Virginia SCC: While CVOW Project ‘would not be deemed prudent,’ Dominion’s petition approved

The Virginia State Corporation Commission, in a Nov. 2 final order, granted a request by Virginia Electric and Power d/b/a Dominion Energy Virginia for a certificate of public convenience and necessity (CPCN) to build and operate the “Virginia Interconnect Facilities” related to an offshore wind project.

As noted in the order, Dominion in August filed a petition requesting that the commission issue an order finding that the construction of the Coastal Virginia Offshore Wind (CVOW) Project, including the Virginia Interconnect Facilities, is prudent; granting a CPCN for the Virginia Interconnect Facilities, if required; and granting any such other approvals as deemed appropriate and necessary.

The petition relates to proposed CVOW generation facilities consisting of two 6-MW (nominal) wind turbine generators located about 27 statute miles (about 24 nautical miles) off the coast of Virginia Beach in federal waters, as well as the related generation and distribution interconnection facilities (CVOW Interconnect Facilities), which include a smaller subset of generation interconnection facilities that are located entirely within Virginia (Virginia Interconnect Facilities).

The commission noted that collectively, the wind turbine generators and CVOW Interconnect Facilities, inclusive of the Virginia Interconnect Facilities, comprise the CVOW Project.

Dominion’s proposed CVOW Project would be located on a research lease site provided by the U.S. Bureau of Ocean Energy Management and held by the Virginia Department of Mines, Minerals, and Energy. According to the petition, the commission added, the proposed CVOW Project would be interconnected at 34.5-kV. The proposed CVOW Interconnect Facilities would begin with a 34.5-kV alternating current (AC) submarine cable that would interconnect the two wind turbine generators to one another, and to an approximately 27-mile, 34.5-kV AC submarine distribution cable (export cable), which would connect to an onshore transition point located on Camp Pendleton State Military Reservation at an interface cabinet (Beach Cabinet) in Virginia Beach, Va.

The commission added that from the Beach Cabinet, a 34.5-kV underground cable (Onshore Interconnection Cable) would continue onshore for about 1.2 miles, terminating at an interconnection station (Interconnection Station), where switches, auxiliary equipment, and a metering cabinet would be installed.

The Virginia Interconnect Facilities would comprise, starting from the Virginia jurisdictional line demarcating state-owned submerged lands, about 3.6 miles of Export Cable, the Beach Cabinet, the approximately 1.2-mile Onshore Interconnection Cable, and the Interconnection Station.

From the Interconnection Station, the commission added, the proposed CVOW Project would interconnect with the company’s existing distribution system via a new 34.5-kV underground line, about one-quarter mile in length, to a new terminal pole on nearby existing distribution circuit (Cir.) 421, which terminates with the company’s existing Birdneck substation.

Dominion proposes to replace relays inside the existing control house at the Birdneck substation to ensure Cir. 421 has proper protection to accept reverse flow from the wind turbine generators onto the company’s system (collectively, “Distribution Grid Facilities”).

The commission also said that Dominion asserts that the Virginia Interconnect Facilities and Distribution Grid Facilities are extensions or improvements in the usual course of business under Code § 56-265.2 and, therefore, do not require commission approval. Moreover, Dominion asserts that while Code § 56-585.1:4 F provides for a prudency determination as to construction of certain wind generation facilities, there is no requirement within Code § 56-585.1:4 directing the utility to seek a CPCN or any other type of approval for electric facilities related to the proposed CVOW Project.

The commission added that notwithstanding, Dominion states it included information to support approval and certification of the Virginia Interconnect Facilities in its petition. The company asserts that the commission’s duty to ensure that the effects of the Virginia Interconnect Facilities on the environment are minimized under Code § 56-46.1 is satisfied by the proposed CVOW Project’s federal and state approvals regarding the siting, route, placement, installation, and operation of those facilities.

The commission added that Dominion noted in its petition that it executed an engineering, procurement, and construction (EPC) agreement with Ørsted – formerly Dong Energy – in January; Dominion executed an EPC agreement in June with L.E. Myers for the onshore portion of the proposed CVOW Project.

Dominion’s current schedule for the proposed CVOW Project contemplates that the project would begin operations in December 2020. The company has noted that it must pursue the proposed CVOW Project now if it is to be ready in time to inform on the viability of pursuing a larger offshore wind project in the future. The commission also said that Dominion asserts that it could deploy a larger commercial offshore wind project as early as 2024.

The company estimates the total cost of the proposed CVOW Project, including the CVOW Interconnect Facilities, to be about $300m, excluding financing costs, the commission said, adding that according to Dominion, the EPC agreements with Ørsted and L.E. Myers fix about 87% of the total $300m cost estimate.

The commission said that Dominion plans to include the proposed CVOW Project costs in its base rate cost of service for recovery through its rates for generation and distribution services; the company states that, if needed, it may designate the costs for customer credit reinvestment offset under Code § 56-585.1 A 8.

Commission’s decision

The commission said that it finds – as a purely factual matter based on the record – “that the proposed CVOW Project would not be deemed prudent as that term has been applied by this commission in its long history of public utility regulation or under any common application of the term.”

