The remaining energy bills: energy choice, carbon trading, the SCC, and coal. Plus, will Dominion be forced to give up its ill-gotten gains?

This is the last of my three-part review of energy legislation introduced in Virginia’s 2018 session. The first post covered solar bills; the second focused on energy efficiency, storage, and electric vehicles. I’m concluding with bills from the miscellaneous file–some of which, however, will likely be among the most significant energy bills addressed this year.

Energy Choice

Readers will recall the ruckus at the SCC that ensued when third-party electricity provider Direct Energy proposed to offer renewable energy to current Dominion customers. The SCC confirmed last spring that this is allowed under the Virginia Code, but only until Dominion wins approval for its own renewable energy tariff. Dominion immediately filed a tariff, though eight months later, the SCC has yet to rule on it. Irked by the delay, Dominion has gotten two of its best friends to introduce bills forcing the SCC to act faster when Dominion wants something. The bills are SB 285 (Saslaw) and HB 1228 (Hugo).

Meanwhile, Senator Sutterlein has introduced SB 837, allowing customers of Dominion and APCo to purchase electricity generated 100% from renewable energy from any supplier licensed to do business in the state, and eliminating the condition that permits such purchases only if the utility itself does not offer a tariff for 100 percent renewable energy. This would resolve Direct Energy’s conundrum, since the approval of a similar Dominion tariff would not nullify an existing—or future—renewable energy offering from Direct Energy or anyone else. HB 1528 (Mullin) is the companion bill in the House.

Carbon trading

Last May, Governor McAuliffe announced Executive Directive 11, which started the process for drafting regulations that would have Virginia participate in a carbon emissions trading program known as the Regional Greenhouse Gas Initiative (RGGI). Electric utilities would be allotted, or would buy, carbon emission allowances. This makes non-carbon-emitting sources and energy efficiency more attractive to utilities than fossil fuel generation. Draft regulations were released in late December, and a comment period runs until April 9, 2018. Governor Northam has pledged to follow through on the program.

As part of this effort, the Administration’s bills include SB 696 (Lewis) and HB 1273 (Bulova), which provide for the state to join RGGI. The legislation is not necessary for Virginia to trade with RGGI, but there is an advantage to the state in doing so: RGGI member states auction off carbon allowances to polluters, rather than giving them away. That provides a significant source of income to the state that can be used to support clean energy, climate adaptation, or other priorities. Accordingly, HB 1273 spells out how the auction revenues would be spent. Energy efficiency and renewable energy would both get pieces of the pie.

Republican critics have counter-attacked. HB 1270 (Poindexter) would prohibit Virginia from joining RGGI or implementing carbon rules. Delegate Yancey, whose lucky win following a tied election barely returned him to office, is affirming his Tea Party credentials with HB 1082, prohibiting state agencies from adopting any rules more stringent than what is required by federal law. And then there is HB 549 (Freitas), which tries to hobble the General Assembly itself, prohibiting any future laws that would direct state agencies to adopt regulations that “are likely to have a significant economic impact” (defined as anything over $500!) unless they pass the bill twice to prove they really, truly mean it.

None of these bills pose a real threat to the Administration’s carbon initiative; the Governor will veto any that pass. A more serious challenge takes the form of a constitutional amendment, because it would not be subject to the Governor’s veto. Last year, Republicans pushed through a bill approving a constitutional amendment that would allow the General Assembly (read: the Republican majority) to nullify any existing regulations enacted by any Virginia state agency on any topic at any time. Since constitutional amendments have to be passed two years in a row before going to the voters for ratification, the same language (which Senator Vogel has reintroduced via SB 826 and SJ69) has to pass again this year.

Bills aimed at the SCC

Our investor-owned utilities are not the only barrier to cleaner energy in Virginia; often the SCC does us no favors either. Some of the energy efficiency bills discussed in my last post would force the SCC to evaluate utility efficiency programs differently. Two other bills are also worth noting:

HB 33 (Kory) repeals a provision prohibiting the SCC from imposing environmental conditions that go beyond what is in a permit, and expressly permits (though it does not require) the SCC to consider environmental effects, including carbon impacts, when evaluating new generating sources.

HB 975 (Guzman) would prohibit the SCC from approving new fossil fuel generating plants unless at least 20% of the generating capacity approved that year uses renewable energy. Too bad we didn’t have a rule like this a few years ago, when Dominion sought (and got) approval for the last of its giant combined-cycle gas plants. Today, however, this could be moot. No utility has proposed a new fossil fuel plant other than relatively small gas combustion turbines (peaker plants), which could meet the 20% rule when paired with even the modest levels of solar generation Dominion contemplates.

