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SCC Asks Tough Questions about Nukes, CO2 Emissions

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James A. Bacon
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2015IRPby James A. Bacon

Given the legal and regulatory uncertainties associated with Clean Power Plan, which requires Virginia to reduce CO2 emissions 30% by 2030, Dominion Virginia Power’s 15-year strategic plan filed in July 2015 is reasonable and in the public interest, the State Corporation Commission (SCC) ruled in a final ruling released today. However, the SCC also detailed substantial additional analysis it would like to see in the Integrated Resources Plan (IRP) Dominion files next year.

The electric company had filed four broad options for responding to the mandates of the Clean Power Plan, including one that relied heavily upon nuclear power. The power company did not recommend one option over the others in July because it did not know precisely how the Clean Power Plan would impact Virginia. While the Environmental Protection Agency has finalized Virginia’s CO2 emission targets since then, the state still has yet to choose between two possible approaches, whether to focus on the absolute volume of CO2 emissions or CO2 emissions on a kilowatt-hour basis. That decision could have significant impact on how power companies respond to the mandates.

Consumer and environmentalist groups had urged the SCC to reject the IRP on the grounds that the projected $19.3 billion cost for a third nuclear unit at the North Anna power station was excessive under any scenario. A project of that magnitude, the SCC noted, would roughly double the size of Virginia’s electric rate base.

While the SCC saw no need to amend the 2015 IRP, it noted pointedly that it views the IRP only as a planning document, “not as a document that will determine future Commission decisions on future resources or the recovery of specific expenditures.”

The commission instructed Dominion to take a very different approach to its 2016 IRP. With this ruling, the tight-lipped commissioners signaled what they see as the major issues facing Virginia’s electric power industry response to the Clean Power Plan.

Nuclear power. The proposed North Anna 3 nuclear unit tops the list. The company has incurred approximately $580 million in development costs through September, a portion of which has been passed on to rate payers already, and Virginia’s share of the final project cost could reach $19.3 billion in capital investment. If passed on to rate payers, wrote the SCC, “that investment would represent a large enough increase in electric bills for residential and business customers to impact Virginia’s economic climate.”

Acting as consumer counsel in evidentiary hearings, the Attorney General’s office raised  what the SCC deems to be a “serious concern”: Should Dominion come to the SCC in a future hearing having already incurred billions of dollars in development costs on North Anna 3, will it cite the sunk costs “as a compelling reason for the Commission to approve the application”? Accordingly, the SCC ordered Dominion to answer the following questions in its next IRP:

  • Why might Dominion believe that it should be entitled to recover from customers North Anna 3 costs incurred before being granted formal regulatory approval?
  • Is there a dollar limit on how much Dominion intends to spend on North Anna 3 before seeking that regulatory approval?
  • Without a guarantee of cost recovery, how much can Dominion spend on North Anna 3 without negatively impacting its fiscal soundness and cost of capital?
  • Why does Dominion continue to spend money on North Anna 3 development costs? Is it mainly to seek Nuclear Regulatory Commission approval?

In the next IRP the SCC wants Dominion to “quantify the tradeoff between operating cost risks that may be increased and the  cost savings that may be realized by delaying the construction of North Anna 3.”

In related matters, the SCC instructed Dominion to continue pursuing the feasibility of extending the operating licenses for its four aging nuclear units at the Surry and North Anna power stations. The commission wants to see a discussion in the next IRP of how much it will cost to renew the operating licenses and a timetable for the renewal process.

Clean Power Plan. The SCC ordered Dominion to model a least-cost, base-case plan for meeting the electricity needs for its service territory over the next 15 years as well as multiple plans compliant with the Clean Power Plan under both the mass-based approach and the rate-based approach. Dominion also needs to examine the cost benefits of trading carbon reduction credits from inside and outside the state.

Natural gas risk analysis. The SCC instructed Dominion to identify the risk that the operating cost of natural gas-fired generation might become excessive — presumably if the price of natural gas increases significantly from its current low level. The company also needs to analyze ways to mitigate that risk, whether through long-term supply contracts that lock in gas at a stable price, investing in gas reserves, or procuring long-term transportation and storage contracts.

