Massachusetts earned plaudits earlier this year for its handling of an offshore wind procurement, but not every state’s pursuit of renewable energy is getting rave reviews. Reports out of Virginia suggest the state may be getting hoodwinked by one of its leading utilities.
The cautionary Virginia tale began innocently enough earlier this year. Angry about reports the state’s utilities had been making excessive profits for years, the Virginia legislature approved a law that required Dominion Energy and Appalachian Power Co. to return hundreds of millions of dollars to ratepayers. One story estimated the size of customer bills could drop by as much as $6 a month.
But there was a loophole. The utilities could hold on to the money as long as they invested it in renewable energy. The law declared renewable energy investments “in the public interest” and essentially exempted them from any second-guessing by the state’s chief utility regulator, the State Corporation Commission.
A Washington Post story on the legislation raised the prospect that the utilities could invest their excess profits in renewable energy projects and build the cost of those projects into their base rates. “It’s the equivalent of being given a new car as payment for a debt, then having to take over the payments on the car,” the newspaper reported, citing an analyst at the State Corporation Commission.
That analogy may be coming to pass. Dominion hired Denmark’s Ørsted Energy to install two, six-megawatt wind turbines 27 miles off the coast of Virginia Beach at a cost of $300 million with the hope of using the results from that small, pilot project to determine whether it would make sense to build a much larger $1.3 billion, 2,000-megawatt wind farm.
The pilot project went to the State Corporation Commission for approval. On Friday, the agency issued a blistering decision saying the deal was terrible for ratepayers. The opinion noted the deal wasn’t competitively bid and ratepayers would be on the hook for the entire cost as well as any overruns. (The Massachusetts offshore wind procurement was competitively bid and much of the risk is borne by the developer, Vineyard Wind.)
The commission’s opinion also suggested the $300 million pilot project would not provide much guidance for the larger wind farm project Dominion is planning, since Dominion wants to make a decision about the larger project by 2019 but the smaller project would not be up and running until 2020.
Lastly, the commission said, the electricity from the offshore wind turbines wasn’t needed and its price was excessive. The forecasted price was 78 cents a kilowatt hour, 9.3 times greater than the cost of the Vineyard Wind project off the coast of Massachusetts (8.4 cents a kilowatt hour). It was also twice as costly as a similar small-scale project (five turbines, 30 megawatts) built by Deepwater Wind near Block Island and much higher than other forms of renewable and non-renewable energy.
Despite its many concerns, the commission said its hands were tied by the new state law and approved the project. “The commission finds – as a purely factual matter based on this record – that the proposed project would not be deemed prudent as that term has been applied by this commission in its long history of public utility regulation or under any common application of the term. The commission further finds, however, that as a matter of law the new statutes governing this case subordinate the factual analysis to the legislative intent and public policy clearly set forth in the statutes quoted above and, thus, the instant petition should be – and is hereby – approved.”
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