Coal subsidies

You think you killed the zombie, but it pops right back up. HB 665 (Kilgore) and SB 378 (Chafin) would reinstate the expired tax subsidies for the mining companies who despoil Virginia mountains. There is little risk of this corporate welfare becoming law again, because the governor would surely veto the legislation if it passes. The more interesting question is whether it gets through this year’s more closely divided General Assembly.

Undoing the Dominion handouts

The boondoggle Dominion won in 2015—the now infamous SB 1349, which allowed the utility to keep overearnings and avoid SCC rate reviews until into the next decade—has been in the news a lot lately. Under pressure from legislators and the media, Dominion has agreed to revisit the so-called “rate freeze.” That doesn’t mean it wants to give the money back. We hear the company is working on a deal with House and Senate leaders that lets it spend its ill-gotten gains on things it wants to do anyway: some for renewables, some for grid upgrades, anything but refunds.

So far, Dominion’s friends in the Senate have its back. Under the guidance of Frank Wagner, the original SB 1349 patron, and Dick Saslaw, Dominion’s top ally among the Democrats, the Commerce and Labor Committee today killed Chap Petersen’s SB 9, which would have restored the SCC’s ability to review utility spending and order refunds. The House companion bill, HB 96 (Rasoul) has not yet been taken up. Currently, no other bills are on file addressing the overearnings, but both Saslaw and Republican Tommy Norment have promised they have excellent bills in the works.

UPDATE January 23: On the last day to file legislation, Terry Kilgore presented us with the first of the new utility boondoggle bills. HB 1558 calls for a small portion of the overcharges to be rebated to customers, after which overcharging would go back to being the normal course of business. Wagner, Saslaw and Newman filed their own bills, supposedly on January 19, though these evaded posting on the website until today. I hear they are similar but haven’t ha time to read them. Petersen, meanwhile, played a new card, introducing SB 955, which would empower the SCC to review the overearnings and order refunds as appropriate.

 

Times-Dispatch articles expose Dominion’s manipulation of government for its own enrichment—and that ain’t the half of it

Over the past few days the Richmond Times-Dispatch has run a three-part special report detailing Dominion Energy’s grip on the Virginia General Assembly and the company’s abuse of that power to enrich itself at the expense of its captive customers. Journalists Robert Zullo and Michael Martz examine how Dominion’s use of business and personal connections, campaign contributions and lobbying led to a series of laws that enriched the company and eroded the State Corporation Commission’s regulatory authority.

And Dominion still gets off too easy.

But before we get into that, first let me praise the RTD for even running this series. As recently as a few years ago, the paper assiduously avoided printing anything critical of Dominion outside the narrow confines of letters to the editor. News articles almost invariably adopted Dominion’s messaging and quoted Dominion spokespersons with no effort at independent verification. A single quote from an environmentalist or other critic, buried deep in the text, represented the only nod towards journalistic balance.

This has changed, as the paper’s remarkable exposé demonstrates. Zullo and Martz are not alone; columnist Jeff Schapiro frequently criticizes Dominion in ways that would never have seen print before. Somehow the RTD’s editors have found their spine.

The authors don’t editorialize. They quote a wide array of insiders and observers, though the absence of voices from the environmental community is striking. The coverage of personalities is sometimes even positive; Dominion CEO Tom Farrell, for example, comes off more as an upstanding citizen than as a master manipulator.

Indeed, many of the critics interviewed for the series pull their punches. Most of those quoted are full participants in the “Virginia Way,” a system in which going along to get along is embedded in the political culture. They are careful when criticizing Dominion, unwilling to tar their colleagues and, perhaps, aware they owe their own professional success to the same system that got us into this mess.

Overall, however, Dominion is right to hate the hot white light of journalistic scrutiny. Corporate greed doesn’t look good in print when the readers are its victims, and Dominion’s machinations are recorded here in excruciating detail. They culminate in the passage of 2015’s SB 1349, the law stripping the State Corporation Commission of its authority to review utility base rates and order refunds until 2022.

Dominion positioned its bill as a way to “protect” customers from the costs of complying with the federal Clean Power Plan, but it was not hard to recognize the Clean Power Plan as a politically charged fig leaf. SB 1349 was always about letting Dominion keep excess earnings. The Clean Power Plan, after all, was not scheduled to kick in until 2022, when rates would unfreeze. Meanwhile, as one SCC commissioner estimates, Dominion will keep as much as a billion dollars of money it has not earned.

Yet by concentrating on the money, the RTD misses bigger implications. Dominion’s corruption of our legislative process doesn’t just mean consumers are getting ripped off. It means Dominion has been able to undermine efforts to reduce energy use, protect our electric grid, move to greater use of renewable energy, and free us from dependence on fossil fuels.