Rate design. The commission ordered Dominion to continue studying Demand-Side Management electric tariffs to encourage CO2 reductions through conservation. For example, the utility should look at incentives to shift consumption away from periods of peak demand. For example:

A kilowatt consumed at 4 o’clock on one of the hottest summer afternoons when the system is facing peak demand is far more expensive than a kilowatt consumed at 10 o’clock that evening. The “4 pm kilowatt” may also produce far more in carbon emissions than the late-night kilowatt, since low-efficiency generating plans may have to be dispatched to meet the afternoon’s peak demand.

Third-party market alternatives.

In future IRP filings, Dominion shall include a more detailed analysis of market alternatives, especially third-party purchases, that might provide long-term price stability. The company shall provide a comparison of purchasing power from other wind and solar power producers versus the self-build option.

Solar generation. Critics of the 2015 IRP challenged Dominion’s analysis of solar photovoltaic generation. Dominion concluded that the costs and issues associated with significant solar deployment — particularly the intermittent nature of electricity generation — are unknown and potentially substantial. In future IRPs, the SCC commanded, Dominion shall “develop a plan for identifying, quantifying and mitigating cost and integration issues associated with greater reliance on solar photovoltaic generation.”

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14 responses to “SCC Asks Tough Questions about Nukes, CO2 Emissions”

  1. LarrytheG Avatar
    LarrytheG

    I’m surprised that ratepayers are financially responsible planning for Nuclear as well as the SCC having processes that potentially allow DVP to use that expenditure of funds as justification for committing to a future path but as I had pointed out earlier – when they knew Yorktown was to close – some time ago – instead of engaging in a process to decide WHERE to locate a replacement plant – they essentially decided to locate it south of the James – but muddied the issue by claiming that Surry would provide the power as if Surry was not already committed to providing power elsewhere. So separate from the Surry/power line proposal – they proposed and were approved to build a gas plant – without really justifying where it would provide power to. Turns out – it would provide power to the area currently served by Surry – so Surry could be freed up to power Hampton.

    as far as I can tell – prior to that, never did they include in their planning – how much it would cost to expand existing gas pipelines to Hampton and locate a new gas plant on the north side of the James or for that matter expand existing powerlines along I-64 without having to go through tribal or environmentally sensitive lands.

    so when they got down to the final study – the only alternatives studied were those that provided electricity from remote plants.

    not particularly surprising – in some respects but it did clearly show that DMV with the SCC’s acquiescence has allowed DMV to choose how to expand and change the grid – and charge those costs to ratepayers and not investors who may have had more concerns about the choices made.

    1. Acbar Avatar
      Acbar

      LarryG, seems to me the question of supplying Hampton is primarily one of transmission, not generation. If the Peninsula were better-connected to the larger grid, there wouldn’t be an issue as the result of retiring those coal units in Yorktown. Sure, building a new gas plant there would be a way to avoid fixing the transmission problem, but that’s a poor second choice.

      As for the nuclear expansion question, I think the most important question the SCC asked was, according to Jim, “Without a guarantee of cost recovery, how much can Dominion spend on North Anna 3 without negatively impacting its fiscal soundness and cost of capital?” In other words, ‘DVP, have you thought about where you’ll be if we don’t allow you to rate base NA3 but require you to build it as a merchant plant?’

      1. LarrytheG Avatar
        LarrytheG

        @Acbar –

        ” LarryG, seems to me the question of supplying Hampton is primarily one of transmission, not generation.”

        then tell me why DVP has gotten into the gas transmission business…. to serve new plants south of the James?

        😉

        1. Acbar Avatar
          Acbar

          Hah hah. Was talking electricity transmission, not gas transmission. Of course, wherever/whenever you build a new generating plant, you have to ‘transmit’ fuel to it (unless it’s solar/wind).

          1. Rowinguy Avatar
            Rowinguy

            DVP is not, of course, in the gas transmission business, although Larry prefers not to understand that. DRI has many subsidiary businesses and another one, Dominion Transmission, is developing the ACP.

    2. Rowinguy Avatar
      Rowinguy

      Surprised that ratepayers “are financially responsible for planning for Nuclear?” You really need to pay more attention to everything the General Assembly does each year to pave DVP’s road with roses.

      So, who is the “they” you refer to throughout your comment as doing planning? DVP or the SCC?

      Also, your comments about how certain power plants provide power only to certain areas of the Commonwealth are mistaken. Power entering an integrated electrical grid is not directed like a FedEx package to a certain address.

