Virginia regulators reject Dominion renewable energy tariff

Virginia’s State Corporation Commission (SCC) has rejected Dominion Energy Virginia’s application for approval of a new rate schedule “CRG” under which it would offer renewable energy to large users of energy.

The SCC concluded Dominion had failed to show the tariff would result in “just and reasonable rates.” The Commission focused especially on two issues. First, the tariff relied on a formula made up of a long list of unknown variables including half a dozen different cost and price forecasts, producing “simply too much uncertainty and subjectivity.”

Second, Dominion proposed to collect a profit on the renewable energy it purchased for customers, equivalent to the return on equity it is allowed to charge on projects it builds. This would be unusual (typically the costs of purchased power are simply passed through to customers), and the Commission wasn’t having it.

This puts Dominion back at square one in developing a renewable energy tariff it can offer to large customers other than the Amazons and Facebooks of the world, who negotiate their own terms.

On the one hand, that’s good for customer choice and free market competition; as long as the utility does not have an approved tariff for 100% renewable energy, customers are allowed to buy renewable energy from other providers.

On the other hand, the SCC opinion also seems to suggest that when Dominion comes back with a new proposal, it might have to be one that, while cheaper, could be even less appealing to customers than the already-questionable CRG tariff. Pointing to the very broad definition of renewable energy in § 56-576 of the Code, the SCC makes the peculiar assertion that “The Commission must find that the energy provided by the proposed tariffs meets the General Assembly’s definition of renewable energy, not an individual customer’s preferred definition of such.”

This language concerns Cale Jaffe, Assistant Professor of Law at the University of Virginia and the Director of the Environmental and Regulatory Law Clinic. He says:

I take that as a not-so-thinly veiled criticism of Tier 1 renewables like wind and solar by the Commissioners.  I.e., Va. Code 56-576 defines “renewable energy” to include, “biomass, sustainable or otherwise, (the definitions of which shall be liberally construed), energy from waste, landfill gas, municipal solid waste….” I read the Commission as advising Dominion that if it comes back with another 100% Renewable Energy tariff, it needs to include “cheaper” options (if externalities are excluded), which the Commission would define to include unsustainable biomass along with other Tier 3 resources (e.g., waste to energy).

For customers, the result could be the worst of both worlds if a tariff with a mix of cheap, crummy stuff won SCC approval. It would close off the market to competition, yet probably not attract many takers.

Taking the optimistic view, though, there’s little out there in the renewable energy world that can compete with today’s wind and solar prices, with the exception of hydropower in places that have a lot of it. If Dominion’s prices are high, that’s because it insists on mixing in high-cost biomass to satisfy its own insistence that a renewable energy tariff consist of renewable energy 100% of the time.

The SCC’s focus on cost to customers has implications for Dominion’s proposed Schedule CRG-S, which would offer residential and smaller non-residential customers a mix of renewable sources at a fixed price that would increase the bills of participating residential customers by nearly 18%, or more than $20 per month for someone using 1,000 kWh. (Again, it’s that insistence on “100% of the time” that appears to be driving up the price.) This is a greater increase than the similar tariff Appalachian Power proposed, and the SCC rejected as too high, just a year ago.

For Dominion, the answer to every problem is more gas

Dominion Energy Virginia just released its 2018 Integrated Resource Plan (IRP), and the message it conveys could not be clearer: no matter what happens, the utility plans to build more fracked gas generation.

The IRP lays out five scenarios for meeting electric demand over the next 15 years, each one responding to a different set of assumptions. Yet weirdly, no matter which assumptions you choose, Dominion’s plan involves building a little bit of solar and a lot more gas.

Dominion Energy Virginia IRP; table showing alternatives considered

Dominion’s “Alternative Plans” (from page 24 of the IRP) prove to be very short on actual alternatives.

Everywhere you see “CT” in the table, that’s another gas plant–and they show up in every “alternative.” Assume no carbon tax? Great, Dominion will build gas. What if Virginia follows through on plans to cut carbon by joining the Regional Greenhouse Gas Initiative (RGGI)? No problem, Dominion will build gas. How about if the Feds impose a national carbon plan? Alrighty then, Dominion will build gas!

Seriously, folks, if fracked gas is always the answer, somebody isn’t asking the right question.

The question we’d like to see addressed is how the utility intends to help Virginia transition to a clean energy economy. The question Dominion seems to be answering is how to create a need for the Atlantic Coast Pipeline.

This isn’t a surprise; Dominion’s parent company, Dominion Energy, is the majority partner in the pipeline, and the pipeline’s approval was premised on the utility “needing” the pipeline to serve its gas plants. It’s a blatant conflict of interest that the SCC should have addressed by now, but it declined to do so. (The Sierra Club has taken the SCC to court over this dereliction of duty.)

Dominion would prefer we talk about its plans for more solar. It is true the 2018 IRP proposes more solar generation than the 2017 IRP did. Last year’s IRP revealed that solar had become the lowest-cost energy in Virginia, but it forecast only 240 MW per year. This year’s IRP shows solar increasing over the next few years to a maximum of 480 MW per year beginning in 2022 (about half of what North Carolina installed in 2016). To put that in perspective, Microsoft recently announced it was contracting for 350 MW of Virginia solar to be built in one fell swoop, to serve just its own operations.

