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Consultant: Cut Dominion Virginia Power's cost recovery for underground tap lines

A witnessfor Virginia's consumer advocate recommended that state regulators cut DominionVirginia Power's request for cost recovery tied to undergrounding distribution linesby more than half.

Energyconsultant Scott Norwood, testifying on behalf of the Office of the Attorney General'sDivision of Consumer Counsel, said he recommends that Dominion Virginia Power'srequest for recovery for phase one costs of converting distribution tap lines tounderground service be capped at approximately $9.4 million.

DominionVirginia Power, known legally as VirginiaElectric and Power Co., has requested approval from the State CorporationCommission of a rate adjustment clause, Rider U,to recover the cost of the conversions. The DominionResources Inc. utility seeks to recover approximately $24.3 millionfor the 2016 rate year commencing Sept. 1 as the initial rate-year requirement onits proposed $140 million investment for phase one of the program, according toregulatory filings. (Case No. PUE-2015-00114)

Norwood,however, noted that Dominion "has not demonstrated that all of the $140 millioninvestment for Phase One underground distribution facilities is reasonable."

"DVP'sPhase One undergrounding investments are not necessary to ensure the delivery ofa reliable and adequate supply of electricity," Norwood wrote in a summaryof his testimony filed April 12 with the SCC. "DVP's total distribution systemreliability has been excellent when compared to utility industry norms as notedby the Company's testimony in recent regulatory proceedings."

The energyconsultant said the average reliability of Dominion's system over the last 10 yearswas 99.9555%, with the phase one investments improving this reliability by only0.0001%. Norwood added that the cost-benefit analyses provided by thecompany in support of its plan "are based on unsupported assumptions."

The energyconsultant also wrote in his testimony that Dominion "did not conduct detailedquantitative analyses of potentially lower cost alternatives" to the investmentsand has not demonstrated that they "represent the lowest reasonable cost alternative."Norwood also testified that "the projected outage reduction benefits"in Dominion's cost-benefit analysis are "speculative" since the utilityadmits that it cannot predict the impact of these investments on future distributionsystem reliability because of the unpredictability of major storms.

In thesummer of 2015, Virginia regulators deniedDominion Virginia Power's request to recover the costs of replacing thousands ofoverhead distribution lines with new underground lines. Dominion $175 million a year forapproximately 10 years to replace the most vulnerable tap lines, but state regulatorssaid the benefits of this nearly $2 billion investment "will not be fully realizeduntil final completion." (Case No. PUE-2014-00089)

The companysaid it would convert approximately 526 miles of overhead tap lines at an investmentof $263 million from 2014 through Aug. 31, 2016, with full recovery of this first-yearinvestment occurring over 40 years at a total cost to customers of more than $700million.

Whilestate regulators turned down Dominion's initial revenue request, they said a morelimited, less expensive pilot program specifically targeting tap lines with theworst reliability records and with "realistic cost-benefit analyses" couldsatisfy statutory requirements. Dominion has since dropped its 10-yearinvestment plan, but Norwood contends that the proposed phase one investments "farexceed the scope and cost level necessary for a pilot program."

"My[recommendation] to limit recovery to those circuits that incurred more than twooutages in 10 years due to major storms would allow for the conversion of more than300 distribution circuits, which is approximately 24% of the total Phase One circuits,"Norwood wrote in his testimony. "This is a reasonable and adequate level ofcircuits for a pilot program from which to obtain the information on distributionunderground conversion costs and related reliability and economic benefits, whichis necessary for evaluation of the reasonableness of any further investments inDVP's planned undergrounding program."

The testimonyindicated that Dominion's proposal to implement Rider U on Sept. 1 would increasethe total bill for the average residential customer using 1,000 kWh by approximately62 cents per month. In addition, Dominion Virginia Power estimated that the totallong-term revenue requirement for phase one of the underground program will be approximately$378.2 million over the life of the project, with these costs not fully recovereduntil 2057.

"Thetotal revenue requirement equates to an average life of project cost of over $63,000per customer served from the new underground tap lines," Norwood testified.