  2. LarrytheG Avatar
    LarrytheG

    DVP – I dunno where in the DOODA I’m getting DMV…

  3. Acbar Avatar
    Acbar

    You mention six topics that the SCC highlights:
    – Nuclear power
    – Clean Power Plan
    – Natural gas risk analysis
    – Rate design
    – Third party market alternatives
    – Solar generation.

    The first two are clearly the big cost drivers, and their mention is hardly surprising. Asking for a risk analysis for natural gas is also pretty obvious, though I’m glad to see it on the list. But pay attention to the other three. ‘Rate design’ or demand side management is something TomH and others have been talking about here for some time: the overarching question is, is Dominion going to acknowledge that energy savings is not only a customer tool but a corporate one for meeting future demand, and is targeted energy savings — paying customers to reduce load on-peak when requested — going to be a significant part of that? ‘Third party market alternatives’ is primarily the question whether Dominion should be buying from private developers of solar (either in the PJM marketplace or directly under long-term contract) rather than developing its own “central-station” style solar plants. ‘Solar generation’ concerns both that question and the larger one of whether and how Dominion should encourage private development of solar including customer-owned “rooftop” units. An important sub-issue is whether to continue to allow ‘net metering’ (with or without a connection fee) in Virginia, which is quite frankly a subsidy of solar at the expense of other customers, but can be justified as a way to encourage the initial spread and scaling up of solar distributed-generation.

    None of these questions is surprising. What is surprising is that the SCC didn’t simply say “tell us Dominion’s vision of the future” but asked specifically about issues Dominion has ducked in the past or addressed with ambivalence. The Commission seems determined to steer the conversation, and perhaps also to be preparing for a confrontation if Dominion is sufficiently unresponsive.

    1. LarrytheG Avatar
      LarrytheG

      is the SCC asking DVP to analyze things beyond their control – like natural gas availability?

      I’d say that – that is a reasonable thing to do – because obviously where it is not currently available in sufficient supply is being used by DVP to either say they can’t build a gas plan because of that lack of supply (in Hampton) or .. when they choose to – say that if they want to build more gas plants – then they themselves have to get into the gas transmission business.

      so how come if they get into the gas transmission business – they can decide WHERE they want to invest in pipelines and where they do not want to ? How come they can propose it to go south of the James and not North of the James (also?)

      These are all issues that do affect the public in terms of cost and reliability and yet DMV’s primary response seems to be to justify their decisions with respect to their own choices – not whether they meet the needs of the public – as the question about investing rate payer monies in Nuke planning and the Atlantic Coast Pipeline location and service areas – which essentially determine where they site gas plants – do amply illustrate.

  4. TBill Avatar
    TBill

    There are really 3 compliance options for the Clean Power Plan:
    1. Rate (Efficiency) Based (eg; lbs CO2/MWhr)
    2. Mass Based – Not Including New Sources
    3. Mass Based – Including New Sources

    It’s important because Dominion does apparently plan to build new power plants through 2023. I do not currently understand CPP well enough to say which option is best. But I am thinking we need Option 1 or 2 to allow for essential growth, especially since Dominion’s plan is also for Virginia to stop importing so much power from out of state (which I agree with that direction).

    If I was the SCC, I would ask Dominion to comment on the risk of cheap wind and natural gas power continuing to wipe out profit margins for the always-on nuke plants. Instead SCC may have it backwards asking if hypothetical high nat gas prices (probably not going to happen) can help justify higher nukes costs.

    1. Acbar Avatar
      Acbar

      The SCC may have already reached that conclusion (there won’t be higher gas prices coming), but want to pin DVP down as to what DVP’s forecast assumptions really are.

  5. LarrytheG Avatar
    LarrytheG

    why would the SCC ask DVP for objective information they could – and should get from other credible industry sources and fold that into their analysis?

    I, for one, do not think it is DVP’s responsibility nor sole authority to decide how Va should proceed …

    The SCC should be asking for ALL electricity providers in Va – their views – and then consider those views in toto – noting areas of agreement – and disagreement.

    For instance, I do not think DVP should be the decider of whether or not DVP produces electricity to sell to PJM no is it their decision if we should buy it rather than produce it.