Heck, under Dominion’s influence, elected leaders don’t even appreciate why these should be their priorities. Politicians genuinely think building fracked-gas pipelines like the Atlantic Coast and Mountain Valley pipelines will lower energy costs. (In case you missed it, they won’t.) This is the real damage Dominion does, that legislators don’t even know they’ve internalized the utility’s propaganda. This is the exercise of the “third dimension of power,” the hidden type of power described in former UVA professor Vivian Thomson’s recent book Climate of Capitulation.

As a result it doesn’t occur to our elected leaders to ask questions when Dominion promises to reduce carbon emissions while planning to build more fossil fuel generation. (The answer to the question is in the fine print; or if you prefer blunt speech, it’s a lie.)

These leaders acquiesce when Dominion lobbyists urge them to reject mandatory energy efficiency standards on the basis that Virginia has such low-cost electricity (wrong) that we can’t succeed at energy efficiency the way other states do (and anyway the SCC won’t let us, so we shouldn’t even try).

Dominion takes baby steps on renewable energy, and elected officials express their gratitude without noticing how dismally far behind our neighboring states we remain. (How kind of Dominion! Let’s give them some more money!) Democrats used to try to pass renewable energy mandates; they don’t any more. Dominion doesn’t like to be told what to do. So rather than fight and lose, legislators now say they don’t like mandates. That’s a true climate of capitulation.

In short, the people’s representatives pass bills Dominion wants, or reject ones Dominion opposes, and persuade themselves the legislature is in charge.

The RTD cites one especially telling example of this. “Since 1996, Dominion has been [Delegate Ken Plum’s] top political donor, contributing $105,750, according to the Virginia Public Access Project.” Yet, “’I’ve never felt squeezed by them,’ Plum said of the utility’s lobbying corps. ‘I have felt informed by them.’”

That’s what you call good lobbying. The lobbied official never feels squeezed, just informed.

It’s obvious enough that Dominion distributes money to legislators from both parties because it expects to buy influence. Legislators know this, and many acknowledge that it works on their colleagues. As for themselves, however, they are certain they can take money without being influenced. Even Ken Cuccinelli, who advocates for the SCC to regain its authority over Dominion, dismisses the idea of banning campaign contributions from public utilities. (Mind you, he offers no other solutions.)

Voters are rightly more skeptical, as demonstrated by the groundswell of support for Senator Chap Petersen’s proposals to repeal the rate freeze and to bar campaign contributions from regulated public utilities. Dozens of candidates seeking office this year have pledged not to take Dominion money, and according to the group Activate Virginia, 8 incumbents and 46 House candidates have promised to roll back the rate freeze.

In both cases, the question is why so few incumbents have signed on. Perhaps, after reading the RTD’s report, they will understand why they should. What’s at stake goes way beyond money.

Dominion Power defends its billion-dollar handout from ratepayers; squashes dissent; asks for more.

DominionLogoA Senate committee quickly killed SB 1095, a bill introduced by Chap Petersen (D-Fairfax) that could have brought an early end to a five-year prohibition on regulators’ ability to review Dominion Virginia Power’s earnings and to order refunds where warranted. The prohibition, passed two years ago as part of 2015’s SB 1349 (Frank Wagner, R-Virginia Beach), will mean as much as a billion dollars in extra cash to the utility—money that would otherwise be returned to customers.

After losing the vote on SB 1095 in Senate Commerce and Labor, Petersen introduced SB 1593, a bill that would have prohibited campaign contributions from public service corporations like Dominion Power. He was forced to withdraw the bill when Senate leaders complained he had filed it late.

Score two for Dominion. But in case you thought the utility giant might choose to lie low for a while, consider another of this year’s bills: HB 2291 (Terry Kilgore, R-Gate City). The legislation allows Dominion to seek approval to charge customers for billions of dollars in nuclear power plant upgrades. Kilgore has collected $162,000 in campaign contributions from Dominion’s parent company over the years, even though he represents an area of the state that is not served by Dominion Virginia Power (meaning it won’t be his constituents paying for his bill). Astoundingly, the bill passed the House of Delegates with only two dissenting votes (cast by Mark Keam, D-Vienna, and Sam Rasoul, D-Roanoke).

Obviously, there is a pattern here. It actually began at least as far back as 2014, when another Kilgore-sponsored bill passed allowing Dominion to shift onto its customers several hundred million dollars of nuclear development costs that otherwise would not have been recovered for many years, if ever. The legislation inspired much criticism, but little action.

Taken together, these legislative giveaways add up to enormous sums of money. The 2015 legislation involved as much as a billion dollars in customer payments that exceed the profit margin allowed by the State Corporation Commission, according to an estimate offered by one commissioner. In the absence of SB 1349, Dominion would likely have had to issue refunds, lower rates, or both.

