Tag Archives: RPS

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Renewable energy makes small gains in Virginia’s 2013 legislative session

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The Virginia General Assembly will soon wrap up its work on the 2013 legislative session. Renewable energy advocates began the session with high hopes for a series of bills that promised to reform our renewable energy law, expand net-metering, and open up new opportunities for financing solar systems and small wind turbines.

So how did we do? Well, this is Virginia. Progress is slow, the utilities are powerful, and half the legislature doesn’t believe in climate change. On the other hand, they do believe in business. Under the circumstances, we did okay.

Renewable Portfolio Standards: bye-bye, bonuses

Readers of this blog already know the long, miserable tale of Virginia’s weak and ineffective, voluntary renewable portfolio standard (RPS), which has enriched utilities with tens of millions of dollars in incentives without bringing any new renewable energy projects to Virginia. This year the legislature went halfway to fixing the problem. Legislation negotiated between the office of the Attorney General and the utilities will deprive utilities of future ill-gotten gains for meeting the RPS law, but won’t change the pathetic nature of the law itself.

Stripping out the RPS incentives was only part of a bigger, more complex bill that sweetens the deal for utilities in other ways, so it’s hard to judge whether the legislation as a whole marks a victory for consumers. Skeptics will note that Dominion’s stock price has actually gone up several percentage points since the deal was announced, which you wouldn’t expect if the AG were correct that the bill will save consumers close to a billion dollars over time.

What is clear is that the RPS remains as voluntary and as crummy as it ever was, but the utilities can no longer use it to rip off ratepayers while pretending to be good citizens. Some environmental groups consider stripping out the incentives a bad thing, on the theory that only by giving utilities a bonus can we expect them to meet the goals. Other groups (including the Sierra Club) believe Dominion, at least, will want to maintain its greenwashed public image by continuing to meet the RPS goals, and that ending the consumer rip-off is worth celebrating.

Sure, if the goals had brought wind and solar to Virginia, the Sierra Club would have considered the incentives a tolerable price to pay. As it happened, Dominion and the other utilities continuously rebuffed efforts over the years to improve the RPS. Had Dominion approached the RPS as an opportunity to bring real renewable energy to Virginia rather than as a cash cow to be milked for its own advantage, the company would have saved itself a public relations fiasco and likely kept its bonuses, too. Surely, someone at HQ should be out of a job right now.

Taking the long view, it is also worth noting that getting rid of the free money is a necessary first step towards a mandatory RPS in Virginia, which would unleash market forces for renewable energy that don’t emerge with a voluntary law. Utilities would oppose such a move more vigorously if they still had incentives to protect that were available only under the voluntary program.

. . . but reform efforts fail again

These views all assume the legislature will someday pass a bill to improve the goals and bring wind and solar projects to Virginia, without which the RPS is meaningless anyway. Surely legislators must recognize how pointless it is to have an RPS that can be met with out-of-state, pre-World War II hydro, plus some trash and wood-burning and a few assorted projects that put no power on the grid. (Even without the performance incentives, utilities remain entitled to pass along to customers the cost of meeting the RPS goals.)

Bills to improve the goals should have passed the legislature this year as part of the reform package. HB 1946 (Lopez) and SB 1269  (McEachin) even received the support of Dominion Power for provisions that would limit most future purchases for the RPS to high-quality projects like wind and solar. What killed the bills seems to have been a combination of opposition from vested interests and sheer cussedness on the part of some Republicans, who were engaged in partisan maneuvers that had nothing at all to do with renewable energy.

As usual, we are left hoping for better luck next year.  Meanwhile, however, a couple of other RPS bills made incremental progress. Most notably, HB 1917 (Surovell) adds solar thermal energy to the definition of renewable energy; as of this writing it has passed the House and is on the Senate floor.

A loss for more honest competition among fuels

There are more ways to support renewable energy than through an RPS, of course. One of my favorite bills would have required utilities and the State Corporation Commission to consider the long-term price stability of fuels used in electric power generation. HB 1943 (Lopez) would have helped price-stable wind and solar compete against notoriously price-volatile natural gas. It’s an idea that should appeal to fair-minded conservatives, so it’s a shame it hasn’t gained traction since first being introduced in 2012. However, it died in committee in the face of opposition from Dominion Power, which doesn’t want any interference with its plans for new natural gas plants.

