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.


Why Trump won’t stop the clean energy revolution

A protest in Manhattan against the presidency of Donald Trump, held the day after the election. Photo credit Rhododendrites - Own work, CC BY-SA 4.0,

A protest in Manhattan against the presidency of Donald Trump, held the day after the election. Photo credit Rhododendrites – Own work, CC BY-SA 4.0,

It is not an overstatement to say that Donald Trump’s win over Hillary Clinton horrified everyone who is worried about climate change. Reading the news Wednesday morning was like waking up from a nightmare to discover that there really is a guy coming after you with a meat cleaver.

You might not be done for, though. You could just end up maimed and bloodied before you wrest the cleaver away. So with that comforting thought, let’s talk about what a Trump presidency means for energy policy over the next four years.

I’ve had a lot of time to think about this. As a career pessimist, I’ve been worried about the possibility of a Trump win since last spring. I can fairly say I was panicking before panic became mainstream. But even with the worst-case scenario starting to play out, I’m convinced we will continue making progress on clean energy.

There is no getting around how much harder a Trump presidency makes it for those of us who want the U.S. to meet its obligations under the Paris climate accord. It’s not clear that Trump can actually “cancel” the accord, as he has promised to do. On the other hand, a man who puts fossil fuel lobbyists and climate skeptics in charge of energy policy is hardly likely to ask Congress for a carbon tax.

Nothing good can come of it when the people in charge relish chaos and embrace ignorance. Destroying the EPA will not stop glaciers melting and sea levels rising.

But just as politicians can’t repeal the laws of physics driving global warming, so there are other forces largely beyond their control. Laws and regulations currently in place; state-level initiatives; market competition; technological innovation; and popular attitudes towards clean energy have all driven changes that will withstand a fair amount of monkeying with. It’s worth a quick review of these realities.

Coal is still dead

Donald Trump’s promise to bring back coal jobs is about as solid as his promise to force American companies to bring jobs back from China. Even if he’s sincere, he can’t actually do it.

The economic case for coal no longer exists, and that remains true even if Trump and anti-regulation forces in Congress gut EPA rules protecting air and water. Fracking technology did more than the Obama administration to drive coal use down by making shale gas cheap. A glut of natural gas pushed prices down to unsustainable levels and kept them there so long that utilities chose to close coal plants or convert them to gas rather than wait.

What gas started, renewables are finishing. Today, coal can’t compete on price with wind or solar, either. That leaves coal with no path back to profitability. Not many utilities want to pollute when not polluting is cheaper.

Nor will the export market recover. China doesn’t want our coal, and a president who pursues protectionist trade policies will find it hard to get other countries to take our products.

It’s also hard to find serious political support for coal outside of a handful of coal states. Politicians say they care about out-of-work coal miners, but they care more about attracting industry to their states with cheap energy. That is certainly the case in Virginia, where Governor McAuliffe didn’t even include coal mining or burning anywhere in his energy plan.

If there is a silver lining for coal miners, it’s that without an Obama bogeyman to blame for everything, coal-state Republicans will have to seek real solutions to unemployment in Appalachia.

Solar and wind are still going to beat out conventional fuels

Analysts predict renewable energy, especially solar, will become the dominant source of electricity worldwide in the coming decades. Already wind and solar out-compete coal and gas on price in many places across the U.S. As these technologies mature, prices will continue to fall, driving a virtuous cycle of escalating installations and further price reductions.

While federal policies helped make the clean energy revolution possible, changes in federal policy now won’t stop it. Today the main drivers of wind and solar are declining costs, improvements in technology, corporate sustainability goals, and state-level renewable energy targets.

As the revolution unfolds over the next decade, the folly of investing in new fossil fuel and nuclear infrastructure will become increasingly clear. Natural gas itself is cheap right now, but new gas infrastructure built today will become worthless before it can recover its costs and return a profit. Corporations like Dominion Resources and Duke Energy are investing in gas transmission pipelines and gas generating plants only because they think they can profit from them now, and force captive utility customers to bear the cost of paying off the worthless assets later.