Meanwhile, the IRP notes that Dominion’s newest combined-cycle gas plant, the 1,585 MW Greensville behemoth, will enter service next year. Running at full capacity, it would provide the equivalent amount of electricity to 13 years’ worth of planned solar construction, since the expected output of a solar farm is about 25% of its “nameplate” capacity. (To be fair, the Greensville plant will likely run at more like 75-80% capacity. But it follows three other new gas plants Dominion built this decade. Together the four plants add a total of  4,862 MW. And those are nowhere near all the gas plants Dominion operates.)

The fact that all of Dominion’s IRP scenarios look alike and rely heavily on gas seems to be intended to send a message not to the SCC but to Governor Northam. Dominion doesn’t like the carbon reduction rulemaking now underway at the Department of Environmental Quality, which aims to lower emissions from Virginia power plants by 30% between 2020 and 2030. So the IRP “assumes” Dominion will comply by purchasing dirtier power from states not subject to regulation, actually driving up both cost and carbon emissions. Meanwhile, it’s going to build gas no matter what.

Welcome to Dominion’s game of hardball, Governor Northam.

Of course, the IRP is only a planning document. The SCC may approve it but still reject a proposed facility when the utility asks for permission to build it. Market watchers will question whether Dominion will be able to justify all—or any—of the 8 proposed gas combustion turbine facilities in hearings before the SCC. Virginia has too little solar now to need combustion turbines for back-up, and by the time there is enough to challenge the capabilities of the grid, experts predict battery storage will be the better and cheaper choice.

But never mind that; for Dominion, what matters now is justifying the Atlantic Coast Pipeline.

How Virginia localities will get to 100% renewable

Supporters of clean energy gathered in Richmond on April 25 to launch the 100% Virginia Campaign. Photo courtesy of the Sierra Club.

Last week a coalition led by the Sierra Club launched a “100% Virginia” campaign designed in part to encourage more localities to follow the lead of Blacksburg and Floyd in committing to a 100% renewable energy future. For many people this energy transition now feels inevitable, at least in the long run. In the short run, though, it still feels very difficult.

Consider the obstacles we face in Virginia. Most localities have to deal with Dominion Energy Virginia (Dominion) or Appalachian Power (APCo), which have monopolies in their service territories. With few exceptions, customers can’t just sign up with another supplier who will offer a cleaner energy mix. And most local governments themselves buy electricity collectively from Dominion under a contract that gives them an attractive price but constrains their ability to generate power for themselves.

Our utilities themselves show no interest in abandoning fossil fuels. Dominion Energy Virginia’s parent company, Dominion Energy, is heavily invested in natural gas transmission, storage and export. The parent company needs the electric utility it owns to keep burning fracked gas for electricity so it can fill pipelines like its $6 billion Atlantic Coast Pipeline. Dominion has sunk billions of dollars of its customers’ money into new gas generating plants, which it won’t want to close early. And Dominion’s 2017 Integrated Resource Plan (IRP) showed the company expected to see its CO2 emissions actually increase over the next 25 years.

For its part, APCo is a subsidiary of Ohio-based American Electric Power (AEP). AEP has reduced its use of coal in recent years and plans major investments in renewable energy, but it won’t reach its planned 80% reduction in CO2 emissions until 2050. Meanwhile it is increasing its use of fracked gas.

Both Dominion Energy Virginia and APCo make money by building new infrastructure, so they need customers to use more energy, not less. They oppose mandatory efficiency savings as well as customer-owned and third-party owned solar, both of which would reduce their own sales. One result is Virginia’s abysmal showing on energy efficiency rankings.

Virginia lacks a mandatory renewable portfolio standard (RPS), relying on a weak and voluntary standard. As a result, Dominion Energy Virginia’s energy mix is currently less than 4% renewable energy, none of it from wind or solar. (Dominion does generate a tiny amount of solar energy but sells the renewable energy certificates, so legally it no longer qualifies as energy from solar. This will be an ongoing problem as Dominion builds more solar.) APCo has more wind in its energy mix than Dominion does, but also more coal.

Customers who want to generate their own renewable energy face a long list of policy barriers, and Virginia lacks incentives like tax credits, rebates, or a REC market that would spur private investment. Under pressure from Dominion, APCo and the rural electric cooperatives, the General Assembly routinely defeats proposals that would boost investment in rooftop solar. A recent report gave Virginia an F on solar policy, ranking us among the “10 States Blocking Distributed Solar.”

If the General Assembly is unhelpful, Virginia’s State Corporation Commission (SCC) is actively hostile to renewable energy and energy efficiency. The SCC cares about low rates and not much else.

It’s also hard for local governments to fill the policy gap. Virginia is a Dillon Rule state, meaning local governments have only the power granted to them by state government. A city or county can’t adopt a building code requiring homes to be more energy efficient than called for in the statewide code, or require new buildings to have solar panels or green roofs.

