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SCC backs millions in rate increases for Dominion's offshore wind project

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Twin wind turbines in Dominion CVOW project

Two of Dominion Energy's CVOW pilot wind turbines 27 miles east of Virginia Beach on April 11.

Virginia’s State Corporation Commission has approved Dominion Energy's application to recover costs for its proposed massive Coastal Virginia Offshore Wind Project – but the $9.8 billion wind farm comes with a significant cost to electric utility ratepayers.

The commission approved a revenue requirement of $78 million for the rate year of Sep. 1, 2022 to Aug. 1, 2023, to be recovered through higher rates for customers in a new clause attached to their monthly bills.

Over the next 35 years, the SCC estimates that a Dominion residential customer using 1,000 kilowatt-hours of electricity per month will see an increase of $4.72 a month, with a peak monthly billing hike of $14.22 in 2027.

The wind farm, planned 27 miles off the Atlantic Coast from Virginia Beach, is the largest energy project ever undertaken in Virginia and would be the largest wind project in the country, as well as one of the biggest in the world.

The commission was constrained by the General Assembly from rejecting the project, which the legislature declared two years ago to be in the public interest, but the constitutionally independent regulatory body ordered Dominion to abide by a performance guarantee to protect consumers from additional costs if the farm of 176 wind turbines don't perform as the company predicts.

Under the performance guarantee, the SCC said, “customers shall be held harmless for any shortfall in energy production below an annual net capacity factor of 42%," a measure of the turbines' level of production over a three-year rolling average.

“This performance standard does not prevent the company from collecting its reasonably and prudently incurred costs,” the order notes. “Rather, it protects consumers from the risk of additional costs for procuring replacement energy if the average 42% net capacity factor upon which the company bases this project is not met.”

The commission acknowledged that Dominion had argued "that it would be inappropriate for the company to be put at risk if it fails to meet the capacity factor upon which it has justified and supported this project. We disagree."

"This particular risk for this particular project should not fall on the company's customers,” it said.

Dominion CEO Bob Blue said in a statement, "We are reviewing the specifics of the order, particularly the performance requirement."

“Our customers expect reliable, affordable energy, and offshore wind is key for delivering on that mission," said Blue, who also is chair and president of the Richmond-based energy company. "We are very pleased that the commission has approved this important project that will benefit our customers."

The proposed project will generate 14.7 megawatts of electricity, or enough to power up to 660,000 homes. It will also add to Dominion’s renewable energy portfolio and help the fossil fuel utility phase out reliance on fossil fuels – a move mandated in the Virginia Clean Economy Act, which the General Assembly passed in 2020.

The SCC  also approved construction of about 17 miles of new electric transmission lines and other infrastructure to deliver electricity generated by the turbines to Virginia homes and businesses.

Dominion estimates the project, expected to begin operation by 2026, will bring hundreds of jobs to the Hampton Roads area during construction and operation, as well as anchor a potential supply chain to "make Virginia a hub for offshore wind."

The office of Attorney General Jason Miyares has argued that project is not needed to supply electricity to utility customers, would cost two to three times more than solar energy, and that the company has overstated its economic benefits.

The attorney general's office also led the push for the commission to include a performance guarantee in its order approving the project.

"Attorney General Miyares is very pleased the SCC agreed with our recommendation to protect Dominion’s customers by ordering a performance guarantee as a condition on approval of the Company’s $10 billion offshore wind project," spokesperson Victoria LaCivita said Friday.

"While he supports construction of the project, Attorney General Miyares was concerned over the significant risks it created for Dominion’s customers in the event of construction delays or if the project fails to produce the amount of energy promised by the company," LaCivita said.

"Because the SCC has accepted our recommendation, utility ratepayers will not have to pay the higher costs resulting from any shortfall in the project’s energy production."

Environmental advocates are glad to see the project moving forward - with the performance guarantee.

“We are very pleased with the commission’s order,” said Will Cleveland, a senior attorney at Southern Environmental Law Center. “We have long held that offshore wind is a critical piece of our holistic response to a decarbonized and clean energy economy.”

Cleveland said guarantee will help offset the risks to consumers of Dominion owning the project rather than buying the energy from a third party through a purchased power agreement.

“They’ll own it, but the performance guarantee goes a long way to substitute” for a purchased power agreement, he said.

One of the project’s most forceful critics said he was pleasantly surprised that the order included a performance guarantee that would protect utility customers if the project does not generate at least 42% of its rated capacity.

“If they actually do meet 42 percent, that is some kind of comfort to those of us paying these gigantic bills,” said Stephen Haner, senior fellow with the Thomas Jefferson Institute for Public Policy, a conservative think tank.

However, Haner added, “I think this is an excessive amount of money for an unreliable source of electricity.”

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