Advocates fighting new gas infrastructure have mostly had to work at the state level, since they’ve received little help from the Feds. That much won’t change. The cavalry isn’t coming to save us? Well, we are no worse off than we were before. We just have to do the job ourselves.

Dominion’s gas build-out is still a bad idea

Dominion Power is enthusiastic about natural gas, but we’ve seen this movie before. Environmentalists and their allies tried, and failed, to stop Dominion’s newest coal plant in Wise County from being built. Regulators approved it in spite of Dominion’s cost projections showing a levelized cost of energy of 9.3 cents per kilowatt-hour. That’s about twice the wholesale price of energy today, and well above where wind and solar would be even without subsidies.

Approval to construct the plant came in the fall of 2008. A mere eight years later, that looks like a terrible decision. Dominion Virginia Power shows no further interest in building coal plants. Instead, it has since built two huge natural gas plants and received approval to build a third. Its sister company is building the Atlantic Coast Pipeline to lock ratepayers into even more gas.

Eight years from now, those will look like equally bad decisions.

Renewable energy is popular with everyone

One of the most remarkable pieces of legislation passed during the last few years was the extension of the Investment Tax Credit and the Production Tax Credit, subsidies that have underpinned the rapid spread of solar and wind power. It turns out that Republicans don’t actually hate subsidies; they only hate the ones that benefit other people.

Wind energy is one of the bright spots in the red states of the heartland. Farmers facing volatile markets for agricultural products appreciate the stable income they get from hosting wind turbines among the cornfields, and they aren’t going to give that up.

And everybody, it turns out, loves solar energy. There’s a simple, populist appeal to generating free, clean energy on your own roof. The failure on Tuesday of a utility-sponsored ballot measure in Florida is especially notable: the constitutional amendment would have ended net metering and led to steep declines in solar installations in the Sunshine State. Voters said no. The lesson will resonate across the South: people want solar.

Indeed, public polling for years has shown overwhelming support for wind and solar energy, across the political spectrum. Even people who don’t understand climate change think it’s a good idea to pollute less. And the energy security benefits of having wind and solar farms dotting the landscape are simple and intuitive. So while the fossil fuel industry may use a friendly Trump administration to launch attacks on renewable energy, no populist army will back them.

The Clean Power Plan was important, but not transformative

Congressional Republicans have talked smack about the EPA for years, and the Clean Power Plan raised the needle on the right wing’s outrage meter to new levels. Most EPA rules have a layer of insulation from Congressional meddling as long as Senate Democrats retain the ability to filibuster legislation that would repeal bedrock environmental laws like the Clean Air Act. And laws protecting the air and water have such broad public backing that it is hard to imagine even the Chaos Caucus going there.

The Clean Power Plan could be different. Trump’s choice of a new Supreme Court justice will produce a conservative majority that might well strike down Obama’s most important carbon rule. For a handful of states that rely heavily on electricity from aging coal plants and aren’t compelled to close them under other air pollution rules, this will buy them a few years. (But see “Coal is still dead,” above.)

For most states, though, the Clean Power Plan was never going to be a game-changer. Many states were given targets that are easy to meet, or that they have already met. As I’ve pointed out before, Virginia’s target is so modest that the state could meet it simply by adopting a few efficiency measures and supplying new demand with wind and solar. That’s if the state decided to include newly-built generating sources in its implementation plan, which it doesn’t have to do.

By its terms, the Clean Power Plan applies only to carbon pollution from power plants in existence as of 2012. Newer generating plants are regulated under a different section of the Clean Air Act, under standards that new combined-cycle gas plants can easily meet. That’s a gigantic loophole that Dominion Virginia Power, for one, intends to exploit to the fullest, and it’s the reason the company supported the Clean Power Plan in court.

Regardless of whether it is upheld in the courts, however, the Clean Power Plan has already had a significant effect nationwide by forcing utilities and state regulators to do better planning. It led to a raft of analyses by consulting firms showing how states could comply and actually save money for ratepayers by deploying cost-effective energy efficiency measures. If the Clean Power Plan doesn’t become law, states can ignore those reports, but their residents should be asking why.