With all these obstacles, the prospects for meaningful change once looked grim. But two trends have converged to change the outlook. First, the economics of electric generation have now shifted decisively in favor of renewable energy and away from fossil fuels (though a lot of people don’t know it yet). And second, customer demand for renewable energy has surged across the political spectrum, with major corporations driving much of the action.

As a result, even in Virginia a number of trends favor renewable energy:

Dominion’s 2017 IRP dropped plans for new baseload gas plants before at least 2025, a sharp change from 2016. That IRP for the first time identified solar as the least cost resource in Virginia, though it proposed a build-out of only 240 MW per year. Dominion’s 2018 IRP, due out May 1, will almost surely call for more than that, in keeping with 2018 legislation, SB 966, putting more than 5,000 MW of wind and solar by 2028 in the public interest.

SB 966 also called for a billion dollars in new spending on energy efficiency programs, and limited the SCC’s ability to reject proposed efficiency programs. Meanwhile, localities are putting in place Commercial Property Assessed Clean Energy (C-PACE) lending programs that will allow businesses and non-profits to access low-cost financing for both energy efficiency and renewable energy.

Corporate demand has created new solar options, including some from Dominion but also some that don’t involve our utilities. For example, the 500 MW solar farm that will serve Microsoft and others appears to be structured to bypass Dominion entirely. The deal uses what is known as a wholesale power purchase agreement, an option increasingly popular with corporations, institutions, local governments, and other large purchasers of energy. The Northern Virginia Regional Commission is currently working with local governments in its area to do something similar.

Legislation passed in 2017 is also finally producing a solar option for Dominion customers that will likely be available by the end of this year. As proposed, it will offer electricity generated from solar facilities in Virginia at a cost comparable to that of Dominion’s wretched Green Power Program.

Offshore wind has not gotten much attention in Virginia recently, but Dominion’s partnership with the Danish company Orsted, the world’s leading offshore wind developer, puts Virginia’s 12-MW pilot project on track for completion in 2020, with the commercial lease area likely to see the full build-out of 2,000 MW occur during the 2020s.

Finally, the Northam Administration is finalizing new regulations designed to reduce greenhouse gas emissions from power plants by having Virginia utilities trade carbon allowances with those in states that are members of the Regional Greenhouse Gas Initiative (RGGI). It’s not clear yet how much this will incentivize utilities to build wind and solar.

Localities considering a commitment to 100% renewable energy should feel optimistic about these developments. As renewable energy costs continue to tumble, charting a path to 100% also means saving money for taxpayers.

The exact path to 100% may not be clear, but it will likely involve a combination of some or all these options:

  • Prioritizing energy efficiency in both public and private buildings;
  • Investing in large offsite solar (and wind) facilities, and encouraging corporate and institutional customers to participate in similar investments;
  • Putting solar on rooftops and parking lots of municipal buildings and schools, using third-party PPA financing to avoid upfront capital costs;
  • Offering C-PACE financing to businesses for energy efficiency and solar;
  • Sponsoring and promoting “solarize” bulk purchasing programs that make it easier and cheaper for residential and commercial customers to install solar;
  • Promoting utility-sponsored renewable energy purchase options for residents and businesses as they become available; and
  • If adequate utility options don’t emerge, using municipal aggregation to purchase renewable electricity from another supplier.

Localities also have to do a better job advocating for clean energy at the General Assembly and with the Governor, where they are currently underrepresented in the energy debate. They need to become squeaky wheels about things like the barriers to customer-owned solar, the paucity of renewable energy options and our substandard residential building code.

But most of all, localities have to begin taking advantage of the efficiency and solar options that already exist. Too many boards of supervisors and city councils waste time dithering and second-guessing and deferring to unmotivated staff and wondering if, gee, maybe it would be better to wait for someone else to go first.

Getting to 100% may not be easy, but it’s impossible if you never start.

The race to 100% renewable is on in Virginia: Floyd and Blacksburg lead in committing to energy transition (sort of)

On October 24, 2017, deep in the heart of Virginia, the mostly Republican supervisors of Floyd County (population 15, 755) issued a resolution proclaiming the county’s commitment to reduce greenhouse gas emissions by “replacing fossil fuels with renewable energy along with conservation and energy efficiency,” and “support[ing] the achievement of near zero greenhouse gas emissions through policies that shift the energy supply strategy of our County from fossil fuels to 100% clean renewable energy.” The vote in support was unanimous.

The vote made Floyd the first Virginia locality to join more than 70 cities, towns and counties across the U.S. that have committed to achieving 100% renewable electricity. At least five cities are already powered by renewable energy today, according to the Sierra Club. (And surprise! None of the five are in California.)

Floyd’s resolution does not set a date for accomplishing its goal, so some might call it more aspirational than committed. And even the residents of Floyd subsequently showed themselves more than a little conflicted. (I’ll get to that in a moment.)

But within three months, the Town of Blacksburg followed suit with its own resolution in favor of 100% renewable energy, and it upped the ante by setting a target date of 2050. The Blacksburg commitment is bolstered by the town’s previous work on a climate action plan and its own claim to fame as the location of Virginia’s first Solarize campaign.