Power Purchase Agreements get a “pilot”

Two bills passed the legislature to allow some third-party power purchase agreements (PPAs) for wind and solar within Dominion’s territory. Under a PPA, an installer retains ownership of the solar equipment, with the customer buying the electricity that is generated. This arrangement has two primary advantages: the customer can “go solar” with no money down and no responsibility for the equipment; and in the case of a tax-exempt entity like a church or a university, it provides a way to access federal tax credits worth 30% of the system cost.

The bills were designed to prevent a recurrence of a dispute that erupted in 2011 when a Staunton-based solar company, Secure Futures, installed a large solar system at Washington & Lee University under a PPA. Dominion issued “cease and desist” letters insisting that only it could sell electricity in its assigned territory. Although Virginia law is unclear on this point, the university and the solar company capitulated in the face of massive litigation costs. Since then Dominion’s army of lawyers has proven as effective as any statute in stopping further efforts to use PPAs in Virginia.

This year’s bills, SB 1023 (Edwards) and HB 2334 (Yancey), were originally written to allow third-party PPAs wherever customers can currently install renewable energy systems that they own themselves. They were significantly scaled back to win acceptance from Dominion Power. (AEP and the coops wouldn’t play at all, so legal ambiguity remains the rule in their territories.)

The bills allow up to 50 megawatts’ worth of solar and wind installations using PPAs, in Dominion territory only, as a pilot program.  Whether net-metered or not, they will be counted against the current net-metering cap of 1% of the utility’s generation. Tax-exempt entities can have a facility of any size up to 1 megawatt (500 kW if they net meter); taxable entities must have a minimum size of at least 50 kW (so no homeowner need apply). PPAs that do not meet the requirements are expressly prohibited in Dominion territory.

Agricultural net metering, yes; community net metering, no

A bill to allow agricultural net metering also passed this year. HB 1695 (Minchew) allows the electricity from a single solar, wind, or digester gas facility to be attributed to two or more electricity meters as long as they are all on the same property and have the same owner. Thus, for example, a farmhouse, barn and other out-buildings can all share in the benefits of solar panels on one of the buildings, even if each building is separately metered.

Originally the bill would also have enabled community net metering, sometimes known as solar gardens, but the utilities opposed it. Bowing to political reality, Delegate Minchew scaled it back. The bill is notable, however, for making progress without including any provisions that seem capable of doing mischief.

A note about all the bills: In Virginia, the governor can sign a bill, veto it, or send it back to the legislature with amendments of his own, so none of these bills are final as of this writing.

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Greenwashing Virginia’s renewable energy law, part 3: you can’t clean ugly

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If you’ve been following the woeful tale of Virginia’s renewable portfolio standard, by now you know it hasn’t produced a single electron of wind or solar power in the commonwealth, nor is it ever likely to. Fellow citizens, what is to be done?

Let’s review what happened in last year’s legislative session, when word got out that Dominion Power was meeting the state’s renewable energy goals by buying cheap renewable energy certificates from decades-old projects involving dams, trash and wood—and collecting tens of millions of dollars annually as a “bonus” for doing so. Outraged environmentalists pushed for a reform bill that would let utilities collect this bonus from their customers only if they invest in new, Virginia-made wind and solar projects—essentially, what we thought the law was about in the first place.

It was a well-crafted, solid, common-sense bill. It died without even a hearing.

But meanwhile, Governor McDonnell got two bills passed that actually made the law worse. The first one said that in addition to energy from old dams, trash and wood, utilities can meet our goals by purchasing renewable energy certificates generated by universities showing they’ve done some research into renewable energy.

Research is an admirable activity. Most of us approve of research. We approve of universities, too. But even when you put universities and research together, not a single electron of energy flows into anyone’s home. Under what possible theory does it qualify as renewable energy?

Also newly qualifying, thanks to the governor, are certificates representing an industrial process used by a Virginia corporation called MeadWestvaco. This also won’t put energy on the grid, but it creates a brand-new income stream for MeadWestvaco, paid for by utility customers—though not by large industrial users like MeadWestvaco itself, which got themselves exempted from paying for the added cost to utilities of renewable energy.

Lobbyists, my friends, are worth every dime of their inflated paychecks.