For Virginia, nothing has changed at the state level. Or has it?

Virginia has off-year elections at the state level, so Trump’s election has no immediate effect on state law or policy. Most significantly, Terry McAuliffe is still governor of Virginia for another year, he still knows climate change is real, and his Executive Order 57, directing his senior staff to pursue a strategy for CO2 reductions, is still in effect. McAuliffe has disappointed activists who hoped he would become a climate champion, but Trump’s win could light a fire under his feet. He has an opportunity to put sound policies in place, if he chooses to do so.

Offshore drilling in Virginia probably isn’t back on the table

Trump has promised to re-open federal lands for private exploitation, reversing moves by the Obama administration. His website says that includes offshore federal waters. However, the decision by the Bureau of Ocean Energy Management to take Virginia out of consideration for offshore drilling isn’t scheduled to be revisited for five years. Trump’s people could change the process, perhaps, but there’s not much demand for him to do so. With oil prices low, companies aren’t clamoring for more places to drill.

Environmental protection begins at home . . . and the grassroots will just get stronger

I would hate for anyone to mistake this stock-taking for optimism. The mere fact that the clean energy revolution is underway does not mean it will proceed apace. Opportunities abound for Trump to do mischief, and nothing we have heard or seen from him during the campaign suggests he will rule wisely and with restraint.

But advancing environmental protection has always been the job of the people. Left by itself, government succumbs to moneyed interests, and regulators are taken captive by the industries they are supposed to regulate. Americans who want clean air and water and a climate that supports civilization as we know it have to demand it. It will not be given to us.

Sound economics, common sense, and technological innovation are on our side. Most important, though, is the groundswell of public support for clean energy and action on climate. That never depended on the election, and it won’t stop now.

Southeastern electric utilities find their way to higher profits through gas pipelines and captive consumers

Charlie Strickler of Harrisonburg, Virginia, was one of a dozen activists who fasted last September in protest of FERC's role in approving natural gas pipelines, citing their contribution to climate change and harm to communities in their path. Photo by Ivy Main.

Charlie Strickler of Harrisonburg, Virginia, was one of a dozen activists who fasted last September in protest of FERC’s role in approving natural gas pipelines, citing their contribution to climate change and harm to communities in their path. Photo by Ivy Main.

Duke Energy, Southern Company, NextEra Energy and Dominion Resources—four of the largest investor-owned utilities in the U.S., all headquartered in the Southeast—have simultaneously adopted a growth strategy reliant on large volumes of fracked gas. With the nation’s energy sector turning decisively away from coal and nuclear energy, these companies are betting natural gas will be the dominant fuel for at least the next several decades. All four are investing billions of dollars in gas pipelines and other gas infrastructure to profit from the fracking boom.

Pipelines are attractive investments because they are typically allowed rates of return of around 14%, compared with the average regulated utility return allowed by public utility commissions of about 10%.

For the southeastern utilities, however, that rate of return is only part of the attraction. In a strategy that ought to concern regulators and electricity consumers, Duke, Dominion and NextEra all plan to use their regulated electric power subsidiaries to guarantee demand for the pipelines they’re building. The subsidiaries will build natural gas generating plants, paid for by electricity consumers, to be supplied with gas carried through the pipelines owned by their sister companies.

Southern is also investing in pipelines, but it currently doesn’t need new generation beyond the coal and nuclear plants it is struggling to complete—themselves object lessons in why coal and nuclear are kaput.

Southern just announced completion of its $12 billion acquisition of AGL Resources, a natural gas pipeline and distribution company. The move makes Southern Company “the nation’s second-largest combined gas and electric utility by customer base,” according to Utility Dive.

Dominion Resources was already heavily invested in the natural gas sector before it announced a $4.4 billion purchase of Questar Corp. News reports say the acquisition will bring Dominion an additional 27,500 miles of gas distribution pipelines, 3,400 miles of gas transmission pipeline and 56 billion cubic feet of working gas storage.