As best I can tell, Floyd and Blacksburg are the only Virginia localities to take the pledge so far, but the idea is under consideration across the state. The Sierra Club launched its “Ready for 100” campaign in Virginia almost two years ago in an effort to persuade Arlington and Alexandria to set a target date of 2035 for both government and residents to be powered by 100% renewable electricity. Fairfax City and Charlottesville have also begun the conversation.

The 2035 target proposed for Arlington and Alexandria is both more and less ambitious than Blacksburg’s goal, since it covers only the electric sector. Moving to 100% renewable energy, as Blacksburg aims to do, also requires things like eliminating petroleum use in transportation and an end to heating by natural gas and fuel oil. These are harder in the near term but generally considered achievable by 2050, given the projections for electric vehicles, cost declines that make electricity from wind and solar competitive with fossil fuels, and a growing belief that combating climate change will soon push us towards a policy to “electrify everything.”

Not everyone agrees that abandoning fossil fuels is the right goal, including some of the same people who said it was. Immediately after passing the 100% resolution, supervisors in Floyd County contracted a case of buyers’ remorse when the local Tea Party found out and raised a ruckus. (The local newspaper had been covering the topic for months, but evidently it didn’t make Fox News.)

Barely six weeks later, on December 12, the board issued a hastily-prepared second resolution. It began by repeating several findings of the first resolution, including recognizing the threat of climate change and the role of humans in causing it. So far, so good. Then it took a sharp detour to praise fossil fuels and to pledge to “protect the freedom and economic interests” of residents by working for “viable, cost-effective, clean and reliable energy resources of all available types,” which the drafters seemed to think included fossil fuels. Only one supervisor voted no. They did not, however, repeal the first resolution. That leaves Floyd with its first-in-the-commonwealth status on embracing 100% renewable energy, but sadly paralyzed on putting it into action.

It is worth reading this second Floyd resolution to understand the underlying concerns of the noisy minority who pushed it through. It reveals that a belief in coal as a cheap fuel remains common, though it has been years since coal lost its competitiveness. And the reference to fossil fuels as “clean” is surely an echo of the “clean coal” propaganda that never had any truth behind it, but seemed to offer a free lunch. The very silliness of the phrase works in its favor: since no one would make up something so absurd, people figure, it has to be true.

The second resolution also reflects a genuine concern about the potential of an over-active government to infringe on individual liberties. Billy Weitzenfeld, President of Sustain Floyd, told me some local people who were opposed to the pro-renewable energy resolution expressed a fear that it would lead to the government taking away peoples’ wood stoves and forcing everyone to put solar panels on their houses. Thus the freedom from utility control that rooftop solar offers to consumers was turned on its head and made to look like a threat to individual liberty.

Weitzenfeld feels the Tea Party concerns are misplaced, but he also thinks the conflict could have been avoided by better dialog in the process. It was unfortunate, he said, that fear took over, and—at least temporarily—brought a halt to what had been an exciting momentum on clean energy initiatives.

Weitzenfeld has not thrown in the towel, though. He and other advocates in Floyd are getting back to doing “the proactive stuff that can really make a difference”: putting solar on rooftops through a second Solarize program, encouraging energy audits, engaging the public, and building what he calls “the constituency of practitioners,” people whose own experience with renewable energy will make them the ones to push back against fear and misinformation the next time around.

Looking on the bright side, even the rebelling Tea Partiers recognized the climate threat, which is also a theme common to the other Virginia resolutions. In other conservative states, more prosaic considerations have driven the decision. And by that, of course, I mean money. The Republican mayor of Georgetown, Texas, said economics pushed them to become one of the first cities in America to run entirely on wind and solar energy, when they found they could save money doing it. Bentonville, Texas, may become the second city in that state to achieve the 100% goal, on economic grounds as well as due to concerns over air quality associated with coal and gas burning.

In 2008, tiny Rock Port, Missouri, became the first locality in the U.S to be powered entirely by wind energy, taking advantage of a cheap and abundant resource in a windy farm community. Greensburg, Kansas, also went all-wind in 2013, and uses this and other green initiatives as a major branding tool.

All of these are small communities that control their own electricity supply, which gives them options most Virginia localities lack. Blacksburg residents get their electricity from Appalachian Power; most others have to deal with Dominion Energy Virginia or one of the rural electric cooperatives. So even if they achieve consensus within their communities on a goal of 100% renewables, meeting the goal will require navigating a range of barriers.

We are not alone there. A fair number of the cities on the Ready for 100 list are also located in the Southeast, and suffer from the same outdated monopoly utility structure that we do. Virginia localities can look for guidance to Atlanta, Georgia (100% renewable energy by 2035), and Columbia, South Carolina (100% renewable electricity by 2036).

Next week Sierra Club will launch its “100% Virginia Campaign” to encourage residents across the state to advocate for clean energy in their communities, with the hope that more localities will take up resolutions for 100% renewable electricity by 2035.

More generally, Sierra Club organizer Alice Redhead says the goal is to “build a movement for clean energy across the state and set the conditions for Virginia to transition to 100% renewable energy statewide by 2050. We are pushing for localities around Virginia to commit to 100% clean energy, but we are also making sure that the campaign is flexible rather than one size fits all and allows for locally-tailored initiatives that are strategic for the conditions in different areas of the state. Local campaign teams that are a part of the 100% Virginia network will develop unique plans to advocate for clean energy progress specific to their area.”