No doubt this clever bill will stimulate the creative juices of other corporations to figure out how they, too, can feed at the renewable energy trough. As a service to anyone wondering how to get their ideas into law, I note that MeadWestvaco gave $75,000 to Bob McDonnell’s campaign for governor and his inaugural committee. This is what we call the Virginia Way.

After these two bills passed, Governor McDonnell announced he had taken important steps to promote renewable energy. Advocates of renewable energy promptly asked him not to do us any more favors. Heading into the next session, we’re gravely concerned that he wasn’t listening.

Attorney General Ken Cuccinelli offered a different approach: repeal the RPS law, or at least repeal the bonus utilities get. Mr. Cuccinelli is more famous for attacking the credibility of climate scientists than for embracing renewable energy, but with the environmentalists’ reform bill dead, the Sierra Club ended up supporting the AG’s bill rather than see the consumer rip-off continue.

But that bill failed, too, though it got several votes from Cuccinelli allies in the House, some of whom are pretty sure that if renewable energy succeeds, the United States will become a failed socialist state occupied by blue-helmeted U.N. troops. (If you think I am making that up, check out some Virginia Tea Party websites.) It is safe to conclude that votes for the AG’s bill were not votes for renewable energy.

Cuccinelli’s bill shared the same fatal flaw as the reform bill: Dominion Power opposed it. In case you haven’t caught on by now, Dominion almost always gets its way in the legislature, and it sure isn’t going to allow either the AG or the Sierra Club to take away its free money.

The upcoming session could be interesting. Mr. Cuccinelli is running for governor next year, which makes him the leading Republican in the state, with all due respect to Bob “Lame Duck” McDonnell. This fall Cuccinelli issued a report critical of Virginia’s appalling RPS, and has signaled he plans to go after the bonuses again.

Which is more powerful for Republicans, political allegiance or Dominion’s campaign cash? Which matters more to Democrats, renewable energy or Dominion’s campaign cash? Which matters more to Governor McDonnell, his party or his tight relationship with Dominion’s CEO (not to mention the campaign cash)? Not surprisingly, legislators are begging Dominion and the AG’s office to work something out together so they won’t have to pick sides.

Concerned that a “compromise” may serve political ends but leave the public out in the cold, environmental groups plan to bring their own citizen’s army to Richmond in support of reform. They’d like to see a compromise that lets Dominion keep its bonus payments by earning them with Virginia-made wind and solar. It’s so little to ask–yet, based on past years’ experience, it may still be too much to hope for.

Which brings us to the third option for outraged citizens. Buy Dominion stock. Seriously, if the company is going to wind up on top every time, you may as well get in on the profits.

Maybe you can use your dividends to buy solar panels.

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Greenwashing Virginia’s renewable energy law, part 2: Check, please!

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Maybe not quite what we had in mind.

Maybe not quite what we had in mind.

In our last column, we looked at Virginia’s renewable energy standard, trying to grab hold of its 15% goal as it shrank three sizes in the greenwash. At the end of that discussion, you may have consoled yourself with the thought that 10% or 5% or 3% is, at least, better than nothing. Besides which, the law is only voluntary, so how much harm can it do?

Voluntary” has such a nice ring to it, doesn’t it?  You probably think it has something to do with customers deciding whether to participate. You might think it’s for those virtuous people who sign up to buy “green” power, and the rest of us will just go on burning coal.

That is not what voluntary means at all. “Voluntary” means your utility gets to choose whether to participate, and then you have to go along with it. The law says that if your utility opts in, it will spend some of your money on renewable energy, and then because it did all that work, you have to add a big tip to your utility bill.

I suppose, in theory, a utility like Dominion Power might decide it didn’t want to spend your money, and it could just skip the fat tip. In reality, refusing a tip isn’t part of a corporation’s DNA any more than it is of a waiter’s. Tom Farrell’s momma didn’t bring him up to be a fool who leaves money on the table. So our voluntary RPS is kind of like one of those annoying restaurants where they automatically add the tip to the bill for parties of six or more.

In this case, the tip adds up to more than $38 million per year. Mind you, this is on top of the profit they had already added to your bill. This is a very lucrative line of business.

Well, you might think, at least I got fed. You like renewable energy, after all. It replaces smog-causing fossil fuels. It lowers our carbon footprint. It creates jobs and enhances our national security. A utility shouldn’t have to be bribed into buying it for you, but at least now it’s part of the meal.

