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Conn. agency picks 2 nukes, offshore wind project for power contracts

Connecticut officials have selected Dominion Energy Inc.'s "at-risk" Millstone nuclear power plant as a winning proposal for a "zero carbon" power supply contract, along with proposals from from NextEra Energy Inc.'s Seabrook nuclear power plant, a 100-MW expansion of Ørsted A/S' 600-MW offshore Revolution Wind project, and nine solar projects.

SNL Image

Dominion Energy's Millstone nuclear power plant in Waterford, Conn.
Source: Associated Press/Steve Miller

Connecticut Gov. Dannel Malloy and the state Department of Energy and Environmental Protection, or DEEP, announced on Dec. 28 the 12 winning projects out of more than 100 that vied for a long-term contract for low-carbon energy resources. The procurement's selections are equivalent to 45% of Connecticut's electric load, or about 11.7 million MWh.

The request for proposals, or RFP, is the product of 2017 legislation that sought to throw a lifeline to the Millstone plant and prevent a threatened early closure of the facility by shoring up its economics in an electricity market awash with cheap, abundant natural gas supplies.

Of the 24 bids submitted by Dominion for its approximately 2,100-MW nuclear facility in Waterford, Conn., DEEP selected a 10-year bid for about half of Millstone's generation output. Further, DEEP acknowledged it is treating the bid effectively as two bids by recognizing Millstone is "at risk of retirement" but cannot shutter before 2022 due to capacity supply obligations through ISO New England. DEEP and the state Public Utilities Regulatory Authority, or PURA, had repeatedly rejected Dominion's warnings of a plant closure before June 2023.

As a result, DEEP said the contract prices from 2019 to 2022 for Millstone will reflect Dominion's submitted energy-only price, but directed local electric distribution utilities Eversource Energy and Avangrid Inc. subsidiary United Illuminating Co. to negotiate a price for the "at-risk" period from 2022 to 2029 that reflects a reasonable rate of return for Dominion.

However, DEEP and the governor's office said in a press release that Dominion has sought a rate of return that is not in the best interests of ratepayers. "A normal utility rate of return on equity is 9 percent, however DEEP would consider 12 to 15 percent reasonable for a merchant power plant with a long-term contract," the state said. Millstone contract price negotiations are requested to conclude by March 31, 2019.

DEEP Commissioner Robert Klee said the state selected Millstone and the other zero-carbon resources in an effort to mitigate climate change, fully aware that recent international climate assessment reports by the United Nations and others "make clear that we are running out of time to decarbonize the energy sector."

Klee said DEEP created an evaluation framework to compare the costs of retaining Millstone with the cost of replacing it over time with a variety of renewable resources. "We remain committed to keeping this valuable zero-carbon resource, provided that it is affordable, as we work towards long-term replacement through smart investments in offshore wind and solar paired with grid-scale storage," Klee said. "At the same time, we believe ratepayers deserve, and can get, a more competitive price for Millstone's output."

In a statement, Dominion welcomed the Millstone plant's selection and said securing the contract will help ensure the plant's future viability.

"Connecticut once again recognizes the significant environmental and economic benefits of Millstone Power Station to its citizens by selecting the maximum term allowed and a significant annual quantity," the company said. "This is an important step in the process, but more work remains before contracts can be executed, particularly with regard to the short-term pricing. We look forward to resolving the remaining issues amicably to ensure that Millstone's benefits are available to Connecticut for the next decade."

Along with selecting Connecticut's only nuclear power plant, DEEP also selected a bid from NextEra's approximately 1,250-MW Seabrook nuclear power plant in New Hampshire. One difference in the nuclear plants is that NextEra did not seek the "existing at risk" status for Seabrook, which gave Millstone a competitive edge in the bid evaluation. Without that status, NextEra did not have to disclose Seabrook's operating costs to the state.

The state said Seabrook was selected on the basis of its price of 3.3 cents/kWh levelized, or 3.9 cents/kWh nominal, "which beats the market forecast and is projected to save Connecticut ratepayers $18 million per year over its eight-year term." The Seabrook contract begins in 2022 for 1.9 million MWh of generation.

Additional offshore wind capacity

Connecticut also selected an additional 100 MW from the 600-MW Revolution Wind project, which was acquired by Ørsted in October as part of the Deepwater Wind portfolio. On Dec. 20, the PURA approved a 20-year power purchase agreement for Eversource and United Illuminating to buy 200 MW from Revolution Wind. Subsidiary Ørsted US Offshore Wind said in a press release that it now has a construction pipeline totaling 830 MW in New England.

In the zero-carbon RFP selection, DEEP also chose 165 MW from nine new solar projects that will be located in Connecticut and throughout New England, with two of them paired with energy storage. The average levelized cost of these solar projects is about 4.9 cents/kWh, which DEEP said is approaching parity with the market price of energy and represents continued price reductions in procuring grid scale solar, as well as additional savings to ratepayers.

Assuming all of the selected projects successfully enter into contracts and are approved by the PURA, Connecticut said the state will retain approximately 17% of total load for additional renewable procurement authority in future RFPs.