In an upcoming blogpost I’ll take a harder look at the obstacles facing Virginia localities, as well as the opportunities that make getting to 100 a viable option.

What the fate of one solar bill reveals about politics in Virginia

 

Want an extra solar panel on your roof, just in case? Too bad, chump. Better luck next year. Maybe.

While Dominion’s latest effort to legislate profits into perpetuity got all the press attention this winter, another story went largely ignored. A whole raft of bills that would have opened more opportunities for customer-owned and third-party owned renewable energy died in committee. So did bills supporting energy choice and an energy efficiency mandate.

These bills generally had one thing in common: they were opposed by the same utility that was touting its own clean energy investments as a reason to vote for the Ratepayer Rip-Off.

Most of the rejected bills would have promoted customer investments in solar, a segment of the market that Dominion’s legislation won’t help. These bills included:

  • HB 54 (Sullivan) state tax credit of 35% on renewable energy property
  • SB 313 (Edwards) and SB 311 (Edwards) community solar
  • HB 393 (Keam) remove the 1% cap on net metered projects and provide for an SCC study of the impact of net metering
  • HB 1060 (Tran) remove the 1% cap on net metered projects
  • HB 1253 (Tran) expand net metering by local governments
  • HB 421 (Sullivan) allow owners of multifamily residential buildings to install renewable energy facilities and sell output to occupants
  • HB 930 (Lopez) allow net metering program for multifamily customer-generators
  • HB 978 (Guzman) require utilities to justify standby charges with a value of solar study (withdrawn by the patron, reportedly at the request of utilities)
  • SB 82 (Edwards) expand agricultural net metering program
  • HB 1155 (Simon) affirm legality of third-party power purchase agreements (PPAs) for customer solar.
  • SB 83 (Edwards) expand availability of PPAs statewide
  • HB 1252 (Kilgore) allow PPAs for non-profits in APCo territory (passed the House with support of APCo but withdrawn by the patron before a Senate hearing when the utility decided that it didn’t like the bill it had negotiated with advocates in Southwest Virginia after all)

It’s tempting to focus blame on the utilities for the demise of these bills, but the fate of one additional bill reminds us where accountability properly lies. SB 191 (Favola) would have allowed net metering customers to install enough solar to meet up to 125% of their previous 12 months’ electric demand, up from 100% currently. As under current law, they still could not sell any surplus electricity at retail. This last point is key: it means customers have no financial incentive to install more solar than they will actually use, and if they do, it’s the utilities that come out ahead.

APCo and the Coops said they were opposed to it anyway, and were written out of the bill to save it. But Dominion agreed to the bill, with the addition of an amendment it wanted. The bill passed the Senate, and a lobbyist for Dominion joined a representative of the Sierra Club (yours truly) to speak in its favor in the House Commerce and Labor subcommittee. Lobbyists for APCo and the Coops also spoke in its favor, just to be nice. No one rose in opposition.

But the subcommittee killed it anyway on a party-line vote.* One of the Republican committee members offered an excuse about “sending it” to the Rubin Group—which, however, they did not do. Discussions with observers later suggested that the vote was a petty, partisan act of retribution against the patron for something entirely unrelated to the legislation.

So while the utilities’ desire to protect their monopoly makes them oppose customer solar, and utility campaign donations persuade legislators to vote accordingly, ultimately voters have only the legislators themselves to blame for the barriers holding back solar in Virginia.

Elections have consequences, as the saying goes, and the fact that Republicans managed to retain a majority in the House by the slimmest of margins this past November was enough for them to be able to continue their long practice of killing popular solar initiatives in subcommittee. The election that was decided by drawing a name from a hat also determined that rooftop solar bills would not advance out of subcommittee, even when they are small, relatively inconsequential, and completely unopposed.

Advocates had hoped the close election would influence Republicans to moderate their trigger-happy approach to clean energy bills. No part of Republican ideology says customers should not install their own solar. Indeed, in past years Republicans have sometimes been leading advocates for rooftop solar.

Maybe Republicans will do better next year, especially if grassroots anger continues to strengthen the Democrats, and Republicans feel the heat. Otherwise, solar advocates will be highly motivated to support Democrats in the 2019 election.

Of course there are plenty of Democrats in the pockets of the utilities, too. That makes it especially important that a growing number of legislators have pledged to refuse campaign contributions from public utilities and their parent corporations. Delegate Mark Keam (D-Vienna) is the latest to “break up” with Dominion over its undue influence on the legislative process.

The pledge isn’t a guarantee of how a legislator will vote, but for frustrated clean energy advocates it offers a simple litmus test that proved out well this year, as pledge-takers overwhelmingly voted against Dominion’s bill. Solar advocates who found this past legislative session more frustrating than ever may find some satisfaction in persuading their own legislators to follow Keam’s example (and get some press attention for it, too).


* The six Republicans voting to table (kill) SB 191 were O’Quinn, Byron, Hugo, Marshall, Habeeb, and Ransone. The four Democrats supporting the bill were Ward, Kory, Heretick, and Bourne.