The commission said that it further finds, however, that as a matter of law, the new statutes governing the case subordinate the factual analysis to the legislative intent and public policy set forth in certain statutes and, thus, the petition should be – and is – approved.

The commission said that the facts militating against a standard finding of prudence in this matter include that:

  • Dominion’s customers bear essentially all of the risk of the proposed project, including cost overruns and lack of performance
  • CVOW has the highest cost of any resource modeled in Dominion’s integrated resource plan (IRP)
  • CVOW’s cost per kilowatt hour is more expensive than other renewable and non-renewable resources including onshore wind, solar, natural gas, demand side management, and other offshore wind
  • Unlike other offshore wind projects on the East Coast, the company did not choose a power purchase agreement model for offshore wind, which would have placed all or some of the risk on the project’s developer instead of on the company’s customers
  • CVOW is not the result of a competitive bidding process

However, the commission said, the statutory language and multiple public policy declarations by the General Assembly necessarily control the purpose and scope of the new statutory “prudency determination” recently enacted in Code § 56-585.1:4 F. The General Assembly declared, in at least six separate locations, that a project like the CVOW is in the public interest. For specific purposes of offshore wind, the commission added, the General Assembly further mandated that “the commission shall liberally construe the provisions of this section.”

In addition, the General Assembly made the new prudency proceeding in Code § 56-585.1:4 F merely voluntary, the commission said.

Additional new statutory restrictions were also placed on the instant case, the commission said, adding that the General Assembly limited the entire review under Code § 56-585.1:4 F to three months. In direct contrast, CPCN proceedings for new generating facilities generally have no time limitation, the commission said.

Accordingly, the scope of the new statutory “prudency determination” contemplated in Code § 56-585.1:4 F must be viewed in light of the express and unprecedented statutes attendant to an offshore wind demonstration project such as the CVOW Project, the commission said.

Company’s response

In a Nov. 2 statement, Dominion said, in part: “The $300 million project will be funded through existing base rates, as enabled by the Grid Transformation & Security Act of 2018 (GTSA). Contingent on various regulatory approvals, onshore construction would start in 2019, followed by turbine installation and operation in 2020.”

Of the SCC’s argument that customers bear almost all of the risks of the project, David Botkins, director, electric communications with Dominion, on Nov. 2 told TransmissionHub: “The entire $300 million cost of the test project will be covered in existing base rates, as enabled by the [GTSA]. Virginia customers will not see any rate increase, while reaping the benefits of a new form of carbon-free, renewable energy as we explore the viability of a [2,000-MW] installation that could power up to 500,000 homes.”

Of the SCC’s argument that the proposed project is not the result of a competitive bidding process, he said: “We have worked hard to decrease costs for this project through multiple solicitations of competitive bids. We have a very strong contract with the overwhelming majority of the costs fixed to prevent excessive spending.”

Addressing the SCC’s argument that CVOW has the highest levelized cost of energy of new resources evaluated in the company’s IRP, Botkins said that the company believes “that the costs for offshore wind for a commercial size facility will decrease as the construction and operations infrastructure gets established in the [United States]. As more suppliers and [U.S] flagged vessels become available for the installation of wind turbines in the [United States], the fixed costs of those vessels can be distributed across multiple [U.S.] projects. Europe has seen significant reductions in costs as more specialized installation and service vessels are built and placed in service in Europe as well as more local suppliers are established.”

He also addressed the SCC’s argument that the proposed CVOW Project would not be deemed prudent as that term has been applied by the commission in its history of public utility regulation or under any common application of the term.

Botkins said: “The General Assembly and [Gov.] Ralph Northam have made clear the commonwealth’s policy is to advance forms of renewable energy, such as solar and wind. The Coastal Virginia Offshore Wind project is just the type of clean energy they had in mind when they joined a broad range of stakeholders in supporting the [GTSA] of 2018. Dominion Energy is moving forward in taking this legislation and expanding our commitment to renewable energy.”

Dominion said in its statement that in addition to helping modernize the energy grid to expand the use of renewables, the GTSA also calls for a battery storage pilot and increases in energy efficiency programs over the next 10 years.

The company said that it remains focused on keeping energy affordable while investing in renewables and innovative technology, adding that the GTSA mandates a $130m investment in EnergyShare over the next decade, providing weatherization and bill assistance to elderly customers, low-income customers, “veterans and customers with disabilities.” The GTSA also provided a $125m cut to customer base rates due to federal tax reform and a $133m bill credit in July, the company said. Customers will see another $67m bill credit in January 2019 due to the law, Dominion said, adding that the “GTSA also creates a reinvestment model to help the company continue delivering great value to our customers.”

About Corina Rivera-Linares 2807 Articles
Corina Rivera-Linares, chief editor for TransmissionHub, has covered the U.S. power industry for the past 13 years. Before joining TransmissionHub, Corina covered renewable energy and environmental issues, as well as transmission, generation, regulation, legislation and ISO/RTO matters at SNL Financial. She has also covered such topics as health, politics and education for weekly newspapers and national magazines. She can be reached at corinar@pennwell.com.