Duke Energy is making a $4.9 billion purchase of Piedmont Natural Gas, a natural gas transmission and distribution company. And NextEra recently spent $2.1 billion to acquire Texas-based NET Midstream through the limited partnership it formed, NextEra Partners, LLC.

Moody’s Investor Services issued a report in March criticizing Dominion, Southern and Duke for their natural gas transmission buys, saying the added financial risks offset the benefits of diversifying their businesses.

Moody’s may not have known how the utilities plan to use electricity customers as a hedge for at least two planned pipelines, the Atlantic Coast Pipeline (ACP) and Sabal Trail.

Using electricity customers to pay for pipelines

Companies owned by Duke, Southern and Dominion are partners in the 550-mile ACP, which will carry fracked gas from West Virginia through Virginia to the North Carolina coast. Duke and NextEra are partners in Sabal Trail, a 515-mile pipeline proposed to run from an existing pipeline in Alabama through Georgia to Florida, where Duke says it will fuel gas plants owned by Duke Energy Florida and Florida Power and Light, a subsidiary of NextEra.

ACP and Sabal Trail are only two of 15 new pipelines proposed on the East Coast competing to carry fracked gas flowing out of the Marcellus shale in Pennsylvania and West Virginia. So many pipelines are in development that analysts say there simply isn’t enough gas to fill them all. At the 2016 Marcellus-Utica Midstream Conference in February, attendees were warned that pipeline capacity “will be largely overbuilt by the 2016-2017 timeframe.”

But the ACP and Sabal Trail have an advantage most of the competition lacks. The utility partners all own electric power subsidiaries that use fracked gas to generate electricity. If the subsidiaries build new gas plants, these pipelines will be guaranteed a customer base. That means they can be profitable for their investors even when other pipelines struggle to find customers.

Indeed, Duke and Dominion’s electricity subsidiaries are making the kinds of investments you’d expect to see if the success of the pipelines were their top priority. Dominion Virginia Power is in the middle of a three-plant, 4,300 MW gas generation build-out. In the ACP’s application to the Federal Energy Regulatory Commission (FERC), Dominion Resources justifies the ACP in part by saying it will supply the newer of these plants. And the utility is just getting started with new gas generation; Dominion Virginia Power told Virginia officials last fall it expects to build another 9,000 MW of gas plants by 2040.

Meanwhile, Duke’s regulated subsidiaries, Duke Energy Carolinas and Duke Energy Progress, filed integrated resource plans in North and South Carolina that call for up to nine new natural gas generating units, totaling 8,300 MW. In February of this year, Duke received approval to build two 280 MW gas units in Asheville, NC, and sought approval for a third.

Bigger investments, greater risks

Linking pipelines to captive customers should prove a profitable arrangement for the utilities. For the customers who bear the costs and risks, it’s much more problematic. But state law gives them no say in the matter. In these southern states, the electric power subsidiaries hold legal monopolies in their designated territories. Once federal regulators approve the pipelines and state regulators approve the gas plants, the captive customers bear the loss if the bet turns sour.

Any one of several scenarios would make the gas investments a bad bet. The age of plentiful shale gas could end almost as quickly as it started, as some analysts predict, or gas prices could resume their historic volatility for other reasons. The U.S. could adopt newer, tighter carbon rules to meet international climate obligations, or enact a carbon tax that increases the cost of fossil fuels. Alternatives like wind, solar and energy storage seem likely to continue their astonishing march towards domination of the electric sector. As they become increasingly competitive, much new gas infrastructure is destined to become stranded investments.

And finally, the demand for natural gas, and for the pipelines themselves, may simply not be there; Americans are using less electricity, and generating more of it themselves through rooftop solar systems. The vertically-integrated, monopoly utility model that prevails in the Southeast relies on ever-increasing sales, which means it doesn’t require much of a change in consumer behavior to turn black ink red.

So while environmentalists are enraged by the recklessness of the southeastern utilities’ natural gas strategy in an age of climate change, customers who only care about the bottom line on their utility bills have reason to be just as upset. Capitalism is supposed to ensure that corporate shareholders bear the costs as well as receive the benefits of risky bets. With the risks of their gas gamble shifted onto captive customers, the utilities won’t be punished for not choosing clean energy instead.

