Monthly Archives: October 2015

Virginia regulators rain on Dominion’s solar parade; 76 MW in doubt

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A tough stance from the SCC means delays for Dominion's solar plans. Photo by Activ Solar via Wikimedia Commons.

A tough stance from the SCC means delays for Dominion’s solar plans. Photo by Activ Solar via Wikimedia Commons.

Last week Virginia’s State Corporation Commission rejected Dominion Virginia Power’s proposed 20-MW solar facility in Remington, Virginia, citing the company’s failure to evaluate third-party market alternatives. Although the solar industry had urged this result, the ruling throws the Remington project into limbo—and with it, three other solar projects Dominion has in the works. Moreover, the language in the order has many advocates concerned the SCC may be setting a higher bar for solar projects than for fossil fuel projects.

The ruling that utilities must consider market alternatives to a self-build project is a win for Virginia’s solar industry, which argued that ratepayers would be better served if Dominion let the industry build and operate the Remington project through a third-party power purchase agreement (PPA). That approach would take advantage of third-party developers’ access to more favorable treatment under the federal tax code. Ratepayers would also benefit from the slimmer profit margins of private sector companies compared to the 10% return-on-investment guaranteed to Virginia utilities.

I made the same argument in this space back in June, and lamented the fact that Dominion’s greed put an otherwise good project in jeopardy. As indeed it has: there is no certainty now that Dominion’s first utility-scale solar facility will get built before the federal investment tax credit (ITC) for commercial and utility solar projects drops to 10% from its current 30% at the end of 2016. Without the higher ITC, the project will become more expensive for ratepayers, and surely make it even more difficult to get approved.

In theory, Dominion can respond to the SCC ruling by converting the Remington project from a self-build to a PPA, allowing developers to bid. Then the utility would recalculate the cost to ratepayers, offer up the savings, and renew its application to the SCC. Given the time crunch, the SCC might allow the current case to be reopened instead of starting from scratch. There might not be time for a perfect competitive bidding process this time around, but arguably it is more important to get the additional 20% savings from the ITC than it is to have a picture-perfect bidding process that causes the project to miss the 2016 tax-credit deadline.

For Dominion, though, going back to the SCC with a better deal for ratepayers would mean admitting its first application wasn’t good enough. And the utility is showing no taste for humble pie. Immediately following the decision, Dominion lobbyist Dan Weekly sent a letter to every member of Virginia’s General Assembly complaining that “we are puzzled by and very much disagree with the findings in this decision.”

If the puzzlement persists, Dominion might file a motion asking the SCC to reconsider its ruling, instead of working on a fix. Perhaps Dominion could persuade the SCC to let the utility proceed with the Remington plant as proposed, given the tight timeline, in exchange for Dominion’s agreement that future solar projects will follow a fully transparent RFP process.

However, there is more at stake here for Dominion than just Remington. This summer the utility put out a Request for Proposals (RFP) for additional solar projects. On October 1, it announced it had selected three projects totaling 56 MW, all of which it expected to be operational by December 2016 in time to earn the 30% tax credit. But instead of using PPAs and buying the power, Dominion planned to buy the projects from the developers straight off, once again giving up the tax advantages of the PPA approach. It’s not at all clear how Dominion will proceed with these projects now.

On a brighter note, Dominion’s press release also stated it is considering buying some solar power through PPAs. Four weeks ago this mention read almost like an afterthought, but these projects now may offer the most promising way forward.

But Dominion faces another problem with its regulator: the SCC hasn’t actually pledged to approve a new-and-better deal if the utility offers one. The Order merely states that “Dominion is free to refile an application that meets all statutory requirements, including the Code’s requirement regarding third-party market alternatives, and that establishes the reasonableness and prudence of any costs proposed for recovery from consumers.”

Note that word “and.” The SCC clearly remains deeply skeptical of solar’s value. Never mind that the plummeting cost of solar has made it the fastest-growing energy source in the country today, that it offers advantages in price stability and carbon reductions that fossil fuels can’t match, and that Virginia legislators and citizens are clamoring for more of it.

I have trouble believing the SCC would actually reject a utility solar PPA that emerged from a transparent bidding process. It wasn’t solar that doomed this application, it was Dominion’s greed and over-reach.

That said, surely there is a whiff of unfairness here. As the SCC concedes, Virginia law pronounces solar “in the public interest.” That’s a seal of approval that has never been accorded natural gas. Yet the SCC hasn’t put gas plant proposals through the same hoops it now insists on for solar.

The SCC will soon take up Dominion’s latest gas plant proposal, a $1.3 billion, 1,600-MW behemoth to go up in Greensville County, Virginia. When that happens, we’ll be watching to see how much “prudence” really matters to the SCC.