But look more closely. If that renewable energy were food, you’d send it back. You assumed you were getting fresh, Virginia-grown electrons, made with the sun and the wind—and what is this stuff they are serving? Energy from dams, trash and wood, most of it fifty years old or more, of such poor quality that no other state will let it be served to their customers. They only call it “green” because it’s practically moldy. (And such small portions!)

You call your utility over and demand an explanation. “Where’s the wind energy? Where’s the solar? Why isn’t this fresh and local?” And your utility looks down its nose at you and answers, “Those things cost more. We have an obligation to be careful of your money. So for you, we go dumpster diving.”

At that point, you might be glad the renewable energy portion of your meal barely amounts to a garnish. The trouble is, you can’t take your business elsewhere. Your utility has a monopoly, and it guards your patronage jealously. So you’re stuck with the meal they serve you. The closest you’re going to get to real renewable energy is the picture of a wind turbine on the cover of the menu.

It’s only now that you notice an asterisk by the wind turbine and fine print that reads: “Coming soon!” And below that, in print so tiny you have to reach for your glasses: “Or not.”

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Greenwashing Virginia’s renewable energy law, part 1: Honey, I shrank the goals!

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Criticism of Dominion Virginia Power has been steadily mounting over the $76 million dollars the company has been awarded as a “bonus” for complying with Virginia’s voluntary renewable energy law. Last week Attorney General Ken Cuccinelli weighed in with a report echoing the charges environmentalists have been making for the past year: Dominion has succeeded in meeting the letter of the law, and collecting bonus money from its customers, without investing in any new renewable energy projects.

The AG’s office exonerates Dominion, claiming the real failure is the legislature’s for passing a law that allowed this to happen. Silly Mr. Cuccinelli: this is Virginia. Dominion wrote the law.

But it’s worse than you know. The money-for-nothing issue is partly a result of the statute’s failure to require new investments in high-value projects like wind and solar energy as a condition of earning the bonus, but it is also a function of the extremely modest targets set by the statute itself. Virginia’s renewable energy goal is usually stated as 15% renewable energy by 2025, but when 2025 rolls around, the goal will be met with less than half this percentage, possibly much less.

The greenwash works like this: the statute sets a 2025 target for renewable energy to make up 15% of “total electric energy sold.” You probably think you know what “total electric energy sold” means. You don’t. Only if you are whiling away an idle afternoon reading the definitions section of the statute do you learn that “total electric energy sold” is defined as the total amount of electricity sold, minus the amount provided by nuclear power. In the case of Dominion Power, nuclear is about a third of the total. So for Dominion, 15% of “total electric energy sold” actually means only 10% of its electricity sales.

You will rarely see Dominion acknowledge this, though until recently its executives worded their statements carefully so they could not be accused of actually lying to anyone. Lately, however, the company has grown careless with the truth. A press release dated October 4, 2012 includes this fun quiz question and answer: “Is Dominion investing in renewable power sources? (A) Yes, in Virginia Dominion has committed to getting 15 percent of its power from renewable sources by 2025.”

Yet even if this statement said Dominion would get 15% of its “non-nuclear power” from renewable energy by 2025, it would still be wrong. When 2025 arrives, meeting the goal won’t require Dominion to achieve anywhere near 15% of its non-nuclear sales (10% of total) from renewable energy. That’s because the target percentage is measured against 2007 sales, not 2025 sales, and Virginia is growing. Assuming sales increase a little under 2% per year as Dominion projects, by the time 2025 rolls around, meeting the goal will require only about 7% renewables. If Dominion builds the new nuclear plant it wants, that number will shrink further.

Conceivably the number could go even lower. Since 2007, Virginia politicians have twice demonstrated how much they love renewable energy by watering the goal down even further, but doing it in a way that makes it sound awesome. They passed bills that say utilities will get double credit for any wind and solar they use to meet the goal. In fact—what the heck—if they build offshore wind farms, we’ll give them triple credit!

Wow, triple credit! That’s great! Isn’t it?

Come to think of it, no. Combine that with the other sleights-of-hand, and now Dominion could satisfy Virginia’s entire 15% renewable portfolio goal with about 3.5% of our electricity coming from solar energy or wind farms on land. For offshore wind, less than two and a half percent would do it. And that’s thirteen years from now.

