If anyone will stand up to Dominion for its conflicts of interest on the Atlantic Coast Pipeline, it won’t be Virginia’s high court

 

Residents of areas being impacted by gas pipelines make their feelings clear. But is anyone in Virginia government listening?

This post originally appeared as commentary in the Virginia Mercury, Virginia’s new non-profit, online news source. 

Many Virginia leaders seem to have the notion that if our environment is being polluted and ordinary people are having their land destroyed, that must be good for business. And as a corollary, if a business wants to pollute the environment and destroy private land, that must be good for Virginia.

So maybe it shouldn’t surprise anyone that on August 9 the Virginia Supreme Court joined the Governor, the State Corporation Commission (SCC), the Department of Environmental Quality and most of the General Assembly in refusing to question the sweetheart deal under which Dominion Energy Virginia committed its captive ratepayers to purchasing billions of dollars of fracked gas shipping capacity on the Atlantic Coast Pipeline, of which Dominion itself is the largest shareholder.

The Supreme Court had the opportunity to hold Dominion accountable courtesy of Section 56-77(A) of the Virginia Code, known as the Affiliates Act. The section requires public utilities to get prior approval from the SCC for any “contract or arrangement” with an affiliated company. The SCC had refused the Sierra Club’s petition to enforce the provision, saying it could review the deal when the pipeline is operational and Dominion tries to charge its customers for the use of it—i.e., afterthe damage is done. The Sierra Club took the SCC to court, arguing that the statute requires the SCC to examine whether the deal is in the public interest beforethe contract for pipeline capacity could be considered valid.

On its face, the Affiliates Act is clear. It requires public utilities to submit “contracts or arrangements” with affiliated companies to the SCC for approval before they take effect. You would think this would include any arrangement under which Dominion Energy Virginia buys capacity in its parent company’s pipeline. The Affiliates Act says the SCC should have held a hearing to examine whether the contract was in the public interest. Indeed, the SCC’s own staff of lawyers have taken this very position.

But the Court allowed a dodge. You see, Dominion Energy Virginia didn’t contract directly with the ACP. It has a very general ongoing contract with another Dominion affiliate called Virginia Power Services Energy Corporation (VPSE) that buys natural gas and pipeline capacity for the utility, acting as its purchasing agent. It was VPSE, not the utility itself, that signed the contract with the ACP.

The fact that a third affiliate acts an intermediary shouldn’t matter, logically or legally—affiliated companies are members of one big happy family—but the Court seized on this arrangement to create a clever loophole. It concluded that the SCC had approved the general inter-affiliate agreement between the utility and its sister company VPSE years ago—before the pipeline was proposed, before VPSE had signed purchasing contracts with the ACP, and before the Sierra Club or any other members of the public would have had a reason to object. No matter, said the Court; having approved the contract between the utility and its purchasing agent years ago, the SCC retained continuing oversight authority over any and all deals the purchasing agent might make on behalf of the utility in the future.

Let that sink in for a minute. According to the Court, the SCC effectively approved the contract with ACP before it even existed. What that means is,

the public, including all of us who buy electricity from Dominion and will be handed the bill for the pipeline capacity, have no ability to challenge the deal before the pipeline is up and running.

Recall that the only reason Dominion Energy and its partners got permission from the Federal Energy Regulatory Commission (FERC) to build the pipeline was the fact that the companies showed they had contracts for almost all the pipeline capacity. According to FERC, this proved that there was public need for the ACP. The fact that the contracts happened to be with the partners’ own corporate affiliates didn’t faze FERC any more than it fazed the SCC.

Earlier this month FERC denied a request that it reconsider its approval. Ironically this was a favor to the ACP’s challengers because it finally allowed them to appeal the matter to federal court. One of the issues that will likely be raised in that appeal is the wrongheadedness of approving a pipeline when the need for it relies heavily on inter-affiliate contracts that may or may not demonstrate actual demand from customers.

This is a question not just for Virginia and Dominion, but for the many gas pipelines under development in the U.S. Affiliate contracts can make it appear there is more demand for pipelines than there really is. Approving unneeded pipelines, in turn, means unnecessary environmental destruction, wasted resources, and (what our leaders rarely appreciate) higher energy prices.

In the year since the Sierra Club first petitioned the SCC to take action under the Affiliates Act, the case for regulatory scrutiny has only grown stronger. Dominion Energy says it has abandoned plans to build new combined-cycle gas plants, recognizing the growing dominance of wind and solar. That throws into question the economic case for sinking billions of dollars into new gas transmission, even as construction on the Atlantic Coast Pipeline is underway.

As I’ve discussed before, there is a strange disconnect when a gas pipeline developer like Dominion recognizes the end of the road for baseload gas plants. Yet its subsidiary utility, Dominion Energy Virginia, just filed an Integrated Resource Plan (IRP) that calls for a string of new gas combustion turbines, sometimes referred to as “peaker plants.”

This begs the question: Does the utility have a good reason to build more gas plants instead of joining the national trend towards using renewables-plus-battery storage to address peak demand? Or is it proposing the new gas plants because its parent company needs the utility to burn as much gas as possible to support an otherwise unneeded pipeline?

Even apart from its authority under the Affiliates Act, the SCC could investigate this question in the IRP proceeding this fall. At some point the commissioners will have to confront the fact that more natural gas, and more pipeline infrastructure, are a bad deal for Virginia consumers.

On the heels of its big legislative win, what kind of grid does Dominion want to build for us?

white electric tower

Photo by Pixabay on Pexels.com

Note: This post originally appeared in the Virginia Mercury on July 23. Virginia Mercury is a nonprofit, independent online news organization that launched just this summer. Subscribe to its free daily newsletter here.

