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Last-minute deal secures power from 2,100-MW Conn. nuclear plant for 10 years

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Last-minute deal secures power from 2,100-MW Conn. nuclear plant for 10 years

A last-minute deal was struck March 15 between Dominion Energy Inc. and two Connecticut utilities to purchase power from the Millstone nuclear power plant as part of an agreement that would bolster the plant's economic viability and delay its retirement.

"Dominion Energy welcomes today's agreement and appreciates Governor [Ned] Lamont and his administration's leadership on an issue vital to Connecticut's economy and environment," the company said in a statement.

Under the new 10-year deal with Connecticut's two electric utility companies, Eversource Energy and Avangrid Inc. subsidiary United Illuminating Co., Dominion will supply 9 million MWh of power per year, according to Dominion. Millstone's 2018 net generation was approximately 16.9 million MWh, according to S&P Global Market Intelligence data.

"The deal the utilities have negotiated secures Millstone's zero-carbon power for ten years, and reduces by nearly 50 percent the incremental ratepayer cost of the contract, as compared to the original bid selected," Lamont said in a statement.

Extensive negotiations

The deal comes almost a year-and-a-half after state legislation was signed into law in an effort to stave off the threatened early retirement of Millstone and safeguard its emissions-free baseload power by shoring up its economics in an electricity market awash with cheap, abundant natural gas supplies.

That October 2017 law specifically threw a lifeline to the approximately 2,100-MW Millstone two-unit plant in Waterford by offering it a chance to compete for a long-term, "zero-carbon" power supply contract.

In response to the legislative directive and a subsequent request for proposals, Connecticut's state Department of Energy and Environmental Protection, or DEEP, in late December 2018 awarded Dominion a 10-year power supply contract for about half of Millstone's generation output.

However, Dominion found the contract's terms to be insufficient to ensure Millstone's economic viability and therefore sought a revised deal with DEEP and the utilities.

Dominion specifically objected to the state having split Millstone's bid and awarding a contract at only wholesale electricity market prices for the first three years beginning in 2019 and then at above-market prices for the remaining seven years of the contract referred to as the "at-risk-of-retirement" period. Dominion instead wanted the "at-risk" period with above-market prices to be extended for the entire contract.

SNL Image

Dominion's majority-owned Millstone nuclear power plant in Waterford, Conn., in 2003.
Source: Associated Press/Steve Miller

But when evaluating Millstone's financial situation, DEEP had dismissed Dominion's warnings of a plant closure before June 2023 because Millstone has a capacity supply obligation in the ISO New England's forward capacity market until then. The state also concluded that Millstone's expected revenues through 2022 were enough to ensure continued operations. Further still, DEEP in awarding of contract to Dominion also directed local electric distribution utilities Eversource and UI to negotiate a price for the "at risk" period that reflects only a reasonable rate of return.

Opponents of an agreement that would provide above-market prices to Millstone have maintained that it would harm consumers by raising rates and impede wholesale power market competition by favoring a single generation resource.

"An above-market contract for Millstone shifts the risks from Dominion back on Connecticut consumers while paying Dominion's shareholders even more money for that lower risk," John Shelk, president and CEO of merchant generator trade group Electric Power Supply Association, said in an email.

In its negotiations with Eversource, Avangrid and the state, Dominion was hard-pressed to strike a deal for the contract before 11:59 p.m. EDT March 15 — the deadline for generators within the ISO-NE to submit permanent and retirement delist bids for the forward capacity auction covering the capacity commitment period of June 2023 through the end of May 2024.

When asked whether the first three years of the contract terms now include more favorable above-market prices, Dominion spokesman Ken Holt in an email said, "Details of the 10-year contract are not public at this point."

Millstone generated 48% of Connecticut's net electricity generation in 2017, according to U.S. Energy Information Administration data. And nuclear power was providing 39% of ISO-NE's supply on the afternoon of March 15, according to the grid operator.

Dominion owns 100% of Millstone unit 2 and 93.47% of Millstone unit 3.

Jared Anderson is a reporter for S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.