Dominion Energy (NYSE:D) on Friday filed a settlement agreement with the Virginia attorney general and other stakeholders that proposes an alternative to the performance requirement ordered by the State Corporation Commission (SCC) for the company’s $9.8 billion Coastal Virginia Offshore Wind (CVOW) project.

The group proposes to replace a 42% capacity performance guarantee, imposed by the SCC as a condition of its approval of the project, with a process through which the company explains any capacity shortfalls and the commission determines remedies. The company would be required to “provide a detailed explanation of the factors contributing to any deficiency” causing the project’s net capacity factor to fall below 42% on a three-year rolling average. The commission would then determine whether the shortfall “resulted from the unreasonable or imprudent actions of the company” and could impose a remedy addressing incremental energy or other costs.

Dominion CEO Robert Blue had called the performance mandate “untenable” and said it would require the company “to financially guarantee the weather, among other factors beyond its control, for the life of the project.” In an Aug. 22 petition for reconsideration, the company said it could be forced to terminate all development of the project if the requirement was not lifted. (See Dominion CEO: SCC Order for OSW Performance Guarantee ‘Untenable’.)

“Given the now significantly de-risked status of the project’s development, and given its continued ‘on-budget’ status, we feel that this settlement reflects a balanced sharing of financial impacts in what we currently see as unlikely scenarios of material delays or cost overruns,” Blue said in a statement on the agreement, which included the Sierra Club, Walmart (NYSE:WMT)
and environmental advocacy organization Appalachian Voices.

University of Virginia environmental law professor Cale Jaffe, who worked with Sierra on the settlement, said the proposed agreement addresses their concerns with the performance guarantee by leaving the door open to a precedent being set for fossil fuel generators being subject to the same requirements that offshore wind may be held to. He noted that Dominion’s Wise County coal plant has been operating well below its estimated capacity factor and has been steadily declining, leaving ratepayers with a large capital cost.

“We were very concerned about asymmetric treatment between new renewable energy … and older fossil fuel generation. … So one point we wanted to make sure was to raise concerns of any asymmetric treatment of renewable resources as compared to fossil,” he said.

The proposal would also avoid the possibility of making the project so onerous as to make development impossible, he said, which would come into conflict with the statutory demands of the Virginia Clean Economy Act, which is explicit in designating that CVOW is in the public interest.

The agreement, however, would not resolve Sierra’s original concern in the project: ensuring that the development considers the historically disadvantaged communities of Hampton Roads. Jaffe said the club will continue pushing for those interests to be included in Dominion’s economic plan, in the form of considering local and minority-owned businesses for hiring employees.

“There would be roughly 900 construction jobs, another 1,100 operation jobs … and we wanted to make sure diversity, equity, and inclusion was a part of that,” Jaffe said.

Agreement Includes ‘Unprecedented Consumer Protections’

In a statement on the filing, Attorney General Jason Miyares said the agreement includes “unprecedented consumer protections for Virginians” with cost sharing on project overruns and a cost cap on construction expenses.

“I am pleased that we have achieved consumer protections never seen before in modern Virginia history. For the first time, Dominion has significant skin in the game to ensure that the project is delivered on budget. Should the project run materially overbudget, it will come out of Dominion’s pocket, not consumers’,” Miyares said.

Under the proposed cost-sharing arrangement, customers would pay the first $500 million of costs above $9.8 billion, followed by an even split for the following $1 billion. Any costs above $11.3 billion will be paid entirely by Dominion; though if the project rises above $13.7 billion, it would go before the SCC to make a determination of viability and potential further cost allocation.

“This cost-sharing and cost-cap agreement means that Dominion will potentially have to pay almost $3 billion if the project runs over budget. Ensuring that the project remains on budget is crucial to ensuring it is also built on time,” Miyares said.

The agreement also states that Dominion “shall take all reasonable steps to ensure that customers receive the full and complete benefits of the Inflation Reduction Act of 2022” and not make any elections under the legislation that would reduce the benefit to customers. It also stipulates that if the completed project produces less than 2,587 MW, the cost-sharing schedule would also decrease on a per-megawatt prorated basis.

Dominion said work has continued to keep the project on schedule, which calls for construction to be complete in late 2026, and 90% of costs are expected to be fixed by the end of the first quarter of next year, up from 75% currently.

“The settlement agreement provides a balanced and reasonable approach that supports continued investment in CVOW to meet the commonwealth’s public policy and economic development priorities and the needs of Dominion Energy Virginia’s 2.7 million customers representing more than 5 million people and businesses,” the company said.

Appalachian Voices Virginia Policy Director Peter Anderson said the proposal creates an alternative to the SCC order for controlling the project’s construction risks and bringing down the presumption of reasonable costs ratepayers could be responsible for in the event of overruns. He also believes the agreement balances the interests of all the parties involved in the development, particularly by ensuring that the company bears some risk alongside customers.

“At this point it’s up to the commission as to whether they think it’s in the best interests of ratepayers,” he said.