with non-utility generators, with studies indicating that neither wholesale purchases nor the non-utility generator options were economical.
Dominion further noted that in 2009, a hearing examiner with the SCC similarly found that the company did not adequately consider potential third-party market alternative suppliers in connection with its proposal to build the Bear Garden Power Station in Buckingham County. The commissioners did not accept that finding and the project was approved. Bear Garden was built on time and on budget and is operating today, the company said.
Hearing examiner’s report
In her report, Berkebile said that as a preliminary matter, she concludes that the company has sufficiently established its need for additional capacity by 2016.
The evidence also shows that the proposed combined-cycle facility would be highly efficient and that given the current gas market and forecasted gas prices, Dominion Virginia Power’s choice of a natural gas facility appears prudent.
Additionally, no participant in the case has challenged the reasonableness of the project’s estimated capital costs exclusive of financing costs – $1.27bn – about 81% of which are fixed as a result of agreements negotiated by the company.
Berkebile also noted that the company adequately considered renewable alternatives to the project, and the evidence shows that renewable resources are not yet cost-competitive with most traditional supply sources including the Brunswick plant.
“I also conclude, however, that the company was required to establish, as one of the criteria for demonstrating the public necessity and convenience of the Brunswick plant and for establishing that the project is not contrary to the public interest, that the company adequately considered third-party alternatives to the Brunswick plant,” she said. “In my view, the company’s decision not to affirmatively explore actual, third-party alternatives to the Brunswick plant – sufficient to meet its expected capacity deficiency – calls into question the necessity and prudence of the Brunswick plant.”
She said her conclusion in that regard is governed, in great part, by the SCC’s recent analysis in the company’s 2011 integrated resource plan(IRP) proceeding, in which the SCC said, “We also believe that Dominion [Virginia Power] should adequately consider third-party market alternatives as capacity resources.”
Based on her reading of the 2011 IRP order, she concludes that the SCC expected the company to fully investigate the possibility of actual third-party alternatives as part of its process of establishing that a particular self-build option is necessary and prudent, she said.
Berkebile noted that the company maintains that it reasonably considered and rejected as less beneficial to its customers third-party alternatives to the Brunswick plant when it, for instance, updated its Strategist modeling – from modeling previously performed in connection with the IRP – for the comparison of forecasted market purchases, simple-cycle combustion turbinesand coal retrofits at its Yorktown and Chesapeake facilities.
“Dominion Virginia Power’s use of Strategist did not, however, compare actual third-party alternatives to the company’s proposed self-build option,” she added.
Berkebile noted that the SCC may reach a contrary conclusion regarding the adequacy of the company’s efforts to consider third-party alternatives and so she addressed the other statutory requirements relative to the project.
If the SCC concludes that the Brunswick plant is required for the public convenience and necessity, Berkebile said she recommends approval of the transmission facilities included in the project as the need for the proposed transmission line is undisputed. The lines’ proposed routes are reasonable and will minimize adverse impacts.
Also, the project, if approved, will generate significant economic benefits for Brunswick County, Va., and the evidence shows that the project will comply with all applicable environmental regulations.
She also addressed, as a preliminary matter, the company’s assertion that it should receive an enhanced return on equity (ROE) – specifically, a 100 basis point adder – in connection with the project for the first 15 years of the plant’s service life.
She said she disagrees with Dominion Virginia Power’s assertion that the project’s criticality and risks support an enhanced ROE at the midpoint of the range – 10 to 20 years.
She said the company failed to show that the plant is “critical” for meeting the state’s energy needs and has acknowledged that there is no physical reliability need for the project by 2016. Furthermore, the potential risks of developing the project are low, given, for instance, the company’s past experience with similar facilities and the fixed cost contracts that the company has entered into for the plant’s construction and equipment.
“All of these factors lead me to conclude that the first portion of the Brunswick plant’s service life should be 10 years (the minimum period provided … for a combined-cycle facility,” she said.
Berkebile noted that initially, the company proposed a Rider BW revenue requirement of about $44.6m for the Sept. 1, 2013, through Aug. 31, 2014 rate year. The company’s revised Rider BW revenue requirement of about $43.5m – eliminating the financial impact of Dominion Virginia Power’s new overhead cost allocation methodology – is reasonable and supported by the evidence.
Any comments to the report must be filed with the SCC clerk in writing by July 3, according to the report.