Virginia buys Dominion’s pig in a poke

How Dominion sees the bill.

A pig in a poke is defined as “an object offered in a manner that conceals its true value, especially its lack of value.” The expression is said to go back about five hundred years to English marketplaces. A poke was a sort of sack, but why 16th century people bought pigs in sacks, and why they would have bought a sack without looking inside, is not at all clear. I’m guessing the seller was the local pig monopoly, and the buyers were timid leaders who meekly paid their farthings and hoped for the best. After all, that is how we do it in the marketplace of Virginia’s General Assembly when Dominion Energy Virginia comes peddling legislation.

And indeed, the true value (or lack of value) of this year’s boondoggle bill (HB 1558/SB 966) will probably not be understood for months or even years to come. The General Assembly passed this legislation that will govern billions of dollars of new spending paid for by Virginia customers after just a handful of hearings over a few weeks, and with no study or input from outside experts. If you will excuse the expression, this is a lousy way to make sausage.

Arguably, the only thing worse than this bill is the law it seeks to fix, the infamous “rate freeze” legislation of 2015 that simply let Dominion keep a billion dollars of customer money to line its own pockets. You’d think legislators would have learned something about legislating in haste and repenting at leisure.

But the legislation could have been worse. We know this because it was worse; the bills Dominion originally put forward returned even less money to consumers, gave the utilities even more leeway on spending, and included the infamous “double dip” that the SCC said would let Dominion charge customers twice for the same projects. The bills improved over the next few weeks under pressure from progressive Democrats, conservative Republicans, the SCC, the Attorney General’s office, the Governor, and consumer and environmental groups.

Whether it is good enough now remains a matter of debate. Conservatives for Clean Energy and the League of Conservation Voters support the bill, especially the provisions relating to investments in energy efficiency and renewable energy. The Sierra Club, an early opponent, used what leverage it had to get the worst provisions changed before removing its opposition late in the game (while still not supporting the bill). The AG’s Office of Consumer Counsel and Appalachian Voices never dropped their opposition.

Nevertheless, the poke has been bought, so you should definitely take a look at the pig. The Virginia Poverty Law Center and the Southern Environmental Law Center produced a handy summary of the bill’s final provisions compared to both the original bill and the status quo under the 2015 law (and sometimes also to the pre-2015 law).

The summary describes the categories of new spending authorized by the law, but a lot is left to interpretation—Dominion’s interpretation, mostly. Customers don’t seem to have any say in how their money gets spent. They are just supposed to feel happy with the provisions granting them some initial refunds reflecting a portion of the overearnings from past years, plus the utility’s savings from the federal tax cut. Going forward, though, the likelihood of further refunds or rate cuts seems remote. The whole point of the bill is to allow utilities to spend overearnings and avoid refunds. And as always, rates can continue to go up through “rate adjustment clauses” (RACs) like the ones that tacked new charges onto electricity bills even when base rates were frozen.

Moreover, what VPLC’s summary (understandably) lacks is a comparison to what ought to be in there: full refunds based on a review of past earnings rather than legislative guesstimates; mandatory—and much higher—levels of energy efficiency, wind and solar; proper regulatory oversight of rates and spending; and an independent assessment of grid modernization needs rather than blanket permission for a utility to indulge in projects that benefit itself most.

We’ll have to wait until next year for any new legislation, but it is not too early to start laying the groundwork. Governor Northam should direct his administration to begin working with national experts on a comprehensive grid modernization study. The goal should not be to tinker around the edges of current law and policy, but to draft a new and better approach from the ground up. (For a great discussion of why we need this study and what it should look like, see Tom Hadwin’s blogpost from last week.)

Meanwhile, legislators should promise their constituents that they will never again allow a public utility to write our energy laws and force through massive and complex changes over the course of a few weeks of the legislative session. Next time Dominion offers a pig in a poke, the answer should be no.

Grid Transformation for the 21st Century: why Virginia needs to get this right

Thomas Hadwin served as an executive with electric and gas utilities in Michigan and New York. He is actively involved in promoting a modern energy system for Virginia.

With proper planning, the 21st century power grid will be smart, efficient and resilient. Without good planning, it could be an expensive mess. Photo credit McKay Savage, India.

The General Assembly recently passed a bill intended to promote modernization of our existing electricity grid. It is important for Virginians to understand the costs, benefits and various ways of upgrading our state’s grid, so that they can decide for themselves whether the new legislation provides the best path forward. Making the right choices about this affects our family finances and the competitiveness of our state economy.

An electricity grid is the system of wires and facilities that move electricity from where it is produced to where it is used. Thomas Edison created the first utility in New York City in 1882. A portion of it was still in use until 2007.

The Traditional Grid

For over a century, the grid met the same basic functions and contained equipment that Edison would have recognized, at least in concept. The system evolved to have electricity produced at a distance from where it is used. Since more electricity is lost the farther it is transported, high voltage transmission lines were developed to minimize these losses. These are the very tall, usually lattice-like, steel towers with long drooping lines that you see from the highway. We can’t use electricity at such high voltage, so it is stepped down using big transformers to lower levels. Sometimes several types of lower voltage lines are used to get the energy closer to where it needs to go.