Chances are, this doubling and tripling will never matter. Dominion “earned” its $76 million bonus for meeting the letter of the law with electricity from old dams and biomass (i.e., wood-burning), and by buying cheap credits from out of state. Dominion can get enough of this cheap renewable energy that it will be able to meet the goals through 2025 without investing in wind and solar.

Given Dominion’s approach to meeting the goals, it might be just as well that the target is so low. But then you have to wonder: $76 million for that?

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What the heck is a REC? Renewable Electricity Certificates, Renewable Portfolio Standards, and why it all matters anyway

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More than 30 states have Renewable Portfolio Standards (RPS) to increase the amount of renewable energy their residents use. Renewable energy does not always cost more than conventional energy, but when it does, renewable energy certificates (RECs) may provide the means for making up the cost difference. Whether RPS laws work well, or whether they cost their residents money without providing a value, depends on how well the laws are written. Policy makers, industry watchdogs, and the public all need a basic understanding of how RPS laws and the REC markets work to ensure that the laws are actually serving the public.

So what the heck is a REC?

“REC” stands for “renewable energy certificate.” A REC is a way to monetize the environmental attributes of energy from a renewable resource, so the extra value can be bought and sold independent of the electrons that form the energy itself.

We’ll use an example to make it easier to understand. Say you want to put solar panels on your roof, but you can’t because your house is shaded by tall trees. So you go to your neighbor with the sunny location next door and tell her that if she will put solar panels on her roof, you will buy the electricity from her. You work out a deal, call a solar installer, and soon she’s got a solar array that produces, on average, exactly the amount of electricity your house uses. [1]

As it happens, though, you can’t buy the actual solar energy her panels are producing. That electricity is powering her house, and any excess electricity is feeding into the grid through her meter. Once power is in the grid, it’s all just electrons. The electrons don’t look different whether they come from a coal plant or a wind farm or a solar array. So there is no way to identify and claim the specific electrons that come on the grid from specific solar panels.

What you can buy from your neighbor is the right to say you’re running your house on solar energy, up to whatever amount of power her solar panels produce. This is the essence of a renewable energy certificate. A REC doesn’t represent electricity, but rather the extra value to society of that electricity having been produced by solar panels. So you continue to buy your electricity off the grid from your utility, and then you pay your neighbor something extra for the RECs. You are not actually using solar power, but you are paying for the right to say you are.

Chances are, there won’t be any actual paper certificates involved. You will simply have a contract with your neighbor that states how much you’re paying her per kilowatt-hour. Your contract would also prevent her from making the same deal with any other neighbor, double-dipping by selling the RECs twice.

It is a short step from there to creating a whole market for RECs as a commodity. If you were to stop buying your neighbor’s RECs, she could sell them to someone else, perhaps a “green” business that wanted to say it was running its store on solar power. The price would depend on supply and demand for renewable energy in your area.

What’s a REC got to do with an RPS?

Now let’s scale up our example and add utilities to the story. Your state, it turns out, has a Renewable Portfolio Standard (RPS), a law that tells utilities that they must obtain a certain percentage of their power from renewable sources. Utilities that own their own generation sources may choose to invest in wind, solar, biomass, or other renewable generation facilities, depending on what the law defines as renewable. Utilities that don’t own their own generation, or that can’t produce enough renewable electricity, have to buy that power from others.

This is where RECs come in. When the utility offers to buy renewable power from someone who is generating it, it will want to buy the RECs as well. Buying the RECs allows the utility to demonstrate its compliance with RPS targets. Indeed, in some states, RECs are the only measure of compliance.

If the utility has to go beyond its own service area to find enough renewable energy, the RECs can take on a life of their own as they get bought and sold independently of the power generated. If the state RPS law allows it, a utility could even buy RECs from a renewable power facility that isn’t part of the same regional transmission grid. In that case, the facility sells the power to its local utility, and sells the RECs to the utility that needs them for its RPS obligations. There is no longer any connection between the electricity and its renewable attributes.

The problem with separating RECs from the energy itself

The REC market is important for making an RPS work, and it makes sense when the power generated is within the state that sets the RPS. But when a utility goes beyond the borders of a state, or even of its own service area, to buy RECs, the usefulness of the program to ratepayers declines, and the likelihood of double-counting and confusion increases.