Bucking the trend towards renewables and efficiency

It’s worth noting that the plans of Dominion, Duke and their fellow monopoly utilities run counter to the expressed desires of their customers. Natural gas companies work to brand their product as “clean,” but polls show Americans overwhelmingly believe the U.S. should emphasize wind and solar over oil and gas production, and oppose the use of fracking to extract oil and gas. Major corporations now threaten to vote with their feet, refusing to locate where they can’t access electricity from renewable sources.

It is not a coincidence that Duke and Dominion fall near the bottom of a just-released survey conducted by Ceres that ranks major utilities by their performance on energy efficiency and renewable energy. NextEra and Southern do no better. NextEra’s electricity subsidiary, Florida Power and Light, came in dead last for renewable energy sales. Ceres says it was unable to include Southern this year because it did not respond to requests for data, but in 2014 Southern ranked 31 out of 32 on renewable energy sales.

The southeastern utilities stand in marked contrast to utilities like Berkshire Hathaway’s Mid-American, which has announced a goal of meeting 85% of its customers’ needs with wind power. Even Dominion’s Virginia rival, Appalachian Power Company, filed an integrated resource plan last year with more new wind and solar generation projected than new natural gas. Perhaps that’s because neither Appalachian Power nor its parent company, American Electric Power, own any gas pipelines.

Effects on competition and consumers trigger an antitrust complaint

Customers may be the biggest losers when utilities use their electricity subsidiaries to guarantee the success of their gas subsidiaries, but the arrangement also harms other business interests. These include pipeline operators who don’t have the same self-dealing opportunity; non-utility electricity generators who can’t sell their product to utilities because the utilities now prefer to build their own gas generation; and companies that build wind and solar projects, who find themselves boxed out.

Already one non-utility generator is crying foul: Columbia Energy LLC, an operator of a 523 MW independent combined cycle gas generating plant that wants to sell electricity to Duke Power but finds itself left out in the cold. Columbia is challenging both Duke’s application for approval of a new gas plant in Ashville and the merger of Duke with Piedmont Natural Gas, another partner in the Atlantic Coast Pipeline.

The potential of the ACP to harm consumers and competition led to the filing in May of a complaint with the Federal Trade Commission (FTC). The complainant, retired Department of Justice antitrust lawyer Michael Hirrel, believes the utilities’ abuse of their legitimate monopoly power violates federal antitrust laws, and he is urging the FTC to investigate.

The Virginia Chapter of the Sierra Club, which opposes both the ACP and Dominion’s gas build-out, followed up with its own letter delving more deeply into the facts of Duke and Dominion’s self-dealing. (The letter and supporting documents, including Hirrel’s complaint, can be found at Note that it’s a big file and may take time to load.) Hirrel has added both documents to the FERC file on the ACP application.

(Full disclosure: I led the team compiling the information for the Sierra Club submission. I’ve never met Mr. Hirrel and only learned about his complaint weeks after it was filed. However, I had been doing my own complaining—though evidently not to the proper authorities—about the utilities’ conflict of interest.)

But is anyone listening?

Aside from the FTC filing, opponents of the gas plants have pinned their hopes on state public utility commissions, while pipeline opponents are focused on the Federal Energy Regulatory Commission (FERC). Neither venue offers grounds for optimism. Virginia’s State Corporation Commission (SCC) has approved three of Dominion’s new gas plants in a row over the objections of environmental advocates, and North Carolina’s Utility Commission recently approved Duke’s new gas units in Asheville (though for now it has turned down a request for a third).

FERC poses its own challenge. Activists want FERC to review gas transmission proposals collectively instead of singly, to avoid overbuilding and the unnecessary damage to the environment and local communities that would result. This would be a departure for the agency, which traditionally reviews proposals individually, and has approved nearly every pipeline proposal that has come before it.

So far FERC has resisted arguments of this nature, as well as objections based on climate concerns. But in a possible sign that the agency recognizes times are changing, it has recently slowed the approval process for some proposed new pipelines, apparently to conduct more thorough environmental reviews.