At the time, Dominion claimed that the EPA’s proposed Clean Power Plan would impose huge costs on ratepayers unless the General Assembly acted to stop base rates from rising. Legislators weren’t told the real effect of SB 1349 would be to keep base rates from falling. And meanwhile, customers’ utility bills could continue to rise because base rates make up only a portion of monthly bills.

Petersen’s bill this year took notice of the fact that the Clean Power Plan is now highly unlikely to take effect. SB 1095 would have reinstated the SCC’s authority to review rates if and when the Clean Power Plan was deemed truly dead. This misses the mark only in being way too generous to Dominion. As the SCC has pointed out, the review freeze period will be over before the Clean Power Plan is slated to take effect, so SB 1349 could not possibly protect ratepayers from compliance costs anyway.

SB 1349 is currently being challenged in court as an unconstitutional abrogation of the SCC’s power. Two former Attorneys General, Republican Ken Cuccinelli and Democrat Andy Miller, have weighed in on the side of consumers. The current Attorney General, Democrat Mark Herring, was harshly critical of the bill when it was before the General Assembly, but now says he is obligated to defend the law.

SB 1349 passed the General Assembly two years ago amid great confusion about what was in the bill and what it all meant. Legislators padded it out with modest solar-energy and energy-efficiency provisions to make it palatable to skeptical Democrats and ensure it would be signed by Governor McAuliffe.

But this year, legislators have no such excuse. They cannot have missed the torrent of criticism the law inspired, or the point that Dominion won’t spend a dime of its ill-gotten gain on compliance with the Clean Power Plan. It is hard to see the 9-2 vote in Commerce and Labor to kill Petersen’s SB 1095 as anything but a blatant, bipartisan gift to Dominion. (The dissenting votes came from Republicans Dick Black and Stephan Newman.)

Dominion’s corrosive effect on Virginia politics is one of the main threads of a book published last year called Virginia Politics & Government in a New Century: The Price of Power. Author Jeff Thomas outlines a whole host of ways in which Virginia politics have become mired in corruption. SB 1349 is Exhibit A.

Now the unearned largesse for Dominion—and the ignominious end to Senator Petersen’s effort to rein in Dominion’s influence—have become an issue in this year’s governor’s race. Republicans Denver Riggleman and Corey Stewart and Democrat Tom Perriello are all taking aim at the connection between Dominion’s campaign spending and the billion-dollar boondoggle it received from SB 1349. If Kilgore’s HB 2291 passes the Senate this month, they will have another example on which to build their case that Dominion’s campaign donations have corrupted Virginia’s legislative process.

Legislators themselves publicly reject the idea of a causal relationship between the steady stream of campaign cash and their votes in favor of the bills, while privately acknowledging the sway Dominion holds over the General Assembly. Indeed, the comfortable fiction that campaign donations don’t affect a politician’s votes is such an insult to voters’ intelligence that the wonder is why it took so many years to become a campaign issue.

Given Wagner and Kilgore’s leadership roles in the Republican-controlled House and Senate, the issue might not seem like obvious fodder for the Republican primary campaign. Of course, Wagner is also running for governor on the Republican ticket, so the assaults of challengers Riggleman and Stewart might simply be tactics designed to undermine the competition. If voters respond, though, we can expect to hear a lot more discussion of government corruption.

In today’s chaotic political environment, Democrats who don’t speak out could find themselves under fire, too. Lieutenant Governor Ralph Northam, the other Democrat running for Governor, has accepted over $97,000 from Dominion since 2008, according to VPAP.org, and so far seems not to have joined the chorus of voices criticizing Dominion’s influence.

The anti-corporate sentiments that fueled Bernie Sanders’ campaign have only intensified with Donald Trump’s embrace of bankers and oil barons. Democratic voters today are less likely than ever to forgive leaders of their own party for cozying up to big corporations. If either Democratic candidate for governor cedes the issue of clean government to the other—or to Republicans—this might be the election in which it matters.

Battles over climate and coal go unresolved, but Virginians still paying more

Students rally for climate action in Alexandria, Virginia. Photo courtesy of Sierra Club.

Students rally for climate action in Alexandria, Virginia. Photo courtesy of Sierra Club.

Virginia’s 2016 legislative session ended last week with a one-day veto session, an ideological battleground where both sides fought lustily but nobody won.

Republicans could not muster the votes to overcome McAuliffe’s veto of legislation extending taxpayer handouts for coal mining companies. Nor could they overcome vetoes of HB 2 and SB 21, bills requiring that any state plan implementing the EPA’s Clean Power Plan be submitted to the General Assembly for approval.