    Further – WHERE gas pipelines will be built – or not – again is not the sole province of DVP.

    DVP is an important player – perhaps the most important – but should not be the arbiter of these decisions.

    1. Rowinguy Avatar
      Rowinguy

      DVP is not building any pipelines in Virginia.

      DVP builds electric generating units and electric transmission lines to move the power from the units to customers. Some of those units run on gas. They are designed to operate into the 2060s.

      Thus, DVP has an interest in getting the best prices for gas. The price of gas includes the price of DELIVERING the gas to the generating unit.

      So, yes, DVP has an abiding interest in understanding the continuing availability and pricing for delivered natural gas. It has dozens of employees who follow these markets and buy millions of dollars of it each year.

      1. TomH Avatar
        TomH

        Yes, as has been previously stated, it is Dominion Transmission, the Dominion gas pipeline and storage subsidiary that, with a 45% ownership share, is the largest owner and is taking the lead with the application for the ACP.

        I am not certain that “DVP has an interest in getting the best prices for gas”. The fee for transporting gas is included in the fuel price and is therefore automatically passed through to rate payers.

        The Southside combined cycle plants (Brunswick & Greensville) are planned to connect to a new Transco spur to provide all of the necessary gas for the operation of these plants. DVP ratepayers will be charged (in the fuel transport fee) for the $489.5 million required to attach these plants to the natural gas supply.

        In their application for the ACP, Dominion has stated that it plans to connect these two plants to the ACP once it becomes available. The ACP will require over $3 billion and 300 miles of new pipeline development to reach the same point and serve these two plants which already are adequately served by the $489 million pipeline that is nearing completion.

        If Dominion abandons the Transco spur within a few years of its construction, will the ratepayers still be obligated to pay for the 96% of capacity in the Transco pipeline that is no longer being utilized when Dominion reneges on its 20 year contract with Transco?

        Adequate takeaway pipelines are expected to be in place in 2017 (well before the ACP) to move all of the Marcellus production into the existing gas transmission network. When this occurs, several pipelines in the Transco corridor will then be free to move gas southward to Virginia and the Carolinas, as described in the DOE Natural Gas Infrastructure report issued in Feb. 2015. Because these pipelines are largely paid for, they will provide less expensive transportation with far less impact than is proposed for the ACP.

        With the pipeline review occurring with FERC, no state agencies, either the SCC or the Attorney General’s office will be looking out for the DVP ratepayer’s higher cost of fuel due to using the ACP. (This assumes that the price of the natural gas is the same before the pipeline transport fee is added – which is likely to be the case).

        Improvements to the Columbia Gas pipeline in WV and VA would require just 3 miles of new construction in WV and some new and upgraded compressor stations to add 1.3 Bcf/d of additional gas supply to the region as well.

        Far more capacity would be provided by using these existing pipelines than is proposed for the ACP. Additional capacity in the Columbia Gas pipeline would connect directly with the Virginia Natural Gas pipeline that serves the Hampton area avoiding the need to build a 77 mile new pipeline to connect with the ACP in North Carolina.

        Costs and connections in North Carolina using existing pipelines would be the same or better than provided by the ACP.

        The Transco and and Columbia Gas pipelines run throughout Virginia and provide far more flexibility in siting future power plants and serving industry and commercial uses than the single corridor for the ACP and its $.5 million tap-in fee.

        Given that any higher charges to DVP would automatically be passed through to customers, the higher costs for the ACP would accrue as higher profits to Dominion Transmission and Dominion Resources without SCC oversight.

        This makes business sense for Dominion and Duke Energy. They would rather pay themselves (more) rather than pay someone else (less) to transport the gas. But it is not in the interest of the DVP ratepayer. Nor is it in the interest of Virginia landowners to suffer impacts on their property purely for the profit advantage of utility holding companies when the same or greater amounts of natural gas can be made available less expensively with far less impacts using existing pipelines.

        I would rather see adjustments made in certain rate categories that keep DVP financially sound while encouraging them to open up the state energy market to third-party developers for renewables and energy efficiency, while DVP concentrates on developing a robust and reliable 21st century transmission and distribution network which makes it all possible. This is an important function and they should be fairly rewarded for it. We should not accept that our entire energy future be left in the hands of a few monopoly providers. We should be innovative enough to create useful roles for many participants.

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