Imagine that you have hired a builder to design and build a three-story house for you. He brings you the plans for the first floor and proposes to start work right away. “These look okay,” you say, “but I need to see the plans for the whole house.”

“Don’t you worry about that,” says the builder. “I have it all figured out. I’ll show you the second floor when the first is done, and the third floor after that.”

You argue with the builder, pointing out that as it is your money, you have the right to assure yourself the result will be what you want. If you haven’t even seen the blueprint for the whole house, how can you approve the ground floor? Heck, you can’t even judge if all the stuff he wants to put in is actually needed. (It looks awfully expensive.)

“Please,” says the builder, now deeply offended. “I’m an expert. You should trust me.”

If this scenario sounds far-fetched, that’s because you don’t live in the world of Virginia utility regulation. In that world, Dominion Energy Virginia, the state’s largest utility, has just filed a plan with the State Corporation Commission (SCC) to spend almost $1 billion of its customers’ money for the first phase of what it says will be three phases of grid modernization, amounting to $3.5 billion. The company maintains that all the things it plans to do now are necessary to the overall strategy, but it isn’t saying what that strategy is.

“During Phase 1 of the Plan,” writes Dominion Energy Senior Vice President Edward Baine, “the Company will focus on installing the foundational infrastructure that will enable all other components of the Grid Transformation Plan.” That sounds like it ought to lead into a discussion of what the grid of the future will look like, but sadly, the other “components” turn out to be just more spending.

That might in fact be the whole plan: spend money, lots of it. Baine explains the “drivers” of the plan, like recognizing threats to the grid, and he describes how it will “enable” things like new rate structures and integrating renewable energy. But new rate structures and renewable energy integration aren’t actually part of the plan Dominion wants the SCC to approve.

This will make it very hard for the SCC to judge whether the investments are “reasonable and prudent,” as Virginia law requires. Knowing this, Baine argues the SCC shouldn’t impose a cost-benefit test on its plans. Already that position has drawn sharp criticism even from supporters of the legislation that authorized the spending.

Take smart meters, also known as “advanced metering infrastructure” (AMI). Smart meters don’t just measure electricity use, but do so on an hourly or more frequent basis, and they provide two-way communication instead of just one-way reporting to the utility.

Properly designed and deployed, smart meters are central to the grid of the future. Dominion proposes to spend over $500 million to provide all its customers with this advanced technology during Phase 1. Unfortunately, that doesn’t include making full use of their potential.

Where ordinary electric meters mostly just tell the utility how much electricity a customer has used, smart meters provide detailed information that can be used to help pinpoint power outages and spikes in demand. That’s helpful for the utility, but just using them that way, as Dominion proposes, leaves most of the benefits of smart meters untapped.

Justifying the expense of smart meters requires using them to allow customers to control how and when they use electricity, as well as to make the most efficient rate designs and determine how to get the most benefit from solar panels, batteries and electric vehicle charging. That only happens where a utility offers time-of-use rates and other incentives to change behavior and prompt investments by consumers.

Using smart meters this way would result in lower energy use, more customer-investments in solar and batteries, and savings for everyone. But time-of-use rates and similar incentives aren’t in Phase 1, and they don’t look to be part of Phases 2 or 3 either.

Dominion seems to think it can get approval to spend money on smart meters based on how they could be used, rather than on how the company actually plans to use them. Baine notes that smart meters can tell customers how much electricity they’re using in any 30-minute period. “Customers will be able to choose their preferred mode of communication,” writes Baine, “and then receive high usage alerts when their energy usage exceeds a certain level.”

Yes, and then what? Baine doesn’t say.

It’s not just a matter of wanting to take it slow. Since 2009, 400,000 of its customers have received smart meters, Dominion tells us, giving it ample time to try out all these features. It hasn’t.

Merely installing another 1.4 million smart meters isn’t going to lead to grid nirvana.

Grid “hardening” is another example. Physical upgrades in the name of security and resilience make up more than $1.5 billion of Dominion’s proposed spending. This is not grid transformation, it’s the opposite: beefing up the old grid. Most of the proposed investments are the same kind of capital investments Dominion makes routinely, with nothing modernized about it. Unfortunately, Dominion wrote the law to give itself permission to use customer money for grid hardening, so all the SCC can do is ask whether the specific spending proposals are reasonable and prudent.

Again, since Dominion isn’t telling us what kind of grid it is building for us, there is no way to know whether any given project will contribute to it, or even be necessary at all. If the grid of the future will be based on distributed energy, microgrids, and consumer control, we might not need the substation Dominion wants to make into an impregnable fortress. Modern solutions like solar-plus-storage, demand response, and energy efficiency could provide greater resiliency and security at a lower cost.

Of course, we have every reason to suspect Dominion is not interested in building a grid that empowers consumers, lowers energy use and spurs private investment in solar and storage. Its business model depends on keeping control over the grid and getting people to use more energy rather than less. If it can’t do that, it figures, the next best thing is to find ways to spend our money.

The amount of customer money at stake makes the SCC’s oversight role very important. It can insist Dominion lay out its full vision for the grid, demonstrate how each spending item fits that vision, and prove it meets a consumer cost-benefit test. With a little dose of courage, it could even go further, and insist on seeing a plan that makes full use of smart meters, including time-of-use rates and other incentives for efficiency, solar and storage.

The General Assembly, too, has a role to play, by filling a vacancy on the SCC this summer. If legislators are unhappy with Dominion’s cavalier approach to spending, they have one last chance to appoint a commissioner who will side with consumers, and send Dominion back to the drawing board.