State regulators on Friday approved plans by Dominion Energy to construct the nation’s largest offshore wind farm in waters off Virginia Beach but imposed several conditions intended to protect ratepayers, including reporting requirements for cost overruns and a performance guarantee.
The hotly anticipated ruling from the Virginia State Corporation Commission gives Dominion the state’s go-ahead to embark on the $9.8 billion project.
“The project is truly distinctive in numerous respects, encompassing cost, size, technology, complexity, ownership, and risk. … No other utility or independent developer has attempted to construct and operate an offshore wind project of this size in the United States,” wrote the commissioners.
But they also cautioned that the Coastal Virginia Offshore Wind project is unique in the risks it will pose to utility ratepayers.
“Parties must undoubtedly recognize that consumers cannot be protected from the most significant risks attendant to the project” and that Dominion “has chosen a construction and ownership model that places most of the risks on consumers,” they said.
Over the next 35 years, CVOW is expected to increase the monthly bill of Dominion’s average residential customer by $4.72 on average, with a peak of $14.22 in 2027. The company will have to petition the commission for recovery of its costs annually.
Virginia lawmakers in 2020 wrote provisions into state code through the Democrat-backed Virginia Clean Economy Act that incentivized Dominion’s development of the 2.6 gigawatt wind farm as part of a broader push to decarbonize the state’s power grid. Those provisions not only declared the project to be “in the public interest” but directed regulators to approve the recovery of project costs from ratepayers as long as the utility met three specific conditions.
“This is a legislatively favored project,” SCC Judge Judith Jagdmann wrote in a concurring opinion released Friday.
What’s ‘reasonable and prudent’ when it comes to Dominion’s offshore wind project’s costs?
During hearings this spring, no groups argued against the development of wind power as a key part of Dominion’s energy portfolio. But numerous parties, including the Office of the Attorney General, the Southern Environmental Law Center, Walmart and Clean Virginia, pushed regulators to impose requirements on Dominion that could protect customers from some of the project’s financial risks.
Dominion resisted those calls, particularly the proposal for a performance guarantee, which would require utility shareholders rather than ratepayers to cover the costs of replacement energy if the project fails to produce a certain amount of power.
In May, Dominion Senior Vice President of Project Construction Mark Mitchell said an “arbitrary” performance guarantee “could put the company at risk.”
The SCC rejected that argument in its Friday order, saying, “This particular risk for this particular project should not fall on the company’s customers.”
his particular risk for this particular project should not fall on the company’s customers.
– Virginia State Corporation Commission warrant
Dominion Energy Chair, CEO and President Bob Blue said in a press release issued after Friday’s ruling that the company is “reviewing the specifics of the order, particularly the performance requirement.”
Other protections imposed by the commission include the requirement that Dominion notify the SCC within 30 days if total project costs are expected to exceed current estimates or final turbine installation is expected to be delayed beyond Feb. 4, 2027. Annual reports filed with the commission will also have to include any significant changes to the project and explanations of cost overruns.
A proposal put forward by Clean Virginia to install an independent monitor for the project was not adopted “at this time,” the SCC wrote.
But while the commission emphasized the need for the consumer protections it approved, the judges also made it clear that those protections remain limited.
“Cost increases could occur that are not the result of unreasonable or imprudent action by the company and, moreover, that could fall within the presumption of reasonableness and prudence” outlined in the state code, they wrote. “Dominion states these cost overruns would be borne by customers, not the company.”
In her concurring opinion, Jagdmann warned that “these protections do not address the project’s already high projected cost or the fact that the projected price could well continue its upward trajectory given current economic conditions, supply chain issues, and other risks,” including abandonment.
However, she noted that the General Assembly “has the opportunity for additional legislative action to identify or require additional funding sources and mechanisms such that the entire burden for a project of this magnitude … does not fall on customers.”
Following the ruling, Victoria LaCivita, a spokesperson for Attorney General Jason Miyares, praised the commission’s adoption of the performance guarantee, which had been recommended by the office and was supported by other case participants.
“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,” she said in an email.
Southern Environmental Law Center Senior Attorney Will Cleveland said wind would produce cost savings for Dominion customers, pointing to steep increases in fossil fuel costs that are pushing electric bills upward.
“In the past year alone, Dominion’s over-reliance on coal and ‘natural gas’ has caused its fuel costs to skyrocket, with Dominion recently asking the Commission for permission to charge its customers more than a billion dollars in unexpected costs,” he said. in a statement. “Since market forecasts show no sign of fuel price relief anytime soon, we need zero-fuel resources like offshore wind more than ever.”
Dominion also touted potential fuel cost savings linked to the project.
“The project is expected to save Virginia customers more than $3 billion during its first 10 years in operation,” the company wrote in its Friday release. “However, if these ongoing commodity market pressure trends continue, those savings could total up to nearly $6 billion – almost double the savings.”
Clean Virginia Executive Director Brennan Gilmore struck a more cautious note, writing in a text that “while we welcome the necessary shift to clean electricity generation in Virginia, this project is unprecedented in size, cost and complexity. As such, it needs strict consumer protection mechanisms in place to ensure that the clean energy transition does not create additional financial burdens for Virginia families.”
Gilmore urged policymakers to study options available for developing additional offshore wind resources, in line with the Virginia Clean Economy Act’s 5.2 gigawatt wind energy target.
“Utility ownership is not the only, and likely not the most affordable, option for offshore wind development in Virginia,” he wrote.
This story has been updated to correct the name of the CVOW project.