The transmission lines bring the electricity to a population center or industrial complex to where it will be used. At this point a complex set of equipment called a substation is used to reduce to reduce the voltage to the various levels used by industries, businesses and residences. Once the voltage is reduced at the substation, it enters the distribution system. These are the lines that you see on the poles along the street where you live, where the voltage is reduced one last time to the level you use in your home. Other wires are also on those poles for telephone and cable TV service. If you live in a city, or a new subdivision, those lines are often underground.

Electricity doesn’t move like cars on a road, from Point A to Point B. So you can’t really say where electricity was produced or where it was used.

For about 100 years, the design of the system worked well. There was a steady increase in demand. As generating stations got bigger, electricity became cheaper to produce. The centralized power plants feeding distant loads were easy to manage. Electricity flowed one-way, as did the information back to the utility grid supervisors.

Some things began to change in the second half of the 20th century. Transmission lines were interconnected between utilities so a surplus in one area could be used to meet a shortfall in another. These early “power pool” arrangements evolved into the sophisticated Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) that we have today. PJM is the organization that manages electric generation and transmission in a 13-state region that includes Virginia.

A Shift 40 years in the making

By the mid-1970s, new power plants became so expensive (especially nuclear units) that a fundamental change occurred. Every time a new conventional power plant (fossil or nuclear) was built, the price of electricity went up.

As fuel costs and electricity prices increased, appliances and buildings were designed to use energy more efficiently. Demand continued to increase, however, as a larger population and greater economic activity kept electricity use rising.

When the recession hit in 2008, families tightened their belts and businesses found ways to produce more goods and services using less energy. For the first time, growth in population and economic activity no longer created a higher demand for electricity. Over the past ten years, growth in U.S. electricity demand has been relatively flat. In 2017, a year of population growth and greater economic activity, total electricity use in the U.S. was 2.1 % lower than the year before.

Stable or declining growth in demand disrupted the utility business model which depended on the steady increase in electricity use to provide enough revenue to cover past investments and provide funds for new projects.

About the same time, new technologies were introduced that further complicated matters for utilities. Concern about environmental impacts associated with extracting and burning fossil fuels increased interest in methods of generating electricity using ways that did not require fuel. Electricity generated from solar and wind power used energy that was naturally renewed. These fuel-free methods were primarily technology driven and took advantage of a learning-curve that has resulted in on-going price reductions of 50% every 4-5 years.

Small modular solar units allowed electricity to be generated at customer locations. Although this reduced customer costs, it made things more challenging for utilities. It reduced their revenues at a time when those revenues were already challenged by flat growth in demand. And these units were located within the distribution network which could result in the flow of electricity opposite to the direction for which the system was designed.

The Modern Grid

It is a huge shift for utilities that have operated in the same way for 100 years to move to a new way of doing business. The energy industry is undergoing a similar transition to what the computer industry experienced several decades ago. We once had highly centralized mainframe computers controlled by a few specialists. Now we have networks of personal computers that provide choices and new possibilities for everyone.

Putting customer needs at the center of the modern grid requires a new mindset. Utilities, especially those owned by private holding companies, have been mostly focused on creating revenue streams to reward shareholders and reducing the effects of regulators’ actions on profits. Many utilities do not even think in terms of “customers.” Instead they talk about “ratepayers” because, from their private parent company’s point of view, that’s where the money comes from.

Smart meters, solar, and batteries

Creating a modern grid will require replacing old electro-mechanical controls and monitoring equipment with modern digital devices. Having a two-way flow of information will help utilities more quickly determine when a line is down and dispatch a crew to the correct location. Smart meters provide utilities with more information about customer usage and save the cost of reading meters. But regulators should be sure that the hundreds of millions spent on new meters (and paid for by ratepayers) also benefit the customers. If designed correctly, with reliable, rapid communications, customers can access that data for use by home energy systems that optimize comfort and lower costs. Water heaters, as well as heating and cooling systems, can be controlled remotely by utilities or private aggregators to turn off for a short period to reduce peaks and save customers money.

A system dependent on digital devices and software control is much more vulnerable to cyber-security threats and must be designed with that in mind.

Creating a two-way flow of energy will also make the grid more capable. Utility-scale solar provides clean energy at a lower cost, but it still follows the old central station philosophy and requires a connection to transmission lines. By installing a significant amount of new solar at dispersed locations within the distribution system, it improves the reliability and resiliency of the grid.

Output from solar units can be variable. But those variations can be highly predictable. Anticipated changes can be matched from other contributions throughout the grid, especially with PJM’s large surplus of generation. Batteries have economic applications now, but will be even more useful as prices decline by half every 4-5 years. Energy storage can supply backup power, frequency and voltage regulation, and other valuable grid services.

Consolidated Edison, the utility that serves New York City, is intending to use distributed solar, storage, energy efficiency and other grid improvements to avoid the need to construct a new $1 billion substation. When utilities avoid building new facilities in order to save customers money, they need to have other means of remaining financially sound.

