Virginia deal would shield customers if wind project blows its budget

Dominion Energy has agreed to protect customers if costs run over budget or performance falls short of expectations on $10B landmark offshore wind project.

Two large wind turbines in the ocean
The first two turbines at Dominion Energy's Coastal Virginia Offshore Wind project site (Dominion Energy)
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As U.S. utilities belatedly — but in some cases, enthusiastically — embrace clean energy development, new challenges arise for protecting consumers if things don’t go according to plan.

Virginia is figuring this out in real time as its major regulated utility, Dominion Energy, ramps up clean power to eliminate fossil fuels by 2050, as called for in the state’s climate legislation. Dominion’s first big test will be executing a $9.8 billion offshore wind project by late 2026

Virginia’s consumer advocate just hammered out a deal with Dominion Energy to cap costs to customers if construction goes over budget or the finished wind farm doesn’t produce what it’s supposed to. Think of it as a prenup for the utility’s massive renewable project: Nobody’s expecting things to go off-course, but if they do, the parties have already agreed on how to resolve the situation cleanly.

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Offshore wind produces gigawatts of power in Europe’s North Sea, and almost nothing in the U.S. to date. But projects now moving forward are poised to fundamentally reshape the power grid along the Atlantic Seaboard. In New York and New England, utilities signed power-purchase contracts with independent developers, who take the risk of developing and constructing projects in exchange for future profits. 

But Dominion is a regulated utility, which means it earns a guaranteed profit for constructing power plants by charging its captive customer population. No American monopoly utility has built offshore wind at the scale of Dominion’s planned Coastal Virginia Offshore Wind Project, to be located 27 miles off Virginia Beach: 176 turbines capable of generating 14.7 megawatts each, for a total of 2,587 megawatts. If all goes well, it will inject a huge amount of clean energy into Virginia’s grid, reducing reliance on carbon-emitting fossil fuels. If things don’t go well, the vastness of the project could turn from a boon to a burden on households’ pocketbooks.

That’s no fanciful threat: A few states to the south, the Vogtle nuclear plant has demonstrated the extent to which utilities can bungle large-scale carbon-free power development. Vogtle has fallen years behind schedule and many billions of dollars over budget. Utility Georgia Power, the largest owner of the project, is expected to ask regulators to pass on some of those costs to customers once the plant comes online, the Atlanta Journal-Constitution reported.

More egregiously, South Carolinians had to pay off $2.3 billion in costs for the failed V.C. Summer nuclear plant, even though it never materialized.

The handful of regulators at the Virginia Corporation Commission have ultimate say over the terms of Dominion’s deal. Earlier this year, they endorsed a performance guarantee for the offshore wind farm as a way to protect customers. But the terms of that guarantee made Dominion nervous, and it asked the commissioners to reconsider.

That kicked off weeks of negotiations between the utility and the Attorney General’s Division of Consumer Counsel. On Friday, they jointly proposed a resolution, also supported by Walmart (a large purchaser of clean energy) and advocacy groups Appalachian Voices and Sierra Club. 

Here’s how Dominion CEO Bob Blue put it in the company’s statement on the deal: Given the now-significantly de-risked status of the project’s development and given its continued on-budget’ status, we feel that this settlement reflects a balanced sharing of financial impacts in what we currently see as unlikely scenarios of material delays or cost overruns.”

On the performance side, the deal states that the wind farm needs to produce at a 42 percent capacity factor, on a three-year rolling average basis. 

If that doesn’t happen, Dominion will provide a detailed explanation of the factors contributing to any deficiency.” Should the regulators attribute that shortfall to unreasonable or imprudent actions” by Dominion, they may determine a remedy” for the associated costs. That’s not exactly an ironclad protection, but it does lay the foundation for compensation if utility mismanagement leads to lackluster electricity production.

For potential cost overruns, the deal breaks down who pays for what. If the project goes up to $500 million over budget, Dominion customers pay for that. If costs land in the range of $10.3 billion to $11.3 billion, those will be split 5050 between the customers and Dominion shareholders. And if costs hit $11.3 billion to $13.7 billion, the burden of the overruns falls entirely on utility shareholders.

The deal stipulates that this arrangement, should it be approved by the regulators, shall have no precedential effect.” That’s a legalistic disclaimer, basically saying that this outcome is specific to the facts of this case and not broadly generalizable. 

But Virginia regulators can’t stop other people from seeing this deal and learning from it. When other utilities seek to pull billions of dollars from their customers’ pocketbooks to build clean energy, any competent advocate can ask for the protections Virginians established. Why would anyone accept a Vogtle or a Summer situation if you could easily cap customer exposure to a utility’s mistakes?

Julian Spector is senior reporter at Canary Media.