As for solar, Dominion has got itself into a pickle, but there should still be time to correct its mistakes and get these projects up and running by the end of 2016. Meanwhile, the General Assembly should hedge its bets by freeing up the private market for solar, clearing away the barriers that hold back solar investments by businesses, local governments and individuals.

The SCC has this much right: competition is good. Competition that helps us transition to a clean energy economy is even better.

NOTE: An earlier version of this article took the SCC to task for overruling a hearing examiner who recommended in a 2013 case that Dominion be required to look at market alternatives to its Brunswick natural gas generating plant. A reader noted that the law specifically requiring the consideration of market alternatives had not taken effect at the time and so was not binding on the SCC. I regret the error.

 

 

 

North Anna 3 would raise rates for Dominion Virginia Power customers by 25%

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Some see a nuclear power plant cooling tower. Others see a rat-hole. Hang onto your wallet. Photo credit Wollenkratzer/Wikimedia Commons.

Some see a nuclear power plant cooling tower. Others see a rat-hole. Hang onto your wallet. Photo credit Wollenkratzer/Wikimedia Commons.

Dominion Virginia Power’s latest Integrated Resource Plan (IRP) includes construction of a third nuclear reactor at North Anna, just as previous IRPs have done every year since 2008. What’s new this year is that we finally have a price tag. Scott Norwood, a witness for the Attorney General’s Office of Consumer Counsel, says Dominion’s $19 billion forecast will mean an average rate increase of approximately 25.7% over current Virginia retail residential rates.

The 2015 IRP shows cost estimates for the new nuclear plant have spiraled upwards. Norwood notes that the forecasted capital cost is currently 55% higher than in 2011. This capital cost is not only ten times the cost of new natural gas generation, it is also higher than Dominion’s solar energy option—which happens also to be its least-cost option for complying with EPA’s Clean Power Plan.

Indeed, the NA3 price tag makes it far more expensive even than the other nuclear plants currently under construction in Tennessee, Georgia and South Carolina. All three are behind schedule and over budget, which hardly inspires confidence in the industry’s ability to contain costs anywhere.

In his testimony to the State Corporation Commission, Norwood argues that North Anna 3’s high price tag means it is not reasonable to keep it in the IRP. Section 56-599 of the Virginia Code requires the Commission to make a determination whether the IRP is “reasonable” and in the public interest.

Including nuclear in an IRP doesn’t commit Dominion to building a reactor or the SCC to approving it, so the SCC has not previously chosen to weigh in. Nor have elected leaders yet responded to the rising cost numbers.

Legislators may be tempted to ignore North Anna 3 until Dominion secures an operating license from the Nuclear Regulatory Commission (anticipated in 2017) and applies to the SCC for a Certificate of Public Convenience and Necessity (with a decision likely in 2018).

Yet delaying the conversation is expensive. Dominion is already spending hundreds of millions of dollars annually on North Anna 3 development—and one way or another, Dominion expects customers to bear the cost.

In 2014 the company successfully lobbied for legislation shifting the costs it had incurred through 2013 onto its ratepayers, a move that sopped up Dominion’s overearnings and prevented a rate cut.

But those costs were chicken feed compared to what’s coming. By the end of 2018, Dominion will have spent close to $2 billion dollars on North Anna 3. The company can afford to front the money, in part because of 2015 legislation “freezing” rates until 2020 and allowing the company to keep what could amount to hundreds of millions of dollars more in excess earnings.

NAr costsIf the SCC waits until 2018 to consider the merits of North Anna 3 and then denies Dominion permission to move forward, the company will argue for the right to bill ratepayers for all that money it threw down the rat-hole. The SCC might not prove sympathetic, but General Assembly members maintain a strong record of doing anything Dominion wants.

Still, allowing Dominion to soak customers for $2 billion would be a welcome outcome compared to the alternative. Worse would be for the SCC to approve the plant—or more likely, for legislators to take it out of the hands of the SCC and simply vote to let Dominion proceed. Dominion has begun spinning a tale about North Anna 3 being needed for energy security, resource diversity, and compliance with new environmental rules. All of these are wrong, but they play into narratives that resonate with many lawmakers.

Meanwhile, the vast sums required for a new reactor would siphon money away from much more cost-effective strategies that can deliver carbon pollution reductions far sooner, including investments in solar and energy efficiency. That makes it critical for the SCC to put an end to the North Anna 3 rat-hole this year.

The Commission will hold a hearing on Dominion’s IRP on October 20. The case is PUE-2015-00035.