They did, however, succeed in defending a budget item prohibiting the Department of Environmental Quality (DEQ) from developing a state implementation plan while a federal stay of the Clean Power Plan remains in effect. (For that they needed only a majority; overriding a veto requires a two-thirds super-majority.)

These votes won’t end the skirmishing. The tax credit for companies that mine Virginia coal doesn’t expire until the end of 2016, and Terry Kilgore, Chairman of the House Commerce and Labor Committee and a reliable ally of the coal lobby, has already promised another effort next session to extend the handouts.

As for the Clean Power Plan, the budget maneuver will cause headaches, as intended, but it’s merely a stall tactic. Virginia may end up submitting a clumsier plan than it otherwise would, if it has to scramble to meet the deadline once the stay is lifted. Even that isn’t certain. DEQ has already completed much of the fact-gathering portion of its work, including issuance of a report from the stakeholder group it convened to consider options. And the new fiscal year, when the prohibition kicks in, doesn’t begin until July 1. A lot of work could get done in two months.

Moreover, Republicans seem to have a losing hand here, even if they block DEQ from completing its work. If the Clean Power Plan survives attack in the courts and Virginia doesn’t submit a plan, EPA will write one for us. On the other hand, if the Clean Power Plan fails judicial scrutiny, EPA will have to rewrite it in a way that might be even worse for coal.[1]

But the Republican attacks on the Clean Power Plan have never been about protecting our ability to plan our own energy future—or for that matter, about protecting ratepayers. Recall that a year ago the General Assembly passed Dominion Power’s SB 1349, with its so-called “rate freeze,” on the theory that the Clean Power Plan will cost so much money that electric rates needed to be frozen between now and the time the plan actually kicks in, and regulators forbidden from scrutinizing utilities’ books in the meantime.

I know: that makes no sense. But don’t ask me for a better explanation; the rationale never stood up to scrutiny. And Republicans weren’t the only ones supporting this peculiar legislation. Once the original anti-Clean Power Plan elements were stripped out, plenty of Democrats got on board to prove their fealty to Dominion.

We have since learned two things about SB 1349 and one thing about the Clean Power Plan:

  • According to one State Corporation Commission judge, SB 1349 will cost Virginia ratepayers a billion dollars in overpayments to Dominion.
  • Dominion Power customers are about to see their rates go up regardless of the “freeze,” as a result of Dominion getting approval to build a new gas-fired power plant;
  • The final Clean Power Plan requires almost nothing from Virginia, and compliance might even save us money.

Now that we know all this, wouldn’t you expect to hear legislators clamoring for the repeal of the faux rate freeze?

Cock an ear. What do you hear?

Crickets.

To be sure, many Republicans who pushed for SB 1349 were more interested in the threat the Clean Power Plan posed to the coal industry. Their support for the coal tax subsidies shows Republicans have no qualms about charging taxpayers tens of millions of dollars annually to help coal companies. Perhaps when you’re in the business of giving away other people’s money, another billion dollars doesn’t seem like a stretch.

Still, if concern for the people of coal country were really at work, we might have expected success for McAuliffe’s budget amendment that put one million dollars into funding for solar projects, with priority for those in Southwest Virginia. Compared to the coal subsidies, admittedly, this isn’t much. In NoVa, a million dollars is one high-end home, green features extra. Spread around the coalfields, though, it could have powered up to a hundred homes with solar. Maybe the symbolism was too hard to take. In any case, Republicans scuttled the funding.

Rhetoric triumphed over substance in other ways this session, too. The General Assembly voted to establish a Shoreline Resiliency Fund, but failed to fund it. Clean energy bills from both sides of the aisle fizzled; with few exceptions, those that weren’t killed outright were sent to a newly-announced subcommittee conceived as a dumping ground for solar bills. No meeting schedule has yet been announced for this subcommittee.

Given the urgency of the climate crisis and the pressing need to develop our clean energy sector, this year’s stalemate feels particularly frustrating. We should all ask for our money back.


[1] Sure, there’s a third possibility: the EPA plan could be withdrawn under a President Trump. But if that’s our future, then defending the Clean Power Plan could be the least of our worries. Hoo-boy. Best not to think about it.

 

Dominion Virginia Power ordered to refund $19.7 million to customers, but gets to keep a billion in future overcharges

"Keep counting, Mr. Farrell. There's a billion more where this came from." Photo courtesy of Wikimedia Commons Valdemar-Melanko-1965 public domain.

“Keep counting, Mr. Farrell. There’s a billion more where this came from.” Photo courtesy of Wikimedia Commons Valdemar-Melanko-1965 public domain.