There is no sign yet that the public utility commissions and FERC are communicating with each other or with the FTC. That leaves anti-pipeline groups and environmental activists in a difficult position. They can make a strong case the utilities are taking unfair advantage of captive ratepayers for a purpose that harms both the environment and the public. But is anyone listening?

Complaint: utilities’ role in Atlantic Coast Pipeline violates antitrust laws

pipelinemadnessDominion Resources’ plan to use the captive ratepayers of its electricity subsidiary to guarantee a customer base for its Atlantic Coast Pipeline venture has caused critics—including me—to complain that the scheme presents a clear conflict of interest. According to a complaint filed with the Federal Trade Commission (FTC), it’s also a violation of federal antitrust laws.

Lawyer Michael Hirrel, who retired last year from the Antitrust Division of the U.S. Department of Justice, has asked the FTC to investigate “whether ACP’s project constitutes a prohibited monopolization by Dominion, Duke and Piedmont, under Section 2 of the Sherman Act, and an unfair method of competition, under Section 5 of the Federal Trade Commission Act.”

Dominion Virginia Power is currently engaged in an aggressive build-out of natural gas generating plants, with three new units representing 4,300 megawatts of generating capacity, coming online between 2014 and 2019. The company’s latest integrated resource plan and presentations to stakeholders reveal plans for over 9,000 megawatts more. By comparison, the company has promised a mere 400 megawatts of solar.

Where there are gas plants, there must be gas, and this massive build-out means a guaranteed stream of income for the lucky owners of gas transmission pipelines. The fact that one such pipeline is partly owned by Dominion Virginia Power’s parent corporation is clearly a conflict of interest. Because Dominion holds a monopoly on electricity sales, its customers will be stuck paying for gas—and guaranteeing a revenue stream for pipeline owners—for decades to come.

This is a bad deal for customers and the climate, but according to Hirrel, it is also anticompetitive and warps the normal decision-making of the companies involved.

(In addition to Dominion Resources, the other owners of the Atlantic Coast Pipeline are Duke Energy, Piedmont Natural Gas and AGL Resources. AGL is being acquired by Southern Company, meaning three of the four partners own electricity subsidiaries that are regulated monopolies that can stick ratepayers with the cost of paying for gas. As for the fourth partner, Piedmont is a regulated monopoly distributor of natural gas. Just to make things even more cozy, Piedmont is being acquired by Duke.)

Hirrel’s complaint notes: “If Dominion, Duke and Piedmont were to acquire their gas and its transportation, plus electricity generation, in competitive markets, they would, the Commission must suppose, engage in a very different decision making process. But that process will be rendered moot when they acquire and transport their own natural gas, and generate their own electricity. They will distribute the electricity and gas to their own monopoly retail customers, who have no alternative. Those customers must pay the costs of Dominion, Duke and Piedmont’s decisions, whether the costs were efficiently assumed or not.”

Hirrel also points out that in a truly competitive market, Dominion and Duke might not pursue a natural gas strategy at all, because of the economic risks involved. They might, for example, consider whether investments in wind and solar would be more economical and avoid the potential for stranded investments.

“But in the present universe,” he concludes, “the one in which Dominion, Duke and Piedmont propose to become the monopoly suppliers of the inputs for their own monopoly customers, they need not engage in any such economically efficient decision making process. If they make bad decisions, they will not suffer. The costs of those bad decisions will be borne by the monopoly customers of their retail electricity and natural gas distribution systems.”

I called Mr. Hirrel to ask what action he expects the FTC to take. He says the Commission typically takes anywhere from two weeks to two months to determine whether to open an investigation when it receives a complaint like this. If it chooses to investigate, it may also ask the Federal Energy Regulatory Commission (FERC) to delay its approval process for the ACP pending conclusion of the FTC investigation.

Hirrel copied FERC on his complaint, making it a public document within the ACP docket (CP15-554).

Update: on June 23, the Virginia Chapter of the Sierra Club submitted a letter to the FTC providing further information supporting the antitrust complaint. The letter and supporting documents can be found at