power pole repairs

Dominion crews worked to restore power on Dumbarton Avenue in June 2016.

Dominion Energy Virginia does not want state regulators to require a formal cost-benefit analysis for a newly proposed plan to modernize the electric utility grid at a cost of $3 billion over the next decade, including $816.3 million in the next three years.

“I do not believe it would be appropriate to impose such a requirement for its approval,” Edward H. Baine, senior vice president of distribution for the parent company’s power delivery group, said in testimony filed with the State Corporation Commission this week.

The Richmond-based utility estimated that the grid modernization plan would save the company more than $2 billion over 20 years, but Baine contended that not all of the benefits could be quantified. He urged the commission to consider “the many qualitative or otherwise unquantifiable benefits” of the proposal in determining whether its costs are “reasonable and prudent.”

Baine’s statement crystallizes the challenge the SCC faces in carrying out a sweeping new law that may hamstring the constitutionally independent commission’s ability to protect monopoly ratepayers from utility investments that aren’t cost-effective but are deemed by lawmakers to be in the public interest.

“It is a prime admission that what they achieved in the General Assembly could not actually survive a cost-benefit analysis,” said former Attorney General Ken Cuccinelli, a Republican, who accused the legislature of sacrificing ratepayers to benefit Dominion and Appalachian Power Co., Virginia’s biggest investor-owned utilities.

Even one of Dominion’s strongest legislative allies has qualms about the company’s statement.

“I’m not sure I would agree with that,” Senate Minority Leader Dick Saslaw, D-Fairfax, said Friday. “I think the SCC has a job to do and they should do it.”

“It shouldn’t be everything,” Saslaw said of cost-benefit analysis, “but it definitely should be part of the equation.”

Dominion spokesman David Botkins said the proposed investments would have measurable benefits by reducing the length of unplanned outages and the cost of serving the utility’s 2.6 million customers in Virginia.

“Beyond these primary benefits, the plan will lead to other societal benefits such as reduced emissions, job creation and economic development,” Botkins said.

Under the Grid Transformation and Security Act, adopted by the General Assembly and signed by Gov. Ralph Northam on March 9, any savings wouldn’t necessarily go to ratepayers.

The company plans to pay for a wide array of investments under the new law with rate adjustment clauses or customer credits, representing excess earnings that the company otherwise would have refunded to ratepayers. The SCC would not review the company’s base rates until 2022 under the law.

Dominion said last week that it would use existing rates to pay for $450 million of the improvements to the power grid. Those improvements include installation of smart meters for 1.4 million customers in the next two years and creation of a new customer service system that will allow people greater control to monitor and manage their use of electricity.

Will Cleveland, staff attorney for the Southern Environmental Law Center, played a role in negotiations over the new law, even though his organization ultimately didn’t support it.

“It is absolutely vital that the commission conduct a cost-benefit analysis on all of these various proposals,” Cleveland said. “It may be a little bit of an art, as opposed to a hard science, but it definitely should be done.”

Environmentalists who supported the new law welcome its declaration that development of 5,000 megawatts of solar, wind and renewable energy sources in the next 10 years is in the public interest. Similarly, they like the requirement that Dominion invest $870 million in energy efficiency programs over the decade, using a less rigorous set of cost-benefit tests than the SCC traditionally has employed.

However, the grid modernization plan Dominion introduced last week didn’t impress Walton Shepherd, Virginia policy director for the Natural Resources Defense Council, who wrote in a blog post that the proposal “reads like a utility spending plan that further increases bills, rather than a customer service plan to lower them.”

In an interview, Shepherd said the SCC will have to adjust to the “brave new world” the law represents in assessing the cost of utility investments the legislature mandated.

“It’s almost as if they have to make a qualitative judgment of reasonable and prudent rather than a quantitative one,” he said. “That’s going to be the realm where the SCC finds itself.”

Shepherd said the commission still has an opportunity to exercise its discretion over the modernization plan in the six-month window allowed for regulatory review under the new statute.

“There is room for the commission to shape what grid modernization actually is,” he said.

There is little margin in the law for SCC discretion in approving Dominion plans for burying distribution tap lines for customers, even if the cost appears to exceed the benefit of reduced outages and repairs to overhead lines downed by storms and falling trees.