Soon the use of electric vehicles will be widespread. Batteries paid for as part of the price of the vehicle can be used to store renewable energy during the times when it is plentiful for use at other times when it is more valuable.

Resilience and Reliability

Some grid investments improve the ability to withstand stresses without loss of service. This is called resilience. It can involve undergrounding distribution lines to reduce the exposure to storm damage. Resilience is in a large part about what does not happen and therefore, is closely related to reliability. But investments in undergrounding can be very expensive and have diminishing returns. Other investments might be more cost-effective.

Having some local generation and the ability to temporarily isolate from the larger grid, using microgrids, can maintain some level of operation if the larger grid goes down. Public buildings, hospitals, university and commercial campuses, and industrial parks can benefit from this. Battery storage can also contribute to both resiliency and reliability. These are complex issues and the tradeoffs must be carefully evaluated.

Transmission lines put underground can have lower reliability than overhead lines, which are typically not very vulnerable to storm damage. Underground transmission is projected to have half the life span of overhead lines. Once the great disruption during the lengthy construction period is complete, they do have less of a visual impact, however. But this comes at a much higher cost.

Creating a Modern Grid: the roles of regulators and utilities

States that are well underway with grid modernization have begun with a legislative directive that broadly defines the goals to be achieved and empowers the state regulator to embark on the process of establishing the regulatory framework to facilitate the necessary activities. Usually milestones are specified to evaluate progress.

Legislation often specifies the major goals of the modernized system such as: a more flexible grid that offers a wider variety of more personalized energy options; that is more secure against threats; with decisions made considering both cost and environmental sustainability; and has a more diverse mix of both centralized and distributed generation, etc. New laws also often encourage the development of research and development activities to attract innovative new businesses, and the establishment of funding sources that provide low-cost financing for energy efficiency and small-scale renewable projects.

The regulators then convene a series of stakeholder workshops to better understand the challenges faced by the utilities and the desires of their customers. This can be a transformative experience for a state. Collaboration between many interests can set the stage for long-term cooperation that lowers costs, provides new employment, and makes the state an attractive location for both businesses and residents.

Utility regulators must be strong and independent to objectively review and balance the various interests. A cooperative relationship with the legislature and the executive branch is helpful when new laws might be required to ensure the financial health of utilities serving in a new role.

Utilities have a central role in developing our modern grid, but not the only role. States that have provided opportunities for innovative private companies to provide various energy services have created a path for lower energy costs and greater employment. Utilities must provide the platform for this to take place and they can profit by providing services that enable transactions between private companies and utility customers.

We must give utilities a fair return on their legacy investments and provide an opportunity for them to prosper by serving their customers better, perhaps with performance based rates. A modern grid should not create winners and losers. It should be a place for many to prosper by providing value to customers.

The wires are the natural monopoly. The utilities have accepted regulatory oversight and fair rates in exchange for a fair return and freedom from competition (on the wires side). That agreement should remain intact and proper regulatory oversight must occur. Utilities can be responsible for the distribution platform and still allow opportunities for private companies to provide a variety of services that have value to customers and the grid. This leads to a vibrant state economy, lower costs and increased employment.

The high cost of doing it wrong

If we do not move forward, we will pay a price. If utilities are allowed to drag 20th century habits deep into the 21st century, it will eventually harm them and the rest of the state as well. For example, Duke Energy has proposed a $13 billion grid modernization program. Critics, including Google and the North Carolina ratepayer advocate, say the plan has little justification and will not benefit customers or clean energy.

The North Carolina Utility Commission has said that Duke has not provided “compelling evidence” that its plan to modernize the grid would result in “meaningful benefits to ratepayers despite its cost.” Duke, like Dominion, is struggling to justify building new power plants in the face of flat demand for electricity. Investments in “gold-plated distribution infrastructure” will provide it with the revenue it desires. A Google representative said the costs attributed by Duke to grid modernization are “seemingly arbitrary.” The staff of the state regulatory commission agreed, saying that they are “not persuaded that all the components of the . . .  initiative will result in modernizing the grid.” The staff went on to say there is “substantial uncertainty regarding what exactly will be included.”

The general counsel of the North Carolina Sustainable Energy Association noted that, “Some grid modernization is certainly needed, but the price tag put forward by Duke is shocking, and what’s in their proposal is shocking as well.” He added that “there’s been very little meaningful public input.”

“If the customers are paying for 100 percent of these programs in their rates,” said an EDF spokesman, “then let’s give them 100 percent of the benefits.”

Lessons for Virginia

This sounds like the opportunity just squandered by the Virginia General Assembly. Instead of putting us on the path to an effective modern grid, the legislators have given the utilities permission to spend billions over the next 10 years with diminished regulatory involvement. This will add significantly to utility bills in Virginia that are already the 10th highest in the nation. There are no specifics in the bill that identify how this money will be spent or whether the money paid by customers will actually result in a modern grid similar to what is being developed in other states.

Virginia can do much better than this. We should immediately embark on a program to get this right in the next legislative session in a way that is fair to the regulated utilities and their customers. Bringing in objective outside specialists could guide us toward an innovative, lower cost, clean, efficient and reliable energy future.