What the wind project costs you and who pays

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The annual income required from Virginia customers to fund Dominion Energy Virginia’s offshore wind installation. It peaks at around $800 million in 2027, driving the amount to be collected on monthly bills. Source: SCC testimony. Click for a larger view.

by Steve Hanner

If the project proceeds as planned, the consumer cost of Dominion Energy Virginia’s offshore wind facility will rise rapidly to peak in 2027 and then decline each year for the next 20 years. If it generates electricity for 30 years, in the final phase, the revenue from the project will exceed the remaining investment costs.

What is it going to cost captive Dominion taxpayers? There’s also a related but often overlooked question: Which of these customers did the Virginia General Assembly exempt from these costs, thereby raising the price of those who are not exempt?

In its promotional materials, Dominion often quotes a figure of less than $5 per month as the average cost over the years for that mythical residential customer using exactly 1,000 kilowatt hours per month. This smoothes the coming rise and fall shown in the illustration above and assumes that the projections of net positive years come to pass.

For this residential customer, the 2027 peak is estimated at $14.21 per month, or $170 per year, and then it gradually declines. It will be over $100 more per year over a long period of time, and many customers are using well over 1000kWh per month. An electric vehicle will do it well. For commercial and industrial customers, it will be equally important.

It would be less if everyone paid, but not everyone will.

Another CCS illustration of how the assumed financial benefits of the wind project will outweigh the capital expenditures. SCC staff included the costs of future plant decommissioning in the calculation, which Dominion did not in its estimates.

In these same promotional materials, Dominion never mentions that one of its largest wholesale customers, the Virginia Rural Electric Cooperative Collection, is entirely exempt from paying for this project or its required transmission extensions. And once Virginia has fully established her Payment as a percentage of income program (PIPP) to cap electricity costs for low-income families, which will exempt several hundred thousand additional taxpayers from this particular rider on their monthly bills.

Sean Welsh of the State Corporation Commission’s Division of Utility Accounting and Finance analyzes customer cost projections in writing testimony, recently refiled with several previous redactions lifted. His analysis assumes that Dominion’s forecasts of the construction cost and schedule, as well as the claimed operational success of the 176 wind turbines, come true.

Many things could go wrong and increase these costs. But for this discussion, we accept their assertion that the turbines will be fully operational 97% of the time and producing about 42% of their rated generating capacity over the years (about 1.1 gigawatts versus the rated capacity of 2.6 gigawatts .)

The overall cost of the project, including utility benefits and financing costs, is expected to be approximately $21.5 billion over 35 years. Yet only $7.25 billion will be extracted from Virginia customers, which is not the usual repayment pattern for these types of capital projects. Why is it so little sought after by customers?

First, the project should be eligible for significant tax incentives, with a 30% investment tax credit claimable on approximately 83% of the total capital cost. This reduces required customer revenue by approximately $2.7 billion.

Second, it uses a new approach to developing a rate adjustment clause, or RAC, for customer bills. Welsh explains how this new Rider OSW will be different:

A traditional Subsection A6 RAC recovers the costs of the generation facility and transmission interconnection facilities through the RAC, just as with the OSW addendum, but the energy and capacity of these facilities are recovered via the fuel factor and the base tariffs, respectively. In order to recover the full cost of CVOW and transmission facilities, net of benefits, from non-exempt customers, the OSW framework includes adjustments for Renewable Energy Credits (“RECs”), energy sales and avoided capacity charges that serve to reduce lifetime revenue requirements.

So customers pay the cost “after deduction of benefits”, and without a doubt these are real savings. The forecast is $10 billion in revenue from energy sales. Renewable Energy Credits (RECs) should certainly continue to have value. There will be revenue related to energy sales from the project.

The financial estimates in the calculation are just that, as they are for 30 years or more, but that’s why ultimately this bar chart above shows the financial benefits exceeding the final capital payments and eliminating the monthly cost to the consumers. In about 25 years. If all goes as planned.

As with other BCRs, an annual review by CSC will review actual financial results before setting user fees for the following year.

The 2020 legislation implementing all of this exempted Virginia rural electric co-ops from paying Rider OSW on their wholesale purchases. Of the 11 co-ops, eight are in Dominion territory and depend on Dominion transmission facilities, and they are pushing the Commission to ensure that they remain completely exonerated from these new expenses as well as from the investment costs of the turbine.

No one knows how many Dominion client households will be eligible for PIPP once it launches, possibly next year. Qualifying for PIPP in law is now simple: any household with an income below 150% of the federal poverty level, currently about $43,000 for a family of three. The cost figures for the client referred to are not yet adjusted for their exemption.

All electricity customers in Dominion territory who have switched to a third-party supplier will still be required to pay Rider OSW costs on Dominion electricity that they did not purchase. But another question mark is Dominion’s half million customers in North Carolina. That state’s public utility commission will decide whether they pay, with no warrant from the Virginia General Assembly tying their hands. If they don’t pass it on, we, the taxpayers of Virginia, will claw that back. The assumption in these numbers is that North Carolina also pays.

This “net of benefits” approach to the BCR should reduce the pain for taxpayers. As a farewell, note what this implies about previous CCRs that only collected costs and allocated benefits elsewhere. Much of their benefits, as Welsh noted, resulted in lower expenses paid through base utility rates. This increased the amount of profit buried in those base rates, a small sweetener for shareholders.

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