The State Corporation Commission has ordered Dominion Virginia Power to refund $19.7 million to customers, reflecting excess earnings during 2013 and 2014. But according to the November 23 order, the company will not have to lower its rates going forward, due to its success last winter in getting a bill passed that freezes base rates and eliminates rate reviews until 2022.*

That legislation, SB 1349, was widely criticized (including by me) as a handout to Dominion. How big a handout is now clear: “over a billion dollars,” according to the calculation of Judge James Dimitri, one of the three SCC commissioners.

Writing in a partial dissent, Judge Dimitri called SB 1349 unconstitutional, noting that Article IX, Section 2 of Virginia’s Constitution explicitly assigns rate-setting authority to the SCC. Thus, said Dimitri, the SCC should give no credence to SB 1349, and consequently should order a refund covering 2013 and 2014, and follow normal procedure to lower base rates going forward.

A rate decrease is appropriate, according to Dimitri, because “The record in this case and other biennial review proceedings demonstrate that, when conventional rate standards are applied, there have been, and are projected to continue to be, excessive base rates that are being paid by Dominion customers. “

And again: “The trend of current rates producing revenues over cost and a fair return has been continuing. For 2015, the Commission Staff projects revenues over a fair return of $301 million, and $299 million for 2016. . . The current rate levels, which the Commission has not been authorized to adjust, are designed to produce and have been producing annual excess revenues of hundreds of millions of dollars.”

As a result, concludes Judge Dimitri, “If base rates are fixed at current levels for at least the next seven years, earnings over and above the Company’s cost of service and a fair return have the potential to reach well over a billion dollars, at customer expense.”

The two other judges, Mark Christie and Judith Jagdmann, don’t address the constitutionality issue in their opinion for the majority. Indeed, it appears that none of the parties in the case raised the constitutional question in the proceedings, nor did any of the judges request briefing of the issue later, as sometimes happens.

Taking a cue from Judge Dimitri, however, on December 11 the Virginia Committee for Fair Utility Rates, one of the parties to the rate case, filed a Petition for Rehearing or Reconsideration, objecting to the commission’s order for failing to rule explicitly on the issue. The Committee asked for a hearing on the constitutional issue and asking for an order finding the provisions of SB 1349 unconstitutional.

Three days later, however, the SCC denied the petition in a second order, noting that the constitutional argument had not been raised during the rate case. Dmitri again dissented, saying he would grant reconsideration.

What happens now? Ordinarily any decision issued by the SCC can be appealed to the Virginia Supreme Court; but then, ordinarily you have to raise an issue during a proceeding before you can appeal it. It’s not clear whether the Court will agree to hear an appeal of these two orders if the Virginia Committee for Fair Utility Rates decides to pursue it.

With a billion dollars at stake, this is not an argument that should be ignored merely because it wasn’t raised in time. But there is also a reason the claim wasn’t raised earlier in the case: it’s a rate case looking backwards, not forwards, so the SCC didn’t actually have to address SB 1349.

Legal experts tell me that the Virginia Committee for Fair Utility Rates—or anyone else for that matter—can still challenge the constitutionality of SB 1349 by filing a new and separate case seeking a declaratory judgment from the SCC. A new case, with new arguments, yielding a decision on the merits, would most certainly be appealable to the Court.

__________________________

*The case is PUE-2015-00027. Links to documents on the SCC website work only some of the time. That counts as an improvement.

For Virginia, EPA’s Clean Power Plan more like a powderpuff

Photo credit: Corrina Beall

Photo credit: Corrina Beall

On August 3 the EPA released the final version of its Clean Power Plan, the Obama Administration’s effort to lower carbon pollution from existing power plants. It’s a big, complex rule—in large measure because it gives states so many options for compliance—but a few things are immediately clear. One, it’s just as well I never got around to reading the fine print of the proposed plan, because the final rule is practically a do-over. Two, this do-over goes so easy on Virginia that the Republican hissy fit about the proposed rule was (and is) a total waste of time. And three, Dominion Virginia Power’s little “rate freeze” gamble, rushed through the General Assembly this year, is set to pay off big for the company.

The proposed rule was never as tough for Virginia to meet as opponents asserted. Their claims of billions of dollars in added costs had little basis in fact—indeed, a recent University of Virginia analysis found numerous errors in the Virginia Tech cost study that many detractors relied on. But the proposed rule had enough of a bite that it would have been a major driver of new policies and investments. By contrast, the final rule is so soft on Virginia that it will likely take a back seat to customer demand and market forces in shaping our energy future.

This is welcome news to some, like Governor Terry McAuliffe, who pushed EPA to go easier on Virginia and is trumpeting the results as a good outcome. It’s a disappointment, though, to those who are worried about climate change and who believe Virginia is well positioned to make much steeper cuts in carbon pollution than the new rule requires.