In a hearing before the SCC on Tuesday — the same day Dominion filed its first applications under the law for grid modernization and new solar power plants — the commission’s staff highlighted two cases in which the company has paid between $200,000 and $300,000 to bury tap lines that have experienced a combined total of six outages in 10 years.

With financing expenses and utility profit on the investment, the lifetime cost of the two lines would be $1.3 million, according to David Dalton, a fiscal analyst in the Division of Public Utility Regulation.

Dalton acknowledged that “these high-cost projects ... appear to meet the minimum statutory requirements for approval,” because Dominion included them with a number of other line-burial projects that bring down the average expense below cost caps in the law.

Dominion, in testimony filed earlier with the SCC, said Dalton’s initial critique of 14 high-cost tap lines buried by the company focused on less than 1 percent of the total and “ignores the operational value” of burying lines that have required significant work to restore after outages.

The company plans to spend $2 billion on the Strategic Undergrounding Project, which the SCC estimates will cost $6 billion over the life of the buried lines, including financing expense and utility profit.

The General Assembly, angry over SCC rejection of two previously proposed Dominion projects to bury distribution lines because of the cost, required in the new law that the commission find the utility’s undergrounding proposals from late 2016 through the next 10 years to be “reasonable and prudent” as long as they comply with average cost caps.

“The problem is I’ve got constituents who are tired of losing their power every time the wind blows,” Saslaw said.

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(10) comments

IRENE LEECH

There are so many ways that Dominion already controls the system. As a monopoly provider, we expect regulation to ensure the company's quest for earnings is fair to ratepayers. Let the SCC do its job. Be reasonably sure that choices the company makes really do benefit those who pay for them, not just investors.

Terri Sweeney

Funny, customers are clamoring for increased reliability from storms and it's our own politicians who are in the way because improved reliability for customers doesn't have a hard payback. Amazing. Let them do it people. We are willing to pay more to keep the heat and a/c on during a storm. Dominion is routine losing power to tens of thousands of customers in the Richmond area with EVERY thunderstorm line. That's unacceptable.

Robert Moffett

Dominion appears to believe they should not be subject to regulation despite their being a monopoly whose customers have no other alternative. If their plan cannot be subjected to objective cost-benefit analysis according to proven industry standards, then Dominion should be denied permission to implement it.

DAVID HOSTETLER

At this point we don' know if the reporter included all the caveats and important details. Utility operations, planning and construction are extremely complex. Any change has "ripple" effects. The SCC should require cost benefit analyses (CBA) of proposed changes on the macro (big picture) level. I wonder if Dominion is concerned that the blanket CBA requirement might be applied at the micro (individual project) level. That could bog down the whole process.. That is a legitimate concern. For example, project A is beneficial but fails the CBA test. However, if project A can be combined with projects B and C and the combination passes the CBA test, the combination should be approved. Individual CBAs for A, B and C may not be useful. For example, when the serpentine belt on a car shows signs of imminent failure, it might make sense to replace an aging water pump while the belt is removed.
Also, the law requires Dominion to do certain things. Should CBAs be required for them? .
It is perfectly reasonable for Dominion to try have ground rules established early on.

HOWARD CROSBY

Curios what determines the expected life of a buried line?

DAVID HOSTETLER

Utilities have been burying lines for years, There are lots of data.

DAVID HOSTETLER

Buried lines are more expensive to install. . They are not subject to falling limbs or squirrels. When they do fail, the fault is harder to find and more expensive to fix.
is difficult to quantify the benefit if reduced outages.. How does on quantify improved customer satisfaction?

Terri Sweeney

Failure of waterproof jackets / connections, electric field induced failure of the insulators, thermal expansion/contraction with load and lightning.

JANE BALLARD

I didn't read anything in this article about strengthening the security of Dominion’s grid, which should be an exceptionally high priority. Russian hackers have already sneaked into several power company computers.

JOHN SWAIN

There are industry standards for performing a Benefit-Cost Analysis that apply an industry-agreed upon value to almost anything, especially time delays. Burying powerlines reduces power outages, plain and simply. A tree cannot take down a buried powerline. Anything can be quantified with a monetary value. It is called quantitative analysis.

Welcome to the discussion.

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