Dominion's quest for cost recovery opposed by industrials

Dominion's quest for cost recovery opposed by industrials

Washington (Platts)--18Oct2006

Dominion is hoping that Virginia's State Corporation Commission will approve
requests that will guarantee cost recovery for its proposed 500-MW power plant
that would burn 2 million short tons/year of local coal (PCT 2/25/05).

But a hearing examiner has recommended, at the request of a group of
Dominion's industrial customers, that the petition request be turned down. The
SCC heard the arguments at a Tuesday meeting. "The commission took the matter
under advisement," but there is no timetable for a decision, SCC spokesman Ken
Schrad told Platts on Wednesday.

Dominion is leading a consortium of utilities and electric power cooperatives
that plan to build the plant in southwestern Virginia near the town of St.
Paul. The plant, which would take coal from nearby operations, has been in the
planning stages since 2000, when the Virginia Coalfield Economic Development
Authority initiated steps to identify possible site locations and an
independent power provider.

The consortium members are Dominion, American Electric Power unit Appalachian
Power, Old Dominion Electric Cooperative, Virginia Municipal Electric
Association and Blue Ridge Power Agency.

In 2004, state Senator William Wampler, with support from Dominion,
then-Attorney General Jerry Kilgore and then-Governor Mark Warner, got the
Virginia Electric Utility Restructuring Act passed. The legislation
"encourages the development of a coal-fired power station in the state's
coalfield region that would utilize Virginia coal to provide electricity for
the companies' native load and default service customers."

Wampler, state Delegate Terry Kilgore and Lieutenant Governor Bill Bolling
were among those at the hearing supporting Dominion's request, Schrad said.

Project considered a risk

"Dominion considers there to be extreme risks in planning this project,"
Schrad said. A positive SCC ruling on the cost-recovery issue is a
prerequisite to a site construction permit, and "the bottom line is we don't
have a petition to construct this facility yet," he said.

An earlier timeline had construction starting in 2008 and commercial operation
beginning in 2012.

In its July 13 petition, Dominion, also called Dominion Virginia Power and
Virginia Electric and Power, said the coal plant's estimated output will be
500 to 600 MW, and the fuel supply "will consist primarily of run-of-mine coal
from various mines in the coalfield region of the Commonwealth." Dominion
argued, among other things, that a return on equity of 12% is required in
accurately calculating costs during the plant's planning and construction.

In an October 13 e-mail filing with the SCC before the hearing, the Lenowisco
Planning District Commission submitted a resolution that the "demonstrated
long term and comprehensive recruitment and selection process [for the plant
site] clearly illustrates there has been ample competition for such a
facility" and that the SCC should "move expeditiously toward completing the
necessary regulatory steps that will allow construction of this coal-fired
power plant to begin."

Lenowisco is the economic development entity for Lee, Scott and Wise counties
in southwest Virginia. The plant would be located in Wise County.

Meanwhile, Scott Sklar, president of the Stella Group in Arlington, Virginia,
commented in an October 16 e-mail to the SCC, "As a stockholder of Dominion
Resources and owner of an energy company in the state of Virginia, I ask that
[Dominion's] petition be delayed for fact finding due diligence" for reasons
of electric power quality and reliability, environmental protection from
emissions and electric rate price stability.

"The ratepayer should not be subject to risk of these points at any time,"
Sklar wrote. "Rather, the electric provider should assume the burden."

Sklar explained to Platts that his firm helps companies look at power loads
and rates, and prepare for possible rate increases. His position, he said, is
that Virginia needs to move in the direction of California, New York and New
Jersey and look at demand response and energy efficiency rather than plan new
power projects. He said he doesn't have anything against coal specifically.

The Stella Group, the company said in its e-mail, "is a strategic marketing
and policy firm for clean distributed energy users and companies which include
advanced batteries and controls, energy efficiency, fuel cells, heat engines,
minigeneration (natural gas), microhydropower, modular biomass, photovoltaics,
small wind and solar thermal ... and waste heat."

Dominion officials did not return phone calls by press time.

-- Steve Hooks, steve_hooks@platts.com

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