Look at EPA’s table below and you will see how easy our path is. The Clean Power Plan allows states to choose whether to measure carbon emissions by rate or by mass. Using rate, EPA’s analysis of the business-as-usual case projects Virginia would arrive at an emissions rate of 959 pounds of carbon dioxide (CO2) per megawatt-hour by 2020 without the Clean Power Plan. With the Plan in place, that number will have to drop to 934. That’s a difference of only 3%, an easy target to meet just by adding enough emissions-free wind and solar to the existing fuel mix.

VA goals under CPP

Alternatively, the state can choose to measure CO2 emissions by mass (total short tons of CO2 emitted). Using that approach, EPA says all Virginia has to do is ensure CO2 emissions are no higher in 2030 than they were in 2012. Indeed, the 2030 goal is higher than what EPA expects Virginia to accomplish under business as usual without the plan!

In other words, we can achieve our assigned goals just by using energy a bit more efficiently and meeting any increase in electric demand with renewable energy. Lucky for us, this happens to be exactly what customers are asking for—especially the companies that are driving the growth in demand, including data centers and hi-tech companies. Companies like Apple, Google and Amazon are committed to running on wind and solar.

And given that leaders from both parties in Virginia support energy efficiency and want to see our utilities add wind and solar to their portfolios, compliance with the Clean Power Plan is a no-brainer. Heck, if the utilities aren’t interested in deploying renewables, the private sector will be glad to do it. The legislature could just loosen up the utilities’ monopoly protections, open up the solar and wind sectors to fair competition, and let private renewable companies and big utilities have at it in an open market.

But wait, there’s more: remember all the bellyaching from legislators about how West Virginia and Kentucky had it so much easier than we did under the proposed rule? No longer.* Not only does the final rule make it harder for them than for us, but it also proposes a system for buying and selling clean energy credits known as Emission Rate Credits, opening the possibility of a tidy little profit opportunity. If Virginia ramps up renewable energy production beyond what we need for compliance, as we can easily do, there might be some eager buyers just over the border.

Of course, anyone truly concerned about climate change has to hope our neighbors will proudly surpass their carbon reduction goals and even set tougher ones for themselves. Even if they don’t, we hope Virginia will set aggressive climate goals for itself, foregoing the opportunity to profit from selling credits. But it’s nice to know that if we don’t achieve these heights of virtue, there is money to be made.

For the moment, Virginia Republicans are still bashing the EPA as though the Clean Power Plan were anything but an opportunity. One has to wonder whether they’ve even read the new, final plan. In an op-ed published August 8, Delegates Israel O’Quinn and Scott Taylor claim the Clean Power Plan will have “severe” effects on Virginia’s economy, citing the highly questionable claims of conservative State Corporation Commission staff, made months ago about the proposed plan.

No doubt the delegates wrote their piece before the final rule came out, and didn’t want to consign it to the dustbin just because the rule turned out to be a creampuff. That must also be why Virginia Republican leaders joined the Koch-funded Americans for Prosperity at a rally at the University of Richmond on Monday evening to lambaste the EPA. There, they launched a bill that would require General Assembly approval of any state implementation plan (an approval which, they assure us, will not be forthcoming). Republicans don’t intend to give up their talking points just because it turns out their hysteria was misplaced. Anti-regulatory zealotry is impervious to reality.

They’re not the only ones who don’t want to admit the final rule will be cheap to meet, and could even save customers money. Dominion lobbyists spent the whole of the 2015 legislative session ginning up fears that the Clean Power Plan would cause skyrocketing electricity bills unless legislators passed a law (SB 1349) freezing rates and limiting regulatory review. The lobbyists’ pitch was that the legislation would keep Dominion from passing along compliance costs to ratepayers. The immediate effect, however, was to protect the utility’s excess earnings, avoiding rebates and rate reductions for customers.

The upshot is that for the second year in a row, and for several years to come, the General Assembly will allow Dominion to overcharge consumers. Recall that in 2014, the utility won the ability to charge ratepayers for 70% of the hundreds of millions of dollars it had spent so far on a new nuclear plant that may never get approval (especially now that we’ve seen the price tag). The maneuver soaked up enough of the company’s excess earnings to avoid a refund.

A consultant for the Attorney General’s Office of Consumer Counsel has analyzed the effects of the 2014 and 2015 bills and concluded that last year’s nuclear boondoggle cost ratepayers $188.4 million that would otherwise have been refunded, while the 2015 bill allows Dominion to avoid reducing rates as it would otherwise be required to do. (See SCC Case PUE2015-00027 OAG Smith Testimony, available through the State Corporation Commission website.)