Let’s go back to our example of the two houses. You have a contract with your neighbor to buy the RECs from her solar panels. Buying the RECs gives you the right to say you are powering your home with solar power. But here’s the rub: now that you’ve bought her RECs, she doesn’t have the right to say she is powering her home with solar, even though the panels are on her house. After all, you can’t both claim the same solar power, right?

You can see how easy it would be for double-counting to occur. She has the solar panels, you have the RECs, but there’s only one house’s worth of solar being produced.

Now let’s scale up again to the utility level, where it can get really weird. No two states have the same RPS laws. Some states have strict requirements for what counts as renewable, some have looser requirements, and some have no RPS at all. Utilities want to spend as little as possible to meet their requirements, so they may buy and sell RECs to make sure that the most expensive RECs (usually from solar power) are being used to meet only the toughest standards. If a state doesn’t have a minimum requirement for solar, the utility will try to sell any solar RECs it’s holding to a utility in another state that requires solar, and then buy cheaper RECs (perhaps from landfill gas or older hydroelectric projects) to satisfy its own state’s less-stringent requirements.

The result is just like the example of the two houses: a utility might own a big wind farm or a giant solar array, but if the state has no RPS or only a weak one, it will sell the RECs from that wind or solar facility to utilities in states that do have strong RPS laws. The utility that buys the RECs buys the right to claim that it is providing its customers with renewable energy. The utility that sells the RECs has sold the right to make that same claim. It may own a wind farm, and power from it may flow through its wires, but legally, it’s just selling electrons.

This is not just a theoretical problem. Dominion Virginia Power does precisely this when it advertises its West Virginia wind farms as producing power for Virginia. In fact, it sells the RECs to utilities in other states that have tougher RPS laws than Virginia’s. In this case, Virginia is getting neither the benefit of the wind jobs nor the right to say it is using renewable energy.  Meanwhile, the ratepayers in the state with the tougher RPS, who pay for those RECs, are getting the bragging rights and paying the bill, but they are not seeing the clean energy jobs that the RPS incentivizes. Only West Virginia gets those jobs, along with the actual wind farms.

The ratepayers are like the owners of the two houses. People in the state where the renewable energy is produced may think they are getting renewable energy, but so do the people in the state whose utility is buying the RECs. Customers in the state with the tough RPS are paying for the renewable energy to be produced, but the benefits—jobs, economic development and cleaner air—go to the state where the project is. They are told they are buying renewable energy, but if they understand what is happening, they might well feel like chumps.

What does a good RPS look like?

The problem we just described is why a well-crafted RPS will limit out-of-state RECs purchased separately from the power itself.[2] It is in the interest of ratepayers to create a market for renewable energy in their own area, so jobs are created close to home, and so nearby dirty energy sources are displaced by clean energy, resulting in healthier air and cleaner streams and rivers.

An effective RPS will also include “carve-outs” (minimum levels) for higher-value types of renewable energy like wind and solar that may cost more to produce than biomass, landfill gas, or hydro. Creating demand for wind and solar supports higher prices and can make a project economically feasible when it wouldn’t be otherwise. Again, stimulating these investments means jobs and economic development in the state as well as cleaner air and water when older, dirtier facilities are shut down.

The worst RPS laws are ones that allow RECs from energy that isn’t really renewable (like coal-bed methane), from projects that don’t actually produce energy (like research and development), or that would be produced anyway (like energy from facilities that pre-date the RPS law). Giving credit for these kinds of power devalues the RECs from new and truly renewable projects and undercuts the economic incentives that can make new investments in renewable energy possible.

What does this mean for policy-makers and the public?

There are two main lessons from all this:

  1. Don’t be fooled by appearances. If your state’s RPS can be met with out-of-state RECs from old hydro plants, don’t assume it’s being met with energy from that new wind farm or utility-scale solar array you’ve been reading about here in your state. Those RECs are being sold somewhere else. The only way to find out what you’re paying for in your state’s RPS is to require your utilities to disclose the sources it is using—and then check.
  1. Looser requirements are not better. A kitchen-sink approach to what qualifies as renewable energy ends up being counter-productive because the cheapest sources will always be chosen over higher-quality projects.