As a result, concludes the analyst, Dominion will rack up excess earnings. “Looking forward, projected revenues for the 2016 rate year will exceed the Company’s cost, including a fair rate of return, by approximately $229.4 million.” But, he adds, “because of Virginia law, the Company’s base rates cannot be adjusted downwards prospectively in the current case.” That’s just 2016. SB 1349 shields Dominion’s earnings from review through the end of the decade and prevents rate adjustments until 2022.

During the fight over SB 1349, a lot of people voiced skepticism that the Clean Power Plan would cause utility bills to rise by very much, if at all. But no one expected Dominion’s tactic to pay off so quickly. With compliance so easily attainable, Dominion’s excuse for SB 1349 has crumbled, but the payoff is just beginning.**


*There is a delicious irony here. Under pressure to produce a rule that will withstand legal attacks from coal states, EPA changed the approach to be more even-handed and thus more defensible—but with the result that it is now much harder for coal states to comply.

**Dominion’s maneuvers may be bad for customers, but they have been very good for shareholders. Dominion Resources just reported second-quarter earnings of $413 million, more than twice as much as the same period last year. SB 1349’s patron, Senator Frank Wagner, did pretty well, too. Since January of this year, Wagner has collected $6,000 in campaign contributions from Dominion and another $23,000 in contributions from several of its top executives—including CEO Tom Farrell, who can easily afford it out of his $17.3 million compensation.

Dominion admits cost of North Anna 3 will top $19 billion

photo by Peter Burke/Wikimedia

A nuclear plant in Pennsylvania. Photo by Peter Burke/Wikimedia

Dominion Virginia Power is projecting that the capital cost of a third nuclear reactor at its North Anna facility will total over $19 billion, according to filings in its 2015 biennial review before the State Corporation Commission (PUE-2015-00027).

This works out to over $13,000 per installed kilowatt, according to the testimony of Scott Norwood, an energy consultant hired by the Attorney General’s Department of Consumer Counsel to analyze Dominion’s earnings evaluations. He notes that this capital cost is “approximately ten times the capital cost of the Company’s new Brunswick combined cycle unit,” which will burn natural gas.

As a result of this high capital cost, the “total delivered cost of power from NA3 is more than $190 per MWh in 2028.” That translates into 19 cents per kilowatt-hour.

By comparison, in 2014 the average wholesale price of electricity in the PJM region (which includes Virginia) was 5.3 cents per kWh. Dominion currently sells electricity to its customers at retail for between 5.5 and 11 cents/kWh.

In other words, NA3 is ridiculously expensive.

Dominion had kept its cost projections for NA3 secret until this rate case forced the disclosure. Previously, executives had acknowledged only that the cost would be “far north of 10 billion.”

This cost revelation may point to the real reason Dominion pushed so hard for SB 1349, the 2015 legislation that insulates the company from rate reviews until 2022.

As Norwood testifies, “DVP forecasts a dramatic increase in NA3 development costs over the next five years, during which there will be no biennial reviews.”

These costs are dramatic. A table included in Norwood’s testimony shows Dominion expects to have spent $4.7 billion on NA3 development by the end of 2020. By the time the SCC is allowed to review this spending, more than one-quarter of the total cost will have been spent, and Dominion will be looking to ratepayers to cover the bills.

With perfect deadpan, meanwhile, Dominion executives told legislators this year that SB 1349 was necessary to protect ratepayers from higher costs to be imposed by compliance with the Environmental Protection Agency’s Clean Power Plan.

This isn’t the first time legislators have been snookered in the cause of NA3. Recall that in 2014 Dominion succeeded in lobbying for a law that allowed it to shift 70% of already-spent NA3 development costs onto ratepayers, some $323 million. The effect was to soak up the company’s over-earnings so it would not have to rebate millions of dollars to customers.

This year’s snookering was more comprehensive. Given that Dominion has continued to over-earn, those who opposed SB 1349 assumed it was this year’s version of the 2014 maneuver, designed to protect over-earnings this year and for years to come. Now it appears the real purpose of SB 1349 was to allow Dominion to spend freely on NA3 development costs in amounts that it knew would be unacceptable to state regulators, not to mention the public.

That Dominion thought it could do so in secret is especially reprehensible. Lawmakers and the Governor should be outraged by this deception, whether they voted for SB 1349 or not.

The Attorney General’s office is now trying to force Dominion to justify NA3 to regulators before it racks up billions in sunk costs. Norwood recommends that the SCC “initiate a proceeding to address the prudence of DVP’s planned future investments for development of NA3. This proceeding would allow the Company to present its case regarding the need for and cost effectiveness of NA3, including the value of the proposed project from a fuel diversity perspective and as a means to comply with any final version of the Environmental Protection Agency’s proposed Clean Power Plan and other potential future environmental regulations.”