Mandatory vs. voluntary RPS lawsIn most states, the RPS is mandatory; utilities that don’t meet the targets are fined by means of an “alternative compliance payment.” In Virginia, which has a “voluntary” RPS, utilities are free to decide whether they want to participate in the program. There is no fine for failing to meet the goals; instead, utilities are rewarded for meeting them, by being allowed to earn a significantly greater profit on their sales of electricity. Since this means charging ratepayers more, this voluntary RPS will cost ratepayers more than a mandatory RPS for the same amount of renewable energy incentivized.

Virginia’s all-carrot, no-stick approach ensures that no utility declines to participate because it costs them nothing to do so (all the costs of compliance are passed through to the consumers), while generating bonus money. The “voluntary” nature of the program is therefore meaningless—and after all, it is mandatory for the ratepayers.

Conclusion: Caveat ratepayer!

Mandatory RPS laws, requirements that the energy be produced in state or that RECs come “bundled” with the energy they represent, stricter standards for what counts as renewable, and carve-outs for wind and solar all produce the most value for the residents who are paying the bills.

Done right, RPS laws and RECs can lead to more renewable energy, job growth, economic development, and a healthier environment for all. But poorly-crafted laws do a disservice to ratepayers and fail at their central purpose. Policy-makers and the public must act like smart consume

[1] Your neighbor will likely enter into a “net-metering” arrangement with your utility, under which she feeds extra power into the grid on sunny days but draws electricity off the grid at night and on cloudy days. Most states now have laws allowing net-metering, but details differ.

[2] Although states are increasingly limiting their RPS programs to in-state RECs, there is some question whether doing so, at least for mandatory programs, could violate the Commerce Clause of the U.S. Constitution. See, e.g., Elefant and Holt, “The Commerce Clause and Implications for State Renewable Portfolio Standard Programs.” Clean Energy States Alliance, March 2011.

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RPS Wars: The Empire Nips Back

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The $76 million rip-offf

For much of the past year, critics have been assailing Dominion Power for its “$76 million rip-off”: a bonus the company claimed for meeting Virginia’s renewable energy goals using old dams, trash and wood, much of it out of state. Environmental groups say Dominion should get a bonus only if the company invests in new wind and solar projects in Virginia. Attorney General Ken Cuccinelli says utilities shouldn’t get bonuses for renewable energy at all.

This month the company finally piped up, appearing to deny all charges.  Ratepayers haven’t had to pay anything, said the carefully-worded response to a media inquiry. Base rates are frozen until December 1, 2013, and its compliance with the renewable energy goal will “be only one of a large number of factors that affect the SCC setting our rates going forward.”

Reporters were left scratching their heads. A year ago the State Corporation Commission, which regulates Virginia utilities, determined that the company has “earned” the $76 million bonus by meeting the absurdly lax terms of the state’s renewable energy law. (See SCC case PUE-2011-00027.)  So if customers aren’t paying, how is Dominion collecting?

But of course, customers are paying, and you can bet Dominion intends to get every dime. To understand how this can happen, imagine that you hire a contractor for a long-term project. You agree to pay her a set amount every month. Out of your payments, the contractor will take her expenses and profit, and when she meets a particular goal, she can take out a bonus as well. At the end of two years, you will recalculate your monthly payments to ensure the contractor recoups anything still owed to her, as well as to cover what she is entitled to going forward—expenses, profit and bonuses—and the work will continue.

This is roughly how electric rates are determined in Virginia (although utility customers’ payments also depend on how much electricity they use). Regulators set the rates, and Dominion takes its expenses and profit, including any bonus, out of the payments it receives from customers. If there is money left over at the end of the rate period, Dominion has to refund 60 percent of the excess to ratepayers. (Why doesn’t the company have to refund the entire overcharge, you ask? Sorry, that’s a different rip-off, and I can handle only one at a time.)

On the other hand, if the rates don’t bring in enough revenue to cover expenses and profit, they will be reset at a higher level for the next rate period. One way or another, the utility get its money.

So Dominion’s lawyerly response to critics turns out to be both correct, and irrelevant.  Utility rates are currently frozen, but that tells us nothing about whether the company is collecting its bonus. And if Dominion does not collect the full $76 million before the end of 2013, it will be one of the “factors that affect the SCC setting our rates going forward.” That is, rates will be set to ensure Dominion collects the full amount.

Sorry, ratepayers. The rip-off continues.